Smart tips to grow your money

If you really want your money to grow – stocks is the only way to go'- Haven't you heard this umpteen times. Well, it holds true every time.

The reason being that stocks have the potential to earn at a rate higher than the rate of inflation and thus generate actual savings for you!

Traditional investments like fixed deposits are good and safe and one must have a part of their savings invested in such risk free options. However, your portfolio is not complete and balanced in the absence of stock investments.

If invested wisely, you can minimize the risk of loss in stocks and increase the earning potential of your hard earned money.

Here are some statistics for you:

Nature of Investment	% Returns after 5 Years	% Returns after 10 Years
Real Estate	30%	14%
Gold	10%	7%
Bank FDs	8.50%	12.50%
Equity	35%	16%

As compared to fixed deposits, investments in equity will pay 26.5 percent higher returns in 5 years. Even for a longer term, investment in stocks pay higher returns even in comparison to real estate and gold.

To begin with, when you purchase equity in a company, you must ensure that the stock prices are reasonable.  If you over pay for stocks of a company, naturally you will have to wait longer to make profits on them.

This is because, if you buy stocks at a time when the prices are soaring at unreasonable levels, you will have to face an immediate setback when the market comes to normal levels, and the stock price drops to its average range. 

To understand if the stock price is reasonable, you have to understand how stock prices are determined. The price for a stock depends upon the demand for it amongst buyers. The base line of a stock price is its EPS (Earnings per Share).

The market price of a stock is generally a multiple of its EPS. The multiple depends upon the demand the stock fetches. Demand for the stock depends upon company's reputation, customer relations, financials, current news feeds, economic environment in general, political news, market sentiments etc.

If you are new to the stock market, it is best not to buy stocks when the market is influenced by a certain news feed as market sentiments prevail over logic at such times.

For example, the Sensex shot up in mid 2009 after the Congress led UPA Government was elected in the Parliament. Such price upheavals are temporary in nature.

A calm market is good for new investors.  If you are looking at stocks as an investment it is best to hold stocks for long term. Further, one should invest in good companies with sound management.

Investing in stocks for the long term

If you invest in stock of good companies for the long term, say 5 years, you will most likely earn good returns on your investment. This is because, a good company with a stable history and excellent growth charts, will grow over time.

Its EPS will also move in a forward direction as the company grows. Over time the demand for the shares will also increase and so will the PE multiple. Therefore, your initial investment will multiply over tie if you hold on to the stocks. Also, companies pay dividends and issues bonus shares. These factors add to returns.

Here is a sample of growth in share prices of reputed companies. Even if the prices have moved up and dipped from time to time, over the long run, the share prices have risen and investors have profited!

Share prices of Tata Steels (June 2005 – June 2010)

 Share prices of Infosys Technologies [ Get Quote ] (June 2006 – June 2010)

Option of investing through mutual funds

If you are vary of investing in stocks or are confused about the company where you should put your money, the option of mutual funds may be right for you.

This way you can invest in stocks of different companies, though indirectly, and gain the benefits of the stock markets without having to research stocks, study the market etc.

Fund houses have researchers and experts to study and analyse stocks.

You automatically have a diversified portfolio since mutual funds invest in multiple companies and different industries- this reduces the risk factor. Further you can make a modest beginning since most mutual funds are available for a small investment of Rs 5,000.

Investment planning tips for 2010

 Keep the following investment planning tips in mind for 2010.

1. Get yourself a financial plan

As an individual it is very important to have a financial plan which will guide you with investments as per your goals and needs. It serves a very important purpose of bringing discipline to your investing habits.

An ideal plan gives you a complete picture of your current investments and liabilities, your net worth, cash flow, goals and a specific plan to achieve those goals. The goal can be buying a car, house, going for a vacation, children's education or building a retirement corpus. When you are young you tend to live for the moment and do things as they come but it's very important to secure your financial future. It does not have to be at the cost of a good lifestyle.

2. Start SIP (Systematic investment plan)

SIP is a proven instrument for long term investments for steady returns. Timing the market is rarely possible for anybody and you can end up spending a lot of your productive time and energy trying to do that. Even after doing that the chances of getting it right remains very low. Better alternative is to do SIP in some equity funds with a good track record of performance.

