Category: Personal Finance

Thinking To Invest In Gold: This Can Be The Safest And Simplest Way-Know All About The Option

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Investment

oi-Roshni Agarwal

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After phenomenal gains in the previous year i.e. 2020 owing to lot of uncertainties in the world to the tune of 28% from gold, you may expect gains to come in, yes you are right, analysts also expect the precious yellow metal to reap in good return this year too but probably not of the same scale as last year’s.

And other than the gains, there is one more reason that you may be pushed to invest in the yellow metal at this point in time, as global central banks are resorting to push liquidity and with there is a threat of inflation. And to beat this inflation risk, gold serves as a good hedge. Of late amid easing of US inflation, there was seen some softness in gold.

So, now it has been over 5 years time, since the government has been promoting financial investment into gold with the introduction of Sovereign gold bonds or SGBs, there is another investment option in gold i.e. Gold ETFs is gaining interest among investors. And after a precise offloading from the investment option, again in the January month, there has been seen record inflows into Gold ETFs as per the data by AMFI. During this time there was correction seen in gold prices, which anticipating better returns, entered into the precious metal.

Gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws its safe-haven appeal, as has been evident since 2019, said Morning Star’s Srivastava.

Now here is all that you need to know about Gold ETFs:

Now here is all that you need to know about Gold ETFs:

If you want high liquidity from your gold investment, you can take on to Gold ETFs which can be purchased if you maintain a demat account. Also, for the convenience of investors, they are also allowed an option to invest in them as SIPs.

Why Gold ETFs ?

Why Gold ETFs ?

At present, personal finance experts when advising gold investment highly recommend SGBs for the interest component besides capital appreciation and other benefits. Nonetheless, what comes into play in the case of Gold ETFs is that it offers high liquidity similar to physical gold and with a longer tenure offers a good return.

Gold ETFs- taxation aspect

Gold ETFs- taxation aspect

The ideal situation or to reap the best from the gold ETFs, investors should ideally hold it for a period of 3 years and more as if held for less than 3 years, it attracts short term capital gains tax implications. While for a period of over 3 years, there arises long term capital gains tax implication. Here we cannot ignore the SGBs that come with an advantage, i.e. proceeds from the investment if held until maturity i.e. 8 years term, there is no capital gains tax liability on it.

Pointers that can optimize your returns from Gold ETFs:

Pointers that can optimize your returns from Gold ETFs:

1. Note that the ETF you are investing into is not a small fund with low liquidity: So other than the expense ratio of the Gold ETF, you need to also factor in the fund size. Such that you are offer good liquidity, one of the few important reasons because of which you invested into Gold ETF.

2. Gold ETFs should be purchased at market price: Investors need not place several bids for the instrument and maintain their overall allocation into gold not over 15%.

GoodReturns.in



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SBI vs BOB vs ICICI vs HDFC: FD Rates Compared For Senior Citizens

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SBI Special FD Scheme For Senior Citizens

The SBI special FD scheme for elderly people will offer interest rates at 80 basis points (bps) above the rate available to the regular investors. Currently, SBI offers the general public a 5.4 per cent interest rate on five years FD. Whereas under the special FD scheme the current interest rate is capped at 6.20% for senior citizens.

HDFC Bank Special FD Scheme For Senior Citizens

HDFC Bank provides a higher interest rate of 75 bps on these special deposits. This implies that under HDFC Bank Senior Citizen Care FD senior citizens will get good returns of 6.25%.

ICICI Bank Special FD Scheme For Senior Citizens

ICICI Bank Special FD Scheme For Senior Citizens

ICICI Bank gives a higher interest rate of 80 bps on such deposits. The ICICI Bank Golden Years FD scheme proposes an interest rate of 6.30 per cent per annum for senior citizens.

Bank of Baroda Special FD Scheme For Senior Citizens

Bank of Baroda (BoB) is providing senior citizens 100 bps more on these deposits. If a senior citizen deposit in this scheme, the interest rate available to the FD will be 6.25 per cent under the special FD scheme which comes with a tenure of above 5 years to up to 10 years.

SBI Senior Citizen FD Rates

SBI Senior Citizen FD Rates

The interest rates for term deposits below Rs 2 Cr has been updated on 08.1.21. The new SBI FD rates are as follows:

Tenure ROI
7 days to 45 days 3.4
46 days to 179 days 4.4
180 days to 210 days 4.9
211 days to less than 1 year 4.9
1 year to less than 2 year 5.5
2 years to less than 3 years 5.6
3 years to less than 5 years 5.8
5 years and up to 10 years 6.2

HDFC Bank FD Rates For Senior Citizens

HDFC Bank FD Rates For Senior Citizens

The below-listed HDFC Bank term deposit rates for senior citizens are applicable for a deposit amount below Rs 2 Cr and are in force from 13 Nov 2020.

Tenure ROI
7 – 14 days 3.00%
15 – 29 days 3.00%
30 – 45 days 3.50%
46 – 60 days 3.50%
61 – 90 days 3.50%
91 days – 6 months 4.00%
6 months 1 day – 9 months 4.90%
9 months 1 day < 1 Year 4.90%
1 Year 5.40%
1 year 1 day – 2 years 5.40%
2 years 1 day – 3 years 5.65%
3 year 1 day- 5 years 5.80%
5 years 1 day – 10 years 6.25%

ICICI Bank Senior Citizen FD Rates

ICICI Bank Senior Citizen FD Rates

ICICI Bank FD rates for senior citizens are last updated on Oct 21, 2020. The below-given rates are for a deposit amount of Rs 2 Cr.

