B U S I N E S S

Bankers expect another hike in interest rates by RBI
Mumbai, October 23
Faced with double-digit inflation, the Reserve Bank is likely to raise its policy rate again in its half-yearly review of the monetary policy on Tuesday, say bankers.

Andhra top investment hub despite Telangana stir
Hyderabad, October 23
Despite the political turmoil due to prolonged Telangana agitation, Andhra Pradesh has been able to retain its edge as a leading investment destination and is hopeful of achieving an economic growth rate of around 9.5 to 10 per cent during the 12th Plan period.

Reliance MediaWorks to take over Annapurna Studios
Hyderabad, October 23
Billed as the first-of-its-kind deal in the film industry, Reliance MediaWorks, the Anil Ambani-led film and entertainment company, will take over the management of Hyderabad-based Annapurna Studios owned by the family members of Telugu thespian and Dada Saheb Phalke award winner Akkineni Nageswar Rao.

Tax Advice
Interest on company deposits not covered under Sec 115E
Q. My son is an NRI and settled in the USA. In the year 2002 he purchased NSCs for Rs 13,40,000 and got maturity value of Rs 22,72,506 and earned interest amounting to Rs 9,32,506 and tax on the same was paid under Section 115 E of the Income Tax Act 1961 and return was filed in September 2009 with interest paid to the I-T Department.

Investment returns & investor behaviour
While trying to evaluate the reasons for performance or non-performance of a particular investment in the long term, one generally gets confused. We assume that if the market/Sensex and the economy is rising and if the companies are performing good, one can get good returns in the long run. However, this is not always true. The most significant factor which is important to earn long-term investment returns is the behaviour of investors.

Markets to remain extremely choppy
The week gone by was on expected lines and clearly the area of resistance which was highlighted is the level from where the markets turned. It is also important to note that during the week we had a gain of 337 points on the BSE Sensex and 102 points on the NSE Nifty on Wednesday, the 19th of October; otherwise the weekly scene would have been completely different. The BSE Sensex after a very volatile and choppy week ended with losses of 297.05 points or 1.74% to close at 16,785.64 points. The NSE Nifty lost 82.35 points or 1.6% to close at 5,049.95 points. The broader indices like the BSE100, BSE200 and BSE500 lost a similar 1.77%, 1.73% and 1.61%, respectively, while the BSE Midcap and BSE Smallcap lost significantly less at 1.26% and 1.20%, respectively.

Bankers expect another hike in interest rates by RBI
Monetary policy review tomorrow

Andhra top investment hub despite Telangana stir
Suresh Dharur/TNS

Reliance MediaWorks to take over Annapurna Studios
Tribune News Service

Tax Advice
Interest on company deposits not covered under Sec 115E
by S.C. Vasudeva

Q. My son is an NRI and settled in the USA. In the year 2002 he purchased NSCs for Rs 13,40,000 and got maturity value of Rs 22,72,506 and earned interest amounting to Rs 9,32,506 and tax on the same was paid under Section 115 E of the Income Tax Act 1961 and return was filed in September 2009 with interest paid to the I-T Department. Subsequently, it has come to our notice that he had a deposit with a Pvt. Ltd company for Rs 5,52,000 who paid him up to date interest of Rs 1,96,754 on 19/11/2008 and he had certain deposit account with a bank which were opened prior to his departure from India and these accounts were joint with parents and not converted to NRO accounts hence no tax was paid on these small amounts of interest earned on these accounts which total amount for the F.Y. ending 31/3/2009 comes to Rs 15,000. The company while paying the interest in one go on 19/11/2008 i.e. Rs. 1,96,754 also deducted TDS of Rs 19,675 plus education cess of Rs 591. Now, our query is whether we can file revised return by including interest earned on bank deposits and interest earned on deposit with private company. If yes, under which section of the income tax and what rate of tax is to be paid. We paid flat rate of 20% on NSC interest income under Section 154E. Also, please clarify whether interest income on bank deposit in small accounts and interest on deposit paid in lump sum from the date of deposit i.e. 24/5/2006 to 19/11/2008 is to be treated income under Section 115 E.