 Keep the following investment planning tips in mind for 2010.

1. Get yourself a financial plan

As an individual it is very important to have a financial plan which will guide you with investments as per your goals and needs. It serves a very important purpose of bringing discipline to your investing habits.

An ideal plan gives you a complete picture of your current investments and liabilities, your net worth, cash flow, goals and a specific plan to achieve those goals. The goal can be buying a car, house, going for a vacation, children's education or building a retirement corpus. When you are young you tend to live for the moment and do things as they come but it's very important to secure your financial future. It does not have to be at the cost of a good lifestyle.

2. Start SIP (Systematic investment plan)

SIP is a proven instrument for long term investments for steady returns. Timing the market is rarely possible for anybody and you can end up spending a lot of your productive time and energy trying to do that. Even after doing that the chances of getting it right remains very low. Better alternative is to do SIP in some equity funds with a good track record of performance.

3. Create a budget and track your expenses

A budget helps you break down your spending and compare on a month to month basis. Thus it helps you identify areas where expenditures can be cut and money diverted to meet your goals like buying a car or house. When you look at your budget and see anomalies, it becomes possible to take remedial action. Do not procrastinate on this

4. Make your PPF and other fixed income investments at the beginning of the financial year

If you invest in the latter half of the year, you miss out on a good amount of interest income. Investing early in the year will tie-up your money which will also help you control certain discretionary expenses.

5. Invest in insurance policies

You can get life cover, child education cover, health cover and save for retirement when you invest in the right insurance policies. Besides this, you get tax exemptions to reduce your current tax payout. This exercise should be done in the beginning of the financial year so that your tax planning can be taken care of. Remember that choosing the right insurance policy can be a tricky exercise and you might need to take assistance from a qualified financial planner.

6. Buy a house

• A house is one of the best investments you can make and it offers many advantages:
• You save on the rent
• Your interest payments are tax deductible
• It usually appreciates in value
• In times of need it serves as great collateral
• Peace of mind and many other intangible benefit

7. Determine your asset allocation and diversify

This involves matching your investment vehicles with your investment goals. Your investment choices should always be based on your age, portfolio, personal situation and level for risk tolerance. Diversification is the key to minimizing risk. You should not put all your eggs in one basket. Real diversification means spreading your money across multiple asset categories including stocks, bonds, real estate and commodities etc.

8. Rupee cost averaging

If you invest directly in stocks then rupee cost averaging is one technique you should look at adopting. It is similar to SIP for Mutual Funds. You fix certain amount of money for a stock and buy at regular intervals regardless of the price. In this way when the prices are low you get more units and vice versa. The key here is to select quality stock for the rupee cost averaging.

9. Don't be obsessed with tracking your portfolio

Stay invested for the long term and don't allow every downward market move to rattle you. It's far too easy to panic when you're watching daily, weekly or monthly results. Too many trading tips, recommendations etc only confuse you. Investment is like a test match and not a T20 match.

10. Don't wait. Start now!

One of the mistakes we do is waiting for the right time as well as a lump sum amount to start investing. Being slow and steady wins in this case. Start small but start now. All you need is self discipline to stay on course!

What is IIP? How it affects stocks?

Every month the stock markets wait with bated breath to hear the IIP numbers. These numbers decide the market movement. But what is IIP? What is its relationship to the stock markets? Let us understand more about IIP.

IIP, the key tracker of industrial production

IIP or the index of industrial production is the number denoting the condition of industrial production during a certain period. These figures are calculated in reference to the figures that existed in the past. Currently the base used for calculating IIP is 1993-1994.

Importance of IIP

As IIP shows the status of industrial activity, you can find out if the industrial activity has increased, decreased or remained same. Today it is important because with the news of recession hovering over the horizon, better IIP figures indicate increase in industrial production. It makes investors and stock markets become more optimistic.

