70
Anup BagchiMD & CEO
ICICI Securities Ltd.
The Budget 2016-17 proposals seem to be significant on several counts for the overall economy in the long run. The silver lining is the government's adherence to its fiscal consolidation path of 3.9% for FY16 and 3.5% for Fy17. This clearly has the potential benefit for all since fiscal prudence will leave the room for rate cuts going ahead. Lower interest rates would help in reduction of EMIs (equated monthly installments) and interest on loans - a booster for overall financial health of investors.
The budget has also focused on investment in agriculture, social sec tor, in f ras t ruc ture , and employment generation through its nine distinct pillars – Agriculture and farmers' welfare; Rural sector; Social sector including healthcare; Education, skills and job creation; Infrastructure and investment; Financial sector reforms; Governance and ease of doing business; Fiscal discipline; and Tax reforms -- to transform India.
Small tax payers have received additional relief in the form of increased tax rebate from 2,000 to 5,000; while there is no change in income tax slabs and rates. The Budget has also proposed to hike the tax deduction for people who live in rented accommodation and do not get HRA (house rent allowance) benefit from employer from 24,000 p.a. to 60,000 p.a, which would help save additional 36,000 on taxes.
The affordable housing got a fillip -- with first time home buyers to get additional tax deduction for interest of 50,000 per annum for loans up to 35 lakh, sanctioned during the next financial year provided the value of the house does not exceed 50 lakh. For claiming the deduction of interest under section 24, for acquisition or construction of self-occupied house property, the time period has also been increased from
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1ICICIdirect Money Manager March 2016
3 years to 5 years -- This is of significance in case there is a delay in delivery by builders.
The other piece of good news is the tax exemption on withdrawals from NPS (National Pension System). Till date, the contributions to NPS were to be taxed at the time of withdrawal... what is called as EET (Exempt from tax at Contribution, Exempt on Earnings, but Taxed at Withdrawal). Now, 40% of your accumulation at the time of withdrawals will be tax exempt. It is a great time for your employer and you to consider subscribing and investing into NPS for your long-term goals.
The EPF remains tax-free at all stages with the government rolling back its proposal to tax EPF withdrawals. Earlier, the Budget had proposed that 60% of the withdrawal on contribution to EPF made after April 1, 2016 will be subject to tax.
Further, with an aim to make investment in Sovereign Gold Bonds more attractive, the Budget has proposed that redemption of these gold bonds will be exempt from capital gains tax. It is also proposed that long-term capital gains (36 months or more) arising on their transfer will be eligible for indexation benefits. Sovereign gold bonds, issued by the Government of India, offer the best option to take exposure to gold as it offers additional interest of 2.75% per annum (currently) apart from full gold price exposure. There are no annual recurring expenses as compared to Gold Exchange Traded Funds or ETFs (expense ratio in ETF is ~1%) and no storage hassles like those involved in physical gold holding.
The Gold Monetisation Scheme (GMS) has also got tax benefits under the Budget proposals. GMS offers option to deposit physical gold holdings and earn an interest upon it. The interest earned and capital gains arising from it would now be exempt from tax under this scheme. Your overall asset allocation should remain the deciding factor to determine the amount of exposure to both gold bonds and gold monetisation scheme.
To sum up, the several proposals announced in the Budget will yield positively in the medium to long term. Our message remains the same - Keep investing and stay invested for your life goals. Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Give us an opportunity to serve you, walk into any of your Neighbourhood Financial Superstore and talk to us.
2
The Union Budget is one of the important economic and financial events in the country. It acts as a principal tool for conducting fiscal policy and promoting growth in an economy. The proposals made in the Budget generally have a far-reaching impact on the economy in general and markets in particular. It is important for investors to understand these proposals and their likely impact on the finances. In this edition of ICICIdirect Money Manager, we take you through key highlights of the Budget 2016-17 in light of personal finances and how you may plan your savings and investments ahead. We also analyse the implications of the measures announced on key sectors and stocks and provide a complete picture of what the Budget means for investors.
The bottom-line of the Budget 2016-17 is the adherence to fiscal consolidation path, which would help investors in both equity and debt markets in the medium-to-long term. With tight fiscal control in place, there is a scope of reduction in interest rates, which would act as a boost for both corporate India as well as individual investors.
The expected fall in interest rates also presents a good opportunity to play duration strategy by investing in actively managed income funds. As interest rates fall, bond prices increase and thus leaving you with capital gains opportunities. Read more about these funds in our Mutual Funds Analysis section. All in all, this issue is a wholesome Budget Analysis package, which we trust will help you plan your finances well.
The edition also covers a Guest Column by Mr. Rohit Salhotra, MD & CEO, ICICI Home Finance Company, who takes us through key details of the recently passed Real Estate Bill and how it will benefit consumers and developers.
I would also like to draw your attention to our Primer on Understanding Tax Regimes – EEE, EET, etc., covering the details of tax implications of an investment at all three stages of Contribution, Earnings and Withdrawals to help you select the most tax-efficient instruments and in turn get better post-tax returns. So read on, stay updated and involved. Do write in with your queries, feedback and share your thoughts at [email protected].
Editor & Publisher : Abhishake Mathur, CFA
Coordinating Editor : Yogita Khatri
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Isha Bansal
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager March 2016
3
MD Desk...................................................................................................1
Editorial.....................................................................................................2
Contents....................................................................................................3
News........................................................................................................4
Asset Class Insights
A monthly review and outlook on major asset classes – Equity,
Fixed-income / Debt and Gold…............................................................5
Flavour of the Month: Budget 2016-17 and Your Personal Finances
How will the Budget proposals impact your savings and investments?
Read on to find out…............................................................................12
Budget Impact across Sectors and Sensex Stocks.......................................23
Guest Column: Impact of Real Estate Bill on buyers and developers
By Mr. Rohit Salhotra, MD & CEO, ICICI Home Finance Company…..31
Tête-à-tête: 'India an island of relative calm in this environment'
An interview with Ashwin Patni, Head - Products & Fund Manager,
Axis Mutual Fund..................................................................................34
Ask Our Planner: Tax implications of life insurance policies
Your personal finance queries answered….........................................38
Primer: Understanding Tax Regimes: EEE, EET, ETE, etc................................42
Mutual Funds Analysis: Investing in Income Funds
Given the expected fall in interest rates, income funds present a
good opportunity to play duration strategy and potentially earn
capital gains….......................................................................................45
Mutual Fund Top Picks.............................................................................. 54
Equity Model Portfolio...............................................................................55
Quiz Time.................................................................................................60
Prime Numbers
A revamped section of monthly trends, with inclusion of more data
points and indicators.............................................................................61
Premium Education Programmes Schedule..................................................65
ICICIdirect Money Manager March 2016
4
Govt cuts interest rates on PPF, other small savings
The government slashed interest rates on small savings schemes, including public provident fund (PPF) and Kisan Vikas Patra (KVP), to align them with market rates, a move that may facilitate further rate cuts by the central bank and commercial banks. The revised interest rate on PPF will be 8.1% starting 1 April against 8.7% nos. The interest rate on one-year time deposit has been reduced drastically to 7.1% from 8.4%. The interest rate paid by the government on KVP, which matures in 110 months, has been cut to 7.8% from 8.7% till 31 March. The revised interest rates will be applicable for the first quarter (Q1) of the next fiscal year.
Courtesy: Livemint
The Securities and Exchange Board of India (SEBI) is mulling doing away with the requirement of a fresh KYC (Know Your Client) for opening of new accounts in securities market if the investor has got a bank account. Under the proposed move that may take a couple of months to come into effect, the market intermediaries - be it brokerage firms, mutual funds or any other SEBI-registered entity - would rather be allowed to use KYC checks conducted by the bank with which the investor has got an account.
Courtesy: The Hindu Business Line
SEBI mulls allowing bank KYC for securities market
Aadhaar is set to receive statutory backing after Parliament passed a bill that will make the unique identification project the central plank for delivering government subsidies and welfare benefits. Only the President's signature is now required for the bill to become law, which will enable the government to reset the subsidy regime and deliver state benefits directly to their intended beneficiaries, plugging leakages. The money will go into the bank or post-office accounts of beneficiaries linked to the 12-digit biometric identity number provided by the Unique Identification Authority of India (UIDAI).
Courtesy: Livemint
LS passes Aadhaar bill in original form
Capital gains tax waiver likely for bond, debenture holdersIn a significant boost to financial instruments such as convertible debentures, the government has clarified the tax provisions relating to them, addressing lacunae that had discouraged companies from using them to raise capital. The government will treat bonds and debentures as a single security for calculating the holding period without factoring in the conversion date, a decision that could make investors eligible for long-term capital gains tax exemption. Thus, the holding period for the long-term capital gains tax will be from the date a debenture or bond is acquired and not from the day the debenture is converted to shares. The new regime will come into effect from April 1.
Courtesy: The Economic Times
ICICIdirect Money Manager March 2016
5
Equity markets: Sanity returns in commodity markets, may support equity marketsIndian markets continued to remain under pressure during February and declined by around 8% after having fallen 5% in January. Weak global markets continue to dictate Indian markets as well. The global economy and markets are facing a number of challenges simultaneously. These include slowing growth in China, sharp sell-off in commodities, pressure on European banks, weakness in e m e r g i n g m a r k e t ( E M ) currencies and assets.
The Nifty-50 index made a 21-month low of 6825.80 on the Budget day before recovering sharply from thereon in the first week of March. Positive global markets, a recovery in crude oil prices, no major negative announcement in the Budget with respect to taxing long-term capital gains etc, a n d s h o r t c o v e r i n g o f leveraged market positions were major factors behind the
sharp recovery from lower levels.
The silver lining in the Budget was that the fiscal deficit target of 3.9% was met and target of 3.5% has been maintained for FY17. This raises expectations of a rate cut from the Reserve Bank of India (RBI).
The strong up-move post Budget triggered a bullish structural turnaround as the index has posted a faster retracement of its last falling segment for the first time in the last one year. The ferocious pace and extending magnitude of rally confirms that the bias has turned positive.
After a strong rally of over 680 points (10%) in just four trading sessions post Budget, some retracement may be expected. Any sharp correction from current levels offers fresh buying opportunities.
The Union Budget continues to focus on fixing the economy through small/incremental steps in several areas (rural, financial, infra) without getting swayed by markets. A shift in
ASSET CLASS INSIGHTS
Asset Class Insights: Equity, Fixed-income and Gold
Monthly review of the major asset classes - equity, fixed-income and gold -- and a
snapshot of our outlook.
ICICIdirect Money Manager March 2016
6
ASSET CLASS INSIGHTS
focus towards rural sector was visible, but we perceive it as a long-term economic/political strategy. Fiscal consolidation continues as per projected plan and monetary authorities wi l l surely take not ice. Spending on roads, railways and irrigation is welcome but crucially depends on meeting telecom and disinvestment targets. However, earnings downgrades are likely in a few s e c t o r s , w i t h m a r k e t s anchoring to a shift in monetary policy.
The Budget focuses on good 'governance' through process r e f o r m s a n d u s a g e o f technology. Rationalising h u m a n r e s o u r c e i n government departments to achieve higher productivity. Effective implementation of Aadhaar framework targeted for delivery of financial and o t h e r s u b s i d i e s . A l s o , implementing direct benefit transfer (DBT) for fertilisers subsidy on a pilot basis.
The lower subsidy amount through higher usage of DBT scheme, ease of doing business, administrat ive reforms in tax department and maintaining fiscal discipline
are likely to have long term pos i t ive impact on the economy.
We are bullish on domestic o r i e n t e d s e c t o r s l i k e automobiles, cement and capital goods. Defensive sectors like FMCG, pharma and IT could perform in line with broader markets. We are negative on banks, metals and oil & gas.
Conservative investors should wait for the markets to settle down wh i le aggress ive investors should increase allocation to equities at every fall from current levels in a staggered manner over the next three to six months.
Global economy and markets: February was a month of two halves for global equity markets with many stocks posting another month of losses, despite a strong rally in the second half of the month. Prospects for global growth were again in focus, with market reaction characterised by diminished expectations of further interest rate hikes in the US.
Global commodity prices saw a sharp rebound in prices from
ICICIdirect Money Manager March 2016
7
ASSET CLASS INSIGHTS
ICICIdirect Money Manager March 2016
the second half of January as expectation of policy action by China and expectations on oil production cut grew. Rebound in investors sentiments and significant correction in short period also supported the rebound.
News f lows around US economic growth received a boost when the Commerce Department announced that it had revised its latest estimate GDP (gross domestic product) growth, for the fourth quarter of 2015, to 1%, from its estimate of 0.7% last month. This was above consensus forecasts of 0.4%. After a growth rate of 2% and 3.9% in the third and second quarters of last year, respectively, a
revised figure of 1% still o f fered markets l imi ted reassurance at a time of heightened volatility.
Some stability returned to Asian equity markets in February, after a rocky start to the year, as oil prices stabilised and investors pushed back their expectations for the next interest rate hike in the US. H o w e v e r, t h e r e w a s a d i v e r g e n c e i n m a r k e t performance, with Indonesia, Taiwan and Thailand the notable gainers while India and China weakened.
The overall economic recovery remains fragile with no clear sign of improvement in economic activity across major economies.
Indian markets underperform among its global peers
-8.5 -7.5
-3.1 -1.8
-1.4
0.2
0.3
5.9
-18.
8
-12.
0
-16.
6
-22.
0
-12.
2
-4.1
-6.8 -5
.2
-30
-20
-10
0
10
Japa
n
Indi
a
Ger
man
y
Chi
na
Fran
ce UK
US
Bra
zil
(%)
1 M 3 M
Source: Bloomberg. Return as February 29, 2016
8
ASSET CLASS INSIGHTS
ICICIdirect Money Manager March 2016
Emerging market currencies witness significant depreciation in last year
-16.
2
-7.4
-2.4
-6.4
-0.1
-17.
0
-16.
7
-14.
7
-12.
2
-12.
1 -8.9
-12.
5 -8.2
-15.
2
-21.
7
-18.
8
-30
-20
-10
0
10In
dia
Chi
na
Bra
zil
Ger
man
y
Japa
n
UK
Fran
ce US
(%)
6M 1Y
Source: Bloomberg, Return as February 29, 2016
Fixed income: Long term yields
remain sticky on unfavourable
demand supply dynamicsIn the Union budget 2016-17, a
fiscal deficit target of 3.5% was
set for FY16-17 with net market
borrowing of 4,25,000 crore
and gross borrowing of 6 lakh
crore . The market was
expecting a gross borrowing of
around 6.3 lakh to 6.5 lakh
crore
Yield on gilt securities fell
across the curve in the range of
11 bps to 26 bps, barring one-
year paper that was flat.