Tenure ROI
7 days to 14 days 3.00%
15 days to 29 days 3.00%
30 days to 45 days 3.50%
46 days to 60 days 3.50%
61 days to 90 days 3.50%
91 days to 120 days 4.00%
121 days to 184 days 4.00%
185 days to 210 days 4.90%
211 days to 270 days 4.90%
271 days to 289 days 4.90%
290 days to less than 1 year 4.90%
1 year to 389 days 5.40%
390 days to < 18 months 5.40%
18 months days to 2 years 5.50%
2 years 1 day to 3 years 5.65%
3 years 1 day to 5 years 5.85%
5 years 1 day to 10 years 6.30%
5 Years Tax Saving FD 5.85%

Bank of Baroda Senior Citizen FD Rates

Bank of Baroda Senior Citizen FD Rates

The below given BOB term deposit rates are applicable for below Rs 2 Cr (w.e.f. 16/11/20).

Tenure ROI
7 days to 14 days 3.30%
15 days to 45 days 3.30%
46 days to 90 days 4.20%
91 days to 180 days 4.20%
181 days to 270 days 4.80%
271 days & above and less than 1 year 4.90%
1 year 5.40%
Above 1 year to 400 days 5.50%
Above 400 days and up to 2 Years 5.50%
Above 2 Years and up to 3 Years 5.60%
Above 3 Years and up to 5 Years 5.75%
Above 5 Years and up to 10 Years 6.25%
Above 10 years 6.10%



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SBI vs BOB vs ICICI vs HDFC: FD Rates Compared For Senior Citizens

Personal Finance

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SBI Special FD Scheme For Senior Citizens

The SBI special FD scheme for elderly people will offer interest rates at 80 basis points (bps) above the rate available to the regular investors. Currently, SBI offers the general public a 5.4 per cent interest rate on five years FD. Whereas under the special FD scheme the current interest rate is capped at 6.20% for senior citizens.

HDFC Bank Special FD Scheme For Senior Citizens

HDFC Bank provides a higher interest rate of 75 bps on these special deposits. This implies that under HDFC Bank Senior Citizen Care FD senior citizens will get good returns of 6.25%.

ICICI Bank Special FD Scheme For Senior Citizens

ICICI Bank Special FD Scheme For Senior Citizens

ICICI Bank gives a higher interest rate of 80 bps on such deposits. The ICICI Bank Golden Years FD scheme proposes an interest rate of 6.30 per cent per annum for senior citizens.

Bank of Baroda Special FD Scheme For Senior Citizens

Bank of Baroda (BoB) is providing senior citizens 100 bps more on these deposits. If a senior citizen deposit in this scheme, the interest rate available to the FD will be 6.25 per cent under the special FD scheme which comes with a tenure of above 5 years to up to 10 years.

SBI Senior Citizen FD Rates

SBI Senior Citizen FD Rates

The interest rates for term deposits below Rs 2 Cr has been updated on 08.1.21. The new SBI FD rates are as follows:

Tenure ROI
7 days to 45 days 3.4
46 days to 179 days 4.4
180 days to 210 days 4.9
211 days to less than 1 year 4.9
1 year to less than 2 year 5.5
2 years to less than 3 years 5.6
3 years to less than 5 years 5.8
5 years and up to 10 years 6.2

HDFC Bank FD Rates For Senior Citizens

HDFC Bank FD Rates For Senior Citizens

The below-listed HDFC Bank term deposit rates for senior citizens are applicable for a deposit amount below Rs 2 Cr and are in force from 13 Nov 2020.

Tenure ROI
7 – 14 days 3.00%
15 – 29 days 3.00%
30 – 45 days 3.50%
46 – 60 days 3.50%
61 – 90 days 3.50%
91 days – 6 months 4.00%
6 months 1 day – 9 months 4.90%
9 months 1 day < 1 Year 4.90%
1 Year 5.40%
1 year 1 day – 2 years 5.40%
2 years 1 day – 3 years 5.65%
3 year 1 day- 5 years 5.80%
5 years 1 day – 10 years 6.25%

ICICI Bank Senior Citizen FD Rates

ICICI Bank Senior Citizen FD Rates

ICICI Bank FD rates for senior citizens are last updated on Oct 21, 2020. The below-given rates are for a deposit amount of Rs 2 Cr.

Tenure ROI
7 days to 14 days 3.00%
15 days to 29 days 3.00%
30 days to 45 days 3.50%
46 days to 60 days 3.50%
61 days to 90 days 3.50%
91 days to 120 days 4.00%
121 days to 184 days 4.00%
185 days to 210 days 4.90%
211 days to 270 days 4.90%
271 days to 289 days 4.90%
290 days to less than 1 year 4.90%
1 year to 389 days 5.40%
390 days to < 18 months 5.40%
18 months days to 2 years 5.50%
2 years 1 day to 3 years 5.65%
3 years 1 day to 5 years 5.85%
5 years 1 day to 10 years 6.30%
5 Years Tax Saving FD 5.85%

Bank of Baroda Senior Citizen FD Rates

Bank of Baroda Senior Citizen FD Rates

The below given BOB term deposit rates are applicable for below Rs 2 Cr (w.e.f. 16/11/20).

