Money For Investment

HUF AND TAX IMPLICATIONS EXPLAINED

2011-10-16T12:53:00.000-07:00

What is an HUF?
Down the ages, the Hindu community has largely believed in the concept of joint families, joint income and joint property that is shared and enjoyed by all the members of the family. This concept is now recognized as a legal expression in the form of the Hindu Undivided Family (HUF)– a rather efficient tax-planning tool under the Income Tax Act.

How do you form HUF? As the name suggests, an HUF is a family of Hindus. However, under the tax laws, even Jain and Sikh families can set up HUFs. Typically, an HUF will consist of a person who have lineally descended from a common ancestor, and includes their wives and unmarried daughters. Do note: in Maharashtra, even married daughters are recognised as HUF members.
While the senior most member is called the karta (manager), the male members are known as coparceners, and the females are referred to as members. In the ordinary sense, an HUF should consist of at least two male members. However, in case the HUF is partitioned, the smaller family that receives the property can constitute an HUF even if it has only one male member.

What income is regarded as HUF income? All the income that arises on the utilisation of the HUF’s assets and on the investment of its funds is regarded as the HUF’s income that is assessed separately and chargeable to tax. Importantly, the income should have been earned using HUF property or funds or property only; if it arises on account of the personal investments of any member, it will generally be regarded as the individual income of the member.
If an HUF contributes funds to the capital of a partnership firm in which it is represented by the karta or any other member who represents the HUF, then the profits and interest received from the firm will be treated as HUF income. This is because the income arises on the investment of HUF funds, and so the income belongs to the family. If, however, the partnership firm also pays the karta (or the member who represents the HUF) a salary for efforts put in by him, the remuneration will be regarded as the individual income of the karta/member.
It’s important to remember that the same person can be taxed separately as an individual, as well as for and on behalf of the HUF. The two capacities are totally different. And so, the individual and the HUF are totally different units for tax purposes–they are two different assessees.
Since an HUF is a separately entity, it can earn income from house property, income from business and capital gains, and income from other sources. However, since emoluments are given for personal skills, an HUF cannot earn income from salaries. An HUF can also carry on a business that is managed on its behalf by the karta. It can also hold shares, securities, jewellery and any other valuable articles or articles, apart from movable and immovable property.

What are the assets of an HUF? Any gift that is given specifically to an HUF can be treated as HUF property. The assets received on the partition of a larger HUF of which the coparcener was a member is also perceived as HUF property is also treated as the property of the HUF.
Assets can also be bequeathed to an HUF by way of a will that specifically favours the HUF. A point to be noted: in the absence of a will, the assets received on the death of a benefactor after 1956 (when the Hindu Succession Act came into force) will not be regarded as HUF property, but as individual property, even though such assets have been inherited.

TRAVELLING ABROAD ? TAKE FOREX CARD, GIVE "CASH" A MISS

2011-10-15T07:54:00.000-07:00

For those who travel abroad frequently either due to personal or professional reason have to carry foreign exchange with them for using it during their stay outside the country. Most of the people carry currency notes with them which is fraught with various risks. But if you want to avoid the risk of travelling while carrying currency notes , you may seriously consider taking forex cards given by the banks for this purpose.

What is Forex Card? Forex card is a plastic based card like a debit card or credit card, which is prepaid in nature. The person taking the card can get the desired amount in the desired currency loaded on the card which can be subsequently utilised while on tour. The person needs to approach the bank and pay in Indian rupees for the equivalent amount in foreign currency which needs to be loaded on the card.

Who issues Forex Card? Most of the to league banks in India do offer forex cards to their customers. One can approach bank like ICICI, SBI, HDFC etc for forex cards.

What are the charges? You may have to pay issuance fee of Rs 100-300 for every forex card that you take. Other than this , you may have to pay RS 50-200 as loading fee while loading the card with the desired foreign currency. You may have to pay 1.5% - 3% on ATM cash withdrawal too.

How much forex can you load on your card? As per current RBI regulations, one can load upto maximum of USD 10000 across all forex cards in a year.

Can I have multiple forex cards? Yes. You can have multiple cards for loading cash in different currencies viz USD, Pound,, Euro etc.

Whats the exchange rate applicable on my spend? You will be charged the exchanged rate of the day when you got the card loaded with the desired currency. The conversion rate is applicable on the day when the rupee is converted in foreign currency which in this case is the day of loading the card in India.

Documents Required ? You will have to give PAN Card copy, Passport,Visa and tickets .

Benefits of the card? Following are the benefits of the card
1. This card will provide you immunity against the risk of physical loss of cash while travelling.
2. It allows you to control the exchange rate applicable . You can choose when to load the card depending on the exchange rate movement. Once loaded, you are not exposed to any adverse movement in currency exchange rate.
3. Accepted across all major stores and ATM abroad.
4. Add on benefits like travel insurance and accident insurance being offered by some Banks.

HOW TO TRANSFER SHARES FROM ONE DEMAT ACCOUNT TO OTHER?

2011-10-11T09:30:00.000-07:00

For those of us who have Demat Accounts and want to change from one Demat account to another for any reason will have to first get the holdings transferred to the new Demat Account before the account can be closed and you can fully migrate to the new account. So, if you are wondering how can you get the share holdings transferred from your current Demat account to the new one, then read on.

1.Transfer from one Demat Act to another Demat Act of the sole owner :- In case , the transfer of shares is from one Demat account to another Demat account held by the same person in his sole capacity, then he/she needs to fill delivery instruction slip giving the details of the shares to be transferred and the same shall be submitted with the depository. These delivery instruction slips are available with the depository and are like cheque leaves which we use to tranfer money from our account.

2.Transfer from Joint Demat Account :- In this case too, the delivery instruction slip will have to filled and submitted to the depository. Only difference is that here both the owners need to sign the slip.

3.From Sole Demat Account after account holders death:- In such cases the holding is transferred to the demat account of the nominee where there is nominee mentioned in the account. For cases where the holding is less than 1 lakh and there is no nomination in the account, the holdings may be transferred to the legal heir without any court order or will. For cases above Rs 1 lakhs holding without nomination, one will have to give court order or will from the deceased alongwith the death certificate for effecting the transfer.

4. From Joint Demat Account after death of one owner- In this case, the shares will be transferred to the new Demat Account of the surviving holder. The surviving holder will have to submit an application form alongwith death certificate for effecting the transfer.
5.Transfer of Lock in securities:- If the Demat has ELSS etc which has lockin then the transfer can be done only post getting them rematerialised . After rematerialisation, the same can be dematerialised in new Demat account.
6. Transfer of Holding where there is Lien :- For all holdings where there is lien marked , before transferring the same one will need NOC from the party in whose benefit the holding/stock etc is pledged.

Hope this has helped get you some clarity on the issue.

GOLD LOANS - GOOD OPTION IN URGENCY

2011-10-08T23:29:00.000-07:00

Till not very long ago, gold or gold jewellery was considered to be most sacred of family possessions in India, and a family would do its all to avoid selling it or mortgaging gold for taking a loan on it. But, slowly but steadily things are indeed changing in India with many gold loan companies setting up shop and driving home the point that there is nothing wrong in taking loan over gold. One of the gold loan Finance company asks" Jab Ghar me pada hai sona toh phir kyun hai rona?". This has resulted in huge off take in gold loan sales in the country . But does it make sense for you? Do you really understand what it is ? How can you take benefit from it ? Lets try and understand each of these in the following paragraphs.

GOLD LOAN - What is it?

Gold Loan is a loan given against the security of the gold bar/coin or jewellery . The loan seeker needs to mortgage his/her gold with the bank/NBFCs against which they get loans upto 75% to 95% of the gold value. These are like Personal Loans where the end use of the loan amount is not defined and the amount may be used in any manner as deemed fit by the borrower.Since these loans are backed by security of gold , the banks/NBFCs charge much lower rate of interest on these loans as compared to lets say a Personal Loan which is unsecured.

Who Offers These Loans? Most of the banks in India like HDFC Bank, ICICI Bank, Axis,SBI etc offer Gold Loans. Other than banks there are dedicated gold loan companies like Mannapuram Finance, Muthoot Finance which exclusively deal in Gold Loan.Most of the gold loan companies have very wide network and are open on Sundays too,thus making it eminently easy for the borrower to seek loan at his/her convenience.

Loan Amount? Most of the gold loan financers(NBFCS) provide upto 95% of the gold value as loan to the borrower. But if you approach a bank, they are likely to be conservative in their financing and may be willing to offer only upto 75% of the gold value as loan.But to balance that there rate of interest is lower.So you must decide basis that.If you dont want very high loan amount,it may be prudent to approach banks which will give you gold loans at atleast 2-3% lesser than Muthoot Finance, Mannapuram Finance etc.

Benefits of taking Gold Loan? There are quite a number of compelling benefits which make gold loan a very good option for lot of borrowers. Some of the major ones are

1.Quick Loan Disbursal - Gold Loans are probably the loans with smallest TAT(turn around time). You can walkin with your gold coin/bar/jewellery and walk out with loan , all in the smae day in matter of couple of hours.

2.Safety and Security of your Jewellery- Since the gold jewellery that the borrower mortgages with the financier is kept in safe custody of the bank/NBFCs , it ensures that the same is in safe and secure custody .This also reduces the cost that the person might be bearing on account of keeping that jewellery in a bank locker on his own. bank Locker rent is thus saved while the jewellery still stays in bank locker only.

3.Lower interest rates - Since these are secured loans, the rate of interest is much lower than a plain vanilla Personal Loan.
4.OD Facility- Some banks also provide overdraft facility on your gold jewellery. This helps those who dont want to take EMI based loans and want to just have facility of overdraft where they pay interest for only usage period .
So next time when you are in urgent need of money , then rather than going for Personal Loan, you may want to consider unlocking the value of gold jewellery in your home .

8THINGS TO HELP GET FASTER CLAIM UNDER MEDICLAIM POLICY

2011-10-06T06:34:00.000-07:00

Its not uncommon to find people among us who have suffered at the hands of the mediclaim insurers during claim settlement. There are numerous instances where claim is rejected by the health insurance company on technical/material grounds. This defeats the basis purpose of getting help when needed. So, what can you do to avoid this? Try these steps :-
1. Check Fine Print for Expense Coverage - The mediclaim polices generally list down the limit of expenditure that is allowed to reimbursed under room rent/ambulance hire charges etc. This limit varies between policies of various companies and hence before you get yourself admitted to any hospital , it is always advisable to check the expense limit allowed as per your mediclaim .Any extra expenditure done on account of thee heads is generally borne by the patient himself/herself.
2. Check for exclusion in Diseases - You must also check the number and nature of diseases covered under your mediclaim before you buy it. For example, lot of policies in India dont cover Diabetes at all . This is a major exclusion since Diabetes is very common among Indians and by excluding it the insurer is playing safe. You must select the policy which provides coverage for maximum number of diseases especially the critical one like Diabetes, Heart related, Kidney Related, cancer related etc.
3. Time Period Before Coverage of Preexisting Disease- Most of the mediclaim policies in India, have a waiting period of anywhere between 1 to 4 years before they cover preexisting diseases.Any claim made for the preexisting disease during the waiting period is likely to be rejected.Hence go for the plan which has least waiting period.
4. Plastic Surgery , Cataract, Dental Care and Piles Not Covered - Most of the mediclaim policies in India DONOT cover Dental Care, Piles, Cataract etc . Even Plastic Surgery is considered to be part of cosmetic surgery and as such is seldom covered under mediclaim. .
5. OPD Not Covered - Any claim that you may have on account of expenses towards medicines /Doctor consultancy Charges etc during OPD care is not covered by most of the mediclaim plan in India.
6. Disclose all Material Info - To avoid rejection of any claim made by you which is normally covered under the plan, it is also important for you to have disclosed all material information to the insurer while applying/buying the cover. If the firm finds out that you have willingly suppressed an information which is material in nature, then they are well withing their rights to reject the claim. So be truthful and disclose all the relevant (good and bad) information. It might increase your premium but will ensure that your claim is not rejected when you need the assistance the most.
7. 24 Hr Hospitalization - One needs to be hospitalised for a minimum of 24 hours before your claim is eligible for reimbursement/payment by the insurer. Only exception is Chemotherapy,radiation treatment done in Cancer where 24 hr hospitalisation isnt mandatory.
8. Submit your Claim ASAP - Any claim submitted beyond the stipulated timeframe by the insurer might lead to its rejection . It is advisable to submit claims within 7 days of getting discharged from the hospital.

WONDERING HOW TO CHANGE YOUR HEALTH INSURANCE? CHECK OUT HEALTH INSURANCE PORTABILITY.

2011-10-01T10:33:00.000-07:00

After stupendous success of mobile number portability introduced by TRAI , IRDA too has taken a cue and introduced health insurance portability in India from 1st October 2011. This is a huge step in the right direction considering there was lot of discontentment among the consumers about the manner in which they were being treated by their health insurers. Some of the common grouses were:

1. The health insurance companies mandated on a waiting period for covering pre existing diseases to each and every customer once he comes in their fold, irrespective of whether or not the person had any other policy where he had served out the waiting period. So in effect , every time you changed the company , you would have had to start the waiting period all over again.

2. The insurers generally were resorting to increasing the renewal premium by a steep margin for those policyholders who have had a claim in the year. This was mostly done to discourage the policyholders from renewing the policy with them. Thus they wanted to get rid of policyholders who they thought could be "claim prone".

3.In lot of cases, policyholder's request for renewal after a claim was rejected without any material reason from the insurer. This meant a great nuisance for the policyholder since he had to start his waiting period for preexisting disease all over again with the new insurer.

To address some of these issues , IRDA has mandated health insurance portability now. What exactly does it mean?

Health Insurance Portability means that a health insurance policyholder can now choose to change his insurance provider without foregoing any of the benefits covered in his/her current policy. For instance, if you have a health insurance/mediclaim plan from ICICI Lombard and if for any reason you are not happy with the company , then you can change over to any other insurance provider without foregoing any benefit that you may be enjoying under your current plan.

What are the benefits of Health Insurance Portability? Following are the few of the benefits:

1. CHOICE - Now as a policyholder , you will have a choice which till now you didn't have. You can now switch over to any health insurance provider .

2. COVERAGE OF PREEXISTING DISEASES - Once you move from one general insurance company to another for their health insurance or mediclaim plan, you will continue to get the same benefit that you got in your old plan.For example , if you were covered for Diabetes in Plan A and then you migrated to Plan B , then in the Plan B too , you will have that covered.

3. NO FRESH WAITING PERIOD - Once you change over to new insurance provider, you need not start your waiting period for getting preexisting diseases covered all over again. You will have the benefit of counting the number of years you waited in your earlier plan .For example, if the waiting period for covering Diabetes under the Plan A is 4 years and after 2 years you migrated to Plan B from another company where also the waiting period for covering Diabetes is 4 years, then you will have to serve waiting period of only 2 years with Plan B since you have already served 2 years under Plan A. This is a big change for all the policyholders.

4. NO CLAIM BONUS TOO TO BE PAID - If you had claim free year in your first policy , then on switching over to new policy , you will be entitled to no claim bonus too from the new insurance provider .

How to Change the Policy or Insurance Provider in India?

You will have to do following :-

1. Apply with the insurance company you wish to change to , at least 45 days prior to your current policy getting over.

2. Inform the IRDA too about the insurance firm you wish to change to.

What else should you consider before switching over?

Consider the following before you finally sign on the switch application

a. Check for the new premium rates being charged by the other insurance companies for similar coverage in terms of Sum assured and diseases covered.

b. Check for the network of hospitals that they have under cashless scheme.The more the merrier.

c.Also check claim settlement ratio of the firms. The company which doesn't have good record in settling the claims does not merit a chance.

You should go with the firm which has good claim settlement ration, great hospital network and reasonable premium.

So its time to pull out your mediclaim policy documents and check if it needs to be from another company .

Stay wise and happy investing!!

TOP 5 TAX SAVING FIXED DEPOSIT (FD)

2011-09-27T08:40:00.001-07:00

Tax saving FDs offered by banks in India are good option for someone looking to save tax under Sec 80 C without taking any risk that is inherent in equity exposure that ELSS offers. So, if you are one of those conservative investors who want to save tax via FDs , then it would be pertinent to know which banks are offering you the best deal currently.

Following are the 5 best Tax saving FDs that are being currently on offer ( as on Sept 11).

Rank Bank Rate On Int.(p.a.) Rs 10000 will grow
1. Tamilnad Mercantile Bank 10% Rs16386.
2. City Union Bank 9.75% Rs 16186
3. IDBI Bank 9.50% Rs 15991
4. Punjab And Sind Bank 9.50% Rs 15991
5. State Bank of Travancore 9.50% Rs 15991

Happy investing!!

