Category: Investments

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

It was Amitabh Bachchan who started the trend of rewarding Rs. 1 crore to the individuals winning the most popular game show in the Indian television history – Kaun Banega Crorepati. Now, it is the turn of the legendary cricketer Kapil Dev who has picked up an undisclosed stake in SAMCO Securities Limited to conduct a tournament involving equity/commodity market participants with real market environment and real money getting invested.

“Dil Ki Nahi… Ye League Hai Dimaag Ki!” – You might have seen Kapil Dev in a few TV commercials on CNBC TV18 or CNBC Awaaz calling it to be a league of intelligence and not emotions and must be wondering what kind of league he is going to introduce which nobody in the media is talking about and even other cricketers are unaware of.

Starting from today, May 19, 2015, the league has been named as the Indian Trading League (ITL) and offers to reward its winner a cash prize of Rs. 1 crore and an opportunity to become a fund manager managing up to $1 million.

What is Indian Trading League (ITL)?

Indian Trading League (ITL) is a tournament which will monitor the performances of its registered traders/individuals across the country and rank them on the basis of their net returns. In order to outperform other participants, the traders will be required to showcase their investing and trading skills in a real market environment, with real money involved across asset classes including stocks, derivatives and commodities.

The trader with the highest net returns till March 31, 2016 will emerge as the winner of the Indian Trading League and stand to win a cash prize of Rs. 1 crore and also an opportunity to become a fund manager to manage up to $1 million of Sponsor’s Proprietary Funds.

How to Participate in the Indian Trading League?

* Sign Up – You need to sign up on the ITL Online Platform and open an account with the Execution Broker, SAMCO Securities Limited.

* Introduce Capital – You will be required to deposit the minimum capital of Rs. 25,000 per business segment in your account to start trading. There will be two business segments – Equity Business Segment and Commodities Business Segment. You can withdraw your capital at any time during this period.

* Trading/Investing – Start trading or investing as per your investment style on the available exchanges – NSE, BSE and MCX.

Formats of the League

* Traders’ League – It is the Master League where you can trade stocks, debt instruments, derivatives, currencies and IRFs listed on any of the Indian stock exchanges.

* Commodities League – It is the league where you can trade commodities listed on the Indian commodity exchanges.

* Investors League – It is the league of unleveraged participants where you can trade stock & debt instruments listed on the Indian stock exchanges.

* Women’s League – It is the league of all female participants, who are also participating in the traders’ league.

What Prizes are up for Grabs?

The League awards winners across different time periods – Weekly, Monthly, Quarterly and Annually

Minimum Round Trades Criteria for Qualification – Buying a stock & selling it intraday with a gain/loss of 2% is an example of a round trade for Traders’ League. Likewise, selling a gold June futures contract and later on buying it back at a profit/loss of 1.5% is an example of a round trade for Commodities League.

Participation Fee – There is no participation fee or entry fee associated with this league and the participants can enter or exit the league at any time they wish to do so. Though the participants are required to pay the regular account opening charges, SAMCO has waived off these charges for a limited time period. All you need to do is to use the coupon code “100OFF” during checkout at the time of registration.

Brokerage Charges – You will be required to pay the brokerage commissions to the execution broker SAMCO which currently is at Rs. 20/executed Order + Statutory Levies.

If I am in the Investors’ League, can I still participate in the Traders’ League and vice versa?

Yes, every investor by default also forms a part of the Traders league however the same is not applicable vice versa. Participants in the trader’s league who trade in F&O and Currency Derivative segments are not eligible in the Investors’ League.

About SAMCO Securities Limited

SAMCO has been in the business of stock broking since 1993. Formerly, it was known as Samruddhi Stock Brokers Ltd, but now it has been rebranded as SAMCO Securities Limited. It is a SEBI registered broker with top management team consisting of professionals, Chartered Accounts, MBAs and Chartered Financial Analysts (CFAs) having decades of experience in the capital markets.

If you want to join the Indian Trading League, you need to email SAMCO at [email protected]

If you need any other help, you need to email SAMCO at [email protected]

Here is their contact no. for any kind of assistance – 022 – 22227777

Indian Trading League FAQs

If you have any query regarding ITL or want to share any of your trading/investing experience in the Indian stock markets, please feel free to leave a comment.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

The Government of India notified the rules for Sukanya Samriddhi Account (SSA) on December 2, 2014, Prime Minister Narendra Modi launched this scheme on January 22 and the RBI issued a circular to all the authorised agency banks on March 11. But, even after a series of such events, no bank was ready to open this account even a few days back. People were returning disappointed from the bank branches where they were told by the branch staff that no such notification/circular was received by them regarding any such scheme.

