fbpx
Search for:

How to save on your taxes in 2023? A cheat sheet!

An individual taxpayer planning to opt for the old tax regime for current FY 2022-23 must complete their tax-saving exercise on or before March 31, 2023. If an individual has not made any investments allowed under section 80C of the Income-tax Act, 1961 then he/she must not wait until last minute.

 

Section 80C allows an individual to claim maximum deduction of Rs 1.5 lakh from their taxable income. By claiming this deduction, an individual’s taxable income reduces which leads to reduction in income tax liability. An individual whose total income is taxed at 30% tax rate and 4% cess, will pay Rs 46,200 as additional tax if maximum deduction is not claimed. Had the maximum deduction being claimed, then tax outgo will reduce by Rs 46,200 (including cess).

 

Here are some of the common options available under Section 80C, 80CCC and 80CCD (1) for saving income tax. Do note the total investments made under Section 80C, 80CCC and 80CCD (1) together must not exceed Rs 1.5 lakh in a financial year.

 

Equity-linked Savings Scheme (ELSS): ELSS mutual funds are one of the common investment options used under Section 80C to save income tax. The maximum deduction that can be claimed is of Rs 1.5 lakh. ELSS mutual funds invest in equity and the returns earned are market-linked, making them one of the most risky investment options in the 80C basket.

 

ELSS mutual fund schemes have a lock-in period of three years. Thus, once invested, an individual investor cannot withdraw the money before the completion of three years from the date of investment. ELSS has the shortest lock-in period among all the other options available under Section 80C. There is no limit to the maximum amount that can be invested under ELSS mutual funds. The minimum amount varies between mutual fund houses.

 

The return earned in ELSS mutual fund will be taxable if the redemption is done. The capital gains will be taxable if the total equity capital gains in a financial year exceeds Rs 1 lakh.

 

Public Provident Fund (PPF): PPF is one of the most popular small savings schemes. This is because PPF has EEE tax status. This means that investment made in PPF is exempted from tax, the interest earned from PPF is exempted from tax and maturity amount is also exempted from tax.

 

PPF is a debt investment, hence, they are not as risky as ELSS mutual funds. PPF is a government scheme, hence, it comes with sovereign guarantee. The interest on PPF is announced by the government in every quarter. For January – March 2023 quarter, the PPF is offering 7.1% annually. The government will review the PPF interest rate on March 31, 2023 for the April- June 2023 quarter.

 

PPF comes with a lock-in period of 15 years, where the lock-in period starts after the completion financial year in which initial investment is made. For instance, if an individual makes the first investment in PPF in August 2022, then lock-in period of 15 years will be calculated from April 1, 2023. Though PPF has a lock-in period of 15 years, it offers loan and partial withdrawal facilities.

 

The minimum and maximum investment amount in PPF is Rs 500 and Rs 1.5 lakh. An individual can open the PPF account either with a bank or a post office.

 

Do note that once PPF account is opened, then minimum investment must be made in the PPF account every financial year. If minimum investment in PPF account is not made in a single financial year, then PPF account will become a discontinued account.

 

National Pension System (NPS): Investment made in NPS is eligible for deduction under Section 80CCD (1) of the Income-tax Act. The scheme offers pension to the investor from his/her retirement age. The returns under the NPS are market-linked.

 

The amount of deduction that can be claimed for NPS investment under Section 80CCD(1) is 10% of salary (basic salary plus dearness allowance). The maximum deduction that can be claimed is of Rs 1.5 lakh. Hence, an individual having basic salary of Rs 10 lakh is eligible to claim deduction of Rs 1 lakh under Section 80CCD (1). To fully-utilise the benefit of Rs 1.5 lakh, he/she will have to explore other tax-saving investment options.

 

NPS has a lock-in period of till the age of 60 years. For example, if an individual started investing in NPS at the age of 25 years, then he/she will have a lock-in period of 35 years. NPS offers partial withdrawal facility, however, such withdrawal is allowed under specified circumstances. On maturity, an individual can withdraw maximum 60% of the corpus as lump-sum. This lump-sum will be exempted from tax. The balance 40% must be mandatorily used to buy annuity plan. The annuity/pension received will be taxable in the hands of individual.

