Tag: investment

Paytm Money opens technology development centre in Pune

Banking & Finance

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Digital financial services platform Paytm, on Thursday announced that its wholly-owned subsidiary Paytm Money has launched its technology development and innovation centre in Pune.

It also plans to hire over 250 front-end, back-end engineers and data scientists to build new wealth products and services.

A press statement said Paytm Money thrives to simplify investments and wealth creation for retail investors, and the new facility at Pune will focus on driving product innovation, specifically for equity, mutual funds, and digital gold.

Varun Sridhar, CEO – Paytm Money, said in a statement: “We are very excited to launch our Pune tech R&D centre and looking forward to developing new wealth management products and disruptions in Pune. We continue our vision to leverage technology to lower costs for our consumers and provide a solid, innovative and stable platform.”

Also read: Paytm to expand operations in rural areas, smaller towns

He added, “We need solid engineering talent to ensure we meet our ambitions. Pune is famous for its high-quality education and offers a great talent pool along with good infrastructure and great weather. We believe Pune is poised to become an innovation hub for fintech and was a natural choice for Paytm Money’s expansion plans.”

The company has launched a slew of new products and services aimed at empowering seasoned investors as well as new to investment users. It aims to achieve over 10 million users and 75 million yearly transactions in FY21 with the majority of users from small cities and towns.

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Ettutharayil Group acquires Delhi-based NBFC BKP Commercial India

Banking & Finance

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Ettutharayil group, the Kayakulam-based financial services firm providing business loans for the past two decades, has acquired New Delhi-based non-banking financial company BKP Commercial India.

With the acquisition, the group which currently operates in savings, insurance and investment sectors, will branch out into vehicle loans and various other secured loans, including loans against property and gold loans.

Priya Anu, Managing Director, BKP Commercial, said in a statement that the company would open new branches within and outside Kerala. At present, Ettutharayil has 14 branches in Kerala, while BKP will open 15 more branches in 2021. Of these, five branches are expected to be functional within three months.

The company’s first branch in Kerala was inaugurated by Kochi Mayor M Anilkumar. BKP Commercial targets to disburse loans worth around ₹60-70 crore in 2021-22.

Anu said that BKP would focus on technology-based loan instruments catering to customer requirements. Given the sluggish market conditions prevailing in the Covid-19 pandemic situation, BKP has launched doorstep gold loans for senior citizens and working women. Another product launched is online gold loan that provides customers the safety of keeping their unused gold ornaments in BKP’s lockers with insurance cover and avail loans as and when required for up to 75 per cent LTV.

BKP has also launched Salary Bridge Loan in association with employers having 10 or more employees. The Digi Passbook Business Loan targets small and medium traders offering short-term loans for business purposes based on the volume of their digital transactions.

She added that the company has recently concluded a rights issue and is currently raising part of their fund requirements through an NCD issue.

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Rakesh Jhunjhunwala, Samir Arora file for mutual fund license, BFSI News, ET BFSI

Personal Finance

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Months after Securities and exchange board of India relaxed norms, fintechs are making a beeline to apply for mutual funds. Four new companies have filed papers for mutual fund licenses in the last four months. Among these are two ace investors Rakesh Jhunjhunwala and Samir Arora.

Samir Arora’s Helios Capital Management and Rakesh Jhunjhunwala’s Alchemy Capital are among the four companies that have recently applied for the mutual fund status. It remains to be seen whether they get an approval for the same.

Apart from these two, Unifi Capital Private Limited and Wizemarkets Analytics Private Limited have applied for the mutual fund license.

Sebi in December paved the way for technology startups to enter the mutual fund business by waiving the profitability requirement, approved doing away with minimum promoter contribution toward further public offers (FPO), and also eased norms on investing in insolvent companies.

Before December, regulators required an entrant to have five years of experience in the financial services business, demonstrate three years of profitability, and maintain a net worth of Rs 50 crore.



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Women catching up on financial awareness…

Banking & Finance

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Women have become more aware financially and are taking out more loans but continue to lag behind men in terms of both savings and investments, as per data with several leading firms.

According to TransUnion Cibil, over the last six years, the share of women borrowers grew to about 28 per cent in September 2020 from 23 per cent in September 2014, in an indication of increasing inclusion of women in the country’s credit market.

