Procedure for an NRI to buy property in India

March 20, 2013

Purchasing a property in India ranks high in the list of priorities of a non-resident Indian (NRI). A home is a security and provides a shield to the buyer against factors like high prices and inflation. To begin with, the first thing that an NRI needs to be familiar with is the procedure of buying a property in the country.

The buying transaction is governed by the Reserve Bank of India (RBI) and the rules and regulations fall under the purview of the Foreign Exchange Management Act (FEMA). The forum called Open House on MagicBricks site where consumers post their property related queries has seen prospective NRI buyers ask about the lowdown on how to buy a property in India.

Legal Expert Asha Nayar Basu, Partner, S Jalan & Co. Advocates provided the fundamentals that need to be looked at before a purchase. Firstly, an NRI may acquire any immovable property other than agricultural land/farm house/ plantation property in India by purchase. Secondly, funding of the transaction can happen a) out of finances received in India by way of inward remittance from any place outside India or b) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the  Reserve Bank under the Act.

According to the RBI website, no payment can be made either by traveller’s cheque or by foreign currency notes.

Thirdly, NRIs can take a home loan also for purchase of a property. RBI also allows NRIs to take a loan for repairs and renovations of their home. RBI states in its website that the buyer, however, has to adhere to the FEMA regulations at the time of taking the loan. “Banks cannot grant fresh loans or renew existing loans in excess of Rs 1 crore against NRE and FCNR deposits, either to the depositors or to third parties,” the site mentions.
Such loans can be repaid in the following manner:

a) By way of inward remittance through normal banking channel or
b) By debit to the NRE/FCNR/NRO account of the NRI/ PIO or
c) Out of rental income from such a property
d) Cheques from your local relative’s bank account

Source : – Times Property


Cheque signature mismatch may lead to criminal proceedings: Supreme Court

March 19, 2013

A person may face criminal proceedings if a cheque issued by him gets dishonoured on the ground that his signature does not match the specimen signature available with the bank.

A Supreme Court bench of justices T S Thakur and Gyan Sudha Mishra set aside the verdict of Gujarat High Court which had held that criminal proceedings for dishonouring of cheque can be initiated only when the cheque is dishonoured because of lack of sufficient amount in the bank account and not in case where a cheque is returned due to mismatch of signature of account holder.

“Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138 of Negotiable Instrument Act, so also dishonour on the ground that the ‘signatures do not match’ or that the ‘image is not found’, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act,” the bench said.

The apex court, however, said that in such cases of dishonouring of cheques, the account holder must be given a notice and an opportunity to arrange the payments before initiation of criminal proceedings against him.

“Dishonour on account of such changes that may occur in the course of ordinary business of a company, partnership or an individual may not constitute an offence by itself because such a dishonour in order to qualify for prosecution under Section 138 shall have to be preceded by a statutory notice where the drawer is called upon and has the opportunity to arrange the payment of the amount covered by the cheque,” it said

Source: Business Today

 


All about settling your final salary before leaving a job

March 13, 2013

The procedure for ‘full and final settlement‘ is often fairly simple and as per the appointment contract. Usually, the following components are used to decide the final settlement sum:

  1. Unpaid Salary (including annual benefits such as leave travel allowance) and arrears, which is calculated as the number of days for which salary is to be paid multiplied by the gross salary divided by 26 (paid days in a month)
  2. Unpaid bonus
  3. Payment for non-availed leaves (earned or privilege leave), which is calculated as the number of days of non-availed leave multiplied by basic salary divided by 26

 Apart from the usual components the following might be applicable:

  1. Gratuity, if four years and 240 days have been completed
  2. Pension, as long as the employee has completed at least 6 months of service with the existing employer and 10 years of ‘pensionable service’ on providing a Scheme Certificate after retirement (58 years) age

Deductions include profession tax (if applicable), provident fund, income tax and compensation for notice period not served. Gratuity and cashed earned leave are exempt from tax deducted at source (TDS). All other payments attract TDS under Section 192 of the Income Tax Act.

As far as the period for settlement is concerned, going strictly by the rules, the final settlement needs to happen on an employee’s last working day at the organisation. However, as clearances take time, it is prevalent policy to do so within 30-45 days after the employee has left. For gratuity, the stipulation is 30 days after leaving the company, while bonuses must be paid within the specified accounting year.

A common point of contention is the notice period. Even so, it is clear according to the law. Whichever party does not live up to the commitments in the contract will have to compensate the other.

In case of a mass termination, permission has to be sought from the government or the appropriate authority (as specified in the Industrial Disputes Act) specifying the reason for termination. There are also clauses that require employees be given sufficient notice or compensation as per designation and nature of industry.

There are also a few things that an employee must do to ensure there are no complications in the process or later on. Make sure to settle any advances taken or get it adjusted in the final settlement.

Further, get a copy of all the various clearances required from the different departments of the organisation that the employee was attached to by virtue of his responsibilities. This will also ensure that there will be no complications when you join another organisation.

Source: Business Today


Tips to build a good mutual fund portfolio

March 13, 2013

Investing requires discipline, even if you regularly put money in mutual funds. Since mutual funds are run by professionals, these are considered good for those who do not have the time and knowledge to invest in shares and bonds. However, building a good mutual fund portfolio requires planning.

