Where to invest and how to save tax

In my previous article I discussed about different type of taxes that we pay to our government which is one of the most important part of its earning but its very tough to give your hard earned money whether it is a tax or anything else so we try to save tax or try to pay minimum that we can pay and our government has allowed us too till certain limit for saving tax other than the exemption of Rs 200000 given by it. We can save tax by doing saving by depositing our money in equity, bonds, Mutual funds, insurance, PF, PPF, EMI of loan, donations, Education fee till a certain amount and also apart from this we get tax exemption for the rent that we pay for housing. This investment gets tax exemption just for giving relief to public as they will get tax exemption and will have savings(with certain return) for future and in turn government will be able to maintain liquidity of money in the market for various purposes. Apart from Rs 200000 according to section 80(c) we can get tax exemption for another Rs 100000 and another Rs 20000 (in infra bond) only by investing at different places according to need. Now lets discuss about different ways of investment in various forms for saving tax:

Equity--> In this we invest directly in the stock market but we can get tax exemption for a amount of Rs 50000 only and the income is below Rs 1000000. So this is not  very lucrative for saving tax but people invest at risk of losing/gaining huge amount depending on the stock performance.Do invest directly by yourself only when you have good knowledge about it or else one may lose money.

Bonds--> Bonds are issued by companies to raise fund for their projects from public directly i.e collection of people who buy the bond of a company acts like a bank and gets fixed interest from the company which is generally interest is 2-3% higher than what bank gives on fixed deposit but we can invest till Rs 20000 only in Infrastructure Bonds (according to various sections) for tax saving purpose and amount invested above Rs 20000 will not serve the purpose of tax exemption and also bonds in any other category will not help in saving tax.

Fixed Deposit(FD)--> This type of investing facility is provided by every  bank and Post Office in which the investor is paid a fixed rate of interest for particular period of investment of money.

Term Deposit(TD)--> This type of investing facility is provided by every  bank and Post Office in which the investor is paid a fixed rate of interest for money invested for a year only. In this investor gets the interest but cannot avail the tax exemption benefit as it is a short term investment.

Recurring Deposit(RD)--> This type of investment facility is also provided by Banks and Post Office in which the investor invests his money in monthly/quarterly/half-yearly mode for certain period generally for 48 months(post office) for which they get interest. In RD investor deposit money for 48 months but has to keep the money for 60 months and then can take out the money after that as the maturity period is reached but if needed can take out the money before maturity period.

Mutual Fund--> In this type of investment one can avail tax exemption benefit only if we keep the money in the company locked for a minimum period of 3 years or else other benefits can be availed but not tax benefit. In Mutual Fund money is invested in share/stock market i.e in equity and debentures. If money is invested in equity then the profit/loss is dependent on the market performance. Money can be invested through one time deposit or through SIP(systematic investment planning) i.e particular amount of money is deposit it to person portfolio every month through ECS from bank account and units are allotted according to current NAV. If  money not locked for 3 years then person can take out money invested till date at current value if needed without closing the portfolio.

Insurance--> This investment is done mainly for insuring our self  from any tragedy if any happens in future and if every thing is fine for the insured period then we get the maturity of the insured amount with interest. But if we want to take out the money by pre-maturity then we must keep in mind that if we have not invested  money at least for 3 years then no money will be given as pre-maturity but in endowment policy case the pre-maturity amount increases with increase in period i.e more the money is invested or kept with the company more is the maturity amount. In this investment type if some one is insured for a amount of Rs 200000 and suppose has given only 5 installments and policy is active and if by chance some thing miss happens(death) then the nominee will get whole Rs 200000. Apart from this tax exemption can also be availed (according to section 80(c)). Insurance is of two type:-

a) Endowment Policy--> In this the insurance is done for long term period i.e 15, 20 or more years and the installment amount is paid in monthly/quarterly/half-yearly/yearly mode whichever suits the person and insurance amount is comparatively much more higher than the installment amount.

b) ULIP(Unit Linked Insurance Policy)--> In this the insurance is done for short term period i.e 5yr at least and the money is invested in share market by the company which may give higher return than endowment plan but risk is also high but that does not affect the insured amount but if everything is normal(health) for the locking period i.e 5 yrs or till the amount is kept with the company the return/maturity amount is affected (higher profit/loss). But now days companies have come out with a plan in which they give the highest NAV value touched on a particular day irrespective of how much down the NAV goes so the investor is on safer side and not much affected by sensex/market and gets maximum profit.