 

The minimum per NPS contribution is Rs 500 but there is no maximum amount that can be invested in NPS. An individual opening NPS account must ensure that they have made minimum contribution of Rs 1,000 in a financial year to avoid making the NPS account discontinued.

 

Employees Provident Fund (EPF): EPF is one of the most popular tax-saving instruments for salaried individuals. If the organisation is covered under the EPF law, then a salaried individual will be making contribution to the EPF account. An individual is required to contribute 12% of basic salary to the EPF account and employer will make a matching contribution as well.

 

The interest rate on EPF account is announced by the government. The EPF account also has a lock-in period till retirement. However, partial withdrawal from EPF account is permitted for specific situations. Further, if an individual after quitting their job, does not find another job in two months, then he/she can completely withdraw the money from their EPF account and close the account.

 

The amount that can be invested in the EPF account depends on the salary of an individual. However, if an individual wishes to make additional contribution to the EPF account, then same can be done via Voluntary Provident Fund (VPF). The rules of EPF and VPF accounts are same.

 

Do note that if the total contribution to the EPF and VPF account exceeds Rs 2.5 lakh in a financial year, then the interest earned on excess contributions will be taxable in the hands of an individual. The maturity amount received from EPF account is exempted from tax.

 

Tax-saving fixed deposits: A 5-year tax saving fixed deposit is another option available to individuals to save income tax in the current financial year. An individual can invest in tax-saving fixed deposit at a bank or a post office.

 

The interest rate on tax-saving fixed deposit varies between banks. For post office tax saving fixed deposit, interest rate is announced by the government. The interest received from tax-saving fixed deposit is taxable in the hands of the individual.

 

Tax-saving fixed deposit has a lock-in period of 5 years. Hence, once invested, the money cannot be withdrawn before the completion of 5 years from the date of investment.

 

The minimum investment amount for tax-saving fixed deposit varies between banks. The minimum investment amount for post office 5 year term deposit is Rs 500. There is no limit to the maximum amount that can be invested. However, the maximum tax benefit of Rs 1.5 lakh can be claimed.

 

National Savings Certificate (NSC): An individual can invest in NSC as well to save income tax. The investment in NSC can be made by visiting the nearest post office. The interest rate on the NSC is announced by the government every quarter. However, once the investment is done, the interest rate remains fixed till maturity. Currently, NSC is offering interest rate of 7% per annum.

 

NSC has a lock-in of 5 years. Thus, once an individual makes an investment, the money cannot be withdrawn before the completion of 5 years. The minimum amount in NSC is Rs 1000 with no limit on the maximum amount. The tax benefit is, however, restricted to Rs 1.5 lakh under Section 80C. The interest earned on NSC is re-invested and is paid at maturity. The interest earned from NSC is taxable in the hands of an individual. However, as the interest is re-invested, this makes it eligible for deduction under Section 80C.

 

Sukanya Samriddhi Yojana (SSY): This a savings scheme for the girl child. A parent of a girl child can invest in Sukanya Samriddhi Yojana and save tax on it. Every quarter, the government announces the interest rate for Sukanya Samriddhi Yojana. Currently, the scheme is offering interest rate of 7.6%.

 

An individual can open the Sukanya Samriddhi account either via bank or post office. The Sukanya Samriddhi account will mature after 21 years of opening of the account. However, the deposits are required to be made for 15 years from the date of opening of account.

 

The Sukanya Samriddhi account can be opened by a guardian for a girl child below the age of 10 years. Only one account can be opened in the name of a girl child either in bank or post office. This account can be opened for maximum of two girls in a family.

 

The minimum and maximum deposit that can be made in Sukanya Samriddhi account is Rs 250 and Rs 1.5 lakh, respectively, in a financial year. If the minimum deposit is not made in a financial year, then the account will become a defaulted account.

 

Sukanya Samriddhi Yojana also comes with the EEE tax status like PPF.

