Friday, December 10, 2010

Stock Picks for 13th Dec 2010

With the correction of banking sector, its good time to buy some banking sector stocks now.

Buy Yes Bank @ 290/-
Target 370/- in 3-4 months.

Yes Bank is performing well with a steady growth of ~50% YoY.

Buy Vijaya Bank @ 90/-
Target 115/- in 4-6 months.

Thursday, December 9, 2010

Hot IPOs for this Quarter

One of the easy & less risky way to make money is to invest in IPO. Well, not all companies might give you profits, but investing in a public sector, Govt. of India undertaking or state govt owned companies will definitely give you profits. You should be very lucky to get the allotment though. It depends on the size of the IPO & the past performance of the company. People got good number of stocks allotted in Coal India, that was only because the size of IPO was huge & the employee reservation was subscribed less than 0.5, I am talking here about the retail investors. Also most of the Govt. companies IPO pricing for the retail will be at 5% discount, hence you gain an additional profit of 5%. Recently the retail investor's limit has also been hiked from 1L to 2L.

With the 40,000 crore disinvestment target by the Govt. for this fiscal, the major upcoming IPO/FPOs are as follows

Oil & Natural Gas Corporation (ONGC) : FPO : Expected to be in mid Feb 2011
Steel Authority of India Ltd. (SAIL) : FPO : Expected to be in Jan/Feb 2011
Hinustan Copper : FPO : Expected to be in March 2011

Punjab & Sind Bank : IPO : Issue date: 13th Dec to 16 Dec

Indian Oil Corporation (IOC) : FPO : Earlier it was expected to be in Jan 2011, but now slipped to the next Fiscal

Thursday, September 9, 2010

Home/Housing Loan Selection: What to Look for? Types of Home Loans

In this blog I'll help the readers of this blog on how to select thehome loan finance company, what are the points to look for, how & what to negotiate, ...

Home Loan can be taken for construction / purchase / repairs / additions / renovations of residential house / flat including the purchase of land and construction thereon. Home loan is kind of a benefit where you can get tax exemption for the interest & principal components. More info regarding this tax benefit can be found in this post -> "Home Loan, Tax Benefit & HRA Explained"

Home Loan are of 2 types, fixed & floating.
In Fixed, your rate of interest is locked for few years. So even if there is any change in the RBI rates, your interest rate won't change. Good right :) But for Fixed, the rate of interest will be very high. So good time to take a fixed home loan is when the home loan rates are really low. Like for Ex, if you get a deal of 7.5-8.5% then fixed is good.
In Floating, your rate of interest keep changing when there is a change in the RBI's rate of interest. Go for this when the interest rates are high.

Home Loan is provided by the Nationalized & Private Banks, I would strongly advise the customer to take a home loan in a nationalized bank rather than private banks.

Advantages of Nationalized Banks:
* Quick change in the interest rates to customers when there is a Change in RBI interest rates
* Loan would be approved only if there is no litigation & legally clear on all documents, so this would help you to check if the property has legally all clear documents.
* No hidden charges, all fees are transparent to customers.

Disadvantages of Nationalized Banks:
* Getting the loan approved is a tedious job
* Loan amount sanctioned would not be sufficient for your project
* Only 75-85% of the total construction/purchase amount will be sanctioned, the rest 15-25% depending on the loan amount & banks, you need to take care of yourself
* Most of the nationalized banks give loan only for 50% of your monthly net pay as EMI. That is if your monthly net pay is 40,000/- then you can get a loan with EMI of 20,000/- max
* Online facility is not available in most of the nationalized banks
* Customer service is not so great

Points you need to look for before selecting the banks:
* Interest rate: Always negotiate maximum possible for the interest rate. This negotiated rate remains until loan completion. Generally every bank have their own PLR (Prime Lending Rate) here its the HPLR (Home Loan PLR). This HPLR keeps changing based on RBI's rate change. So when you negotiate they will set a value 'x' with respect to HPLR, this value 'x' can differ from person to person, that is why you need to negotiate this.
Ex: If the current HPLR of a bank is 13% & you negotiate with the bank for 10%, then your 'x' value is 3, so if there is any change in HPLR due to RBI's rate change then your rate will change with 'x' value. If HPLR is decresed to 12% then your new rate of interest will be 9%

* Processing fee: In some banks its 0.5% & in some banks its a fixed value. Try to negotiate this value also. Generally they waive off this amount, atleast some amount if not fully.

* Prepayment Clause: Prepayment is if you have some money then you can pay that extra money to the bank & this amount will be directly deducted from your principal amount. Generally some banks have a restriction of only 2 prepayment in a year, some fine you need to pay if you do a prepayment, some banks will have min 3 EMI amount if at all your want to do prepayment. Nationalized banks generally don't have any clauses for prepayment. Its better not to have any clause for this.

