Daily Expense Manager

15 Key Direct Tax proposals that You need to be aware of!

Budget 2017 & Important Direct Tax Proposals

  1. Income Tax Slabs & Rates for FY 2017-18 : The current Tax rate of 10% in the respective income slab has been reduced to 5%. The applicable Basic Exemption and Income Slabs as well as basic tax rates, are given in the below table.


  • If the total income exceeds Rs 50 Lakhs but below Rs 1 crore, a surcharge of 10% will be levied.
  • 15% surcharge on income tax if the total income is over and above Rs 1 cr.


2. Rebate under Section 87A: Tax rebate of Rs 2,500 for individuals with income of up to       Rs 3.5 Lakh has been proposed.

  • Only Individual Assesses earning net income up to Rs 3.5 lakhs are eligible to enjoy tax rebate u/s 87A.
  • For Example : Suppose your yearly pay comes to Rs 4,50,000 and you claim Rs 1,50,000 u/s 80C. The total net income in your case comes to Rs 3,00,000 which makes you eligible to claim tax rebate of Rs 2,500.
  • The amount of tax rebate u/s 87A is restricted to maximum of Rs 2,500. In case the computed tax payable is less than Rs 2,500, say Rs 2,000 the tax rebate shall be limited to that lower amount i.e. Rs 2,000 only.
  • The Tax Assesse is first required to add all incomes i.e. salary, house income, capital gains, business or profession income and income from other sources and then deduct the eligible tax deduction amounts u/s 80C to 80U and under section 24(b) (Home Loan Interest) to come up with the net taxable income.
  • If the above net taxable income happens to be less than Rs 3.5 lakhs then the tax rebate of Rs 2,500 comes in to the picture and should be deducted from the calculated total income tax payable.


3. TDS

  • If you are claiming HRA (House Rent Allowance) of more than Rs 50,000 per month (or) pay rent which is more than Rs 50,000 then the tenant has to deduct TDS @ 5%. It has been proposed that the tax could be deducted at the time of credit of rent for the last month of the tax year or last month of tenancy, as applicable.
  • TDS on Commission payable to individual insurance agents has been removed, subject to their filing a self-declaration that their income is below taxable limit.
  • This rule is w.e.f June, 2017.

4.  Long Term Capital Gains & Holding period : Holding period for Long Term Capital gain       for all immovable properties has been reduced to 2 years from 3 years.

5.  Base Year & Indexation :  The base year for calculation of Indexation is going to be                 2001. It will have an affect (mostly positive) on investments where indexation benefit is         available when calculating Capital gain taxes.

  • For example: Suppose you are holding on to your investments made in debt funds or Property before 2001, the Fair Market Value (NAV) as on 1 st April, 2001 will be considered as cost of acquisition for calculating capital gains. This will help the investor to reduce the capital gains taxes.
  • As of now, the base year is 1981. To calculate the capital gains at the time of selling any property purchased before 1981, its purchase price is now calculated on the basis of the fair market value of 1981. Calculation at the fair market value of 2001 will increase the cost of acquisition and lower the capital gain.

6.  Loss on House Property :

  • Tax benefit on loan repayment of second house will be restricted to Rs 2 lakh per annum only (even if you have multiple house the limit is still going to be Rs 2 Lakh only and the ceiling limit is not per house property).
  • The unclaimed loss if any will be carried forward to be set off against house property income of subsequent 8 years. In most of the cases, this can be treated as ‘dead loss‘.
  • I believe that this is a major blow to the investors who have bought multiple houses on home loan(s) with an intention to save taxes alone.
  • As of now (till FY 2016-17), interest paid on your housing loan is eligible for the following tax benefits ;
    • Municipal taxes paid, 30% of the net annual income (standard deduction) and interest paid on the loan taken for that house are allowed as deductions.
    • After these deductions, your rental income can be NIL or NEGATIVE and is called ‘loss from house property’ in the latter case.
    • Such loss is currently allowed to be set off against other heads of income like Income from Salary or Business etc. which helps you to lower you tax liability substantially.


7. NPS Contributions & Withdrawals :

  • It has been that a contribution of up to 20% of the gross income of a self-employed individual (individual other than the salaried class) can be deducted from the taxable income under Section 80CCD (1) of the Income Tax Act, 1961, as against current 10%.
  • It has been proposed that a tax exemption on partial withdrawal not exceeding 25% of the contribution made by an employee will be provided. This amendment will take effect from April 1, 2017 (AY 2018-19 onwards).

