Category: Investment

Notwithstanding the depressed condition of the property markets, investment options still abound especially for those who are into long-term investment mode. This is not the best times for flippers though there are still a lot of valid reasons for investors to consider the current opportunities in the properties market. What is essential is for an investor to adopt critical property investment tips such as due diligence in identifying properties with high earning potentials. This indicates the need to carefully assess a number of variables before one makes an investment on a particular property.

The first variable that one needs to consider is the location of the rental property. In fact, seasoned investors consider 3 important factors when selecting investment opportunities and these are location, location and location. This only emphasizes the significant importance of this variable in the overall scheme of things. Investors have equal chances of finding great property investment opportunities even in the most unlikely places. However, for those who are just starting out, experts suggest that they take off with one of the best property investment tips of many successful investors of today. This calls for the newbie to start looking for opportunities right within his or her very backyard.

For instance, familiarity of the intrinsic advantages of properties in terms of accessibility to transportation, shopping mall, schools and other establishments will allow the would-be investor to profile the type of renters who will most likely be interested in the rental property. Inside information of upcoming public as well as private development projects within the community can also be the green light for a good investment on a rental property. Once you are able to determine the type of renters for rental properties within your community, what remains to be done is to select the investment opportunity that offer the best value for your money. Those who are taking their first shot at rental property investment are better off buying properties within the lower end of the price range as this can give the opportunity to learn the ropes of property investing without committing too much of your equity on one single property.

The next variable that you have to consider is the overall condition of the prospective property. All potential property investments are considered fair game. This means that any of those properties that are up for sale in the market can be a potential investment option as long as it is not considered condemned property. In fact, even a fixer upper can still be considered good investment option. However, it will be a good idea for the newbie to veer away from this type of properties as there are a lot of caveats that have to be taken into account.

Further, if you don’t have a strong background on property development and construction, then you may have to consider putting together a team of property construction professionals to handle this aspect of your investment venture.

To cap our set of critical property investment tips, investment experts strongly suggest that would-be investors consider the current comparative analysis on the rental property market so that one can weigh the potential returns of the various investment options that are available in the market. There are several Sites that provide the tools for this type of market data.

Budget 2009 has taken a new initiative by introducing the concept of allowing deduction under income-tax for investment made in a new business based on investment and not based on profit earned. It has inserted section 35AD allowing deduction of investment in specified businesses under the Income-tax Act, 1961. This is in place of allowing for exemption or deduction of profit earned from a new business. This amounts to allowing depreciation upfront. With this new initiative, it seems that the Government has changed its priority from investment for indus-trialization to invest-ment made.

1. In the Budget 2009, the Finance Minister, Mr. Pranab Mukherjee, proposed a new initiative by introducing the concept of allowing deduction under income-tax for investment made in a new business based on investment and not based on profit earned. Mr. Mukherjee said in his Budget Speech,

Under the present scheme of the Income-tax Act, tax exemptions are largely profit-linked. Such incentives are inherently inefficient and liable to misuse. Therefore, it is proposed to incentivise businesses by providing investment-linked tax exemptions….. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.

Clause No. 13 of the Finance Bill, 2009 proposes to insert section 35AD in the Income-tax Act, 1961, allowing deduction for investment in specified industries. Here is an attempt to analyse this budget initiative.

2. The proposed scheme is an initiative for deduction of investment in a new business from the income of the assessee. It proposes to give deduction of investment made in a specified business. The proposed section is not part of Chapter III: Incomes Which Do Not Form Part of Total Income or Chapter VI-A: Deduction To Be Made In Computing Total Income. It forms part of Chapter IV: Computation of Total Income under Part-D: Profits and Gains of Business or Profession. Sub-section 3 specifically disallows double deduction under section 35AD and under Chapter VI-A of the Act. The proposed section is a beginning in relegating income based exemptions/deductions into the oblivion.

As per sub-section (1) of the proposed section 35AD:

An assessee shall be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him.

The section proposes to allow capital expenditure incurred for specified activities as business expenditure.

As per sub-section (4) of section 35AD:

No deduction in respect of the expenditure referred to in sub-section (1) shall be allowed to the assessee under any other section.

