Posts Tagged ‘Taxation’

HOW IMPORTANT IS INTEREST RATE?

Essentially, interest is nothing more than the cost someone pays for the use of someone else’s money. In India, an individual willing to purchase a home uses bank’s money (through a mortgage) and in return pays interest to the bank for the privilege or the credit card user borrows money for the short term in order to buy something right away. But the very question that comes to everyone’s mind is how to determine where the rates are heading & what impact will it have?

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So in order to find where the interest rates are heading all one needs to do is to look at the deposits & loans advances of the banks. If banks credit growth is more than its deposits then banks may raise the deposit rates or may increase the lending rates in order to match the asset & liability mismatch. When the Central Bank (RBI) feels that the credit growth has started picking up & is higher than its target levels, RBI tinkers with its policy rates gives signals to the commercial banks to review the interest rates be it on the deposit front or on the lending front.

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Effects of the rising interest rates On individuals

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The first indirect effect of an increased rate is that banks increase the rates that they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if they carry a floating interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay their EMI’s, and when these installments become more expensive, households are left with less disposable income.

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On the Corporates financials

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Corporates too borrow money from banks to run and expand their operations. When the banks make borrowing more expensive, corporates may  not borrow at all or may not borrow at the same pace that they were doing when the rates were lower. Less business spending can slow down the growth of a company, resulting in decreases in profit.

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Even businesses are also indirectly affected as a result of the actions of the individual consumers as individuals are left with less disposable income which affects the company’s top & bottom lines (that is, revenue and profits). Apart from having an indirect affect businesses are affected in a more direct way as well.

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On GDP Growth

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The government essentially has two weapons in its arsenal to help guide the economy towards a path of stable growth without excessive inflation; monetary policy and fiscal policy. Fiscal policy comes from the government in the form of taxation and federal budgeting policies. While fiscal policy can be very effective in specific cases to spur growth in the economy, most market watchers look to monetary policy to do most of the heavy lifting in keeping the economy in a stable growth pattern. Monetary policy is defined as any action to limit or increase the amount of money that is circulating in the economy. That means the central bank (RBI) can make money easier or harder to come by, thereby encouraging spending to spur the economy and constricting access to capital when growth rates seem to be approaching unsustainable levels.

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Stock Price Effects

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Clearly, changes in the rates affect the behavior of consumers and business; hence the stock market is also affected. Remember that one method of valuing a company is to take the sum of all the expected future cash flows from that company discounted back to the present. To arrive at a stock’s price, take the sum of the future discounted cash flow and divide it by the number of shares available. This price fluctuates as a result of the different expectations that people have about the company at different times and are willing to buy or sell shares at different prices. If the company is seen as cutting back on its growth spending or is making less profit – either through higher debt expenses or less revenue from consumers then, the estimated amount of future cash flows will drop. All else being equal, this will lower the price of the company’s stock.

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Investment Effects

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With a lowered expectation in the growth and future cash flows of the company, investors will not get as much growth from stock price appreciation, making stock ownership less desirable. Furthermore, investing in stocks can be viewed as too risky as compared to other investments. When the central bank raises its rate, newly offered government securities, such T- bills and bonds, are often viewed as the safest investments and will usually experience a corresponding increase in interest rates. In other words, the “risk-free” rate of return goes up, making these investments more desirable.

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Conclusion

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We should keep in mind, however, that these factors and results are all interrelated. What we described above are very broad interactions, which can play out in innumerable ways. Interest rates are not the only determinant of stock prices and there are many considerations that go into stock prices and the general trend of the market – an increased interest rate is only one of them. Therefore, one can never say with confidence that an interest rate hike will have an overall negative effect on stock prices.

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Stay Tuned for More Updates :)

GST Introduction in April to Reduce Indirect Tax Burden

GST Introduction to Reduce Indirect Tax Burden

The Finance Ministry maintained that the net burden of indirect taxes on the people would reduce by 25-30% when the proposed Goods and Services Tax (GST) is introduced from April 1, 2010.

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However, it is said that real estate would also be brought under the GST scanner and deliberations in this regard between the Centre and the States were almost conclusive.

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The draft legislation on GST had been referred to legal experts and would be finalized in order to facilitate the government to achieve target of implementation of Goods and Services Tax as has been promised by April, 1, 2010.

