Category: Personal Finance

How NPS Tier 1 Scheme Has Outperformed Equity Mutual Funds?

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Investment

oi-Vipul Das

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In the year to March 31, the National Pension System (NPS) Tier-1 scheme, which mostly invests in equity market securities, returned up to 74.34 percent in the last 1 year. The National Pension System (NPS), which provides a variety of funds based on an investor’s risk tolerance, is one of the most widely used pension plans for the investors. Usually, the fund operates in three asset classes: equity (E), corporate bonds (C), and government securities (G). The influence of the BSE Sensex’s 68.1% increase in FY21 can be seen through equities, and all NPS pension funds in this class have delivered comparable results. NPS Scheme E’s benchmark 5-year return is close to 14.79 percent, and Scheme E under NPS Tier I Account has returned over 70% in the last year. It corresponds to the spike in the Indian stock market. LIC Pension Fund Ltd outperformed the category with a return of 74.34 percent over the last year. It has Rs 1,530.26 crore in assets under management (AUM). It is then followed by UTI Retirement Solutions Limited and ICICI Prudential Pension Fund with 1 year returns of 72.82% and 72.49% respectively. The average return on NPS Scheme E over the last five years is 13.86%, while the 10-year return is around 10.65%. If we compare the 1-year returns of NPS Scheme E Tier -1 with the top or high rated equity mutual funds such as Axis Bluechip Fund (rated-5 star), Canara Robeco Equity Tax Saver (rated- 5 star), Axis Midcap Fund (rated 5- star), Nippon India Pharma Fund, these funds has delivered 1-year returns of 41.8%, 56.5%, 55.6% and 54.5% respectively which is much lower compared to stated mutual funds. But the question is that should you invest in NPS to get similar returns on your investments in the future? Let’s find out.

How NPS Tier 1 Scheme Has Outperformed Equity Mutual Funds?

NPS Scheme E Tier-1 Returns

Scheme E Tier-1 (source: NPS Trust) as on 31 March 2021
Pension Funds Inception Date AUM in Rs Cr NAV 1 year returns 3 year returns 5 year returns 7 year returns 10 year returns
Aditya Birla Sun Life Pension Management Ltd. 09-May-17 125.2 15.6499 68.64% 12.74% NA NA NA
HDFC Pension Management Co. Ltd. 01-Aug-13 7,066.07 28.8305 69.78% 13.78% 15.08% 13.34% NA
ICICI Pru. Pension Fund Mgmt Co. Ltd. 18-May-09 3,045.66 38.0203 72.49% 12.69% 13.82% 12.47% 10.75%
Kotak Mahindra Pension Fund Ltd. 15-May-09 604.29 35.1073 70.98% 11.97% 13.94% 12.61% 10.63%
LIC Pension Fund Ltd. 23-Jul-13 1,530.26 24.0674 74.34% 11.17% 12.69% 11.44% NA
SBI Pension Funds Pvt. Ltd 15-May-09 5,736.48 31.9959 66.28% 12.14% 13.64% 12.35% 10.62%
UTI Retirement Solutions Ltd. 21-May-09 871.55 37.4794 72.82% 12.10% 14.00% 12.85% 10.63%
Benchmark Return as on 31/03/2021 73.48% 13.73% 14.79% 13.09% 10.57%

Goodreturns take

Despite the fact that NPS has consistently generated strong returns over the past year, investors should moderate their standards for NPS equity schemes. NPS is a product that is linked to the market. The NPS equity scheme has evolved in tandem with the rise of the equity market. As a result, these kinds of returns may not be consistent with the volatile market. To build a large retirement fund, it is critical to invest wisely and over time. The minimum investment in asset class E (equity) has been set at 75% by NPS. You can choose the auto-choice alternative, which invests funds in a pre-defined portfolio based on the age of the subscribers. For ELSS, the lock-in period is set at three years. The NPS, on the other hand, will only enable you to withdraw your money after you reach the age of 60 or when you retire. NPS could be the ideal alternative for individuals who want to get long-term returns to create wealth for retirement, whereas ELSS is well suited to those who want to save capital for a certain purpose in the near future. But both may not give you similar returns in future.