— Lajpat Rai Thakral

A. (i) The return for the financial year ended 31st March, 2009 could have been revised by 31st March, 2011. It is, therefore, not possible to revise such a return.

(ii) The interest on bank and company deposit would not be covered by the provisions of Section 115E of the Act. Your son is liable to pay tax at the rate applicable to his total income excluding that part of the income on which tax has been paid under Section 115E of the Act.

Rebate u/s 80C

Q. If we make an investment under Sr. Citizen Scheme where we do not avail of tax benefit under Section 80C of the Act. Kindly advise how the pre-mature payment of the said investment would be treated for income tax purpose in view of the fact that we have not taken the tax benefit under Section 80C of the Act while making the investment.

— AK Srivastva

A. In case you have not claimed the benefit of deduction under Section 80C of the Act for the amount deposited under Senior Citizen Saving Scheme 2004, the provisions of sub section (6A) of Section 80C of the Act which provide for the withdrawn amount to be treated as income of the assessee in the year in which the amount has been withdrawn shall not become applicable. However, Rule 9 of the said scheme would become applicable. According to the said Rule, in case the account is closed after the expiry of one year but before the expiry of two years from the date of opening of the account, an amount equal to one and a half per cent of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of two years on the date of opening of the account, an amount equal to one per cent of the deposit shall be deducted and balance paid to the depositor.

Capital gains

Q. I am working with a multinational company. Apart from the salary income, I also keep on investing in stocks and shares. I have been filing my income tax return regularly and showing the salary income therein. There are three to four transactions every year in respect of my investment activities in shares and stock. The resultant profit and loss on such transactions has not been included in my return. I have been advised that even if it is a small amount, the same should be included in the tax return. I seek your advice in this regard.

— Rajan

A. The facts in the query indicate that you are only an investor and are not carrying on the business of purchase and sale of shares. Accordingly, the capital gain arising on the sale of shares or any capital loss arising there from should have been included in the income-tax return. In case the capital gain arises from the sale of shares which have been held for a period of more than one year and the transaction has been subjected to Securities Transaction Tax, the same would be exempt from tax under Section 10(38) of the Act. In case the capital gain arises from shares held for less than the aforesaid period, the same would be taxable and should have been included in your tax return. I may add that you can revise your return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. For example, a return for assessment year 2010-11 can be revised upto 31st March 2012. In case the gain is taxable you can declare the gain on sale of shares by filing a revised return for the said year so as to rectify the above omission.

PPF account

Q. I have seen on a TV news channel that one can deposit Rs 1 lakh in PPF A/c. If yes, from which date it is applicable? Please advise.

— Ramesh Marwah

A. The committee on Comprehensive Review of National Small Savings Fund (NSSF) headed by Deputy Governor, RBI, has recommended increasing the deposit limit under Public Provident Fund Scheme 1968 from existing Rs 70,000 to Rs 1,00,000 per annum. This information was conveyed by the Minister for State for Finance Namo Narain Meena in a written reply to a question raised in the Rajya Sabha on 6th September, 2011. The PPF Scheme 1968 has not been amended so far to incorporate the above recommendation. The increased limit would be applicable as and when PPF scheme is amended.

Investment returns & investor behaviour
The most significant factor to earn long-term investment returns is the behaviour of investors. Anil Chopra, Group CEO, Bajaj Capital, discusses the important determinants of investment performance that successful investors all across the world have.

While trying to evaluate the reasons for performance or non-performance of a particular investment in the long term, one generally gets confused. We assume that if the market/Sensex and the economy is rising and if the companies are performing good, one can get good returns in the long run. However, this is not always true. The most significant factor which is important to earn long-term investment returns is the behaviour of investors.

Normally, investors commit a lot of mistakes because of some misconceptions or beliefs that they acquire. Many a times we see markets rising and the value of mutual funds going up. However, the investors have been unable to make money in such situations also. This is a universal story all around the globe. After February 2008, when markets declined from 21,000 to 8,000, a lot of investors withdrew their money, thinking that they have incurred losses. However, when there was a rise in the markets in 2009, they were skeptical about it and did not participate in the rise. The result was that markets came up from 8, 000 to 16,000, and a lot of people did not take advantage of this and were unable to make money, because of their behavioural problems.

