Five changes in the new PPF scheme you should know about

Five changes in the new PPF scheme you should know about
15/01/2020

Government of India has recently notified the Public Provident Fund (PPF) Scheme, 2019 which replaces the erstwhile Public Provident Fund (PPF) Scheme, 1968. Broadly, there are five changes that have been made in different aspects of the PPF scheme. Here is what you need to know about the tweaks in PPF 2019.

Lower interest payable on loan against PPF

In line with the falling rates of interest, the PPF 2019 reduces the loan interest spread over the interest paid on PPF. Under the erstwhile PPF scheme 1968, an interest rate of 2% per annum above the prevailing PPF interest rate was payable in case the investor took a loan against the PPF balance. For example, if the PPF interest rate is 7.9%, then the loan against PPF will entail an interest payable at the rate of 9.9%. In the new PPF scheme 2019, this interest spread has been reduced from 2% to 1%. Effectively, in the above instance considered, your interest payable on the loan against PPF will not be 9.9% but 8.9%. This will be beneficial to PPF investors as the cost of taking loans comes down substantially.

Changes in case of premature closure of PPF account

Premature closure of the PPF Account after 5 years was already permitted in 2016 and that has been retained. However, what changed are the conditions under which the said PPF account can be closed prematurely. A special form, Form 5 has been created under PPF Scheme, 2019 for this purpose. It may be recollected that since 2016, the premature closure of PPF was allowed on grounds of serious ailments or life threatening diseases affecting the account holder, spouse, dependent children or parents. In addition, the PPF Scheme 2019 has added higher education of the PPF account holder or his/her dependent children. In these cases,  however production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad is mandatory. In addition, the PPF Scheme 2019 also permits premature closure of the PPF scheme after completion of 5 years in the event of the change in the residency status of account holder. The clause that reduces the interest rate on premature withdrawal by 1% will continue.

Denominations of deposits in PPF

To make the PPF scheme administratively simpler, it will permit deposits only in multiples of Rs.50. It may be recollected that the PPF Scheme 1968 allowed deposits in multiples of Rs.5 also. There will be no upper limit on the number of deposits that can be made in the PPF account. However, the erstwhile limits of minimum annual contribution of Rs.500 and maximum annual contribution of Rs.150,000 have been retained. This is a very minor change to the PPF scheme and is more to bring about administrative simplicity so that the department does not have to deal with too many small denomination deposits in the PPF account.

Ambiguity in the matter of NRIs

We really cannot say that this is a change, but the new scheme surely brings about a degree of ambiguity on the NRI front. While the PPF Scheme 1968 explicitly prohibited NRIs from investing in PPF accounts, the PPF Scheme 2019 is largely silent on the subject. While  the PPF Scheme 2019 does not explicitly prohibit NRIs from opening a PPF Account the new application form requires a declaration that the individual is a resident of India. This can lead us to assume that logically the NRIs are prohibited from investing in PPF under the New PPF 2019 too. Apart from the investment by NRIs, there is also ambiguity about whether residents who become NRIs can continue with their PPF scheme.

Under the PPF Scheme 1968, a resident Indian who subsequently became a NRI during the tenure of the PPF could continue to subscribe to the PPF till its maturity. However, the PPF Scheme 2019 is silent on this subject. But it does put down that change of residency is a ground on which PPF account can be terminated prematurely after 5 years. This can lead us to logically conclude that such schemes cannot be continued in the event of the resident becoming a NRI during the tenure of the PPF.

Finally, some routine changes in forms

At a procedural level, there have been some changes as under:

  • Account Opening shifted from Form A to Form 1

  • Partial Withdrawal shifted from Form C to Form 2

  • Account closure after maturity shifted from Form C to Form 3

  • PPF Loan shifted from Form D to Form 2

  • PPF Extension shifted from Form H to Form 4

  • Premature Closure vide New Form 5

  • Nomination: Form E to Form 1

Nomination form has been combined with account opening form while the partial withdrawal form has been combined with the loan form.

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How to do stock trading using online trading Apps

How to do stock trading using online trading Apps
01/02/2020

If you have an online trading account, it is possible to access your internet trading interface through your smart phone. Most smart phones have a screen that is large enough to be able to read research ideas and transact. However, the internet trading screen is created to cater to a normal PC or laptop screen. Hence, you may find the smart phone screen slightly unwieldy to access the full-fledged internet site. The other option is to download a trading app.

