B U S I N E S S

PERSONAL FINANCE
Focus on right mix of equity, bonds
Since the results of the Lok Sabha election came out, we have seen a lot of change in the capital market and expectations for India Inc. What has changed in the recent past is the outlook towards India - which now is one of high hope and optimism. Coincidentally, this is also being echoed by the hope in the revival of the global economy. Whenever the hope of revival of the economy rises combined with optimism, equity as an asset class does well.

tax advice
Severely disabled entitled to Rs 1 lakh tax relief
I am a senior citizen and suffering from the total deafness in my right ear for 10 years. Can I get tax rebate on account of my hearing disability? — SK Sharma

Personal accident insurance plan a need of the hour
Life is full of uncertainties — once an old man suddenly slipped from stairs at his residence, a young college boy was injured when his new motorcycle rammed into a pole in an attempt to avoid collision with drunk bikers and a bubbly girl heading towards a coffee shop on the next street was suddenly injured after being hit by a rashly driven car. People might say "Know safety, no injury; no safety, know injury".

Focus on right mix of equity, bonds
A. Balasubramanian

Since the results of the Lok Sabha election came out, we have seen a lot of change in the capital market and expectations for India Inc. What has changed in the recent past is the outlook towards India - which now is one of high hope and optimism. Coincidentally, this is also being echoed by the hope in the revival of the global economy. Whenever the hope of revival of the economy rises combined with optimism, equity as an asset class does well.

Ultimately, it is consumer sentiment that fuels economic growth. This combined with a focus on stepping up capital allocation towards building infrastructure helps create opportunities for new jobs, more demand for raw materials, increased labour activities and so on. This ultimately drives profitability of companies that operate in the market; which in turn improves the confidence of firms to either reward shareholders or look at making fresh commitment to build the business to the next level. The Indian industry today is at the cusp of such a level. I would imagine a phase of consolidation where we prepare ourselves for only greater growth as we go forward.

There is a widespread belief that Indian companies will do far better than the last few years. We used to say that India has grown despite the challenges. Now when government policies and execution focus changes seriously, there will be a greater need to believe in the stronger outcome as we move forward. Therefore, the probability of earnings upgrade for Indian companies goes up tremendously under these circumstances. Whenever there is a probability of a rise in earnings, markets do remain firm with less volatility combined with higher predictability.

If the government finances improve on the back of moderation in inflation, the overall growth momentum will further get a fillip through monetary policy action in the form of an interest rate cut. Under these circumstances, it is imperative to have capital allocation in various asset classes. Just as corporates allocate capital into various businesses on an ongoing basis, investors, too, have to look at allocation into various asset classes for them to generate a better risk-adjusted return on their investment.

One of the asset classes in a rising economic growth and falling inflationary scenario that does badly is gold. Gold as an asset class does not carry any big merit to be part of the investment portfolio of investors. Any investment into this class needs to be keeping in mind 'future needs' towards specific purposes such as weddings etc. We have seen real estate as an investment also delivering the best possible returns in the last decade or so. While the government on one side looks to lift the economy, it may also focus on

* Raising the supply of housing projects

* Increasing the revenue to states in the form of tax and stamp duty and

* Setting up of a real estate regulator

Therefore, it has to make investors look at this asset class more on a need basis rather than only as an investment opportunity. This leaves two other asset classes to be part of the investment portfolio i.e. equity and fixed income. It is believed that both asset classes should do well even going forward. On one side, earnings of companies are likely to rise on the basis of improved economic condition both globally and locally. On the other side, efforts to control inflation will yield result in lowering of interest rates as we move forward. This obviously makes a compelling case for investing in both these asset classes.

The change in long-term capital gain tax period from one year to three year, brought about in the Budget, has changed the outlook for investing in both these asset classes keeping in mind the tax applicability on such investments. While one needs to look at both debt and equity asset class in the portfolio, the underweight exposure to equity needs to be corrected upward by increasing the allocation to diversified equity mutual fund schemes.

