RBI maintains the status quo at 6.5% keeping the Repo rate unchanged and focused on the withdrawal of accommodation stance.

Reasons for RBI to maintain Repo Rate.

1. RBI concerned about inflation.
2. Normalizing a high rate environment.
3. RBI trying ensure inflation particularly food inflation should get in RBI target area.

Our Take

EM central Banks policies were mostly run by Fed. Unless typically wrong with very high Inflation and current account deficit.

Fed likely to cut rate in sept policy meet. So, we think RBI is likely to cut the rate in Dec,2024.

In the past after first rate cut by fed equity markets go through correction. Rates cut are good for bond market. Debt market will see rally in next 2-3 years and it can give 2-3 % more over real rates.

Equity markets will become volatile with negative bias. Stay away from mid and small cap. Stay away from thematic funds (Defence) as well. There can be price or time correction. Good time to get in Large cap funds and consumption (premium) focused funds.

In short RBI in no hurry to be the first to cut.

A blog from Santosh G Akerkar. For Educational and Awareness purposes.
Best Regards,
Santosh Akerkar

ICICI Prudential Short-Term Fund

• Low risk fund for short term goals
• Why this fund works

Invest in treasury bills, certificate of deposits, commercial papers and corporate securities.

Current yield to maturity of portfolio is healthy.

Over 82% of the securities are sovereign or carry the highest AAA or AI+ ratings.

As its bond fund it has zero exposure to Equity or Stocks.

As there’s consensus that interest rates have peaked and that with relatively be high inflation, there may be possibility of a reduction in rates later in the year.

However, we believe that this is going to be shallow rate cut cycle due to variety of reasons. At the same time RBI likely to keep liquidity tight in the system. There is no sign of going back on stance of withdrawal of accommodation from RBI.

Thus short term interest rates may still hold up for the forseeable future. In this regard ultra short-term funds can be considered by investors for parking their emergency funds or for short term goals.

The current Macaulay duration is healthy at 0.46 years (less than six months) as is the yield to maturity at 7.72 %. It is worth nothing that CPS and CDS of three months tenor are still available at yields north of 7 %.

Investors can consider the fund for short term goals for stable returns.

A blog from Santosh G Akerkar. For Educational and Awareness purposes.
Best Regards,
Santosh Akerkar

The new Tax Regime became a default option for taxpayers from Budget 2023 for the financial and the years 2023-24.

As you know New Tax Regime does away with most deductions and tax benefits. However, the Old Tax Regime is still available to taxpayers.

In this article, we are going to highlight lesser-known aspects of the New Tax Regime.

Lower Surcharge
For the Assessment year. AY 2024-25. under the old regime, the applicable rate of surcharge on income tax for individuals with total income (Income after all deductions) higher than 5 Cr is 37 %. This has taken the maximum marginal Rate of tax (MMRT) after health and education cess (HEC) of 4% to 42.74%. However, the surcharge rate on the income tax applicable for such individuals under the new tax regime has been notified as 25% in the Finance Act,2024. This brings MMRT under the new regime to 39%.

Marginal relief
Rebate under 87 A in case of a new Regime makes zero tax Liability a possibility. If total income is up to ₹ 7 lakh. What if total income marginally exceeds ₹ 7 lakhs? To relieve taxpayers of such a situation the section offers marginal relief unlike in the case of the old regime. But there are a couple of conditions to be met for marginal relief.

First, the total income should be in excess of ₹ 7 lakhs. Second, tax on total income. (Before adding HEC) should be greater than the total income in excess of ₹ 7 Lakh.

Opting Out
The new Regime, even with all such benefits may not be better, than the old regime for certain individuals.

Prime among them would be those who are heavily invested in the investments and insurance schemes for which deductions are available under the old regime.

So for salaried persons, there’s the benefit of switching between regimes and opting for the one that is beneficial at the time of filing ITR.

(An article for education and awareness Purpose. Do Consult your tax advisor).

Best Regards,
Santosh Akerkar