Will Budget 2018 Be A Populist One? Know Here…   Jan 12, 2018

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Impact

When expectations run high and the resources to meet all of them are scarce, disappointment is the only visible consequence.

The Union Budget 2018-19 is a big event—rather, it is perceived to be a big event. On February 01, 2018, the Finance Minister will unveil the fiscal roadmap of the Indian economy for the Financial Year (FY) 2018-19.

This being the last full-year budget before the Lok Sabha election 2019, many expect the government to go on a spending spree and forgo fiscal discipline.

But, will that actually be the case?

Will the government which has an inclination to stick with prudent fiscal policies part ways from its routine practices to win-over votes?

These are the discussions across media.

The complete focus of the upcoming budget is likely to be on the direct taxation and allocation of resources. The government has recently borrowed additional Rs 50,000 crore to meet the deficits. This excess borrowing may appear justified considering the extraordinary conditions the economy has dealt with in the recent past—demonetisation and the implementation of GST being prime examples.

On this backdrop, the government’s stance on the fiscal deficit front has also assumed immense importance. The inadequacy of government’s revenues—especially from the direct taxes, has curtailed its ability to spend even on developmental projects and reforms of national importance.

Will the government revive public-private partnerships? This remains to be seen.

There’s a tough choice to make: allocate more funds toward education or toward defence—at the moment, India can’t afford to compromise on either expenditure.

The government must give weightage to either of these—building infrastructure and improving rural incomes. These are difficult choices, since they not only affect a certain section of society, but set the tone for the future economic policies.

What’s the wish-list?

  • Lower tax rates
  • No imposition of additional levies
  • Take measures to promote growth
  • A little or no divergence from the path of fiscal prudence
The wish-list of various sections of the economy can be consolidated to make one common list. It could be as short as the one given above.

But it’s not going to be easy for the Finance Minister to fulfil these wishes. You see, the wish-list features mutually conflicting points.

Spending and direct taxes: major thrust areas

In the Budget 2015-16, the Finance Minister had assured to lower the corporate tax rate from 30% to 25% over four years. Nothing has happened on this front so far. And now the pressure is mounting to reduce corporate tax rates.

To make things worse for him, the US is determined to reduce the corporate tax rates to as low as 20%, thereby falling several places on the list of countries with higher corporate tax regime. This has sparked-off competition among global economies to provide incentives to corporate, making the domestic manufacturing attractive, and protect the export markets.

In this scenario, the Finance Minister may find it tough not to lower corporate tax rates.

Attracting global capital and improving the exports’ share in the India’s GDP has been the priority of this government. Recently, the Commence Minister, Mr Suresh Prabhu expressed the need for exports to contribute more in the GDP. To promote exports the government is considering various possibilities.

Talking about one of them, Mr Prabhu said, “We are thinking of ideas whereby we can incentivise the States which promote exports. I have mooted this idea before the States and asked them to give their ideas on this.”

The capex cycle hasn’t yet picked up and that’s hurting the GDP. The Finance Minister has repeatedly appealed to the big corporate to kick-start capex plans. But, in the absence of incentives to invest and due to lack of demand, the private players are avoiding to commit big investments.

The government’s push to infrastructure also seems to have reached its peak since it has limited scope to further increase its spending—in the wake of the rising fiscal deficit.

All these factors may make it compelling for the Finance Minister to encourage private players and present a Budget that shores up their confidence—a must to revive India’s sagging capex cycle.

On the other hand, individual taxpayers expect the Finance Minister to lower tax rates or at least reshuffle the tax slabs upwards. If the Government chooses to concede to this demand, in addition to meeting the demand of the corporates to lower taxes, there would be a severe dent on the direct tax collections—something that the government can’t afford at this juncture.

There have also been speculations about the government considering to impose the long-term capital gains tax on equity-oriented investments to shore up its revenues. As you may know, the GST collections have been dipping steadily for a last couple of months.

