Month: November 2019

10 money lessons, I would like to pass on to my Children (and yours too)

Posted on by Jagoinvestor

Jagoinvestor completed 10 yrs recently and it was a wonderful experience for these 10 yrs writing so many articles, working with thousands of investors.

While I was at my Ahmedabad office recently, I and my partner Nandish thought of an idea. We were discussing our kids (I have 1.5 yrs daughter and his son is 7 yrs old) and their future. We were wondering what kind of things we would like to teach our kids so that they can have a great financial life or life in general.

Here are those 10 lessons… Do listen to the whole talk

So we thought about why to keep things private and not share the 10 lessons we would like to pass on to our kids which can help them greatly when they start their own financial life many years in the future from now.

These 10 lessons are not those regular “start early” and “take your health insurance” kind of points. We are talking about some solid lessons which are going to impact your life overall. It’s more of a RICH mindset vs Average Mindset lessons.

Here are the topics we discussed in the video:

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1) Future is an Illusion
2) Target Financial Freedom in 10 yrs
3) Speak the language of NETWORTH
4) Focus on your Health
5) Be Coachable
6) Always think in terms of Milestones
7) Look at life in sum-total
8) Slow down to Speed up
9) Be a student of Life
10) Always tell the Truth
11) Don’t Listen to Your Inner Voice (Bonus lesson)

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Incase you have any thing to add to these 10 points, we would love to listen about your thoughts in the comments section.

We owe our success and whatever we have achieved to all our readers, our teams and our teachers.

How to add your new born baby to your health insurance policy?

Posted on by Team Jagoinvestor

Newborn baby comes with a bundle of joys. However, after his/her, your life changes a lot like adjusting your schedules, balancing your work life and most importantly managing your finances. One important thing which parents forget after the newborn arrives is to add him/her in the health insurance policy.

In this article, we are going to share what is the process of adding your newborn baby to your existing health insurance policy. Note that it does not matter if the child is biological or adopted, the process is exactly the same for all.

As medical emergencies are uncertain and unforeseen expenses may affect your finances badly. And also, getting health insurance for a newborn or a child below 5 years may not be possible, all health insurance policies have a certain entry age limit.

How to add a newborn baby in your health insurance?

There are two ways of adding a newborn to health insurance. First at the time of renewal and other is, adding during the year.

1. At the time of Renewal

There are two modes of doing it at the time of renewal, online and offline.

  • Offline mode – In offline mode, you need to inform your agent or insurance company, fill a prescribed form and attach a birth certificate of newborn baby, discharge card and other required documents along with cheque/DD of the increased premium amount.
  • Online mode – In online mode, you just need to visit the website of the insurer and go to the renewal page and you will see an option to add a newborn somewhere on the page. On selecting add newborn, the premium for your health insurance policy will be increased and you need to pay the revised quote. However, some companies may ask to attach a soft copy of the birth certificate of a newborn baby.

2. Before Renewal Date

Adding a child during the year can be done only through offline mode. You need to inform your agent or insurance company, fill a prescribed form and attach the birth certificate of newborn baby, along with NEFT/cheque/DD of the increased premium amount.

Important points

  • Waiting Period – Newborn baby is not covered until 90 days, due to the high amount of risk involved in medical emergencies.
  • Revised Premium – When you add a new member to your policy, the insurance company will recalculate the premium amount. So, you need to pay an increased premium amount.
  • Cashless card – You need to submit a photo of new born at the time of adding, to avail cashless card facility.

In the case of a newborn health insurance cover, it is very important to know, what is covered, what all are exclusions and whether vaccination is covered or not. So, Make sure you read your policy document.

Sovereign Gold Bonds – 9 things you should know

Posted on by Team Jagoinvestor

Most of the investors feel that gold is a good option to invest. One, because it gives quite reasonable returns and second but most important, we have an attachment with gold as per our traditions.

However, if you want to buy gold physically, you need to bear storage cost i.e. locker rents and along with this, it is not easy to buy and sell physical gold. And hence, Gold ETFs came into existence, which enables investors to trade gold on stock exchange and earn returns like they would be doing in case of physical gold.

But, now there is another option which is just like you are investing in physical gold available in Demat form, which can be traded on stock exchange, and also get a small amount of interest on the investment.

We are talking about Sovereign Gold Bonds. These bonds are issued by RBI in consultation with Govt. of India.