Tenure ROI
7 days to 14 days 3.30%
15 days to 45 days 3.30%
46 days to 90 days 4.20%
91 days to 180 days 4.20%
181 days to 270 days 4.80%
271 days & above and less than 1 year 4.90%
1 year 5.40%
Above 1 year to 400 days 5.50%
Above 400 days and up to 2 Years 5.50%
Above 2 Years and up to 3 Years 5.60%
Above 3 Years and up to 5 Years 5.75%
Above 5 Years and up to 10 Years 6.25%
Above 10 years 6.10%



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VPF Or PPF: Where Should I Invest Post Budget Update?

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A glance at VPF

An extension of the Employees’ Provident Fund(EPF) is the Voluntary Provident Fund (VPF). Employees working in registered companies are required to contribute 12% of their basic salary under EPF. Unless the employee retires or is entitled to make a premature withdrawal under a certain provision the contributions towards EPF is locked-in. Voluntary Provident Fund (VPF) here plays the role of an extension which means that if an employee wants to contribute more above the stated limit he or she can do so by considering VPF but the contribution by your employer will be the same.

A glance at PPF

A glance at PPF

One of the most prominent tax-saving strategies under the provisions of Section 80C is the Public Provident Fund (PPF). All types of resident individuals whether unemployed, minors or employed in an unorganised sector can invest in PPF. By investing in PPF, taxpayers can seek tax exemptions of up to Rs 1,50,000 in a fiscal year. In a year, the minimum contribution cap is restricted at Rs 500 up to an upper limit of Rs 1.5 lakh. The returns provided by PPF are set and covered by sovereign guarantees.

Returns

Returns

For the quarter ending March 2021, the present rate provided on PPF is 7.1 per cent. For the current 2020-21 financial year, the interest rate for the EPF is yet to be announced. The interest rate on the EPF has been placed at 8.5% for the 2019-20 fiscal year. The odds of receiving a stronger interest rate are good with the above depending on the historical interest rates provided by both the PPF and the VPF.

Minimum and maximum contribution limit

Minimum and maximum contribution limit

You have to contribute a minimum of Rs 500 and up to an upper limit of Rs 1.5 lakh towards PPF. Your account will become ‘inactive’ if you fail to make the minimum contribution amount per year. Such restriction of minimum or maximum contribution does not exist for VPF. The overall contribution in EPF and VPF combined, though, is restricted to 100% of your basic salary plus dearness allowance.

Tenure

Tenure

Under PPF, the investment period is fifteen years which can be further extended to a block of 5 years. On the other side, VPF is known to be among the best retirement funds, so all the EPF withdrawal guidelines always apply to VPF. After superannuation, you can withdraw the entire EPF corpus. One needs to retire from employment after hitting 55 years of age in order to receive the final EPF settlement.

Tax treatment post budget update 21-22

Tax treatment post budget update 21-22

VPF also promises deductions under section 80C of the Income-tax Act, 1961 up to Rs 1.5 lakh in a particular fiscal year when it comes to tax-free benefit on the deposit amount, much like EPF. This exemption is also offered by PPF. VPF also promises deductions under section 80C of the Income-tax Act, 1961 up to Rs 1.5 lakh in a particular fiscal year when it comes to tax-free benefit on the investment number, much like EPF. This exemption is also offered by the PPF, too. That being said, there are variations in the tax treatment of returns received on these two investment vehicles. For PPF, the overall return received is exempted from taxation, but not more than Rs 1.5 lakh can be invested per year. There is a proposal in Budget 2021 to restrict the deduction on return received on VPF. In compliance with the proposal, if the contribution in the VPF and the EPF placed together in the financial year crosses Rs 2.5 lakh, the returns received on the contribution exceeding Rs 2.5 lakh will not be exempted from taxation.

Premature withdrawal facilities

Premature withdrawal facilities

After five years from the end of the fiscal year in which the first contribution is rendered the PPF facilitates partial withdrawal. From three years to six years from the account opening date, you can even get a loan against your PPF account. In the event of unemployment for more than two months, the entire VPF amount can well be withdrawn. For many particular reasons, such as medical emergencies, building or purchasing of a new house, house reconstruction, home loan settlement and marriage, you can make a partial withdrawal.

Our take

Our take

As we all know that Budget 2021 introduced levying tax on interest received on an individual’s contribution over Rs 2.5 lakh to a provident fund in a fiscal year. On a straightforward interpretation of the budget statements, it brings to us that the interest received on contributions made to the Employees’ Provident Fund (EPF), the Voluntary Provident Fund (VPF) and the Public Provident Fund (PPF) will be subject to taxation. That being said, in the context of EPF and VPF contributions, in order to benefit from tax exemption on interest received on EPF and VPF contributions, the amount of contributions to both EPF and VPF should not surpass Rs 2,5 lakh in a fiscal year. If in a fiscal year, the cumulative contribution of an employee to EPF and VPF together crosses Rs 2.5 lakh in a financial year, the interest received on the additional contribution will be taxable to the employee.

