Widget, widget on the wall, Which is the Best Investment of all?

Finally the tool to compare investment options is here.

Its configured for Indian Tax Rates for FY 2017 -2018 and works pretty accurately – I tried to test as much as I could but feel free to point issues if you find some.

To use the tool simply input your Investment amount and the Total income before this investment. That will calculate your tax bracket.

Then choose the category of investment and input your expected rate of return and the tool will give you the comparative pre and post tax earnings.

Its that simple!

For applicable tax rates refer to – Capital Gains tax for NRIs- It’s not that simple

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Another Demonetization Coming?

The money changers in Arcade, Raffles place are again offering a rate better than the spot rate. The current spot is 47.20 and you could get 47.75 with the money changers.

Again the notes are all legit and there is nothing wrong that I could find.

Last time this happened, it was in October 2016 and the 1000 and 500 Rupee Notes were Demonetised in on 8th November 2017 (https://adityaladia.com/2016/10/11/cash-rate-of-inr-better-than-spot-in-arcade/)

I could not help but wonder if 2000 Rupee notes will soon be withdrawn and prove the rumours correct. If that happens where will Indian GDP go is anybody’s guess but till then if you are visiting to India then exchanging money in Singapore and carrying back is a profitable bet.

Capital Gains tax for NRIs- It’s not that simple

As an NRI, you would have wondered many times, what parts of your Indian Income are taxable and what are not and trust me you are not alone.

Under the Indian Income tax act, the tax rates, deductions from income, exemptions from taxation all change depending on the nature of income and residential status of the individual. With the ever changing tax provisions, even if you searched online the chances of finding the information you are looking for would not be easy and filtering out the tax provisions that are applicable to an NRI is even more difficult.

Not being able to find consolidated tax provisions on common investments used by NRI’s I decided to compile the information myself and hope that fellow NRI’s will find it useful.

NRI’s mostly invest in Fixed Deposits, Bonds, Mutual Funds, Stock and Property which would generally give rise to income under Capital Gains or Other Income (Bank Interest or Dividends) under the Indian Tax laws.

I have tabulated the provisions that an NRI should be aware of for FY 2017-2018 (click on table to open in new window)

nri-capital-gains

 

One of the most interesting things to note is that the basic tax free exemption is not available to an NRI on Equity Investments.  What that means is that if an NRI gained 2,50,000 Rupee by investing in stock market the whole 2,50,000 Rupee is taxable. If these gains are long term (asset held for more than 1 year) then there is no tax liability but for short term gains the tax rate is @ 15%. So an NRI would pay Rs.37,500 in taxes, the income would not attract any tax in hands of a resident Indian.

Another interesting fact to note is that the gains on redemption of Sovereign Gold Bonds are not chargeable to tax if held till maturity.

With difference in tax rules being different in different countries an investor should consider the tax domicile of the investment to maximise returns. In Singapore and Hong Kong the Capital gains, Bank Interest and Dividends are not taxable, however in USA and UK these income are taxable.

For example if an NRI bought a mutual fund in India that returned 20% over a period of 6 months then his gains would be taxed at a flat rate of 15% resulting in a post tax return of 17%. Buying this same fund in Singapore would have been as the gains are tax free and the investor pays no tax.

Similarly for bonds the interest is taxable in India and taxed at the marginal rate based on your income bracket but tax free in Singapore and Hong Kong.

E.g . An NRI whose total income is over Rs. 10 lac (30% tax bracket) buys a bond that pays 9% interest p.a. The post tax yield of this investment would be 6.3% . Add to it the cost of transferring funds to India of around 0.8%, the yield drops to 5.5%. If the plan is to remit the money back to Singapore on maturity, which will cost another 1%, the investment would yield 4.5% only.

These are just 2 examples to get you thinking. There innumerable scenarios that I can come up with based on different countries of residence and each individuals tax profile. All I would like to highlight is that an investor should not underestimate the impact of taxation and ancillary costs while making investment decisions and look at all aspects before making an investment decision.

Watch out for an investment comparison tool that I am working and will post it here very soon. Till then keep reading and sharing.

Indian Rupee – Real star or …

It’s a very interesting phenomenon every time SGD INR falls – people panic and there is a flurry of questions on SGD INR’s future. To me this anxiety is similar to a house owner checking on the market rate of the house they live, every week, and feeling sad if the latest transacted price in the neighborhood went down or celebrating if it goes up. In reality, this is just perceived loss/profit and is irrelevant unless the person is trading in properties and regularly buys and sells them for a living.

