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Sunday, 11 November 2012

Ways to buy a home and SARFAESI Act,2002

3.Buying a property auctioned by the banks:

When people default on their monthly EMI's for the property bought with home loans, banks repossess these properties and auction them off to recoup their losses and bad loans using the SARFAESI ACT 2002.

What is SARFAEST ACT 2002?

Prior to 1993, the banks had to approach civil courts for recovery of dues. This process was the time consuming and the fund was blocked in the litigation. Civil courts failed to deliver both in ascertainment of dues and execution of decree.

Recovery of debts due to banks and financial institutions(RDDBFI) Act 1993 brought the time span for adjudication of dues. The problem of ascertainment of dues was solved but failed to deliver in execution if decree.
In late 2002, The parliament passed the Act Sarfaest , which extends to the whole of India, giving banks the power to aggressively recover loans from defaulters by seizing their assets. 

 SARFAEST Act 2002 provides a procedure by which banks can serve notice to a borrower for payment of a defaulted loan. In the event of non- compliance, the bank may proceed with actions to take possession and dispose of the aspects.

The Act deal with three aspects.

1. Enforcement of security interest by secured creditor(Banks/Financial Institutions).

2.Transfer of non-performing assets to assets reconstruction company, which will then dispose of those assets and realize the proceeds.

3. To provide a legal frame work for securitization of assets.

This act successfully solved the problem of ascertainment of dues and execution of decree.

1.This Act lays the emphasis on recovery of the money, even without the intervention of court.

2.The banks were empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured assets.

3.The role of the court was limited to challenge the measures by way of appeal, that too on deposit of 75% of amount claimed on the notice.

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Ways to buy a home and SARFAESI Act,2002

Buying a resale property:

Both buying or building a home and marrying off one's daughter, are the daunting tasks on earth.

Unlike new property, buying old properties involve more risks. It involves many legal and other procedural requirements.

First of all you need to select a best place and property then follow the steps given below.

1. Consult Experts:-

It is ideal to engage a good real estate agent to locate a resale property. Most real estate agents charge fee and also help with registration, payment of stamp duty and other paper work involved in the purchase of resale property.
Taking the help of a good lawyer would also help to make sure that things are clear legally.

2.Title of the property:-

Establish the title of the property seller, whether she/he is the real owner of the property or has been given the power of attorney to transact the deal. All the documents with regard to the property need to be clear.
 You need to make sure that all the original documents with regard to the property that were given by the builder or original developer are in order. If the subsequent transfer of title are not properly stamped then it could become a big problem.

3. Existing loan:-

It is also necessary to make sure that the property documents are not mortgaged in the banks custody against a loan taken by the seller.  

4.Loan eligibility:-

Some banks may not lend money on building older than 10 years. Banks also ensure that the banks outstanding loan should always be lower than the value of the property in the market.

5.Property Valuation:-

The loan amount is highly dependent on the cost of the property. The banks property valuation may evaluate the property at a much lower rate.

6. More down payment:-

Most banks wish to make sure that you accept responsibility for the maintenance and good up keep of the resale property. You may have to pay about 20% of the price as down payment. 

7. Age of the property:-

Down payment could be more in case of older properties. Banks usually lend only on properties that are up to 20 to 50years old depending on your lender. The tenure of the loan also decreases with the age of the property.

8.Fees charged by housing societies:-

Some societies that ask for a heavy fee for transfer of ownership. It is best to consider this cost also when coming to conclusion while purchasing resale property in co operative and other societies.


Buying resale property would give you 

1.A chance to settle in your own house fast and save you of high rents paid and the need to frequently shift your place of living. 

2.Tax deductions on the interest paid on loan from the bank

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Monday, 5 November 2012

Ways to buy a home and SARFAESI Act,2002

Those who are looking for a home have three options

1.Buying an under-construction property

2.Buying a resale property

3.Buying a property auctioned by the Banks.

1.Buying an under construction property:

A property under construction would definitely be cheaper than one available for purchase or occupation. Typically , these under-construction properties quote at least 20% lower than the prevailing rates in a locality.

Before investing in an under- construction property we must know the risk factors

1.EMI's on sanctioned loan:

The delayed possession of the house exert severe financial pressure on the buyers if he has to pay the EMI as well as the rent at the same time. Moreover, if the project gets stuck(or) even defaults, the home buyer is still liable to pay the interest and the principal component of the disbursed amount to the banks.

In an under construction property, a bank disburses the loan amount in tranches to the builder. However, you may be expected to pay the EMI on the sanctioned loan amount and not the disbursed loan amount. This huge EMI outgo from the first month can also be a strain on the pocket.

