How do company save some tax?

What I'm about to share to you is a way for company to save on tax. But please bear in mind that this only applicable to company that has a cash surplus and place these cash in their current account or fixed deposit.

If a company has a surplus in cash what normally a company do?

- Most companies will just put them in the current account and that is where the money in there does not really earns anything.

You ask: If these companies know that the money they place in the current account does not generate any return then why still they do it?

Me: The answer is simple. They either do not plan on their working capital (maybe busy with other things, maybe they do not aware, etc) or they didn't really know what they can do with it to generate return.

I know this is because I've seen a lot of business man (I'm talking about small business) that has up to hundred of thousands in the current account which generally has no return to the company. They know they want to use the money but they didn't plan on how much they will lightly to use or how long before they need the money. 

- The second way to deal with surplus cash is they place in Fixed Deposit.

These are the people that actually plan their cash flows. They know exactly when they need to use the money and so placing the balance with fixed deposit with the bank.

They place the money based on the needs of the cash in future either 15% in 12 months, 40% in 3 months, 20% in 6 months, 20% in 1 month, etc. 

By doing this they can pretty much have enough cash to continue run their business at the same time they can get some interest income for their business.

The drawback of this is that these interest for companies are treated as revenue to the company and is taxable income. 25% of the income is taxable.

Let's do some small calculation. You'll have say RM500,000 in the bank with 12 months maturity because you know your company will not be using this money for the next 12 months. Let's say we take the rate of 3.6% which is offered by Affin Bank Berhad as at today's date 27th September 2011. This money is therefore getting a return of RM18,000 for a period of one year. That's a pretty good return. But you'll be tax 25% out of that return which will be RM4,500.

What I'm about to share is the third way which currently offered.It offer you the ability to earn the interest income at the same time the income is tax exempted.

According to tax act, companies who invest in unit trust fund will have tax exemption for either interest income, dividend paid or capital gain.

Look carefully into this statement. But you'll need to invest in unit trust. You fear that investing in unit trust is not safe comparing to invest in bank?

What if I tell you a unit trust that can basically just place the money according to your needs in the bank on fix income or even for overnight rate REPO to provide you a greater liquidity at the same time have the interest income you wanted and also save you on the tax. That would be great right?

Yes. By investing extra money back to your unit trust, you potentially can save tax for your company. But bear in mind, you will need to know which unit trust to invest and not all carry the same risk. Talk to a financial adviser for further understand on the product offered.

Private Mandate For High Net Worth Client / Corporate

What is Private Mandate Investment?

A lot of times when you talked to fund management company you might heard the world private mandate, personal mandate, discretionary mandate.

What are these technical jargon?

A Private Mandate Investment a service where fund management company (also known as asset management company or investment management company) helps high net worth individual or corporate to invest their money into different asset classes including, equity (stock market), fixed income instrument (bonds, money market), real estate, commodities, forex which ever can bring return to the client.

There are many active investors out there in the market and a lot of them are not full time. When you're not doing it full time, you'll tend to have a risk of missed our opportunity of investment, miss out timing to entry or exit an investment, limited access to news or information of investment.

Who are these investors?
- They can be business man who wanted to invest their money but do not have a time to invest and therefore pass this job to the professional fund manager to help him / her invest.

- They could be company where they have excess of cash to invest but do not know how to invest or how to start.

- They could be pension fund where they have large amount of money and they do not have the expertise in investing in certain asset class.

All these people will need to use a private mandate investment service.

A mandate is a set of orders from the client on his / her preferences, her financial goals, etc. For example a client might want to only invest in Malaysia's stock market and nothing else and he only want his money to be in the blue chip stock market. (that will be a mandate itself).

Fund manager will invest accordingly to the mandate.

Discretionary or Non-Discretionary?
This is a power provided by the client to the fund manager in helping him or her to manage the asset. Discretionary means giving full power over to the fund manager and the fund manager will be able to execute your orders on your behalf.

Non-discretionary meaning at any point when the fund manager will like to execute an order he will need to contact the client.