BANK CASH TRANSACTION FROM MOBILE PHONE

2011-09-26T10:21:00.000-07:00

There have been times , when we have been faced with situation of transferring money from bank account to another account without visiting bank branch. One can do cash transactions via netbanking if one doesnt want to visit the branch or the branch timings are over. But what if we in a place where internet isnt available and we need to transfer cash immediately . Relax, we have a solution now. Resereve Bank Of India has now allowed cash transaction upto Rs 50000 from mobile phones . To do so , we need to follow the following steps:-

1. Register with the bank for interbank Mobile Payment Service (IMPS).
2. Download the application on the mobile phone.
3. Log in to the application
4. Select bank account from which funds are to be transferred.
5. Select mobile money transfer service.
6. Enter 10 digit mobile number, 7 digit MMID and desired amount to be transferred.
7. Confirm all the details.
8. Done. You will recieve sms confirming the same.

PROS OF THE FACILITY

1. Another platform to do non branch based cash transaction besides netbanking .
2. Ease of operation is huge since we are all with our mobuile phones virtually at all times.
3. Increased penetration of banking services in underbanked areas where bank branches arent available.

CONS OF THE FACILITY

1. Cash transactions of upto Rs 50000 only can be done via this platform as of now.
2. Traning could be an issue for rural folk who are very tech savvy.

WANT TO INVEST IN GOLD??

2011-09-24T13:37:00.002-07:00

"The desire for gold is the most universal and deeply rooted commercial instinct of the human race."

Gerald M. Loeb

The above mentioned adage perfectly sums up the love investors have showered on the precious metal since times immemorial. This metal has retained its numero uno pisition as the "Metal of choice" over centuries. So what really makes this metal so desirable inspite of its very limited medicinal or industrial usage? Following are just the few of many reasons responsible for the same :

1. Its widespread use in Jewellery - It has always been used a metal of choice when it comes to Jewellery. In India, for instance, most of the gold demand is on account on Jewellery .This demand for gold jewellery has made India one of the leading countries as far as gold consumption is concerned.

2. It was used as Currency - Gold emerged as a major currency very early during human civilization where kings across continents used gold coins as currency in their respective kingdoms. It was also used as base for new "paper currency" which sovereign governments printed , till very recently. It is still considered as hedge against dollar , the world's reserve currency.

3.Excellent hedge against inflation - Investors flock to gold because it has been proven beyond doubt that it is the best asset class which provides hedge against inflation . Gold investment protects the purchasing power of your investment/portfolio.

HOW TO INVEST IN GOLD?

Now, if you are wondering how does one invest in gold , then you may want to explore following 3 options:

1. Investment in Gold Mining Funds - You can invest in funds that invest in gold mining funds such as AIG World Gold and DSPBR World Gold Fund. This option will help you own the world's gold reserves and hence as and when gold as an asset class does well, these mining firms will do well and consequently , you as an investor will do well.

2. Gold ETFs - Next, you can invest in paper gold through gold exchange traded fund (ETF), wherein you buy the gold units from the stock exchange for which you need a demat account to buy and sell the units on the stock exchange.

3. Gold Fund of Funds - And more recently, you have the option of investing in a gold fund of fund, such asReliance Gold Savings, Kotak Gold and SBI Gold fund, which are all passively managed fund of fund that invests in the open-ended Gold Exchange Traded Fund of their fund houses, which in turn invests in physical gold with 99.5 per cent purity. This structure is convenient for those who do not have a Demat account and want to start a systematic investment plan in gold.

Depending on your convenience and investment needs; you can consider any of the options to invest in gold. Amongst the investing option; ETFs and gold funds should be better for the liquidity they offer and the fact that these invest into physical gold, their value will be closest to that of gold.

PRECAUTIONS TO TAKE WITH YOUR CHEQUEBOOK

2011-09-24T12:52:00.000-07:00

We all use our cheque leaves while making payments to various parties/paying bills etc , but, have we ever wondered what all can go wrong with these cheque leaves? There have been numerous cases of fraud , where the modus operandi has been misuse of the cheque leaf. Hence it is imperative to know ,first, what all can go wrong and then what safeguards to take with your cheque leaves.

What Can Go Wrong?

1. Cheque can be misused - Lot of fraudsters tamper with the cheque which one writes by adding a name of account number , making alteration, adding digits etc and then countersigning on it. This way they loot the unsuspecting guy , his hard earned money.

2. Cheque can be assigned - Since cheques are negotiable instruments , it can be assigned from one person to another and as such , one can simply cut the beneficiary name and assign the cheque in ones own name and then bank it with his own banker. This was he wont have to forge the drawers signature. He simply will have to sign for the beneficiary and since the beneficiary's account may not be with the presenting bank /accepting bank , it is difficult to spot the fraud. But thankfully only few cooperative banks do accept cheques which are "assigned to third party".

What safeguards to take?

1. Always keep chequebook in safe custody - This is the most basic precaution that one must take. Safe custody of the cheque book will ensure that it does not reach in rogue element's hands easily and thus the chances of its misuse is that much lesser.

2. Always give "Account Payee" cheque - Wherever possible avoid giving "Self" or "Bearer" cheques since that opens up lot of possibility of fraud. Anyone with that cheque can go to any branch and get that encashed since it is an open cheque drawn in favour of the presenting party without mentioning its name. So avoid it.

3. Always write the name of beneficiary - Always mention the name of the beneficiary to whom the cheque is being issued. This will enable the bank to cheque Identity details of the presenter in case of any doubt etc. Also as a prudent banking practise, banks do check ID proof before giving large value cash withdrawals to unknown person. So a name on the cheque rather than just"Self" or " bearer" would help.

4. Never leave Blank spaces in the cheque leaf - Always try to use the full space of the cheque without leaving any space which may be used later for adding name or account number etc. You may cancel the empty space by striking it with a line .

5. Dont hand over PDCs to sales executives - In lot of fraud cases, Sales executives from Bank DSAs collect PDCs from the customer even before the loan is disbursed/or is about to be disbursed. These cheques then are used by the executives to siphon off the funds from the customers account. Hence, avoid giving PDCs to executive, you must give it to the branch or loan disbursal centre with proper acknowledgement. Also never give cheque without any beneficiary details (lot of people do it) since execs tell them that they will fill that portion later. The same portion may be used by execs to write their own name and thus they are able to withdraw amount from unsuspecting customers.

If you follow these basic guidelines, then I am sure you will be able to stay out of these fraudsters who are out to make quick buck at your expense.

Budget 2011-12 - What is in it for tax payers??

2011-03-01T07:28:00.000-08:00

Well like every year , this year too 28th Feb 11 was one of the most awaited days of the year. Everybody was waiting to see what our beloved FM dishes out to common taxpayers via his budget for FY11-12.

The budget overall hasn't done much to enthuse common man. There are no major tax breaks for majority of the junta . But, he has done few things which we need to take note of :-

1. Increased tax exemption limit for male to Rs 1.8 Lakhs : The tax exemption limit has been increased by Rs 20000 from 1.6 Lacs last year to 1.8 Lacs this year. This is only for males as the tax exemption limit for female taxpayers is already at 1.9 lacs. The additional relief will save 2000 rupees for everyone who falls in ta bracket. Small relief, but, relief nonetheless.

2. No need to file ITR for salaried people: Pranab Da has also mandated that those salaried people whose annual income is less than Rs 5 lacs/annum need not file ITR separately. The same will be done by their company. They can decalrae their additional income like FD interest income etc to the employer who will accordingly deduct TDS and file return.

3. No Tax till Rs 5 lac income for Very Senior Citizen: In an unprecedented move, Finance Minister has introduced an absolutely new segment in the income tax viz that of Very Senior Citizen. All those taxpayers who are above 80 years of age will be classified as very senior citizen and they wont have to pay any tax till the annual income of RS 5 lacs. This is a huge step taken for welfare of very senior citizens since in India, we dont have any social security and older people have to spend considerably on medical care and as such this was required. Here is thumbs up to Mr FM for doing this.

4. Tax Relief under Infrastructure Bond Investment Extended : The Tax relief offered on investing upto Rs 20000 in infrastructure bonds like IDBI, L&T etc which was introduced in FY10-11 has been enxtended for FY11-12 too. So taxpayers can continue to invest in this and save taxes upto Rs6180 under this option.

Besides, these there is nothing much to cheer about for normal taxpayer in this years budget. However, with DTC proposed to be launched in FY12-13, things will be much better and simpler for all taxpayers.

I only hope that Mr FM is able to deliver on his promise of making DTC operational from 1st April 2012. More Power to you Mr. FM.!!

INFRASTRUCTURE TAX SAVINGS BONDS - SHOULD YOU INVEST??

2011-01-08T21:26:00.000-08:00

January to March is that time of the year when most of us are rushing towards making our mandatory"tax saving investments". While we are all well versed with tax saving options available to us under section 80CC, but, this financial year government has offered us another option where we can invest in infrastructure bonds and save taxes. Here, an investor can invest upto maximum of Rs 20000 which can be claimed as deduction from his taxable income. This is over and above RS 1 lac that you can save under Sec 80 C. SO question to ask is should you and I invest in it?

Lets first examine the pros of this option
1. Additional tax saving of Rs 6600 if you are under 30% tax bracket.

Other than the above mentioned benefit , there isn't any other major benefit associated with investing in these bonds.

Now , lets look at cons too
1. High lock in period - Most of these bonds are of 10 year tenure where minimum lockin is of 5 years and then these bonds will be listed on exchanges where you can sell it provided you find a buyer.
2. Modest post tax returns - The returns offered by these bonds are between 7-8% which is modest at best considering the high lockin.

Should you invest?
The short answer to this is no if you are a savvy investor since the lockin is high and the returns are nothing to rave about.

So what should you do ?
One can always invest this money in equity or well diversified mututal fund which will surely give better returns in 5-10 years , besides offering liquidity which these bonds don't offer. Always remember that any "tax saving investment" first MUST qualify as GOOD INVESTMENT and then if it helps save you tax then it is even better , but never, invest in any policy/plan or bond just because it helps you save tax.

Happy investing!!

IPO INVESTING IN PSU - GOOD WAY OF MAKING MONEY IN STOCK MARKETS

2010-11-13T09:28:00.000-08:00

I have always stayed away from directly getting into equity markets. This was inspite of my firm belief that equity is the best asset class to invest in if one intends to make money over long period of time. The reason why I stayed away was my inability to devote enough time to research the stocks before investing and hence I always relied on Mutual Funds for equity investing.

But, I always had this urge of making quick buck in equity markets. The most popular mode of short term investing in stock markets in via trading either intra day or for few days trades. But IPO investing for listing gains can be a great opportunity for common people to make money in stock markets in India. This I can talk from my own experience of investing in CIL IPO. For retail investors there was money to be made in this IPO and I personally made About RS 19000 in this IPO on an investment of Rs 46000. That's cool 46% in less than a month's time. This extra 19000 could be used to pay off my electricity bill, maid -driver salary , petrol bills etc for a month. Not a bad deal. So why is this such a good deal to invest in IPO of PSUs?

1. Attractive Pricing by Government - Since the Central government at helm of affairs is one which espouses "inclusive growth" , they have made a conscious decision to price the IPOs at very attractive price point leaving some money on the table for investors. This gives you enough headroom to account for any volatility on negative side on the day of listing.

2. 5% discount for retail investors- Any investment in IPO or FPO by retail investors makes them eligible for a discount of 5% on the issuance price and as such the retail investors get an additional 5% margin on listing. So ,theoretically, even if the said stock was to list on the issuing price only,retail investors will still make 5% gain on listing. So minimum 5 Guaranteed on listing atleast on the issue price in a months time. Thats not bad money considering one gets at the most 8% returns in bank deposits over 12 months.

3. Most of PSUs enjoy near monopoly status- One of the most important aspects to consider in a company before investing in it is its level of dominance or market share in the industry in which it operates. Warren Bufett says that the best company to invest in is a company enjoying monopoly . While monopoly is an elusive thing in today's globalised world, we still have lot of sectors which are not open to private sector and there the PSUs have almost a complete monopoly and as such they enjoy huge advantage over other companies in terms of potential for growth and profitability. Coal India is a point in case. Hence investing in good PSUs is an ideal thing to do.

The mood in the current govt is to continue with disinvestment program to meet their fiscal deficit and as such we as an investor will keep getting good opportunities to participate in the disinvestment program both for short term gains and long term wealth accumulation. So , if you want to make quick money then invest in good IPOs of PSU and sell on listing and if you want to build good portfolio for long term wealth building, then hold on to these stocks which will become multibaggers in time to GOOD PSU stocks . All PSU stocks may not give you same results.

Happy investing!!

Why IRDA v/s SEBI hasnt gone in your favour???

2010-06-30T09:57:00.000-07:00

Those of us who are in India, we have been inundated with news of tussle between SEBI and IRDA to control/regulate the ULIPS launched by insurance firms. The SEBI's contention was that since ULIPS are primarily a MF in the garb of insurance plan with huge upfront charges, SEBI should have right over regulating that product, while IRDA position was that since ULIP is an insurance product it will be regulated by IRDA. This dispute was also referred to court,but, finally the finance minister intervened in favour of IRDA. So, it is settled now, IRDA is the regulator who will regulate ULIPS.

So what does this mean for an average investor like you and me?? Is it good or bad?? The answer is both, good and bad.

Let us see why

IT IS GOOD BECAUSE

1. ULIPS to become relatively a cost effective saving tool- My displeasure over ULIPS as an investment product is well known to the readers of this blog. I feel they are one of the worst products that one can invest in.The reason is its atrociously high charges which can be upto 50-80% of your premiums for first few years. But, now the situation is likely to get better after Sept 2010. The IRDA has mandated that charges be brought down and also should be evenly spread over the tenure rather than being just front loaded as it is now. SO the ULIPS as a product will RELATIVELY become better than its earlier AVATAAR.S o in case you like ULIPS and want to invest only in them, then this is good news for you.

2. The lockin to go upto at least 5 years-IRDA has also mandated that minimum lockin should be 5 years atleast than 3 years currently in vogue. This will ensure that people are stay put in the plan for a longer duration and are able to reap the benefits of long term investing. It will also reduce chances of agents misselling this product as "3 year" saving tool.

3. Charges to be uniformly distributed - Charges will now be equitably distributed over the term of the plan rather than being front loaded. This will ensure that even if one is surrendering the policy early he isnt heavily penalised because of charges.

4.No charges on policy surrender- Currently on surrendering the insurance policy in 3- 4 years time, one does not get anything or if you get then that is close to nothing . This is due to prohibitive charges and upfront commission that companies pay out of your premium. But this will change as now no longer companies can charge any fee on surrendering the plan. This is likely to be effective Sept 2010.

IT IS BAD BECAUSE

1. It is still a ULIP which will still have charges which may be lower than ULIPS current charges but will still be manifold higher than MF charges. They will still be one of the worst products to invest in.

2. With SEBI as regulator, things like high commission etc would have gone and that would have brought charge structure to MF levels and then ULIP would have been a really good product offering you the twin benefits of insurance and MF at a very effective rate.

In the end, I think the FInance Minister's decision is not really in the right interest of an average investor who wants to invest in a saving tool which gives maximum appreciation head room with minimum possible charges/fees.

WHY NOMINATION ALONE ISNT ENOUGH IN YOUR INSURANCE POLICY

2009-11-14T21:12:00.000-08:00

Have you ever wondered who is the legal beneficiary of the insurance claim money? Most people feel that the insurance money will be passed on to their husband /wife and kids as the case may be . However, this is only partially true. As per law, every individual who is related /financially dependent to the insured person has legal claim over the insurance claim money. Lot of people nominate their wife/husband as their nominee in the insurance policy and then they believe that in case of their unfortunate death, the claim money will be passed on to their spouse.

This also is only partially true. Nomination only means that the nominee has the right to claim the money only and not use it . The money is then supposed to be passed on to all other legal claimants of the money. So, in case you want your insurance money to go to a specific person only , then just nominating that person in your policy document is not enough. You also need to prepare a will making it amply clear that the money received from the insurance policy is to be passed on to such specific person. This will also needs to be registered /probated to make it legally binding.

Hence, if you haven't done this, may be its good time to consult your lawyer and prepare a will. Because , the very reason why you pay insurance premiums over donkey years is to ensure that the money is available to your near and dear ones when it is required the most. A "will" will help you ensure that.

4 Golden principles of equity investments

2009-11-01T00:17:00.000-07:00

If you want to invest in equities, there are only four things you need to remember.
1. Choose the right company
Look for superior and profitable growth. The company should earn at least 20% return on its shareholders’ capital.