If the project delays or defaults, the liability is on the borrower to pay off the dues. The loan will be settled only after the borrower has paid off the interest and the principal component of the loan amount disbursed to the builder.

2.No objection Certificate:

 Also do check if it is already mortgaged with a lender, if the property is already mortgaged with a lender, do insist on a no-objection certificate from the lender before entering into a purchase agreement with the builder.

3. No tax benefits in under-construction phase.

    A home loan borrower can claim tax exemption on interest payments up to Rs.1.5 lakhs and another Rs.1 lakh under section 80c towards the principal repayment. 
    The section 24 of the Income Tax Act states that if a property is still to be constructed, there will not be any deduction on the interest payment all of those years. The interest for the pr-construction period can be availed for deduction in five equal installments from the year the construction is complete. The tax rebate on principal repayment may not be allowed when the property is under construction.

Saturday, 29 September 2012

FDI(Foriegn Direct Investment)

FDI is direct investment by a company in a production  located in another country either by buying a company in the country or by expanding operations of an existing business in the country.

There are three types of FDI's 
1. Horizontal FDI
2. Plat form FDI
3. Vertical FDI
Horizontal FDI: 
                       Horizontal FDI is an investment made by a multinational company in different nation. The investment is made for conducting the similar business operations as already operated by the company.

Horizontal FDI results in expansion of the parent company and brings FDI in the other economy.

EX: If a soft drink manufacturing company makes its plant outside its national borders then it is Horizontal FDI.

Platform FDI:
                     Export-platform FDI is generally defined as investment and production in a host country where the output is largely sold in third markets, not the parent (or) host-country markets.

Ex:US investment s in Ireland.Branch plants are used to serve the integrated EU, but Ireland is chosen as the low-cost location.
European firm producing in Mexico to serve the integrated north American market.

Vertical FDI:
                    There are two types of vertical FDI's

1.Backward Foreign Vertical Investment:  Which is invests in the Industry of foreign country.
 Historically most backward vertical foreign direct investments has been in extractive industries like OIL extracting, Bauxite Mining, Tin mining and copper mining.

2.Forward Vertical Foreign Direct Investment: Which is an Industry abroad sells the outputs of a firms domestic production process.
Forward vertical FDI is less common than backward vertical FDI.

Saturday, 30 June 2012

GAAR Introduced in the Budget 2012-13

The General Anti Avoidance Rule (or) GAAR was proposed in mid –march as part of the budget for fiscal 2013.

GAAR aims to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes.

  • The Finance Minister proposed to remove the burden of proof entirely from the tax payers and shift it to the revenue department.
  • Local or foreign tax payers will also be able to approach authorities in advance for a ruling on their potential tax liabilities.
  • An independent member would be in the GAAR approving panel, while one member would be an officer of the level of joint secretary or above from the ministry of law.
  • A committee would be constituted under the chairmanship of the director general of income tax, with the task of providing recommendations by may31 for formatting the rules and guidelines to implement GAAR provisions.
  • FM proposed to reduce long term capital gains tax on private equity firms on the sole of unlisted securities to 10%, from 20% currently and bring the tax rate in line with what is changed from foreign portfolio investors.
  • The Finance Minister also proposed to cut the withholding tax to 5% from 20% currently on funding through foreign loans for “All businesses”. The budget in mid march had proposed a lower withholding tax for some sectors.
  •  Fm proposed to extend the tax exemption on long –term capital gains related to the sole of unlisted securities in an initial public offering (IPO). The levy of the securities transactions tax would be lowered at the rate of 0.2% on the sole of unlisted securities.
  • Finance Minister Pranab Mukherjee proposed to defer the rollout of GAAR by a year to provide more time to both tax payers and tax office.

The lack of details and the sudden onset of the provisions have been among the factors that have upset foreign investors.

On 28th June night the finance ministry released the guidelines and rules of GAAR.

