Learn about VAT (Value Added Tax)

Value Added Tax, or VAT, is levied on top of the cost of a product or service and generates revenue for a government.

Value Added Tax, popularly known as ‘VAT’, is a special type of indirect tax in which a sum of money is levied at a particular stage in the sale of a product or service.

In 1954, the value added tax system was initiated by the then joint director of the tax authority of France, Maurice Laure. VAT came into effect for the first time on 10th April, 1954.

From its inception, the value added tax system was imposed on all major sectors of France – the first country to use this system. Once instituted, it was immediately clear that revenues collected from the VAT system constituted a substantial share of the government’s revenue in the French economy.

Not surprisingly, due to the ease of payment and ready comprehensibility, the value added tax system has been adopted by different nations across the world.

VAT is intended to be levied – or charged – whenever there is some value addition to raw material. The taxpayers on the other hand, will get credit for the amount of tax paid off at the stages of procurement. The value added tax system has proven to be effective in avoiding problems that normally might arise out of the double taxation of goods and services.

The value added tax system is designed to address various problems associated with the conventional sales tax system. In sales tax, there is no provision for input tax credit, which means that the end consumer may pay tax on an input that has already been taxed previously. This is known as cascading and leads to increases consumer tax and price levels, which increases the rate of evasion and can be detrimental to economic growth.

The value added tax system deals with these problems quite efficiently. As VAT is imposed on value addition – at every single stage – there is no incidence of cascading. In this way, the final consumers bear the burden of paying value added tax. This system involves absolute transparency at every stage of taxation, thereby making the tax system quite comprehensible and simple.

In some countries like India, the system of VAT has been designed to change the existing system of sales taxation. Value added tax is different from the conventional system of sales tax, because VAT is charged at every stage of value addition – whereas sales tax is imposed on final value of transaction only.

The value added tax system allows for input tax credit, or ITC, on the amount of tax levied at the preceding stage of the value addition chain. The allowance for ITC is normally appropriated from the value added tax liability imposed on the following stage of the sale of the product.

Investment Strategy

A well-planned investment strategy is essential before having any investment decisions. A business strategy is generally based upon long run period. Formation of business strategy largely dependent upon the factors such as long-term goals and risk on the investment.

As the return on investment is not always clear, so the investors prepare the strategy so as to face the ongoing challenges in investment. A balanced investment strategy is generally required in the process of investment, which possesses long time period and some risk tolerance.

In the case, when a strategy is aggressive the chance of attaining a higher goal is higher. An efficient strategy can be obtained from portfolio theory, which shows good estimates on risk and return.

Investment Strategy is usually considered to be more of a branch of finance than economics. It is defined as set of rules, a definite behavior or procedure guiding an investor to choose his investment portfolio. For example, investing in mutual funds has recently emerged as a very favorable investment strategy.

An investment strategy is centered on a risk-return tradeoff for a potential investor. High return investment instruments such as real estate and mutual funds usually have more risks associated with it than low return-low risk investment opportunities. Return on investment can be calculated on past or current investment or on the estimated return on future investment.

Symbolically, it can be expressed as:

Vf/Vi -1 where Vf denotes final investment value and Vi is the initial investment value. (“f” and “i” should be noted as subscripts)

Return on investment (ROI) is profitable when Vf/Vi-1>0 and the investment is deemed to be unprofitable when the value of final investment is less than that of the initial investment. ROI is calculated to be 1 or 100% when the value of the final investment is twice the value of the initial investment.

Types of investment strategies can be defined as follows:
A passive investment strategy attempted to minimize transaction costs.
An active investment strategy guide used to maximize returns based on moves such as proper market timing. This usually mean, “buying in the lows and selling in the highs” or buying investment instruments when they are cheap and selling them off when their price appreciates. This strategy, however, is not very beneficial for small time investors.

Small time investors can adopt the buy and hold investment strategy to invest in equities, which although volatile in nature, give favorable long run returns. Investing in equity markets for small time investors is associated with the investors holding on for very long periods. In the case of real estate, the holding period extends the lifespan of the mortgage. Notably, in case of this strategy, indexing or buying a small proportion of all the shares in market index or a mutual fund is a purely passive variant of the above strategy.

The strategy of value investing, a classic investment strategy propagated by Benjamin Graham simply concentrates on the strategy that an investor buys shares of a company as if he was buying off the whole company without paying any attention to the stock market scenario or any exterior conditions such as the political climate. At the end of the day, if he can buy the stock at less than that its actual future worth to the buyer, the person is said to have discovered a “value investment.”