Its relation with stock markets

The optimism amongst the stock markets and investors translates into the markets going up. This is because the markets expect the companies' performance to increase. This ultimately leads to the growth in the country's GDP. It implies improvement in country's economy, thus making it an attractive investment destination to foreign investors.

Computation of IIP

The first time IIP used the year 1937 as its reference point. It contained only 15 products. Since then, the criteria for the base year as well as the number of products have been revamped 7 times.

Currently, IIP uses 1993-94 as the reference year and includes items whose gross value of output is at least Rs 80 crores and Rs 20 crores at gross value added level. The products included are the ones used on consistent basis and can comprise of small scale sector as well as unorganized production sector.

They are segregated into 3 sections: manufacturing, mining and electricity. They are also classified on the basis of usage: capital goods, basic goods, non-basic goods, consumer durables and consumer non-durables.

The numbers for IIP are released within 6 weeks after the end of the month. This data is collated from 15 different agencies like Department of Industrial Policy and Promotion, Indian Bureau of Mines, Central Statistical Organisation and Central Electricity Authority. But at times, the entire data may not be easily available.

Hence some estimates are done to generate provisional data, which is then used to calculate provisional index. Once the actual data is available, this index is updated subsequently.

Though IIP does indicate the condition of the country's economy, it should not be taken as the sole basis for investment. This is because some sectors may show higher performance as compared to others. This was evident in the recent past when realty sector showed higher performance, pharma sector lagged behind.

 So you need to check the reason behind the increase/decrease in IIP figures before investing.

5 things to do to avoid the tax blues ... !!

It's a typical day in March when you see people running helter skelter to invest to save on taxes. And more often than not, they end up investing in products that are either not right for them or not worth investing at all.
You can, however, start saving on your personal income tax during the year, and make additional strategic moves as the year-end approaches. Here are some basic tips for saving on your taxes:

1. Invest and claim your deductions


Section 80C: There are various sections which offer you tax breaks, the most popular one being this one as you can claim up to Rs 1 lakh under this section and it offers you a wide variety of investment options. The options include Employee Provident Fund (EPF), Public Provident Fund (PPF) up to Rs 70,000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, life insurance policies, equity-linked savings schemes (ELSS), unit linked insurance plans (ULIPs), school fees, and home loan principal repayment.
Section 80D: If you have taken a medical insurance plan for yourself, your spouse, dependant parents and dependant children, you can claim deduction up to Rs 15,000 (Rs 15,000 additionally for your parents' medical insurance is also available) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.
Section 80DD: Expenses on the medical treatment of a dependent who is a person with a disability also qualifies for tax benefits under Section 80DD.
In this case, deductions up to Rs 50,000 can be claimed.
A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs 50,000. In case the disability is severe, the claim can go up to Rs 75,000. However, to claim any deduction under this section, certification by a medical authority is mandatory.

2. Interest component of your home loan

The interest component of your home loan is allowed as a deduction under the head 'income from house property' under Section 24(b) up to a limit of Rs 1.5 lakh a year in case of self-occupied house.
One condition being that your house must have been financed by a housing loan taken after April 1, 1999.
It is also essential that the acquisition or the construction of the property is completed within three years from the end of the financial year in which the loan is taken.
The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.

3. Take a loss

If you've done well with your investments and are looking at significant short term capital gains, prior to year-end is the time to offset some of those short term gains by selling some of the losing investments.
If the stock is good, you could sell it on 31st March, say on March 31, 2010, and buy it back in the next financial year, say April 1, 2010; here of course there is the risk of price fluctuation.
Remember that you can carry forward short term losses from previous years' losses for the next 8 years.

4. Do some charitable donations

While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax.
You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act.
The rate of deduction is either 50 or 100 per cent, depending on the choice of the charity fund. There is no restriction on the amount of charity.
However, donations must be made only to specified trusts and also only donations of up to 10 per cent of your total income qualify for such a deduction. Remember to get receipts.