 

Senior Citizens Savings Scheme (SCSS): Only senior citizens can invest in this scheme to save income tax. The interest rate on Senior Citizens Savings Scheme is announced by the government in every quarter. Currently, the scheme is offering an interest rate 8%. Once the investment is done, the interest rate remains fixed for the tenure of the scheme. The interest is paid every quarter to the senior citizen.

 

The scheme has a lock-in period of 5 years. However, the scheme allows premature closure of the account. The premature closure of account invites penalty as well.

 

The scheme allows minimum deposit of Rs 1000 and maximum deposit of Rs 15 lakh. The Budget 2023 has proposed to hike the maximum deposit limit to Rs 30 lakh from Rs 15 lakh currently.

 

The interest received from scheme is taxable. However, a senior citizen can claim deduction under section 80TTB for the interest earned.

 

Unit-linked insurance plans (ULIP): An individual can make investment in ULIP to save tax. It is an insurance product that offers both life insurance coverage and benefit of investing equity. The returns earned from ULIP products are market-linked.

 

The ULIP has a lock-in period of 5 years. Once the lock-in period expires, the individual can withdraw the money.

The amount that can be invested in ULIP depends on various factors such as age of individual, sum insured, policy term. The maturity proceeds from ULIP will be taxable if premium paid for all ULIPs in a financial year exceed Rs 2.5 lakh.

 

Source: Economictimes

How your mutual fund gains are taxed

Just like any other income, gains made on your investments are taxable and mutual funds are no exception. However, taxation policy can change depending on the type of mutual fund you hold. Similarly, tax consequences change depending on when you decide to sell your mutual fund.

 

But worry not because this article will help you understand the different tax implications of mutual fund investments.

 

Tax arises only when you book a profit
Unlike fixed deposits (FD), where the accrued interest is taxed every year, mutual fund gains are taxable only when they are realised, i.e., at the time of redemption. For example, if you invest in an FD for three years and earn Rs 5,000 interest every year, this amount is added to the taxable income of that year even if you do not realise the interest.

 

However, in case of mutual funds, if the value of your investment increases by Rs 15,000 by the end of the first year and you remain invested, you don’t have to pay any tax. Only when you redeem your mutual investment do you need to pay tax.

 

How tax liability is determined on mutual fund gains?
How much tax you need to pay on your mutual fund gains depends on three factors:

 

The type of fund you have invested in: From a taxation point of view, mutual funds can either be equity-oriented or non-equity-oriented.

 

Equity-oriented funds are those that invest at least 65 per cent of your money in equities. The others are termed as non-equity-oriented mutual funds.

 

The amount of time you have held on to your mutual fund: Your holding period can either be short-term or long-term. The duration to define this is different for equity-oriented mutual funds and non-equity mutual funds

 

Your tax slab: This is only applicable if you invest in a non-equity mutual fund. Tax slabs also apply to Income Distribution cum Capital Withdrawal (IDCW) plans of mutual funds too. But more on this later.

 

Tax implications on equity-oriented funds
If your holding period is more than a year, the gains are termed as long-term capital gains. In this case, gains up to Rs 1 lakh in a financial year are tax-free, but anything above that is subject to a 10 per cent tax.

 

If your holding period is less than a year, the gains are termed as short-term capital gains and are taxed at 15 per cent.

 

Tax implications on non-equity funds

If you invest in a non-equity mutual fund, and your holding period is less than three years, the gains are termed as short-term capital gains and are added to your income. They is taxed as per your income tax slab rate.

 

If your holding period is longer than three years, then the gains are termed as long-term capital gains and are taxable at 20 per cent after indexation.

 

The first-in-first-out principle
Another important thing you should know is that the redemption of mutual fund units is based on the first-in-first-out (FIFO) method. That is, the units that you bought first are assumed to be redeemed first.

 

For example, let’s say you bought 100 units of a non-equity fund in September 2017, and 150 units of the same fund again in September 2021. In total, you would have 250 units. Now suppose you wish to sell 120 units in August 2022, here is how your tax liability would look like. For the first 100 units, gains made will be considered as long-term as they were acquired in September 2017, i.e., more than three years ago. And the gains on the remaining 20 units will be treated as short-term as they were purchased less than a year back. So, keep this in mind while evaluating your tax liability.

