What is Fiscal Cliff? how it will impact India

WHAT IS FISCAL CLIFF?

Post the economic crisis of 2008-09, the US economy has gone through the most difficult times in its age-old history. The economy had contracted drastically and the level of unemployment in the country had reached levels of the Great Depression of 1929. To save its economy, the US resorted to pumping huge sums of money into the economy (known as quantitative easing or QE) to revive the economic conditional as well as employment levels in the country. However, as a result of higher spending the US witnessed a quantum jump in its fiscal deficit. The US economy was already burdened by high fiscal deficit as a result of its spending over several social as well as other schemes, including financing of big wars outside the US in countries like Iran and Afghanistan.

The gap between spending and revenues was bridged through government borrowings As a result of higher borrowings, over the last several years its debt also kept on increasing from 55% of the GDP about two decades back to over 90% of the GDP recently.

WHY THE WORLD FEARS?

Many economists are of the opinion that if spending cuts and tax hikes contained in the Act come into effect, it will lead to a recession in the US and there would be a significant negative impact on employment levels in the US.

WHAT IT MEANS FOR INDIA?

The US economy is the largest economy in the world. Many countries including the emerging nations have close trade relations with the US. I believe that emerging countries like India have less dependence on the US in terms of exports as most nations over a period of time have diversified their exposures to other developed countries of the world. This could, however, mean that the pain would be less but it is surely going to impact India.To sum it up, we can say that all markets will react positively if the US reaches a deal and manages to avoid the fiscal cliff or als we would see another recession at the beginning of the year.

Tax Saving Exemptions: The simplest and easiest way to save taxes!

It is yet again that time of the year, when corporates start collecting the tax proofs from their employees. Like every other year, this year too many of us would have scurried and made submissions, in this hurry, one often misses to utilize the tax optimization benefit to the maximum extent.There are few items within your salary stack which enable you to save taxes without shelling out a single penny. These are termed as exemptions and tax free perquisites; here is an overview of the various exemptions/perquisites that one can claim.

Exemptions for Salaried Individuals

Exemptions can go a long way in enabling you to save ample taxes, often one misses to take adequate advantage of these. We take a quick trip across various exemptions that one can claim to reduce taxes significantly.

There was no monetary limit on LTA, the company would levy a limit. 2 trips in a block of 4 Yrs were allowed, for all income tax purposes one uses the FY ending 31^st March, for LTA one would use the Calendar year ending 31^st December. One needs to provide relevant proofs for the trip conducted, wherein route opted for should be the shortest distance and the destination has to be a single place.  Also, one needs to take leave from the company (min 2 days – may vary based on co., policy) for claiming this exemption.

Tax Free Perquisites

Company Car EMI arrangement – The EMI paid towards your Car will be directly reduced thereby reducing your tax liability. Food coupons, petrol / telephone re-imbursements are all items which will reduce your taxability.

Tax-efficient Investments

There are few investments which enable one to earn tax free returns, there are others wherein the returns are taxed, typically at normal rates or special rates depending on the type of instrument in which the investment was made. Returns from avenues such as PPF (public provident fund), ELSS (equity linked savings schemes), Insurance – Traditional / ULIP are tax free; on the other hand investment made in Fixed deposits, Pension plans, Infrastructure bonds are taxable. All the avenues mentioned above qualify for tax deduction. It is pertinent to choose tax efficient avenues and at the same time diversify even whilst planning for tax optimization.

Hope this brief helps you optimize your taxes effectively this time round!

Feel free to contact me for any query @ garvitdave87@gmail.com

Regards

Garvit 

How to become a crorepati in 10 years?

Dream Big. That's what the great Dhirubhai Ambani used to say. That's why I have a big dream to become a crorepati. And I am sure; you too must be nursing the same ambition.

Ok. Now that you and I have a dream we better get up and start working towards it. We have to figure out the shortest and the surest way to become a crorepati. A few ways, of course, are:

• Ø  Winning a lottery
• Ø  Winning the KBC show
• Ø  Getting it in inheritance
• Ø  Saving and investing with a plan that can get you there

Unless I am really lucky or extra-ordinarily talented my chances of becoming rich are slim by the first three ways. The fourth way seems to me like something that we can do to achieve our goal.

I want to become a crorepati in 10 years

Time is running out on you. Though 10 years is not a long duration, it is not too short either. So your dream can still be achievable.