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Rule 72: Know How Much Time It Takes To Double Your Investment Returns

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Planning

oi-Vipul Das

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Rule 72 in finance is recommended by investment advisors to help investors prevent any sort of delay in achieving their financial goals. The rule basically specifies an investor how long it will take for his or her investment to double. Thus, by applying Rule 72 to your investment instrument, you can determine whether or not the investment strategy can help you to achieve your financial goal. Divide 72 by the interest rate provided by the investment instrument to conclude at the result. For example PPF interest rate is now 7.1 percent, so it will take 10.14 years (72/7.1 = 10.14) to double the money using the Rule 72 calculator, if the PPF interest rate stays constant. The easiest way to do this is to figure out how long each investment instrument takes to double your money. It would be easier to choose a scheme until you know which one will double your money the earliest. Let’s glance at Rule 72 using a bank FD as an example. Let’s say you want to invest Rs 5 lakh in a bank fixed deposit with a 6% interest rate. To calculate the period it will take for Rs 5 lakh to become Rs 10 lakh, divide 72 by the interest rate (6%), 72/6 equals to 12. As a result, if the interest rate on that particular bank FD remains constant for the next 12 years, you will have doubled your money. You can also use this rule in reverse to figure out how much interest rate you’ll need to double your money in a particular period. For instance, suppose you want to double your money in three years. 72 divided by three equals 24. To double your money in three years, you’ll need a 24 percent interest rate. Now let’s apply Rule 72 to different investment vehicles to calculate how much time it will take to double your investments.

Rule 72: Know How Much Time It Takes To Double Your Investment Returns

Bank FD: At present banks leading banks such as SBI, HDFC, Axis and ICICI banks are providing an interest rate at around 5%. Hence, by applying Rule 72 (72/5) it will take over 14 years for your money to double.

Public Provident Fund (PPF): The current PPF interest rate is 7.1 percent per annum. If the PPF interest rate stays constant, the capital will double in around 10 years, as 72/7.1 equals to 10.14.

Sukanya Samriddhi Yojana (SSY): At present SSY is providing an interest rate of 7.6%. If the interest rate remains constant, it will take approximately 9.4 years for the investment to double, as 72/7.6 equals to 9.47.

Kisan Vikas Patra (KVP): KVP has a current interest rate of 6.9%, which is compounded yearly. In ten years and four months, KVP promises to nearly double your investment. At the present interest rate of 6.9%, it will take 10.43 years to double your money using the Rule of 72.

National Savings Certificate (NSC): The interest rate on National Savings Certificates is presently 6.8%. If the rate stays unchanged in the future, it will take 10.5 years for your contributions to double.

Rule 72 does not have a precise figure, but it does ensure that one has a rough estimate of his or her investment objective and the time required to achieve it. The thumb rule is typically applied to fixed-rate investments rather than volatile asset categories such as stocks, mutual funds, and so on.



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Rule 72: Know How Much Time It Takes To Double Your Investments

Personal Finance

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Read More/Less


Planning

oi-Vipul Das

|

Rule 72 in finance is recommended by investment advisors to help investors prevent any sort of delay in achieving their financial goals. The rule basically specifies an investor how long it will take for his or her investment to double. Thus, by applying Rule 72 to your investment instrument, you can determine whether or not the investment strategy can help you to achieve your financial goal. Divide 72 by the interest rate provided by the investment instrument to conclude at the result. For example PPF interest rate is now 7.1 percent, so it will take 10.14 years (72/7.1 = 10.14) to double the money using the Rule 72 calculator, if the PPF interest rate stays constant. The easiest way to do this is to figure out how long each investment instrument takes to double your money. It would be easier to choose a scheme until you know which one will double your money the earliest. Let’s glance at Rule 72 using a bank FD as an example. Let’s say you want to invest Rs 5 lakh in a bank fixed deposit with a 6% interest rate. To calculate the period it will take for Rs 5 lakh to become Rs 10 lakh, divide 72 by the interest rate (6%), 72/6 equals to 12. As a result, if the interest rate on that particular bank FD remains constant for the next 12 years, you will have doubled your money. You can also use this rule in reverse to figure out how much interest rate you’ll need to double your money in a particular period. For instance, suppose you want to double your money in three years. 72 divided by three equals 24. To double your money in three years, you’ll need a 24 percent interest rate. Now let’s apply Rule 72 to different investment vehicles to calculate how much time it will take to double your investments.

