Neil Borate Profile picture
Feb 17 5 tweets 3 min read
Why are savings rates stuck at 3.5%? Despite being deregulated in Oct 2011, banks have stuck to 3.5-4% over the past decade. Some exceptions existed such as Kotak Mahindra's 811 account which offered 6% in 2017 and 5% from 2018-2020. But these have also disappeared over time.
In today's era of rising rates, this is a free lunch for banks. The lunch was a tiny snack in 2020-21 when rates were cut. Moving money to an FD wasn't that rewarding. You got maybe 1-2% more. Today, that free lunch is a buffet. Savings rates are half of FD rates of even 1 year.
The same gap exists with returns of money market funds. In both cases you give up some liquidity. In case of FDs, a sudden need for money will mean breaking it and losing interest (note sweep-in sweep-out FDs can sort this out).
In money market funds (and liquid funds) you get your money within 1 day of giving redemption (T+1). You also come under capital gains tax for your returns. This is slab rate for redemptions within 3 years, but you get some advantage like set-off and carry forward.
Don't let your bank enjoy a free lunch. It isn't not good for its health or yours. Story by @maulik_madhu livemint.com/money/personal… #personalfinance #investing #interestrates

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More from @ActusDei

Feb 18
Why don't Indians invest in municipal bonds? Municipalities collect property tax and have projects to finance. Our lives are also a lot more affected by municipalities rather than the Union govt. It is they who collect garbage, supply water and keep the roads clean (in theory). Image
Quite simply, until Indore Municipality came out with a public issue on Feb 14th 2023, municipal bond issues were few and far between. They were also 'privately placed' - offered to select investors. The minimum face value (until Oct 2022) for private placement was Rs 10 lakh.
Indore Municipality's issue is path breaking. Coupon (interest rate) of 8.5% and minimum investment of Rs 10,000 and to be listed on exchanges. If more municipal corporations follow suit, we might one day have a thriving muni bond market.
Read 6 tweets
Feb 15
In 2019, fintechs such as @getStockal , @Vested_finance and @INDmoneyApp spotted a gap. They realized Indians wanted to participate in the US tech story by buying stocks like Apple and Alphabet. @Shiprasorout's story today talks about what the 20% TCS means for them. Image
Indian market was in doldrums after the 2018 IL&FS meltdown while the Nasdaq was booming. So the fintechs used tech to democratize investing through India's Liberalized Remittance Scheme (LRS). Middle class investors were now able to enter a domain of the rich - global investing
The Indian government however, concerned about tax leakage slapped a 5% tax collected at source (TCS) on LRS remittances above Rs 7 lakh in 2020. In the recently passed 2023 budget, this was raised dramatically to 20% and the Rs 7 lakh threshold was removed.
Read 6 tweets
Feb 13
Today @jashkriplani writes about the train-wreck that is the Nifty Next 50 after the #HindenbergResearch report on #Adani. The Nifty Next 50 collapsed last month. Even 5 year returns are just 5.4% CAGR. As much as 14% of the Nifty Next 50 is in the Adani Group
Nifty Next 50 is 'waiting room' index. It consists of the 50 largest companies just below the top 50. Logically, investing in it should be more rewarding than investing in the main Nifty index. But that's not how returns have played out.
What failed? If the #hindenberg allegations are true, free float in Adani stocks is an illusion. Then they should not have made it to the Next 50 in the first place. Indexing did not fail, the Indexer did. MSCI recently revised its own free float weighting. What is NSE doing?
Read 4 tweets
Feb 11
A goliath is about to enter India's start-up space - @hdfcmf. It is launching its first AIF with a size of around Rs 3,000 crore (including greenshoe option). This is an FoF meaning that it will invest in other funds (which will in turn be investing in startups/unlisted cos) Image
HDFC AMC has already started accepting money and expects to close sometime in March. The fund will have a life of 11+2 years - the additional 2 years can be used after approval from investors. The fund will charge a 2% management fee and 20% performance fee for direct investors.
So what are the benefits? HDFC AMC has expertise in the financial markets and will deploy it while picking AIFs. These VC/PE funds in turn will probably pick good start ups. The power of size means that HDFC can probably secure good deals.
Read 8 tweets
Feb 6
An aunt of mine suddenly was pitched an MLD today. She had no idea what it was and thankfully asked me. I told her the whole story. After #Budget2023 tightened the tax rules on MLDs, HNIs and wealth managers are on a selling spree and agents are reaching out to retail investors.
Quick recap. MLD = Market Linked Debenture. A bond with a notional market linkage (eg: to Nifty). In reality MLD is structured just like any standard corporate bond. It is an instrument that uses a loophole in the Income Tax Act to give fixed income to rich people
MLD returns come under 10% long term capital gains tax after 1 year holding. But Budget 2023 has proposed to change this to short term capital gains tax rate (slab rate), regardless of holding period after 1st April 2023. So MLD holders are desperate to get out before that date.
Read 4 tweets
Feb 4
Yesterday Sebi released several discussion papers to tame the last wild west frontier in wealth management - Alternative Investment Funds (#AIFs). Why? What has Sebi proposed?
The lack of regulation was pushing the industry to sell AIFs and collect high commissions rather than highly regulated mutual funds. 4-5% upfront commissions in some cases
What has Sebi proposed? 3 things: 1) Make it compulsory for AIFs to have a commission-free direct option. Post this, it will be easier for direct investors to buy and Registered Investment Advisors (RIAs) to offer them to their clients. RIAs are not allowed to collect commissions
Read 5 tweets

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