Amit was looking for the purchase of his new house but unfortunately nothing was in his budget. Then one fine day he heard an advertisement on the local FM channel about a project which seemed to fit his budget.

So he called up the builders advertised phone number and the builder confirmed the price for the flat was indeed what was advertised on the radio. Not wanting to miss this golden opportunity he and his wife rushed to the builders’ office armed with their cheque book. But alas! There was more than what meets the eye. Once they started getting into the details they realized that the real cost of ownership was 60% higher than the advertised price. But how did this happen!

Below is the snapshot of price details of one of the projects in Gurgaon. Though the price list is of last year but the fact remains the same.

Here is the cost of ownership of the 1180 sq ft flat.

The Basic Sale price is Rs. 2197 per sq. ft which translates to around Rs. 26 lakhs. This is the price which is quoted in advertisements as in the picture below.

Now lets look how much the other charges comes to:

As in the above table the total additional charges comes out to be Rs. 13.19 Lakhs, which is more than 50% of the advertised price.

Other than the above you would also incur Stamp Duty & Registration fee which varies from 5% – 12.5% depending on the sate and ownership. Here we assume cost of 6% of the cost of the house.

Registration Cost: Rs. 2.25 Lakhs

If you have booked directly from builder or it’s a fresh booking then you might not have to pay the brokerage charges but if you are purchasing the same in resale then be ready to shell out 1 – 2% of cost of the house as brokerage charges. So the brokerage comes out to be Rs 40 – 80 thousand.

After all this you also need to take into account the cost of financing your house through loan. You would need to pay around 0.5% – 1.5% of loan amount as the processing fee. Also if the project is not ready to move you will need to pay pre-EMI and then start with the regular EMI on possession.

So you can see how the flat which was advertised for Rs. 26 Lakhs would cost you more than Rs. 41 Lakhs, around 60% more than expected. Here we have not included the cost of financing. So the lesson here is to keep in mind the additional costs that you would incur before finalizing any deals.

Fixed maturity plans (FMP) are closed ended debt mutual funds which are very similar to fixed deposit by banks. These are of varying tenures like three months, six months, one and two years and rarely for three years. These schemes portfolio consists of debt securities such as Government Securities, certificate of deposit and commercial papers of nearly the same maturity as the scheme.

How to invest in FMPs?

FMPs are close ended schemes. So you can only invest directly when they are open for subscription during New Fund Offer (NFO). After that you cannot enter or exit the scheme directly from Mutual Fund house. The only exit option is through stock exchanges where they get listed as mandated by SEBI. However liquidity of these FMPs is concern for exit.

Returns from FMP:

Until 2009 Mututal funds used to publish an indicative returns for each of their FMPs. But SEBI has banned the same now. The current FMPs are however able to offer returns comparable to corresponding fixed deposits from banks. These days the return for 1 year FMP is in the range of 9% – 9.5%.

The other thing to note is the returns of FMP are not as secured as Fixed deposits. So the question is why should one even consider FMPs when they give similar returns to FD at a higer risk? The answer is Tax treatment of FMPs as explained in the next section.

Tax Advantage for FMP:

In case of Fixed deposits the interest gained is added to the income and is taxed at marginal rate of taxation. This reduces the post tax return of Fixed deposits by 30% for people in highest tax bracket. In case of FMPs following is the tax treatment:

Dividend: The dividends of FMPs are tax free in the hands of investors. But Mutual Funds companies have to pay a dividend distribution tax of 12.5% (plus surcharge & cess) before distributing it to investors. Thus the investor pays tax indirectly. This is still lower than FDs for investors with higher personal tax rates of 20% and 30%.

Capital Gains: If an investor opts for “Growth” option the returns are taxed as Capital gain tax. Short term gains are taxed as per the tax slab while long term gains are taxed at 10% without indexation or 20% with indexation. The indexation benefit inflates the cost of purchase lowering long term gains tax liability. This fare far better than FDs where no such benefit is available.

Double Indexation: What makes these FMPs more tax efficient is double indexation. Usually FMPs have maturity period which is slightly more than 1 year like 375 days. This has the advantage that the FMP return is able to avail double indexation benefit as it covers two accounting period. However this advantage may go whenever Direct Tax Code (DTC) is implemented.

FMPs Vs Fixed Deposits:

Below is the table comparing returns between bank Fixed deposit and FMPs.

As you can see in the above chart FMP turns out to be much more efficient investment than Bank FD for higher tax bracket.

Below is a comparison table showing which is more tax efficient – dividend or growth option?

For tenure of  less than a year dividend option is more tax efficient than growth option.

Point of Caution:

As with all investment products FMPs have their own set of risks.

Credit Risk: The FMPs portfolio invests in instruments which carries some risk of default, which can negatively impact the returns. The fund houses lower these risk by investing in high rated instruments.

Interest rate Risk: The returns from FMPs also vary w.r.t. interest rates. When interest rates falls, yield from FMPs falls too.