 

Tax on income distributed by mutual funds
If you opt for the Income Distribution cum Capital Withdrawal plan (IDCW) of any mutual fund scheme, the fund house might give you some portion of the gains/capital from time to time. Such distributions are added to your total income and taxed as per your income tax slab rates.

 

Source: Valueresearchonline

Last Minute Tax Saving Investment Ideas for FY 2022-23

Benjamin Franklin famously said, ‘There are only two things certain in life, death and taxes.’ Despite death not being in our hands, we often worry about it but when it comes to taxes which are very much controllable, we tend to put in only last minute efforts. Every year, in the month of March, many of us hastily invest in various tax-saving schemes that offer 80C deduction without proper consideration, resulting in poor financial decisions. However, are 80C investments the only option for tax savings? Many taxpayers are unaware of options such as 80D, 80E, and others. By treating these investments as tools for building long-term wealth, taxpayers can benefit even more.

 

Here are some handy last-minute tax-saving investment tips that can help you reduce your tax liability. By taking advantage of these tips, you can simplify the investment process and potentially save yourself some money come tax season.

 

Using Section 80C for last minute investment planning

Section 80C of the Income Tax Act is one of the most popular widely explored options for tax saving investments. With a host of financial investments options ranging from PPF, EPF, ELSS, Life Insurance Policy premiums, Bank FDs, Post Office Schemes etc. There is some or the other investment option available for all types of investors. Investments up to Rs 1.5 lakh in one or more of these are exempt from tax. Here is a quick review of some of the best last minute investment options in Section 80C.

 

PPF: If you unsure about where to invest and don’t want to take risks for your investments, invest in PPF. PPF investments are backed by government and offer fixed interest rate each year. If you do not have a PPF account, you can open one online and if you have an account then you can just invest the remaining amount to utilize your 80C limit. However, the current rate of interest is low at 7.6% p.a.

 

ELSS: ELSS is one of the best investment options in the list of financial products as it provides you the opportunity to invest in markets and enjoy tax deductions for the same. If you are a salaried employee, a sizeable amount of your investments go into your EPF account and you can look at investing in ELSS to diversify your portfolio into equities. Even for non-salaried taxpayers, ELSS is the ideal option for equity investment as most of the investments in 80C are debt investments. Another advantage of ELSS is that it has the shortest lock-in period of 3 years. Among all investment options, ELSS mutual funds offer the lowest lock-in with almost the highest returns.

 

Life insurance policy: Having a life insurance policy is extremely essential and if you do not have insurance policy with adequate coverage then you should look at buying a good term insurance policy. One should have term insurance policy in the portfolio to protect family for uncertainties.

 

NPS: You should start your retirement planning as soon as you can and NPS can be a great investment avenue for the same. Your investments in NPS enjoy additional deduction of Rs 50,000 under Section 80 CCD(1b) thus taking the total limit of tax deductible u/s 80C income to Rs 2,00,000 for the financial year.

 

Unit Linked Insurance Plan (ULIP): A Unit Linked Insurance Plan (ULIP) is a financial product that combines both investment and insurance in one package. ULIPs offer the opportunity to build wealth while also providing life insurance coverage.

 

With a ULIP, a portion of the invested amount is allocated towards life insurance, while the remaining amount is invested in a mix of equities, debt, or a combination of both. This type of investment is suitable for long-term financial goals such as saving for your child’s college education, retirement, or other significant financial milestones.

 

ULIP premiums are eligible for a tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per year. Additionally, the returns earned on a ULIP policy are exempt from income tax under Section 10(10D) upon maturity.

 

Deduction on your Housing Loans: You can claim repayment of principal amount of your home under Section 80C upto Rs 1.5 lakh. Apart from this, you can also claim additional deduction of Rs. 2 lakhs on the interest component of your home loan for fully constructed self-occupied property under Section 24(b).

