Monday, March 1, 2010


The Finance Minister Pranab Mukherjee presented a Pragmatic and yet to a great extent a balanced budget.. It is a very pragmatic budget for he tried to bring down the fiscal deficit on one hand and on the other hand he tried to retain the better growth rate. During financial year 2010 -11 fiscal deficits would be reduced to 5.5% of GDP and aimed at growth rate of 8%. During this fiscal. In FY12 fiscal deficit is planned to be pegged at 4.8% while during FY13 deficit kept pegged at 4.1%. .

The Opposition on Friday slammed the Union Budget for 2010-2011 as anti-poor and anti-farmer.Samajwadi Party chief Mulayam Singh Yadav said the Budget was against the farmers and unorganised sector.

He did announce that the aim of his government is to achieve inclusive growth of 10%.With India Inc. posting decent profits and advance tax collection (in December 2009) jumping 44%, the FM has given India Inc a little relief. While he has left the base rate of 30% the same for corporate taxes, he has cut the surcharge from 10% to 7.5%.

However, while he has given with one hand, he has taken away from the other. He has increased Minimum Alternate Tax (MAT) from the current 15% of book profits to 18% of book profits.
Currently, domestic firms earning total income of over a crore in a year have to pay corporate tax of 30%. Besides, surcharge of 10% and education cess of 3% are imposed on them, taking the total tax liability to 33.99%. Now, this comes down slightly to 33.2175%. .
India Inc had been clamouring for a cut in corporate tax rates, or at least a complete cut in surcharge or education cess.
But not many were too optimistic on this happening. However a few economist felt :“There is a large scope for reduction in corporate taxes because today the corporate are paying lot of taxes in fact depreciation rates have been bought down in the last Budget - that itself is a disincentive for investment as far as Indian corporate is concerned. There is a lot of income where it is not getting taxed like agricultural income – why can’t it be taxed even Direct Tax is not addressing that point”. India Inc expected at least surcharges would go.
The government has announced a hike in the prices of auto fuels like petrol prices by Rs 2.67 per litre and diesel prices by Rs 2.58 per litre with effect from tonight., just after budget announcement. The development came soon after Finance Minister Pranab Mukherjee announced an increase in excise and customs duty on petroleum products. During the Budget, opposition leaders staged a walk-out protesting the move would lead to an increase in fuel prices.

Leader of Opposition and BJP MP Sushma Swaraj led the walkout calling the Budget an “inflationary Budget”. That the government would chose to hike fuel prices so soon after the Budget might have surprised even the opposition.

During the Budget, Mukherjee had promised to decide on the recommendations of the Kirit Parikh Committee soon. The Kirit Parekh Committee favours the deregulation of auto fuel prices (petrol and diesel) and streamlining of subsidies for prices of cooking (LPG and kerosene).

The Finance Minister is taking a very balanced approach in the budget. Also after many years, people heard a Budget speech, which started talking about for the first 15-20 minutes with the big agenda rather than many of the speeches, which deal with minor things. The whole spirit was one of great pragmatism one in the right kind of boldness and that’s what the market signaled. The Share market has responded well to the budget but it would not be long lived one because now a day’s share market not only depends on domestic cues .It is greatly influenced by international push and pull. There is a strong possibility for market to tumble down soon.

The country is now free from the worries that it had on interest rates, currency on the government agenda. We forgot to talk about a very important thing, which are the new bank licenses. This is the bold out of the blue because we all had assumed that these things will just not happen. I personally think that the bank announcement is a very big one.

The Finance Minister, in today’s Budget speech announced a roadmap for the much–talked about Direct Tax Code and Goods and Service Tax (GST). “The process of building a simple tax system is near completion,” Prefab Mukherjee said on the Direct Tax Code in Parliament today, adding, “We aim to implement the Direct Tax Code and GST by April 1, 2011.” The finance Minister has been trying to achieve following targets during the next fiscal

Focus to improve food security and healthcare systems
Focus on development of infrastructure in rural and urban areas likely
Focus on review of stimulus is now important :
The Finance Minister, in the Budget today, announced a bumper facility for individual tax payers. He has changed the tax slabs for men, women and senior citizens. The highest tax slab has now been raised from Rs 5 lakh to Rs 8 lakh.

"The Finance Minister has been sensitive to the needs of the common man," a few economist have remarked.

The FM has also increased the limit of deduction available under section 80C. He has allowed an additional investment of Rs 20,000 for infrastructure bonds taking the total of the limit under section 80C from the current Rs 1 lakh to Rs 1.20 lakh.

