Dilzer Consultants - Investments and Financial Planning

An ISO 9001 (2008) Certified Company



Financial Planners in Bangalore

Your World of Finance Matters made Easy

Tax planning and tax saving options

A financial plan is the blue print of your financial life- Dilshad Billimoria in Mint

A Financial Plan is a blue print one's financial life- http://www.livemint.com/Money/JZt5p2f9o1g66gYdvLkBOL/A-financial-plan-is-the-blue-print-of-your-financial-life.html

Dilshad Billimoria in Mint - 20 July 2015

Bullet proof your health - COFP Article

My article on Importance of Health Insurance and Cover benefits http://dilzer.net/2015/06/20/bullet-proof-your-health-cofp-fp-pulse-article-by-dilshad-billimoria/

Claim Ratio- Dallal Times- by Dilshad Billimoria 6th June 2015

My article in Dalal Times on Claim Ratio and its intricacies- http://www.dalaltimes.com/article/investing/did-you-consider-these-things-while-buying-insurance-105937.aspx

Interview of Dilshad Billimoria in Fundoo.com

My Interview here

Dilshad Billimoria

Dilzer Consultants Pvt Ltd Promotional Video

Dilzer Consultants Pvt Ltd Promotional Videohttps://youtu.be/PbH31KUCbhI

Dilshad Billimoria writes in Dalal Times 15 April 2015

Dilshad Billimoria writes in Dalal Times 

Best Ways to Manage with Single Income

Best ways to manage with single income

Dilshad Billimoria
Dilzer Consultants

The Truth Behind Number Tricks- Mint 10 March 2015

Budget 2015: Expectation from the Salaried Class. Dilshad writes in Dalal Times.

Budget 2015:
Expectation from the Salaried Class. 

Dilshad writes in Dalal Times. 

Dilshad Billimoria writes in Mint on teaching the value of money to your children.

Dilshad Billimoria writes in Mint

Teaching Value of Money to your children

Dilshad Billimoria
Director Dilzer Consultants Pvt Ltd.

Market Valuation- March 2015

Markets are Still Under Valued-  March 2015

Dilshad Billimoria- Dilzer Consultants Pvt Ltd

Budget 2015- Snapshot

Budget 2015 Presented by Mr Arun Jaitley - Finance Minister.

On 28th February 2015, Budget 2015 was presented by our honourable Finance Minister.
The underlying objective throughout his 1.5 hours speech has been accelerating growth, enhancing investment, and creating employment benefits for the poor in the country.

He emphasised, this is what they practise and  preach.

Below is the highlights of some of key factors relating to finance:

1. Fiscal deficit to meet target of 4.1% of GDP in 2014-15. in 2015-16, it will meet 3.90%, 16-17 3.50% and 17-18, 3% of GDP
2. Public and infrastructure spending to be increased to 70,000 crore.
3. Defence- RS 246000 crore outlay  for Defence.
4. Tax free bonds to be introduced in Road, Rail and Irrigation.
5. Universal Social Security Benefit Scheme(Atal Pension Yojna) to provide for social security benefits to the non employed workforce of our country.
6. Senior Citizens Welfare Benefit Scheme to benefit Senior Citizens with pension benefits from the huge unclaimed amount lying in EPF and PPF pool.
7. Everlasting Fame- A corpus of 3700 crore set up to showcase / exhibit Parsee culture and heritage in India. Global Heritage fund in Hampi, Goa, Wlephanta Caves, Rajisthan, Leh and Hyderabad promoting tourism and culture in our country.
8. IT Support fund for start ups in IT.
9. The Power Sector gets a major boom- Over 4000 MW projects to be set up.
10. Financial Redressel Cell to be set up protecting interest of investors against financial service providers.
11. Gold Monetisation scheme to help the common man, earn interest on their gold, and enable banks to provide loan against the same. Also a Sovereign Gold bond with a fix interest rate to be introduced. This will check black money inflow through import of gold in our country.
12. Woman Social Security and benefit fund with 50,000 toilets to be set up and 1000 crore towards Nirbhanya fund.(Hope something is actually utilised from this fund.)
13. In Indirect taxation- GST to be introduced by next year (2016) to benefit uniform pricing of goods and services in our country.
14. High checks on black money circulation and imprisonment with penalties  of upto 10 years and  fine of upto 300% of tax on concealment of income and assets overseas
15. Wealth Tax to be Abolished.
16. Corporate Tax Rate reduced to 25% from 30%, however exemptions and deductions allowed will be phased away slowly.
17. Service tax net increased from 12% to 14% and the negative list of Service tax payees to be trimmed further.
18. Under Direct Taxes- Income tax, no change in slabs, however surcharge of 2% on taxable income over 1 crore  to be charged.
19. Health deduction benefit to increase from Rs 15000- RS 25000 deduction under Section 80D for individuals. Very Senior Citizens to benefit upto Rs 60,000 deduction.
20. Under Section 80CCD - Pension scheme investment benefit allowed upto Rs 50,000  per annum over and above Rs 1,50,000 allowed under Sec 80C.
21. Salaried Class benefit- Transport Allowance deduction, increased from Rs 800 to RS 1600 per month

With the overall macro situation now benign and inflation coming under control, Jaitley realizes this was his best chance to lay the broad reform framework in place, and execute the various elements over time.
 However, what will be keenly watched is how the Budget initiatives play out in the days and months ahead and whether Jaitley’s gamble on growth actually pays off.
While the ultimate test for Jaitley will be in how the various Budget proposals are implemented, the finance minister does deserve full marks this time round for putting forward a Budget which aims to address multiple challenges. As a statement of intent, it gets full marks. And that is a pretty good beginning.

Thank you
Dilshad Billimoria

Dilzer Consultants Financial Planning Division attains ISO Certification: The how! November 2012

Dilzer Consultants Financial Planning Division attains ISO Certification: The how!
November 2012

On the last day of the Comprehensive Financial Plan workshop, Sadique laid out almost 77 marketing tips & strategies on how to improve our business, acquire clients and build better relationship with clients. One of the 77 struck me hard and I said, I need to get this done for my practice. It was getting an ISO certification for my firm "DIlzer Consultants".
So, I started googling and stumbled upon OSS certification company, which had a accredtion given by Australia and New Zealand! I asked for a brief on the company profile and background of the organization and the process needed for certification.
After the initial interaction, I was told to keep the following documents ready;
  • Registration Certificate and Organization route map.
  • Organisation chart and process flow chart.
  • Responsibility and authority of concerned departments.
  • Legal requirements as applicable.
  • Establishment and Incorporation certificate (we had almost misplaced the original!)

The fees was divided as stage 1 audit (basically to check if your firm can be audited) and stage 2 (which involves review and evaluation of management systems documents and would comprise of onsite audit. There would be two annual follow ups 12 and 24 months from the date of certification and renewal would be based on procedures and practices laid down and followed! Therefore, the ISO Certification would be valid for 3 years, subject to annual review every year for 2 years.
The date was fixed and I was very excited. (Apparently, the date we got the certification  26 July 2012 marked the 11th anniversary of commencing my financial advisory division of business. It was a pleasant and god given coincidence)
On the arrival of the auditor, we were asked for the above documents and to my surprise a host of other documents which we were not told of earlier and had to start gathering as, he asked for the same.
Luckily for us, we follow a very detailed process driven Action plan for our clients. Right from the Initial Welcome letter to ongoing service details, we have outlined the process and follow the same for every client. This ensures standardization of delivery and process, which is the basis of an ISO certified company.
The following additional documents were requested from the ISO person for the onsite audit.
  • List of client names
  • Process followed on initial client acquisition with the details of mails communicated and follow up.
  • Sample Financial Plan.
  • Sample Account statement.
  • Financial Plan construction process
  • Categories / Types of clients.
  • Services provided to our clients.
  • Service Execution process and delivery for AUM clients.
  • Services execution and delivery for NRI clients.
  • Financial Plan review and coverage and why review is so important.
  • Investment execution process
  • Newsletters
  • Asset Allocation
  • Feedbacks and Feedback Form
  • HR and in house development
  • Job Responsibilities and Duties
  • Staff questionnaire, performance review and monitoring the same.

This method has helped our organization streamline the requirements to meet client expectations and show them we follow a well defined process in their interest.

What is your Asset Allocation.

Are Arbitrage funds really useful.

How Three year FMPs Still score over FDs: Economic Times

How Three year FMPs Still score over FDs. Please read this from Economic Times here

Thank you

Goal Calculations.

You can calculate your goal amounts very basically here: Pl note these are not considered the final calculations, since there are other parameters that form part of the calculation,like evaluating existing resources etc, which vary from person to person


Dilshad Billimoria
Certfied Financial Planner

New Pension Scheme: Livemint

Check List for Home loan Buyers: Dilshad Billimoria.

Checklist for home loan buyers.

These are some of the questions a client must ask the bank before signing on the dotted line.

Checklist for Home loan buyers:

  1. What is the rate of interest for various tenures, which will help you decide which tenure is best suitable depending on your cash flows and interest outflow.
  2. What is the interest option: floating or fixed. If interest rate regime is low, and expected to reduce further, floating option is best. If interest rate regime is high, and expected to increase, then fixed rate option is best.(Pl check terms and conditions on fixed rates. Sometimes, even though interest option choosen by borrower is fixed, when interest rate  changes are announced by RBI, like, bank rate and CRR rate changes, banks have said to increase the fixed rate also. Sometimes there is a ladder rate applied, which is a combination of fixed and floating for specific periods. Best to check with your financial planner on the option with flexibilities to change the option, depending on the economic environment in which you are investing.
  3. What is the processing charge and can it be reduced.(Should not exceed 0.50%) Flat fee better.
  4. What is the documentation? Too much probing hassles?
  5. What are pre payment rules? Some banks have a charge if more than 25% of the home loan is pre paid in one year. This should not happen.
  6. What is the frequency at which interest rate is reset? Daily, fortnightly, monthly, annual rest. Daily reducing balance is best, based on EMIs paid.
  7. Is their a sweep-in account, which acts as a current bank account and also sweeps any balance from this account towards interest repayment as and when a balance is available.
  8. When EMI can be increased from current EMI by the borrower, is higher pre payment possible: If yes, what reduces? Interest/ principal/ tenure. Principal must reduce and therefore interest, which automatically reduces tenure.
  9. Is loan portability possible with other banks easily. If so, what are foreclosure charges with current bank. Is portability within the same bank at new interest rates possible, if so, find out what the charges are? Sometimes, cost involved in foreclosing loan from one bank and transferring to another bank is higher, than the balance amount to be paid. Hence a calculation is to be done by your financial planner before the switch is made.
  10. If pre EMI is an option(where only simple interest payment is made proportionate to level of construction) in under construction projects, one can switch to EMI option(where principal and interest payment is made) and claim tax exemptions in later years.
  11. Pre EMI interest ca be written off at 1/5 every year after possession of property us taken.
  12. Can an add-on loan be taken at the same terms for interiors at a later date?
  13. Are registration costs included in loan sanction?

Dilshad Billimroia
Founder and Certified Financial Planner

Dilzer Consultants (An ISO 9001 (2008) certified company.

Power of Subconscious Mind in Investor’s Risk Tolerance & Risk Taking Capacity: Dilshad Billimoria

Power of Subconscious Mind in Investor’s Risk Tolerance & Risk Taking Capacity

Risk tolerance is the amount of risk that an investor is comfortable taking, or the degree of uncertainty that an investor is able to handle. Risk tolerance often varies with age, income and financial goals. It can be determined by many methods, including questionnaires designed to reveal the level at which an investor can invest, but still be able to sleep at night.
Risk capacity, unlike tolerance, is the amount of risk that the investor "must" take in order to reach financial goals. The rate of return necessary to reach these goals can be estimated by examining time frames and income requirements. Then, rate of return information can be used to help the investor decide upon the types of investments to engage in and, the level of risk to take on. 
There are many questionnaires and software’s available in the market today to measure risk tolerance; but the human mind feasts on irrationality and sometimes, the logic of a well laid out set of questions, graphs, and plans falls in the flush.
After a Financial Planner has spent hours on a client and his family, listening, understanding, educating, probing and twisting questions on their financial needs, goals, risk, attitude towards money, how they have grown up with the values of money and its scarcity or abundance, all this becomes obsolete on the face of changing events, situations.
If you recognize and accept the Power of the Subconscious mind, believe that it is the law of life and belief, of your internalized truths, and when there is a blend between the conscious and the sub conscious mind, then the outcome is harmony in being. The harmony of acceptance and truth that prevails.
Mind you, the power of the sub conscious can be good or bad, but what is important, is that decision is “entirely yours”. The other advantage of the subconscious mind, is that it never takes decisions on the spur of the moment unlike the conscious mind. The feelings and thoughts are internalized and beliefs grown into your system before it overtakes the conscious mind. Therefore, the control, again, is “You”.
Some of the factors which I have encountered that have changed the perception of client’s ability to take on risk are:
1. Wants dominate needs
Very often, man, being the greedy mammal that he is, is led into temptation made available from various materialistic offerings available around us. Today, there is no dearth of eating the best food, choosing the best vacations, buying top end cars, living in the luxury of multiple condominiums, (like one can live in more than one home at a time!). In all this, logic does not prevail. It is the power of our subconscious overcoming the conscious that ultimately leads to the action of suddenly pulling out one’s investments or digressing from the risk level or goal planned for the future.
2) External factors beyond our control affect decision making
Do we have control, if Narendra Modi, becomes our next Prime Minister? Do we have control over the falling rupee? Do we have control on the gold imports in India, Do we have control if Portugal and Spain are facing economic slowdowns? None, of the above factors, you will agree, is in our control. What is in our control, however, is how we react to such situations. To educate, empower and communicate to clients, about the happenings of the market, the acceptance, that these events are not in our control and that they are presumably temporary. What needs to be communicated, is, what can be done to keep the portfolio in place and ensure the final goals laid out are met.
3. Circumstantial / Situational Conditioning
With nature and life changing eventslike a divorce, or a marriage, or a mid-life crisis, or a pregnancy, or menopause or a widowed situation, (luckily I have faced all with clients, friends and/or family), people become suddenly more cautious and react completely different from what they have agreed earlier, and signed on the dotted line for!  The hormonal imbalances during such situations drive such irrational behavior, and many people turn defensive, angry, lack self worth, sometimes, even denying what they have mutually agreed upon earlier in terms of their risk appetite, goals or plan and this leads to a change in the whole plan carefully created for them.

4. Daily distractions
Sometimes, it is the daily distractions of say a fight with someone that matters, or a dislike for someone, or lack of feeling of self worth, procrastination or plain boredom, that creates imbalances in our actions and makes our take hasty decisions against what we ourselves have agreed and planned for before.
5. Uncanny truth about retiring
Have you heard some investors telling you, they want to retire tomorrow or yesterday? Well, such clients are probably the one’s not certain about their financial well being and are more likely to take irrational decisions on wealth and health, while deciding on when to retire. Such clients are also prepared to take on any amount of risk to meet the short and impractical deadline. For such clients, risk tolerance is subconsciously very low, but consciously high and this leads to a mismatch between the known and the unknown in decision making process.
While some others who have created their nest egg, or are close to it, the likes of Bill Gates and Warren Buffet, really do not want to retire, or retire only at 80! Some others who depend on other sources of retirement corpus creation, like social security, pension, feel, that saving would suffice for their retiring years, inflation and tax adjusted! They fall weak on the third leg, which is personal savings for creation of corpus.
Some feel, it is not important to save for retirement, until it is imminent, which is far from the truth. The situation gets graver, if the individual is older and still lies in the comfort of not awakening to the reality of their nest egg. This is when generally panic strikes and risk tolerance is thrown out the window in creation of a pool of savings.
6. Emotional ability to handle financial loss
Sometimes, the high risk takers, are also the herd mentality people and want to follow the latest trend in meeting their goals. What happens in such “too good to be true situations” They never last! Along with the mayhem on seeing his portfolio slide, his emotional decision of taking on high risk is demoralized and he resorts to panic selling, without having a clear thought process to his decision making.
7. Changing time horizon of life goals
Haven’t you come across clients, who agree, in principle, that they need to buy a car or a house in 5 years,  and you have designed their risk and portfolio accordingly, but suddenly, they fancy a latest car of the road or a  real estate opportunity, too good to sound true and bam they knock on your door and all the analysis and work on portfolio selections, asset allocation, is stamped with one redemption, irrespective of losses made, exit loads lost, capital gains tax paid or most important at the cost of his other non negotiable financial goals.
Is this all correct? NO… But the human mind loves irrationality!