* Foreclosure Clause/Fine: If you want to close a loan, then some banks will attract a fine of 2% of remaining principal amount, some banks will have only 80% preclosure can be done, ...

* Any hidden charges:

* Loan Insurance: Some banks will give you free insurance for the loan, but generally not many banks give this facility.

* Past History: How good is the bank with the customers, customer reviews, talk to existing customers.

Wednesday, September 1, 2010

What is Repo rate, Reverse repo rate, CRR, SLR & PLR

Repo Rate:

In simple terms, repo rate is the rate at which the central bank of a country lends money to the banks. In the Indian Banking context repo rate is the rate at which Reserve Bank of India (RBI) lends money to the Indian Banks.

A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. It is also a financial & economic tool in the hands of government to control the availability of money supply in the market by altering the repo rate from time to time.

For Ex. The current repo rate is 5.5%
If RBI increases the repo rate by 50 basis points, then the new repo rate will be 6.0%

Reverse Repo Rate:

This is exactly the reverse of the repo rate, i.e. the rate at which the central bank borrows money from the banks. In the Indian banking context its the rate at which the RBI borrows money from the Indian Banks.

The reverse repo rate will/should always be less than repo rate.
The current reverse repo rate is 4.0%

For the current rates you can check the RBI website

CRR (Cash Reserve Ratio) :

Its the ratio of total deposits of all the public sector bank that should be kept with RBI. RBI regulates all these banks & also decides the rates & ratios like Repo Rate, Reverse Repo Rate, Bank Rate, CRR, SLR to control the money supply in the banking sector. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

For the current CRR you can check the RBI website

SLR (Statutory Liquidity Ratio) :

Its the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

For the current SLR you can check the RBI website

PLR (Prime Lending Rate):

PLR is the rate at which the commercial banks charges to their best & most credit-worthy customers though this is not always the case. The rate is determined by the RBI's decision to raise or lower prevailing interest rates for short-term borrowing. Though some banks charge their best customers more and some less than the official prime rate, the rate tends to become standard across the banking industry when a major bank moves its prime up or down. Many consumer loans, such as home loan, car loan, personal loans, are tied to the PLR.

For the current PLR you can check the RBI website

Tuesday, August 31, 2010

Review of Online Trading Accounts

Review on Trading/Demat Accounts:

What do you need to look for before opening Trading Account

* What is the brokerage, account opening & yearly service fee.
* What is the margin and delivery trading charges
* How much times of the buying power you can trade for margin trading
* How good is the port folio tracker?
* What’s the time-interval for auto-refreshing of live stock price applet/screen?
* Are you able to login into your account at peak hours like 9:55 am?
* Can you apply for IPOs online through your account?
* Ease of usage, how fast is the website, website downtime
* Does it have tieup with your savings bank account
* Is research data & daily/weekly stock tips available?
* Can you place the order offline

Here are reviews of few Brokerage companies:

ICICI Direct:
Brokerage: Very high -> 0.8 - 1%
Website: Decent, supported by most of the browsers, fast, less down time
Portfolio Tracker: Awesome
Portfolio tracker is good, research data is also good.
iclick to gain & iclick to invest are good stock tips in ICICI Cirect.
It has good features like IPO order placement, F & O, Postal, Mutual Fund order placement,
offline order placement ...
High Brokerage & service fee.

It works out very well if we have your salary savings bank account with ICICI

India Bulls:
Brokerage: Medium -> 0.3 - 0.5% (Negotiable)
Website: Good, fast
Portfolio Tracker: OK
Low brokerage, website fast
Good research data
Portfolio tracker poor

Overall its good.

Reliance Money:
Brokerage: Low
Website: Bad, most of the time down, not compatible with many browsers
Portfolio Tracker: Not so good
Low brokerage & service fee
Website most of the times down, not supported by many browsers
No good customer service
Portfolio tracker not so great
No tieups with many banks

Overall its not so good

HDFC Securities:
Brokerage: Medium -> 0.5%
Website: OK, Some times Site is in accessible during peak hours
Low brokerage.
Website is fast.
Lack of research data.
Telebroking numbers have too few extensions, so they are impossible to reach during peak times.
Customer service is not so good.
Offline order placement is not available

Its good if you have your savings account in HDFC.

Motilal Oswal:
Brokerage: Low -> 0.3% delivery & 0.03% margin
Website: Good, fast
Portfolio Tracker: Good
Low brokerage.
Website is decent.
Portfolio tracker is OK

Overall its very good

Kotak Securities:
Brokerage: Medium -> 0.6%
Website: Good
Portfolio Tracker: Good, Tax calculation is available
Portfolio trackes is good.
Multiday order placement.
Customer service is good.
Little high brokerage

Brokerage: Medium -> 0.5%
Website: OK
Portfolio Tracker: Poor

Overall its OK.