8.  RGESS : Tax Benefits of Rajiv Gandhi Equity Savings Scheme (RGESS) under section                 80CCG has been withdrawn.

9.  Section 54EC Bonds : Govt may notify more bonds eligible for section 54EC exemption.       Currently, investment in bonds issued by the National Highways Authority of India or            by the Rural Electrification Corporation Limited are only eligible for exemption under          this section.

10. Filing of Income Tax Returns :

  • A Proposal has been made to have one page Income Tax Return Forms for the category of individuals having taxable income up to Rs 5 lakhs other than business income.
  • Time limit for filing of Revised Return : It has been proposed to reduce the time period for revising a tax return to 12 months from completion of financial year.

11.  Income form Dividends : As per Budget 2016, income by way of dividend in excess of          Rs 10 lakh is chargeable at the rate of 10% for individuals, Hindu Undivided Family                (HUF) or partnership firms. This has now been extended to Private Trusts / Family                  trusts.

12.  Shares & LTCG tax : Exemption of Long Term Capital Gains Tax u/s. 10 (38) available             only if acquisition of share is subject to STT (except cases like IPO, bonus issue, rights issue          etc.,).

13.   Books of Accounts : In order to reduce the compliance burden of Individuals and                    HUF’s carrying on business or profession, it has been proposed to increase the                        monetary limits of income from Rs. 1.2 Lakh to Rs. 2.5 Lakhs and total sales or turn                over or gross receipts from Rs. 10 Lakhs to Rs. 25 Lakhs for maintenance of books of              accounts.

14.  Donations & Section 80G : Tthe limit of deduction under section 80G of the Act for                 donations made in cash has been proposed to be reduced from current Rs 10,000 to Rs          2,000 only.

15.  Cash Transactions & Penalty :

  • A ban on cash transaction of more than Rs 3 lakh has been proposed in the Budget for 2017-18.
  • As per Budget document : no person shall receive an amount of Rs 3 lakh or more by way of cash in aggregate from a person in a day; in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person.”
  • The Budget proposes to levy 100% penalty on a person who receives Rs 3 lakh and above in cash. So, it is the receiver who has to bear the penalty.
  • For example : If you buy an expensive watch for cash worth Rs 5 Lakh, it is the shopkeeper who will have to pay the tax (penalty) of Rs 5 Lakh.


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Source –

Highlights from The Budget: 2017

Finance Minister Arun Jaitley presented the Union Budget 2017, his fourth annual budget, today. Here are the highlights of this year’s budget:

  • Income Tax rate cut to 5 pc for individuals having income between Rs 2.5 lakh to Rs 5 lakh
  • 10 pc surcharge on individual income above Rs 50 lakh and upto Rs 1 cr to make up for Rs 15,000 cr loss of due to cut in personal I-T rate
  • 15 pc surcharge on income above Rs 1 cr to continue
  • Direct tax collection not commensurate with income and expenditure pattern
  • Revenue deficit reduced to 2.1 pc from 2.3 pc for 2016-17
  • Govt pegs fiscal deficit target at 3.2 per cent for 2017-18 and 3 per cent for next year
  • Functional autonomy of the railways to be maintained
  • Transparency in political funding: Parties continue to receive anonymous donations; propose system of cleaning up: Maximum amount of cash donation that can be received is Rs2,000; political parties can receive donations by cheques or digitally; amendment proposed to RBI Act to issue electoral bonds; every party has to file returns within specified time.
  • Demonetisation will help in transfer of resources from tax evaders to government
  • Merger of Railways Budget with General Budget brings focus on a multi-modal approach for development of railways, highways and inland water transport
  • Only transient impact on economy due to demonetisation; long term benefit include higher GDP growth and tax revenue
  • Govt took two tectonic policy initiatives – passage of GST Bill and demonetisation
  • 36 pc increase in FDI flow; forex reserves at USD 361 billion in January enough to cover 12 months needs
  • Total budget expenditure: Rs21 trillion
  • Rs3,000 crore to implement various budget announcements
  • Defence expenditure excluding pensions: Rs2,74,114 crore
  • Consolidated outcome budget for all ministries being created
  • FRBM review panel has recommended debt-to-GDP of 60%
  • Fiscal deficit for FY18 pegged at 3.2% of GDP
  • Revenue deficit for FY18 at 1.9%
  • FDI policy: FIPB to be abolished
  • Pradhan Mantri Mudra Yojana: Lending target at Rs2.44 trillion
  • Stand-up India scheme: over 16,000 new enterprises have been set up


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Six Reasons Why You Should Check Your Credit Report

It is better to know about credit score in detail before applying for a loan or a credit card.

