Prashant Sawant Mumbai.

When did RBI nationalised ?  1946  1935  1949  1936

Asset Classes  Equity  Debt/ Fixed Income  Gold

Asset Classes  Equity 1. Stocks 2. MF I. Domestic : Large cap, Mid cap, Small cap II. International Market Capitalisation = Current Stock Price x Number of Shares outstanding. $ 50 bn – 200 bn – 3500 bn

Asset Classes  Debt / Fixed Income 1. Debt MFs ( Issuer, Duration, Credit Quality) 2. Bank FDs 3. Post Office Instruments # Issuer : Gilt ( Bank of England had gilt(smooth) edge) Corporate

Asset Classes  Gold 1. Gold ETF ( Exchange traded fund) Gold & related companies 2. Gold Funds 3. Jewellery

Asset class selection criteria  Short term  Car down payment, holiday  Asset class ???  Medium term  House down payment  Asset class ???  Long term  Children’s education/marriage, Retirement  Asset class ???

FDs & RDs  Fixed & Recurring deposits : Concept, Types of Deposits ( Flexible FD, Savings plus, Deposit with OD facility, RDs with banks/ Post Offices), How to invest, Points to consider before investing, Advantages, Disadvantages, Investment meter, Tax impact.

The FD concept  You deposit a lump sum of money ( ? ) in the bank at a certain ROI for a fixed period of time.  The bank returns the principal & interest earned, either at the end or at regular intervals.  ROI & tenure are fixed at the start : FMP  ROI remains constant during the entire tenure irrespective of the movement in the market ROI.  FD also known as Term deposits/ Time deposits as in Canada, Australia, N Zealand & US. Bond in UK.  FDs are safe ?  DICGC  Deposit Insurance Credit Guarantee Corporation

FD Concept  Why FD offers more ROI than saving ac ?  Liquidity  Simple FD : Interest paid every 3 months in the savers ac or by cheque.  Compound interest FD/ Cumulative FD : Maturity paid with principal & interest.  Quiz : FD made at 9% for 5 yrs. Customer is withdrawing after 2 yrs when the ROI has gone down to 8%. Customer will be paid what ROI ?  Quiz : Is there a penalty for pre-mature withdrawal ?  Yes, max 1%. Differs from bank to bank.  Quiz : FD receipt is called ?  FDR  Quiz : Auto renewal of FD possible ?  Quiz : Can FD maturity amount be paid in cash ?  Only upto 20k as per RBI guidelines. ( ac payee crossed chq/ ac transfer )

Types of FDs  Flexible FD : Can withdraw part of the deposit before maturity, Remaining amount will continue to grow at same ROI.  Savings plus account : If you keep surplus cash in your savings ac, you can ask the bank to move a certain amt into FD for a period of your or bank’s choice.  Deposit with OD : FD Rs 1L, bank will transfer an amt upto 75-80% to your savings ac. The FD will earn the same interest. You need to repay the amount in installments, along with some additional interest, before the expiry of the FD.  These facilities may/may not be offered by all banks/all same bank branches.

Quiz  If you invest Rs 10k in FD at 10% for 5 years, then what is the maturity amount ?  15000/-  16105/-

FD  Can customer take loan against FD ?  Yes, upto 80-90% of principal.  Quiz : ROI on loan will be higher/lower than the ROI for FD ?  Quiz : FDs are taxable ?  If interest goes above Rs 10k in one bank in financial year.  Quiz : of _____ ?  10%, Interest.  Quiz : Bank issues which form for TDS ?  Form 16A  If any tax is due after TDS, holder has to declare it in his returns & pay tax as per his IT slabs.  Form 15 G : < 60 yrs, if total income under tax limits.  Form 15H : > 60 yrs, if total income under tax limits.  Quiz : TDS is applicable for RDs ?

FD Information  Most banks calculate interest on quarterly basis.  This decides the effective annual ROI.  FD durations allowed in India ?  7 days to 10 years  Amount of FD ?  Rs 100/- to unlimited ( with some banks only)  As all the banks are under RBI, all of them have to offer the same ROI for same durations ?  Senior citizens get some % higher ROI, why ?  No penalty on premature withdrawal.

FD u/s 80c ?  5 yr FD >>> 80c  Limitations :  No part withdrawal facility  No loan facility

FD = Cumulative FD  Cumulative FD : Interest calculated & added, monthly, quarterly etc.  Interest is paid every month & principal returned at the end. Will the interest earned in this way be more/less than cumulative FDs ?