Though the ideal portfolio depends upon the person’s risk-taking ability and age, investors must keep some broad points in mind while deciding which funds they should invest in.

A mutual fund portfolio should ideally be divided into two parts – core, for stability and predictability; and satellite, for investments that have a lot of potential but are risky.

IN THE CORE

The core, as the name suggests, is at the backbone and must comprise 70-90 per cent of the portfolio. Its aim is giving stability and decent returns.

Globally, index funds or passively-managed funds are the first choice for the core. An index fund replicates a benchmark index both in portfolio composition and returns. The fund manager does not have any say in stock selection, which eliminates the risk of wrong judgement. The fund management costs, too, are low. Because they invest in multiple stocks, index funds are well-diversified.

“Considering that in India actively-managed funds have outperformed passive funds, which is contrary to global trends, the core should ideally be built around a combination of index and large-cap funds that have a good track record and stable fund management teams,” says Vishal Dhawan, founder and chief financial planner, Plan Ahead Wealth Advisors.

“Ideally, the core portfolio should have a combination of accrual-based funds which follow the hold-to-maturity strategy. These could range from FMPs (fixed maturity plans) of different maturities to short- and medium-term funds with hold-to-maturity strategy,” says Vishal Dhawan.

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SATELLITE PORTFOLIO

The core gives stability while the satellite part of the portfolio is for earning above-market returns. The latter’s objective is to generate high returns through aggressive products such as mid- and small-cap funds, sector funds, thematic funds and international funds.

Duration-based debt funds, which take active interest-rate bets, can also be a part of the satellite portfolio. These do not follow the hold-to-maturity strategy and instead try to profit from capital appreciation. Such funds invest in gilt funds, income funds and floating rate funds.

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REBALANCING PORTFOLIO

Periodic rebalancing (between equity and debt) of the portfolio is as important as creating a good portfolio. This helps investors keep up with the changing market conditions. We discuss different approaches for doing so.

Fixed ratio approach:
In this, you keep exposure to equity and debt at a certain ratio based on your age and risk-taking ability. If this changes significantly due to conditions in equity and debt markets, you shuffle the investments to the pre-determined ratio.

As an example, imagine a portfolio of Rs 10 lakh with 70:30 equitydebt ratio, that is, the equity portfolio is valued at Rs 7 lakh and the debt at Rs 3 lakh. After a year, suppose the equity portfolio rises by 12 per cent to Rs 7.84 lakh while the value of debt goes up by 7 per cent to Rs 3.21 lakh. Clearly, the ideal ratio (70:30) has been altered. It can be balanced by selling stocks worth Rs 10,500 and investing the money in debt.

Variable ratio approach:
Under this, if the value of the stock portfolio changes significantly, the equitydebt ratio shifts to a new predetermined ratio. If the equity-debt ratio was 1:1 at the beginning, and the equity portfolio rises by more than 10 per cent, you can sell a part of your equity holdings and invest it in debt to bring the ratio to, say, 4:6.

Suppose your portfolio of Rs 20 lakh is perfectly balanced between equity and debt. Now, after some time, the equity portfolio rises to Rs 11 lakh and the debt portfolio to Rs 10.6 lakh. If you now want to bring the equity-debt ratio to 4:6, you can sell stocks worth Rs 2.36 lakh and invest the proceeds in debt.

Constant rupee value approach:
Under this, you keep the value of the stock portfolio constant, investing any appreciation in value in debt, or vice versa.

For example, if your equity portfolio is valued at Rs 10 lakh and it rises 10 per cent to Rs 11 lakh, you sell shares worth Rs 1 lakh and invest the money in debt. Similarly, if the portfolio value falls to Rs 9 lakh, you sell Rs 1 lakh worth of debt and invest in equities to keep the value of the stock portfolio at Rs 10 lakh.

Source: Business Today


The most common personal finance habits

March 12, 2013
  1. Instant gratification:

We find spending more appealing than saving. And while focusing on satisfaction, we often ignore the negative effects that arise due to such decisions. We often buy goods which are not essential just because they are being offered on a deal too good to miss. The money we save on buying it gives us more satisfaction than the money we could have saved without buying it. Cutting down expenses in the name of savings is often considered nothing less than a sacrifice. We ignore the good things that can arise from cutting down an expense and saving the same amount.

  1. Cushion of loans and debts:

Our instant gratification nature is supported by a range of loans and debt options that are easily available now. We rely on loans ranging from personal loans to home loans to meet our purchases. We often fail to assess the impact of such financial decisions on our personal and financial wellbeing. The interest rate payments we make on these loan instruments negatively affect our savings rate.

  1. Postponing savings:

Health and wealth remain the most ignored aspects of our life. We make plans to go to the gym, follow a diet regime and maintain a good shape every new year. But we hardly follow these plans. We follow the same routine when it comes to our personal finances as well. We make plans every month to cut down cost and increase savings. But every month ends up as a zero-sum game. Postponing savings will eventually push the dates when you want to realize your dreams.

  1. Reliable advice:

Individuals are forced to make more financial decisions than ever before. With a wide variety of products available in the market, choosing the right product always remains a challenge. We rely on our family, neighbors and colleagues for our financial advice. We ignore the fact that every individual’s financial situation is unique and the financial plan they have to follow is also unique. The current product-centric nature also played its part in us relying on our close sources rather than a financial planner for financial advice.

Source: NDTV