•With a return of 15% per annum, the amount of savings required each month is Rs 36,334/-.

•With a return of 10% per annum, the amount of savings required each month is Rs 48,817/-.

•With a return of 5% per annum, the amount of savings required each month is Rs 64,398/-

For instance, if an investor puts Rs 1,000 every month in SBI Magnum Emerging Business Fund - the best performer among all equity funds in the past five years - for five years (Rs 1,000 x 60 months = 60,000), he would have been sitting on approximately Rs 1 lakh today, which amounts to 21 per cent returns.

"SIP investments average out market volatility by a good measure. Also, it prevents investors from trying to time the market. We're promoting SIPs in a big way as it enables small investments at regular intervals

As an investor you always look forward to investing in an asset class that would maximize your returns and history shows that equities as an asset have been most rewarding. Investing in equities isn’t a cakewalk though. It requires a lot of patience and research to build a fortune with equities.It is advisable to go with systematic Monthly Investment {SIP}........

Start Your SIP today!!!

Sources-MC,ET,Valueresearch

SIP for 3 yrs can fetch you 30% extra than Lump sum investment

If you have started SIP in HDFC Equity Fund since 1 January 2008, when equity markets were at its peak, you would have got a return of 39.22% by end-2010. However, if you had invested the entire as a lump sum, you would have earned just 10.80%.

Systematic investment plan (SIP) or lump sum investment is the million dollar question! Especially, in recent times when the stock markets move up by 500 points in one week and crash by another 500 points in the very next week.

What Is Systematic Investment Plan (SIP)?

Systematic Investment Plan (SIP) is a simple and effective way to secure your financial future through regular monthly contributions into a series of investment choices. Whether you are saving towards retirement, your children's education or for a high value purchase, SIP is highly effective as a disciplined approach to creating long term wealth.

Rational of Investting into Indian Equity Market 
An interesting fact to note is that if one had invested in the BSE SENSEX for any given period of more than 12 years in the last 29 years, he would never have lost money. As such, while somone who had invested in the markets for a shorter duration may have suffered losses, a preduent investor who would have remained invested in the markets from the beginning would have definitely made positive returns on his investments.

Conclusion

Systematic investment gives discipline to your financial life. It increases your saving potential and gives compounding returns which will help you achieve your objectives.

Start dedicated SIP and see your dreams coming true!!!!!

Mutual Fund Performance:Cap Wise

I am too young to start investment...Do you really think so??

Hi Friends,

You are probably among the many young guys like me who have left their parent’s home in pursuit of a career, a better pay, respected position, fame or simply to find yourself and grow in life. As easy as it may sound, living alone has a lot more responsibilities than you can think of. Tasks like house hunting, paying rent on time, managing daily expenses, watching movies, traveling to work, spending on food and after all this sending some money back home, can take a toll on your finances.

Financial planning success is bit easy to attain when you are young and ready to take little bit of risk.

I am sharing my financial plans with you which would be almost same for every one of us.

It was really not possible for me to buy an expensive bike at one shot, I planned for it and manage to get it thru dedicated SIP investment for it. 

Short to medium term planning is as important as long term goals. If you plan to buy a bike in a few years, you will need a lump sum for the down payment. You may also have the yearn to travel different places, planning for engagement or wedding, further education and so many. But well with a bit of planning it can be done.

Investment Mantra- “3 Investment concept or 3i concept”

Friends like Dr. Scruwala’s Three ball concept { in the movie Kya cool hai hum}, I too believe in three asset class or say investment options which are very effective tools of wealth creation and risk mitigation.

1.} Term Insurance-: Term insurance, as the name itself explains, is for a specific period of time, and has the lowest possible premium among all the other insurance plans available. The main reason to go for insurance is “Protection” and never to get returns from it.  Term plans are cheap and gives best protection for any future eventualities.

2.} Systematic Investment Plan {SIP}-: As an investor we should always look forward to invest in an asset class which gives us best returns on time so we can meet our goals.

Example-: Assume you have goal of accumulating 6 Lacs in 4 yrs for your wedding. It is better to go for Monthly SIP {benefits- Power of compounding and no need to time the market} in equity mutual funds and balance fund as need are coming after 3-4 yrs. And Equity mutual fund gives good returns in long term.

3} Fix Deposit- fix deposit is very fruitful investment option for people who fall under 10% tax bracket. It also gives assured returns with almost nil risk.