Investment strategies can also denote the investment strategies a national or federal government should follow to bring about economic growth in a country. This can only be achieved by domestic investment as well as significant FDI (Foreign Direct Investment) flows to particular sectors of countries, especially the less developed ones of Asia and Africa.

In case of India, infrastructural problems, excessive government intervention, rigid labor laws and corruption are stifling the flow of FDI in the critical sectors. Less developed countries such as those in the Asia- Pacific region and Africa can bring about much needed development in these economies.

An investment strategy in mutual funds is probably the best bet for a profitable investment. Mutual funds is defined as a pool of money supplied by different investors and in turn used by the mutual fund company to invest in various assets such as stocks and bonds. However, a detailed research has to be conducted for choosing the mutual fund companies and only those should be considered which have a professional investment manger. This will ensure that the funds get channeled towards the right investments. This also applies for investing in stock markets where a decision to invest should follow a through research about the past and current trends of the stock prices and their Net Asset Values (NAV). Analyses from market researchers about the predicted future trends should also be considered otherwise gains from capital appreciation; capital gain distribution (in case of mutual funds) and dividends might not be realized.

Lastly, investment strategies leading to green investments or investments in renewable sources of energy will be the next big thing in the investment spectrum

Investment : Types & Overview

Though the term investment simply means using the present income for generating wealth in the future or net addition to the stock of capital, still it has its infinite meanings through its versatile application in the real practices.

The term investment has gained its strength in the recent years through changing economic climate over the world. The world business climate is changing very fast and it is the term investment, which is in the perfect direction to provide smell to more than 6 billions over the world.

From the latest United Nations Conference on Trade and Development( UNCTAD report, it is found that the developing nations over the world have actively participated in the field of investment. As to UNCTAD statistics, investment to the developing countries over the world has nearly doubled in two years.

Increasing liberalization among the countries over the world can justify the best result from investment. Present economic success brought by the countries such as India and China have gained a lot from the investment boom.

Present economic growth is largely dependent upon investment factor. This section covers meaning of investment, trend in investment and investment companies over the world.

Investment refers to an asset which is purchased with the expectation that it will generate income in the future or its’ value will appreciate in future so that it will be sold at a higher price. In other sense, we can say that Investment is the purchase of the goods which are not consumed at the present but is used to create wealth in the future. Investment cannot be done without Savings. Savings provides the funds necessary for investment. Investment is influenced by Rate of Interest. Falling interest rates result in increasing rate of Investment. Investment plays a vital role in economic growth of the country as Investment increases the production capacity of the economy. The meaning of the term Investment is different in different genres. In Economics, Investment is the production per unit time of goods which are not consumed at present and are used for future production. According to economic theory Investment depends on income and rate of interest. An increase in income positively affects the Investment but an increasing rate of interest has a negative effect on it. The interest rate in this case is nothing but the opportunity cost of investing the funds rather than using them at the present. In Finance, Investment means purchasing of securities or any other assets in money market or capital market or purchase of any liquid assets like gold or residential real estate property or commercial real estate property.

Stock Markets

World stock markets explained, for large and small investors, including a discussion of securities, derivatives, and the general exchange of stocks around the globe.

The importance and reach of stock markets and exchanges is as broad as it is extensive. The major areas global stock markets deal with are listed company stocks, as well as securities and derivatives. Company stocks are included in the list of the stock exchanges, and are freely traded in stock markets around the world.

Around the world, business organizations, small to large investors, financial organizations, and governments of different nations are all major participants in stock market trading activities.

For the business enterprises, corporations, and governments, the world stock markets constitute one of the major sources of funding – as well as being an openly visible indicator to investors with regards to the financial health of the business.

Business entities that take part in stock market activities issue securities that may then be sold to the public. Capital is collected in this way, and these funds are primarily used for the expansion of a company’s business operations. The volume of transactions in any stock market depends on the liquidity of that particular market.

Together, the performance of all the world’s stock markets is directly responsible for a significant amount of the world’s economic condition – whether it be healthy, ailing, or trending sideways. In general, stock market growth is a leading indicator that the state of an economy is flourishing, while declining trends indicate of economic slowdown. Commentators suggest that stock markets often predict what will happen in the economy of that country around six months later.

Among the major stock exchanges of the world are the New York Stock Exchange (NYSE), the NASDAQ, the London Stock Exchange, the Bombay Stock Exchange, the Toronto Stock Exchange, the Hong Kong Stock Exchange, the Australian Stock Exchange, and the Euronext, among others.

