Sunday, November 8, 2009



I had given an advise to an NRI in the month of April. I thought there is something for you to learn from that advise. Here goes......

Mr.S Parekh asked :

Dear Sir,

I am a retired Gulf NRI aged 59 years.
A NRO deposit of 6L is maturing in the next month. Can any of you guide me as to where and how i should invest this as I am not interested in renewing this FD further due to TDS of 31%
I have following investments other than this.
NRO fix deposit 11L
Equity diversified funds 10L
Income, gilt, debt and arbitrage funds 32L
A flat in Mumbai worth 60L for personal use.
Monthly income is not required for another 2 years.
S Parekh

Dear S Parekh,
as the money `ll come to u in the month of may, By that time, the NCD of recently closed TATA NCD issue `ll be listed on BSE. Thru ur Demat acct. u can purchase these NCDs from BSE. As ur time frame is limited to next 2 years, plz. purchase only cumulative option NCD. U can liquidate ur money from these NCDs any time by selling back on BSE. Even after 2 years, if u don`t need money, for taxation purpose, my advise is to liquidate these NCDs just 15 days before the completion of 3 years. the gains `ll be treated as LTCG & same `ll be taxed @ 10.3% without indexation or 20.6% with indexation. The coupon rate for these cumulative option NCDs is 12%, hence post tax ur returns `ll be around 10% (while selling ur NCDs on market, some discount `ll be there, that`s why the effective rate of return to u `ll be 10% post discount & post taxation).

Another option is to invest in Nabard Bhavishya Nirmaan Bonds (BNB) again these r also listed on BSE but here post tax yield `ll be around 7.5%.

However, the caveat is, that by May, it is expected that Interest Rates in the market would drop a lot. That means the market value of Bonds would have risen to effectively reduce the yield. In 2 years, if the interest Rates are back up, your Bonds will be worth much less. If so, you actually won`t get the 10% return calculated at coupon rates if you buy the Bonds from the market after further Interest Rate reductions.
At the same time, the Equity markets would also probably be at lower levels by then, and will hold a good prospect of giving good returns over the next 2 years as the global economy recovers (or at least as the panic gripping it now recedes).
Besides, your percentage investment in the Equities is quite low compared to Debt, even for your lifestage, under these market conditions and prospects.
So, you would be better off investing the lumpsum money arriving in May 09, into select equities or equity funds. Shares of essential goods/services suppliers, and infrastructure support companies should be pretty safe bets at those levels.

One more suggestion
ICICI bank has a new FD which takes into account the Double Taxation Avoidance Agreement and under this new NRO FD you pay 12.5% tax and not 31%. If you have ICICI NRE account, then simply go for this.
But the best option would be to invest at least 50% of your Deposit in a Debt Fund and go for a Systematic Transfer Plan into Good Large Cap Funds like HDFC Top 200 fund, DSPBR Top 100 Fund, etc.
Best of luck,
Srikanth Shankar Matrubai

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    Mr. srikanth you have done good job by creating this blog which will benefit many investors and bring awareness among investing comunity about new products & schmens in the market

  2. Dear Srikanth, I read ur articles. Really useful. Actually now I am planning to invest in some tax saver mutual fund scheme (Sundaram Baribas) an amount of Rs.10000/-. If I am buying it, it will be my first mutual fund investment. My doubt is - whether is this correct time to invest? Market is at it's all time high. Also advice me on my fund selection. If I have to wait for - when I can invest?

  3. Dear Thooli,
    There is never a bad time or a good time to invest. Every time is a good time. Only thing is you have to have a long term view.
    If you had invested even in the peak of 21000 in 2008 and now when the market is sub20000, still you would have made a neat profit of 33%, if you had invested in the funds recommended by me...

    Srikanth Matrubai


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