Asset Classes Equity 1. Stocks 2. MF I. Domestic : Large cap, Mid cap, Small cap II. International Market Capitalisation = Current Stock Price x Number of Shares outstanding. $ 50 bn – 200 bn – 3500 bn
Asset Classes Debt / Fixed Income 1. Debt MFs ( Issuer, Duration, Credit Quality) 2. Bank FDs 3. Post Office Instruments # Issuer : Gilt ( Bank of England had gilt(smooth) edge) Corporate
Asset class selection criteria Short term Car down payment, holiday Asset class ??? Medium term House down payment Asset class ??? Long term Children’s education/marriage, Retirement Asset class ???
FDs & RDs Fixed & Recurring deposits : Concept, Types of Deposits ( Flexible FD, Savings plus, Deposit with OD facility, RDs with banks/ Post Offices), How to invest, Points to consider before investing, Advantages, Disadvantages, Investment meter, Tax impact.
The FD concept You deposit a lump sum of money ( ? ) in the bank at a certain ROI for a fixed period of time. The bank returns the principal & interest earned, either at the end or at regular intervals. ROI & tenure are fixed at the start : FMP ROI remains constant during the entire tenure irrespective of the movement in the market ROI. FD also known as Term deposits/ Time deposits as in Canada, Australia, N Zealand & US. Bond in UK. FDs are safe ? DICGC Deposit Insurance Credit Guarantee Corporation
FD Concept Why FD offers more ROI than saving ac ? Liquidity Simple FD : Interest paid every 3 months in the savers ac or by cheque. Compound interest FD/ Cumulative FD : Maturity paid with principal & interest. Quiz : FD made at 9% for 5 yrs. Customer is withdrawing after 2 yrs when the ROI has gone down to 8%. Customer will be paid what ROI ? Quiz : Is there a penalty for pre-mature withdrawal ? Yes, max 1%. Differs from bank to bank. Quiz : FD receipt is called ? FDR Quiz : Auto renewal of FD possible ? Quiz : Can FD maturity amount be paid in cash ? Only upto 20k as per RBI guidelines. ( ac payee crossed chq/ ac transfer )
Types of FDs Flexible FD : Can withdraw part of the deposit before maturity, Remaining amount will continue to grow at same ROI. Savings plus account : If you keep surplus cash in your savings ac, you can ask the bank to move a certain amt into FD for a period of your or bank’s choice. Deposit with OD : FD Rs 1L, bank will transfer an amt upto 75-80% to your savings ac. The FD will earn the same interest. You need to repay the amount in installments, along with some additional interest, before the expiry of the FD. These facilities may/may not be offered by all banks/all same bank branches.
Quiz If you invest Rs 10k in FD at 10% for 5 years, then what is the maturity amount ? 15000/- 16105/-
FD Can customer take loan against FD ? Yes, upto 80-90% of principal. Quiz : ROI on loan will be higher/lower than the ROI for FD ? Quiz : FDs are taxable ? If interest goes above Rs 10k in one bank in financial year. Quiz : of _____ ? 10%, Interest. Quiz : Bank issues which form for TDS ? Form 16A If any tax is due after TDS, holder has to declare it in his returns & pay tax as per his IT slabs. Form 15 G : < 60 yrs, if total income under tax limits. Form 15H : > 60 yrs, if total income under tax limits. Quiz : TDS is applicable for RDs ?
FD Information Most banks calculate interest on quarterly basis. This decides the effective annual ROI. FD durations allowed in India ? 7 days to 10 years Amount of FD ? Rs 100/- to unlimited ( with some banks only) As all the banks are under RBI, all of them have to offer the same ROI for same durations ? Senior citizens get some % higher ROI, why ? No penalty on premature withdrawal.
FD u/s 80c ? 5 yr FD >>> 80c Limitations : No part withdrawal facility No loan facility
FD = Cumulative FD Cumulative FD : Interest calculated & added, monthly, quarterly etc. Interest is paid every month & principal returned at the end. Will the interest earned in this way be more/less than cumulative FDs ?
