Glossary Terms Related to Budget

Following are some of the commonly used terms in connection with the Indian Budget.

Ad- Valorem Duties :- Defined as those duties that are established as a certain percentage of the price of the product.

Appropriation Bill :- It is a bill that authorizes payment and appropriation of expenses from the Consolidated Fund. This bill is introduced only after the general discussion on budget proposals and the completion of voting on grants. The procedure to pass the bill in parliament is like other money bills.

Bill :- It is a well drafted legislative proposal that later becomes an Act on being approved by both the Lok Sabha and Rajya Sabha.

Budget/ Annual Financial Statement :- According to the section – 112 of the Indian Constitution, the government presents a statement of estimated receipts, expenditure and a detailed plan that is presented for every financial that is for 1st of April to 31st March of each year.

There are usually three divisions of budget and for each of them a statement of expenditure & receipts are presented. These three divisions include – Contingency Fund, Consolidated Fund and Public Account.

Budget Estimates :– These are assessment of expenditure by the government for a year. This also includes the estimate of Revenue Deficit and Fiscal Deficit for the year.

Budget Deficit :- When the expenditure becomes more than revenues, then the budgetary exercise is considered a failure as there is shortage of funds. Such a situation is said to be a 'Budget Deficit'.

Capital Budget :- This budget comprises of loans & advances that are granted to Union & State territory by the Union government, corporations, government companies and other parties. Capital budget also includes capital receipts and payments by the government.

Capital Expenditure :- The total expenditure by the government on acquiring any asset that may include investment in shares, machinery, building or land. The scope of capital expenditure extends to payments, advancements or loans that are approved or sanctioned to the State governments, union territories, public sector undertakings by the Central government.

Countervailing Duties :- These duties are imposed on all imports inorder to thwart any kind of unfair trading practices carried by the foreign countries.

Consolidated Fund :- This fund is made of the revenues that is received by Government plus the loans that is raised by this revenue as well as the receipts from recoveries of loans granted by it.

Contingency Fund :- The fund that is used by the government in order to meet the unforeseen expenditure or incase to meet emergencies. The contingency fund is generally used when the government cannot wait for long for the parliament to authorise the expenses on the expenditure.

CENVAT :- This scheme is implied for most of the goods and reduce the cascading effect of indirect taxes on finished products.

How to invest in PPF?

Any financial advisor would definitely recommend an investment in PPF (Public Provident Fund) as one of the means to build long-term wealth. You can make investments in this scheme every year (in a maximum of twelve instalments) right from Rs 500 upto Rs 1 lakh. You can make investments either in your name or on behalf of a minor. While the tenure of the PPF account is fixed at 15 years, you can extend it for a further block of five years too. From 2012, interest on the PPF account will be notified by the government at the beginning of every year (April 1). PPF investments are eligible for deduction under Section 80C of the Income-Tax Act. Here's the lowdown on how you can open a PPF account.

POST-OFFICES AND BANKS

Along with instruments such as the MIS and NSC, PPF is part of the small savings scheme run by the post office. Hence, one of the options is to maintain your PPF account in the nearest post-office. Opening the account involves filling up a simple two-page application form and the tendering of cash/cheque for the initial subscription. Your passport size photograph, PAN and address proof are the basic requirements.

In case the PAN is not available, an attested copy of the ration card, voter identity card or passport can be submitted. If you are opening an account on behalf of your minor son or daughter, a copy of his/her birth certificate may also be needed. When you open the account, you will be given a passbook. The passbook needs to be updated for every investment you make and for the interest you receive. You will also get a receipt for every deposit you make which can be shown as a proof of tax-saving investment at your office. This will help reduce the TDS outgo from your salary. Besides post-offices, most public sector banks also help you open PPF accounts with them. The account opening and documentation requirements here are largely the same.

ONLINE INVESTMENTS

With almost every investment option, be it stocks, mutual funds, fixed deposits or bonds, available at the click of the mouse, can PPF investments be made online too? Well, you cannot if you have an account with the post-office.

But some banks permit online transfers. For example, if you have your PPF account with SBI and your salary/savings account with ICICI Bank, you can log into net banking and add the SBI PPF account as a payee/beneficiary for transfer from your ICICI account. Similarly, money from your Citibank savings account can be transferred to your State Bank of Mysore PPF account.

Moreover, if you have a savings account and the PPF account with the same bank, these two can be linked. In this case, you need not add the PPF account as a third-party beneficiary. You can directly transfer money. Also, you can view the credits to the PPF account online just like how you see your bank statements.

So, if you have savings/PPF account with other private/public sector banks, do a quick check with your banker. In case the bank does not allow online transfers, you can transfer your account to a bank that does. A post-office PPF account too can be transferred to a bank.

Impact of weak Indian currency

The rupee’s depreciation against the dollar is seen to be beneficial to the Indian economy in some ways, and detrimental in other ways. The rupee fell to 53 against the dollar, its weakest in nearly 2 years, early on Wednesday as worries Europe could be heading for another banking crisis rattled global markets. Let us quickly analyze theimpact of Weak Indian currency on different institutions.

Impact on Inflation

Weaker rupee complicates government’s battle against runaway inflation. Imports become more expensive. The dramatic dip in rupee’s value has a very bad impact on the economy. While many currencies have been weakening against the dollar, India has been the worst performer in Asia. With the increase in dollar rate, the rupee remains weak & Indian imports of Crude Oil, edible oil, pulses & Capital goods becomes more expensive.  The rise in dollar rate adversely impacts government’s efforts to curb inflation.