Under Section 80C of the Income Tax Act, 1961, PPF contributions rendered in a year are eligible for tax deductions. The permissible deposit cap for PPF accounts is also Rs.1.5 lakhs a year, so all contributions rendered towards PPF account can be claimed as exemptions under section 80C. A cumulative deduction of Rs.1.5 lakhs per year inclusive of all investment vehicles is allowed in Section 80C. PPF provides other tax advantages as well i.e. EEE benefits. It is possible to open a PPF account at approved branches of the Post Office and banks. Most of the banks such as SBI already have the service to open an online PPF account where holders can even make deposits online. You need to contact your organization’s HR department to register for VPF. One that provides you with the best return at the lowest cost is a successful investment opportunity. Both the VPF and the PPF have a sovereign guarantee, but there is no distinction in terms of risk. Both are known to be secure investment strategies for regular income. If you are willing to make a stable retirement fund VPF can be a good bet for you whereas PPF will be the best if you are going to save for your child’s education, marriage, medical issues and so on. In case you have a higher tax slab rate and are trying to contribute higher amounts for tax-free gains, both alternatives can be considered at a time.



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Choose the right way to transfer property

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Owning a home means many things — a roof over your head, an asset whose value may increase over time and a legacy that you can pass on to your near and dear ones. You can transfer the ownership of your property to your family through different ways, depending on your situation. Here is what you should know.

Gift deed

As per Transfer of Property Act 1882, a property is said to be gifted only if it is transferred voluntarily. Also, a gift deed must be unconditional.

You can transfer property as gift to your family or outside of your family. Once a gift deed is executed, it is irrevocable and the transfer of ownership is immediate. Further, if you transfer property via gift deed to close family — spouse, children, parents, sister or brother and grandparents, it is exempt from taxes . But gifts outside of family attract tax. That is, for any property with stamp duty value greater than Rs 50,000, tax is levied on the stamp duty value of the property. It is considered to be income from other sources and is subject to taxation based on the tax slabs.

When a property is transferred as a gift, it attracts stamp duty and registration charges. These costs vary with different States and some in fact, provide concession depending on the relationship. For instance, in Tamil Nadu, if the gift deed is executed in favour of family members (spouse, children and parents), then stamp duty rate is 1 per cent (up to a maximum of ₹25,000) and the registration charge is 1 per cent (up to a maximum of ₹4,000) on the market value of the property. If the property is gifted outside of family, then the stamp duty and registration charges are 7 per cent and 4 per cent, respectively on the market value of the property. In Maharashtra, if the property is gifted within family, the stamp duty works out to be ₹ 200.

You can’t gift a jointly-held property. Further, keep in mind that, gifts in India generally fall under the scrutiny of the tax department and, therefore, it is advisable to not only to maintain documentation but also register the gift deed.

Will

A property can be transferred through a Will as well. But the execution of the Will takes place only after the lifetime of the owner.

Property transfer under a Will is similar to that of a gift deed. However, unlike a gift deed where the ownership takes immediate effect and is irrevocable, a Will can be revoked or replaced any number of times during the lifetime of the person drawing it up. A Will need not be registered, but it is advisable to do so.

Property received under a Will is tax-exempt, even for non-relatives. Raghvendra Nath, Managing Director, Ladderup Wealth Management, says: “If the transfer is within the family, then it is always better to go with Will as inheritance doesn’t attract tax. Alternatively, if it is simply a question of convenience, say, between husband and wife or father and son, then transfer through gift deed makes sense.”

A property said to be transferred by Will only after the death of the owner of the property. However, after the death, the successor(s) needs to apply to the concerned civil authorities with the copy of the Will, succession certificate and death certificate for completing the property transfer process. Unlike other modes of transfer, property transfer through Will may take longer time.

Other modes

You can transfer the property through a relinquishment deed or a partition deed. That is, if you own a property along with other family members (brothers/sisters), and one of them wants to transfer the property to another co-owner, then relinquishment deed is executed. Under this deed, the property is transferred with or without any consideration. This deed attracts capital gains tax but only on the portion of the property that is relinquished, provided a consideration is paid.

Whether a property is relinquished with or without any consideration, stamp duty and registration charges apply at the time of registration but only on the portion that has been relinquished or released. This deed is used in the absence of Will where beneficiaries inherit the property equally.

Another way to transfer is through partition deed where the property is owned jointly by family members. This deed is used to divide the family’s shares in inherited properties. Post the execution of a partition deed, each member becomes an independent owner of his/her share in the property and is legally free to sell, rent or gift the asset. It is mandatory to register a partition deed and stamp duty and registration charges applies at the time of registration. However, a partition deed doesn’t involve payment of any consideration for the property, therefore, there is no tax.

Both relinquishment and partition deeds are irrevocable.

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Money talks to have before saying ‘I do’

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This time around every year, couples try to take the plunge. But money matters often get relegated to the back seat when such life-changing decisions are made. Not discussing financial affairs beforehand can, however, spark fights eventually.

Also, if you have plans to ask someone out, know the few financial aspects you should decide on before you get hitched.

Liability check

Firstly, be sure of each other’s existing financial liabilities. Next, decide on whether you would want to divide the EMI from here on or continue to bear the burden solely. Besides, you can set the tone for your debt preferences going forward. While some may be willing to break the bank for certain experiences, for their money-pinching partners this might seem like a nightmare.