There were 4.75 crore women borrowers by September last year, with a marked preference in demand for personal loans and consumer durable loans. Data from earlier years (2014, 2015 and 2016) shows that home loans were highest in demand for women consumers.

Data from CRIF Highmark also revealed that men outweigh women in terms of taking bank loans but surprisingly, the average home loan ticket size for women borrowers is higher than that for men.

“Size of home loans borrowed by women is 13 per cent higher than those borrowed by men,” it said. The average home loan ticket size for women was higher at ₹16.69 lakh (₹16.38 lakh as of December-end 2019) against ₹14.71 lakh (₹14.45 lakh) for men.

According to a survey by ANAROCK, real estate was the preferred investment asset for 62 per cent of the women while 54 per cent men chose it over the stock market, fixed deposits and gold

Insurance

Women also seem to have realised the importance of insurance, largely due to the Covid-19 pandemic but they continue to lag behind men.

Key findings by Max Life Insurance relating to urban Indian women’s financial protection revealed that urban Indian working women have become more financially resilient than men in the backdrop of the pandemic.

“While working women’s knowledge index (the degree to which they are aware about life insurance products) stood at 55 in comparison to 57 for working men, it improved by an impressive 11 points in comparison to last year,” said the survey, “Max Life India Protection Quotient 3.0,” which was done in partnership with Kantar.

Similarly, a survey conducted by Reliance General Insurance by Nielsen revealed that 57 per cent of the current women policies holders have purchased the policy in the last one year since the pandemic started.

However, only 43 per cent of women are involved in decision making for health insurance, but not on their own.

Further, 98 per cent of the women surveyed believe that there should be more women health centric add-ons in the health insurance such as menstruation/hormonal issues, PCOD treatment, mental illness related to postpartum syndrome and osteoporosis treatment.

Cryptocurrency

Even in terms of newer investment classes like cryptocurrencies, the participation of women is lower compared to men.

According to CoinDCX, women account for 20 per cent of its total customer base in 2021, slightly higher than 15 per cent last year.

According to Zebpay, about 10 per cent of investors on its platform are women. “The average ticket size for women investors was ₹3 lakh for the period of March to August 2020 which increased to ₹5.7 lakh from September to February, 2021,” it said.

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MCA advises investors to verify status of Nidhi companies before investment

Banking & Finance

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Corporate Affairs Ministry (MCA) has sounded a note of caution to investors looking to invest or investing their hard earned money in Nidhi companies. Investors are advised to verify the antecedents/status of a Nidhi company before becoming a member and investing in such companies, the MCA has said in an official release.

In particular, the investors need to verify the declaration of their status as a Nidhi Company by the Central government, it added.

Under the amended Companies Act 2013 and the Nidhi Rules 2014, companies need to get themselves updated (those companies which were earlier declared as Nidhi company under the Companies Act 1956) or declared as Nidhi company (those companies which were incorporated as Nidhi company after April 1, 2014) by applying to the MCA in form NDH-4.

While examining the applications in form NDH-4, it has been observed by the Central Government that these companies have not been complying with the provisions of the rules in-toto. This has resulted in rejection of applications filed by the companies for declaration since they have not been found fit to be declared as Nidhi Company, the release added.

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Right corpus eases retirement pangs

Personal Finance

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Varadhan, an NRI aged 55 and retiring in 2021, has been working in West Asia for the last 30 years. He wanted to return to India and live comfortably in his home state of Kerala. Prior to retirement, he wanted to find out how much he could spend – rather, the threshold that would ensure a balanced life after retirement. Varadhan’s family includes his mother aged 85 and wife Shyama aged 51.

His assets were as follows:

Requirements

He wanted to set aside ₹12 lakh as emergency fund towards one year expenses with high liquidity and safety. Next, he desired to create a retirement portfolio with minimal risk to get an income of ₹75,000 per month (current cost) from his age 56 till age 90.

Varadhan wanted to set aside funds for his travel needs at an estimated cost of ₹3 lakh a year for 10 years. He also wanted to maintain health corpus of ₹1 crore for all three family members. Besides, he desired to buy a car costing ₹15 lakh. Finally, he wanted to create a will with his wife and daughter as beneficiaries with equal rights (for which we advised him to seek guidance from an advocate).

