Impact 
In a major setback to the home buyers, who are already reeling under pressures of high interest rates, the Reserve Bank of India (RBI) has now verbally guided banks not to include stamp duty and registration fees, while arriving at the value of the house. This thus means that the home buyers will have shell-out an additional of 5% to 10%.
However, it is noteworthy that the additional cost varies across states, as stamp duties are different. In Maharashtra, it stands at 5%. Add to that a registration fee of 1%, value added tax (VAT) of 1% and service tax of another 2.6% which together makes it 9.6% of the property value. Thus, for a Rs 50 lakh property in Mumbai, a home buyer will have to shell out another Rs 4.80 lakh from his / her own pocket.
Earlier, banks and housing finance companies included these two components while calculating the amount. Thus say if one were to buy a property worth Rs 50 lakh, the required funding for stamp duty and registration fees would have taken place from the 85% of the property amount forwarded by the bank or housing finance company. Moreover, the interest rate borne by the home loan borrower would have been far less, as against taking a personal loan.
We believe that with verbal guidance from RBI coming into effect, home loan borrowers will have to make to provide for own source of funds while paying for stamp duty and registration fees. While many would think of opting for personal loans to defray this, we think that it wouldn’t be prudent decision as the high interest rate (of 16% - 18% on personal loans) would bloat the Equated Monthly Instalment (EMI), and may make it difficult to service the overall debt taken for buying your dream home. We instead recommend that you save regularly to eventually defray, stamp duty and registration fee (of your dream home purchase), and then approach a bank or housing finance company for a home loan, as this will help you reduce you interest cost substantially, and bring in you while you buy your dream home.
This Week's Poll !!!
Will you opt for a personal loan to pay stamp duty and registration fee for your house?
| Impact
The Securities and Exchange Board of India (SEBI) has expressed its discomfort over some investors getting the same day’s net asset value (NAV) by splitting their purchases in income or debt schemes to ensure the Rs 1 crore limit is not crossed.
As per the regulations on purchase of units in income or debt-oriented schemes, other than liquid schemes, with an amount equal to or more than Rs 1 crore, irrespective of the time of receipt of application, the closing NAV of the day on which the funds are received by the mutual fund house is applicable. However, if the investment is under Rs 1 crore, investors get the NAV of the day on which the application was made. SEBI found that certain entities were exploiting regulatory loopholes to get the same day’s NAV by splitting their investments.
The method of circumventing this regulation is simple. Say, an investor wants to put Rs 3 crore in a debt scheme. If he puts the entire sum through a single application, he will get the NAV of the day on which the fund house receives the money. It takes two-three days for a fund house to receive the money through cheques. Instead, if the investor splits his investments in four applications of, say, Rs 95 lakh, Rs 90 lakh, Rs 85 lakh and Rs 30 lakh on the same day, he will get the NAV of that day itself. Citing this, the regulator has asked fund houses to ensure proper controls are in place to prevent the practice and protect the interest of existing investors.
We believe that the SEBI’s initiative to curb this manipulation of splitting investments in order to bypass the regulation is justified as this practice of manipulation is not in the best of the interests’ of HNI investors. Mutual fund houses should undertake proper checks and balances in order to avoid such wrong doings in order to safeguard the interests’ of other investors.
| Impact 
In the month if January 2012, where the benchmark index BSE Sensex rose 11.2% the Indian Mutual Fund industry turned out as net sellers to the tune of Rs 1,947 crore thereby snapping their last month’s buying activity worth Rs 580 crore.
(Source: ACE MF, PersonalFN Research)
The heavy selling across the mutual fund schemes can be attributed to; investors booking profits as market jumped by more than 1,500 points in just one month and also fund managers preferring to book profits, and trail cautiously further.
We think that even though the domestic mutual funds have turned net seller in the Indian equity markets in the month gone by, and may have encountered redemption pressures from investors; long-term horizon is needed from investors’ side as that only can help attaining the objective of wealth creation. Redeeming units by timing markets is indulgence in trading, which may not do well to your investment portfolio always – because a trader is only good till his last trade.
