I have gone through a situation where having taken a loan in 2005, I have seen very significant increases in the interest rates on the loan I have taken. In the first instance, banks and their agents very forcefully push floating rate loans vs fixed rate loans - at least, this was the case when I was negotiating a loan. Secondly, fixed loans are not normally really fixed, since there would be some fine print indicating the tenure of the fixed rate or allowing banks to reset fixed rates. Finally, floating rate loans are not really floating. They are supposed to be linked to the bank’s PLR. They seem to float only when the PLR is increased; your loan rate goes up with very little gap after the PLR is increased!
However, should not banks be obliged to also reduce loan rates for existing customers as quickly when the PLR is reduced? I have noticed that when the PLR is reduced, new loans are quickly offered at a reduced rate but either the floating rate for existing customers is not reduced or there is a significant lag time for the rates to be reduced.
Is this not unfair to customers? Especially since they are more or less locked into the bank because of tight penalty clauses that govern the loans. Should not RBI regulate banks and force them to pass on the benefits of a reduced PLR to customers as a rule? Why are they not doing this? What other recourse do customers have to make banks be fair to them?
Dr KSR Anjaneyulu, F-204 Adarsh Residency, 47th Cross, Jayanagar 8th Block, Bangalore 560070, by email
On taking up the issue with the appropriate authorities at the Reserve Bank of India we have been told that the matter has been forwarded to the Department of Banking Operations and Development for examination. There are several complaints of this nature.- Editor
Plase refer to Nagender Prasad’s letter in 2 August, 2007 issue of MoneyLIFE. I have also been a mutual fund distributor (for the past five years) as well as an investor in mutual funds since 1990. As per the SEBI and AMFI guidelines, if any investor wants to transfer his investment from one agent to another, the first agent has to give an NOC. It is possible that Mr N Prasad is not getting after-sales service from Bajaj Capital or is not happy with services of Bajaj Capital. A similar thing happened in the case of one of my clients. (It pertained to a leading mutual fund distributor). Instead of going to the first agent to get his NOC, I told him that I will give him service for the same. I think it is the moral duty of a distributor to give service for the business mobilised by the previous distributor. Often, retail and HNI investors change the distributor not because of lack of service but because of undercutting.
Consolidation of folio is possible in one or more schemes of the same fund house, even if there is more than one agent but only if the folios are in the same name. For example, two folios may have the names of the same investors but in a different order. In first folio, the first investor’s is Ajay C Shah, the second Abhay C Shah and Akash C Shah and same in another folio. Not even a single change is allowed while consolidating the folios.
Nilesh Mehta, by email
We took up the issue of NOC requirement under rules of the Association of Mutual Funds of India (AMF) with the SEBI Chairman. On 18 July 2007, SEBI has informed us that “We have taken up the matter with AMFI advising them to examine the matter expeditiously- Editor
The Cover Story ‘Picking Value Stocks from Value Funds’ (19th July) by Debashis Basu and Shailendra Loltlikar, deserves applause! Their idea and suggestion to harness the expertise of equity growth funds to create one’s own portfolio is a sure-fire, risk-free method to structure a beneficial portfolio. The value-picks chosen by them are ideal in the circumstances except, at this point of time when the market is at its peak, those shares have also scaled very high. It would, therefore, be more favourable to wait for a correction and then pick shares of those well managed companies to reap benefits and to minimise risks. I enjoyed reading the analysis. Kindly continue the efforts to provide more similar articles to benefit readers to encourage them to become permanent subscribers of MoneyLIFE.
MK Jos, B4 Mayfair, Dr Dada Vaidya Road, Panjim, Goa 403001, by email
Read your article on the above subject which appeared in MoneyLIFE dt.7th June, 2007. Even though I have travelled by Air Deccan and SpiceJet, I have not encountered much difficulty except the embarrassing run for the seats in Air Deccan. The article was an eye-opener. However, I had a very bad experience with Indian Airlines when I booked two tickets to Bangalore from Mumbai in July 2006. Their policy was that postponement was possible with a charge of Rs500; but I was told that the tickets cannot be postponed! After two months, they have again started the ‘postponement’ policy for X-class tickets! I had to lose about Rs5,500; not even the airport taxes were refunded, even after sending emails to them.
