Newsletter on Safer Returns with Government Securities

India equity MF inflows nearly triple in August | Key Takeaways

Equity mutual funds attracted net inflows of ? 20,133.3 crore in August, the highest in five months, up 168.25% over July. Mid-size and small-cap funds, which continued to draw investor interest throughout August despite large-cap funds continuing outflows as investors booked profits, were the driving force behind the strong traction in equity funds. Here are the key takeaways you need to know.

1. Inflows in the small-cap funds maintained a run rate of more than ?4,000 crore for the third month in a row. At ?4,264.82 crore in August, small cap fund inflows came slightly higher than ?4,171.44 crore seen during July.

1. 2. Mid-cap funds saw healthy inflows at ?2,512.34 crore, increasing from ?1,623.33 crore inJuly. The ongoing robust rally in mid-and small-cap stocks have been supporting investor interest and flow towards these funds, said analysts.3. Large cap funds continued to see outflows, at ?348.98 crore in August. However, the pace of outflows declined when compared to July which had seen outflows worth ?1,880 crore amidstprofit booking.4. Thematic and sectoral funds saw inflows worth ?4,805.81 crore which more than trebled over the previous month. Multicap funds also saw an almost 37% rise in inflows over July.5. Debt funds, saw net outflows of ?27,388.42 crore during the month, led by outflows from liquid funds and very short-duration funds.6. The contribution of systematic investment plans (SIPs) stood at an all-time high of?15,813.54 crore in August. SIP assets under management (AUM) stood at ?8.47 trillion in August 2023, compared to ? 8.32 trillion in July. Overall, the mutual fund industry’s net AUM stood at ? 46.63 trillion, while the average AUM was at ?46.93 trillion in August. The retail AUM(equity, hybrid, and solution-oriented schemes) stood at ?24.63 trillion in August, with an average AUM of ?24.38 trillion. The number of SIP accounts stood at the highest ever, at 69.6 million in August, as against 68 million in July.

Tech Billionaire Mark Cuban Loses $870K in Crypto Scam. Here's how to keep your investments safe

Approximately $870,000 was lost by American entrepreneur, investor, producer of motion pictures, and TV personality Mark Cuban as a result of a cryptocurrency scam that took place late on September 15. On-chain investigator Wazz was the first to notice any strange activity in the MetaMask cryptocurrency wallet, also known as "Mark Cuban 2" on EtherScan. Surprisingly, this wallet had been inactive for more than five months, according to CryptoSlate. He lost five Ethereum (ETH) tokens, valued at approximately $8,170 at the current market prices, and other cryptocurrencies, including USD Coin (USDC), Polygon (MATIC), Lido staked Ethereum (stETH), as well as tokens from SuperRare and Ethereum Name Service.

Here's how to keep your Crypto investments safe:

1. Use two-factor authentication (2FA) on your wallets and exchange.

2. Withdraw your crypto from your exchange to a wallet.

3. Write down the seed words for your wallet on a piece of paper, but store it safely.

4. Use strong passwords every time.

Niyo Solutions's zero forex markup cards; What is all the hype about?

Fintech company, Niyo's partnerships with Equitas, DCB Bank, Yes Bank, and SBM Bank have given rise to prepaid, debit, and credit cards; known as zero forex markup travelcards or Niyo Global. For a debit card, you have to open a zero balance savings account with either Equitas or DCB Bank, whereas its credit cards are issued in partnership with SBM Bank. For the prepaid cards, it has a tie-up with YES Bank.

After facilitating the application process, you get the credit/ debit card linked to yoursavings account. However, the credit card is a secured card that can be taken against an FD. The credit limit is equal to the FD amount. If the customer defaults on bill payments, the card is blocked and the FD is used to settle the outstanding bill. The card is unblocked only after the customer pledges a fresh FD of the entire amount. Are these cards worth a buy? For people who frequently travel abroad and for students who are enrolled in courses outside of India, Niyo Global cards are an excellent payment choice. For credit card users, it's a good backup card for situations where one needs to withdraw money from an ATM. Niyo Global can serve as a person's primary card for international purchases if they don't use credit cards. The fee for using an ATM with a Niyo Global card is determined by the partner bank.

JPMorgan to add India to its emerging markets bond Index. Here's everything you need to know

In its latest release, JPMorgan said that it will include Indian bonds in its emerging market debt index. The purpose of this inclusion is to prompt billions of dollars of flow into India. India's fiscal imbalance has been high since COVID-19 as a result of increased borrowing. As a major portion of the borrowing will be noticed via this method, this event will reduce borrowing pressure.

We have listed down everything you need to know about this announcement:

1. The Government Bond Index-Emerging Markets (GBI-EM) index and the indexsuite, which are benchmarked by around $236 billion in international funds, will include India's local bonds.

2. The index provider will add the securities starting June 28, 2024. India will have a maximum weight of 10% on the index.

3. 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible. All fall under the category of "fully accessible" for non-residents.

4. Mark-to-market gains will be abundant in the Banks' Treasury. The purchase of GSec will result in a significant dollar flow, which is simultaneously a huge plus for our currency.

5. The base rate for India will be reset, and the yield and India's cost of borrowing will come down sharply.

6. India's weight is expected to reach the maximum weight threshold of 10% in the GBI-EM Global Diversified, and approximately 8.7% in the GBI-EM Global index.

A key point to remember: Inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%.

Safer Returns with Government Securities

National Pension Scheme

India's National Pension Scheme (NPS) is a market-linked, defined contribution, long-term investment program governed by the Central Government and the Pension Fund Regulation and Development Authority (PFRDA).