5. Spreading your income

Normally, if you invest in your wife's or child's name, the income generated from such investments will be clubbed with your income and taxed accordingly. However, if you transfer money through a deed to a child who is over 18 years of age and invest in his name, then the income generated from such investment will not be clubbed with your income.
Instead, that will be clubbed with the income of your child/wife and taxed accordingly.
Cash gifts received from specified relatives are exempt from income tax and there is no upper limit.
Similarly, cash gifts of any amount and from anyone received during your child birth, marriage or any other specified event are totally tax-free. However, any cash received from a non-relative where the value is in excess of Rs 50,000 in a particular year will be considered as income in the hands of the recipient.
You should make sure that you have a record and valid receipts for all tax savings investments made in your name. You do not want to be running around at the last minute collecting all the documents required for tax filing.

Protect your investments. Here's how !!

Anything done without proper planning will turn out to be a dud! This holds good for almost everything in life, from marriages to managing finances to running businesses.

Today, one of the most important things is managing finances. Going by recent trends almost everything else in your life hinges more on one huge binding factor called money!

Believe it or not, making money is no big deal, neither saving it nor cutting down on your expenditure for that matter. These are all important but above everything is mastering the art called investment!

It is the only sure way you could build on your wealth and protect it. Investment is a science. And a wise investment is about choosing the right scheme based on certain underlying principles and algorithms.

And unless we do our home work right even the effective steps of the regulators will not help us. So, let us see what it takes to turn into a smart and wise investor that will help you protect and multiply your investment!

To begin with, know your goal

Perhaps the first point to consider before investing in a financial product is to understand your goal! Are you looking at the investment for the long term or short term?

For instance, never invest in a product like Unit Linked Insurance Policy (ULIP), a long term product, if you have plans to surrender it after paying the premium for the mandatory first 3 years called the lock-in period in industry parlance!

When you finally decide on the nature of the investment scheme it is better to do a comparison of the similar products available in the market. Do not give in to selling pressure. After all, it is your money and investment.

Be disciplined

Don't try to do things that are really outside your purview, portfolio management for instance. Approach your financial consultant or a fund manager for expert guidance on these issues.

These areas and things like timing the market are expert zones that requires years of experience to understand and practice and not like simple investment methods like the public provident fund.

Also, misunderstanding does as good as not knowing a product at all and probably even worse! Just one ore two instances of making accidental profits don't put one anywhere in the vicinity of financial disciplines.

Proper asset allocation is important

Allocation of assets in a portfolio is very, very important. Simply put, it is deciding about the mixture of stocks, bonds, real estate, derivates and mutual funds you want to hold in your portfolio.

The fact is that most asset allocation is ad hoc but aims to minimize risk. Asset allocation begins with considering your objectives. This is perhaps one area where even the most seasoned investor might go wrong. Though there is no select formula for a perfect asset allocation, you can still try to do a few things that could help you build a safe portfolio.

Firstly, weigh the difference between risk and returns. For example, investors willing to take a higher risk should allocate more money into stocks. Do not fully rely on planner sheets.

Find out the real cost of your investment from the company. Timing is also important, the earlier you start the better but do consult an expert before you implement it.

Watch out for costs

The one area which many investors fail to decode is the breakup of the costs involved in an investment. Failing to see the hidden costs such as the brokerage costs particularly in a mutual fund or a life insurance company could actually hurt you real hard.

Mutual fund companies often subtract fees from your portfolio known as fund's expense ratio before their annual results are announced. These are expenses paid to the advisor as fees, marketing efforts, legal expenses and accounting and auditing costs.

According to statistics, every year on an average, the expense ratio for a U.S stock fund is roughly between 1 and 1.5 per cent. Apart from this there are other hidden costs like trading costs involved. Learn about the impact of this break up on your investment.

Fund managers often churn their portfolios to whopping per centages thus putting your investment at a higher risk by making your yield fall far below the index return.

Hence, as an investor it is very important for you to keep a watch on all costs, including the fund manager cost, churning cost and other associated costs.

Do you know where to invest your money ??

 How many of you can confidently say that you are well aware of all the investment avenues available? Not all. There is a plethora of investment options available in the market today. But then the options must be selected based on the goals you want to achieve in life and the time frame in which you want to achieve it.

Let us take a trip down the different paths of investment world.

