23 August 2016

Best funds for short-term goals - These funds score over bank FDs.

Though returns are market-linked, short-term debt funds are fairly stable and best suited for goals that are 1-3 years away. They are also more tax efficient than FDs.
Though bank deposits are the preferred in strument to save for short-term goals, debt mutual funds can be a better alternative. They are more tax efficient if held for more than three years and can even generate higher returns for investors. You could be saving to buy a car, go on a foreign holiday or even putting away money for your child's college admission. Meet Bengalurubased Waman Prabhu (see picture), who is saving to buy a car in about 2-3 years. A short-term debt fund will give him greater flexibility and better tax efficiency than bank deposits.

While Prabhu plans to start SIPs in a short-term debt fund, investors can even put a lump sum amount in these funds. Jenny D'Souza has saved about `7 lakh for her daughter's foreign education. She might need the money in 16-18 months, maybe even longer.A short-term debt fund will give her the required flexibility without tying her down to a fixed tenure.

Are debt funds safe?
It is a fallacy that debt funds cannot lose money. Their returns are linked to interest rate movements.When rates fall, the value of the bonds held by the mutual funds goes up, and vice versa. Interest rate cuts in the past six months have led to a rally in long-term bonds. But short-term debt funds hold bonds with a maturity of 1-2 years and are therefore not very sensitive to interest rate movements. Their earnings are primarily from the accrual of interest on the bonds they hold. Experts believe these funds will do well in the coming months. “Even though we may see one or two more rate cuts, we expect short-term bonds to outperform in the coming months,“ R.Sivakumar, Head of Fixed Income at Axis Mutual Fund.

In fact, smart money has been flowing into this category for some years now. “The AUM of short-term debt funds has shot up in the past one year. High net worth investors are using short-term debt funds as a tax efficient replacement of fixed deposit,“ reveals Kalpen Parekh, CEO, IDFC Mutual Fund.

Income funds, on the other hand, have a slightly longer maturity profile of 4-5 years. These funds will do well if interest rates are cut further, though experts are divided on whether the RBI will cut rates. If rates are not cut, income funds will give tepid returns. Even so, they are likely to give better post-tax returns in the 30% tax bracket. However, they may suffer some hiccups in the near term because bond yields are close to 7% now. Historically, long-term debt funds have not done too well when bond yields are so low. Go for them only if you intend to remain invested for at least 4-5 years.

When investing in a debt fund, do note that there is a small exit load (0.25-0.5%) payable if you withdraw before a minimum period. This minimum period is usually 6-12 months but can extend to 1218 months in some cases. SIP investors should note that each monthly instalment is treated as a separate investment. Let's assume that a fund charges exit load if investments are withdrawn before 6 months. If one starts a 12-month SIP in September 2016 and withdraws the entire amount in September 2017, only the first six SIPs will escape the exit load.

Sujit Waingankar
P V Bhagwat Investment Guidance Cell

14 April 2016

UPI - Unified Payment Interface

The way we undertake money transactions in India is expected to change dramatically with the introduction of the (UPI), which aims to move the country towards a more model. Developed by The (NPCI), the payment interface is expected to be a game changer in mobile banking.

Shikha Sharma, managing director and CEO of Axis Bank, considers the ‘WhatsApp moment’ for payments in India.

The Reserve Bank of India (RBI) in its Payment System Vision Document (2012-2015) had mentioned the use of UPI for achieving its goal of a lower cash-intensive society and financial inclusion using the latest technology.

Here’s a closer look at what the RBI is trying to achieve through UPI and how it will make our lives easier. But before that, let’s look at the current status of non-cash transactions in the country.

According to an document, the number of non-cash transactions per person stands at just 6 per year. Only a fraction of the 10 million-plus retailers in India have card payment acceptance infrastructure – presently this number stands at 0.6 million, or 6%. What these numbers reflect is the potential that exists as penetration of smart phones is projected to increase from the current level of 150 million to 500 million over the next few years.

What are the key drivers of UPI?