A good credit score is a valuable asset today. As it reflects good credit behaviour in the past and lower probability of defaults in the future, it prompts the lenders to favourably treat borrowers with good credit score. Borrowers with good credit score receive faster approval of their loan and credit card applications at mostly lower rate of interest. Like their western counterparts, many Indian corporate like SBI have started to factor in the credit score of job applicants. However, most people realise the importance of credit score and credit report only when their loan or credit card application get rejected.

Here are the six reasons why you should periodically check your credit report.

Informs you of your creditworthiness:

Lenders and credit card issuers periodically submit your loans and credit card details to the credit bureaus on the basis of which they calculate your credit score. Periodic checking of your credit report lets you know your present credit score and take corrective steps to improve it, if required. This will ensure that your loan or credit card application does not get rejected because of a poor credit score.

Helps detecting credit errors in your report:

Credit report contains all your outstanding loans, EMIs and credit card balances on a given date. This information may be used by lenders to judge your credit card or loan application. For example, lenders may use your existing EMI and outstanding card balance amount to find out your ability to service future debt obligations. In such a situation, a clerical error by the lender or the credit bureau may negatively affect your credit approval. At present, periodic checking of your credit report is the only way of detecting such wrong information in your credit report. Immediately contact your lender or credit bureau on finding any wrong or outdated entries in your credit report.

Helps detect errors regarding personal information:

A lender may reject your credit application due to the mismatch between the information on your credit report and credit application. Periodic checking of your credit report will allow you to confirm the accuracy of your personal information.

Helps in detecting identity theft:

Identity theft happens when a fraudster steals or misuses your financial information to make financial transactions in your name. According to a report by Experian India on financial frauds, identity theft formed 77% of the total fraud cases during the first quarter of FY2016. The incidence of identity theft is further expected to increase with increased digital payment services. As a credit report lists all your past debt repayments and your current outstanding debt, periodic checking your credit report will detect unauthorised lending or credit card transactions in your name.

Helps avoid unnecessary hard enquiry on your credit report:

A credit report enquiry raised by a lender is known as hard enquiry. Lenders ask for your credit report from bureaus whenever you apply for a loan or a credit card. These enquiries are then included in your credit report. Multiple hard enquiry within a short period of time indicates credit hungriness, which negatively impacts your credit score. However, a self-initiated request for a credit report does not affect credit score. Thus, checking your credit report before making a credit application will let you know whether you have sufficient credit score for your credit approval. This will save you from unnecessary hard enquiries on your credit report.

Get customized credit offers with faster processing time: Generally, people first apply for a loan or a credit card, then the lender or credit card issuer checks your credit report and then, the lender finally approves or rejects your application based on their internal criteria. However, this process flow has been reversed with the advent of online loan and credit card aggregators. Now, whenever you apply for a credit report with online lending platforms, they analyse your credit report in detail and forward you the credit card or loan offers available on your credit score. This increases the chances of your loan approval at better terms and conditions. These customized loan or credit offers have a much lower processing time than conventional loans.

Currently, India has four credit bureaus— CIBIL Transunion, Equifax, Experian and CRIF High Mark. Each of these bureaus has their own scoring parameters. Ensure to get your credit report from each of these bureaus, at least once a year. Alternatively, you can also log in to various online loan aggregators’ websites to get your free credit report. Always ensure to apply for a credit report before making any loan or credit card application. This will save you from unnecessary hard enquiries on your credit report and let you know of the interest rates, offers, etc available for your credit score.

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What You Should Know When Paying With Your Credit Card

Lots of people become victims of criminals who scan their card information using special devices (skimming) and then steal their money. Today, even when you use your card at stores or restaurants, you can fall into a trap.

Ingenico, a credit card terminal manufacturer, recently issued a guide on how to identify a skimmer in a standard terminal (Ingenico iSC250).