 

Priority to safety

Based on our discussion, we could understand that Varadhan had limited knowledge of financial instruments, and he had a conservative risk profile and investing mindset. He was a prudent saver and had built his financial assets over a relatively longer period backed by sheer discipline. He was not sure of inflation and its impact on savings over a long period. . Like many aspiring retirees, he also had the need to make a balance between risk and safety a paramount factor. Prima facie, Varadhan wanted to find out whether he could retire immediately or he would have to work till age 60 to add to this corpus and avoid unnecessary risk with his investments.

A challenge in this case would be taxation post retirement. Varadhan had accumulated much of his assets through NRE deposits and the interest was not taxable till date. But post retirement, when he becomes a resident in India, his interest income will be taxable. We helped him understand the taxation associated with deposits and safe investment products.

Recommendations

Based on the above, our set of recommendations were as follows. We advised Varadhan to reserve his NRO fixed deposit towards his emergency fund and car purchase. Hence, he needed to reduce his budget for the car or reduce the emergency fund. Next, we recommended that he create a retirement portfolio using his NRE deposits and mutual funds fully, along with 60 per cent of his gold savings. This will help him get retirement income of ₹75,000 per month from his age 56 till his wife’s life expectancy of 90.

Varadhan needed a corpus of ₹2.8 crore. We advised him to use products such as RBI Taxable bond, RBI Sovereign Gold Bond, large-cap mutual funds and high-quality debt mutual funds. Once he turned 60, he could choose Senior Citizens Savings Scheme and other investment products suitable for regular income. With a corpus of ₹2.8 crore, he needed to generate post-tax return of 6.5 per cent per annum to get the required retirement income. His expected inflation would be 5 per cent in the long run. He may come across periods where inflation could be higher; Varadhan could then use reserve funds to maintain his lifestyle.

His travel requirements (₹30 lakh) could be met with the balance investment in gold. This could be moved to safe avenues periodically to manage the volatility in gold prices. We advised Varadhan to take health insurance for a sum insured of ₹10 lakh each for himself and spouse. Also, the remaining ₹10 lakh from his gold investment could be reserved as part of the health fund immediately.

We recommended that Varadhan sell his land in the next 2-3 years and convert it to financial assets. This will help him manage his health corpus and reserve fund needs. To protect his retirement income from changes in economic assumptions, it is desirable to have ₹80 lakh as reserve fund. This is arrived on the basis of same inflation rate and expected return post-retirement.

Varadhan could retain his rental property and we suggested that rental income, if any, be gifted to his daughter every year. The rental income and maintenance charges for the house were not included in the cash flow calculations.

Every retiree we meet has a fear of outliving the retirement corpus. Safety of capital and inflation adjusted returns form a strange combination. Arriving at the right corpus, which we sometimes call ‘a rubber band corpus for retirement’ is crucial to meeting such expectations. Like how a rubber band has limited elasticity, the corpus should stand the test of inflation and the test of safety of capital. If this is taken care of while working, the desired result could be achieved.

The writer is an investment adviser registered with SEBI, and Co-founder of Chamomile Investment Consultants, Chennai

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How to plan your finances

Personal Finance

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Deepesh Raghaw Anshul is a 26-year-old management graduate from a top business school in the country. He earns well, is single and the only child of his parents. His parents are not financially dependent on him and he has no other financial dependents.

He worries that his parents’ portfolio may not have much ability to withstand any financial shock such as a big unplanned expense, medical or otherwise. His parents have been conservative investors and he does not want to meddle in their finances.

He wants to ensure that his parents do not suffer financially once he is not around.

Health comes first

Additionally, he wants to understand how he must approach his investments. He has no real financial goals. He likes to travel but that part is quite manageable, given his level of income. He does not plan to buy a house right away. He would like to consider buying one after he gets married.

Since Anshul is worried about his parents’ financial well-being (in his absence), he needs to focus on insurance portfolio first, not just for himself but for his parents, too.

He has got his parents covered under his employer group health insurance plan. However, the coverage is only there as long as he is with the current employer.

His mother is aged 61 and his father is aged 62. They are in good health and have no pre-existing illnesses.

Life and disability cover

He must buy a family floater health insurance plan of at least ₹10-15 lakh for his parents. While he must buy a private health plan for himself too, he must buy an individual plan and not a joint family floater for his parents. The insurance companies price the family floater policies based on the age of the oldest member and health of the weakest member. By keeping himself out of the family floater, he will be able to reduce the premium for the entire family.

