Category: Personal Finance

Common Problems Faced

The parents or guardians do face some common problems while investing for their kid’s education as it is difficult to figure out how much to save for a child’s higher education. Firstly, they plan for investment and save money in an ad-hoc manner.

Some of the investors do not take into consideration the inflation rates and end up predicting a lesser amount for the educational expenses.

Saving enough money for children’s higher education is not an easy task as it is difficult to make and track the investment for a long tenure.

Investment Instrument

Next thing is to zero on the investment instrument to save for a child’s education. So far, the prominent investment options available are Sukanya Samraddhi Scheme, mutual funds, children’s plans from insurance companies.

Though Sukanya Samraddhi Scheme and Child Plans do come up with low risk they do have their share of drawbacks.

At times it is difficult for the investors to choose the best form of investments as most of the instruments do have risk factors associated with it.

Drawbacks of Investing in SSY

Generally, the child plans in India do not fetch the given returns to match with the prevailing inflation rates. It also comes with the disadvantage of covering the life of the child, though it is not required.

In the case of the Sukanya Samriddhi Scheme/ Yojana, only 50 per cent of the invested amount can be withdrawn when the girl child attains 18 years of age. So many parents have taken the path of mutual funds through systematic investment plans (SIPs) in India.

Proper Investment Vehicle

Another major hurdle faced by investors for higher education savings is the operational procedure involved in investing which is cumbersome.

Most of the times, parents will invest in their name to be used later for a child’s education or they will contribute money towards their ward’s account for investment.

Here, initially, parents or guardians will start investment for their children’s education but somewhere they will not be able to adhere to the investment path strictly and lose track.

Apart from this, investors may not take into consideration factors like rising inflation rates when it comes to educational expenses.

The need of the hour is we need an investment vehicle like National Pension Scheme or NPS to garner funds for meeting out the Higher Education Expenses. The fund for higher education savings should be of low cost with many pension fund managers and offering different investment plans.

The government of India should provide some tax benefits, on withdrawals as this will inculcate the habit of savings amongst parents for their children’s higher education.

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Major changes proposed in new cigarette policy

One of the major amendments is the increase in the legal smoking age from 18 years to 21 years. Penalty for selling tobacco products to persons under the legal smoking age is also being increased from two years imprisonment and Rs 1,000 to seven years’ imprisonment and up to Rs 1 lakh fine.

The government has also sought to ban the sale of loose cigarettes. A provision in the draft reads that “trade and commerce in cigarette or any other tobacco product shall be in sealed, intact and original packing.”

It is also proposed to do away with smoking rooms at airports, restaurants and hotels, in addition to a ban on smoking in public. Fine for smoking in public is proposed to be increased from Rs 200 to Rs 2,000.

Analysts express mixed opinions

Edelweiss Securities Ltd’s analysts, in a report dated 4 January said, “Overall, if this draft becomes a law, the cigarette industry would face further headwinds: difficulty in adding newer consumers due to the increase in the minimum age to buy cigarettes and tobacco products, and impact on cigarette volumes due to sale of only sealed and intact packs.”

The brokerage added that the sale of loose cigarettes is still widely prevalent in states where this regulation has come into effect. “Hence, in our view, it would be difficult to monitor and implement this law.”

“On the other hand, illicit cigarettes and tobacco products, which were thriving due to heavy taxes on legal cigarettes, will take a hit due to stricter punishments proposed in this latest draft,” Edelweiss Securities added.

Meanwhile, Centrum Equity Research believes that long-run companies will reinvent their products to comply with the law.

The brokerage has a “buy” rating on ITC Ltd with a target price of Rs 353, an upside of 74% from the current market price.

“So on the face of it, this news will have negative sentiments for the entire cigarette industry including major like ITC, Godfrey and VST. However, as done in the past, in the long run companies will try to reinvent its business offering adhering to guidelines in our view. We suspect if the draft paper becomes a law it would add further woes to the sector,” it said.

The brokerage believes that ITC’s renewed focus on maintaining cigarette market share, tailwinds for FMCG foods business, strong FCF, high dividend yield and compelling valuations make it more attractive for long term investors.

The stock has fallen 13% in the last one year but soared 21% in the last three months.

Key risks and opportunities

Apart from the amendments, any sharp increase in taxation could hurt ITC.

As for health ministry’s amendments as per WHO’s guidelines, the government has implemented various measures to cut tobacco consumption since 2003, with the enactment of COTPA (cigarettes and other tobacco product act).

Pictorial warnings, ban in public smoking, restricting entry of shops within 500mt radius of schools & colleges, were introduced, apart from the sharp increase in tax in the last five years that have made cigarettes expensive for the younger generation.

However, the increase in restrictions and taxes have resulted in the growth of illicit cigarettes sales, causing the government to lose tax revenue.

The GATS-2 survey conducted by WHO in 2017 revealed that the smoking population has come down, however, there was no significant change in overall tobacco consumption in the country.

“In these circumstances, we believe the intention of the govt. is driven by WHO guidelines, yet implementation and execution could be a big challenge. To illustrate, recently Maharashtra govt. (in its renewed focus) said to ban sale of loose cigarettes within the state, whilst on ground connect with channel partners suggest the local authorities still grappling to implement strictly. Further, the trade informed us that they have no mechanism to verify the legal age of its consumer, neither they are equipped with any such data, hence it may not control selling loose cigarettes in our view,” says Centrum Equity Research.