Dilshad Billimoria CFP
Founder and Chief Financial Planner
Dilzer Consultants (An ISO 9001(2008) Certified Company.

Tax planning and tax saving options FY2012_13

Dilshad Billimoria
Since the full amount invested upto Rs 1,00,000 is eligible for 100% tax deduction benefit. This investment is reduced from your Gross Income and therefore, can reduce your tax slab and therefore tax liability. The benefit is a deduction and not a rebate, so, in effect, the entire amount saved is tax deductible.

Snapshot of Tax rates specific to Mutual FundsThese rates are subject to enactment of the Finance Bill 2011. The rates are for the Financial Year 2012-13.
1.Income Tax RatesFor Individuals, Hindu Undivided Families, Association of Persons and Body of Individuals

For general tax payers

 Income tax slab (in Rs.)Tax 
 0 to 2,00,000  No tax
 2,00,001 to 5,00,000  10%
 5,00,001 to 10,00,000    20%
 Above 10,00,000   30%

For female tax payers

 Income tax slab (in Rs.) Tax
 0 to 2,00,000  No tax
 2,00,001 to 5,00,000  10%
 5,00,001 to 10,00,000 20%
 Above 10,00,000  30%

For senior citizens (Aged 60 years but less than 80 years

 Income tax slab (in Rs.)    Tax
 0 to 2,50,000  No tax
 2,50,001 to 5,00,000 10%
 5,00,001 to 10,00,000 20%
 Above 10,00,000    30%

For very senior citizens (Aged 80 and above)

 Income tax slab (in Rs.)Tax 
 0 to 5,00,000    No tax
 5,00,001 to 10,00,000     20%
 Above 10,00,000      30%

Note : Surcharge is nil and 3% cess will be charged on above tax.(a) In the case of a resident woman below the age of sixty years, the basic exemption limit is Rs 2,50,000

b) In the case of a resident individual of the age of sixty years or above but less than eighty years, the basic exemption limit is Rs 2,50,000

(c) In the case of a resident individual of the age of eighty years or above, the basic  exemption limit is Rs 500,000

(d) Surcharge is not applicable, education cess of 3% on income-tax is levied

(e) Marginal relief may be available

Capital Gains

 Particulars Short-term capital gains tax rates (a) Long-term capital gains tax rates (a)
Sale transactions of equity shares / unit of an equity oriented fund which attract STT 15% Nil
Sale transaction other than mentioned above:
Individuals (resident and non-residents)Progressive slab rates 20% with indexation; 10% without indexation(for units/ zero coupon bonds)
 Firms including LLP (resident and non-resident) 30% 20% with indexation; 10% without indexation(for units/ zero coupon bonds)
Resident Companies 30% 20% with indexation; 10% without indexation(for units/ zero coupon bonds)
 Overseas financial organizations specified in section 115AB 40% (corporate) 30% (non-corporate) 10%
 FIIs 30% 10%
 Other Foreign companies 40% 20% / 10%
 Local authority 30% 10% without indexation(for units/ zero coupon bonds) / 20% (for others)
 Co-operative societyProgressive slab rates 10% without indexation(for units/ zero coupon bonds) / 20% (for others)

(a) These rates will further increase by applicable surcharge & education cess.

Eligible Investments for deduction under Sec 80C>Public Provident fund PPF upto Rs 100000 p.a -It is recommended investments are made in this avenue, before the 3rd of any month, to ensure, compounding is available for the full month, since calculations are made for interest on the balance lying in the account within the 3rd day of any month for the full month. This option provides for safe and guaranteed returns and a small allocation of savings for tax must be made in this, especially for retirement benefits.
>Equity Linked Savings Scheme (ELSS) in mutual funds. This option provides for market linked returns with a 3 yr lock in period. This is a liquid option and provides for high return with a corresponding higher risk proposition.

>Post Office investments- These investments have lost their attractiveness since the returns have reduced and the same is taxable. The lock in periods in these schemes also are high.

>Principal component of Home loan. The principal component of EMI in the home loan is eligible for deduction upto Rs 100,000 under Sec 80C.

>Tuition fees for child education. This is allowed as an exemption upto a maximum of 2 children.

>Five year fixed deposit in a scheduled commercial bank.

>Other eligible investments under Sec 80C.

>Senior Citizen Savings Scheme 2004- This option has recently been introduced as a savings option . The interest is taxable.

>Employee Provident Fund (EPF) This is the employee contribution made to the provident fund of 12% of Basic and DA. The rate of interest is 8.60% p.a. Only the employees contribution is eligible for tax deduction benefit. Although the employer contributes a similar amount to the EPF fund.

>Voluntary Provident fund: This option is available to salaried individuals who can invest upto the balance  88%(100-12% EPF) of their salary towards VPF. With the new DTC coming in, the amount on withdrawal maybe subject to TDS.

>Life Insurance and ULIP plans-This is an option for persons who would like to save in insurance.

>Pension plans- This is a must for planning for the long term. The younger you are, the lower would be your outflow for a retirement plan. Also, since retirement planning is the longest plan to be planned for which considers pre and post retirement interest rate and inflation rate, this goal must be planned for everyone. Therefore, any contribution made to these plans, is eligible for tax deduction under Sec 80C upto Rs 100000.

>Please note for Salaried Individuals, additional tax benefit can be sought through the following components of the Salary Structure:

1.HRA Deduction.
2.Conveyance Deduction.
3.Medical Benefit Deduction.
4.Leave Travel Allowance Deduction.
Therefore, the above deductions, can help reduce taxable income of an individual to a large extent.
In addition to the above, it is important to plan for your goals, and structure your savings accordingly. A Certified Financial Planners in Bangalore can help you on the same.

For more details visit: www.dilzer.net

MCLR vs Base Rate.

What is Base Rate?

Our Central Bank (RBI) sets a minimum rate for loan borrowers below which banks are not allowed to lend money that is termed as Base rate. This was done to ensure that the customers would receive lower cost of funds with transparency in the credit market.

Why use it over Base rate for loan computation?

Till 1st April 2016, banks were using Base rate (introduced in the year 2010) for calculating interest on loan.  This replaced the previous concept named BPLR (Benchmark Prime Lending Rate) which was introduced in the year 2003. The latter one carried criticism that banks charged high interest rate for retail customers thereby subsidizing corporate borrowers.

Below listed points explain why MCLR score better over Base rate:

 1)  Base rate Lacks Transparency in the calculation on interest rate.

2) Another drawback on this Base rate is, all banks did not carry similar rate of interest. There was skewed computation been considered in base lending rate.

3) It did not consider Current and Savings deposit rate of interest but considered only Fixed Deposit ROI towards calculation.

4) Added to this, it also did not take into factor the cost of borrowings from RBI.

5) Central Bank lent free hand to banks to use any method for calculating base rate either by considering average cost of funds or marginal cost of funds or blended cost of funds.

6) Base rate was least sensible to change in the Repo rate which happens during monetary policy announcement.

Hence uniformity in the lending rate by different banks was  brought in through MCLR as governed by RBI.

How does the banking borrowing system work

RBI is the apex of the Indian Banking system, under which there are the commercial banks which includes Public sector and Private sector banks, foreign banks and local area banks which includes rural banks and co-operative banks. The best way to know the business of banking is through a perusal of a typical bank’s balance sheet. This statement is the financial health check of bank which reflects Assets and Liabilities of banks at a particular point of time.

Also, usages of bank funds can be viewed in this balance sheet. Banks capital fund is sourced in the form of Fixed Deposit, Savings account and current account, borrowings from RBI and Equity funds from the owners of the shareholders. These borrowings form the liabilities of the bank. Through this borrowings, banks grant Loans, invest in securities, purchase equipment and hold cash items such as currency and deposit in other banks. These constitute Assets of Bank. Hereby Assets of banks are indications of what the bank owns or claims on external entities like individuals, firms, governments etc.. On contrary, liabilities are indications of what the bank owes as claims which are held by external entities of the bank. Hence net worth / Capital of any commercial banks is calculated by subtracting Total Assets from Total Liabilities. These assets and liabilities of banks need to be managed by banks to maximize the profits. 

The Major list of Liabilities of the Banks are Capital and reserves, Deposits, borrowing from other sources, Contingent Liability, Profit or Loss. These are the funds obtained by banks in the form of debt primarily used to make loans and purchase securities.

Banks work like other business firms to strive for profit. The borrowed funds are primarily used to purchase income earning assets, mainly loans and investments.    These assets are reflected in the balance sheet statement of the bank in decreasing order of the liquidity. Following are the major assets of the bank: Cash, Money at call and Short notice, Loan and Advances, Investments, Bills Receivable and Other Assets.

RBI has brought in a new methodology by which banks are allowed to lend home loan to new borrowers through internal benchmark lending rates termed as MCLR.

Why was MCLR over base rate introduced – What was the need for the same

Many a time we have come across interest rate cuts through monetary policy carried out by RBI. But banks were reluctant to pass this benefit to borrowers. In order to achieve the desired objectives of better monetary transmission, transparency and fair treatment RBI wanted the banking interest rates to penetrate into the economy at a faster pace.

Hence the MCLR regime came into existence

With effect from 1st April 2016, the home loan interest rates have been replaced by MCLR (Marginal Cost of funds based Lending Rate), as mandated by RBI. As India is one of the Emerging economies, we need to incorporate monetary transmission in our system at par with our global partners. MCLR carries 4 components for computation:

  1. a) Marginal cost of funds
  2. b) Negative carry on Account of CRR (Cash reserve Ratio)
  3. c) Operating Costs
  4. d) Tenor Premium.

Marginal cost of borrowing is cost of borrowings and return on net worth for banks. Marginal cost of borrowing has weightage of 92% while return on net worth has weightage of 8%. Thus formula goes like this:  Marginal cost of Funds = (92% * Marginal cost of borrowing) + (8% * return on net worth)

Negative CRR (Cash Reserve Ratio which banks have to hold as reserves or deposit with central bank) as balances kept with the RBI does not carry any return hence it is called as negative carry on the CRR. The Negative carry on CRR is calculated like, Negative Carry = (Required CRR*Marginal Cost)/ (1-CRR)

 Operating cost is the costs involved in raising funds. Since this is not a part of the Loan it will charged separately and recovered as service charges. Expenses such as salaries paid to staff, branch rent or other expenses which are not directly charged to customers are included under this head.

Tenor Premium arises from the committed loan with longer tenor. Higher the tenor higher the premium. This also refers to the reset of the interest rate for definite period. For a given tenor this remains same for types of Loans, in other words there would not be any borrower specific or product specific.

As per brokerage and investment group CLSA, the funding for these banks are done by domestic funding mix hence MCLR is directly linked with these deposit rates. For better understanding, if the prevailing one year Term deposit RoI is @7.50% then One year MCLR will be 7.50% + Negative CRR + Operating cost + Tenor Premium


In India, RBI’s monetary policy announcement deals with quantum of money flow and supply affecting rate of interest, inflation and asset prices. This event is currently happening every two months in a year or when situation demands for it. Any increase or decrease in the policy rates would make banks  raise or lower the variable/ floating rate of Interest, thereby affecting EMI payable by loan buyers.

From the illustration shown below, you can understand the mathematics behind this monetary transmission and decide whether you would like to switch from existing Base rate to MCLR based type of loan. Here are the list of Components we consider for calculation:

  1. Outstanding home loan amount
  2. Outstanding tenor of the home loan
  3. Differential rate of interest (For calculation purpose we assume this ROI as Fixed)
  4. Any additional charges (like Switch fee, pre-closure fee, processing fee, registration fee etc…)

Note: Considering 0.5% as switching fee, it may vary from bank to bank. Increase in the savings on the Interest outgo is directly related with value of Loan amount, differential rate of interest and outstanding tenor.

Banks generally look for tenor adjustment by keeping EMI (Base Rate) unchanged. Let’s look at the calculation part and significance received by borrower  in the given below table:

The above calculation reveals that reduction in the tenor is more beneficial than keeping original tenor unchanged. But the only drawback is, this is not assured as interest rates varies at the time of monetary policy announcement by RBI. Also, actual benefit can be known to the borrower only at the end of the loan tenor.

Should you switch to MCLR from Prevailing Base Rate?

It is evident from the above illustration that if the person had taken loan after July 1st, 2010 and before April 1st, 2016 where their loans are linked to base rate with rate of interest @10%, switching from their existing Base rate to MCLR will help old borrowers to save on the interest outgo. After the rate cuts announced by Banks, average MCLR has fallen to 8.75% and much lower creating differential spread of 1- 1.25% which will have impact on EMI and Interest components and on the tenor component as well. Also it is observed that longer the tenor more the benefit a person can receive. But moving from Base Rate to MCLR have several things to look out as mentioned below.

Things to Lookout before switching;

  1. Once loan is switched to MCLR it cannot be moved back to Base rate.
  2. After switching to MCLR, there will be upward risk in the interest rate reset by RBI during monetary policy announcement. If there is any change in the Repo rate, it will be reflected in corresponding MCLR rate.
  3.  People who have bought home loan before 1st April 2016 are with Base rates and have no option to switch to MCLR
  4. If you feel banks offered MCLR rates are high then look out for refinancing from another bank which is offering lower rate of interest. There may be processing fee, lawyer’s fee, mortgage charge etc…  been charged by bank.  Please consider these costs in refinancing the loan.


In the given below chart, there are list of 34 major banks with their MCLR Bank Base rate tracker with various MCLR maturities tenor such as Overnight , One month, Three Month, Six Month and One Year.



Finally:   From the given above calculations and information about the savings on interest and rate of interest from various banks, it’s time for the borrowers to decide whether to switch their loan from Base rate system to MCLR system keeping several look outs in mind. Historical data on these changes has quickly reflected on debt instruments like money market rates and Government bond yields unlike banks provided rate of interest. In an emerging market like India and government policies pertaining to housing sector there will be always scope for rate cuts in the near future. We are reiterating that final decision on switching over to MCLR should be considered on the basis of spread involved in that and additional loading involving  switching fee /processing fee / transfer fee etc… Based on the above information one can take a prudential call.


Rashmi Mahesh

Senior Para Planner- Dilzer Consultants Pvt Ltd


Source: https://capitalmind.in/2017/02/banks-mclr-update-31st-january-2017/





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The Arbitrage Edge

The Arbitrage Edge- Tax efficient and return efficient!

The term arbitrage refers to buying and selling of an asset in order to profit from the difference in prices between two markets. For example, the equity stock price of Infosys was Rs. 1,243 in the cash market and the futures price of Infosys was Rs. 1,252 in the futures and options market. Hence by buying the stock in cash market and selling or shorting Infosys futures in the futures market you would be making a profit of Rs. 9 (Rs. 1,252- Rs. 1,243).

Similarly, arbitrage funds are a type of equity funds which primarily take advantage of the price differences of the same asset (equity) between cash and derivatives market. Though they are termed as equity funds, they do have a provision of investing a small part of their portfolio in debt markets i.e., around 20% to 30% is invested in debt and the remaining 70% to 80% is invested in equity.

