Personal Finance

Petrol prices in India are costlier than the US but cheaper than European countries, Minister of State for Petroleum and Natural Gas R P N Singh said today. Petrol in Delhi is priced at Rs 63.70 a litre, while the same in USA is priced at Rs 42.82 per litre. The price in India is more than any of its neighbours -- Pakistan (Rs 41.81 a litre), Sri Lanka (Rs 50.30 per litre), Bangladesh (Rs 44.80 a litre) and Nepal (Rs 63.24 per litre).

But the rate in Delhi is cheaper than France (Rs 94.97 per litre), Germany (Rs 95.99 a litre), the United Kingdom (Rs 96.39 per litre) and Italy (Rs 96.79 a litre), he said in a written reply to a question in the Rajya Sabha here.

Higher rates for petrol in India are due to higher incidence of taxes. Without taxes, petrol would cost Rs 23.37 per litre in Delhi. The diesel price in Delhi, at Rs 41.29 per litre, is cheaper than in the US and European nations, but costlier than Sri Lanka and Bangladesh. Without taxes, diesel would cost Rs 24.90 a litre. The current price of diesel in Delhi is Rs 4.97 a litre below its actual cost.

In the US, diesel is priced at Rs 45.84 a litre, while in France, it costs Rs 69.87 per litre. In Germany, diesel costs Rs 72.54 a litre, while it is priced at Rs 82.93 a litre in the UK and Rs 74 per litre in Italy. In the neighbourhood, diesel is priced at Rs 46.70 a litre in Pakistan, Rs 45.38 a litre in Nepal, Rs 34.37 a litre in Sri Lanka and Rs 27.32 per litre in Bangladesh.  Singh said the PDS kerosene price of Rs 14.83 a litre in Delhi was the lowest in the region, with the cooking fuel priced at Rs 44.06 per litre in Pakistan, Rs 24.67 in Sri Lanka, Rs 27.32 in Bangladesh and Rs 45.38 a litre in Nepal.

Similarly, the domestic LPG rate of Rs 399 per 14.2-kg cylinder is lower than the price tag of Rs 757.04 in Pakistan, Rs 863.40 in Sri Lanka, Rs 469.24 in Bangladesh and Rs 819.60 in Nepal. The price of kerosene is subsidised by Rs 23.74 a litre and LPG by Rs 247 per cylinder in India. Singh said oil marketing companies pay a Trade Parity Price (TPP) for the purchase of petrol/diesel and Import Parity Price (IPP) for the purchase of PDS kerosene and domestic LPG.

"The IPP/TPP are determined based on prices prevailing in the international market," he said. "Further, the retail selling prices of sensitive petroleum products for the consumers is calculated by adding the inland freight, marketing margins and duties and taxes to the price paid to refinery." The government controls prices of diesel, PDS kerosene and domestic LPG to insulate the common man from the impact of rising oil prices in international markets, he added.

Source: PTI Aug 23 2011 , New Delhi

As per the new provisions of the Income tax Act, exemption available on Interest income from Post office Savings bank account has been limited to Rs. 3,500 Per annum in case of individual, Rs 7,000 in case of Joint account. Earlier, interest income from Post office savings bank account was fully exempt

For Example, if an individual has income from Post Office Savings bank account of Rs 5000 then only 1,500 (5,000-3,500) will be taxable and the remaining Rs 3500 will be treated as exemption u/s 10(15)(i), while in case of Joint account the exemption limit is raised to Rs 7,000

Relevant Notification is as follows

Notification No. 32/2011[F.No.173/13/2011-Ita.I] /S.O.1296 (E), Dated 3-6-2011

In exercise of the powers conferred by sub-clause (i) of clause (15) of section 10 of the Income-tax Act, 1961 (43 of 1961) the Central Government hereby makes the following amendment to the notification of the Government of India in the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i), vide number G.S.R. 607(E), dated the 9th June, 1989, namely

In the said notification, in the Table, for serial number 9 and the entries relating thereto, the following serial number and entries shall be substituted, namely:-

“9.Post Office Savings Bank Account: To an extent of the interest of Rs. 3500 in the case of an individual account and Rs. 7000 in the case of joint account”

The above notification will come in to force from the date of its publication in the official gazette

A government committee has suggested raising interest rates on Post Office savings bank deposits to 4%, a suggestion that could benefit lakhs of small depositors. The Committee on Small Savings also recommended linking returns on other small savings schemes with interest rates on government securities.

