B U S I N E S S

personal finance
Be skeptical if investing in equity-linked instruments
It has been a month since the Lok Sabha results were declared and the new NDA government came into action. The stock market has been touching new heights every day. Sensex has crossed the 25,000 mark, and has risen by approximately 30% in the past one year.

tax advice
File form 15H for non-deduction of TDS
I am a senior citizen aged 76 years. At present, my annual income without availing any rebate under Section 80C etc. is below Rs 1,95,000. I am filing my return regularly without any tax liability. Can I submit form 15H to the bank for not deducting TDS on my interest income which is about Rs 67,000 p.a. from Senior Citizen Savings Scheme?

Debt market: Monsoon to play a key role
IN the recent monetary policy statement on June 3, 2014, the RBI has reiterated its commitment to bring down CPI inflation to 8% by January 2015 and 6% by January 2016.

Compare your Health Insurance Policy as on July 3, 2014

personal finance
Be skeptical if investing in equity-linked instruments
Ronak Morjaria

It has been a month since the Lok Sabha results were declared and the new NDA government came into action. The stock market has been touching new heights every day. Sensex has crossed the 25,000 mark, and has risen by approximately 30% in the past one year. Everyone is optimistic about the stock market and economic development of India and expecting a lot from the new NDA government.

Most of the investors must be finding their direct equity, equity mutual fund portfolio in green and must be feeling happy looking at the supernormal returns. In the current market scenario, their portfolio would be skewed towards equity. Many of my investor friends have started calling me seeing supernormal returns of more than 20% on their mutual fund portfolio due to the current stock market rally.

They share their views with me saying that they are happy with the returns. Some ask whether they should withdraw some money or at least book profit while some of them want to invest more.

Exactly the opposite happens in the worst-case scenario; when the stock market is falling and the portfolio returns turn negative, investors start blaming their investment advisers and financial planners and think this is the result of the poor advice. They start comparing returns with fixed return instruments such as fixed deposits, PPF, etc. This is human psychology, where investors cannot accept negative returns and losses on their investments.

My advice is you should pay heed to your financial planner when he tells you about the risks associated with the recommended investments. Not only this, you should always be skeptical if you are investing in equity or equity-linked investment instruments. You are not going to see your portfolio in green with double-digit returns every day or every time. There are going to be periods where you will get to see negative returns as well, where your total portfolio value will be less than what you had invested. When you are investing in equity-oriented investments like Equity Diversified Mutual Funds, you should always keep in mind that you are investing for long-term (i.e. at least 8 to 10 years). You cannot think of “Return on Capital” anytime during your investment time horizon of less than 8 years, but over a period of 8 to 10 years, which is the minimum holding period you should have for investing in equity; you can think of a reasonably good “Return on Capital” compared to other investment instruments. So, whether your returns are positive or negative should not bother you between your investment tenure. The prices are bound to be volatile and returns will fluctuate.

Equity market does not move in a single direction (i.e. always upwards or downwards), it is always volatile. I would say, the Newton’s law of gravitational force applies to the stock market, “what goes up, must come down”. So, if today stock markets are moving up, it will (or may) go down, though we don’t know how much and when it will go down. You must be feeling “Acche din aa gaye hai”; but for equity investments it is always temporary. You should neither get excited when your portfolio value is green nor should you panic when your portfolio value is red. Systematic Investment Plan (SIP) is one of the ideal and the best ways of investing in equity mutual funds. If you are investing via SIP, you should be least concerned in what direction is the market moving since you are investing month over month. Whether the market is rising or falling; you should not withdraw all your funds, should not invest more and should not increase or decrease the SIP amount with changing market scenario. You must review your portfolio periodically (preferably quarterly) and check whether the fund has beaten their respective benchmark or not; and also rebalance your portfolio and have an appropriate asset allocation as per your risk profile and time horizon.

The author is a research analyst, ApnaPaisa.com. The views expressed in this article are his own

tax advice
File form 15H for non-deduction of TDS
SC Vasudeva

I am a senior citizen aged 76 years. At present, my annual income without availing any rebate under Section 80C etc. is below Rs 1,95,000. I am filing my return regularly without any tax liability. Can I submit form 15H to the bank for not deducting TDS on my interest income which is about Rs 67,000 p.a. from Senior Citizen Savings Scheme? — Gurdip Singh

Yes, you can file form 15H to the bank for non-deduction of tax at source from the interest income. On the basis of such declaration, the bank should not deduct tax at source from your interest income of Rs 67,000.