A skimming terminal is significantly larger than normal

A skimmer should be longer and wider than the terminal itself to correspond to its size. That’s why a skimming terminal is noticeably larger than a true one. This is the principal feature that helps recognise fraudulent devices.

No button highlights

A skimmer that was inserted too quickly may block the button highlighting on the terminal.

Green LED light is blocked

An attachable skimmer also blocks the green LED light that should be on when the terminal scans a card.

Frequent operation errors

Skimmers sometimes get in the way of the magnetic strip when they scan data. This results in more operation errors and significantly slows down the normal workings of the terminal. So pay attention if a terminal operates much slower than it should.

A stylus is not attached

All payment terminals have a stylus attached to them that clients use to enter their signature after their card has been scanned. A skimmer inside an iSC250 doesn’t allow the stylus to be attached.

How to protect your money

  • The most effective way to protect yourself from fraud is by having a separate debit card that would only have the sum you need for a purchase at hand.
  • Connect to the SMS banking service to promptly react to unexpected debits.
  • Set limits and limit cash withdrawal amounts, and the criminals won’t be able to withdraw all your money at once.
  • If you have lost your card and you think someone may have learned its details, immediately call your bank and block it.
  • It’s also good to learn about card insurance capabilities and terms with your bank. Some credit organizations have special programs for protecting their clients from fraud and reimbursement of damages.
  • When you pay with your card in a store, make sure that the employees do not take it away from you. If you pay in a restaurant, don’t let the waiter take away the card — they can skim it discreetly. Demand that all the operations be carried out in your presence.
  • Read the receipts carefully after paying with your card. The field with the paid amount must not be empty.


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How to claim tax break on HRA

For most employees, House Rent Allowance (HRA) is a common component of their salary structure. Although it is a part of the salary, HRA, unlike basic salary, is not entirely taxable. Subject to certain conditions, a part of HRA gets exempted under Section 10 (13A) of the Income-tax Act.

The amount of HRA exemption is deductible from the total income before arriving at a taxable income. This helps the employee in saving tax. Remember, the HRA received is fully taxable if an employee is living in his own house or if he does not pay any rent.

Who can avail HRA?
The tax benefit on HRA is available only to a salaried individual who has the HRA component as part of his salary structure and is staying in a rented accommodation. Self-employed professionals cannot avail the deduction.

How much is exempted?
The exemption for HRA benefit is the minimum of:
i) Actual HRA received
ii) 50% of salary if living in metro cities, or 40% for non-metro cities; and
iii) Excess of rent paid annually over 10% of annual salary

For calculation purpose, the salary considered is ‘basic salary’. In case ‘Dearness Allowance (DA)’ (if it forms a part of retirement benefits) and ‘commission received on the basis of sales turnover’ is applicable, they too are added to compute the minimum HRA exemption available.

The tax benefit is available to the person only for the period in which the rented house is occupied.

Example of HRA calculation
Let’s say an individual, with a monthly basic salary of Rs 15,000, receives HRA of Rs 7,000 and pays Rs 8,400 rent for an accommodation in a metro city. The tax rate applicable to the individual is 20 percent of his income.

To avail HRA benefit, the least of the following amount (yearly) is exempted, rest is taxable:
i) Actual HRA received = Rs 84,000
ii) 50% of salary (metro city) = Rs 90,000 (50% of Rs 1,80,000)
iii) Excess of rent paid annually over 10% of annual salary = Rs 82,800 (Rs 1,00,800 – (10% of Rs 1,80,000))

It shows that of Rs 84,000 actually received as HRA, Rs 82,800 gets tax exemption and only the balance of Rs 1,200 gets added to the employee’s income, on which a tax of Rs 240 ( 20 per cent slab ) gets payable.

HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner.

It is mandatory for the employee to report the Pan Card of the ‘landlord’ to the employer if the rent paid is more than Rs 1,00,000 annually, or if it exceeds Rs 15,000 per month.

Special cases
There could special scenarios in claiming HRA tax benefit, such as:

1. Paying rent to family members
The rented premises must not be owned by the person claiming the tax exemption. So if you stay with your parents and pay rent to them then you can claim that for tax deductions as HRA. However, you cannot pay rent to your spouse. As, in the view of the relationship, you are supposed to take the accommodation together. Thus, these transactions can invite the scrutiny from the Income -tax Department.

