The Tribune, Chandigarh, India

Investors should try to stagger investments into equity markets
Jayant Manglik

Markets are sometimes driven by sentiments and today one of those times. Hope has trumped fundamentals. The National Democratic Alliance has received clear majority in the elections and the Modi wave has catapulted the BJP securely to power. The allocation of ministerial portfolios is also done and there are no allies to please. This makes for a strong government which can take big decisions quickly, at least during its honeymoon period over the next 12 months.

With political risk blown away, a shrinking CAD and our emergence as an emerging markets sweet-spot, any step to revive the economy, draft business-friendly policies and follow general good governance will result in across-the-board increase in share prices. In fact, our best-case target for the S&P BSE Sensex for March 2015 is 32,000.

Given the initial determination and articulation on policy from the new government, we believe that the economy will perform better going ahead. So it makes sense to invest in companies that earn more from domestic sales. In any case, we recommend buying only quality stocks and that too with a long-term investment horizon.

Since the markets are at their all-time high, investors should invest in a staggered manner only in fundamentally strong stocks taking the benefit of any possible dip.

Yes, India is in a bull market and this is probably going to continue. There will be corrections along the way and there will be disappointments, as India still has problems in the economy. But at the end of the day, it will continue to have a very bullish market. The S&P BSE Sensex is trading over 15 times its forward earnings. Are valuations expensive? Perhaps the earnings growth has not been as good as it should be. But with reforms, those earnings numbers and estimates will be revised. Valuations may get stretched. So we have to be careful and make course corrections as markets correct. One must also remember that there has to be revision of those earnings estimates in view of the reforms that are planned for the economy. It's a bull market and it will continue. The budget is also around the corner and hopes are high.

Buy low, sell high. This has been a timeless (and fairly pointless) advice given to investors by all and sundry. In fact, the reverse usually happens as one doesn't buy low due to fear that prices will trend lower and one definitely doesn't sell at a high because of unending greed that the markets and specially your stocks will continue upwards endlessly. Today is yet another time when investors wonder whether it is still safe to make a safe entry into markets and which part of the cycle the markets are in.

Over the years, the resilience and optimism of Indian investors has been quite amazing. Every bull-run has been sharp and swift, and full of opportunities. Right from Harshad Mehta's infamous 1991 episode to 1994 when the FIIs came in to the dot com boom in 2000 and then the last, long global bull-run from 2004 right up to January 2008, the opportunities were as clear as the writing on the wall just before decline. But it is difficult not to be blinded by the relentless hype. The question on everybody's lips is: How long will this bull-run last? Well, nobody really knows how long but I advise you to buy but don't borrow money and buy, not in this or any other bull-run.

Many investors are still skeptical and feel there is too much smoke and no substance in this rally. For them, I recommend unending systematic monthly investments into Sensex or Nifty. Trust your gut and safely bet on India. Due to a likelihood of the rupee appreciating as well as confidence in companies with sales within a resurgent India, investors can reduce investments made in IT companies and convert to private banks, cement, FMCG and energy stocks. Till we see some real action, infrastructure too remains on the back-burner.

While the indices have run up quickly and substantially, stock specific movements continue with renewed interest from retail investors. In fact, investors should use this rally to exit weak counters they held on to during the just-ended bear market and convert to top quality stocks.

(The author is president of Retail Distribution, Religare Securities Limited. The views expressed in the article are his personal views)

Minor bank accounts: Catching them young
Bienu Verma Vaghela

MY niece Ananyaa, all of 11 years, accompanied me on one of my shopping sojourns when I wanted to buy a watch to gift to my friend who had come down from London. While browsing the collection, she liked a bracelet and she wanted it. I resisted because I had already gifted her one on her birthday. "But it only costs Rs 1,000," was her plea.

I grabbed the opportunity to explain to her that if she keeps Rs 1,000 in a fixed deposit for a year, she will earn Rs 90 on it and her Rs 1,000 will also remain intact. With this, she can buy a gift of Rs 1,090, which will be of more value to her. Since then she has been after my life for a bank account and now this news that 10-year olds can open and operate their bank accounts alone is a music to my ears. This birthday, I will give her the gift of a bank account, which she can operate on her own.

You can also do this for your children. This will inculcate the habit of savings in them and it will change their spending habits as well. Now it is important to know how you can do it. Though I personally feel that children are children after all and parents need to monitor them while they operate their account, use debit card or do internet banking which is permissible now. This move is like a double-edged sword. If used wisely, it will make our children financially prudent, who grow up to be responsible citizens. However, if not used properly, it may create havoc in the financial lives of parents.

It is RBI's move to boost financial inclusion. To put it simply, catch them young and teach them banking young. Now banks are at liberty to allow minors above 10 years to independently open and operate savings account. Not only this, the RBI also allowed banks to offer additional facilities like internet banking, ATM, debit card and cheque book. However, the RBI directs that such facilities should be within the overall norms that banks will not allow a minor's account to be overdrawn and that these accounts should always remain in credit. The RBI has given the leeway to banks to fix the minimum age at which they will allow minors to operate savings bank account independently. Banks also need to fix a maximum limit on money these minors can have at their disposal through such account. How the KYC of the minors will be done, that is to be seen.