Arbitrage funds are most suitable for people who are looking for:-

  • Safe returns
  • Tax efficiency
  • Best alternative to fixed deposits for a period of 1 year.

These funds work best during high market fluctuations andthey are mainly aimed at giving you returns within short period of time, so it does not technically qualify for long term investment but more acceptable for parking short term money.

Why invest in Arbitrage for the short term, do they score over liquid funds and FMPs?

For a long time liquid funds and fixed maturity plans (FMPs) were a better alternative for fixed deposits for a holding period of one year. But, in 2014 budget, the tax provision on all debt funds was changed. You can enjoy the indexation benefit for debt mutual funds only after 3 years. This is when Arbitrage funds hit the spotlight as a better alternative for fixed deposits. Since, arbitrage funds are categorized as equity funds, like all equity funds, capital gains and dividends are tax free after one year making them superior to liquid funds and FMPs as well.

There are cases where, some arbitrage funds do not directly invest in equity after making profits through price differences; instead, the balance is invested in debt market. These types of funds are usually called as arbitrage plus plans. For example, IDFC arbitrage plus fund, ICICI prudential blended plan etc invest the balance amount in actively managed debt funds to the extent of more than 60%. Also, some funds increase allocation in debt market if they do not find good opportunities in equity markets. But, once these funds increase exposure in debt market more than 35%, the fund will be treated as a debt fund and taxed accordingly.

For an arbitrage fund to be treated as an equity fund, the equity debt allocation should be 65%:35%; only then the returns after 1 year will be tax free in arbitrage funds.

The below comparison chart and table depicts the difference between post tax returns of fixed deposits, FMPs, liquid funds, and arbitrage equityfunds:-



Fund name

Post tax Returns

Edelweiss Arbitrage Fund


SBI liquid fund


SBI 1 year FMP


SBI 1 year FD



Arbitrage pic

Arbitrage scores on returns and tax efficiency











In the table and graph, liquid funds, FMPs are taxed at 30% since debt funds are taxed at marginal rates if the holding period is less than 3 years and fixed deposits are taxed at marginal rates irrespective of the holding period.

However, arbitrage funds are completely tax free after a year making it supreme for short term parking of money.


Ashok Eshwaran

Head Research and Client Relations

Dilzer Consultants Pvt Ltd

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All New Goods and Service Tax (GST) Reforms


What is GST

                From when is this effective

                Who will be impacted / exempt


Why Streamline-

                                What is the need?

                                What are the benefits

                                How will the same be streamlined


How will it impact sectors and Govt revenues

                Benefits to the economy

                Industry specific benefits / demerits

                 Stakeholders/ consumers benefits / demerits


How GST fits in the  Big Picture


What is GST

                Goods and Service Tax is a comprehensive tax levy on manufacture ,sale and consumption of goods and service at a national level under which no distinction is made between goods and services for levying of tax. It will mostly substitute all indirect taxes levied on goods and services by the Central Govt of India.

GST is a tax on goods & services under which every person is liable to pay tax on his output and is entitled to get input tax credit ( ITC ) on tax paid on its input . ( a tax on value addition only ) and ultimately the final consumer shall bear the tax.

France was the first country to introduce GST in 1954. Worldwide , thereafter , almost 150 countries have introduced GST after that.

Indirect taxes in India have driven businesses to restructure and model their supply chain and systems owing to multiplicity of taxes and costs involved. Once GST will see the light of the day, the way India does business will change, forever. 

 GST will convert the country into unified market, replacing most indirect taxes with one tax. It would have a dual structure – a Central component levied and collected by the Centre and a state component administered by states.

At the Central level, it will subsume Central excise duty, service tax and additional customs duties while at the state level it will include value-added tax, entertainment tax, luxury tax, lottery taxes and electricity duty. Central sales tax (CST) will be completely phased out. Entry tax or octroi would be subsumed from the start. But state taxes on petroleum products will continue for a few years after GST is introduced, as per the deal brokered between the Centre and states on Monday. State taxes on alcohol and tobacco, too, would remain.

As with VAT, the tax will be charged on each stage of value addition. At each stage, a supplier can off-set the levy through a tax credit mechanism. This means, the consumer pays GST added on by only the last dealer in the supply chain.

Salient Features of GST

 (i) The GST would be applicable on the supply of goods or services as against the present concept of tax on the manufacture and sale of goods or provision of services. It would be a destination based consumption tax.
(ii) It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra- State supply of goods and / or services would be called Central GST (CGST) and that to be levied by the States would be called State GST


(iii) The GST would apply to all goods other than alcoholic liquor for human consumption and five petroleum products, viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel. It would apply to all services barring a few to be specified.

(iv) Tobacco and tobacco products would be subject to GST. In addition, the Centre could levy Central Excise duty on these products.

(v) The GST would replace the following taxes currently levied and collected by the Centre:

  1. Central Excise duty
  2. Duties of Excise (Medicinal and Toilet Preparations)
  3. Additional Duties of Excise (Goods of Special Importance)
  4. Additional Duties of Excise (Textiles and Textile Products)
  5. Additional Duties of Customs (commonly known as CVD)
  6. Special Additional Duty of Customs (SAD)
  7. Service Tax

(vi) State taxes that would be subsumed under the GST are:

a . State VAT

  1. Central Sales Tax
  2. Luxury Tax
  3. Entry Tax in lieu of octroi
  4. Entertainment Tax (not levied by the local bodies)
  5. Taxes on advertisements
  6. Purchase Tax
  7. Taxes on lotteries, betting and gambling
  8. State cesses and surcharges insofar as they relate to supply of goods and services

(vii) An Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Accounts would be settled periodically between the Centre and the States to ensure that the SGST portion of IGST is transferred to the destination State where the goods or services are eventually consumed.

(viii) Tax payers shall be allowed to take credit of taxes paid on inputs (input tax credit) and utilize the same for payment of output tax.However, no input tax credit on account of CGST shall be utilized towards payment of SGST and vice versa. The credit of IGST would be permitted to be

utilized for payment of IGST, CGST and SGST in that order.

(ix) HSN (Harmonised System of Nomenclature) code shall be used for classifying the goods under the GST regime. Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2 digit code and the taxpayers whose turnover isRs. 5 crores and above shall use 4 digit code.

(x) Exports shall be treated as zero-rated supply. No tax is payable on export  goods but credit of the input tax related to the supply shall be admissible to exporters.

(xi) Import of goods and services would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.

(xii) The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.

 From when is this effective

                The Model GST Act ,2016 is now available but final enactment will take time at center and state level , so April 1st 2017 is the more realistic date for GST implementation.

 Who will be impacted / exempt

                Besides simplifying the indirect tax structure, GST should also help to create ‘One India’ by eliminating geographical fragmentation. It will remove the current cascading of taxes by ensuring the seamless flow of input credit across the value chain of both goods and services,” suggests a report from Nomura.

Which sectors and companies will gain the most if GST gets implemented?

Morgan Stanley analysts say four of the ten sectors they have evaluated would benefit from GST implementation. Consumption (warehousing consolidation), logistics (more movement of heavy vehicles), house building materials (lower duties), and industrial manufacturing would likely experience a positive impact; oil & gas could see a negative impact, while cigarettes could see a negative impact only if overall tax incidence goes up, which may be a low-probability event. The remaining sectors would likely see a neutral impact. 

Exemptions under GST are :  

  1.   Petroleum products

    2. Entertainment and amusement tax levied and collected by panchayat /municipality/district council

    3. Tax on alcohol/liquor consumption 

    4. Stamp duty, customs duty 

    5. Tax on consumption and sale of electricity 


Source  http://economictimes.indiatimes.com/markets/stocks/news/gst-will-change-the-way-india-does-business-who-will-win-who-will-lose/articleshow/53517955.cms


Why Streamline

                 Presently, the Constitution empowers the Central Government to levy excise duty on manufacturing and service tax on the supply of services. Further, it empowers the State Governments to levy sales tax or value added tax (VAT) on the sale of goods. This exclusive division of fiscal powers has led to a multiplicity of indirect taxes in the country. In addition, central sales tax (CST) is levied on inter-State sale of goods by the Central Government, but collected and retained by the exporting States. Further, many States levy an entry tax on the entry of goods in local areas.

This multiplicity of taxes at the State and Central levels has resulted in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry. Firstly, there is no uniformity of tax rates and structure across States. Secondly, there is cascading of taxes due to ‘tax on tax’. No credit of excise duty and service tax paid at the stage of manufacture is available to the traders while paying the State level sales tax or VAT, and vice-versa. Further, no credit of State taxes paid in one State can be availed in other States. Hence, the prices of goods and services get artificially inflated to the extent of this ‘tax on tax’.

There is lot of streamlining and simplicity: imports and inter-state movement of goods or services will be subject to IGST (integrated GST), while all local “supplies” will suffer CGST (central GST) + SGST (state GST) or IGST (which is effectively the total of CGST and SGST). All of these are subject to only minimal exemptions.

Imports of goods will remain chargeable to BCD as before.

When selling goods or services, our manufacturer would also charge IGST, or CGST + SGST.

Therefore, VAT, CST, entry tax, central excise duty, service tax, CVD, SAD, and various other cesses are all going to be subsumed within the folds of GST.

 How will it impact sectors and Govt revenues

                Under the proposed GST, effective tax rate on goods (comprising around 70-75 per cent of the CPI basket) will decline. 

A significant proportion (35-40 per cent) of goods (majorly agriculture products) are not subject to tax and we expect a status quo in future. 

At present, services-oriented components constitute ~25-30 per cent of the CPI basket with a major share belonging to housing, transport and communication sector . Service tax is not imposed on certain ( 12 per cent of the CPI basket) services and these services are expected remain exempt under GST regime. A hike in tax rate on services is unlikely to have any material direct impact on CPI. 

Thus, the overall transition to GST will not have a significant impact on inflation 

Sector wise impact of GST:- 

Automobiles:  The effective tax rate in the sector currently ranges between 30 per cent and 47 per cent. 

► On implementation of GST the tax rate is expected to oscillate between 20-22 per cent. 

► It is expected to drive overall demand and reduce cost for the end user by about 10 per cent. 

► The transportation time and the overall cost will be reduced as the goods will be transferred from one state to another by easily surpassing various octroi and check points. 

► In addition to this, the cost for the logistics and supply chain inventory will be curtailed by almost 30-40 per cent. 

Impact: In a long run, GST is expected to remain positive for automobile sector. 

Consumer durables  :  The current tax rate for the sector ranges between 7 per cent and 30 per cent. 

► The implementation of GST will essentially benefit companies, which have not availed tax exemptions in the past. 

► It will lead to the reduction of the price gap between the organised and unorganised sector. 

► The warehouse/logistics costs across the operational and non-operational segments will be curtailed. This will improve the operational profitability by almost 300-400 bps. 

► The 7th Pay Commission is also expected to boost demand and fund inflow in the consumer durables sector by the end of the year. 

Impact: The impact may remain neutral or negative, specifically for companies which either enjoy tax exemptions or fall under the concessional tax bracket. 


Impact: The impact may remain neutral or negative, specifically for companies which either enjoy tax exemptions or fall under the concessional tax bracket. 

Furnishing and home decor 

Impact: Currently, the effective tax rate for the sector ranges above 20 per cent. 


► After the implementation of GST, paints and other construction chemicals companies will benefit from lower tax rate. 

► At present, the market share for the organised sector is about 65-70 per cent. Effective tax correction practices under the GST regime will  ensure that the price difference amongst the unorganised sector and the organised sector is narrowed. This will improve opportunities for the organised sector. 

► The overall cost and competitiveness in products such as like ceramic tiles, faucets, sanitary ware and plywood & laminates manufacturer will be curbed. 

Impact: – Implementation of GST is expected to bring the unorganised sector under a uniform tax base and improve growth opportunities for the organise .. 


Highlights: The implementation of GST will lead to lower transit time and thereby generate higher truck utilisation. 

This will boost demand for high tonnage trucks and lead to overall reduction in transportation costs. 

It will facilitate seamless inter-state flow of goods, which is expected to directly accelerate demand for logistics services. 

IMPACT : The logistics sector is largely fragmented and comprises many unorganized players. Several players in the unorganised sector avoid tax which generates a cost gap between them and the organized players. 

With the GST coming into picture, we expect an overall positive impact, with a reduction in the cost competitiveness as all the players will be brought under a uniform tax base, thereby improving growth opportunities for the organized players. 


Currently, the tax on cement ranges between 27 per cent and 32 per cent. 


► The tax rate for the cement sector is expected to decline to 18-20 per cent under the GST regime. 

► This is expected to lead to savings in the transportation cost, which currently comprises up to 20-25 per cent of total revenue. 

► Thereby, overall realisations of cement companies will substantially improve post GST rollout. 

Impact: The impact of GST will be positive, as the companies will also be able to save on their logistic costs, due to rationalisation of warehouses and lower transportation costs (due to decline transit time). 


We have divided in two main categories i.e. Multiplexes and Media. We expect a significant impact on both the sectors after implementation of GST. 

Multiplexes: This category attracts different taxes such as service tax, entertainment tax and VAT among others. Currently, the effective tax ranges between 22-24 per cent. 


► It is expected GST tax rate will trickle down to 18-20% .. 

► Reduction in taxes will lead to an increase in average ticket price (ATP) and higher revenue. 

► There exist several challenges pertaining to: 

► Availability of limited credit for service tax paid on lease rentals, maintenance cost, advertisements, security charges. 

► No credit is available on the taxes paid on capital expenditure. 

► The VAT credit on available on the purchase of F&B can be offset against VAT liability on F&B sales. 

► Entertainment tax rate on box office collections ranges between 22-24 per cent and the same is not cenvatable against any input taxes. 

These will be addressed after the implementation of GST. 

Impact: The overall impact is expected to be positive and the Ebitda margins of the players are expected to increase by 250-350 bps. 


The effective tax rate for the sector currently ranges between 6-7 per cent 


► Under the GST regime, there is no clarity whether a lower rate will continue for the readymade garments. 

► Companies may be negatively impacted in case the output tax rate is high. 

► Going forward, several export companies may also avail duty drawback benefits. Though we await more clarity on the impact of these benefits. 


Currently, the sector enjoys various location-based tax incentives. The effective tax rate (excise duty) for most companies is much below the statutory tax rate (6 per cent). 


► The concessional tax bracket for the sector is expected to continue. 

► The existing tax exemptions will continue until expiry of the tax exemption period. Going forward it will be difficult to bring forth the new exemptions. 

► GST is also expected to address inverted duty structure and lower logistic costs for the sector. 

Impact: It is expected remain neutral for the pharmaceutical sector. 

IT & ITeS 

Currently, the IT industry is subject to an effective tax rate of 14 per cent. 


► The tax rate under GST is expected to increase to 18-20 per cent. 

► The industry earns a large part of its revenue from exports, which will continue to be exempt under GST. 

► Litigation around taxability of canned software will probably end under GST regime as there will be no distinction between goods and services. 

Impact: It is expected to range from being neutral to slightly negative. 


Currently, telecommunication services are subject to service tax of 14 per cent. 


► The tax rate is expected to increase to 18 per cent under GST. 

► It is expected that the telecom companies may pass the increased tax burden on postpaid subscribers. 

► Availability of input tax credit will lower the sector’s capex cost. 

Impact: Increase in effective tax rate may be marginally negative for the sector. The telecommunication companies may not be able to pass on all the increase in taxes to all the end consumers, especially the ones in the lower prepaid sections.


Currently, the effective tax rate for base metal products is 19-21 per cent: 

► VAT ranges from 4-5% depending on the state 

► Excise 12.5%, CST 2% and entry taxes in respective states. 