2. Own a house, but staying in a different city
One can avail the simultaneous benefit of deduction available for the home loan against ‘interest paid’ and ‘principal repayment’ and HRA in case your own home is rented out or you work in another city.

Individuals who don’t get HRA but pay rent
There may be some employees who might not have HRA component in their salary structure. Also, a non-salaried individual might be paying rent. For them, Section 80 (GG) of the Income-tax Act offers help.

An individual paying rent for a furnished/unfurnished accommodation can claim the deduction for the rent paid under Section 80 (GG) of the I-T Act, provided he is not paid HRA as a part of his salary by furnishing Form 10B.

How much
The least of the following is available for exemption from tax under Section 80GG:
(i) Rent paid in excess of 10% of total income
(ii) 25% of the total of the total income*
(iii) Rs 5,000 per month

*Under this section, the total income is calculated as gross total income minus long-term capital gains, the short-term capital where Securities Transaction Tax (STT) has been paid and deductions available under Sections 80C to 80U, except Section 80GG.

While claiming a tax deduction, one must remember that the individual himself or his/her spouse, or minor child, or as a member of the Hindu Undivided Family (HUF) must not own any accommodation. Also, if the individual owns any residential property at any place and earns rent from it then no deduction is allowed.

One can avail the simultaneous benefit of deduction available for the home loan against ‘interest paid’ and ‘principal repayment’ and HRA in case your own home is rented out or you work in another city. However, the same is not available in case of Section 80GG.

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The Three Types Of “ishing”To Protect Yourself From Fraud And Identity Theft


This is the most prevalent type of “ishing” personally affecting me right now. Every few days I seem to get a text message asking for personal information or containing a link to a website. The ones I’ve received have typically said I’ve won some sort of prize, without saying what contest I entered, or tell me I’ve been selected as a mystery shopper. I never click the link in these messages, and always block the number before deleting the text from my phone so they can’t contact me again. Smishing scams will typically ask for your credit or debit card number, your SIN, or other personal information.

What you should watch out for: Smishing text messages typically contain spelling or grammatical errors and overuse punctuation, something a professional bank would never do. Furthermore, if you do not recognize the number or the offer, it’s best to ignore the message and block the number immediately.


Phishing consists of authentic-looking emails “fishing” for personal information. They will often ask directly in the email for you to reply with login information or PINs, or they will direct you to a website form asking for the same sensitive information. You should never respond to these emails with any personal information, or input your information on any webpage or form they link.

What you should watch out for: Check the sender email address to see if it’s the same one from which you typically receive emails from your bank. If it’s not, delete the email immediately. Phishing scams will often send official looking emails from bogus addresses, hoping you won’t look too closely. Another big clue an email is a phishing scam is if it’s asking for your login information at a bank you don’t have any accounts with! Do not reply with any personal information. Delete the email and block the sender.


Vishing is unsolicited telephone calls asking directly for your personal information, or to follow up on a phishing email you might have received. Sometimes these calls are done by a real person, but often it is a recording asking you to enter sensitive information like your SIN or credit card number.

What you should watch out for: If you receive a phone call asking for personal information, or encouraging you to reply to or follow a link in a suspicious email, hang up. Sometimes these callers will tell you that you’ve won a contest and now need your personal data so you can collect your prize. If you don’t remember entering any contest, it’s probably a scam.

TD Fraud Alerts

To keep your information and money safe, TD has launched a new feature that sends Canadians a free[1] fraud alert text message if there is suspicious activity detected on their TD Access Card for their personal banking accounts. Customers can respond to the text with “Y” or “N” to confirm if they recognize the transaction and have TD unblock their card.

TD will never ask customers to reply to a Fraud Alert text with any personal information or ask customers to click on any links in their reply. Just don’t forget to make sure TD has your current mobile number to receive these alerts.


Additionally, the TD MySpend app can help keep TD customers aware of purchases on their accounts, through real-time notifications. This may enable you to recognize fraudulent purchases as soon as they happen.

Other Ways to Protect Yourself Against Fraud

During the holidays when you’re shopping for gifts for friends and family, it’s easy to forget how much you spent and where – which means you also might be less likely to notice a fraudulent transaction on your bank statements.

