Investment – Page 7

April 8, 2023

Hybrid mutual funds can be the next big wave. But do they suit everyone?

A big outcome from the Finance Bill amendment on March 24 is that post-April 1, mutual fund schemes will be subject to three different types of taxation. On schemes that invest 35-65 percent in equities, you will now pay Short-Term Capital Gains (STCG) tax in line with your income tax rates; long-term capital gains (LTCG) will attract 20 percent tax with indexation.

To be sure, the Finance Bill has removed the capital gains tax and indexation benefits for debt funds that invest less than 35 percent in equity. In the third category of taxation, nothing changes for funds that invest at least 65 percent in equities.

For the Rs 40 trillion mutual fund industry struggling to come to terms with the latest tax shocker, this new category of taxation has changed little. The fact that hybrid funds were left untouched by the Finance Bill amendment actually opens new opportunities.

The question is: should you really switch to hybrid funds, if you’re affected by higher taxation on you debt fund investments?

MF industry officials and experts say that the 35-65 percent equity category, which largely makes up hybrid mutual fund schemes, would be under the spotlight.

Hybrid funds comprise six categories: Conservative Hybrid, Balanced Hybrid/Aggressive Hybrid, Balanced Advantage, Multi Asset Allocation, Arbitrage, and Equity Savings.

Hybrid schemes with total Assets Under Management (AUM) of Rs 4.87 trillion are the second-lowest open-ended mutual fund category after Solution Oriented Schemes. Compared to this, Growth/Equity Oriented Schemes commanded AUM of Rs 15.01 trillion as of February-end.

Dynamic Asset Allocation/Balanced Advantage funds, which are expected to benefit from the tax changes, are the most popular categories among the hybrid schemes with AUM of Rs 1.91 trillion.

A better alternative?

Experts say that with a slight upgrade in their risk profile, hybrid funds can offer a better alternative when it comes to generating returns, over and above fixed deposit rates.

In this category, equity allocation can move anywhere between 20 percent and 80 percent or even 0-100 percent depending on market conditions. Currently, 30 such funds are available in the market, but most are keeping their equity exposure in the range of 65-100 percent and debt in range of 0-35 percent.

Equity Savings is a neglected category among hybrid schemes with the lowest AUM of Rs 16,445 crore. But that could change soon.

“For retail investors, hybrid funds would make more sense. BAFs and Equity Savings may come in handy for retail investors as they can take debt allocation in a tax-efficient way,” said Niranjan Awasthi, Head of Products Marketing and Digital Business at Edelweiss Asset Management Company.

Equity Savings and Arbitrage Funds

In Equity Savings, minimum investment in equity is 65 percent and minimum investment in debt is 10 percent while arbitrage is also allowed.

In mutual funds, arbitrage is the simultaneous purchase and sale of a stock to take advantage of the price differential in the spot and futures markets. This helps in increasing the equity exposure in the scheme while avoiding a rise in the risk profile.

Experts say that Equity Savings have largely remained neglected as retail investors generally look at equity allocation in hybrid funds. Case in point, Conservative Hybrid, where equity allocation can stay between 10 percent and 25 percent, has a total AUM of just Rs 22,716 crore.

Kirtan Shah, founder of Credence Wealth Advisors LLP, believes that a lot of money will start flowing into Equity Savings.

“Asset management companies will start pushing Equity Savings as a category for fixed income kind of investments. These funds, in four or five years of history, have kept equity in the 20-30 percent range. If you look at all the other hybrids, the equity range is much higher,” he said.

Apart from Equity Savings, the expert also sees money starting to flow into Arbitrage Funds.

“A pure debt replacement will move to Arbitrage and Equity Savings. However, the problem is that in both these categories, if a lot of money starts flowing in, then automatically the spreads will reduce on the arbitrage. That is one big problem that can arise in the future. If we are anticipating that Arbitrage and Equity Savings will see a lot of flows, then the return expectations have to be slightly tempered,” Shah added.

Can hybrid replace debt?

Over the past few days, fund houses have gone on an overdrive suggesting that investors put as much money into debt funds as they can until March 31 to take advantage of lower taxation.

Many experts say that while some people may feel the urgency to shift out of debt mutual funds to save some taxes, they will realise eventually that debt funds can still outperform traditional FDs. There may just not be other credible options available in their risk profile.

Dhirendra Kumar, CEO, Value Research, said, “In terms of taxation, nothing changes for Liquid funds, Ultra-Short Term and Money Market Funds. Debt funds can give investors great convenience, and also a little better return. Plus, for a fixed income investor, equity is risky. In March 2020, the equity went down by around 30 percent in a few days, and that time people were running for cover and they hate equity for that.”

Experts are also of the opinion that investors shifting from debt to equity will risk having a complete change in their risk profile.

Swarup Mohanty, director and chief executive officer (CEO), Mirae Asset Investment Managers (India), does not like selling a hybrid fund to a debt fund investor. “That’s the worst thing that can happen.”

Edelweiss’ Awasthi added: “Specifically, for longer-tenured bond funds and Target-Maturity Funds, there will be times, even like now (high interest rate regimes), where funds which are closely comparable to a fixed deposit, would still do well.” When interest rates fall, bond prices rise; this benefits your debt funds.

What should mutual funds do?

According to Mohanty, the mutual fund industry used to talk about fixed deposits versus income funds in the early 2000s.

“Maybe we have to start from there now, now that the taxation is similar,” he said.

Deepak Chhabria, CEO of Axiom Financial Services, says that if the debt industry has to survive, it has to bring in alpha compared to other fixed-income products.

“In early 2000s, the return on say a long bond fund used to be around 1 percent higher than the corresponding deposit rate. With indexation and tax benefit, it used to be a decent 1.5-2 percent alpha. That alpha over a period disappeared because of the competitive pressure. The pitch has to change, there has to be an additional return and safety will have to come in too,” said Chhabria.