Corporate bond yields fell
across maturities in the range
of 14 basis points (bps) to 19
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bps. Bond yields fell as the
g o v e r n m e n t r e m a i n e d
committed to fiscal prudence
by retaining the fiscal deficit
target for FY16 and Fy17,
which was better than market
expectations.
Corporate bond spread over G-
sec (government securities)
yield increased as the rally in
G-sec was sharper than in
corporate bonds.
The 10-year US treasury bond
yield increased 12 bps to close
at 1.88%, compared with the
previous week's close of
1.76%. Yields rally after
m a n u f a c t u r i n g P M I
9
ASSET CLASS INSIGHTS
ICICIdirect Money Manager March 2016
(Purchasing Managers' Index)
of the US economy increased
in February while private
sector employment in the
same month came better than
expected. Treasury prices fell
further following upbeat non-
farm employment report for
Feb in which job growth for
December 2015 and January
was also upwardly revised.
The overall improvement in
global market sentiments also
helped Indian debt market.
Liquidity conditions continue
to remain tight with borrowing
under Liquidity Adjustment
Facility (LAF) on stood at deficit
of ~ 1.5 trillion. Government's
cash balances with RBI also
remain at elevated levels of ~
1.3 trillion. The average cash
balance of the government in
January 2016 was around
1.04 trillion compared to 0.77
trillion in December 2015.
Going forward, although
central government borrowing
is over, liquidity condition is
n o t e x p e c t e d t o e a s e
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`
`
`
s igni f icant ly before the
financial year end. Advance tax
outflows are expected to put
some pressure on system
liquidity.
Although the outlook on G-sec
yields remains positive, the
duration strategy should be
played through act ively
managed income or dynamic
bond funds. They will be able
to make swift duration change
within G-secs or switch
between corporate bonds and
G-sec within specific duration.
Short-term debt funds remain
stable performing category
especially in current volatile
environment. Credit funds with
higher sub AAA rated papers
should be avoided as the credit
environment remains weak.
Gold: Near term outlook remains
positive amid global uncertaintyYear 2016 has turned the wave
in favour of safe haven demand
amid extreme global capital
market uncertainty. Global
gold prices rallied around 18%
since the start of the year 2016
10
ASSET CLASS INSIGHTS
ICICIdirect Money Manager March 2016
till first week of March 2016.
The risk that was initially
confined to commodities
space started to spill over to
currencies, equities. Recently,
it has also been impacting
credit markets as gauged by
financial conditions and high
yield bond market. The
worsening condition is visible
in rising credit default swap of
countries like Brazil and
companies like Deutsche Bank.
As a result, there was a flight to
safety and safe havens like
developed market sovereign
bonds (even when there is
negative yield) and gold.
The expectation on a higher
quantum of rate hike by US Fed
has declined significantly post
the recent turmoil in global
capital markets. The market is
now factoring in just one rate
hike in the whole of Cy16
e s p e c i a l l y p o s t d o v i s h
statement from US Fed Chair.
Interest rate hike in general is
negative for gold prices. With
rate hike concern receding, the
overhang on prices also abates
in the near term. The steep fall
in industrial commodity prices
including crude oil led to a
sharp fall in inflation and
inflat ionary expectations
a c r o s s t h e g l o b a l a n d
particularly in developed
economies. The same led to
reduced demand for gold as an
inflationary hedge investment.
M e d i u m - t e r m d e m a n d ,
however will continue to be
impacted by the overall global
environment particularly US
Fed rate hike trajectory.
Investment demand for gold is
also governed by the broader
economic climate. Currently,
there is a lot of uncertainty
s u r r o u n d i n g c u r r e n c y
devaluation, global economic
growth prospects and equity &
commodity market turmoil.
The same is likely to keep
demand for gold as a safe
haven asset upbeat in the near
term.
11
ASSET CLASS INSIGHTS
ICICIdirect Money Manager March 2016
Gold prices rally sharply since start of year 2016 on safe haven demand
1050
1100
1150
1200
1250
1300
Ma
r-15
Ap
r-15
May
-15
Jun
-15
Ju
l-1
5
Au
g-15
Sep
-15
Oct
-15
Nov
-15
Dec
-15
Jan
-16
Fe
b-16
Ma
r-16
Price ($/Ounce)
Indian prices follow global prices
24000
25000
26000
27000
28000
29000
30000
Feb
-15
Ma
r-1
5
Ap
r-15
Ma
y-15
Jun
-15
Jul
-15
Au
g-1
5
Sep
-15
Oc
t-1
5
Nov
-15
De
c-1
5
Jan
-16
Feb
-16
|
Price (|/10 grams)
Source: Bloomberg
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FLAVOUR OF THE MONTH
Budget 2016-17 and Your Personal Finances
ICICIdirect Money Manager takes you through key proposals from the Budget 2016-17 in the light of personal finances and how you may plan your savings and investments ahead.
ICICIdirect Money Manager March 2016
No change in tax slabs/rates The Budget did not announce any change in the tax slabs and
rates for individual tax payers. These remain same as last year (see the tables below).
Income tax slabs / rates 2016-2017 for general tax payersIncome tax slab (in )` Tax
0 to 2,50,000 No tax
2,50,001 to 5,00,000 10%
5,00,001 to 10,00,000 20% Above 10,00,000
30%
For senior citizens (Aged 60 years but less than 80 years)
Income tax slab (in )` Tax
0 to 3,00,000 No tax
3,00,001 to 5,00,000 10%
5,00,001 to 10,00,000
20%
Above 10,00,000 30%
For very senior citizens (Aged 80 and above)
Income tax slab (in )` Tax
0 to 5,00,000 No tax
5,00,001 to 10,00,000 20%
Above 10,00,000 30%
Note, there are no separate slabs for men and women.
Increase in tax rebateIn order to lessen tax burden for individuals earning less than 5 lakh, the Budget has proposed to raise the ceiling of tax rebate or refund under section 87A from 2,000 to 5,000. There are 2 crore tax
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payers in this category that will get a relief of extra 3,000 in their tax liability, says the government.
Note, the tax rebate is given from the total tax payable by an individual, not as a tax
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
deduction. That is, you will first compute the total tax payable and then reduce 5,000 from this tax payable, provided your total income is less than 5 lakh. The total income is the sum of income under all heads i.e. Salary, House Property,
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Business or Profession, Capital Gains and Other Sources.
Increased tax rebate to 5,000 indirectly implies that individuals who have taxable income of up to ̀ 3 lakh will have to pay zero tax or will have no tax liability (see the table below).
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Total tax saving as a result of increased tax rebate
* Cess refers to 2% of Education Cess and 1% of Secondary and Higher Education Cess
Note, there is no benefit of this rebate to very senior citizens (aged 80 and above) as their income up to Rs 5 lakh is already exempted from the income tax.
Increase in surcharge on super rich
The Budget has also proposed
to raise the surcharge from
12% to 15% on super rich,
having a taxable income above
1 crore.
Surcharge is nothing but an
additional charge or tax. The
`
former Finance Minister P
Chidambaram had introduced
a surcharge of 10% on income
of 1 crore and above in the
Budget 2013-14. In the last
Budget, Mr. Arun Jaitley had
abolished the wealth tax and
replaced it with an additional
surcharge of 2%, taking it to
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Post-Budget 2016-17 Pre-Budget
% of Tax Saved
compared to FY
2015-16
Taxable Income (in`)
Income Tax (In
Rebate u/s 87A (in `)
Net Tax
(in )`
Tax liability (incl. cess*)
(in )`
Tax liability
(incl. cess*) in FY 2015-16 (in
`)
2,50,000 Nil
Nil
Nil
Nil
Nil
Nil
2,75,000 2,500
2,500
Nil
Nil
515
100.0%
3,00,000 5,000
5,000
Nil
Nil 3,090 100.0%
3,50,000 10,000
5,000
5,000
5,150
8,240
37.5%
4,00,000 15,000
5,000
10,000
10,300
13,390
23.1%
4,50,000 20,000 5,000 15,000 15,450 18,540 16.7%
5,00,000 25,000 5,000 20,000 20,600 23,690 13.0%
`)
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
12%. Now in this Budget, it has
been proposed to increase it
by further 3% to 15%.
Those who do not have any
house of their own and also do
not get any house rent
allowance (HRA) from their
e m p l o y e r t o d a y g e t a
deduction of 24,000 p.a. from
their income under section
80GG to compensate them for
the rent they pay.
The Budget has now proposed
to increase the limit of this
deduction from 24,000 p.a. to
60,000 p.a., which would
provide additional savings of
36,000 to those who live in
rented houses.
This deduction under section
80GG can also be claimed by a
self employed person and a
businessman, apart from the
salaried person.
A surcharge of 15% on a tax rate of
30% effect ively raises the
combined tax liability to 35.535%
(including education & secondary
and higher education cess).
Increase in deduction for rent paid
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The deduction allowed under
section 80GG would be the
least of the following:
(I) 5000 per month or Rs
60,000 per year;
(ii) 25% of total income;
(iii) Actual rent less 10% of
income.
Krishna earns
3 , 0 0 , 0 0 0 p . a . a f t e r a l l
deductions and pays a rent of
8,000 p.m or 96,000 p.a. He
would get the least of the
following as deduction:(I) 5000 per month or
60,000 per year;(ii) 25% of total income (i.e.
75,000)(iii) Actual rent less 10% of
income ( 96,000 –
30,000 = 66,000)
In this case, the least amount is
60,000 as the deduction
allowed.
Here's how the increase in the
deduction for rent paid under
section 80GG from 24,000 to
60,000 would help individuals
across different salaries.
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`
`
`
` `
`
` `
`
`
`
Say for example,
15
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
Increased tax savings under section 80GG
Post-Budget 2016-17 Pre-Budget
% of Tax Saved
compared to FY
2015-16 (in `)
Incomebefore 80GG deduction(in )`
Amount of 80 GG deduction(in )`
TaxableIncome (in `)
Net Tax(in )`
Tax liability (incl. cess*)(in )`
Tax liability (incl. cess*) in FY 2015-16 (in `)
3,00,000 60,000
2,40,000
-
-
2,678
-
5,00,000 60,000
4,40,000
19,000
19,570
23,278
15.9%
8,00,000 60,000
7,40,000
73,000 75,190 82,606 9.0%
10,00,000 60,000
9,40,000
1,13,000
1,16,390
1,23,806
6.0%
13,00,000 60,000
12,40,000
1,97,000
2,02,910
2,14,034
5.2%
17,00,000 60,000
16,40,000
3,17,000
3,26,510 3,37,634 3.3%
20,00,000 60,000 19,40,000 4,07,000 4,19,210 4,30,334 2.6%
Note, for a salaried employee who gets HRA, there is no change. The deduction available in this case is the minimum of the following three elements:(I) HRA received;(ii) 50% of basic salary for those living in metro cities (40% of basic salary for
non-metros);(iii) Actual rent paid.
NPS becomes more attractiveThe National Pension System (NPS) is a voluntary, defined con t r ibu t ion re t i rement savings scheme by the government of India. Till date, the contributions to NPS were to be taxed at the time of withdrawal... what is called as EET (Exempt from tax at Contribution, Exempt on I n c o m e b u t Ta x e d a t Withdrawal).
N o w , 4 0 % o f y o u r accumulation at the time of withdrawals will be tax exempt once the Budget proposal comes into force. Out of the remaining 60%, 40% of the corpus has to be mandatorily conver ted in to annui ty. Annuities are taxable as per your income slab as and when you rece ive the same. Remaining 20%, you can annuitize or withdraw as lump
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
sum. If you withdraw as lump sum, the same will be added to your income and taxed as per your income slab. If you withdraw as annuity, then the annuities are taxable as per your income slab as and when you receive.
Employees' Provident Fund (EPF) and Public Provident Fund (PPF). Further, the government has started to rationalize interest rates on small savings schemes such as
The key benefit with the NPS is that it allows you to invest up to 50% in equity unlike in pure debt instruments such as
PPF, KVP (Kisan Vikas Patra), etc., to reflect the economic shift in wake of declining inflation. The government has cut the interest rate on PPF from 8.7% to 8.1%, and on the KVP from 8.7% to 7.8%. It has also cut interest rates on several other small savings schemes. This cal ls for increasing equity exposure to your retirement portfolio by investing in products such as NPS. The equity exposure of NPS has the potential to help you earn double-digit returns in the long run.
NPS Returns across Schemes
Pension Fund Managers
Scheme E (Equity) Performance
Scheme C (Corporate Bonds) Performance
Scheme G (Govt. Securities) Performance
Scheme Inception Date
3-year return (%)
Return since inception (%)
3-year return (%)
Return since inception (%)
3-year return (%)
Return since inception (%)
SBI Pension Funds 8.94% 6.24% 9.41% 10.83% 7.82% 9.37% 15-May-09LIC Pension Fund NA
6.97%
NA
11.25%
NA
11.05% 23-Jul-13
UTI Retirement Solutions
8.99%
8.54%
9.54%
9.32%
8.02%
8.05% 21-May-09ICICI Prudential Pension
9.01%
8.80%
9.99%
10.75%
8.29%
8.23% 18-May-09Reliance Capital Pension 8.52% 7.93% 9.73% 9.07% 7.74% 7.67% 5-May-09Kotak Mahindra Pension 8.60% 7.54% 9.55% 10.61% 7.82% 7.99% 1-May-09HDFC Pension Management NA 9.90% NA 11.08% NA 9.92% 1-Aug-13
Returns are for Tier-I account as on Feb. 29, 2016; returns for more than 1 year are annualized; NA: Not applicable; Source: NPS Trust
Benchmark Returns across SchemesScheme 3-year Return
E 8.12% C 9.48% G 8.22%
Returns as on Feb. 29, 2016; Source: NPS Trust
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
You can see from the above tables that most of the NPS investments have performed better than their benchmark indices, particularly schemes E and C.
You can invest and claim tax deduction of up to lakh for the NPS. This would result in a tax-saving of 61,800 for someone in the highest tax bracket of 30.9%. You can invest into NPS online with ICICIdirect.com.