As for the ban on loose cigarette sales, the industry is already experimenting by offering packs with 5 cigarettes in select geographies, and we may see more of that across India after the law is implemented.

Should I Withdraw My EPF Amount?

It is advised that PF amount not be withdrawn before retirement. At the time of retirement, PF leads in an enormous corpus. That being said, if withdrawn in between, it should be deposited in instruments such as a real estate, land or mutual fund that yield better returns, analysts claim. Regrettably, most employees withdraw PF for some emergencies and end up with no savings for themselves during retirement. In the new regulations, PF does not need to be withdrawn once an employee switches a job, it can be transferred to the new employer.

How To Update Date Of Exit Details On EPFO Portal?

How Can I Reap Better Returns From EPF?

The interest rate for the Provident Fund (PF) is calculated and updated annually. The interest rate for the Provident Fund (PF) is calculated and updated annually and investors do not have a say in this. However, to fetch more returns, one should increase their contributions. This can be accomplished in two ways: by improving the criteria on which PF is funded or choosing for a higher contribution amount on a voluntary basis. Typically, PF is contributed from basic salary and if you should increase your contribution towards EPF the returns based on the accumulations in the PF account will increase too. Conversely, a member can opt to contribute at a rate higher than the 12 percent of the prescribed rate.

These will result in increased accumulations in the account of the account holder, hence getting more returns. On a recent confirmation after receiving the approval of the finance ministry, the labour ministry has agreed to disclose 8.5 percent interest rate on employee’s provident fund (EPF) accounts for 2019-20. On its more than six crore members, EPFO kept an 8.5 percent interest rate on EPF for 2019-20 as previously agreed, and also started crediting the same into the account of the employees. A substantial majority of the members of EPFO will be able to see their modified EPF accounts with credit of 8.5 per cent interest for the financial year of 2019-20.

Let’s Learn About Tax Exemption On PF Withdrawal

Except under such rare instances above his or her ability, when an employee withdraws the amount from his EPF (Employee Provident Fund) account before making a five-year contribution to his Provident Fund account, the withdrawn money appears taxable in the employee’s account. In the event that the balance in the old provident fund account is transferred to the current PF account configured with the new employer, the contributions rendered to the previous employer shall also be taken into account while the five-year contribution duration is calculated.

When you withdraw the funds before making an annual contribution for five years, if the total balance of the accumulated sum is more than 50,000, the provident fund office deducts tax at 10 per cent. As outlined by you, the accumulated amount which becomes taxable in your account has four components. Under the head “Salaries” the contribution of the employer and interest earned on such contribution must be presented. Under the head “Income from other sources” the contribution of the employee as well as the interest accrued on such contribution will become taxable.

As there might be any discrepancy between the amount provided as taxable by you and the amount provided under your 26AS form, you may get a notice from the tax department that you can justify with documentation that you have not received your own contribution benefit under Section 80 C with the aid of your income tax returns and other relevant documents for the subsequent year.

Investment

oi-Olga Robert

By Staff

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Updated: Thursday, January 7, 2021, 16:07 [IST]

With effect from 1 January 2021, savings account holders of IDFC First Bank, with balances less than Rs 1 lakh, will earn interest of 7% on their deposits.

The interest rate has been raised from 6% earlier, a surprising and rewarding move for bank account holders at a time when major banks in the country are offering up to 4% interest.

IDFC First Bank savings account balances above Rs 1 lakh will continue to earn 7%, as before.

In comparison, the State Bank of India (SBI), the largest bank in the country, currently offers 2.9% interest on savings accounts with balances less than Rs 1 lakh.

Is IDFC First Bank safe?

IDFC First Bank was formerly known as IDFC Bank and started as a wholly-owned subsidiary of IDFC in 2014. However, in 2018, IDFC Bank and Erstwhile Capital First announced a merger, forming a new entity called IDFC First Bank, on 18 December 2018.

It has over 260 branches and is a listed scheduled commercial bank. Deposits and savings account balances of all scheduled commercial banks aggregating up to Rs 5 lakh per customer are covered under the government’s deposit guarantee insurance scheme.

The interest on savings accounts is not locked in and can be changed by the bank at will. New banks often offer higher rates to attract retail customers and expand reach.

ON Wednesday, the bank said in a stock exchange filing that its retail deposits have increased 100% year-on-year and 18% quarter-on-quarter, pushing its share price higher by over 26% in two days to a new 52-week high of Rs 47.20.

On 11 March 2020, the bank announced that it has signed Bollywood actor Amitabh Bachchan, as its first brand ambassador, attempting to expand its reach via marketing.

At the moment, there is no visible threat in IDFC Bank’s viability. In fact, the deposits of the bank have a AAA rating.

However, the future is uncertain and suddenly if good loans turn bad, any institution can run into a problem.

It is important to note that full-fledged commercial banks in India are rescued by the Reserve Bank of India (RBI), if they run into the risk of liquidation, by taking over or bailouts. The two most recent rescue acts were Yes Bank in March 2020 and Lakshmi Vilas Bank in December.

It is, therefore, safe to say that the interests of small depositors of scheduled commercial banks in India have always been protected.

Also, this does not mean that IDFC First is likely to face liquidation; the article is simply addressing skeptics.

Disclaimer

The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

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