Another aspect debt mutual funds may look to work on is simplification of language so that they can make themselves understood to lay investors.

“The language that we speak; long debt, duration, CAGR (Compounded Annual Growth Rate), compared to a simple FD 8 percent interest is very complicated. We have had the benefit of taxation until now, but debt sales will continue as usual,” said Mohanty.

Source: Moneycontrol

April 1, 2023

Follow These 5Ps to Take Control of Your Finances in the New Financial Year 2023-24

It is critical to plan your finances and investments at the start of the fiscal year in order to avoid a last-minute scramble and to invest based on your needs and financial goals. Every year brings new challenges that we must overcome, learn from, and move forward. As a result, it is prudent to revisit our financial decisions from last year in light of our present financial status and market conditions. Learning from our mistakes in the past can help us make better financial decisions in the future.

Financial planning has evolved in recent years, and more people are recognising the importance of having a long-term financial plan. Today’s digitally-savvy generation prefers to manage their finances using digital platforms or apps. A one-stop solution that allows them to plan, manage, grow, and address their financial needs.

Financial planning plays a pivotal role in allocating funds to the best-suited investment vehicle to add value to your overall financial portfolio. The beginning of the new financial year 2023-24 is the perfect time to reflect on your financial practices or mistakes from the previous year 2023-22 and get started with smart financial planning.

Recently, on the occasion of Gudi Padwa, I met all my cousins. Rohit and Madhu were discussing ITR filing, their investments and how they are struggling with the finances due to last-minute hassle. While our youngest brother Rishi said, “All these financial planning swing like a bouncer over my head. I wish there were a simple concept or theory to understand this.”

To which Rohit replied, “These Gen Z’s want everything readymade and easily available at their fingertips. Rishi, the new financial year is approaching, and you must emphasise on financial planning rather than splurging on irrelevant gadgets online; the early you start the better it is.”

Rishi replied, “Yes, bhaiya, I too, intend to put my finances in place and have better control. But I don’t know where to start. The basic I understand about personal finance management is earning enough to manage one’s daily or monthly expenses and saving enough for the future.”

To which I responded, “Rishi, there is more to financial planning than simply saving from monthly expenses; however, it is one of the elements. The practice of financial planning should be considered as a scientific approach to achieve life’s milestones rather than seeing it as an ad hoc process only to save maximum tax at the end of the financial year. The goal of developing a financial plan is to understand your financial situation, prioritise your goals, and maintain stability even during challenging times.”

Let me help you understand financial planning with a unique approach. You need to follow these 5Ps to take control of your finances.

1. Planning

If you create a plan for any event in life, it is easier to manage; for instance, if you are going on a vacation, proper planning is required. Similarly, your personal finances require structured planning to stay in control and manageable. You can begin with 2 simple steps:

Step #1 – Goal Planning – You need to create S.M.A.R.T (Specific, Measurable, Achievable, Realistic, and Time-bound) goals. A good financial plan is guided by your financial goals. If you approach your financial planning from the standpoint of what your money can do for you, whether to buy a house or help you retire early, it will assist you in saving efficiently towards your goals.

Step #2 – Budgeting – Budgeting is an important aspect of financial planning; developing a budget helps you manage your cash flows, and you can cut back on non-discretionary costs to save more and meet your goals. An accurate picture of your finances is the key to creating a strong financial plan and can reveal ways to direct more to savings, investing, or debt pay-down. There are various budget planning apps available online that can assist you in prudent budgeting exercises.

2. Protection

A common goal that every individual holds is providing a secure financial future for our loved ones and protecting them from any financial challenges. You need to protect your financial worth, to maintain financial stability. An adequate insurance cover helps you do that and is thus considered a vital aspect of financial planning.

You have all seen the necessity of having life and health insurance during the pandemic. One must remember that as we age, the probability of getting insurance coverage at an affordable premium decreases. Therefore, if you already hold insurance coverage for life and health, take a close look at it, and enhance the coverage wherever needed. The best way to cover your life risk and provide financial security to your family in your absence is by getting appropriate health, term or life insurance.

Insurance has several aspects like protection, wealth generation, and a select few that offer the policyholder a combination of both. This is an essential element of your financial planning and should be of utmost importance to avoid having a dent in your savings due to unforeseen contingencies.

3. Provide

Many individuals are charged with the responsibility of managing finances and providing for household expenses and others. With this step of financial planning, you can ensure a better plan tailored for emergencies as well. A major component of financial planning is liquidity management to sustain unforeseen events.

You need to create a financial cushion or safety net to maintain your financial stability in times of emergencies. The future is uncertain; a sudden job loss or an unexpected medical emergency can shake up your finances considerably. Ideally, you need to keep an amount equal to 6-12 months of expenses, including loan EMIs, as a contingency fund. You can start small, and the money can be invested into liquid funds so that you can access the money quickly in case of an emergency.

4. Power

One of the benefits of taking control of your finances through financial planning is the sense of empowerment it brings to you. There are two aspects of financial planning that can strengthen your overall finances.

Investment Planning
Your finances are powerful once you indulge in prudent investment planning. Your savings are best utilised when they are invested in rewarding investment avenues like mutual funds. Starting investments at the beginning of the year through ELSS or SIP in the best suitable mutual funds is a convenient way for novice investors to start off.Do note you need to pick mutual fund investments that meet the risk-return expectations and, eventually, your investment objective. It is essential that you begin investing early so that you can take full advantage of the power of compounding, which has the potential to help multiply your returns exponentially over time. Investments in worthy mutual fund schemes will give you the power to beat the cost of inflation as well.Ideally, investors need to identify their financial goals and align their investments accordingly. I would recommend PersonalFN’s SMART Fund Explorer ; it is a tool that can help you plan your mutual fund investments smartly based on your risk profile to achieve your financial goals. It provides a list of the best suitable mutual fund schemes recommended by our research team that will help you reach your financial goals.