Ideally a long-term investment perspective (more than five years) allows you to participate in the company’s growth. At the short end (3-6 months), share performance is driven more by market sentiment and less by company fundamentals. In the long run, the relevance of the right price diminishes.
2. Be disciplined
Stock investing is a long, learning experience. You will make mistakes, but also learn from them. Here is what you can do to ensure a smooth ride.
--Diversify your investments. Do not put more than 10 per cent of your corpus in one stock, even if it’s a gem. On the other hand, don’t have too many – they become difficult to monitor. For a passive long long-term investor, 15-20 is a healthy number.
--Research and analyze your company's performance through quarterly results, annual reports and news articles.
--Get a good broker and understand settlement systems
--Ignore hot tips. If hot tips really worked, we'd all be millionaires.
--Resist the temptation to buy more. Each purchase is a new investment decision. Buy only as many shares of one company, as fits your overall allocation plan.

3. Monitor and review
Regularly monitor and review your investments. Keep in touch with quarterly results announcements and update the prices on your portfolio worksheet at least once a week. This is more important during volatile times when there can be great opportunities for value picking!
Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary

4. Learn from your mistakes
When reviewing, do identify and learn from your mistakes. Nothing beats first-hand experience. Let these experiences register as `pearls of wisdom' and help you emerge a smarter equity investor.

SHOULD YOU TAKE LOAN FROM YOUR EMPLOYER/COMPANY?

2009-08-19T01:33:00.000-07:00

Companies , these days, increasingly position the loan benefits that they offer to their employees , as a major financial benefit to the employee. But, taking a loan from the employer is something I strongly recommend people to avoid . Here’s why I believe you should not opt for a loan from your employer:
1. Any loan from your employer ties you to your job. You can’t come out until the loan amount has been cleared in full. You might argue that you can always ask your new employer to bear the loan. But where does that take you? From one chain to the next? Plus, I’m not sure if any employer today would be willing to bear existing loans.
It’s psychologically debilitating to see your take home salary cut by the EMI (Equated Monthly Installment) amount on the loan even before it’s credited into your salary account.

2.There’s a hidden cost. Though you do not actually pay any direct interest on the loan amount, the notional interest surfaces as a perquisite in your income tax calculations and adds directly to your taxable income. I didn’t know this fact until I saw my income tax calculations; it was already too late.

3. People take loans that they dont really "need" . I have seen people taking loans from the employers just to take the benefit of saving on the interest differential that is there between the employer's rate and the prevailing market rate. This leads to people taking on credit liability when they do not really need the money. Most of the time credit is not used in the best possible manner leading to drain on savings and finacial stress.
With some fanatic fiscal steps, those already in the trap can manage to come out of this situation sooner than they think.

EXIT ENTRY LOAD, ENTER EXIT LOAD

2009-08-07T07:01:00.001-07:00

SEBI is an institution which aims to act as watchdog to protect the interest of common investors in the equity markets. With this aim in mind, SEBI sometime back mandated that all AMCs do away with collecting entry fee to investors who wishes to invest in mutual funds. This is a revolutionary decision since it makes the mutual funds the best investment structure by a long distance. Now the investors will not be charged any entry fee and the entire money invested will be accounted for in the number of units. This will push up the effective returns that the investor will get.

But, all is not well with this step. There are certain concerns as of now which needs to be addressed.

1. No entry fee means lesser people willing to sell- The abolition of the entry fee has led to a dramatic fall in the number of distributors who are willing to distribute or sell MFs. Many banks who earlier used to aggressively sell MFs to their clientele have completely stopped or have gone slow on it since selling them does not make them money anymore. This is likely to impact the retail investor in the end since it will be difficult for him to locate point of sale of MFs now . The lower the distribution , lower would be the accessibility of this product which already has abysmal penetration of less than 3 % of the population in India.

2. Increase in Exit loads - While SEBI has mandated that entry loads be done away with, it has allowed AMCS to charge exit load of 1% . Now, most of the equity based funds have hiked their exit loads from 0% - 0.5% to 1%.

3. Increase in the holding period of MFs for no exit load - Earlier the average holding period for equity based MFs where no exit load was charged was about 6 months. Now the same has been increased to 2 years in most of the funds. This means that if an investor wishes to avoid paying exit load, then he may have to stay invested for a longer period of time.

4. The investor may be forced to pay more than 2.25% - With the abolition of fixed entry fee, the SEBI has allowed that an agent or advisor can charge his/her commission separately from the investor. This has opened up a small window where an agent might try and extract more commission out of an investor. This will then defeat the whole purpose of the abolition of the entry fee.

There are few glitches which need to be ironed out before things can be really streamlined for the AMC, the distributor/agents and the common investor.

CREDIT CARD REGISTRATION WILL MAKE ONLINE TRANSACTION MORE SECURE

2009-07-30T23:32:00.000-07:00

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...

WHAT SHOULD YOU DO WITH YOUR RETIREMENT MONEY?

2009-07-29T06:25:00.000-07:00

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 :-

OPTION 1 - STARTING UP A SMALL BUSINESS

PROS

- 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.

CONS

- 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 .

OPTION 2 - INVESTING IN SAFE INSTRUMENTS AND LIVING OFF ITS INTEREST

PROS

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 .

CONS

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.

THE VERDICT

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.

RICH PAY LESSER FOR THEIR LIFE INSURANCE

2009-07-20T08:03:00.000-07:00

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.

WHY REMOVAL OF FBT IS NOT A GOOD NEWS FOR AN EMPLOYEE

2009-07-08T02:32:00.000-07:00

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.

INCOME TAX , CORPORATES AND BUDGET

2009-07-07T00:22:00.001-07:00

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.

YOUR MONEY IN EPF CONTINUES TO GROW AT 8.5%

2009-07-04T02:58:00.000-07:00

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.

NHAI CAPITAL GAINS BONDS - SAVE TAX ON LONG TERM CAPITAL GAINS

2009-06-29T07:01:00.000-07:00

If you are looking to save income tax arising out of long term capital gains on the sale of your house,art or property etc then you have an excellent option in NHAI bonds.National Highways Authority of India (NHAI) is currently offering non-convertible bonds with benefits under Section 54 EC of the Income Tax Act.

These bonds offer returns of 6.25% pa payable annually. The minimum amount that one can invest is Rs 50000 while maximum amount in Rs 50 lakhs. The whole amount on maturity is taxable in the hands of the investor. these bonds are among the most efficient tax saving instrument for tax on long term capital gains.

The other option offcourse is to invest this money agin in a new property or house to evade taxes . But , this will again mean that your money is locked for a longer period. These bonds have a maturity period of 3 years and are AAA rated by Crisil, Fitch and CARE indicating high credit quality of these bonds.

One can hold these bonds both in physical as well as demat forms.

For more on this visit http://www.nhai.org/bonds1.html

BASICS OF MUTUAL FUND INVESTING

2009-06-29T06:01:00.000-07:00

Mutual funds are one of the most efficient and popular investment options for people looking to invest for wealth creation.There are thousands of funds to choose from, yet most investors really don’t need more than four or five funds. Sifting through all of the choices can be rather daunting.

There are thousands of funds to choose from, yet most investors really don’t need more than four or five funds. Sifting through all of the choices can be rather daunting.

HOW DOES A MUTUAL FUND WORKS

A mutual fund is a fund where money is collected from all the investors investing in that fund, and is invested by a qualified fund manager on behalf of all the investors. The fund manager manages the investment and aims to beat the benchmark returns like BSE 100, Nifty 50 etc. Each of the funds will have a investment goal and strategy and the fund manager is required to invest according to that mandate. There are 3 kinds of mutual funds basically on the nature of its investments

1. Equity based mutual funds

2. Debt Based mutual funds

3. Balanced or hybrid mutual funds

Mutual funds are also classified as active funds and index funds. Active funds are the funds where the fund manager actively trades the stocks to generate maximum possible returns , while in an index fund the investment is made in stocks representing that particular index like nifty or sensex , in the same proportion. The active funds can have greater returns but also have higher costs, while index funds have lower costs and believe in "buy and hold"strategy.

HOW TO EVALUATE A FUND?

First, you need to figure out what type — or style — of fund you need, which is based on your investment goals, time horizon, tolerance for risk, among other factors. After deciding what types of funds you need — like an international stock fund or a fund of small companies — you will want to evaluate the funds in each category using the following criteria:

1. Costs - First, find out if there are any suitable index funds — they have the lowest costs and typically beat their actively managed counterparts over time. The average active mutual fund charges about 2.25 percent of your investment each year — this charge is known as a fund’s expense ratio — while the average index fund costs 0.50 percent.Pay close attention to other fees. You want to avoid funds that charge loads, which are sales charges levied when you buy or sell a fund.

2. Company - Do business with companies that have long track records. The same goes for portfolio managers. Find out how long they have been running the fund, and what they have done in the past. Web sites like Morningstar.com and valueresearchonline.com track this type of information.

3. 5 star or 4 star funds only - Morningstar and valueresearchonline rate the funds depending on their relative performance over years. The 5 star rated funds are supposed to be best performing fund and one must look to invest in those only.

4. Performance over long term - Don’t put too much weight on fund performance over recent past. Often, this year’s star funds are next year’s worst performers. Check the fund’s performance over three-, five- and 10-year periods. If the fund is actively managed, compare how the fund has performed versus its benchmark, especially during market downturns. Be sure to stack it alongside its peers, or funds of the same style, too. Choose a fund with relatively consistent returns.

5. Portfolio turnover - This is a measure of how often a fund manager buys and sells the securities it holds. If a fund has a portfolio turnover of 100%, that means it has bought and sold its entire portfolio within the last year. The higher the turnover, the higher the trading costs -- and the more likely the fund will generate capital gains. Lower turnover means the portfolio manager is adhering to a longer-term buy-and-hold strategy, which should translate to higher returns. Index funds have a very low turnover ratio. For funds held in taxable accounts, it is best to choose a fund with turnover of less than 25 percent.

WHERE TO BUY MUTUAL FUNDS FROM

One can buy mutual funds from various distributors of the AMCs. Most of the banks and FIs act as agents or distributors for the mutual funds company and one can buy it from them. Mutual fund company have direct sales offices and representative as well. There are AMFI certified agents as well who sell mutual funds. One can buy it from them as well.

INVESTMENT ADVICE - INVESTING IN INFLATION

2009-06-28T05:16:00.001-07:00

The global financial meltdown has led to various governments across the globe into pumping billions of dollars into the economy to revive demand and growth in the economy. Increased money supply does help in pushing the demand for goods and services up thereby helping the economy grow . There are green shoots of recovery already in some parts of the world. India and China are already growing at a healthy rate. One of the bad effects of de-growth and recession is the menace of deflation. India is already in deflation officially. Deflation is potentially very dangerous to the economy and can lead to serious damages on the demand side in the economy.But we need not worry too much about it because of 2 reasons . First reason is that in India even though the WPI is in negative the CPI is still at 9% , which is very high. So technically the demand for essential items like food articles etc is still on the rise. The second reason is the deflation is expected to be a short lived phenomenon. This is because, the large scale pumping of money into the system will create excess liquidity in the system , which will eventually lead to inflation.

Inflation is a double edged sword , while it provides an opportunity for an appreciation in assets , it also pushes the purchasing power of money lower. With the likelihood of inflation making a grand comeback , how should you be approaching your investment strategy. Well there are few asset classes which do well in an inflationary economy and as such you must look at these asset class right now to benefit when the inflation returns.

1. STOCKS - There is a direct relationship between the money supply in the economy and the stock market gains. Whenever there is excess liquidity in the market, the stocks prices go up. The bull run of 2002-2008 was primarily driven by the excess liquidity and cheap credit world over, and the recent bear market started when the liquidity dried up from the market post Lehman Brothers fiasco. So, when inflation returns back, chances are that the stock market will go up again. It already has gone up by 50%-80% . It might go up more in coming 12-24 months. Mr. Rakesh Jhunjhunwala has predicted that Nifty might touch 6000 by 2009 . Another famous broking house has predicted that BSE will trade at 30000 in next 3 years. So,chances are that stock markets will give more than average returns when the inflation returns back. Investing in stock markets now will help book handsome profits during the days of healthy inflation. Word of caution on stock investing is that you must invest in stocks depending on its value,price fundamentals etc. Do not invest indiscriminately in stocks.

2. SHORT TERM BONDS - Bonds are a good investment when the inflation is low since the impact on the yield is not much . But one must stay away from investing in bonds for a longer maturity period , if one expects inflation in future. This is because inflation will push up the interest rates and any increase in the interest rate will pull the yield on the bond maturity down. So your gains from the investment in bonds will be lower. As such since inflation is at an all time low these days, you must invest in bonds for shorter duration. Use the ladder approach, where you can reinvest the maturity proceeds again in bonds at a higher coupon rate.

3. COMMODITIES - Inflation pushes the prices of commodities higher. And any investment made in commodities now, is very likely to fetch handsome returns when the inflation inches northwards . One can look at investing in commodities like gold,silver, copper etc now when the prices are muted. My suggestion would be to invest about 15-25% of your investible corpus in a mix of commodities comprising gold, silver, copper,cotton etc. Stay away from betting just on 1 or 2 commodity. Investing in the shares /stocks of commodity based companies will also be beneficial.

4. REAL ESTATE - Another asset class which benefits from rising prices or inflation is real estate. The surge in real estate prices during 2003-08 is a testimony to the fact that when inflation is higher, the prices of buildings,plots,flats etc zoom up. People made lot of money in real estate during those days. Now the prices have come down, but are expected to head north once again. hence anyone looking to invest in real estate, should do it now since the prices are lower and aslo the interest rate on home loans are lower. Both these will rise once again . Real estate is an evergreen investment which grows in value over a period of time. It fetches more returns during inflation.

The above mentioned are few of the assets where one can invest now, to reap the benefits of capital appreciation when Mr. Inflation makes grand comeback. And inflation will come back . According to the RBI's estimate, the inflation in expected to be 5% by March 2010 from the current level of -1.14%. So, get your portfolio right so that it stays healthy for you in face of inflation as well.

Happy investing...

SHORTER TENURE V/S LONGER TENURE

2009-06-26T06:05:00.000-07:00

While deciding on the home loan ,personal loan or car loan we are all very sensitive to the rate of interest being charged on the loan by the bank. This is because rate of interest directly impacts the repayment amount of the loan. A higher rate of interest obviously means more interest payout and hence is that much less desirable. This is perfect. But, what most of the loan seekers do not focus on is the tenure of the loan. Tenure of the loan , like rate of interest, impacts the repayment amount directly. Tenure is very important factor that one needs to check and negotiate on while taking a loan. Let us understand in greater detail how tenure of the loan impacts us.

1. Longer Tenure Increases the repayment amount on the loan - Let us consider an example. Assume Mr. X takes a personal loan of Rs 100000 at an interest of 10% annually for a period of 3 years. Consider the rate of interest as flat for sake of simplicity and ease of understanding. Now, for a tenure of 3 years the total amount that Mr.X will have to repay would be

Rs 130000. The monthly EMI would be Rs 3612. Now, If Mr. X wants to repay the same loan in 5 years, his terms are likely to change. For longer tenure loan , the banks charge a slightly lower rate of interest. So lets assume his rate of interest for a 5 year loan of Rs 100000 is 9%. Then his total loan repayment amount would be Rs 145000. The EMi would be Rs 2416. Thus, you can see that for the same loan Mr. X would end up paying Rs 15000 (145000-130000) extra if the tenure is increased from 3 years to 5 years.

2. Longer Tenure reduces the rate of interest and EMI amount - In the above example, you saw that both the rate of interest and the EMI amount for Mr. X was reduced from 10% and 3612 to 9% and 2416 respectively. Thus longer tenures makes the loan EMI more affordable for a borrower. This is the benefit of loans with longer tenure. Loans with high sanction amount generally are of longer tenure to make the EMI affordable to the borrower. Example is housing loans where most of the loans are of upto 20-25 years tenure. But, the point to note is that even though , increase in tenure reduces the nominal rate of interest charged and makes the EMI more affordable, the overall interest component and the loan amount to be repaid is increased.

There are times when longer tenure makes sense while there are times when shorter tenure makes sense.

Longer Tenure Loans

1. In case of loans where the loan sanction amount is high ,like in case of housing loans , the EMI would be very high if the tenure is short. To make the EMI affordable , one must increase the tenure of the loan.

2. As a corollary to the above point, a longer tenure in the loan, increases the loan eligibility of the borrower. This is because of the fact that loan eligibility of a borrower is based on,among other factors, the EMI that he can afford. A lower EMI does increase his loan eligibility.