Let us discuss the important determinants/virtues of investment performance that successful investors all across the world have.

Be a contrarian

Firstly, one should be contrarian, i.e, doing just the opposite of what everyone else is doing while investing. Thus, when the majority is buying shares or mutual funds, then you must sell it, in order to book profits. Similarly, when everyone else is selling, you must buy, because it enables you to get a cheaper rate. However, 80% of the investors do not follow this rule, and end up entering into stock markets when everyone else is also entering. This is a behavioural problem, which one must avoid.

Have faith in future

The second most important determinant of the overall investment performance is having “faith in future”. Unless one has faith in the growth path of Indian economy, unless one feels that inflation and interest rates will come down and economy will continue to grow at 8-10% in next 10-20 years, one cannot earn profits. The reason is if in times when markets crash, one would immediately want to exit the markets because of lack of faith in its long-term future.

Have patience

The third noteworthy determinant is having patience. While investing, it is common to see people getting impatient. They expect their investments to double in a short span of 6 months to a year, which happens rarely. With the fall of markets, they withdraw in the fear of further fall/losses. And if the markets start rising at that point, they do not participate. One must realise that it is very important to be patient at all times of investing. Even if markets have fallen, it is important to have faith that things will improve.

Exercise discipline

Another behavioural requirement for investing is to exercise discipline. It means to avoid doing the wrong thing and continue doing the right thing. One may sometimes do the wrong thing, for example, you may buy when the stock market is at its peak and when others are buying too. However, discipline is to avoid that. Similarly, when markets are falling and everyone is selling, one must avoid selling. Rather, one should show the discipline of buying at that point of time.

Asset allocation

The fifth most important factor here is asset allocation. It means dividing your money between equity, debt and cash in the right proportion, depending upon the stage of life you are in. For example, as you grow older, there should be less exposure to equity and more to debt, as the risk-taking potential of an individual goes down with age. However, people are mostly seen doing the opposite, i.e. there are some young people who stay away from equity, find it full of risk, and some old people also put lot of their money in equity, whereas they should be staying away from it.

Diversify investments

Another significant strategy is diversification. For example, if the investible amount of A is Rs 100, he must spread it across 10 or more companies, or mutual funds, etc. If he is investing in sectors, then he should look at 10 different sectors. For example, IT, media, pharmaceuticals, infrastructure, etc. He should avoid the mistake of putting all money in media or infrastructure, FMCG, Banking, etc. Instead, he should be dividing it across all sectors. Thus, one must diversify his/her investments and be disciplined about it. Diversification can be in different asset classes, within different mutual funds, in different schemes and sectors within one mutual fund, etc.

Rebalance portfolios

The next important determinant of one's investment performance is how often do you re-balance. It is very important for investors to rebalance their portfolios at regular intervals. There are some investors who check their portfolios everyday, and others who do not check it for few years. Both the cases are wrong. Checking your investment everyday or every week is like checking one's blood pressure every half an hour, which is not required. Rebalancing the portfolio should be done once in three or six months. The period should not be long as 3 or 4 years, where you are unaware of what is happening. Thus, people should avoid making these behavioural mistakes of overdoing it or not doing it at all.

Another important factor is to have regular interactions with your financial planner and to keep updated on the developments in your portfolio.

Thus, if people follow the above mentioned rules and change their behaviour while investing, they are likely to benefit from their investments. We foresee the markets to improve and the asset values to go up in the next 10-20 years. But the amount of returns people will make will depend upon their own behaviour. It is important for investors not to be greedy and put more and more money even after the goal has arrived, or has been reached. Also, investors have the fear of losing money while investing i.e. they withdraw money when the markets start falling because of the fear of losing more. Thus, these are the behavioural problems that stop investors from earning while investing, and it is important to take care of all of these.

The views expressed are his own.

Markets to remain extremely choppy
Arun Kejriwal