The EPF remains tax-free at all three stages of Contribution, Earnings and Withdrawals with the government rolling back its
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EPF remains tax-free
p r o p o s a l t o t a x E P F withdrawals. Earl ier, the Budget had proposed that 60% o f t h e w i t h d r a w a l o n contribution to EPF made after April 1, 2016 will be subject to tax.
The government has also withdrawn another proposal to tax contribution made by an employer beyond 1.5 lakh a year.
Also note, the government has recently made some changes to EPF scheme (mainly related to withdrawals) w.e.f. February 10, 2016. Let's take a look at these amendments in detail.
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Recent amendments to EPF scheme1. Change in retirement age
2. Restrictions on early withdrawals
3. Change in 90% withdrawal rule
Earlier, the retirement age was considered 55 years. Now, it has been increased to 58 years.
Previously, you could withdraw the full EPF balance at retirement age (55 years) or after 60 days of unemployment. Full EPF balance consists of your contributions + your employer's contributions + interest amounts on both the contributions.
Now, with the new rules, you can withdraw only your own contributions and interest thereupon. The employer's contribution and interest cannot be withdrawn before attaining the retirement age i.e. 58 years.
This automatically blocks your employer contribution and its interest from being withdrawn until the age of 58.
Note, 60 days of unemployment rule does not apply for women who quit to get married or on account of pregnancy or childbirth.
Earlier, you could withdraw 90% of EPF balance one year prior to retirement age i.e. at the age of 54 years.
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
Now, you will have to wait till the age 57 years (since the retirement age has increased to 58 years). "In today's scenario when retirement age is 58 years across all organisation the clause of scheme is not relevant. But the big change is that now under this facility, the subscriber would be able to withdraw his contribution and interest earned on it unlike 90 percent of the total accumulations earlier,” states a government official.
Earlier, the EPF account could cease at withdrawals. Now, since your employer's contribution stays, you can use the same account for future employments. This automatically transfers the old EPF account.
Also, with the Universal Account Number (UAN), you can continue the old account by just quoting your UAN to a new employer.
4. Continuity of account even after withdrawals
The government is also planning to launch a host of online services soon, including allowing employees to make claims completely online.
Tax boost for gold schemes
The Go ld Mone t i za t ion
Scheme and Sovereign Gold
Bonds have also got a tax
boost in the Budget 2016-17.
Currently, both the schemes
pay interest. In the Gold
Monetisation Scheme, this
interest will now stand exempt
from tax. The capital gains
made on this scheme will also
not suffer any capital gains tax.
On the Sovereign Gold Bonds,
the interest earned wil l
continue to be taxed. But on
redemption, you will not have
to pay capital gains tax any
longer. If you transfer the
bonds (since they are traded),
you will be able to claim
indexation benefits on long
term capital gains.
Fine details of the gold schemesGold Monetization Scheme (GMS): Gold lying in the locker appreciates in value if gold price goes up but it doesn't pay you a regular interest or dividend. On the contrary, you incur carrying costs on it (bank locker charges). The monetisation scheme will allow you to earn some regular interest on your gold and save you carrying costs as well. It is a gold savings account which will earn interest for the gold that you deposit in it. Your gold can be deposited in any physical form – jewellery, coins or bars. This gold will then earn interest based on gold weight and also the appreciation of the metal value. You get back your gold in the equivalent of 995 fineness gold or Indian rupees as you desire (the option to be exercised at the time of deposit).
The designated banks will accept gold deposits under the Short Term (1-3 years) Bank Deposit as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes.
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
Key benefits of the scheme
Sovereign Gold Bonds (SGBs):
- The gold monetisation scheme earns interest for your gold jewellery lying in your locker. Broken jewellery or jewellery that you don't want to wear can earn interest for you in gold.
- Coins and bars can earn interest apart from the appreciation of value.- Your gold will be securely maintained by the bank.- Redemption is possible in physical gold or rupees hence giving your gold
purchase further earning opportunity.- Earnings are exempt from capital gains tax, wealth tax and income tax.
There will be no capital gains tax on the appreciation in the value of gold deposited, or on the interest you make from it
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
These bonds are issued by the Reserve Bank of India (RBI) on behalf of Government of India. The tenure of the bond is 8 years, with an option to exit after 5 years. However, you can sell anytime to another person through the secondary bond market.
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form.
These bonds are linked to the price of the gold and carry a nominal rate of interest (currently it offers 2.75% p.a.). Bonds can be sold, traded on commodity exchanges.
Sovereign gold bonds offer the best alternative to take exposure to gold as it offers additional interest. There are no annual recurring expenses as compared to gold ETFs (expense ratio in ETF is ~1%) and no storage hassle like those involved in physical gold holding.
Cheer for first time home buyersIn order to promote affordable housing and provide more tax benefits to first time home buyers, the budget has proposed an addi t iona l deduction of 50,000 on interest component of the
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home loan, provided the value of the house does not exceed 50 lakh and the loan amount does not exceed 35 lakh.
With this additional deduction, the total deduction benefit now goes up to 2.5 lakh per year (earlier it was 2 lakh).
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
Individuals who qualify for this additional deduction and fall in the highest tax bracket will save tax of ` 15,450 on account of additional deduction of ̀ 50,000.
Miscellaneous proposals
Krishi Kalyan Cess introduced:
Infrastructure cess introduced:
Excise duty on tobacco increased:
STT increased:
The Budget has also proposed exempt serv ice tax on construction of affordable houses up to 60 square meters under any scheme of the Central or State Government including PPP Schemes.
Krishi Kalyan Cess is proposed to be levied on all taxable services to f inance and promote initiatives to improve agriculture, with effect from June 1, 2016.
An infrastructure cess of 1% has been introduced on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs.
The excise duty on various tobacco products other than beedi has been increased by about 10 to 15%.
Securit ies Transaction Tax (STT) in case
of 'Options' is proposed to be increased from .017% to .05%.
Dividend incomes greater than 10 lakh in a year for an individual are proposed to be taxed at 10 per cent. This dividend is restricted to stock dividends and not those declared by mutual funds.
Service tax on Single premium Annuity (Insurance) Policies has been reduced from 3.5% to 1.4% of the premium paid in certain cases.
Earlier if you withdraw EPF within 5 years and the amount is less than 30,000 then there will be TDS of 10%. However, this limit now raised to 50,000.
For claiming the deduction of interest under section (u/s) 24, for acquisition or construction o f se l f - occup ied house property, the time period has been increased from 3 years to 5 years. This is of significance
Dividend tax for the rich:
Reduced service tax on Single premium annuity plans:
TDS limit for EPF withdrawal raised from current ` 30,000 to ` 50,000:
Tenure increased u/s 24:
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 2016
in case there is a delay in delivery by builders.
To facilitate investments in Real Estate Investment Trusts (REITs), the Budget has proposed any distribution made out of income of special purpose vehicle (SPV) to the R E I T s a n d I N V I T s ( I n f r a s t r u c t u r e InvestmentTrusts) having specified shareholding will not be subjected to Dividend Distribution Tax (DDT). REITs are similar to mutual funds, and can be listed and traded on stock exchanges. These have to distribute a majority of their income as dividend.
In order to incentivize creation of new jobs in the formal sector, Government of India will pay the Employee Pension Scheme (EPS) contribution of 8.33% for all new employees enrolling in EPFO for the first three years of their employment.
To provide better access to financial services, especially in rural areas, the government will
Removal of DDT in case of REITs:
Government will pay 8.33% of the EPS contribution for 3 years for new employees:
ATMs in post offices:
u n d e r t a k e a m a s s i v e nationwide rollout of ATMs and Micro ATMs in Post Offices over the next three years.
Any amount received by the nominee, on the death of the employee at the time of closure of account under NPS referred to in section 80CCD of the Income-tax Act is proposed to be exempt.
This clearly reflects that the government i s push ing investors to subscribe to NPS rather than EPF.
On the healthcare front, a new health protection plan will be made available to economically weaker section which will provide health cover up to 1 lakh per family. An additional 30,000 cover will be available
The Budget has proposed that any transfer of units in merger or consolidation of plans of a mutual fund scheme shall be exempt from capital gains tax.
Death claim received under NPS to be tax-free:
Exemption is also proposed for one-time portability from a recognised provident fund or superannuation fund to National Pension System.
Health plan for all:
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FLAVOUR OF THE MONTH
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ICICIdirect Money Manager March 2016
for senior citizens of age 60 years and above.
Making quality medicines available at affordable prices has been a k e y c h a l l e n g e . T h e government will revive the supply of generic drugs. 3,000 Stores under Prime Minister's Jan Aushadhi Yojana will be opened during 2016-17.
About 2.2 lakh new patients of End Stage Renal Disease get added in India every year resul t ing in additional demand for 3.4 crore dialysis sessions. Every dialysis session costs about 2,000 – an annual expenditure of more than 3 lakh. To
Generic medicine stores:
Nat iona l D ia lys is Serv ices Programme:
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address this situation, the Budget has proposed to start a 'National Dialysis Services Programme'. It is also proposed to exempt certain parts of dialysis equipment from basic customs duty, excise duty, etc.
To help students, higher education institutions and employers to access degree certificates of candidates, it is proposed to establish a Digital Depository for school leaving certificates, college degrees, academic awards and mark sheets, on the pattern of a securities depository. This will help validate their authenticity, safe storage and easy retrieval.
Digital Depository:
Revised advance tax payment installments: The advance tax now has to be paid by individuals in 4 installments viz.
15th June 15% of the total tax liability15th September 45% of the total tax liability 15th December 75% of the total tax liability 15th March 100% of the total tax liability
Summing up
Overall, the Budget 2016-17
has s tuck to i t s f i sca l
consolidation path of 3.9% for
FY16 and 3.5% for FY17. This
clearly has the potential benefit
for all since fiscal prudence will
leave the room for rate cuts
going ahead. Lower interest
rates would help in reduction
of EMIs (equated monthly
installments) and interest on
loans - a booster for overall
financial health of investors.
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BUDGET IMPACT - SECTORS & STOCKS
Impact of Budget Proposals across Sectors
ICICIdirect Money Manager March 2016
Measure Sectors Impacted Impact Key stocks
An infrastructure cess, imposed on m o t o r v e h i c l e s . 1 % o n petrol/LPG/CNG with < 4m length & engine capacity<1200 cc; 2.5% on diesel (< 4 m & engine capacity<1500 cc); 4% for rest of the cars (>1500 cc & >4 m). No such cess for 3W, taxis, hybrid & electric vehicles
A 1% tax collection at source (TCS) for passenger vehicles whose value exceeds ̀ 10 lakh
Capital outlay by defence sector on MHCV vehicles from ` 2025 crore in FY16 to ̀ 3574 crore (up 76% YoY)
Implementation of 89 irrigation projects under AIBP, to be fast tracked, dedicated long term irrigation fund with Nabard with an initial corpus of about ` 20,000 crore. ` 500 crore to be assigned under National Food Securi ty Mission to increase production of pulses
Hike in excise duty on ATF from 8% to14%
Exemption of excise duty and customduty on tool kits procured byMROs for maintenance, repair, andoverhauling of aircraft
Allocation of ` 25000 crore towards recapitalisation of PSU banks. Considering the quantum of stressed assets in PSU banks, this allocation appears inadequate
NBFCs eligible for tax deduction up to 5% of income in respect of NPA provisions
Auto
Auto
Auto
Agriculture
Aviation
Aviation
Banks
NBFCs
Negative
Negative
Positive
Positive
Negative
Positive
Negative
Positive
Maruti, M&M & Tata Motors
Maruti, M&M & Tata Motors
Ashok Leyland, Tata Motors
EPC Industrie, KSB Pumps, Rallis India
Jet Airways
Jet Airways
PNB, SBI
HDFC, LICHF
24ICICIdirect Money Manager March 2016
Higher interest deduction of 50000, on first time residential buyers (house value < ̀ 50 lakh, loan < ̀ 35 lakh)
Increase in STT on options from 0.017% to 0.05%, could hamper trading volume in options segment, thereby impacting brokerage income
Amendments in the SARFAESI Act 2002, to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in securitisation receipt could lead to higher capitalisation of ARC as well as widen scope for security receipts market
Allocation of ̀ 218000 crore for capex in roads and Railways, development of 160 small airports, greenfield ports on the eastern and western ports to create opportunity for EPC players
Allocation of ` 9860 crore for nuclear power schemes
Capital expenditure allocation in defence increased by 6.1% from ` 81400 crore in 2015-16 (RE) to ̀ 86340 crore in 2016-17 (BE)
Phasing out of Section 80-IA from Fy2018
Allocation of ` 4000 crore and ` 400 f o r s o l a r a n d w i n d e n e r g y programmes, respectively
Removal of excise duty of 12.5% for RMC manufactured at the site of construction
Excise duty on cigarettes hiked by 10%. We believe that price hike to the tune of 5-7% could completely pass on the burden of this excise hike
` NBFCs
Brokerages
Banks / NBFCs
Capital Goods
Capital Goods
Defence
Power
Power
Cement
FMCG
Positive
Negative
Positive
Positive
Positive
Neutral
Negative
Positive
Positive
Neutral
HDFC, LICHF, Axis Bank, SBI
Kotak Mahindra Bank and brokerages
Banks and NBFC
Larsen & Toubro, KEC, Kalpataru
Larsen & Toubro
Bharat Electronics
Sector as a whole
NTPC, L&T, KEC, Kalpataru PowerUltraTech and ACC
ITC, VST Industries
Measure Sectors Impacted Impact Key stocks
BUDGET IMPACT - SECTORS & STOCKS
25ICICIdirect Money Manager March 2016
Measure Sectors Impacted Impact Key stocks
Total allocation of 87765 crore (including MGNREGA, Swachh Bharat Abhiyan, rural electrification) towards development of rural India as a whole would boost volumes for FMCG & consumer durables
Higher allocation of ` 97000 crore for road sector to boost order inflow for companies
Government is looking to revitalise PPPs through renegotiation of concession agreement, which should sort out policy issues and new credit rating system for infrastructure projects, which should lower borrowing cost