 

Sukanya Samriddhi Yojana (SSY): This is a savings scheme initiated by the government to promote the development of the girl child. Parents can open an account with a minimum investment of Rs. 250 and a maximum of Rs. 1.5 lakh per financial year. The government announces the interest rate every quarter. The scheme offers tax benefits, including a tax exemption of up to Rs. 1.5 lakh per year under Section 80C, exemption from tax on interest earned, and tax exemption on the total amount at maturity. It is an EEE (Exempt-Exempt-Exempt) scheme, which means the investment, interest earned, and maturity amount are all tax-exempt.

 

National Savings Certificate (NSC): This is a savings scheme supported by the Indian Government. You can open an account at any post office in India, and the investment is locked for five years. After five years, you get the full amount. You can invest up to Rs. 1.5 lakh per year, and you can also avail tax deductions on investments under Section 80C. The NSC can be a good option for those who want guaranteed returns and save tax at the same time.

 

Tax-saving FDs: These are similar to regular FDs, but offer a tax break on investments up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. They have a lock-in period of 5 years, and cannot be redeemed before maturity without penalty. Any Indian resident can open a tax-saving FD with a minimum investment of Rs. 1,000. This is a low-risk investment option suitable for long-term investment with guaranteed returns. The interest earned on tax-saving FDs is taxable.

 

Tax saving beyond Section 80C

Section 80C is not the only option available for tax saving in India. There are other sections under the Income Tax Act that provide tax benefits and can be used for tax-saving purposes. Some of the popular tax-saving options apart from Section 80C are:

 

Medical policy premiums: With healthcare costs on the rise, having a medical insurance policy is crucial. You can claim a tax deduction on the premium paid for such policies for yourself, your spouse, children, or parents under Section 80D.

 

Interest on education loan: If you have taken an education loan for higher studies for yourself, your spouse or children, you can claim a tax deduction on the interest paid on such loans each year under Section 80E.

 

Donations made to funds and charitable organizations: Donations made to charitable trusts, organizations, or relief funds can be claimed as tax deductions under Section 80G.

 

Interest earned on your savings account: You can claim a tax deduction of up to Rs. 10,000 for interest earned on your savings account under Section 80TTA. For senior citizens, the limit is Rs. 50,000 per year.

 

Practical guide for effective tax-saving investments

Many people wait until the last quarter of the financial year to start thinking about their taxes. But this can lead to poor investment decisions. The best strategy is to start planning at the beginning of the financial year. This gives you more time to make informed investment choices and stay invested for a longer period, which can help you reach your financial goals quickly.

 

Here are some practical steps to help you plan your tax-saving investments:

 

1- Check if any of your investments or expenses during the year are eligible for tax deductions. For example, contributions to EPF, home loan repayments, and school fees can be tax-deductible.

2- Identify your investment goals and your risk profile to help you select the best investment options.

3- Invest the appropriate amount to reach your financial goals while also taking advantage of tax-saving opportunities.

 

Conclusion

In conclusion, many taxpayers tend to make hasty investment decisions by only relying on 80C tax-saving options, resulting in poor financial decisions. However, by exploring other options such as 80D, 80E, and others, taxpayers can benefit from long-term wealth creation. The article highlights some of the last-minute tax-saving investment tips that can help individuals reduce their tax liability. Taxpayers can take advantage of options such as PPF, ELSS, NPS, ULIPs, housing loan deductions, Sukanya Samriddhi Yojana, National Savings Certificate, and tax-saving FDs. By utilizing these investment options, individuals can simplify the investment process and potentially save money during tax season. Therefore, taxpayers must carefully evaluate their financial needs and goals before making any investment decisions.

 

Source: fisdom

Money Mindset: Approach problems in a non-linear fashion

My husband and I were contemplating a laid-back retired life when the tables suddenly turned. My partner and dear friend suffered a paralytic stroke just a few months before he was to retire.

 

Here’s how I tackled it and my advice to younger women.

 

Don’t minimize your role as a wife or as a woman.

 

Don’t assume that finances are only your husband’s problem, even if you are not earning. It is a partnership. You both are in the marriage together. Money decisions affect everyone in the house.

 

Society is always feeding us a narrative. You don’t have the mind for finances. You are too young. You are too old. Who is to make that decision for you? Why must age be a barrier? Why must gender be a barrier?