Debt Reduction
You may have debt that you created to fulfil various financial requirements; however, repaying your debt on time is crucial. You need to focus on clearing/paying off your debt burden to be in the pink of your financial health. Eliminating the debt burden gives you the power to have more disposable income to save and invest in rewarding avenues.You need to tackle a high interest debt that pulls out the major portion of your income, leaving you with a small amount to manage the rest of your financial needs. There are numerous approaches to dealing with high interest debt, including the well-known snowball method, which focuses on paying off your smaller bills first. The avalanche method, on the other hand, prioritises paying off your highest interest loans first. You should aim to maintain a debt-to-income ratio of below 40%.

5. Promote

To promote a financially secure life for yourself and your loved ones, you need to be financially literate. All the factors and processes of financial planning will only work for you if you are financially aware of how to implement them.

Financial literacy is the enhances your capability to use knowledge and skills to manage financial resources effectively for your financial wellbeing. Major financial decisions like opening suitable bank accounts, planning for retirement, paying off personal debt from loans or credit cards, and developing a strong investment portfolio for wealth creation are difficult to make when one lacks financial literacy.

Thus, it is vital to bolstering your financial knowledge, and I suggest you consider to enrol for PersonalFN’s latest special initiative, the “Certified Family Guardian,” that offers you an exclusive opportunity to learn the finer nuances of financial planning. Organised into eight modules with 24 extensive videos, the “Certified Family Guardian” will help you with all the relevant tools and learning modules needed to get better at money management.

To conclude…

Personal finance management is crucial for every person mainly to ensure that they have a comfortable present as well as a secure financial future. The beginning of the new year is a perfect time to reflect on the areas of improvement and get a head start on building strong financial health.

Source: Personalfn

March 22, 2023

How your mutual fund gains are taxed

Just like any other income, gains made on your investments are taxable and mutual funds are no exception. However, taxation policy can change depending on the type of mutual fund you hold. Similarly, tax consequences change depending on when you decide to sell your mutual fund.

But worry not because this article will help you understand the different tax implications of mutual fund investments.

Tax arises only when you book a profit
Unlike fixed deposits (FD), where the accrued interest is taxed every year, mutual fund gains are taxable only when they are realised, i.e., at the time of redemption. For example, if you invest in an FD for three years and earn Rs 5,000 interest every year, this amount is added to the taxable income of that year even if you do not realise the interest.

However, in case of mutual funds, if the value of your investment increases by Rs 15,000 by the end of the first year and you remain invested, you don’t have to pay any tax. Only when you redeem your mutual investment do you need to pay tax.

How tax liability is determined on mutual fund gains?
How much tax you need to pay on your mutual fund gains depends on three factors:

The type of fund you have invested in: From a taxation point of view, mutual funds can either be equity-oriented or non-equity-oriented.

Equity-oriented funds are those that invest at least 65 per cent of your money in equities. The others are termed as non-equity-oriented mutual funds.

The amount of time you have held on to your mutual fund: Your holding period can either be short-term or long-term. The duration to define this is different for equity-oriented mutual funds and non-equity mutual funds

Your tax slab: This is only applicable if you invest in a non-equity mutual fund. Tax slabs also apply to Income Distribution cum Capital Withdrawal (IDCW) plans of mutual funds too. But more on this later.

Tax implications on equity-oriented funds
If your holding period is more than a year, the gains are termed as long-term capital gains. In this case, gains up to Rs 1 lakh in a financial year are tax-free, but anything above that is subject to a 10 per cent tax.

If your holding period is less than a year, the gains are termed as short-term capital gains and are taxed at 15 per cent.

Tax implications on non-equity funds

If you invest in a non-equity mutual fund, and your holding period is less than three years, the gains are termed as short-term capital gains and are added to your income. They is taxed as per your income tax slab rate.

If your holding period is longer than three years, then the gains are termed as long-term capital gains and are taxable at 20 per cent after indexation.

The first-in-first-out principle
Another important thing you should know is that the redemption of mutual fund units is based on the first-in-first-out (FIFO) method. That is, the units that you bought first are assumed to be redeemed first.

For example, let’s say you bought 100 units of a non-equity fund in September 2017, and 150 units of the same fund again in September 2021. In total, you would have 250 units. Now suppose you wish to sell 120 units in August 2022, here is how your tax liability would look like. For the first 100 units, gains made will be considered as long-term as they were acquired in September 2017, i.e., more than three years ago. And the gains on the remaining 20 units will be treated as short-term as they were purchased less than a year back. So, keep this in mind while evaluating your tax liability.

Tax on income distributed by mutual funds
If you opt for the Income Distribution cum Capital Withdrawal plan (IDCW) of any mutual fund scheme, the fund house might give you some portion of the gains/capital from time to time. Such distributions are added to your total income and taxed as per your income tax slab rates.

Source: Valueresearchonline

March 20, 2023

Last Minute Tax Saving Investment Ideas for FY 2022-23

Benjamin Franklin famously said, ‘There are only two things certain in life, death and taxes.’ Despite death not being in our hands, we often worry about it but when it comes to taxes which are very much controllable, we tend to put in only last minute efforts. Every year, in the month of March, many of us hastily invest in various tax-saving schemes that offer 80C deduction without proper consideration, resulting in poor financial decisions. However, are 80C investments the only option for tax savings? Many taxpayers are unaware of options such as 80D, 80E, and others. By treating these investments as tools for building long-term wealth, taxpayers can benefit even more.

