  | | May 24, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 19,704.33 | (581.8) | -2.87% | | Re/US$ | 55.60 | (0.8) | -1.48% | | Gold Rs/10g | 26,430.00 | 220.0 | 0.84% | | Crude ($/barrel) | 101.90 | (1.6) | -1.57% | | FD Rates (1-Yr) | 7.50% - 9.00% | Weekly change as on May 23, 2013
*BSE Sensex as on May 24, 2013 | |
Impact 
Until recently, Foreign Institutional Investors (FIIs) held back from participating aggressively in the Indian debt market despite a rally aided by falling yields across maturity. The reason for them turning cautious was due to confusion over withholding tax. You see, the finance ministry had said, corporate bonds with a coupon lower than the yet-to-be-specified rate will be eligible for the lower tax rate. The Government had inserted a new Section 194LD for providing a 5% rate of tax on interest payment during the period beginning June 1, 2013 ending on 31st May, 2015 to FIIs and Qualified Foreign Investors (QFIs) on investments in Government securities (G-secs) and rupee denominated corporate bonds. Such a provision had spooked the aforesaid investors as the benefit was made available only on interest payments within the aforesaid time period.
FIIs now evincing interest in Indian debt market
Data for May 2013 is as on May 21, 2013,
(Source: ACE MF, PersonalFN Research)
But now the finance ministry has issued a clarification on this saying that the benefit of lower withholding tax on interest income earned by FIIs and QFIs on their investment in G-secs and corporate bonds will be available irrespective of when the debt instruments were bought. Furthermore, the finance ministry has clarified that foreign investors would not have to obtain Permanent Account Number (PAN) to avail of the reduced withholding tax on long-term infrastructure bonds.
Thus now the aforesaid clarification from the Government is likely to garner confidence of FIIs and QFIs, which is much needed to improve the flow of money into Indian debt markets along with economic growth.
PersonalFN is of the view that, such a clarification from the Government was indeed required at a time when the country's Current Account Deficit (CAD) has reached a record high (of 6.7% in Q3FY13). Also given the emphasis to infrastructure, such flows are much needed to fund infrastructure growth.
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Impact
In order to bring in uniformity in the way debt securities are valued by mutual fund houses, the Association of Mutual Funds in India (AMFI) has asked its members to work with third-party entities, thereby aiming to increase transparency.
It is noteworthy that currently, debt securities are valued by mutual funds as under:
- Traded securities: On the basis of weighted average price
- Untraded securities: On the basis of parameters set-up by an Asset Management Company's (AMC's) valuation committee.
But now, going forward the instructions from AMFI would bring in consistency across AMCs the way debt securities would be valued. It is said that, the data on these securities would be sent to rating agencies, who will then compile the data for both traded as well as untraded securities. It is noteworthy that at present, valuation of Government securities is on the basis of average price released by Crisil and ICRA - the two agencies approved rating agencies for this purpose. But now going forward, rating agencies are likely to aid in valuation of all debt securities and such a norm is likely to be implemented from July this year.
PersonalFN is of the view that this would thus infuse objectivity and independence, along with help standardise valuation for debt securities by mutual fund houses. It is vital to recognise that non-transparent valuation of securities has come under scrutiny of even the international regulators; as they aim to protect the interest of investors.
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Impact
Many of us often come across advertisements which sway us - be it any form print or electronic. But before one falls in for tall claims you ought to be careful - especially in case of ads of financial products. While you may be persuaded by ads of financial products in your pursuit of generating wealth (making your money work for you), let us apprise you that ought to be responsible investor and delve a little deeper into intricacies or terms and conditions which apply to the advertisement. We have seen instances of investors getting carried away by assertions made in ads financial products, and end-up with a feeling of betrayal when their investment objectives aren't met. They feel duped! This is because, financial product ads quite often display the best case scenario, while hiding the caution messages, warnings or clarification statements by putting them in smaller fonts or in obscure corners. Financial product ads exhibit lucrative rates to catch the attention while they do not disclose the terms and conditions thereto.
But now to end such misty practices and improve the standards of advertising, the Advertising Standards Council of India (ASCI), a self-regulatory voluntary organisation, is reviewing guidelines for advertisements in the financial sector, and is expected to come-up with a new set of ad rules for mutual funds, banks and insurance. The ministry of corporate affairs has also stressed the need to bring in more awareness and at present the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) have played a vital role by undertaking campaigns to increase awareness in the interest of investors at large - especially retail investors.