Provident Fund(PF)--> This is mandatory saving scheme imposed by Government of India for all govt employees and private companies permanent employees for their better future and saving gives tax exemption as per exemption policy applicable. Minimum amount is fixed for saving but no max limit is there only after the consent of employer and employee.

Public Provident Fund(PPF)--> This scheme also gives a person tax exemption but is not compulsory. PPF account can be opened in Post Office and banks easily. Maximum limit of saving through PPF is Rs 1 Lac a year and minimum amount is Rs 500 a month and also minimum period of locking is 15 years. This scheme is a central govt and is applicable to everyone who all are interested.

EMI---> All the installments given to repay loans are applicable for tax exemption. 

Tax and its type in India

What is a Tax and why we need to pay it?

Tax is that amount which we pay to government i.e a certain part/percentage of money that we earn and this may be in the form of direct or indirect taxes (in form of labor) and failure to pay make one liable of facing judicial action. We pay taxes in various form such as Income Tax, Sales Tax, Toll Tax etc. which is looked over by various concerned authorities. This tax is compulsory and not voluntarily paid as this is the major source of income for the central and state governments for carrying out various work of the society such as making roads, providing clean water, defense services/policing etc. Taxes are imposed by Central and State governments separately on various services and resources accordingly.  

Types of Taxes in India

1. Income Tax--> This is the type of tax which is imposed on person depending on his earnings mainly it include service class people who are salaried in private/public/government sector companies.This comes under direct tax. We don't need to pay tax for all the amount which we earn as government gives some exemption/relaxation in taxes i.e there is a slab for each group and people falling under that  and the slab is as follows:
           Less than Rs 250000        --------- Nil (For senior citizen it is 300000)
           Rs 250000 - Rs 500000   --------- 10%
           Rs 500000 - Rs 1000000 --------- 20%
           Rs 1000000 and above     --------- 30%
So in this case if someone has earning of Rs 1100000 and no investment is done than he will have to pay tax of Rs (30000+100000+30000)= Rs 160000
           Till Rs 200000                  ---- Rs 0
           Rs 250000 - Rs 500000   ---- 10% of Rs 250000 i.e Rs 25000
           Rs 500000 - Rs 1000000 ---- 20% of Rs 500000 i.e Rs 100000
           Rs 1000000 -Rs 1100000 ---- 30% of Rs 100000 i.e Rs 30000

Apart from these slab exemption government gives us relaxation to save tax for amount up to () by doing investment in different government securities, bonds and taking insurance for self and family through different sections of income tax exemption and avail tax exemption accordingly. This exemption benefit can be availed on bank EMI also. From this year 50% tax can be saved for amount invested in equity but till the investment of Rs 50000 only and when income is below Rs 1000000. We pay TDS i.e advance tax on monthly or quarterly basis so that fine is not imposed at the end for non payment of tax and if TDS is paid more than the actual tax to be paid then we can claim back our extra money paid by filling income tax return i.e by filling form 16 A.

2. Sales Tax--> This is the type of tax which is imposed on all the sale of products which is done in Indian market i.e sale starting from car to clothes and any other thing

3. Service Tax--> This is the type of tax which is imposed by government for the service provided by various industries and firms such as for example if we have our dinner in a restaurant than we have to pay tax for it which is 10.2% till date.

4. Toll Tax--> This is the type of tax which is taken by Toll Plaza on highways(national/state) from the car and truck passing through them so that cost of making and maintenance can be recovered which is invested either by government or private company. Toll tax is decided depending on the cost involved and the time frame in which it has to be recovered. Toll Plaza are available on highway on every 100 km.

5. Capital Gain Tax--> In this the owner has to pay tax for every sale of property, equity, bonds or any other valuable asset for booking profit i.e the tax is applicable for the difference between the sale and purchase of the asset. This is applicable for the transaction done in short period only i.e if the period is less than 1 year the tax is eligible except for property for which the minimum period for CGT is 3 years.