Here are some handy last-minute tax-saving investment tips that can help you reduce your tax liability. By taking advantage of these tips, you can simplify the investment process and potentially save yourself some money come tax season.

Using Section 80C for last minute investment planning

Section 80C of the Income Tax Act is one of the most popular widely explored options for tax saving investments. With a host of financial investments options ranging from PPF, EPF, ELSS, Life Insurance Policy premiums, Bank FDs, Post Office Schemes etc. There is some or the other investment option available for all types of investors. Investments up to Rs 1.5 lakh in one or more of these are exempt from tax. Here is a quick review of some of the best last minute investment options in Section 80C.

PPF: If you unsure about where to invest and don’t want to take risks for your investments, invest in PPF. PPF investments are backed by government and offer fixed interest rate each year. If you do not have a PPF account, you can open one online and if you have an account then you can just invest the remaining amount to utilize your 80C limit. However, the current rate of interest is low at 7.6% p.a.

ELSS: ELSS is one of the best investment options in the list of financial products as it provides you the opportunity to invest in markets and enjoy tax deductions for the same. If you are a salaried employee, a sizeable amount of your investments go into your EPF account and you can look at investing in ELSS to diversify your portfolio into equities. Even for non-salaried taxpayers, ELSS is the ideal option for equity investment as most of the investments in 80C are debt investments. Another advantage of ELSS is that it has the shortest lock-in period of 3 years. Among all investment options, ELSS mutual funds offer the lowest lock-in with almost the highest returns.

Life insurance policy: Having a life insurance policy is extremely essential and if you do not have insurance policy with adequate coverage then you should look at buying a good term insurance policy. One should have term insurance policy in the portfolio to protect family for uncertainties.

NPS: You should start your retirement planning as soon as you can and NPS can be a great investment avenue for the same. Your investments in NPS enjoy additional deduction of Rs 50,000 under Section 80 CCD(1b) thus taking the total limit of tax deductible u/s 80C income to Rs 2,00,000 for the financial year.

Unit Linked Insurance Plan (ULIP): A Unit Linked Insurance Plan (ULIP) is a financial product that combines both investment and insurance in one package. ULIPs offer the opportunity to build wealth while also providing life insurance coverage.

With a ULIP, a portion of the invested amount is allocated towards life insurance, while the remaining amount is invested in a mix of equities, debt, or a combination of both. This type of investment is suitable for long-term financial goals such as saving for your child’s college education, retirement, or other significant financial milestones.

ULIP premiums are eligible for a tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per year. Additionally, the returns earned on a ULIP policy are exempt from income tax under Section 10(10D) upon maturity.

Deduction on your Housing Loans: You can claim repayment of principal amount of your home under Section 80C upto Rs 1.5 lakh. Apart from this, you can also claim additional deduction of Rs. 2 lakhs on the interest component of your home loan for fully constructed self-occupied property under Section 24(b).

Sukanya Samriddhi Yojana (SSY): This is a savings scheme initiated by the government to promote the development of the girl child. Parents can open an account with a minimum investment of Rs. 250 and a maximum of Rs. 1.5 lakh per financial year. The government announces the interest rate every quarter. The scheme offers tax benefits, including a tax exemption of up to Rs. 1.5 lakh per year under Section 80C, exemption from tax on interest earned, and tax exemption on the total amount at maturity. It is an EEE (Exempt-Exempt-Exempt) scheme, which means the investment, interest earned, and maturity amount are all tax-exempt.

National Savings Certificate (NSC): This is a savings scheme supported by the Indian Government. You can open an account at any post office in India, and the investment is locked for five years. After five years, you get the full amount. You can invest up to Rs. 1.5 lakh per year, and you can also avail tax deductions on investments under Section 80C. The NSC can be a good option for those who want guaranteed returns and save tax at the same time.

Tax-saving FDs: These are similar to regular FDs, but offer a tax break on investments up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. They have a lock-in period of 5 years, and cannot be redeemed before maturity without penalty. Any Indian resident can open a tax-saving FD with a minimum investment of Rs. 1,000. This is a low-risk investment option suitable for long-term investment with guaranteed returns. The interest earned on tax-saving FDs is taxable.

Tax saving beyond Section 80C

Section 80C is not the only option available for tax saving in India. There are other sections under the Income Tax Act that provide tax benefits and can be used for tax-saving purposes. Some of the popular tax-saving options apart from Section 80C are:

Medical policy premiums: With healthcare costs on the rise, having a medical insurance policy is crucial. You can claim a tax deduction on the premium paid for such policies for yourself, your spouse, children, or parents under Section 80D.

Interest on education loan: If you have taken an education loan for higher studies for yourself, your spouse or children, you can claim a tax deduction on the interest paid on such loans each year under Section 80E.

Donations made to funds and charitable organizations: Donations made to charitable trusts, organizations, or relief funds can be claimed as tax deductions under Section 80G.

Interest earned on your savings account: You can claim a tax deduction of up to Rs. 10,000 for interest earned on your savings account under Section 80TTA. For senior citizens, the limit is Rs. 50,000 per year.

Practical guide for effective tax-saving investments

Many people wait until the last quarter of the financial year to start thinking about their taxes. But this can lead to poor investment decisions. The best strategy is to start planning at the beginning of the financial year. This gives you more time to make informed investment choices and stay invested for a longer period, which can help you reach your financial goals quickly.

Here are some practical steps to help you plan your tax-saving investments:

1- Check if any of your investments or expenses during the year are eligible for tax deductions. For example, contributions to EPF, home loan repayments, and school fees can be tax-deductible.

2- Identify your investment goals and your risk profile to help you select the best investment options.