This is where it would be ideal to set goals as a couple. Deciding about the kind of purchases you would want to take on debt for can help avoid conflicts.

Sharing expenses

With financial independence gaining popularity, the question no longer hinges around whether or not to share the expenses. The new-age strife is now more often around how well to split the bills. It would be unjust to divide the bills equally in circumstances where you two earn unequal incomes.

Having an equitable divide in such cases may be more ideal. That is, household expenses can, for instance, be split in proportion to the income of each partner.

Else, you can each pay off certain bills and save the rest for the other partner.

It is also fine if either partner wants to chip in only a certain amount into the household kitty and retain the rest of their income for other personal needs as the case may be.

Coming to a consensus on all of these pain points upfront can keep the two of you away from a lot of unpleasantness later. Whatever your ideal way of splitting the bills is, opening a joint bank account, might come in handy for both of you.

For this, you can continue maintaining your individual bank accounts and transfer (through an auto-sweep facility) only the agreed amounts to the joint account. In this way you can continue to enjoy your financial independence in true letter and spirit.

Also, you must try to set clear boundaries on what expenses would be split among the two of you. This is a smart strategy, which will help keep sore points at bay. in the future.

It would be wise to be open and state clearly one’s choice about financially supporting their family. While one need not seek permission from the other partner for spending on their own family’s needs, it would be wise to not let your couple financial goals take a toll either. Each partner can hence be explicit about the funds they wish to earmark regularly for one’s own family-.

Savings

In most cases, since opposites often attract, couples do not often have the same spending habits. Their economic backgrounds, current level of income and the lifestyle they choose to settle-in for, all play important roles in deciding their saving habits.

It would hence be pragmatic to keep each other in the know of your current spending and saving practices and goals you foresee for the two of you. Asking and sharing your financial goals with your partners also has its benefits. Not only do you get a helping hand by way of extra funds, but you also get to have someone to keep a check on your frivolous spending— just so you can stick to your financial resolutions better.

Insurance

Another important aspect to enquire upfront would be about your partner’s existing insurance cover. If you take loans, you need to provide for them in case of your absence and also not burden your spouse unnecessarily. Ditto if you plan to raise a family. If either partner does not have an existing life cover, you can consider buying a joint policy. The premium amount is usually lower in joint life plans compared to individuals taking two separate plans, though benefits remain the same under both cases.

You must increase your cover as and when your income levels, liabilities and expenses rise. You can also consider a family floater policy instead of individual health plans.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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How to analyse rolling returns

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When adding a new financial product or asset to your portfolio, how do you weigh up its potential returns against risks? A mistake many novice investors make is to rely entirely on its point-to-point returns to gauge its risk-reward profile. But decisions based on the recent record of an asset can backfire badly.

Looking at the trailing-return record today, you would probably pick equity funds with a five-year CAGR of 16 per cent over gold ETFs with less than 10 per cent. Long duration debt funds (five-year CAGR 9.6 per cent) would look superior to low short duration ones (6 per cent). But these returns can change if there’s a correction in the bull market or if rates begin to rise after falling for six years.

How they work

Rolling return analysis helps remove the distortions created by fixed-date comparisons and to understand the true risk-reward profile of an asset.

Unlike trailing returns which rely on a specific start and end date, rolling returns capture the returns on an asset between multiple starts and end-dates. A 10-year rolling return analysis of the Nifty50 today on a monthly basis would calculate Nifty returns from January 2010 to January 2020, December 2009 to December 2019, November 2009 to November 2019 and so on.

The many rolling returns are then averaged to gauge the usual return experience for investors who held the Nifty for ten years.

Interpreting them

Here’s a live illustration using five-year rolling returns on month-end data for the Nifty50 from December 1995 to December 2020.

The analysis will give you 240 different rolling five-year returns spread out over 20 years. If you average the 240 data points, you get a CAGR of about 12 per cent. Therefore, for investors who didn’t bother about timing and held the index for five years, the Nifty usually returned about 12 per cent.

Comparing the current trailing return on the Nifty to this long-term average gives you added insights. The trailing five-year return on the Nifty at 17 per cent tells you that recent years have been unusually bullish for stocks and their returns could revert to mean. If you plan to buy the Nifty with a five-year horizon now, set your CAGR expectation at less than 12 per cent.

The best five-year CAGR over the 20-year period was 44 per cent and the worst a minus 5 per cent. This tells you that if you plan on holding the Nifty for five years, the risk you must budget for is losing 5 per cent a year. If you’re very lucky, there’s a chance of making 44 per cent.

The distribution of rolling returns shows that the Nifty made losses about 5 per cent of the time and below 6 per cent return about 28 per cent of the time. So, while the risk of losses was about one in twenty, there’s a 28 per cent chance of you earning a poor return from the Nifty over five years. But it also earned over 25 per cent CAGR about 11 per cent of the time, a roughly one in ten shot at trebling your money in five years. Rolling-return analyses, if not done right, can be misused and misinterpreted too. Note the following.

One, to truly reflect the risk-reward profile of an asset, a rolling return analysis should be based on sufficient history. For any asset,get data for at least two complete market cycles comprising a bull and a bear phase. If you don’t have data going back that far, at least try for one complete cycle. In Indian stocks, a typical bull-bear cycle lasts seven years, so a rolling analysis run over 14-15 years is ideal. In bond markets, the last six years have seen a breathless bull phase, so your analysis needs to stretch to at least 10 years.