As per present slab, a tax payers had to pay 10% tax up to the income of Rs three lakh , there after 20% tax was imposed upto Rs Five lakh. incase someone crosses the limit of Rs Five lakh he had paid taxes at the rate of 30%. From April 2010, a tax payer shall have to pay tax of 10% upto Rs five Lakh income and there after only he would have to pay 20% tax up to Rs Eight Lakh. Only income beyond Rs Eight lakh would attract 30% tax. This is a great benefit for middle class. This has given great relief to senior citizen and women. We have given here under an example of senior citizen .Till the income of Rs 2,40,000 no income tax is payable as before . But up to the income of Rs 5 Lakh he was paying the tax amount to Rs 47,000 /- till March 2010. But from now onward he would pay a tax of Rs 26,000/-.Only. Middle class has congratulated the Finance Minister for this reduction In taxes. We are sure the budget would usher in a new era and in the next year lot of things would take place in the domain of Personal Finance and in the rate of Growth.

When is a good day for investment now ?

We have received lots of mail from our readers asking us whether they can start investing now. This question has been raised for the simple reason that in our earlier article on investment it was recommended to hold on to the money in hand to enable them to invest after correction. The correction, as expected, has set in. By now the market has corrected around 17% from the high of January. It is possible some more correction may follow before or after budget is placed in Parliament on26th February. But investors can put their money from now onward provided they follow the systematic investment route. To be frank enough genuine investors should not try to time the market and should stick to long term investing. What is the meaning of long term? The investment horizon should be for a period of five years. Due to higher volatility of share market some time adequate returns are not delivered in short term, most of the time. Only rarely high returns are delivered in one years time. Last year(2009) was an exceptional year when market delivered a very high return within a year. This was unusual. Now the question arises what should investors of Northeast do?

The investors of Northeast are generally new investors. It would be prudent for them to be cautious. We have advised number of times that no investment should be made short term .It would be prudent for investor with low risk appetite to keep away from the market. They can keep investment in Bank FD or at best in Short term Debt fund. Investors with moderate risk appetite should invest in MIP and Balanced fund for a period of five years. Only persons who can withstand volatility in the market should subscribe to Shares of the stock market or subscribe to diversified Mutual fund of four and five star rating of Value research.

I must admit that investors of today are lucky that the provision of Systematic investment plans have been introduced most of the Fund houses. When in 1998 on Templeton introduced SIP system most of the people took it to be a market gimmick.. But it proved to be a great plan. The return of investment is SIP for the same of money for the same period is much higher than lump sum payment for the same amount for the same period .For middle class and lower middle class it is always difficult to make Lump Sum payment. They can save slowly and steadily while they keep earning every month. Earlier
Systematic investment could be carried out annually , six monthly or weekly. But of late a few fund houses have introduced Daily “SIP” provision. This would be greatly beneficial to daily wage earners and for self employed people like Doctors , Advocate, Shop keepers who receive fees daily from their clients, but do not know how to account it for.

Many investors of northeast has kept away from share market for higher chances of losses. They kept money in Bank FD which hardly earns them anything. ultimately low return and higher inflation of food product make them frustrated. I would like to recommend highly now for such persons to invest in Diversified mutual on a daily SIP plan. This plan was not available earlier. In such plan it would be difficult to loose money if kept on investing for a period of four to five years .Rather it would provide an avenue for excellent return. Srikumar Bandyopadhyay, an investment analyst, calculated and showed that systematic monthly investment in reliance vision fund gave 32.44% return while lump sum amount gave annualized return of 26.14% compared to BSE Sensex’s benchmark return of 13.40% for a period of 10 years. Daily SIP plan is a recent phenomenon and at present ING, BharatiAXA, IDFC and Sahara have come up with Daily SIP. The Daily SIP is a better option compared to weekly and mothly option. The share market is known for its volatility but nobody knows on which days market would fall or rise. In daily SIP the investor would gain everyday when market fall because it would buy shares Cheaper. It would gain when ultimately market goes up.It should be clearly understood that share market do not remain static . It travels up and down.depend on the sentiment of the economy .The daily SIP is the only method when investors gain both the ways provided keep invested for longer time.

One of the expert mentioned that while investing Rs1000/- per day ,through daily SIP, from First January 2010 till Fourth February 2010 an investor gained Rs21,853 whereas the lump sum investment mode could have provided a return of Rs21,252 only. This difference would be stupendous over a period of Five to ten years. Not too many fund houses are offering daily SIP. But it can be organized by on line purchase daily by investors without any extra charge.

My advice to our young investors would be to go ahead and invest through Daily
SIP. House wives would be able to take care of investment daily by saving some expenses of family. It is most ideal for Doctors and Advocate to park their daily income from their clients and get great return without any income tax.