Impact: Under GST, it is not known whether metal products will attract a special rate that is lower than the standard GST rate. 

Banking and financial services 

Currently the effective tax rate is 14 per cent, which is levied only on fee component (and not interest) of the transaction. 


► Under GST, effective tax rate on fee-based transactions is expected to increase to 18-20%. 

► As the taxes on the input services will increase, operating expenses (comprising of rent, legal & professional fee, advertisement, insurance, telecommunication and other expenses) will also increase marginally. 

Impact: With the implementation of GST a moderate increase in the cost of financial services such as loan processing fees, debit/credit card charges, insurance premiums, etc. is expected. 

How GST fits in the  Big Picture

So why is the market so fascinated about the GST? Will it really be a game changer? More importantly, how will it impact listed companies?
Morgan Stanley has come out with an explainer stating that implementation of GST will be one of the most significant reforms affecting all factors of production and economics. The implementation of a unified GST in India is viewed as one of the most far-reaching indirect tax reforms that the country will see, says Morgan Stanley.
Broking firm Nomura points explains that currently under the constitution, while the Union government is constrained from levying taxes on goods beyond the point of manufacturing, state governments cannot levy taxes on services. Thus, to simplify and unify the current indirect tax structure, an amendment to the current constitution is needed. The implementation of a unified and simplified GST through constitutional amendment could overhaul the current indirect tax system of India.
GST is a consumption tax that is collected on sale of manufactured goods and services.  Since it is a consumption tax it is passed on until the last stage, wherein the customer bears the tax, just like excise duty is imposed currently.
What makes GST an important tax reform is it simplifies the tax structure, increases tax compliance, increases government revenue and integrates states. Morgan Stanley says that the current taxation system creates borders within borders in the country, as the system is unable to provide tax credits for interstate transactions, and this leads to distortions in the allocation of resources. In this context, one of the most important benefits of implementing the GST is that it would integrate the economy and provide for a common national market. Corporate sectors’ decisions to set up production operations would be influenced not by tax benefits but on core business efficiency.
What will be the impact of GST on the economy? Analysts say that after an initial increase in inflation, which will be transitory in nature, growth should kick in. Broking firm Nomura estimates that the GST would drive up headline CPI inflation by 20-70 basis points in the first year due to higher prices of electricity, clothing & footwear, health/medicine, and education after accounting for input taxes and potential asymmetric pricing behaviour by firms where tax increases may be quickly passed on to output prices, while firms refrain from fully passing-on tax savings to consumers. However, in the long term, lower tax and logistic costs, productivity gains and higher investments under the GST should structurally reduce inflation.
Market is betting on growth that GST is expected to bring in. Morgan Stanley points out that the overall impact of better allocation of resources, improving efficiency of domestic production and exports is likely to improve overall growth.

 As per estimates from the National Council of Applied Economic Research (NCAER), growth could increase by 0.9% to 1.7%.  

What is the expectation of the GST rate to be :

India can also start with low GST rates. The lower rate would mean lesser incentive for tax evasion and encourage better compliance. It will also help widen the tax base. As the structure of GST envisages use of PAN number and linking with NSDL database, compliance for direct taxes will also enhance. Just like Malaysia, India’s GST revenue can surprise on the positive side as there are huge leakages in the system, especially at local octroi and tax collection machinery at state levels.
On the other hand, a high GST rate may arouse popular sentiment against it and compliance may not start on a good note. 

Another important factor to watch will be GST’s impact on inflation. Low GST rates will not stoke inflation and will boost growth and employment. However, in the wake of such high decibel debate on government and RBI stance on rate cuts and inflation, any rise in inflation will be a huge deterrent for the new RBI governor to cut rates. Higher incidence on services may not get fully captured in the CPI- inflation index but will hurt a much larger part of the population, being provider or consumer of services.

The low rates will encourage many new enterprises to expand, put in new investments and attract new capacity at micro and small level. With India becoming one market, a lot of possibilities will open up for small as well as large enterprises. Entrepreneur’s investment is always driven by sentiment or expectation about future profit and not actual profits as actual profits are known only with hindsight long after the investment is made. A low GST rate will create positive sentiments all around and boost investments .. 

India was never better placed to take the risk of some revenue loss in short term. The government is sitting on a huge bounty from lower oil prices of the last two years. Politically also, lower rates will be difficult to be opposed and will garner public support — so essential for any path-breaking reform. 
The implementation of GST will bring huge long-term benefits to the country. It will help superior and more optimal resource allocation, increase competitiveness in domestic production and exports, reduce, simplify tax structure and enhance ease of doing business and boost GDP growth by anywhere between 80 to 150 bps. It is therefore very important that the process runs smoothly and does not fall prey to negative public sentiment. 

A simple courageous call on keeping rates surprisingly low for instance 8% for essential, 16% standard and 32% for luxury items can be the real game-changer. 

GST Example Highlighting the Streamline process at Manufacture, Wholesaler and Customer Level






Sneha Ramamurthy

Research Desk- Dilzer Consultants Pvt Ltd







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A snapshot into Masala Bonds

Masala bonds are similar to corporate or government bonds which are issued to raise money by companies or the government. Masala bonds are rupee-denominated borrowings by Indian entities in the overseas market.They are issued to foreign investors such as UK markets (London Stock exchange)and Asian markets and settled in US dollars. Hence the currency risk lies with the investor and not the issuer, unlike external commercial borrowings (ECBs), where Indian companies raise money in foreign currencyloans.These masala bond borrowings have maturity anywhere between three and ten years.

It was in 2015, Finance minister- ArunJaitley, permitted Indian companies to sell masala bonds. The initial year was a non-starter for masala bonds. However, in the month of June 2016, India’s largest mortgage lender HDFC had opened subscription for its masala bonds and found itself oversubscribe by 4 to 5 times. It had issued 30 billion rupees on July 14th’ 2016, yielding 8.33% and was listed in the London stock exchange.

Purpose of introducing masala bonds

Through ECB’s- the major threat faced by Indian companies was currency risk. Banks were also unsupportive in re-financing Indian corporates who succumbed to outstanding foreign currency loan of over $200 million last year (2015), due to US fed tapering of quantitative easing, devaluation of Chinese currency (Yuan) and fall in Indian currency.

  1. Hence, with the approval of RBI, masala bonds firmly shields Indian firms against currency risk. Instead the risk is transferred to the investors who buy these bonds.
  2. Another purpose was to internationalize Indian rupee or gain more global recognition to rupees which will in turn strengthen foreign investments in India.
  3. In reference to Indian economy, the main motive to issue these bonds are to support investments in infrastructure sector, railways and sectors which contribute to economic growth and job creation. Also, to cater to lot of private companies in raising funds easily, when Indian banks cannot support or finance these companies.
  4. To helpIndian companies to cut down cost. If the company issues any bond in India, it carries an interest rate of 7.25%-8.85% whereas; Masala Bonds is issued below 7.00% interest rate.
  5. Finally, masala bonds were introduced to mitigate existing liquidity concerns in the Indian debt market.

Advantages of Masala bonds

  1. A clear advantage is that currency risk is not borne by the issuer.
  2. There are more options to raise money by corporates. Earlier companies used to issue only corporate bonds and now masala bonds can be an addition to their portfolio.
  3. Indian companies can invariably increase the number of investors, through offshore market as well.
  4. A foreign investor will be benefited if rupee appreciates during the bond maturity.


  1. One challenge the RBI may face is setting the currency rates once the issuance of these bonds grow.
  2. If foreign investors hedge their rupee investments in their respective market, the RBI has no control over these markets.
  3. Another worry would be- locally raising money through corporate bonds might reduce and the growth in Indian corporate bond markets and Indian banks will be affected.

Impact on currency markets in India

Experts from global markets feel that rupee is over-valued. Even though, rupee is steadily appreciating since February 2016, many argue that it would be a temporary phenomenon and rupee is said to weaken if US fed rates are hiked in December’2016.

But, with positive response towards issuing masala bonds by big companies like HDFC, NTPC- foreign investor’s awareness to currency risk they are exposed to, will influence them to have a better understanding on the valuation of Indian currency. Moreover, continued increase in foreign inflows will result in making Indian rupees stronger.

Tax implications

For Masala bonds, there is withholding tax of 5% which is valid until June 30th 2017, unless extended. This withholding tax is borne by foreign investors on the interest earned from masala bond investments.This tax was levied “in order to provide broad based incentive and encourage greater off-shore investment in debt market by FIIs and QFIs. It has been decided that the benefit of lower withholding tax [i.e. 5 per cent instead of 20 per cent] shall be available in respect of interest on investment made in bonds issued by Indian companies and Government securities” quoted by the finance ministry of India.

Taxation of STCG and LTCG:

Any gain arising on transfer of rupee denominated bonds by a non-resident Indian will be treated as accrued in India and therefore they are liable to pay tax.

  • On short term capital gains (held for less than 3 years): tax rate is 40%
  • On long term capital gains (held for more than 3 years): tax rate is 10%

Overall, masala bonds can be a shield for corporates against exchange rate risk, diversified options to raise money by corporates and provides more global recognition for the Indian rupee.

A glimpse into HDFC masala bonds and its success

That said- HDFC was remarkably the first corporation to raise money through masala bonds. Annualised yield for the HDFC masala bonds works out to 8.33%, lower than the final guidance of 8.35%. The funds have raised at a fixed semi-annual coupon of 7.875% per annum and has a tenor of three years and 1 month.

This issue was managed by Credit Suisse, Axis Bank and Nomura Securities.

HDFC was able to pull this big revolutionary issue since global environment on bond yields have fallen sharply and improved liquidity.

This success from HDFC gave confidence to many corporates to raise funds through these rupee denominated bonds. Companies like, Power Finance Corp., NTPC, National Highways Authority of India (NHAI), Rural Electrification Corp. and Adani Group arm Adani Transmission have all been in discussions with investment bankers to issue masala bonds. The size of these issues are between Rs.500 crore and Rs.1,500crore.

Recently (on August 8th 2016) NTPC raised Rs. 2,000 crore by selling five-year “green” bonds to support renewable power projects.

Both HDFC and NTPC issues were over-subscribed, attracting many international investors and making pavement to other corporates to issue masala bonds.


–Ashok Eshwaran

Research Head and Manager – Client Relations


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FD vs FMP and MCLR Rates being offered by banks on loans and deposits


– Changes in the banking industry and current scenario

– What is the impact on you ?

– What Investment options do regular investors have –

– Choice of FD Vs FMP ( bank wise rate descriptions )

 – Choice of FMP ( MF schemes description )

– Tax implications

General trend of declining interest rates

– Future of your savings and market linked rates is the new theme


 Changes in the banking industry and current scenario

From April this year, RBI has asked banks to move to the new marginal cost-based lending rate (MCLR). All new flexible rate or floating rate loans will get linked to MCLR, which is linked to actual deposit rates. Each bank has multiple MCLRs depending on the different tenures. The new methodology has come into effect from 1 April 2016 and is expected to curtail banks’ ability to hold on to higher base rates despite the RBI slashing rates. 

How it works 

So far, banks followed diverse methodologies for computing the minimum rate at which they could lend—the base rate. Now, the RBI has asked all banks to follow the marginal cost of funds method to arrive at their benchmark lending rate. MCLR will be calculated after factoring in banks’ marginal cost of funds (largely, the interest at which banks borrow money), return on equity (a measure of banks’ profitability), negative carry on account of cash reserve ratio.

How is MCLR calculated? (Components of MCLR calculation)

Let us first understand as to how banks make money or profit. The primary function of a bank is to lend money and to accept deposits from the public. The difference between advances and deposits is the income earned by the banks. So, how is the base rate or Standard Lending Rate calculated by the banks?

The main components of base rate system are;

  • Cost of funds (interest rates offered by banks on deposits)
  • Operating expenses to run the bank.
  • Minimum Rate of return ie margin or profit
  • Cost of maintaining CRR (Cash Reserve Ratio).
  • As you can see, the banks do not consider ‘repo rate’ in their calculations. They primarily depend on the composition of CASA (Current accounts & Savings Accounts) and deposits to calculate the lending rate. Most of the banks are currently following average cost of fund calculation. So, any cut or increase in rates (especially key rate like Repo Rate) by the RBI is not getting transmitted to the bank customers immediately.

As per the RBI’s new guidelines, it is mandatory for the banks to consider the repo rate while calculating MCLR with effective from 1st April, 2016. The new method — Marginal Cost of funds based Lending Rate (MCLR) will replace the present base rate system.

The main components of MCLR calculation are:

  • Operating Expenses
  • Cost of maintaining CRR
  • Marginal Cost of funds ( After considering interest rates offered on savings / current / term deposit accounts. Based on cost of borrowings i.e., short term borrowing rate which is repo rate & also on long-term borrowing rates).
  • Return on Net-worth
  • Tenor Premium (an additional slab of interest over the base rate, based on the loan tenure & commitments).


The main differences between the two calculations are i) marginal cost of funds & ii) tenor premium. The marginal cost of funds will have high weight-age  while calculating MCLR. So, any change in key rates (increase or decrease) like repo rate brings changes in marginal cost of funds and hence the MCLR should also be changed by the banks immediately.

(In economics sense, marginal means the additional or changed situation. While calculating the lending rate, banks have to consider the changed cost conditions or the marginal cost conditions.)

RBI’s key guidelines on MCLR

All loans sanctioned and credit limits renewed w.e.f April 1, 2016 will be priced based on the Marginal Cost of Funds based Lending Rate.

  • MCLR will be a tenor-based benchmark instead of a single rate. This allows banks to more efficiently price loans at different tenors based on different MCLRs, according to their funding composition and strategies.
  • Banks have to review and publish their MCLR of different maturities every month on a pre-announced date.
  • The final lending rates offered by the banks will be based on by adding the ‘spread’ to the MCLR rate.
  • Banks may specify interest reset dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR.
  • The periodicity of reset can be one year or lower.
  • The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date (irrespective of changes in the benchmark rates during the interim period). For example, if the bank has given you a one-year reset period in your loan agreement, and your base rate at the beginning of the year is say 10%, even if the interest rate comes to 9% in the middle of the year, you will continue at 10% till the reset date. Same will be the case even if the interest rate increases above 10%.
  • Existing borrowers with loans linked to Base Rate can continue with base rate system till repayment of loan (maturity). An option to switch to new MCLR system will also be provided to the existing borrowers.
  • Once a borrower of loan opts for MCLR, switching back to base rate system is not allowed.
  • Loans covered by government schemes, where banks have to charge interest rates as per the scheme are exempted from being linked to MCLR.
  • Like base rate, banks are not allowed to lend below MCLR, except for few categories like loans against deposits, loans to bank’s own employees.
  • Fixed Rate home loans, personal loans, auto loans etc., will not be linked to MCLR.
  • MCLR is applicable for Banks only. Hence this is irrelevant to home loans offered by NBFCs (Non-Banking Financial Companies) like LIC Housing Finance, Dewan Housing(DHFL), HDFC, Indiabulls etc.,

How MCLR Works? (Example)

For instance, for salaried individuals, ICICI Bank has set a floating rate home loan at one-year MCLR of 9.20% with a spread of 25 bps for loans of up to Rs.5 crore. So, the interest rate will be 9.45% (9.20% +0.25%). This interest rate is valid till 30th April, 2016 (as given in the bank’s website). ICICI Bank has decided to set one-year MCLR as the benchmark rate for their home loans.

Though the MCLR is reviewed monthly, your home loan will be reset every year automatically, depending on the agreement with the bank.

So,  if you take a Rs.50-lakh home loan on 10th April,2016, your home loan interest rate would be 9.45% . You have to pay EMI installments at this rate of interest for the next 12 months.

Let’s say one-year MCLR gets revised to 9% in April, 2017 and the spread remains the same then your home loan interest rate will be reset at 9.25% (MCLR of 9% plus spread of 25 bps).

