Returns on my investments

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Building a portfolio is a complex exercise, it has to be maintained too. A person’s portfolio holds different types of assets based on her financial goals, each asset class gives different types of returns, which is why a portfolio must have an ideal mix of financial products. One must also keep in mind the volatility risk of the asset class, liquidity, lock-in rules taxation. Here’s a look at how four commonly used asset types—equity, cash, gold fixed income—have done in different periods.

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Companies must deduct tax on dividends

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After knowing that companies have to deduct tax at source on dividends, I produced a tax residency certificate (TRC) seeking to exempt me from TDS. But the companies are not accepting it. The government of Kuwait gives TRC only for up to 31 March 2021. But the companies want it from 1 April 2021 to 31 March 2022. They say I can get it only after 183 days starting 1 March 2021. The companies are saying they will deduct tax on dividends. Can I claim refund of the tax while filing returns for 2020-21 this year for 2021-22 next year.

—Name withheld on request

 

As per the Income Tax Act of India, dividends paid or distributed by a company on or after 1 April 2020 shall be taxable in the hands of the shareholders. The company distributing dividends shall have to deduct tax at source while paying dividend, at applicable rates (including any surcharge or cess). TDS will be deducted at 10% as per Section 194 on the amount of dividend payable for residents. For non-residents, TDS will be deducted usually at 20% plus applicable cess surcharge. However, in the case of individuals, no TDS would be deducted if the aggregate dividend from such a company during the financial year does not exceed 5,000.

As such, NRIs are allowed benefit from double taxation avoidance agreement (DTAA) provisions if they are more beneficial to them. This can be done by submitting your PAN, TRC (issued by the country of which you are a tax resident) certifying your tax residency status during FY22. In case you are not able to submit documents in time, you may choose to do one of the following: Obtain a certificate from your tax officer which specifies lower/nil withholding tax under Section 197, submit it to the company so that TDS is deducted as per the rates prescribed in the certificate. Else, you may claim a refund by filing your tax return in India. Do make sure you cross verify TDS deduction in your Form 26AS.

Archit Gupta is founder chief executive officer, ClearTax.

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NFTs offer means for governments to find solutions

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Government agencies should move beyond looking at blockchain technology as a buzzword prone to overuse, or simply as a data storage mechanism. Cryptocurrencies based on blockchain technology may be a threat to the sovereign government’s control on money supply monetary policy, but there are several advantages with the technology that can be harnessed creatively by the State to solve a few of its problems.

NFTs (non-fungible tokens) represent a variation of cryptocurrencies in the sense that these are not swappable. For example, bitcoins are fungible tokens, i.e. a bitcoin is not different from another bitcoin is interchangeable. But NFTs are identified uniquely. This is why digital art pieces are now sold as NFTs on blockchains, which guarantees their authenticity. In simpler words, anybody can have a digital copy of the Mona Lisa, but the original authentic Mona Lisa will be with the owner of its NFT. This amazing potential of NFTs to ensure authenticity is being utilized by many private entities. In August, Coca-Cola garnered more than $570,000 in its first-ever NFT collectibles auction. People have spent more than $230 million trading digital collectibles of NBA highlights. In India, too, it won’t be long before we see cricket NFTs Bollywood NFTs, which may monetize, say, a clip of Mahendra Singh Dhoni’s winning shot in an IPL match, or a particularly suspenseful scene from a movie, such as Kattappa’s killing of Amarendra Baahubali in Baahubali-1. It is this monetization potential of the NFTs that presents the first opportunity for the government.

NFTs for funding museums: Creating NFTs for the artefacts in museums can be a significant source of funding for museums in the country. To put things in perspective, the budget overlay for museums in 2021-22 was 108 crore another 293 crore through supporting autonomous bodies, whereas the global NFT market clocked more than $2.5 billion sales volume within the first half of this year.

Each museum has its own treasure trove of artefacts, whose digital identity can be created through NFT. Each digitized artefact can be put up for sale without any rights on the actual artefact in the museum. What the purchaser would get is the authentic NFT of a museum artefact. For example, if an NFT of the Mohenjo-daro dancing girl is created is on sale on a blockchain medium, it is bound to get interest from history aficionados.