But, Punjab National Bank (PNB) has now officially started opening these accounts at 1604 of its branches all over India. Though the bank has not provided the list of these 1604 branches which have started serving for this scheme, it has provided a centralised customer care number calling which you can get the address of the branch nearest to your place. The number is 011-25744370.

Here is the link to the website of Punjab National Bank (PNB) on which you will get all the information regarding this scheme – PNB Website Link. Under Public Provident Fund & Govt. Saving Scheme, “Sukanya Samriddhi Deposit Account” is listed. When you click on that, it will take you to the following page – “Features of Sukanya Samriddhi Deposit Account”.

As PNB must be having all the latest information about this scheme, I would like to highlight the features of this scheme once again as given by the bank on its website.

Depositor – For this scheme, Depositor is an individual who on behalf of a minor girl child of whom he or she is the guardian and deposits amount in account opened under this scheme.

Guardian – In relation to a minor girl child, Guardian means:

(i) either father or mother; and

(ii) where neither parent is alive or is incapable of acting, a person entitled under the law for the time being in force to have the care of the property of the minor.

One Girl One Child – Depositor cannot open multiple or more than one account in the name of a Girl Child. Natural or legal guardian of a girl child allowed to open one account each for two girl children.

Under this scheme, natural or legal guardian of the girl child shall be allowed to open third account in the event of birth of twin girls as second birth or if the first birth itself results into three girl children, on production of a certificate to this effect from the competent medical authorities where the birth of such twin or triple girl children takes place.

Age Restriction for Opening of Account – The account may be opened by the natural or legal guardian in the name of a girl child from the birth of the girl child till she attains the age of ten years and any girl child, who had attained the age of ten years, one year prior to the commencement of these rules shall also be eligible for opening of account under these rules. Scheme has been commenced from 02.12.2014.

Documents to Open the Account – (i) Birth certificate of girl child (ii) Address proof (iii) Identity Proof

Maximum and Minimum Deposit – Minimum – Rs. 1,000/- Per Year (thereafter any amount in multiples of Rs. 100). Maximum – Rs. 1,50,000/- Per Year.

Term Period – Deposits can be made till completion of 14 years from the date of opening of the account. The maturity of the account is 21 years from the date of opening of account or if the girl gets married before completion of such 21 years, the operation in the account shall not be permitted beyond the date of her marriage. In other words, No Deposit for the period from 15th to 21st year of account.

Interest After Maturity of account – If account is not closed after maturity, balance will continue to earn interest as specified for the scheme from time to time.

Interest will be compounded yearly and will be credited to account till the account completes fourteen years from the date of opening. Interest for the Financial year 2014- 15 is 9.1% p.a. and for Financial Year 2015-16, it is 9.2% p.a.

In case of account holder opting for monthly interest, the same shall be calculated on the balance in the account on completed thousands, in the balance which shall be paid to the account holder and the remaining amount in fraction of thousand will continue to earn interest at the prevailing rate.

Regularisation of irregular account and Penalty – Where minimum amount of Rs. 1000/- a year has not been deposited, then such irregular account may be regularised on payment of a penalty of Rs. 50 per year along with the minimum subscription of Rs. 1000/- for the year(s) of default any time till the account completes 14 years.

Mode of Deposit – Deposit can be made in cash; or by cheque or demand draft. Where deposit is made by cheque or demand draft, the date of encashment of the cheque or demand draft shall be the date of credit to the account.

Premature Closure of Account – (1) In the event of death of the account holder, the account shall be closed immediately on production of death certificate issued by the competent authority and the balance at the credit of the account shall be paid along with interest till the month preceding the month of premature closure of the account , to the guardian of the account holder.

(2) Where the Central Government is satisfied that operation or continuation of the account is causing undue hardship to the account holder, it may, by order for reasons to be recorded in writing, allow pre-mature closure of the account only in cases of extreme compassionate grounds such as medical support in life- threatening diseases, death, etc.

Pre-Mature Withdrawal – To meet the financial requirements of the account holder for the purpose of higher education and marriage withdrawal up to 50% of the balance at the credit, at the end of preceding financial year shall be allowed but such withdrawal shall be allowed only when the account holder girl child attains the age of 18 years.

Transfer of Account to Other Place – The account may be transferred anywhere in India if the girl child in whose name the account stands shifts to a place other than the city or locality where the account stands.

Closure on Maturity or Before Maturity due to Marriage of Account Holder – The account shall mature on completion of 21 years from the date of opening of the account. But, in case marriage of the account holder takes place before completion of such period of 21 years, the operation of the account shall not be permitted beyond the date of her marriage. In such closure of accounts, account holder will have to give an affidavit to the effect that she is not less than 18 years of age as on the date of closing of account.

Branches Authorized to Open Account – 1604 branches are authorized. Please contact at 011 – 25744370 for address of branch.