Anyway, leaving perceptions aside, lets look at how Indian Rupee has really performed against major currencies in the past 3 years before I turn my focus to SGD INR.

inr-summary

The Rupee has fallen against USD and JPY, against Chinese Yuan and Singapore Dollar its a flatline and the gains against EUR and GBP are not because Rupee has fundamental strength against them but because the 2 currencies have weakened due to their own issue – ECB monetary stimulus and Brexit vote respectively.

Also worth highlighting is Rupee’s inherent volatility where it went from 68/69 against the US dollar in Aug 2013 to 58 around Election time in 2014 and is back up at 67 mark – all in a matter of 3 years (refer comparative 1, 2 and 3 year charts at the end)

There is no doubt that the Rupee has been pretty stable in the past few months and the RBI has done a fantastic job of curbing the volatility in the face of BREXIT, expected US fed rate rise, Increasing Oil Prices,Redemption of FCNR deposits and escalating tensions with Pakistan.

But have the rupee or economic fundamentals changed to much in past few months? -I don’t think so.

India still imports 80% of its crude oil and as oil prices go up they would put a strain on the current account, the goods manufactured in China are still way competitive both in terms of cost and quality (maybe that’s why rupee is following the Yuan trajectory) and the NPA situation with Indian banks is still worrisome and could result in market turmoil.

Investing in NRE FD’s has generated stable returns depending on when one invested, refer – (https://adityaladia.com/2016/02/11/you-would-be-out-of-money-80-of-days-if-you-transferred-money-to-india-in-2015/) and would slowly stop being an attractive avenue as the interest rates in India go down.

Now coming to SGD INR, the current weakness is mostly due to flurry of bad news (or expectation management as I call it) on the economic and employment front. I have always maintained that the MAS is pro-active and lets the SGD adjust quicker to the market events as compared to what RBI allows or can allow with the INR.

All the expected or known negatives are already priced into Singapore Dollar and any other movement would be due to fed rate decisions. Even after the news of GDP missing estimates the SGD only fell around 1% which is very normal in the current volatile markets.

On the other hand there are a lots of factors for the Indian Rupee that needs to be priced in – merger of banks due to NPA’s, challenges for exports due to relatively strong rupee – China and other ASEAN countries, increase in crude oil prices, looming fed rate increase and of-course any escalation on the international borders with Pakistan.

As with the answer to keeping money in Singapore Dollar or remitting to India, the response is unique to every individual depending on their investment portfolio, diversification, cash flows and risk appetite.

48 would act as a very strong support and do factor in the cost of transferring money into India and remitting back, the cost of loan (if you are taking one) and tax obligations if you invest in property or stock markets when making any such decisions and don’t get stuck on specific numbers – transferring money at 49.80 is just as good as transferring at 50.

————————————————————————–
INR performance – past 1 year

inr-1-year

INR performance – past 2 year

inr-2-year

INR performance – past 3 year

inr-3-year

Cash rate of INR better than spot in Arcade

It’s hard to believe but it is true. Some money changers are offering a cash rate of upto 49.80 for 1 sgd in arcade building (raffles place). 

The current spot is around 48.40 which means if you go to these few money changers you gain around 2.5% over spot. 

How they are able to do this is beyond my comprehension but it’s true. I changed some money, checked on notes and everything is legit (atleast to my eyes) 

So if you are looking to change some money for upcoming travels to India then do grab this opportunity. 

IRFC Tax Free Bonds Open Today!!

IRFC (Indian Railway Finance Corporation) Tax Free Bonds have opened today and are probably the last TAX FREE bond issue for the year. There is no provision in the budget for 2016-17 for any tax free bonds and any new issue in the next year is extremely unlikely.

Additionally, this is the only issue in 2016 to date for which NRI’s are eligible.

Salient features:

Issue Date – 10th Mar to 14th Mar

Issue Size – Rs. 2450 Crore, of which 60% is reserved for retail investors ~ 1470 crore rupee

Eligibility – both NRI’s and residents

Coupon Rate – yearly interest rate of 7.29% for its 10-year option and 7.64% for the 15-year option to the retail investors investing less than or equal to Rs. 10 lakh

Rating – AAA from CRISIL, ICRA and CARE

There is a very high likely hood that the issue will get oversubscribed in the Retail segment on day one, anyone looking to invest should make an application today.

The current SGD to INR exchange rate is 48.20 offered by DBS Remit. I just made my application and would be looking for capital gains of appx. 15-20% on these bonds over the next 2 years.

 

Tax Free Bonds: Better than NRE FD’s

image

Yes, you read it right! Tax free bonds are better than NRE Fixed deposits.

After all these years of recommending NRE FD’s as the safest bet for investing in India, I am changing my recommendation to Tax free bonds (in no particular order) by IREDA, NHAI, NABARD, REC and HUDCO.