This is the first part where in we will explore different options available under equities:

Equity

I guess one of the most talked about asset class in recent years. So what is equity investment? It refers to buying and holding of shares or stocks in a stock market by an individual and funds in anticipation of income by way of dividend and capital gain as the value of the stock rises. Equity investment is a good form of long-term investments. There are various ways of investing in equity:

Direct investment: Refers to buying and selling (trading) in the stocks or shares on the exchange. In order to trade you need to have a demat account. As for trading you need to register with a broker or you can have an online trading account which is linked to your demat account and your bank account through which you can trade.

This form of investment in equities is for investors who regularly follow the stock market. Investors who are looking for developing long-term wealth should not indulge in speculative trading (buying and selling within a short span of time). Also investments in stocks or scripts should not be done based on tips that you have received from your friendly neighbor or relatives.

Investment should be done after a thorough analysis of the company, sector, and industry on the whole. We have heard many stories where people have lost their entire wealth by investing based on tips. Also do remember, one can never time the market. So be careful when you are investing directly.

Portfolio management services (PMS): In return for a fee, trained professional portfolio managers allocate your assets in various asset classes depending upon your personal investment goals and risk preferences. PMS is not restricted to only investing in equity and equity mutual funds. They also include investment in bonds. The advantage of this form of investment: professional expertise for your hard earned money, transparency and flexibility. You do not have to overlook in the day-to-day management. You are given an online user name and password that grants you an online access to your portfolio that keeps you up to date. The fee structure can also be selected either on performance or on a fixed basis.

The disadvantages: the minimum requirement for PMS is generally very high, that is., most of the PMS are offered where the portfolio offered to manage is at least Rs 25 lakh. The fee charged is also high. Generally losses are not shared when you opt for performance-based fees. This form of investment is especially good for high net worth individuals who have money but no time to monitor them.

Equity mutual fund: Mutual fund is the latest buzzword. After the debacle of US 64, the mutual fund industry took many years to get their act together. But now with stricter norms set by SEBI and more transparency mutual fund industry has developed in a big way. With more than 500 funds there are options available for each and every investor. Also, with investment of as low as Rs 1,000 (for systematic investment plan) and Rs 5,000 (lump sum investment) this form of investment attracts one and all.

So what is a mutual fund? A mutual fund is professionally managed collective investment scheme that pools money from many investors and invest it in stocks, bonds and various others securities and instruments. Mutual funds are divided into open ended and closed ended mutual fund.

Open-ended fund: Are funds in which you can buy or sell on any business working day. Just like shares value, mutual funds have net asset value on which you buy or sell your units. Unlike shares in mutual funds, units are allocated to an investor for the amount invested.

Closed-ended fund: Is a collective investment scheme where limited a number of units are allocated. New units are not allocated on a day-to-day basis. Generally closed-ended funds are traded on the exchange and one can trade their units on the exchange.

In this section, we will have a look at various forms of open-ended equity mutual funds. Equity mutual funds are sub-divided into:

Diversified equity mutual fund: A kind of mutual fund which invests in stocks of various companies of various sectors. Best bet to park your funds in.

Sector funds: Mutual fund whose investment objective is to invest stocks of companies of a particular sector like automobiles, pharma, banking, infrastructure and others. This type of fund can be risky if the sector does not perform well. So limit your exposure to sector funds.

Index fund: A type of mutual fund with a portfolio constructed to match or track the market index. It is relatively passive fund with broad market exposure and low operating cost.

Tax savers or equity linked saving schemes (ELSS): They are same like diversified mutual fund. The difference is investment in these funds have tax benefit up to Rs 1 lakh as it is exempted under section 80C. Also, ELSS has a three year lock-in period. Any withdrawal before this period means that you will not get the tax benefit under section 80C. Do keep in mind the risk factor while opting to invest in ELSS. Also, select growth or dividend payout option but not dividend reinvestment as dividend reinvestments go into the lock in period loop.

Why select mutual fund? Here's why. Low minimum investment amount, low management cost, low investment, professional management, diversification, liquidity and with entry load removed from August 1, 2009 make them all the more attractive.