Rule 72: Know How Much Time It Takes To Double Your Investments

Bank FD: At present banks leading banks such as SBI, HDFC, Axis and ICICI banks are providing an interest rate at around 5%. Hence, by applying Rule 72 (72/5) it will take over 14 years for your money to double.

Public Provident Fund (PPF): The current PPF interest rate is 7.1 percent per annum. If the PPF interest rate stays constant, the capital will double in around 10 years, as 72/7.1 equals to 10.14.

Sukanya Samriddhi Yojana (SSY): At present SSY is providing an interest rate of 7.6%. If the interest rate remains constant, it will take approximately 9.4 years for the investment to double, as 72/7.6 equals to 9.47.

Kisan Vikas Patra (KVP): KVP has a current interest rate of 6.9%, which is compounded yearly. In ten years and four months, KVP promises to nearly double your investment. At the present interest rate of 6.9%, it will take 10.43 years to double your money using the Rule of 72.

National Savings Certificate (NSC): The interest rate on National Savings Certificates is presently 6.8%. If the rate stays unchanged in the future, it will take 10.5 years for your contributions to double.

Rule 72 does not have a precise figure, but it does ensure that one has a rough estimate of his or her investment objective and the time required to achieve it. The thumb rule is typically applied to fixed-rate investments rather than volatile asset categories such as stocks, mutual funds, and so on.



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Understanding Gold Hallmark, KDM, 916 Gold Before buying

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What is Gold Hallmarking?

Hallmark is a sure way to ensure that the jewels you purchase are of good quality. Every hallmarked jewel is checked for purity at a BIS-approved assaying facility, and if it passes, a laser engraving is done to label the jewel. Hallmark gold is certified gold that has undergone quality control and assurance process known as hallmarking. This process of hallmarking is carried out by the Bureau of Indian Standards (BIS), a government of India agency, to certify the purity and fineness of a gold object. The standard BIS Logo, Purity in Karat and Fineness, the Assaying and Hallmarking Centre’s logo or number, and the Jeweller’s Identification mark or logo are lasers etched on hallmarked gold pieces.

BIS Signs of hallmarking:

  1. The standard BIS Logo The Assaying
  2. Hallmarking Center’s logo/number
  3. The Jeweller’s Identification mark/logo
  4. Purity Mark in Karat and Fineness
  • 22K916 – Equal to 22 Carat
  • 18K750 – Equal to 18 Carat
  • 14K585 – Equal to 14 Carat

What does the 916 mark on Gold mean?

What does the 916 mark on Gold mean?

‘BIS 916’ gold is 22 Karat hallmarked gold, with the number 916 denoting the purity of gold in the final product. Similarly, 958 gold denotes 23 karat gold, while 750 gold denotes 18 karat gold. Simply put, 916 reflects the finesse of gold jewellery, with 91.6 grams of gold per 100 grams. The number 916 represents 22 carats (22 24 = 916). If you’re curious why diamonds aren’t made of pure gold, it’s because pure gold is too delicate to be worn as jewellery. While some 99 percent pure jewellery can be made with special alloys, delicate workmanship and intricate designs are impossible to achieve in pure gold. Delicate designs, on the other hand, are made of 22 Karat or BIS 916 Gold, which is more durable than pure gold (24K) and has a higher purity content than 18K or 14K gold.

