Always in life an idea starts small, it is only a sapling idea, but the vines will come and they will try to choke your idea so it cannot grow and it will die and you will never know you had a big idea, an idea so big it could have grown thirty meters through the dark canopy of leaves and touched the face of the sky.
The vines are people who are afraid of originality, of new thinking. Most people you encounter will be vines; when you are a young plant they are very dangerous.
Always listen to yourself, It is better to be wrong than simply to follow convention. If you are wrong, no matter, you have learned something and you grow stronger. If you are right, you have taken another step toward a fulfilling life.
Bryce Courtenay
Source: Power of One, Page: 157
Tuesday 16 October 2007
Saturday 22 September 2007
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OUR APPROACH
• Identification and understanding of clients needs
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• Transparency in dealings
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• Assignments committed to a time frame
THE FOLLOWING ARE TERMS & CONDITIONS
• As regards our services charges for placement assignments, we charge 8.33% up to Executive level, 10% from Manager to G.M. Level and 12.5% for V.P. Level on annual gross salary (cost to company) + Service Tax.
• Payment should be made within 1 month from the date of joining of the candidate.
• If the candidate leaves the job within 3 months we will provide you a replacement.
Assuring you of our best services at all times and look forward to your long-term association.
WE CAN PROVIDE RIGHT CANDIDATES WITHIN 48 HOURS.
Employing right kind of people at the right time and at the right place is the key to business success. We constantly endeavor to help the organizations meet their manpower requirement in most professional way.
We have a very large data bank, excellent net work, headhunting of professional working at all levels as VPs, GMs, Managers, Executives, Administrative staff etc. And in all area-Legal Administration, Personnel, HRD-Training, Account Audit, Finance, Sales, Marketing, Services and operation Engineers, Export, Logistics, IT Professional etc.
OUR APPROACH
• Identification and understanding of clients needs
• Pro-active in providing solutions to all complex matters
• Transparency in dealings
• Ensured confidentially
• Assignments committed to a time frame
THE FOLLOWING ARE TERMS & CONDITIONS
• As regards our services charges for placement assignments, we charge 8.33% up to Executive level, 10% from Manager to G.M. Level and 12.5% for V.P. Level on annual gross salary (cost to company) + Service Tax.
• Payment should be made within 1 month from the date of joining of the candidate.
• If the candidate leaves the job within 3 months we will provide you a replacement.
Assuring you of our best services at all times and look forward to your long-term association.
Wednesday 25 July 2007
How do foreign companies invest in India?
What is foreign investment? How does a foreign company invest in India? What are the rules applicable to Resident and Non-Resident Indians when it comes to foreign investment? If you have doubts on any of these or more questions, read on:
I - Foreign Direct Investment
1. What are the forms in which business can be conducted by a foreign company in India?
A foreign company planning to set up business operations in India has the following options:
• As an incorporated entity by incorporating a company under the Companies Act, 1956 through
• Joint ventures; or
• Wholly owned subsidiaries
• As an office of a foreign entity through
• Liaison Office / Representative Office
• Project Office
• Branch Office
Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or other place of business) Regulations, 2000.
2. How does a foreign company invest in India? What are the regulations pertaining to issue of shares by Indian companies to foreign collaborators/investors?
Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the government:
• i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted.
• ii) where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector.
• iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the government or the Reserve Bank of India].
• iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.
Government Route
FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
General permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and issue of shares to the non-resident investors. The companies are required to notify the concerned regional office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.
3. Which are the sectors where FDI is not allowed in India, under the Automatic Route as well as Government Route?
FDI is prohibited under Government as well as Automatic Route for the following sectors:
• i) Retail Trading (except single brand product retailing)
• ii) Atomic Energy
• iii) Lottery Business
• iv) Gambling and Betting
• v) Business of Chit Fund
• vi) Nidhi Company
• vii) Agricultural or plantation activities (cf Notification No. FEMA 94/2003-RB dated June 18, 2003).
• viii) Housing and real estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005 )
• ix) Trading in Transferable Development Rights (TDRs).
4. What should be done after investment is made under the Automatic Route or with Government approval?
A two-stage reporting procedure has been introduced for this purpose.
• On receipt of money for investment:
• Within 30 days of receipt of money from the non-resident investor, the Indian company will report to the regional office of the Reserve Bank of India, under whose jurisdiction its registered office is located, containing details such as:
• Name and address of the foreign investor/s
• Date of receipt of funds and their rupee equivalent
• Name and address of the authorised dealer through whom the funds have been received, and
• Details of the Government approval, if any.
• Upon issue of shares to non-resident investors:
• Within 30 days from the date of issue of shares, a report in Form FC-GPR, PART A together with the following documents should be filed with the concerned regional office of the Reserve Bank of India.
• Certificate from the company secretary of the company accepting investment from persons resident outside India certifying that;
• The company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the notification no. FEMA 20/2000-RB dated 3rd May 2000 as amended from time to time
• The proposal is within the sectoral policy / cap permissible under the automatic route of RBI and it fulfills all the conditions laid down for investments under the Automatic approval route namely
a) Non-resident entity/ies (other than individuals) to whom it has issued shares does / do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field.
b) The company is not investing in an SSI unit & the investment limit of 24 % has been observed/ requisite approvals have been obtained.
c) Shares have been issued on rights basis and the shares are issued to non-residents at a price that is not lower than that at which shares are/were issued to residents.
OR
d) Shares issued are bonus shares.
OR
e) Shares have been issued under a scheme of merger and amalgamation of two or more Indian companies or reconstruction by way of demerger or otherwise of an Indian company, duly approved by a court in India.
• Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated --------------------
• Certificate from statutory auditors or chartered accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
5. What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?
Transfer from Non-Resident to Resident:
The term 'transfer' is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien."
The FEMA Regulations give specific permission covering the following forms of transfer i.e. transfer by way of sale and gift. These permissions are discussed below:
A: Transfer by way of sale:
A person resident outside India can freely transfer share/convertible debenture by way of sale to a person resident in India as under:
• Any person resident outside India (other than NRIs/OCBs) can transfer by way of sale the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.
• A non-resident Indian (NRI) or an erstwhile Overseas Corporate Body may transfer by way of sale, the shares/convertible debentures held by him to another NRI only.
• Any person resident outside India may sell share/convertible debenture acquired in accordance with FEMA Regulations, on a recognized Stock Exchange in India through a registered broker.
B: Transfer by way of Gift:
A person resident outside India can freely transfer share/convertible debenture by way of gift to a person resident in India as under:
• Any person resident outside India, (not being a non-resident Indian or an erstwhile overseas corporate body), can transfer by way of gift the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.
• A non-resident Indian (NRI) may transfer by way of gift, the shares/convertible debentures held by him to another NRI only.
• Any person resident outside India may transfer share/convertible debenture to a person resident in India by way of gift.
Transfer from Resident to Non-Resident:
A: Transfer by way of sale - General Permission under Regulation 10 of Notification No. FEMA 20/2000-RB dated May 3, 2000.
• A person resident in India may transfer to a person resident outside India any share/convertible debenture of an Indian company whose activities fall under the Automatic Route for FDI subject to the sectoral limits, by way of sale subject to complying with pricing guidelines, documentation and reporting requirements for such transfers, as may be specified by the Reserve Bank of India, from time to time.
This general permission is not available where:
• Indian company whose shares or convertible debentures are proposed to be transferred is in financial service sector (financial services sector means service rendered by banking and non-banking companies regulated by the Reserve Bank, insurance companies regulated by Insurance Regulatory and Development Authority (IRDA) and other companies regulated by any other financial regulator, as the case may be).
• The transfer falls within the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
B: Transfer by way of gift:
• A person resident in India can transfer by way of gift shares to a person resident outside India in the following ways:
A person resident in India who proposes to transfer to a person resident outside India [other than erstwhile OCBs] any security, by way of gift, shall make an application to the central office of the foreign exchange department, Reserve Bank of India furnishing the following information, namely:
• Name and address of the transferor and the proposed transferee
• Relationship between the transferor and the proposed transferee
• Reasons for making the gift. The gifts are permissible up to a limit of:
(i) 5% of the paid up capital of the company per donee, and
(ii) Amount does not exceed $25,000 per calendar year for each donor. The valuation of these shares shall be in accordance with pricing guidelines prescribed.
6. What if the transfer from resident to non-resident does not fall under the above facility?
In case the transfer does not fit into any of the above, either the transferor (resident) or the transferee (non-resident) can make an application for the Reserve Bank's permission for the transfer. The application has to be accompanied with the following documents:
• A copy of FIPB approval (if required).
• Consent letter from transferor and transferee clearly indicating the number of shares, name of the investee company and the price at which the transfer is proposed to be effected.
• The present/post transfer shareholding pattern of the Indian investee company showing the equity participation by residents and non-residents category-wise.
• Copies of the Reserve Bank of India's approvals/acknowledged copies of FC-GPR evidencing the existing holdings of the non-residents.
• If the sellers/transferors are NRIs / OCBs, the copies of the Reserve Bank of India's approvals evidencing the shares held by them on repatriation / non-repatriation basis.
• Open Offer document filed with SEBI if the acquisition of shares by non-resident is under SEBI Takeover Regulations.
• Fair valuation certificate from chartered accountant indicating the value of shares as per the following guideline.
• In the case of unlisted shares the fair value is worked out as per the erstwhile Controller of Capital Issue/s.
• For listed shares, the price worked out is not less than the higher of average weekly high and low quotations for 6 months and average of daily high and low quotation or two weeks preceding 30 days prior to the date of making application to FIPB.
7. Are the investments and profits earned in India repatriable?
All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.
8. What are the guidelines on issue and valuation of shares in case of existing companies?
• Allotment of shares on preferential basis shall be as per the requirements of the Companies Act, 1956, which will require special resolution in case of a public limited company.
• In case of listed companies, valuation shall be as per the Reserve Bank of India /SEBI guidelines as follows:
• The issue price shall be either at:
i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date or
ii) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date.
• In case of unlisted companies, valuation shall be done in accordance with the guidelines issued by the erstwhile Controller of Capital Issues.
9. What are the regulations pertaining to issue of ADRs/GDRs by Indian companies?
• Indian companies are allowed to raise capital in the international market through the issue of ADRs/GDRs. They can issue ADRs/GDRs without obtaining prior approval from RBI if it is eligible to issue ADRs/GDRs in terms of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and subsequent guidelines issued by ministry of finance, government of India.
• After the issue of ADRs/GDRs, the company has to file a return in the proforma given in Annexure 'C' to the RBI Notification No.FEMA.20/ 2000-RB dated May 3, 2000. The company is also required to file a quarterly return in a form specified in Annexure 'D' of the same regulations.
• There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.
10. What is meant by Sponsored ADR & Two-way fungibility Scheme of ADR/GDR?
• Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The Operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.
• Two-way fungibility Scheme: Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/GDRs. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs/GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long ADRs/GDRs are quoted at discounts to the value of shares in domestic market, an investor will gain by converting the ADRs/GDRs into underlying shares and selling them in the domestic market. In case of ADRs/GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/GDRs. The scheme is operationalised through the Custodians of securities and stockbrokers under SEBI.
11. Can Indian companies issue Foreign Currency Convertible Bonds (FCCBs)?
• FCCBs can be issued by Indian companies in the overseas market in accordance with Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.
• The FCCB issue needs to conform to External Commercial Borrowing Guidelines, issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time.
12. Can I invest through Preference Shares? What are the regulations applicable in case of such investments?
• Foreign investment through preference shares is treated as foreign direct investment. Foreign investment in preference share is considered as part of share capital and fall outside the external commercial borrowing (ECB) guidelines/cap.
• Preference shares to be treated as foreign direct equity for purpose of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. If the preference shares are structured without such conversion option, they would fall outside the foreign direct equity cap.
13. Can shares be issued against Lumpsum Fee, Royalty and ECB?
Issue of equity shares against lump sum fee, royalty and external commercial borrowings (ECBs) in convertible foreign currency are permitted, subject to meeting all applicable tax liabilities and sector specific guidelines.
14. Other than issue of shares under Automatic /Government Route, what other general permissions are available under RBI Notification No.FEMA 20 dt.3-5-2000?
• Issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a Trust up to 5% of the paid up capital of the company.
• Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies.
• Issue shares or preference shares or convertible debentures on rights basis by an Indian company to a person resident outside India.
15. Can I invest in unlisted shares issued by a company in India?
Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in unlisted shares of Indian companies.
16. Can a foreigner set up a partnership/proprietorship concern in India?
No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India. Even for NRIs/PIOs investment is allowed only on non-repatriation basis.
17. Can I invest in Rights shares issued by an Indian company at a discount?
There are no restrictions under FEMA for investment in Rights shares at a discount, provided the rights shares so issued are being offered at the same price to residents and non-residents.
II - Foreign Technical Collaboration
1. What are the payment parameters for foreign technology transfer under the Automatic Route of Reserve Bank of India? How should royalty be calculated?
• Payment for foreign technology collaboration by Indian companies are allowed under the automatic route subject to the following limits:
• Lump sum payments not exceeding US$ 2 million.
• Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for exports, without any restriction on the duration of the royalty payments.
• The royalty limits are net of taxes and are calculated according to standard conditions.
• The royalty will be calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc.
• RBI has delegated the powers to ADs to make payment of royalty under such agreements. The requirement of registration of the agreement with the Regional Office of Reserve Bank of India has been done away with.
2. What should be done, if Automatic Route of Reserve Bank of India for technology transfer is not available?
Proposals, which do not satisfy the parameters prescribed for automatic route of RBI, require clearance from Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.
III -- Foreign Portfolio Investment
1. What are the regulations regarding Portfolio Investments by Foreign Institutional Investors (FIIs)?
• Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000. FIIs include asset management companies, pension funds, mutual funds, and investment trusts as nominee companies, incorporated / institutional portfolio managers or their power of attorney holders, university funds, endowment foundations, charitable trusts and charitable societies.
• SEBI acts as the nodal point in the registration of FIIs. The Reserve Bank of India has granted general permission to SEBI-registered FIIs to invest in India under the Portfolio Investment Scheme (PIS).
• Investment by individual FIIs cannot exceed 10% of paid up capital. Investment by foreign registered as sub accounts of FII cannot exceed 5% of paid up capital. All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian company. An Indian company can raise the 24% ceiling to the sectoral cap / statutory ceiling, as applicable, by passing a resolution by its board of directors followed by passing a special resolution to that effect by their general body.
2. What are the regulations regarding Portfolio Investments by NRIs/PIOs?
• Non Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase/sell shares/convertible debentures of Indian companies on stock exchanges under Portfolio Investment Scheme. For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/purchase transactions are to be routed through the designated branch.
• An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10% of the paid up value of the company. (This limit can be increased by the Indian company to 24% by passing a General Body resolution).
• The sale proceeds of the repatriable investments can be credited to the NRE/NRO etc. accounts of the NRI/PIO whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
• The sale of shares will be subject to payment of applicable taxes.
IV - Investment in Government Securities and Corporate debt
1. Can a Non-resident Indian invest in Government Securities/Treasury bills and Corporate debt?
Under the FEMA Regulations only NRIs and SEBI registered FIIs are permitted to purchase Government Securities/Treasury bills and Corporate debt. The details are as under;
A. A Non-resident Indian can purchase,
(1) i) Government dated securities (other than bearer securities) or treasury bills or
units of domestic mutual funds;
ii) bonds issued by a public sector undertaking(PSU) in India;
iii) shares in Public Sector Enterprises being disinvested by the Government of India.
(2) They can also invest, on non-repatriation basis, in dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds in India, or National Plan/Savings Certificates on non-repatriation basis. The guidelines for these schemes are framed by the concerned Government agencies.
B. A SEBI registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government securities/treasury bills, non-convertible debentures/bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India. The FIIs is required to ensure that;
i) the FII allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) should not exceed the ratio of 70:30.
ii) In case the FII is set-up as a 100% debt FII, it can invest the entire corpus in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company subject to limits, if any, stipulated by SEBI in this regard.
The Investment in Government Securities/Treasury bills and Corporate debt is subject to a ceiling decided in consultation with the Government of India. Investment limit for the FIIs as a group in Government securities currently is USD 3.2 Billion. The limit for investment in Corporate debt is USD 1.5 billion. At present, the FIIs can also invest in Innovative instruments such as Upper Tier-II capital upto a limit of USD 500 million.
V - Foreign Venture Capital Investment
1. What are the regulations for Foreign Venture Capital Investment?
A SEBI registered Foreign Venture Capital Investor with general permission from the Reserve Bank of India can invest in a Venture Capital Fund or an Indian Venture Capital Undertaking, in the manner and subject to the terms and conditions specified in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated May 3, 2000 as amended from time to time.
VI - Procedure for opening Branch/Project/Liaison Office
1. How can foreign companies open Liaison/Project/Branch office in India?
Foreign company can set up Liaison/Branch Offices in India after obtaining approval from Reserve Bank of India. Reserve Bank of India has given general permission to foreign companies to establish Project Offices in India subject to certain conditions.
2. What is the procedure to be followed for obtaining Reserve Bank's approval for opening Liaison Office/Representative Office?
• A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.
• The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. This form is available at www.rbi.org.in
• Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up. Liaison/Representative offices have to file an Activity Certificate on annual basis from a Chartered Accountant to the concerned Regional Office of the Reserve Bank of India , stating that the Liaison Office has undertaken only those activities permitted by Reserve Bank of India .
3. What is the procedure for setting up Project Office?
• Foreign companies are granted projects in India by Indian entities. General Permission has been granted by Reserve Bank of India vide Notification No. FEMA 95/2003-RB dated July 2, 2003 to foreign companies to open Project Office/s in India provided they have secured from an Indian company, a contract to execute a project in India, and the project is funded directly by inward remittance from abroad; or
• the project is funded by a bilateral or multilateral International Financing Agency; or
• the project has been cleared by an appropriate authority; or
• a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.
• However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for approval.
4. What is the procedure for setting up branch office?
• Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Offices in India for the following purposes:
• To represent the parent company/other foreign companies in various matters in India e.g. acting as buying/selling agents in India
• To conduct research work in the area in which the parent company is engaged
• To undertake export and import activities and trading on wholesale basis
• To promote possible technical and financial collaborations between the Indian companies and overseas companies.
• Rendering professional or consultancy services
• Rendering services in Information technology and development of software in India
• Rendering technical support to the products supplied by the parent/Group companies.
• A branch office is not allowed to carry out manufacturing, processing activities directly/indirectly. A Branch Office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offices have to submit Activity Certificate from a Chartered Accountant on an annual basis to the Central Office of FED. For annual remittance of profit Branch Office may submit required documents to an authorised dealer.
• Permission for setting up branch offices is granted by the Reserve Bank of India. Reserve Bank of India considers the track record of the Applicant Company, existing trade relations with India, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinising the application.
Source: Reserve Bank of India
What is foreign investment? How does a foreign company invest in India? What are the rules applicable to Resident and Non-Resident Indians when it comes to foreign investment? If you have doubts on any of these or more questions, read on:
I - Foreign Direct Investment
1. What are the forms in which business can be conducted by a foreign company in India?
A foreign company planning to set up business operations in India has the following options:
• As an incorporated entity by incorporating a company under the Companies Act, 1956 through
• Joint ventures; or
• Wholly owned subsidiaries
• As an office of a foreign entity through
• Liaison Office / Representative Office
• Project Office
• Branch Office
Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or other place of business) Regulations, 2000.
2. How does a foreign company invest in India? What are the regulations pertaining to issue of shares by Indian companies to foreign collaborators/investors?
Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the government:
• i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted.
• ii) where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector.
• iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the government or the Reserve Bank of India].
• iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.
Government Route
FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
General permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and issue of shares to the non-resident investors. The companies are required to notify the concerned regional office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.
3. Which are the sectors where FDI is not allowed in India, under the Automatic Route as well as Government Route?
FDI is prohibited under Government as well as Automatic Route for the following sectors:
• i) Retail Trading (except single brand product retailing)
• ii) Atomic Energy
• iii) Lottery Business
• iv) Gambling and Betting
• v) Business of Chit Fund
• vi) Nidhi Company
• vii) Agricultural or plantation activities (cf Notification No. FEMA 94/2003-RB dated June 18, 2003).
• viii) Housing and real estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005 )
• ix) Trading in Transferable Development Rights (TDRs).
4. What should be done after investment is made under the Automatic Route or with Government approval?
A two-stage reporting procedure has been introduced for this purpose.
• On receipt of money for investment:
• Within 30 days of receipt of money from the non-resident investor, the Indian company will report to the regional office of the Reserve Bank of India, under whose jurisdiction its registered office is located, containing details such as:
• Name and address of the foreign investor/s
• Date of receipt of funds and their rupee equivalent
• Name and address of the authorised dealer through whom the funds have been received, and
• Details of the Government approval, if any.
• Upon issue of shares to non-resident investors:
• Within 30 days from the date of issue of shares, a report in Form FC-GPR, PART A together with the following documents should be filed with the concerned regional office of the Reserve Bank of India.
• Certificate from the company secretary of the company accepting investment from persons resident outside India certifying that;
• The company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the notification no. FEMA 20/2000-RB dated 3rd May 2000 as amended from time to time
• The proposal is within the sectoral policy / cap permissible under the automatic route of RBI and it fulfills all the conditions laid down for investments under the Automatic approval route namely
a) Non-resident entity/ies (other than individuals) to whom it has issued shares does / do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field.
b) The company is not investing in an SSI unit & the investment limit of 24 % has been observed/ requisite approvals have been obtained.
c) Shares have been issued on rights basis and the shares are issued to non-residents at a price that is not lower than that at which shares are/were issued to residents.
OR
d) Shares issued are bonus shares.
OR
e) Shares have been issued under a scheme of merger and amalgamation of two or more Indian companies or reconstruction by way of demerger or otherwise of an Indian company, duly approved by a court in India.
• Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated --------------------
• Certificate from statutory auditors or chartered accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
5. What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?
Transfer from Non-Resident to Resident:
The term 'transfer' is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien."
The FEMA Regulations give specific permission covering the following forms of transfer i.e. transfer by way of sale and gift. These permissions are discussed below:
A: Transfer by way of sale:
A person resident outside India can freely transfer share/convertible debenture by way of sale to a person resident in India as under:
• Any person resident outside India (other than NRIs/OCBs) can transfer by way of sale the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.
• A non-resident Indian (NRI) or an erstwhile Overseas Corporate Body may transfer by way of sale, the shares/convertible debentures held by him to another NRI only.
• Any person resident outside India may sell share/convertible debenture acquired in accordance with FEMA Regulations, on a recognized Stock Exchange in India through a registered broker.
B: Transfer by way of Gift:
A person resident outside India can freely transfer share/convertible debenture by way of gift to a person resident in India as under:
• Any person resident outside India, (not being a non-resident Indian or an erstwhile overseas corporate body), can transfer by way of gift the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.
• A non-resident Indian (NRI) may transfer by way of gift, the shares/convertible debentures held by him to another NRI only.
• Any person resident outside India may transfer share/convertible debenture to a person resident in India by way of gift.
Transfer from Resident to Non-Resident:
A: Transfer by way of sale - General Permission under Regulation 10 of Notification No. FEMA 20/2000-RB dated May 3, 2000.
• A person resident in India may transfer to a person resident outside India any share/convertible debenture of an Indian company whose activities fall under the Automatic Route for FDI subject to the sectoral limits, by way of sale subject to complying with pricing guidelines, documentation and reporting requirements for such transfers, as may be specified by the Reserve Bank of India, from time to time.
This general permission is not available where:
• Indian company whose shares or convertible debentures are proposed to be transferred is in financial service sector (financial services sector means service rendered by banking and non-banking companies regulated by the Reserve Bank, insurance companies regulated by Insurance Regulatory and Development Authority (IRDA) and other companies regulated by any other financial regulator, as the case may be).