Most people will choose the discretionary private mandate. After all if they're the professional fund manager would you disagree with them? If you're better than them in analyzing the market or so then you might not want to even consider their service at all.

Charges?
Of course there will be charges on the private mandate service. These charges are normally set to be between 2% to 10% according to their performance on the return they brought to you.

If they bring you 10% return giving them 2% and you'll still have a 8% return. That's better than 2 years putting into fixed deposit by yourself.

And these does not include the saving you have on having your own software, more expensive retail trading commision, etc


What's the different compare to hedge fund?
Normally fund manager will all utilize their own strategy in investing. They'll all have a set of rules where they follow tightly and also according to their way of analyzing the market. Normal private mandate fund manager will normally only go for long position and that is if you're losing on the investment (at the least, you'll still own the shares) and they'll sell when it is high and buy back when it is low and doing it over and over again.

Hedge fund on the other hand will do anything to get the return they want. They will short the market (selling a stocks he did not own), invest on margin (investing with the money they borrow), etc
It tend to be more risky on hedge fund but when comes to return it will normally get a higher return. Hedge fund also charge a very high fees comparing to any other investment managers and they've set a very high initial investment which might be from millions onwards.


How to select a private mandate investment service?
1. You'll need to understand what is it you need. Meet the manager up and feel comfortable talking to them. Just like selecting a car, you'll some how know whether the sales person is simply bullshit or they do know something that you don't.

2. Look at the fee and negotiate over more towards performance return. It guarantee you return and if you're having money to invest, you don't want the money to be deducted off certain charges, service charges, transaction fee and so on without even start to have a return.

3. Feel comfortable to put in what is your preference. Maybe you don't like risky asset, and maybe you only like something that give certain absolute return over the years. Tell them what you want and they will plan for you.

Many people are investing in Unit Trust.
If you're a person with higher investment amount, invest in private mandate is probably a better choice since your portfolio is design to fit you rather than a collective investment type where they invest on a broader basis and of course the charges are much lower. Of course if you're having only a small amount of money then it would be better off with unit trust.

Private Mandate will need certain minimum investment normally start off with RM250,000 more or less. Too little investment capital will be quite difficult to start the investing because the amount too small, even the fund manager don't know what can they buy.

The above is just my way of explanation to let you understand what is this service. If you do need this service, do talk to me further on this service.

I'm Gan Ken Wei working with an investment management company dealing corporate client and private client on private mandate service, unit trust service, cash management service, etc. I can be contacted via kenwei2@gmail.com

Investment Basket 2

Now I have talked about the investment basket 1 in the previous post titled "Investment". Some of you may have already save enough money for whatever they need and now they have extra money that they don't know what to invest.

Invest in property?
Invest in stocks?
Invest in currency?
Invest in other derivative that everyone is talking about?


Most who don't know what to do with their money will usually put their money in fixed deposit. While Fixed Deposits will provide you interest in a rather safe environment, you're actually losing your money.

Most people forgot about one thing call INFLATION.
Just like your salary, you've got increment from your employer every year (Or not?) but most of the time you will feel that the amount of increment provided is not enough to cover the expenses which got more and more expensive. Why is this so? Is because of INFLATION.

For political reason, most of the data provided by the government doesn't seems happening in real life. I still remember when one bowl of mee is still at the amount of RM1.80 and that probably was 15 years ago. Then RM2.00, then RM2.30, then RM2.50, then RM3.00, then RM3.50, then RM4.00 then ........ (and so on).

You see this inflation thing is one of the thing that caught up with you no matter how you save your money. I'm not saying saving is not good but somehow if you wish to have a life of a financial freedom (or any other term some people called), I will think that inflation is one of probably the many reasons that is blocking it's way.

You may earn a 2% interest for your hard earn money placing as deposit to the bank and with inflation 5% you may be losing 3% out of amount you place with your banks each and every year.
3% a year and 10 years later you'll felt that your money is 30% off its original value. Probably even more than that.

Whatever that can be bought with RM10,000 will not be the same 10 years down the road. And with the same RM10,000 you have with you which you save earlier, you can only spend with a value of about RM7,000 (or less). How good is that?