The ownership of the NFT is maintained on the blockchain such that no dispute can arise, even better, every time the NFT changes hands, the government can get the platform commission on the sale value, making it a continuous stream of funding. To be clear, the government does not lose ownership of the physical artefacts, it is only the digital NFT version of it that is changing hands.

NFTs for municipal finance: Various municipalities in India have raised money through municipal bonds (or Munis), but many have been met with varying degree of lack of interest from the public. Lack of credit rating, doubts over the repayment ability are some issues resulting in lower investor confidence. NFTs present an opportunity here. Municipal corporations may not have creditworthiness, but make up for it in assets, cultural value of historic buildings. They can build a collection of NFTs for historic landmarks put it up for auction on the blockchain. Each buyer will have a piece of the history of the city. Not just landmarks, infrastructure projects such as a park or a flyover can also be digitally represented be made into NFTs for the local citizenry to bid. Not only will such an auction augment resources of the State, but also build a much more participatory governance where citizens feel they own the part of the city.

Though there are differing views about the regulation of cryptocurrencies, the underlying technology of blockchain seems to be acceptable, as is evident in RBI bulletins, recommendations of the inter-disciplinary committee. Various government agencies have identified use cases for blockchain. The ministry of electronics information technology had released a draft national strategy on blockchain. The government think tank NITI Aayog, too, released a report, Blockchain: The India Strategy, showcasing use cases ranging from lrecords to chit funds.

One thing is clear: being a revolutionary technology, blockchain cannot be stopped. An application of this technology such as the NFT, which presents a great opportunity to unlock value, should be readily welcomed by the government used creatively.

Mahesh Singarapu is an Indian Revenue Service officer deputy director in the Enforcement Directorate. Views are personal.

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One of India’s best-known fund managers to steer new value fund

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Axis Mutual Fund, long regarded as the poster child for growth investing, is launching a value fund the fund will be managed by none other than its head of equities—Jinesh Gopani.

Axis Mutual Fund Gopani have long been regarded as dyed-in-the-wool growth investors. The shift may be in recognition of a bounceback by value stocks since the pandemic.

The new fund offer (NFO) of Axis Value Fund opened on 2 September will run till 16 September. Being open-ended, you can invest redeem it thereafter as well.

Growth investing invests in fast-growing companies that trade at high valuations. Value investing seeks out relatively cheap companies even though they may be generating lower cash flows or may have other business issues.

The sharp growth tilt Axis pursued hit the company when the one-year performance of its key funds fell behind their peers in April, which Mint had reported. Since then, the fund has recovered lost ground on its key schemes such as Axis Bluechip Axis Long Term Equity.

However, the risks of relying too much on a single style may have left a mark on the Axis management team.

“For our core set of funds, our existing approach remains intact. We buy good-quality companies that can deliver sustainable growth. However, we recognize that there are other areas that can complement our core strategy while offering a good long-term proposition to the investors. Take our recent launches of passive funds as an example,” said Ashwin Patni, head of products alternatives, Axis Mutual Fund.

“Also our approach to value is different. The traditional approach is to buy cheap companies, wait for the market to recognize value then re-rate those companies. We don’t believe in that. In the past 10 years, value has been a high-risk, low-return proposition—more volatile than growth yet giving lower returns. Instead, our approach will take the health of the business account as well as its valuations. Jinesh Gopani will manage the fund for now we have internal filters in place to create a universe of suitable companies for this fund. But if in the future we believe it needs a dedicated manager, we will appoint one,” Patni added.

“As long as the value strategy is clearly defined consistently managed, an asset management company can run multiple styles in its bouquet of offerings. I don’t see any issue with a growth-focused manager launching a value fund. To some extent, it may just be an acknowledgment of the recovery in value the need to have this type of a fund in the AMC’s list of schemes to offer style diversification to investors,” said Kaustubh Belapurkar, director-manager research, Morningstar Advisor India.

“Value is making a comeback with the broad-based rally in value stocks post the pandemic this may have prompted Axis Mutual Fund to launch this scheme,” said Amol Joshi, founder, Plan Rupee Investment Services.

