Special Demat account for non-equity holdings

We have always felt the need for a demat account which can help people to hold on to various financial instruments, like Mutual Funds, Debentures, Non-convertible bonds, Deep Discount bonds etc., who don't normally invest in direct equities. There is a huge section of people who desist from investing in equities but would like to hold other debt and MF instruments in demat form. Off late, we are also seeing an increasing tendency among the issuing companies to go for electronic form of holding these debt instruments as it makes their lives easier.

Sensing this requirement correctly, Integrated Enterprises have come out with a special purpose demat account to hold these non-equity financial instruments at a very nominal cost of a refundable deposit of Rs1000/-. Integrated Enterprises claims that they would not charge any other charges during the lifetime of the account, which makes it all the more interesting.

Key features of this demat account are:

• You can maintain all existing Mutual Fund units in the Demat account.
• Demat account is compulsory for investing in Corporate Bonds/NCDs. There is NO TDS, ONLY if you maintain them in the Demat mode.
• Demat account is compulsory for investing in Gold ETFs.
• You can invest & maintain Long Term Infrastruture Bonds (with income tax benefit 80-CCF) in the Demat account

We think this is a significant development for small and retail investors and it also helps to further deepen the reach of these financial products.

For more information, you may please visit their website.

Happy Investing!!

Disclosure: The above information is collected from the publicly available information disseminated by Integrated Enterprise and shared on this blog without any obligation. We don't have financial or business dealing with Integrated Enterprise. Please check their terms and conditions carefully before concluding any transaction.

Welcome back!!

We are back online after a 2 year hiatus. We know, this is quite a long period to be away, and we would try to be more regular going forward.

Wish you all a very happy reading!!

Co-operative societies and stamp duty evasion issue

In the last 3 - 4 years, lot of co-operative societies in Tamil Nadu has promoted and marketed many housing plot lay-outs. The chief attraction of these lay-outs are the waiver of stamp duty of 9% at the registration of these housing plots. Using this effectively, many co-operative housing societies have sold plots to investors and end-users over the last so many years.

Whats the catch here?

As per the Government regulations, the waiver of stamp-duty is available only in respect of housing plots laid out on the land owned by the Co-operative society. The Co-operative Society is supposed to follow the following process:

• Pool resources from the members
  
• Purchase a piece of land and register it in their own name
  
• Sub-divide it into housing plots and get the necessary approvals
  
• Allot the sub-divided plots to its members
  
• Register the plots in the name of its members with the stamp duty waiver
  

What went wrong in this case?

Instead of Co-operative societies buying land and sub-dividing them into housing plots, they started marketing the land owned by other individuals/promoters for a commission. They offered the prospective buyer stamp-duty exemption in respect of the plots which are only marketed by them for a commission but not owned by them. The buyer of the plot enjoys stamp-duty waiver, owner of the land is able to sell fast and the co-operative societies were making their money through commissions from the land owners.

Who is the loser here?

The state Government. The Governmnet of Tamilnadu has now woken up and stopped all registrations of plots which are just marketed by Co-operative Societies by its order dated 05 Oct. The Government estimates that the revenue loss of close 400 crores over the last 5 years or so.

What would happen now?

The Government has found out that there are atleast 20 lay-outs near Chennai, another 5 layouts in Coimbatore are currently being sold under this route. The Government may order for an audit of the past registrations and issue a stamp-duty demand notice on the current and erstwhile property owners.

What we should be careful about?

If you are currently in the look out for a plot of land promoted by a co-operative society, be careful when somebody tells you there is a stamp-duty waiver in respect of the property. Ask and clarify from the co-operative society if the stamp-duty waiver is applicable to that particular lay-out which is being promoted by them and if possible, seek documentary evidence of the same. You can also check and ensure that the land is owned by the co-operative society and the registration is done with the co-operative society as the seller.

Caveat Emptor!!

PAN requirement for Mutual Fund investments through SIP may go off

The Finance Ministry is set to issue a new set of guidelines for SIP investments upto Rs50,000 in Mutual Funds relaxing the need to produce Permanent Account details. PAN was required under the Prevention of Anti-money Laundering Act (PMLA) to establish the identity of the person making the investment. As Systemtic Investment Plan transactions are routed thorugh the Banking channels, the identity of the investor can be easily established.

Dhirendra Kumar of Valueresearchonline.com feels that this is a positive development for the mutual fund industry particularly at a time when everybody is talking about extending financial services to the "bottom of pyramid" population and would also open up the Mutual fund avenue for more than 100 crore Indians who don't have a Permanent Account Number.

As more and more people are interested in investing in the stock markets using the Mutual Fund route and with the advent of products like Micro SIP's, where the monthly contribution can be as low as Rs50, this is definitely would give a fillip to the Mutual Fund industry in augumenting the funds under management.

As per Economic Times, KYC process would still be enforced for Mutual Fund Investments.

Please note that this relaxation is still not official as AMFI India, the umbrella organisation of Mutual Funds in India is yet to receive the Government order.

Nomination facility to your Demat account with NSDL

Recently National Securities Depository Limited through its Circular NSDL/POLICY/2009/0002 dt 3 January 2009, has asked all the depository participants to collect nominee details for all the current demat accounts held by them.  