Disadvantage of mutual fund: Backend load or exit load if investment redeemed within six months to one year. Many funds have high operating charges, decision-making is in someone else's hands and no tailor made portfolio.

The pros outweigh the cons and hence equity mutual funds form a very attractive form of investments. Mutual funds are especially for investors who do not have the time to follow the market and also who cannot shell out huge amounts. It is advisable to do a SIP in mutual funds as power of compounding and cost averaging works wonders to your hard earned money.

Derivative refers to a variable that has been derived from another variable. They have no value of their own. They derive their value from some underlying asset. For example a derivative of a share of Reliance Industries will derive its value from the share price of Reliance. Derivatives are specialised contracts wherein an agreement or an option to buy or sell the underlying asset of the derivate up to a certain time in the future at a pre-arranged price which is known as exercise price. The contract has a fixed expiry period between 3 to 12 months.

The value of the contract depends on the expiry period and on the price of the underlying asset. The underlying asset in derivative trading can be financial assets like shares, index, currency or can be commodities like soyabean, oil and others. We will right now be looking only at financial derivative trading whose underlying asset is equities.

The different forms of derivative contracts are:

Futures and forwards: Futures contract give the holder the opportunity to buy or sell the underlying asset at a pre-specified price some time in future. These contracts come in standardised format with fixed expiry date, time contract size and price. Forwards are similar contracts like future but the size, expiry date and price are customised as per the needs of the user.

Options: It is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset (it maybe an index or a stock) at a specific price on or before a certain date. The right to buy an underlying asset is known as call option. The right to sell the underlying asset is known as put option.

Financial derivative contract can be bought or sold by paying a premium. The upside in a derivative contract is unlimited. But again if you are a buyer of an option, your downside is limited up to the extent of the premium amount paid (Note: The seller of an option has an unlimited loss potential).

Futures and forwards too have an unlimited loss potential.

The advantages are you need to pay only 20 to 30 per cent of the contract price. You also have the option to first sell the lot of stocks and then buy them within the stipulated time. This is only possible in normal equity trading if you are an intra-day trader.

The disadvantage is there is a time frame to the contract. Not all the stocks are available in derivatives trading. Finally they are complicated and extremely risky.

Only investors who have a thorough knowledge of derivative trading and who can regularly follow the stock market should trade in them. It is not for investors who are looking to develop long-term wealth.

Who should be investing in equities?

Investors whose goals are long term, that is, more than seven years can invest comfortably in equities. As aptly said by Warren Buffet: If, when making a stock investment, you're not considering holding it at least ten years, don't waste more than ten minutes considering it.

If you want to achieve any of your goals in less than this time frame then equity is not the vehicle for you. Remember that emotions like greed and fear should have no place when investing in equities. Otherwise debt is the avenue for risk-averse safe fixed income generation.

How to find the real value of property !!

Any investor (buyer or seller) can optimize his taxable profits from real estate transactions with proper tax management. What one needs to do is work out the cost of purchase, the sales consideration and consequently the taxable profits.

The first thing to work out is the difference in tax treatment for long-term and short-term capital gains (profits).

If the asset has been held for more than 36 months before sale, the profit is considered as long-term. Short-term profits are added to the individual's other income and taxed at appropriate rates. While computing long-term profits, indexation is allowed on the cost of acquisition.

Typically, capital gains are computed as under:

1. For net sale proceed deduct some costs from sale value. Sale value: Rs 50,00,000. Other charges: sale brokerage (Rs 1,00,000), incidental costs (say, lawyers' fees, Rs 10,000), transfer fees paid to society (Rs 10,000) and donation to society for transfer of flat (provided it can be shown that the society charges this donation as a matter of policy). Total: Rs 1,20,000. So, net sale would be Rs 48,80,000.

2. Deduct the following from the net sale proceed: cost of acquisition and improvement (for short-term profits) / indexed cost of acquisition and improvement (for long-term profits) = Rs 19,60,000 (assumed purchase price after indexation).