Two, the time frame for which you run your rolling returns should match your planned holding period. If you plan to invest in equities for five years, there’s no point looking at one-year rolling returns. On a one-year rolling return basis, the Nifty has suffered losses about 30 per cent of the time, but on a five-year basis the proportion was only five per cent.

Finally, though rolling returns from the past are often used to extrapolate an asset’s risk-reward profile, past performance may not always be a sound indicator of the future. By using long periods of historical data that smooth out timing effects, rolling returns certainly offer a better guidepost to investors than point-to-point or trailing returns. But if market cycles remain distorted for long periods, there’s every chance that the next ten years may not be the same as the last ten.

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VPF Or PPF: Where Should I Invest Post Budget Update?

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Investment

oi-Vipul Das

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As an investor you may always experience a debate as to where I should invest i.e. in a Voluntary Provident Fund (VPF) or the Public Provident Fund(PPF) when it falls to secure fixed income investment opportunities. Both the Voluntary Provident Fund (VPF) and the Public Provident Fund (PPF) are common tax-saving strategies regulated by the Income Tax Act under the section 80C. If you’re not clear as an investor about which of the two is a good bet. First of all, let me make it clear in brief that both provide lucrative returns vary in factors such as eligibility, deposit period, return, possibilities for liquidity, tax treatment, and so on. But this is just the beginning, let us glance both in depth below and sum up with the best.

VPF Or PPF: Where Should I Invest Post Budget Update?

A glance at VPF

An extension of the Employees’ Provident Fund(EPF) is the Voluntary Provident Fund (VPF). Employees working in registered companies are required to contribute 12% of their basic salary under EPF. Unless the employee retires or is entitled to make a premature withdrawal under a certain provision the contributions towards EPF is locked-in. Voluntary Provident Fund (VPF) here plays the role of an extension which means that if an employee wants to contribute more above the stated limit he or she can do so by considering VPF but the contribution by your employer will be the same.

A glance at PPF

One of the most prominent tax-saving strategies under the provisions of Section 80C is the Public Provident Fund (PPF). All types of resident individuals whether unemployed, minors or employed in an unorganised sector can invest in PPF. By investing in PPF, taxpayers can seek tax exemptions of up to Rs 1,50,000 in a fiscal year. In a year, the minimum contribution cap is restricted at Rs 500 up to an upper limit of Rs 1.5 lakh. The returns provided by PPF are set and covered by sovereign guarantees.

Returns

For the quarter ending March 2021, the present rate provided on PPF is 7.1 percent. For the current 2020-21 financial year, the interest rate for the EPF is yet to be announced. The interest rate on the EPF has been placed at 8.5% for the 2019-20 fiscal year. The odds of receiving a stronger interest rate are good with the above depending on the historical interest rates provided by both the PPF and the VPF.

Minimum and maximum contribution limit

You have to contribute a minimum of Rs 500 and up to an upper limit of Rs 1.5 lakh towards PPF. Your account will become ‘inactive’ if you fail to make the minimum contribution amount per year. Such restriction of minimum or maximum contribution does not exist for VPF. The overall contribution in EPF and VPF combined, though, is restricted to 100% of your basic salary plus dearness allowance.

Tenure

Under PPF, the investment period is fifteen years which can be further extended to a block of 5 years. On the other side, VPF is known to be among the best retirement funds, so all the EPF withdrawal guidelines always apply to VPF. After superannuation, you can withdraw the entire EPF corpus. One needs to retire from employment after hitting 55 years of age in order to receive the final EPF settlement.

Tax treatment post budget update 21-22

VPF also promises deductions under section 80C of the Income-tax Act, 1961 up to Rs 1.5 lakh in a particular fiscal year when it comes to tax-free benefit on the deposit amount,much like EPF. This exemption is also offered by PPF. VPF also promises deductions under section 80C of the Income-tax Act, 1961 up to Rs 1.5 lakh in a particular fiscal year when it comes to tax-free benefit on the investment number, much like EPF. This exemption is also offered by the PPF, too. That being said, there are variations in the tax treatment of returns received on these two investment vehicles. For PPF, the overall return received is exempted from taxation, but not more than Rs 1.5 lakh can be invested per year. There is a proposal in Budget 2021 to restrict the deduction on return received on VPF. In compliance with the proposal, if the contribution in the VPF and the EPF placed together in the financial year crosses Rs 2.5 lakh, the returns received on the contribution exceeding Rs 2.5 lakh will not be exempted from taxation.

Premature withdrawal facilities

After five years from the end of the fiscal year in which the first contribution is rendered the PPF facilitates partial withdrawal. From three years to six years from the account opening date, you can even get a loan against your PPF account. In the event of unemployment for more than two months, the entire VPF amount can well be withdrawn. For many particular reasons, such as medical emergencies, building or purchasing of a new house, house reconstruction, home loan settlement and marriage, you can make a partial withdrawal.