Lets compare the bonds to the NRE deposit

1. NRE Fixed usually give the highest rate for a lock in of 2 or 3 years and are averaging between 7.8% to 8.2%, which means that the reinvestment on maturity would be at the prevailing interests rates.
2. NRE deposits have a penalty in case of pre mature withdrawal
3. Interest on NRE deposits is tax free

A Tax free bond on the other hand is giving a 7.64% for a period of 15 years (NABARD which opens tomorrow – 9th Mar 2016) in retail category (less than 10 lacs) or half a percent lesser for amounts exceeding 10 lacs.

You must be wondering why am I recommending the bonds when they give lesser interest and are tax free like the NRE FD? The Central Bank interest rates across the world are going down and India has already had a few rate cuts which makes these Bonds attractive. As the interest rates will be reduced the value of these bonds will increase (capital appreciation) . These bonds are more liquid than a FD as they are traded on the stock exchanges which means that one can sell the bond without incurring pre mature withdrawal penalty in case of FD. Further for a slightly lesser interest rate these bonds let you lock in a higher interest rate for next 15 years.

If this has not convinced you then let me tell you the most important reason why I am recommending these bonds – interest on NRE FD’s becomes taxable if a NRI returns to India. Depending on the individual residency criteria in section  6 of the Income Tax of India on return a NRI becomes a Tax Resident in 6 months to 2 years, upon which the NRE accounts are converted to a Resident Rupee Account, which means that any interest that accrues on your NRE account after you become tax resident becomes taxable.

These bonds on the other hand assure tax free income for next 15 years from the date of allotment.

Now the fine print – not all bonds are open to NRI’s for investment, however if you have a resident bank / brokerage account you could use that to apply for these bonds and / or purchase them from open market and benefit from capital gains and long term tax free interest income.

SGD INR crosses 48!

image

The SGD strengthened to 1.4150 against USD overnight and that has pushed SGD INR to 48.02 mark. I am expecting INR to strengthen when the Indian markets open around 11:30 am Singapore time.

If you are looking to transfer money today then the next 2 hours is a good time using DBS Remit. The offered rate is 47.57 and is expected to fall down once the Indian markets open.

Disclaimer: These are my views and not investment/financial advice. I bear no responsibility for any decisions made by readers.

SGD INR stuck in a range?

Its been a few months since I wrote about the pair as most of the discussions were in comments to previous posts, but today’s MAS decision warranted a new post.

There were ripe speculations that MAS is going to ease the monetary policy (which it did) and Singapore is headed for a technical recession. The economy expanded by a modest 0.1% much against the consensus of a contraction of 0.1%. The immediate impact on the exchange rate was a modest gain from 1.4025 overnight to 1.3960 as I write.

One would question that why has SGD strengthened even though the policy has been slightly eased? There are various factors at play:

  1. The expectations of a USD rate increase this year are negligible. I would be surprised if the Fed raised the rates in Dec when the volumes are thin due to holiday season. My personal view is that it was a missed opportunity in Sep and Fed should have increased the rates but that’s a different topic of discussion.
  2. SGD had fallen all the way to 1.43 in anticipation of easing, but recovered slowly over the past week with rest of the regional currencies. If one looks at the bigger picture then Indonesian Rupiah has appreciated by around 9% against the USD and Malaysian Ringgit has firmed up by around 6% in past 10 days. The key words for me from the MAS policy statement is “slow the pace of local dollar’s gain”

MAS will continue with the policy of a modest and gradual appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band. However, the rate of appreciation will be reduced slightly. There will be no change to the width of the policy band and the level at which it is centered, saying it would seek to slow the pace of the local dollar’s gains versus its trading partners.

Both Malaysia and Indonesia are key trading partners for Singapore and a greater than 5% jump in their currencies diluted any chance of SGD depreciation. The intent of MAS Is clear – it wants SGD to be slightly stronger than its trading partners.

Now if one looks at INR it appreciated very quickly in after the US job reports from the comfort that no fed hike is on the cards. It was good news for FII’s who can pump money in Indian Bonds and earn good interest rate. Many mistake this as FII investment in India because if one looks at the economic indicators they don’t look very good – be it industrial production. agriculture produce or job growth.

I have said this many times and would repeat again – the sooner INR falls towards 70 the better it is for India. The Indian exports are declining due to competition from other countries with weaker currencies and the day fed hikes the interest rate INR could dip 2-3% overnight and that is not a pleasant shock for the economy.

Anyway for now no major events are scheduled in the coming months other that the results of the BIHAR elections. I believe irrespective of the outcome the Rupee is scheduled to fall post-election results. If BJP wins there would be a knee jerk appreciation which will fizzle out as the economic data and realities will take center stage. If BJP looses then Rupee would immediately fall from a sentiment perspective.

So for the next few weeks I expect SGD INR to be range bound between 46-48.

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