On allowing deduction under section 35AD, the assessee will not be able to claim depreciation under section 32 of the Act. This is also evident from the fact that Explanation 13 is being inserted under section 43(1), whereby the concept of block of assets is by-passed in respect of assets for which deduction is allowed under section 35AD. As per this Explanation, The actual cost of any capital asset on which deduction has been allowed or is allowable to the assessee under section 35AD, shall be treated as nil. Thus, the new section proposes to allow depreciation upfront, instead of spreading it over various years. This is identical of allowing deduction of capital expenditure for Scientific Research under sub-section (1)(iv) read with sub-section (2) of section 35 of the Act.

3. For the present, the deduction under section 35AD is limited to the following three specified activities as per sub-section 8(c) :

(i) setting up and operating a cold chain facility.

(ii) setting up and operating a warehousing facility for storage of agricultural produce.

(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipe line network for distribution, including storage facilities being an integral part of such network.

The above specified activities are for capital incentive industries and for development of infrastructure facilities.

It is interesting to note that the business of laying pipelines for petroleum and natural gas is covered not only under the proposed section 35AD, but also under section 80-IA of the Act. However, deduction is not available under both the sections. Hence, double deduction is not available in respect of the same activity under both the sections.

The deduction is available for an assessee commencing operations with effect from April 1, 2009. However, in respect of an assessee carrying on the business of laying pipelines for petroleum and natural gas, deduction is available with retrospective effect, even if the business is commenced on or after April 1, 2007.

4. Interestingly, the section lays down the type of persons who are eligible for deduction under the section.

(a) Laying of cross-country pipelines for petroleum products, etc. – Deduction can be claimed only by companies and consortium of companies carrying on the activities. The section is not applicable to other types of persons, i.e., limited liability partnership firms, partnership firms, association of persons, hindu undivided families or individuals. It is true that this activity is mainly carried on by company assessees. For the first time, the Income-tax Act has recognised consortium of companies for the purpose of deduction under the section.

(b) Agricultural warehouse and cold storage facilities – Deduction can be claimed by any person, viz., individual, hindu undivided family, firm, limited liability partnership, association of persons, body of individuals or companies. For these activities, consortium of companies is not the recognised assessee.

5. As per sub-section (1), eligible investment is whole of any expenditure of capital nature incurred, wholly and exclusively, for the purpose of any specified business carried on by him during the previous year in which such expenditure is incurred by him. Deduction can be claimed in respect of any capital expenditure incurred for the specified business. The investment may be in tangible assets and intangible assets. However, as per sub-section 8(f), an assessee cannot claim deduction of certain expenditure even if incurred in respect of the specified activities: any expenditure of capital nature shall not include any expenditure incurred in the acquisition of any land or goodwill or financial instrument. The section has not defined as to what is capital expenditure. Hence, all the capital expenditures (subject to a small negative list) incurred in respect of a new business are deductible, e.g.:

(a) Tangible Assets – Building, plant & machinery, electrical equipment, pollution control equipment, electrical equipment, office equipment, furniture & fixtures, vehicles, computers, etc.

(b) Intangible Assets – Technical know-how, patents, copy right, trade mark, brand value, computer software, etc.

Of all the tangible assets, only land is kept out of the purview of deduction. This is perhaps because depreciation is not allowed on land. It is debatable whether cost of land includes land development. Of the intangible assets goodwill is kept out of allowing deduction under the section, whether the goodwill is purchased, acquired, or generated. The section does not allow deduction of expenditure incurred towards financial instruments. However, the Act has not defined as to what is expenditure for financial instruments. By usual business parlance, it is cost incurred towards issue of debentures, bonds, etc.

We are often told that equity investments are subject to risk. What is this risk? It means earning less than what you expected from a given investment or losing part of what you invested. When it comes to investments we only talk about returns. We say: the higher the risk the higher the return. How easy it would be then to assess a mutual fund if they published, along with their returns performance, the risks involved in earning such returns. For example, a fund gave 25% return by risking losing your capital to the extent of 5% , and another gave 50% return by taking the risk of losing 100% of your capital. In the absence of risk figures, you would rate the fund that gave 60% return as better than the one that gave the 25% return. However, within the risk parameter, you would prefer a fund that risks 5% of your capital to one that risks 100% of it.