Exemption of dividend distribution tax for passing of dividend by SPV to INVITs. The development should pave the way for INVIT listing and free up BOT developer's balance sheet
Unified agricultural marketing e-platform, statutory backing to AADHAR, digital literacy mission and rural ATM rollouts in post offices could drive opportunities for Indian IT vendors
Basic custom on refrigerated containers reduced to 5% from 10% and excise duty reduced to 6% from 12.5% resulting in lower tax outflow for companies engaged in cold storage business
Amendment in section 35AD to reduce deduction for accelerated depreciation from 150% to 100% in case of a cold chain facility
Basic customs duty on primary aluminium has increased from 5% to 7.5%
Clean enviroment cess on coal has been increased from ` 200/tonne to ` 400/tonne
` FMCG, cons. durables
Infrastructure
Infrastructure
Infrastructure
IT
Logistics
Logistics
Metals
Metals
Positive
Positive
Positive
Positive
Positive
Positive
Negative
Positive
Negative
HUL, Dabur, Havells, Bajaj Electrical, Symphony, Supreme IndustriesPNC Infratech, Ashoka Buildcon, NBCC, NCC, Sadbhav Engineering and IRB Infrastructure
IRB Infrastructure, Ashoka Buildcon, Sadbhav Engineering & GMR Infrastructure
IRB Infrastructure & GMR Infrastructure
Infosys, TCS, Wipro
Gati
Gati
Hindalco, Vedanta
Hindalco, Vedanta
BUDGET IMPACT - SECTORS & STOCKS
26ICICIdirect Money Manager March 2016
Export duty on iron ore lumps and fines (with Fe content below 58%) reduced to nil
Cess rate applicable on crude oil production revised from ̀ 4500/tonne to 20% ad valorem rate. It is below our expectation. At current prices, it is marginally positive but if crude prices rise to $45/barrel and above, it would be negative
Proposal to a l low cal ibrated marketing freedom for gas produced from deep water, ultra deep-water and high pressure-high temperature areas
Exemption of dividend distribution tax for passing of dividend by SPV to REITs should pave way for REIT listing resulting in freeing up of capital for developers and improving their liquidity position
Benefits of section 10AA to new SEZ units will be available to those units, which commence activity before March 31, 2020
Excise duty cut for rubber sheet & resin rubber sheet (for soles & heels) from 12.5% to 6%
Collection of tax at source of 1% on cash purchases of goods & services exceeding ̀ 2 lakh
Basic customs duty on newsprint reduced from existing 5% to nil
Excise duty on routers, broadband modems, set-top boxes (STB) for internet & TV, DVR changed from existing 12.5% to 4% without input tax credit and 12.5% with input tax credit
Excise duty hike by 2% on readymade garments & madeups with retail price of ̀ 1000 or more. Tariff value of excise duty would be 60% of retail selling price
Measure Sectors Impacted Impact Key stocks
Mining
Upstream Oil & Gas Sector
Upstream Oil & Gas Sector
Real Estate
Real Estate
Footwear
Jewellery
Media
Media
Textiles
Positive
Neutral
Positive
Positive
Positive
Positive
Negative
Positive
Positive
Negative
Vedanta
ONGC, Cairn India, Oil India
ONGC, Oil India
Oberoi Realty
Mahindra Lifespace
Bata
Titan
Jagran Prakashan, HT Media, DB CorpDish TV, Hathway Cable, D-Link India
Arvind, Siyaram Silk
BUDGET IMPACT - SECTORS & STOCKS
Adani Ports The Budget provided 800 crore to expedite work on National Waterways. Additional allocation towards Sagarmala would enable shift of cargo from road to waterways. The company being one of the largest private ports would be the biggest beneficiary
Asian Paints Implementat ion of the Seventh Pay Commission, OROP and simultaneous focus on increasing farm income (higher allocation to MGNREGA and social schemes) would boost volume growth for Asian Paints
Axis Bank Ltd Additional interest deduction of ` 50000 on home loans to support loan growth while decline of ~10 bps in G-sec yields could lead to treasury income. Comprehensive bankruptcy code and DBT infrastructure strengthening could help in better handling of NPAs
Bajaj Auto Ltd Bajaj Auto is one of the few Indian manufac tur ing OEMs wi th a g loba l presence/market share. It has rightly adopted the strategy of launching new products in higher growth segments (economy & premium). Hence, we have a positive stance
Bharat Heavy Electricals Ltd With no specific announcement in the Budget, (BHEL) FY17 would be a challenging year for Bhel as the
order pipeline seems dull and ordering activity will be sporadic coming mainly from central and state utilities. Also, execution of low margin orders will put pressure on margins and profitability
Bharti Airtel Ltd There has been no major policy changes for Bharti Airtel. Airtel, the largest telecom player with the best spectrum portfolio & first mover advantage in terms of high speed data offerings is best placed to cash in on the data boom. We expect further consolidation in the sector leading to lower competitive intensity, hence,benefiting the market leader.
Cipla Ltd Proposed reduction in percentage for weighed deduction in R&D expenditure from 200% to 150% from FY18 to FY20 and 100% from Fy21. This amendment would be marginally negative for Cipla as its R&D spending is ~8% of total revenue
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Measure Budget Impact
BUDGET IMPACT - SECTORS & STOCKS
27ICICIdirect Money Manager March 2016
Impact of Budget Proposals on Sensex Stocks
28ICICIdirect Money Manager March 2016
Coal India Ltd Clean enviroment cess on coal has been increased from` 200/tonne to ̀ 400/tonne. Cess is a pass through for Coal India and will be borne by end customers. Hence, this will have no impact on the company
Dr Reddy's Laboratories Proposed reduction in percentage for weighed deduction in R&D expenditure from 200% to 150% from FY18 to FY20 and 100% from Fy21. This amendment would be marginally negative for Dr Reddy's as its R&D spending is ~10% of total revenue
Gail India No announcement was made related to the midstream gas sector. However, a 2.5% infrastructure cess on diesel vehicles vs. 1% infrastructure cess on CNG vehicle is marginally positive as it would incentivise ownership of CNG vehicles and benefit CGD companies like Gail
HDFC Bank Ltd Bankruptcy code and DBT infrastructure strengthening could enable better handling of NPAs. Further, a decline of ~10 bps in G-sec yields could lead to treasury gains. Being a strong auto financier, infrastructure cess on vehicles could marginally impact demand for cars and, thereby, loans
Hero MotoCorp Higher focus on rural development is likely to benefit Hero Motocorp, which derives ~50% of volumes from rural areas. HMCL looks fairly valued, consider ing the intensi fy ing competition & fewer launches, going forward
Hindustan Unilever With ` 87765 crore allocated to rural development as a whole & ̀ 9000 crore towards Swachh Bharat Abhiyan, in particular, it could spur volume growth for HUL as it derives ~35% of its sales from rural India
Housing Development Allowing NBFCs deduction up to 5% of income Finance Corp for NPA provisions is positive. This will improve
profitability. Additional interest deduction of ` 50,000 per annum for loans up to ` 35 lakh for first time home buyers (house cost < ` 50 lakh) would be positive
Measure Budget Impact
BUDGET IMPACT - SECTORS & STOCKS
29ICICIdirect Money Manager March 2016
Measure Budget Impact
Infosys Ltd Domestic IT spends could be driven by unified agricultural marketing e-platform, statutory backing to Aadhaar platform, digital literacy mission to cover six lakh additional households and rural ATM rollouts in post offices. Infosys has implemented Finacle core banking solution at India Post
ITC Ltd Excise duty on cigarettes increased by 10%, which requires ITC to take 5-6% price hike to completely pass on this increase. We believe most negatives of the Budget have been priced in the stock price. We remain positive on ITC from a two to three year perspective
Larsen & Toubro Ltd Allocation of ` 218000 crore for capex in roads and Railways, development of 160 small airports to improve regional connectivity, incentivising new gas discoveries (increased hydrocarbon capex) and announcement of greenfield ports on the eastern and western ports will create EPC ordering opportunities for diversified conglomerate like L&T
Lupin Proposed reduction in percentage for weighed deduction in R&D expenditure from 200% to 150% from FY18 to FY20 and 100% from Fy21. This amendment would be marginally negative for Lupin as its R&D spending is ~11% of total revenue
Mahindra & Mahindra For M&M, its tractor segment will benefit from the government's focus on rural development & its aim to double farmer’s income by 2022. However, i t w i l l be pa r t i a l l y o f f se t by introduction of infrastructure cess impacting its automotive segment
Maruti Suzuki India An infrastructure cess on cars is marginally negative for Maruti Suzuki. However, we believe MSIL would benefit from new launches & incremental demand resulting from the Seventh Pay Commission. Hence, we remain positive
NTPC Ltd Initiative to implement 100% electrification of villages by 2018 will increase demand for power and, hence, benefit companies like NTPC. The increase in coal cess from ` 200 to ` 400 per tonne is likely to have a neutral impact on NTPC as it is a pass through for the company
Oil & Natural Gas Corp The change in levy cess to 20% ad valorem instead of ` 4500/tonne on domestic oil production is below our expectations. It would negatively impact ONGC if oil prices are at $45/barre l or h igher. Proposa l to a l low
BUDGET IMPACT - SECTORS & STOCKS
30ICICIdirect Money Manager March 2016
Measure Budget Impact
c a l i b r a t e d m a r k e t i n g f r e e d o m f o r g a sproduction from deep-water, ultra deep-water, etc, is positive
SBI A l l o c a t i o n o f ` 2 5 0 0 0 c r o r e t o w a r d s recapitalisation of PSU banks came in lower than expectation; capital infusion remaining same as announced in Indradhanush. Lower borrowing has helped G-sec yields to correct ~10 bps to ~7.66%, thereby assisting bond portfolio MTM gains in Fy16
Sun Pharmaceutical Industries Proposed reduction in percentage for weighed deduction in R&D expenditure from 200% to 150% from FY18 to FY20 and 100% from Fy21. This amendment would be marginally negative for Sun Pharma as its R&D spending is ~7% of total revenue
Tata Consultancy Services Domestic IT spends could be driven by unified agricultural marketing e-platform, statutory backing to Aadhaar platform, digital literacy mission and rural ATM rollouts in post offices. TCS could be a major beneficiary given its deeper focus on government contracts and healthy domestic revenues (~6.5%, $1 billion in Fy15)
Tata Motors We remain positive on Tata Motors mainly on the back of its sustained earnings growth for the JLR business; as the product pipeline grows and market share increases across geographies
Tata Steel Ltd Focus on infrastructure development is likely to aid in reviving domestic steel demand, auguring well for the company
Wipro Ltd Domestic IT spends could be driven by unified agricultural marketing e-platform, statutory backing to Aadhaar platform, digital literacy mission. Wipro could be a key beneficiary given i t s f o c u s o n d o m e s t i c h a r d w a r e a n d infrastructure business (India & Middle-East 9.7%, $690 million)
Reliance Industries There is a proposal to al low cal ibrated marketing freedom, subject to ceiling price linked to imported price of alternative fuels for gas production from deep-water, ultra deep water, etc. No immediate benefit but may make development of RIL’s new discoveries viable
"ICICI Securities has received an investment banking mandate from Government of India for disinvestment in ONGC.
ICICI Securities has received an investment banking mandate for disinvestment in Coal India.
ICICI Securities has received an investment banking mandate for disinvestment in BHEL.
This update is prepared on the basis of publicly available information."
BUDGET IMPACT - SECTORS & STOCKS
31
GUEST COLUMN
ICICIdirect Money Manager March 2016
Real Estate Bill passed: How will it benefit buyers and developers
Mr. Rohit Salhotra, MD & CEO, ICICI Home Finance Company takes us through key
details of the recently passed Real Estate (Regulation and Development) Bill, 2016
and how it will benefit consumers and developers. Read on.
Mr. Rohit Salhotra,
MD & CEO,
ICICI Home Finance Company
Real estate industry in India
which has been reeling under
the stress of stagnant sales and
growing unsold inventories on
one hand and shortage of
affordable housing on the
other has finally seen some
cheer. The long awaited and
much desired bill seeking to
regulate the real estate sector to
bring in transparency and help
protect consumer interests
was passed by the Rajya Sabha
on March 10, 2016 and
received the Lok Sabha's
approval on March 15, 2016.
The Bill is being touted as a
major reform measure to
regulate the vast real estate
sector and pave way for
moderate costs and affordable
housing, thereby, making the
government ' s v i s ion o f
'Housing for all by 2022'
achievable.
Some of the measures brought
under the ambit of the Bill are as
follows:1.Establishment of the State
Rea l Es ta te Regu la to ry
Authority (RERA) for every
state as the government body.
The RERA will not only act as a
governing body but also act as
a platform for grievance
redressal of buyers against any
developer.
2.The law also vests authority
on the real estate regulator to
govern both residential and
commerc ia l rea l es ta te
transactions.
32
GUEST COLUMN
ICICIdirect Money Manager March 2016
3.The new rules require
project promoters to register
the i r pro jects wi th the
R e g u l a t o r y A u t h o r i t i e s
disclosing project information
including d e t a i l s o f
promoter, project including
schedule of implementation,
layout plan, land status, status
of approvals, and agreements
along with details of real estate
agents, among others. This
rule will be applicable to not
only the new projects but also
the ongoing ones. All these
reforms will lead to increased
buyer protection.
4.Carpet area has been clearly
defined in the bill, thus,
eliminating scope for any
malpractices in transactions.
5.The obligation on the
developer to park 70% of the
project funds in a dedicated
bank account will ensure that
developers are not able to
invest in numerous new
projects with the proceeds of
the booking money for one
project, thus ensuring the
project timelines are met.
6.Specific and reduced time
frames have been prescribed
for disposal of complaints by
the Appellate Tribunals and
Regulatory Authorities, thus,
providing quicker resolution to
consumer complaints.
7.As far as delay in delivery is
concerned, both consumers
and developers will now have
to pay the same interest rate
for any delays on their part.
Moreover, the liability of
developers for structural
defects has been increased
from 2 to 5 years and they have
been prohibited from change
in plans without the consent of
two thirds of allottees. This
will ensure clear disclosure of
apartment sizes and space
utilization as well as fairer
penalty provisions in case of a
default. Punishments for
defaults by developers can be
as high as 5 – 10% of the
project cost to cancellatio of
registration to imprisonment of
up to 3 years.
8.Developers will benefit from
the Insurance of Land title,
currently not available in the
market if land titles are later
found to be defective.
The above provisions of the Bill
33
GUEST COLUMN
ICICIdirect Money Manager March 2016
are expected to bring about
much needed credibility to the
s e c t o r b y i n c r e a s i n g
accountability, transparency
and efficiency in execution of
projects, thereby, encouraging
cash flow to the sector.
H o w e v e r, s o m e o f t h e
provisions could act as
stumbling blocks for the
developers. Limiting the
utilization of escrow money
t o w a r d s c o n s t r u c t i o n
expenses could inflate project
costs as developers will be
required to infuse more equity
or borrow more money in
order to complete projects.
