Save Your Income From Tax By Taking A Home Loan

Every month, when we get our salary, we download the payslip with a burning heart. This is not because of the insufficient salary or because of the impending expenditures for the month. This is because of the huge amount deducted at source by the income tax authorities that bites off a major chunk of the total income. The cutting makes our take-home salary look like an ant in front of an elephant and the deducted amount is enough for an upper-middle-class family to live off happily. We searched frantically for a proper solution and finally got the only solution as taking a home loan. Let us see the tax benefits you can avail from this mammoth debt and some important information pertaining to the same.

Two divisions and two exemptions

Home loan is divided into two payments just like other loans, blended into a single payment. The tax wavering is, however, managed under different sections of the legislatures. Take an example here. If you take a home loan of a certain principal at a rate of interest of 8.4% for the tenure of 20 years, the amount you are paying in total is almost 1.4 times the total payable amount at the end of 10 years. The difference in the total amount is the higher interest you are paying for the extra 10 years and the tax exemption calculated for interest every year depends only on the paid interest. The divisions are:

Principal amount: Every year, you will be paying a certain percentage of the total loan amount and usually, this amount will be less in the initial years and keep on increasing year and year. The tax deduction on the principal paid each year is different based on the purpose of the house, but the section covering remains the same. Usually, if the house is self-occupied by the applicant there is a cap to the maximum relaxation availed in a year. On the other hand, if the house is given on rent, the rent gets added to the income and the upper cut-off to the maximum redemption is lifted.

Interest on the Principal: Based on the number of years selected for repayment, the interest varies. The interest is higher in the initial years and lowers as the tenure nears completion. The whole interest is eligible for tax reduction under a section other than those covering principal amount.

When you attempt to pay-off the loan earlier than the scheduled tenure, you can do it either by paying an extra number of EMI’s in the same month or by paying higher amounts of installments. The interest, however, remains the same since additional payments are reduced directly from the principal amount.

The Future Of Your Business Lies In Business Valuation

You start any business, to make it operate in a condition supporting its sustenance, constant evaluation and monitoring are required, just like the special training of a prospective candidate for a job. This is called business evaluation and is done in protecting the interest of the person or firm owning the business. Business Valuation can be described as a process of using certain procedures to evaluate the economic value of a business or an enterprise. The business may be owned by a single person or a management and the valuation is done on the current assets and aspects of the company towards a specific goal. The goal of evaluating your company may be any of the following:

  • Your business is about to merge into or taken over by another company.
  • You are selling the business due to reasons like retirement, debt, lack of resources or manpower, health or family issues etc.
  • You are planning to sell some of the shares of the company on the stock trading platform.
  • Solving disputes regarding assets, estate share, tax and divorce settlements, partnership interests, share settlement etc.
  • Tax reporting considers valuation according to the company’s fair market value as a critical element for various parameters in taxation like gift tax, share gifting, sale and purchase agreements etc.

Through business valuation, the prospective buyer or acquiring company determines the price of your business. Even though finance experts and accountants can carry out business valuation, often employing a professional evaluator gives a better result and is preferred by larger business or when legal issues are involved.

Elements coming under objective evaluation

During the valuation process, the company’s assets alone are not evaluated. When we speak of a business, it has various cores and each core is important to the overall functioning of the business. The following elements are also subjected to objective analysis in financial terms:

  • Management
  • Materialistic properties
  • Workforce including labor
  • Machinery and tools
  • Capital structure
  • Balance sheet and yearly planning
  • Scope for future expansion
  • The market value of all the assets

Valuation of a business uses a number of tools and financial interpretations. The common Excel sheet serves as one of the most powerful tools in business valuation. Some common methods involve analyzing the financial statements, balance sheet, tax payments, and returns filed, discounting cash flows etc. There are definite mathematical models to evaluate a company and a valuator may use one or more of these models to arrive at a conclusive result.

Things About A Good Investment

The investment for a project scheme involves large sums of money and is considered at a risky pace till establishment.

The general facts about a good investment scheme are

  • This needs to be approved by the board of directors of the firm. Although the finalization of this fund asset is a manager’s responsibility, the accountants, economists and other financial faculties come up with their own contributions to help managers with their decision making on estimating the amount and fund flow timings.
  • Altogether, these are the determining factors that account for money-value of a project which is very important. It is a common fact that the money flow timing perspective greatly influence the scheme as fund received earlier in time has a higher economic value as compared to the later received fund.
  • As soon as this amount is acknowledged, it is plowed in a project related alternative profit-making turnover. Thus, any venture project faces an opportunity cost for cash devoted to it.
  • Moreover, as the development job takes time and may extend over many years, the time-related value of the associated fund is considered as a note-worthy aspect for decision making.

