FMP Vs Bank Fixed Deposit - Which One is Better For Investors?

We all know what is bank fixed deposit. In this article I will present an introduction to FMP or Fixed Income Plan, comparison between FMP and Bank Fixed Deposit and when an investor should invest in FMP.

What is FMP or Fixed Income Plans?

FMPs are closed ended mutual fund scheme with a maturity period ranging from a few days to five years. Most of the FMP plans are debt oriented. But a few scheme may have a small equity component. At the end of the period, the scheme matures, just like a fixed deposit in a bank. FMP schemes have two options. With growth option or with dividend options.

Do FMP provides a guaranteed return?

No, they do not. But investors are informed an indicative return at the maturity. If you select a FMP, which invest only in debt instruments, more often than not, the actual return will match with indicative return.

What is the difference between FMP and Bank FD?

Practically, for an investor, there is no difference. Only difference is that bank FD gives an explicit guarantee on return, where as in FMP, return is indicative. In terms of tax friendliness, FMP are more tax friendly than Bank FD ( see the table below ).

Invested Amount - Rs 100 - Rs 100

Return% -10% - 10%

Investment Tenure - 1 year - 1 year

Interest Earned - Rs 10 - Rs 10

Tax on Interest Earned - Rs 1.416 - Rs 3.4

Net Interest after Tax - Rs 8.6 - Rs 6.6

*12.5% Dividend Distribution Tax + 10% Surcharge + 3% Cess = 14.16% **30% Tax (for income over 10 lakhs) + 10% Surcharge + 3% Cess = 34%

Dividend Options or Growth Option - Which one I should go for?

It depends upon the tenure of your investment. For less than one year investment, dividend option is better. For a less than one year maturity period, you pay 14.16% tax, deducted at the time of distribution of dividend. For more than one year, growth option is beneficial. In case of more than one year, you need to pay 10% as capital gain tax (without indexation) or 20% tax (with indexation). You can also avail the benefit of double indexation by investing in march of a financial year and redeeming the units in April in next financial year ( say - purchase in March'09 and redemption in April'10 ). In case of double indexing, tax liability is further reduced.

Conclusion: If you are doing regular FDs of small amount in Banks or Post Office for the purpose of saving, then do not look at FMP. But if you are looking for a considerable amount of investment for a fixed tenure and also looking for tax efficiency, then go for FMP. FMP is primarily helpful for people in higher tax bracket. Higher your tax bracket, more you should move your fixed investment towards FMP. I would request , next time you think of an fixed deposit, do your quick calculation and then take a decision.

Top 5 Positive Impacts of Indian Budget For Financial Year 2010

• Reduction of Income Tax Slabs
• Thrust on Education, Roads and Agriculture
• Fiscal Deficit Reduction
• Increase in growth
• Formation of FDSC

Reduction of Income Tax Slabs: Since there is a reduction in income tax slabs it leaves the common man, the consumer with more money in hand to spend. So this budget is thought to be a refreshing change for both middle and lower income groups. But according to some of the people, it will help to negate the increasing inflation rate. Acc. to HDFC chairman, Deepak Parekh it is anticipated that reduction in food inflation will be taken care of by increased inflation in fuel, crude products and another round of increase in prices of fuel is also expected by him.

Thrust on Education, Roads and Agriculture: According to the Finance Minister,the main areas which will be focused this financial year are education, roads and agriculture. Increase in education is anticipated to be about 30%, that is an increase from 31,000 crore to a figure of 41,000 crore. Next focus will be on roads and an increase of 20% in the development is expected in the same that is an increase to a figure of 45-46000 crore. But agriculture, which has been the weakest link of our economy last fiscal year will also be focused by introduction of new policies.

Fiscal Deficit Reduction: This is the best part to cheer about as the government borrowings will be less this year. The fiscal deficit figure expected this year is 5.5% which seems to be an achievable target according to Deepak Parekh, chairman of HDFC. Acc. to him, there are many points in Indian Economy that if they are priced properly then these figures and also the figures anticipated for upcoming years that is, 4.8% can be easily achieved and even more. This will be mainly done with the help of disinvestment. And in the coming times it will be tax revenues which will more payable than sharp spending cuts to achieve the figures.

Increase in growth: There will be a good increase in growth about 8-8.5% this financial year, which is expected to be more in Fiscal Y11. Rate hikes, would not dent the growth of Indian Economy.