 

Take an interest. Question. Do your research. Offer solutions. Discuss. Start investing, whatever be your age or social status. If you husband gives you a monthly budget to run the house, you can even take as little as Rs 1,000 and start a systematic investment plan (SIP) into a mutual fund or a bank recurring deposit.

 

Never assume that good times are a given.

 

Besides the emotional and physical impact of me taking on the role of a caregiver, I was forced to take charge of the finances, something he had looked after all our married life.

 

The best time to educate yourself is when the going is good. I sometimes regret that I wasn’t this financially aware while we had a regular monthly income. I could have done so much more. Now, I even have an emergency fund in case I require it for a sudden medical expense. That way, I do not have to touch my investments.

 

Be clear on what you want.

 

When the final settlement cheque of my husband’s company was handed over to me, I realized that it was not the amount I envisaged. We had taken a loan on his provident fund to purchase a 2-bedroom apartment Bangalore.

 

The remaining amount would rapidly disappear if I did not take charge instantly and invest it.

 

I had one goal: Be financially independent and not ask my daughter for monetary support. All my actions stemmed from this decisions.

 

Approach problems from multiple angles.

I was brutally honest and aware of my complete lack of knowledge when it came to stock market. I did not understand chit funds.

 

This was in the mid-1990s when government undertakings were issuing bonds to the public at around 15% per annum. And, non-banking financial companies, or NBFCs, were passing on huge commissions to investors who invested in their debt instruments.

 

I began investing in these bonds and lived off the interest. By living frugally, I also was able to reinvest the interest too, and gradually increased the principle. When interest rates began to dip, I started to look at mutual funds.

 

I scheduled my investments to ensure that cash flow comes from a Systematic Withdrawal Plan (SWP), dividends or interest payments. With these inflows, I managed my daily expenses, outings and pampered my two grandsons. Larger purchases and expenses are put off till an investment matures.

 

When I was handed the cheque, I realized that I needed to attack the problem from various aspects. For one, I had to cut down on wasteful expenditure and adopt a frugal lifestyle. This would help save my corpus from getting depleted. But simultaneously, I had to grow the corpus. Because the erosion of the value of money due to inflation would continue, irrespective of my circumstances. Hence, I had to invest the money and take a call not to touch the principal, and instead add to it when possible.

 

Approach a problem from different angles. To be financially independent, I had to do various things – cut down on frivolous expenditure, increase my corpus and ensure inflows. Good investing is not just about knowing where to invest, but what to avoid.

 

Don’t blindly follow what another is doing. You need to take a hard look at your circumstances, and knowledge and what you are comfortable with.

 

Never be afraid to ask questions. Never be too arrogant to not reach out for help. Where I am today is because of the sound advice from well-meaning individuals.

Just because I avoided an investment at one time (equity), doesn’t mean I should continue. Allow yourself to evolve, as an investor and as a woman.

 

Padma Ramarathnam’s husband passed away. Thanks to her decisions, she is financially independent even in her 80s.

.

 

Source: Morningstar

Procedure of SME Listing on SME Exchange In India

SME Exchange provides a great opportunity to small and medium enterprises to raise equity capital for the growth and expansion of their business. SME exchange is a stock exchange for trading the shares of small and medium enterprises who otherwise would find it difficult and costly to get listed in the main board of a recognised stock exchange.

 

“SME exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by SEBI to list the specified securities issued in accordance with Chapter IX of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and includes a stock exchange granted recognition for this purpose but does not include the Main Board. Currently there are 2 stock exchanges providing SME exchange in the country, they are:

 

NSE’s SME Exchange i.e., NSE EMERGE.
BSE’s SME Exchange i.e., BSE SME.

 

SME Exchange is growing at a very fast pace which can be seen from the data available with the BSE SME website which states that there currently around 336 companies which have listed their share on SME Exchange with a total market capital of Rs. 27,318.64 Crore till date. Additionally, Rs. 3,492.54 Crore have been raised via various means on the BSE SME Exchange till date.

 

BENEFITS OF LISTING UNDER SME BOARD

 

Higher visibility and Recognition.