Add all the charges listed in the point above paid at the time of acquisition, for example brokerage paid then of, say, Rs 20,000. So, the capital gains would be Rs 30 lakh (48,80,000-19,80,000) 'Cost of improvement' would include major alterations carried out subsequent to the year of buying but not routine repairs and maintenance.

All the above deductions need proof so keep all bills or vouchers safely even if the purchase was made years back.

There is a perception that, in real estate transactions, some payment may be paid or received as unaccounted money and, hence, not recorded in the agreement. This reduces the real value and thus, the related stamp duty and income tax.

To curb this, many state governments have introduced the Ready Reckoner Index Value for calculating stamp duty. Under this, an RRIV is prescribed locality wise and is revised periodically.

The stamp duty is levied based on the RRIV, irrespective of the value mentioned in the sale agreement, which may be higher or lower than the RRIV.

At times, this can create tremendous hardships. In practice, the RRIV may not reflect the actual market rates in the locality or even of different locations in the locality. This became obvious in the recent past, when the RRIVs were not revised downwards though property prices were depressed.

In case the RRIV is higher, paying the additional stamp duty won't end the matter as the Income Tax Law (Section 50C) also adopts a similar concept. In other words, tax would have to be paid on sale profit based on the RRIV and not the actual profit. This means the seller pays tax on profits or income he hasn't earned.

Therefore, where the actual transaction value is below the RRIV, the parties should apply to the stamp act authorities for adjudication of the property's value giving full explanation.

In case you haven't got the value adjudicated and have paid the stamp duty as per the RRIV, the seller can still avoid Section 50C by requesting the tax officer to refer the matter to the valuation officer (VO).

When the VO visits, the reasons for the lesser consideration can be explained. If the fair market value (FMV) determined by the VO is lesser than the RRIV, the tax officer has to take the FMV as the correct figure. But, if the FMV is more, the RRIV stands.

Best 10 Mid - Cap Stocks for long term investors

1. One stock, which stands out as an odd man in the list, is Balrampur Chini.It is one of the largest and most efficient sugar manufacturers of the country. Its financials for the past two years may not be encouraging, but ETIG reckons that sugar as an agricommodity is one of the most cyclical industries.

The reason why this stock is a good bet because the outlook for sugar prices is buoyant as of now. Therefore, sugar companies are expected to do well in the course of next two years atleast. It also has diversified into alcohol and power generation, which together accounted for around 30% of Balrampur Chini’s revenue in March’ 09 quarter. These segments will help the company in tiding over the slowdown.

Mid-caps tend to be more volatile than large-caps. However, the volatility is more in stock price than in fundamentals. So, even if they get beaten in a stock market downtrend for some months, over long period, they are expected to bring gains to investors.

Valuation at Discount:

March 31 2005: 16.8
March 31 2006: 25.9
March 31 2007: 8.3
March 31 2008: -33.8
March 31 2009: 16.7

2. Blue Star is one of India’s leading manufacturer and supplier of air-condition and climate control equipment.

It also manufactures and markets a range of commercial refrigeration products and services catering to the industrial, commercial and hospitality sectors. The future of this company depends upon the performance of industries like financial services, construction, IT, ITES, hotel , healthcare, infrastructure such as airport.

Most of these industries are expected to grow at high rates if Indian economy continues its growth trajectory. The company is far ahead of its competitors in terms of cash flows, as it has reported 60% CAGR in net cash from operations in the last four years much better than earning growth. Moreover, it has a track record of sustained high dividend payouts unmatched in the industry.

Valuation at Discount:

March 31 2005: 11.7
March 31 2006: 28.7
March 31 2007: 30.2
March 31 2008:27.2
March 31 2009:14.9

3. CRISIL, a market leader in research, rating and advisory businesses in India, also offers services like bond rating, rating for bank loans and industry reports. On the government side, it has an advisory segment, which helps agencies in infrastructure, policy and energy. Its business is less prone to the health of corporate India because most of its research products are subscription based.