    
It has also suggested that Kisan Vikas Patra (KVP) be withdrawn and annual investment limit for the popular Public Provident Fund (PPF) be raised to Rs 1 lakh from Rs 70,000 at present.

The committee recommended that interest rates for Post Office savings deposits be raised to four per cent from 3.5% at present, in line with the Reserve Bank''s decision to hike rates on savings bank deposits. Under the new formula, suggested by the committee headed by RBI Deputy Governor Shyamala Gopinath, small savings schemes would provide better returns to investors.

Interest rate for one-year deposit scheme would go up to 6.8% from 6.25%, while returns for the PPF would improve to 8.2% from 8%. With regard to taxing returns on the small savings schemes, the committee said the issue should be considered by the government while firming up the Direct Taxes Code (DTC), which seeks to replace the Income Tax Act, 1961.

  
Noting that the small savings schemes are agent-driven, the committee suggested that the commission on them should be gradually reduced from 4% to 1%.

While recommending to raise the interest rate on savings deposits by 50 basis points to 4 per cent, the Committee said the government should introduce the system of calculation of interest rate on a daily basis on post-office schemes as is being done by banks. It further suggested that the interest rates on various small saving instruments be benchmarked to the secondary market yields on Central Government securities of comparable maturities.

Taking a cue from Reddy and Rakesh Mohan committees, it said the administered interest rates on the schemes should neither be raised nor reduced by more than 100 basis points above or below the benchmark rate. It recommended a positive spread of 25 basis points over the rates of government securities of similar maturities. The new rates should be notified by the government every year from April 1, 2012.

KYC norms

To prevent money laundering and generation of black money, the Committee recommended strict enforcement of the Know Your Customer (KYC) norms. On investment ceilings for different small savings schemes, it said that the Government should retain them. In case of removal of ceilings, the Government may consider taxing the accruals on the schemes.

To improve the liquidity of the 5-year recurring deposit scheme, it said that the government may reduce the lock-in period to one year from three years with a penalty for premature withdrawal. The penalty could be one per cent less interest rate.

Source: PTI

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Recent developments in Indian Financial Markets

The Indian financial markets are undergoing major transformation since the last 2 years. We are witnessing lot of new developments in Indian financial markets. This article attempts to cover some of the recent developments in Indian financial markets and the possible business opportunities that one can avail.

To begin with, recently [Apr 2011], NSE, National Stock Exchange of India introduced the Smart order routing [SOR] which would allow the orders to pass from NSE to various other stock exchanges. What SOR does is that it looks for the best possible price across various exchanges. So if Reliance is trading at 995 in NSE and at 1000 in BSE, this SOR system would execute your order on NSE and thus save you Rs 5 per share

Smart order routing is a new phenomenon in our markets, though this concept is already in existence in US, UK and Saudi markets.

What SOR would further do is that it will bring in more algorithmic trading. Algorithmic or Program trading is again a new concept in Indian financial markets. NSE bought it in early 2009 and BSE too started algorithmic trading in early 2010. What Algorithmic trading means is that instead of manual orders, the control would be given to the algorithms which will decide when to take position in the market and when to square off the positions. So with these algorithms various strategies can be developed, and without manual intervention, these algorithms can generate huge profits for the traders.

In India, some algorithms which became very popular were arbitrage algorithms. Arbitrage refers to taking advantage of price differential between 2 exchanges or between 2 calendar months on same exchange. These algorithms would bring in more liquidity and thus more efficiency in our markets.