What is Sovereign Gold Bond?

Sovereign gold bonds were introduced by the Government of India in 2015 under the Gold Monetization Scheme, to enable investors to invest in an asset class which is a substitute for physical gold.

RBI announces public issues under these schemes in tranches i.e. specifying series along with dates of subscription of series of bonds and date of allocation.

You can refer below table for the SGB scheme 2019-2020 issue –

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S. no. Tranches Date of subscription Date of Issuance
1 2019-20 Series V October 07-11, 2019 October 15, 2019
2 2019-20 Series VI October 21-25, 2019 October 30, 2019
3 2019-20 Series VII December 02-06, 2019 December 10, 2019
4 2019-20 Series VIII January 13-17, 2020 January 21, 2020
5 2019-20 Series IX February 03-07, 2020 February 11, 2020
6 2019-20 Series X March 02-06, 2020 March 11, 2020

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As these bonds are issued by the Reserve Bank of India on behalf of the Government of India, they carry sovereign guarantee. These bonds are issued at the discretion of government from time to time with a specified close date, and they are open for the public to subscribe.

The bonds are denominated in units of one gram of gold or multiples thereof. Minimum investment in these bonds is one gram.

9 features of Sovereign Gold Bond?

Let us understand the Sovereign gold bond in detail by referring to all its features.

1. Who are eligible to buy sovereign gold bonds?

Any resident individual including HUFs, trusts, universities and charitable trusts can buy sovereign gold bonds. This bond can also be purchased by a guardian or parent on behalf of a minor. But, a non-resident or ordinarily non-resident of India cannot buy a sovereign gold bond.

However, if a resident individual who bought SGBs, who has now become NRI can hold them till the maturity of the bond but cannot repatriate the maturity amount. He/she cannot even trade SGB’s on stock exchange.

2. Denomination of gold bond

Each investment will be denominated in multiples of gram or grams with a basic unit of 1 gram at least to be purchased in a single purchase i.e. minimum investment. It means if you want to invest Rs. 10,000 and the rate of gold on purchase date is Rs. 4000 per gram. So your investment will be denominated in 2.5 grams.

3. Maximum Amount

There is a limitation on the amount of gold that you can be held in sovereign bond. How much gold one can have in a financial year i.e. April to March (whatever can be the price of gold) is given for each category of eligible investors –

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Category Maximum Subscription
Individuals 4 kg
HUFs 4 kg
Trusts and similar entities 20 kg

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This ceiling will include bonds purchased under different tranches during initial issuance by government i.e. subscribed in the primary market as well as via the secondary market.

4.Issue Price

The price of the bond will be fixed in Indian rupees on the basis of the average closing rate of the last 3 working days of the week preceding the subscription period of gold having 999 purity (24 caret) published by India Bullion and Jewelers Association.

The issue price of the gold bonds will be less by Rs. 50 per gram for those who subscribe for it online and pay through digital mode.

5. Interest rate

The investors will be paid Interest on the amount of initial investment at the rate notified by RBI for a particular tranche at the time of its launch and is payable semi-annually. Till date interest is near to 2.5% p.a.

6. Redemption

Redemption price shall be fixed in Indian Rupees and the redemption price shall be based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.

7. Listed on the stock exchange

These bonds can be held in Demat form and the government has enabled trading of gold bonds on the stock exchanges i.e. NSE and BSE. This feature is given to enable easy trading of bonds and one can buy bonds even after the subscription period is closed.

8. Maturity

The tenure of the bond will be for a period of 8 years with exit option in 5th, 6th and 7th year, to be exercised on interest payment dates. It means one cannot redeem bonds before the end of 5th year. However, if one wants, he can transfer bonds via the stock exchange platform. So, we can say that there is no lock-in for SGBs.

9. SGBs can be used as collateral

Bonds can be used as collateral for loans. The loan-to-value ratio (LTV) is to be set equal to ordinary gold loan mandated by RBI. Therefore, it is a very good option that you can use gold bonds as security against loans like stocks.

9. Payment Options

The payment of SGBs can be made in cash (up to Rs. 20,000) or Demand Draft or Cheque or electronic mode. It’s good that you have an option to use cash for it. However, on redemption or transfer, the amount will be credited to your bank account.

How to buy Sovereign Gold Bonds?