3. The value of money decreases over a period of time i.e. the purchasing power of rupee decreases over a period of time. In a potentially inflationary economy, longer term loans might make more sense as the depreciation in the value of the rupee would be more and in effect the money that you would be repaying would be lesser in real terms. But, it is very difficult to judge the inflation rate 10-15 years from now on.

4. Longer tenure loan can really hurt if you are looking to foreclose the loan in short time, since in loans with longer tenure, the first few EMIs , more or less goes towards interest servicing and as such when you foreclose the loan ,the loan amount would hardly reduced and you will have to pay the entire the loan amount along with the foreclosure fee.

Shorter Tenure Loans

1. Shorter tenure loans makes sense for people who can afford relatively higher EMI. Shorter tenure makes your loan cheaper since the interest component on the loan is lesser.

2. Suited best for people looking to foreclose or pay off the loan quickly.

3. Does not require long term commitment and as such is less of a strain on your future cash flow.

Hence, you can see that both have their own advantages and disadvantages and you must decide between them depending on your need.

MAKING EMI OR BILL PAYMENTS IN CASH TO A COLLECTION EXECUTIVE ? - CHECK THIS.

2009-06-25T10:52:00.001-07:00

It is not entirely uncommon to see people making payments of their home loan,personal loan EMI, credit card,mobile bill payments etc in cash to the collection executive who comes to collect the same at their office or at home. While there is nothing wrong in doing so, one needs to be little more careful and do some mandatory checks before making payments. The reason for this is that there are lot of cases of fraud reported , where the collector collects the money from the customer but never deposits it in the bank. At times, collectors collect the money from 5-10 customers at a time and run away with the money , while there also have been cases where the collection executive after being dismissed or after having quit the organisation, continues to collect the money from his regular customers . Obviously , this money is never deposited by him in the customer's account. These are the malpractices which have crept into a system which is meant for the customer's benefit.

As a prudent person, you can protect yourself from such frauds by keeping in mind following things:-

1. Always check the collector's ID Card- Whenever a collector comes to collect your EMI or bill payments, you must ask him to show you his ID card. This will ensure that you are dealing with a collector only who is authorised to collect on the bank's behalf. This will also eliminate chances of an ex-employee of the bank collecting money from you. Never make any payments to anyone without checking his ID card to your satisfaction.

2. Ask him to show you your account statement - Banks and NBFCs often give the account details mentioning the outstanding amount etc to the collector who is responsible for collecting payment from you. You must always ask him to show you the statement. It will help you find out the exact amount that is due by you to the bank and also will serve as second line of identity check for the agent.

3. Cross check the outstanding amount from the bank call centre - At times, collectors might not carry the account statement with them and use that as an excuse to collect more than what you owe to the bank. Though this is a remote possibility, but this can and does happen to people. As such, it is advised that in such circumstances it is better to cross check the outstanding amount on your loan from the banks helpline or call centre. These are 24X7 call centre and will provide you with the relevant details whenever you ask them for.

4. Always check the receipt properly - In lot of cases of fraud reported, it is generally found that the collectors use duplicate receipts to collect money . These duplicate receipts are then handed over to the customers which have no meaning and value. So, in order to avoid that you must check the receipts properly. Original receipts will be generally of better quality , will have banks logo in it along with the agency's name , will always have to be filled in duplicate( 2 copies , one for the bank and one for the customer) if not triplicate. Bogus receipts generally are not filled in duplicate (as in 2 copies). Also check the agency details as mentioned on the collectors ID card with the address mentioned on the receipt. They should be ideally be the same.

5. Ask for the receipt - This is very basic but most important nonetheless. You must never make any payment to anyone without taking the receipt from him for the same amount. Receipt of the cash paid is the only evidence that you have of having made the necessary payments.

6. Avoid paying foreclosure or prepayment amount to the collector - When you want to close your loan or foreclose it, you must always do so at the bank branch. You must never pay foreclosure amount or prepayment amount etc to an agent or collector . This is because the agents are not allowed to collect foreclosure money or amount from the customers unless the loan is a delinquent one. Even if you are a delinquent customer , you should avoid paying foreclosure amount to a collector. Always do it at the branch. IF at all you want to pay it to a collector , then you must do so only after he gives you a letter in writing from the bank officials (not from the collection agency) stating that on the payment of so and so amount your loan account with us stands closed as on today or something to that effect.

7. Keep the receipt with you -Last but not the least , you must keep the cash payment receipt properly with you. At times , banks might miss out on updating your payment in your account even though the money collected has been duly deposited by the collector. This could result due to various factors. In such cases, you will have to produce the cash paid receipt. Upon producing the receipt, the payment is updated and your account becomes regular.

NOW GET YOUR CIBIL SCORE FROM BANKS

2009-06-25T01:27:00.001-07:00

Banks and NBFCs use the credit scores from rating agencies like CIBIL to evaluate the loan or credit card application from its customers. Based on the credit scores , the banks/NBFCs take their credit underwriting call. For good customers having higher CIBIL Scores, the loans generally gets approved while for people having lower scores, the loan is denied.

But, the problem is that these scores are never shared with the customer. Unlike, in West, where every customer has access to his/her credit score, in India, this was not possible till now. But, now there is something to cheer. Now, as per the regulations, all banks and NBFCs are directed to provide the details of the CIBIL score to all such customers/applicants whose loan or credit application has been declined by the bank on the grounds of bad or substandard credit score. The customer can demand his/her credit score details from the bank. The customer,however, will have to pay Rs 50 towards this service.

This is small step in the right direction as this will make the whole process more transparent. Also this will increase the awareness about credit scores in India.

SHOULD YOU EVER PAY COMMISSION TO AN AGENT FOR LOAN APPROVAL?

2009-06-24T01:54:00.000-07:00

The banking and finance sector is structured in such a way that most of the banks and other NBFCs depend a lot on the channel partners for sale of their products. The channel partners like DSA and DSTs, even though are a different entity separate from the bank/NBFCs, have become an integral part of their distribution network. Bulk of the sales of bank's products like salary account, current account, home loan, personal loan, car loan etc happens through these channel partners. As such, sometimes they become the face of the bank to a customer and can yield great deal of influence over them. Using this influence , the DSA /DST executives sometimes charge a commission from the customer promising them that they will somehow "arrange" the loan from the bank for them.

Customers fall for these claims because of various reasons. Firstly because they see these agents as part of the bank/NBFC and as such assume that they might be able to influence the credit approval process in their favour. Second reason is mostly the desperation of the customers to get loan. They want the loan faster and as such do not mind paying a commission , if that helps them get the loan faster. But, the truth of the matter is that agents are not supposed to charge any commission from the customer since they are adequately compensated by the bank/NBFCs for their services. They are strictly prohibited from taking any money or commission from the customers on any pretext. But, most of the customers are not aware of this and as such fall prey to these money making tactics of few agents. Here, it would be necessary to say that all agents do not indulge in these malpractices. The scope of this article is to expose only those agents who are out to make money at the expense of naive customers.

Let me state the various reasons why you should never give any commission to any agent for your loan or credit approval.

1. Banks do not allow agents to take any commission from customers- Most of the banks/NBFCs have a policy whereby their agents are strictly prohibited from taking any money in any form from the customers on any pretext. Agents are hired by banks for soliciting customers and they are paid salary and incentives by the bank against their services rendered. Banks take strong exception to any complaints from the customer against agents in this regard . Agents are generally fired immediately after a customer complains against them ,for asking money, to the bank .

2. Agents have no control on the credit underwriting and loan approval process - Another important thing for everyone to know is that in most banks and NBFCs the sales function and credit underwriting function is completely separate with sales team having no or limited influence over the process of credit underwriting . As such, one must understand that the sales agent can not help influence the outcome of the credit underwriting process , even if he is paid money to do so. The money you will pay will just be pocketed by him , in case your loan gets approved, which would happen automatically under normal process if your case has merit.

3. Banks might deny you a loan if they come to know of this - In case banks come to know about you having paid money to an agent for getting your loan approved, they may view your case with a bit of suspicion , since paying money implies that you have something to hide or have some deficiency in your documents or in merit of the case. Also, it is assumed that customers who pay money to an agent as commission are more likely to be delinquent than others. Banks , obviously, do not want to lend to customers who are likely to be delinquent as such your case becomes weak if they come to know that you have paid money to the agent.

It is important to understand, that while you may be paying your agent money as a compensation for his services, banks consider this as you having paid bribe to the agent to "push" your case. This might go against you at times.

4. Agent might forge documents or signature - When you may commission to an agent , he has a vested interest in you getting a loan. As such at times, he might resort to malpractices like forging documents like income tax returns, salary slip etc on your behalf . At times he might also forge your signature. These things he would do to get your loan approved by "hook or crook", but you must understand that these are unlawful activities being done by an agent on your behalf which might get you in trouble.

Hence, it is always better to stay away from paying any money to any agent. The best strategy is to walk in personally to a bank branch near you and speak to an officer there. They will be more than happy to help you with the process and document requirements. This way , you may never have to deal with a DSA/DST agent.

INDIANS ,CHINESE AND VIETNAMESE AMONG THE MOST OPTIMISTIC PEOPLE IN THIS DOWNTURN

2009-06-23T23:46:00.000-07:00

According to a recent survey conducted , it was found that Asians believe that indulging in small luxuries is the best way to beat the downturn stress. 82 percent of respondents also believe that indulgence was the best way to beat the stress of modern life, and that spending time with family, short holidays, spa sessions and small luxury items were among their favourite ways to relax.Nearly 70 percent of respondents said life should contain as many luxuries as possible.

The survey also found that people from India, China and Vietnam were the most likely to shrug off the downturn, while respondents from the more developed Singapore, Hong Kong, Australia and Japan were the least positive about the future.

For more on this survey log on to www.greeyeon.asia

NFO - No Fun Offer

2009-06-23T00:58:00.000-07:00

New Fund offers or NFOs, as they are popularly know, are quite popular among lot of people for various reasons but the most important factor which is responsible for the popularity of NFOs is the notion among investors that NFOs offers units at a discount or at a cheap rate. They feel since NFOs offer units at NAV of 10 , they are better off investing in an NFO as against investing in other schemes where the NAV is higher than 10.The feel by investing an X amount in an NFO they will get more units and hence would be better off. This is completely wrong theory about NFOS and NFOs are in no way cheaper or better than other funds available in the market.
Let us examine this in detail . Now, the question that we need to answer is this : Do we invest in a fund to make more money /return or to buy a unit at lower NAV? the answer is obvious. There are various drawbacks of a NFO , some of which are mentioned as under:-

1. NAV of 10 does not mean you are better off - Return on any investment is determined by the following formula

Return = (NAV at the end of the review period-NAV at the start of the review period)/NAV at the start of the review period X 100
Now, let us take an example of Rs 1000 being invested in 2 funds . One is an NFO offering units at NAV of Rs 10 while the other one is an existing fund with NAV of 12. So the units that one gets in both the fund will be
NFO - 1000/10 = 100Existing fund - 1000/12 =83.33
Now , assuming at the end of 1 year the NAV of these funds are as under
NFO - 12Existing fund- 15
The returns in both these funds at the end of 12 months
NFO = (2/10)X100=20%Existing fund = (3/12)X100=25%
Total fund value at the end of 12 months
NFO = 100X12=1200Existing fund = 83.33X15 = 1249.50
So , you can see that in the existing fund, the returns are more than the one in NFO even though the NAV of NFO at the time of entry in the fund was lower than the NAV of the other fund.This establishes the fact that the return on your investment does not depend on the NAV of the fund when you enter into it. It depends on the growth in NAV during the time you enter and the time you exit. Hence, the notion of NFO being a better option simply because they offer NAV of 10 is completely false one.

2. NFOs have higher charges - NFOs have higher charges than an existing fund since they have to spend on marketing and sales promotion of the fund. A new fund is launched amidst much fanfare and all this cost money. Even the sales commission for an NFO is significantly higher than the existing fund and all this add up to increase the charges. NFOs have first year charge of 3-4% as against a charge of 2.25% for an existing fund. So, you end up loosing money in an NFO because of these unnecessary charges.

3. NFOs do not have any track record - The most important principle in mutual fund investing is that one must invest in a fund having proven track record of at least 3-5 years , if not more. This ensures that you are putting money in a good fund which has delivered goods consistently over a period of time. This reduces the risk for an investor to some extent. But,NFOs do not have any track record and as an investor you are pretty much taking a big chance with the fund. The fund may or may not do well. All NFOs do not tend to become great funds .

Since NFOs are in no way better than an existing fund , then the question is why are they so popular? They are popular because of NFOs offer companies to package their fund in a unique way and they also play on the mindset of investors that low NAV is better for them. An informed investor will stay away from NFOs and would invest in funds which have performed exceedingly well over 5-10 years. Why would you like to take a chance with a newcomer when you have a veteran ready to take care of your money.

TRADER OR AN INVESTOR - WHO WINS THE RACE?

2009-06-22T03:14:00.001-07:00

Remember the story about a tortoise and a rabbit competing in a race? In that race ,the rabbit , being more agile and fast , expects himself to win the race hands down against a slow but steady tortoise. We all know who wins the race in the end. We have the same race run on stock markets every day. We have traders and investors both competing to make more and more profit.

Traders are very similar to the rabbit who was fast and agile , while investors are more like the tortoise who made slow but steady progress. The end goal for both of them is same but the route that they take is different.

TRADERS - Traders are those set of people who make transactions in the stock market with a definite exit strategy. They initiate trade for short term and look to exit from the stock on making small gains. Sometimes, they can buy and sell the same stock 3-4 times in a single trading session, making smaller gains every time. They do not believe in "buy and hold" strategy.

INVESTORS - Investors are those set of people, who are looking to invest in a company stock for a longer period of time. They believe in the business fundamental of the company and are looking to profit from the dividend as well as appreciation in stock price over a long period of time. They have more patience than traders are in for a long haul.

PROS OF BEING A TRADER

1. Traders are considered to be businessman and as such they do have tax incentives. They can offset their losses in trading against any benefit /gain in future trades. They are also allowed busines expenditure deductions.

2. They make money faster than the investors. They do not have to wait for a longer period of time.

3. They can make money both in bull and bear markets by initiating trades accordingly.

PROS OF BEING AN INVESTOR

1. An investor makes money both from dividend declared by the company and also from the capital appreciation of the stocks over a period of time.

2. In India, there is no tax on dividend income and also on long term capital gains on stocks held for more than 12 months.

3. Long term wealth creation due to the power of compounding.

WHICH IS THE BEST STRATEGY? Both these strategies have their own merits and it depends entirely on you as to what do you want to do. Anybody looking to make money over a long period of time needs to stay away from trading. Also trading involves full time involvement of the person and a person having day job can not do it on his own. He can do it via a broker, but that will at into his margins. For common people, I think the best strategy even today is to buy good stocks with solid fundamentals and then hold it for 5-6 years at least to reap the rewards of dividend income and capital appreciation. The best and most famous investor Warren Buffet says" I buy stocks with a view of never selling it , I would buy the same stock even if the stock markets were to shut tomorrow for next 20 years". Besides, even in real life when it comes to money , its the tortoise which wins the race to financial independence more often than rabbits do.

CLAIM YOUR LIC BENEFITS FROM ANY BRANCH BY 2011

2009-06-22T02:08:00.001-07:00

India's largest life insurance company LIC , has unveiled a plan to make it possible for its policyholders to claim their LIC benefits like maturity amount, sum assured amount ,annuity etc from any branch , irrespective of the branch where he took his/her policy from.As of now , this is not possible since most of the branches are not interconnected.

LIC already has started taking premiums from all its branches and its policyholder can pay their premiums at any branch . In next 2 years, they will be able to take the claims /benefits etc also from any branch. This will be huge step in meeting the customers expectation of seamless delivery of service from LIC.

LIC has over 23 crore policy holders across the country . The digitization of record of these policy holders will ensure archival of physical records in electronic form and will eliminate risks of loss or damage to physical records due to natural and other disasters.

HEALTH INSURANCE PUSHING THE MEDICAL CARE COST UP ?

2009-06-21T01:13:00.001-07:00

Health insurance is supposed to be one of the first and foremost things that one needs to plan for while planning for his/her financial future. It aims to provide cover against any untoward medical expenditure that might come up in future. Health insurance is a very important and useful product,something that is usually recommended for one and all. But, these health covers also tend to have an unintended bad effect on the overall cost of medical care.

With the increase in penetration of health cover among vast majority of Indians, the hospitals have started to benefit greatly from this. The overall medical cost is on the rise . Let us examine in detail, as to how health insurance may be pushing the overall cost of medical care up ,especially in private hospitals/nursing homes.