Most of the times, investors have questions or confusion about how to go about choosing a scheme. While it is good to ask these questions, it is also to be remembered that no one asset class performs in a linear fashion i.e. in a single straight upward graph. That being the reality, investment into various equity products needs to take into account this behaviour by having exposure to large cap, multi-cap, mid-cap and balanced funds. Each of these categories focus on investing in certain segment of the market and all of them are in businesses poised to deliver a long-term return to shareholders/ investors. Therefore, investing in equity should also be in a basket of schemes either within the same mutual fund, or across a basket of multiple mutual fund schemes.

As far as fixed income goes, given the interest rate view, there is a need to look at open-ended fixed income schemes right from short-duration funds to medium-duration funds.

The choice of getting stable income through fixed maturity plans has now shifted to three years from one year previously. When we know well the tax benefit is now shifted to three years, it makes more sense to increase the allocation towards open-ended fixed income schemes such as liquid plus, short and medium-term plan and dynamic funds.

The overall outlook towards better days ahead has increased strongly, supported by commitment to take the economy to the next level of growth. This warrants us to put belief on the table on our asset allocation, so as to benefit reasonably well on such allocations.

The author is CEO, Birla Sun Life Asset Management Company. The views expressed in this article are his own.

tax advice
Severely disabled entitled to Rs 1 lakh tax relief
SC Vasudeva

I am a senior citizen and suffering from the total deafness in my right ear for 10 years. Can I get tax rebate on account of my hearing disability? — SK Sharma

A deduction is allowable from the total income to an individual, who is a resident in India and who is at any time in the previous year certified by the medical authority to be a person with a disability. Hearing impairment is considered to be a disability for the purposes of the provisions of Income Tax Act, 1961, (The Act) provided that it is a loss of 60 decibels or more in the better ear in the conversational range of frequency. The deduction is limited to Rs 50,000. However, if a person is suffering from a severe disability (80% or more) of one or more disabilities referred to in Section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, a deduction of Rs 1,00,000 is allowable. The term "medical authority" has been defined to mean any hospital or institution specified for the purposes of the Act by a notification by the appropriate government.

You can get the deduction to the extent of Rs 50,000 or Rs 1,00,000 as the case may be, from your total income provided that you fulfill the above requirement. In case a claim is made by you in respect of such deduction, a certificate issued by the medical authority in the prescribed form is required to be filed along with the tax return. These days no enclosures are allowed to be filed along with the return. The certificate, therefore, should be kept ready for being produced as and when required by the department.

I am super senior citizen and have a long-term capital gain of Rs 68,00,000. I will invest Rs 50,00,000 in bonds issued by NHAI or REC. I have no other income. Explain my tax liability for the assessment year 2015-16. — Ranjit Kaur

The taxable long-term capital gain in your case would be Rs 18 lakh. After giving a relief of Rs 5 lakh (being the maximum amount up to which tax is not payable by a super senior citizen i.e. a person of 80 years of age or more), the net taxable amount would be Rs 13 lakh. You will be liable to pay tax of Rs 2,67, 800 thereon (@ 20% plus 3% of education cess thereon).

I am a retired Haryana Govt pensioner and a senior citizen and operating an extended PPF Account at the Hoshiarpur Head Post Office through an agent. I used to deposit the entitled amount in my PPF account annually and claim a tax rebate. Now, the limit of PPF account under Section 80C has been raised to Rs 1.5 lakh from Rs 1 lakh for the financial year 2014-15. I have already deposited Rs 1 lakh in my account and now want to deposit additional Rs 50,000 as per the new limit. But my agent says that the Hoshiarpur Head Post Office is not accepting the additional amount of Rs 50,000 as it has not received any instructions. How can I deposit additional Rs 50,000 in my PPF account? — Sl Dua

The instructions with regard to the increased limit of Rs 1.5 lakh have recently been issued to various institutions which are maintaining PPF accounts. You should reapproach the Head Post Office, Hoshiarpur. I may add that the State Bank of India has received instructions only a fortnight ago.

Personal accident insurance plan a need of the hour
Narendra Anand