Valuation at Discount:

March 31 2005: 22.5
March 31 2006: 42.0
March 31 2007: 48.3
March 31 2008:32.0
March 31 2009:17.5

4. Engineers India provides engineering and technical services to petroleum refineries and other industries like highways and bridges, IT, airports, and ports and terminals. The company is likely to gain significantly from huge investments planned by the government in the oil and gas sector.

As on March 31, 2008, the company had Rs 1,270 crore of cash in its balance sheet. This translates to cash per share of Rs 226 and accounts for more than a quarter of its stock price.

Valuation at Discount:

March 31 2005: 18.9
March 31 2006: 34.3
March 31 2007: 18.7
March 31 2008: 20.8
March 31 2009: 19.7

5. LIC Housing Financeare by far the most insulated companies in the banking and financial space. If there is one mortgage company to reckon with in India after the behemoth HDFC, it is LIC Housing Finance.

The mortgage players are prone to slowdown to a certain extent as housing is a fundamental need and house-ownership levels are low in India. LIC Housing Finance has grown its mortgage portfolio by 23% per annum in last three financial years.

Valuation at Discount:

March 31 2005: 11.0
March 31 2006: 8.9
March 31 2007: 5.1
March 31 2008: 6.6
March 31 2009: 8.7

6. Opto Circuits is engaged in manufacture and export of invasive and noninvasive medical equipment like sensors, pulse oximeters, monitoring systems and stents among others. The company is a major supplier of sensors to large original equipment manufacturers. The company has used the inorganic route, especially overseas acquisitions, to grow at a rapid pace in the past few years enabling it to expand its product portfolio as well as enter new geographies.

With its niche products, reach in foreign markets and aggressive growth, the company presents a promising growth story.

Valuation at Discount:

March 31 2005: 17.0
March 31 2006: 25.3
March 31 2007: 30.2
March 31 2008: 29.2
March 31 2009: 21.2

7. Shree Cements is one of the fastest growing cement companies of India. Its net profit has jumped by over 20 times in last four years. Its plants are at one location, which helps in reducing overheads and makes it one of most efficient cement producers in the country.

The company now plans to invest Rs 1,000 crore in capacity expansion in a year’s time. The stock has almost doubled since the start of current rally but historically speaking, it is trading at very low valuations. Moreover, at current valuations, it trades at huge discount from the valuations of larger players.

Valuation at Discount:

March 31 2005: 26.7
March 31 2006: 51.1
March 31 2007: 15.5
March 31 2008: 23.1
March 31 2009: 6.3

8. Shriram Transport Finance is by far the most insulated companies in the banking and financial space. Growing at even higher rates is Shriram Transport Finance, which posted a CAGR of 47% in its assets under management in same period.

The company provides finance for the purchase of used commercial vehicles. This makes it insulated, as unlike new commercial vehicle segment, which is highly cyclical, the demand for this kind of financing depends upon exchange of existing commercial vehicle and not capacity expansion.

Valuation at Discount:

March 31 2005: 6.5
March 31 2006: 18.7
March 31 2007: 11.4
March 31 2008: 19.9
March 31 2009: 9.7

9. Sintex Industries is a leading manufacturer of plastic products which includes pre-fabricated building materials, monolithic structures and custom moulded products. It has already acquired seven companies in a short span of 2 years and is currently looking out for more. Its pre-fabricated building materials and monolithic construction material are finding great demand in low cost housing projects and rural schools or healthcare shelters.

Valuation at Discount:

March 31 2005: 18.3
March 31 2006: 29.1
March 31 2007: 20.0
March 31 2008: 26.7
March 31 2009: 11.8

10. Tulip Telecom provides solutions in the space of corporate data connectivity and network integration. It caters to both government and corporate sector and has a strong client base across both the segments.

Tulip has undertaken capital expenditure to strengthen its presence in the VPN (virtual private network) space. It is laying fiber optic network to provide high bandwidth last mile connectivity to its enterprise customers in 10 major cities. This along with government’s thrust on rural connectivity is expected to keep Tulip’s growth momentum going.

Valuation at Discount:

March 31 2005: NA
March 31 2006: 23.6
March 31 2007: 22.9
March 31 2008: 16.2
March 31 2009: 10.1