Personal Finance Blog- India V 2.0: September 2013

#NSEL E-Series redemption - in a stand still?? #delay

While the number of media reports about NSEL is quietly streaming in the media, there is not enough attention paid to the situation of about 7 lakh e-series investors.

There are articles which say that there is delay in physical delivery due the to "rush" of request, but there is lack of any concrete evidence to prove any action by NSEL.

If NSEL is doing some genuine physical delivery ( I am sure that this is not the case), they should publish the details of physical delivery made everyday on their site.The audit certificate provided on the physical stock is of no use unless people get their money back on time.

All blogs/ new papers that promoted e-gold as an investment tool are completely silent now. ( Did they have a vested interest in promoting the product ?)

The most surprising fact is that there have been no arrests/ concrete action by any government agency which will at least bring back some faith back in out financial investment framework.

Justice delayed is justice denied.

NSEL investors seek halt of delivery under e-series contract

7 lakh e-series investors left high and dry

NSEL plans to redeem e-series in cash

Investors await NSEL bullion delivery

Fixed Deposits or Debt Funds??

Fixed Deposits or Debt Funds??-The main difference for a person in high income tax treatment lies in tax benefit .

1. The Return from FD is completely taxable. i.e the interest income is added the income of a person and he/she should pay tax as per their tax bracket.

2. As far as debt funds are concerned , the returns are classified as Long capital gains for investments of over 12-months and taxed as follows.

a.10 per cent without indexation or

b.20 per cent with indexation ( refer document page 97, for indexation)

Illustration

1. X invests 100000 in FD on 15 Apr 2009 and Matures on 14 Apr 2010 with value 108500.Income is 8500. If X falls in 30% tax bracket , 8500 will be taxed at 30%.

2. X invests 100000 in Debt fund on 15 Apr 2009 and Matures on 14 Apr 2010 with value 108500.

Option 1

a. Flat 10% on 8500 without indexation.

b. From the above chart indexation is roughly 12% ( 711 vs 632) and the returns are actually negative ( So,no tax)

By in investing in end of March of an year for 370 days or so will entail a person for double indexation benefit!

All funds that are not classified as Equity or Equity balanced funds will be covered under the aforesaid tax treatment. That includes Fund of funds, Gold ETFs, Global Equity funds et all.

A few more links on the same topic for reference :-

Where to invest: Debt funds or fixed deposits? - NDTVProfit.com

For fixed income, investing in debt funds better than fixed deposits ...

Choose short-term debt funds instead of FDs - Livemint

REC Tax free bonds "vs" REC

REC has come up with tax free bonds ( issue open until later part this month).
~
8.26% for 10-year maturity, 8.71% for 15-year maturity and 8.62% for 20-year maturity.

The interest rates look very attractive for investors (esp. if you are in high income bracket,as the interest from the bonds are tax free).

Pros:-

1. High post dividend tax yield is attractive.

2. Can form a good part of your debt portfolio( but make sure your portfolio doesn't already have too much long-term debt in it before you add more.)

3.The issue is rated AAA by rating agencies Crisil, CARE and ICRA

4. Good for those who are looking for regular income vis-a vis compounded growth

Cons:-

1. If you are looking for compounded growth, you have to re-invest interest with great caution Else, interest can be spent and the face value that you get back at maturity can be a very small amount ( considering inflation). Imagine the value of 1 lakh today vs 10 years later :-)

2.These are very long-term bonds and liquidity can be limited.

Personally, I think that someone who trusts REC for more than 10 years would be "well off" investing in "REC" shares directly,considering the current market price- which is below the book value. Dividend yield at current price is 4.5% -tax free :-).