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In an interview with the Business Standard, Ms Kalpana Kochhar – Chief Economist for South Asia Region at World Bank shared her views on core inflation and infrastructure growth in the country.
Ms Kochchar believes that inflation numbers react with a lag. “There was a long period in which inflation and inflationary expectations were built up and it is going to take a while to break that. That is why I think RBI has maintained its stance on interest rates and will wait till inflation comes down. My expectation is, with growth weakening, you could see inflation also coming down. I can’t comment on when rate cuts will begin but it will probably be a much easier balancing act, going forward, between growth and inflation for RBI.”
According to her, consistent fiscal and monetary policies are needed to contain inflation. She feels that one cannot have a monetary policy trying to reduce aggregate demand while on the other hand fiscal demand adding in to the aggregate demand. “If you are concerned about inflation, all the macroeconomic policies should be working in the same direction,” she said.
In her opinion, overall infrastructure developments in India need to speed up, irrespective of whether these are funded by World Bank or not. “As you know, the power sector is under much constraint and that is where activity really needs to pick up. The government has put emphasis on it but has, unfortunately, run into problems which they haven't been able to solve. There needs to be quick resolution on power supply, coal supply, electricity boards and their financial condition. There has to be resolution of issues like pricing of power. I think the solutions to these are well known; it is just the question of having the will to implement,” she explained.
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- The latest data from registrar firms Computer Age Management Services Pvt. Ltd (CAMS) and Karvy Computershare Pvt. Ltd show that investors discontinued at least 1.66 million SIP accounts in 2011. A study by CAMS, which compiles data for 17 fund houses that contribute at least 59% of the industry’s assets, reveals that SIP account cancellations per month have almost doubled from 59,867 in January 2011 to 115,204 in December 2011. The cancellation numbers have been rising month on month since January 2011.
We believe that investors in SIP should not discontinue their on-going SIPs just because there is a downtrend in the market. Such a downtrend should be eyed as an opportunity to invest further in well performing mutual fund schemes. Also, please remember while selecting winning mutual funds for your portfolio select the mutual fund schemes having good track record and are from a fund house following prudent investment processes and systems.
- The Insurance Regulatory and Development Authority (IRDA) is expected to give its green signal for making policies available in demat form. Life insurance policies are the only major retail financial product that are still issued and maintained entirely in physical, paper form. India would probably be the first country in the world to undertake such a huge exercise to transform physical insurance policy certificates into electronic form. IRDA has already shortlisted five entities – CAMS, Karvy, NSDL, CDSL and STCI – to set up and operate insurance repositories. While eventually all policies of an individual life, health and general can be held in electronic form, IRDA is likely to start with life insurance policies in the first phase.
- Showing concern for small shareholders, the Securities and Exchange Board of India (SEBI) has reserved introduced a 15% reservation for small shareholders in buyback offers. Further, the regulator has reduced the buyback period from 15-30 days to just 10 working days. It has also reduced the time for filing disclosures after the public announcement from seven to five working days. The new regulations shall be called the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2012.
- In order to save its largest market for its exports, China has signalled a stronger willingness to aid Europe resolve its debt crisis by providing an investment of as much as 100 billion euros ($132 billion). Chinese Premier Mr Wen Jiabao said that helping Europe would be like helping China itself.
- SEBI has decided to share with the Ministry of Corporate Affairs (MCA) the names of over 500 companies, which have garnered money from investors in violation of its Collective Investment Scheme (CIS) rules. Many of these entities and their operators and directors tend to restart similar business under a new name and numerous investors are taken for a ride before they come under the SEBI scanner. SEBI has now decided to request the MCA to circulate the names of defaulter CIS entities and their directors among all the ROCs (Registrars of Companies) in the country to prevent them from being associated with any new company.
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Debt Service Ratio: A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment of whether a potential borrower is already in too much debt. More specifically, this ratio shows the proportion of gross income that is already spent on housing-related and other similar payments.
(Source: Investopedia)
| | QUOTE OF THE WEEK
"Unless you have a definite, precise, clearly set goals, you are not going to realize the maximum potential that lies within you."
- Zig Ziglar
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