Investors solicit advice in brevity: tell us what to buy or sell, they say. But we cannot make a significant amount of money if we avoid taking risks. Risk is also an opportunity, but it should be a calculated risk you take. If the fear of losing makes you leave the money idle or put in low-return instruments, then inflation will devalue it. Hence, investment is must, and the risks associated with it must to be understood.

In an ideal scenario, the investor should need to take only risks relating to the economy and company performance and our markets are close to achieving this goal.

There are several parameters that evaluate the risk factor. Statistical and analytical tools can be used, but they are not affordable for the small investor nor would he always have the time or knowledge to use them. This article lists the parameters that go into risk calculation. Risk can be minimized if we can identify it.

Risk is related to time. The first question to ask when making an investment is: When do I need the money? In general, you can take more risk if your investment horizon is distant. This is because you have more time to recoup your potential losses along the way. Major factors that determine risk are stated below.

Macro factors that add to risk are the economic performance of the country. The GDP growth of 8% + in the last few years has fuelled the stock market rally. Interest rate movements, each time the Reserve Bank changes the benchmark rates of interest, has a positive or negative impact on the market. The dominance of FIIs in India has also led to a sensitivity of the market to interest rate cuts, announced by FED in the US. International developments, such as energy prices, WTO, insurgence and wars between countries also impact risk, since such issues affect share prices. Regulatory changes such as Truck overloading norms, Intellectual Property Rights, and VAT also add to risk directly if the company is part of such and industry, and indirectly, if such changes impact all industries in general. The feel-good factor is also necessary to keep the market sentiment buoyant; if everyone feels that the economy is doomed then there is little one can do to improve market sentiment.

Industry-level risks include: the state of a specific industry, whether it is in growth, maturity or decline phase. Industries such as IP telephones and cell phones are in the growth phase whereas certain type of asbestos sheets manufacturing, which is a health hazard, is not. Industry cycles are also important: for example, in the monsoons, there is less demand for cement compared to the rest of the year. Structural changes and paradigm shifts in an industry should be observed, such as peoples current preference for motorcycles compared to scooters, or landline phones versus mobile phones or electronic encyclopedias versus printed books.

Company-level performance risk includes: company value sets and governance norms, whether it has a dominant position in the industry or is an also-ran; financial parameters, such as earning per share (EPS), whether it has short-term or long-term approach to growth. Its quality of management and corporate governance are important. Infosys carries one of the lowest risk parameters as far as corporate governance goes since it is one of the best managed companies in its field. If the company is listed as a Z group share or in Trade-for-Trade settlement, then it is a clear indication that either the company is not fulfilling the listing requirements or there is unusual activity in the market in relation to the share, and the stock exchange has put it under special surveillance.

Regulatory risks associated with markets are also important. If the quality of regulation is poor then the response to scams is also not adequate. While scams and market manipulation will continue to happen as long as there is human greed, how regulators and the entire legal system respond to them is important. Timely prevention, early detection, speedy and severe punishments act will deter potential manipulators. Regular reviews and correction of outdated laws ensure compliance from citizens.

Systemic risk relating to stock markets, such as that to do with the technology, needs to be understood. Today, the markets are heavily dependent on complex systems that run through public and private networks; inability to square off an open position during the closure of the market is a major risk. Please read the Risk Disclosure Document that is available with brokers to understand such risks.

Successful investing would require you to study prospects and project earnings, P/Es and market prices versus todays levels, risk /return benchmarks are necessary to review when either is achieved. Avoid greed for more profits or fear of incurring losses. Be rational rather than emotional. Sleep over a decision, if necessary. Haste can make waste.

In summary let us remember-no risk no return. No pain No gain. Take small steps. Ask for advise. Read books. Use Internet. But dont give up on investing because a film tells you so or your cousins neighbours uncles co-brothers friend in Jumri Tallaiya said he lost his shirt in the markets! Own your decisions and learn from your mistakes. They are the best teachers!