That is why investment is so important after saving.


Back to the Investment Basket 2.
What to invest after I have enough saving to keep myself out of any unforeseen circumstances at least 6 - 8 months and at the same time having extra money to invest.
Right!! You don't invest your 6 - 8 months saving. That is pure saving, you can only put in deposits or fixed deposit which will bring you some small interest but can always save your ass when you're in trouble.

Let's look at some of the market data before going into detailed about the type of investment to go in.
Why? Because as Warran Buffet says "Risk comes from not knowing what you're doing" and that is why I like you to know more about how each and every pieces work.

1. First we've understand that with saving, we're potentially losing to inflation.
2. We also know that we need to invest in order to multiplied our money.

Let's look at the data below:

For the last twenty years, the best investment you could have made are in stocks. They have achieved an average  compounded annual return of over 12.08% in the US, 8.57% in Singapore and 1.52% in Malaysia. Meaning if you're investing in stocks  and you get 12.08% return on your investment every single year, it will allow your money to double every 5.96 years!

You may ask "If the market can earn me so much of money why is there so many people losing money is stocks?"

Just like what Warran Buffet said. A lot of people lose money because they don't have the financial intelligent and the knowledge to invest.
Bear in mind, the amount of return above is not by buying one single stock, it is buying all the stocks in the indices to provide you with that return. Yes. Buy the whole market to get the return.

And that is the beauty of an open-ended investment. Also known as collective investment scheme, mutual funds, or unit trust.
These are the funds that gathers money from all the smaller investors and put them together, invest a large chunk of them into the market base on the objective of the same investors and benchmark against certain performance.
What will be the benefits?
1. When all investors gather their money, the fund manager can invest into more instrument or asset classes like "buying the market".
2. It will be cheaper on the trading cost due to the large fund size.
3. You'll have professional fund manager to help you manage and you don't need to monitor daily on the stock price.

Of course I only mentioned about benefits at this point of time. There will be some disadvantages as well investing in these funds but once you know the way to invest, you can always profit from such investment scheme.

I shall talk more into mutual funds / unit trust next in my post.

Investment

When it comes to investment people always hear what others are saying.

If the circle of friends around you are very successful then they tend to teach you the right way of investing and how you should be allocating your hard earn money.
But what of the people around you are all the novice investors? You will too gets some advice and only this time the advice would be Something similar to "investing is a risky vehicle and that all people invest will loss money in the end".

We heard all sort of people invest in the market. There are of course people who loses money at the same time there are people who makes a lot of money.

Investing is an essential part of our life and without it, we will only stay where we are now and all the dreams you've dreamt of will be after all still a dream at the end.

I like to share some of the knowledge that I've acquired throughout the years of studying and some real life experience. This knowledge will not make you rich like bill gates but it will ensure you don't ended up too poor in your life ahead.

I believe everyone should have a basket of their money being allocated into different asset classes.

For those who are beginners - yes you it it right! You will first find a job and save some money.

The amount of money you save you can put it into the fixed deposit. Don't put in savings and waste those interest. Treat this as a separate set of EPF or pension fund just that this can be utilize whenever you are really in some emergency moment and doesn't need to be in the retirement age.

The amount of money to save must be at least 6 - 8 months of your monthly lifestyle expenses so it varies from different people. We called this first basket - saving basket.

Now, be honest about yourself. If you ever had a day so bad that you got no income. Would you be able to live for another 6 - 8 months without being afraid of running out of food, getting all your phone bills, water bills, car loan, rental, Internet bills, electricity bills, petrol, tolls, insurance, etc paid on time!

If you can. Congratulation and you are in prepare to move yourself to the second basket. But if these money in on it's way to the deposit of your house or car!! Go back to your first basket and refill it back up.

If you can't make your obligation to live another 6 - 8 months without help. Don't worry, you are just like any of the 80% of the people around whether they drive nice car, with nice suits... You will be surprise that they can't live by themselves with the same lifestyle on 6 - 8 months. In order to be out of this group, you need to first start saving. The essential part of your investment road down ahead.

I will be covering second basket soon in my next post so stay tune.