Wednesday 9 July 2008

Investment Planner

PLAN YOUR INVESTMENTS AND TAX ALSO

Name of
Investment

Who can
Invest

Yield

Life / Lock-in
period

Issuer

Tax benefits
(see notes below)

Min./Max.
amount
(see notes below)

Liquidity

Capital
Appreciations

Nomination /
Joint Names

1.

Public
Provident Fund
(PPF)

Individuals
*HUFs
(Now NRIs not
allowed though old
accounts may
continue on non-
repartriation basis)

8% p.a. w.e.f. 1-3-2003
calculated on monthly balance
and credited annually.
(Compounded annually)

15 years. Optional
extension for block
of 5 years at a time

Govt. of India
through
Nationalized
Banks and
Post Office

Sections 10 and 80C
No TDS from interest
and withdrawal

Min. Rs. 100 p.a.
Max. Rs. 70,000
p.a. in respect
of individual
and minors
taken together

No withdrawal till expiry of 6th F.Y.
Then one withdrawal up to lower of
50% of the balance at the end of 4th
preceding year or the year immediately
preceding the year of withdrawal
Loan (of up to 25% of amount at credit
at the end of 2 preceding years) can be
applied for after 2 years but before 5
years from the end of year in which
initial subscription is made.

None.
Accumulation of interest

Nomination
possible except
for minors

2.

National
Savings
Certificates
VIII Issue (NSC)
(Available in
demat form
at select
post offices)

Any Entity

8% p.a. w.e.f. 1-3-2003
compounded half yearly.
Maturity value shall be Rs. 160.10
principal and int. for every
Rs. 100/-

6 years
Premature encashment
possible after 3 years
with lower yield as per
Rule 16 of National
Savings Certificates (VIII
issues) Rules, 1989

Govt. of India
through Post
Office

Section 80C.
Investment and
Accrued int. eligible
u/s. 80C except 6th year.
No TDS from
interest and
withdrawal

Min. Rs. 100
Max. No Limit

Can be transferred (but not
encashed) after one year
Premature encashment after
3 years with discounted interest

None.

Joint ownership
and nomination
possible

3.

8% Savings
Bonds, 2003
(Taxable)

Individuals, HUFs,
Charitable Institutions
and Universities,
Hospitals
(NRIs not allowed)

8% p.a. Interest on Non
Cumulative bonds will be received
half yearly (on 1st August & 1st
February) and interest on
cumulative bonds will be
compounded with
half yearly rests.
(1000 becomes 1601 in
6 years)

6 years

Govt. of India

None.
TDS is applicable

Min. Rs. 1000
Max. No. Limit

Not Transferable
Premature encashment
not possible

None
Accumulation of interest in case of
cumulative bond

Joint ownership
and nomination
possible for
single holder only
and not
available
for joint holdings
or minor investors

4.

Kisan Vikas
Patras (KVP)
(Now available
in demat form
at select
post offices)

Individuals and
Trust. Government
of Maharashtra has
declared KVP as a
public security
under the provision
of Mumbai Public
Trust Act, 1950

8.4% annually compounded
of certificate issued on or
after 1-3-2003
Every Rs. 1000 will become
Rs. 1170.51 after 2½ years
or more but less than 3 years; &
Rs. 1850.93 after 8 years or more
but less than 8 years & 7 months

8 years & 7 months
purchased on or
after 1-3-2003
Encashment possible
after 2½ years

Govt. of India
through Post
Office

None
No TDS from interest

Min. Rs. 100
Max. No Limit

Easily Encashable
after 2½ years

None
Accumulation of
interest Doubles in
8 years & 7 months.

Joint ownership
and nomination
possible

5.

Post Office
Recurring
Deposit

Individuals

7.25% p.a.
compounded quarterly
(Rs. 10 deposited
monthly becomes Rs. 728.90)

Five years. Extension for
another 5 years possible

Govt. of India
through
Post Office

None

Min. Rs.10
per month or
any amount in
multiples of Rs. 5
Max. No Limit

One withdrawal up to 50% of the
balance will be allowed after one
year and if up to 12 deposits
have been made

None.
Accumulation of interest

Joint Account &
nomination
possible

6.