Guidelines and rules of GAAR:

  • *        On the proposed retrospective amendment in tax rules, the changes will not override the provisions of double tax avoidance treaties India has with 82 countries.
  • *        The retroactive changes will only impact those cases where a deal has been routed through low tax and no tax countries with which India does not have tax treaties.
  • *        The proposed retrospective changes in tax rules will not be used to reopen cases where assessment orders have already been finalized.
  • *        The finance ministry committee stated that non-resident investor of FII ‘s will be exempt from the rules , and also called for monetary threshold from which GAAR will be implemented.
  • *        FII’s not opted for treaty benefits and ready to pay taxes will not come under GAAR, but those who do opt for dual taxation avoidance agreements will come under its purview.
  • *        Investors coming via Mauritius and Singapore may breathe easy as the provisions of the GAAR may not apply to their transactions.
  • *        GAAR may not be involved in case of treaties with some countries where there is Limitation of Benefits(LOB) clause, such as India-Singapore double taxation avoidance agreement.
  • *        The LOB provisions limit the residents, who may be granted treaty benefits and thus prevent treaty shopping practices.
  • *        If you are incurring expenditure in Singapore, we believe you are a genuine resident of that country.
  • *        FII’s such as P-note holders or pooled funds , would not be required to pay any tax in India on capital gains on sole of Indian assets, even if they were routing their investments through low tax jurisdictions to claim treaty benefits.

Friday, 22 June 2012

FEMA(Foreign Exchange Management act)

It is necessary to keep adequate amount of foreign exchange reserves, especially when India has to go in for imports of certain goods.
FDI plays an important role in the long term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology,strengthening infrastructure raising productivity and generating new employment opportunities.
In India FDI is seen as a development tool. 

India is the second most important FDI destination after China during 2010-12.

The sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hard ware.

Mauritius,Singapore,US and UK were among the leading source of FDI.

FDI(Foreign Direct Investment): An investment made by a company or entity based in one country, into a company or entity based in another country.
Foreign Direct Investments differ substantially from indirect investments such as portfolio flows, where in overseas institutions invest in equities listed on a nation's stock exchange.
Entities making Direct Investments typically have a significant degree of influence and control over the company into which the investment is made.
Open economies with skilled workforces and good growth aspects tend to attract larger amount of foreign direct investment.

Both FDI and Portfolio investment scheme have been protected through the FEMA (Foreign Exchange Management Act)
FEMA replaced foreign exchange regulation act and is passed in the winter session of parliament in 1999.
FEMA has brought a new management regime of foreign exchange consistent with the emerging frame work of the world trade organization(WTO).

The main features of this act is
1.Activities such as paymets made to any person outside India(or)receipts from them along with the deal in foreign securities and foreign exchange is restricted.
It is FEMA that gives the central government the power to impose the restrictions.

2. Restrictions are imposed on people living in India who carry out transactions in Foreign Exchange, Foreign Security or who own or hold immovable property abroad.

3. Without general or specific permission of the RBI, FEMA restricts the transactions involving foreign exchange or foreign security and payments from out side the country to India . The transactions should be made only through an authorized person.

4.Deals in Foreign Exchange under the current account by an authorized person can be restricted by the central Government , based on public interest.

5.People living in India will be permitted to carry out transactions in Foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India or when it was inherited to him/her by some one living outside India.

6. Exports are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly . RBI may ask the exporters to comply to its necessary requirement.

Monday, 11 June 2012

Market Participants( who's mood can change the direction of Share market)

There is no certain direction to our Indian market. There are many factors that influencing our market. Inflation, rupee depreciation, GDP, fiscal deficit, IIP etc. all these are depending on the political views and also depending on the mood of the main market participants including individual retail investors, Institutional investors.

Institutional Investors:

Institutional investors such as mutual funds,banks,insurance companies and hedge funds and also publicly traded corporations are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets.

Foreign Investors:

FII(Foreign Institutional Investors),Non resident Indians(NRI's) and persons of Indian origin(PIO's) are allowed to invest in the primary and secondary capital markets in India through the Portfolio Investment Scheme(PIS) .
FDI (Foreign Direct Investment) plays an important role in the long term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure,raising productivity and generating new employment opportunities.
FDI also has an important role in enhancing exports.
In India FDI is seen as a development tool.

So we must encourage foreign investors to invest in our market.

Friday, 18 May 2012

Fundamental Analysis of a Company

Fundamental Analysis the cornerstone of investing.
Fundamental factors can be grouped into two categories.

1.Quantitative Analysis
Quantitative analysis is capable of being measured or expressed in numerical terms. The biggest source of quantitative date is the financial statements. You can measure revenue ,profit,assets and more with great precision.
I have already posted about financial statements

 2.Qualitative Analysis
Qualitative Analysis is related to or based on the quality or character of something.Qualitative fundamentals are the less tangible factors surrounding a business, Things such as the quality of a company's board members and executives,its brand-name recognition patents or proprietary technology.