If you are thinking whats the best ways to invest 50000 in 2013 you will find many options.

The most popular investments are property investment, carbon investment, wine investment, stock and shares, the list is never ending with what seems like great opportunities to cash in fast and make excellent returns. We know things are never this easy especially when it comes down with parting with your well-earned cash. When considering an investment you must make sure you understand every aspect of your venture.

For example the property market has been suffering hard in recent years. Its hard to tell if an investment today in property will turn fruitful in a few years time. The property market changes so fast and not just in one country its widespread around the world. While there can be a property boom it seems nowadays its more than likely it will be more of a crash, especially in todays economic climate. When it comes down to property you need to invest well, finding that perfect property or properties to invest in which means often trying to obtain them at discounted prices. You can get a agent to help build your portfolio and advise you. Building a property portfolio is not easy it requires hard work and a lot of time and big risks because you will be using large amounts of money to purchase property, be it your own money or the banks.

Over the last few years there has been a lot of interest in green investments such as solar, wind turbines, carbon credits. The biggest downfalls with green investments are they are very difficult to understand. In most cases you never see your investment, especially if you invest in carbon credits. Understanding carbon credits is quite a feat and finding a good investment that gives you returns is even harder!

One of the best investments for 2012 we came across was diamond investment. Very easy to understand, fast to setup through a verified dealer, you can actually keep your diamond yourself as long as you have insurance or you can keep it in a vault. Diamonds come in many sizes and there is different type of diamonds, colored diamonds being a favorite.

With the right diamond investment company it really is hard to loose out as we found there is so many quick exit plans to cash in fast or if you are in it for the long-haul and can invest over 3 5 years then the returns can be massive. Diamonds are really easy to understand you know what you are getting, you can see your investment, and you can invest however much money you want to test the water, unlike property. We think its the best investment for 2013.

If you’re looking for the best ways to invest 20,000, there really aren’t many options as good as Diamond Investments, and if you love diamonds, why not get in on the newest vein of this investment opportunity in 2013. Imagine making up to 30% return on your investment (ROI).

The previous part of this article summarised what actually constitutes an investment trust, including how they are run, and provided an introduction into one particular type of investment trust, the REIT. In this second part, Split Capital Investment Trusts are introduced with a quick summary of how they may be used by investors.

Split Capital Investment Trusts

Also known as Splits, this variation of an investment trust strays from the more simple template in that it can offer a number of different share types within the one trust, each with a certain profile of risk vs potential yield.

Splits tend to be run across a fixed term and therefore have a stated closing date, known as a wind-up date. At this date the assets accumulated through the fund are distributed to the investors in a predefined order depending on what class of share they have purchased, with the low risk shares paying out first, but with limited gains, and the high risk shares paying out last, but with the highest potential gains if the fund were to perform well enough.

The share classes that pay out first usually have protection on the original capital investment which is then countered by the fact that they dont receive any income and during the life of the fund and the fact that the final redemption prices is predefined (so that the potential yield, if the fund were to grow sufficiently, has a ceiling). The series of share classes to pay out next will have diminishing protection on the original capital investment, but greater shares of the income payments and of the remaining asset growth if the investments were to perform very well. Therefore, with the last share class to pay out there is a high risk that there will be very low returns after the higher priority shares have been paid if the investment trust performs below expectations, but there is no limit on the potential gains if it does indeed perform well.

This choice allows investors with differing aims to invest into the trust in accordance with their own investment strategy. For example, pension fund managers running annuity funds may find that they can take up shares with higher risk (little capital protection as they will be redeemed after the lower risk share classes) but that have the potential to pay out more income if the underlying investments perform well. Contrastingly, private small scale investors who are after long term investment returns may be better suited to zero dividend preference shares (the first to pay out) which have the security of a fixed return/capital protection but miss out on the income payments along the way.

Even within these investment trust groups there will be a significant variety in the risk and potential reward profiles from one trust to the next depending on the stated strategy of the fund manager and the company sectors (geographical, industrial etc) in which they specialise. There should therefore be investment companies offering the right shares to meet any investors needs. If the price is right of course!