There are a number of different ways you can identify identity theft:

  • Check your bank statement and online activity for any transactions you don’t recognize. Hold on to your receipts from your shopping trips so you can compare and identify any transactions that aren’t yours.
  • If you receive credit card statements or other bills in your name that do not belong to you, it could mean someone is using your information to open credit accounts in your name.
  • If a creditor informs you of an application for credit received with your name and address, but you did not complete.
  • If you added a note to your credit profile with a consumer reporting agency to be notified before credit is extended, and you receive a notification that your credit was extended and you didn’t apply for it.

If any of the above happen, it’s important to contact your financial institution immediately, as well as the credit reporting agencies. The sooner you recognize and report any fraud on your accounts, the better. Discuss with your bank ways to minimize the damage and prevent any further fraud – this might include closing bank accounts and opening new ones, replacing bank cards and assigning new pins, and changing existing bank credentials.

Unfortunately, there is no foolproof way to protect yourself from fraud or identity theft, but the information above will help you minimize your risk. The world of identity theft is fast paced and rapidly changing, so it’s important you keep up to date on the methods to recognize and reduce fraud in order to best protect yourself and your finances!



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How To Invest The Extra Money In Your Bank Account After Notes Ban

Bank deposits have swollen as people scrambled to deposit the old Rs 500 and Rs 1,000 notes in their accounts. Now, many don’t require the money immediately. Should you keep the money in savings accounts?

Analysts suggest different alternatives which can help you get better returns on the idle money.

Fixed deposits
FDs are one of the most popular investment options for conservative investors due to fixed returns and the liquidity factor. However, banks have recently cut their interest rates and may lower them further as their coffers swell in wake of demonetisation. For example, the highest rate offered by SBI across different maturities is 7 per cent. Financial planners say investors should lock into higher tenure deposits as rates are likely to go down further. However, the post-tax return from bank fixed deposits is not attractive for that in higher tax brackets as interest income is added to one’s income as taxed according to the respective slabs.

Financial planners say customers can also opt for a sweep-in facility, wherein surplus funds above a threshold limit from the savings bank account are transferred automatically to fixed deposits, thus helping them earn a higher return than an ordinary savings account.

Post office deposits

Post offices also offer term deposit facilities with maturity from one year to five years. Currently, the interest rate ranges from 7 per cent to 7.8 per cent.

Liquid funds

These debt mutual fund schemes hold debt instruments of extremely short maturities. Investment in these funds could be as short as a day. They offer an alternative to investors for parking their surplus cash for short periods. They have no exit loads and investors can redeem investments very easily. Traditionally, they have offered higher rates than savings accounts. Debt mutual funds also offer superior tax benefits, particularly for persons in higher tax brackets. The past one-year return in the liquid fund category has been around 8 percent on an average, according to Value Research data.

However, analysts expect that returns from liquid funds may drop going ahead. Manoj Nagpal, CEO of Outlook Asia Capital, says that with further liquidity in the system and prospects of rate cuts from the RBI, “there could be a further contraction in the returns from liquid funds”.

Other debt mutual funds

Investors with a timeframe of less than a year can consider ultra short-term funds, which provide liquidity and may give marginally higher returns than liquid funds, says Vidya Bala, head of mutual fund research at Ultra short-term funds invest in very short-term debt securities with a small portion in longer-term debt securities.

“For those with 1-2 year time frame short-term debt funds are an option,” says Ms Bala. “For over two years, a combination of dynamic bond funds and income accrual funds are ideal. And for those wanting a bit of equities, MIPs (monthly income plans) too can be added for over a 2-year holding period.”

Arbitrage funds

Mr Nagpal of Outlook Asia Capital says arbitrage funds could be an option for investors with a time horizon of around one year. Arbitrage funds are categorised as equity funds but are relatively risk-free. Arbitrage funds enjoy tax superiority as compared to debt funds. An arbitrage fund is a type of equity mutual fund which tries to take advantage of the price differential (of the same asset) between two or more markets or market segments.

Government of India bonds

The 8 per cent Government of India Savings (taxable) bonds are available for purchase by retail investors with a minimum subscription amount of Rs 1,000. The rate of interest offered on the bond is 8 percent per annum. But interest income is taxable in the hands of the investor. Since bonds are issued on behalf of the government, it is among the safest investments.