Formation of FDSC: This new body will be a decision making body rather than a regulatory body like the previous bodies.Actually it was initially proposed by Rajiv Ram committee but came into formation now. Acc to HDFC chairman, Deepak Parekh who waive off the rumors surrounding this body coming into picture that it's just a coordinating body and won't dilute RBI's role in Indian Economy. He says there was a dire need of such a body as RBI's governor is not supposed to take decisions. Its name itself implies Stability as in Fiscal Development Stability Corporation. He says he is happy with its introduction as it will prove to be beneficial for the economy in a longer run.

An Overview on Demat Account Charges in India

Demat account is more or less an essential requirement for all the investors who invest in equities, bonds and debentures. Despite various efforts by the regulators to make electronic transactions as cheap as possible for the ordinary investors, the charges for Demat accounts continue to remain on higher side. Depending upon the individual profile, requirements and suitability, different investors open DP accounts with banks, online broking houses or local brokers. In this article, I have given an overview on the prevailing demat charges in India.

DEMAT Account charges can be broadly divided into the following three main categories.

Account Opening and Documentation Charges

It is a one-time charge that has to be paid at the time of opening of DEMAT Account. Most of the Banks and Stock Trading Brokers do not charge any fees towards account opening but some of them may charge you a nominal fee for stamp paper on which you have to execute the agreements with the brokers.

Folio Maintenance Charges or Annual Maintenance Charges (AMC)

The charges vary from Rs. 200 to Rs.750 per year, which are generally required to be paid at the commencement of the year. However, some of the banks and brokers may charge you every month or quarter.

Transaction Charges

Transaction Charge is the charge for Debit of Shares (when you sell) from your DP account. Please note that as per the regulator SEBI (Securities and Exchange Board of India), no broker or bank can levy transaction charges for Credit of Shares (when you buy), that means, it is free. Therefore, don't be misled by the agents who say that they offer 'Free Credit of Shares'. The transaction charges are in the range of 0.02% to 0.04% of the transaction value subject to a minimum charge of Rs.12 to Rs.25 per transaction. Some of the brokers like Reliance Money, India Bulls and Geojit charge Flat Fees of the order of Rs.10 to Rs.12 per transaction.

In addition to the above three main charges, there are charges for Dematerialization or Rematerialization of Shares, Pledge Services, and off-market transfers. However, for most of the ordinary investors, these charges are rarely applicable.

Few Important Points Worth Noting:

• In addition to the basic charges as explained above, you have to pay service tax and education cess, the rate of which at present is 10.3%
• Many banks waive off annual maintenance charges for the first year.
• You may have to pay extra charges for physical account statements; however, if you opt for E-Statements, you do not have to pay any charges.
• If you have a Trading and DP account with the same broker, you may save substantial amount on AMC and transactions charges.
• Many online brokers offer you low charges initially but they may revise it subsequently. Therefore, while choosing the broker or bank for opening new demat account, you should consider all the factors such as service, convenience, and your frequency and volume of transactions instead of taking the decision based only on the charges.

Why Car Insurance is a Necessity

Car insurance is vital, and is legally required if you want to drive on the roads of New York. So why do you need auto insurance? Firstly, if your care gets damaged or stolen, you can recoup these damages which will help you pay for a new car or get your existing car repaired. Secondly, every driver is required to have 3rd party insurance, which means that they must cover other drivers in case they crash into them (and it is their fault).

This essentially means that everyone is covering everyone else, which is why it works. If you're a first time buyer, or if your existing car insurance policy is expiring then it's time for you to look for a new one. At first it might seem like all insurance companies are the same and will offer you the same price, but this is not true. In fact, every company is different (due to the policies, staff and values), and will therefore charge you a different (or at least a unique) price for your insurance.

The best way to look for car insurance quotes is online, via an insurance website (a comparison website, which takes your details and enters them into every other insurance company. The results are returned to you, and then shown in order of cheapest to most expensive).

Another important point to remember is that your credit history affects the price of your insurance more than you might think. Keeping your credit history in order and at a high level is very important, and the simplest way to do this is basically to make all of your payments (eg. for credit cards and bills) on time and for the full amount.

Why Should I Pay For Portfolio Management?

Chances are, if you are an investor, you have had to deal with the question of whether to manage your own investment portfolio or have it managed for you, in which case a monitoring fee will be charged by your adviser.

Monitoring fees are fees for information and advice given. Generally, monitoring fees range between 0.5% and 1.5% of the funds being managed, depending on the size of portfolio. These fees are generally tax deductible, which reduces the real cost. Fees usually cover not only advice but full quarterly or six monthly reporting showing portfolio valuations and performance, economic updates, and a tax report. If an investor does not wish to pay monitoring fees, advice can be given at an hourly rate. This often works out to be more expensive than the monitoring fee because the adviser has to spend time reviewing the value and performance of the portfolio before giving advice. With a managed portfolio, paperwork is usually kept to a minimum and changes to portfolios can be made at little or no cost.