6. Value Added Tax(VAT)--> VAT is somewhat similar to Sales Tax as sales tax is imposed by central government for its earning but VAT is charged by state government for its major earning and VAT varies from state to state. VAT is added cost to the MRP of the product and VAT depends on the nature and type of product. But government has not included every product under this Tax system. But government has given proposal to take Goods Service Tax(GST) as tax by merging sales and service tax.

7. Education Cess--> This is the type o tax which is taken by government for improving the education level in India and is applicable on all type of taxes but mainly on income, sales and service tax and it is 3% of total tax payable.

8. Gift Tax--> Gifts received for amount more than Rs 50000 in a year is also considered as part of income and is applicable for tax. Gift received during marriages by parents and relative gets exemption from tax and also if a daughter-in-law gets a gift by father-in-law tax is exempted but the gift received by son-in-law by father-in-law is applicable for tax. Tax is calculated as per income tax rules.

9. Stamp Duty--> Tax or cost paid to government for buying or transferring any property or asset and also for making any legal document is known as stamp duty. It varies upon property to property.

10. Professional Tax--> This tax is taken by many state government by employee of private companies and is paid by all professional personnels.It varies from state to sate and is compulsory to be paid and is paid every month.

11. Custom Duty--> This tax is imposed to all the goods or products that are imported i.e is bringing goods from a foreign country. It depend on the nature of the product.

12. Excise Duty--> Excise duty/tax is payed/applicable on goods manufactured and distributed within the same country and is applicable for very low range of goods i.e on very few products. This different from Sales Tax and VAT i.e excise is paid in addition to these taxes.

13. Corporate Tax--> This tax is paid on generating income through corporate operations in the country. This tax is classified depending on Domestic and Foreign companies.

These are the major taxes applicable in India but other than these taxes many other taxes for government income for improving services such as Water Tax, House Tax (paid to municipal corporation), Road Tax (paid while buying a vehicle) etc.

Mutual Funds:What, How,Why???

Today when we hear about this term Mutual Fund we definitely think what it is and if know it then we have many other queries related to that so let us discuss about it.

What is a Mutual Fund?

Mutual Fund is a type of fund where a huge lump of money is pooled from various persons/investors from different parts of country by a trust/company and are collectively invested and managed in capital market (such as equity, debentures etc) by professionals or skilled individuals associated with this industry. In case of profit or loss being made by the company it is equally beard by the individuals equally according to the contribution made by them. Advantage of this for all those who are interested in capital market is that they can invest in a diversified, professionally managed basket of securities at a relatively low cost and low risk and the Disadvantage is that this a completely dependent on Stock Market so is full of risk i.e one may make huge profit and loss as well.

Which companies are there in India to invest in Mutual fund?

There are many companies in India which are associated with this industry, in fact, nearly every company dealing with finance has its mutual fund company:

1. Reliance Mutual Fund

2. ICICI Mutual Fund

3. Birla Sunlife Mutual Fund

4. UTI Mutual Fund

5. Shriram Mutual Fund

6. HDFC Mutual Fund

7. SBI Mutual Fund

8. Kotak Mutual Fund

9. Tata Mutual Fund and so on....

What is the difference between investment through Mutual Fund investment and directly investing in stock market by our own?

Actually there is no difference here the money is invested by professionals who have good knowledge of this and they keenly watch the market activities and buy and sell accordingly and they know what is the best time to invest where but the profit which we get as return is less as compared to when we invest directly because the wages of employees, other costs and company's profit are take from that only but when we invest by our self we should have proper knowledge about the company's profile and the current market scenario or else individual can lose their money in market or money will be blocked for longer period and will be of no use risk of losing is very high as compared to mutual fund investment. Where as we can get other benefits like insurance and tax saving plan from mutual fund company according to their scheme if any.  

How a Mutual Fund company work?

Company's through their recruited agents/advisor collect money and give it to a fund manager (professional/skilled employee) to invest in capital market which generates some return after sometime and is then given back to investor accordingly till the date the investor keep his money with that company.

How to become a advisor for the company?

For becoming a advisor/agent or make carrier with this industry firstly you have to clear a basic exam of NSE-India i.e AMFI (Association of Mutual Fund in India) and after getting certified you may consult associated companies or they will consult you after sometime. This is need to be certified because one should have prior knowledge of what it is all about.