How to Switch from Base Rate to MCLR?

This primarily involves two steps;

If you would like to switch to MCLR system then you have to request your banker to link your loan rate with MCLR instead of Base Rate.

Once your loan is linked with new MCLR rate, you can request your banker to reduce the quantum of ‘spread’. Your Banker may charge you one-time fee (conversion fee) for reduction in Spread. Henceforth, you will get the new Rate of Interest (ROI) which is linked with MCLR.


 What is the impact for you

MCLR is more transparent.

If the RBI cuts repo rates and cost of borrowing in the system goes down, you can expect reduction in your EMI much sooner.

The only issue is that you will have to wait till the next interest reset date before you get the benefit of lower interest rate. In such cases, you may consider refinancing your loan from another lender.

Since the MCLR has to be published every month, banks cannot hide their borrowing cost from the customers.

Do note MCLR is a double edged sword. Just as you expect interest rate cuts to be passed quickly, you must also expect interest rate hikes to be passed soon.

Depending  on what conditions (fee etc) your bank is offering you for switch. You will not be able to switch back to Base Rate Regime. Additionally, consider the spread that the bank is offering under MCLR regime.

With housing loans, you can always refinance your loan from a lender offering lower interest without prepayment penalty; hence the MCLR regime adds only limited value.              

What options do  regular investors have

 Fixed Deposit Rates offered by banks as on July 2016:




Company FDs:

Deposits in Companies which earn a “fixed rate of return” over a period of time are called Company Fixed Deposits. Financial Institutions and Non-Banking Finance Companies (NBFCs) accept such deposits. These deposits typically offer 1-2% higher rates of interest than bank FDs. The reason: they are riskier since they depend on the well being of the business of the underlying company.

Company FDs are unsecured i.e. not secured by assets. The investors need to be careful in choosing these FDs as lucrative interest rates should not be the only criteria. Even if the returns are lower, it would be better to go with schemes that have a good rating (given by credit research houses like CRISIL, CARE) and a solid track-record.

That said, a smart investor who invests in such corporate FDs will keep an eye on the share price of the company which indicates how well the company is doing. In case the share price starts falling beyond a point, it may well be a good time to sell these bonds before things go from bad to worse

Company Fixed Deposit Interest Rates as on July 2016





Corporate bonds/Non Convertible Debentures (NCDs)

These are debt securities issued by public and private companies to supplement their funding requirements. Corporate bonds typically offer higher interest rate in comparison to fixed deposits.

Example of NCDs: In July 2014, Shriram Transport Finance had raised about Rs 3,000 Cr. through a primary issuance of NCDs. The interest coupon offered to individual investors was 10.7-11.5%, depending on the payout option and tenure of the bond.

When the companies issues shares, you become a shareholder and when it issue bonds/NCDs, you become a lender.

Note: Investors should satisfy themselves about the ability of the borrower to repay back the funds at the time of maturity. Senior citizens and conservative investors should choose highly rated and strong institutions.

Company Fixed Deposits (FDs) vs. Non Convertible Debentures (NCDs) – Difference

Safety: NCDs are secured instruments where lenders can claim if the company fails to repay whereas Company FDs are unsecured and more risky.

Liquidity: NCDs are traded on exchanges. NCDs give investors the option to sell their units back to the issuer after a specific period. On the other hand, Company FDs are not traded on exchanges.

Find a list of Corporate Bond Listed on the Exchange

Tax Considerations

Interest earned from fixed deposits and corporate bonds and deposits is not tax-free and is taxed as per the an investor’s tax slab. Some banks offer “Tax-saver Fixed Deposit” in which money invested is locked-in for at least 5 years. This is the minimum time-requirement to qualify for the deduction. The maximum amount allowed as deduction is Rs.1.5 lakhs.

The government at times allow some companies to issue tax-free bonds for retail investors. This is mostly when the proceeds are being utilized for some purpose of national interest like building infrastructure (infra-bonds) etc.

Public Provident Fund (PPF)

Public provident funds can be opened with any post office or a bank. PPF investment offers an 8.70 % return, and has a maturity of 15 years. The maximum that can be invested in a year being Rs 1.5 lakh, that counts for tax deduction under 80 (C). Not only the money you invest in PPF is exempt from tax, the interest you earn on the PPF investment is also exempt from tax. IF YOU ARE LOOKING AT YOUR FIRST FIXED INCOME INVESTMENT. THIS IS THE BEST PLACE WHERE YOU SHOULD START INVESTING.

National Savings Certificates (NSC):

National Savings Certificates are issued by the department of Posts and are available at all post office counters in the country and provide an interest rate of 8.5 % for 5 years and 8.8 % for 10 years. The maximum that can be invested in a year is Rs 1 lakh, that counts for tax deduction under 80 (C).

Fixed Maturity Plans – (FMPs)

For an investor spooked by the debt market, low-risk opportunities such as Fixed maturity Plans (FMP) could prove to be good choices now.
A number of fund houses have launched fixed maturity plans (FMP) to make the best of the high yields prevalent in the debt market today. What exactly are FMPs and when should one invest in them?

FMPs are close-ended debt schemes with a fixed maturity horizon. That means they are open for investment for a few days during launch and then closed until maturity, which may be just a month away or as long as five years.
FMPs invest in money market instruments, bonds and government securities. Their fixed tenure often makes them comparable to fixed deposits.

However, unlike fixed deposits, FMPs do not guarantee returns. Still, they are considered low risk, especially when compared with open-end debt funds, for a few reasons.

First, FMPs choose instruments in such a way that the tenure of the underlying investment coincides with that of the FMP. For instance a 1-year FMP will invest in debt instruments that also have the same maturity. By doing so, the fund will ensure that it gets the interest income (called accrual) on these instruments when the FMP matures. This strategy ensures that returns are positive if held to maturity, unlike open-end funds that may slip in to negative returns once a while.
This way, the investments are not affected by the varying prices of the instruments in the debt market, till they mature.

Two, as FMPs are locked in (although they have an exit option through the stock exchange route, they are thinly traded and hence, not liquid), it does not face pressure of redemption and hence, it does have to churn its portfolio to meet exits. This also provides stability to FMPs.

Tax efficient

On the return front too, FMPs held for over one year can deliver superior post-tax returns, when compared with fixed deposits, as a result of indexation benefit. Unlike fixed deposits, FMPs (and all debt funds) enjoy capital gain indexation benefit if held for more than a year. Interest on fixed deposits, on the other hand, will be taxed at your regular income slab rate.

Although the dividends are taxed at the fund’s end at 28.32% (as dividend distribution tax), the growth option in an FMP provides leeway to index cost and, sometimes, enjoy nil capital gains tax in periods of high inflation (as the indexation will be done in line with inflation).

The way FMPs are structured also makes the indexation benefit more attractive. Often times during the end of a financial year, the tenure of an FMP would be a year and a few days or 2-3 years and a few days. For example, an FMP launched in end March 2013 for 380 days will mature in April 2014. But for indexation the investment will be considered to be made for 2 years – that is from FY 2012-13 to FY 2014-15, thus providing higher indexation of cost.

You may note that FMPs of less than one year will be taxed at your income tax rate.

Hence, if you are in the high tax bracket, short-term FMPs may not make for great post-tax products for you.


FMP vs FD Comparison

The yields of the underlying instruments (such as CDs, commercial papers, bonds) at the time of offer is either mentioned in the offer document or can be checked in public websites.

For instance, 1- year FMP can fetch anywhere between 9-10 per cent currently (depending on the proportion of investment in CDs and commercial papers), as most of them seek to invest in certificates of deposits and commercial papers.

You will also do well to know if the FMP promises to invest in top-rated instruments and whether it takes any credit risk by going for instruments with mediocre credit rating.

General trend of declining interest rates

When reference is made to the Indian interest rate this often refers to the repo rate, also called the key short term lending rate. If banks are short of funds they can borrow rupees from the Reserve Bank of India (RBI) at the repo rate, the interest rate with a 1 day maturity. If the central bank of India wants to put more money into circulation, then the RBI will lower the repo rate.

The reverse repo rate is the interest rate that banks receive if they deposit money with the central bank. This reverse repo rate is always lower than the repo rate. Increases or decreases in the repo and reverse repo rate have an effect on the interest rate on banking products such as loans, mortgages and savings. 

A big increase in wages and pensions of government employees later this year and a hike in service tax rates are expected to stoke price pressures, but subdued rural demand, coupled with prospects of good summer rains, could provide a buffer. That should allow room for another 25 basis point rate cut. A recent Reuters poll predicted the RBI would deliver one more rate cut towards the end of this year.




—Sneha Ramamurthy

Research Analyst- Dilzer Consultants Pvt Ltd


Read more at:

MCLR : New Lending Rate on Bank Loans w.e.f Apr 2016 – Details, Components & Review


Best Fixed Income Investment Options in India



Read more »

Is gold a sensible or a sentimental investment ?

There are 2 primary reasons why you need to invest in gold. Investing money in gold is worth because it is the best hedge against inflation. Over a period of time, the return on gold investment is in line with the rate of inflation. It is worth investing in gold for a one more very valid reason. Gold is negatively correlated to equity investments. Say for example 2007 onwards, the equity markets started performing poorly whereas the gold has performed well. So having gold as an investment option in your portfolio mix will help you reduce the overall volatility of your portfolio. Its also serves as a means of easy liquidity in case of an emergency and urgent need for funds or for pledging as an asset ( Loan against asset ) .

Is it profitable to invest in gold? This investment proved remarkable from 2006 to 2011.During that time span Gold has given an average return of 29% per annum which was any day better than other investment options. However, the long term average return on gold investment is lesser than 10% p.a. As one can say technically or ironically but history always repeats itself. Therefore, we may once again observe the similar less than 10% appreciation pattern in gold prices in near future. A 5 % of the overall investment portfolio can be considered for gold investments (bullion, WGC coins, Gold ETFs). Jewellery is not an investment as far as personal finance goes.  It does not appreciate as an asset. It is only an expense for pleasure, symbolizing wealth.

Research shows that over 16,000 tonnes of gold is there in Indian households predominantly in the form of jewellery. The value of this as per market price is a whooping Rs 27.2 lakh crore. That is close to twice the foreign exchange reserves held by the RBI.  A gold reserve is the gold held by a national central bank, intended as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, or to secure a currency.  The gold listed for each of the countries in the table may not be physically stored in the country listed, as central banks generally have not allowed independent audits of their reserves.


List of investment options and the mode of operation:

  • Gold Sovereign scheme
  • Gold ETF
  • Gold monetization scheme
  • Gold bonds
  • Physical Gold

Gold Sovereign scheme :  

The Government of India will be launching the Sovereign Gold Bonds Scheme soon. As investors will get returns that are linked to gold price, the scheme is expected to offer the same benefits as physical gold. They can be used as collateral for loans and can be sold or traded on stock exchanges. Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold. Minimum investment in the bond shall be 2 grams. The bonds can be bought by Indian residents or entities and is capped at 500 grams. The Bonds are issued by the Reserve Bank of India on behalf of the Government of India. The bonds are distributed through banks and designated post offices. This should make subscribing to the bonds an easy affair. During redemption, “the price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption”.

Investors can apply for the bonds through scheduled commercial banks and designated post offices. NBFCs, National Saving Certificate (NSC) agents and others, can act as agents. They would be authorised to collect the application form and submit in banks and post offices.The Sovereign Gold Bonds will be available both in demat and paper form.he tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.They will carry sovereign guarantee both on the capital invested and the interest.Bonds can be used as collateral for loans.Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.In Sovereign Gold Bonds, capital gains tax treatment will be the same as for physical gold for an ‘individual’ investor. The department of revenue has said that they will consider indexation benefit if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption.

Investors can apply for the bonds through scheduled commercial banks and designated post offices. NBFCs, National Saving Certificate (NSC) agents and others, can act as agents. They would be authorised to collect the application form and submit in banks and post offices.

The investors will be compensated at a fixed rate of 2.75 % per annum payable semi-annually on the initial value of investment. 
Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). Capital gains tax treatment will be the same as that for physical gold. (https://www.rbi.org.in/Scripts/FAQView.aspx?Id=109 )

 Pl specify the objective of RBI doing this.

In India, demand for physical gold is amongst the highest in the world. This causes the government to import physical gold in large quantities which in turn is a drain on the foreign exchange reserve. Issuance of the SGB will help in reducing the physical demand and thus bring down the import bill for physical gold, considerably. The foreign exchange thus saved can be channelized to strengthen India’s economy. 

Gold ETFs

Buying Gold ETF is purchasing gold in electronic form. You buy them just like you buy stock of any company from your broker. Gold ETF makes it easier for you to invest in gold. The investment objective of Gold ETFs is to provide you with returns that closely correspond with the domestic price of real gold. Each Gold ETF unit that you buy is roughly equal to the price of 1 gm of gold.

They are easy to buy since you can even buy just one gram at a time. Over time, you can build up your gold portfolio to the level you want, just as you would with your bank or jeweler, only this is easier.

Benefits :

No premiums / making charges :  You end up paying a premium for gold coins & bars purchased from banks and jewelers charge extra as making charges. Yet whenever needed you can also exchange them in multiples of 1kg units for 0.995 purity.

No worries  of theft : You always worry about the safety of your gold and also end up paying for bank lockers. Buying Gold ETF is purchasing gold in electronic form. You buy them just like you buy stock of any company from your broker. With Gold ETF, since your gold is now in demat form there are no worries of theft and you also save on locker charges.

Easy to sell : Unlike gold coins and bars, which the banks don’t buy back and most jewelers only offer to exchange but not buy back. Gold ETFs can be sold anytime through your broker at transparent prices available for view at NSE’s website. And unlike other forms of gold, you get the same price for your Gold ETF across India.

Drawbacks :

Most of the above-mentioned advantages come at a cost in the case of gold ETFs. A small asset management fee is charged by the fund house, so the return is slightly less than the actual increase in the gold price. Expense ration is between 0.50% to 1.50% on ETFs

Moreover, there are additional costs involved at the time of buying and selling in the form of brokerage or commission. Another drawback with gold ETFs is liquidity; some ETFs are illiquid, which impacts their buying and selling flexibility. Hence, investors should consider this as a factor while investing in gold ETFs and should stick to funds that are liquid. However the overall costing on investing through Gold ETF is among the lowest expenses with easy and quick trading and liquid options.

This means that if you have Rs 3 lakh of gold ETF in your demat account, you are indirectly paying Rs 1500- Rs 3000 as fund management charges every year. (I think its max of 0.50% 2 %) With the increase in quantity of gold or gold prices, fund management costs also keep on increasing in absolute terms. Now looking at the fixed locker rental with no linkage to the quantity and prices of gold that is kept in there, fund management charges of ETFs may seem too high especially when the quantity is high.

Gold Monetisation Scheme

The objective of the GMS, which modifies the existing ‘Gold Deposit Scheme’ (GDS) and ‘Gold Metal Loan Scheme (GML), is intended to mobilise gold held by households and institutions of the country ( ex. temples ) and facilitate its use for productive purposes, and in the long run, to reduce country’s reliance on the import of gold.

The monetisation scheme will allow you to earn some regular interest on your gold and save you carrying costs as well. It is a gold savings account which will earn interest for the gold that you deposit in it. Your gold can be deposited in any physical form – jewellery, coins or bars. This gold will then earn interest based on gold weight and also the appreciation of the metal value. You get back your gold in the equivalent of 995 fineness gold or Indian rupees as you desire (the option to be exercised at the time of deposit).


The gold monetisation scheme earns interest for your gold jewellery lying in your locker. Broken jewellery or jewellery that you don’t want to wear can earn interest for you in gold.

Coins and bars can earn interest apart from the appreciation of value

Your gold will be securely maintained by the bank.