1. People with medical insurance prefer deluxe rooms/hospitals - People having medical cover tend to go to hospitals which are expensive and are supposed to provide "deluxe amenities". The rationale behind this is the perceived value in things which are expensive. A hospital which charges high fees for its medical facilities is perceived as better than the ones which charge lesser. This consumer behaviour is the root cause why hospitals are getting bigger and more expensive with every passing day.While it is perfectly normal to expect the best , when it comes to medical care, the truth is that most of these so called "best hospitals" do not provide any tangible benefit which is different from other budget hospitals in the same area. The patients tend to opt for deluxe rooms which are expensive ,since they do not have to pay the bills themselves and its the insurance company which will pay up for them. Lot of patients may not really need the deluxe rooms or super deluxe facility , but end up using it. This rush for deluxe rooms/amenities puts pressure of hospitals to have more and more such rooms at the cost of general wards or budget rooms. And due to lack of enough budget rooms, many are forced to pay for deluxe rooms out of their own pocket (in absence of insurance cover) even if they can not afford it.

2. Every other expenditure is linked to the "room type"- The most important decision that one makes while getting himself or his patient admitted in a hospital is the room type that he chooses to stay in , because hospitals follow a very unique pricing model where they price all their services like nursing charges,doctor visits,operation theatre charges,operation charges etc on the room type that one stays in. this means a person staying in deluxe room will have to pay more for his operation as against a person from budget room or a general ward for the same operation. This pricing model is flawed and is aimed at milking the rich and people having health insurance cover. But, this affects people without insurance cover very adversely since they too have to pay as per this when they end up taking these rooms for lack of other rooms.

3. Overdose of medical tests etc - Hospitals are in essence, a for profit organisations ,and as such their primary motive these days has become earning more and more profit. In order to do so, there is a tendency among doctors and hospital staff to make the patient undergo as many tests as possible, some of which may be completely unnecessary. These test help them shore up the bills which are paid up either by the insurance firm or by the patient himself. The patient having insurance cover does not mind these tests as he equates more tests with better care . All these bills are paid by insurance firm which helps the hospital staff make decent money in the process. This practice initially started to milk the patients with health cover has now become a general practise which makes the whole process too costly for people without an insurance cover.

4. Insurance cover too will become costly - As a by product of this trend, the premium for health insurance cover too would increase in future. Since ,premium for health insurance is decided primarily on the basis of the perceived health risk of the insured, the cost of medical care in the area/city among other factors , any increase in the medical cost will subsequently increase the premium for such health covers as well. Thus the consumer will end up paying more to get the same cover in future.

Sometimes, even the best of actions have unintended results and this is one such case. The government and health officials need to get more involved in this sector by regulating it well so that the Indian medical care industry does not become as costly as its American counterpart has become.

GOOD LOAN V/S BAD LOAN

2009-06-20T00:58:00.000-07:00

Loan or credit , in India was regarded as not such a good thing to have by our forefathers. They always believed in living within their means .Taking credit or loan for them was a bad thing , something ,which they resisted at all times. However, things have changed over last generation and today, credit is not considered such a bad thing , anymore. In fact, in America, credit is much sought after and most of the Americans live off on credit. The level of debt that Americans have on their head is unparalleled.

Even in India, the penetration of debt is increasing. People are buying more and more on credit these days. But, the question that needs to be answered is whether or not credit is a good thing? Many argue that credit is vital for the economy at it creates demand for goods and services, thereby pushing growth in the economy. A growing economy in turn benefits everyone. The other school of thought is that debt is bad since it eats into your savings and your future earnings in a way are used up servicing the debt. This reduces your savings and investment ability thereby impacting your overall financial well being. Both these arguments have their own merits. My take from an individual's point of view is that credit when taken for productive purposes is always good while credit just for consumption sake is not good.

Like most other things, credit too is both good and bad. From an individuals perspective the credit taken for productive purposes is good credit while one taken for buying consumption item is bad credit.

GOOD LOAN- Loans like housing loan taken to buy a house for you is a good loan. It helps you get a house to live in which is a necessity. Also without your own house , you will have had to stay on rent ,which is an unnecessary expense. Housing loan helps you save on rent and build a long term asset. Similarly, education loan taken for financing higher studies,too is a good loan. It helps you get higher degree, which enhances your employability, and thus increases your earning potential. The money earned after acquiring higher education is much more than the money paid as interest on the education loan. The crux of the matter is that the loan which helps you earn or save more than the interest paid on the loan, is good for you.At times, there are medical emergencies where you may need to take loan. Eventhough these may not earn you anything in return monetarily, these are also considered as good loans, as they help you save life and life as we know is priceless.

BAD LOAN - Loans like sales finance loan, taken to buy LCD TV, second car, sports bike etc comes under this category. Other examples of bad loan would be personal loan taken to finance your holiday, loan taken for spending on lavish wedding etc. These loans do not add any monetary value and are meant only for consumption.You end up paying huge interest on these without earning/getting anything out of it. However, a loan taken for buying a truck to be used for commercial purpose is a good idea since it will earn you more than the interest that you pay on the loan.

So, next time when you are thinking about taking any loan , ask yourself if this is a good loan or bad loan? Go ahead with it if you think its a good loan to take , else you will do well to pay heed to our forefathers advice of shunning loans at all cost.

NOW NO ENTRY LOAD ON MUTUAL FUND INVESTMENTS

2009-06-19T02:16:00.000-07:00

SEBI in a sweeping reform has done away with the practise of charging "Entry Load" on mutual fund investments , by the AMCs. Till now, the AMCs used to charge an entry load of 2.25%, on the money invested , from the investors. This fee was used to pay the sales commission to the dealers and sales agents involved in sales and distribution of mutual fund schemes. But, there was no transparency on the amount of commission being paid by the AMCs to the sales intermediaries out of this 2.25% entry load.

Now, SEBI has removed this entry load and as such AMCs (Asset Management Companies) can not charge any fee to the investor when he invests in a fund. This will ensure that your entire money is invested in the fund without any deduction. As far as commission to the sales intermediaries is concerned , SEBI has made a provision where the investor directly can decide the amount of commission he wishes to pay the sales agent. The AMC will henceforth, be not involved in this. The commission will directly be paid by the investor and the amount will be decided by the investor. This offers scope of saving in the commission fee as well. The investor will now have to pay 2 cheques, 1 to the AMC and one to the agent for his commission.

The various advantages of these reforms are

1. The mutual funds will have even lower cost structure now.

2. More transparency in the sales commission paid.

3. More powers to the retail investor in deciding the commission he wishes to pay to the advisor or agent.

There are possible drawbacks as well of this move

1. Since 90% of the mutual fund distribution is through the sales intermediaries, reduction in incentive/commission might deter them from selling/distributing mutual funds.

2. AMCs might start charging higher exit fees to recover the loss of revenue due to abolition of entry fee.

NO PAN REQUIRED FOR SIP IN MUTUAL FUNDS

2009-06-18T02:47:00.000-07:00

There is a good news for all those small investors who ,till now, could not invest in mutual funds because they did not have a PAN Card. Since PAN card details were necessary requirement for anyone wanting to invest in mutual funds, a vast majority of small investors were kept out of this . The idea behind PAN card details being asked from investors was to follow KYC (Know Your Customer ) norms . KYC norms intend to eliminate the chances of money laundering.

But, now the regulation allows investment in mutual funds via SIP without PAN details as well. This is however permitted only till investment of Rs 50000. In banks too , the PAN details are asked only on deposit of Rs 50000 or more and in that respect this is consistent.

What this change will do is that it will bring a whole bunch of small investors, who invest in small amounts , into mutual fund fold. They too can save for themselves and invest in mutual funds , thereby reaping its benefits. This will also increase the participation of retail investors in mutual funds industry.

SAFEST AND MOST TRUSTED BANKS IN INDIA

2009-06-18T00:04:00.000-07:00

Banks have always placed lot of emphasis on trust factor in order to win over the customers confidence. People park their money with banks and as such would always prefer to deposit money in bank which they see as more stable ,trustworthy and fundamentally sound. As per the Brand Equity Survey conducted for most trusted brands in India, the results in banking space threw no major surprises.

The top 2 slots were taken by government owned PSU banks viz. State Bank Of India and Bank Of India. The third place was taken by ICICI Bank, which to my mind is a bit of surprise considering the numerous incidents of near run on bank, fuelled by rumours of insolvency , in the past. LAst year too there was rumour afloat that ICICI bank was near bankruptcy due to its vast exposure in mortgage securities in the west. This had led to situation of uncertainty among the banks customers. Infact, the situation was rescued only after both RBI governor and Finance minister making a statement in favor of ICICI bank's stability. The fourth spot was held by one of the most respected and profitable banks in private sector space in India, HDFC Bank.

Government owned banks are more trusted as government is the primary owner of these banks and the chances of these banks going bust is perceived much lower as against the private banks. Last year when most of the banks were struggling to get deposits due to liquidity crunch , SBI was having a field day. It managed to attract deposits daily to the tune of Rs 1000 crores /day, a feat which clearly established the fact that in difficult times, money takes a flight to safety and SBI being perceived as the most trusted and safe bank, benefited from it.

The complete list of most trusted banks by Indian consumers are

1. State Bank of India

2. Bank Of India

3. ICICI Bank

4. HDFC Bank

5. Central Bank Of India

6. Bank of Baroda

7. Punjab National Bank

8. Axis Bank

9. Kotak Bank

10. Citibank

11. Standard Chartered Bank

12. HSBC Bank

CAR INSURANCE ADD ONS - COVER ENHANCERS

2009-06-17T06:19:00.000-07:00

Generally the insurance companies pay upto 60-70% of the total repair cost of your car post an accident , under the car insurance cover. This is because the insurance companies pay based on the depreciated value of the car, do not pay for rubber,glass ,plastic ,fibre items etc. This results in significant monetary burden on the owner during car repair inspite of him having insurance cover. However, there are various add ons which are available in the market which will ensure that your cover on the car goes up and you are saved from the stress of paying for your repairs post any eventuality. Following are few of the options that one can look at

1. On Road Protector - Under this option, the insurance company pays for the assistance you might need in case of your vehicle getting immobilised post an accident. This will cost less than Rs 1000 per year.

2. Return to invoice - Biggest issue with vehicle insurance is that they tend to pay you the depreciated cost of the vehicle. So in case, you loose your vehicle to theft, you get depreciated value of the car while you may need to buy a new car. The insurance claim wont suffice then and you would have to cough up extra money to replace the car. However, under this cover, you will get the replacement cost of your vehicle as your claim amount.

3. Depreciation Reimbursement - This offers the full value of the parts which are replaced ,without any deduction.

4. Daily Allowance - Daily Allowance cover intends to meet the daily expenses of hiring another car till your vehicle is under repair in a garage. The rent for the vehicle is paid by the insurer.

5. Key Replacement - Covers the cost of replacing lost or stolen vehicle's or residence's keys or locks . This really comes handy when your residence keys gets stolen along with the car.

6. Loss of Personal Belongings - Offers to pay for the loss or damage to personal belongings that were in the vehicle at the time of loss or damage to the vehicle .

7. Repair of glass,fibre,rubber items as well - Under this add on, the insurer will pay for the repair/replacement of glass,fibre,rubber items in your car/vehicle as well, which is generally not paid for in a plain vanilla vehicle insurance.

8. Emergency Transport and Accommodation expenses - Covers the cost of overnight stay and taxi charges for returning to the place of residence, or the nearest city, if the insured vehicle has met with an accident and cannot be driven .

So, next time you are renewing your car insurance, think about getting some of these add ons to make your car insurance cover more extensive and meaningful.

BOUNCING OF CHEQUE - IMPLICATIONS

2009-06-17T00:10:00.000-07:00

According to the data available with Chief Metropolitan Magistrate, the incident of bouncing a cheque has seen an increase of 129% in Mumbai alone. One of the chief reasons cited for this increase is the current economic downturn and increasing job losses. But, irrespective of the reasons , bouncing a cheque is deemed as a criminal activity and can have serious repercussions on the guilty party. Lets understand the full impact that bouncing a cheque can have on the person guilty of it.

1. Is a legal offence and can get you in jail - Dishonouring a cheque is a criminal offense under Negotiable Instruments Act , punishable by imprisonment of upto 6 months. The affected party can drag you to the court in case you bounce the cheque drawn by you in his favour. There have been numerous cases , where court has punished the guilty.

2. Loss of credibility - For any honourable man in general and businessman in particular, his credibility and integrity is very dear to him. An act of bouncing a cheque results in loss of credibility and can seriously hamper the business prospects of a businessman. His future dealings with his creditors might be adversely impacted.

3. Bad credit history - An incident of bouncing a cheque does negatively impact your credit score (CIBIL,FICO ,SATYAM etc) . This credit score will go to all the banks and financial institutions and will be viewed negatively by them. Next time when you apply for a loan with them, they may not approve the loan to you or in case they do, they may charge you higher rate of interest as they will consider you as less reliable borrower.

4. Blot on your bank statement - Cheque bounces are also captured and recorded in your bank statements. Bank statements are required as a mandatory documents by all banks and financial institutions when an applicant approaches them for a loan. Any cheque bounces in your bank statement will make your case weaker and your chances of getting a loan might suffer a setback.

5. Cheque Bounce Charges - Bouncing a cheque also attracts direct monetary fine. Your banker will charge a cheque dishonour fee to you . And if you bounce an EMI cheque of another bank, then you will have to pay cheque dishonour fee to the second bank as well. So, bouncing one cheque can set you back monetarily as well.

6. You may have to pay more than the original amount - In case the other party were to take you to court on the issue of bouncing cheque and not paying his amount, the court may direct you to clear his rightful due along with an interest which is compounded . This can make the total amount payable to the other party by you a much larger sum than the original amount.

7. Bank may not issue you any more cheque leaf/book - Banks generally want to discourage people from bouncing cheques and as such they do ,at times, refrain from issuing fresh cheque book/leaf to the habitual defaulters in this regard.

In , the end, I am sure , you would agree with me that bouncing a cheque is something we should avoid at all costs as it can have very detrimental effect on us.

CHILD INSURANCE PLANS - PARENTS BEING TAKEN FOR A RIDE

2009-06-16T02:31:00.000-07:00

Most of the life insurance companies in India have at least one child care plan , if not more. Almost all the insurance companies spend lion's share of their advertising budget on promoting their respective child plans inspite of the fact that child plan is just one of the many life insurance products they have. HDFC Standard Life Insurance Company has positioned itself as premier life insurance company in the child care plan category. Almost all of its advertising communication is based on this premise. The reason why insurance companies promote their child plans heavily in India, is because of the fact that child care is an "emotional issue" for most of the parents in India, as much as its a financial issue . Most of the parents feel emotionally obliged to plan for their kid and this is where insurance companies hope to make a mark via their advertising. Nothing wrong in doing so. The question to be asked is whether or not these child insurance plans are good enough ? Do they really meet the parents expectation ? Are they really the best way one can plan for his/her child's future?

What is a Child Insurance Plan? Child Insurance plans are a type of insurance plan where the insurance company promises to provide a predetermined sum of money (in case of traditional plan) or percentage of the corpus(ULIP) at a predefined intervals to the policyholder. Along with this it also provides life insurance to the proposer with an option of premium waiver upon the death of the proposer (parent). There are primarily 2 types of child plans prevalent in India

1. Traditional Child Plans

2. Unit Linked Child Plans

1. Traditional Child Plans - These are like a normal endowment plans where the policy holder gets a predefined sum of money at regular intervals. For example, the policyholder might get 20% of sum assured when the child is in Std Xth, 25% when he is Std XIIth , 30% during graduation and remaining during PG. Upon death of the person paying the premium, the premium waiver option is activated and the plan continues without paying any premium. The survivor also gets the sum assured.

2. Unit Linked Child Plans - Under these plans, the payout is dependent on the funds performance. If the fund does well, the money payout is more whereas if the fund does not do well , then the payout would be less. The payout is generally defined in percentage terms of the fund value . The payout, here too, is periodically made like a traditional plan. The insurance and premium waiver facility too applies here.

Analysis of Child Plans

Lets analyse the child plans on basis of the following important parameters:-

1. Life Cover - Both the traditional and ULIP child plans need to have atleast a life cover as defined below

Sum Assured = Term * Annual premium / 2

2. Investments - In traditional plans , the money paid as premium is mostly invested in debt and money market instruments which are considered safe. They are generally not invested in equities and this is why the returns in these plans are guaranteed.

In case of ULIP based child plans, the fund is invested as per the policyholders wish . It can be invested in debt,equity or both depending upon the mandate received by the policyholder. The returns are dependent on the fund's market performance and is not guaranteed.