He must buy an adequate life and disability insurance for himself too. While the emotional void of losing a family member is difficult to fill, life insurance proceeds will ensure that they do not suffer financially. A term life insurance plan is the best and the cheapest way to buy life insurance. An accidental disability plan will come in handy if an accident results in disability and compromises his ability to earn.

Invest smart

About his investments, given his age, Anshul can afford to keep things simple. He needs to set aside money towards a contingency fund and any anticipated short-term expenses. Such money can be kept in fixed deposits or liquid funds.

The remainder of his savings can be routed towards a long-term portfolio. While he is young and can afford to invest aggressively, an aggressive portfolio does not mean 100 per cent equity. He must follow an asset allocation approach with an appropriate allocation to equities (both domestic and international) and debt.

A 60:40 equity:debt allocation is fine. He has to adjust equity exposure upwards or downwards slightly as per his risk appetite. He can also gradually add gold (5-10 per cent) to the portfolio for diversification. He must review and rebalance his portfolio annually.

Anshul must get the nominations right and keep the parents in the know of his investments and insurance. He can reconsider nominations when he gets married.

The writer is a SEBI-registered investment advisor at personalfinanceplan.in

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What is Tax Collection at Source (TCS)? Here’s a primer

Personal Finance

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There are certain new tax collection at source (TCS) rules that came into force from October 1, 2020 under the Income Tax Act 1961. While many of these provisions relate to goods and services, there are some that directly impact individuals. Before we get into how these provisions impact you, let us understand the ‘what’ and ‘how’ of TCS.

What is TCS?

Tax collection at source is the Income Tax Department’s way of sifting out certain high-value transactions under section 206C of the Income Tax Act. Transactions such as purchase of car for an amount exceeding ₹10 lakh, foreign currency remittances, and sale of goods above ₹50 lakh, among others, come under the ambit of TCS provisions.

How is TCS collected?

TCS is calculated on transactions beyond a certain threshold. Once these transactions breach that threshold, TCS is calculated on the value of the transaction. This amount is added to the transaction value and collected from the buyer or service recipient by the seller or service provider.

If the TCS to be collected is 1 per cent of a car purchased worth ₹15 lakh, then the TCS amount would be ₹15,000. You will have to pay ₹15,15,000 to the car dealer you have purchased the vehicle from.

The TCS amount will be recorded against the Permanent Account Number or PAN of the income tax assessee. This amount will be knocked off against the income tax liability of the assessee, if any, for the financial year in which the TCS was collected. Essentially, your tax outgo will reduce by the amount of TCS just like it does with tax deducted at source (TDS).

Changes from October 2020

The new amendments to the TCS provisions are relevant for those who make purchases in foreign currency, foreign currency remittances, purchase of an overseas tour package in foreign currency from a foreign tour operator, and invest in shares abroad. All these come under Reserve Bank of India’s Liberalised Remittance Scheme (LRS) that allows Indians to remit up to $2,50,000 a year abroad.

From October 1, 2020, while making purchases in foreign currency online through your debit card, credit card, or through online banking, tax will be collected at source by your bank or credit card company at 5 per cent of the value of the transaction on amounts exceeding ₹7 lakh a year. This is over and above any transaction fees that might be collected by the bank or credit card company. In case such aggregate purchases in a financial year are above ₹7 lakh, then TCS provisions will apply to the amount in excess of ₹7 lakh. This limit will be applied for transactions undertaken with an individual bank or credit card company.

For example, if you have made purchases online worth ₹15 lakh, then the TCS will not be applicable till the aggregate purchases cross ₹7 lakh. For each purchase above ₹7 lakh, TCS will be applicable. In case you have made three purchases above the threshold of ₹3 lakh, ₹3 lakh, and ₹2 lakh, then TCS on these transactions will be ₹15,000, ₹15,000 and ₹10,000. These TCS amounts will be billed to your account or credit card statement.

Then there is remittance of foreign currency for the purpose of education. The threshold for TCS applicability remains the same (above ₹7 lakh) and the rate of TCS is 5 per cent of the amount exceeding ₹7 lakh. However, there is a difference in the rate of TCS for foreign remittance for education purposes made by obtaining a loan and one made from own funds. TCS on foreign currency remittances above ₹7 lakh made for education by obtaining a loan (proofs will be demanded by the bank) will be at 0.5 per cent.