Redemption is possible in physical gold or rupees hence giving your gold purchase further earning opportunity.

Earnings are exempt from capital gains tax, wealth tax and income tax. There will be no capital gains tax on the appreciation in the value of gold deposited, or on the interest you make from it

The current rate of interest on a medium-term gold deposit is 2.25 per cent annually; for a long-term one, 2.5 per cent. The government, said the circular, might change these if needed at a future date. The lock-in period for medium-term deposits will be three years; for long-term ones, five years. The principal and interest rate on short-term deposits, essentially bank deposits, will be denominated in gold. Medium and long-term gold deposits will be treated as government borrowing.

For medium-term deposits, withdrawal between three years and five years will attract a penalty of 0.375 per cent in reduced interest rate. For withdrawal between five to seven years, the penalty will be 0.25 per cent in a reduced interest rate.

For long-term deposits, the penalty between five to seven years will be 0.25 per cent; between seven to 12 years, 0.375 per cent; between 12 to 15 years, 0.25 per cent.

For medium and long-term deposits in the first year, the government will pay banks a total commission of 2.5 per cent — 1.5 per cent as handling charges and one per cent as commission. This was a major clarification, without which banks were reluctant to proceed with accepting of deposits. “For the purpose of computing the charges and commission payable to banks, the rupee equivalent of the gold deposited shall be calculated based on the price of gold prevailing at the time of deposit,” RBI said.

The tax implications on GMS will be notified by the government from time to time, RBI said, adding the quantity of gold will be expressed up to three decimals of a gram.

So far, 2,820 kilograms of gold have been mobilised under the scheme 

The gold can be deposited even in the jewelry form, but it gets melted and the value is determined after testing its purity. The depositor can choose an option to get back the gold at a later date in the equivalent of ‘995 fineness gold or Indian rupees’ as they desire, but not in the same form. 

Since gold items held in GMS are not returned “as is where is ” basis but an equivalent form and quantity is returned , people are skeptic and sentimental about such gold deposit.
If subscribed fully in the first year, SGBs could result in saving of $2 billion on gold imports at current prices.


Tabular format differences between Soverregin Gold Bond Scheme and Gold Monitisation Scheme 


Physical form

Wastage and loss






Gold sovereign bond

No physical gold to be bought or sold

No wastage or loss

2.75%payable semi- annually

8 years with lock in of 5 years

Prevailing value of gold as per rate published by IBJA

Max 500 gms per person per year

Income tax on interest & wealth tax

Gold Monetisation scheme

Govt will take possession of the gold

Wastage and loss due to melting and purity


3 yrs – 5 yrs lock in

Gold / cash equivalent of the initial deposit

No max limit

No tax on interest










Gold Funds / Gold Savings Fund :

Gold fund is a Fund of Fund which will invest in Gold ETFs on behalf of you. Best part here is that you do not require holding any demat a/c here. Then how to invest in Gold Mutual Funds? Just like investing in other mutual fund schemes. As this is like any other mutual fund scheme, SIP investment in gold is possible through these gold funds. Still buying Gold fund of fund is little expensive option, as you have to pay 1) Annual management charges for the underlying Gold ETF 2) Annual management charges of Gold FOF .  
 Funds charge about 0.5 – 2 % as fund management charges annually.

 They invest in gold mining companies / shares and therefore are based on profitability patters and manufacturing cycles of these companies

Physical gold :

Gold coins , Bars , Jewellery :

Jewellery can be bought from any reputed jeweler while banks sell gold coins and bars now. The single-most important thing to check is the product’s ‘Assay Certification’, indicating quality. When buying coins and bars, make sure the product is in a tamper-proof pack that prevents damage during transit. If you decide to buy gold coins or bars worth over Rs 50,000, banks will ask for PAN card details and identity proof, while a jeweler does not.
BIS certified jewellers can get their jewellery hallmarked from any BIS recognised Assaying and Hallmarking Centre. 

A Hallmark consists of five components-BIS mark, the Fineness number (corresponding to given caratage, see table), Assaying and Hallmarking Centre’s mark, Jeweller’s identification mark and year of marking (in a code decided by BIS-A for the year 2000, B for 2001 and J for 2008). The marking should be embossed on the product.

958 Corresponding to 23 Carat
916 Corresponding to 22 Carat
875 Corresponding to 21 Carat
750 Corresponding to 18 Carat
585 Corresponding to 14 Carat
375 Corresponding to 9 Carat

The Indian gold coin, minted in India and sold by MMTC and select banks, is available in denominations of 5/10/20 grams. The coin will be of 24 karat (999 fineness) purity and wrapped in tamper-proof packaging. It also has anti-counterfeit features such as the one in currencies plus a hallmark certification that makes it more reliable than gold that is bought from the next-door jeweller.


Subject to wealth tax. You need to pay 1% of the value of gold you hold each year if your total wealth is above Rs.30 lakh

High making/damage charges This is one major disadvantage if you buy gold as ornaments. Indian jewel makers charge anywhere between 10-20% as damage charges. If it is antique jewellery it is as high as 65%. So if you’re investing Rs.3,00,000 you can lose 40-60k at the beginning itself

Questionable purity You can’t possibly predict the purity of gold especially from smaller jewellers . You have to believe what the jeweler says. And if the quality is low, you get less money when you sell it. Storage/Safety – Physical gold has to be guarded by you. You need to pay for storage in lockers at home/bank. There is also the possibility of theft. Considering that, a single loot can leave you stripped with big portion of your wealth.

Short/long term capital gains period is 3 years. That is, if you sell gold in less than 3 years after buying, you need to pay capital gains tax which is 10% or 20% without/with indexation –


Physical Gold Bullion

Gold Jewellery

Gold ETF

Gold Savings fund

Asset Type

Coins, Bars , biscuit

Any gold ornament

Gold ETF MF – 1 unit = 1 gm gold

A super fund which invests in other gold instruments

Gold Purity

99% subject to tests

22 carat , 92% subject to test

Tested and stored as 99.5% pure bullion

Investment in e-gold

Where to buy

Banks , jewellers


Exchange – NSE/ BSE

MF online or agents

SIP options ?





Storage options

Home, bank lockers

Home, lockers

Gold is held in a mass storage with regular audits & security

No physical gold involved

Entry charges

 4 – 6 %

Making charges 7-20%

Demat & brokerage

Fund management charges ~ 2%

Recurring charges

Locker rent

Locker rent

Fund management fee of 1%

 Fund management charges ~ 2%

Exit charge

2-6% charges of the buying price of that day

Jewellers offer 4-8% lesser than buy rate of the day

Broker commission

Usually 1.5-2% exit load if less than a year


Fairly liquid

Fairly liquid

High liquidity , T+2 days

Highly liquid , T+2 days

Capital gains – long term

10% without indexation ,20% with indexation

10% without indexation ,20% with indexation

10% without indexation ,20% with indexation

10% without indexation ,20% with indexation

Wealth Tax

Liable to wealth tax of 1 % a year for excess of Rs.30 lakh

Liable to wealth tax of 1 % a year for excess of Rs.30 lakh

Not Liable

Not liable


Tax benefits

 Gold ETFs have an edge over e-gold . For gold ETFs, one year is considered as the long term; it is three years for e-gold. Also, egold attracts wealth tax.

“E-gold is treated like physical gold and qualifies for long-term capital gains benefits if held for three years or more. However, gold ETFs qualify for long-term capital gains treatment after being held for just one year. Gold ETFs are considered financial assets and hence are exempt from wealth tax, which is not the case with e-gold,” says Nayak of Centrum Broking.

Gains from gold ETFs, if sold within one year, are taxed according to the person’s tax slab and at 20 per cent (after indexation) if sold after a year. Gains from e-gold, if it is sold within three years, are taxed according to the tax slab and at 20 per cent (after indexation) if sold after three years.

What the future holds for vested parties

 The diversity of gold-backed and gold-related products means that gold can be used to enhance a wider variety of individual investment strategies and risk tolerances. Investors also make use of gold’s lack of correlation with other assets to diversify their portfolios and hedge against currency risk.

 Is Gold the new asset to invest in 2016?

Gold staged a spectacular rally in the first quarter of this year, rising 17% in US dollar terms – its best performance in almost three decades. The return on gold significantly outperformed other major stock, bond and commodity indices. Its believe that these factors will continue to support both investment and central bank demand in the coming quarters. Gold demand reached 1,290 tonnes Q1 2016, a 21% increase year-on-year, making it the second largest quarter on record. This increase was driven by huge inflows into exchange traded funds (ETFs) – 364t – fuelled by concerns around the shifting global economic and financial landscape.

Higher prices and industrial action in India pushed global demand for jewellery down (-19%), while total bar and coin demand was marginally higher (+1%). Central banks remained strong buyers, purchasing 109t in the quarter. Total supply increased 5% to 1,135t. Hedging by producers (40t) supported an increase of 56t in mine supply, although countered by a marginal decline in recycling.

Combined with an analysis from past bull-bear cycles, this suggests entry to a new bull market for gold.




–Sneha Ramamurthy

Research Desk- Dilzer Consultants Pvt Ltd



Credits :









Buying Gold? – Best Different Options to investing in Gold in India







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Lease Vs Purchase – option offered by corporates

Of late, many companies have been offering a lease option to employees as a perquisite. This is advantageous to the employee since it offers tax benefits to them. However, often, when they are in the highest tax slab, there are doubts as to whether this is a better option than a loan. We have analysed this  by assuming three scenarios;

1) Where the employee purchases the car outright.
2) Where the employee takes a loan to purchase the car.
3) Where the employee uses a lease option Leases can be of two types;

A) operating lease where the asset reverts back to the lessor at the end of the period and
B)  financial lease where the lessee has the option to purchase the asset at the terminal value at the end of the lease period. 

A point to note is that lease rentals may be lower than EMI charges for the same asset( since the ownership rests with the lease firm). Lease rental is calculated based on a residual value-based funding that differs based on city, usage of car, model and brand etc

There are three major advantages in favour of leasing:
1) There are no down payments to be made. This saves the initial amount and while comparing the options, we must also consider the opportunity cost of this down payment.
2) There are no maintenance costs incurred on the asset.
3) The lease rentals will be taken as a part of salary and consequently there can be tax savings on the amount. Interest paid on car loans however do not qualify for tax rebates.

Let us take the cost of the car ( high end luxury model) as Rs 20 Lakh. The loan duration and lease period is assumed as 3 years (36 months) and the interest rate is 10%



Lease amount taken based on lease offerings for Mercedes cars of same price.

Tax rate is taken at highest income tax slab.

Maintenance costs are assumed @ 25000 annually.

As we can see, opting for lease results in the lowest cash outflows for the employee. In case the person opts to purchase the car through outright purchase they will spend almost Rs 8 lakh more. If they go for a car loan, they would spend Rs 6.5 Lakh more than a lease.
However, the big advantage of purchase options is that the person will continue to own the car at the end of the period and enjoy its residual value. So If the person intends to continue using the same car after three years, or has the funds for it, over the long term, a purchase option may be preferred.
Some leases allow the person to purchase the vehicle after the lease period at the residual value. This can be an option for a person to purchase the vehicle without the hassles of the initial down-payment or maintenance expenses.

Tax Implications for Salaried or self employed

The taxability of a car lease paid by employer has three scenarios:
1) Where the car is for personal purposes – the lease amount as well as maintenance costs will be considered as a part of salary and be taxable as such.
2) Where the car is only for official purposes – The lease amount will not be considered for taxation.
3) If the car is partly used for private and partly for official purposes – in such scenarios,
a) If the maintenance costs are borne by employer, an amount ranging from 1800-3300 (depending on cubic capacity of car and provision of driver) will be deducted as perquisite.
b) If employee bears the maintenance expenses, an amount ranging from Rs 600-1800 ( based on car’s cubic capacity and provision of driver) will be taken as a perquisite.


Neena Shastry

Research Desk- Dilzer Consultants Pvt Ltd  



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Reverse Mortgage – how it works

How does a Reverse Mortgage work ?

                The reverse mortgage, introduced by the Union Government in 2007, is an answer to financial  issues faced by senior citizens, giving them a life of dignity. For senior citizens, who have a lack of regular income or financial support , this could lead to a financial crisis.  In simple terms, a reverse mortgage is the “opposite” of a conventional home loan. A reverse mortgage enables a senior citizen to receive a regular stream of income from a lender (a bank or a financial institution) against the mortgage of his home. The borrower (i.e. the individual pledging the property), continues to reside in the property till the end of his life and receives a periodic payment on it.

When the home is pledged, its monetary value is arrived at by the bank, on the basis of the demand for the property, current property prices, and the condition of the house. The bank then disburses a loan amount to the borrower in the form of periodic payments, after considering a margin for interest costs and price fluctuations. The periodic payments also known as reverse EMI are received by the borrower over fixed loan tenure. With each payment, whether monthly or quarterly, the equity or the individual’s interest in the house decreases.

A reverse mortgage is an ideal option for senior citizens who require regular income, or if the property is of illiquid nature for some reason.

General Guidelines

      The Reserve Bank of India has formulated the following guidelines for a reverse mortgage.

  1. Maximum loan amount would be up to 60% of the value of the residential property or 1 crore.
  2. Maximum tenure of the mortgage is 20 years and minimum is 10 years.
  3. Option of monthly, quarterly, annual or lump sum loan payment.
  4. Property revaluation to be undertaken by the lender once every 5 years.

If at such time, the valuation has increased, borrowers have the option of increasing the quantum of the loan. In such a case, they are given the incremental amount in lump-sum.

  1. Amount received through reverse mortgage is a loan and not income. Hence it will not attract any tax. However, a borrower is liable to capital gains tax, at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.
  2. Reverse mortgage interest rates could be either fixed or floating. The rate would be determined by the prevailing market interest rates.
  3. The maximum monthly payments shall be capped at Rs.50,000/- or such other amount as may be notified by the Government of India.

Eligibility criteria


Should be Senior Citizen of India above 60 years of age.


Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the BANK, subject to at least one of them being above 60 years of age and the other not below 55 years of age.


Should be the owner of a self- acquired, self occupied residential property (house or flat) located in India, with clear title indicating the prospective borrower’s ownership of the property.


The residential property should be free from any encumbrances.


The residual life of the property should be at least 20 years.


The prospective borrowers should use that residential property as permanent primary residence. Permanent primary residence refers to the self acquired, self occupied residential property where a person spends majority of his time. Factors that may be relevant in this regard include the address used for general correspondence, utility bills, bank statements, tax return, bank accounts and banking relations etc. However, all facts and circumstances may be considered for the purpose of determining that the residential property is the permanent primary residence of the borrower.

Commercial property will not be eligible for RML.

Determining the amount of eligibility


The amount of loan will depend on market value of residential property, as assessed by the bank, age of borrower(s), and prevalent interest rate.


The BANKs will have the discretion to determine the eligible quantum of loan reckoning the ‘no negative equity guarantee’ being provided by the BANK. The methodology adopted for determining the quantum of loan including the detailed tables of calculations, the rate of interest and assumptions (if any), shall be clearly disclosed to the borrower.


The BANKs would ensure that the equity of the borrower in the residential property (Equity to Value Ratio – EVR) does not at any time during the tenor of the loan fall below 10%.


The BANKs will need to re-value the property mortgaged to them at intervals that may be fixed by the BANK depending upon the location of the property, its physical state etc. Such revaluation may be done at least once every five years, the quantum of loan may undergo revisions based on such re-valuation of property at the discretion of the lender.


Settlement of the loan


The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out of the home for aged care to an institution or to relatives. Typically, a “permanent move” may generally mean that neither the borrower nor any other co-borrower has lived in the house continuously for one year or do not intend to live continuously. BANKs may obtain such documentary evidence as may be deemed appropriate for the purpose.