KDM Gold

KDM Gold

Let’s assume you bought a piece of 22-karat gold jewellery that was crafted using this KDM process. As a result, when you sell this jewellery, the purity of the gold will be lower. You may have noticed that older jewellery is certified as 22/20 carat purity, which means that the jewellery was 22 carats purity when purchased and would be 20 carats purity after melting. The benefit of KDM is a combination of gold and cadmium could be combined in a ratio of 92 percent + 8%, yielding a purity count of 92 percent. This ensured that the jewellery piece’s consistency and finesse remained consistent regardless of the amount of solder used. The cadmium-soldered gold became known as KDM gold, and the jewellery made of it became known as KDM jewellery. The BIS, on the other hand, has prohibited such gold from circulation because it has been found to cause health problems in both artisans who work with it and those who wear it.

Difference Between Gold Hallmarking, 916 BIS, KDM

Difference Between Gold Hallmarking, 916 BIS, KDM

Hallmark Jewellery: The Hallmark signature guarantees that the gold you’ve purchased meets a set of requirements.

916 jewellery: 916 is also known as 22K gold, which means there were 91.6 grams of gold in every 100 grams of alloy.

KDM jewellery: KDM jewellery is a gold alloy in which cadmium is used as solder or filler, with a 92% gold to 8% cadmium ratio.

From June 1, 2021, the government has made it mandatory for jewellers to only sell hallmarked gold. The deadline for this was originally set for January 15, but it was delayed due to Covid-19.



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Coinbase hangover rattles crypto assets with bitcoin in free fall, BFSI News, ET BFSI

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The mania that drove crypto assets to records as Coinbase Global Inc. went public last week turned on itself on the weekend, sending Bitcoin tumbling the most since February.

The world’s biggest cryptocurrency plunged as much as 15% on Sunday, just days after reaching a record of $64,869. It subsequently pared some of the losses and was trading at about $56,440 at around 8:25 a.m. in Tokyo Monday.

Ether, the second-biggest token, dropped as much as 18% to below $2,000 before also paring losses. The volatility buffeted Binance Coin, XRP and Cardano too. Dogecoin — the token started as a joke — bucked the trend and is up 7% over 24 hours, according to CoinGecko.

The weekend carnage came after a heady period for the industry that saw the value of all coins surge past $2.25 trillion amid a frenzy of demand for all things crypto in the runup to Coinbase’s direct listing on Wednesday. The largest U.S. crypto exchange ended the week valued at $68 billion, more than the owner of the New York Stock Exchange.

“With hindsight it was inevitable,” Galaxy Digital founder Michael Novogratz said in a tweet Sunday. “Markets got too excited around $Coin direct listing. Basis blowing out, coins like $BSV, $XRP and $DOGE pumping. All were signs that the market got too one way.”

Dogecoin, which has limited use and no fundamentals, rallied last week to be worth about $50 billion at one point before stumbling Saturday. Demand was so brisk for the token that investors trying to trade it on Robinhood crashed the site a few times Friday, the online exchange said in a blog post.

There was also speculation Sunday in several online reports that the crypto plunge was related to concerns the U.S. Treasury may crack down on money laundering carried out through digital assets. The Treasury declined to comment, and its Financial Crimes Enforcement Network (FinCEN) said in an emailed response on Sunday that it “does not comment on potential investigations, including on whether or not one exists.”

‘Price to Pay’
“The crypto world is waking up with a bit of a sore head today,” said Antoni Trenchev, co-founder of crypto lender Nexo. “Dogecoin’s 100% Friday rally was ‘peak party,’ after the Bitcoin record and Coinbase listing earlier in the week. Euphoria was in the air. And usually in the crypto world, there’s a price to pay when that happens.”

Besides the “unsubstantiated” report of a U.S. Treasury crackdown, Trenchev said factors for the declines may have included “excess leverage, Coinbase insiders dumping equity after the direct listing and a mass outage in China’s Xinjiang province hitting Bitcoin miners.”

Growing mainstream acceptance of cryptocurrencies has spurred Bitcoin’s rally, as well as lifting other tokens to record highs. Bitcoin’s most ardent proponents see it as a modern-day store of value and inflation hedge, while others fear a speculative bubble is building.

Interest in crypto went on the rise again after companies from PayPal to Square started enabling transactions in Bitcoin on their systems, and Wall Street firms like Morgan Stanley moved toward providing access to the tokens to some of the wealthiest clients.