In case you do not understand any of its features and have any query regarding this scheme, please share it here, I’ll try to respond to it as soon as possible.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Mumbai’s Postal Department has recently launched a new website www.sukanyaaccountmumbai.in for the investors in the Mumbai region to guide and help them open accounts under its most popular scheme Sukanya Samriddhi Yojana. This website provides all kind of information about this scheme, including its salient features, frequently asked questions (FAQs), application form for account opening and most importantly, the “Sukanya Samriddhi Calculator”.

List of Post Offices – The website also carries a list of 417 post offices located in Mumbai along with their complete addresses and respective contact numbers (landline). You can now contact any of these post offices nearest to your place and talk to the concerned officer directly regarding any features of this scheme.

Toll-Free Number – Mumbai post has also taken the initiative to start providing info regarding the scheme and also resolving investors’ queries on its customer care toll-free number 1800-223-060. You can now dial this toll-free no. and have your queries resolved regarding Sukanya scheme.

Call Back Facility – They have gone one step forward by introducing the call back facility as well, in which you need to provide your name, e-mail id, contact number and PIN code and they will call you back and provide all the necessary information.

Facebook Page – Mumbai Post has also created a dedicated facebook page for this scheme, namely Sukanya Samriddhi Account Mumbai Postal Region.

At a time when most of the banks are just not ready to provide any info regarding this scheme, all these initiatives are really appreciable.

Sukanya Samriddhi Calculator

What impressed me the most is the availability of the excel-based calculator on this website. I did not expect such a move by a postal department in such a short period of time. I really appreciate such proactive steps taken by the Mumbai postal department. This calculator calculates for you the expected maturity value that you’ll get after 21 years based on your annual or monthly contributions. You can check the maturity values based on your variable contributions as well.

You can get an idea about the maturity values from the below pasted tables as well based on your annual or monthly contributions and a constant rate of interest of 9.2%.

Maturity Value Table – Yearly Contribution

Maturity Value Table – Monthly Contribution

So, I think the investors in the Mumbai region now should not feel helpless as the Mumbai postal department has done a wonderful job by providing all kind of information about this scheme on its website and also by launching a toll-free number for handling investors’ queries.

Application Form

Toll-Free Number – 1800 223 060

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

New Post for FY 2016-17 – Post Office Small Savings Schemes – FY 2016-17 Interest Rates – PPF @ 8.10% & Sukanya Samriddhi Yojana @ 8.60%

 

The Finance Ministry on March 31st announced the applicable interest rates for all the Post Office Small Savings Schemes, including PPF, Sukanya Samriddhi Yojana and Senior Citizens Savings Scheme (SCSS). These rates would be applicable for the current financial year, 2015-2016 and have come into effect immediately from 1st April, 2015.

Positive Surprise for Small Savers

To make these schemes more attractive, the interest rate for Sukanya Samriddhi Yojana has been increased to 9.2% from 9.1% earlier and for Senior Citizens Savings Scheme, the rate has been hiked to 9.3% from 9.2% earlier. The interest rates on all other schemes have been left unchanged, including PPF which is going to earn 8.7% for you this financial year.

At a time when interest rates are falling sharply and the Government is putting considerable pressure on the RBI to lower down its policy rates, this move of keeping small savings rates higher/unchanged has left me stunned. I did not expect such a move from a government which seems to me a progressive government as far as its economic reforms are concerned.

If there is a scientific method of calculating interest rates on these small saving schemes, then I think the current rates have been fixed abnormally higher. In the last 12 months or so, the yields on Government Securities (G-Secs) have fallen from a high of around 9.1% to 7.65% recently. Though keeping interest rates higher has left me disappointed, this move by the government would make small savers & senior citizens happier, for at least one more year.

The increase of 0.10% interest rate on Sukanya Samriddhi Yojana (SSY) should encourage more and more investors and parents to join this scheme now. In fact, the interest rate differential of 0.50% between PPF and SSY would make some of the investors to contribute more towards SSY now.

Here you have the table having all the small saving schemes with their applicable interest rates and tax benefits for the current financial year:

Public Provident Fund (PPF) – There has been no change in the interest rate offered by PPF, India’s most popular small savings scheme. PPF will earn you 8.70% for the current financial year as well. Interest rate will continue to remain tax-exempt on maturity and investment up to Rs. 1,50,000 will keep getting exemption under section 80C.

Sukanya Samriddhi Accounts (SSA) – Sukanya Samriddhi Yojana accounts will carry 9.20% for the current financial year, 2015-16. I was expecting the government to marginally reduce the rate here, say between 8.80% to 9%. But, in a surprise move, they have actually gone ahead and increased the rate to 9.20% from 9.10% till March 31st. I think the government’s move will increase the popularity of this scheme.