UI is bad.

Anand Rathi:

Good research
Poor customer service, no online trading facility.

Saturday, August 28, 2010

Home Loan, Tax Benefit & HRA Explained

In this post I am trying to explain the tax benefits for home loan & home loan Vs HRA.
First we will see what are the various tax benefits we can claim from home loan, then we can see what is HRA, tax benefits for HRA & claiming tax benefit for both home loan & HRA
togeather & then FAQ section

When a loan is taken the re-payment
for that is made in to equated monthly installment(EMI). This has 2 components - the principal component & the interest component. During the initial years of the loan tenure, the EMIs would have a higher share of interest component. It would have a higher principal component only towards the end of the loan tenure.

Now as per the
Income Tax Act 1961, you can claim the tax benefit for the above 2 components

You can claim the tax deduction for your principal component under
Section 80C of the Income Tax Act. The limit under Section 80C is Rs 1 lakh. Apart from home loan principal repayments, other investments included are PF, PPF, ELSS, ULIP, LIC premium, ... Plz read my other post
Investment for Tax Savings under Section 80C" for more details on Section 80C
Ex: Suppose person X's taxable income is 5 lakhs, the principal component of the EMI that he repaid to the lender for that financial year comes to around Rs 60,000, then he can directly deduct the principal amount from his taxable income, i.e. 5,00,000 - 60,000 =4,40,000 is his taxable income.

The other part i.e. the interest component you can claim under
Section 24 of the Income Tax Act. Under this section the max amount of interest that can be deducted from your taxable income is Rs 1.5 lakhs. This limit is for the self occupied property only, however there is no limit for the property which is rented out.
Ex: Now if the person X has repaid Rs 1.8 lakhs towards the interest component of the home loan for self occupied property, since there is alimit of Rs 1.5 lakhs, he can deduct this amount from his taxable income, i.e. Rs 4.4 lakhs minus Rs 1.5 lakhs, i.e. Rs 2.9 lakhs is histaxable income.

Now lets see what is
HRA - House Rent Allowance. HRA is a component of your salary package and is given by an employer to an employee for the sole purpose of meeting the cost of renting a home. An HRA allowance is allowed to any person who is staying in a rented property and the rent should exceed 10% of the basic salary. But if one is serving a home loan then is he eligible for the HRA benefit is an important concept that we will see now ...

1. Living in your own home

If you have taken a home loan to purchase the house you are residing in then you are not entitled for the HRA benefit since you are not residing on a rented property. However tax benefits on principal repayment and interest payments
can be availed by the person.

2. Home possession in another city

For instance you have a house in one city for which you have taken a home loan and you reside in another city due to work or similar reasons, then you are eligible to avail all the benefits including HRA, tax benefits on principal repayment of home loan and tax benefit on interest payments of home loan.

3. Home not ready for use

Let us say that you have a home in one city for which you have taken a home loan and you are residing on a rented property in the same city because your home is not ready for use, then in such a case you are entitled to both tax benefits on principal repayment and interest payment on home loans as well as the HRA benefit. However the claim of tax benefits on home loans can be made only when the home is ready for use in that financial year and once the home is ready to live, the HRA benefit stops.

4. Home not fit to reside

Suppose you take a home loan to buy a house and it is also ready for use but somehow you are unable to reside in it due to genuine reasons like the home is at a considerable distance from your work place. Therefore you take a rented house near the office, so under such a situation also all the benefits can be availed by the individual. However your employer might deny giving an HRA benefit since both houses are in the same city.

5. House given on rent

There may be a situation that you have got the house for which you had taken the home loan but instead of using it yourself, you have rented it out and you continue
to reside on a rented house then you can claim all the tax benefits and the HRA. But it should be noted that rent received by you is considered as your taxable income.

Few points to be considered while computing the tax
  • Home loan Tax benefits can be claimed only from the financial year when the acquisition/construction is completed.
  • Only the person who has taken the loan & only if theproperty is in his name will be eligible for Tax rebate


1. A person avails deductions allowed under Section 24 in respect of his self-occupied house property and he takes an additional loan for extension/addition to the same house;
can he claim benefits from the interest deduction on the additional loan taken?

The maximum deduction permissible in a financial year for the original loan (if any) plus for any additional loans taken is Rs 150,000.

Hence, if the person's deductions on the existing loan are less
than Rs 150,000, then he can claim further benefits from the additional loan taken, subject to the upper limit of Rs 150,000 for a financial year.