3- Invest the appropriate amount to reach your financial goals while also taking advantage of tax-saving opportunities.

Conclusion

In conclusion, many taxpayers tend to make hasty investment decisions by only relying on 80C tax-saving options, resulting in poor financial decisions. However, by exploring other options such as 80D, 80E, and others, taxpayers can benefit from long-term wealth creation. The article highlights some of the last-minute tax-saving investment tips that can help individuals reduce their tax liability. Taxpayers can take advantage of options such as PPF, ELSS, NPS, ULIPs, housing loan deductions, Sukanya Samriddhi Yojana, National Savings Certificate, and tax-saving FDs. By utilizing these investment options, individuals can simplify the investment process and potentially save money during tax season. Therefore, taxpayers must carefully evaluate their financial needs and goals before making any investment decisions.

Source: fisdom

March 20, 2023

Money Mindset: Approach problems in a non-linear fashion

My husband and I were contemplating a laid-back retired life when the tables suddenly turned. My partner and dear friend suffered a paralytic stroke just a few months before he was to retire.

Here’s how I tackled it and my advice to younger women.

Don’t minimize your role as a wife or as a woman.

Don’t assume that finances are only your husband’s problem, even if you are not earning. It is a partnership. You both are in the marriage together. Money decisions affect everyone in the house.

Society is always feeding us a narrative. You don’t have the mind for finances. You are too young. You are too old. Who is to make that decision for you? Why must age be a barrier? Why must gender be a barrier?

Take an interest. Question. Do your research. Offer solutions. Discuss. Start investing, whatever be your age or social status. If you husband gives you a monthly budget to run the house, you can even take as little as Rs 1,000 and start a systematic investment plan (SIP) into a mutual fund or a bank recurring deposit.

Never assume that good times are a given.

Besides the emotional and physical impact of me taking on the role of a caregiver, I was forced to take charge of the finances, something he had looked after all our married life.

The best time to educate yourself is when the going is good. I sometimes regret that I wasn’t this financially aware while we had a regular monthly income. I could have done so much more. Now, I even have an emergency fund in case I require it for a sudden medical expense. That way, I do not have to touch my investments.

Be clear on what you want.

When the final settlement cheque of my husband’s company was handed over to me, I realized that it was not the amount I envisaged. We had taken a loan on his provident fund to purchase a 2-bedroom apartment Bangalore.

The remaining amount would rapidly disappear if I did not take charge instantly and invest it.

I had one goal: Be financially independent and not ask my daughter for monetary support. All my actions stemmed from this decisions.

Approach problems from multiple angles.

I was brutally honest and aware of my complete lack of knowledge when it came to stock market. I did not understand chit funds.

This was in the mid-1990s when government undertakings were issuing bonds to the public at around 15% per annum. And, non-banking financial companies, or NBFCs, were passing on huge commissions to investors who invested in their debt instruments.

I began investing in these bonds and lived off the interest. By living frugally, I also was able to reinvest the interest too, and gradually increased the principle. When interest rates began to dip, I started to look at mutual funds.

I scheduled my investments to ensure that cash flow comes from a Systematic Withdrawal Plan (SWP), dividends or interest payments. With these inflows, I managed my daily expenses, outings and pampered my two grandsons. Larger purchases and expenses are put off till an investment matures.

When I was handed the cheque, I realized that I needed to attack the problem from various aspects. For one, I had to cut down on wasteful expenditure and adopt a frugal lifestyle. This would help save my corpus from getting depleted. But simultaneously, I had to grow the corpus. Because the erosion of the value of money due to inflation would continue, irrespective of my circumstances. Hence, I had to invest the money and take a call not to touch the principal, and instead add to it when possible.

Approach a problem from different angles. To be financially independent, I had to do various things – cut down on frivolous expenditure, increase my corpus and ensure inflows. Good investing is not just about knowing where to invest, but what to avoid.

Don’t blindly follow what another is doing. You need to take a hard look at your circumstances, and knowledge and what you are comfortable with.

Never be afraid to ask questions. Never be too arrogant to not reach out for help. Where I am today is because of the sound advice from well-meaning individuals.

Just because I avoided an investment at one time (equity), doesn’t mean I should continue. Allow yourself to evolve, as an investor and as a woman.

Padma Ramarathnam’s husband passed away. Thanks to her decisions, she is financially independent even in her 80s.

Source: Morningstar

March 12, 2023

Procedure of SME Listing on SME Exchange In India

SME Exchange provides a great opportunity to small and medium enterprises to raise equity capital for the growth and expansion of their business. SME exchange is a stock exchange for trading the shares of small and medium enterprises who otherwise would find it difficult and costly to get listed in the main board of a recognised stock exchange.

“SME exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by SEBI to list the specified securities issued in accordance with Chapter IX of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and includes a stock exchange granted recognition for this purpose but does not include the Main Board. Currently there are 2 stock exchanges providing SME exchange in the country, they are:

NSE’s SME Exchange i.e., NSE EMERGE.
BSE’s SME Exchange i.e., BSE SME.

SME Exchange is growing at a very fast pace which can be seen from the data available with the BSE SME website which states that there currently around 336 companies which have listed their share on SME Exchange with a total market capital of Rs. 27,318.64 Crore till date. Additionally, Rs. 3,492.54 Crore have been raised via various means on the BSE SME Exchange till date.

BENEFITS OF LISTING UNDER SME BOARD

Higher visibility and Recognition.

Higher credibility with stakeholders like customers, vendors, employees, etc.

Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.

Higher valuation of the company.

Enables Liquidity for Shareholders.

PROCEDURE FOR LISTING IN SME EXCHANGE

1. Appointment of Intermediaries – This stage includes appointment of various intermediaries required for listing under SME Exchange such as Merchant Bankers registered with SEBI to act as Lead Manager to the Issue, Underwriters and Legal Advisors.