Moreover, like PPF, the interest earned will be tax-free on maturity and the investment amount up to Rs. 1,50,000 will get you tax deduction under section 80C.

PPF vs. Sukanya Samriddhi Yojana vs. Senior Citizen Savings Scheme

Senior Citizens Savings Scheme (SCSS) – Senior citizens will also feel happy about the changes announced by the Government as the interest rate on Senior Citizen Savings Scheme has also been increased by 0.10% to 9.30% from 9.20% earlier. Though your investment amount will get you deduction under section 80C, the interest earned is taxable and subject to TDS as well.

Post Office Monthly Income Scheme (POMIS) – Once quite popular with a terminal bonus of 10% and then 5%, Post Office Monthly Income Scheme is getting more and more unpopular these days. As against MIS, investors are getting attracted towards bank fixed deposits (FDs) these days as they get a higher rate of interest, better liquidity and quarterly interest payments. Interest rate has been kept unchanged at 8.40% for MIS.

National Savings Certificates (NSCs) – 5-year NSCs & 10-year NSCs will keep earning 8.50% and 8.80% respectively in the current financial year. Also, your investment will earn you tax exemption under section 80C.

Kisan Vikas Patra (KVP) – Your investment in KVP can double your money in 100 months, which makes its effective annual return to be 8.67% if held till maturity. Investment certificates in this scheme bear no name and can easily be transferred from one person to another.

Recurring Deposits (RDs)/Term Deposits (TDs) – Interest rates on recurring deposits and term deposits have also been kept unchanged at 8.40% for all tenures, except term deposit of 5 years tenure which will yield 8.50% per annum. 5-year term deposit with a lock-in clause will provide you tax deduction under section 80C.

Post Office Savings Account – Your savings account in a post office will continue to earn 4% annual interest and interest amount up to Rs. 10,000 will be tax exempt under section 80TTA.

At a time when banks are already struggling to keep their credit growth in double digits, I think keeping interest rates higher on these small savings schemes is not a wise move. It will make it really difficult for the banks to lower their deposit rates and hence there will be pressure on their net interest margins (NIMs) and profitability. I don’t know what exactly is the logic behind this move, but small savers will definitely benefit out of it. You should take full advantage of these high rates till the time the government realises its mistake.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

The Finance Ministry on March 31st announced the applicable interest rates for all the Post Office Small Savings Schemes, including PPF, Sukanya Samriddhi Yojana (SSY) and Senior Citizens Savings Scheme (SCSS). Except for SCSS and SSY, the government has kept all other interest rates unchanged, including 8.7% for its most popular scheme, PPF.

To encourage more and more people to get the Sukanya Samriddhi Account (SSA) opened, the Government has decided to ride against the tide and has increased its interest rate to 9.20% from 9.10% earlier, an increase of 0.10%.

As the interest rate on Sukanya Samriddhi Yojana is subject to a revision every financial year, this rate of 9.2% will remain applicable only for the current financial year, 2015-16 and will be further revised in March 2016 for the next financial year, 2016-17.

But, this move of keeping its interest rate higher makes me feel that the Modi Government will continue to keep its interest rate higher going forward as well. I think, like the current financial year, they will try to keep a differential of approximately 0.50% between PPF and Sukanya Samridhi Yojana.

I had posted an article last month in which maturity values were calculated with 9.1% rate of interest throughout its tenure of 21 years. But, as the interest rate has been updated to 9.2% and as most of the investors are yet to open this account, I thought there is a need to have a new post having maturity values calculated as per the new rate of 9.2%.

So, here you have the tables in which maturity values are given as per your annual contributions as well as monthly contributions:

Yearly Contribution Table

Monthly Contribution Table

As different investors will have have different amounts and different timings of their deposits, it is natural that their maturity values will also be different. So, these maturity values are only indicative based on certain assumptions and here you have those assumptions:

* Rate of Interest has been assumed to remain 9.2% for all these 21 years.

* Yearly contributions have been assumed to be made on April 1 every year i.e. the beginning of the financial year.

* Monthly contributions have been assumed to be made on 1st day of every month.

* Although it is not mandatory, a fixed amount of yearly/monthly contribution has been assumed.

* It is also assumed that no withdrawal is made throughout these 21 years.

As people are looking for more and more information about this scheme, I would like to again highlight the main features of this scheme here:

Who can open this account? – Parents or a legal guardian of a girl child up to the age of 10 years, can open this account in the name of the girl child. So, if your daughter is born on or after December 2, 2003, you can get this account opened for her in a post office or an authorised bank branch.

Which documents are required to open this account? – You need birth certificate of the girl child, along with the identity proof, residence proof and two photographs of the parents/legal guardian, to open an account under this scheme. You can approach any post office or a branch of any of the authorised banks to get this account opened.