What is NAV?

NAV is also known as Net Asset Value i.e The value of all the assets minus the liabilities and this is the thing which we get after investment in a mutual fund company i.e NAV per unit alloted to us. For example if we invest RS 2000 and NAV is Rs 20 then we will be allotted 100 units and NAV changes from time to time according to capital market up and down so the next value will be NAV value * No. of unit allotted.

Why to invest in Mutual Fund?

The answer is very simple to grow your money at some risk and some safety having some additional benefit and without tension of money management.

Meaning of few finance related term used in our surrounding

In our daily life through media or by someone else around us we used to hear some words frequently i.e GDP of India is slowing or world is going to face recession very soon or inflation is very high these days and likewise. We do understand that something is related to our economy but don't know the exact meaning so here is my attempt to explain you these term:

GDP(Gross Domestic Product)

This is the total market value of all the good and services produced  in a particular country or geographical boundary and which has been officially recognized but this should be in a given time frame i.e in a quarter or year  and which is equal to total sum of consumer, investment, government spending, (export-import). GDP includes goods produced by any company within a country territory irrespective of companies base/nationality i.e it may be a foreign based company or same nationality company. GDP is declared by government in every quarter i.e the last day of every quarter about its growth or downfall because it mainly represents the living standard of that country and also the health of country's economy and not the measure of  personal income. Important thing is that GDP and GNP(Gross National Product) are two different thing as in GNP we don't include the value of goods produced by the foreign company in a particular country/region but will include the value of goods produced by a company of particular nation having its office/manufacturing plant in another country. GDP calculation is done by two ways 1. By product produced method and 2. By income method.

Inflation

By the word itself we come to know that inflation is related to increase. Inflation is generally used in term of economics i.e for the increase in the rate of goods and services from time to time. This increase happens often due to increase in the supply of money or sometime may due to difference between supply and demand gap. As the inflation rate increases the value of money/currency decreases because for example if we were purchasing 2 chocolate for 1 rupee and due to high inflation rate after 2 years we are able to buy only 1 chocolate for 1 rupee so the value of rupee decreased in these 2 years. This is generally measured by General Price Index/Consumer Price Index(It is a inflammatory indicator which measures the change in the cost of goods and services including transportation, food, housing etc) and Producer Price Index/Wholesale Price Index(This is also a inflammatory indicator but it measures the change in value of whole sale prices which may mislead as a consumer may get things at higher rate despite of its low rate at wholesale level). Inflation is good for country growth but may effect country GDP when its too high.

Recession

It is a period when all economic activity see a slowdown for certain period. Recession effect is seen mainly in employment, industrial production, income, stock market etc decline. There is no one reason to blame that for recession but generally due to lack of government policies it occurs. If there is decline in GDP for two or more consecutive quarters than there are chances of recession knocking the door. In recession spending are reduced drastically so in that case government infuses money and increases its stake for removing recession

more to come......

Stock Market and its functioning

What is a stock market?

Stock Market is also known as Share Market where money is invested through different modes such as equity, commodities, etc but mainly trading is done in equity market only where a listed company issues their share like about 10% or so but they avoid to issue share more than 49% of total companies worth or we can say they give partnership to each share holder for the value they pay just to raise money from the market or public for expansion of their business. In this case both profit and loss is beard by the shareholders if any happens. In equity market anyone is free to sell their stock through stock exchange and get rid of it by making profit if company is performing nicely or vice verse at any time they feel to. Companies introduces itself in the market to increase its worth other than raising funds so if equity prices goes down the company loses its worth and its total value decreases. All shares/stocks at a face value/actual value of Rs. 2-10 but depending on the current market status market value of the stock is there for example if a company has very good reputation and is going to be listed in the stock exchange then it might be that its face value is Rs. 10 but market value would be given as 450 i.e the price paid by the buyer. Stock Market is place full of risk where you can make huge profit and sometime huge loss also. In India we have two main Stock Exchange which is located in Mumbai (Dalal Street) i.e BSE(Bombay Stock Exchange) and NSE(National Stock Exchange).

How does share/stock prices changes?