I am a family pensioner and senior citizen and my income for FY 2013-14 is given below: Income from pension: Rs 76,000 pa Interest on FDs: Rs 1,02,000 Agricultural income: Rs 38,000 pa Please calculate my tax liability? — Shiv Kumar

Your total income, excluding agricultural income, works out to be Rs 1,78,000. The same being much below the amount of Rs 2,50,000 (the amount up to which no tax is chargeable in case of a senior citizen for financial year 2013-14) no tax would be payable in respect of the above income, including the agricultural income.

I am a senior citizen, hold PAN and my income is less than Rs 2,50,000. I have been advised that I am not required to file return of my income. But the point is that I hold PAN and, therefore, the ITO must be having a separate file for me and to complete that file, I must tell the ITO the reason for not filing the return. Otherwise, he will raise objection for my not filing the return. My query is: In what manner, should I tell the ITO the reason for not filing the return. Is there any form prescribed for the purpose? — Shyam Sunder

You have been correctly advised that you are not required to file return in accordance with the provisions of the Income-tax Act 1961 (the Act). The Assessing Officer has all the powers to issue a notice under Section 142(1) of the Act requiring you to file the return. In case he chooses to do so, you can file the return at that point of time in response to his notice. The income shown in the return in any case would be below the taxable limit. The Permanent Account Number held by you may have to be used for some other purposes required under the provisions of the Act. There is no prescribed form for informing the Assessing Officer. In case you want to adopt this course, a simple letter to him would suffice.

I am a senior citizen. I have PAN from the Income Tax Authorities. My total income is less than Rs 2,50,000. It is clear that I am not to file the I-T return. Please advise whether I have to return the PAN to the Income Tax authorities or not. — Rajan

You need not return the Permanent Account Number to the I-T authorities as the same may have to be used for other purposes as specified in Section 139A(5)(c) of the Act.

Debt market: Monsoon to play a key role
Sudhir Agrawal

IN the recent monetary policy statement on June 3, 2014, the RBI has reiterated its commitment to bring down CPI inflation to 8% by January 2015 and 6% by January 2016. The central bank has acknowledged that the upside risks to the CPI inflation remain balanced. It has also acknowledged the possibility of stronger government action on food supply and better fiscal consolidation which may counter balance any negative impact of a weak monsoon and any other shock to the fuel prices. Overall, it has been less hawkish in its stance when compared to previous few policies.

Debt markets have cheered this change in the undertone of the monetary policy and 10-year benchmark G-Sec yield has fallen from 8.70% to 8.50% resulting in a sharp rally in the prices of bonds. From here, we expect that markets will await the fiscal deficit and next few CPI numbers before making a big move in either direction. If government is able to contain the fiscal deficit at close to the previous year level of 4.5% with a fiscal consolidation road map for coming years, we may see further rally in the bond prices. CPI is expected to come off in next few months driven by base effect and fall in food prices over past one month. However, monsoon will be the key factor to watch out for as a below-normal monsoon may increase the risk of a rise in CPI.

Liquidity too has been comfortable in the past 1-2 months due to dollar flows into the country and subsequent RBI intervention in forex market has resulted in increased rupee liquidity in the system. This has pushed down the money market rates (up to 1 year maturity) and the short-end of the yield curve is currently trading at very tight spreads over the repo rate. We expect the RBI to manage overnight liquidity actively keeping the overnight rates at close to repo rate level of 8%. Overall, money market rates are expected to remain low and trade in a narrow band as liquidity may continue to remain easy in coming months.

Investors should consider allocating a part of their investible corpus in debt and money market funds. We are currently advising them to look at short-term income funds and ultra short-term funds to benefit from easy liquidity and earn decent accrual on their investment with an investment horizon of 3-12 months. They may also consider investing in income funds with an investment horizon of 12-24 months as we may see prices of long bonds moving up once the efforts of the new government to bring down inflation begin to materialise.

The author is Fund Manager, UTI Mutual Fund. The views expressed in this article are his own