9.2% Tax-Free Rate of Interest for FY 2015-16 – As mentioned above, this scheme will carry 9.2% rate of interest for the current financial year and it was 9.1% for the previous financial year. Similarly, interest rate will be revised every year in March and will be applicable for the applicable financial year afterwards.

Scheme Matures in 21 years or on Girl’s Marriage, whichever is earlier – The scheme gets matured on completion of 21 years from the date of opening of the account or as the girl child gets married, whichever is earlier. Please note that the girl attaining the age of 21 years has no relevance to maturity period of this scheme.

Deposit for 14 years only – You need to deposit a minimum of Rs. 1,000 and a maximum of Rs. 1,50,000 only for the first 14 years, after which you are not required to deposit any amount. Your account will keep earning the applicable interest rate for the remaining 7 years or till it gets matured on your daughter’s marriage.

NRI/OCI Investment – It is still not clear whether Non-Resident Indians (NRIs) or Overseas Citizens of India (OCI) are allowed to open an account under this scheme or not. But, as it is not allowed with most of the post office small saving schemes, I think the government will not allow them to invest in this scheme either. I’ll update this post as soon as I get any information regarding the same.

Partial Withdrawal – It is allowed to withdraw 50% of the balance for higher education as the girl child attains the age of 18 years. Except for this period, it is not allowed to withdraw any amount during the whole tenure of this scheme.

Nomination Facility – Nomination facility is not there with this scheme. In an unfortunate event of the death of the girl child, the balance amount will be paid to the parents/ legal guardian of the girl child and the account will be closed immediately.

You can check all the features of this scheme from this post – Sukanya Samriddhi Yojana – Tax-Free Small Savings Scheme for a Girl Child

You can also check the updated list of banks and download the application form to open an account from this post – Sukanya Samriddhi Yojana – Updated list of Authorised Banks to Open an Account, Specimen Application Form & Passbook. If you have any query or something related to all these posts, please share it here.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

RBI on March 11 issued a Circular to the authorised commercial banks to start observing the rules and regulations of Sukanya Samriddhi Yojana as per the Government of India Notification dated December 2, 2014. This circular has been marked to the Chairman & Managing Directors (CMDs) and Managing Directors (MDs) of some of the commercial banks operating in India.

These banks include most of the public sector banks, including State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) and a few private sector banks also, including Axis Bank and ICICI Bank.

RBI has instructed these banks to approach Central Account Section, Reserve Bank of India, Nagpur for necessary arrangements to report Sukanya Samriddhi Account transactions with immediate effect. I think it means the RBI wants these banks to start opening accounts under this scheme without any further delays and the subscribers will not have to wait more to open their accounts. They can now approach these authorised banks to open an account.

Though it is still not clear if only these banks would act as the agency banks to open accounts under this scheme or some other banks would also join in, but it seems the following 28 banks would definitely be among all those banks authorised to open Sukanya Samriddhi Accounts (SSA).

Updated List of Banks to Open Sukanya Samriddhi Yojana Accounts

• State Bank of India (SBI)
• State Bank of Patiala (SBP)
• State Bank of Bikaner & Jaipur (SBBJ)
• State Bank of Travancore (SBT)
• State Bank of Hyderabad (SBH)
• State Bank of Mysore (SBM)
• Allahabad Bank
• Andhra Bank
• Axis Bank
• Bank of Baroda (BoB)
• Bank of India (BoI) – Branches; Contact – 022-40919191 / 1800 220 229
• Bank of Maharashtra (BoM)
• Canara Bank
• Central Bank of India (CBI)
• Corporation Bank
• Dena Bank
• ICICI Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank (IOB)
• Oriental Bank of Commerce (OBC)
• Punjab National Bank (PNB) – Website Link; Contact – 011-25744370
• Punjab & Sind Bank (PSB)
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank

RBI also issued a specimen of application form and the passbook for opening an account under this scheme. Unlike the post office application form, this application form would be applicable just for this scheme only.

Here you have the specimen of the application form which the authorised banks/post offices will be using for opening Sukanya Samriddhi Accounts – Application Form

Also, here you have the specimen of the passbook which the authorised banks/post offices will be issuing to the parents/legal guardian of the girl child – Passbook

You can also refer to the following posts for the complete details about this scheme:

Sukanya Samriddhi Yojana – Tax-Free Small Savings Scheme for a Girl Child

Sukanya Samriddhi Yojana – Application Form & List of Banks to Open an Account

Sukanya Samriddhi Yojana – Calculating Maturity Value after 21 Years

Sukanya Samriddhi Yojana – Sample Filled Application Form

If any of you have anything to share or ask about this scheme, please let us know.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

On Thursday, NTPC announced March 23rd as the record date for its debenture issue. NTPC will be issuing these debentures to all its shareholders in the ratio of 1:1, which means a shareholder will get one debenture of face value Rs. 12.50 for every one equity share of Rs. 10 each held in the company on the record date. The share price of the company was up 6% in Thursday’s trading session before finally getting closed 3.87% higher at Rs. 159.70.