In the meanwhile, the government has a herculean task of recapitalising Public Sector Banks (PSBs) whose balance sheets are in terrible states owing to the problem of high Non-Performing Assets (NPAs).

Besides this, the government has to address the faltering performance of the agriculture and allied sectors since that acquires a great importance in accelerating economic growth and taming retail inflation.

How the budget may impact your investments in the capital markets?

Going by the market cues, the investors are hopeful that the government will do a balancing act between promoting growth and curtailing deficits. If the actual announcements deviate from this notion debt and equity markets would be negatively impacted.

On the contrary, if the government manages to does the balancing act right; the capital markets may cheer the Union Budget 2018-19.

What investors should do?

Don't speculate hoping that the budget will be populist. Instead, continue to follow your asset allocation plan.

When you invest keeping in mind your financial goals and risk appetite; temporary market movements should not make any difference to you.

If you want to invest in mutual funds, but are unsure about the funds you should select, try PersonalFN’s unbiased mutual fund research services.  FundSelect Plus is a comprehensive portfolio service to benefit from SEVEN time-tested, readymade equity and debt mutual fund portfolios.

Based on your risk profile and investment horizon, you can choose from three equity portfolios and three debt portfolios. In addition, you get a readymade tax-saving portfolio as well. This service has a decade-long market-beating track record. Don’t miss out on exclusive discounts available, subscribe now! 
 

Investors To Get More Options To Invest: Boon or Bane?

Impact

The financial services sector in India is likely to go through a sea-change in the coming years. So far, the commission-driven model has dominated the Indian mutual fund industry but slowly the direct plans are catching the fancy of investors.

As India is turning into a less-cash economy post demonetisation and Indians are increasingly using their mobile phones to make payments and invest, new channels to distribute financial products are emerging.

The latest development is One97 Communications which owns the Paytm brand is endeavouring to foray into the wealth management arena. 

Mr Vijay Shekhar Sharma founder of One97 Communications said, “We started as a payments platform and expanded customer offerings to deposits with Paytm Payments Bank. Today, with Paytm Money, we have taken the next logical step in the direction of wealth management.”

He further said, “We ultimately want to be the Charles Schwab of India with a zero-fee brokerage”,

Paytm plans to roll out the products of Paytm Money before the March 31, 2018.

Mr Pravin Jadhav, who will be heading Paytm Money, said, “India’s wealth management services market have so far focused mainly on the urban segment leaving a huge chunk of the market untapped,” 

“India will be a mutual fund-first market, we are in discussions with leading AMCs to offer mutual fund investments in the direct mode for our users”, he added further.

Paytm Money is unlikely to charge any fee to investors to invest in direct plans through them, but it has made no comment about the future course of action as to how it wants to generate the revenue from this business.

Nonetheless, offering an investor with more options to invest is always a desirable situation, but there’s a point to consider.  

While new channels may develop to make it effortless to invest in mutual funds; more important is that investors buy suitable products with their risk appetite and financial goals in mind.

After all, even if there are no hidden costs and the option to invest is free, it’s more crucial for you to invest in the right products.

Best ELSS Funds In 2018: Don’t Blindly Chase Top Performers

Impact

It is officially tax-saving season – a time to look back over the current financial year with an eye on maximising deductions and tax credits and lowering the tax burden.

Public and private sector employees have already started receiving emails from their human resources (HR) or accounts department to submit proof of  tax-saving investments. Taxpayers are probably scurrying to invest in tax-saving products  to avoid that dreaded salary cut in the months of January to March 2018.

Under Section 80C of the Income Tax Act, you can claim a deduction of up to Rs 1.50 lakh. There is a wide range of investments that qualify for a deduction, such as, Public Provident Fund (PPF), 5-year Tax-saving Bank Fixed Deposit, Equity Linked Saving Schemes (ELSS) of mutual funds, National Savings Certificate (NSC), etc.  You can claim an additional deduction of up to Rs 50,000, if you have invested in the National Pension Scheme (NPS).