 Neither qualitative nor quantitative analysis is inherently better than the other. 
Take the coca-cola company for example. When examining its stock, an analyst might look at the stocks annual dividend payouts,earnings per share, P/E ratio and many other quantitative factors. However, no analysis of coca-cola would be complete without taking into account its brand recognition.

Wednesday, 16 May 2012

Allocation to agricuture enhanced in The budget 2012-13

11.Allocation to agriculture enhanced:
RKVY gets Rs 9,217 crore
BGREI gets Rs 1,000 crore
Rs 2242 crore project to improve dairy productivity
Rs 500 crore for coastal aquaculture.

What is RKVY?

Rastriya Krishi Vikas Yojana(RKVY) is a state plan scheme. RKVY funds would be provided to the state as 100% grant by the central government. The states are required to prepare the agriculture plans for the districts and the planning commission and the ministry of agriculture will together examine the states overall plan proposals. Once a state become eligible for the RKVY the process of subsequent allocation to the state will be in accordance with the parameters and the respective weights.

What is BGREI?

Bringing Green Revolution to Eastern India(BGREI) is a sub scheme of the RKVYU in the eastern region including Assam,Bihar,Chattisgarh, Jharkhand,Orissa,Eastern Utter Pradesh and West Bengal.
Eastern region hitherto known as food deficit region, has with the help of the program turned food surplus region..
The program gained momentum in 2011-12 with the focus on rice and wheat only and strategic interventions to crop production, water harvesting and recycling, asset building and state specific activities.

Monday, 16 April 2012

Detailed Union budget 2012-13(4)

7.Rajiv Gandhi Equity Saving Scheme:To allow income tax deduction to retail investors on investing in equities.

The government has introduced a tax exemption scheme for equity markets. Currently , short term capital gains tax is levied at 15% on all listed securities and units of equity-oriented funds. 
Under this Scheme , a 50% deduction on short term capital gains tax will be allowed for new investors in the equity market upto an annual investment limit of Rs.50,000 means if equity shares or units of equity-oriented funds are held for less than 12 months, deduction of 50% of gains will be allowed and the balance will be taxed at gradual rates of 5%,10% and 15% depending on the income of the assessee...
Tax payers with an income of up to Rs.10 lakhs per annum will be eligible for it.
Just like ELSS, your money will be locked in for three years.
Further clarification is needed on how the government will ensure that your equity investments are locked -in for three years and whether premature redemptions will be allowed under special circumstances or not.

8.Rs.15,888 crore to be provided for capitalization of public sector banks and financial institutions.

 On 15 November 2011, the combined market capitalization of the 24 public sector banks was Rs.311877 crore. As against this the market capitalization of 14 private banks was 32,1613 crore.
This is a reversal of the position at the beginning of 2011. As on 1 April 2011 the total market-cap of Government owned banks was Rs.439600 crore much higher than the Rs.374218 crore for private banks.
There exists larger social burden on the public sector banks because of which they have had to restructure large loans and NPAs.

9.A central "Know you customer" depository to be developed.

Know Your Customer policies are becoming increasingly important globally to prevent identity theft, financial fraud,money laundering and terrorist financing.
KYC procedures also enable banks to know/understand their customers and their financial dealings better .

Banks should frame their KYC policies incorporating the following four key elements.

1.Customer Acceptance Policy(CAP)
2.Customer Identification Procedures(CIP)
3.Monitoring of Transactions
4. Risk Management.
Remaining habitations to be covered
To be extended to more habitations
Ultra small branches to be set up in Swabhimaan habitations.

Swabhimaan is a banking project launched to bring banking services to vast un banked rural areas in the country. 
It was launched on 9th February 2010. The government has set a target of covering 73,000 new habitations, with population of 2000 and above under the banking services by March 2012.

Tuesday, 10 April 2012

Detailed Union budget 2012-13(3)

5.Rs.30,000crore to be raised through disinvestment.

Disinvestment: Disinvestment is an action of government
Selling or liquidating an asset or subsidiary
The decision of a company not to fill up again the reduced numbers of capital goods.

6.Efforts to reach broad based consensus on FDI (Foreign Direct Investment) in multi-brand retail.

What is FDI?

FDI is direct investment by a company in production located in another country.It may be either by buying a company in the country(or) by expanding operations of an existing business in the country.
India is the second most important FDI destination after China during 2010-12. The sectors which attracted higher inflows were services,telecommunication, construction activities and computer software and hardware.
Mauritius,Singapore, The US and the UK were among the leading sources of FDI.