For example, you may hold an Demat account with ICICI Bank or Kotak Securities.  They would contact you to update the nominee details in case you have not updated it earlier.  This is a step in the right direction as it provides hassle-free transfer of securities in the event of death of the demat account holder. 

You would have started receiving emails from the Depository Particpant.  Please take some time off and arrange to fill up the form and send it back to your DP where you hold your demat account. 

The last date for the submission of the form is April 30, 2009 as per ICICI Direct emailer.  Please check with your respective DP's to find out the last date for the submission of the form.   

EPF rate kept unchanged at 8.5 per cent for 2008-09

The Central Board of Trustees of the Employees Provident Fund met here on Sunday pegged the interest rate payable to subscribers for 2008-09 at the existing 8.5 per cent for the third successive week against the trade unions' demand for 9.5 per cent return per annum.
The decision was taken by the newly constituted board which met under the chairmanship of Oscar Fernandes, minister of state for labour and employment and chairman, central Board of Trustees of EPF in New Delhi.

The decision to keep the interest rate at 8.5 per cent for the current financial year has been opposed by almost all major trade union leaders, including the Centre of Indian Trade Union (CITU), All India Trade Union Congress (AITUC), Bhartiya Mazdoor Sangh (BMS), Hind Mazdoor Sabha (HMS) and All India United Trade Union Centre (AIUTUC). The Employees Provident Fund has more than 44 million subscribers.

The EPF trustees said the fund has been dipping often into the contingency fund to give subscribers a ''reasonable return'' for the past few years. The fund is reported to exhaust with the current pay-out.
EPF has already paid an 8.5 per cent on withdrawals and retiree payments in 2008-09, and that too for a higher amount than in earlier years.

The decision to retain the interest rate 8.5 per cent in the backdrop of the coming general elections is expected to be a severe drain on the economy at a time when the Reserve Bank of India is forcing a downward revision of interest rates – both lending and borrowing – in order to boost consumption.

Source: World Wide Web

Review of Bajaj Allianz Capital Shield Plan

Recently Bajaj Allianz Life Insurnace company has introduced a Insurance Linked Index Investment Plan called "Capital Shield". This product is being aggressively pushed by one of their Bancassurance partners, Standard Chartered Bank.

The salient features of the plan are as follows:

1. 5 times the initial amount as life cover, i.e., Rs5 lakhs for the next five years.
2. Investment allocation of 98% of the investment after deduction of the mortality charges.

The product works like this. You make the initial investment and after 5 years of the policy term, Bajaj Allianz guarantees that they would be able to return the money what you invest today. The minimum investment amount is Rs50,000/-. That is, they guarantee to return back the capital after the policy term. In this period of fast depreciating investmnets, the idea is to entice the investors with a capital protection guarantee. So what is the big thing about this product? The important thing is that portion of your investment is channeled towards buying NIFTY Call Options and the returns you would get is linked to the NIFTY returns over the next 5 years. The plan also guarantees a 15% return on investment at the end of 5 years subject to certain conditions.

Does it sound interesting to you? I have a capital protection and also at the same time I have an exposure to equity markets through NIFTY Index options. On this premise only this product is being aggressively sold. I think there are lot of questions which needs to be answered before you can invest in these structured products.

First one is the Participation ratio: This is the percentage of your investment which goes into NIFTY Index Linked Call Options in this product. Technically, this is the percentage which has been left after allocating investment towards the fixed income portion of your investment which guarantees your capital at the end of 5 years term.  It is not clear from the product brochure the percentage of your investment which will go into Index options.  

Unable to time the entry based on NIFTY Index  Levels: In this Capital Shield Product, the entry point for you would be the average of the first 3 months from the time you invested. Actually, this is a double edged sword. You may decide to invest today just because that the NIFTY has been hammered a lot and hovering around 2700 levels. But Bajaj Allianz would not take the investment at today's NIFTY Index Level but wait for the next 2 months level to decide on the average. In case, the NIFTY goes up in the next 2 months, your entry price is averaged out upwards. Though this averaging out helps to smoothen the volatility, it defeats the very concept of trying to time the market.

Poor guaranteed returns: The plan brochure talks about guaranteed 15% return on investment over the next 5 years if the NIFTY Index moves up by 100% over the next 5 years. On plain reading this return percentage looks attractive but the fact is the return of 15% is simple return after 5 years. That is, you invest Rs1 lakh today and the NIFTY level is at 2750 and at any point of time during the next 5 years it moves to 5550, then you are guaranteed 15% on Rs1 lakh after 5 years. It works out to a measly 3% simple interest.

What happens if the NIFTY fails to double within 5 years?: There is a possibility that NIFTY never manages to double from todays level over the next 5 years. Then Bajaj Allianz is not even compelled to pay this 3% simple interest per annum. In that worst case scenario, they would pay Rs1 lakh back to you with a big thank you. They would have used your investment for 5 years and return the capital only. The product doesnt have a feature of roll over the maturity period to take care of the prevailing market conditions.

Overall, investment in Bajaj Allianz's Capital Shield product should be avoided as there are better investment opportunities in the fixed income domain itself. Our suggestion would be go for plain vanilla products compared to these structured products where fixed income and equity index futures are combined.  It neither has the stability of the fixed income instruments nor gives the multi-fold returns of Equity products.