This is a double whammy
situation for developers as
such measures could lead to
delay in project deliveries and
increased cost of project
posing financial challenge to
the developers. The Bill also
fails to mention about the
introduction of single window
clearances system – required
for speedy approvals, the
accountability of financial
institutions, Government and
Government agencies, civic
and related authorities, who
have great role to play in
project implementation.
The Bill aims to provide a relief
to the end users and also the
investors such as banks,
private equity firms and non-
banking financial companies
(NBFCs) by instilling greater
confidence in the sector. These
measures, if brought into force
in a planned manner will surely
improve the market sentiment
which could drive sales. The
sector could also see an
improved foreign direct
investment (FDI) flow as
mandatory disclosures will
prohibit any unaccounted
transactions, thus reviving
growth in this cash-strapped
sector. Implementation of
va r ious measures in a
seamless and integrated
manner at the State level will
remain the key.
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.
34
Tête-à-tête
‘India an island of relative calm in this environment'
Markets have been volatile on account of unusually high uncertainty in
the economic environment. India has been an island of relative calm in
this environment. Economically we are seeing a trend where our macro
fundamentals are sharply better and growth after being weak for a few
years is steadily improving,” says Ashwin Patni, Head - Products & Fund
Manager, Axis Mutual Fund in an interview with ICICIdirect Money Manager.
Further there are corrective policy actions being driven by both the
government and the RBI that are supportive of further economic
improvement. This environment is positive for Indian assets - both debt
and equity, he adds. Excerpts:
Ashwin Patni,
Head - Products & Fund Manager,
Axis Mutual Fund
ICICIdirect Money Manager March 2016
Q:
A:
Financial markets across the
globe have largely been in red in
2016 so far. Will we see more of the
same this year?
Markets have been volatile
on account of unusually high
uncertainty in the economic
environment. Some of the key
issues have been growth
challenges for both Developed
Markets (DMs) and Emerging
Markets (EMs), commodity
price collapse, uncertainty on
future course of monetary
policy, etc. We think these
issues will likely persist over
the course of 2016, and can
lead to continued volatility.
What are a few reasons to be
optimistic in the midst of the
gloom?
India has been an island of
r e l a t i v e c a l m i n t h i s
environment. Economically we
are seeing a trend where our
macro fundamentals are
sharply better and growth after
being weak for a few years is
steadily improving. Further
Q:
A:
35
Tête-à-tête
ICICIdirect Money Manager March 2016
there are corrective policy
actions being driven by both
the government and the
Reserve Bank of India (RBI) that
are supportive of further
economic improvement. This
environment is positive for
Indian assets - both debt and
equity.
Foreign institutional investors
(FIIs) have been net sellers with
over $2.2 billion outflows year-to-
date. Do you see more selling in the
offing?
As mentioned in the earlier
question, markets have been
seeing a high level of volatility -
especially emerging markets.
Over the short term, FII action
is linked to that. However over
the long term we are positive
on FII flow into India because of
the attractiveness of the Indian
market relative to other Ems.
Corporate profitability is at a 10-
year low. Deteriorating corporate
and banking sector health can
exacerbate risks, says IMF. What
are your views on this? By when do
you see corporate and banking
balance sheets improving?
Corporate profitability is a
Q:
A:
Q:
A:
function of the economic cycle.
The weakness in economic
growth in the last few years has
led to weak capacity utilization
and has affected corporate
profitability. As growth comes
back, we expect operating
leverage to kick-in and help
improve profitability. However
it must be noted that even
while this is the expectation at
an overall level, there are
specific companies and groups
that are facing severe balance
sheet stress and the challenge
for these businesses is likely
much tougher.
The rupee has been depreciating
against the U.S. dollar, making it
one of the worst performing
emerging-market currencies this
year. How do you see this impacting
India's heavily indebted companies,
especially those with dollar-
denominated obligations?
The short-term performance
of the Rupee does not give a
complete picture. If you look
back over the last year and a
half, Rupee is in fact amongst
the best performing EM
currencies. This is a function of
Ind ia 's super ior macro -
Q:
A:
36
Tête-à-tête
ICICIdirect Money Manager March 2016
economic situation. Having
said that, like in the earlier
quest ion, there wi l l be
company specific balance
sheet stress and that should
not be extrapolated to the
entire economy.
Crude and other commodities
have been plunging. How do you
see this benefiting overall economy
in general and corporate India in
particular?
India is a clear beneficiary at
all levels. Firstly it improves the
external balance (current
account deficit or CAD). It
helps improve inflation and
reduces subsidies and hence
the fiscal burden. Further lower
commodity prices improve
corporate margins.
The Union Budget 2016-17
seems to be fiscally prudent. How
do you see this benefiting both
equity and debt markets in the
medium to long term?
The budget was a well
managed ba lanc ing ac t
between fiscal constraints and
growth orientation. However,
the Budget is a part of the
governance process and by
itself does not decide the
Q:
A:
Q:
A:
course of markets over
t h e m e d i u m t e r m . A s
mentioned earlier, the series of
reforms undertaken by the
government and RBI is likely to
boost growth going forward
and this is what is giving us the
confidence on Indian markets
over the medium to long term.
Given that the government
remains committed to fiscal
prudence, where do you see
interest rates heading towards?
Where should a long-term fixed-
income investor invest currently?
Given lower than target
inflation and continued fiscal
consolidation, we expect the
RBI to cut rates over the
coming 6-12 months. This
should lead to a fall in rates
across the yie ld curve.
Investors with a higher risk
appetite can look at dynamic
bond funds, while those with
lower risk appetite can look at
short-term funds.
Which sectors would you prefer
now to add to your portfolio? Which
ones would you avoid?
With the expected cyclical
improvement in the economy,
we expect a number of sectors
Q:
A:
Q:
A:
37
Tête-à-tête
ICICIdirect Money Manager March 2016
t o d o w e l l . C o n s u m e r
discretionary focusing on
u r b a n c o n s u m e r a n d
consumer-oriented financials
are two examples.
In the backdrop of the current
market scenario, what is your
advice to new and existing
investors?
Investors should learn to
disregard short-term market
noise and volatility and remain
focused on the long-term
prospects. Further, disciplined
Q:
A:
and regular investment into
quality products is the most
reasonable approach to take to
generate long-term wealth.
What are the key fundamental
principles of building a successful,
long-term investment portfolio?
Quality of stocks is of
paramount importance. Long-
term performance only comes
from investing in companies
that have a long-term growth
potential.
Q:
A:
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.
Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.
This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
`
38
ASK OUR PLANNER
Tax implications of life insurance policies
ICICIdirect Money Manager March 2016
Q:
A:
I was having an ICICI Prudential lifetime policy taken in 2005 and I paid premium for more than 5 years. I surrendered the policy in April 2015 and got the surrender value during the current financial year after deduction of TDS (Tax Deducted at Source). Can you please advise me what would be my tax liability of the said transaction to help me include it in this year's tax return?
- Prema Ramachandran
The proceeds from all life insurance policies are not exempt from income tax, as it was there much earlier. The death benefit from any life insurance policy is still exempt from income tax without any conditions. However, the maturity/surrender/partial w i t h d r a w a l f r o m a n y endowment/unit-linked policy is exempt from tax under section 10 (10D) only on the following conditions:
· If your policy is issued on/before March 31, 2003, then the proceeds are exempt from tax without any conditions.
· If your policy is issued on/after April 01, 2003 but on/before March 31, 2012, then the proceeds are exempt from tax only if the premium payable for every year is less than/upto 20% of the sum assured ( i .e . minimum amount assured under the policy at any time during the term of the policy).
· If your policy is issued on/after April 01, 2012, then the proceeds are exempt from tax only if the premium payable for every year is less than/upto 10% of the sum assured ( i .e. minimum amount assured under the policy at any time during the term of the policy).
If your policy does not satisfy the above conditions, then the whole proceeds from the policy would be added to your income in the year of receipt and get taxed as per the income slab in which you fall under in the year of receipt.
In order to identify the policies which are taxab le , the government has instructed the
39
ASK OUR PLANNER
ICICIdirect Money Manager March 2016
insurance companies to collect TDS only on the policies in which proceeds are taxable with effect from October 01, 2014. Accordingly, under section 194DA of the Income Tax Act, 1961, any sum received by an insured Indian resident from an insurer under a life insurance policy shall be subject to TDS @ 2% if the said sum is not exempted under section 10(10D). Further, even if these proceeds are taxable as per section 10(10D) but do not exceed 1,00,000, then also no TDS is to be deducted by the insurer when making the payment to the insured. If you have not submitted your PAN to your insurer, the rate of TDS would be 20% instead of 2% in cases where TDS is applicable.
In your case, as TDS is applicable, it means that the whole proceeds from the policy have to be added to your income earned in the year 2015-16 and tax has to be paid as per the income slab.
I have a life-stage pension policy taken in 2009 with no sum assured for 10 years. It will mature on 2019. Every year I am paying a premium of
`
Q:
` 50,000. On maturity in 2019, the proceeds will be used for 1/3 commuting and 2/3 for annuity for pension.
I am 60 years and retired from services and I want to surrender the policy now. I know that the amount will be taxed by clubbing to my income. My question is if I take annuity plan with the surrender value will it allow tax exemption or I should have to wait for maturity.
- Sastry Vemuri
G e n e r a l l y , w h i l e surrendering a pension policy, the entire surrender proceeds will be added to your income and taxed as per your income slab.
However, as you are 60 years old now, please check the minimum vesting age i.e. the age from which you can start receiving annuity, in your policy document. Your pension policy might allow you to vest your policy now. When you do so, you can choose to
rdcommute upto 1/3 of the current value and convert the
rdremaining 2/3 as annuity or convert the entire 100% as annuity. The annuity to be received will be added to your
A :
40
ASK OUR PLANNER
ICICIdirect Money Manager March 2016
income every year and taxed as per your income slab in the respective years of receipt.
I am a reader of your ICICIdirect Money Manager magazine. I am a salaried employee and I want to know some information regarding Leave Encashment Amount – whether it is taxable income or not?
- Bhavik Patel
Leave encashment is nothing but the sum of money that your employer may provide you in case you have not taken all the leaves provided to you during your service. It is usually the basic salary that is provided for the number o f days to be encashed. The tax treatment of leave encashment is different during your service and at retirement.
During your service, the entire amount received on account of leave encashment would be liable to tax under the head “ I n c o m e f r o m S a l a r y ” , irrespective of whether you are a g o v e r n m e n t / n o n -government employee.
However, the taxation is different if you are encashing leaves at your retirement. For
Q:
A:
central and state government employees, it is fully exempt from tax. For other employees, the minimum of the following is exempt from tax:
1.Leave encashment actually received
2.10 months' “average salary” (Salary refers to Basic salary + Dearness allowance)
3.Cash equivalent of unavailed leave calculated on the basis of maximum 30 days leave for every completed year of service
4.Amount specified by the Government i.e. 3 lakh currently.
I have a query regarding NPS (National Pension System). Is it mandatory to make investment into NPS every year or can we invest 50,000 only once now and get pension after 60 years?
- Muralidhar R
Once you have opened an NPS account, you have to make contribution every year. The minimum amount per contribution for Tier-I account is 500 while for Tier-II account, it is 250. Also, the minimum total contribution every year to
`
`
``
Q:
A:
41
ASK OUR PLANNER
ICICIdirect Money Manager March 2016
be made into Tier-I and Tier-II accounts is 6,000 and 2,000 respectively.
In case you miss to contribute the minimum required amount in any subsequent year after the account is opened, the account gets frozen. It can however be re-activated by bringing in the un-contributed amount and a penalty of 100 per year.
I have a pension plan for last twelve years, and I am depositing 10,000 per annum towards its premium. By now I have deposited
1,20,000 and the entire corpus is amounting 2,50,000 now. I know that since it is a pension plan, the annuity will be taxable. One of the life insurance agents told me the following:
If I transfer this corpus into another existing/new ULIP plan (non- pension) of the same insurance company through TOF (transfer of fund) facility, after the maturity of this new ULIP, the whole maturity amount may be non-taxable under-section 10(10(D), .
-
` `
`
`
``
Q:
Please clarify
Vivek Goel
A: Some insurance companies offer the facility of transferring your existing corpus from one unit-linked (pension / non-pension) into other policies of the same company.
This implies that you are surrendering your existing policy. In case of surrendering a policy, you would get the surrender proceeds into your bank account, which you may then decide how to deploy it.
In case of a transfer from your existing policy to a new policy, step of surrender proceeds credited into bank account is just skipped and the surrender proceeds are deployed straight away into a new policy. This will not change the tax implications of your existing policy.
In your case, the surrender proceeds of your existing pension policy, if surrendered and proceeds shifted to a new policy will still be added to your income and taxed as per your income slab.
Do you also have similar queries to ask our experts? Write to us at: [email protected].
42
PRIMER
ICICIdirect Money Manager March 2016
Understanding Tax Regimes: EEE, EET, ETE, etc.
Any investment that you make has three stages: 1. Contribution stage (when you invest), 2. Earnings stage (when you earn interest or returns), and 3. Withdrawal stage (when you take out lump sum or regular payouts such as annuities).
At each of these three stages, an investment has its own tax implications -- it can either be Taxed (T) or Exempted (E) from the taxes.
It is important to understand the tax implications of an investment at each stage in order to select the most tax-efficient instruments and in turn get better post-tax returns. Here we take you through the details. Read on.
There are basically 5 tax regimes / models that apply to investments. These are EEE, EET, ETE, TEE and TTE. Let's understand these in detail.
1. EEE: Exempt – Exempt – ExemptUnder this regime, taxes are not levied at any stage. That is, you can avail tax deductions at the time of investment / contribution, earnings are tax exempted, and even the m a t u r i t y p r o c e e d s a t withdrawal are also tax exempted. The first E is usually given under section 80C, 80CCD (1B), etc. up to a certain limit. Currently, the limit under
80C is 1.50 lakh and under 80CCD (1B) is 50,000 for investment into National Pension System (NPS).
EEE tax regime is generally applicable for long-term products such as PPF, EPF, etc. EEE tax regime is obviously the best one, but there are limited investment options that currently have EEE model (see the box below).
While an investment product with EEE model i.e. with no tax at any stage would likely be the preferred choice for investors, it should not be the only criterion for product selection.