To make a better understanding of the time-related value of the fund, the future money flow gained for the venture are attuned to their present value using a preset discount rate. The amount resulting from the summation of future flow cash discounted values minus the initial investment from its accounts for the net present value of the business. NPV is the economic value representation of the project at the current given point in time.

In addition to this, a discount rate is also used to influence the calculated NPVs.

  • The final designing step of capital investment model should be in such a way to optimize the economic value of the firm by raising the future fund flows’ net present value.

A positive NPV of a scheme assures an earning of higher return rates compared to its discounted rate.

Analyzing the typical de-investment type of cash flow

The cash flows obtained at the termination term of a project is known as de-investment flows. Apart from this fund, the other money flow source at the project end includes:

  • Project cash which was never used for any purpose
  • The Inflow of the cash from clearance of the leftover long-term assets
  • Savings made from the taxes including both unused assets and from the depreciation value basis of the asset
  • The remaining cash after payment of employee’s compensations and other related restoration costs.

Business Valuation Methods

Parents normally find it difficult to accept the faults in their children. For them, their children are the best and the perfect humans in the world and they cannot put a value on their talent or work. A business owner is also like a parent. He puts in his sweat, blood and all the time to make it prosper so for him it is an invaluable asset whether it succeeds or not. So when it is time to make an assessment and determine a tangible value of the business, it is better to go to an expert. Experts are well-versed in the methods of evaluation and they can judge the company impartially and their results are trusted and accepted by others.

There are certain approaches that are approved and accepted across the business world.

The approach based on Assets.

All these approaches have many advantages and some drawbacks. Most of the times the approach is chosen depending on the size of the enterprise. For example, in a big corporate it is easy to distinguish between the personal and company assets as these are very different and strictly kept separated. But in a very small company most of the times personal assets are also used for official purposes and may be difficult to differentiate.

Approaches based on the value of the earnings

The approaches based upon the value of earnings are based on future predictions and may also involve a certain amount of risk, as no one can guarantee an earning or a certain amount of sales in the future. Past earnings may also depend upon the brand name and ownership and if a new owner is going to take up or buy out then the value of earnings may change.

An approach based on the Market Value

In the last approach, a business is compared to other businesses in the same niche and size. But there must be a sufficient number of similar businesses to compare with and the non-competition clause may also affect this valuation.

Once we understand the various approaches, it becomes easier to apply one or more of the methods to the business. However, a professional evaluator is essential to get the best assessment, that is acceptable and conforms to all legal aspects. He can choose to use one or more methods in combination, to assess the value of the business. The correct and appropriate appraisal will make your business more trustworthy in the eyes of lenders or buyers and that will, in turn, help you to get the right price for it.


Some FAQs On Hedging

How does hedging work and what are its benefits?

You are investing in one asset and securing the risk in this asset by investing in a second asset. The loss you may incur with the first asset is offset by the profit in the second asset. In this way, you are getting two benefits through hedging as it gives you income through these profits along with reducing the risk.

Where can you implement hedging?

Hedging can be implemented in any underlying asset being traded in the market. You can hedge with currencies, commodities like industrial and agricultural products, securities like shares, equity, mutual funds, interest rates and even weather.

What kind of risks are secured by hedging?

Hedging addresses several risks laying in the trading market, the most important being Industry Risk, Equity Risk, Securities Risk, Foreign Exchange Exposure Risk, Volatility Risk, Industry Risk, Interest Rate Risk, Downside Risk etc.

What are the different types of hedging?

Based on the benefit from hedging, the following are some examples of hedging:

  • Forward Contract
  • Futures Contract
  • Money market
  • Covered Calls
  • Short Straddles

What is a Forward Contract?

It is a non-standardized contract between two parties to sell or buy an asset such as currencies, commodities, etc based on a mutual agreement on the price and date of exchange.

What is a Futures contract?

This is also a contract between two independent sides to buy or sell an asset at a fixed price and date but is a standardized one.

How can hedging help you in the money market?