Low Liquidity: As stated above the only exit option from FMP is transacting on exchanges. But the liquidity of these funds are very low.

Points while investing in FMPs:

If you plan to invest in FMPs, always look at the reputation of the fund house. This is very important because during the economic downturn three years ago, many fund houses got into trouble as they invested in low-rated papers from dubious companies, especially in the real estate sector. They just about managed to come out unscathed because of timely regulatory intervention and support. However, the tricky thing about investing FMPs these days is you neither have an indicative portfolio nor return. So everything hinges on the integrity of the fund house.

Who should invest in FMP?

FMP is good for investors in higher tax bracket of 20% or more. Also if you look at above charts you would note that for FMPs with tenure less than 1 year its good to go with dividend option while for more than 1 year Growth option is more tax efficient.

The IPO of Samvardhana Motherson Finance (SMFL) opens on May 2, 2012 with a price band of Rs. 113 – 118.

This post is to collect all the recommendations by experts which might help you to take a decision to invest in SMFL IPO.

Below are the recommendations by various newspapers.

SMFL Financials:

You can look at the SMFL IPO reports from broker houses and newspapers and decide for yourself if you would like to go with SMFL or not!

You can read more about SMFL IPO here.

If you find any other report please let me know through comments section or email me at apnaplan.com@gmail.com

Samvardhana Motherson Finance Ltd (SMFL), component supplier to auto industry is coming out with its Initial Public Offering (IPO) of Rs 1,665 crore. The issue, which consists of a fresh issue of Rs 1,344 crore and an offer for sale of Rs 321 crore by Radha Rani Holdings Pvt. Limited, will open for subscription during May 2-4, 2012.

About the company:

Incorporated in 2004, Samvardhana Motherson Finance Limited (SMFL) is a multinational business with manufacturing and design capabilities providing full system solutions to diverse industries. SMFL provides an end-to-end range of design and manufacturing solutions to the automotive customers, including product concept and product design, engineering, manufacturing, sub-assembly and the production of integrated modules.

The business portfolio includes wiring harnesses, rearview mirrors, molded plastic parts, injection molding tools, assemblies and modules, elastomer products, cutting tools and thin film coating metals, IT services, design engineering, cabins for off-highway vehicles, HVAC/ air conditioning systems for automobiles, lighting systems, air intake manifolds, air compressors, paint coating equipment, auxiliary equipment for injection molding machines and automotive manufacturing engineering services.

The major customers of the company include the five largest automotive OEM manufacturers in the world, as well as the largest automotive OEM manufacturer in India. SMFL has 90 manufacturing facilities with a presence in 23 countries across the world, including 23 locations outside India and the company is in the process of establishing new manufacturing facilities in India, Brazil and Thailand.

IPO Fund Usage:

SMFL intends to use issue proceeds (only fresh issue money) for following:

1. Funding pre-payment and repayment of debt facilities availed by company and its subsidiaries (with Rs 356 crore)
2. Funding strategic investments (with an outlay of Rs 660 crore)
3. Funding investments in rear-view vision systems business (with cost of Rs 164 crore)
4. General corporate purposes

Present Shareholding:

Promoters (Sehgal family) except Radha Rani Holdings hold more than 71% stake in the company. The company holds 36.3% stake in Motherson Sumi Systems Limited (listed entity).

Issue details: SMFL IPO

Issue Opens on: Wednesday, May 2, 2012

Issue Closes on: Friday, May 4, 2012

Price Range: Rs 113 – Rs 118

IPO Rating: IPO Grade 4 by ICRA – indicating above average fundamentals

Minimum Order Quantity: 50 Equity Shares

Maximum Subscription Amount for Retail Investor:  Rs.2,00,000

Book Running Lead Manager: Standard Chartered Securities (India) Limited, J.P. Morgan India Private Limited

Registrar of the Issue: Link Intime India Private Limited

IDBI Mutual Fund has launched its second equity fund – IDBI India Top 100 Equity Fund which has opened for subscription on April 25, 2012.

Investment Objective:

To provide investors with opportunities for long-term growth in capital through active management of a diversified basket of equity stocks, debt and money market instruments. The investment universe of the scheme will be restricted to equity stocks and equity related instruments of companies that are constituents of the S&P CNX Nifty Index (Nifty 50) and the CNX Nifty Junior Indices comprising a total of 100 stocks. These two indices are collectively referred to as the CNX 100 Index. The equity portfolio will be well-diversified and actively managed to realize the Scheme objective.

The fund seeks to collect a minimum subscription amount of Rs 10 crore under the scheme during the NFO period.

Allocation of funds:

The asset allocation pattern for the scheme is detailed in the table below:

Other Details:

Should you invest?

The answer is No! This is a NFO from a new fund house which is still to prove its expertise in equity fund management. And the fund on offer has nothing new to offer. You would be better off investing in existing equity funds.