3. Returns - The returns of traditional endowment plan is very low at 5-6% pa whereas the returns in a ULIP is marginally higher at 7-9% pa. These are very low rate of returns for a product of such a long gestation period.

4. Flexibility of premature withdrawal - Most of these plans do not allow the flexibility of premature withdrawal at any time during the plan. Some plans do it but have restrictions on the number of times one can withdraw.

5. Cost structure - Both these plans have very high upfront cost structure. Some of these funds can eat away anywhere between 20% to 60% of your premium for first few years as charges.

Shortcomings of these Child Plans

1. These plans have a very high cost structure . They are the most costly investment tool from that perspective. Compare the cost structure of these plans which charge upto 60% of the first year premium as charges with a well diversified mutual fund which charges only 2.25% of the money invested as charges. The difference is too huge to be ignored.

2. Inadequate Life Cover - These plans also do not provide adequate life cover to the insured. One needs to have atleast 10 times of his/her annual income as life cover (Sum Assured) which can be met by taking a standalone term insurance plan, which is the best and the cheapest insurance plan one can ever take.

3. Poor Returns - The first and foremost reason , why one invests in these plans is to get a good return over his investment so that he can pay for all the expenses for his child's education , marriage etc. But, these plans fail you in this department big time. They give you a paltry return of 7-8% pa when you can easily get 12-15% pa returns on any well diversified equity mutual fund. Add to this the low cost structure of mutual funds, they will beat the returns of these plans by a huge margin. This alone should be enough for you to shun these plans.

4. Flexibility - The mutual funds provide unmatched liquidity and flexibility. One can withdraw the money at anytime he/she wishes unlike in the child plans where the payout is at defined stages. One can have an emergency anytime and as such , the flexibility of being able to use money is very important.

So whats the Final Verdict? The final conclusion is that investing in child plans is a big NO NO for me. Why would you invest in a plan which robs you of 60% of your money in the name of charges alone in the first year. Subsequent years too they keep eating away your money in the name of charges and give you paltry returns. Do not fall in the trap laid out by insurance companies. If you want to plan for your child then I suggest you should go in for a pure term plan and a well diversified equity mutual fund. Take term plan where the life cover is atleast 10 times your annual income and have 2 or 3 5 star rated(morningstar ratings) mutual funds . With this strategy you will always beat the returns that any of the child plans being sold by the insurance companies in the market. Remember one thing - Insurance companies are there to sell insurance policies not investment policies. Buy insurance from them not invest with them.

RAKESH JHUNJHUNWALA'S PORTFOLIO

2009-06-15T03:17:00.000-07:00

I am an ardent admirer of Rakesh Jhunjhunwala for his acumen and smart investment startegies over last 2 decades. He made a fortune for himself by investing in Indian Stock Market. This was at a time when investing in stock markets was still considered akin to gambling. But, as he proved , investing in stock markets require a strategy, deep understanding of the business fundamentals of the company you are investing in and loads of patiences. So , thought of checking on what Mr. Jhunjhunwala is doing today . How is he investing his money in these times and how does his portfolio lok like.

Over the past five quarters between January 2008 and March 2009, 48-year-old Rakesh Jhunjhunwala’s portfolio of publicly traded stocks, of firms in which he owns at least a 1% stake, has underperformed the benchmark index. His portfolio has dropped at least 60% in value, according to data from exchanges, while the Bombay Stock Exchange’s (BSE’s) benchmark equity index Sensex dropped around 52% over the same period.The Sensex has climbed back about 45% since, while Jhunjhunwala’s concentrated portfolio, which has largely been kept undisturbed, gained only about 15% over the same period.Jhunjhunwala, the founder of proprietary trading firm Rare Enterprises—named using the first two letters of his and his wife Rekha’s names—twice declined to speak for this story. Most of his portfolio picks are held under this firm, by himself and in the name of his wife.The most visible, albeit minor, changes made by Jhunjhunwala to his portfolio indicate a trend towards defensive sectors.

Top Holdings as on March 09

1. Aptech - 31.7% - Worth Rs 122.9 Cr.

2.Viceroy Hotels - 11.20% - Worth Rs 7.5 Cr

3. Titan - 8.8% - Worth 280 Cr

He purchased an additional 0.65 million shares in software firm Geometric Ltd, where he now owns a 7.27% stake, and 0.3 million shares of Agro Tech Foods Ltd, in which he held a 7.8% stake at the end of December. He also purchased 0.17 million shares of Karur Vysya Bank Ltd and 0.13 million shares of drug maker Lupin Ltd.On the other hand, he has cut his exposure to Hindustan Oil Exploration Co. Ltd, selling 1.4 million shares during the quarter ended March. Jhunjhunwala also sold about one million shares of Hyderabad-based Nagarjuna Construction Co. Ltd. He reduced the ownership in Pantaloon Retail (India) Ltd by 0.43 million shares and in Titan Industries Ltd by 0.12 million shares.

Apart from large investments in a concentrated portfolio and smaller investments in a larger portfolio of listed firms, Jhunjhunwala owns sizeable chunks of equity in several closely held entities through his private equity and venture capital- style investments.According to data published at the end of December, he owned at least a 1% stake in 31 firms, valued at about Rs1,466 crore.And at the end of March, he owned at least 1% in 27 companies traded on BSE that declared their latest shareholding details. Some of his portfolio stocks, including the pharmaceutical services provider Bilcare Ltd, pharma firm Zenotech Laboratories Ltd, publisher Infomedia 18 Ltd and water treatment firm Ion Exchange India Ltd, are yet to update shareholding details.Jhunjhunwala’s holdings in at least a dozen non-listed entities include the 16% stake in Diwan Rahul Nanda’s Tops Security Ltd, New Delhi-based A2Z Maintenance and Engineering Services Pvt. Ltd, Dharti Dredging and Infrastructure Ltd, Inventurus Knowledge Solutions Pvt. Ltd, Maneesh Pharmaceuticals Ltd, Nandan Biometrix Ltd and Concord Biotech Ltd, among others.

To be sure, Jhunjhunwala’s portfolio consists mainly of mid-cap stocks while the Sensex is composed of large caps.And, despite the beating his portfolio has taken during the downturn, people who have worked with this whisky and cigar aficionado vouch for the soundness of his overall strategy.“He has tonnes of patience and the temperament that makes him a rare stock market investor,” says Alok Agarwal, a Mumbai-based funds adviser who owns at least 2% in Aptech Ltd, a venture he started to provide computer education. At the end of March, the Jhujhunwalas held a 31.7% controlling stake in Aptech, valued at around Rs123 crore.It is this so-called temperament that, starting with Rs5,000 in 1985 has allowed him to achieve almost cult status with investors in a country where only 3% of the 1.2 billion population invests in equity markets.His investment strategy, followed closely by many individual investors, involves maintaining a steady portfolio of stocks with a long-term view while committing smaller amounts to the high-beta activity of equity trading such as day trading that tends to be highly volatile.Source:livemint

INDIA V/S CHINA - TARUN KHANNA's TAKE

2009-06-15T01:48:00.003-07:00

Noted Harvard Business School professor of Indian origin, Tarun Khanna had dealt with the subject of Indian Entrepreneurs and their contribution to the development of India in general. In this video , he compares the basic difference between Indian and Chinese society and how entrepreneurship is still growing amidst two very different socio-politico and economic environment. He argues that both India and China are chasing same destination of growth, prosperity and well being of its billions of population , but the road to this destination is different for both India and China.

He points out how in India, the individual rights of every single citizen is considered supreme , sometimes at the cost of the overall good of the society, while in China, its the greater good of the society, which takes precedence over the individuals right. In essence, India is more democratic society than China which believes in upholding the rights of its citizens at all costs.

In India, its the vibrant and dynamic private enterprise which is fuelling the country's growth in spite of all the bottlenecks, while, in China, its the government which is the real agent bringing about change and growth.

While India is hailed as the largest democracy in the world, it is far from being the best functioning democracy like United States. While in US, its the rich and affluent who come out and vote in large numbers, in India , its the opposite. Chine on the other hand, though is a communist nation, has shown greater tolerance towards free enterprise and this is something which might make China the next superpower of the World.

What Would I Prefer? I would like to see India continue to have democratic set up which makes the government accountable to the public, but at the same time, would want government to take a leaf out of Chinese government's book. They must take greater interest in social sectors like health , education etc. Infrastructure has always been a bane to India's growth prospects and as such government must place greater emphasis on infrastructure delivery in the country.

There is crying need for reforms in the Indian bureaucracy , Indian Judicial system, Police reforms etc . All this will help grow the spirit of enterprise among the millions of Indians which holds the key to India making it into the league of developed nations by 2020.

"GET RICH QUICK SCHEME" - NO SUCH THING

2009-06-13T23:29:00.000-07:00

Last one month has been an eventful one with news on "thugs" and cheats like Mr. Jadeja, B.K. Jewellers of Delhi, Mr. Agarwal etc who duped unsuspecting people to the tune of thousands of crores of rupees. Cheat Jadeja alone is suspected to have duped people to the tune of Rs 2000 crores. These are huge sums and have impacted thousands of people who have been robbed of their hard earned savings almost overnight. These are not the first incidents of this nature in India or world. These schemes or frauds have been in there since a long time. The recent Madoff Scam unearthed in US too is a part of this list. Madoff was a well respected investment advisor handling billions of dollars of investment for his clients till his real motive and modus operandi was revealed.

Modus Operandi - So, how do these cheats manage to dupe people so easily and how do people get in their trap. Well , the modus operandi of all of these thugs is to play on the "get quick rich" desire of the common man. Every one wants to get rich quickly and is always on the lookout of such magic scheme or opportunity. These cheats work on this mentality and promise the common man/investor unbelievable returns on their investment. For instance, Jadeja used to claim that he would give 200% return on people investment. B.K Jewellers of Delhi had a scheme where people were promised Rs 26 Lacs on an investment of Rs 13000. Now , you can do your mathematics and find out the rate of return on these investments. These returns are far too lucrative and thus the common unsuspecting man blinded by the lustre of returns gets into their trap.

Now these scamsters , in order to get more and more people to invest with them , do honour their commitments initially for some time. This way they are able to win the trust of more and more people who then invest in large numbers with them. And to answer , your question on how do they manage to pay off such huge returns even for few people initially , then the answer is that they simply pay one person the money they collect from 10 others. This way they keep paying the earlier person by taking deposits from the new investors. This is called "Ponzi Scheme". This is the basic modus operandi that all these fraudsters operate on.

How to Spot these Ponzi Schemes?

1. Stay away from "too good to be true" schemes - We all have heard that "if there is something too good to be true,it probably is" . Remember this. There is no such thing as "get quick rich scheme" without the risk associated with it. We can not get astronomical returns on any investment without taking astronomical risks in it. So, if anyone tells you that you will get huge returns without any risk, then you should just walk away from that deal since it is simply not possible.

2. Always ask the business model - Most of the people investing their money with B.K Jewellers or Jadeja did have no clue as to how their money will get double or triple in such a short time. They felt that these schemes will somehow give them the promised returns. This is where the problem starts. You must never invest in any scheme whose investment or business model you do not know. For anyone to get any return on investment , the money needs to be put to some productive use and only then the returns can be earned. Find out about all of this when you invest with any scheme. Wherever, there is uncertainty or lack of clarity , you must get cautious.

3. Any good scheme offering great return will hardly be unknown - If there is indeed any genuine scheme offering huge returns, then do you think it will be unknown in this world of hyperactive media. Wont the company promoting such scheme itself will go hammer and tong promoting the scheme all over the media? Why will the promoter be cagey about such scheme? Why will this be limited to select few people if indeed there was a way to generate huge returns from money invested? The truth is that most of these scams are successful, because they are not promoted heavily . The promoters tend to target a select few with these schemes, get their money and elope with it.

4. Do proper research about the scheme - As a thumb rule , before putting your money into any investment tool, you must do your research . You must try to find out about the scheme/tool from the company, its present customers, internet, newspapers etc. The best way to find out about any thing these days is internet. Use google to find out all the related news about the firm and its scheme. Chances are that you will get a fair idea of the scheme from the net itself. Any scheme whose details are not there on Internet, you must stay away from them.

And lastly, the onus of putting your money to good use is on you. We all work hard to earn every penny and we should not put our hard earned money in the hands of any person without doing the due diligence.

GUIDE TO FILING YOUR INCOME TAX (IT) RETURNS

2009-06-13T01:18:00.000-07:00

With the Income tax return filing deadline of 31st July fast approaching, its time for you to brace yourself to file your tax returns. Following are the important things that one must keep in mind while filing his/her tax returns:-

1. Who needs to file the tax returns - All corporates and individuals whose income is within the taxable income slab need to file income tax. For those individuals whose total annual income is less than the taxable income (currently Rs 1.5 lakhs pa for men and Rs 1.8 lakhs for female) need not file income tax returns. However, in case your net tax liability is 0 after availing the various income tax deductions under Sec 80C and Sec 80D etc, then you are required to file your income tax returns.

2. When is the last date for filing your income tax returns? For all those who have tax liability yet to be paid , have to file their income tax returns by 31st July . However, if you are a salaried person and have all your tax liability already paid via TDS , then you may file your tax returns till March 31st 2010.

3.What if you fail to file your returns within the stipulated time? If you fail to file your tax returns by March 31st 2010, then you will have to pay a fine of Rs 5000 as per IT Act. So, please stick to the time lines to avoid this.

4. What are the documents required? For , salaried people, the Form 16 provided by the employer is the most important document which is required for filing income tax returns. In case of interest income from FD, investment in shares etc, the documents supporting that needs to be submitted.

5. How can you file your returns? You can file the income tax returns yourself by filling the relevant documents and forms. However, in case you are not very comfortable with the accounting principles etc, then you may take the help of a qualified CA as well. CA will take care of end to end process of filing tax returns for you. They may charge anywhere between Rs 200 to Rs 1500 for this purpose.

6.Where else can I get help? There are around 3,500 registered TRPs in India who are authorized to file tax returns of any individual whose income is not subject to a tax audit.Though they get a nominal amount from the taxman for filing of returns, many TRPs charge clients for their services.

7. Can I file IT Returns online ? Yes. You can also file your Income tax returns online . You will need a digital signature for this purpose .Tax websites can help you generate the ITR form once you enter particulars of your earnings and savings in the web-based form. These websites offer various packages, ranging from 100 - 750 rupees, depending on the type of income declared and mode of submitting the return finally, electronic or manual. There are various sites which you may use for this purpose like myitreturn.com, myitfile.com, taxsmile.com, taxspanner.com, filemyreturns.com.

8. Why Filing Income tax returns is necessary ? Income tax returns are necessary for each one of us to file because it is mandatory exercise for all of us . Government of India requires everyone whose income is within taxable income bracket to file their returns. Besides the legal requirement, your Income tax returns will come handy as your income documents while applying for a loan with banks. Most of the banks will ask for Income Tax returns as your income document when you apply for a home loan or personal loan etc with them. Income tax returns also is needed to arrive at your life insurance cover limit when you go for a term plan.

MONEY IS CREATED BY GOVERNMENT , RIGHT? WRONG.

2009-06-12T00:18:00.000-07:00

Have you ever thought where does the money that we use come from? Most of us believe that money comes from the government's printing press ,mint, which prints the money in circulation. Right? Wrong.

What if you were told that money is created NOT by the government but by the banks OUT OF THIN AIR. You would most certainly be bewildered and would shrug this as figment of somebody's imagination. If you feel this way, then you will be shocked to see the following video.

It explains the origin of money from "Debts" and how banks create money out of debt that you and I take from them. Most of the money created by banks and in circulation isnt really backed by anything of substance unlike in earlier centuries when money was backed by finite physical commodities like gold silver etc. But, now money is not backed by any physical assets and this allows creation of money by banks to the extent of debt they lend out to the market.

The video also will give you an insight into why this mortgage crisis has feared the bankers and the politicians alike and why governments the world over can not allow banks to fail. It starts by explaining the origin of money and the banking system . It then explains how the bankers started manipulating the monetary system for their advantage to the extent that the whole world today is in their grip. It also explains why debt is an important aspect of money creation and why governemnt is always in debt to the banks when it is supposed to have the control of money printing mint.