It is a clear indication that our net-savvy kids, who were busy playing games till now or indulged in some fruitless activity, have an opportunity to put their skills to use- net banking.

It is important that from time to time we educate our children about the importance of money; how it is being earned, how it is being accumulated, in which instruments it is being parked, why it is important to save and how we can make it grow. Not only this, inflation is also an important aspect they should be told about.

There is no doubt about it that children learn money habits from their parents. They observe everything very minutely such as how their parents behave while making a purchase, how they budget for every purchase in advance, how they make provisions for contingency requirements or how they keep aside sums to invest every month. It is very important that we take care of all these aspects before preaching them about the importance of money.

Coming back to children, we should start from telling them why it is important to save money. We should teach them small things; how they can deposit and withdraw money from the bank, what are fixed deposits and recurring deposits etc. Baby steps can be taken by opening a recurring deposit account in her/his name where they can deposit money every month and know at the end of the year what sum they will receive. This will make them happy. Another source of money for children is pocket money, which they love to receive but spend on unnecessary things. Here they can be taught that they can accumulate money for few months and buy gold earrings or a cricket bat that they have been yearning for.

(The writer is the Chief Editor, Apna Paisa. The views expressed in the article are her personal views)

tax advice
Income from interest can be assessed on cash or due basis
SC Vasudeva

I am maintaining a monthly saving account (recurring deposit account) with a nationalised bank. As per scheme, I deposit Rs. 5,000 (on multiple things up to Rs 50,000) once a month. The bank does not deduct income tax at source. The bank credits the interest earned on the account every quarter of the year. I am receiving interest certificates every year and paying the income tax thereon. Please advice if there is any right procedure. — SL Mahajan

The income from interest can be assessed on cash basis or due basis. The choice for selection of cash or due basis has been given to the assessee. It seems from the facts in the query that you have decided to get the interest income taxed on due basis. If my presumption is correct, there would be no necessity for you to pay tax when the entire amount of interest is received by you.

I am a salaried income tax payer. During the 2008-09 financial year, the total saving under section 80C was less than the permissible limit. To save a certain amount of income tax, I invested Rs. 30,000 under the fixed deposit term of the tax saving scheme on 03.01.2009. But due to negligence of bank staff, the scheme inadvertently was opted under the monthly income scheme (MIS) and Rs. 217 per month were due as interest. Further, I claimed income tax rebate under this saving of FD for one year, i.e. for 2008-09 only, as a GPPF subscription was raised thereafter up to permissible saving's limit under section 80C. The request for cancellation of this FD was not accepted by the bank on the pretext that fixed deposit under income tax saving scheme has to continue for full term of five years, whether income tax rebate availed for full term of five years or not, hence, I continued the scheme for five years. The FD in question attained maturity on 03.01.2014. I approached the bank authorities on 04.01.2014 for its cancellation. The bank authorities again shown their helplessness to cancel this FD, citing the reason that the term deposit (FD) has automatically extended for next five years i.e. up to 03.01.2019 on 03.01.2010 due to computerised system. I am not interested in continuing this FD under the MIS and willing to discontinue the same. Please advice to what extent the bank authorities are right in their version.

Since the total interest on the FD scheme was only Rs 2,604 per annum (Rs 217 X 12 months), the amount being less than Rs. 10,000 per year was not included in the taxable income of first four years. However, total proceeds of five years' interest of Rs. 13,020 (Rs. 217 X 60 months) have been included in the taxable income of the 2013-14 financial year and accordingly, income tax on Rs. 13,020 has been paid to the government through the DDO under salaries deduction. Please advice whether or not this calculation and payment of income tax is as per the existing provisions of income tax. — Surinder Singh

The bank cannot take advantage of its own mistake. Automatic renewal cannot take place within a day. In case you are not interested in continuing with the fixed deposit, you should approach the higher authorities of the bank. In case there is no positive response from them, you can approach the bank's ombudsman for granting the desired benefit.

The amount of interest not includible in total income under section 80 TT of the Income Tax Act, 1961, has to be interest earned on savings bank account. The interest earned on a fixed deposit with bank is not deductible from the total income. You have taken a correct step of including the amount of interest of Rs. 13,020 earned on fixed deposit in your total income and paid the due tax thereon.

You have already clarified on the issue that if an assessee remains abroad for more than 183 days during the financial year, he becomes an NRI and his income earned abroad is not taxable in India. I was posted in the UK for 287 days during 2012-13 and the salary/allowance paid has been taxed there. My income in India is below Rs 2 lakh. Refund has been claimed for the tax deducted in India. My return has still not been finalised and the status is "not determined yet". The return was filed online. — RC Singla

According to the provisions of section 9 of the Income Tax Act, income from salaries is taxable in India in the following cases:-

If it is earned in India
If it is payable for services rendered in India
If it is payable by the government to a citizen of India for services outside India.

It is not clear from the facts given in the query whether the salary earned by you falls in any of the above categories.