Our take

As we all know that Budget 2021 introduced levying tax on interest received on an individual’s contribution over Rs 2.5 lakh to a provident fund in a fiscal year. On a straightforward interpretation of the budget statements, it brings to us that the interest received on contributions made to the Employees’ Provident Fund (EPF), the Voluntary Provident Fund (VPF) and the Public Provident Fund (PPF) will be subject to taxation. That being said, in the context of EPF and VPF contributions, in order to benefit from tax exemption on interest received on EPF and VPF contributions, the amount of contributions to both EPF and VPF should not surpass Rs 2,5 lakh in a fiscal year. If, in a fiscal year, the cumulative contribution of an employee to EPF and VPF together crosses Rs 2.5 lakh in a financial year, the interest received on the additional contribution will be taxable to the employee. PPF contribution is classified under Section 10(11) of the Income Tax Act, which within the year can not surpass Rs. 1.5 lakh. Consequently, interest accrued on the PPF balance will still appear tax-free as the contribution to PPF will not surpass Rs. 2.5 lakh for any fiscal year as specified under the Budget update 21. Moreover, it is important to consider the contribution to each provident fund individually and not in bulk.

Provident fund contributions for non-government employees and the deduction for withdrawal of this accumulated balance is granted under Section 10(12) of the Income Tax Act. In order to earn income tax benefits, i.e. tax-free interest under Section 80C, when such employees make a contribution to their Public Provident Fund (PPF) account, the deduction for withdrawal of this corpus is granted under Section 10(11). It is possible to open a PPF account at approved branches of the Post Office and banks. Most of the banks already have the service to open an online PPF account where holders can even make deposits online. You need to contact your organization’s HR department to register for VPF. One that provides you with the best return at the lowest cost is a successful investment opportunity. Both the VPF and the PPF have sovereign guarantee, but there is no distinction in terms of risk. Both are known to be secure investment strategies for regular income. If you are willing to make a stable retirement fund VPF can be a good bet for you whereas PPF will be the best if you are going to save your child’s education, marriage, medical issues and so on. In case you have a higher tax slab rate and are trying to contribute higher amounts for tax-free gains, both alternatives can be considered at a time.



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National Pension System: All You Need To Know About Tax Benefits

Personal Finance

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Types of NPS accounts

Under NPS there are two types of accounts, and they are:

NPS Tier 1 Account

This account comes with a fixed lock-in term until the age of 60 years is met by the subscriber. Even partial withdrawal, under certain circumstances, is permitted. Tier 1 contributions are tax-free and are liable for deductions according to Section 80CCD(1) and Section 80CCD (1B). This implies that in an NPS Tier 1 account you can contribute up to Rs. 2 lakh and seek an exemption for the entire sum, i.e. Under Sec 80CCD(1) Rs. 1.50 lakh and Sec 80CCD(1) Rs. 50,000 under Section 80CCD (1B).

NPS Tier 2 Account

It is basically a voluntary savings account that makes it easy for subscribers to withdraw corpus at the time of emergencies. The contribution rendered to the Tier 2 account, however, does not apply for a tax exemption. You must first open a Tier 1 account to open a Tier 2 account. Contributions to NPS now fall under the exempt-exempt-exempt (EEE) tax category, all of which are tax-exempt from the amount contributed to NPS, the income collected and the amount of maturity. You can withdraw up to 60 percent of the amount on maturity, as per the current guidance, and need to reinvest the remaining 40 percent to buy an annuity that provides you a monthly income benefit.

Contribution towards NPS by an employee

Contribution towards NPS by an employee

Under the defined cap of 10 per cent of the basic salary plus dearness allowance, an employee can contribute to NPS and seek tax deductions. This exemption is permitted under section 80CCD(1) for contributions made as an employee and is valid under section 80C under the total cap of Rs 1.5 lakh. The tax deduction can be received by individuals employed by the central government and any other employer for their contributions made during the fiscal year.

Contribution towards NPS by an employer

Contribution towards NPS by an employer

Employees can also seek a tax break on the contribution of their employer to NPS and take benefit on additional taxation. For contributions rendered by the central government or any other employer, a tax benefit is applicable. The central government contribution is liable for a tax deduction of up to 14% of the basic salary plus dearness allowance. A tax exemption of up to 10% of the basic salary plus dearness allowance, if any, is available for the contribution of any other employer. Under section 80CCD(2), which is over and above the cap of Rs 1.5 lakh stated above, as per section 80C, you can request a deduction. The claim for deduction shall not be made eligible for any contribution made by the employer in lieu of the amounts set out above. Remember that, under section 80CCD(2), there is no additional cap for seeking deductions. It is permitted as a cumulative contribution under the total cap of Rs 7.5 lakh that can be rendered by an employer against the employee’s EPF, superannuation and PPF accounts respectively.

Contribution towards NPS if self-employed

Contribution towards NPS if self-employed

For the NPS contribution, an individual who is self-employed can seek a tax deduction. The deduction threshold is limited to 20 percent of the overall gross income. The tax benefit is within the scope of section 80CCD(1) and comes within the total cap of Rs 1.5 lakh referred to in section 80C. Individually, both a self-employed individual and an employee are allowed to claim an additional tax exemption up to the maximum of Rs 50,000 per financial year for their additional NPS contribution. The exemption is made under section 80CCD(IB) and is permitted under section 80C in relation to the tax benefit. An employee can therefore seek an exemption of up to Rs 1.5 lakh under 80C for their NPS contribution, an additional contribution of up to Rs 50,000 under section 80CCD(1B), making their total exemption to Rs 2 lakh for NPS. Consequently, the exemption is also permissible under defined limits for the contribution of their employer. A self-employed individual can seek a deduction of up to Rs 1.5 lakh for their NPS contribution and up to Rs 50,000 for an additional contribution.