The company announced its plans to issue such debentures last year on December 23rd. After the shareholders’ approval to issue these bonus debentures, the ministry of corporate affairs (MCA) on Wednesday approved NTPC’s plan to reward its shareholders by issuing these bonus debentures.

Features of NTPC’s Debentures

Coupon Rate – Though its coupon rate has not been disclosed as yet, it will be 50 basis points or 0.50% higher than the average 10-year government security (G-Sec) rate. e.g. If the average G-Sec rate is 7.7%, the debenture holder will get 8.2% interest each year for the next 10 years.

Maturity Period – The debentures will be issued for a duration of 10 years, but will be redeemed at the end of 8th, 9th and 10th year in the ratio of 20% (or Rs. 2.50 per debenture), 40% (or Rs. 5 per debenture) and 40% (or Rs. 5 per debenture) respectively.

Nature of Debentures – These debentures will be secured, non-cumulative, non-convertible, redeemable and taxable as per the tax slab of the investor.

Listing – The debentures will be listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to provide flexibility to its investors to monetize their holding at any point of time during its duration of 10 years.

Benefits of Issuing Bonus Debentures to Shareholders

Why NTPC is issuing these debentures and not paying dividend or issuing bonus shares instead? I think there are multiple reasons for that. Here are some of those reasons:

To Avoid Dividend Distribution Tax – Paying dividend attracts paying dividend distribution tax (DDT) to the government, whereas issuing debentures does not attract any such tax to the issuer. So, I think in order to avoid paying DDT, NTPC is issuing these debentures. I wonder why all listed companies don’t issue such debentures to avoid DDT.

Update: The company will be required to pay the dividend distribution tax (DDT) as the issuance of debentures will constitute “deemed dividend” as defined in section 2(22)(b) of the Income Tax Act.

No Immediate Cash Outflow – NTPC will be issuing these debentures out of its free cash reserves. But, it does not result in an immediate cash outflow for the company. This issuance will reduce NTPC’s cash reserves and an equivalent amount of liability will get created on the liability side of its balance sheet without affecting its cash balance on the assets side.

Cheaper Mode of Loan – NTPC will be issuing these debentures at an approximate rate of 8.2%, which is still below the average rate at which the company borrows money from the capital markets. As the 10-year G-Sec itself is yielding 7.72%, I think 8.2% is still quite cheaper for NTPC.

Interest Amount as an Expense – NTPC will be paying annual interest on these debentures, which the company will show as an expense in its income statements. This way the company will show a lower profit and thereby its tax outgo will also reduce.

Investor Loyalty – An investor, who gets such add-on securities issued by a company without any additional investment, would hold on to its shares for a longer tenure in the hope of more such issuances. So, this way NTPC will be able to attract more equity investors.

Investor Benefit – Such debentures are good for the shareholders as it is very difficult for them to have a direct exposure to such high grade papers from corporate like NTPC. Last year, NTPC issued tax-free bonds at 8.93% rate of interest. The issue received a bumper response as it got oversubscribed on the first day itself.

Should You Buy NTPC’s Shares Now?

So, should you, as an investor, buy shares of NTPC in the hopes of getting these debentures and try to make a quick profit? The answer is Yes, as well as No.

Yes, for those investors who want to hold on to the shares of NTPC for at least one year, this issuance of debentures is of great value. Without spending a single rupee, the investor will be getting these debentures and also the interest income every year.

No, for those investors who want to make a super quick profit thinking that the equity market is inefficient and there is a scope of arbitrage here. The stock has already run up by Rs. 10-15 in the anticipation of this issuance of debentures and I think it should fall by at least Rs. 10 in a day or two before its Record Date of March 23.

Moreover, as the company will be required to pay dividend distribution tax (DDT) on the total amount it will be using from its free cash reserves for issuing these debentures, it seems that there is no real benefit for the investors. In fact, this way the company is getting used by the government to fund its fiscal deficit gap.

So, only if you believe that NTPC is a good company fundamentally, there is a value in its share price and also want to hold on to its shares for more than one year, then you should buy its shares to get these debentures allotted. Otherwise, avoid buying it now.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

I have already posted three articles for Sukanya Samriddhi Yojana and the queries regarding this scheme are not showing any signs of tiredness. People have been asking all kind of queries regarding various features of this scheme and sharing all kind of experiences here on these posts. The biggest problem they are facing is to find out which bank branches are opening this account and accepting deposits from the general public. Banks are showing their inability to open these accounts as they do not have any clue about the account opening process.