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Here is a complete Guide on where to invest your idle money

With an estimated Rs 6 lakh crore deposited in bank accounts in the past two weeks, the saving bank accounts of Indians are bulging with cash. Given the restrictions on cash withdrawals, a large chunk of this money is going to stay put in bank accounts for the next few months, earning a paltry interest of 4% (6% in select banks) per year. Though the interest on the savings bank account is tax free up to Rs 10,000 per year, it’s not a good idea to keep Rs 2.5 lakh idling in your bank account. The 4% interest it will earn won’t be able to beat the march of inflation, which means the purchasing power of your money will come down. Of course, this money was losing value faster when it was lying in your locker as hard cash.

There are several ways you can deploy this idle money to earn higher returns without compromising liquidity or incurring high risks. Your choice will depend on how soon you need the money, your income tax bracket and your willingness to make a little effort to earn better returns.

Expected returns: 6-6.5%
Liquidity: Instant
Taxability: Interest earned is added to total income and taxed at the normal rate applicable to investor.

Effective yield from FD that offers 7% interest
Interest from FDs is fully taxable so the post-tax yield is not very high

The easiest way to deploy your bank balance is to open a fixed deposit, though the returns may not be very exciting. Banks have slashed the interest rates on short term deposits. A one-year deposit in the State Bank of India will now fetch only 4%, which is equal to what your savings bank account earns. The rates for longer term deposits are higher, but there is another problem. The interest earned on fixed deposits is fully taxable at the normal rate applicable to the investor. If you are in the highest tax bracket (annual taxable income of over Rs 10 lakh), the post-tax return will be close to 4.5%. Also, unless you have a Net-banking account, opening a fixed deposit won’t be easy at a time when visiting the bank is akin to entering a war zone.

The best way out is to open a long-term deposit of 3-5 years and break it whenever you need the money. Most banks no longer levy a penalty for premature withdrawals. But you get the interest rate applicable to the period you remained invested, which is usually lower than the longer-term rate. There is also a tax problem. If the interest income exceeds Rs 10,000 in a year, the bank will deduct TDS.

This is fine if your income is above the basic exemption limit of Rs 2.5 lakh per year. But investors in the zero tax bracket will have to file their returns to get a refund of the TDS. Or they will have to submit the Form 15 G or H to escape the TDS.

The same goes for recurring deposits. Interest earned on recurring deposits is also fully taxable, but these deposits were not subject to TDS. But the rules have now been amended.

This is a good time to consider opening a sweep-in bank account where any excess amount in your savings account automatically flows into a fixed deposit to earn a higher return. If you need the money and withdraw from your savings account, the fixed deposit is automatically broken.

Expected returns: 7-9%
Liquidity: Same or next day
Taxability: Gains taxed at normal rates up to three years. After three years, tax is 20% with indexation benefit

Best liquid funds
These funds are best for parking funds for the short-term

If you are a mutual fund investor and have fulfilled the KYC requirements, you can invest in liquid mutual funds. These are ultra-safe schemes that can deliver up to 7-8% returns in a year. The big benefit is that unlike fixed deposits, the income from mutual funds is treated as capital gains and taxed at a lower rate if the investment is held for at least three years.

Best ultra short-term fund
These schemes give slightly better returns than liquid funds

They are also more flexible. You can withdraw small amounts whenever required or invest more when you have surplus cash. Most mutual fund houses offer online investment facilities and the entire process takes just 40-45 minutes. The risk of losing money in a liquid fund is almost negligible. The investment is also very liquid. If you redeem before the cut-off time (usually 12.30 pm), the money is in your bank account the next morning. Some funds even transfer money the same day. There is no minimum investing period so you won’t be penalised if you invest today and redeem next week.

Expected returns: 8-9%
Liquidity: Next day
Taxability: Gains taxed at normal rates up to three years. After three years, tax is 20% with indexation benefit

Best short-term debt funds
These short-term funds have given double-digit returns

Those who don’t need the money for the next 8-10 months should go for short term debt funds. These are also debt schemes, but invest in a mix of short-term and medium-term bonds. The returns are slightly higher than what liquid funds and ultra short-term debt funds give, but there is also an exit load payable if you redeem your investment before a minimum period that ranges from 3 months to 12 months. In some cases, the minimum investment period can be up to 36 months. Check the exit load of the income fund before you invest, otherwise a penalty of 0.5-1% can pare your returns.