The world's largest retailer Walmart has termed India's decision to allow 51%. FDI in multi-brand retail as a first important step.However this decision of the Government is currently under suspension due to opposition from multiple political quarters.
FDI provides an inflow of foreign capital and funds,investment in addition to an increase in the transfer of skills,technology and job opportunities...


Tuesday, 20 March 2012

Detailed Union Budget 2012-13(2)

3.Central subsidies to be kept under 2% of GDP to be further brought to 1.75% of GDP over the next 3 years.

The reforms program initiated in 1991 aimed at, among other things,reducing fiscal imbalances and improving allocative efficiency by minimizing the distortions in relative prices.
Subsidies are an important element of reforms.

The main objectives of subsidies are

1.Remove economic distortions , there by improving economic efficiency and growth.
2. Achieve redistributive objective
3.Reduce budgetary burden and release precious resources .
4.Improve the environment by realigning the incentive structure to favor environmentally sound practices.
Subsidies are different from transfer payments. 

Subsidies are categorized in two types.

1.Economic Subsidies:
     Agriculture &cooperation
     Irrigation & food control
     Power & energy
     Communication & others.
2.Social Subsidies:
     Water supply & sanitation
     Rural housing and others.

Economic Sector subsidies are nearly 5 1/2 times as large as that of the Social Sector

There are 6 types of Subsidies.

1. Cash subsidies: providing food or fertilizer to consumer at lower price
2.Interest or credit subsidies
3.Tax subsidies
4.In kind subsidies
5.Procurement subsidies
6.Regulatory subsidies. 

4.Proposed :Mobile based fertilizer management system; LPG transparency portal;scaling up and rolling out of Aadhaar enabled payment for Government schemes in at least 50 districts.

Mobile Based Fertilizer Management System:

The MFMS has been designed to provide all the information on fertilizers and subsidies. The system will be rolled out during 2012 and will benefit 120 million farmer families.
It will allow the government to set up a mechanism for directly transferring subsidies to the farmers across the country.
Direct transfer of subsidies to the retailer and eventually the farmer will be implemented in subsequent phases. This benefit 12 crore farmers, while reducing the leakages and expenditure on subsidies by curtailing the misuse of fertilizer.
LPG Transparency Portal:

Transparency portal is aimed at providing the citizens of India the information on the number of HP Gas consumers(distributors wise) and the number of refills consumed by HP Gas consumers 
Domestic LPG is a subsidized commodity and the subsidy is borne by the Government and the oil marketing companies
The portal aims at proving information on the consumers who are enjoying this subsidy and their consumption of HP gas domestic LPG cylinders.

Aadhaar enabled payments for government schemes:

APB is a repository of Aadhaar number of residents and their primary bank account number used for receiving all social security and entitlement payments from various government agencies.
This would weed out all fakes and ghosts from the system and ensure that the benefits reach the intended beneficiaries.


Sunday, 18 March 2012

Detailed Union Budget 2012-13

1.GDP growth to be 7.6% during 2012-13.

What is GDP?

2. Amendment to the FRBM(Fiscal Responsibility and Budget Management) act proposed as part of finance bill. 

The main features of this act are

1.Effective Revenue Deficit 
2.Medium term Expenditure Frame work.

What is FRBM Act?

FRBM( Fiscal Responsibility and Budget Management) was introduced in India by the then Finance Minister of India , Mr.Yashwant Sinha in December 2000.
The main purpose was to eliminate revenue deficit.

The main objects of the act were 

1. To introduce transparent fiscal management system in the country.
2.To introduce more equitable and manageable distribution of the country's debts over the years.
To aim for fiscal stability for India in the long run.

The main rules of the act were

1. The central Government shall not borrow from the RBI(Reserve Bank of India) except under exceptional circumstances where there is temporary shortage of cash in particular financial year.
2. It also prevent RBI from trading in the Primary market for government securities.
3.It restricted RBI to the trading of government securities in the secondary market after April ,2005.

The main failure point is

The rules of this act were unfavorable since it might require the government to cut back on social Expenditure necessary to create productive assets and general up liftment of rural poor of India.  The sudden fancy of monsoon in India,The social dependence on agriculture and over optimistic projections of the task force in charge of developing the targets.
Effective Revenue Deficit: It is the difference between revenue deficit and growth for creation of capital assets.This will help in reducing consumptive component of revenue deficit and create space for increased capital spending.

Medium Term Expenditure Frame work: It sets forth a three year rolling target for expenditure indicators.

Implementation of this act at cent re and the corresponding acts at state level was the pivot in the successful consolidation of fiscal balance prior to the global financial crisis of 2008

continued .....