 

Higher credibility with stakeholders like customers, vendors, employees, etc.

 

Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.

 

Higher valuation of the company.

 

Enables Liquidity for Shareholders.

 

PROCEDURE FOR LISTING IN SME EXCHANGE

 

1. Appointment of Intermediaries – This stage includes appointment of various intermediaries required for listing under SME Exchange such as Merchant Bankers registered with SEBI to act as Lead Manager to the Issue, Underwriters and Legal Advisors.

 

2. Pre- IPO Stage- This refers to the procedural aspects for listing under SME Exchange which includes Increase of Authorised Share Capital, passing of resolution for further issue of share capital under section 62(1)(c) of the Companies Act, 2013, Re-Structuring of Boarde., Appointment of Directors to satisfy the conditions prescribed under the Companies Act as well as the SEBI Regulations.

 

3. Preparation Stage – This stage includes conducting of Due diligence by the Lead Manager to the Issue i.e., the Merchant bankers who would check all the documentation including all the financial documents, material contracts, Government Approvals, Promoter details etc. This exercise would also help in preparing Offer Document appropriately.

 

4. In-principal approval of draft prospectus – The Issuer shall file the draft prospectus along with the documents in accordance with the SEBI (ICDR) Regulations, other statutes, notifications, circulars, etc. governing preparation and issue of prospectus prevailing at the relevant time. The Issuers may particularly bear in mind the provisions of Companies Act, Securities Contracts (Regulation) Act, the SEBI Act and the relevant subordinate legislations thereto.

 

5. Application to BSE SME Exchange – On completion of Due diligence by the merchant Banker along with approval of the Draft prospectus, an application shall be filed with the stock exchange for admission of their securities to dealings in their respective exchange, i.e., taking in-principal approval from the stock exchange.

 

6. Filing of RHP/Prospectus – Merchant Banker then files these documents with the ROC indicating the opening and closing date of the issue. Once approval is received from the ROC, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

 

7. Post Listing – Stock Exchange then finalizes the basis of allotment and issues the Notice regarding Listing and Trading.

 

SOME POST LISTING COMPLIANCE UNDER SEBI(LODR) REGULATION, 2015

 

1. Regulation 33: Financial Results: -The listed entity shall submit financial results to the stock exchange within forty-five days of end of each half year as compared to quarterly submission prescribed for companies listed on Main Board of the Exchanges.

 

2. Regulation 47: Advertisements in Newspapers: – The requirements of this regulation shall not be applicable in case of listed entities which have listed their specified securities on SME Exchange.

 

3. Regulation 31: Holding of specified securities and shareholding pattern: – The listed entities which have listed their specified securities on SME Exchange shall submit to the stock exchange(s) a statement showing holding of securities and shareholding pattern separately for each class of securities on a half yearly basis within twenty-one days from the end of each half year as compared to quarterly submission prescribed for companies listed on Main Board of the Exchanges.

 

Source: Taxguru

Unlock the Potential of SME Trading in India – Here’s How

Stock market investing involves a wide array of options. It is not just about buying and selling shares in the secondary market. There are so many different strategies out there. Not to mention, different markets. You have the Initial Public Offer (IPO) or primary market, the derivatives segment, and now the latest Small-Medium Enterprises (SME) exchange.

 

For savvy investors looking for newer, more profitable options, the SME exchange can be a great platform.

 

What is SME?
Usually, companies listed their shares on the exchange in the primary market through an Initial Public Offer (IPO). This included firms of all sizes – small, medium and large. However, small and medium enterprises had a greater scope of risk than larger companies. Investors needed a high degree of stock market knowledge to sift through the companies and find companies that matched their risk appetite. This is not possible for every investor. As a result, many small investors made losses. To avoid this, both NSE and BSE created separate exchanges in India catering only to small and medium-sized firms. The BSE calls it SME exchange, while NSE’s exchange is called ‘Emerge.’