Stock symbols, popularly known as ticker symbols, are used to differentiate stocks of different business organizations listed in the stock exchanges of the world. The companies listed in the New York Stock Exchange are presented by three characters; whereas four letter symbols are used to represent the companies listed in the NASDAQ exchange.

Participants in the stock market are institutions, and stock market operations may either be real, or virtual. If a stock exchange has a physical location it may execute stock trading through a process known as open outcry. Here, the stock prices are fixed by verbal bids. On the other hand, the buying and selling of stocks in many markets takes place over through closed computer networks or the internet. These are known as virtual stock exchanges.

The world’s stock markets also serve as a ‘clearing house’ for stock trading activities. This financial market performs the role of a mediator for transferring the securities issued by a particular company to the prospective buyers. In this process, it also ensures timely transfer of money.

Stock Exchanges

Everyday, stocks are exchanged and traded in numerous stock markets around the world. The liquidity they bring are a vital component of economic growth.

Stock exchanges are open markets that trade financial assets. Whether associated with a company or acting as an individual, a stock exchange is the place where stocks are bought and sold. There are a number of major stock exchanges around the world and each of these plays a part in determining the overall financial and economic condition of any economy.

Stock exchanges deal with a number of financial instruments such as stocks, bonds and equities. Both corporate and government bonds are traded in stock exchanges. Equities include popular investment options, rights issues, bonus issues, and all other forms of shares and stocks. The actual trading of stocks takes place through mediators such as financial advisors, brokerage houses, and stockbrokers.

Functions of Stock Exchanges: An Overview

The main function of a stock exchange is to facilitate the transactions associated with both the buying and selling of securities. Buyers and sellers of shares and stocks can track the price changes of securities from the stock markets in which they operate. The ups and downs of stock indexes help the investors to speculate on the return on investment (ROI) of various investment options.

Stock exchanges also serve as a source of capital formation for listed companies. Business entities that are listed in a particular stock exchange can issue shares to the public and sell those shares in that market.

To take part in these transactions, listed companies need to abide by the rules and requirements of that market. The stock exchanges protect the interests of both buyers and sellers by assuring a timely transfer of money. The participants of a stock market are required to operate within the specified transaction limits fixed by the regulatory authority of that stock market.

Speed and transparency are vital for all stock market transactions. The companies listed in a stock exchange need to provide proper guidance regarding business performance and prospects, mergers and acquisitions, stock prices, dividends and other information at all times. Investors make their investment decisions based on the information obtained from these companies, and the comments of analysts who track those companies.

How Stock Exchanges Operate

With the help of stockbrokers, the buyers and sellers participating in a stock market carry out their transactions. The brokers representing selling parties take their orders to the stock exchange floor and then find brokers representing parties willing to invest in similar stocks. If both parties agree to trade at the fixed price, the transaction takes place.

The Insurance Industry

The global insurance industry helps policyholders to shield themselves from potential risks, and covers everything from property protection to vehicle, medical, health and life insurance.

The insurance industry is one of the most important financial services industries in the world. There are two broad sub-divisions of the insurance industry – the life insurance industry and the general insurance industry.

The life insurance industry has been established to help dependents survive the loss of the family breadwinner. There are five main types of life insurance:

1.Term Insurance. Insurance is provided for a specific term, such as 30 years. If the policyholder dies during that period, a pre-specified amount of money is paid to the beneficiaries. If they are still alive at the end of the period, no money is paid out. There is no investment component.

2.Whole Life Insurance. A form of term insurance in which the policy is in effect for the entire duration of the policyholder’s life, not for a specified term.

3.Universal Life Insurance. Includes a cash account component. Any monthly amount paid in that is above the minimum premium will be invested and will grow in value during the term of the policy. At the end of the term the surrender value is the size of the investment in the cash account, minus any charges applicable, and this amount is paid to the policyholder. If the policyholder dies during the term then the beneficiaries receive the death benefits.

4.Variable Life Insurance. Similar to universal life insurance, except that the cash account is managed by the policyholder, who can decide where to invest the additional funds. They are normally invested into mutual funds or unit trusts.

5.Endowment Policies. These are insurance policies in which a lump sum is paid out at the end of the pre-specified term, or when the policyholder dies if that is during the term of the policy. Traditional With Profit Endowment Policies pay out a minimum specific sum, the sum assured. This amount can be increased through investment performance. Since this policy type has additional benefits, it carries higher premium costs.