BANKERS ARE BEING FORCED TO REDUCE RATES - USE THIS OPPORTUNITY

2009-06-11T00:07:00.000-07:00

We often see that every time RBI governor is seen in public addressing any gathering, he never misses an opportunity to state the fact that lending rates have not been lowered by Indian banks as much as RBI would have liked them to do . Despite aggressive lowering of benchmark CRR,Reverse repo rate and repo rate by RBI, the lending rates have not been reduced by the banks to the common man. The reason for this , as bankers argue , is

1. The deposit rates are still high and any fall in lending rates will happen only when the deposit rates come down. This is because banks operate of margin between deposit rates and lending rates and they can not have high deposit rates while reducing the lending rates. Though the deposit rates have indeed come down, and are more likely to come down further, they still are not at 2005-2006 levels.

2. The risk perception among bankers is still quite high. They still are wary of lending at low rates as perceived risk is higher in the broad economy. This is because of the bad global and local economic conditions. This is more of sentiment driven thing than based on pure facts. A 6.7% growth in GDP does not by any stretch of imagination indicate that the economy is in bad shape. However, whatever has happened in the western financial world , indeed has affected the way Indian bankers are going about extending lending.

3. The risk of rising NPAs in future. There is widespread belief among the financial gurus that Indian banking sector will have to face the problem of rising delinquencies going forward and as such banks need to provide for rising potential losses in future. this too , limits their ability to lower rates.

However, with Finance Minister, himself urging the banks to lower rates, there is little doubt now that banks will follow suit. This means that there are good times ahead for the retail customer, farmer,industrialist etc. Lets examine how lowering of interest rates affect the various sections of the society:-

1. RETAIL CUSTOMER

a. Lowering on interest will mean lower EMI on his housing loan. He can save extra on his existing EMI.

b. Lower EMI will help him buy his new home, car , durables etc which he was not able to till now because of the prohibitive interest rates.

c. Lower interest rates will also in all probability bring down the deposit rates. So he wont get as much as he was getting on his FD earlier. This is especially bad news for all retired people who have their retirement fund put in fixed income deposits . With lowering of rates, there monthly income will fall.

d.The extra money saved on your housing loan EMI can be invested in recurring deposits which will acts as a good savings for you over a period of time.

2. INDUSTRIALISTS/CORPORATES

a. Lower interest rates will greatly help the industrialist as lowering of interest generally gives a boost to then overall demand for goods and services in the economy. With lower rates people will have to pay lesser than earlier on their high ticket purchases like home, car etc and will be able to buy more.This will help the bottom line of the companies as well.

b. The increased bottom line and performance will reflect in the stock prices of the company on BSE and NSE. This will further increase their market capitalisation . Increased market capitalisation will result in higher net worth of all the stakeholders in the company.

c. Lower rate facilitates growth in the economy and growing economy attracts foreign investment. This makes capital raising and access to capital easy for corporates.

The above mentioned are just few of the benefits that a lower interest rate regime offers . But, this can not be sustained over a long period of time because a prolonged regime of lower rates increases the liquidity in the economy which results in inflation over a period of time. And inflation starts eating away the purchasing power of the currency and hence the RBI steps in to increase the interest rates again. So, essentially its a cycle. Rates will go up and will come down in a cyclical pattern depending on the various factors governing the economy. As a normal person, we need to ensure that we make all our high ticket purchases when the interest rates are lower because after a point they will go up again. Now is the time when interest rates are headed south. So , one must make good use of this opportunity. Buy your dream home now if you have to else the home loan rates will again start inching back. Home loan rates are already at 8% pa by SBI. They may fall by 50-100 basis points more but no more. Hence , its time for you to go hunting for your dream home on finance.

WHY INVESTING IN ULIPS JUST FOR TAX SAVING IS NOT A GOOD IDEA

2009-06-08T10:04:00.000-07:00

ULIPS or Unit Linked Insurance Plans are quite popular in India as a tax saving instrument which offers the dual advantage of insurance cover and superior market returns. While it seems a good proposition in the beginning , a closer and detailed study will tell you that this may not be the best option for you if you are looking at this as just a tax saving investment.
ULIPs , in India, are primarily sold by insurance agents as a product with just 3 years lock in after which the policy holder need not pay any premium and the policy continues .They also wrongly pitch ULIP as a product where the policyholder can withdraw the money whenever he needs after 3 months. While this is true there are certain things which you the agent never tells you. While investing in a ULIP fund for 3 years , you hope to

1. Save income tax on your investment for 3 years.

2. Make some decent returns on your investment.

3. Withdraw after 3 years which will be good returns over your investment.

4. Or continue the plan without paying any premium and then withdraw the amount as and when required.

These are the premises on which an insurance agent sells you the plan. However, if you invest in ULIP only for 3 years ,other than saving income tax, none of the above mentioned goals will be fulfilled. The reason for this is explained in the following paragraph.
ULIPS are notorious for being the investment tool having a very high upfront cost structure. The insurance companies will charge anywhere between 20-50% of your first year premium in the name of charges. There are various heads under which these charges are shown like mortality charge,admin charge,policy maintenance charge etc. Now over a 3 year period you end up paying huge amount of money towards meeting these charges , as a result of which the net money which is invested in the fund is much lesser than what you paid as premium. For example , if you paid Rs 100000 as premium and the ULIP has even a moderate cost structure at 35% for first year , you will have only Rs 65000 invested on your behalf by the insurance company . So you loose Rs 35000 as charges alone.
Now lets examine the savings or gains out of this investment. Assuming that you are in the highest tax bracket (Rs 5lakhs and more annual income) and your entire Rs 100000 invested in Ulip qualifies for tax deduction , then at tax rate of 30% you will save Rs 30000. And then assuming that the money was invested in debt fund (since you are looking to withdraw in 3 years time , debt fund is the most likely investment) the returns would be about 7-8% at best. So you will get another Rs 5200 on your investment. So total gain would be RS 30000 + Rs 5200 = Rs 35200.So, overall you gain Rs 5200 only on your 1 lakh invested in ULIps for the first year. Now , if you were to consider only the return on your investment discounting the tax saved, you actually end up loosing your money. Similarly, after 3 years, when you remove your money you will have to pay penalty and most probably loose some more on withdrawal since ULIP is a long term product. You can do your maths,depending on the charges mentioned in the policy documents, but, my guess is you will have to be extremely lucky to make any money in real terms on your investment in ULIP, if you were to remove the money after 3 years.
As far as continuing the policy after 3 years without paying premium is concerned, you can do so but, the company will keep on deducting the mortality charge (the premium paid towards providing life cover ) from your fund value. As a result of this , the fund value will keep on going down and unless the growth/returns in the fund is much higher than the mortality charge, the fund value will keep coming down in absolute terms. So , while the life cover will continue even after you stop paying premium, its not like that the life cover you get is free . You are still paying for it from your fund value kept with the insurance company. Hence, stopping premiums after 3 years is not a very wise decision . The concept of premium holidays are there to help policyholders in times of occasional financial distress where the policy does not lapse in case the policyholder misses one odd premium unlike a traditional endowment plan which lapses the moment one defaults on premium payment.
Coming back to the question of investing for tax purpose and for short duration, my pick would be ELSS. The reason for that is that ELSS do not have that high cost structure unlike ULIPs. They also do not have very high exit charges and there are no mortality charges as well. For any insurance needs one should buy a pure term plan.Investing for tax saving requires little bit of research and thought behind it. Do not invest your money only to save tax. There are instruments available which save income tax while offering you decent returns as well.

HASSLE FREE HEALTH INSURANCE CLAIM - POSSIBLE

2009-06-06T01:27:00.000-07:00

The stories about the health insurance claims being denied by the health insurance companies are not new. The claims are generally denied because of :

1. The disease being mentioned in the excluded diseases list.

2. Misrepresentation of facts.

3. Frauds of any kind.

4. Claim not done in proper and stated manner.

5. Claim done post the specified time period

However, the insurance companies sell these health policies in order to honor claims of the rightful policyholders . There are few things that as a policyholder we can do to ensure that our health insurance claim is not denied.

1. Never mis-represent or hide any facts - First and foremost thing that we need to do is to ensure that we are disclosing every relevant information and details in good faith to the best of our abilities. Hiding any fact will work against us as generally companies will come to know about any medical fact not been disclosed by you and then they will deny the claim.

2. Inform the insurance company about your planned /unplanned hospitalisation - One must inform the insurance company withing 24 hrs of an unplanned hospitalisation and 3 days prior to the hospitalisation in case of planned one.

3. Always carry the health card with you - Health card carrying your unique number is a must for all cashless claims as it will be required by the hospital to get the cashless claim approved from the insurance company.

4. Ask for originals for reimbursement - In case of reimbursement of claims , you need to take every bill and other supporting documents from the hospital in original . These original documents will have to submitted to the hospital for reimbursement.Generally the following claim documents (originals only) are to be submitted to the insurer within 30 days from the date of discharge:

1. Duly-filled claim form along with the doctor’s certificate (forming part of claim form)

2. Discharge summary

3. Bills and receipts (including advance and final receipts)

4. Prescriptions for medicines and doctor’s advice for lab tests

5. Diagnostic Test Reports, X Ray, scan and ECG and other films

5. Be ready to pay for non-admissible charges- Some charges like telephone bills, photocopy charges etc is not paid by the health insurance company and as such must be paid by you.

6. Find out the limit for room charges under your policy cover- The hospital room rent that is paid by the insurance company is clearly defined in the policy cover and is generally a function of the total health cover . In order to avoid any surprises later, it is always best to find out the room tarriff allowed under the plan and stick to it. Else the difference in tarrif will have to be borne by you.

7. Escalate the claim request in case of denial - In case your claim is denied inspite of it being submitted with all documents and the disease being part of the policy cover , then you must escalate the matter to the higher officials in the insurance company. At times , this will work in your favour. And if it does not help you get the claim, then you might consider approaching the Ombudsman . You will have to make a written complaint to the ombudsman who will take up your matter with the insurance company.

GET MORE OUT OF YOUR SAVINGS/CURRENT ACCOUNT

2009-06-05T02:54:00.000-07:00

While most of us do prefer to put our money in bank savings account for the safety and convenience it provides to us. But somewhere within us we all secretly wish for a better return on our money in savings/current account than measly 3.5% pa on savings account being paid by banks today. To precisely meet this aspiration of depositors, the banks are now offering "hybrid" products which aims to offer the safety and convenience feature of a savings account and high returns of a fixed deposit account. Hybrid products are meant to help people make more money out of their deposits in banks savings/current accounts.

There are primarily 2 kinds of products offered here by banks:-

1. Sweep In Facility

2. Auto Sweep facility

1. SWEEP IN FACILITY
Sweep-in facility is one facility offered by banks where a savings or current account is linked with multiple FDs in the same bank. HDFC Bank’s facility is a typical example. You would need a savings or current account and FDs that are to be linked, in the same bank. Any deficit in your savings or current account will be met by a withdrawal of an exact value from your FD. Since deposits are broken down in units of Re 1, you will lose interest only on the actual amount withdrawn from the FD.In the auto sweep facility, if more than one FD is linked, the last deposit made under the scheme will be used first to meet the shortfall. If this isn’t adequate, then the deposit made prior to the last deposit will be used, and so on.

Benefits of Sweep In

- Increased flexibility to use your FD money without actually breaking the FD .

- No penalty on breaking the FD

- No need to visit the bank every time you want to use the FD amount to break the FD.

- More interest on your money,since, the remaining money in FD continues to attract FD rates.

2.AUTO SWEEP FACILITY
In Auto sweep facility all you need to do is mention a threshold limit. Any amount above the limit will be converted into an FD in multiples of Rs 5,000. The linked FDs are by default of one-year period or you can go for a period of your choice. Interest rates are as revised by the bank from time to time. Maturing deposits are renewed for a year or for a period of your choice at the interest rate prevailing on the date of renewal. ICICI Banks Auto Invest account is an example.

Benefits of Auto Sweep

- Higher effective rate of interest on your money.

- No need to give extra instructions to transfer money from savings account to FD.

BANKS OFFERING THESE HYBRID PRODUCTS
1.HDFC BANK,Kotak,IDBI,Indus Ind - Sweep In facility - A deficit in savings account is filled from an exact amount from FD.

2.Flexi Fix Deposit - Bank Of Rajasthan ,Oriental bank Of Commerce -Operative Savings or current account is linked with FD.

3.Smart Saver Account - Yes Bank - High returns from FDs and liquidity of savings account.

4.Multi-Option Deposit Scheme - State Bank Of India -Combines savings or current accounts with savings.

5. Savings Plus account- Bank OF Baroda.

10 STEPS TOWARDS FINANCIAL FREEDOM FOR A YOUNGSTER

2009-06-03T02:07:00.000-07:00

Financial planning is important for people of all age, young or old ,but it assumes extra significance for young people because it can make a huge difference to their finances, if done in the right way. There are many elements involved in financial planning , but, here I am listing down few broad steps which every young person must take in order to have a healthy financial position over a period of time.

1. Start Saving early - One of the most common mistakes all young person commit with respect to their financial planning is that they do not start saving early enough. Most of them think that since they only have started earning now , its time for them to enjoy with their money. While there is no harm in enjoying a bit, one must also ensure that he/she saves a bit out of his /her income every month. Saving is a habit and the earlier one develops it the better it is for him.

2.Try and save every penny paid in tax- One must also ensure that he saves every possible penny of tax that can be saved . Tax can be saved by investing in tax saving instruments like ELSS,ULIP,PPF , NSC ,etc. This will not only ensure that your tax outflow will be less but will also get your "saving habit" going.

3.Invest for retirement now - Young age has its own charm and it is hard to imagine a young person worrying too much about old age or life post retirement. But, a prudent young man will do so and he will also start building his retirement nest from day one. The key to healthy retirement corpus is starting early with investing.

4. Give equities a chance - Equity is known to give far superior returns over any other instrument over along period of time , but, can be risky in short term. Still there are quite a few youngsters who are not very keen at equities and are either totally out of equities or are under invested in it. Since youngsters have time on their side , investment in equity is a must for them . This will help them reap the benefits of higher returns in long term. How much should one invest in equities? The answer is 100 - age = % of your investment in equities. So , if your age is 32 years, then you must invest 68% of your overall investible surplus in equities and rest in debt.

5.Diversify your investment - One can never overemphasise the importance of diversification in one's portfolio. One must strive to have a diversified portfolio comprising of well diversified equity mutual funds, direct equity,balanced mutual funds,debt mutual funds, FD,PPF, gold,real estate etc . Diversification will ensure that your portfolio returns are not adversely affected by downturn or bad performance in one of the funds or sectors.

6.Take Professional help- If you do not understand finance and investments yourself to the extent of making an informed decision regarding it, I would suggest consult professionals. Do not make your investment decisions based on tips or advice from friends. Investing in mutual funds is a good way of taking professional help since mutual funds are managed by professional fund managers. Also you may consider taking help from a Certified Financial Planner.

7. Buy Life Insurance - As a young person , you have your whole life ahead where you will be earning and as such you need to have a good life insurance policy for yourself . Buy any good term plan having life cover of at least 10 times your annual income. This will ensure that in the unfortunate event of you not being around tomorrow, your dependents are taken care of.

8.Never withdraw from your Provident Fund - As a thumb rule, you must never withdraw from provident fund. Even when you change jobs, get the PF transferred to the new employer. Withdrawing the PF money will result in you loosing the tax benefit and the whole money will be paid post tax deduction. Also PF is meant for retirement and as such treat it that way. it is kind of forced saving towards your retirement corpus and government is helping you in doing this by giving tax breaks on it. Use it for your benefit.

9. Have an emergency Fund - You must also have an emergency fund to take care of any unforeseen expenditure or circumstances like job loss etc. Have at least 6 months of monthly expenses as your emergency fund.

10. Do not take loans which you do not need - You must never take a loan which you do not "really" need. Loans like Sales finance loan for buying LCD TV, Laptop or taking personal loan to fund a holiday etc must be avoided at all costs. Debt free life is priceless and you must not let this go for things which you can manage without. Buy LCD TV or laptop or holiday trip but out of savings and not on credit.

TAX IMPLICATION ON GIFTS TO RELATIVES

2009-06-02T00:16:00.000-07:00

We all do indulge in the practice of giving and receiving gifts both monetary and non monetary. But these gifts at times can attract income tax on it and as such one needs to know the exact tax treatment of gifts both in the hands of the person gifting and the person receiving the gift.

Gift to wife or spouse - If you make a gift in kind or cash to your spouse then it is not taxable in their hands. However, any income generated by the gift in kind or cash shall be treated as your income.

Gift to fiance - Any gift given in kind is tax free. However , cash gifts are tax free only till Rs 50000. If the gift amount exceeds Rs 50000 then the entire gift amount is taxable in the hands of your fiance.

Gifts on marriage - All gifts received on wedding are tax free. There is no monetary limit attached here.

Gifts to parents - Any gift in kind or cash is tax free in the hands of your parents and does not lead to any tax liability for you either.