• The transfer falls within the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
B: Transfer by way of gift:
• A person resident in India can transfer by way of gift shares to a person resident outside India in the following ways:
A person resident in India who proposes to transfer to a person resident outside India [other than erstwhile OCBs] any security, by way of gift, shall make an application to the central office of the foreign exchange department, Reserve Bank of India furnishing the following information, namely:
• Name and address of the transferor and the proposed transferee
• Relationship between the transferor and the proposed transferee
• Reasons for making the gift. The gifts are permissible up to a limit of:
(i) 5% of the paid up capital of the company per donee, and
(ii) Amount does not exceed $25,000 per calendar year for each donor. The valuation of these shares shall be in accordance with pricing guidelines prescribed.
6. What if the transfer from resident to non-resident does not fall under the above facility?
In case the transfer does not fit into any of the above, either the transferor (resident) or the transferee (non-resident) can make an application for the Reserve Bank's permission for the transfer. The application has to be accompanied with the following documents:
• A copy of FIPB approval (if required).
• Consent letter from transferor and transferee clearly indicating the number of shares, name of the investee company and the price at which the transfer is proposed to be effected.
• The present/post transfer shareholding pattern of the Indian investee company showing the equity participation by residents and non-residents category-wise.
• Copies of the Reserve Bank of India's approvals/acknowledged copies of FC-GPR evidencing the existing holdings of the non-residents.
• If the sellers/transferors are NRIs / OCBs, the copies of the Reserve Bank of India's approvals evidencing the shares held by them on repatriation / non-repatriation basis.
• Open Offer document filed with SEBI if the acquisition of shares by non-resident is under SEBI Takeover Regulations.
• Fair valuation certificate from chartered accountant indicating the value of shares as per the following guideline.
• In the case of unlisted shares the fair value is worked out as per the erstwhile Controller of Capital Issue/s.
• For listed shares, the price worked out is not less than the higher of average weekly high and low quotations for 6 months and average of daily high and low quotation or two weeks preceding 30 days prior to the date of making application to FIPB.
7. Are the investments and profits earned in India repatriable?
All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.
8. What are the guidelines on issue and valuation of shares in case of existing companies?
• Allotment of shares on preferential basis shall be as per the requirements of the Companies Act, 1956, which will require special resolution in case of a public limited company.
• In case of listed companies, valuation shall be as per the Reserve Bank of India /SEBI guidelines as follows:
• The issue price shall be either at:
i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date or
ii) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date.
• In case of unlisted companies, valuation shall be done in accordance with the guidelines issued by the erstwhile Controller of Capital Issues.
9. What are the regulations pertaining to issue of ADRs/GDRs by Indian companies?
• Indian companies are allowed to raise capital in the international market through the issue of ADRs/GDRs. They can issue ADRs/GDRs without obtaining prior approval from RBI if it is eligible to issue ADRs/GDRs in terms of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and subsequent guidelines issued by ministry of finance, government of India.
• After the issue of ADRs/GDRs, the company has to file a return in the proforma given in Annexure 'C' to the RBI Notification No.FEMA.20/ 2000-RB dated May 3, 2000. The company is also required to file a quarterly return in a form specified in Annexure 'D' of the same regulations.
• There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.
10. What is meant by Sponsored ADR & Two-way fungibility Scheme of ADR/GDR?
• Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The Operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.
• Two-way fungibility Scheme: Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/GDRs. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs/GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long ADRs/GDRs are quoted at discounts to the value of shares in domestic market, an investor will gain by converting the ADRs/GDRs into underlying shares and selling them in the domestic market. In case of ADRs/GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/GDRs. The scheme is operationalised through the Custodians of securities and stockbrokers under SEBI.
11. Can Indian companies issue Foreign Currency Convertible Bonds (FCCBs)?
• FCCBs can be issued by Indian companies in the overseas market in accordance with Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.
• The FCCB issue needs to conform to External Commercial Borrowing Guidelines, issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time.
12. Can I invest through Preference Shares? What are the regulations applicable in case of such investments?
• Foreign investment through preference shares is treated as foreign direct investment. Foreign investment in preference share is considered as part of share capital and fall outside the external commercial borrowing (ECB) guidelines/cap.
• Preference shares to be treated as foreign direct equity for purpose of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. If the preference shares are structured without such conversion option, they would fall outside the foreign direct equity cap.
13. Can shares be issued against Lumpsum Fee, Royalty and ECB?
Issue of equity shares against lump sum fee, royalty and external commercial borrowings (ECBs) in convertible foreign currency are permitted, subject to meeting all applicable tax liabilities and sector specific guidelines.
14. Other than issue of shares under Automatic /Government Route, what other general permissions are available under RBI Notification No.FEMA 20 dt.3-5-2000?
• Issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a Trust up to 5% of the paid up capital of the company.
• Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies.
• Issue shares or preference shares or convertible debentures on rights basis by an Indian company to a person resident outside India.
15. Can I invest in unlisted shares issued by a company in India?
Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in unlisted shares of Indian companies.
16. Can a foreigner set up a partnership/proprietorship concern in India?
No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India. Even for NRIs/PIOs investment is allowed only on non-repatriation basis.
17. Can I invest in Rights shares issued by an Indian company at a discount?
There are no restrictions under FEMA for investment in Rights shares at a discount, provided the rights shares so issued are being offered at the same price to residents and non-residents.
II - Foreign Technical Collaboration
1. What are the payment parameters for foreign technology transfer under the Automatic Route of Reserve Bank of India? How should royalty be calculated?
• Payment for foreign technology collaboration by Indian companies are allowed under the automatic route subject to the following limits:
• Lump sum payments not exceeding US$ 2 million.
• Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for exports, without any restriction on the duration of the royalty payments.
• The royalty limits are net of taxes and are calculated according to standard conditions.
• The royalty will be calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc.
• RBI has delegated the powers to ADs to make payment of royalty under such agreements. The requirement of registration of the agreement with the Regional Office of Reserve Bank of India has been done away with.
2. What should be done, if Automatic Route of Reserve Bank of India for technology transfer is not available?
Proposals, which do not satisfy the parameters prescribed for automatic route of RBI, require clearance from Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.
III -- Foreign Portfolio Investment
1. What are the regulations regarding Portfolio Investments by Foreign Institutional Investors (FIIs)?
• Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000. FIIs include asset management companies, pension funds, mutual funds, and investment trusts as nominee companies, incorporated / institutional portfolio managers or their power of attorney holders, university funds, endowment foundations, charitable trusts and charitable societies.
• SEBI acts as the nodal point in the registration of FIIs. The Reserve Bank of India has granted general permission to SEBI-registered FIIs to invest in India under the Portfolio Investment Scheme (PIS).
• Investment by individual FIIs cannot exceed 10% of paid up capital. Investment by foreign registered as sub accounts of FII cannot exceed 5% of paid up capital. All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian company. An Indian company can raise the 24% ceiling to the sectoral cap / statutory ceiling, as applicable, by passing a resolution by its board of directors followed by passing a special resolution to that effect by their general body.
2. What are the regulations regarding Portfolio Investments by NRIs/PIOs?
• Non Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase/sell shares/convertible debentures of Indian companies on stock exchanges under Portfolio Investment Scheme. For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/purchase transactions are to be routed through the designated branch.
• An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10% of the paid up value of the company. (This limit can be increased by the Indian company to 24% by passing a General Body resolution).
• The sale proceeds of the repatriable investments can be credited to the NRE/NRO etc. accounts of the NRI/PIO whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
• The sale of shares will be subject to payment of applicable taxes.
IV - Investment in Government Securities and Corporate debt
1. Can a Non-resident Indian invest in Government Securities/Treasury bills and Corporate debt?
Under the FEMA Regulations only NRIs and SEBI registered FIIs are permitted to purchase Government Securities/Treasury bills and Corporate debt. The details are as under;
A. A Non-resident Indian can purchase,
(1) i) Government dated securities (other than bearer securities) or treasury bills or
units of domestic mutual funds;
ii) bonds issued by a public sector undertaking(PSU) in India;
iii) shares in Public Sector Enterprises being disinvested by the Government of India.
(2) They can also invest, on non-repatriation basis, in dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds in India, or National Plan/Savings Certificates on non-repatriation basis. The guidelines for these schemes are framed by the concerned Government agencies.
B. A SEBI registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government securities/treasury bills, non-convertible debentures/bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India. The FIIs is required to ensure that;
i) the FII allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) should not exceed the ratio of 70:30.
ii) In case the FII is set-up as a 100% debt FII, it can invest the entire corpus in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company subject to limits, if any, stipulated by SEBI in this regard.
The Investment in Government Securities/Treasury bills and Corporate debt is subject to a ceiling decided in consultation with the Government of India. Investment limit for the FIIs as a group in Government securities currently is USD 3.2 Billion. The limit for investment in Corporate debt is USD 1.5 billion. At present, the FIIs can also invest in Innovative instruments such as Upper Tier-II capital upto a limit of USD 500 million.
V - Foreign Venture Capital Investment
1. What are the regulations for Foreign Venture Capital Investment?
A SEBI registered Foreign Venture Capital Investor with general permission from the Reserve Bank of India can invest in a Venture Capital Fund or an Indian Venture Capital Undertaking, in the manner and subject to the terms and conditions specified in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated May 3, 2000 as amended from time to time.
VI - Procedure for opening Branch/Project/Liaison Office
1. How can foreign companies open Liaison/Project/Branch office in India?
Foreign company can set up Liaison/Branch Offices in India after obtaining approval from Reserve Bank of India. Reserve Bank of India has given general permission to foreign companies to establish Project Offices in India subject to certain conditions.
2. What is the procedure to be followed for obtaining Reserve Bank's approval for opening Liaison Office/Representative Office?
• A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.
• The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. This form is available at www.rbi.org.in
• Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up. Liaison/Representative offices have to file an Activity Certificate on annual basis from a Chartered Accountant to the concerned Regional Office of the Reserve Bank of India , stating that the Liaison Office has undertaken only those activities permitted by Reserve Bank of India .
3. What is the procedure for setting up Project Office?
• Foreign companies are granted projects in India by Indian entities. General Permission has been granted by Reserve Bank of India vide Notification No. FEMA 95/2003-RB dated July 2, 2003 to foreign companies to open Project Office/s in India provided they have secured from an Indian company, a contract to execute a project in India, and the project is funded directly by inward remittance from abroad; or
• the project is funded by a bilateral or multilateral International Financing Agency; or
• the project has been cleared by an appropriate authority; or
• a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.
• However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for approval.
4. What is the procedure for setting up branch office?
• Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Offices in India for the following purposes:
• To represent the parent company/other foreign companies in various matters in India e.g. acting as buying/selling agents in India
• To conduct research work in the area in which the parent company is engaged
• To undertake export and import activities and trading on wholesale basis
• To promote possible technical and financial collaborations between the Indian companies and overseas companies.
• Rendering professional or consultancy services
• Rendering services in Information technology and development of software in India
• Rendering technical support to the products supplied by the parent/Group companies.
• A branch office is not allowed to carry out manufacturing, processing activities directly/indirectly. A Branch Office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offices have to submit Activity Certificate from a Chartered Accountant on an annual basis to the Central Office of FED. For annual remittance of profit Branch Office may submit required documents to an authorised dealer.
• Permission for setting up branch offices is granted by the Reserve Bank of India. Reserve Bank of India considers the track record of the Applicant Company, existing trade relations with India, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinising the application.
Source: Reserve Bank of India
Tuesday 17 July 2007
Invest in Bank FDs or FMPs ?.... Help for you
Fixed maturity plans are income schemes of mutual funds which if held till maturity practically guarantee protection of your capital - and yet offer higher returns and superior tax advantages than bank do FDs.
The secret of their higher returns lies in the fact that FMPs invest their corpus in corporate bonds, government securities, and money market instruments, etc., which enable them to earn higher returns than bank FD rates for similar periods.
Capital protection advantage
Typically, income funds are prone to "interest rate risk". Interest rates and prices of fixed income instruments, including income funds, share an inverse relationship. In simple words, when interest rates in the economy rise, the NAV of an income fund falls, and vice versa. This, in turn, leads to a possible capital "loss" if you exit from an income fund in times of rising interest rates.
FMPs effectively eliminate this interest rate risk by investing in instruments whose maturity coincides with the end of the FMP. So a 90-day FMP will invest in instruments maturing after 90 days, and so on. Thus, the fund manager of an FMP knows what the returns the scheme is going to yield. Holding the underlying instruments till their maturity effectively eliminates interest rate risk, as the value of the instruments at their redemption is known upfront.