Post Office
Monthly
Income
Scheme

Individuals

8% for deposits made on or after
1-3-2003 payable monthly. In
addition bonus of 10% payable
on maturity only on a/c opened
till 13-2-2006

6 years

Govt. of India
through
Post Office

No TDS from interest

Min. Rs. 1000
Max.
Rs. 3,00,000
Single Account
Rs. 6,00,000
Joint Account
One time
deposit only

Can be withdrawn at any time
after 3 years with 1% reduction
but no bonus and also after one
year with a reduction of 2%
from deposit amount

None

Joint ownership
and nomination
possible

7.

Post Office
Time Deposit

Individuals
Trust
Regimental Fund
Welfare Fund

6.25% - 7.5% p.a. payable on
maturity for deposits made on
or after 1-3-2003. Interest payable
annually but calculated on
quarterly basis

Either 1 year, 2 years,
3 years or 5 years

Govt. of India
through
Post Office

None
No TDS from interest

Minimum Rs. 200
and its multiples
Maximum
No limit

Can be withdrawn at any time
after 6 months but within one
year without any interest.
Premature withdrawal after
one year entails reduction
of 2% interest Scheme to Scheme

None.
Accumulation of Interest

Joint ownership
and nomination
possible

8.

Certificates of
Deposits

Any Entity [NRIs]
can invest only on
non-repatriable
basis]

Varies from time to time from
bank to bank

Between 91 days and
365 days

Scheduled
Commercial
banks excluding
Regional
Rural Banks

None

Minimum
Rs. 5,00.000
Max. No Limit

Tranferable by endorsement
and delivery after 30 days

None.
Accumulation of
Interest

Joint ownership
possible

9.

Financial
Institutional
Bonds

Any Entity

Varies from time to time as per
the market and other conditions

Generally 3 to 7
years period

Financial
Institutions—
Both Public
and Private

Section 80C for invest-
ment in Infrastructure
bonds

No Limit

Illiquid, though saleable in the
open market (can be in demat
form also)

Joint ownership
and nomination
allowed

10.

Listed Shares
of Limited
Companies

Any entity other
than firms and
trusts

Dividend rate varies

Shares continue till
the dissolution of
issuer company

Limited
Companies

Section 10 for dividend.
Short term capital gain tax
@ 10% and long term
capital gain tax NIL -
conditions apply.

No Limit

Very Liquid

Max. scope for
capital appreciation
by increase
in market values

Joint ownership
and nomination
possible

11.

Equity/Debt
Oriented
Schemes of
Mutual Funds

Any entity

Variable returns
(Dividend or Growth option)

No lock-in-period
Certain funds carry
exit load if exist within
certain specified
period

Mutual Funds

Section 10 for income.
Concessional capital gain
tax benefit as above for
equity oriented schemes.

Varies from
scheme to scheme

Can be withdrawn
at any time subject
to exit load which
varies from
scheme to scheme

Equity Scheme
Max. scope for
capital appreciation

Joint ownership
and nomination
possible

12.

Senior Citizen
Saving Scheme
2004 (SCSS)

Individuals above
60 years.
(In certain cases
above 55 years)
(NRIs are not
allowed)

9% p.a. payable quartely
It will be a 5 years
account and extendable by
another 3 years,
on extension, interest rate as of that
time shall be applicable)

5 years

Govt. of India
through
Post Office and
Nationalised
Banks

None
TDS applicable

Min. Rs. 1,000
Max. Rs. 15,00,000

Deduction of 1.5% if account is
closed after 1 year
and 1% if it is closed
after 2 years

Joint ownership
and nomination
possible

13.

Equity Linked
Saving Scheme


Any entity


Variable returns (Dividend or
Growth Option)

3 years

Mutual Funds

Section 10 for dividend
& Section 80C benefit
up to 1 lakh. Conce-
ssional capital gain
tax benefit.