Volatility
That’s despite lingering concerns over their volatility and usefulness as a method of payment. Moreover, governments are inspecting risks around the sector more closely as the investor base widens.

Federal Reserve Chairman Jerome Powell last week said Bitcoin “is a little bit like gold” in that it’s more a vehicle for speculation than making payments. European Central Bank President Christine Lagarde in January took aim at Bitcoin’s role in facilitating criminal activity, saying the cryptocurrency has been enabling “funny business.”

Turkey’s central bank banned the use of cryptocurrencies as a form of payment from April 30, saying the level of anonymity behind the digital tokens brings the risk of “non-recoverable” losses.



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Days after a record high, bitcoin plunges in biggest intraday drop since February, BFSI News, ET BFSI

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Bitcoin plunged the most in more than seven weeks, just days after reaching a record.

The biggest crypto coin fell 10.1% to $54,743.57 as of 7:30 a.m. in New York on Sunday, after declining as much as 15.1% to $51,707.51 in the Asian day. Ether, the second-largest token, dropped almost 18% before paring losses.

Several online reports attributed the plunge to speculation the U.S. Treasury may crack down on money laundering that’s carried out through digital assets.

Bitcoin hit a record high of $64,869.78 last week ahead of the debut trade for the cryptocurrency exchange Coinbase Global Inc. on the Nasdaq exchange Wednesday. Coinbase ended its first trading week on a high note after bullish reviews from Wall Street analysts.

Dogecoin, a token created as a joke and which has been boosted by the likes of Elon Musk and Mark Cuban, rallied more than 110% Friday before dropping the next day. Demand was so brisk for the token that investors trying to trade it on Robinhood crashed the site, the online exchange said in a blog post Friday.

“The crypto world is waking up with a bit of a sore head today,” said Antoni Trenchev, co-founder of crypto lender Nexo. “Dogecoin’s 100% Friday rally was ‘peak party,’ after the Bitcoin record and Coinbase listing earlier in the week. Euphoria was in the air. And usually in the crypto world, there’s a price to pay when that happens.”

Besides the “unsubstantiated” report of a U.S. Treasury crackdown, Trenchev said factors for the declines may have included “excess leverage, Coinbase insiders dumping equity after the direct listing and a mass outage in China’s Xinjiang province hitting Bitcoin miners.”

Growing mainstream acceptance of cryptocurrencies has spurred Bitcoin’s rally, as well as lifted other tokens to record highs. Interest in crypto went on the rise again after companies from PayPal to Square started enabling transactions in Bitcoin on their systems, and Wall Street firms like Morgan Stanley began providing access to the tokens to some of the wealthiest clients. That’s despite lingering concerns over their volatility and usefulness as a method of payment.

Governments are inspecting risks around the sector more closely as the investor base widens.

Federal Reserve Chairman Jerome Powell last week said Bitcoin “is a little bit like gold” in that it’s more a vehicle for speculation than making payments. European Central Bank President Christine Lagarde in January took aim at Bitcoin’s role in facilitating criminal activity, saying the cryptocurrency has been enabling “funny business.”

Turkey’s central bank banned the use of cryptocurrencies as a form of payment from April 30, saying the level of anonymity behind the digital tokens brings the risk of “non-recoverable” losses. India will propose a law that bans cryptocurrencies and fines anyone trading or holding such assets, Reuters reported in March, citing an unidentified senior government official with direct knowledge of the plan.

Crypto firms are beefing up their top ranks to shape the emerging regulatory environment and tackle lingering skepticism about digital tokens. Bitcoin’s most ardent proponents see it as a modern-day store of value and inflation hedge, while others fear a speculative bubble is building.



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7 Best MidCap Mutual Funds That Gave up to 60% Returns in 1 year

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Why Mid-Cap Funds?

Some mid-cap companies cater to niche markets, making them interesting and appealing investment opportunities. They also have a lot of room for growth. Mid-cap growth funds, for example, must have a portfolio that reflects their asset allocation to the mid-cap sector with a growth-oriented investing style. This makes it easier for investors to equate funds with similar objectives. Since market capitalization varies with stock price movement on the exchange, portfolio balancing must be performed on a regular basis.

