Financial Planning Clinic, Mis-selling and Consumer Protection

by Manshu on January 27, 2012

in Links

Let’s start with Bemoneyaware’s post on mis-selling and mis-buying which is a comprehensive article with takes from many people on the subject. It has links to a lot of articles and viewpoints about the topic and the one thing that I’d like to say about this issue is that usually not enough responsibility is placed on buyers. I was thinking about this recently when people were making indignant remarks about the Reliance buyback, but the very same folks will be happy to buy shares from the market and flip it to Reliance for a small profit. Your greed is someone else’s opportunity.

Hemant has an excellent article on LIC Jeevan Ankur.

He is associated with the Financial Planners Guild and they are organizing a financial planning clinic in Gurgaon on the 5th February. This is an event where you can meet with some of the financial planners and ask questions and get inputs on financial planning. Here is the link with registration details.

An interesting look on North Korea as an investment destination. I had no idea that so many companies from different parts of the world were interested in investing in North Korea and was really surprised to hear that they have casinos for tourists.

Ajay Shah writes about his personal experience with an unusual way of charging his debit card at the petrol pump in consumer protection issues with payments.

HBR has a useful post on networking for introverts.

Finally, an interesting take on why are people friendly. 

Enjoy your weekend!


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Which countries does India import its gold from?

by Manshu on January 26, 2012

in Economy

Last week I wrote about the heavy imports from Switzerland and how gold forms the majority of it, and I went to look for the other countries that India imports its gold from.

Switzerland is by far the biggest exporter of gold and the next biggest exporter – UAE is just about a third of Switzerland.

South Africa, Australia and USA are the other big exporters but when compared with Switzerland – they are quite small.

Here is a chart that shows the top 5 countries that India imports its gold from, the figures are for 2010 – 11 and the numbers are in millions of dollars.

Which countries does India import its gold from

Which countries does India import its gold from

As you can see Switzerland exports more gold than the other 4 combined, and  the countries after that are even smaller.

Here is a list of the top 1o countries that India imports its gold from.

SWITZERLAND 22,572.04
U ARAB EMTS 7,508.28
SOUTH AFRICA 4,328.65
AUSTRALIA 3,027.45
U S A 1,070.71
HONG KONG 402.54
U K 386.17
GERMANY 180.12
CHINA P RP 147.58
NETHERLAND 68.24

Now, here is a pie chart that shows the relative share of some of the biggest gold exporters to India.

Relative share of countries that export gold to India

Relative share of countries that export gold to India

India of course has very negligible gold production, but more than a year ago I wrote a post about gold mining in India and while researching that I was surprised to find that the Ministry of Mines estimates quite a high amount of gold ores in India. With soaring gold prices, it is perhaps time for some tax sops in this sector and allowing the private sector to try to develop gold mines in India.


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How are banks calculating interest on savings accounts?

by Manshu on January 25, 2012

in Fixed Deposits

Late last year RBI deregulated the interest rates on savings accounts and allowed banks to set their own rates. This resulted in banks raising their interest rates and creating two slabs of under a lakh and over a lakh.

For example, Yes Bank offers 6% on the saving bank balance of under Rs. 1 lakh and 7% on balances of over a lakh. Similarly, Kotak pays 5.5% for balances of less than a lakh and 6% on balances of over a lakh.

There were a few comments at the time asking about how interest will be calculated and if banks will take the lowest bank balance in a month to calculate that or something else like that.

I was reminded of this discussion when I came across a RBI notification that issues some clarifications on the way interest is calculated.

From reading the second point in there it’s quite clear that the banks will pay you the interest on the basis of your daily balance. So, they will see what your balance was at the end of the day and pay you interest based on that.

The second aspect of that is slightly unclear to me. I read it to understand that if you have a balance of Rs. 1,25,000 in your savings bank account at Yes Bank – they will pay you 6% for Rs. 1,00,000 and 7% for the Rs. 25,000 after that. They are not going to pay  you 7% for the whole amount, which is what I originally thought.

Does anyone have practical experience with this or knows for certain how this is going to be calculated? Please leave a comment or email me if you do as this is going to be of interest to a lot of people.

 


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HUDCO Tax Free Bond Details

by Manshu on January 25, 2012

in Fixed Deposits

Like Indian Railways, HUDCO is also going to come up with tax free bonds starting on the 27th January and they offer a slightly higher rate, just a little bit higher than the Indian Railways tax free bonds.

While Indian Railways offered 8.15% for the 10 year series  and 8.30% for 15 years, HUDCO is going to offer 8.22% for the 10 year series and 8.35% for the 15 year series.

There is a difference in rating as well and HUDCO is rated Fitch AA+ by Fitch and CARE AA+ by CARE which is a notch lower than the Indian Railway issue.

The minimum investment needed is Rs. 10,000 and you can invest in multiples of Rs. 1,000 after that.  The bonds will list on both NSE and BSE and the bond issue size is Rs. 4,684.72 crores.

Option Series I Series II
Face Value Rs. 1,000 Rs. 1,000
Minimum Investment Rs. 10,000 Rs. 10,000
Tenor 10 years 15 years
Interest Rate: Retail Investors 8.22% 8.35%
Interest Rate: Other Investors 8.10% 8.20%
Interest Payment Annual Annual

This issue also has what’s being called the step down feature which means that the higher interest rate that the retail investors get is only applicable as long as they hold the bonds. If they sell the bonds on the stock exchange then the person who buys it from them will not get the higher rate but will instead get the rate decided for the other categories.

Now, let’s take a look at some questions that came up on yesterday’s post and are relevant here as well.

Can NRIs invest in the HUDCO tax free bonds? 

Yes, NRIs can also apply to this offer and can either buy it in the retail category or the other category.

Are these tax free bond issues better than fixed deposits?

I have done fairly detailed (perhaps a bit too detailed) calculations to compare the returns between a SBI fixed deposit and a tax free bond and that shows that bond returns are better than the fixed deposits. You can look at the post to see the detailed numbers.

Who falls under the retail category?

Individuals and NRIs who are going to invest less than Rs. 5 lakhs will fall under the retail category.

How will the shares be allotted – first come first serve or proportional allotment to everyone?

I couldn’t locate this information but MoneyVriksh left a comment yesterday stating that it will be first come first serve. I think it makes sense to apply early since there is a chance of over-subscription.

What is tax free: Is the principal tax free or the interest tax free?

This is not like the 80CCF infrastructure bonds that are open right now so don’t confuse these bonds with them. This is truly tax free in the sense that the interest you receive from these bonds will not be taxed.

The infrastructure bonds are called tax saving bonds but are not tax free. They save tax because when you invest in them then you can reduce the amount of investment (up to a maximum of Rs. 20,000) from your income and lower your tax incidence. But the interest income on them is taxable, so they are not tax free.

As far as the principal being tax free is concerned – the principal is always tax free. That’s your money anyway and tax is charged only on the income by the way of interest or capital gains.

This is all I can think of to write about the HUDCO tax free bonds but if you have any more questions then please leave a comment.


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