Picture Source: BSE, Bombay Stock Exchange

In mid-2008, SEBI [Securities and Exchange board of India] gave approval for DMA [Direct market access]. What DMA means is that it allows the broker to give direct access to its clients. So a client can use the infrastructure of the broker and place orders directly in the stock market, instead of calling up the broker on phone and asking him to place an order. DMA has potential advantages - in that it would speed up execution of orders and would give more control to clients. Also DMA will help reduce errors because now the clients would place orders themselves and so the chances of manual errors are less compared to the previous scenario when clients had to call up broker on phone and the broker used to place orders for them.

Also, the coming up of financial instruments like currency futures and currency options is pretty new in our markets. Currency trading started in mid- 2008 and has witnessed huge volumes. In fact, recently the volumes in currency options have broken all records. There is huge business opportunity in this segment too as the currency markets are worth more than 2 trillion dollars! So currency trading offers a huge business opportunity.

Another recent development in Indian financial markets is the coming up of various electronic trading conferences- namely FixGlobal Face2Face and TradeTech events. These events provide tremendous opportunity for interaction of various stakeholders in financial markets. For example- the FixGlobal event in Mumbai saw participation by stock exchanges, buy side and sell side firms, Technology companies providing financial markets solutions, investment banks, financial markets news agencies, etc. Such events have started in Indian markets since last 3 years and provide a great networking as well as learning opportunity for everyone.

Business opportunities to enter financial markets

There are innumerable business opportunities in financial markets for budding entrepreneurs. As of now, the Indian financial markets are evolving and there are opportunities in various sectors viz. financial market education, retail investor participation, exploring opportunities in stock broking etc. So this gives us tremendous scope of innovation and growth potential.

There are various ways one can enter the financial markets in India:

1. As an IT company developing financial products - you can start your own IT company and get in touch with various brokerage houses and work with them in developing IT solutions catering to financial markets
2. Franchise route - you can take a franchise of a brokerage house and become a sub broker yourself. This way you can bring more clients for the brokerage house and you can earn money
3. Education in financial services: Well, you are well acquainted with financial services industry, but wealth management is not your cup of tea, right? In that case, why not explore the opportunity to create a capital markets school? Education is a huge industry in India and you can get a pie of it by creating courses that offer learning opportunity to students, professionals, traders, etc. In India, CFA, FRM and other educational courses are getting popular and so there is also a demand for faculty, institutes that can help the students clear these international certifications.

In the end, I have 2 tips for you, each worth a million dollar.

Here is the first one- For getting into any business, it is essential that you know the theoretical part before getting practical. To build the theory, you need to do your homework and build knowledge. To build your knowledge in this area, you can pursue various certifications which will help you get an overview of various stakeholders involved in this industry. So if you feel that you need to learn about financial markets, you can begin by taking certifications from NSE [National Stock Exchange], BSE [Bombay Stock Exchange] or NISM [National Institute of Securities Management, promoted by SEBI]. If you feel confident to learn the depth about financial markets, you may go for CFA [Certified Financial Analyst] or for FRM [Financial Risk Management - which will help you learn about various kinds of risks]. Alternatively, you may also go for an MBA in finance and get holistic learning not only in finance related subjects, but also in various other subjects and how they relate to each other.

And here's the 2nd million dollar tip - 'Networking'. I strongly advocate networking- both offline and online. When you are networked well, you know whom to seek advice from. My advice to entrepreneurs is, 'Put consistent effort in networking'. In business, what you know is just 50%; and who you know is the remaining 50%! To network, I would share the techniques that I use and how they have helped me. First, never hesitate to meet a new person. Once you meet someone, remember their name and use it often during the conversation. Also, carry your business cards with you and always exchange with the people you meet in any events. To learn where such events are happening, read newspapers regularly and publications that interest you. Ask lot of questions. I never hesitate to ask questions and also appreciate questions from other party. This way you can come up as an individual who is open to new ideas and at the same time, you can also increase your knowledge about the subject. Also, ask the person if they are on various social/ professional networking sites like LinkedIn and you can request them for connecting with your network. The most important tip for networking is- while getting introduced to a new person, seek their advice and knowledge and keep the meeting informational; and do not try to directly talk about the purpose. First, understand and learn the needs of that person and later on, you can talk about business. Also, maintain a dairy or notes and keep track of your contacts. This way you can access your contacts whenever necessary.