2. Pre- IPO Stage- This refers to the procedural aspects for listing under SME Exchange which includes Increase of Authorised Share Capital, passing of resolution for further issue of share capital under section 62(1)(c) of the Companies Act, 2013, Re-Structuring of Boarde., Appointment of Directors to satisfy the conditions prescribed under the Companies Act as well as the SEBI Regulations.

3. Preparation Stage – This stage includes conducting of Due diligence by the Lead Manager to the Issue i.e., the Merchant bankers who would check all the documentation including all the financial documents, material contracts, Government Approvals, Promoter details etc. This exercise would also help in preparing Offer Document appropriately.

4. In-principal approval of draft prospectus – The Issuer shall file the draft prospectus along with the documents in accordance with the SEBI (ICDR) Regulations, other statutes, notifications, circulars, etc. governing preparation and issue of prospectus prevailing at the relevant time. The Issuers may particularly bear in mind the provisions of Companies Act, Securities Contracts (Regulation) Act, the SEBI Act and the relevant subordinate legislations thereto.

5. Application to BSE SME Exchange – On completion of Due diligence by the merchant Banker along with approval of the Draft prospectus, an application shall be filed with the stock exchange for admission of their securities to dealings in their respective exchange, i.e., taking in-principal approval from the stock exchange.

6. Filing of RHP/Prospectus – Merchant Banker then files these documents with the ROC indicating the opening and closing date of the issue. Once approval is received from the ROC, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

7. Post Listing – Stock Exchange then finalizes the basis of allotment and issues the Notice regarding Listing and Trading.

SOME POST LISTING COMPLIANCE UNDER SEBI(LODR) REGULATION, 2015

1. Regulation 33: Financial Results: -The listed entity shall submit financial results to the stock exchange within forty-five days of end of each half year as compared to quarterly submission prescribed for companies listed on Main Board of the Exchanges.

2. Regulation 47: Advertisements in Newspapers: – The requirements of this regulation shall not be applicable in case of listed entities which have listed their specified securities on SME Exchange.

3. Regulation 31: Holding of specified securities and shareholding pattern: – The listed entities which have listed their specified securities on SME Exchange shall submit to the stock exchange(s) a statement showing holding of securities and shareholding pattern separately for each class of securities on a half yearly basis within twenty-one days from the end of each half year as compared to quarterly submission prescribed for companies listed on Main Board of the Exchanges.

Source: Taxguru

March 9, 2023

Unlock the Potential of SME Trading in India – Here’s How

Stock market investing involves a wide array of options. It is not just about buying and selling shares in the secondary market. There are so many different strategies out there. Not to mention, different markets. You have the Initial Public Offer (IPO) or primary market, the derivatives segment, and now the latest Small-Medium Enterprises (SME) exchange.

For savvy investors looking for newer, more profitable options, the SME exchange can be a great platform.

What is SME?
Usually, companies listed their shares on the exchange in the primary market through an Initial Public Offer (IPO). This included firms of all sizes – small, medium and large. However, small and medium enterprises had a greater scope of risk than larger companies. Investors needed a high degree of stock market knowledge to sift through the companies and find companies that matched their risk appetite. This is not possible for every investor. As a result, many small investors made losses. To avoid this, both NSE and BSE created separate exchanges in India catering only to small and medium-sized firms. The BSE calls it SME exchange, while NSE’s exchange is called ‘Emerge.’

Why should you trade SMEs?
There are so many small and medium-sized companies listed on the regular stock market segment. It is difficult for the interested investor to sift through the thousands of smallcap and midcap stocks to identify value-making companies. This is not so in the SME exchange. It is a niche segment for small and medium enterprises, which have the potential to give higher returns. Moreover, the exchanges have entry restrictions like positive net worth and cash flows for two years before listing. Also, companies, which had once applied for winding up or restructuring, are not allowed to list on the exchange. These restrictions help insulate investors from additional risk.

How do you trade SMEs?
Trading on the SME exchanges is almost like the normal buy and sell procedure. It does not require any extra procedures. However, some trading rules differ. For one, the SME exchange has a larger-than-normal lot size – the minimum number of shares you can buy or sell in each transaction. You cannot trade amounts lower than Rs 1 lakh. Also, the lot size varies with the price of the stocks. For example, on the NSE Emerge, if the stock price is lower than Rs 14, then the lot size is 10,000. However, if the stock price is between Rs 120 and Rs 150, then the lot size falls to 1,000.

Other trading guidelines
These stocks are traded in the cash segment. They can be bought and sold either in the continuous market or specifically in the call auction market. Just like the normal cash segment, these shares fall into different series like the ‘rolling settlement,’ ‘block trading window,’ ‘ odd lot trading,’ and so on. Moreover, you can place both market as well as limit orders just like a normal trade. These can be modified and cancelled until processed. Once settled, the shares will be delivered in T+2 days.

Liquidity
Some care should be taken while trading on the SME exchanges in India. First of all, investors should know that the risk factor is quite high while investing in small and medium sized companies. Yes, they are capable of giving really great returns, but they also have a higher than average probability of turning bust. Ensure you get your research correct. Also, liquidity is lower on the SME exchanges. Unlike the regular exchange, your order may not find a matching buyer/seller immediately. In such a case, the exchange may also cancel order, especially in the call auction market.

Source: Upstox

March 5, 2023

BSE SME Exchange has produced many micro Rakesh Jhunjhunwalas

Since the launch of BSE SME Exchange on March 13, 2012, a total of 359 small and medium enterprises (SMEs) have been listed so far at the exchange, raising funds to the tune of around ₹3,800 crore. Their net market capital today is around ₹52,000 crore. In a decade, the gross level estimated return by the SME Exchange has been around 3.4, which means that an investor has got return of ₹3.4 on one’s Re 1 investment in these 10 years. In fact, majority of the SMEs got listed at the BSE SME Exchange in last 5 years, so the actual return would come much higher if the return is seen through this angle.