Tax benefits on withdrawals

Tax benefits on withdrawals

You are allowed to withdraw a lump sum of up to 60 per cent of the corpus in a tax-free manner at the time of death, at age 60 and over. The 40 percent balance can be used to obtain an annuity plan for the purpose of earning monthly pension payments. The 40 percent balance used to purchase the annuity contract is tax-free as well. Based on the income tax slabs applied to the year of receipt, the pension income you earn from the annuity scheme is taxed as income from other sources.



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National Pension System: All You Need To Know About Tax Benefits

Personal Finance

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Taxes

oi-Vipul Das

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A pension scheme applicable to all government employees and private employees is the NPS or National Pension System. It is among the most common choices for citizens trying to build a stable corpus along with a regular monthly income for their retirement. It is commonly perceived to be one of the cheapest investment opportunities for equity and debt investment There is no assurance of the returns as they are directly related to the output of the market, but over a time period, NPS yields are among the best in the sector. After withdrawal, up to 60% of the corpus is tax-exempt as a lump sum withdrawal. Consequently, multiple tax advantages fall with NPS. Let’s explain how you can seek these NPS-related tax deductions.

National Pension System: All You Need To Know About Tax Benefits

Types of NPS accounts

Under NPS there are two types of accounts, and they are:

NPS Tier 1 Account

This account comes with a fixed lock-in term until the age of 60 years is met by the subscriber. Even partial withdrawal, under certain circumstances, is permitted. Tier 1 contributions are tax-free and are liable for deductions according to Section 80CCD(1) and Section 80CCD (1B). This implies that in an NPS Tier 1 account you can contribute up to Rs. 2 lakh and seek an exemption for the entire sum, i.e. Under Sec 80CCD(1) Rs. 1.50 lakh and Sec 80CCD(1) Rs. 50,000 under Section 80CCD (1B).

NPS Tier 2 Account

It is basically a voluntary savings account that makes it easy for subscribers to withdraw corpus at the time of emergencies. The contribution rendered to the Tier 2 account, however, does not apply for a tax exemption. You must first open a Tier 1 account to open a Tier 2 account. Contributions to NPS now fall under the exempt-exempt-exempt (EEE) tax category, all of which are tax-exempt from the amount contributed to NPS, the income collected and the amount of maturity. You can withdraw up to 60 percent of the amount on maturity, as per the current guidance, and need to reinvest the remaining 40 percent to buy an annuity that provides you a monthly income benefit.

Contribution towards NPS by an employee

Under the defined cap of 10 percent of the basic salary plus dearness allowance, an employee can contribute to NPS and seek tax deductions. This exemption is permitted under section 80CCD(1) for contributions made as an employee and is valid under section 80C under the total cap of Rs 1.5 lakh. The tax deduction can be received by individuals employed by the central government and any other employer for their contributions made during the fiscal year.

Contribution towards NPS by an employer

Employees can also seek a tax break on the contribution of their employer to NPS and take benefit on additional taxation. For contributions rendered by the central government or any other employer, a tax benefit is applicable. The central government contribution is liable for a tax-deduction of up to 14% of the basic salary plus dearness allowance. A tax exemption of up to 10% of the basic salary plus dearness allowance, if any, is available for the contribution of any other employer. Under section 80CCD(2), which is over and above the cap of Rs 1.5 lakh stated above, as per section 80C, you can request a deduction. The claim for deduction shall not be made eligible for any contribution made by the employer in lieu of the amounts set out above. Remember that, under section 80CCD(2), there is no additional cap for seeking deductions. It is permitted as a cumulative contribution under the total cap of Rs 7.5 lakh that can be rendered by an employer against the employee’s EPF, superannuation and PPF accounts respectively.

Contribution towards NPS if self-employed

For the NPS contribution, an individual who is self-employed can seek a tax deduction. The deduction threshold is limited to 20 percent of the overall gross income. The tax benefit is within the scope of section 80CCD(1) and comes within the total cap of Rs 1.5 lakh referred to in section 80C. Individually, both a self-employed individual and an employee are allowed to claim an additional tax exemption up to the maximum of Rs 50,000 per financial year for their additional NPS contribution. The exemption is made under section 80CCD(IB) and is permitted under section 80C in relation to the tax benefit. An employee can therefore seek an exemption of up to Rs 1.5 lakh under 80C for their NPS contribution, an additional contribution of up to Rs 50,000 under section 80CCD(1B), making their total exemption to Rs 2 lakh for NPS. Consequently, exemption is also permissible under defined limits for the contribution of their employer. A self-employed individual can seek a deduction of up to Rs 1.5 lakh for their NPS contribution and up to Rs 50,000 for additional contribution.

Tax benefits on withdrawals

You are allowed to withdraw a lump sum of up to 60 per cent of the corpus in a tax-free manner at the time of death, at age 60 and over. The 40 percent balance can be used to obtain an annuity plan for the purpose of earning monthly pension payments. The 40 percent balance used to purchase the annuity contract is tax-free as well. Based on the income tax slabs applied to the year of receipt, the pension income you earn from the annuity scheme is taxed as income from other sources.



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