Mutual Funds – Direct Plans vs Regular Plans

Mutual Funds have been in vogue as an investment class ever since their introduction in the 1960s with UTI introducing the first Mutual Fund in India. It has undergone a sea of changes and upgrades since those days, with public sector banks and other NBFCs throwing their hat in the ring as the years went by. The first private sector funds were set up in 1993, and this coincided with greater awareness among the general public about investing in Mutual Funds.

Currently, there are more than 40 AMCs in India that offer 1000+ MF schemes. Mutual Funds are currently offered in 2 forms – Direct Plan and the Regular Plan. This was based on how a customer invested in the Fund, either directly or through a distributor. This segregation, or rather the additional choice that the investor community was given, surfaced only in Jan 2013. Up until then, an investor would compulsorily have to approach a distributor in order to invest […]

By |March 5th, 2015|Categories: General|4 Comments

A High Service Tax Means Do Not Make In India, Buy From Abroad

Service Tax was hiked to 14% in this budget. The finmin folks seem to think this is just a gradual move towards the GST rates of 20% or so, since manufacturing is charged over 24% right now (12% VAT, 12% excise).

This is ludicrous. Telling us to pay 20% on every service to the government is clinically insane. Whether we get a GST or not, we should have much lower taxes, not higher ones, and definitely not so much for services.

The Saving Grace for Physical Products: CVD

Tell us this. Why you buy something from an Indian company rather than from a foreign import? Because the Indian product is either better, or it’s cheaper, or it’s more easily available. The cost of just transporting certain things, like cement, makes it unviable for foreign producers to sell into India, as the price differential is not so much.

And then, we have excise duty. If excise is at 12%, then the […]

By |March 4th, 2015|Categories: General|Tags: , |13 Comments

Premium: RBI Cuts Rates, And Market Falls! Surprise?

Why did markets crash after the RBI cut rates? We dig deeper into the reasons behind it. This post is for Capital Mind Premium subscribers only.

By |March 4th, 2015|Categories: Premium|0 Comments

RBI Cuts Rates 0.25%, Back to Sep 2013 Levels. We Didn’t See This Coming!

RBI Cut Rates by 0.25% in a surprise move today. We were surprised, and we have been watching RBI closely. Rates are down by 0.25%.

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This brings rates to where Rajan had first raised them (on 20 Sep 13) when India was in the middle of a big crisis.

The Statement has this, emphasis mine:

The new CPI rebased to 2012 was released on February 12, 2015. Inflation in January 2015 at 5.1 per cent as measured by the new index was well within the target of 8 per cent for January 2015. Prices of vegetables declined and, hearteningly, inflation excluding food and fuel moderated in a broad-based manner to a new low. Thus, disinflation is evolving along the path set out by the Reserve Bank in January 2014 and, in fact, […]

By |March 4th, 2015|Categories: InterestRates, RBI|11 Comments

NSEL Scam Fallout: Top Brokers Arrested for Manipulating Client Codes

Top brokers have been arrested in the NSEL scam, according to Business Standard:

City police’s Economic Offences Wing tightened the noose on commodity brokers by arresting Anand Rathi Commodities Managing Director Amit Rathi, India InfoLine Commodities vice president Chintan Modi and Kochi-based Geojit Comtrade’s whole time director C P Krishnan for their alleged involvement in the scam, EOW sources said.

….

According to NSEL data, brokers were manipulating client codes to the tune of 3,00,000 times, after the trade was carried out on the exchange and then they transferred the same to other names.

It may be noted that in equities and commodities, changes in client codes are allowed only in a genuine case. But in this case, changes in client code were effected to transfer profit and loss to launder money.

This is good news. SEBI should probe such activities by brokers as well – they routinely do this, and too many times, in the equity markets […]

By |March 4th, 2015|Categories: General|Tags: |3 Comments

You Will Not Believe The Real Cost of the Subsidized Insurance and Pension Schemes In The Budget

There were three new “social” schemes in the budget. These sounded like big government expenditure and the devil is obviously in the details. We have some details from the FinMin.

Accidental Death Insurance for Everyone at Rs. 12 per year

How does this work?

People between 18 and 70 years old, who have a bank account linked to her Aadhaar, give a form to their bank to auto-debit their accounts each year. The insurance will be offered by public insurers and optionally by private insurers too.

Death or full disability is covered with Rs. 200,000 and partial disability is Rs. 100,000.

Cost: At Rs. 12 a year, a premium is hugely subsidized by the government. But how much? I did a quick calculation for a similar policy with Oriental Insurance (a public sector insurer), and the premium came to Rs. 90 per year. The subsidy then comes to Rs. 78 per year. Who pays this? […]

By |March 3rd, 2015|Categories: General|Tags: |12 Comments

Jan and Feb Positive For Stocks: What Does March Look Like, Historically?

The Nifty went up 1.1% in Feb 2015, taking the 2015 return to 7.5%. With two consecutive months of gains, this looks like a good month. March has a negative average, and a negative median return (a new measure we add this month).

If you look at the years in which Jan and Feb have been positive, what does March Look Like?

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In the seven instances (since 1994) that we have seen positive returns in Jan + Feb, we have:

  • Five negative returns (from -1.1% to -12.8%)
  • Two positive returns (+10.7% and +9.9%)

Just seven points don’t make for any useful statistics. But what they’re saying is: if March is positive, it’s blockbuster; but it’s more likely to be negative.