Numerous contracts, transactions, and exchanges on currencies and money take place in the market and most of them are for short-terms. Hedging gives you security from risks associated with equity, interest rate, mutual funds, bonds etc.

What is a hedging strategy?

Hedging is basically a reduction of risk and the strategy involved is a kind of risk reduction technique, wherein you use flexible techniques to bring down the risk associated with an asset. There is no fixed strategy and it completely depends on the nature of the asset and your decision.

How can you hedge with asset allocation?

You can invest in multiple assets of same or different types so that the risk and profit become balanced from both ends. For example, you can invest 75% in currency and the remaining 25% in another asset with lower or higher stability.

What are other forms of hedging strategies?

You can use Hedging through Structures for reducing downside risk, through options for equity risk, staying in cash strategy for a no-investment trading.

Future of Merger & Acquisition

A combination of two companies into one bigger corporation where one of them is absorbed by the other is the simple definition of Merger, the unity of the assets of two companies into one legally and also the sharing of the liabilities or the debts of the acquired company is inclusive when an M& A happens.

What happens when two companies merge?

  • the existing or the surviving company assumes all the rights of the acquired company including the assets, liabilities, privileges
  • major competition is avoided as mostly the M & A happens when there are two very competitive businesses and once acquired, the competition is lessened and rivalry is negated,
  • number of social benefits, as the scope of reducing the cost, improve the quality of the products and get an increased output with higher profit margins, hence the government to go easy on in the process of acquiring and merging businesses as they are highly regulated,
  • most of the unutilized skill sets of people and technical aspects are increased and are used to full capacity
  • underused assets are optimally used for increasing the output and increase the profitability once the M & A is completed

The market is one of the most upper forces which make companies to even think of M& A; though competition and price are determinants the future ahead has more and more M& A happening due to the market conditions prevailing and the edge over other similar industries in the business.

Factors which influence M& A:

  • most of the strength and weakness of each of the company are tabled and is a major factor in deciding whether it is a viable option as one company may have a higher liability and the other may have less debt to equity ratio which is a lucrative offer
  • a key factor in determining whether the two companies fit in strategically, there should not be a merger or acquisition happening just to take over the liabilities or the customer base, a good equation of similar organizational culture, leadership quality and conducive environment gives the required scope
  • the amount of branding a company has or will have once two companies are merged is yet another influential factor on how good the marketing of the product is done, and how much percentage of market share such products hold, the higher the percentage of market share a product or service has, higher will be the profitability if the branding is done well.


Arbitrage- the easy business solution

Who will not want to make profits with no risk or fewer risk factors affecting your business?Everyone would nod to such an idea. But what this is exactly should be understood before deciding to use such an option. This method of reducing the business risk is termed as arbitrage, which means buying a security from one market and selling it in another market at a better price and claim the profits from it. This is easy income with no great pain or challenge.

But as it is known, every method in a business comes with some kind of a trick inbuilt and we need to beware of all such loopholes before we can invest in such methods. Thus it is crucial to know how to be safe from such divulsions.

Some points to be considered at such times could be:

  1. Higher transaction costs: since the bidding happens at different intervals, the transaction costs may be high as it is separate for each session.
  2. Higher margin requirements: making an estimate of thrice the usual margin will be required to execute an arbitrage strategy which can be a cause of worry for the investors as they have to bear such expenses.
  3. Perfect timing strategy is required: usually, arbitrage opportunities are of short life and they need to be perfectly timed and executed for grabbing the most out of it.
  4. Multiple dimensions: the trader should be clear about the arbitrage process before he could exercise it. The combination of buys and sells will differ according to each currency combination and this will be a disastrous effect when not learned and understood properly causing complete loss of huge sums of money.
  5. Advanced monitoring techniques are necessary: there are some techniques available to monitor and find out what may be the results from the arbitrage of securities. This is a pre-built program which needs a lot of patience to understand and simulate. Only when a trader is capable of handling this, it will make his business of buying and selling easier.

Hence the arbitrage process comes as a business strategy with its covered issues which require proper reciprocation from its users. The keynotes for a successful trading experience are :

  • Maintain trusted and cordial relation with suppliers so they notify about when the product is at a profitable move.
  • Keep a constant check on what may be your barriers and manage them effectively and timely.
  • Have a good communication medium for proper movement of information.

Thus, arbitrage can be friend or foe lies in your decision to look at it.