Mid-cap mutual funds have higher returns than large-cap funds while avoiding the risks associated with small-cap funds. Look beyond the most recent 3-5 year returns for continuity of results over longer periods and compare them to appropriate benchmark returns when selecting the best mid-cap Mutual Funds.

Mid-cap companies are constantly increasing and expanding; this opportunity for growth is what drives NAV, which drives investment returns. Mid-cap stocks have shown to respond aggressively to market corrections in the past.

7 Best Performing MidCap Mutual Funds

7 Best Performing MidCap Mutual Funds

Name of Funds 1 Year Return 3-Year Return
PGIM 102.5% 17.81%
Axis Midcap 60% 17.7%
InvescoIndia 62.87% 12.90%
Kotak Emerging 83.20% 13.21%
Mahindra Unnati 67.77% 12.64%
Tata Mid Cap 70.97% 12.96%
Nippon India Growth Fund 73.87% 11.59%

PGIM India Midcap Opportunities India

PGIM India Midcap Opportunities India

Crisil has given this fund a Rank 1 status, while Value Research has given it a 5-star rating. In terms of returns, the fund has performed admirably in recent years. In reality, the fund has returned a whopping 102.5% in the last year, and the three-year returns are 17.85% on an annualized basis. A Rs 1000 minimum SIP investment is required to begin an investment. Under the growth strategy, the net asset value(NAV) of PGIM India Midcap Opportunities Fund is Rs 33.88.

Axis Midcap Fund

Axis Midcap Fund

Crisil has given this fund a Rank 1 status, while Value Research has given it a 5-star rating. The fund return is 55.5% in the last year, and the three-year returns are 16.76% on an annualized basis. The fund size is Rs 432 Crore and the expense ratio stands at 0.51%. The risk associated with this fund is high and NAV as of April 13, is Rs 59.27.

Invesco India Mid Cap Fund

Crisil has given this fund a Rank 2 status, while Value Research has given it a 4-star rating. The fund return is 64.29% in the last year, and the three-year returns are 13.38% on an annualized basis. The fund size is Rs 1,389 Crore and the expenses ratio stands at 0.73%. The risk associated with this fund is high and NAV as of April 13, is Rs 76.58.

Voltas, Mphasis, Sundaram, and Endurance are some of the top holdings of the fund.

Kotak Emerging Fund

Kotak Emerging Fund

Crisil has given this fund a Rank 3 status, while Value Research has given it a 4-star rating. The fund return is 86.22% in the last year, and the three-year returns are 13.22% on an annualized basis. The fund size is Rs 10,938 Crore and the expense ratio stands at 0.55%. The risk associated with this fund is high and NAV as of April 13, is Rs 62.97.

Tata Mid Cap Growth Fund

Crisil has given this fund a Rank 2 status, while Value Research has given it a 3-star rating. In the previous year, the fund returned 69.50% on an annualized basis, and 12.74% in the previous three years. The fund size is Rs 1,129 Crore and the expenses ratio stands at 1.15%. The risk associated with this fund is high and NAV as of April 13, is Rs 208.34.

The top holdings of the company are Voltas, Cholamandalam Investments, Tata Power, and Jubilant Foodworks. The fund holds 97.2% in equity and remaining in cash.

Mahindra Unnati Midcap funds

Mahindra Unnati Midcap funds

Value Research has given it a 4-star rating. In the previous year, the fund returned 67.43% and 12.44% in the previous three years on an annualized basis. The minimum SIP amount that can be invested is Rs 500. If you had invested Rs 5000 per month one year back, now the return would have been Rs 76,825.

The fund size is Rs 631 Crore and the expenses ratio stands at 0.85%. The risk associated with this fund is high and NAV as of April 13, is Rs 14.09.

Nippon India Growth Fund

Nippon India Growth Fund

Crisil has given this fund a Rank 3 status, while Value Research has given it a 4-star rating. In the previous year, the fund generated 76.63% returns and 11.61% in the previous three years on an annualized basis.

If you had invested Rs 5000 lump sum one year back, your returns would have been at Rs 8,682.