Min. Rs. 500/-
Max. No Limit

Can be withdrawn
at any time
after 3 years

Equity Scheme
Max. scope for
Capital Appreciation

Joint ownership
and nomination
possible

14.

Term Deposits

Individual or HUF

Varies from time to time from
bank to bank

a) For a fixed period
of not less than five
years with a scheduled
bank and
b) which is in accordance
with a scheme framed and
notified by the Central
Government in the Official
Gazette for the purposes
of this clause. No TDS

Scheduled Banks

Sec. 80C Benefit
within the overall
limit of Rs. 100000
TDS is applicable if
interest exceeds
Rs. 10,000 per annum
per branch of each
bank.

No limit

For a fixed period of not less than
five years with a scheduled bank

Joint ownership
and nomination
possible

Pension Funds:

15.

Pension Plans of
Mutual Funds
(Currently only
U.T.I. and
Templeton)

Individual , HUF

Variable returns (Dividend or
Growth Option)

3 years

Mutual Funds

Section 10 for dividend
& Sec. 80C benefit up to
100000


Min. Rs 500
Max. No Limit

Can be withdrawn
at any time
after 3 years

Not more than 40%
in equities Scope for
Capital appreciation

Joint ownership
and nomination
possible

16.

Pension Schemes

Individual above
18 years

In Traditional Schemes as per
bonus rate announced &
in unit linked schemes as per
market conditions.

As per policy term

LIC &
other private
Life Insurance
Companies

Sec. 80CCC benefit
up to Rs. 100,000/- &
within the overall
limit of Rs. 1,00,000
of Section 80CCE

Minimum
as per policy
Max. No Limit

On maturity.
An Individual can withdraw 1/3rd
of the accumulated value as per
policy term which will be
Tax free u/s. 10 & Balance should
be commuted for pension.

In case of traditional
schemes accumulation
as per current bonus
rate & In case of unit
linked Plans equity
scheme Max. scope for
Capital appreciation.

Nomination
Possible

NOTES: 1

Tax Benefits i.

Section 80C

—-

Deduction in respect of investments up to Rs. 1 lakh in specified securities. (Govt. yet to notify increase in investment limits for PPF.)

ii.

Section 10

—-

Exemption in respect of income.

Tuesday 8 July 2008

Banking: Why India's different from the US


One of the points made about the US sub-prime crisis is that its roots lie in the enhanced efforts towards financial inclusion in the form of bringing sub-prime borrowers within the ambit of the financial services industry.

While there is extensive literature to show the crisis was triggered by the combination of under-pricing risk, complex financial engineering and a poor regulatory framework, the key to financial inclusion lies in adopting a two-pronged strategy:

First, fostering institution building, product and policy innovation capable of handling the "informationally opaque" borrowers, especially small businesses and farmers - borrowers without long credit histories suitable for credit-scoring; secondly, promoting of financial literacy and education to reduce information asymmetry itself to enable an expansion of mainstream credit markets with increasing participation by the excluded.

The Indian banking sector has acquired a greater degree of resilience due, inter alia, to the financial reforms implemented in a gradual and sequential manner within a participative process aimed at reduction in statutory preemptions, while stepping up prudential regulations and adopting international best practices taking into account the India-specific conditions at the same time.

An assessment of the banking sector performance shows that banks in India have experienced strong balance sheet growth in the post-reform period in an environment of operational flexibility. Improvement in the financial health of banks, reflected in significant improvement in capital adequacy and improved asset quality, is distinctly visible.

These significant gains have been achieved even while renewing our goals of social banking viz, maintaining the wide reach of the banking system and directing credit towards important but disadvantaged sectors of society. Thus, financial inclusion has been an integral part of the overall economic thinking, though this emphasis has acquired enhanced visibility in the recent years.

The financial inclusion model followed in India is aimed at providing access to formal banking to a large section of socially and economically excluded segment of population and improving its social/economic status.