However, though the return from an FMP is known in advance, these are not to be confused with the erstwhile assured return schemes, which SEBI has since banned.
The tax advantage
An FMP offers the advantage of lower tax in comparison to a bank FD.
The dividend from any scheme of any mutual fund is tax-free in the hands of the investor. However, FMP being a debt-based scheme, the mutual fund has to pay the dividend distribution tax @14.165 per cent. While bank interest does not incur this dividend distribution tax but the interest is fully taxable in the investor's hands.
Thus, dividend received by an individual from an FMP is effectively taxed at only 14.165 per cent as against a tax of 20.6 per cent, or 30.9 per cent or 33.99 per cent on bank interest depending upon your tax bracket.
The tax advantage over bank FDs grows very marked if you opt for the growth option and a maturity of longer than a year.
Here's how
Upon maturity, the gains from the FMP, which you've held for more than a year, will qualify as long term capital gains. Now, FMPs being income funds long-term capital gains from them would be taxed at the lower of 10 per cent without cost indexation, or 20 per cent with cost indexation.
At 10 per cent tax, the post-tax gains from FMPs will obviously be much more handsome than the interest from bank FDs which will be taxed at up to 33.99 per cent depending the income tax rate relevant to you.
Tax-smart: Double indexation
Double indexation is a neat trick where you hold an investment for a little more than one year but get the benefit of the index multiple of two years. How is this done? Consider the table for the 370-day FMP. (See Table-1).
Table-1: 370-Day FMP
FMP - 370 Days
Investment Date 29-Mar-06
Investment Amount A 100
Yield (known to the fund manager) 8.00%
Maturity Date (370 days after investment) 03-Apr-07
Maturity Amount @8% annualized B 108.11
Inflation index for FY 05-06 497
Inflation index for FY 07-08 (assuming 4.3% inflation) 541
Indexed Cost of acquisition (100 x541 / 497) C 108.85
Long-term Capital Loss C-B -0.74
Net Cash Flow 108.11
Annualised Returns 8%
The FMP is for 370 days, exactly 5 days more than one year. However, check out the date of investment and date of exit. The entry date is 29the of March 2006, i.e. FY 05-06. The date of sale is 3rd of April 2007, i.e. FY 07-08.
By holding the investment a little into the next financial year, an investor can use the facility of Cost Inflation Index for two years. The rest of the table is self-explanatory. The CII usage boosts the purchase cost beyond the sale price due to which the investor suffers a notional capital loss.
Consequently, the entire maturity value is rendered tax-free. The net annualized return remains at 8 per cent without any tax incidence whatsoever.
Welcome to the double indexation tax-smart, ladies and gentlemen!
Last word
Hitherto, income schemes were not a safe bet for investors in times of rising interest rates as their NAVs fall at such times. The advent of FMPs has changed all that.
Therefore, if you are looking for a fixed income avenue that yields a return higher than bank FDs with almost equal safety of capital, adequate liquidity and tax advantage, why aren't you looking at FMPs?
Excerpt from the book:
Taxpayer to Taxsaver (F.Y. 2007-08)
By A N Shanbhag
Publisher: Vision Books
The secret of their higher returns lies in the fact that FMPs invest their corpus in corporate bonds, government securities, and money market instruments, etc., which enable them to earn higher returns than bank FD rates for similar periods.
Capital protection advantage
Typically, income funds are prone to "interest rate risk". Interest rates and prices of fixed income instruments, including income funds, share an inverse relationship. In simple words, when interest rates in the economy rise, the NAV of an income fund falls, and vice versa. This, in turn, leads to a possible capital "loss" if you exit from an income fund in times of rising interest rates.
FMPs effectively eliminate this interest rate risk by investing in instruments whose maturity coincides with the end of the FMP. So a 90-day FMP will invest in instruments maturing after 90 days, and so on. Thus, the fund manager of an FMP knows what the returns the scheme is going to yield. Holding the underlying instruments till their maturity effectively eliminates interest rate risk, as the value of the instruments at their redemption is known upfront.
However, though the return from an FMP is known in advance, these are not to be confused with the erstwhile assured return schemes, which SEBI has since banned.
The tax advantage
An FMP offers the advantage of lower tax in comparison to a bank FD.
The dividend from any scheme of any mutual fund is tax-free in the hands of the investor. However, FMP being a debt-based scheme, the mutual fund has to pay the dividend distribution tax @14.165 per cent. While bank interest does not incur this dividend distribution tax but the interest is fully taxable in the investor's hands.
Thus, dividend received by an individual from an FMP is effectively taxed at only 14.165 per cent as against a tax of 20.6 per cent, or 30.9 per cent or 33.99 per cent on bank interest depending upon your tax bracket.
The tax advantage over bank FDs grows very marked if you opt for the growth option and a maturity of longer than a year.
Here's how
Upon maturity, the gains from the FMP, which you've held for more than a year, will qualify as long term capital gains. Now, FMPs being income funds long-term capital gains from them would be taxed at the lower of 10 per cent without cost indexation, or 20 per cent with cost indexation.
At 10 per cent tax, the post-tax gains from FMPs will obviously be much more handsome than the interest from bank FDs which will be taxed at up to 33.99 per cent depending the income tax rate relevant to you.
Tax-smart: Double indexation
Double indexation is a neat trick where you hold an investment for a little more than one year but get the benefit of the index multiple of two years. How is this done? Consider the table for the 370-day FMP. (See Table-1).
Table-1: 370-Day FMP
FMP - 370 Days
Investment Date 29-Mar-06
Investment Amount A 100
Yield (known to the fund manager) 8.00%
Maturity Date (370 days after investment) 03-Apr-07
Maturity Amount @8% annualized B 108.11
Inflation index for FY 05-06 497
Inflation index for FY 07-08 (assuming 4.3% inflation) 541
Indexed Cost of acquisition (100 x541 / 497) C 108.85
Long-term Capital Loss C-B -0.74
Net Cash Flow 108.11
Annualised Returns 8%
The FMP is for 370 days, exactly 5 days more than one year. However, check out the date of investment and date of exit. The entry date is 29the of March 2006, i.e. FY 05-06. The date of sale is 3rd of April 2007, i.e. FY 07-08.
By holding the investment a little into the next financial year, an investor can use the facility of Cost Inflation Index for two years. The rest of the table is self-explanatory. The CII usage boosts the purchase cost beyond the sale price due to which the investor suffers a notional capital loss.
Consequently, the entire maturity value is rendered tax-free. The net annualized return remains at 8 per cent without any tax incidence whatsoever.
Welcome to the double indexation tax-smart, ladies and gentlemen!
Last word
Hitherto, income schemes were not a safe bet for investors in times of rising interest rates as their NAVs fall at such times. The advent of FMPs has changed all that.
Therefore, if you are looking for a fixed income avenue that yields a return higher than bank FDs with almost equal safety of capital, adequate liquidity and tax advantage, why aren't you looking at FMPs?
Excerpt from the book:
Taxpayer to Taxsaver (F.Y. 2007-08)
By A N Shanbhag
Publisher: Vision Books
Sunday 15 July 2007
How to build your MF portfolio?
Great salaries, excellent bonuses, fairly valued markets, high interest rates -- the time looks just perfect to design and put together your mutual fund portfolio.
Building a MF portfolio is akin to building and furnishing your own home:
a) It depends on your financial capacity
b) Your personal tastes and preferences
c) Requires a lot of patience and care
Therefore, while there cannot be a model portfolio suiting everyone"s needs and objectives, you can follow a few general rules to build yourself one.
Be clear of what you want
To begin with, you must decide what your financial objectives are; and how much risk you are willing to take to achieve those objectives.
The goals should be as precise as possible. For example, you goals could be:
• Rs 50,000 to pay-off the personal loan in 2007
• Rs 2 lakh (Rs 200,000) for children"s higher education in 2012
• Rs 1 lakh (Rs 100,000) for foreign trip in 2010
• Rs 7.5 lakh (Rs 750,000) for daughter"s marriage in 2015
• Rs 1 crore (Rs 10 million) retirement corpus in 2020
Second, your goals must be realistic. They must be in line with your financial position and risk appetite. No point in having too ambitious or too pessimistic goals; or having goals, which require you to take undue risks.
Devote proper time and thought to planning your goals.
Done? Good, that"s a major part of your job over. Once you know where you stand and where you want to go, the rest is just a matter of details.
Match each goal with the appropriate MF category
Equity markets are too volatile in the short-term, but can give good returns in the long run. Debt funds, on the other hand, give steady but low returns. Therefore, select the goals, which you will finance through equity funds and through debt funds.
Assuming your retirement is still 15 years away, a predominantly equity portfolio may be a better option.
But for your personal loan, which is payable just one year hence, debt funds will be more suitable.
And for the medium term, like your foreign trip, balanced funds may be the right answer.
Don"t be too concentrated or over-diversify
Depending on the corpus, one could invest in an average of 4-7 funds for an equity portfolio and maybe 3-4 funds for the debt and balanced category. Too less a number of funds make your portfolio concentrated and risky. Too many, makes it unmanageable and doesn"t really serve the purpose. You need to strike the right balance.
Also, while selecting the fund, study their portfolio mix and ensure that they are different. If most of them are same, then even with 6-7 funds you won"t get the desired diversification.
In order to achieve diversification across asset classes, one could now look at some of the forthcoming options such as real estate fund, gold fund, international fund, etc.
Build a suitable mix of equity funds
Apart from allocating your corpus in different asset classes, you need to do some allocation within the equity class. Index/Large Cap funds, Mid-cap/Small cap funds and Sector Funds are the 3 broad sub-categories in which you have to divide your corpus.
Index and Large Cap funds will deliver steady returns, which will be in line with the market performance. In the equity space, they carry lesser risk as compared to mid caps, small caps etc. About 70-80% of your corpus could be allocated to this category. They provide stability to your portfolio. Go for funds with moderate risk and consistent performance.
Your portfolio may need some kicker too. Mid-cap/Small cap funds and Sectors Funds have the potential to provide higher growth (of course with a higher risk). Be prepared for a bumpy ride; and sometimes crash landing too. A 10-20% allocation to this category may be okay. In case of a bad performance, major portion of your corpus is still relatively safe. Large caps will minimise your losses and will also bounce back quickly.
Don"t forget the tax aspect
Neglecting to pay tax is bad, but tax planning is not. It can help you to minimize your tax outgo, legally.
Therefore, take care to choose the right option -- dividend payout, dividend reinvestment or growth. They may help you to save unnecessary taxes.
Make sure that you use the post-tax returns in your calculations. Else you may miss your target.
Having built a suitable portfolio, you need to nurture it. You have to regularly feed it with additional investments. You will have to remove the weeds (poor performing funds) periodically. And be patient. It takes time for the tree to grow. But once is has grown, it becomes strong -- so you don"t have to take too much care; and fruitful -- it will give you returns year after year.
Sensex @ 15K: How to get the best from MFs now
Sensex touched a new all time high today. The stock market has had a remarkable run since touching its low of 8900 in June 2006.
Needless to say, the last one-year or so has been quite eventful for investors in equity funds. If one were to analyze the behavior of investors during different phases of the stock market, there are lessons to be learnt for existing investors as well as for those who intend to make equity funds an integral part of their portfolio.
Market Ups & Downs
Every time the market goes up, many investors start wondering whether this is the right time to exit. In fact, there are investors who make the mistake of exiting too soon. It is important to remember that equities are a long-term investment vehicle and one needs to give one"s money enough time in the market to get the best results. Remember, if one takes a wrong decision, there is always a risk of missing out on good rallies in the market or getting out too early thus missing out on potential gains.
Similarly, whenever the market turns volatile, it causes anxiety and in some cases, even sleepless nights. In times like these many investors abandon a carefully designed investment strategy as a knee jerk reaction and pay the price for it. Obviously, it is not be a smart thing to do. The key is to recognize that volatility exists in the market place and will remain so. After all, volatility is a statistical measure of the tendency of the markets to rise and fall. While volatility can be described as a natural phenomenon, there is a need for investors to develop ways to deal with it.
