Abhivridhi Associates - Fixed Income

Investment is time, energy, or matter spent in the hope of future benefits actualized within a specified date or time frame. Investment has a different meaning in finance from that in economics. In finance, investment is buying or creating an asset with the expectation of capital appreciation, dividends (profit), interest earnings, rents, or some combination of these returns.

Corporate Deposit

Benefits of investing in Company Fixed Deposits

High interest.
Short-term deposits.
Lock-in period is only 6 months.
No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000

Fixed Maturity Plan

Why FMP

FMPs, are the equivalent of a fixed deposit in a bank, with a little difference. The FMP's returns are only indicated and not 'guaranteed', Since the fund house knows the interest rate that it will earn on its investments, it can provide 'indicative returns' to investors.FMPs are debt schemes, where the corpus is invested in fixed-income securities.

Where do FMP's invest ?

FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money market instruments, corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure of the FMP, the fund manager invests in a combination of the above-mentioned instruments of similar maturity. Say if the FMP is for a year, then the fund manager invests in paper maturing in one year.

Tenure of FMPs'

The tenure can be of different maturities, from one month to three years. They are closed-ended in nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment.

These FMP NFOs are generally open for 2 to 3 days and are marketed to corporates and well-heeled, high net-worth individuals. Nevertheless, the minimum investment is usually Rs 5,000 and so a retail investor can comfortably invest too.

FMP's are investment options for sure if you want to park your money for short term. They are more tax efficient and give better post-tax returns. Though returns are not 100% guaranteed, they are almost risk free (remember almost).

54 EC Bonds

Capital Gain be saved Under Sec 54EC or Sec 54F, if the land or property sold is non agriculture. We deal in such bonds which qualify for Sec 54EC Bonds.

Tax can be saved under Section 54 EC by investing in bonds
Tax can be saved under Section 54 F by investment in New residential house

To claim Section 54 EC following conditions are to be satisfied.

Long Term Capital Asset Long term assets means any capital asset held by assessee for more than 3 Years.

If assesee has sold the Long term capital asset during the previous year and made a long term capital gain then he can invest money of capital gain in Capital gain bonds and can save tax on long term capital gain.

Assessee here means all type of assessees like individual, firm company etc.

Amount to be invested in bonds is only capital gain not net consideration received on sale of long term capital asset

Amount exempted under this section will be amount of capital gain or amount invested in capital gain bond which ever is lower maximum up to 50Lakh. Rs.50 lakhs limit is for each financial year. As the six month limit falls in two different Financial years you can save 50 lakh in each consecutive FY. Hence, one can save up to maximum of one crore of capital gain u/s 54EC.

These Bonds Maturity Period is Three years

Bonds can not be pledged ,sold transfer before completion of three year from purchase of bonds ,and in case its transferred then amount capital gain exempted on investment in these bonds will be made taxable in that previous year as Long term capital gain .

Amount of capital gain should be invested in Capital gain bond within 6 Month from date of transfer/sale of capital asset .

Debenture

Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts

A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan, stock or note.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.

There are two types of debentures:

Convertible debentures, which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. "Convertibility" is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds.
Non-convertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.