About the author: Ankit Arora is a recent MBA graduate from the General Management Program of XLRI Jamshedpur. Prior to his MBA, he has spent close to 6 years in IT industry in Banking and Financial services. He has worked with clients in Canada, Saudi and Taiwan; and has worked with various entities like stock exchanges, clearing and settlement houses, brokerage houses, and banks. He can be reached at onlinearora@gmail.com / www.ankitarora.net. His LinkedIn profile is: http://in.linkedin.com/in/onlinearora

Home, auto and corporate loans are likely to cost more, with the Reserve Bank raising key policy rates by half a percentage point, bankers said today.

  
"I think banks do not have any other option but to increase rates. It could be 25 basis points or 50 basis points, depending on individual banks," IDBI Bank Executive Director R K Bansal told PTI.

 
Since the cost of funds has gone up, the banks would have to review their rates, he said.
Oriental Bank of Commerce Executive Director S C Sinha also said the repo rate hike of 50 basis points will definitely have an impact on interest rates.
Rates are likely to go up and a decision to this effect will be taken in the ALCO (asset liability committee) of the banks in the next few days, Sinha said.

Source: PTI

Warning of tough times ahead, the RBI today raised the key short term lending rate and savings bank rates by 50 basis points and advised the government to hike petroleum prices as soon as possible in line with the ruling global crude prices.

    
In view of uncertainity prevailing in the global market, the RBI, while announcing its annual Credit Policy, has pegged the growth outlook for 2011-12 at a lower level of 8 per cent as against the government's projection of 9 per cent.

    
The RBI's decision to increase its lending (repo) and borrowing (reverse repo) rates by 50 basis points to 7.25 per cent and 6.25 per cent respectively will raise the cost of home, auto and other loans.

    
"Current elevated rate of inflation pose significant risk to future growth.

Source: PTI

In a bid to check inflation, Reserve Bank today raised its short term lending (repo) rate by 50 basis points to 7.25 per cent, while lowering the economic growth projection to 8 per cent for the current fiscal.

 
The RBI has also increased the saving bank rate by 50 basis points to 4 per cent to give higher returns to depositors in the wake of high inflation.
RBI Governor D Subbarao announced these measures as part of annual credit policy to contain inflation, which is hovering around 9 per cent, and sustain economic growth in the medium-term.

 
RBI has pegged GDP growth rate for the current fiscal at 8 per cent against the government's projection of 9 per cent. The economy grew by 8.6 per cent in 2010-11.

Source: PTI

Housing prices could go up, as the borrowing cost for developers is set to increase following the hike in short-term lending rates by the RBI, industry body CREDAI said today.

 
However, real estate consultant Jones Lang LaSalle (JLL) said that developers are unlikely to increase housing prices as demand in bigger cities would be hit due to the RBI's monetary policy. India's largest realty firm DLF said that banks should not increase the interest rates and felt that prices, whether of food or housing, can only be controlled by improving supplies.

 
Reacting to the RBI's decision to raise the repo and reverse repo rates by 50 basis points, Confederation of Real Estate Developers Association of India (CREDAI) Chairman Pradeep Jain said: "This is going to increase the cost of funds for both developers and home buyers.

Source: PTI

Birla Sun Life Mutual Fund has launched a new fund as Birla Sun Life Gold ETF, an open ended gold exchange traded fund. The investment objective is to generate returns that is in line with the performance of gold, subject to tracking error.

