Thursday, July 30, 2009


One of the biggest risks associated with credit cards usage for online purchases was the possibility of misuse of the credit card by fraudsters. This was such a big demerit working against both credit card fraternity and net commerce that a solution to this threat was imminent. Till now , for anyone to make online payment, all one needed was the credit card number, the expiry month and year and the CVV number. All the 3 information required to transact on internet was the one which were mentioned on the credit card. So in case a person lays his hand on your credit card , he/she could have easily misused your card on the internet since all the information he needed was readily available on the credit card itself.
This was a huge shortcoming and as such needed to be fixed. Come August 1st, Reserve Bank Of India, has mandated that the credit cards will have to have one more layer of security check before the payment transaction is approved. Now, all the credit card users will have to register their card with the card issuer and get another password which will be unique and will be known only to them. They will have to use this password every time they want to make payment on internet through their credit cards. So, in essence, now one will have to enter the following info while transacting on net
1. Card Number and issuer (Visa/Mastercard)
2. Card expiry month and year
3. CVV number
4. New password or PIN
This extra layer of protection will make the whole process of transacting on Internet more safe and secure for credit card users. This will help the user in a big way. It will also help the credit card companies by increasing the spend per card since more and more people are likely to use their credit cards for online purchases after this security feature thrown in. It will also protect credit companies from booking looses due to misuse of cards.
In short , this is a good step taken in the right direction. So if you have a credit card and would like to use it for making purchases online, then do get that registered immediately.
Be wise and wealthy...

Wednesday, July 29, 2009


One of the most classic dilemma facing a retired or soon - to-be -retired person is whether he should use the retirement proceeds to start up some sort of business to keep himself busy while making good money out of it or should he just invest the money in a safe place like bank FD and live off the interest accrued? There are people who would argue in favor of starting up something on ones own using the money while there are equally good number of people who think otherwise.

So, what is the right decision or rather which is the better option? Well , I think there are no right or wrong options here . Both the options have their own merits and demerits , but, I would stick my neck out in favor of one option. But before I do so , let us examine the pros and cons of both the options :-



- The first and foremost benefit of starting a business after retirement will mean that the person will be able to productively employ himself or herself. This is a big consideration since there are numerous cases where people feel left out and are unable to cope up with the feeling of being unemployed . Sometimes retired people can suffer from depression if they are not doing anything productive. Having a small business or shop etc can easily help them stay active both physically and mentally.

- Business does offer chance of making more money than the retired person will get from bank FD.

- Business, if successful, can turn into an asset which he can pass on to the family thereby creating wealth not only for himself but also for the whole family.


- Starting up a business always has an element of risk associated with it. Generally the success rate of start ups is not more than 10-15% and as such the thought of putting one's retirement proceeds into starting up a business may not turn out to be a wise decision.

- To be successful in business one requires different type of skills than what one requires to be successful in a 9-5 job. Hence, it is increasingly difficult for retired salaried people to start up a business and turn it into a success. One can however overcome this challenge by hiring experienced person with the respective domain knowledge . One would also need to learn from experience.

- The trauma of failure may not be the best thing for a retired person to handle considering that the time that he has to make a success out of the business is much lesser than a young businessman starting out in life. Retired person will have much lesser headroom and time to make mistakes and learn from it .



1. The biggest advantage of this option is that one will get enough time to enjoy one's retired life as he will have plenty of time to do things he always wanted to do. Many people never manage to find time to attend to their hobbies in their working life time and as such this option will give them that option post retirement.

2. Another very important factor for a retired person is the safety of his capital. Since the retirement proceeds is all the money a retired person has, it is prudent to invest it in an instrument which has minimum to zero risks associated with it. This option of investing in Bank FD, Post Office Monthly Income scheme, Senior citizen savings scheme etc offers retired person exactly this benefit.

3. Since health also is major concern in old age, the fact that the person will not be required to do any physical activity ,unlike in case of starting up a business, is also a big plus .


1. The strategy on living off on interest income has a limitation that the interest income does not increase with inflation and the over a period of time inflation can reduce the real income in the hands of the investor.

2. The income generated out of interest alone will not be anywhere near the income a successful business can generate.


After going through both the pros and cons of the two options , I think it is always better to play safe adopt the second option viz investing the retirement proceeds and living off the interest income. The compelling reason for this is the fact that one must attach highest importance to the safety aspect of the retirement proceeds since this is the last sum of money the person has. As such he can not take any risk with this money . Investing it in safe instruments will give him modest income and considering that a retired person has almost no liability , this should suffice. And in case a person is worried about inflation eating into his interest income over a period of time, then he might consider investing part of his sum in equity based well diversified mutual funds. The superior returns from these mutual funds will guard the investor from ills of rising inflation.

Monday, July 20, 2009


These are good times for rich people. People who are affluent have many advantages and privileges in general life. An addition to their long list of privileges is the availability of term insurance at a much cheaper rate.

The term insurance premiums have seen drastic reduction recently for life cover of RS 1 cr and above. Even term plans having life cover of Rs 25 lakhs and above also have seen quite a large reduction in the premiums. This large scale reduction in the premiums is attributed to the following reasons:-

1. Better mortality rates - The recent experience has shown that the mortality rate isn't as bad as is shown in the mortality chart currently being used. And as such the premiums have come down owing to this.

2. Access to better health care and lifestyle - Rich and HNIs have greater access to health care and quality lifestyle which also plays a role in increasing the life span of the person. This in turn means lesser claims on insurance companies pushing the overall premiums down.