Impact on FII inflows

The focus is particularly on crude oil price. Due to the Financial market turmoil, foreign capital inflows have almost dried up, but the demand for Dollars is rising. India’s crude oil import bill has become staggering. Due to rise in the Crude Oil Price, the Oil Marketing companies are shelling out 40/50 dollars more/barrel. Hence there is an increase in the Dollar demand, which have been almost sucked.

Basics of Commodity Markets in India

Back on blogging after a long break. Just got a push from someone today morning which made me start all over again from where I had left it midway.

This post I would just be highlighting a few basics of Commodity Markets. Its not been long that this avenue has come up for retail investors and traders to participate apart from Equity markets. Its a good option for anyone looking at diversifying their portfolio.

So what are commodities and commodity markets?

 Any goods that are unbranded and traded commonly, such as Gold, Silver, Zinc, Rubber, Pepper, Sugar etc are a few of them.

Basically there are two type of markets, Spot and Future (Derivative) markets. In spot goods / commodity is bought and sold in physical form, whereas in Derivative market there are instruments based on commodity are traded via regularized exchanges.

In India we have two major exchanges which are: MCX (Multi Commodity Exchange) and NCDEX (National Commodity Derivatives Exchange). Brokers get registered with these exchanges and in turn clients with brokers.  

All about Initial Public Offering – IPO

Now that a few basics of MF has been done..now we could move on to other terms in the finance world…

So what is IPO??

What is Systematic Investment Plan (SIP)?

It is popularly knows as SIP, it is a simple method used all over the globe. It is very close to recurring deposits. It involves investing a fixed amount on a regular basis for a fixed period in any scheme. A SIP can be started even by investing ` 500 p.m. (in most of the schemes)

Advantages?

Power of Compounding.....

 Hope this post helps one and all in understand how important it is to save consistently and regularly. One has no idea of the Power of Compounding.

I would narrate the same with an example which we share with all our clients:

Early systematic investment paves the way for a stress free retirement.

Let’s say there are 2 people Mr. A (age 25) and Mr. B (age 25). Both have been worried about their future financially with the rise in inflation etc for the next 35 years. Both of them plan to retire at the age of 60.

Mr. A starts investing `10,000 pm on a regular systematic way from the age of 25 and would continue till the age of 35 (assuming the basic 10%p.a. compounded monthly).   After the age of 35 he stopped investing further amount and did let his investment appreciate till he would retire i.e. when he would be 60 years. Hence total amount invested till age of 35 is ` 12 lacs.

Mr. B started investing the same amount a bit late from the age of 35 and went on investing till he was 60 years (retirement age). His total investment was of ` 30 lacs.      

Now because of the power of compounding lets look at their investment value at the 60^th year.

What is Mutual Funds and Why Mutual Funds?

Continuing with the previous post..

-     Money Market / Liquid Fund / Income Funds: Main objective of this fund is to provide easy liquidity, moderate income and capital preservation. They generally invest in commercial paper, treasury bills, government securities etc. Returns in these fluctuate very less.

-    Equity Linked saving schemes (ELSS):  They are the open-ended growth schemes with 3 year lock in. This is the most popular scheme in today’s generation. It offers the benefit of Section 80 ( C ) of IT Act, up to a maximum of ` 100,000.

-     Index Funds: They replicate any index that is Sensex or Nifty. These schemes invest in index securities in same weightage of an index. NAV will fluctuate as the index would. 

-     Sectoral specific Funds: Main objective of this fund is to invest in equities of a specific sector. For eg. FMCG sectoral fund would invest in companies like Hindustan Lever, Nestle etc…

What is Mutual Funds and Why Mutual Funds?

While I have been writing this blog…Sensex has been roaring, crossing up 20k levels and trying to reach 21k no sooner.

Via this blog, I would be sharing views on Equity, MFs, little bit of Insurance. Though Equity being my forte, I would start with MF as equity being a vast area where MF is not that much.

Starting with MF then, the first question on everyone’s mind would be What is and Why Mutual Funds?

The answer to this is very simple.. A MF acts like a trust wherein they pool in savings of a huge number of investors (who are called unit holders) with a common financial goal. Once the money is collected they are then invested in various products like capital markets / debt markets by qualified professionals. The capital appreciation is then distributed to the unit holders in proportion to the units hold by them.

These hectic days we all have, wherein we hardly have time for ourselves then how would be monitor our finances on a daily basis, where by we are struggling for a good savings / investments and worried about our future financially. Mutual funds have qualified professionals who do all this for you. This is the reason why, the world over, they have become the most popular means of investing.

Some advantages:

Saving vs Investing….

There is not much difference between saving and investing…it’s just the thin line. But yet we can’t say it’s the same.

Saving is for our own security where as investing is for our growth financially. Saving is more of storing money safely for our immediate and upcoming expenses. For e.g. keeping money in banks, FDs, products where there are fixed rate of returns and where even the returns guaranteed. So we always have savings in interest – bearing accounts that are safe.

Savings work like an insurance against emergency requirements. It makes you feel secured. While we save we even prevent it from any loss though the growth would be less but its more secured and works as a backbone to the family. Savings would be where we might earn low or at a fixed rate and where in we can withdraw it easily.