How to invest ? ….. Can open FD in any bank Submit KYC documents. Which are those ? Photo, Proof of identity, Address proof. If you have online ac, can open FD online also. Min deposit Rs __/- but can vary bank to bank. RS 100. Quiz : Is it better to make one FD of big amt or various smaller FDs ? Why ? Liquidity & DICGC
Points to consider before investing Check & compare ROIs of various banks Check the penalty for pre-mature withdrawal & compare with other banks. Is the bank close to your residence/office ?
Advantages Safe & reliable way to grow your money. ROI is normally higher than inflation rate. Surplus cash in savings ac can be automatically be moved to FD. Interest is compounded. Senior citizens are offered higher ROI. Highly liquid. Can get back the amount immediately. Can get loan against FD. DICGC ( Rs 1 L, principal & interest) Have joint ac for DICGC ( Anil, Bina & Bina, Anil) Can spread FD in multiple banks for DICGC.
Disadvantages Rising inflation can give you negative ROI. Quiz : FD at 8%, inflation 6%. At maturity, inflation at 9%, what real ROI you will get ? Money locked for a long time. Interest above Rs 10k is taxed at source. Penalty on pre-mature withdrawal.
FD Investment Meter ( 5 star highest) Safety **** Liquidity **** Returns ***
Tax impact TDS after Rs 10k TDS is branch specific & not bank specific. IF CBS is implemented, above is not possible. TDS if you have not submitted PAN. Banks report TDS to IT dept. Notice by IT, if disclosures on FDs not made.
RD : “Recurring Deposit” concept Test of patience, discipline & sacrifice. Opportunity to build up savings through regular monthly deposits of fixed sum over a fixed period of time. Standing instruction to bank Interest compounded quarterly. Delay in payment will affect the maturity value. Loans up to 80-90% of deposit value. TDS not applicable. Quiz : Is interest earned through RD is tax free ?
RD at 8% for 2 yrs Investment pm (Rs)Amount on maturity 500/ / / /-52183
Types of RD Flexible RD Instead of fixed amount, 10 X can be invested. RD at bank & Post offices RD at PO term fixed at 5 yrs, bank any duration. PO ROI is fixed, bank ROI varies as per tenure. Premature withdrawal, PO pays principal with current banks levy max 1% penalty.
How to invest in RD Any bank in India Min RD in bank Rs 100/-pm Min RD in post office Rs 10/- pm Duration Bank : Min 6 months, max 5 Yrs. Bank issues passbook which gives details of deposits, duration selected & maturity amount. Monthly deposit date can be selected.
Points to consider before investing ROI offered & comparison with other banks. Penalty on premature closure Check if bank offers insurance/loans on RD.
Advantages Opening a RD is simple & easy. RD offers similar returns as of FD. The discipline of savings. Banks offer multiple facilities like loans, insurance, OD etc. RD is as safe as FD.
Disadvantages ROI is generally just above the inflation rate. If standing instruction facility is not available with the bank/PO, one has to visit them every month. No IT benefits.
RD Investment Meter ( 5 star highest) Safety **** Liquidity **** Returns ***
Tax Impact Interest from RD is not tax free. It is considered as a part of your income & taxed accordingly. TDS is not deducted even if the interest amount exceeds Rs ______ as in FDs. Rs 10k
Base Rate Effective from 1 st July 2010.(Replaced BPLR) Rate below which a bank cannot lend except in cases allowed by RBI. Transparent system One base rate for each bank ( reviewed quarterly ), declared publically. Following categories of loans could be priced without reference to base rate : 1. DRI advances 2. Loans to bank’s own employees including retired employees 3. Loans to bank’s depositors against their own deposits.
DRI : Social banking Differential rate of interest( 1972). Concessional to eligible beneficiaries like families with annual income of Rs 18000/- (rural) & Rs 24000/- (urban). Only to borrowers not under any other govt subsidy scheme. Limit of Rs 15k. For HL, limit is Rs 20k. No margin money required. No collateral reqd. Repayment in 5 yrs max ( including 2 yrs grace period). Atleast 40% loans to SC/ST. Min 1% of loans should be DRI…. Banks can lend to NGOs who in tern lends ahead.
Thank you. Prashant Sawant Global training group