Generally, the only "advisers" offering "free advice" are nothing more than salespeople who earn a commission on investments they sell. Commissions are paid for by investors indirectly in that without commissions, the return on the investment could be higher.

Advisers have up to date information on what is happening in investment markets. Their key role is to set the "asset allocation" for the portfolio and to review the investments that make up each allocation. There are only 4 types of investment (asset classes) which are cash, fixed interest, property and shares. With each asset class you have a choice as to whether you invest onshore or offshore. It has been shown that over 80% of the return on an investment portfolio is determined by the asset allocation, that is the percentage weighting of each asset class, onshore and offshore, in the portfolio.

The asset allocation for different investors will depend on a number of factors, such as their age, the size of their portfolio, their financial goals, how they feel about risk and volatility in their portfolio and various other factors. It is critically important that the asset allocation be set correctly. If it is set incorrectly, then the investor may have a portfolio that produces too low a return or has too much risk. A good adviser will spend time with clients getting a good understanding of their values, attitudes, lifestyle and goals before recommending a portfolio.

Another important part of the advising role is to support clients through market changes to ensure that any changes made to portfolios are consistent with the investment strategy, in other words, to avoid panic selling or buying of investments. Paying a small percentage of the portfolio return to an adviser in order to potentially increase return and/or reduce risk, along with the various other benefits makes good sense.

Mobile Banking on Your Fingertips

Mobile banking basically refers to the availability of banking services on one's mobile phones. This service may be broadly classified into two broad categories: Mobile payments and mobile information services. Mobile payments include utility bill payments, cash transfers, payments to vendors, etc. Mobile information services include balance updates, transaction updates, etc. These are also at times offered to top customers as separate services, exclusive of mobile banking.

It has been observed that this banking service has been growing at a rapid pace, especially during the last few years.

It is expected to be the next big thing in the banking sector that banks would be increasing this service offered everyday. Some of the services offered by banks under it are: Mini-statements and checking of account history, alerts on account activity, access to loan statements, access to card statements, mutual funds / equity statements, insurance policy & pension plan management, status of cheques, balance checking in the account, recent transactions, blocking of (lost, stolen) cards, domestic and international fund transfers, mobile recharging, bill payment processing, and withdrawal and deposit at banking agent.

Mobile banking truly represents the adage of "Anytime, Anywhere banking". That said, even this banking is not immune to drawbacks. With an increase in number of mobile banking users, especially those making mobile payments, the expectations keep rising. Mobile banking being relatively new and operating in an ever changing arena, banks need to continually update themselves on the emerging trends and changing needs. Banks offering mobile banking increasingly face problems such as handset compatibility, security of mobile payments, transactions and information updates. With users being from all over the world, mobile banking needs a dependable server and system that's up and running 24x7. Programs if any, need to be up to date, and highly user friendly.

This Banking applications found in all parts of the world. People across all walks of life and from different cultures make mobile payments. Though North America and Europe are the established players in this banking, emerging markets are now Asian and South American countries. In India, surveys suggest that 43 million urban users use this service in their everyday lives. That's a reach of 15% in the urban Indian mobile user base. Surprisingly, rural areas aren't very far behind. This service also available in different regional languages, and the spread of mobile phones being far and wide, villages and towns also see a growing trend in this section especially in the banking information services.

The stage seems to be set to move into a new decade of banking from our mobile phones. With services like mchek coming into play, mobile banking may very well force out currency notes in many years to come.

Microfinance - A Tool For Corporate Social Responsibility

Kiva is a leading facilitator in the world of micro-lending. Micro-lending is the process in which an individual can lend relatively small amounts of money to the underprivileged around the world. The benefit of this type of lending is dual. First, it helps individual Internet users become socially responsible and it stimulates the economy and supports families in underprivileged communities by providing the capital necessary to maintain or start a business.

Social Responsibility

Social responsibility is the idea that businesses should account for performance socially and ecologically. Generally, discussions on social responsibility apply to corporations, known as corporate social responsibility or CSR. If you are an entrepreneur and are interested in building a business model around social responsibility, Kiva is a useful tool for investing. By partnering with microfinance institutions around the world, Kiva connects lenders with those who need a financial boost.

The Lending Process

When considering an investment strategy, always spend time researching your venue and assessing your risks. There are important factors to review when considering lending internationally including devaluation and politics.