``
Investment options that currently fall under EEE tax regime:
- Employees' Provident Fund (EPF),
- Public Provident Fund (PPF),
- Sukanya Samriddhi Account,
- Equity-Linked Savings Schemes (ELSS) / tax-saving mutual funds, etc.
- Rajiv Gandhi Equity Savings Scheme (RGESS)
- Life insurance policies, except pension plans (For life insurance policies sttaken before 1 April 2003, maturity benefits are tax-free. For the policies taken
43
PRIMER
ICICIdirect Money Manager March 2016
st stbetween 1 April 2003 and 31 March 2012, if the sum assured in any year of the policy term is less than 5 times of the annual premium, entire maturity proceeds are taxable. If it's above 5 times, proceeds tax-free. For the policies
st taken after 1 April 2012, if the sum assured in any year of the policy term is less than 10 times of the annual premium, entire maturity proceeds are taxable. If it's above 10 times, proceeds are tax-free).
2. EET: Exempt – Exempt – Tax
Here, you get the tax deduction at the time of investment, e a r n i n g s a r e a l s o t a x exempted, but the withdrawals at the time of maturity are taxed.
Since the withdrawals are taxed here, your net returns are generally lower in this tax regime, especially if you fall
under higher tax brackets of 20% or 30%. Say for example, you fall in the 30% tax bracket and the rate of return on your investment is 10%, taxes will eat away 30% of that return and you make only 7% post-tax return on your investment.
Most of the pension plans fall under EET category.
Investment avenues that currently fall under EET tax regime:
- Annuity based pension plans,
- National Pension System (NPS) - As per the Budget 2016 proposals, 40% of the accumulated corpus under NPS at maturity will be tax-free. Rest 60% has to be annuitized. Annuities are taxable.
3. ETE: Exempt – Tax – ExemptUnder this model, you pay tax o n l y o n t h e e a r n i n g s .
Contributions and withdrawals are tax-exempted.
Investment avenues that currently fall under ETE tax regime are:
- 5-year tax-saving fixed deposits,
- National Saving Certificates (NSCs) (However, you can claim tax benefits under section 80C for accrued interest every year).
- Senior Citizen Savings Scheme (SCSS), etc.
4. TEE: Tax – Exempt – Exempt
Here, at the time of investment,
there are no tax deductions
available, but the earnings and
withdrawal can be tax-free.
44
PRIMER
ICICIdirect Money Manager March 2016
Investment avenues that currently fall under TEE tax regime are:Stocks, Equity mutual funds (except ELSS), Tax-free bonds, etc.
5. TTE: Tax – Tax – Exempt
Under this model, there is no
tax deduction offered at the
time of investment, earnings
are also fully taxable, but the
withdrawals are tax-exempted.
Investment avenues that currently fall under TTE tax regime are: - Fixed deposits (FDs) – except tax-saving FDs, - Recurring deposits (RDs), - Post office monthly income scheme (POMIS)- Non-convertible debentures (NCDs) / Bonds - Debt mutual funds, etc.
Summing up Tax implications are an important aspect to look at before selecting an investment product. However, that should not be the only decisive factor for selection. It is also
important to look at other factors such as liquidity, safety, returns, risk, etc. Basically, you should choose products based on your goals, risk profile and investment time horizon.
MUTUAL FUND ANALYSIS
45
Investing in Income Funds
ICICIdirect Money Manager March 2016
The yields on the longer duration securities particularly of government securities (G-Secs) continue to trade in a narrow range in the last three months as concerns over higher supply prevented any meaning correction in yields. Although, the outlook on G-Sec yields remains positive, the duration strategy should be played through actively managed income funds. They will be able to make swift duration change within G-Secs or switch between corporate bonds and G-Sec within specific duration.
We believe that in the next one or two years, duration strategy via income fundswill yield better returns as interest rates fall further. The modified duration(determines percentage change in price of a bond for a percent change inyield) of these funds is somewhere closer to six to seven years. This means a fallin interest rates by 100 basis points (bps) can yield capital gains of 6%.
Aggressive investors can look to invest in the following funds: ICICI Prudential Income Plan, Birla Income Plus and UTI Bond Fund.
ICICI Prudential Income Plan
Fund Objective:To generate income through investments in a range of debt a n d m o n e y m a r k e t i ns t ruments o f va r ious maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity.
Key Information:
NAV as on March 04, 2016 ( ) 44.9
Inception Date July 9, 1998
Fund Manager Manish Banthia
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) –
Last declared YTM 8.07
Exit Load 1% on or before 1Y, Nil after 1Y
Benchmark Crisil Composite Bond Fund Index
Modified Duration 8.53
`
Product Label:
This product is suitable for investors who are seeking*:
•
•
Long term wealth creation solutiona
A debt fund that invests in debt a n d m o n e y m a r k e t ins t ruments o f var ious maturities with a view to maximize income whi le maintaining optimum balance of yield, safety and liquidity
Fund Manager: Manish Banthia
Mr. Manish Banthia is B . C o m , ACA and MBA. He joined ICICI Prudential in 2012.
46
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2016
Yearly Returns
5.1
16.9
0.9
8.6
14.3
3.8
0.0
5.0
10.0
15.0
20.0
31-Dec-14 To 31-Dec-15 31-Dec-13 To 31-Dec-14 31-Dec-12 To 31-Dec-13
Retu
rn%
Fund BenchMark
Performance vs. Benchmark
Fund Benchmark
1.2 2
.4
6.7 7
.8
3.6
6.9
8.6
8.6
0
2
4
6
8
10
6 Month 1 Year 3 Year 5 Year
Retu
rn%
Portfolio:The scheme seeks to generate regular returns by putting around 75 per cent of the i n v e s t m e n t s i n d e b t instruments, and the balance in money market instruments. The plan aims to maintain the
optimum balance of yield, safety and liquidity. The fund has increased its holdings in sovereign bonds from 77% in October 2014 to 88% in January 2016. It has decreased its holdings in AAA and AA rated bonds extensively and doesn't hold A rated bonds.
The fund has been consistent in its performance with portfolio inclined towards sovereign bonds which are g o i n g t o b e n e f i t f r o m decreasing interest rates in the economy. The domestic macroeconomic environment continues to remain conducive on the back of a structural improvement in fiscal deficit, trade balance and inflation along with the government's policy reform measures. Inflation is not a policy concerns currently with RBI Governor stating that the inflation remain on a projected trajectory, thus providing headroom for further rate cut. We believe that in the next one or two years, income funds will yield better returns as interest rates fall further. The modified d u r a t i o n ( d e t e r m i n e s percentage change in price of a
Our View:
Performance:The fund has delivered 2.4% 1-year return and 6.5% 3-year return. It has delivered 7.8% CAGR return in 5 years vs. 8.6% of benchmark index in the same period. The fund has given 10 year CAGR returns of 8.2% vs. 8.54% of benchmark index. The fund has been consistent in its performance and its CAGR return since inception is at 8.8%, better than other funds in the category.
47
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2016
bond for a percent change in yield) of the fund is 8.53 years. This means a fall in interest
rates by 100 bps can yield capital gains of 8.53%.
Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14
Asset allocation
CDs -- -- -- -- -- -- -- -- -- -- -- -- -- 1.79
CPs -- -- -- -- -- -- -- -- -- -- 0.62 -- -- --
Corp Bond 9.88 9.81 12.01 13.30 16.08 16.20 17.18 21.34 19.07 18.56 19.19 10.63 11.04 11.90
Gsec 88.44 88.27 85.42 84.17 82.38 81.48 80.66 76.65 77.50 78.88 81.85 83.54 87.12 85.41
Others 1.68 1.92 2.56 2.53 1.54 2.32 2.16 2.01 3.44 2.56 -1.67 5.83 1.84 0.90
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --
AA & Equiv 3.87 3.84 3.55 3.53 3.56 3.61 3.61 3.62 3.60 3.59 3.73 3.79 3.93 4.39
AAA & Equiv 6.01 5.97 8.46 9.76 12.52 12.59 13.58 17.72 15.47 14.98 16.09 6.84 7.11 9.31
Cash & Equivalent 1.68 1.92 2.56 2.53 1.54 2.32 2.16 2.01 3.44 2.56 -1.67 5.83 1.84 0.90
SOV 88.44 88.27 85.42 84.17 82.38 81.48 80.66 76.65 77.50 78.88 81.85 83.54 87.12 85.41
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 19.34 19.36 18.37 18.04 17.50 16.78 16.21 15.98 15.80 14.37 14.44 12.45 13.47 15.06
Modified Duration 8.53 8.60 8.40 8.36 8.46 8.15 8.02 7.91 7.80 7.57 7.76 6.97 7.42 7.73
Asset Allocation %
Credit quality %
Other attributes (Years)
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31 -Dec 31 -DecFund Name
Data as on March 04,2016 ; Portfolio details as on Jan-2016Source: ACE MF, ICICIdirect Research
ICICI Pru Income Opportunities Fund(G) 8.53 14.54 4.24
Crisil Composite Bond Fund Index 8.63 14.31 3.79
ICICI Pru Short Term Plan(G) 7.99 11.55 7.24
Crisil Short Term Bond Fund Index 8.66 10.47 8.27
ICICI Pru Balanced Advantage Fund(G) 6.70 29.04 10.93
Crisil Balanced Fund Index 0.48 25.34 6.05
ICICI Pru Long Term Plan-Ret(G) 6.07 19.39 9.03
Crisil Composite Bond Fund Index 8.63 14.31 3.79
ICICI Pru Gilt-Invest-PF(G) 5.48 20.53 1.40
I-Sec Li-BEX 7.48 19.74 1.38
ICICI Pru Income(G) 5.08 16.92 0.86
Crisil Composite Bond Fund Index 8.63 14.31 3.79
ICICI Pru Regular Gold Savings Fund(G) -5.08 -9.18 -6.72
Gold-India -7.19 -6.13 -6.32
ICICI Pru Gold ETF -8.15 0.84 -13.60
Gold-India -7.19 -6.13 -6.32
NAV as on March 04, 2016 ( ) 64.2
Inception Date November 10, 1995
Fund Manager Prasad Dhonde
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 1.55
Last declared YTM 8.06
Exit Load Nil
Benchmark Crisil Composite Bond Fund Index
Modified Duration 9.19
`
48
MUTUAL FUND ANALYSIS
Birla Sun Life Income Plus
Fund Objective:An open-ended income scheme with the objective to generate consistent income through superior yields on its investments at moderate levels of risk through a d i v e r s i f i e d i n v e s t m e n t approach.
This product is suitable for investors who are seeking*:
•
•
income with capital growth over medium to long term
investments in a combination of debt and money market i n s t r u m e n t s i n c l u d i n g government securities of varying maturities
ICICIdirect Money Manager March 2016
Key Information:
Product Label:
Fund Manager: Prasad Dhonde
Mr. Dhonde
Performance:
is a B.Sc (Tech) and
MMS (Finance). Prior to joining
Birla Sun Life AMC he has
worked with Credit Analysis &
Research Ltd, Times Investors
Services Pvt. Ltd., Birla Sun
Li fe Securi t ies Ltd. , RR
Financial Consultants Ltd. &
Probity Research & Services
Pvt. Ltd.
The fund has delivered 1.9% 1
year return and 6.6% 3-year
annualized return with returns
less than the benchmark index
but more than other funds in
the category. Also, 5 year
CAGR return at 8.0% and 10
year CAGR return at 8.3% are
at par with the benchmark
returns for the same periods.
Fund's CAGR return since
inception stands at 9.5%,
surpassing returns by other
funds in the same category.
4.6
16.0
2.7
8.6
14.3
3.8
0.0
5.0
10.0
15.0
20.0
31-Dec-14 To 31-Dec-15 31-Dec-13 To 31-Dec-14 31- -12 To 31-Dec-13Dec
Retu
rn%
Yearly Returns
Fund BenchMark
49
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2016
1
1.9
6.6
8
3.6
6.9
8.6
8.6
0
2
4
6
8
10
6 Month 1 Year 3 Year 5 Year
Retu
rn%
Performance vs. Benchmark
Fund Benchmark
Portfolio:The scheme seeks to generate
consistent income through
s u p e r i o r y i e l d s o n i t s
investment at relat ively
moderate levels of risk through
a diversif ied investment
approach. The fund has
increased its holdings of
sovereign bonds from 92% in
January 2015 to 96% in
January 2016. It holds 1.95% of
the total holdings in AAA and
A A r a t e d b o n d s , t h u s
minimising the credit risk of the
portfolio.
Our View:The fund holds 96% of the total
holdings in sovereign bonds.
Thus it is likely to benefit from
the falling interest rates in the
economy. The government has
met its fiscal deficit target of
3.9% in FY16 and sticking to its
fiscal consolidation roadmap,
government has kept a target
of 3.5% for FY17. This along
w i t h f a v o u r a b l e
macroeconomic conditions
and inflation well under control
opens way for further rate cut.
The fund has a modified
duration of 9.19 years. This
means a fall in interest rates by
100 bps can yield capital gains
of 9.19%.
Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14
CDs -- -- -- -- -- -- -- -- 1.42 0.53 -- -- -- --
CPs -- -- -- -- -- -- -- -- -- -- -- -- -- --
Corp Bond 1.30 1.41 1.29 1.11 1.13 1.78 4.46 4.44 4.79 9.63 13.12 5.44 4.35 9.19
Gsec 95.98 95.73 94.99 94.93 95.39 95.38 93.62 89.84 85.93 87.79 83.81 90.06 92.44 74.61
Others 2.73 2.86 3.71 3.96 3.48 2.85 1.92 5.72 7.87 2.05 3.07 4.50 3.22 16.20
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --
AA & Equiv -- -- 1.22 1.04 1.06 -- -- -- 0.97 1.09 1.08 1.02 1.08 1.22
AAA & Equiv 1.95 2.06 0.71 0.61 0.61 2.34 4.46 4.44 5.79 9.63 12.59 4.94 3.81 8.60
Cash & Equivalent 2.07 2.22 3.07 3.41 2.93 2.28 1.92 5.72 7.32 1.50 2.53 3.98 2.67 12.21
SOV 95.98 95.73 94.99 94.93 95.39 95.38 93.62 89.84 85.93 87.79 83.81 90.06 92.44 74.61
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 19.92 21.05 20.76 20.55 20.42 13.36
Modified Duration 9.19 9.49 9.08 9.20 8.92 8.82 8.53 7.18 7.09 7.14 7.51 7.13 7.37 6.92
Asset Allocation %
Credit quality %
Other attributes (Years)
50
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2016
Data as on March 04,2016 ; Portfolio details as on Jan-2016Source: ACE MF, ICICIdirect Research
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31-Dec 31 -DecFund Name
Birla SL FRF-Long Term Plan-Ret(G) 8.91 9.51 9.38
Crisil Liquid Fund Index 8.23 9.21 9.03
Birla SL Short Term Fund(G) 8.89 10.91 8.42
Crisil Short Term Bond Fund Index 8.66 10.47 8.27
Birla SL Treasury Optimizer Plan-Ret(G) 8.52 12.37 9.30
Crisil Short Term Bond Fund Index 8.66 10.47 8.27
Birla SL Inv Inc-QS I-Ret(G) 7.56 9.18 9.63
Crisil Liquid Fund Index 8.23 9.21 9.03
Birla SL Qrtly Inv 4(G) 7.32 8.63 9.53
Crisil Liquid Fund Index 8.23 9.21 9.03
Birla SL Constant Maturity 10 Year Gilt Fund-Reg(G) 6.94 12.74 -0.11
I-Sec Li-BEX 7.48 19.74 1.38
Birla SL Gilt Plus-PF(G) 5.68 19.94 3.50
I-Sec Li-BEX 7.48 19.74 1.38
Birla SL G-Sec-LT(G) 5.49 17.54 3.05
I-Sec Li-BEX 7.48 19.74 1.38
Birla SL CPO Fund-Sr 22 5.09 – –
Crisil MIP Blended Index 6.79 – –
Birla SL CPO Fund-Sr 18 5.00 -- –
Crisil MIP Blended Index 6.79 – –
Birla SL CPO Fund-Sr 20 4.97 – –
Crisil MIP Blended Index 6.79 -- –
Birla SL CPO Fund-Sr 21 4.95 -- –
Crisil MIP Blended Index 6.79 -- –
Birla SL CPO Fund-Sr 23 4.87 -- –
Crisil MIP Blended Index 6.79 -- –
Birla SL CPO Fund-Sr 16 4.72 15.54 –
Crisil MIP Blended Index 6.79 16.83 –
Birla SL CPO Fund-Sr 17 4.70 15.88 –
Crisil MIP Blended Index 6.79 16.83 –
Birla SL CPO Fund-Sr 19 4.61 -- –
Crisil MIP Blended Index 6.79 -- –
Birla SL Income Plus(G) 4.56 16.03 2.65
Crisil Composite Bond Fund Index 8.63 14.31 3.79
Birla SL Dynamic Asset Allocation Fund(G) 3.61 27.73 5.92
Crisil Balanced Fund Index 0.48 25.34 6.05
Birla SL CPO Fund-Sr 25 0.39 – –
Crisil MIP Blended Index 6.79 -- –
Birla SL Gold ETF -8.04 -1.75 -11.45
Gold-India -7.19 -6.13 -6.32
51
MUTUAL FUND ANALYSIS
UTI Bond Fund
Fund Objective:The Scheme will retain the flexibility to invest in the entire range of debt and money market instruments. The flexibility is being retained to adjust the portfolio in response to a change in the risk to return equation for asset classes under investment, with a view to maintain risks within manageable limits.
ICICIdirect Money Manager March 2016
Fund Manager: Amandeep Singh Chopra
Mr. Chopra
Performance:
is a B.Sc. from St. Stephen's College and an MBA from FMS, Delhi. He has been associated with UTI AMC for two decades now. He has managed a variety of funds in UTI AMC during his career.
The fund has performed well by delivering annualized returns of 3.8% in 1 year and 7.6% in 3 year period vs. benchmark return of 6.9% and 8.6% respectively for the given periods. 5 year CAGR return of the fund stands at 9.4% vs. 8.6% of the benchmark index, c l e a r l y i n d i c a t i n g t h e c o n s i s t e n c y i n t h e performance of the fund.
NAV as on March 04, 2016 ( ) 43.5
Inception Date July 18, 1998
Fund Manager Amandeep SinghChopra
Minimum Investment (`)
Lumpsum 1000
Expense Ratio (%) 1.73
Last declared YTM 8.30
Exit Load Nil
Benchmark Crisil CompositeBond Fund Index
Modified Duration 6.68
`
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
•
•
Regular returns for long term
Investments predominantly in medium to long term debt as w e l l a s m o n e y m a r k e t instruments
Yearly Returns
Fund BenchMark
6.3
15.6
4.0
8.6
14.3
3.8
0.0
5.0
10.0
15.0
20.0
31-Dec-14 To 31-Dec-15 31-Dec-13 To 31-Dec-14 31-Dec-12 To 31-Dec-13
Retu
rn%
2.1
3.8
7.6 9
.4
3.6
6.9
8.6
8.6
0
2
4
6
8
10
6 Month 1 Year 3 Year 5 Year
Retu
rn%
Performance vs. Benchmark
Fund Benchmark
52
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2016
Portfolio:
Our View:
The scheme aims to invest in
rated corporate debt papers
and government securities
with relatively low risk and
easy liquidity. The fund holds
75% sovereign bonds, 14%
AAA rated papers and 2.7%
AA rated papers. Due to an
a p p r e c i a b l e a m o u n t o f
investment in corporate debt
papers, the fund is able to
garner higher returns as
compared to the other funds in
the category.
UTI Bond Fund invests in
sovereign bonds as well as
rated corporate debt which
makes it favourable for
investors who desire higher
returns and are ready to take
some risks. The fund is likely to
benefit from the falling interest
r a t e s i n t h e e c o n o m y.
Corporate debt papers which
offer higher interest rates then
G-secs will increase the overall
returns of the fund. The
modified duration of the fund is
7.68 years which means a fall in
interest rates by 100 bps can
yield capital gains of 7.68%.
Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14
CDs -- -- -- -- -- -- -- -- -- -- -- -- -- --
CPs -- -- -- -- -- -- -- -- -- -- -- -- -- --
Corp Bond 16.88 16.78 12.93 12.91 13.56 15.60 15.20 14.78 19.22 19.34 14.61 13.77 14.45 14.61
Gsec 74.75 74.91 81.77 81.53 84.13 80.56 80.84 78.07 76.00 78.19 82.35 82.69 82.91 72.66
Others 8.37 8.31 5.30 5.56 2.31 3.85 3.96 7.15 4.78 2.47 3.04 3.55 2.64 12.73
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --
AA & Equiv 2.67 2.66 2.64 2.62 3.30 5.53 5.35 4.83 4.72 4.87 4.85 4.56 4.78 5.40
AAA & Equiv 14.21 14.12 10.30 10.30 10.25 10.07 9.85 9.95 14.50 14.47 9.76 9.20 9.67 9.20
Cash & Equivalent 7.85 7.79 4.79 5.05 1.81 3.34 3.46 6.70 4.34 2.03 2.61 3.14 2.58 12.49
SOV 74.75 74.91 81.77 81.53 84.13 80.56 80.84 78.07 76.00 78.19 82.35 82.69 82.91 72.66
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 10.82 11.13 16.10 16.27 14.99 14.20 12.78 10.90 10.90 11.07 14.31 14.20 13.03 11.03
Modified Duration 6.68 6.73 7.85 7.86 7.91
Asset Allocation %
Credit quality %
Other attributes (Years)
53
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2016
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31 -Dec 31 -DecFund Name
Data as on March 04,2016 ;Portfolio details as on Jan-2016Source: ACE MF, ICICIdirect Research
UTI G-Sec-STP(G) 8.09 8.44 8.88
I-Sec Si-BEX 9.02 9.37 7.25
UTI Money Market Fund-Reg(G) 7.75 8.46 8.54
Crisil Liquid Fund Index 8.23 9.21 9.03
UTI Liquid-Cash-Reg(G) 7.62 8.41 8.48
Crisil Liquid Fund Index 8.23 9.21 9.03
UTI MIS Adv Plan(G) 7.10 21.09 6.54
Crisil MIP Blended Index 6.79 16.83 4.41
UTI Dynamic Bond Fund-Reg(G) 6.91 14.74 7.62
Crisil Composite Bond Fund Index 8.63 14.31 3.79
UTI CC Balanced Plan 6.42 30.64 6.09
Crisil Debt Hybrid (60:40) 3.69 18.62 8.06
UTI Bond Fund(G) 6.31 15.60 3.96
Crisil Composite Bond Fund Index 8.63 14.31 3.79
UTI ULIP(G) 6.20 21.73 3.63
Crisil Debt Hybrid (60:40) 3.69 18.62 8.06
UTI Mahila Unit(G) 6.11 20.55 3.72
Crisil Debt Hybrid (75:25) 5.58 15.53 8.20
UTI Gilt Adv-LTP(G) 6.10 19.80 3.98
I-Sec Li-BEX 7.48 19.74 1.38
UTI MIS(G) 5.73 16.01 6.07
Crisil MIP Blended Index 6.79 16.83 4.41
UTI Retirement Benefit Pension 5.27 23.13 4.92
Crisil Debt Hybrid (60:40) 3.69 18.62 8.06
UTI CRTS 1981(D) 2.49 18.81 5.55
Crisil Debt Hybrid (75:25) 5.58 15.53 8.20
54
MUTUAL FUND TOP PICKS
Based on our quarterly rankings, we have updated our mutual fund (MF) top picks recently
Mutual Fund Top Picks
Equity
Largecaps
Midcaps
Diversified
ELSS
Birla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundSBI Bluechip Fund
HDFC Midcap Opportunities FundFranklin India Smaller Companies FundSBI Magnum Global Fund
Franklin India Prima PlusReliance Equity OpportunitiesICICI Prudential Value Discovery Fund
Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield
Liquid Funds
HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan
Ultra Short Term
Birla Sunlife Savings FundReliance Medium Term FundICICI Pru Flexible Income Plan
Short Term
Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan
Credit Opportunities FundBirla Sunlife Short Term Opportunities PlanReliance Regular Savings FundICICI Prudential Regular Savings
Income FundsICICI PrudenIncome FundBirla Sun Life Income Plus - Regular Plan UTI Bond Fund
Gilts Funds
ICICI Pru Gilt Inv. PF PlanBirla Sunlife Constant Maturity 10 year gilt plan
MIP Aggressive
Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP
Debt
ICICIdirect Money Manager March 2016
55
Our indicative large-cap equity model portfolio (“Quality-21”) has
continued to deliver an impressive return of 97.4% (inclusive of
dividends) till date (as on March 14, 2015) since its inception
(June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex)
return of 41.3% during the same period, out-performance of over
56%. This validates our thesis of selecting companies with sound
business fundamentals that forms the core theme of our
portfolio. Our “Consistent-15” mid-cap portfolio also continues
to outperform, delivering 117.8% (inclusive of dividends) till date
(as on March 14, 2015) vis-à-vis the benchmark index (CNX
Midcap) return of 60%, out-performance of ~58%. Our
consistent outperformance demonstrates our superior stock
picking ability as markets in H1CY15 aligned to our view of
favourable risk reward, good franchisee vs. reward-at-any-risk
businesses. Some key performers of our portfolio are Lupin, Axis
Bank and TCS in the large-cap portfolio while Natco Pharma and
Shree Cement have delivered stupendous returns in the mid-cap
portfolio.
We have always suggested the systematic investment plan (SIP)
mode of investment and still find a lot of merit in it as the
preferred mode of deployment given the market conditions and
volatility associated since the inception of the portfolio. It has
outperformed other portfolios, thus, reinforcing our belief in a
plan of investment. However, now we are also advising clients to
look at lump sum investments on any possible dips.
On a year-to-date (YTD) basis, the markets have been
consolidating in a broad range of 8,000-8,800 on the Nifty. This is
owing to: a) markets awaiting a turnaround on the ground and,
hence, corporate earnings and b) taking a breather post a
stupendous rise witnessed in CY14, wherein valuations in some
areas were ahead of fundamentals. Going ahead, in the medium
term, stocks with reasonable earnings visibility and valuations
should do well and will find flavour among investors.
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2016
56
EQUITY MODEL PORTFOLIO
On the back of this run up in stock prices and valuations running
ahead of fundamentals, we have aligned our portfolio to capture
the new opportunities available in the market. We have replaced
Bajaj Auto with Maruti and Titan Company with Asian Paints.
Furthermore, we have transferred Bosch which was earlier a part
of the mid-cap portfolio to the large-cap portfolio. Apart from
shuffling stocks, we have also increased/reduced the allocation
weights of some companies.
In the large-cap space as compared to broader indices we
continue to remain overweight on Pharma & IT, following which
FMCG forms the major portion of the asset allocation. We
continue to remain underweight on metals and oil & gas with our
only pick being ONGC and Tata Steel, which have a better risk-
reward opportunity. We believe that return on investment (RoI)
for these sectors would continue to remain stressed due to a
subdued pricing environment and discreet trade activities. We
continue to remain over-weight to neutral on pure play
defensives (IT, FMCG) as secular earnings coupled with sector
rotation could lead to consolidation in near term valuations and
offer stock specific opportunities. We remain positive on auto,
pharma, capital goods and infrastructure.
Among individual names, we are strongly overweight on Infosys,
TCS in the IT space, HDFC and HDFC Bank in the BFSI space, ITC
and PVR in consumer space and L&T and NBCC in the infra space.
House view on Index: Factoring in the fall in inflation, comfortable
CAD (current account deficit), improved sentiments and pick-up
in GDP (gross domestic product) growth, we expect Sensex EPS
(earnings per share) to grow 13.2% and 19.4% to Rs. 1,539 and
1,838 during FY16E and FY17E, respectively (CAGR of 16% in
FY15-17E). We assign a P/E (price-to-earnings) multiple of 16.5x
on FY17E EPS to arrive at a fair value of 30,300 for the Sensex by
end CY15 with the Nifty estimated to reach 9,100.