BSE Ltd set up the BSE SME Platform to enable the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.

On nearing 10 years of BSE SME Exchange, Ajay Thakur, Head at BSE SME in a conversation with Livemint said, “In this one decade time, 359 BSE SMEs have raised around ₹3,800 crore. The average gross level estimated return is around 3.4, which could become possible because of the emergence of new set of merchant bankers who are ready to aid small ticket sized companies with their network. Apart from this, in the last one decade, the Exchange has been able to attract small and micro ace investors who are ready to invest in a small company and wait for two to three years after listing.”

The exchange has become a relevant platform for the SMEs to raise fund through Initial Public Offering (IPO), helping good number of merchant bankers and small ticket sized ace investors.

After the launch of BSE SME Exchange, a good number of MSMEx cohorts have emerged. “These MSMEx cohorts motivate quality SMEs to go for listing and raise fund through IPOs. Since ticket size of these SME IPOs are very small, targeting ace investors like Rakesh Jhunjhunwala, Dolly Khanna, Vijay Kedia, Ashish Kacholia, etc. is not viable,” highlighted Amit Kumar, CEO & Co-founder at MSMEx.

But, Kumar said that there is huge number of micro ace investors, who got attracted to these BSE SME listed companies. “Their ₹1 crore to ₹5 crore investments in SME stocks have helped the listed SME to grow at a faster rate delivering stellar returns to its shareholders. This is getting reflected in the number of SME stocks entering in the list multibagger stocks in 2021 in India.”

So, one can say that BSE SME Exchange has produced new set of merchant bankers and a huge number of micro ace investors such as Rakesh Jhunjhunwala, Dolly Khanna, Vijay Kedia, Ashish Kacholia, he added.

Source: livemint

February 28, 2023

Get your company listed on SME exchange

Small medium enterprises and Family-run businesses are the backbone of the Indian economy and employers to millions of people, have a huge potential to grow. The SME Exchange is an appropriate platform of raise capital for such high growth potential businesses.

With the immense potential of growth that most SME and family run businesses have in the coming decade, the biggest problem faced is access to appropriate timely availability of capital. With the emphasis of banks on collateral based lending, capital in form of equity is of essence for growth. The SME exchanges in India are an appropriate platform to raise this much needed equity growth capital.

The BSE SME exchange is leading the way in India in unleashing the growth potential for family-run businesses and SMEs in the last 10 years. With 400 companies listed on the BSE SME exchange of which 150 companies migrated to the Main Board of the stock exchange. With a market capitalization in excess of INR 58,000 crores and total amount raised in excess of INR 4,000 crores, family business should explore the listing option to raise growth capital to tap the appropriate growth opportunities.

The first step that a company needs to undertake is to appoint a Merchant Banker who helps and guides the company in the complete listing process. A Merchant Banker is an intermediary approved by SEBI that helps companies tap the capital market. The process starts with conducting a due diligence by the Merchant Banker, post which a DRHP (Draft Red Herring Prospectus) is prepared after conducting due diligence regarding the company i.e. checking the documentation including all the financial documents, material contracts, Government approvals, promoter details etc. and planning the IPO structure, share issuances and financial requirements.

An SME Exchange is a stock exchange dedicated for trading the shares/ securities of SMEs who otherwise find it difficult to get listed on the Main Board. The concept originated from the difficulties faced by SMEs in gaining visibility and attracting sufficient trading volumes when listed alongwith other stocks on the Main Board of Stock Exchanges. World over dedicated SME trading platforms or exchanges are prevalent, which are known by different names such as ‘Alternative Investment Markets’ or ‘Growth Enterprise Market’, ‘SME Board’ etc. Some of the known markets for SMEs are AIM (Alternative Investment Market) in UK, TSX Venture Exchange in Canada, GEM (Growth Enterprise Market) in Hong Kong, MOTHERS (Market of the high-growth and emerging stocks) in Japan, Catalist in Singapore and the latest initiative in China-ChiNext. As a matter of fact, NASDAQ also started as an SME exchange.

Eligibility Criteria

The Company shall be incorporated under the Companies Act, 1956 / 2013.

Financials

· Post Issue Paid-up Capital

The post issue paid up capital of the company (face value) shall not be more than INR 25 crores.

· Net worth

Positive net worth

· Tangible Asset

Net Tangible Assets should be of INR 1.5 crores.

· Track Record

The company or the partnership/proprietorship/LLP Firm or the firm which have been converted into the company should have combined track record of atleast 3 years.

In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or State Government or the group company should be listed for atleast two years either on the Main Board or SME board of the Exchange.

The company or the firm which have been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of last three years and its net worth should be positive.

Benefits of SME Listing

· Access to Capital

With the Indian economy poised to grow at double digits in years to come and marching towards a USD 5 trillion economy and focus of the Government on helping and growing SME companies, the opportunities for growth for SME and family-run businesses is very high. The only constrain to super normal growth that most small business face is timely access to capital. With the constrains faced in terms of the collateral based system of lending of the banking system in India, access to equity funding is a must for overall growth of the company. The SME exchange provides a platform for appropriate funding.

· Enhanced Visibility and Prestige

The biggest aspect of a family-run business is the reputation, prestige and pride of the family members running the business across generations. In most cases the business is known in the city in which they operate or the state in which they are present depending upon the overall size of the business. Once listed on the stock exchange, which has a nationwide reach in terms of investors as well as brokers, the company is known at a national scale and thereby enhancing the overall visibility of the promoter family.