Whenever the government of India announces a series of bonds, they specify the dates of subscription, date of issuance of bonds and the amount of purchase per gram. A subscriber can go via physical mode or online mode for subscription of SGBs.

1. Physical Mode – To invest in gold bonds, you can fill in the application form which is provided by issuing banks or from designated post offices. You can also download the application form from the website of the Reserve Bank of India.

Scheduled Commercial Banks (excluding RRBs, Small Finance Banks and Payment Banks), designated Post Offices (as may be notified), Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Ltd. are authorized to receive applications for the Bonds either directly or through agents.

2. Online Mode – To invest in bonds using online mode, one can use their intermediaries/broker’s platform or bank platform. There will be a discount of Rs. 50 per gram if you purchase via online mode and paying through digital mode.

Every applicant must provide their PAN number issued by the Income Tax Department. Without a PAN, one cannot apply for investing in gold bonds.

Tax treatment of Sovereign gold bonds

The capital gains tax arising on redemption of SGB to an individual has been exempted. This is an exclusive income tax benefit offered on gold bonds to encourage investors to shift to non-physical gold.

However, the transfer of gold bonds before maturity will attract Capital gain tax. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond using secondary market after 3 years from the date of purchase.

The interest received on SGB per financial year is taxable as per the slab rate of subscriber.

Comparison of Physical gold, Gold ETF and Sovereign Gold Bond

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Points Physical Gold Gold ETF Sovereign Gold Bond
Returns Lower than actual return on gold (due to making charges) Lower than actual return on gold (due to brokerage) Higher than actual return on gold (due to interest payments)
Safety Risk of handling physical gold High High
Purity of Gold Purity of gold always remains a question High as it is in electronic form High as it is in electronic form
Capital Gain LTCG applicable after 3 years LTCG applicable after 3 years LTCG applicable after 3 years (No capital gain tax if held till maturity)
Loan collateral Yes No Yes
Tradability Conditional – depending upon availability of buyer Tradable on exchange Tradable on exchange and redeemable 5th year onwards
Storage cost High No No

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Are sovereign gold bonds safe?

As we already mentioned, these bonds are issued by RBI in consultation with GOI, it ensures that there will not be any question about default risk i.e. no risk of repayment. However, the price or the redemption value of the bond will depend upon actual market price, so a drop in the market price of gold can put the capital at risk, which is a fact in case of holding physical gold or gold ETFs as well.

Why should you invest in Sovereign gold bonds?

See, buying SGB’s are suggested just as a substitute for buying physical gold. The flaws of buying physical gold are many like, they are not easily tradable and involve heavy storage cost, you don’t earn any interest on holding physical gold, you bear making charges and if you earn any gain on sale of gold you have to pay capital gain tax.

In SGBs you need not to face all these flaws instead they are very safe in terms of default risk, We cannot say that there is no risk, considering capital loss risk that may happen due to market price change.

Conclusion
If you are looking for long term investment in gold then instead of physical gold, SGBs are suggested. You don’t need to pay any tax i.e. capital gain tax on redemption of SGB on maturity or after 5th year. But, keep it in mind that there is STCG tax or LTCG tax on the transfer of SGBs on stock exchange before maturity and there is a limit on the quantity of gold that one can hold per financial year in the form of bond.

PIS account for NRI’s – Invest in Direct Equities in India

Posted on by Team Jagoinvestor

Are you an NRI who is planning to invest in direct stocks or other equity options? Indian economy is one of the fastest-growing economy and many NRIs and PIOs are planning to invest in Indian equities, but they are not sure, whether they can invest in India or not? And what is the procedure for investment?

As per rules, an NRI can also invest in direct equities, equity mutual funds or future & options (F&O) in India just like a resident but NRI’s have to open a separate account called as PIS account (portfolio investment scheme account) for investing in direct equities and we will look at that today.

PIS Account (Portfolio investment scheme)

PIS or portfolio investment scheme account is an account to be opened by NRI’s if they want to invest in stocks directly. This PIS account allows NRIs to buy and sell shares and convertible debentures of Indian companies on BSE & NSE by routing such transactions through their NRE/NRO bank account.

How to get PIS Account activated?

  • Step 1 – Open an NRE account/NRO account or you may already have it
  • Step 2 – You need to ask your bank for PIS form, fill a form ‘Application for designating bank account for PIS’ and submit it to the bank. Bank will send the form to RBI for approval.
  • Step 3 – Once approved by the RBI, the requested bank account (NRE or NRO) is designated as PIS Account.
  • Step 4 – Your Demat account and the trading account will be linked with the PIS account to enable the buy and sell off stocks at NSE/BSE.