Conclusion

It's not too early to start planning for your future and saving for your long term goals. Consider the big picture. Do dedicated investment to each of your goal and see your dream coming true. The decisions you make today about your career, education, debt and retirement will stick with you and shape your future. So, invest in yourself.

Why Rupee is Depreciating??????

Now a days I am getting so many questions related to rupee/dollar value. When the rupee moves from 53 per US dollar to 56 per US dollar, why do we call it ‘rupee depreciation’ and not ‘rupee appreciation’ given that the rupee has risen against the dollar? Why it is happening and what are the factors which majorly control it?

This is a question for lot of people. Let us look at that with a simple example.

Let’s replace rupee with eggs. Today, one USD can buy 45 eggs. Tomorrow, 1 USD can buy 52 eggs. Doesn’t this means that eggs have become cheaper since you can buy more eggs for the same one USD? Alternatively, it means that eggs have depreciated in value.

The same is true for the rupee. When one USD can buy 45 rupees today and 52 rupees tomorrow, it means that the value of the rupee has depreciated.

The past two weeks have been disastrous for the rupee value against the dollar. The value of rupee against dollar has moved from 53.63 during the second week of May, 2012, to almost 56.5 during the yesterday.  The weakening of rupee may continue for some more time, as per the experts. This kind of increase in dollar value will have the drastic impact on the economy of the country like India, which depends too much on oil and other raw material imports.

How currency value is decided?

There are many economic factors, which decide the value of a currency. A currency will tend to become more valuable when its demand is higher than supply. It is the basic theory.

Exchange rates are expressed as a comparison of two currencies and it is always relative. Interest rates, rate of inflation and exchange rates are correlated.

What are the main reasons for depreciation of Indian rupee now?

Stock market performance

It is a known fact that Indian stock market is dominated by overseas investors. When the economy is performing well and stock market is performing better than other countries, overseas investors will become heavy investors here. To invest here, they require rupee. This will increase the demand for rupee and will result in higher value for rupee. On the other hand, when these investors are pulling money out of Indian stock market, rupee will be depreciated. Indian markets are in a bad shape for the last 1 year. The sentiments after the US downgrade and the European crisis etc. resulted in overseas investors selling in India and buying dollars.

In a bad performing market, when there is depreciation in rupee, it will bring down the overseas investors real returns. So they will start selling, which will again deepen the situation.Despite all the problems in the US, the dollar is still the safest paper currency in the world! So, there is more demand for dollar in volatile condition like this. This will add to the rupee depreciation.

Very high prices for gold have created panic among investors and fearing a bubble there, investors started moving towards dollar. This demand in dollar is also causing depreciation of rupee.

Inflation

Another factor affecting the currency value is inflation. We are experiencing very high inflation rate in India now. This will decrease the purchasing power against other currencies. This will leads to depreciation of the currency.

Current account deficit

Current account deficit occurs when a country’s total import exceeds the total exports. This makes the country, a net debtor to the rest of the world. A high deficit indicates, we are doing more trading outside the country than it’s actual earning inside the country. This is not good for the country because, the country needs to buy more foreign currency. More demand for the foreign currency will reduce the value of that country’s currency.

India’s current account deficit is more than the expected level now and this also contributes to the depreciation of Indian rupee.

Why and how RBI control exchange rate?

RBI will interfere in this area because a steady value of rupee is essential for the orderly growth of the economy. A depreciating rupee will harm oil marketing companies, and other import oriented businesses. This may help the software companies and other exporters, who get their payment in dollars.

RBI will be watching the position and interfere to stabilize the currency value. In case of depreciation, RBI will sell foreign currency from the reserve and this will help in arresting the fall of rupee to some extent.

The RBI is likely to have sold dollars in spot markets via public sector banks to prevent the rupee from falling beyond the psychologically key level of 56 per dollar, according to reports. The RBI is also said to have intervened in the forward markets. Some banks were seen selling off their long dollar positions ahead of the weekend. Some selling from exporters who had missed Thursday's deadline to convert half of their foreign currency holdings into rupees was also cited by traders, according to reports. Besides selling of dollars by some public sector banks and exporters, a rebound in the local stocks and steps taken by the RBI helped the rupee recover from an all-time low on Thursday. The RBI will take the required steps, consistent with its policy, to curb swings in the rupee

Source-Stateofthemarket.finvin.in