Trading app is short for trading application. It is a small program that can be downloaded from the Apple store or the Android play store, depending on which mobile phone you use. Here are the steps you need to following to start using the trading application.

Download the app on to your mobile phone

As stated earlier, most online trading platforms today offer the facility to download the app for Apple and for Android. You can either follow the link provided in your broker website or you can just go to the store and search for the name of the broker. Normally, the trading application has size of less than 25MB to enable easy download on all types of connections. Most brokers take that additional effort to optimise the app so as to make it as light and user friendly as possible. Trading apps are nothing but small programs that can be downloaded on to your smart phone hardware by clicking on the link provided.

Run the application and authorise with your username and password

Once you double click on the app, it automatically downloads and then intimates you when the download is completed. After that, you just need to run the app based on a menu driven button. Once the app is downloaded, you can choose to place the icon on your desktop or in a specified folder for easy access. Once the app is opened on your mobile, you will have to authenticate with your username and password, which you have set in your internet trading interface. Remember that the app is unique to your phone and to your mobile number and hence you will have to authenticate with a one-time OTP.  Subsequent access to the app will be based on dual-level authentication.

Ensure to use a secured connection for the trading app

This is an additional level of safety you need to follow. You can use your existing mobile connection, which is secured anyways. Alternatively, if you have a private wi-fi at home, then you can use the private wi-fi to access your app. A couple of points to be noted are that you must never use the app over public wi-fi systems at airports / malls etc. Similarly, avoid opening your internet trading account at a cyber café or in any public place where your passwords can be easily stolen. Avoid downloading unnecessary software on your mobile phone as it may endanger your phone security and encourage phishing.

Get familiar with the mobile app interface and flow

This is a very important step. Broadly, the process flow of a mobile app is the same as the internet platform. However, you will find that it takes some time for you to get familiar with the new interface. This interface of the app looks different because it has been created with a mobile phone interface in mind. A good way to test the app is to place small orders at first and test the full process flow like order placement, order book checking, order modification, trade book verification, portfolio upload etc. Once you get familiar with the full process flow, you can start trading your normal size trading on the mobile app.

Create an app plan for your trading

What exactly does an app plan mean? For example, if you want to use complex technical charts or ready elaborate reports, then the app interface may not work for you. That would require a more expansive PC or laptop screen to be effective. However, for regular trading based on news, research calls and technical recommendations, apps are the perfect platform. Apps have an added advantage in the sense that they offer seamless call to action. The apps of most of the reputed brokers are designed in such a way as to take you from research to ideas tot action in less than 5 clicks. That is where apps work best.

The big merit in an app is that it becomes an anytime / anywhere platform. You can trade as you are travelling in a car or train and you can act on opportunities with alacrity. That is what sets the app apart.

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Union Budget 2020 – What’s It All About?

Union Budget 2020
01/02/2020

Budget 2020 was rich on expectations but the exemptions in the budget were much lower than what the market desired. The impact was visible in the performance of the stock market indices which cracked in response. While a detailed analysis is still due, the immediate reaction of the market appears to be that there was no big bang announcement in the Union Budget despite the tough macro conditions. Here are some of the major announcements in the Union Budget 2020.

Response to macro pressures

  • Nominal growth for fiscal year 2020-21 has been pegged at 10%. The real rate of GDP growth could be in the range of 5.5% to 6% depending on the nominal growth actually achieved as even 10% does look quite steep at this point in time.

  • The budget 2020 has fully utilised the 50 bps leeway on fiscal deficit offered by the N K Singh Committee. For 2019-20, the fiscal deficit has been pegged at 3.8% instead of 3.3% while for the fiscal year 2020-21 it is pegged at 3.5% instead of 3%.

  • There is some positive impact on post-harvest infrastructure. To improve post harvest infrastructure, including cold storage, the budget has announced viability funding based on public-private-partnership. Indian Railways will run dedicated trains to support the cold chain plan.

Some cheer for Corporates and MSMEs

  • Despite the lack of any cost advantage, the Budget 2020 has outlined big plans for manufacture of mobile phones and electronic equipment and semiconductor packaging. In addition, the 15% concessional tax will be extended to the power sector too.

  • Finally, MSMEs have something to be really pleased about. Invoice financing via the factoring method will be extended to MSME as will be the issue of subordinated debt to MSMEs and handholding in the early stages.

No cheer for markets and that was evident

  • LTCG on equity stocks and equity funds was not scrapped, despite the STT being introduced in 2004 in lieu of LTCG tax. This is resulting in the cascading effect of STT plus LTCG tax and that is adding to the costs of traders and investors.