`
ICICIdirect Money Manager March 2016
57
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2016
Auto 14 9.8
Tata Motor DVR 4 2.8
Bosch 3 2.1
Maruti 4 2.8
EICHER Motors 3 2.1
BFSI 23 16.1
HDFC Bank 8 5.6
Axis Bank 3 2.1
HDFC 8 5.6
Bajaj Finance 4 2.8
Capital Goods 5 3.5
L & T 5 3.5
Cement 3 2.1
UltraTech Cement 3 2.1
FMCG/Consumer 14 9.8
ITC 7 4.9
United Spirits 2 1.4
Asian Paints 5 3.5
IT 21 14.7
Infosys 10 7.0
TCS 8 5.6
Wipro 3 2.1
Meida 2 1.4
Zee Entertainment 2 1.4
Metal 2 1.4
Tata Steel 2 1.4
Oil & Gas 4 2.8
Reliance Industries 4 2.8
Pharma 12 8.4
Lupin 5 3.5
Dr Reddys 4 2.8
Aurobindo Pharma 3 2.1
Largecap share in diversified 100 70
58
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2016
Aviation 6.0 1.80
Interglobe Aviation 6.0 1.80
Auto 6.0 1.80
Bharat Forge 6.0 1.80
BFSI 6.0 1.80
Bajaj Finserve 6.0 1.80
Capital Goods 6.0 1.80
Bharat Electronics 6.0 1.80
Cement 6.0 1.80
Ramco Cement 6.0 1.80
Consumer 24.0 7.20
Symphony 6.0 1.80
Supreme Ind 6.0 1.80
Kansai Nerolac 6.0 1.80
Pidilite 6.0 1.80
FMCG 8.0 2.40
Nestle 8.0 2.40
Infrastructure 8.0 2.40
NBCC 8.0 2.40
Oil & Gas 6.0 1.80
Castrol 6.0 1.80
Logistics 6.0 1.80
Container Corporation of India 6.0 1.80
Pharma 12.0 3.60
Natco Pharma 6.0 1.80
Torrent Pharma 6.0 1.80
Textile 6.0 1.80
Arvind 6.0 1.80
Midcap share in diversified 100 30
TOTAL 100 100 100.0
59
Performance* so far Since inception
*Returns (in %) as on
Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio
Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination
of BSE Sensex and CNX Midcap
March 14, 2016
Value of 1,00,000 invested via SIP at the end of every month `
Portfolio Benchmark
Investment Value of Investment in Portfolio Value if invested in Benchmark
Start date of SIP: , 2011; *Value as on June 30 , 2016March 14
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2016
97.4
117.8107.3
41.3
60.044.3
0
25
50
75
100
125
%
5,8
00,0
00
5,8
00,0
00
5,8
00,0
00
6,9
29,2
84
9,9
49,8
30
7,5
24,6
61
6,6
90,9
79
6,9
32,2
36
6,9
16,6
84
3,500,000
4,500,000
5,500,000
6,500,000
7,500,000
8,500,000
|
QUIZ TIME
1. The government has recently cut interest rate on Public Provident Fund (PPF) to _____% from 8.7% now.
2. Tax rebate, under Budget 2016-17 proposals, has been raised to 3,000 fom 2,000 currently. True / False
3. Leave encashment amount received any time is entirely tax-free for all employees. True / False
4. Under Budget 2016-17 proposals, tax deduction for rent paid under section 80GG has been increased to _____ p.a. from 24,000 p.a. currently.
5. Sixty per cent of your NPS (National Pension System) accumulations at the time of withdrawals will be tax exempt once the Budget proposals come into force. True / False
Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected]. The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.
Correct answers for the February 2015 quiz are:
1. The Employees' Provident Fund Organisation (EPFO) has raised the 'interim' interest rate to _____ for 2015-16.
A. 8.8%
2. In debt mutual funds, capital gains for investments less than 1 year are added to your income and taxed as per your income slab.
A. False, it's for investments less than 3 years
3. The interest income earned from bank fixed deposits is tax-free. True/False
A. False, it is taxed at marginal rate
4. Debt funds come with guarantee of returns. True / FalseA. False
5. The higher the maturity profile of a debt fund's portfolio, the more prone it is to interest rate risk. True / False
A. True
` `
` `
60ICICIdirect Money Manager March 2016
61
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager March 2016
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
29-Feb-16 29-Jan-16 Change (%)
CNX Nifty 6987.1 7563.6 -7.6%
CNX Midcap 11558.7 12469.1 -7.3%
S&P BSE Sensex 23002.0 24870.7 -7.5%
S&P BSE 100 7075.4 7651.7 -7.5%
S&P BSE 200 2946.8 3191.1 -7.7%
S&P BSE 500 9206.0 10014.0 -8.1%
29-Feb-16 29-Jan-16 Change (%)
Dow Jones 16,516.5 16,466.3 0.3%
S&P 500 1,932.2 1,940.2 -0.4%
Nasdaq 4,558.0 4,614.0 -1.2%
FTSE 6,097.1 6,083.8 0.2%
DAX 9,495.4 9,798.1 -3.1%
CAC 40 4,353.6 4,417.0 -1.4%
Nikkei 16,026.8 17,518.3 -8.5%
Hang Seng 19,111.9 19,683.1 -2.9%
Shanghai Composite 2,688.0 2,737.6 -1.8%
Taiwan Weighted 8,411.2 8,145.2 3.3%
Straits Times 2,666.5 2,629.1 1.4%
29-Feb-16 29-Jan-16 Change (%)
S&P BSE Auto 15,851.6 17,046.0 -7.0%
S&P BSE Bankex 15,814.8 17,603.9 -10.2%
S&P BSE FMCG 3,845,354 4,020,513 -4.4%
S&P BSE Healthcare 15,207.7 16,305.0 -6.7%
S&P BSE Metals 6,759.2 6,894.0 -2.0%
S&P BSE Oil & Gas 8,214.2 9,258.1 -11.3%
S&P BSE Power 1,582.5 1,838.4 -13.9%
S&P BSE Realty 1,051.1 1,209.0 -13.1%
S&P BSE Teck 5,513.6 5,928.3 -7.0%
62
PRIME NUMBERS
ICICIdirect Money Manager March 2016
Debt Markets
Government Securities (G-Sec) Yields (in %) Feb-16 Jan-16 Change (bps)
Corporate Bond Yields (in %) Change (bps)Feb-16 Jan-16
Commercial Paper (CP) Rates (in %) Change (bps)Feb-16 Jan-16
Treasury Bill (T-Bills) Yields (in %) Change (bps)Feb-16 Jan-16
Volatility Index (VIX)
29-Feb-16 29-Jan-16 Change (%)
VIX 20.16 17.24 16.9%
10 year 7.63 7.78 -16
5 year 7.64 7.58 6
3 year 7.44 7.98 -55
1 year 7.34 7.25 9
AAA 10 year 8.67 8.43 24.1
AAA 5 year 8.59 8.37 21.1
AAA 3 year 8.53 8.30 22.2
AAA 1 year 8.47 8.20 27.1
AA 10 year 9.14 8.89 24.9
AA 5 year 9.08 8.92 16.6
AA 3 year 9.01 8.85 16.0
AA 1 year 8.90 8.68 22.1
12 Months 9.24 9.04 20
6 Months 9.23 8.99 24
3 Months 9.28 8.88 40
1 Month 8.53 7.93 60
91D TB 7.26 7.24 2.4
182D TB 7.26 7.22 4.0
364D TB 7.25 7.18 6.6
63
PRIME NUMBERS
10-year benchmark yields (%) across countries
Inflows In Equity and Debt Markets
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)
ICICIdirect Money Manager March 2016
Month
Countries 29-Feb-16 29-Jan-16 Change in bps
US 1.73 1.92 (19)
UK 1.34 1.56 (22)
Japan (0.06) 0.10 (16)
Spain 1.53 1.51 2
Germany 0.11 0.33 (22)
France 0.47 0.64 (17)
Italy 1.42 1.42 1
Brazil 16.06 16.19 (13)
China 2.90 2.89 1
India 7.63 7.78 (16)
MF Inflows Feb-16 Jan-16 YTD(in crore)`
Equity 5946 7328 13274
Debt 28686 5009 33695
FII Inflows Feb-16 Jan-16 YTD(in crore)`
Equity -7988 -11471 -19459
Debt -8324 1544 -6780
Items Weights(%) Dec-15 Jan-16 Feb-16Food&bev. 45.86 6.31 6.66 5.52
Pan,tob& intox. 2.38 9.27 9.03 8.30
Cloth & Foot 6.53 5.74 5.71 5.52
Housing 10.07 5.06 5.20 5.33
Fuel & light 6.84 5.45 5.32 4.59
Misc. 28.31 3.95 3.95 4.38
CPI 100 5.61 5.69 5.18
Weights Dec-15 Jan-16 Feb-16WPI 100.0 -0.73 -0.90 -0.91 Primary Articles 20.1 5.48 4.63 1.58 Fuel & Power 14.9 -9.15 -9.21 -6.40 Manufactured Goods 65.0 -1.36 -1.17 -0.58
64
PRIME NUMBERS
Index of industrial production (IIP) Sector-wise growth rate (%)
Currencies and CommoditiesCurrencies
Commodities
Mutual Funds: Category Average Returns
Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &
Small-cap Funds
Large-capFunds
ELSS (Tax-
savingfunds)
Returns as on Feb 29, 2016
Debt Funds Returns (in %)
Returns as on Feb 29, 2016
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager March 2016
Categories Jan-16 Dec-15 Nov-15 Weight (%)
Mining 1.2 2.7 1.9 14Manufacturing -2.8 -2.2 -4.7 76Electricity 6.6 3.2 0.7 10Total -1.5 -1.2 -3.4 100
Tenure Liquid Funds Short-termincome funds
Ultra short-term funds
Long-termincome funds
Gilt funds
29-Feb-16 29-Jan-16 Change (%) StatusUSDINR 68.42 67.79 -0.9% DepreciatedEURINR 74.49 74.01 -0.7% DepreciatedGBPINR 94.80 97.02 2.3% AppreciatedAUDINR 48.89 48.04 -1.8% DepreciatedCHFINR 68.28 66.53 -2.6% DepreciatedJPYINR 0.61 0.56 -8.1% DepreciatedCNYINR 10.44 10.31 -1.3% Depreciated
29-Feb-16 29-Jan-16 Change (%)Crude ($/barrel) 36.0 34.7 3.5%Gold ($/ounce) 1,238.7 1,118.2 10.8%
6 months -13.86 -14.71 -13.96 -14.491 year -16.77 -13.58 -18.97 -17.743 year 13.97 22.83 10.56 13.655 year 10.15 16.94 8.03 9.91
6 months 7.31 6.31 6.90 4.72 4.88
1 year 7.84 7.18 7.86 4.71 4.10
3 year 8.52 8.46 8.67 7.67 7.83
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ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on financial markets to beginners and amateurs, student, housewives, working professionals and self employed. ICFL's broad objective is to make participant feel confident to start investing in stock market.
Here is the list of our programmes scheduled for the month of March, 2016.
Schedule for Beginners' programme on Futures and Options (F&O) TradingSr.No
City Dates For More Information & Registration call:
Premium Education Programmes Schedule
Schedule for Fast-Track Programme on Futures & Options (F&O)Sr.No City Dates For More Information & Registration call:
ICICIdirect Money Manager March 2016
Sr.No
City Dates For More Information & Registration call:
Schedule for Technical Analysis Programme
Sr.No
City Dates For More Information & Registration call:
Schedule for Foundation Programme on Stock Investing
1 Mumbai 12th and 13th Mar 2016 Nihal on 9619359592
2 Thane 12th and 13th Mar 2016 Manish on 8451057943
3 New Delhi 12th and 13th Mar 2016 Vishal on 07838290143, Harneet on 09582158693
4 Kolkata 19th and 20th Mar 2016 Sumit Sarkar on 8017516187
5 Thane 12th and 13th Mar 2016 Manish on 8451057943
6 Mumbai 12th and 13th Mar 2016 Nihal on 9619359592
7 Pune 12th and 13th Mar 2016 Kusmakar on 7875442311
8 Bhubaneswar 13th Mar 2016 Sumit Sarkar on 8017516187
9 Hyderabad 12th and 13th Mar 2016 Ruchi on 8297362323
10 Bangalore 19th and 20th Mar 2016 Subrata on 9620001478
11 Kolkata 19th and 20th Mar 2016 Sumit Sarkar on 8017516187
12 New Delhi 19th and 20th Mar 2016 Vishal on 07838290143, Harneet on 09582158693
13 Kolkata 19th and 20th Mar 2016 Sumit Sarkar on 8017516187
14 Pune 12th and 13th Mar 2016 Kusmakar on 7875442311
15 Pune 19th and 20th Mar 2016 Kusmakar on 7875442311
16 Chennai 26th and 27th Mar 2016 Rajat on 9962294867
17 Thane 26th and 27th Mar 2016 Manish on 8451057943
18 Mumbai 26th and 27th Mar 2016 Nihal on 9619359592
19 Chennai 26th and 27th Mar 2016 Rajat on 9962294867
20 Bangalore 5th and 6th Mar 2016 Subrata on 9620001478
21 Hyderabad 19th and 20th Mar 2016 Ruchi on 8297362323
22 New Delhi 5th and 6th Mar 2016 Vishal on 07838290143, Harneet on 09582158693
23 Kolkata 5th and 6th Mar 2016 Sumit Sarkar on 8017516187
24 Mumbai 19th and 20th Mar 2016 Nihal on 9619359592
25 Mumbai 19th and 20th Mar 2016 Nihal on 9619359592
26 Pune 19th and 20th Mar 2016 Kusmakar on 7875442311
27 Pune 26th and 27th Mar 2016 Kusmakar on 7875442311
66
Contact us
Email:
Send us an email at [email protected] mention the name, date and venue of the programme you have
attended or wish to attend, for faster resolution of your queries.
SMS:
SMS EDU to 5676766 for more details
ICICIdirect Money Manager March 2016
Sr.No City Dates For More Information & Registration call:
Schedule for Fast-track Programme on Stock Investing
Sr.No City Dates For More Information & Registration call:
Schedule for Techno Derivatives Programme
28 Ahmedabad 20th Mar 2016 Yogesh on 8238053563
29 Dhanbad 6th Mar 2016 Sumit Sarkar on 8017516187
30 Dhanbad 13th Mar 2016 Sumit Sarkar on 8017516187
31 Vadodara 13th Mar 2016 Yogesh on 8238053563
32 Surat 13th Mar 2016 Yogesh on 8238053563
33 Ahmedabad 12th and 13th Mar 2016 Yogesh on 8238053563
34 New Delhi 16th and 17th Mar 2016 Vishal on 07838290143, Harneet on 09582158693
Sr.No City Dates For More Information & Registration call:
Schedule for Advanced Derivatives Trading Strategies Programme
35 Mumbai 5th and 6th Mar 2016 Nihal on 9619359592
36 Chennai 26th and 27th Mar 2016 Rajat on 9962294867
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