Invest Regularly
Though a lot has been written about systematic investing, it is often perceived as an option only for small investors. The fact of the matter is that systematic investing has nothing to do with the size of the investment. It is a way of disciplined investing that allows investors to invest in the stock market at different levels without having to worry about the market levels and the market movements in the short-term. Remember. When you opt for regular investing, you abandon any strategy that might control timing of your investments. In other words, you continue to invest irrespective of market conditions. This strategy works very well partly because of "averaging" and partly because in the long run markets move upwards, in spite of short-term falls.
It is not to say that one should not invest a lump sum amount in equity funds. For a long-term investors, making a lump sum investment is not an issue, however, a lump sum investment should not be the end of the story. Instead, it should be taken as a beginning of an investment programme to build wealth over time and needs to be followed by regular investments as and when investible surplus is available. Either which way, the key to successful equity investing is making investments on a regular basis.
Don"t try to time the Markets
One often comes across investors who wait for months in anticipation of a correction in the markets. However, more often than not, they end up investing in a panic as the markets scale newer heights. At times, a small correction in the market seems like a great opportunity to them and as result they end up investing at much higher levels compared to the level prevalent at the time when they had originally planned to invest.
I am sure there are many investors who must be wondering whether they should be investing in the markets at the current levels or not. Though, the prospects of the markets look promising from the long-term point of view, it may be prudent for a new investor to adopt a strategy whereby a part is invested as a lump sum and the balance by way of systematic investing. The exact proportion of the lump sum and systematic investment would depend on one"s risk profile and time horizon. This way, if the market drops right away, one would suffer a smaller loss and can buy more units each month at the lower prices.
Take help of a professional to determine the right levels for you. However, there are many investors who do not find regular investing very exciting. They also find the whole process a little cumbersome. It is important for investors to realize that investing in equity funds is not about excitement but a sensible way to build wealth through healthy real rate of returns. However, the key is to concentrate on selection and maintaining the disciplined way of investing.
It is often said that 90% of the investment success depends on the quality of the portfolio and the right mix of funds investing in different market caps and the remaining 10% on timing the investments. In reality, many investors spend 90% of their time "timing" their investments.
Now, a few words on the selection process. It is important to select the funds after careful deliberations especially keeping your risk profile, time horizon and investment objectives in mind. You will find some brokers constantly approaching you with new products. You need to learn to say "No" to products you don"t really want or need. In other words, be wary of "buy now while the stocks last" sales pitch and always keep your long- term investment objectives in mind while building your portfolio.
Building a MF portfolio is akin to building and furnishing your own home:
a) It depends on your financial capacity
b) Your personal tastes and preferences
c) Requires a lot of patience and care
Therefore, while there cannot be a model portfolio suiting everyone"s needs and objectives, you can follow a few general rules to build yourself one.
Be clear of what you want
To begin with, you must decide what your financial objectives are; and how much risk you are willing to take to achieve those objectives.
The goals should be as precise as possible. For example, you goals could be:
• Rs 50,000 to pay-off the personal loan in 2007
• Rs 2 lakh (Rs 200,000) for children"s higher education in 2012
• Rs 1 lakh (Rs 100,000) for foreign trip in 2010
• Rs 7.5 lakh (Rs 750,000) for daughter"s marriage in 2015
• Rs 1 crore (Rs 10 million) retirement corpus in 2020
Second, your goals must be realistic. They must be in line with your financial position and risk appetite. No point in having too ambitious or too pessimistic goals; or having goals, which require you to take undue risks.
Devote proper time and thought to planning your goals.
Done? Good, that"s a major part of your job over. Once you know where you stand and where you want to go, the rest is just a matter of details.
Match each goal with the appropriate MF category
Equity markets are too volatile in the short-term, but can give good returns in the long run. Debt funds, on the other hand, give steady but low returns. Therefore, select the goals, which you will finance through equity funds and through debt funds.
Assuming your retirement is still 15 years away, a predominantly equity portfolio may be a better option.
But for your personal loan, which is payable just one year hence, debt funds will be more suitable.
And for the medium term, like your foreign trip, balanced funds may be the right answer.
Don"t be too concentrated or over-diversify
Depending on the corpus, one could invest in an average of 4-7 funds for an equity portfolio and maybe 3-4 funds for the debt and balanced category. Too less a number of funds make your portfolio concentrated and risky. Too many, makes it unmanageable and doesn"t really serve the purpose. You need to strike the right balance.
Also, while selecting the fund, study their portfolio mix and ensure that they are different. If most of them are same, then even with 6-7 funds you won"t get the desired diversification.
In order to achieve diversification across asset classes, one could now look at some of the forthcoming options such as real estate fund, gold fund, international fund, etc.
Build a suitable mix of equity funds
Apart from allocating your corpus in different asset classes, you need to do some allocation within the equity class. Index/Large Cap funds, Mid-cap/Small cap funds and Sector Funds are the 3 broad sub-categories in which you have to divide your corpus.
Index and Large Cap funds will deliver steady returns, which will be in line with the market performance. In the equity space, they carry lesser risk as compared to mid caps, small caps etc. About 70-80% of your corpus could be allocated to this category. They provide stability to your portfolio. Go for funds with moderate risk and consistent performance.
Your portfolio may need some kicker too. Mid-cap/Small cap funds and Sectors Funds have the potential to provide higher growth (of course with a higher risk). Be prepared for a bumpy ride; and sometimes crash landing too. A 10-20% allocation to this category may be okay. In case of a bad performance, major portion of your corpus is still relatively safe. Large caps will minimise your losses and will also bounce back quickly.
Don"t forget the tax aspect
Neglecting to pay tax is bad, but tax planning is not. It can help you to minimize your tax outgo, legally.
Therefore, take care to choose the right option -- dividend payout, dividend reinvestment or growth. They may help you to save unnecessary taxes.
Make sure that you use the post-tax returns in your calculations. Else you may miss your target.
Having built a suitable portfolio, you need to nurture it. You have to regularly feed it with additional investments. You will have to remove the weeds (poor performing funds) periodically. And be patient. It takes time for the tree to grow. But once is has grown, it becomes strong -- so you don"t have to take too much care; and fruitful -- it will give you returns year after year.
Sensex @ 15K: How to get the best from MFs now
Sensex touched a new all time high today. The stock market has had a remarkable run since touching its low of 8900 in June 2006.
Needless to say, the last one-year or so has been quite eventful for investors in equity funds. If one were to analyze the behavior of investors during different phases of the stock market, there are lessons to be learnt for existing investors as well as for those who intend to make equity funds an integral part of their portfolio.
Market Ups & Downs
Every time the market goes up, many investors start wondering whether this is the right time to exit. In fact, there are investors who make the mistake of exiting too soon. It is important to remember that equities are a long-term investment vehicle and one needs to give one"s money enough time in the market to get the best results. Remember, if one takes a wrong decision, there is always a risk of missing out on good rallies in the market or getting out too early thus missing out on potential gains.
Similarly, whenever the market turns volatile, it causes anxiety and in some cases, even sleepless nights. In times like these many investors abandon a carefully designed investment strategy as a knee jerk reaction and pay the price for it. Obviously, it is not be a smart thing to do. The key is to recognize that volatility exists in the market place and will remain so. After all, volatility is a statistical measure of the tendency of the markets to rise and fall. While volatility can be described as a natural phenomenon, there is a need for investors to develop ways to deal with it.
Invest Regularly
Though a lot has been written about systematic investing, it is often perceived as an option only for small investors. The fact of the matter is that systematic investing has nothing to do with the size of the investment. It is a way of disciplined investing that allows investors to invest in the stock market at different levels without having to worry about the market levels and the market movements in the short-term. Remember. When you opt for regular investing, you abandon any strategy that might control timing of your investments. In other words, you continue to invest irrespective of market conditions. This strategy works very well partly because of "averaging" and partly because in the long run markets move upwards, in spite of short-term falls.
It is not to say that one should not invest a lump sum amount in equity funds. For a long-term investors, making a lump sum investment is not an issue, however, a lump sum investment should not be the end of the story. Instead, it should be taken as a beginning of an investment programme to build wealth over time and needs to be followed by regular investments as and when investible surplus is available. Either which way, the key to successful equity investing is making investments on a regular basis.
Don"t try to time the Markets
One often comes across investors who wait for months in anticipation of a correction in the markets. However, more often than not, they end up investing in a panic as the markets scale newer heights. At times, a small correction in the market seems like a great opportunity to them and as result they end up investing at much higher levels compared to the level prevalent at the time when they had originally planned to invest.
I am sure there are many investors who must be wondering whether they should be investing in the markets at the current levels or not. Though, the prospects of the markets look promising from the long-term point of view, it may be prudent for a new investor to adopt a strategy whereby a part is invested as a lump sum and the balance by way of systematic investing. The exact proportion of the lump sum and systematic investment would depend on one"s risk profile and time horizon. This way, if the market drops right away, one would suffer a smaller loss and can buy more units each month at the lower prices.
Take help of a professional to determine the right levels for you. However, there are many investors who do not find regular investing very exciting. They also find the whole process a little cumbersome. It is important for investors to realize that investing in equity funds is not about excitement but a sensible way to build wealth through healthy real rate of returns. However, the key is to concentrate on selection and maintaining the disciplined way of investing.
It is often said that 90% of the investment success depends on the quality of the portfolio and the right mix of funds investing in different market caps and the remaining 10% on timing the investments. In reality, many investors spend 90% of their time "timing" their investments.
Now, a few words on the selection process. It is important to select the funds after careful deliberations especially keeping your risk profile, time horizon and investment objectives in mind. You will find some brokers constantly approaching you with new products. You need to learn to say "No" to products you don"t really want or need. In other words, be wary of "buy now while the stocks last" sales pitch and always keep your long- term investment objectives in mind while building your portfolio.
Thursday 12 July 2007
What are the risks covered under fire insurance?
Fire insurance business is governed by the Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the Fire Policy. The fire insurance policy has been renamed as Standard Fire and Special Perils Policy. The risks covered are as follows:
Fire:
Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of property insured by order of any Public Authority is excluded from the scope of cover.
Lightning:
Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy.
Explosion/ Implosion:
Explosion is defined as a sudden, violent burst with a loud report. An explosion is caused inside a vessel when the pressure within the vessel exceeds the atmospheric pressure acting externally on its surface. An explosion may cause fire damage or concussion damage.
Implosion means bursting inward or collapse. This takes place when the external pressure exceeds the internal pressure. This policy, however, does not cover destruction or damage caused to the boilers (other than domestic boilers), economisers or other vessels in which steam is generated and machinery or apparatus subject to centrifugal force by its own explosion/ implosion. These risks can be covered in a Boiler & Pressure Plant Insurance Policy, which is specially designed to handle these risks.
Aircraft Damage:
The loss or damage to the property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft travelling at supersonic speed is excluded from the scope of the policy.
Riot, Strike, Malicious and Terrorism Damage:
The act of any person taking part along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, strike or a terrorist activity.
Any loss or physical damage to the property insured directly caused by such activity or by the action of any lawful authorities in suppressing such disturbance or minimising its consequences is covered. Further the wilful act of any striker or locked out worker, in connection with a strike or a lock out, or the action of any lawful authority in suppressing such act, resulting in visible physical damage by external means, is also covered. Malicious act would mean an act with malicious intent but excluding omission of any kind by any person, resulting in visible physical damage to the insured property, whether or not the act is committed in the course of disturbance of public peace or not. Burglary, housebreaking, theft or larceny does not constitute a malicious act for the purpose of this cover.
Total or partial cessation of work or the retarding or interruption or cessation of any process or operations; or, permanent dispossession resulting from confiscation, commandeering, requisition or destruction by order of the Government or any lawfully constituted authority; or permanent or temporary dispossession of any building or plant or unit or machinery resulting from the unlawful occupation by any person of the same or prevention of access to the same, are not covered.
Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation:
Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all various types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall. Flood or Inundation occurs when the water rises to an abnormal level. Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river or lakes, but also accumulation of water due to choked drains would be deemed to be flood.
Impact Damage:
Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the course of their employment.
Subsidence and Landslide including Rockslide:
Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill.
However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up ground; coastal or river erosion; defective design or workmanship or use of defective materials; and demolition, construction, structural alterations or repair of any property or ground-works or excavations, are not covered.