· Attain Appropriate Business Valuation

Valuation for most family-run businesses is valuation of the land and building. This is mainly for getting appropriate credit from the banks in India, wherein the loan amount depends upon valuation of the asset given as a security and as a secondary collateral. Once listed the share is traded on the SME exchange and thereby the valuation of the company will depend upon the financial performance of the company. If the company is doing very well and has a healthy order book and outlook, the share prices will go up. Over the last 10 years many companies listed in the SME exchange have given multifold returns due to the strong performance of the company.

· Liquidity and Exit for Friends and Family

Most family business is built of capital that is taken from close friends and family; the people that have trusted the promoters at a very early stage. When the company grows and becomes large, when the company is unlisted it becomes extremely difficult for the promoters to provide an exit to such investors. Once listed a partial or complete exit can be provided to such friends and family that have invested at a very early stage.

· Attract Talent

One of the biggest problems faced by most family business is attracting the right kind of talent. Once listed on the stock exchange, it gives the company appropriate visibility and growth prospects, wherein an appropriate ESOP scheme can be structured for the present and future employees to attract the right kind of talent.

· Appropriate Corporate Governance Standards

One of the biggest change that is required in a family business when it attains growth, is the standard of corporate governance. The attitude of owner knows it all and whatever he/she says is correct leads to an environment which is not congenial for growth. Once listed when the company has an appropriate Board of Directors and possibly a family council, it leads to a far better level of corporate governance resulting in growth for the company.

The SME exchange is the apt platform for most family-run business to raise capital, with relaxed listing norms and disclosers on getting listed. In these turbulent times the SME exchange is an apt platform to raise growth capital.

February 19, 2023

Five reasons to start investing early

Imagine if you had started preparing for exams early? If you had started reading early, learning early, started exercising early… you’d be at a much better place, wouldn’t you? So is the case with saving and investing your money. The sooner you start, the better off you’ll be down the road.

Though many people feel one should wait until they are older (in their 30s and 40s) to start investing, it’s not the best course of action. Here are five reasons why:

1. Take advantage of the magic of compounding
Albert Einstein, one of the most brilliant minds, knew the immense power of compounding. He had remarked: “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t, pays it.”

One of the biggest reasons to start investing early is the power of compounding. Compounding happens when you earn interest on your interest, which also includes your original investment. This has a snowball effect.

You’ll be shocked at how much money you will manage to save, even if you start investing a small amount each month.

Consider you started investing Rs 2,000 each month at the age of 25. If your investment earned 12 per cent annually, your investment of Rs 6 lakh would grow to Rs 37.95 lakh by the time you are 50.

If you keep investing the same amount for another ten years, your total investment of Rs 8.4 lakh will become a massive Rs 1.3 crore. You read that right, we haven’t added a zero by mistake.

That’s compounding working its miracle.

As you can see, the more time your money has to grow, the faster it will compound – and the more money you will ultimately have. By investing early, you can increase returns in the long run.

2. Even small amount of money can work wonders
Don’t worry if you’re just getting started and don’t have enough money to invest. You can start an SIP for as little as Rs 500 every month.

Investing a small amount slowly but steadily can lead to a bigger corpus over time, as you saw in the example provided in the first point.

You can always increase your contributions when your income increases over time.

The secret is to begin investing early and to do it diligently. However, if you continue to wait until you have amassed a substantial sum before investing, it might already be too late.

3. You’ll have more time to make up for any mistakes
One benefit of getting started early is that you will have plenty of time to correct any beginner’s mistakes. It can give you more time to educate yourself, experiment and find strategies that work best for you.

Assume something bad happens that causes you to lose money. You still have time to recover. You will learn to handle the risks of investing better.

However, if you wait until later in life to begin, you will need to be more cautious, and your ability to take risks will likely be more constrained due to increased life responsibilities.

Your twenties are the time to experiment and learn because time is on your side.

4. You can meet your financial goals sooner
When you start investing early, you reach your financial goals early, which can also include early retirement.

Early investing can assist you in achieving your goals quickly, whether you want to buy a home or a car.

Additionally, you’ll have more time to enjoy your money. If you wait until your thirties or forties to begin investing, you’ll be less likely to have enough time to let your money grow.

However, by starting young, you might not want to keep all your money in investments after retirement. Instead, you can use it to enjoy your golden years.

5. You’ll be better prepared for adversities
At some point, your finances may become unstable, but by investing early you’ll be prepared to face such low phases. Early investing can help you overcome such tough periods as you would have enough money to tackle tough phases.

As former US president John F Kennedy once said: “The time to repair the roof is when the sun is shining.” The same is true in the case of investing. So, start early and hit the road of financial freedom.

Source: Valueresearchonline

Category: Investment

Hybrid mutual funds can be the next big wave. But do they suit everyone?

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Equity Savings and Arbitrage Funds

Can hybrid replace debt?

What should mutual funds do?

Follow These 5Ps to Take Control of Your Finances in the New Financial Year 2023-24

1. Planning

2. Protection

3. Provide

4. Power

5. Promote

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Procedure of SME Listing on SME Exchange In India

Unlock the Potential of SME Trading in India – Here’s How

BSE SME Exchange has produced many micro Rakesh Jhunjhunwalas

Get your company listed on SME exchange

Five reasons to start investing early

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A better alternative?

Equity Savings and Arbitrage Funds

Can hybrid replace debt?

What should mutual funds do?

1. Planning

2. Protection

3. Provide

4. Power

5. Promote

Varanasi | Prayagraj | Raipur | Bhadohi | Siliguri

Customers buy a product but pay for the experience

Subscribe for Updates

Useful Links

Quick Links

Important Links

Contact Us

Customers buy a product but pay
for the experience