Friday, 25 December 2009

NPS - Not Cheap

NPS is not that much cheap as it's look in first glance. For investors of higher amounts indeed it's providing the benefit of size but for small investors it's not cheap at all. For a small investors investing just 6K Rs. the minimum yly. subscription, sample this.

Fund management charges are low enough, but the fixed charges are high. In a bad year, when you barely manage to invest 6000 in the requisite 4 yearly installments, you incur the following charges:
A. Account opening charge of Rs. 50 (only required for the first year)
B. Annual maintenance charge of Rs. 350
C. 4 transactions, Rs. 10 fees to CRA for each. Total Rs. 40.
D. Registration with PoP (Point of Presence, kind of the investor’s broker): Rs. 40. This will be required not just the first time, but everytime the PoP is changed for some reason (e.g. migration from one location to another)
D. 4 transactions, Rs. 20 fees to PoP for each. Total Rs. 80.
Other charges are negligible; but these charges total to Rs. 560. This is 9.33 percentage of the investment for the year (Rs. 6000). Consider it kind of an entry load for NPS.

In the light of the above facts, NPS is useful for investors who r going to commit higher amounts, as barring Fund management charge, all other charges r not linked to the investment or fund, instead they r fixed in nature & may prove counter productive for lower investment amounts.



Saturday, 19 December 2009

Date of purchase?

Q. - Dear Ashal,

Thanks for the yeoman service you have been doing to help us with our taxes

Now i had one more query on behalf of my neighbor, can the sale of land that was actually paid for say 10 years back but registered only this month attract capital gains tax if sold today? Or its 3 years from the date of registration thats taken into consideration for capital gains tax.. She bought some plantation property 10 years back on instalment scheme and wants to sell it now though it was registered only last month...Thanks in advance. - Radhika Nandlal

Ans. - Dear RN, from the points mentioned by u, the date of allotment (i.e. some 10 years back) 'll be considered as the date of purchase.

The reason is - Installment scheme of pmt. of the price (as agreed upon at the time of allotment) is merely a mechanism to pay the price over a period of time.

The right on the property were created on the date of allotment itself. In between all these years never ever these rights were questioned & both the parties were following the agreement.

Hence for calculation of Capital gains, the date of allotment 'll be considered as the date of purchase.

There r several instances in court cases where the honorable courts have held the views as stated above.

The details of such court cases can be obtained from various sources - Tax advocates, Tax websites, Taxation experts.

Regarding date of registration I'll only say that it's merely a change of names for the property in question in the records of Registrar of Properties.



Monday, 14 December 2009

UTI Wealth Builder Fund Series II

Q. Dear Ashal,
This fund`s theme seems to be good. Is it worth investing? I am asking, since I have invested in Gold funds (I was going to quit these ones and start investment in Gold ETF). But now i want to know, what will be good.


Ans. Dear MIK, this UTI fund is in a class of it`s own. Having at least or more than 65% Eq. exposure (this is to gain from the Taxation window for Eq. MFs) & mandated to not more than 35% in gold ETFs or money market instruments, it`s very hard to compare this fund with any other fund.

The fund is relatively new (just completed it`s 1st year of operation in Nov. 2009). From it`s launch in Nov. 2008, till March 2009 the Eq. as well as Gold market, both were dull. From march 2009 onwards, both these asset class r firing all guns blazing. This may create a misleading picture due to super duper performance.

In future how it`s Eq. component 'll perform is yet to be tested. having only 35% Gold ETF exposure may not give enough diversification for a person who wants to invest a part of his portfolio in gold ETFs. Yes to have a Gold exposure as per ur requirement u w`d have to stop in some of ur other plain Eq. funds to keep the Eq. & Gold ratio in ur portfolio at ur desired level.

Sample this what i mean.

I assume Gold price 17K per 10 gm.

In normal if u want to invest for 1 gm. of gold in ur portfolio ur inv. amount `ll be 1700 Rs.
In case of this UTI Wealth Builder Fund II, to have the same 1 gm. Gold u w`d have to invest around 5K Rs. - 1700 Rs. for 1 gm of Gold & remaining 3300 Rs. for 65% eq. exposure. As u rinvesting additional 3300 Rs. in Eq. thru this fund, u w`d have to stop some of ur other funds. To maintain the over all balance of Eq. & Gold.

In general, people may invest from diversification point of view to have exposure in 2 asset class under a single investment.