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Tax query: Does inheritance attract income tax?

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My wife has received some money being the second holder in an FD with her mother (now deceased). The FD maturity amount is to be shared with all her brothers and sisters, as per the legal heir certificate (there is no will). As of now, the bank has deleted the name of the first holder on submitting the death certificate. How does she account for these amounts? Already a portion was shared but the entire TDS isn’t being shown in her name.

HH BernardAs per the provisions of Section 56(2)(x) of the Income-tax Act, 1961 (‘the Act’), a sum of money received by way of inheritance should not be considered as taxable in the hands of the recipient. Thus, money received by your wife as legal heir of her mother shall not be taxable in her hands. Her share of such receipt will be required to be considered by her as an exempt income and accordingly reported while filing her tax return for the subject year. Regarding claim of TDS, your wife will be required to claim credit of her share of proportionate TDS in her hands along with proportionate share of interest income, and the balance TDS (for siblings’ share) will be required to be passed on to respective siblings. Such bifurcation must be appropriately reported in your wife’s income-tax return form (under TDS schedule) for the financial year in which tax has been deducted.

My father-in-law (78 years) is a retired government official earning a monthly pension from Central Government. Is he eligible to invest under PMVVYor SCSS? What are the tax benefits/liabilities, if any, subject to his eligibility?

Ashim Sanyal

The primary eligibility criteria for both the schemes mentioned by you i.e. Pradhan Mantri Vaya Vandana Yojana (PMVVY) and Senior Citizen Savings Scheme (SCSS), is that the individual opening the account should be 60 years of age or more. The schemes do not have any restriction on the maximum entry age or for retired central government employees. NRIs/ HUFs are not eligible for SCSS. As your father-in-law is 78 years of age and assuming he is a resident in India (pre-requisite for SCSS), he shall be eligible to invest in both the scheme.

Both schemes do not provide any tax benefits at the time of making investments. The pension received from the scheme shall also be taxable in the recipient’s hand at applicable slab rates, as ‘Income from Other Sources’.

I have invested around ₹4 lakh in some mutual fund schemes, all being regular plans with dividend options. They have deducted tax on the dividend amounts paid during financial year 2020-2021. Will the mutual funds issue Form 16A and will the details of taxes deducted and remitted to the Government be reflected in Form 26AS of the tax department? Also, can I claim refund of the tax so deducted on filing my return of income? Please clarify.

J R Ravindranath

As per section 194K of the Income-tax Act, 1961, any person, making payment of dividend from mutual funds, shall at the time of credit of such income or at the time of making payment (exceeding ₹5,000), whichever is earlier, shall deduct tax at source (TDS) at 10 per cent. The deductor is required to file the details of such TDS in quarterly withholding tax statement (Form 26Q) and TDS certificate (in Form 16A) is required to be issued by the deductor within prescribed timelines. Details of such income and corresponding TDS shall reflect in your Form 26AS for FY 2020-21. You can file an income tax return and show your dividend income as also any other income which needs to be declared. Basis your taxable income and resultant tax payable, you can claim credit for TDS on dividend and claim a refund, if any.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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Are floating-rate investment options a better bet?

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A phone call between two friends leads to a conversation about the interest rates offered by various debt options and whether they stay fixed or vary during the tenure of the instrument.

Karthik: Hey, have you noticed that in the last couple of months the markets have rallied like there is no tomorrow?

Akhila: Oh, yeah. And after much thinking, I finally booked profits on some of my equity holdings last week.

Karthik: Where are you planning to park these funds now?

Akhila: I would like to invest them for the long-term in Public Provident Fund (PPF), a post office savings scheme.

Karthik: That’s a good option.

Akhila: But I am concerned that my investment will get locked in at the current interest rate. I have been reading that interest rates in the economy may inch up going ahead.

Karthik: Don’t worry. The interest payable on PPF is revised by the Central government every quarter.

Akhila: Oh! So the interest rate offered on my PPF investment changes every quarter?

Karthik: Yes. Interest on your entire PPF corpus is calculated each quarter based on the latest quarterly rate. This interest gets credited to the account at the end of each financial year and compounds annually.