Thus between holiday parties, marathons, and long weekend breaks, you should set aside some time in this last quarter of the financial year for tax planning. It may be a bit too late, but it is better late than never.

As on March 31, 2018, almost everything for the financial year 2017-18 is set in stone. And then, there is little you can do to earn extra tax deductions or rebates.

To read more and Personal FN’s views, please click here.

Beware Of Mutual Fund Advisers Misguiding You!

Impact

It’s amusing…

Nowadays if you go to any bank, instead of advising you to open a fixed deposit, the bank personnel are likely to insist you on investing in mutual fund schemes.

All of a sudden, mutual funds are being sold like hot cakes, and everybody in the business wants to have a piece of it.

In the absence of high credit off-take, there’s a lot of cash cash sitting idle in the bank treasuries. Thus, banks are reluctant to raise their deposit base. To discourage depositors, bankers have already slashed interest rates on deposits.

In fact, banks try to push specific mutual fund schemes depending on their “preferred partnership deals” with mutual fund houses. Haven’t you found a specific bank promoting schemes of fund houses promoted by the same group company?

For example, “ABC Bank”# tries to promote schemes of a fund house promoted by “ABC Bank”#. And let’s not point a finger to banks alone. Other advisers also engage in mis-selling depending on the deals they have with mutual fund houses. (#for illustration purpose only)

Although the commission structure has become a flat percent, these days “strategic tie-ups” help banks secure lucrative deals with mutual fund companies. As a result, they end up pushing products that you probably don’t require.

To read more about this story and Personal FN’s views, please click here.

MustRead

Best Midcap Funds For 2018. Look Before You Leap!

Government of India Saving Bonds: Should You Invest?

Impact

The government of India is the safest debtor in the country, isn’t it? Usually, when you invest in a government-run scheme, you don’t fear losing money. No wonder we are always on the lookout for bond issuances from the RBI/Government.

But sometimes, the interest rates offered thereon are so low that you start wondering whether you should invest or give it a miss. After all, you invest to earn positive tax and inflation adjusted returns, don’t you?

Recently, the Ministry of Finance issued a notification providing information on 7.75% Savings (Taxable) Bonds, 2018 which is open for subscription from January 10, 2018. PersonalFNbrings you a detailed analysis of the bond issuance and highlights some crucial points. Read carefully…

Who can invest in bonds?
Individuals and Hindu Undivided Families (HUFs) can invest in bonds. Minors with a guardian—father/mother or any legal guardian—can also invest. Non-Resident Indians (NRIs), and other artificial persons such as partnership firms and companies.

To read more on these bonds and Personal FN’s view, please click here.

Top Mutual Funds That Begun 2018 On A High Note

Impact

In the first week of 2018, ended January 5th, the S&P BSE Sensex closed higher by 0.28%. The CNX Nifty 50, was up 0.27% over the same period. In comparison, the S&P BSE MidCap Index delivered a stronger performance, generating a return of 1.39%. Stocks present in the S&P BSE SmallCap Index drove the benchmark up 2.47% in the first week of January.

Given this performance, clearly equity mutual fund schemes investing in the midcap space were the clear beneficiaries and ended up among the top performing mutual funds for the week.

Among equity diversified mutual funds, SBI Small & Midcap FundIndiabulls Value Discovery FundSBI Magnum Comma FundL&T Emerging Businesses Fund and BOI AXA Equity Fundwere the top performers with a return of 4.08%, 3.99%, 3.85%, 3.23% and 3.05% respectively.

To read more click here.
 
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Financial Terms. Simplified.
 

Fiscal Deficit: A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

(Source: Investopedia)

Quote: "Bottoms in the investment world don’t end with four-year lows, they end with 10 or 15-year lows."‒ Jim Rogers