Once your PIS account is linked with a Demat and trading account, you can invest in stocks online.

Non-PIS Account

By default, every NRE/NRO account is a non-PIS account (PIS is not activated). The following are the investments which can happen with the non-PIS account.

  • Mutual Funds and IPOs.
  • Sale of shares acquired through Right Issues/ ESOP
  • Sale of shares received in inheritance
  • Sale of shares received in bonus
  • Sale of shares bought when NRI was resident Indian.

Many banks make it mandatory to open a separate Non-PIS account along with a PIS Account. They offer 4-in-1 Account which includes:

  • NRI Saving Bank Account (Non-PIS)
  • NRI Saving Bank Account (PIS)
  • NRI Demat Account
  • NRI Trading Account

Important points

  • Transactions from a Non-PIS account are not reported to the RBI.
  • The PIS account cannot be a joint account
  • NRIs cannot do intraday trading with the PIS account. NRI’s can’t sell stocks without taking delivery of the shares/convertible debentures purchased.
  • Short selling is not permitted under PIS.
  • One can have only 1 PIS linked account. If you would like to open a PIS account with another bank, you will have to close the existing PIS account first.
  • In the case of POI, the POI card is also required in documentation
  • In case your overseas address is not in English, you need to get it translated by a translator in your city and get their stamp
  • In case you do not want to travel to India just for making investments, you can always give POA (Power of attorney) to someone trusted who can do the process for you.

3 account to be opened along with PIS account

Note that PIS is mainly permission and not an account in itself. If you want to buy and sell stocks in India, you would need NRE/NRO bank account along with the Demat and Trading account. Below are the details for each of those.

NRE/NRO Saving Bank Account

For any type of investment in India by NRI, whether it be mutual funds, commodities, or stocks, IPO having an NRE or NRO account is mandatory.

  • NRE Account – NRE account is a bank account where the money is deposited in Indian as well as foreign currency. You can use the money deposited in it, in the country of your residence or in India. Therefore, it is called as repatriable.
  • NRO Account – NRO bank account is only partially repatriable, means you can use the money only in India. And you can only deposit Indian income in this account. It is used to deposit rent, interest, other source income earned from India.

So depending on your situation and income type, you need to open these accounts. One can have any number of NRE/NRO accounts if required.

Many NRIs are using a saving bank account for transacting in India, which is illegal. So, once you become an NRI, you should convert your savings bank account into NRE/NRO account.

These are just marking on the existing saving bank account. One needs to fill a required form and attach required documents like PAN, Identity proof of country of residence, Passport, etc.

Demat Account

Demat account is to hold securities (shares) in electronic format. Unlike most developed countries where equity holding is kept with the broker, in India, they are kept in a separate account called Demat account. The Demat account is a secured online account.

First time NRI investors need to open a Demat account with a registered broker. Various brokers like Zerodha, ICICI, and Axis, IIFL, etc., are available for NRI investors.

Every broker offers different services and charges different fees and brokerage for the same. It is wise to check every detail of the broker before opening a Demat account. To open an NRI Demat account, the following documents are needed to be submitted-

  • Bank Account Statement/ Passbook Bank proof should indicate NRE/NRO saving a/c bank details
  • Foreign address proof
  • Indian Passport
  • PAN card
  • Photograph of investor
  • Canceled bank account cheque
  • If NRE or NRO is not mentioned (pre-printed) on the cheque, then bank verification letter is required.

All the photocopies of the KYC document should be attested by any of the entities like Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.

Trading Account

In addition to a Demat account, an NRI also needs an NRI trading account to trade in stock exchanges i.e. to place buy/sell orders. The documents required to open NRI Trading accounts same as NRI Demat account.

Most brokers offer 2-in-1 account services wherein an NRI can open both trading & Demat account at once. Some stockbrokers who are part of a banking group such as ICICI Direct, HDFC Securities and SBI Capital, etc., offer all services like NRE/NRO account, Demat and Trading accounts are opened at once.

Let us know if you have any more queries related to PIS account? We will be happy to answer them in the comments section

What is FCNR Deposit Account? Fixed Deposits for NRI’s in India

Posted on by Team Jagoinvestor

Since India offers higher interest income as compared to many other countries, many NRIs prefer India for fixed deposits or term deposits. However, they are afraid of foreign exchange risk as well as taxation norms.