  • While DDT has been scrapped on equity and on equity funds, it comes back in another form. At the same time, the dividend distribution tax on debt funds will continue as before. There will be a single point of taxing dividends as other income at the applicable peak rates of tax for individuals.

  • Efforts are being made to reduce tax burden on middle class. People earning in the range of Rs.5 lakh to Rs.15 lakhs will see reduction in taxes.

Direct tax; more complicated than effective

  • Direct tax regime has suddenly become a lot more complicated. There will be two regimes; first regime will focus on status quo with all exemptions and rebates. The new regime with lower rates applicable will be devoid of exemptions and rebates. Loss of exemptions could be a big cost as many exemptions are virtually mandatory or inevitable like life premiums, provident fund, tuition fees, home principal etc.

  • Under the new tax regime, direct taxes will be as under:

Income bracket

Below 5l

5l to 7.5l

7.5l to 10l

10l to 12.5l

12.5l to 15l

Above 15l

Tax Rate (%)

Zero

10

15

20

25

30

Above table represents the new regime. If you opt for the second option, then your IT form will be auto-filled. That simplicity appears to be the only visible advantage.

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Hurled by the IPO Rush? Here’s All You Need to Know About ASBA

ASBA IPO
IPO
by Nikita Bhoota 27/02/2020

ASBA (applications supported by blocked amounts) was introduced by SEBI to protect the interests of the retail investors. ASBA can used to apply for IPOs, FPOs, rights issues etc. In ASBA, the designated bank account only gets blocked to the extent of the application money. On the date of allotment, the amount gets debited to the extent of allotted shares and the balance gets released. If zero shares are allotted to the applicant, then the entire blocked amount under ASBA is released.

Who can make an ASBA investment?

ASBA is mandatory for all IPOs after January 01st 2016. However, an ASBA investor has to fulfil some basic conditions.

  • He must be a resident individual applying under the Retail Quota
  • Bid must be at cut-off price with a single option of number of shares bid
  • ASBA application has to be made through self certified syndicate bankers (SCSB)
  • Such price intibid made in ASBA cannot be revised later on
  • ASBA cannot be used for other categories like employees / shareholders etc.

What are the advantages of ASBA?

ASBA comes as a major boon to retail investors. Here are some of the major advantages.

  • Since the amount is only blocked, you continue to earn interest
  • You don’t worry about refunds as only the allotment money is debited
  • The application process is very simple and you can apply through your bank
  • The blocked amount is included in average quarterly balance (AQB)
  • Even through bids cannot be revised, they can be cancelled.

How can an ASBA application be cancelled?

While an ASBA application cannot be revised as per the rules, the ASBA application can certainly be cancelled. There are two distinct situations here. If the IPO has not closed, you can cancel the ASBA application through your online trading account or through the bank. Your SCSB will cancel the bid and unblock the amount right away. However, if you withdraw after the issue closes, then you have to write to the registrar to cancel the bid. The SCSB will only remove the block after the allotment is complete and they get intimation from the registrar.

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E-trade in India - scope

E-trade in India - scope
01/03/2020

In a way online trading is as simple as online shopping. Of course, you need to do a little more research and do some follow up monitoring, online trading is effectively as simple as that. Your trading account and demat account are online and everything from research to stock screening to order placement, execution, monitoring and follow-up are done online through a single trading platform. It can become a lot more seamless if you are accessing online trading on your smart phone, but we will leave that discussion aside for the time being. That is because, today trading platforms provide all the necessary support and assistance by providing secured real time access to trading, research reports, price analysis of stocks, market news, etc. even the interface between your trading account, demat account and bank account is virtually seamless.

How to start online trading (e-trading)

You can place trade orders or cancel orders at your will from the comforts of your home. It is as simple as that. It allows you to make your own decision with regards to trading without any interference of the broker. You can buy shares or invest in IPO or buy mutual funds as well. Even bonds, including RBI bonds are available for purchase online. Online trading can be done by simply opening a trading cum demat account with any SEBI registered broker offering the online trading facility. With the power of e-KYC, the account opening can be completed less than an hour. The documents required to open an account are PAN card, address proof, AADHAAR card, mobile number linked to AADHAAR, bank statement, cancelled cheque leaf and passport photograph. That is all.

How online trading has a distinct edge over offline trading

  • Online trading is simple as it enables a trader to have a hassle free trading experience. Anyone can use these platforms as specific skill is not required to carry out trading online. Just worry a tad about online security; that is all.