I also got a few comments in which people wanted me to post a duly filled application form so that they can also easily fill the application form for themselves. So, here you have the sample of a duly filled application form:

 

The application form is fairly simple and you can fill it in less than two minutes. Also, I have filled this application form to the best of my knowledge. So, if any of you find any discrepancy in it, please point it out to me and I’ll rectify it as soon as possible.

Please don’t forget to carry the necessary documents to open this account, which are as under:

* Birth Certificate of the Girl Child

* Identity Proof or Aadhaar Card of the Parent/Legal Guardian

* Residence Proof or Aadhaar Card of the Parent/Legal Guardian

* 2 Photographs of the Depositor/Parent/Legal Guardian

Much has already been mentioned about this scheme in my earlier posts, so I’ll wrap it up here. If you have any query regarding this scheme or any of its features, please let me know.

Application Form for Sukanya Samriddhi Yojana

List of authorised commercial banks where you can get this account opened

Calculating Maturity Value of SSA

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Sukanya Samriddhi Yojana has received a great initial response from the general public. As the scheme offers 9.1% tax-free rate of interest, investors are finding this scheme to be extremely attractive and want to invest in it as soon as possible. They also need handholding to invest in this scheme. But, due to lack of required information with the post offices and authorised bank branches, people are finding it difficult to do so.

I have posted two articles about this scheme and both have received over hundred comments from the visitors. I have been getting many queries regarding the maturity value of this scheme. People want to know the value of their investment as the scheme gets matured after 21 years.

Though it is almost impossible to calculate a precise maturity value of this scheme as there are many variables on which its maturity value will depend, I have tried to make a couple of tables in which the maturity value has been calculated keeping those variables to be constant and yearly & monthly contribution to be the only variable.

Certain assumptions have been made for calculating these maturity values and those assumptions are:

* Rate of Interest has been assumed to be 9.1% for all these 21 years.

* Yearly contributions have been assumed to be made on April 1 every year i.e. the beginning of the financial year.

* Monthly contributions have been assumed to be made on 1st day of every month.

* Although it is not mandatory, a fixed amount of yearly/monthly contribution has been assumed.

* It is also assumed that no withdrawal is made throughout these 21 years.

Here you have the tables:

Yearly Contribution Table

Monthly Contribution Table

I hope these two tables help people in deciding how much amount they would like to contribute to this scheme in order to achieve their girl child’s marriage and/or higher education goals.

Before you go ahead and plan to get an account opened, I would like to again highlight the main features of this scheme:

Who can open this account? – Parents or a legal guardian of a girl child up to the age of 10 years, can open this account in the name of the girl child. Up to December 1, 2015, one year grace period has been provided to allow this account to get opened for a girl child who is born on or after December 2, 2003.

9.1% Tax-Free Rate of Interest – This scheme offers 9.1% rate of interest, which has also been exempted from tax in this year’s budget. But, this rate is not fixed at 9.1% for the whole tenure and is subject to a revision every financial year.

Scheme Matures in 21 years or on Girl’s Marriage, whichever is earlier – The scheme gets matured on completion of 21 years from the date of opening of the account or as the girl child gets married, whichever is earlier. Please note that the girl attaining the age of 21 years has no relevance to maturity of this scheme.

Deposit for 14 years only – You need to deposit a minimum of Rs. 1,000 and a maximum of Rs. 1,50,000 only for the first 14 years, after which you are not required to deposit any amount. Your account will keep earning the applicable interest rate for the remaining 7 years or till it gets matured on your daughter’s marriage.

Documents Required – You need birth certificate of the girl child, along with the identity proof and residence proof of the guardian, to open an account under this scheme. You can approach any post office or authorised branches of some of the commercial banks to get this account opened.

You can check the rest of the features of this scheme from this post – Sukanya Samriddhi Yojana – Tax-Free Small Savings Scheme for a Girl Child

You can also download the application form to open an account from this post – Sukanya Samriddhi Yojana – Application Form & List of Banks to Open an Account. If you still have any query or something related to discuss, please share it here.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Government of India in Budget 2014 announced the revival of Varishtha Pension Bima Yojana (VPBY) with the objective of providing social security to the senior citizens of this country. It is a Government subsidised single premium pension scheme with an assured effective return of 9% to 9.38% per annum. To ensure investors’ trust and complete safety of their investments, LIC of India was given the sole privilege to operate this scheme.

Relaunched in August 2014, the government had high hopes out of this scheme and it has been encouraging LIC’s top management to promote this scheme aggressively. However, this scheme has not received the desired response from the general public as it was anticipated. So, why this scheme has not been received well by the market despite offering high guaranteed returns of 9% to 9.38%?