The NPCI document points out that the key goal of implementing UPI was to simplify and provide a single interface across all segments. The key drivers for this are:

Simplicity: The thinking behind the UPI was to make the application as simple as possible. Paying and receiving payments should be as easy as swiping a phonebook entry and making a call on mobile phone, says the document. An account holder should be able to send and receive money from their mobile with just an identifier without having any other bank/account details. All they need to do is to "pay to" or "collect from" a “payment address” (such as number, Mobile number, RuPay Card, virtual payment address, etc.) with a single click.

Innovation:  The idea here was to come up with a solution so that innovations on both payee and payer side can evolve without having to change the whole interface. It should allow application providers to take advantage of enhancements in mobile devices, provide integrated payments on new consumer devices provide innovative user interface features, take advantage of newer authentication services, etc.

Adoption:  Given the size of the potential user base, the key was to have a solution which should not crash and be scalable to a billion users and enable large scale adoption. It should allow gradual adoption across smartphone and feature phone users and provide full interoperability across all payment players, phones, and use cases. People using smartphone should be able to send money to others who are not yet using any mobile application and vice versa. Similarly, it should allow full interoperability between multiple identifiers such as Aadhaar number, mobile number, and new virtual payment addresses.

Security: One of the key areas of concern among users is security. The solution had to provide end-to-end strong and data protection. The trick here was not to reveal too much data like banking or other personal details which could be misused. For convenience, the solution also had to offer 1-click 2-factor authentication, protection from phishing, risk scoring, etc.

Cost:  India is a cost-conscious country and any product with a high cost is likely to have a short life. Since number is used as an authentication (credential capture) device, use of virtual payment addresses, and use of third party portable authentication schemes such as Aadhaar should allow both acquiring side and issuing side cost to be driven down.

What are the objectives of UPI?

The key objective of a unified system is to offer an architecture to facilitate next generation online immediate payments leveraging trends such as increasing smartphone adoption, Indian language interfaces, and universal access to Internet and data.

UPI is expected to further propel easy instant payments via mobile, web, and other applications. The payments can be both sender (payer) and receiver (payee) initiated and will be carried out in a secure, convenient, and integrated fashion. Virtual payment addresses, 1-click 2-factor authentication, Aadhaar integration, use of payer’s smartphone for secure credential capture, etc. are some of the core features. It supports the growth of e-commerce, while simultaneously meeting the target of financial inclusion.

Who can use UPI?

Anyone with a mobile phone and a bank account will be able to take benefit of UPI for either receiving or transferring money.

How is it different from the existing system?

In the present system, in order to make any the account holder’s bank IFSC code is needed, which reveals bank account details. But using UPI, all one needs is a virtual address which is unique to you and it camouflages the bank and personal detail of the user or the receiver behind it.

What is the level of security in UPI?

UPI has a single click-two factor authentication system which means that with one click the transaction is authenticated at two levels. The user will need a mobile phone with a mobile pin called MPIN and a virtual ID offered by the provider. With a click the transaction is checked if the mobile pin matches with the virtual address only then does the transaction goes through.

Here is an example to explain the process.

Suppose you have bought some goods at a mall and need to make a payment for it. You have to inform your virtual address to the person at the counter who enters the address in his or her system. The mall’s system then sends an authentication message to the virtual address which is mapped to your mobile. Only after receiving the message and acknowledging it by entering your password is the transaction complete and the amount debited from your bank account or wallet.

Is virtual address unique to the user?

Virtual addresses offered by the provider need not be permanent. For example, a provider may offer “one time use” addresses or “amount/time limited” addresses to customers. In addition, innovative usage of virtual addresses such as "limit to specific payees" (e.g., a virtual address that is whitelisted only for transactions from IRCTC) can help increase security without sacrificing convenience. PSPs can allow their customers to create any number of virtual payment addresses and allow attaching various authorisation rules to them.

UPI is important for implementation of the (Jhan Dhan Yojana, Aadhar and Mobile) trinity which Finance Minister Arun Jaitley spoke of during his Union Budget presentation. Raj Jain, chairman and managing director of RS Software, the company that helped NPCI launch UPI, said: “The launch of UPI will go down in history as amongst the most important initiatives to transform India.”