Settlement of loan along with accumulated interest is to be met by the proceeds received out of Sale of Residential Property.


The borrower(s) or his/her/their heirs/estate shall be provided with the first right to settle the loan along with accumulated interest, without sale of property.


A reasonable amount of time, say up to 2 months may be provided when RML repayment is triggered, for house to be sold.


The balance surplus (if any) remaining after settlement of the loan with accrued interest, shall be passed on to the legal heirs/estate/beneficiaries of the borrower.


Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government shall not be regarded as a transfer. A borrower, under a reverse mortgage scheme, will be liable to income tax (in the nature of tax on capital gains) only at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.


Highlights of Reverse Mortgage




In addition, the bank may also consider, at its discretion, obtaining a Registered Will from the borrower stating, inter-alia, that he/she has availed of RML from the bank on security by way of mortgage of the residential property in favour of the bank , meaning thereby that in the event of death of the borrower (and co-borrower, if any), the mortgagee is entitled to enforce the mortgage and recover the loan from the sale proceeds on enforcement of security of the mortgage. The surplus, if any, has to be returned to the heirs of the deceased borrower(s).


The bank may consider ,at its discretion, taking an undertaking from the prospective borrower that the “Registered Will” given to the bank is the last “Will”, prepared by him/her at the time of availment of RML facility as per which the property will vest in his/her spouse/beneficiary name after his/her demise. The borrower will also undertake not to make any other ‘Will’ during the currency of the loan which shall have any adverse impact on the rights created by the borrower in the banks favour by way of creation of mortgage on the immovable property mentioned under the loan documentation for covering loan to be allowed to his/her spouse and interest thereon, even after the borrower’s death.


The bank will ensure that the borrower(s) has insured the property against fire, earthquake, and other calamities.


The bank will ensure that borrower(s) pay all taxes, electricity , water charges and statutory payments.


The bank will ensure that borrower(s) are maintaining the residential property in good and saleable condition.


The bank may reserve the option to pay for insurance premium, taxes or repairs by reducing the homeowner loan advances and using the difference to meet the obligations/expenditures.


The bank reserves the right to inspect the residential property/premises or arrange to have the residential property/premises inspected by its representatives any time before the loan is repaid and borrower(s) shall render his/her/their cooperation in respect of such inspections.


Example :


Interest Rate

Max tenor


Reverse EMI per month


Indian Bank







PNB  Bank






SBI bank






Canara Bank








20 yrs





Tax Details

    As amended in the Union Budget 2008-2009, payments received under Reverse Mortgage Loan are not taxable.

A new clause (xvi) in section 47 of the Income-tax Act, 1961 has been inserted to provide that any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government shall not be regarded as a transfer.

The second issue is whether the loan, either in lump sum or in instalment, received under a reverse mortgage scheme amounts to income. Receipt of such loan is in the nature of a capital receipt. Section 10 of the Income tax Act, 1961 has been amended to provide that any amount received by an individual as a loan, either in lump-sum or in installment, in a transaction of reverse mortgage referred to in clause (xvi) of Section 47 of the Income-tax act shall not be included in total income.

A borrower, under a reverse mortgage scheme, shall, however, be liable to income tax (in the nature of tax on capital gains) only at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.

Any transfer of a capital asset in a transaction of reverse mortgage shall not be regarded as a transfer. A borrower, under a reverse mortgage scheme, will be liable to income tax (in the nature of tax on capital gains) only at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.



·         The loan shall be liable for foreclosure due to occurrence of the following events of default.

·         If the borrower has not stayed in the property for a continuous period of one year

·         If the borrower(s) fail(s) to pay property taxes or maintain and repair the residential property or fail(s) to keep the home insured, the PLI reserves the right to insist on repayment of loan by bringing the residential property to sale and utilizing the sale proceeds to meet the outstanding balance of principal and interest.

·         If borrower(s) declare himself/herself/themselves bankrupt.

·         If the residential property so mortgaged to the PLI is donated or abandoned by the borrower(s).

·         If the borrower(s) effect changes in the residential property that affect the security of the loan for the lender. For example: renting out part or all of the house; adding a new owner to the house’s title; changing the house’s zoning classification; or creating further encumbrance on the property either by way taking out new debt against the residential property or alienating the interest by way of a gift or will.

·         Due to perpetration of fraud or misrepresentation by the borrower(s).

·         If the government under statutory provisions, seeks to acquiring the residential property for public use.

·         If the government condemns the residential property (for example, for health or safety reasons).

 Popularity In India

However, despite having so many advantages and global acceptability, reverse mortgage has not managed to captivate the Indian market because of multiple reasons.

“In the first place, it is a predominant tendency for Indians to treat owned property as an important family asset. This asset is usually intended to be inherited by the next generation, and would be liquidated only as a last resource. Also, the elderly tend to hold a place of importance in Indian culture. Property-owning senior citizens are generally assured of care and support in their golden years.”

Property ownership in India is considered as an inheritable subset, which is ideally handed over to the legal heirs. Also, the owned property is considered for trade unless there is a substantial benefit or imperative financial crisis of owner.

Another point to note is that in reverse mortgage, the loan amount is capped at Rs 50 lakh – Rs 1 crore by the lender. Therefore, availing the same in key metro cities, where property prices usually range from Rs 1.5 to Rs 3 crore, is less lucrative for the borrower.

Firstly, there was no lifetime income which most retirees search for in any fixed income avenue. Secondly, the liability of repaying the loan was set to arise as the term gets over. So, if someone lives the term, one runs a risk of loosing the house if one is not able to repay the loan. “This can be a dangerous situation for any retire who have only a house to live. Also, the income offered in this product was quite low as it was a loan product from a bank which is more dependent on interest rate environment. Since there are lots of emotions attached to a house ownership, not many came forward to mortgage their house for such a low income and take the life risk of loosing the asset if they live thereafter


Sneha Ramamurthy- Research Analyst

Dilzer Consultants Pvt Ltd.






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Real Estate Investments in India

The Current scenario

Real estate has become a popular investment avenue. However, lack of transparency and tight regulations means buyers are making investment decisions with limited understanding of the risks involved in parking their hard-earned money in real estate. Though you cannot make your real estate investments risk-free, you must be aware of the possible dangers on the road to property ownership. Here, we discuss a few of these pitfalls.


Until there are entry barriers and tough rules for developers, it’s your responsibility to verify the builder’s credentials. Instead of looking for dirt-cheap deals by little-known companies, invest in projects by reputed builders. A listed company will be more transparent and likely to comply with regulations.


Location drives a property’s value. A centrally-located property with amenities close by will be more expensive than a property in a far-flung area. However, it is beyond the reach of most. So, investors prefer upcoming locations where civic infrastructure is being planned. Several people who wish to earn good returns invest in properties near proposed infrastructure projects such as metro stations, expressways, highways and airports. Even end-users are attracted by the proximity to public infrastructure and the fact that when these infrastructure projects are completed, the prices of properties will jump manifold.

Smaller units in localities near IT beds or near infrastructure or ring road development, demand higher rental yields also, due to demand of living from people outside Bangalore.


All land-sale transactions are registered. However, land title records in India are in a very bad shape. Several land-related transactions such as partition, mortgage, agreement to sell, court order and acquisition are not required to be registered. Even when a sale is registered, the history of the title is not verified. Unlike most developed nations, which have a system of guaranteeing land titles, India has not even digitised its land records.  A few states initiated the process of guaranteeing land titles but could not produce any concrete result.
The lack of clear land titles means all land transactions are risky. If you are buying land, you must trace past ownership to avoid any dispute in the future.

Here is the list of documents required:

  • Absolute sale deed in present seller’s name
  • Khata certificate & extract from BBMP
  • Latest tax paid receipt
  • If any loan outstanding on the property, latest statement from bank
  • Encumbrance Certificate from date of purchase till date
  • Agreement of sale & construction executed by developer in favour of seller
  • Latest electricity bill & receipt for the said flat
  • NOC from Apartment Association
  • Sanctioned building plan
  • Possession/occupancy certificate from builder
  • All title documents of land owner
  • Joint development agreement, GPA, & Sharing/supplementary Agreement, between land owner and builder
  • Whether originals are available for inspection if no loan is taken?
  • A Copy of all registered previous agreements (in case of re-sale property)
  • RTC (Records of Rights and Tenancy Corps) or 7/12 extract
  • Conversion Order issued by the concerned Authority
  • Registered development agreement (If in case of Joint Development Property)
  • Power of attorney/s if any
  • Photocopy of Society share certificate & Society registration certificate.



At times, the developer acquires land, launches a project and uses the booking amount to buy another land. Buyers who have opted for construction-linked payments do not pay installments until the construction reaches the promised stage. This creates a cash-flow crisis for the builder.  The risk of delay is high in prelaunch and launch stages and falls as construction nears completion. You can reduce this risk by choosing a developer with a good record of timely delivery. Also, check that all the clearances are in place.


Are you paying the right price for the property? To be sure, you must get the property valued by professionals.

Valuation risk is present in new projects as well. Before you book such a property, you must compare prices and features of similar properties in the locality. 

Valuation methods are :

  1. Sales comparison method- it is an estimate of value derived by comparing a property with recently sold properties with similar characteristics
    2. Cost approach – method involvesseparate estimates of value for the building(s) and the land, taking into considerationdepreciation
    3. Income Capitalization approach – relationship between the rate of return an investor requires and the net income that a property produces


The real estate sector is giving much better returns than the home loan rates. Banks are also more comfortable lending to individuals rather than real estate projects. There is another risk. If construction is delayed or the value of the property does not rise fast enough to yield a return that can cover the cost of funds, you will end up losing money. Also, if the price of the property falls to less than the loan amount, your equity in the house will turn negative. In the downturn, such cases were common in the US. If your share in the house turns negative and the bank decides to recover its money by disposing of the property, you will be liable to pay it the balance amount.


Property sales are often carried out through power of attorney (PoA), a contract in which the seller passes on the right to maintain, rent, lease, mortgage or sell the property to the buyer. A PoA does not transfer ownership rights.
Transaction of immovable properties through PoA has no legal sanctity. According to a Supreme Court ruling in October 2011, immovable properties can be sold or transferred only through registered deeds.
In several locations, an irrevocable power of attorney or sale agreement followed by an irrevocable general power of attorney and then bequeathing of the property to the buyer via a will are used to sell properties that  cannot be registered through the legal route.  For example, a person may give a power of attorney to his spouse, son, daughter, brother, sister or a relative to manage his affairs or to execute a deed of conveyance.  Further , a person can enter into a development agreement with a land developer or builder for developing the land either by forming plots or by constructing apartment buildings. In that connection he can execute an agreement of sale and grant a power of attorney that will allow the developer to further sell the property to prospective purchasers  .

You might want to give someone an ordinary power of attorney if: you have a physical illness ,you have an accident which leads to physical injury , you are abroad for a long period of time.


 Commercial real estate can be a better source of regular rental income with rental yields of 8-11% against 2-4% from residential property. Also, unlike residential real estate that could be untenanted for a long period, upkeep of commercial property is easier and requires limited operational management because such properties are typically taken care of by professional project maintenance agencies. Property Management Services : These are agency services firms ,  where the owner need not have to spend time and energy in maintaining this property /ies. The agency takes charge of renting , background verification , ensuring minimum vacancy , communication with tenants , preventive maintenance care ,service requests , resolve plumbing ,electricity and interior work for you in your absence. 

Investors do not need to spend on the furnishings either. The tenants generally design the interiors of commercial properties as per business requirements and bear the costs involved. Also, longer term lease agreements, like a 3+3+3 year pact with a pre-determined rent appreciation, are made when leasing commercial space, whereas for a residential property, shorter-term leases are preferred.


But while interest rates remain low, the days of quick-and-easy financing are over, and the tightened credit market can make it tough to secure loans for investment properties. However, there is some good news: A little creativity and preparation can bring loans within reach of many real estate investors.
If you’re ready to seek out financing for your residential investment property, these five tips can improve your chances of success.

1. Have a sizable down payment Loan for as much as 90% of the property value in some cases is available from banks and housing finance companies. The interest rate is also competitive. On the other hand, securing a loan to buy a commercial property is more difficult and you can get finance for only up to 60% of the property value. The interest rate is also much higher, thereby making buying commercial real estate more capital intensive. This category is more suited if you have capital available.


  1. If you have limited funds, then investing in a residential property should be the preferred option. You can avail a long-term loan and structure the deal for a minimal monthly outgo from your pocket.
    Unlike commercial properties, which get no tax breaks on principal or interest repayments, investors of residential real estate can avail an array of tax benefits.
  2. For self-occupied properties, there is tax deduction ofRs.1.5 lakh available under section 80C of the income tax Act for payments made towards principal repayment and up toRs.2 lakh on interest payments, under section 24. Additionally, for investment in affordable housing schemes, under section 80EE, Budget 2016 has proposed an increase in the tax benefits from the present Rs.1 lakh to Rs.1.5 lakh. But this increase in interest deduction will be applicable only for first-time home buyers and on loans not exceeding Rs.35 lakh for homes costing below Rs.50 lakh, and sanctioned in 2016-17 (April-March).

 4.You can leverage on your real estate investments by taking a loan against property (LAP). The LAP ratio is close to 65% for residential properties and about 55% for a commercial property.  If you already own a house or you are a seasoned, deep-pocketed investor looking for higher return on investment, you could explore the commercial property option.

  1. Real Estate Investment Trusts (REITs) are likely to become a reality in India soon as the government moves to remove dividend distribution tax (DDT) on them. This is expected to offer commercial developers a liquidity option and retail investors an opportunity to participate in the office realty market’s growth.A DDT of 15% on such SPV ( special purpose vehicles) made such fund raising very unattractive. Two other critical issues — exemption from capital gains tax and state governments’ stamp duty while transferring assets to REIT’s holding company — would be key to REITs’ success .

The future of your investments:

India is an underserved economy in terms of real estate requirements. There is a wedge between demand and supply of housing, largely as a result of information asymmetry. However, with increased market transparency, this demand/supply mismatch can offer immense opportunities for developers and investors alike. The real estate industry is maturing. Until 2014, it was unregulated, fragmented and highly inefficient. Though 2016 will bring in regulation, it will remain fragmented and moderately inefficient. We could see it become a well-regulated, consolidated and moderately efficient industry by around 2020. Growth in the Indian economy will definitely see favourable reflection in the real estate sector, as well.
Regulatory framework A lot of groundwork has been done with the central government’s initiatives: •Once ‘Housing for All by 2022’, the Smart Cities mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), etc. begin to roll in earnest, we will see significantly heightened activity in infrastructure and related sectors.

  • Norms for FDI in the real estate sector have been eased. The government has relaxed FDI norms in 15 sectors including real estate, defence, single-brand retail, construction development and civil aviation. Under these new rules, non-repatriable investments by NRIs as also PIOs will be treated as domestic investments and not be subject to foreign direct investment caps.
  • In order to attract larger investments which are only possible through incorporated entities, the special dispensation of NRIs has now been also extended to companies, trusts and partnership firms which are incorporated outside India and owned and controlled by NRIs. Henceforth, such entities owned and controlled by NRIs will be treated at par with NRIs for investment in India.
  • Licensing norms have been relaxed in states like Haryana, which will help release land for affordable housing. Currently, unavailability of land is the biggest challenge to affordable housing.
  • The Indian Parliament also passed the Real Estate (Regulation and Development) Bill . This will bring efficiency, transparency and accountability into the real estate sector, as will the introduction of new financing instruments that have immense potential to improve India’s transparency.

The Bill seeks to clamp down on developers by disallowing pre-launches of projects where approvals from the local authorities and registration from the regulator are pending. Developers will have to disclose approval status, project layout and timeframe for completion to the regulator and customers.