There were reports of heavy buying of Gold everywhere on the auspicious occasion of Akshay Tritiya on April 24, 2012.

I thought of checking how did the new channels of buying Gold - Gold ETF and e-Gold performed.

Below is the graph showing turnover of Gold ETFs on Bombay Stock Exchange (BSE) on April 24, 2012.

Also below is the graph showing turnover of these ETFs on April 13, 2012. The volumes of Gold ETFs surged 4 to 100 times. For e.g. Goldman Gold ETF turnover went up to Rs. 11,680 lakhs from Rs. 281 lakhs, a increase of 41 times.

In case of e-Gold and e-Silver traded on National Spot Exchange Limited (NSEL) the turnover was more than 25 times than previous day. Even in case of Silver too the volume surged to 3 times.

Did you buy Gold this Akshay Tritiya? and what was your preferred way of purchasing Gold?

There is good news for six crore subscribers of EPF (Employee Provident Fund) and VPF (Voluntary Provident Fund). EPFO has decided to increase the interest rate on both EPF & VPF to 8.6% for FY 2012-13.

This was reduced to 8.25% for FY 2011-12 from 9.5% a year earlier. The cut in interest rate had led to vociferous protests from political parties, trade unions and employees who depend on the scheme for their retirement benefits.

Below is the history of EPF Interest rates.

Here is an opportunity to unleash the creative side of you and win Rs. 50,000. You need to create tagline of 3 – 4 words for Delhi which captures its rich History, Culture, Diversity & Modernity. The tagline should inspires travelers to visit the city. This is an initiative by Delhi Tourism to publicize its tourism aggressively.

Refer to the advertisement below for further details.

Among the Indian states, Kerala was the first to use the tagline “Gods own country” in 1989 and this helped them become tourist hotspot in a few years.

Taglines for state tourism:

India Tourism - Incredible India!

Andhra Pradesh - The Kohinoor of India

Chattisgarh - Full of surprises

Goa - 365 days on a holiday/ Go Goa

Gujarat - Vibrant Gujarat

Haryana – A pioneer in highway tourism

Himachal Pradesh - Unforgettable Himachal

Karnatka - One State, many worlds

Kerala - God’s own country

Madhya Pradesh - The very heart of India

Meghalaya - Halfway to Heaven

Orrisa - The soul of India

Pondichery - Give me a break

Punjab – India begins here

Rajasthan - Simply colourful / the Grand canvas/ Incredible state of India

Tamil Nadu - Experience yourself

Uttar Pradesh - Amazing heritage Great Experience

West Bengal - Complete Destination

Terms & Conditions:

1. Last date for receiving entries is May 9 , 2012
2. Prizes: Rs 50,000 (First), Rs. 30,000 (Second) and Rs 15,000 (Third)
3. Citizens from all parts of the country are eligible to participate in the contest.
4. The entries received will be screened and short listed on merit by the jury appointed by the MD & CEO, DTTDC.
5. Decision of the jury will be final and subject to no challenge or dispute in any form.
6. Entries may be sent in a sealed envelope super scribed with “Tagline for Delhi” addressed to the General Manager, Delhi Tourism with complete postal address, E-mail (if any) contact Tel. number etc.
7. Entries are accepted in Hindi and English Language only.

For more details visit Delhi Tourism Website

India’s largest bank State Bank of India (SBI) has reduced its NRE/NRO, Senior Citizen, Domestic Term Deposit Rates from April 24, 2012. Below are the revised rates.

Premature withdrawal of SBI Term Deposits:

• Domestic Term and NRO Deposits should remain for a minimum period of 7 days and NRE Deposits should remain for a minimum period of 1 year in order to earn interest.
• No penalty for premature withdrawal upto 180 days and 0.5% for other maturities.

Tribhovandas Bhimji Zaveri Limited (TBZ) IPO is open for subscription from April 24 to April 26, 2012. This post would cover the subscription status of the same on a daily basis.

TBZ IPO Subscription Day 3:

TBZ IPO subscribed 1.15 times on final & third day of issue (April 26)

1. Qualified Institutional Buyers (QIB) – 1.29
2. Corporates/ HNIs – 1.91
3. Retail Individual Investors (RIIs) – 0.68

TBZ IPO Subscription Day 2:

Tribhovandas Bhimji Zaveri Limited IPO subscribed 0.20 times on second day of issue (April 25)

1. Qualified Institutional Buyers (QIB) – 0.00
2. Corporates/ HNIs – 0.67
3. Retail Individual Investors (RIIs) – 0.19

TBZ IPO Subscription Day 1:

Tribhovandas Bhimji Zaveri Limited IPO subscribed 0.06 times on first day of issue (April 24)

1. Qualified Institutional Buyers (QIB) – 0.00
2. Corporates/ HNIs – 0.22
3. Retail Individual Investors (RIIs) – 0.05