I think there are several reasons for that, one, the pension income is taxable, two, there is no life cover with this scheme, and three, its effective rate of return is actually below the promised rate of 9% to 9.38%. There might be other reasons also for such a muted response, but I think these three are the most important ones.

To give this scheme one more budgetary support, the Finance Minister Mr. Arun Jaitley has made Varishtha Pension Bima Yojana to be exempt from Service Tax. This scheme has been attracting a service tax of 3.09% so far and the investors have been paying this tax over and above their investment amount. Come next financial year, this scheme will not attract service tax anymore.

How is it going to benefit its investors aged 60 years or more? Which date will it be effective from? Will it be retrospective from its launch date or will it be a prospective implementation? Before we explore all that, let us first try to understand the salient features of this scheme.

Rate of Return – This scheme promises to generate a return of 9% to 9.38% for its investors on an immediate annuity basis. However, due to 3.09% service tax, the effective rate of return has been lower. As per my calculation, its effective rate of return lies between 8.73% and 9.1% so far. But, once the service tax exemption gets implemented, 9% to 9.38% would become its effective rate of return.

Minimum/Maximum Pension – Pension is paid on an immediate annuity basis in monthly, quarterly, half-yearly or annual mode, varying, respectively, between Rs. 500 to 5000 (monthly), Rs. 1500 to 15,000 (quarterly), Rs. 3000 to Rs. 30,000 (half-yearly) and from Rs. 6,000 to Rs. 60,000 (annually), depending on the amount subscribed and the option exercised.

Minimum Investment – You need to invest a minimum of Rs. 63,960 to get Rs. 6,000 annual pension or Rs. 65,430 to get Rs. 3,000 semi-annual pension or Rs. 66,170 to get Rs. 1,500 quarterly pension or Rs. 66,665 to get Rs. 500 monthly pension. In a way, you may also decide how much pension you need every month and then invest an amount as per your pension requirement.

Maximum Investment – You can invest a maximum of Rs. 6,66,665 in this scheme to get Rs. 5,000 monthly pension or Rs. 6,39,610 to get Rs. 60,000 annually. 

Ceiling of maximum pension amounts apply to a whole family, including the pensioner, his/her spouse and dependants. So, two or more senior members of a family can invest in this scheme, but their total investment amount cannot exceed the limits specified.

Age Limit – Minimum age limit has been set as 60 years and there is no maximum age limit to invest in this scheme.

Nationality – Only Indian nationals are allowed to invest in this scheme.

Scheme Period – This scheme got launched on August 15, 2014 and will remain open for one year till August 15, 2015.

No 80C or 10(10D) tax benefits – Investment under this scheme does not qualify for any tax deduction under section 80C or 80CCD. Moreover, the pension income is taxable as per the tax slab of the pensioner.

Free Look Period – If you are not satisfied with the terms and conditions of this scheme, you may ask for a refund of your investment amount within 15 days from the date of receipt of the policy stating the reason of objections. The amount to be refunded within free look period will be the investment amount deposited by the investor less the stamp duty charges.

Premature Surrender – The policy can be surrendered after completion of 15 years. The investor will get the investment amount in full as the surrender value after 15 years. However, under exceptional circumstances, if the pensioner requires money for the treatment of any critical/terminal illness of self or spouse, then the policy can be surrendered before the completion of 15 years and the surrender value payable will be 98% of the investment amount.

Unfortunate Event – On death of the pensioner, the investment amount will be refunded in full to the nominee of the pensioner. However, as only the invested amount is refunded, there is no special insurance benefit available with this scheme.

Loan Facility – Loan facility is available after completion of 3 policy years. The maximum loan that can be granted shall be 75% of the investment amount. The rate of interest to be charged for the loan amount would be determined from time to time by LIC.

Loan interest will be recovered from pension amount payable under the policy. The interest on loan will accrue as per the frequency of pension payment under the policy and it will be due on the due date of pension. However, the loan outstanding will be recovered from the claim proceeds at the time of exit.

Service Tax Exemption on VPBY Effective April 1, 2015

So, now the question arises, whether service tax exemption be retrospective from its launch date or will it be a prospective implementation? What I understand from the info available publicly, it will be effective April 1, 2015. If it is correct, what about all those investors who have invested in this scheme till date? I think they will definitely stand disappointed and rightly so. I think they should also be provided such benefit right from their date of investment. The government should once again think about it.

As far as investment in this scheme is concerned, I think service tax exemption has made this scheme a little more attractive as compared to fixed deposits or other small saving schemes. You can consider this scheme if you want a super safe investment avenue with reasonably high returns for yourself.