Even more bizarre is the practice of some mobile phone providers! I was lured to take the so-called ‘Free’ handset offer of ‘Hutch’ for their ‘Talkroam’ plan by paying Rs1,999 for the handset which was supposed to be reimbursed limited to Rs25 per month when I call to Hutch phones! But they have given the lowest quality of ‘Sagem’ handset which has become defective within a period of three months; the repair has been going on for the last two weeks! Gullible people are cheated of the hard-earned money and they suffer mental agony!
MJ Sebastian, A-20, Hyderabad Estate, Nepean Sea Road, Mumbai 400026, by email
Spouse for Tax Planning
Apropos “Pati, Patni Aur Tax” (MoneyLIFE, August 2 by Ameet Patel).Women are definitely better financial planners, as they run household expenses efficiently! Yet, I wish to give few tips to women. Under the Income Tax Act, there is ‘streedhan’: There can be tax saving through planning for spouse! Most taxpayers ignore the fact that capital can be accumulated for the spouse - from the first day a person /decides to get married. In our society, as soon as an engagement takes place, relatives and friends make gifts (and cash gifts too) for the ‘would-be spouse’ (wife here mainly). This becomes her ‘capital’ (note, it is not ‘income’ as per Income Tax Act) and a separate account should be opened in the name of the lady and get that money in her name. Also, during wedding functions, the bride receives cash gifts, etc., from relatives and friends. Subsequently, on her birthday, Diwali, New Year, also such gifts are received. Additionally, savings from the money given for monthly expenses by her husband is known as ‘pin money’ and is tax-free in her hands. Such savings from day-to-day expenses can grow in her separate Savings Bank Accounts/Fixed Deposits with banks. Under the Income Tax Act, the income of the spouse is clubbed, but not such personal ‘streedhan’.
The point I am emphasising is that capital can be built up for the spouse (wife). All such income accruing to her is independent and is assessed separately as only her income - without the clubbing provisions under the Income Tax Act. Also, under Section-64, the professional income of women is not clubbed with the husband’s income.
Here, both husband and wife can file separate income tax returns and enjoy the benefit of basic exemption as per the relevant provisions of the Income Tax Act. Further, income up to Rs145,000 is exempt for a woman for the Assessment Year 2008-09. Furthermore, there is lower stamp duty for registration of property in Delhi.
Mahesh Kapasi, New Delhi, by email
Ameet Patel, our columnist and well-known Chartered Accountant adds:
In principle, streedhan is not clubbed with the husband’s income or wealth. However, the question is what is streedhan. Gifts received by anyone would belong to that person. In my article what I tried to bring out is the fact that most husbands presume that gifts given by them to their wife are tax-saving devices. If a husband gives a gift to the wife, the income earned from that would be clubbed with the income of the husband. If the money has actually been earned by the wife then it cannot be clubbed. As regards the gifts received on festivals, if the amounts are in excess of Rs50,000 per annum then:
a. If they are from relatives, then no problems - no clubbing with anyone and also the gifts will not be treated as income in the hands of the lady
b. If they are from husband then - I have already dealt with that above
c. If they are from others - the amount would be considered as taxable income in the hands of the lady.
Now, the point about building up capital - by resorting to (a) above, capital can be built up. There are no disputes about this. But by resorting to (b) or (c) above, the purpose will not be achieved. One question that comes to my mind is by routing small gifts to the wife on the occasion of festivals, what is being achieved? How much capital can be built up by this method? I don’t think it would be anything substantial. On the other hand, by giving a loan to the wife, the income that is earned is treated as her income; no clubbing; no gift tax and no hassles.
It is with profound grief that we share with MoneyLIFE readers that Prakash Kardaley, a leading crusader for the Right to Information (RTI) movement, passed away of 15th July 2007. He wrote his first column for us in the 2nd August 2007 issue. The issue was published just after his demise. Prakash was a senior journalist with the Indian Express group for a very long time. He also ran a yahoogroup on RTI called ‘Humjanenge’, which had turned into one of the most active forums and support groups for RTI activists around the country to share their experiences in collecting information under the Act. Prakash ensured with polite firmness that the group never strayed from the core issue of sharing knowledge and experience on RTI. His death is a tragic blow to the RTI movement and his guiding presence is badly missed.
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