29 February 2016

Union Budget 2016: At a Glance

* To start National Dialysis Service under PPP mode
* To exempt certain dialysis equipment from basic custom duty
* Health protection scheme with 100,000 rupee/family cover
* 3000 drug stores to be opened under PM Aushadhi Yojana
* To provide 130,000 rupee/yr health cover to senior citizens
* To launch new health protection scheme

* Propose to circulate model shops and establishments bill
* To give choice to shops to remain open on 7 days/week
* 10,000 km of national highways to be added FY17
* Total outlay for infra 2.21 trln rupees FY17
* Total outlay for roads, railway 2.18 trln rupees FY17
* Total investment in road sector 970 bln rupees
* NHAI to raise 150 bln rupees via bonds FY17
* Allot 550 bln rupees for roads, highways FY17
* 85% of 70 stranded road projects back on track FY16
* To allot 550 bln rupees for roads, highways
* India's highest ever kilometre of highways awarded in 2015
* 30 bln rupees/yr to augment nuclear power in 15-20 yrs
* Mkt freedom for gas from difficult blocks to have price cap
* Mull calibrated mkt freedom for gas from difficult blocks
* Need to diversify resources for power generation
* Drawing up comprehensive plan on nuclear power
* To incentivise ultra-deep sea gas exploration
* Achieved highest coal production growth
* To provide incentives for gas production from tough blocks
* 10 non-functional air strips to be redeveloped
* To partner with state govts to develop airports
* Started series of measures for modernising ports
* To partner with states to develop regional airports
* Medium-term goal is to abolish permit raj
* Plan new public transport policy to up pvt participation
* FY17 allocation for new port development 8 bln rupees
* Motor Vehicles Act to be amended to up passenger segment
* New greenfield ports to be developed on east, west coasts
* Govt to open up road transport sector
* Medium-term goal is to abolish permit raj
* 50,000 km state highways to be converted to national highways
* FY17 total infrastructure outlay 2.21 trln rupees
* To have new policy for mgmt of assets of PSUs
* NITI Aayog to identify PSUs for strategic sale
* To encourage PSUs to divest individual assets
* 100% FDI in marketing of food pdts produced in India
* To have more FDI reforms in asset restructuring companies
* To change FDI policy for asset reconstructions cos
* To modify FDI policy for bourses, asset recast cos
* Duty drawback schemes to be widened, deepened
* Have deepened, expanded duty drawback scheme
* More FDI reforms in insurance, stock exchanges, pension
* To modify FDI policy for insurance, pension sectors
* FDI policy to address requirements of farmers
* To allow mobilisation of 313 bln rupee by govt infra bodies
* Mulling gas production incentive from high temperature area
* May incentivise gas production from ultra deep water areas
* Mulling incentives for gas production from deep sea areas
* New credit rating system for infra to be developed
* To issue guidelines for renegotiation of PPP contracts
* Received conflicting suggestions on FRBM roadmap
* To amend Companies Act for ease of doing business
* Will amend companies act this Parliament session
* Registration of cos to be done in one day
* 300,000 fair price shops to be automated by Mar 2017