Note: Don’t draw this inference as a recommendation – with just seven past instances, you […]

By |March 2nd, 2015|Categories: General|Tags: , |1 Comment

RBI Agrees To Meet 4% Inflation Target, + or – 2%, Starting Jan 2016

Inflation targets are now at 4% starting Jan 2016. This is now a stated goal, with the Government and the RBI agreeing on it. Plus, the RBI needs to come back to the government with reasons if it goes beyond these boundaries for three quarters, with remedial steps.

While this initially sounded like the Government was trying to interfere, this is a benign move. Having a strong inflation target is good. (Here’s the full agreement)

Monetary Policy Agreement Between RBI and Government

But this pins the responsibility entirely on the RBI. The RBI cannot affect fiscal policy. If the government has increased excise duty […]

By |March 2nd, 2015|Categories: InterestRates, RBI|Tags: |7 Comments

Macronomics: The Budget, It’s Impact on Bonds and Rates and Equity

We discuss the impact of Budget 2015 on the financial markets. This post is for Capital Mind Premium subscribers only.

By |March 2nd, 2015|Categories: Premium|Tags: , |0 Comments

You Thought Service Tax Was Hiked to 14%? It Might Be 16%.

Service Tax in Budget 2015 was moved to 14% from the 12.36% we were paying earlier. But there’s a sneaky thing in the budget that allows them to push it up to 16% whenever they want. From the memorandum:

Swachh Bharat Cess:

  • An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives. This Cess shall be levied from a date to be notified by the Central Government in this regard and will not have immediate effect.

The only thing this is going to clean is your pocket.

Service Tax applies to a lot of things that you can hardly avoid. You have any banking fees of any sort? You pay service tax.

You take a personal loan? Pay service tax on the interest. That 12% personal loan […]

By |March 1st, 2015|Categories: General|Tags: , |9 Comments

Budget 2015: Balancing the Budget By Massively Overestimating Tax Collections

Yes, we missed budget estimates by a huge margin. But how are our estimates, in terms of growth over the previous year, compared to earlier times? Let’s take a look.

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What this tells you:

  • Expectations of Gross Tax Revenue Growth are nearly 16%. This will be the highest growth number, if we achieve it, since 2012-13.
  • Customs duty collections are estimated at 10% growth. That’s fair and normal, but it doesn’t reflect the massive growth of India if we are to see a 15% growth in overall revenue (India is a net importer even if you removed oil and gold, so that part too will grow close to the economic growth rate)
  • Excise duty is expected to grow 24%. That’s the highest growth number since 2010-11 (where the economy was recovering from a global […]
By |March 1st, 2015|Categories: General|Tags: |5 Comments

We Just Missed Revenue Estimates by 63,000 Crores. And The Biggest Culprit: Service Tax

India is brilliant, they’re going to tell you in the news tomorrow. But what really has happened in the last year is absolute carnage, in terms of both revenues and expenses of the Central Government.

Revenues Down 63,000 Crores

If you look at revenues, most of the money comes from taxes, some from non-tax revenue.

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We missed budget estimates of Corporation Tax (meaning, what companies pay as taxes) by Rs. 25,000 cr.

The Indirect tax hit was huge:

  • Customs duty lower by 13,000 cr. – probably because of curbs on gold, one thinks.
  • Excise duties down by 21,000 cr. and this is what tells you Manufacturing is in the doldrums.
  • Service Tax, the stuff that is supposedly “buoyant” in the economy (the service sector) saw nearly 48,000 cr. lower revenue!

The big surprise […]

By |February 28th, 2015|Categories: General|Tags: |12 Comments

Is There a Rs. 30,000 cr. Debt Swap Planned For March?

Something seems off in the Budget Calculations.

Every year we spend more than we earn. We borrow the difference, typically as market debt called Government Securities. The difference between spending and earning is the “fiscal deficit”.

We’ve borrowed in past years, and some of that borrowing comes up for redemption at maturity. So if your deficit is Rs. 1000, and then you have some Rs. 200 worth of debt coming up for redemption, then you need to borrow Rs. 1200 – 1000 to pay for the deficit, and Rs. 200 to pay back all that debt that came due.

In the government budget note here’s the part where they mention this stuff:

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That means next year, we have to pay back Rs. 143,594 crores, and the “net” borrowing would be 456,405 cr. The […]

By |February 28th, 2015|Categories: General|Tags: |6 Comments

Budget 2015: More Taxes, No Wealth Tax, More Other Taxes, Black Money Attacks

Budget 2015 wasn’t quite a blockbuster budget. It’s more of a pocket buster, as the biggest thing inside it is: Taxes are up.

No Tax Rates Changed, But High Income Surcharges are Up

The Government hasn’t changed much about Direct Taxes. Slabs remain the same as last year. Your 80C limit (on savings) remains the same. Your exemption for housing loan interest remains the same.

Certain small changes are in:

  • Buying health insurance can save you Rs. 25,000 now (instead of Rs. 15,000) tax deductible. (Senior citizens get Rs. 30,000)
  • Buying Sukanya Samriddhi deposits (for a girl child) are eligible for 80C deductions. Where the interest accrued and withdrawals are not subject to tax!
  • You can buy into pension funds from insurers, or the NPS scheme for upto Rs. 150,000 a year (from Rs. 100,000).

However, if your income (or your company’s income) is greater than Rs. 1 crore, your surcharge just went up by 2%. Currently the surcharge is 10% for individuals, which will go up to […]

By |February 28th, 2015|Categories: General|Tags: |13 Comments