PersonalFN is of the view that, the new ad rules for financial product should be framed in a manner which enhances information dissemination, thereby even ensuring that it is disclosed appropriately to prospects. Also advertiser should make sure completeness and correctness of data while making bountiful claims, because after all it is consumers / investors hard earned money at stake.
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Impact
Many of you may be aware, "Inflation Indexed Bonds (IIBs)" will be launched on June 4, 2013 with first tranche of Rs 1,000 - 2,000 crore with a maturity of 10 years. The intention behind the launch of IIB is help provide real returns to investors and reduce physical gold buying spree. Whether it can indeed reduce gold imports would be discussed a little later, but first let's get to know IIBs a little better.
Meaning of IIBs:
IIBs are debt instruments which endeavour to offer return higher than the inflation rate (or to simply put, the rising cost of living which eats into our hard earned savings) if held till maturity. These bonds adjust the principal amount which one invests to the inflation, so that investors earn higher interest. To read more about how IIBs would be structure and in what conditions they can work for you, please click here.
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Impact
In today's competitive era where globally economies are experiencing transition to knowledge economy, many recognise that education is paramount and most youth have aspirations to acquire higher education. The demand for professionals too is increasing all over the world and thus education institutions are also mushrooming as students (with co-operation and encouragement from parents) want to well-equip themselves. Amid this banks and Non-Banking Financial Companies (NBFCs) too have ventured into a new line of business by offering education loans, aiding today's youth to get all geared-up to be a part of a knowledge economy. At PersonalFN we think that if a provision for high education hasn't been made by parents, one could opt for an education loans available today; but it is imperative to be read the terms and conditions well and then opt for one. To read about the aspects you need to be aware of while availing education loan and should you opt for a insurance cover thereto as well, please click here.
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- If you are the one not filing your tax returns regularly, beware! The Income-Tax (I-T) department has recently sent 35,000 letters to assessees who have not filed their I-T returns. Moreover, the I-T department has set up a compliance management cell to ensure follow-up action and track return filing along with tax payment. It is noteworthy that as first stage, letters are sent to those who have not filed their tax returns, following which notices are sent. Keeping a vigil on tax compliance, the finance ministry has identified over 12.19 lakh taxpayers who have not filed their returns.
It is important to note that the I-T department has initiated a business intelligence project to identify PAN holders who have not filed their returns through information available in Annual Information Return (AIR), Central Information Branch (CIB) data and Tax Deduction at Source (TDS) / Tax Collection at Source (TCS) returns.
PersonalFN is of the view that, while many individuals indulge in the game of 'hide and seek' with the tax authorities, there are likely chances that one may get caught and face prosecution. India's tax-to-GDP ratio is one of the lowest amongst its peers and such vigil from the tax department, is intended to better the said ratio.
You see, filing I-T returns or any other tax returns for that matter, is a constitutional duty and earns for you the dignity of consciously contributing to the development of the nation and improve living conditions of citizens. Also, it allows you to be in solace by honouring the constitutional duty and adds to your morality.
- Amid improvement sentiments in developed economies brokerage firms, hedge funds and market intermediaries from abroad are soliciting business from High Networth Individuals (HNIs) and other investors in India. Thus the capital market regulator - SEBI is planning to introduce separate set of rules for foreign entities who are enticing investors to park funds abroad.
It is expected that new set of rule would ensure that high level of compliance are followed by market intermediaries working in foreign markets, while dealing with investors in India.
PersonalFN is of the view that with the introduction of aforesaid rules, there would be lot more accountability and responsibility while foreign entities solicit business from investors in India. This could also enhance the confidence of investors who wish to invest in the international markets (since high level of compliance would be required to be followed) and aid in development of the capital markets.
On investing money in foreign markets, PersonalFN is of the view that investors should prima facie understand the fundamentals and risk associated with investing abroad, and only if your risk appetite permits, you may consider investing from a geographical diversification point of view.
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Knowledge Economy: A system of consumption and production that is based on intellectual capital. The knowledge economy commonly makes up a large share of all economic activity in developed countries. In a knowledge economy, a significant part of a company's value may consist of intangible assets, such as the value of its workers' knowledge (intellectual capital). However, generally accepted accounting principles do not allow companies to include these assets on balance sheets.
Source: Investopedia
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Quote : "If you are going to be financially secure, you need to learn to have more cash flowing into your pockets." - Robert Kiyosaki
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