The general insurance industry consists of all the available forms of insurance, other than life insurance. This includes a number of well known industries such as vehicle insurance, , home and content insurance, disability insurance, travel insurance, term insurance, medical insurance, dental insurance, keyman insurance, renters insurance, farmer insurance and general insurance.

Some very important terms in the context of the insurance industry are insurance benefits, insurance broker, insurance rating, insurance quote, insurance policy, insurance company, insurance coverage, insurance premium, insurance claim, insurance rates, insurance agent and insurance risk.

There are numerous countries with flourishing insurance industries of their own. In Asia, countries like China, India, Indonesia, Kuwait, Japan, Malaysia and Vietnam have strong insurance industries.

In Europe, the insurance scenario is stable in Austria, Belgium, Denmark, Finland, Greece, Germany, France, Iceland, Italy, Luxembourg, Norway, Netherlands, Poland, Portugal, Russia, Slovakia, Spain, Switzerland, Turkey, the United Kingdom and Ukraine.

In North and South America, the insurance industry is exceptionally strong, as it is in Brazil, Canada, Mexico and the US. Countries such as Australia also have a commendable insurance industry.

The leading global insurance companies are:

Zurich Financial Services, AXA Berkshire Hathaway/ Berkshire Hathaway Re Allianz Aviva ING Group Munich RE Group American International Group (AIG) Nippon Life Insurance Assicurazioni Generali PartnerRe Munich Re Lloyd's Swiss Re Allianz Re Everest Re Hannover Re XL Re GE Insurance Solutions. State Farm Insurance Cos. Arch Capital Group Allstate Assurant Swiss Reinsurance Axis Capital Holdings Milea Holdings Bbloise Group St. Paul Travelers Cos. Britannic Group

Prudential Cathay Financial Dai-ichi Mutual Life Insurance Cattolica Assicurazioni MetLife China Life Insurance Meiji Yasuda Life Insurance Chubb CNP Assurances Cincinnati Financial ACE Ltd CNP Assurances Aegon Conseco Aflac Converium Holding Aioi Insurance Corporation Mapfre Allmerica Financial Endurance Specialty Ambac Financial Group Erie Indemnity American Finl Group Euler Hermes American Natl Ins Everest Re Group AmerUs Group Fairfax Financial AMP Fidelity National Finl Aon

Insurance Benefits

Insurance Benefits encompass the facilities associated with buying of insurances. Insurance is mainly a instrument used by consumers for hedging the future contingent risks related with life, health and non-life general issues. Insurance benefits help the policy holder or beneficiary in combating with the losses or hazards associated with him/her.

The policy holder buys the insurance to hedge against the future perceived losses by paying a regular amount to he insurance company known as the Premium. Insurance companies ensure financial reimbursement of the insured losses to the policy holders or his/her beneficiary. This is the most coveted Insurance Benefits.

But with time, more and more insurance companies have cropped up and consequently the competition among them has increased. Every company is trying to woo all the customers into its fold and in a way offering more and more innovative Insurance Benefits to the consumers.

• Affordability of Insurance
  The foremost insurance benefit in todays world is the low insurance rate and premium one has to pay. While choosing a insurance policy, every customer looks at this rate first and then to the other associated benefits. The lesser the insurance rate, the more affordable the insurance becomes. Thus, among all the insurance benefits, low insurance rate and premium is the most coveted one.
• Accessibility Of Insurance
  The easy accessibility of a insurance is the next most coveted Insurance Benefits that the customers look for. The online access to insurance companies and their policies has made them more lucrative to the customers. Now-a-days, customers can search, compare and select their insurance coverage through the click of a mouse from their own residence. This has been observed that through online services, the insurance companies have been able to reach more number of customers and consequently their customer base has also mopped up significantly.
• Some of the other Insurance Benefits are :-
• Basic benefits of the insurance policy. That is, the person enrolling for the policy is entitled to receive the financial compensation in case of actual occurrence of the loss/hazard/damage.
• Optional Insurance Benefits are also given by the companies to their policy holders in order to entice them to access their insurance package. These optional benefits include
• health and dental insurance of the family, life insurance of the spouse and the child,
• accidental death policy for the policy holder in addition to the actual insurance for which he/she has enrolled for,
• long term and short term insurance plans against disability of the policy holder
• unit linked insurance schemes meant for appreciation of the accumulated capital during the life span of the same, managed by an experienced and well-learned fund manager

• Pre-tax insurance benefits
  These benefits are an added advantage to the insurance holders because they help them in saving a large portion of their tax payment. When the tax-payment gets curtailed then consequently their disposable income increases leading to more enjoyment out of a secured life.