fuel price hike

Money Bites – 19 Feb 2021

Money Bites

Short bites to keep you informed of matters that impact your wallet and wealth

Hey there,

Hope you all are doing great!

The Sensex rally that started with the Budget seems to be going strong. On the other end, gold plummeted to an eight month low. Planning for a drive to make the best of WFH? Hope you have your Fastags in place. They are now mandatory all across the country.

Top bite this week

Petrol price hits a century in some places. Do you know why?

fuel price hike

What’s going on here?

The petrol and diesel prices in the country are at an all-time high. The price of petrol in places in Rajasthan have touched Rs 100/ltr.

Why are the prices going higher?

Fuel is essential for running automobiles, as aircraft fuel, and for many other business purposes. India is the third-largest importer of crude oil meeting 82% of its fuel needs from imports. With many countries opening travel restrictions and businesses getting back to normal, the demand for fuel has increased. Augmented demand and voluntary production cut by oil producers like Saudi Arabia have increased the price of Brent crude (the form in which it is imported).

Fuel prices in India were deregulated in 2010 post which meant that oil marketing companies (IOC, HP, BPCL, etc) could decide prices that should ideally mirror the international crude prices. In that case, do you wonder why petrol and diesel prices didn’t drop when the crude prices hit rock-bottom during the peak of COVID last Apr? That is because there is another element in the picture here.

Taxes! Yes, the government (both central & the state) levies various taxes like excise duties, VAT, etc on fuels. Currently, the taxes sum up to 180% of the base price (for diesel in Delhi) and 141% for petrol. When the crude prices dropped last year, the Govt just raised taxes instead of passing on the cuts to the consumer. But when the crude prices increased, the oil marketing companies promptly pass on the price rise to the consumer.

How will it affect you and me?

No brainer here – petrol and diesel are the two most widely used automobile fuels in India. Out of the 253 million vehicles on Indian roads, there are only 3 million that run on CNG and 0.4 million electric vehicles.

While the impact on your transportation costs is evident, there is going to be a ripple effect on all sectors of the economy. Some of them would be a rise in airfare, agricultural products, cooking gas, and pretty much everything around you.

You Ask – We Answer

I have been reading a lot about Direct mutual funds. What are they? – Anupama Joshi

Every Mutual fund can be categorized into regular funds and direct funds.

Both these types of mutual funds function in the same way, they invest in the same way into stocks or bonds, they are run by fund managers in the same way. When you invest in a mutual fund through an intermediary like an agent or distributor and the mutual fund company pays a commission to them, such funds are called regular mutual funds.

But when you buy a  mutual fund you invest directly with the AMC or through intermediaries who do not charge commissions, the funds are called direct mutual funds. As there is no distribution charge/commission paid out, the expense ratio on the direct mutual funds is lower and your returns could be higher.

💡 Do you have questions on personal finance & investing? Go ahead and ask away in the comments. Get featured in our upcoming issues.

Money Quote of the week

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”

                                                                                                                                                                            -Ayn Rand

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Until next week,

Best,

Akshatha & Team Finity

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