“Axis MF had a growth tilt in their schemes across portfolios that benefited them over the last two years. Now, with value making a comeback, they may be adding this strategy to fill the space. It is to be noted that most value or contra stocks are seldom pure value or contrarian. They have a healthy dose of growth stocks to ensure they do not underperform when the strategy is out of favour in the market,” said Vidya Bala, co-founder, Prime Investor.

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The ABC of introducing children to finance & investment

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It is, therefore, very important for parents to keep track of how their children spend money. While interfering in all your teen’s decisions is not recommended, it is important to keep tabs on their big expenditures also to educate them about investing not getting lured by get-rich-quick schemes or other such scams.

When it comes to teens investing, one cannot help but highlight the fact that Warren Buffett bought his first stock in 1942, when he was 11.

So, technically, he was not even in his teens. Nowadays, kids are introduced to money much earlier. It is encouraged that one gets initiated into money concepts at an early age, because managing money is something that is not taught in school.

Parents have traditionally given kids pocket money. Kids have had piggy banks to give them the experience of saving money seeing it grow.

Some parents also open bank accounts for their kids at an early age, so that they learn about savings money concepts. “When parents are themselves taking care of budgeting, planning investments, kids see them start understanding money,” says Hina Shah, CFP financial coach, LUHEM.

The right time: There is no ideal age to introduce your teen to investing. “It would vary from person to person depends on exposure interest. If your child is asking questions is trying to understthe world of investing, then it is probably the right time to introduce them to it as they would take an active interest in learning,” says Mitul Mehta, co-founder, Streak, a digital bank for teenagers.

While the earlier the better, one would do well to introduce kids to investing no later than 18.

“Typically, during this time, a student is into his/her years of graduation or is pursuing postgraduate degrees. It’s better to get introduced to the world of investment at that age as it makes the child conscious of benefits of creating wealth,” says Prakarsh Gagdani, chief executive officer, 5paisa.com.

Here, it is important to understsome legal aspects.

A demat account can be opened in the name of a minor, but this needs to operated by a parent or guardian until the minor attains the age of 18. As a minor, one is not allowed to enter into a contract with a stockbroker to sell or purchase any security. However, if the minor owns some securities by inheritance or receives them as a gift, a trading account can be opened in the name of the minor for the purpose of selling such securities by the parent or guardian .

On the other hand, a mutual fund account/portfolio can be created in the name of a minor by parents or a legal guardian. Standing instructions with respect to the minor’s SIP, STP SWP may also be provided. On maturity, the status of the folio needs to be changed from minor to major.

Getting started: Introducing your kids to investing should not be something sudden. “Understanding the basics of banking products, discussing budgets investments over dinner with the family, actively letting them learn ask questions would stimulate their interest in personal finance in general. Post this, more in-depth conversation on types of investments made the reasoning behind them can happen,” says Mehta.

According to Gagdani, the best way is to get them started is to do a course. “These days there are a lot of affordable courses which are available online that teach the basics,” he adds.

Starting SIPs of mutual funds in small amounts is a good start. Mehta believes that learning should start by investing in stocks in small amounts when they turn 18. “This helps the child understhow the value of the stock fluctuates according to the company’s decisions helps in capturing a gist of the fundamentals of share value,” he says.

The learning path: Setting goals are a great way to push children to learn improve further. “Setting goals, like buying a bicycle or a video game console, can teach a child that for smaller more immediate temptations, they cannot let go their future goals which are more important for them,” says Shah. However, Gagdani feels that teens may not be very clear about their goals in life. According to him, the ideal approach for this age group would be to start the investment with an aim to inculcate the habit of investing.

Taxation: U/s 64(1a) of Income Tax Act, income of minor child will be clubbed in the hands of parents, based on certain conditions. However, income on account of any activity involving application of skills, talent or specialized knowledge experience of the child shall not be clubbed in the hands of either parent. “Nowadays many children do courses on stock market investments are capable of doing transactions themselves. Hence, in case the minor has such a specialized knowledge experience of investments then he/she makes an income from mutual funds or the sale of securities (investment) in his/her name, then the capital gains should be taxed in his or her individual income tax file,” says Vivek Jalan of Tax Connect Advisory Services LLP, a consulting firm. However, even in case the income on sale of securities is clubbed with the parent’s, only the net taxable capital gain needs to be clubbed not gross capital gain.

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