With interest rates expected to decline, these short term debt funds can give attractive returns in the short (2-3 months) and medium term (8-12 months). Even in the long term (over 3 years), these funds will deliver better post-tax returns than fixed deposits. Held for the long term, these funds can be effective replacements of fixed deposits.

However, keep in mind that these funds also carry an interest rate risk. Right now, these schemes have given good returns because interest rates have been consistently declining. If interest rates rise (which they are unlikely to), these funds can decline, resulting in losses for the investor.

Expected returns: 7-8%
Liquidity: Two days
Taxability: Gains taxed at 15% up to 12 months. After one year, tax-free

Best arbitrage funds
These are equity funds but don’t carry the market risk

Investors who can hold for one year should go for arbitrage funds because they offer tax-free returns. These funds invest in stocks and equity instruments but don’t carry the market risk. Like stocks and equity funds, the gains are taxed at 15% if redeemed within one year. After one year, the gains are tax-free. Check the exit load of the arbitrage fund before you invest, otherwise the penalty of 0.5-1% can pare your returns.

Expected returns: 8-10%
Liquidity: Two days
Taxability: Gains taxed at normal rates up to three years. After three years, tax is 20% with indexation benefit

Best MIP funds
A 15-20% exposure to stocks can boost your returns

If you can stomach a little risk, monthly income plans (MIPs) from mutual funds can be a low-risk entry point to the equity markets. MIP schemes follow a conservative investment strategy, allocating only 10-25% of their corpus to equities and putting the rest 75-90% in safer bonds and other debt instruments.

Their returns are better than debt funds, though they also carry a moderate risk. These funds have exit loads so check the terms and conditions before you invest.

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A Complete Guide to Investing in Mutual Funds

When it comes to investing in mutual funds, everyone else tells you what to do and gives you checklists. Fewer scientific choices lead to better decisions.Your portfolio should not have too many or too few funds. 2-4 funds are sufficient.And you need different types of funds for different goals. Equity, Debt and Tax saving.

Our scientific investment process has five key steps:

Step 1 – Define Objectives

  • Optimise long term returns in equity market, with lower volatility
  • Optimise medium term returns in debt market, with risk and return like FDs.

Step 2 – Filter

  • Start with entire universe of 8,000+ mutual funds
  • Focus on growth options only: most suitable from a tax-efficiency perspective
  • Eliminate small funds: less flexibility in case of sudden redemption pressure
  • Eliminate funds without 5-year track record: recent short term performance may be misleading
  • Select only diversified equity funds: Themes and sectors require a subjective decision on the prospects of a sector which is best left to experts managing diversified funds

Step 3 – Analyse Performance

  • Compare historical performance of each fund to relevant benchmark: Nifty for equity and tax-saving funds; bank FDs for debt funds
  • Pick funds that have consistently outperformed the relevant benchmark the most – by amount and frequency
  • While not guaranteed, consistent performance can be expected to repeat itself: It reflects a stable investment process and good management of market risks (for equity) and interest rate risks (for debt)

Step 4 – Manage Risk

  • Limit number of funds from a single mutual fund company: reduces concentration risk
  • For debt funds, evaluate credit risk: compute credit score by analyzing securities within the portfolio. Eliminate funds scoring below a certain minimum.

Step 5 – Construct Right Portfolio

  • Construct portfolios of equity, debt and tax saving funds based on performance & risk criteria, without any bias
  • Apply a set of rules to ensure there is no unnecessary churn of portfolio
  • When introducing one or more new funds, direct fresh investment into those funds
  • Monitor holdings in previously funds and do tax-efficient re-balancing at the right time.


These are the 10 selected funds you can invest in 2017.

  • SBI Blue Chip Fund (G)
  • ICICI Prudential Value Discovery Fund (G)
  • L&T India Value Fund (G)
  • Mirae Asset India Opportunities Fund (G)
  • Birla Sun Life Dynamic Bond Fund – Retail (G)
  • Axis Liquid Fund (G)
  • SBI Ultra Short Term Debt Fund (G)
  • Axis Long Term Equity Fund (G)
  • DSP BlackRock Tax Saver Fund (G)
Any Time Cash
  • Reliance Money Manager Fund (G)


Download Qykly : Daily expense Manager to keep a track on your investments.

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