  • It is less expensive and therefore more economical. Brokers also promote online trading and charge lower rates of brokerage as it reduces maintenance and monitoring as well as RMS costs incurred by the broker.

  • Online trading can be relatively less time consuming. Before the advent of online trading, the process was cumbersome as you had to visit the broker or call your broker for placing or cancelling orders. Now a PC or a smart phone is sufficient.

  • Online trading gives complete control over the process; end to end. It allows the trader to have complete control from order placement to order modification to order cancellation and monitoring. Online trading is also extremely flexible.

  • Reduced chances of errors are one more advantage. In case of traditional offline trading, there were more chances of errors due to miscommunication between the traders and brokers. In online trading, the trader or investor can manage and control the entire trade transactions and execution.

  • It also provides effective and seamless monitoring of investment at all times. You can monitor investments at any time and from anywhere. Loss making stocks can be removed and profit making stocks can be added to your portfolio by observing the market moves.

  • Online trading enables seamless call to action. You can get access to top research recommendations, screeners, sorters, reports and analysis on stock price charts at the click of a button. You can decide the best move and also execute the same with less than three hops.

Future of online trading in India

Online trading has already grown close to 20% of the overall broking market in India and is likely to grow much bigger in the days to come. Online trading is not only being preferred by traders but also being encouraged by brokers. Here is why it has huge scope.

  • With the advent of broadband and low cost bandwidth, the internet access is becoming much more economical to operate.

  • The millennial crowd is having a soft corner for online trading as it gives them more control over their actions.

  • Online trading has now started incorporating machine learning and artificial intelligence so that focused planning of finances is also facilitated.

  • Low cost broking is here to stay and the largest broker in India (by number of registered clients) is already a discount broker predominantly online.

  • With mobile trading catching on, trading is becoming a lot more personal and contiguous. That could make all the difference.

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Here’s All You Need to Know About Getting a Demat Account

Open Demat Account
by 5paisa Research Team 25/03/2020

Demat Account is almost like a bank account. Just like you hold funds in your bank account, you hold shares and other securities in the Demat Account. Having a Demat Account is mandatory for trading in equities as per SEBI regulations. 

How to open Demat Account?

Demat Account can be opened online or offline. It is normally opened along with trading account (TCD) by the broker. Demat Account can be opened with any authorised depository participant (DP); which could be a bank or a broker. Here is how to open a Demat Account.

For offline Demat Account, you need to fill up the demat form and sign the demat agreement and submit to your DP. Basic documents like PAN Card, Proof of identity, Proof of residence and cancelled cheque are required. Copies of self-attested documents must be submitted to the DP along with the signed DP agreement. Carry the originals for verification by the officer. Demat account opening can take up to 4-5 days, if all the documents are in place.

Online Demat Accounts can be opened by filling up the online form on the DP website. You must authenticate your identify and address with your Aadhar Card and verify the same with OTP sent to mobile. An in-person-verification (IPV) has to be done before fully activating the demat account. Only Aadhar address will be considered for online demat.

Check: Procedure to open a Demat account


How to use the Demat Account

With a demat account, your purchase, sale and holding of securities are in electronic mode. You must issue a signed Debit Instruction Slip (DIS) to sell shares or you can give a power of attorney (POA) to the broker. When you sell shares, the demat account gets debited and when you buy shares the demat account gets credited.  All corporate actions like bonuses and splits are automatically credited to your demat account. Dividends are directly credited to the mapped bank account. 

Documents Required for Demat Account

As stated earlier, demat account opening requires proof of identity and proof of address. Proof of identity can be any statutorily issued photo identity like passport, Aadhar, driving license, voter card etc. Proof of address can be any of the above with complete and latest address or electricity or land line bill. In case of online demat account opening, the Aadhar address will be considered. In addition, submission of PAN card and cancelled cheque are mandatory for opening demat account.

Importance of having a Demat account

Here are some of the key uses of having a demat account.

1. It facilitates non-physical holding of securities

2. Demat account can hold equities, bonds, ETFs, gold bonds and other securities

3. Corporate actions are automatically executed in demat account

4. One point intimation of change in address, email, mobile to all companies

5. Eliminates risk of physical holdings like bad delivery, mutilation of certificates, loss in transit, forgery, fake certificates etc.

6. Trading shares, holding in demat and bank transfers become one seamless chain if you opt for online trading

7. Demat is also cost effective compared to dealing in physical certificates