Bursting and/ or overflowing of Water Tanks, Apparatus and Pipes:
Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.
Missile Testing operations:
Destruction or damage due to impact or otherwise from trajectory/ projectiles in connection with missile testing operations by the Insured or anyone else, is covered.
Leakage from Automatic Sprinkler Installations:
Damage caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured's premises is covered. However, such destruction or damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.
Bush Fire:
This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by fire, but excluding destruction or damage caused by Forest Fire.
How to file for claims under fire insurance
In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice there of to the insurance company. Within 15 days of the occurrence of such loss the Insured should submit a claim in writing giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.
The Insured should procure and produce, at his own expense, any document like plans, account books, investigation reports etc. on demand by the insurance company.
Pro-rata Average Condition
If at the time of a loss, it is observed that the insured property is of higher value than the Sum Insured, the Insured has to bear the rateable proportion of the loss. Every item, if more than one, covered by the policy is separately subject to this condition.
For instance, a firm insures its building for Rs.10 lakhs and plant and machinery for Rs.20 lakhs. A fire occurs causing loss to plant and machinery and the damage is assessed at Rs.10 lakhs. The market value of the building at the time of occurrence of fire is assessed at Rs.5 lakhs and that of plant and machinery at Rs.25 lakhs.
The building is therefore over-insured, but the plant and machinery is under-insured if considered separately, as per the policy condition. Collectively, however, the market values of the assets are same as the value insured for. This does not give any advantage to the Insured.
Since plant and machinery is affected by the loss and its Sum Insured is under-insured by 20 percent in relation to the market value, the insurance company pays Rs.8 lakhs (i.e.80%) of the actual loss. The Insured has to bear a loss of Rs.2 lakhs for the under-insurance.
On the contrary if there was a loss to the building of say, Rs.2.5 lakhs, the insurance company would pay the full amount. Nothing extra is payable for over-insurance.
Contribution Clause
If at the time of loss or damage happening to any property hereby insured there be any other subsisting insurance or insurances, whether effected by the Insured or by any other person or persons covering the same property, the insurance company shall not be liable to pay or contribute more than its rateable proportion of such loss or damage.
For instance, a firm insures its finished goods stored in a warehouse for Rs.50 lakhs with X Insurance Company. Since the stocks are hypothecated to a Bank, they also insure the same property for Rs.30 lakhs with Y Insurance Company, thinking that the Insured has not insured them. There is a fire in the warehouse and the loss is assessed at Rs.10 lakhs.
In such a situation, X Insurance Co. pays 5/8th of Rs.10 lakhs that is Rs.6.25 lakhs and Y Insurance Co. pays 3/8th that amount to Rs.3.75 lakhs.
Classification of Insurance
Life is full of uncertainty. Trials and tribulations abound in each and every aspect of life. No one can truly predict or even estimate what the future has in store for him. Life offers no guarantees by itself, except the incidences of death and taxation.
This lack of security present throughout life can be overcome partially through insurance. Insurance can never replace or repair a loss. But the monetary value offered by insurance helps in adjusting to the new circumstances.
Despite offering innumerable options and immense scope, insurance can be classified into four main categories.
Insurance of Person
Insurance of Property
Insurance of Interest
Insurance of Liability
Insurance of Person:
Under the purview of this class of insurance, the risks associated with human life in general can be covered up to the limit specified. A person can insure his or her life and his health against any unplanned contingencies.
In event of his death, his dependants will be reimbursed to the full amount that he was insured for. Or if the insured person meets with an accident or suffers from an illness that cripples him forever, he will be compensated with the complete sum assured anyway since he may not be able to lead a normal life again.
In case, the accident is not that severe, he should be able to recover after medical treatment and rehabilitation. If he has opted for medical cover, then his medical expenses, treatment and medication will be paid for by his insurance policy.
Insurance of Property:
Everyone possesses material value in the form of tangible assets. Assets can be in the form of a landed estate or a vehicle, share holdings or plain old paper money.
Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery. An individual's lifetime of hard work can be wiped out in a blink of an eye.
But if a person judiciously invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.
Insurance of Interest:
Every individual has to discharge certain specific duties. Everyone is expected to maintain a standard of conduct. But then, it is an intrinsic part of human nature to err. No one is infallible and no one will ever be.
Owing to an occasional error or omission committed by us, our clients or customers might suffer a loss. In turn we might have to pay them damages or compensation out of our own personal resources.
However, if our chosen profession qualifies for insurance of interest, then our insurance policy will more than suffice in arranging for the funds and court formalities that might ensue in the aftermath of legal libel.
Insurance of Liability:
Every person has to regulate his actions and behaviour so as not to cause injury or damage to other people and their property. Everyone is personally responsible and liable for his actions.
If due to lack of control over his actions or prejudiced behaviour, a person incurs any liability then he has to provide compensation out of his personal resources. Liabilities: legal, civil or criminal can have severe repercussions on social standing and prestige besides the financial status.
By investing in liability insurance, an individual can ward off any liabilities he might incur due to his actions and behaviour. Besides, the premiums payable on liability insurance are fairly minimal when compared to the damages that have to be compensated in the long run.
Need for house insurance
Home is where the heart is sums up in short how attached one would be to his humble abode, be it a pigeonhole or a palatial residence. Whether it is a rented one or your own personal property insurance is a must to take care of the unpredictable risks to your house such as fire, natural calamities, burglary, short-circuits etc.
Such incidents would not only cause severe mental agony but the losses you may suffer under such circumstances can be unimaginably high. And setting up your house all over again can be quite expensive. But if your house is adequately insured such botherations need not be a cause for worry.
Insurance bought for your house will not only cover the structure of the house but will also cover the belongings. All those expensive items or consumer durables you bought over a period of time may have been damaged in the fire. But your insurance company will take care of the losses and indemnify you for it.
Similarly if your house is burgled and your valuables have disappeared your insurance company will bear your loss. Or for instance, your domestic help, is electrocuted in your house and dies. The insurance company can pay off the losses and liabilities that may otherwise be a concern for you, under the Workmen’s Compensation Act.
In other words buying an insurance policy for your house will buy you peace of mind as such risks are unpredictable but not impossible.
Give a thought to the Home loans payment structure
Real estate industry in
Though not all the builders insist on such a payment structure, there exists a large community of builders who collect payment partly in cash and partly by cheque. Cash to cheque ratio ranges anywhere from 0% to 40%. This basically means that if the property purchase price is Rs 2,000,000, the builder will accept Rs 800,000 as cash payment that is unaccounted and Rs 1,200,000 as cheque, which is accounted money. The property paper will show a lower value of Rs 1,200,000 in place of Rs 2,000,000 actually paid by you.
To persuade you for a cash and cheque payment builders often emphasize the saving that would result on account of lower stamp duty and registration charges outgo. Since these charges are levied as a percentage of sale value of the property mentioned in the agreement deed. Quite a few of these builders even offer discounts for the same. But be careful dont get carried away, such a payment structure would create problems for you when you approach housing finance companies for finance.
Lets see how?
Housing finance companies finance 70% to 85% of the purchase price and you have to put in the balance as margin. For financing purpose, housing finance companies take into account the property price mentioned in the deed. This means that even if you are paying Rs 2,000,000 for the purchase and if the property paper shows the value as 1,200,000, housing finance companies will finance only 80% of this value. You will get Rs 960,000 as housing loan (80% of 1,200,000). Your loan amount is lowered considerably, which leaves you with the task of arranging for a much higher amount (refer to illustration below).
Illustration
Assumptions:
Purchase price of property: Rs 2,000,000
Payment option I: Total cheque payment
Payment option II: 60% cheque payment and 40% cash payment
Finance amount: 80% of purchase price
Amount of finance you can get in each option
Payment
option Property
price (Rs) Property Price
on paper (Rs) Finance amount
(80%) (Rs) Margin
money (Rs) Money to be
arranged (Rs)
Total cheque 2,000,000 2,000,000 1,600,000 400,000 400,000
Cheque +cash 2,000,000 1,200,000 960,000 240,000 1,040,000
The table above clearly indicates that if you opt for part cheque and part cash payment, you will have to arrange for over 50% of the property price from your own pocket. This can be quite a task for a salaried person. Moreover, the practice is unethical. Also, in the event of a dispute with the builder it would become very difficult for you to claim the 40% cash payment (in option II above) legally from the builder.
Effective rate on housing loan drops....
Housing sector has got its share of benefit in the form of tax sops.
The tax benefit on housing sector includes:
Deduction on interest paid on housing loan under section 24 (2) raised to Rs 150,000 from the existing level of Rs 100,000.
In case of repair and collection of rent from the property the limit of 25% of the annual value of the house property under section 24(1) has been raised to 30%.
Surcharge on income tax removed but the 2% surcharge on account of Gujrat earthquake to continue.
Lets try and incorporate these benefits into a sample housing loan and find out how exactly the exemptions and deductions benefit the borrower. To put it simply, it means a decline of 5-6% on the interest rate charged by housing finance companies.
Lets see how?
Loan amount: Rs 1,200,000
Interest rate: 13%
Tern of the loan: 15 years
In case of HDFC, the supporting salary required to avail a loan of Rs 1,200,000 is around 410,000 per annum.
The pay out for the loan would be something like this for the first year:
Banks Loan amount
(Rs) Interest
(%) Years EAI
(Rs) EMI
(Rs) Interest
(%) Principal
(Rs)
HDFC 1,200,000 13 15 185,690 15,475 156,000 29,690
Now lets factor in the tax in the above illustration and compare the payouts when housing loan is taken and when it is not taken. In the table below, calculation is done for the person falling in 30% tax bracket and a 2% surcharge has been taken into account.
Housing loan pay off If housing loan
is taken HDFC (Rs) If housing loan
is not taken. (Rs)
Gross income 410,000 410,000
Less income tax benefit u/s 24
for payment of interest on housing loan 150,000 0
Total 260,000 410,000
Less standard deduction 20,000 20,000
Taxable income 240,000 390,000
Tax 46,000 91,000
Less: rebate on principal (U/s 88 –20%) 4,000 0
Net payable 42,000 91,000
Surcharge 840 1820
Income tax including surcharge 42,840 92,820
Net Saving in tax payable 49,980 0
The table clearly indicates that if a housing loan is taken it results in saving of Rs 49,980 in the first year, thus bringing down the actual outgo for the loan repayment in the first year.
Lets take into account this saving and find out its impact on the interest rate charged by housing finance companies.
HFCS HDFC
Total yearly out go
on loan repayment (Rs) 185,690
Less tax saving (Rs) 49,980
Actual out go on loan repayment (Rs) 135,710
Actual rate of interest 13.00%
Effective rate of interest 7.81%
The table clearly indicates that even though you will be required to pay 13% interest on HDFC housing loan, in real terms your interest outgo will be only 7.81% in the first year.
Given the tax sops in the budget, this is an ideal time for consumers to give a second thought to owning a house.
Home loan: Does pre-payment make sense?
Consumers are very touchy about a loan, especially long-term debt. In spite of the fact that in the last couple of years tax advantages associated with housing loan have increased, many borrowers rush in to pay up their loan amounts before maturity and write off debts. And we all know that housing loans are typically long term in nature.
Does it make sense?
Not in the present environment when interest rates on housing loan are at an all-time low and there are significant tax benefits to housing loan seekers. In fact, it makes better sense to carry debt in general and a housing loan in particular. If you look at your repayment schedule and chose the loan amount carefully, you can save a neat sum through tax rebates. You also get the benefit of inflation over the term of the loan, as money gets cheaper by the year. Tax benefit together with inflation brings down the effective interest rate you pay, considerably. You really have a good deal going.
This doesnt mean that you should not pre-pay your debt. There is a time when you should think of prepaying your loan but time your pre-payment wisely.
Lets take an example to make it clear.
On a 15-year loan of Rs 12,00,000 at 12.5%, the annual repayment for the loan would be Rs 180,917. It would make sense to pay off all the outstandings after the tenth year. By this time you have already availed 80% of the total tax benefit (Rs 523,205 ) that you could avail over the term of the loan. The table below indicates the tax saving every year.