* Banking Board bureau to be operational in FY17
* To strengthen debt recovery tribunal
* Considering cutting stake in IDBI Bank to below 50%
* Stand solidly behind PSU banks
* To find resources if PSU banks need additional capital
* Allot 250 bln rupees for recapitalisation of PSU bks FY17
* Not interfering in lending activities of PSU bks
* To amend SEBI act to provide for more SAT benches
* To bring legislation FY17 on illicit deposit taking schemes
* Sponsor in asset recast cos can hold 100% stake
* Financial Data Management Centre to be established
* To allow 100% FDI in asset recast cos
* To make necessary amendments in SARFASI Act
* Bankruptcy code to help deepen corporate bond mkt
* SEBI to develop new commodity derivative pdts
* SEBI to introduce new derivative pdts in commodity mkts
* To adopt comprehensive approach for invest in central PSUs
* To introduce comprehensive Bankruptcy Code in Parliament
* To rename divest dept as Dept of Invest & Public Asset Mgmt
* To amend RBI Act to implement monetary policy framework
* Vibrant fincl sector critical for econ growth
* PM Mudra Yojana target to give 1.8 trln rupees loans FY17
* To draw road for consolidation of PSU banks
* Banking board bureau to be operationalized in FY17
* To draw roadmap for consolidation of PSU banks
* To take up massive rollout of micro-ATMs across nation
* Public money should reach poor without leakages
* Nationwide roll out of ATMs via post offices
* To list govt-owned general insurance cos on stock exchanges
* To list general insurance cos on stock exchanges
* To set up panel to review FRBM Act
* Time has come to review FRBM Act
* Propose to set up committee to review FRBM Act
* Govt open to reducing its stake in PSU banks below 50%
* Consolidation roadmap for PSU banks next year

* Propose changes in customs duty to push Make in India plan
* Exempt svc tax on general insurance plans in Nirmaya scheme
* Committed to implementing GAAR from Apr 1, 2017
* Asset recast cos' income to be taxed at hands of investors
* Propose special patent regime to power innovation, research
* Services provided by EPFO exempted from service tax
* STT of 0.05% on options contracts
* Service tax waiver for houses of less than 60 sq mtr
* Service Tax exempt for svc under rural electrification plan
* To give excise duty exemption to ready-mix concrete
* Excise of 12.5% with input tax credit on jewellery
* To abolish 13 cesses by ministries
* To amend Central Value Added Tax credit rules
* To amend CENVAT credit rules
* Taxation panel to fix demand under retrospective tax cases
* Hope old cases on retrospective tax reach conclusion soon
* No retrospective taxation to be undertaken
* 1-time no-interest liability in retrospective tax cases
* To up excise duty on various tobacco products by 10-15%
* Cos incorporated post Mar 1 to be taxed at 25%+ surcharge
* Doubles clean energy cess on coal to 400 rupees/tn
* To up excise duty on some tobacco pdts by 10-15%
* Infra cess of 2% on diesel cars
* 4% infra cess on high capacity vehicles, SUVs
* To levy 1% infra cess on small petrol, LPG, CNG cars

* Plan simplification, rationalisation of taxes
* Tax rebate on rent paid upped to 60,000 rupees vs 24,000
* Tax changes to support Make in India, affordable housing
* To give relief to small taxpayers
* To launch steps to move towards pension society
* To give relief to small tax payers
* Withdrawal upto 40% from Natl Pension plan to be tax exempt
* To allow lower corporate tax for some cos from FY17
* Reduction in corporate tax has to be calibrated
* Faster depreciation rate under income tax act at 40% FY17
* Reduction in corporate tax has to be caliberated
* Detailing roadmap for phasing out corporate tax exemption
* Propose 0.5% Krishi Kalyan cess on all taxable svcs Jun 1
* Propose Krishi Kalyan cess
* To raise surcharge on income over 10 mln rupees to 15%
* 10% tax on recipient if got dividend over 1 mln rupees/yr
* Some home buyers to get extra exemption of 50,000 rupee/yr
* No changes in income tax slabs
* To rationalize tax deducted at source for small tax payers
* Penalty of 200% of tax for misreporting of income
* Penalty of 50% of tax for under-reporting of income
* Penalty to be 50% of tax in income under-reporting cases
* Modifying scheme of penalty under Income Tax Act
* Revenue secy to head committee on taxation
* Committed to stable, predictable taxation regime
* To focus on bringing to book people with black money
* Prosecution immunity for undisclosed income declaration
* 300,000 tax cases worth 5.5 trln

Rupees pending
* New dispute resolution scheme for taxation proposed total 45% Tax
* Compliance window for undisclosed income Jun 1-Sep 30
* 7.5% surcharge on undisclosed income in compliance window
* Govt committed to removing black money
* To move towards low tax regime with non litigious approach
* Limited period compliance window on undisclosed income
* To strongly counter tax evasion

* Moving towards a low tax regime