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Archive for February, 2013

Amendments for Assessment Year 2013-14 for CFP

Posted by Prashant Shah on February 8, 2013

Tax Rates:

For Individual (Man and Woman both):

Net Income

Income Tax Rates

Up to 2,00,000


2,00,000  to 5,00,000


5,00,000 to 10,00,000


Above 10,00,000


Capital gains:

  • CII for AY 2013-14: 852
  • Extension of capital gain exemption under section 54B to a Hindu Undivided Family

Income from other sources:

  • Any sum of money or property received by a HUF without consideration or for inadequate consideration from its members exempt from tax

Deductions from Gross Total Income

  • Life insurance premium up to 10% of minimum capital sum assured to qualify for deduction under section 80C, in respect of insurance policies issued on or after 1.4.2012.
    • Previously the same was used to be 20%
  • No benefit under section 80CCF from AY 2013-14
  • Introduction of section 80CCG:
    • One time deduction for investment by a resident individual in listed equity shares as per notified scheme
    • Example: Rajeev Gandhi equity scheme
  • Eligible age for senior citizen reduced from 65 years to 60 years for availing increased deduction under section 80D
    • Deduction for expenditure on preventive health check-up under section 80D
  • No deduction in respect of cash donation exceeding of Rs. 10,000 under section 80G
  • Deduction in respect of interest on deposits in savings accounts under section 80TTA
    • Deduction up to Rs.10,000 in aggregate to an assessee

Posted in CFP, Tax Planning | 6 Comments »

Risk and Return for CFP-4

Posted by Prashant Shah on February 8, 2013

Risk of a Portfolio:

Systematic Risk

Unsystematic Risk

Non-diversifiable risk / market risk

Diversifiable risk / firm specific risk / residual risk

  • Unpredictability of monsoon
  • Changes in economic policy, inflation
  • War & other calamities
  • Increase or decrease in inflation rates
  • Company strike
  • Bankruptcy of a major supplier
  • Death of a key company officer
  • Unexpected entry of a new competitor

Total risk (δ ) = Systematic risk + Unsystematic risk


  • This traditional chart clearly states for equal weighted portfolio that, as you increase the number of securities, the unsystematic risk declines but at decreasing rate while systematic risk remains constant
  • The benefit of diversification tends to decline with increase in the number of securities

Risk Classification Mathematically:


Beta: A measure of Systematic Risk

  • ™ Beta explains the sensitivity of security return with respect to market return
  • ™ Market return is an independent variable and stock return dependent variable.
  • ™ There can be ex-post (Historical) and ex-ante (Estimated) beta
  • ™ Mathematically it is derived from the relationship between market return and stock return
  • ™ Based on this a regression line is formulated
  • ™ Regression line is also known as characteristic line   [Y = a + βX]
  • The slope of this line is beta, which shows the changes in stock return given the change in the market return


Interpretation of Beta

  • ™ β >1 :   aggressive security (β =1.2, 10% change in market will have 12% change in stock)
  • ™ β <1 :   defensive security (β =0.8, 10% change in market will have only 8% changes in stock)
  • ™ β =0 :   Risk-free security (No change)
  • β =1 :   Market Portfolio (Portfolio replicating market index) (Same Change)



Stock Price (exp)

Sensex (exp)










Current price of the stock is Rs.10. Expected dividend is Rs.1 per share and current sensex value is 3800. Calculate Beta of the stock.


  • We require returns to solve the question
  • Answer: 1

Beta of the portfolio is the weighted average of the beta of the securities. Based on the same concept FPSB has asked a few question.

Mr. A’s portfolio consists of two stocks A and B in which he has invested Rs. 75,000 and Rs. 67,000, respectively. Stock A has beta of 1.4 and stock B has beta of 0.80. The return expected from the market in current scenario is 12% while the return on Treasury bonds is 7%. What is the expected return from the portfolio?

Answer: 12.58%


  • Find the weighted beta of the portfolio. [(75000/142000)*1.4]+](67000/142000)*0.80]
  • Put the beta value in the CAPM equation.(we are yet to study the same.)

Your manage a Rs. 10,00,000 portfolio. You are expecting to receive an additional Rs. 6,50,000 from a new client. The existing portfolio has a required return of 10.25 percent. The risk-free rate is 5 percent and the return on the market is 9.5 percent. If you want required return on the new portfolio to be 11 percent, what should be the average beta for the new stocks added to the portfolio?

Answer: 1.59

Posted in CFP, Investment Planning, Risk And Return | 3 Comments »