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Meanwhile, it is said that there were divergent views expressed by the Empowered Committee of State Finance Ministers and the Thirteenth Finance Commission (TFC) on certain issues relating to GST, but noted that these were on the verge of finding a solution.

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On the other hand, according to the implementation programme, the government plans to introduce the GST regime from the new fiscal to replace excise duty and service tax at the Central level and the VAT at the State level, apart from others levies like cess, surcharges and local taxes as currently applicable on good and services.

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GST set to reduce the burden of Indirect Taxes on people.

GST set to reduce the burden of Indirect Taxes on people

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The Finance Ministry maintained that the net burden of indirect taxes on the people would reduce by 25-30% when the proposed Goods and Services Tax (GST) is introduced from April 1, 2010.

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However, it is said that real estate would also be brought under the GST scanner and deliberations in this regard between the Centre and the States were almost conclusive.

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The draft legislation on GST had been referred to legal experts and would be finalized in order to facilitate the government to achieve target of implementation of Goods and Services Tax as has been promised by April, 1, 2010.


Meanwhile, it is said that there were divergent views expressed by the Empowered Committee of State Finance Ministers    and the Thirteenth Finance Commission (TFC) on certain issues relating to GST,  but noted that these were on the verge of finding a solution.

On the other hand, according to the implementation programme,

the government plans to introduce the GST regime from the new fiscal to replace excise duty and service tax at the Central level

and the VAT at the State level, apart from others levies like cess, surcharges and local taxes as currently applicable on good and services.

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🙂

Nifty BeES ! (Nifty Benchmark Exchange Traded Scheme)

Nifty Bees

Nifty Bees

1. What is Nifty BeES?

Nifty BeES is an Open-Ended Exchange Traded Mutual Fund. It is a combination of a share and a Mutual Fund Unit. Nifty BeES tracks the S&P CNX Nifty Index.

The investment objective of Nifty BeES is to provide investment returns that, before expenses, closely correspond to the total returns of the S&P CNX Nifty Index.

Nifty BeES is listed on the Capital Market Segment of the NSE.

2. How is Nifty BeES different from Nifty Futures?


Nifty BeES & Nifty Futures both allow investors to take exposure to the Nifty Index. However, Nifty Futures are derivative products and trade in the F&O segment of NSE, while Nifty BeES is a cash product and trades in the Capital Market Segment.

Unlike futures, there is no lot size for Nifty BeES, you can buy as little as one unit.

As Nifty BeES is traded in the cash segment, you do not need to roll it over every month and can hold it as for long as you want. In terms of Taxation, with Index Futures it is not possible to take advantage of Long Term Capital Gains while with Nifty BeES you can take advantage of Long Term Capital Gains if you hold it for over a year.

3. Can one buy & sell any time during trading hours?

Yes, one can buy or sell Nifty BeES just like one buys or sells any other share. It trades on the capital market segment of NSE and is settled just like any other shares on T+2.
4. About Benchmark :

Benchmark Asset Management Company Pvt. Ltd. (BAMC) is a SEBI registered Asset Management Company launched in June 2001. BAMC is the first and only asset management company in India with a primary focus on indexing and using quantitative techniques in creating innovative products. Benchmark is run and co-promoted by professionals with a long experience in the Indian and International Financial Markets.
Benchmark Milestones


·First AMC in Asia (ex Japan) to launch ETF, and only 18th in the World

·Launched the First ETF in India – Nifty BeES

·Nifty BeES has been awarded the “Best Performing Mutual Fund of the Year in the index fund category at the CNBC-TV18-CRISIL Mutual Fund Awards in 2007 & 2008

·BAMC is the largest Index Fund Manager and the largest ETF manager in India

·BAMC was the first AMC to conceptualize the idea of a Gold ETF in the world

·BAMC has been ranked as the “Best Provider of Structured Products” in their Private Banking Poll 2006, by Euro money
Details of other ETFs:

·Nifty BeES: The First ETF in Asia (Barring Japan)

·Junior BeES: The First and only Midcap Index Fund and ETF in India.

·Bank BeES: The First and only Sector Index Fund and ETF in India.

·PSU Bank BeES: The First PSU Bank Sector Index Fund and ETF in India.

·Gold BeES: The First Gold ETF in India.

·Liquid BeES: The First and only Liquid ETF in the world

·Shariah BeES : First Shariah based ETF in India