Investors who make investment in shares abroad by using the LRS will also be covered by the new TCS provisions. While making investments in shares abroad, the aggregate foreign remittance amount exceeding ₹7 lakh will be liable to TCS. The intermediary that allows you to make such investments will charge you the TCS once the total investment exceeds ₹7 lakh in a financial year.

Any other foreign currency remittance made under LRS will also be covered by the TCS provisions and the threshold limits of ₹7 lakh will apply. The TCS will be collected at 5 per cent of the value of remittance above ₹7 lakh.

For financial year 2020-21, the calculation of aggregate foreign currency remittance above ₹7 lakh will be considered from October 1, 2020 onwards only, and not for the entire financial year. From April 1, 2021 onwards, the TCS provisions will apply for the full financial year.

In case of a foreign currency remittance made for purchase of overseas tour package, there is no threshold limit of aggregate remittances of ₹7 lakh. Any such foreign currency remittance for purchase of an overseas tour package will be liable for TCS of 5 per cent.

In case the remitter of foreign exchange does not produce PAN, or the bank account does not have the PAN registered against it, TCS will be calculated at 10 per cent of the remittance amount.

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For conservative investors and retirees, tax-free bonds are a good bet

Personal Finance

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Over the past year or so, many banks have slashed interest rates on the fixed deposits (FDs) they offer, due to the successive repo rate cuts by the Reserve Bank of India (RBI). For instance, State Bank of India (SBI) now offers just 4.9 per cent for 1 year to less than 2 years tenure, and 5.4 per cent for tenures of 5 years up to 10 years.

Also, over the past few years, credit quality issues in debt instruments such as rating downgrades and default in repayments have given trouble to many fixed income investors. Such credit events led to a sharp erosion in the value of the investment products that held these distressed assets in their portfolio. So, capital safety has now become a prime concern for many retail investors.

Given the low interest rate regime, investors looking for debt instruments that provide returns relatively higher than bank FD returns, and also capital safety can consider tax-free bonds available in the secondary market.

Conservative investors and also retirees in the highest tax bracket looking for a regular income on a yearly basis can consider buying these bonds from the secondary market.

 

A total of 193 series of tax-free bonds issued by 14 infrastructure finance companies from FY12 to FY16 are listed on the bourses. They are traded in the cash segment on the BSE and the NSE. These tax-free bonds were issued by public sector undertakings and public financial institutions that are backed by the government of India. Hence, the investments made in these tax-free bonds enjoy capital safety.

Further, the bonds issued by most of these companies have the highest credit rating of AAA. Instruments rated AAA are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Attractive yields

Data compiled by HDFC Securities show that there are a handful of tax-free bonds with good credit rating that trade with relatively higher volumes and also offer reasonable yield to maturity (YTM) in the secondary market (see table). These include the series of PFC, NABARD, HUDCO and NHAI bonds.

 

For instance, the NHAI NR series (ISIN INE906B07EJ8), with a coupon rate of 7.6 per cent and residual maturity of 10.3 years, trade with a YTM of 4.8 per cent on the NSE. Since the interest paid by tax-free bonds are exempt from income-tax, the current yield of 4.8 per cent translates to 6.9 per cent pre-tax yield for investors in the 30 per cent bracket. This rate is higher than those offered by most bank FDs currently.

Both the BSE and the NSE facilitate the purchase and sale of tax-free bonds. These are listed and traded in the cash segment along with equity shares. Retail investors can buy and sell tax-free bonds through demat accounts.

While investing in tax-free bonds through the secondary market, investors should not just look at the coupon rate and the market price of the bonds. There are three parameters that they should consider — credit rating, YTM and liquidity.

YTM is the internal rate of return earned by an investor who buys the bond today at the market price, assuming that the bond is held until maturity, and that all coupon and principal payments are made on schedule.

HDFC Securities data shows that around 15 series of tax-free bonds were traded with YTM ranging from 4.4 per cent to 4.9 per cent and good daily average trade volumes over the last one month (see table).

Keep in mind that selling tax-free bonds in the secondary market attracts capital gains tax. If you sell them within 12 months from the date of purchase, you will have to pay tax on the gains as per your tax slab. If you sell after 12 months, tax has to be paid at flat rate of 10 per cent; no indexation benefit is available.

Factors to consider

Take into account the credit rating, YTM and liquidity of the tax-free bonds trading in the secondary market

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