The investment objective of the fund is to generate returns that are in line with the performance of gold. The scheme has transparent pricing and charges no wealth tax as compared to investment in physical gold. The fund will allow the investors to reap the benefits of investing in gold with no storage and security issues making it convenient to have their gold holding in the electronic format. The fund route is ideal for accumulation as minimum lot size to trade is one unit of Gold ETF, which is approximately equal to one gram of Gold.

The Fund would invest upto 100% in Physical Gold and/or upto 5% in debt and money market instruments to meet the liquidity requirements, subject to tracking error. The scheme may buy or sell gold at different points of time during the trading session at the then prevailing prices which may or may not correspond to its closing price, due to disinvestments to meet redemptions, transactions cost and recurring expenses, execution of large buy/sell orders etc.

The New Fund Offer (NFO) will be open for subscription from April 25, and close on May 9, 2011. The unit shall be issued at a premium equivalent to the difference between the allotment price and the face value of Rs 10 each.

The minimum application amount is Rs. 6,000/- and in multiples of Rs. 2,000/- thereafter per application. The units of the scheme will be traded in dematerialized form and will charge no entry or exit load. The scheme is open to all categories of investors and provides for quick and convenient dealing through Demat accounts. The fund invests in gold with 99.5% purity sourced from London Bullion Market approved refineries.

Entry / Exit Load : Nil

Benchmark: Domestic price of physical gold

The fund manager of the scheme will be Mr. Satyabrata Mohanty. Birla Sun Life Asset Management Company Limited (BSLAMC), one of India’s top five AMCs as per average AUM as of quarter ending March 31, 2011

Aiming to give more teeth to the investigation against black money, Income Tax Department hit by staff shortage today said it has sought an additional 22,000 staff to strengthen its various operations.

 
Besides, the tax department will redeploy its existing manpower towards intelligence gathering, investigations and prosecutions. The Central Board of Direct Taxes (CBDT) is restructuring its organisational structure with a view to focusing on scrutiny of high value tax cases, a senior Finance Ministry official said.

  
"We have asked for an additional 22,000 staff in different cadre to strengthen our investigations and intelligence," the official said. Currently, the CBDT is operating with a staff of about 47,000 against the sanction of 58,000.

Source: PTI

Country's second largest private sector HDFC Bank has been declared the strongest bank in Asia Pacific by the Asian Banker magazine. The bank won this award, beating more than 50 banks across 13 countries in the Asia Pacific region, HDFC Bank said in a statement.

    
The top 10 has three banks each from India and China, two from Hong Kong, and one each from Singapore and Australia, according to the magazine. Banks were rigorously evaluated on the six parameters of scale of assets, balance sheet growth of net loans and deposits, risk management of the banks' operations, profitability and its sustainability, strength and credibility of loans disbursed and liquidity of assets to meet negative events requiring cash outflow, it said.

  
Accepting the award HDFC Bank Managing Director Aditya Puri said, "In our industry, to be recognised as a strong bank is always an honour.

Source: PTI

Tax payers with annual income of up to Rs 5 lakhs will not be required to file returns, a move that will provide relief to about 70 to 80 lakh people. "Assessees with income up to Rs 5 lakh will be exempted from filing returns. The provision (regarding not filing of returns) will be notified in the first week of June...", CBDT chairman Sudhir Chandra told reporters.

He said the new rule will apply from the current assessment year (2011-12) for the income earned in 2010-11. However, people in this category (income up to Rs 5 lakh) will have to file return if they seek refund, he added. The revenue department, meanwhile, has notified simpler income tax return forms ''Sahaj'' and ''Sugam'' aimed at reducing compliance burden on salaried persons and small businessmen.

Chandra said, "(These) are major steps towards simplification of income tax return filing". He also said efforts were being made to facilitate electronic filing through Sahaj and Sugam I-T return forms. The new return forms are in line with the Government’s effort to make filing of returns simpler and user-friendly. While Sahaj is for salaried people, Sugam return form is applicable for small businessmen and professionals covered under presumptive taxation.