Like any other things share market also works as a normal vegetable/any other market as for example if Potato or Tomato supply is less than demand their price increase and vice versa like this only stock prices are also depended on supply/availabilty and demand of stock method but here in stock market this availabilty and demand is very uncertain i.e it changes min to min or sometime lesser i.e if at a certain time huge buying of a stock occurs its price goes up due to less availabilty of the stock and the other minute/hour when price rises than for profit booking people sell it in huge number due to which prices of stock falls down but due to buying and selling prices doesn't have much fluctuation as compared to news regarding that company or related industry or sometime economic reforms/policy changes by the govt makes it fluctuate. The company outperform or under perform more on the day when their quarterly results are announced where it is made public that whether company has made profit/loss and by how much and if it outperform than stock prices jumps steeply.

How to make profit in Stock Market?

Well this is very difficult to tell anyone where or in which company to invest for making profit because market is very volatile except some days when it outperforms and it has a different mood everyday. Actually mood here is not of a individual or company or stock exchange but of investors who invest there. Sometime trend goes in favour of IT related stocks or sometime in favour of Real State related stocks so while investing one should judge the mood of investors rather than value or status/reputation of the company because mood plays a very important role in supply and demand concept. So keep eyes on news related to stock because if a company has some good news for its expansion than obviously investor will show confidence and invest more so price will go up because company stability will increase in the market. If you are new try to invest in Blue Chip companies i.e those companies that are in top 50 companies of BSE(Bombay Stock Exchange) and top 30 companies of NSE(National Stock Exchange) because they are very stable and good reputation companies and investors have great faith in them and daily transaction in these companies are very high so risk of losing is not much or very minute. But after all the things its totally a luck game.

What is the difference between BSE and NSE?

Here comes the most important question for most of us that what is the difference between BSE(Bombay Stock Exchange) and NSE(National Stock Exchange) so first of all I would like to inform that there are many other stock exchange in India other than these two such as Ahmedabad Stock Exchange or Pune Stock Exchange etc. but these are regional stock exchanges and are less popular as compared to BSE and NSE which are national level exchanges so we just hear the name of these two exchanges only. Now same like two different retail sector stores serving same service the two stock exchange provides same service but having different window/place for trading(buying/selling of share). This BSE and NSE is located in Dalal Street, Mumbai but NSE has its office in delhi and other places too. BSE has kept 30 companies in its list which decides the upward and downward trend of the Sensex because each company according to its status/reputation has been allotted some value i.e if X company share/stock will lose Rs. 4 than sensex will go down by 1 point and vice-versa and like wise for other 29 stocks. Like this only 50 stocks are listed in NSE's Nifty and its performance is decided. These companies may change time to time depending upon its status as their status are not permanent in the market.

Basic of finance

Now days it is very common to hear that US Economy is weak or Indian economy is depreciating or share market is out performing but there is common question 'HOW' if companies were outperforming 2 months ago and there was upside trend of growth, their manufacturing of product and sale was on peak then how they can slow down suddenly and hit the country economy or how share market works. For knowing all this we need to know finance in layman type language so here is my initiative to provide you all with some basics so lets start with very basic thing:

What is economy?

Economy may be defined as activities that involves the natural/any resources of country/state/region and money/wealth for production and consumption of goods and services for the enrichment and growth of that region and also to ensure that the resource are used in effective manner and are not misused.The geographical condition and ecology and also the natural resource present in that region plays a important role in country economic system. It also involve the labor cost, manufacturing and the distribution and trade type and way. Economy is also depended on the demand and supply ratio and credit to debit ratio.

What is finance?

Finance is a branch of economics which involves cash directly or indirectly through business transactions. It involves the way of obtaining funds from various sources such as bank, equity or debentures etc and their properly planned management for getting maximum profit out of it for the risk beard by the business as money/cash is arranged against some interest paid for it. Assets such as property or golds are also part of finance. It involves cost, time risk and money. 

What is a Share Market?

Like normal markets we in share market buy and sell equity or share of a particular company which is listed in the market. The most popular market in India is Dalal Street in Mumbai. These markets are also known as Stock Exchange market. The two most famous stock exchanges are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). This market is quite different from normal market as in normal market we get product on printed MRP but here the MRP/value of share/equity change min to min depending on various reasons such as huge buying of particular stock or its selling, or good/bad news regarding that stock or policy of govt being changed etc.