 The developer will now have to park 70% of the project funds in a dedicated bank account at the outset, which can only be used for the earmarked project.

Developers will now have to sell homes on the basis of ‘carpet area’ and not the ‘super built-up area’. The latter was often misused by developers to levy additional charges for common areas.

 The developer will not be allowed to make any changes to the original plan midway without the written consent of at least two-third of buyers. In case of any deficiency noticed after handover of possession, the buyer can contact the developer within a year to seek after-sales service.

The Act proposes to bring parity between the buyer and seller by making the latter liable to pay the customer the same interest as demanded of the buyer.

In case of disputes, the Appellate tribunals will have to adjudicate within 60 days and regulatory authorities will have to dispose of complaints in 60 days.

The Act also provides for imprisonment up to three years in case of promoters and up to one year in case of real estate agents and buyers for violation of orders of tribunals or monetary penalties or both.


Fast Growing smart cities

The smart cities mission of the Govt is a bold , new initiative . It is meant to set examples that can be replicated both within and outside the city . This should catalyze the birth of new cities and set an example. The core infrastructure elements should be :    

  1. adequate water supply
  2. assured electric supply
  3. Sanitation and solid waste management
  4. Efficient urban mobility and public transport
  5. Affordable housing for all classes of society
  6. Good governance and citizenship , community involvement
  7. Safety for women and children
  8. Access to best libraries , connectivity and health facility

The list of 20 shortlisted smart cities in India set for development are :


Real Estate Bill passed in Rajya Sabha

A shake-up of the property sector is imminent once the Real Estate Bill gets implemented in the next three months, according to India Ratings & Research.

Developers wouldn’t be able to launch new projects before obtaining all approvals and will have to deposit 70 per cent of sale receipts in an escrow account once the new law comes into effect. The new rules are likely to impact the liquidity of real estate players in the short-term, the research firm said.

“This will put pressure on developers to raise more funds (debt or equity). Organised players have access to varied sources of funds, namely loans from banks/non-banking financial companies, non-convertible debentures, private equity and structured debt, thus they are likely to be able to tide over the liquidity crunch, though the debt raising and cost of such funding will result in weaker credit profiles in the short term,” it said.

The new norms prohibit the sale of projects without registration with the Real Estate Regulatory Authority, for which the receipt of all approvals and commencement certificate is a prerequisite.

Sales from new projects are a key source of liquidity for developers. Tighter liquidity could force developers to rely more on joint venture projects with land owners due to lower availability of surplus cash to buy land, said India Ratings.

The research firm also said that the provision of depositing at least 70 per cent of sale proceeds in a separate account will “especially impact developers with projects in cities such as Mumbai or high-end projects in other cities, where the component of land cost is much higher than the construction cost”.

The legislation aimed to do away with improper business practices of the unorganised real estate sector, and bring builders within the ambit of regulations pertaining to timely delivery of projects. The bill will facilitate in injecting FDI into the Indian real estate. It essentially works towards strengthening transparency, information in the public domain, accountability and responsibility for developers.


Sneha Ramamurthy- Research Analyst

Dilzer Consultants Pvt Ltd.




Mutual Funds Vs Real Estate – Which is better for Investing in India?








Real Estate prices across cities 2014-15        
Real Estate Mumbai Delhi Chennai Kolkatta Gurgoan Noida Pune Bangalore Kochi Coimbatore Hyderabad Sensex Gold PPF FD
  Residential(rs/sq feet) Commercial      ( Rs/sq ft)  Residential Comm Residential Comm Residential Comm Residential Comm Residential Comm Residential Comm Residential Com Residential Comm Residential Comm Residential Comm        
2014          15,700             31,678          21,600            13,366            10,628               54            9,829            13,177            9,925            7,359            5,672           13,548         5,484            7,070            4,600         4,960          3,784            24                 3,493                     33              4,975              5,825            27,499            29,178 8.70% 8%
2015          15,890             33,458          19,171            14,213            10,851               55            9,589            12,988            9,849            7,506            5,546           13,407         6,291            8,947            5,100         5,760          4,212  –                  3,705                     35              4,500              4,930            26,117            26,300 8.70% 8.75%
Stamp duty 3.88%   13%   8%   7%   12.50%   12.50%   3.88%   8%   8.50%   8%   5%          
Property Tax                                                    
Cappital Gains tax on sale after 3 years 20%   20%   20%   20%   20%   20%   20%   20%   20%   20%   20%          
TDS @ 1% ( for value >   50lkh )                                                    
VAT  ( for sale of under constr plots) 3%                                                  houses                                      
Service tax  ( for sale of under construction plots ) 3.625 to 4.35 %                                      
LOCATION CONSIDERED FOR EACH CITY                                      
Delhi – Karolbagh, Akshardam                                      
Mumbai , Goregaon, nariman point                                      
Chennai, anna nagar, nungambakkam ( rent)                                      
Kolkata- Gariahat, Park Street                                                                                                   
Gurgoan – DLF city , Sector49                                                    
Noida – Dadri Rd, Sector 18                                                    
Pune – Chandan Nagar, Bavdhan                                                    
Kochi – Kakkanad , Kakkanad ( rents)                                                    
Bangalore – Bannergatta Mn Rd , Whitefield                                                    
Hydrabad – Hitech City, Secunderabad                                                    
Coimbatore – Sarvanampatty, Sarvanampatty (rents)                                                    

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SIP Investments versus Lumpsums

Systematic Investment Plans – are they better than lumpsum investments?  A case study
A Systematic Investment Plan enables you to build a portfolio over a longer time horizon with small investments at regular intervals. This reduces the risk of market volatility as compared to investing a lumpsum amount at one go.
One can choose between Quantity based and Amount based SIPs in Stocks, Mutual Funds, ETFs and Gold.
Here we are analysing SIP investments in equity mutual funds and whether they are a better investment option than a one-time lumpsum investment.
Types of SIP                  
There are three  types of SIP  currently available in the market today          
Amount based SIP                  
 This is a fixed amount decided by the investor that is invested in a  selected share/ units of a mutual fund at pre defined frequency.
Let us assume an investment of Rs 5000 each month for12 months across 2014 ending December 2014. This is the value of  the investment  at the end of the period if it had been invested in one of the better performing large cap equity funds  – SBI Blue Chip (growth)
    As of Date NAV(Rs) No of Installments Invested Amount(Rs) Investment Value (Rs) % gain      
    12/31/2014 26.64 12 60,000.00 73,477.33 22.46      
Source: www.morningstar.in                
Quantity based SIP                   
This is a fixed quantity of shares/ units of  the desired company/ mutal fund that is purchased at pre defined frequency.   
Let us assume a purchase of 200 units of SBI Blue Chip Growth on the 10th of each month. This is the value of the investment  if it had been invested in 2014.
    Date of investment NAV(Rs) Units Investment Value (Rs)          
    1/10/2014 17.87 200 3,574.00          
    2/10/2014 17.58 400 7,032.00          
    3/10/2014 18.76 600 11,256.00          
    4/10/2014 19.45 800 15,560.00          
    5/12/2014 20 1000 20,000.00          
    6/10/2014 22.25 1200 26,700.00          
    7/10/2014 22.67 1400 31,738.00          
    8/11/2014 22.96 1600 36,736.00          
    9/10/2014 24.97 1800 44,946.00          
    10/10/2014 24.44 2000 48,880.00          
    11/10/2014 26.09 2200 57,398.00          
    12/10/2014 26.36 2400 63,264.00          
Source: www.morningstar.in                
Flexi SIP                  
 Here, the investor will be required to specify a regular amount and a maximum amount of investment per month. The monthly investment can thereafter vary from the minimum required for that mutual fund scheme and the user specified maximum amount. The investor can change the investment amount  on a monthly basis or alternatively choose not to change it for a particular month.
Flexi SIP are used by two classes of investors:              
  Investor Type Benefit  
   Beginner  investor  With Flexi SIP, they can increase or reduce the monthly amount to suit their affordability.  
  Financially Savvy investor If they feel the markets are too high in a month, they can reduce the SIP amount or if they feel  the market is undervalued, they can increase it. This enables them to  aim for a better average market price for their investments.  
 Advantages of SIP                
1 Power of compounding                
  Assume an investment of Rs 10000 annually with a interest of 7% for 10 years. The future value of such an investment will  be Rs 1.38 lakh.
  If the person had invested for 20 years, the future value will rise to 4 lakhs, thereby showing the power of compounding
    Years Amount invested Future Amount (@7% interest)            
    1 Rs. 10,000.00 Rs. 10,000.00            
    10 Rs. 100,000.00 Rs. 138,164.48            
    20 Rs. 200,000.00 Rs. 409,954.92            
    30 Rs. 300,000.00 Rs. 944,607.86            
2 Power of starting small                

Assume a person saves Rs 1000 each month for 10 years. At the end, his saving would have amounted to Rs 120000. Thus, one can see how a small figure saved over time can add up to huge sums.  


3 Rupee Cost Averaging                
  The major advantage of SIP is that one does not need to time the market. The small regular investments allow one to average out the market volatility.  Considering a long term investment approach, rupee cost averaging can even out any market ups and downs in the long term, allowing the investor to gain maximum benefits on his  investments over time. 
  Investment amount NAV Units              
  5000 20 250.00              
  5000 10 500.00              
  5000 16 312.50              
  5000 20 250.00              
  5000 25 200.00              
  5000 22 227.27              
  Total Units and average cost 18.8 1,739.77              
  From the above, we can see that the number of units purchased rises whenever the market falls, thus reducing the overall cost of purchase.
4 Value Cost Averaging                
  Value Cost Averaging (VCA) is an investment technique where investments are made systematically over a period of time, but the quantum of investment in VCA changes depending on market fluctuation.
  VCA fixes a target amount each month, and ensures this target amount is maintained every month, irrespective of the market price. Therefore, the investor, buys or sells, only those units that are required to maintain the predestined portfolio worth at each revaluation point, which is typically every month
  Therefore, the simple principal is, in falling markets, one buys more units and in rising markets, one buys fewer units or may even require to sell some units to maintain the target portfolio amount.
  In the illustration below, it can be seen how value cost averaging helps in:
1.  reducing average costs ,
2. reducing portfolio volatility,
3. achieving  goal based taget values.
  Month NAV Target Portfolio amount Cumulative units Units Purchased/ Sold Amount Invested per month        
  1 10 1000 100 100 1000        
  2 12 2000 166.67  66.67   800        
  3 16 3000 187.5  20.83   333        
  4 12 4000 333.33 145.83 1750        
  5 17 5000 294.11 -39.22 -666.74        
  6 15 6000 400 106  1590        
  Total Amount Invested 13.66 6000 400 400 4807        
  Average cost per unit     12.01            
Factual examples                
  The Sensex has had a roller coaster ride over the past decade. There was a major crash in 2008/09  and a surge in 2014/15.   
  When there is a bull market ,  SIP   is a clear winner over lumpsum investment      
  If a person had invested Rs 10000 in early 2015, when the sensex was at its peak, he would not have received as many units as if he had invested gradually over a period of time.
  Let us assume a regular Rs 1000 montly investment in  ICICI Prudential Value Discovery Fund, a multicap fund from March 2013  to  March 2015          
    Date Price Cumulative Investment          
    (dd/mm/yyyy) (INR) Units Value(INR)          
    3/1/2013 54.38 18.39 1,000.00          
    4/1/2013 54.02 36.9 1,993.38          
    5/2/2013 55.32 54.98 3,041.35          
    6/3/2013 54.39 73.36 3,990.22          
    7/1/2013 51.95 92.61 4,811.22          
    8/1/2013 48.98 113.03 5,536.16          
    9/2/2013 49.81 133.11 6,629.97          
    10/1/2013 52.85 152.03 8,034.61          
    11/1/2013 57.92 169.29 9,805.39          
    12/2/2013 59.32 186.15 11,042.39          
    1/1/2014 62.58 202.13 12,649.24          
    2/3/2014 58.87 219.12 12,899.34          
    3/3/2014 62.03 235.24 14,591.75          
    4/1/2014 68.38 249.86 17,085.50          
    5/2/2014 71.39 263.87 18,837.59          
    6/2/2014 84.96 275.64 23,418.28          
    7/1/2014 90.77 286.66 26,019.75          
    8/1/2014 91.65 297.57 27,272.00          
    9/1/2014 98.11 307.76 30,194.29          
    10/1/2014 99.49 317.81 31,618.99          
    11/3/2014 103.5 327.47 33,893.41          
    12/1/2014 106.3 336.88 35,810.34          
    1/1/2015 108.3 346.11 37,484.10          
    2/2/2015 114.6 354.84 40,664.61          
    3/2/2015 117.89 363.32 42,832.04          
Source: www.valueresearchonline.com                
  The investment value has risen to Rs 42832 while cost is Rs 25000          
  If the  Rs 25000 had been invested as a lumpsum on  October 2014 in the same fund, the value will be much lower.  
    Date Price Cumulative Investment          
    (dd/mm/yyyy) (INR) Units Value(INR)          
    10/1/2014 99.49 251.28 25,000.00          
    3/2/2015 117.89 251.28 29,623.58          
  When there is a bear market,  SIP  again gains over lumpsum investment        
  If a person had invested Rs 1000 monthly for 18months from Nov 2008 till April 2010 through an SIP, despite a  sensex crash, he would still be better off than investing in a lumpsum.
    Date Price Cumulative Investment          
    (dd/mm/yyyy) (INR) Units Value(INR)          
    11/3/2008 16.93 59.07 1,000.00          
    12/1/2008 14.96 125.91 1,883.64          
    1/1/2009 17.63 182.63 3,219.82          
    2/2/2009 16.11 244.71 3,942.22          
    3/2/2009 15.37 309.77 4,761.14          
    4/1/2009 16.9 368.94 6,235.08          
    5/4/2009 20.93 416.72 8,721.91          
    6/1/2009 26.97 453.8 12,238.89          
    7/1/2009 27.47 490.2 13,465.79          
    8/3/2009 31.78 521.67 16,578.55          
    9/1/2009 34.01 551.07 18,741.86          
    10/1/2009 36.69 578.32 21,218.73          
    11/3/2009 34.98 606.91 21,229.79          
    12/1/2009 38.54 632.86 24,390.40          
    1/4/2010 40.85 657.34 26,852.31          
  The investment of Rs 18000 had increased to Rs 26852            
  If the  Rs 18000 had been invested as a lumpsum in August 2009 in the same fund, the value would have risen to just Rs 23137 in April 2010
    Date Price Cumulative Investment          
    (dd/mm/yyyy) (INR) Units Value(INR)          
    8/3/2009 31.78 566.39 18,000.00          
    1/4/2010 40.85 566.39 23,137.19          
Source: www.valueresearchonline.com                
Myths of SIP investing                
1 Timing is crucial                
  Timing is not a crucial element in SIP investment since the gradual investment over time often limits the exposure to market volatility. However, it must be noted that in a continuously falling market, the returns will be lower. In addition, if one has started investing when there was a bull market, which later started falling, it will take some time to recover the losses. In the long term ( a period exceeding 10 years), SIP will almost always be a better option than lumsum investments.
2 SIP always gives better returns than lump sum investment            
  In a bull market when the Sensex is rising, there are situations when lumpsum investment will  fetch higher returns, out performing an SIP. Nonetheless, SIP is te better option as most investors cannot time the market or invest large lumpsums in one go. In such scenarios, SIP should be the preferred mode of investment.
  An SIP does not guarantee returns or ensure positive returns. If you opt for an SIP in a falling market and the market continues to fall as it happened last year, then your investment will suffer a loss on the whole. Despite this, over the long term, investing in a SIP provides an investor a great way to regularly make investments and grow small savings into a tidy nestegg for the future.
Neena Shastry           
Research Desk- Dilzer Consultants Pvt Ltd            

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