3. Wider coverage - Since insurance primarily is based on the concept of "risk sharing" with increase in the number of people under insurance cover , the premiums to be paid to make the whole exercise viable, also comes down. With more and more people getting in the insurance ambit in India, it is expected that insurance premiums might see some more downward movement going forward.

Today, one can avail of a LIC term policy with a sum assured of Rs 1cr for an annual premium of nearly Rs 25,700-32 ,000. But unlike LIC whose rates are available to most buyers, Birla Sun Life has stringent underwriting norms and the rates are available to only those in the best of health.Term insurance is a cover where the only benefit is a payment if the insured dies during the term of the policy is the most basic form of life insurance. The cover is now almost a commodity with web-based aggregators offering quotes from all insurance for term protection.

Wednesday, July 8, 2009


The Union Budget presented by Mr. Finance Minister has left many people disappointed especially those who were expecting some"big bang" reforms from this budget. The budget did not lay out any such plan. But, this budget is being hailed by corporates on one account atleast ie. the removal of FBT or Fringe Benefit Tax which was introduced by erstwhile Finance Minister Mr. P. Chidambaram. This was a tax which was to be paid on all the perks enjoyed by an employee like car, company provided accommodation, ESOPs , conveyance etc. These perks were always taxed at the hands of the employee, but, FBT had transferred the onus of paying these tax to the employer. The employer,however, was free to collect this tax from the employee. FBT also meant that the effective rate of taxation was only little over 6 % as against the rate of tax charged to an employee based on his tax slab.

FBT was opposed by the corporates tooth and nail and now they have finally managed to get this off their back. This now means that the tax on perks will once again be taxed in the hands of the employee. This will increase the tax burden on the employee since the personal incpme tax rates are much higher than the FBT rate and it can go up to 30% of the perk as against just over 6% on FBT.

So, while corporates do not have to pay this tax , the employee will have to pay through his nose for the same benefits.Also the anomaly of charging tax on ESOPS on vesting stage rather than the time of actual sale is still not done away with. Hence, one will have to continue to pay on notional gain in one's shares without really realising the gain. This is a big anomaly which remains to be cured.

All the talk on TV shows about FBT removal leaving more money in the hands of the employee is misfounded. This might actually reduce the net take home salary for few . Hence, the old adage that "devil lies in detail" has come true one more time.

Tuesday, July 7, 2009


The Union Budget presented by the Finance Minister yesterday was one which aimed at doing "No harm"rather than "doing good" to the economy on the whole. There were no major big bang reform measures announced. Even the much anticipated and "taken for granted reform" of increasing the FDI limit in insurance sector didn't come through. Mr. Minister shied away from giving a target for disinvestment as well. This sent the capital markets into a tail spin. The FBT was removed which is a positive for the corporate sector , but, the MAT was increased to 15% taking away the sheen of FBT removal.

As far as common man and his income tax is concerned, there was not much for him. The new budget proposes to increase the tax free income limit by Rs 10000 for women and men and Rs 15000 for senior citizens. So now the new tax free income slab would be

Men- Rs 1.6 lakhs

Women- Rs 1.9 Lakhs

Senior Citizens (including women) - Rs 2.4 Lakhs

The actual saving in terms of tax outflow would be as follows

Men - Rs 1030

Women - Rs 1030

Senior Citizen - Rs 1500

The tax surcharge of 10% for people with annual income of over Rs 10 lakhs pa also has been withdrawn. This is a positive step for HNIs in the country. They will save some money since the effective top tax bracket will now be at 30.99% rather than 33.99% as was earlier.

The major disappointments from Income tax perspective were

1. No increase in the exemption limit under Sec 80C.

2. No increase in exemption limit for repayment of Housing loan interest and principal component.

3. NPS still under EET rather than much need EEE tax regime.

4. No increase in the exemption for medical expenses and medical insurance limit.

5. Non inclusion of tuition fees in the Sec 80C.

The major disappointments for Corporates were as under:-

1. Increase in MAT by 5 %.

2. No major policy reforms announced.

3. Increased govt borrowing likely to push up the interest rates further slowing down growth.

4. STT not removed.

5. No road map laid out for bringing down fiscal deficit . This may affect India's sovereign rating making fund raising even more costly.

The things which corporates liked in this budget :

1. Removal of FBT.

2. Increased push on infrastructure and social spending.

3. No rollback in the stimulus provided last year.

4. Increase in STPI by another year.

5. CTT removed.

Hopefully, in the next budget, MR Finance Minister will be able to meet some of the expectations of both corporates and the common man which he could not this time. This is India's time in the sun and we need MR. Finance Minister's help to siege this opportunity. Hope Mr Minister is listening.

Saturday, July 4, 2009


The Employee Provident Fund Organisation has decided to give an interest of 8.5% on the deposits made in EPF scheme for the current financial year as well. This interest rate of 8.5 % is same as the one applicable last year as well. With inflation and deposit rates up for most of the last year , there were expectations of an increase in this rate for this year atleast. But, with the inflation down to negative territory and deposits rates heading southwards, this expectation was tempered a bit in last few weeks and as such the decision to keep the rate unchanged is a no surprise really.

The EPF interest rate has come down from the highs of 12 % earlier to 8.5% now. There were talks of bringing this even further down to 8% level last year. But, with the new government's focus on "AAM AADMI" and inclusive growth , the chances of these rates going down is remote.

This will benefit the 4.2 crore depositors who have parked their money with the EPF. This makes it one of the best available debt funds for anyone to invest. The positive tax regime of EEE applicable for EPF is another plus.