Under India''s presumptive taxation, a person carrying on business will not be required to get his accounts audited if the annual total sales, turnover or gross receipts are less than Rs 60 lakh. The limit was increased by Finance Minister Pranab Mukherjee in the 2010-11 Budget from Rs 40 lakh. The presumptive tax limit in case of professionals was increased to Rs 15 lakh from Rs 10 lakh.

Chandra also said senior citizens (60 years and above) filing returns for incomes from pension, dividend, interest incomes and property will not be subjected to scrutiny. "Such cases (of senior citizens) will not be picked up for scrutiny and the Government will trust senior citizens," he said. The Government has reduced the age for the senior citizen category from 65 years to 60 years

Source: PTI

If you’re buying a house, expect a call from the taxman. The income tax (I-T) department has decided to toothcomb property deals that could throw light on irregularities or tax evasion all over the country. Both individual and corporate deals are set to come under the taxman's lens. "We'll review all property deals to find out whether any black money has changed hands and detect tax evasion, and action will be taken in appropriate cases," central board of direct taxes (CBDT) chairman Sudhir Chandra told mediapersons here on Monday.

This will be the first step of its kind. Though the I-T department has been building a tax information network (TIN) to examine financial dealings, it has thus far not zeroed in on a deal-by-deal basis.

The department had scoured transactions and accounts involving all major real estate players or property dealers in Delhi, but no individual transaction had been reviewed, Chandra said.

“Henceforth, property deals, whether by an individual or by a real estate company, will be reviewed,” he said, adding that the department will frame rules to enable action by its officers.

Thousands of crores of rupees are said to be evaded every year in property deals because buyers and sellers disclose only a part of the transactions while the remainder changes hands in all-cash dealings with no proper records kept or disclosed.  Such deals help sellers evade both income tax and registration duties.

Source: HT

Edelweiss Mutual Fund today said it plans to launch a midcap-based fund within three months in an attempt to increase the number of products and assets under its management.

              
"We will be launching our mid cap product at the end of this quarter or at the beginning of the next quarter," Edelweiss Mutual Fund Executive Vice President Peeyoosh Chadda told PTI.  The fund house has assets worth Rs 181.96 crore under management through nine key schemes, according to the latest data available with the Association of Mutual Funds in India. He added that the asset management firm had received the capital market regulator's approval for Series 1 To Series 3 of its 91 days Edelweiss Fixed Maturity Plan, which would be launched according to the demand for these schemes.

         
The fund house that targets the equity space, given its background, has no plans to launch a commodity-based product any time soon. According to him, the next six months will be "challenging", as there is uncertainty in the economy because of the rising crude oil prices and quantitative easing measures.

        
However, he expects the financial and the technology sectors to deliver good results when companies disclose their earnings for the last quarter of the previous fiscal.

Source: PTI

Tata Mutual Fund today filed draft prospectus with market regulator Sebi for coming out with Tata Retirement Fund, which is an open ended fund.

New investors willing to put in money into the new fund offer (NFO) will have to make an minimum investment of Rs 5,000 and in multiples of Re one thereafter, the draft document said.  "The objective of the Fund is to provide a financial planning tool for long term financial security for investors based on their retirement planning goals," the document said.

 
The Tata Retirement Fund would offer investors option to invest under three plans -- Progressive Plan, Moderate Plan and Conservative Plan. The schemes would offer growth option. The performance of schemes would be benchmarked against BSE Sensex, Crisil Balanced Index Fund and Crisil MIP Blended Index respectively.

 
While the 'Progressive' and 'Moderate' Plan would invest majority of its corpus in equity schemes, Conservative Plan would have higher exposure in debt securities.
The fund would provide an investment tool for retirement planning of investors, depending upon their risk appetite.
The earnings of the fund from domestic investments is exempt from income tax.

Source: PTI