Tax saving over the term of the loan
Years Interest
(Rs) Principal
(Rs) Total tax
savings (Rs)
1 45,900 4,000 49,900
2 44,717 4,000 48,717
3 43,387 4,000 47,387
4 41,890 4,000 45,890
5 40,207 4,000 44,207
6 38,312 4,000 42,312
7 36,181 4,000 40,181
8 33,784 4,000 37,784
9 31,087 4,000 35,087
10 28,053 4,000 32,053
11 24,639 4,000 28,639
12 20,799 4,000 24,799
13 16,479 4,000 20,479
14 11,619 4,000 15,619
15 6,151 4,000 10,151
Total 463,207 60,000 523,205
It is clear from the table above that the amount you save on account of tax from 11th to 15th year is only Rs 99,688, which is less than the tax benefits you would get otherwise. And the amount you have to repay would be Rs 644,166 only. This would not be too much of a strain. So, dont rush in to pay off your housing loan (long-term debt) and when you decide to pre pay time it carefully.
Home Loans: Term loan or over-draft?
Do you need a home loan? Look no further. There are a whole lot of housing finance companies (HFCs) to fulfill your demands. On your part, you need to be sure exactly what kind of a loan you need the term loan or an overdraft.
It goes without saying that to get a home loan, a regular source of income is a must. HFCs offer loans of various types right from buying, construction, site loan, extension, repair and maintenance of property to even financing the stamp duty and registration charges.
Based on the fundamental nature of the loan it can be divided into two categories:
Long-term loan or typical housing loan
Housing loans are generally categorized under long-term loan as they are typically of longer tenure (up to 30 years). The basic feature of a typical housing loan (long term) is that the loan-amount is fixed. The interest for the loan is charged on the full loan amount (debt). A loan seeker is required to pay a fixed installment every month (EMI) as repayment towards the loan (debt servicing) availed to purchase the property. The inherent benefit in this type of loan is that consumers know their total liability (loan amount) and monthly liability (EMI) in advance and are in a position to create provision and plan for the same. This helps in better financial planning. The best part of this loan is that the term (years) of the loan can extend up to 30 years (ICICI Home Loan) and if you have been paying the EMIs regularly, there is no yearly review for the loan after disbursement.
This type of a loan is best suited for consumers who plan to buy a ready property and know their fund requirement for the purchase in advance (property purchase price). Since the term of the loan is fixed in advance, consumers are required to pay pre-payment charge (most of the cases, but not all) should they decide to pre pay. The pre-payment charge varies from a low of 1% to a high of 3% of the loan amount prepaid. A major negative with this loan is that consumers end up paying interest even on the unutilized portion of funds.
Short-term loan or overdraft facility
In the recent past, another type of scheme that is gaining fast gaining acceptance is the overdraft facility. In addition to term loan, foreign banks and nationalized banks also offer overdraft facility. This facility enables the loan seekers to withdraw money as per his requirement. In other words, total liability is not fixed in the beginning. The best part is consumers are only required to pay interest on the amount drawn for the purpose of buying or constructing the house. This basically means that if the loan seeker has drawn only Rs 500,000 for the purpose of constructing or buying a house and his overdraft facility limit could be Rs 1,000,000, he would be paying interest only for the money he has drawn i.e. Rs 500,000.
This type of a loan is best suited for consumers who are not sure about the exact loan requirement. This could happen in case of house construction work carried out by the loan seeker or in case where the loan is taken for home improvement, repairs or maintenance.
A major plus with this kind of a loan is that there are no prepayment charges on account of foreclosure of the loan. The loan tenure under overdraft facility does not exceed a year. However, the tenure can be extended after the bank reviews the facility (solely on banks discretion), which means that the interest rates charged would vary after every review. Moreover the interest rate for overdraft facility is much higher as compared to term-loan. This is not all, there is a commitment fee for the over draft facility and even if the facility is not availed, the commitment fee is charged to you.
So, both these loans have their plus points and drawbacks and you need to choose the option that suits you the most. One thumb rule that can help you in narrowing down to one vis-à¶is the other is if you are looking for a short term loan and are sure about the fund requirement then the overdraft facility would be very handy. But if you know the funds needed for the purchase right at the beginning and are looking for a long term loan, then the term loan would be a better option.
Home owners: Look at refinancing!
Recently the
Whenever there is a cut in interest rates, as has been the case over last two years, homeowners have the opportunity to save money. Lower interest rates generally translate into lower mortgage loan rates. If one looks at the housing loan interest rates 4-5 years ago, they were in the range of 14.5% to 17.0% and the current rate of interest for the same loan is in the range of 11-14%, a clear drop of 3-5%. This basically means refinancing your mortgage at a lower rate can save you a decent amount on every monthly repayment.
Will the savings from refinancing be more than the cost of closing the loan?
Numbers: It does matter!
To get an answer to this question requires cumbersome financial calculation. Everybody wants a simple rule of thumb, and the finance professional are usually quick to oblige. Most commonly one would be told to look for a minimum interest rate improvement of say 2% from the existing mortgage before seriously thinking about refinancing.
But when it comes to mortgage refinancing, the result of such thumb rules can be misleading. The quantum of interest rate cut required to make refinance a better option will vary dramatically depending on the term of new mortgage as well as the existing mortgage and of course the available opportunities for reducing the cost of closing the loan. So, its very difficult to come up with one rule that covers all the possible scenarios with reasonable accuracy. However, to get an estimate one can take specific numbers matching unique situations, like term of the new loan, term remaining for the existing loan, principal component left, old interest/new interest rate in offering, in short, cost of closing the old loan and cost of the refinancing to check whether refinancing make sense or not.
Refinancing: How much would you save?
This is generally a clear-cut calculation, but there is one catch: To cover the cost of closing the loan, one has to shell out money today, but the interest savings that would take place would be over a period of time. As per the time value of money: tomorrow's Rs 100 isn't as valuable as today's. So, it makes sense to convert your future interest savings to today's rupee value to get a fair comparison of cost of closing the loan, particularly if you plan to hold the new mortgage for a longish tenure.
Sounds a little confusing lets work out an example to understand it properly:
Assumption
Housing loan Current Refinance
Loan amount (Rs) 1,155,000 1,000,000
Time (yrs) 15 10
Interest % 16 12.25
EMI (Rs) 17,264 14,900
Total payment (Rs) 3,107,520 1,788,000
Closing cost and refinancing cost: Always factor in!
Apart from the repayment of the loan you need to pay the closing charges of the previous loan and the processing charge for the new loan. As per the industry standard these charges are in the range of 2% each (assumed 2%) Rs 40,000.
The closing cost of the loan would be Rs 20,000, prepayment-charge: (2%*1,000,000) Cost of new loan would be Rs 20,000 processing fee: (2% * 1,000,000)
Actual savings
Years EAI for old
loan (Rs) EAI for new
loan (Rs) Saving
(Rs) Savings discounted
at 10% (Rs)
1 207,168 178,800 28,368 25,789
2 207,168 178,800 28,368 23,445
3 207,168 178,800 28,368 21,313
4 207,168 178,800 28,368 19,376
5 207,168 178,800 28,368 17,614
6 207,168 178,800 28,368 16,013
7 207,168 178,800 28,368 14,557
8 207,168 178,800 28,368 13,234
9 207,168 178,800 28,368 12,031
10 207,168 178,800 28,368 10,937
Total 2,071,680 1,788,000 283,680 174,309
EAI: Equated annual installments
A glance at the table clearly indicates that if we only look at the saving in term of cash outflow it is Rs 283,000, a huge sum, Isnt it? But hold on, all these benefits are going to occur over a period of 10 years, so we need to see the present value of this sum. That is, what is the value of Rs 283,680 today and also the cash outflow of Rs 40,000 as the closing cost of previous loan as well as the cost of new loan (processing + prepayment charges – if any). If we factor in these costs the saving works out to Rs 170,309 (Rs 174,309-Rs 40,000) much lesser than you thought. So, before taking decision to refinance please make sure to factor in these aspects, instead of just going by the ‘thumb rule (interest rate difference should be 2%).
In addition to taking advantage of prevalent lower interest rates and saving money, there are other reasons that may prompt you to opt for refinance. For example you might want to convert your loan to shorter term in order to have that money available down the road for your future needs like, children's education or some other contingency.
However, if you still choose not to opt for refinance, you can always request your current lender to modify your loan. This way you can benefit from the lower interest rate market without taking much hassle of refinancing. Generally housing finance companies have a charge of 0.5% to 2% to shift your loan to lower interest rate, or floating interest rate.
Getting refinance is not a very easy job, so you might have to make a few visits to your housing finance company, but the effort is worth taking, especially when it results in substantial savings in the long run.
Joint Ownership: Tax saving and more!
Competition in the housing finance market is becoming increasingly intense. Companies are getting more aggressive and to make the most of this, you need to be careful.
Housing Finance Companies (HFCs) do their homework well to ensure that the EMI (equated monthly installment) for the loan amount never exceeds 30% to 50% of your net monthly take home. This is to ensure that you are not overburdened with debt every month.
Is the home loan amount enough to buy the property?
Most likely not. Especially if you are living in a city like Mumbai, where property prices are still on the higher side. So what do you do? Simple, club your spouses income with your income. This is permitted by the HFCs.
There is a dual benefit in doing this:
your repayment capacity is enhanced
you can make most of the tax benefits available to you.
Lets assume, you are earning around Rs 50,000 per month and your spouse is earning Rs 30,000 per month and you want to buy a property worth Rs 2,500,000.
No HFC will finance the required amount for your purchase, as your individual repayment capacity would entitle you to a loan in the range of Rs 1,400,000-1,900,000, which is insufficient. If you club your spouses income, the loan eligibility will increase to Rs 2,200,000-2,800,000 - more than enough to meet your requirement.
In the following illustration we have shown how this can be done.
An illustration
Interest: 11.25% annual reducing (fixed)
Years: 15 / EMI: Rs 29,373
First year repayment
Years EAI* (Rs) Interest
(Rs) Principal
(Rs)
1 352,474 281,250 71,224
* Equated Annual Instalment
Maximise your tax benefits
Look at the deal more closely. It has resulted in a lot more benefit than you thought by almost doubling the tax saving on account of tax sops attached to repayment of housing loan (Rs 150,000 on interest component and Rs 20,000 on principal component of loan repayment).
The tax benefit for you on repayment of this housing loan of Rs 2,500,000 would be about Rs 51,250 in the first year. Now since your spouse is a co-owner and contributes towards repayment of the loan she would also be eligible for the tax benefit (both principal and interest component). So the total benefit would amount to Rs 102,500 per annum. Effectively, the repayment per year towards the loan falls dramatically to Rs 249,974 (Rs 352,474 - 102,500).
You can make the most of the existing tax benefits by ensur ing that the higher earning member pays higher portion of the home loan EMI. This is because the tax benefit accrues in proportion to the individuals contribution towards loan repayment. This is especially beneficial in case the interest and principal component of the loan repayment per annum exceed Rs 150,000 and Rs 20,000 respectively.
If you plan to buy a house, it makes sense to include your spouse as a co-owner; especially if your spouses income is taxable. This will result in higher tax saving in addition to boosting your loan eligibility.
Wednesday 4 July 2007
Believe in Yourself
There may be days when you get up in the morning and things aren't the way you had hoped they would be.
That's when you have to tell yourself that things will get better. There are times when people disappoint you and let you down.
But those are the times when you must remind yourself to trust your own judgments and opinions, to keep your life focused on believing in yourself.
There will be challenges to face and changes to make in your life, and it is up to you to accept them.
Constantly keep yourself headed in the right direction for you. It may not be easy at times, but in those times of struggle you will find a stronger sense of who you are.
So when the days come that are filled with frustration and unexpected responsibilities, remember to believe in yourself and all you want your life to be. Because the challenges and changes will only help you to find the goals that you know are meant to come true for you.
Keep Believing in Yourself.
Lessons of Life....