Akhila: What are the other small savings schemes for which interest offered is not fixed? I mean, the schemes where the investment amount is not locked in at the rate applicable on the date of investment?

Karthik: The interest rate on Sukanya Samriddhi Yojana (SSY) also resets quarterly, and the new rate announced each quarter applies to the accumulated corpus.

Akhila: What are these interest rates based on?

Karthik: The interest rates on PPF and SSY are supposed to be 0.25 per cent and 0.75 per cent, respectively, over the average G-Sec yield in the previous year.

Akhila: Is it? Looks like the current interest rates on these schemes are higher than what they should have been as per the formula.

Karthik: Yeah, the government has been putting off cutting the interest rates on small savings schemes.

Akhila: Phew! Anyways, tell me are they any other floating rate savings instruments?

Karthik: The Floating Rate Savings Bonds (FRSBs) 2020 issued by the RBI and backed by the government is another such instrument. The interest rate on this bond (now 7.15%) is set at a 35 basis points spread over the prevailing NSC (National Savings Certificate) rate and is reset half-yearly. There are floating rate debt funds as well which invest in a mix of floating-rate debt instruments and fixed-rate debt papers converted into floating-rate ones using interest-rate swaps.

Akhila: Got it. Thank you.

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Why HDFC deposits are a safe option for senior citizens

Personal Finance

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The prevailing low interest rates on deposits have been pinching senior citizens the most. Seniors who are more keen on capital conservation than higher interest rates can consider the deposits from HDFC. Currently, HDFC offers seniors 6.1 per cent interest for 24-month deposits

Depositors who wish to get regular payouts can opt for the non-cumulative option, with monthly/quarterly/half yearly or annual payouts. Those who don’t need regular payouts, can instead opt for the cumulative option which offers annual compounding.

The minimum amount that can be deposited with HDFC for a fixed deposit is ₹20,000.

While the deposits of HDFC, an NBFC, are not covered by deposit insurance (bank deposits of up to ₹5 lakh are covered by DICGC), its 40-year plus stable business provides significant confidence. Besides, the company has been maintaining a AAA rating on its deposits for more than 26 years.

How they fare

As interest rates have almost bottomed out, they are likely to inch up in the next two to three years. Hence, at the current juncture, it is wise to lock into deposits with a tenure of one or two years.

For such tenures, HDFC offers seniors better interest rates than those offered by prominent banks such as SBI (up to 5.6 per cent), HDFC Bank (up to 5.4 per cent), ICICI Bank (up to 5.5 per cent) and Axis Bank (up to 6.05 per cent), which are considered safest options among banks.

Other private sector banks and small finance banks, however, offer even higher rates (up to 7.5 per cent) for one to two year deposits. The recent debacles at YES Bank and other co-operative banks have stoked fear in the minds of depositors. Given that, seniors may prefer safety of capital over the lure of higher rates.

HDFC also offers better rates compared to corporate FDs with similar ratings from other NBFCs such as LIC Housing Finance, that offers up to 5.9 per cent for a tenure of up to 2 years.

About HDFC

Incorporated in 1977, HDFC, a housing finance company currently offers loans to individuals (comprising 76 per cent of the loan book) and corporates (6 per cent). HDFC also lends for construction finance (11 per cent) and lease rental discounting (7 per cent).

With an outstanding loan book of ₹,52,167 crore as of December 2020, HDFC is India’s largest housing finance company. HDFC’s non-performing assets (proforma) are contained at less than 2 per cent. In addition to that, the company’s provisions (cumulative including those related to covid) cover up to 2.56 per cent of the loan book exposure.

As at the end of December 31, 2020, HDFC’s capital adequacy ratio stood at 20.9 per cent, well above the regulatory requirement of just 14 per cent.

HDFC also has several financial subsidiaries –prominent ones among them are HDFC Bank, HDFC Asset Management Company, HDFC Life Insurance, HDFC Credila and HDFC Ergo. Its consolidated profits at the end of the first nine months of FY21 stood at ₹1,33,900 crore.

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