So, if you are an NRI, looking for a safe investment option in India without obtaining approval of RBI, then FCNR (Foreign Currency Non-Residence) term deposit account could be one of the best option considering Forex and tax. In this article, I will be covering all the aspects of FCNR term deposit.

What is FCNR Term Deposit?

FCNR stands for Foreign Currency Non-Resident, it a type of fixed deposit for NRI of Indian nationality or PIO. An NRI can maintain a fixed deposit in foreign currency and earn regular interest on the same without prior approval of RBI with authorized dealer banks in India i.e. a bank authorized to deal in foreign exchange.

FCNR accounts allow deposit as well as withdrawal in foreign currency. Therefore, it avoids foreign exchange risk, which is involved in other option of investments in India.

These are the currencies, which are allowed to be deposited in FCNR account –

  • US Dollar
  • British Pound
  • Euro
  • Japanese Yen
  • Australian Dollar
  • Canadian Dollar

Along with these, RBI has allowed, authorized dealer banks to accept deposits in “Permitted currency” as well. Permitted currency means a foreign currency which is freely convertible and mainly includes, Danish Krone, Swiss Franc, and Swedish Krona.

Features of FCNR Term Deposit

  • FCNR account has a maturity ranging from 1 year to 3 years.
  • It can be opened jointly with 2 or more NRIs provided, all are persons of Indian nationality or origin
  • With FCNR, you can easily repatriate the principal as well as interest to the country of residence/origin
  • Nomination facility is available and any NRI, POI or Indian resident can be the nominee
  • Recurring deposits are not accepted under this scheme
  • On premature withdrawal/transfer to NRE account from FCNR, 1% penalty might be charged (varies from bank to bank)

Below is a video about FCNR account which will give you brief knowledge about it.

What can be the mode of investment?

For FCNR deposit, it is not mandatory to transfer funds from NRE/NRO account, as in the case of other investment options. One can transfer funds from overseas bank account directly to open FCNR account through cheque.

One can also use travelers cheque or foreign currency notes to deposit in FCNR account, on visit to India. Even one can also use an existing FCNR for creating new FCNR term deposit.

Documents required for opening FCNR Account

For opening this account, an application form duly attested by your banker/embassy of India/public notary must be submitted to the bank along with the following documents attached-

  • Copy of passport
  • Latest overseas bank statement
  • Latest overseas address proof

If you are unable to visit India, then you can open this account by issuing power of attorney to a resident individual, who can fulfill all the requirements on your behalf.

Loan facility against FCNR

You can also avail loan against FCNR, provided that the proceeds of loan are not used for the purpose of re-lending i.e granting loan, carrying on agricultural/plantation activities or for investments in real estate sector. However, one can use the loan amount for other financial investment purposes like stocks or mutual funds, etc.

Loan can be availed in rupee or in any foreign currency.

Interest calculation and Taxation

The interest rate on FCNR  is compounded yearly and the rate of interest depends on the currency deposited and maturity term of FCNR account. For instance, the rate for a 1-year FCNR deposit in the US dollar would be in the range of 2.5-3% while the same for a deposit in the Australian dollar would be 5-6%.

Interest is calculated at an interval of  180 days each (i.e 6 monthly) and for remaining actual number of days in a year. However, the yearly interest amount is credited at the end of 360 days as per RBI guidelines.

Interest earned on FCNR deposits is tax-exempt as long as an individual qualifies as an NRI or not ordinarily resident. But, it might be taxable as per the prevailing taxation rules of your country of residence/origin.

What are the norms, if NRI status changes to resident Indian?

On change of status, it is your responsibility to inform the bank about it, so that the FCNR account will be designated as a resident account. FCNR will continue to earn interest. However, as the interest income is tax-free in the hands of NRI, now if you are qualifying as a resident or ordinarily resident, you will be taxed as per Indian slab rates, irrespective of the fact that you will be taxed in other country.

Conclusion

If you are afraid of bearing loss due to currency fluctuation then FCNR is a good option as compared to NRE/NRO saving deposits. It is specially designed to cover foreign exchange risk. However, it is very important to choose a good bank for FCNR, because if deposits are made at weak banks, it may be unable to pay back upon maturity.