Tax Planning & Help

Tax Saving ?

Posted by : ashalanshu

Dear Radhika_nandlal, My take on Interest Rate -

Almost every indian Investor/saver have deposits in Banks. Over the last 18-24 months, the banks r offering higher rates on deposits (test case u r thinking to join this @ 11% FD).

Add 2.25-2.5% administrative cost & profit margin for banks on these deposit rates. The effective lending rate works out to around 12-13% but wait there is another twist in the tale named as CRR (Cash reserve ratio). For every 100 Rs. accepted by bank as deposit, it `ll have to keep 7.5 Rs. (after recent reduction of 1.5%) mandatorilly with RBI & it `ll be non income earning.

So from the 100 Rs. deposited by u, the bank `ll be able to lend only 92.5 Rs. & before the CRR cur the same figure was 91 Rs. only. So the effective lending rate comes around 14-15%. Now add at least 1-2% NPAs (non performing assets), the same lending rate `ll move on to on more higher level around 15.5-16%.

Now change ur shoes from depositor to borrower, R u ready to borrow at such higher rates to purchase -
1. That Plasma Panel
2. That High speed Mobike for ur son
3. That Grand new sedan costing 10+L
4. That sweet little (lavish) home costing anywhere from 20L to some crores depending upon in which place of india u r.
5. That drean swiss vacation
.......
......

The list goes on & on, but one thing is certain u `ll certainly cutback some of the above mentioned purchases or delay the same.

Now imagine u r not a domestic borrower but a corporate borrower. To increase ur capacities or starting a new factory or any other business requirement, after taking loans at such higher rates, how `ll u earn profits when the sale of ur products (CAR, Bike, Consumer goods, Homes....) is going down.

Sooner or later, the interest rate `ll go down, how much
I DON`T KNOW, by when, again I DON`T KNOW.

I know only one thing, for a healthy growth, low interest rates r essential.

Thanks

Ashal

Tax Saving ?

Posted by : chchch

Madam, I agree with you that it will be wise to book long term FDs in high interest rate regime. There are some products even in natinalised banks to take advantage of the high interest rate regime. PNB offers a product called Flexi RD, wherein one can initially, say, open the account for say a min. deposit of Rs.100/- to be deposited every month for say 120 months (this is only an illustration). Monthly instalments can be upto 10 times the min. deposit, thus one can deposit Rs.100/- in a particular month or in multiples thereof upto 10 times i.e. Rs.1000/-. Even if the deposit rates go down, the rate of interest applicable will be as on the date of opening the deposit. A more similar product is available in IOB, wherein in the first year one deposits say Rs.100/- per month for 12 month, in the second year Rs.200/- per month and so on thereby increasing the instalments by Rs.100/- every year, UPTO 10 years.

Tax Saving ?

Posted by : chchch

Madam, I agree with you that it will be wise to book long term FDs in high interest rate regime. There are some products even in natinalised banks to take advantage of the high interest rate regime. PNB offers a product called Flexi RD, wherein one can initially, say, open the account for say a min. deposit of Rs.100/- to be deposited every month for say 120 months (this is only an illustration). Monthly instalments can be upto 10 times the min. deposit, thus one can deposit Rs.100/- in a particular month or in multiples thereof upto 10 times i.e. Rs.1000/-. Even if the deposit rates go down, the rate of interest applicable will be as on the date of opening the deposit. A more similar product is available in IOB, wherein in the first year one deposits say Rs.100/- per month for 12 month, in the second year Rs.200/- per month and so on thereby increasing the instalments by Rs.100/- every year, UPTO 10 years.

Tax Saving ?

Posted by : radhika_nandlal

Ashal,

Yes sooner or later bank interest will go down. The best thing to book long term FDs coz interest may go down just as swiftly as it went up.

Tax Saving ?

Posted by : ashalanshu

Dear Radhika_nandlal, My take on Interest Rate -

Almost every indian Investor/saver have deposits in Banks. Over the last 18-24 months, the banks r offering higher rates on deposits (test case u r thinking to join this @ 11% FD).

Add 2.25-2.5% administrative cost & profit margin for banks on these deposit rates. The effective lending rate works out to around 12-13% but wait there is another twist in the tale named as CRR (Cash reserve ratio). For every 100 Rs. accepted by bank as deposit, it `ll have to keep 7.5 Rs. (after recent reduction of 1.5%) mandatorilly with RBI & it `ll be non income earning.

So from the 100 Rs. deposited by u, the bank `ll be able to lend only 92.5 Rs. & before the CRR cur the same figure was 91 Rs. only. So the effective lending rate comes around 14-15%. Now add at least 1-2% NPAs (non performing assets), the same lending rate `ll move on to on more higher level around 15.5-16%.

Now change ur shoes from depositor to borrower, R u ready to borrow at such higher rates to purchase -
1. That Plasma Panel
2. That High speed Mobike for ur son
3. That Grand new sedan costing 10+L
4. That sweet little (lavish) home costing anywhere from 20L to some crores depending upon in which place of india u r.
5. That drean swiss vacation
.......
......

The list goes on & on, but one thing is certain u `ll certainly cutback some of the above mentioned purchases or delay the same.

Now imagine u r not a domestic borrower but a corporate borrower. To increase ur capacities or starting a new factory or any other business requirement, after taking loans at such higher rates, how `ll u earn profits when the sale of ur products (CAR, Bike, Consumer goods, Homes....) is going down.

Sooner or later, the interest rate `ll go down, how much
I DON`T KNOW, by when, again I DON`T KNOW.