It can be availed by Government Employees, Employers for their employees, and others. It is mandatory for Central Government employees and voluntary for the latter two. The scheme can be availed for other individuals using e-NPSand POPs (Points of Presence). Anyone from the 18-65 years age group can invest in this scheme including OCIs and NRIs. There is no limit on the investment amount, but there should be at least one contribution in a financial year.

Investors can opt from two investment choices,?

1. Active- Choose the plan from several options like equity, corporate bonds, government securities, etc.
2. Auto- Select a predefined portfolio as per age.

Two types of accounts can be opened:?

1. Tier 1 Account- This is a mandatory account if one wants to invest in NPS. The minimum contribution when opening an account is Rs 500. It has many tax benefits. The amount is locked up till the investor attains the age of 60. Withdrawals are restricted in this account.
2. Tier 2 Account- This is a voluntary contribution account that can be opened only when one has a Tier 1 account. The minimum contribution when opening an account is Rs 1000. The amount can be withdrawn anytime. It has no lock-in period and offers no tax benefits.

Charges:?

1. Pension Fund Manager- 0.01% of assets managed
2. Custodian charges- 0.0032%
3. Charges of PoPs

Withdrawals:?

• On Maturity- 60% of the amount can be withdrawn as a lump sum. The Remaining 40% must be deposited in an annuity scheme for regular income. Sometimes, even 100% can be availed as a lump sum. However, only 60% of the amount is tax-free in any case. The 40% annuity will be charged as and when the pension is received per the investor's tax slab.

• Partial Withdrawal- 25% of the amount can be withdrawn only 3 times before the policy expires. Withdrawal is allowed only after 10 years of investment. There should be a gap of 5 years between 2 withdrawals. It is only allowed for specific reasons. No tax is charged on partial withdrawals.

• Premature Exit- It is allowed only after 10 years. 20% of the amount can be withdrawn lump sum. 80% of the amount is used to purchase an annuity. This amount is taxable.?

Taxation:?

Partial withdrawals and 60% of the total amount received in a lump sum on maturity are not taxable.

40% of the amount on maturity deposited in an annuity is taxable as per the tax slab on receiving the amount.?

Deductions can be claimed on deposits:?

Employee contribution - 1. Tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.

2. Tax deduction up to ?50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.

Employer's contribution- Eligible for tax deduction up to 10% of salary (Basic + DA) (14% if Central Government makes such contribution) contributed by the employer under Section 80 CCD(2) over the limit of Rs. 1.50 lakh provided under section 80 CCE.

Tax benefits to self-employed:?

1. Tax deduction up to 20 % of gross income under section 80 CCD (1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
2. Tax deduction up to ?50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.

National Savings Certificate (NSC)?

The National Savings Certificate (NSC) is an initiative by the Government of India and encourages people to invest in their savings while also saving on income tax. It is a fixed-income investment scheme

Deposit Limits:

1. Minimum deposit ?1000/- and after that in multiple of ?100. No maximum deposit limit. 2. Even after the maturity period, individuals can continue investing in the scheme.

Who can invest?

1. Non-resident Indians cannot invest in NSC.
2. Under the NSC VIII Issue, HUFs and Trusts are not eligible to invest in the scheme.
3. Public and Private companies can not invest.
4. There is no age limit for individuals to purchase a certificate.

Maturity tenure: Five years and ten years are the two maturity periods of the scheme that individuals can choose from. There is a lock-in period which is equal to the maturity period of the certificates

Returns: Currently, the rate of interest has been increased from 7% to 7.7%. The government revises the interest rates on small savings schemes every quarter. It is compounded on an annual basis. The interest that is generated is compounded yearly and reinvested towards the scheme. Thus, the interest is payable only at maturity. Therefore, the invested amount of the individual increases without purchasing certificates.

Taxation: Except for the interest that is earned in the final year, the remaining interest that is generated is tax-free.?

Under Section 80C of the Income Tax Act, 1961, tax benefits of up to Rs.1.5 lakh can be availed by investing towards the NSC.

as per the marginal income tax rates, the tax must be paid for the interest earned.

There is no TDS on NSC payouts.

Premature withdrawal is allowed, but in rare cases only. in case the certificate holder passes away.

You cannot now subscribe to NSC online. To open an NSC account, you must complete the NSC application form and deliver it to the executive at the nearby Post Office.?

Sovereign Gold Bonds

SGBs are government securities issued by the Reserve Bank on behalf of the Government of India. They are substitutes for holding physical gold denominated in grams of gold.?

Why SGBs and not physical gold??

1. Risks and costs of storage are eliminated
2. Assured of the market value and periodical interest
3. free from issues like making charges and purity

Eligible investors include individuals, HUFs, trusts, universities, and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue holding SGB until early redemption/maturity. joint holding is allowed.?

Investment Limits include the minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts and similar entities.

Returns: Bonds bear interest at 2.50 percent (fixed rate) per annum on the initial investment amount

Selling Price: The nominal value of Gold Bonds shall be in Indian Rupees fixed based on a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.

A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be ? 50 per gram less than the nominal value to those investors applying online, and the payment against the application is made through digital mode.

Premature Redemption: Though the bond's tenure is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges if held in demat form. It can also be transferred to any other eligible investor.

Taxation: Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long-term capital gains arising to any person on bond transfer.

TDS is not applicable on the bond.

Editor's Take

In this newsletter, we have talked about the National Pension Scheme(NPS), National Saving Certificates (NSC), and Sovereign Gold Bonds(SGBs). These Investment Schemes are backed by the Government of India. NPS is a safe security for income in retirement days. NSC is a traditional fixed-income security product with no risk and moderate return. SGB is a relatively new asset class, which along with appreciation in the price of gold, offers an interest of 2.5% per annum to the holders along with taxation benefits.