How to invest ? …..  Can open FD in any bank  Submit KYC documents. Which are those ?  Photo, Proof of identity, Address proof.  If you have online ac, can open FD online also.  Min deposit Rs __/- but can vary bank to bank.  RS 100.  Quiz : Is it better to make one FD of big amt or various smaller FDs ? Why ?  Liquidity & DICGC

Points to consider before investing  Check & compare ROIs of various banks  Check the penalty for pre-mature withdrawal & compare with other banks.  Is the bank close to your residence/office ?

Advantages  Safe & reliable way to grow your money.  ROI is normally higher than inflation rate.  Surplus cash in savings ac can be automatically be moved to FD.  Interest is compounded.  Senior citizens are offered higher ROI.  Highly liquid. Can get back the amount immediately.  Can get loan against FD.  DICGC ( Rs 1 L, principal & interest)  Have joint ac for DICGC ( Anil, Bina & Bina, Anil)  Can spread FD in multiple banks for DICGC.

Disadvantages  Rising inflation can give you negative ROI.  Quiz : FD at 8%, inflation 6%. At maturity, inflation at 9%, what real ROI you will get ?  Money locked for a long time.  Interest above Rs 10k is taxed at source.  Penalty on pre-mature withdrawal.

FD Investment Meter ( 5 star highest)  Safety  ****  Liquidity  ****  Returns  ***

Tax impact  TDS after Rs 10k  TDS is branch specific & not bank specific.  IF CBS is implemented, above is not possible.  TDS if you have not submitted PAN.  Banks report TDS to IT dept.  Notice by IT, if disclosures on FDs not made.

RD : “Recurring Deposit” concept  Test of patience, discipline & sacrifice.  Opportunity to build up savings through regular monthly deposits of fixed sum over a fixed period of time.  Standing instruction to bank  Interest compounded quarterly.  Delay in payment will affect the maturity value.  Loans up to 80-90% of deposit value.  TDS not applicable.  Quiz : Is interest earned through RD is tax free ?

RD at 8% for 2 yrs Investment pm (Rs)Amount on maturity 500/ / / /-52183

Types of RD  Flexible RD  Instead of fixed amount, 10 X can be invested.  RD at bank & Post offices  RD at PO term fixed at 5 yrs, bank any duration.  PO ROI is fixed, bank ROI varies as per tenure.  Premature withdrawal, PO pays principal with current banks levy max 1% penalty.

How to invest in RD  Any bank in India  Min RD in bank Rs 100/-pm  Min RD in post office Rs 10/- pm  Duration Bank : Min 6 months, max 5 Yrs.  Bank issues passbook which gives details of deposits, duration selected & maturity amount.  Monthly deposit date can be selected.

Points to consider before investing  ROI offered & comparison with other banks.  Penalty on premature closure  Check if bank offers insurance/loans on RD.

Advantages  Opening a RD is simple & easy.  RD offers similar returns as of FD.  The discipline of savings.  Banks offer multiple facilities like loans, insurance, OD etc.  RD is as safe as FD.

Disadvantages  ROI is generally just above the inflation rate.  If standing instruction facility is not available with the bank/PO, one has to visit them every month.  No IT benefits.

RD Investment Meter ( 5 star highest)  Safety  ****  Liquidity  ****  Returns  ***

Tax Impact  Interest from RD is not tax free.  It is considered as a part of your income & taxed accordingly.  TDS is not deducted even if the interest amount exceeds Rs ______ as in FDs.  Rs 10k

Base Rate  Effective from 1 st July 2010.(Replaced BPLR)  Rate below which a bank cannot lend except in cases allowed by RBI.  Transparent system  One base rate for each bank ( reviewed quarterly ), declared publically.  Following categories of loans could be priced without reference to base rate : 1. DRI advances 2. Loans to bank’s own employees including retired employees 3. Loans to bank’s depositors against their own deposits.

DRI : Social banking  Differential rate of interest( 1972).  Concessional to eligible beneficiaries like families with annual income of Rs 18000/- (rural) & Rs 24000/- (urban).  Only to borrowers not under any other govt subsidy scheme.  Limit of Rs 15k. For HL, limit is Rs 20k.  No margin money required. No collateral reqd.  Repayment in 5 yrs max ( including 2 yrs grace period).  Atleast 40% loans to SC/ST.  Min 1% of loans should be DRI….  Banks can lend to NGOs who in tern lends ahead.

 Thank you.  Prashant Sawant   Global training group