I feared being alone until I learned to like myself.I feared failure until I realized that I only fail when I don't try.I feared success until I realized that I had to try in order to be happy with myself.I feared people's opinions until I learned that people would have opinions about me anyway.I feared rejection until I learned to have faith in myself.I feared pain until I learned that it's necessary for growth.I feared the truth until I saw the ugliness in lies.I feared life until I experienced its beauty.I feared death until I realized that it's not an end, but a beginning.I feared my destiny, until I realized that I had the power to change my life.I feared hate until I saw that it was nothing more than ignorance.I feared love until it touched my heart, making the darkness fade into endless sunny days
I feared ridicule until I learned how to laugh at myself.I feared growing old until I realized that I gained wisdom every day.I feared the future until I realized that life just kept getting better.
There may be days when you get up in the morning and things aren't the way you had hoped they would be.
That's when you have to tell yourself that things will get better. There are times when people disappoint you and let you down.
But those are the times when you must remind yourself to trust your own judgments and opinions, to keep your life focused on believing in yourself.
There will be challenges to face and changes to make in your life, and it is up to you to accept them.
Constantly keep yourself headed in the right direction for you. It may not be easy at times, but in those times of struggle you will find a stronger sense of who you are.
So when the days come that are filled with frustration and unexpected responsibilities, remember to believe in yourself and all you want your life to be. Because the challenges and changes will only help you to find the goals that you know are meant to come true for you.
Keep Believing in Yourself.
Lessons of Life....
I feared being alone until I learned to like myself.I feared failure until I realized that I only fail when I don't try.I feared success until I realized that I had to try in order to be happy with myself.I feared people's opinions until I learned that people would have opinions about me anyway.I feared rejection until I learned to have faith in myself.I feared pain until I learned that it's necessary for growth.I feared the truth until I saw the ugliness in lies.I feared life until I experienced its beauty.I feared death until I realized that it's not an end, but a beginning.I feared my destiny, until I realized that I had the power to change my life.I feared hate until I saw that it was nothing more than ignorance.I feared love until it touched my heart, making the darkness fade into endless sunny days
I feared ridicule until I learned how to laugh at myself.I feared growing old until I realized that I gained wisdom every day.I feared the future until I realized that life just kept getting better.
Friday 29 June 2007
If there were ever a time to dare...
If there were ever a time to dare, to make a difference, to embark on something worth doing, it is now.
Not for any grand cause, necessarily- but for something that tugs at your heart, something that's your aspiration, something that's your dream.
You owe it to yourself to make your days here count.
Have fun.
Dig Deep.
Stretch.
Dream big.
Know, though, that things worth doing seldom come easy.
There will be good days.
There will be times when you want to turn around, pack it up, and call it quits. those times tell you that you are pushing yourself, that you are not afraid to learn by trying.
Persist.
Because with an idea, determination, and the right tools, you can do great things.
Let your instincts, your intellect, and your heart guide you.
Trust.
Believe in the incredible power of the human mind.
Of doing something that makes a difference.
Of working hard.
Of laughing and hoping.
Of lazy afternoons.
Of lasting friends.
Of all the things that will cross your path this year.
The start of something new brings the hope of something great.
Anything is possible.
There is only one you.
And you will pass this way only once.
Sunday 24 June 2007
Thank you God !
I dreamt that I went to Heaven and an angel was
showing me around. We
walked side-by-side inside a large workroom
filled with angels.
My angel guide stopped in front of the first
section and said, "This
is the Receiving Section. Here, all petitions to
God said in prayer
are received."
I looked around in this area, and it was
terribly busy with so many
angels sorting out petitions written on
voluminous paper sheets and
scraps from people all over the world.
Then we moved on down a long corridor until we
reached the second section.
The angel then said to me, "This is the
Packaging and Delivery
Section. Here, the graces and blessings the
people asked for are
processed and delivered to the living persons
who asked for them."
I noticed again how busy it was there.
There were many angels working hard at that
station, since so many
blessings had been requested and were being
packaged for delivery to
Earth.
Finally at the farthest end of the long
corridor, we stopped at the
door of a very small station. To my great
surprise, only one angel was
seated there, idly doing nothing. "This is the
Acknowledgment
Section," my angel friend quietly admitted to
me. He seemed
embarrassed "How is it that there's no work
going on here?" I asked.
"So sad," the angel sighed. "After people
receive the blessings that
they asked for, very few send back
acknowledgments.
"How does one acknowledge God's blessings?" I
asked.
"Simple," the angel answered.
"Just say, "Thank you, God”.
"What blessings should they acknowledge?" I
asked.
"If you have food in the refrigerator, clothes
on your back, a roof
overhead and a place to sleep, you are richer
than 75% of this world.
If you have money in the bank, in your wallet,
and spare change in a
dish, you are among the top 8% of the world's
wealthy."
"And if you get this on your own computer, you
are part of the 1% in
the world who has that opportunity."
Also..."If you woke up this morning with more
health than illness
.... You are more blessed than the many who will
not even survive this
day.
"If you have never experienced the fear in
battle, the loneliness of
imprisonment, the agony of torture, or the pangs
of starvation. You
are ahead of 700 million people in the world."
"If you can attend a prayer meeting without the
fear of harassment,
arrest, torture or death you are envied by, and
more blessed than,
three billion people in the world."
If you can hold your head up and smile, you are
not the norm, you're
unique to all those in doubt and despair."
Ok, what now? How can I start?
If you can read this message, you just received
a double blessing in
that someone was thinking of you as very special
and you are more
blessed than over two billion people in the
world who cannot read at
all.
Have a good day, count your blessings, and if
you want, pass this
along to remind everyone else how blessed we all
are.
Attn: Acknowledgment Dept:
Thank You God! Thank you God, for giving me the
ability to share this
message and for giving me so many wonderful
people to share it with".
Tuesday 19 June 2007
Vision, Strategy & Tactics
Vision: What you want the organization to be; your dream.
Strategy: What you are going to do to achieve your vision.
Tactics: How you will achieve your strategy and when.
Your vision is your dream of what you want the organization to be. Your strategy is the large-scale plan you will follow to make the dream happen. Your tactics are the specific actions you will take to follow the plan. Start with the vision and work down to the tactics as you plan for your organization. Concepts Are The SameWhether you are planning for the entire company or just for your department the concepts are the same. Only the scale is different. You start with the vision statement (sometimes called a mission statement). When you know what the vision is you can develop a strategy to get you to the vision. When you have decided on a strategy, you can develop tactics to meet the strategy.
Vision
A vision is an over-riding idea of what the organization should be. Often it reflects the dream of the founder or leader. Your company's vision could be, for example, to be "the largest retailer of automobiles ", "the maker of the finest chocolate candies", or "the management consultant of choice for non-profit organizations ." A vision must be sufficiently clear and concise that everyone in the organization understands it and can buy into it with passion.
Strategy
Your strategy is one or more plans that you will use to achieve your vision. To be "the largest retailer of automobiles " you might have to decide whether it is better strategy for you to buy other retailers, try to grow a single retailer, or a combination of both. A strategy looks inward at the organization, but it also looks outward at the competition and at the environment and business climate.
To be "the management consultant of choice for non-profit organizations " your strategy would need to evaluate what other companies offer management consulting services, which of those target non-profits, and which companies could in the future begin to offer competing services. Your strategy also must determine how you will become "the consultant of choice". What will you do so that your targeted customers choose you over everyone else? Are you going to offer the lowest fees? Will you offer a guarantee? Will you hire the very best people and build a reputation for delivering the most innovative solutions? If you decide to compete on lowest billing rates, what will you do if a competing consulting firm drops their rates below yours? If you decide to hire the best people, how will you attract them? Will you pay the highest salaries in a four-state area, give each employee an ownership position in the company, or pay annual retention bonuses? Your strategy must consider all these issues and find a solution that works AND that is true to your vision.
Develop Flexible Tactics
TacticsYour tactics are the specific actions, sequences of actions, and schedules you will use to fulfill your strategy. If you have more than one strategy you will have different tactics for each. A strategy to be the most well-known management consultant, as part of your vision to be "the management consultant of choice for non-profit organizations " might involve tactics like advertising in the Newsletters for three successive issues, advertising in the three largest-circulation newspapers in the area for the next six months, and buying TV time to promote your services. Or it might involve sending a letter of introduction and a brochure to the Executive Director of every non-profit organization in the Southwest with a handsome annual budget.
Firm or Flexible?
Things change. You need to change with them, or ahead of them. However, with respect to vision, strategy and tactics, you need some flexibility and some firmness. Hold to your dream, your vision. Don't let that be buffeted by the winds of change. Your vision should be the anchor that holds all the rest together. Strategy is a long-term plan, so it may need to change in response to internal or external changes, but strategy changes should only happen with considerable thought. Changes to strategy also should not happen until you have a new one to replace the old one. Tactics are the most flexible. If some tactic isn't working, adjust it and try again.
Manage This Issue
Whether for one department or the entire company, for a multi-national corporation or a one-person company, vision, strategy, and tactics are essential. Develop the vision first and hold to it. Develop a strategy to achieve your vision and change it, as you have to meet internal or external changes. Develop flexible tactics that can move you toward fulfilling your strategy.
Strategy: What you are going to do to achieve your vision.
Tactics: How you will achieve your strategy and when.
Your vision is your dream of what you want the organization to be. Your strategy is the large-scale plan you will follow to make the dream happen. Your tactics are the specific actions you will take to follow the plan. Start with the vision and work down to the tactics as you plan for your organization. Concepts Are The SameWhether you are planning for the entire company or just for your department the concepts are the same. Only the scale is different. You start with the vision statement (sometimes called a mission statement). When you know what the vision is you can develop a strategy to get you to the vision. When you have decided on a strategy, you can develop tactics to meet the strategy.
Vision
A vision is an over-riding idea of what the organization should be. Often it reflects the dream of the founder or leader. Your company's vision could be, for example, to be "the largest retailer of automobiles ", "the maker of the finest chocolate candies", or "the management consultant of choice for non-profit organizations ." A vision must be sufficiently clear and concise that everyone in the organization understands it and can buy into it with passion.
Strategy
Your strategy is one or more plans that you will use to achieve your vision. To be "the largest retailer of automobiles " you might have to decide whether it is better strategy for you to buy other retailers, try to grow a single retailer, or a combination of both. A strategy looks inward at the organization, but it also looks outward at the competition and at the environment and business climate.
To be "the management consultant of choice for non-profit organizations " your strategy would need to evaluate what other companies offer management consulting services, which of those target non-profits, and which companies could in the future begin to offer competing services. Your strategy also must determine how you will become "the consultant of choice". What will you do so that your targeted customers choose you over everyone else? Are you going to offer the lowest fees? Will you offer a guarantee? Will you hire the very best people and build a reputation for delivering the most innovative solutions? If you decide to compete on lowest billing rates, what will you do if a competing consulting firm drops their rates below yours? If you decide to hire the best people, how will you attract them? Will you pay the highest salaries in a four-state area, give each employee an ownership position in the company, or pay annual retention bonuses? Your strategy must consider all these issues and find a solution that works AND that is true to your vision.
Develop Flexible Tactics
TacticsYour tactics are the specific actions, sequences of actions, and schedules you will use to fulfill your strategy. If you have more than one strategy you will have different tactics for each. A strategy to be the most well-known management consultant, as part of your vision to be "the management consultant of choice for non-profit organizations " might involve tactics like advertising in the Newsletters for three successive issues, advertising in the three largest-circulation newspapers in the area for the next six months, and buying TV time to promote your services. Or it might involve sending a letter of introduction and a brochure to the Executive Director of every non-profit organization in the Southwest with a handsome annual budget.
Firm or Flexible?
Things change. You need to change with them, or ahead of them. However, with respect to vision, strategy and tactics, you need some flexibility and some firmness. Hold to your dream, your vision. Don't let that be buffeted by the winds of change. Your vision should be the anchor that holds all the rest together. Strategy is a long-term plan, so it may need to change in response to internal or external changes, but strategy changes should only happen with considerable thought. Changes to strategy also should not happen until you have a new one to replace the old one. Tactics are the most flexible. If some tactic isn't working, adjust it and try again.
Manage This Issue
Whether for one department or the entire company, for a multi-national corporation or a one-person company, vision, strategy, and tactics are essential. Develop the vision first and hold to it. Develop a strategy to achieve your vision and change it, as you have to meet internal or external changes. Develop flexible tactics that can move you toward fulfilling your strategy.
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