The amounts involved are very small and spread over large geographical areas over large number of banks/financial institutions and do not involve any complex financial instruments. Thus, the argument that financial inclusion is fraught with the danger of jeopardising the financial system is not true in the Indian context, as is enumerated below:

The evolving Indian paradigm for financial inclusion, though not having any statutory backing, embodies various novel ingredients enumerated above. Making affordable financial services available to the un/under-served has been the cornerstone of the evolution underlying institutional development, product and policy innovation in India.

The Indian banking system is multilayered, comprising 82 scheduled commercial banks (SCBs), 92 regional rural banks (RRBs), 4 local area banks (LABs), 1,813 urban co-operative banks (UCBs) and 107,497 rural co-operative credit institutions.

The self-help-group bank linkage programme, adoption of Business Correspondent Model leveraging the post offices and setting up the Banking Codes and Standards Board of India (BCSBI) are illustrations of institutional creativity crafted to Indian conditions. The branch licensing policy followed by the RBI has an inclusive bias, while taking care of the viability aspects.

The involvement of the State Level Bankers' Committee (SLBC), simplification of know-your-customer (KYC) norms, introduction of the Banking Ombudsman Scheme and no-frills accounts (number of such accounts, which was less than half a million in March-end 2006 and rose to 7 million a year later, jumped to about 13 million by the end of December 2007), and Financial Sector Plan for North Eastern Region are the manifestation of inclusive centric-policy initiatives.

Yet, only 27 per cent of farm households are indebted to formal sources (of which one-third also borrow from informal sources). Thus, there is a huge unfinished agenda. However, India has the advantage of suitable infrastructure (institutions, products and policies) for scaling up efforts for financial inclusion in a big way.

The most effective catalyst for financial exclusion is economic development. Finance follows economics. Hence, there is a need for the financially excluded districts to catch up with the rest.

Nevertheless, in a wider canvas, micro finance, micro insurance, new delivery channels, and credit counselling would have to be integrated. For better outcomes, there has to be joint and concerted efforts on the part of the Government, the formal financial sector, voluntary organisations and SHGs. More focused attention on various fronts is called for.

There has been a measured streamlining of the banking architecture over the years, including refocusing the SCBs, consolidating RRBs and revamping the co-operatives. However, the LABs are not able to make significant headway in terms of redeeming their mandate.

The Rangarajan Committee on Financial Inclusion has recommended that the RBI may consider revisiting the LABs, in view of their inherent potential for ushering in financial institution. Thus, any blueprint for restructuring LABs needs to mitigate their inherent weaknesses such as meagre capital, restrictions on geographical jurisdiction, etc.

Recognising the fact that only 27 per cent of the eligible rural farming population has access to the formal banking system, the RBI has instructed banks to open a no frills account with zero or very low minimum balance.

Such a basic bank account should be supplemented by an account which has the potential for generating income, maybe linking up with SHGs. The role of SLBCs in furthering financial inclusion may be augmented by extending its coverage to all districts (from the current stipulation of one district) in a timebound manner.

The scope of collaboration of public, private and non-profit organisations for designing and conducting the financial education programmes could be explored. Leveraging IT for scaling up has to be top priority.

A National Rural Financial Inclusion Plan (NRFIP) may be launched with a clear target to provide access to comprehensive financial services, including credit, to at least 50 per cent of financially excluded households, say, 55.77 million, by 2012 through rural/semi-urban branches of commercial banks and regional rural banks.

The remaining households, with such shifts as may occur in the rural/urban population, have to be covered by 2015.

The latest Budget has announced certain measures incorporating some of these suggestions. As regards supporting funding costs in the initial stages, the Rangarajan Committee recommended two funds with Nabard namely, the Financial Inclusion Promotion & Development Fund and the Financial Inclusion Technology Fund with an initial corpus of Rs 500 crore (Rs 5 billion) each to be contributed in equal proportion by the central government/RBI /Nabard (these funds have since been set up).

To sum up, the evolving paradigm for financial inclusion in India does not have any resemblance to the US sub-prime crisis and efforts directed to achieve financial inclusion India do not possess the adverse potential for jeopardising the Indian financial/banking system. On the contrary, financial inclusion will enhance the viability of the banking sector through a process of deepening.

(Adopted from Web)