Kiva enlists microfinance institutions around the world called Field Partners. Field Partners locate members of their community who need assistance. Once an individual is identified, the Field Partner snaps a picture and records their story. They then populate Kiva's website with profiles of selected entrepreneurs who need assistance.

Kiva's website is designed so lenders have total control over the loan selection process. Simply browse the site for an individual you would like to lend to by selecting "fundraising" from the Find Loans drop down menu. Once you find a fundraiser of interest, select their profile for a detailed overview. The site will provide information on how much money is requested, how much has been raised and the number of days remaining to fund the loan.

Once you have selected someone you would like to lend to, you can fund the loan via PayPal or your credit card in increments of $25.00 USD. Loans are repaid monthly to your account over a period of six to twelve months. You have the option of lending to another Kiva fundraiser or receiving the funds to your PayPal account.

Assessing the Risk

With all investments, risk assessment is an important part of the process. Kiva's website provides some tools for assessing the risk of lending through their Field Partners. Kiva utilizes a 5 star rating system based on a number of financial indicators and time. Additionally, you can gain some understanding of Kiva's customer base by sorting by "Ended with Loss" from the Find Loans drop down menu. At this time, there are substantially more loans categorized as "Paid Back" than there are having ended in loss.

In summary, socially responsible investments provide relief to members of underprivileged communities. Making investments with Kiva is a simple process that allows everyone an opportunity to impact someone else's life. Make sure you research your investment venues before you lend.

How To Restructure Or Modify My Home Loan

You can stop your foreclosure by restructuring your mortgage in the most successful way. There will be many questions you may need answers to and I hope this article will be helpful to you.

Do you qualify for a home loan modification? This will be done at the start to avoid any kind of confusion later on.

What you need to do is fill out the proper paper work to express your ideas and needs with your lender and find out their opinion and where they stand with your loan as well and what your options may or may not be based on their current loan guide lines and specifications. An attorney would be good to hire for this so he or she can also help you get to know what your best plan of action and options will be.

The Foreclosure process does cost a lot of money, This is good! why? both the lender as well as the borrower does not prefer foreclosure and they are normally willing to agree on other options due to the fact that they do not want to lose their investment (you in the home)

This is a plus for You because this helps you plead your case and you can easily get back on the right path by restructuring your loan.

If your lender is not willing to do a modification of your home loan or a restructuring, you can ask them to allow you a re-financing option based on your current standing with your credit with them and the current market value of your home. What refinancing actually means is extending the term of your loan over a larger period of time and with this process your monthly payments get reduced ultimately saving you some cash at the end of each month.

Work out with your lender a way that will help you to repay them on time and some what quicker and with a loan that makes sense to both you and your lender.

No lender would like to lose their money and wait even longer periods of time to collect what they have invested.All this is why a loan modification or loan restructure is the best way to stop your foreclosure from starting and destroying your credit.

It is always better to start taking actions in time to avoid any foreclosure proceedings from starting as that will hinder the actual time needed to complete a beneficial and successful home loan modification or restructure of your loan. I have a way for you to restructure your loan and save a lot of money on your principal balance as well. Wells Fargo, Bank of America and Citi mortgage loans will go through very fast now days as they are doing restructures very quickly.

Fixed Deposit - The Best and Secured Way to Save Money

The businessmen in India have positive feeling regarding their financial position. As the economic position of India is mostly based on the government organisations, the speculation and financial crisis have not shown much effect on Indian economy. If you study the present economic position of India, you can come to a conclusion that investing in a stock market or mutual funds will make you to face many problems. A lot of insecurity and confusions are faced by the investors, who want to invest in their money in public or private sectors. In these situations, they are searching for the best alternatives to save or invest their money.

Many of the economists in India say that going for fixed deposit is the right solution, when it compared to all the other sources where you can invest your money. This is the best source to rescue from the present liquidity crisis.

The fixed deposit is nothing but an account that allows the people to deposit their money for a period of some time. Depending on their convenience, people can choose the deposit period that say for a minimum period of 15 days to 5 years and more than that. When the deposit period comes to an end, the depositors will get high amount of interest on their deposited money. Depositing money in Indian banks is safer than other sources as the all the banks in India are under the control of Reserve Bank of India.

The main advantage of going for these deposits is that the depositors get high interest rates than the saving bank account holders. They will get lump-sum of money at a time, after the completion of maturity period of the deposit. Moreover, people do not get any insecure feeling on their deposits. The fixed deposits have been playing a prominent role, since the banking system has been introduced in the Indian economy market. They are one of the beneficial saving methods. Some years ago, people showed great interest for going long term deposits. But, now-a-days, due to the drastic changes that are occurred in the economic position of India, most of the investors want to go for short term fixed deposits.