2. I took a home loan in November 2006. The house is under construction and will be ready for possession only by January 2009. I have made the full payment to the builder and taken the entire loan amount at one go. As a result, I have already started paying the EMI instead of the pre-EMIs.
Can I avail of the tax benefits?

In your case, tax benefits for the loan repayment will first be available only in respect to the financial year ending March 31, 2009 (assuming, of course, that the construction is indeed completed by March 31, 2009).

In 2009, you will be eligible for the entire interest payable then (ie from April 1, 2008, onwards), plus 1/5th of the interest payable from the date of disbursement till March 31, 2008.

If the property is self-occupied, the deduction will be limited to a maximum of Rs 150,000 per year.

The deduction for the principal amount repaid will begin from the financial year ending March 31, 2009. No tax benefit is available for the principal repaid before March 31, 2008, and this benefit is lost forever.

3. If the house is in the name of two people (say spouses) and both are co-applicants for the home loan, can the amount of principal repaid and interest paid be split between the two? In what proportion is it done? Is it always 50:50?

The tax benefits for loan repayments will be split in the ratio of the share in the home loan.

Let's say the joint owners and co-borrowers are the spouses.

Cost of the apartment: Rs 1,00,00,000 (Rs 10 million)
Ownership share: 60% (husband), 40% (wife)
Loan: Rs 60,00,000 (Rs 6 million)

Amount to be brought in by husband: Rs. 60,00,000
Less actual contribution by husband: Rs 20,00,000 (Rs 2 million)
Husband's share in the loan: Rs 40,00,000 (Rs 4 million)

Amount to be brought in by wife: Rs 40,00,000
Less actual contribution by wife: Rs 20,00,000
Wife's share in the loan: Rs 20,00,000

The maximum limit of Rs 150,000 on interest paid will apply individually to both of you (ie the total deduction will be limited to Rs 300,000). Check explanations to
Section 26 as well as section 23 (2) and section 24 (b).

The tax benefits will be shared in the ratio of 2:1 for husband and wife since that is the share of the loan for husband and wife.

If a person were to buy a house on a loan, and sell it within (a) the same year (b) after 3 years, what will be the tax implications of the same?

If a person buys a house and sells it within the same year/after 3 years, and if any profit is made, then a capital gains liability arises on the same.

Let us take an example to better understand the same. Suppose you purchase a house for Rs 500,000 by taking a loan and sell it in the same year for Rs 700,000; then you make a profit of Rs 200,000.

On this profit, you will be liable to pay short-term capital gains tax since the sale took place in the same year. But if the sale takes place after 3 years, then a long-term capital gains liability will arise.

The long-term capital gains liability can be avoided by investing the profit amount (after factoring in the indexation benefits) in capital gains bonds or by investing in a house property as specified under Section 54.

The above information
I have gathered from different trusted websites & magazines & put them togeather after consolidating. There could be mistakes & I might have missed few points, plz feel free to post a comment so that I can update the post with right info. Also if you have any queries regarding home loan, tax benefit for home loan, HRA & related stuff, plz post a comment. I'll update the FAQ section accordingly.

Friday, August 27, 2010

Investment Tips for Beginners

With the experience I have gained so far in the stock market investments, I thought of sharing this small information on the investment tips which would help the beginners to start with in stock market investments.

Well, to start with let me give few basic beginners tips for investment in Stock Market.

* Investing in Stocks is not Gambling
- You need to study well about the company before you invest in that stock
- Look at the financials of the company, check the quarter results (net income, net sales, profit, loss)
- Look at their expansion plans, check out the history of the company, past performance
- Analyze the stock price for the past period.

* Diversify your investments
- Don't put all your money in one single company
- Try to put your money in different category of companies like Petroleum, Banking/Finance, Real Estate, Automobile, FMCG, Engineering, Power, ...

* Have patience, don't panic
- If the stock which you invested is going down, don't panic & book loss
- Again check the latest news about the company, if the company is not doing well in the short period due to some reason, then leave it for a long term.
- If the company is really good, then you get good returns in the long run.
- I always prefer investing long term, atleast 10-12 months.
- Investors that are quick to panic often end-up buying high and selling low

* Don't be too Greedy
- There is a saying "bulls make money, bears make money, hogs get slaughtered."
- Book profits when your targeted profits reach

* Price of the stock is not important
- Don't think that if the stock value is less then it gives big returns & if the stock value is more it gives less returns
- Always check the price earning ratio P/E ration.

* Don't keep any emotional attachment with the stock
- Don't love the stock
- If you have already earned the profit which you expected, then book the profits & move on to next.

* Investing longterm Vs Short term
- Short term investment, makes you greedy & believe me you end up in loss if you do frequent short term tradings.
- Disadvantages of short term -> No tax benefit, end up paying more brokerage charges