I know only one thing, for a healthy growth, low interest rates r essential.

Thanks

Ashal

Tax Saving ?

Posted by : radhika_nandlal

Ashal,

I realized i am no good in finance. If i remember one thing i forget the next and my parents know nothign but FDs... so its no use.. most brahmins are like that...

I have so many policies, ICICI MILLINOARE BONDS, etc etc.. the houses i sold off coz i knew if i sell this i get this and its a multiple but in these insurance policies and millionare bonds i have to calculate inflation to see the worth and i dont know how to consider inflation when arriving at networth.

BTW ystday finance minister said IIP numbers may not be correct.. i was aghast.. i though IIP numbers are released by the govt? Wonder who releases the IIP numbers.. so they have no hand in the release of such data? What a disconnect between growth and IIP numbers.

When u plan do u take inflation also into account.

Going forward do u see interest rates hardening or softening?

Tax Saving ?

Posted by : pcspune

Dear Radhika Nandlal,

For God sake DONT Invest even 1 Rupee in any Pension Plan due to POOR Annuity Returns & Adverse Tax Laws.

Instead of Putting money in FD, Invest in UTI Mahila Unit Scheme with Dividend Reinvestment Option ( Div.Tax Free) to earn more than 11% on long Term Basis. This Scheme Invests less than 30% in shares
& more than 70% in Fixed Income Instruments. Even today,its 1 year/2year Returns are +ve.

P.C.Sharma

Tax Saving ?

Posted by : radhika_nandlal

Typos read it as

What i wanted to understand was will breaking the FD of 35L earning me 9.5% interest

Tax Saving ?

Posted by : radhika_nandlal

Subasu,

I am having 35Lakhs in one FD at 9.5% intrest, now state bank offers 11% interest. Since this FD was booked for 3 years if i break it now i will have to pay back some money as FDs less than 3 years only earned 8.5% interest...

Should i break it and put it in the 11% FD?

Thanks

Also i have so many insurance policies that mature in 2020 thereabouts.. do u think it would be foolish on my part to discnotinue them and claim the money for investment in stockmarkets? Woudl u advise. One of them is a pension plan whose instalment premium is 27K per year and notional cash option is 20L and amount of annuity is 2L.. how much pension will this give me from 2020? Would you know its Jeevan Dhara.. since it will only give me pension and not lump sum shall i discontinue it? If i continue what pension do i get.... thanks in advance.

Tax Saving ?

Posted by : subasu

Index of Industrial Production is released by the Government of India, Department of Statistics in the Ministry of Finance. As we all know, statistics in India is a science yet to be perfected. Not all industries report their performance in time. That is why you will find the data published in the RBI`s monthly bulletin has data which is six months old at the time of publication. I am in agreement with the Honourable FM. Now, I foresee a drop in interest rates as that will put back the industrial production on rails. Borrowers of home finance will also have some relief in home loan interest rates.

Tax Saving ?

Posted by : subasu

Index of Industrial Production is released by the Government of India, Department of Statistics in the Ministry of Finance. As we all know, statistics in India is a science yet to be perfected. Not all industries report their performance in time. That is why you will find the data published in the RBI`s monthly bulletin has data which is six months old at the time of publication. I am in agreement with the Honourable FM. Now, I foresee a drop in interest rates as that will put back the industrial production on rails. Borrowers of home finance will also have some relief in home loan interest rates.

Tax Saving ?

Posted by : radhika_nandlal

Ashal,

I realized i am no good in finance. If i remember one thing i forget the next and my parents know nothign but FDs... so its no use.. most brahmins are like that...

I have so many policies, ICICI MILLINOARE BONDS, etc etc.. the houses i sold off coz i knew if i sell this i get this and its a multiple but in these insurance policies and millionare bonds i have to calculate inflation to see the worth and i dont know how to consider inflation when arriving at networth.

BTW ystday finance minister said IIP numbers may not be correct.. i was aghast.. i though IIP numbers are released by the govt? Wonder who releases the IIP numbers.. so they have no hand in the release of such data? What a disconnect between growth and IIP numbers.

When u plan do u take inflation also into account.

Going forward do u see interest rates hardening or softening?

Tax Saving ?

Posted by : subasu

I find that you will still be able to get Rs. 28K more after paying the penalty of 1% for two years.

I suggest you straightaway go to SBI and ask them what will be the net gain accruing to you if you break this deposit. (Some official of SBI once told me that there may not be any penalty since you are not closing the FD but only renewing it for a fresh period at a different rate of interest.)

Tax Saving ?

Posted by : ashalanshu

Dear Radhika_nandlal, U r time & again talking about Jeewan dhara Plan, but in my view ur Hubby had started New Jeewan Dhara or New Jeewan Dhara - 1.

The reason is, the plan named as Jeewan dhara was discontinued by LIC way back in 2001. This plan was just like an FD/KVP offering from LIC. Under this plan, the single prem. invested `ll be returned after 10Years as 3 times. Say u had invested 1L Rs. in 2000, u `ll get 3L Rs. in 2010.

As u r telling that u r paying prem. yearly, it means the older jeewan dhara plan is not with U. Infact the new Jeewan dhara Plan is a deffered annuity plan. Returns under this plan r very pathetic. Only around 2.5 to 3.5% during accumulation phase. Every year LIC announces bonuses for these policies & these bonuses r simple reversionary bonuses.

Even after completion of defferment period (read prem. paying term), the pension received from these plans is very - very poor.

Make an informed decision.

Thanks

Ashal