 

Why should you trade SMEs?
There are so many small and medium-sized companies listed on the regular stock market segment. It is difficult for the interested investor to sift through the thousands of smallcap and midcap stocks to identify value-making companies. This is not so in the SME exchange. It is a niche segment for small and medium enterprises, which have the potential to give higher returns. Moreover, the exchanges have entry restrictions like positive net worth and cash flows for two years before listing. Also, companies, which had once applied for winding up or restructuring, are not allowed to list on the exchange. These restrictions help insulate investors from additional risk.

 

How do you trade SMEs?
Trading on the SME exchanges is almost like the normal buy and sell procedure. It does not require any extra procedures. However, some trading rules differ. For one, the SME exchange has a larger-than-normal lot size – the minimum number of shares you can buy or sell in each transaction. You cannot trade amounts lower than Rs 1 lakh. Also, the lot size varies with the price of the stocks. For example, on the NSE Emerge, if the stock price is lower than Rs 14, then the lot size is 10,000. However, if the stock price is between Rs 120 and Rs 150, then the lot size falls to 1,000.

 

Other trading guidelines
These stocks are traded in the cash segment. They can be bought and sold either in the continuous market or specifically in the call auction market. Just like the normal cash segment, these shares fall into different series like the ‘rolling settlement,’ ‘block trading window,’ ‘ odd lot trading,’ and so on. Moreover, you can place both market as well as limit orders just like a normal trade. These can be modified and cancelled until processed. Once settled, the shares will be delivered in T+2 days.

 

Liquidity
Some care should be taken while trading on the SME exchanges in India. First of all, investors should know that the risk factor is quite high while investing in small and medium sized companies. Yes, they are capable of giving really great returns, but they also have a higher than average probability of turning bust. Ensure you get your research correct. Also, liquidity is lower on the SME exchanges. Unlike the regular exchange, your order may not find a matching buyer/seller immediately. In such a case, the exchange may also cancel order, especially in the call auction market.

 

Source: Upstox

BSE SME Exchange has produced many micro Rakesh Jhunjhunwalas

Since the launch of BSE SME Exchange on March 13, 2012, a total of 359 small and medium enterprises (SMEs) have been listed so far at the exchange, raising funds to the tune of around ₹3,800 crore. Their net market capital today is around ₹52,000 crore. In a decade, the gross level estimated return by the SME Exchange has been around 3.4, which means that an investor has got return of ₹3.4 on one’s Re 1 investment in these 10 years. In fact, majority of the SMEs got listed at the BSE SME Exchange in last 5 years, so the actual return would come much higher if the return is seen through this angle.

 

BSE Ltd set up the BSE SME Platform to enable the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.

 

On nearing 10 years of BSE SME Exchange, Ajay Thakur, Head at BSE SME in a conversation with Livemint said, “In this one decade time, 359 BSE SMEs have raised around 3,800 crore. The average gross level estimated return is around 3.4, which could become possible because of the emergence of new set of merchant bankers who are ready to aid small ticket sized companies with their network. Apart from this, in the last one decade, the Exchange has been able to attract small and micro ace investors who are ready to invest in a small company and wait for two to three years after listing.”

 

The exchange has become a relevant platform for the SMEs to raise fund through Initial Public Offering (IPO), helping good number of merchant bankers and small ticket sized ace investors.

After the launch of BSE SME Exchange, a good number of MSMEx cohorts have emerged. “These MSMEx cohorts motivate quality SMEs to go for listing and raise fund through IPOs. Since ticket size of these SME IPOs are very small, targeting ace investors like Rakesh Jhunjhunwala, Dolly Khanna, Vijay Kedia, Ashish Kacholia, etc. is not viable,” highlighted Amit Kumar, CEO & Co-founder at MSMEx.

 

But, Kumar said that there is huge number of micro ace investors, who got attracted to these BSE SME listed companies. “Their 1 crore to 5 crore investments in SME stocks have helped the listed SME to grow at a faster rate delivering stellar returns to its shareholders. This is getting reflected in the number of SME stocks entering in the list multibagger stocks in 2021 in India.”

 

So, one can say that BSE SME Exchange has produced new set of merchant bankers and a huge number of micro ace investors such as Rakesh Jhunjhunwala, Dolly Khanna, Vijay Kedia, Ashish Kacholia, he added.

 

Source: livemint