The interest rates of the fixed deposits vary from one bank to another bank. To extend their services as well as to attract all segments of the investors, most of the banks in India offer many facilities to their customers, who want to deposit money in their banks. One of the main facilities is that the over draft facility which allows the depositors to draw money on the deposited amount, before the completion of the maturity period of deposit. On the request of depositors, some of the banks can transfer the interest amount on fixed money to the current or saving account of the depositor.

The minimum fixed amount can range from RS. 100 to an unlimited amount. If any one wants to open a fixed deposit account in a bank, he should inquire about the interest rates of all the banks. Some of the websites over the Internet help you to find the best bank that offers high amount of interest rates on depositing money.

Fiscal Deficit and Economic Growth

The planning commission deputy chairman rightly opined that growth takes precedence over deficit. In other words, the commission would like to concentrate on the economic growth now and about the deficit later. At present the fiscal deficit in Indian economy is about 11% of GDP. The government's goal is to bring it down to 3% of the country's GDP. The exclusive deficit of the central government is about 7% of the GDP. Some statistical organisations put India among some of the very high fiscal deficit economies.

Five year plans and investment:

The public investment for the development of the country has been increasing since 1951. For better services and to provide employment to the educated and skilled Indian citizens the public sector units came in to existence. Over the years due to mismanagement of these units, these have become a burden on the Indian economy though some of them have been contributing to the growth in the economy.

Rural development, Industrial development, human resource development, etc are some of the priorities in the five year plan periods for the over all economic development of India.

Free technical training for the educated but poor youth to enhance their skills has been one of the primary motives of the government as their skills contribute in producing goods and services and thus the economic growth of the nation.

Electricity, transportation, communication, education, health, credit facilities, marketing, irrigation, etc are some of the vital and basic necessities for the economic development of the nation.

The country's security is of utmost importance. Defence expenditure is very high in India. This is due to several boarder and other territorial disputes with the neighbouring nations like Pakistan, China, etc.

Due to ever increasing fiscal deficit, the government has been privatising and also slashing many subsidies. In other words the government has been moving towards more openness and reforms. Some economists also opined that the government can get Rs.25,000 crores annually if it moves towards disinvestment.

Government's support services:

The human resources development is one of the primary objectives of any government. In India too the government spends huge sums on this sector so that they can contribute to the development and growth of the nation. For instance there are free education schemes for poor, subsidies on fee, lower interest loans for higher education abroad and in India. Similarly there are many kinds of subsidies for the farmers as agriculture has been a source of livelihood for many and also as it contributes to the economic growth and development of the nation.

The government also bears the burden of promoting the exports by subsidising, promoting and supporting the export oriented industries. This measure is to reduce the trade deficit.

Containing the huge fiscal deficit:

The centre's fiscal deficit for the first two months ( April and May) of the current financial year is about Rs. 90, 758 crores. This is mainly due to indirect tax cuts by the government to deal with the economic slow down. For instance, the excise duty on most products was reduced by 6% points and the service tax was cut by 2% points. These measures would induce demand by reducing the prices and thus production and employment.

Fiscal deficit for May 2009 was Rs. 36,600 crores as tax receipts dipped by 10%, this is mainly due to the decline in indirect tax collections.

In the month of April 2009, the fiscal deficit rose to 64% due to increasing government's expenditure. Sixth pay commission awards, declining tax revenues, etc are some of the contributors for this state of affairs.
The government employees have been demanding increase in perks as the prices of essential commodities and other expenditure have been rising.

The declining tax revenues are due to, 1. Cenvat (central value added tax) was cut from 14% to 10% and then to 8%. 2. service tax from 12% to 10%, and 3. The reduction in customs duty on several items resulted in 17% decline in gross tax revenues. Thus in the month of April 2009, the effective collection of personal income tax which has increased by 20% is the only bright spot.

The rise in expenditure bill for April month was due to increase in the non-plan expenditure. This expenditure includes, recurring expenditure on completed projects, salaries, and subsidies. Fertiliser, and defense expenditure contributed for the heavy expenditure.

Spending needs to be better targeted to reduce wasteful expenditure. For instance, 1.The government can withdraw some tax concessions, 2.The third generation mobile licence auctions will yield Rs.25,000 crores to it. and 3. Disinvestment of loss making public sector units will yield about Rs. 80,000 crores. These steps will bring deficit back to about 6.5% of GDP.

Due to political compulsions, the government's task would be tough as it has to make some best choices which are not popular measures to garner votes.