In all the above cases, one needs to record the gift being given by one party to the another in writing on a simple paper.

MY ARTICLE IN CARNIVAL OF PERSONAL FINANCE

2009-06-01T06:36:00.000-07:00

My post " 8 Reasons why you should shop at Malls" has been featured in Carnival of Personal finance. Please read the post by clicking here.

SINKING FUND - PLANNING FOR BIG TICKET PURCHASES

2009-06-01T06:11:00.001-07:00

In our daily lives, there are few items which are high ticket items like Car, LCD TV, AC etc . Other than that there are other expenses also which are large ones like paying the renewal premium of your life insurance plans etc. Now each of these products do require a significant amount of money to first buy them and then replace them as and when required. None of these items last life long and as such will have to be replaced at some point in time.

In the absence of any planning towards meeting these expenses , the renewal/replacement of any high ticket items can place undue stress on the your finances. And as such you need to have a sinking fund.

What is Sinking fund?- Sinking fund is a fund where a small amount of money is saved regularly towards meeting a large ticket expenditure like buying a new car or replacing an old car etc. It is similar to a depreciation fund used by corporates where they save a percentage of the cost of buying new machinery in the depreciation fund so as to be able to buy the new machine without any problem. We all need to have our sinking fund to meet the expenses of our big ticket items.

What is it meant for?-To ensure that a person does not have to suffer from the stress of making large payment at once for high ticket item like car insurance, new car , new TV etc. It will ensure that you would have saved enough to pay for these expenses without any trouble or stress.

How does it work?- Save small amounts regularly separately for a specific purpose.You can open a separate bank account for this and make SI for the amount to be saved.

How is it different from Emergency fund ?- Emergency fund is not meant for any specific purpose. It is meant to be used in case of some crisis like job loss etc while sinking fund is used to save for a specific purpose.

TIPS FOR BUYING DREAM HOME ON FINANCE

2009-05-31T00:09:00.000-07:00

"Food, Shelter and Clothing" has been defined as basic needs of a human being and out of the three the one that is hard to come by is shelter or one's own home. In India, buying a home is dream for most of the people because of the high cost of transaction along with several other factors. However, with the availability of home finance , the dream of owning one's own house is becoming increasingly possible for many . If you too are thinking of having your own "dream home" on finance , then you must take care of few things so that you are not short changed by anyone in this process and also your dream home actually turns out just that.

There are broadly 2 activities for anyone wishing to buy a home on finance. First , he needs to identify the property he wishes to buy and second is to arrange for finance. The various things that one needs to check in the whole process is as under:-

A. IDENTIFYING THE PROPERTY

The first and foremost step towards owning your own dream home or house is to identify it. The various things that will go into identifying your dream house are

1. The property should be as per your family requirements-For example a family of just husband and wife might need 1BHK (Bedroom hall kitchen) or 1RK(room kitchen) while a family of four might require 2BHK. So you must keep the family size and the area you need while identifying the property.

2. Your Budget - You must also have a clear cut budget defined for your house. This will help you narrow down the potential properties which fit in your budget. Your budget should be the one which you can afford without really stretching yourself too much.

3. Proximity to office and school- Your home should ideally be near your work place and kids school. This will reduce the travel time and will help you lead a much better and stress free life.

4. Society and security arrangements - You must also find out about the society in general (CHS) and the security arrangements in place in the CHS. For example, an affluent businessmen may not be very comfortable in living in a society of lower divison clerks working in government office. Similarly the security aspect can not be overemphasised.

5. Check the approved plan of the building - You must also check the official approved plan of the building. Ask for the approved plan copy from the builder and check if the building is as per the plan. This will avoid any chances of the property being declared illegal by the govt in future.

6. Check for occupancy certificate - Before taking possession of the flat you must ask for the Occupancy certificate from the builder. This OC is given by the government bodies to the builder. Anyone residing in a building without the OC is deemed as an illegal occupant of the said property.

7. Title Check - For all resale properties, you must do a through check on the title of the property. The title of the property must be clear of any encumbrances. The same can be checked from local corporation.

8. Reputation of the builder - For all under construction properties, you must to a background check on the builder's reputation, the kind of projects he has done, the facilities he provides in his building, whether there are any complaints against him etc. This will ensure that you deal with builder who has clean image and has good business ethics.

9. Future appreciation potential - The property should also be ideally located in a place where there is appreciation potential . Check for new infrastructure projects coming up and planned for in the vicinity of the property. It will helps jack up the going rate of the property .

10. Payment of utility bills etc- For all resale property, you must check if all the bills like electricity bills, society maintenance charges etc are paid by the current owner otherwise the same will become your liability and you may have to pay that.

B. FINANCE FROM BANKS

After having identified the property, the next step would be to arrange for the finance form the banks/FIs. For that you must take care of

1. Find out the finance amount and margin money - Banks generally finance anywhere between 60% to 90% of the property value and the rest is the margin money which the borrower will have to pay as down payment. Find out if the bank is willing to finance the property you have identified.

2. Save for the margin money- Since you will have to pay the margin money yourself, you must arrange for it. It is safe to assume that you will have to pay at least 20% of the property value as down payment. One way of bringing down the margin money is to negotiate hard with the builder on the total property price. Generally, you can expect to get some discount from the builder as well. Here too the key is to negotiate hard.

3. Shop around for the best deal- You must shop around for the best deal offered on home loans. The rate charged varies a great deal between banks and hence it makes lot of sense to do some shopping around. You may do this by comparing the rates offered by various banks. This is available on apnaloan.com

4. Negotiate hard - Even after shortlisting the bank with the best offer for you, you must drive a hard bargain since most banks have margin for further reduction in rates charged. Even a half percentage waiver on your loan could mean a huge benefit for you over the entire tenure of the loan.

5. Decide on fixed or floating interest rate- You must also decide whether you want fixed rate of interest or floating.In fixed rate loans, the interest rate remains fixed over the life of the loan, irrespective of the interest rates in the open market. The plus point of fixed rate loans is that they remain steady over the years, making at least one aspect of your monthly cash flow predictable. But the flip side is that the lenders charge a higher rate of interest for fixed-rate loans because if interest rates shoot up, they lose the opportunity to make more money on the funds they are lending. In floating rate loans, the rate of interest changes according to a set formula, as interest rates fluctuate in the open market. The plus point is that lenders charge a lower rate for such loans because you are taking on some of the interest-rate risk. The downside is that interest rates may rise anytime and you can end up paying more than fixed rate loans.

6. Limit your EMI to 40% of the monthly income - You must ensure that the monthly EMI on your loan is not more than 40% of your monthly income. This will ensure that your finances are not overstretched and you are able to meet any untoward expenditure in future.

7. Take loan in the name of both the spouse - If your spouse is also working, then it makes sense to take the home loan jointly. It will help you increase your loan eligibility . Both of you will also get Income tax benefit under IT ACT.

8. Be ready to loose the processing fee- Banks charge processing fee just to process your loan application. At times this may not result in your loan disbursal and in such situation, the bank will not refund you the processing fee. You must be willing to pay that as service fee to have them process your application.

9. Find out the prepayment charge - About 50% of the home loan borrowers end up prepaying their loan and as such the prepayment penalty is an important aspect in the whole equation. Look out for lender which has lowest prepayment penalty.

C. OTHER HIDDEN CHARGES

- Legal fee paid to the bank

- Fees paid to the bank for property valuation etc

- Cheque Dishonour fee etc.

NOW BANKING TRANSACTIONS ON YOUR MOBILE PHONE

2009-05-29T23:10:00.000-07:00

ICICI Bank has launched an electronic card in association with mcheck, a mobile payment solution provider. This card is aimed at helping people carry out transactions like bill payment etc from their mobile phones. This card will enable the user to make payments from mobile phones.

The ICICI bank customers can use this card to make payments for bills, money transfer, buy movie tickets , airline tickets etc. This will be another step in making banking an easy and enjoyable experience.

Given the popularity and reach of mobile phones in India, it is expected that mobile phones will be used as a medium to deliver entertainment, banking services and news to the user in near future. The launch of 3G services is expected to kick start the process. 3G will set the ball rolling and we will see a new revolution of sorts in the way mobile phones are used in India currently.Most of the services required for daily use will be migrated to mobile .

MY ARTICLE IN PERSONAL FINANCE CARNIVAL

2009-05-29T11:54:00.000-07:00

My article "10 Questions you must ask your insurance agent " has been featured in the Carnival of Personal finance at weakonics.com . To read the article rush here.

GDP GROWTH AT 6.7% AND 3rd BEST COUNTRY TO DEAL WITH RECESSION - THAT's INDIA

2009-05-29T05:58:00.000-07:00

Recently as per a survey done among business people in 24 countries found out that India was the third least affected country from the on going recession. The least affected country was Australia followed by China. This is significant since Indian economy was always expected to be more resilient than other economies as it is primarily dependent on domestic demand. The countries that are least affected from recession , as per that survey is as under

1. Australia

2. China

3. India, Singapore

5. Hongkong

6. Canada

7. Japan, Qatar

9. Newzealand,

10.Sweden,Malaysia,Vietnam

The finding in this study was further validated by better than expected GDP numbers for India for the year 2008-09.Today the fourth quarter GDP growth numbers came in for India and it surprised everyone positively . The Q4 GDP growth of 5.8% meant that the 2008-09 GDP growth number for the country is 6.7% which is better than many analyst's estimates.The closest anyone was to this figure was RBI which had predicted GDP growth between 6.5% to 6.7%.

This GDP growth is however much lesser that 9% growth in the last year. Considering the economic situation and the overall demand destruction, we can still say that India has done much better than most of the other countries in the world and that is no small feat. The areas where India did well were private final consumption expenditure, government final consumption expenditure, gross fixed capital formation, change in stocks, valuables, and net exports. The area which is still reeling very badly from the slowdown is manufacturing . The per capita income grew by 12. 6% and is now at Rs 33383 at current prices.

TIME TO BECOME ONE'S OWN CENTRAL BANK?

2009-05-29T00:05:00.000-07:00

World famous investment advisor Marc Faber believes it is time for every prudent citizen to become one's own central bank by owning some gold. He believes that gold will be the safest and most valued asset class to hold in times to come. His rational for saying so are

1. With billions of dollars being printed world over by governments to pump into economy to stave off the depression, the risk of inflation in some time is real. The inflation in consumer prices will rise leading to increase in the value of gold .

2. The unprecedented printing of money will also lead to reduced purchasing power of paper currency in due coarse of time and as such gold will gain value in future.

3. Physical gold's supply is limited and with increased demand its price is bound to go up.

4. More and more central banks will look to buy and keep gold , thereby pushing the overall price of gold up.
Read more on this at http://www.business.in.com/interview/close-range/is-a-gold-bubble-building-up/372/1.

HOW TO INVEST IN EQUITY MARKETS IN TIMES OF VOLATILITY

2009-05-28T02:08:00.000-07:00

The Indian Stock Markets are showing consistent sign of exuberance ever since the results of the 15th Lok Sabha General Elections have come in. The mandate is being hailed as " historic and path breaking" considering that it is for the first time in nearly two decades that a single party has managed to cross 200 MP mark on its own in the Lok Sabha. As soon as the results came in , the market experts hailed it as game changer for the stock markets. Congress was expected to bring in sweeping reforms on back of a decisive mandate. The same optimism and hope was reflected in the historic rise of stock markets the following Monday when the trade had to be suspended because the markets had breached the upper circuit twice in a single day. This was historic indeed.

But, today as the final lot ministers got sworn in , much of that optimism and hope is being proved little too much for the government to live upto. The government is full of old faces and as such chances are that the pace of reforms may not be as fast as the markets expect them to be.

The Indian stock markets have appreciated by close to 70% from its lows last year. The market is now trading at 16 times the forward earnings while just 2 months back it was trading at 9-10 times the 12 month forward earnings. At these levels, one surely needs to be cautious before approaching the markets. This is not to say that one should shun the markets , but, surely there is need for more rational approach to it.

So, as a retail investor, what should be your strategy in these times. I think for an average retail investor looking to build wealth over a long period of time , following should be the way to go

1. Continue to invest in equities at every dip in the market - Considering that the markets are slightly over valued at this point in time, chances of correction in the market are there and as such as an investor, you must look to buy at every dip in the market. The markets will be volatile and this strategy will help you keep the cost of entry low.

2. Don't look to make quick kill - As a serious retail investor you should not look at equity markets as a place to bet and make a quick kill. This is a dangerous game with too much risk for an average investors appetite. Leave this "Buy in the morning and sell in the noon" strategy to the traders.

3. Always look at fundamentals of the company and its valuations- Some things never change as far as investing in equity markets are concerned like the business fundamental of the company, its management quality, the scope of business, its valuation etc. You must look to invest in a good company with sound business fundamental , great management team . You must alos look at the price at which you are getting into the stock. As you would appreciate that your final returns on your investment is a function of your entry price, you must look to buy stocks which are not very expensive, even though , they are of good companies.

4.Stick to SIP if you have time on your hand- If you are below 40 years of age, then you can not afford to miss equity as an investment option and since time is at your side, best strategy would be to stick to your good old SIP. It will take care of the entry price by the virtue of it's rupee cost averaging tool. You must invest in 5 star rated funds only . Check out morningstar and valureasearchonline.com ratings to spot the winning funds in each category.

5. Don't base your investment decisions on so called "Experts" - One of the most common mistakes people make is to make their investment decisions in equities based on the advice or opinions of the experts on TV channels. For record, most of these experts are proved wrong over a period of time. No one predicted the 2008 bear market and similarly no one predicted the current rally in the markets. On the contrary, most of these experts were busy painting rosy pictures and talking about how BSE would touch 25000 by 2008 end etc. Fundamentally stock markets do not behave in any predetermined rational way and as such it is impossible to predict its movement with certainty over a long period of time. Anyone attempting to do so will be proved wrong more than he will be proved right. So, next time you tune in to listen to these experts , listen to them but when it comes to investing make an informed choice.

HOW TO NEGOTIATE LOAN INTEREST RATE WITH BANKS

2009-05-26T23:24:00.001-07:00

Most of us have either taken a loan sometime in the past or will be required to take one to fund our car,home, education ,personal needs etc. As a prudent borrower we all look to get the loan at the best possible rate. We all want best deal from the bank. But do you know what exactly constitutes the best deal for you? Is it the rate of interest charged on your loan? or is the mode of interest charged i.e. fixed or floating? Or is it tenure of the loan? or is it something else?

When a person takes a loan, he will most certainly look at the rate of interest charged to him on the loan . He wants a loan at the lowest possible rate of interest. This is not entirely wrong as lower the rate of interest, chances are that the deal would keep on getting better. Now , here I said "chances are" because lower rates do not necessarily mean a better deal or a cheaper loan.

How is that possible? To find out the best possible deal on your loan, you should look at the IRR (Internal Rate Of Return or effective rate of return) on your loan and not the stated rate of interest. IRR gives you the correct sense of the interest you pay on your loan. There are various other parameters in a loan which determine your actual outflow of interest .

1. Advance EMI - Advance EMIs for instance will reduce your stated interest rate but increase the IRR i.e. while it may look like a cheaper loan to you because of the lower stated rate of interest on account of paying upfront advance EMIs, you would end up paying more. When a bank takes advance EMI upfront from you, they are actually giving a loan of lesser amount ( Loan sanctioned - Advance EMI= Loan Given to you). While they give you loan of lesser value they still charge you interest on the original sanctioned amount, which increases your total outflow. Banks use this strategy very effectively to deal with customers who only look at the stated rate of interest before deciding on the loan. This strategy is also widely used in the famous "0% interest loan" for consumer durables. As a prudent customer we must understand that there is no free lunch and the 0% interest loan actually works on the principal of taking 4-5 advance EMIs upfront along with some processing fee. This helps them jack up the IRR on the loan while keeping the stated rate of interest 0. The customer is happy thinking he got a 0% loan and bank is happy because it knows it is getting its share of interest income.

2. Processing Fee - Another important factor that one needs to look at while deciding on any loan is the processing fee part. Most of the banks charge processing or admin fee to the tune of anywhere between 1% to 4% of the total loan sanctioned. The processing fee of 2-3% on home loan works out to be a decent amount. Customers tend to look at this as one time expense and do not consider this as part of the outflow. Banks at times will give a 50 basis point discount or waiver on the interest rate but might increase processing fee to make up for the revenue loss. The customer thinks he got a better deal , but sadly that is not true. Processing fee is very similar to advance EMI as here too the borrower pays an amount upfront from his loan sanctioned and his loan amount gets reduced to that extent. The bank however, will still charge him interest on the original loan sanctioned.

3. Tenure - This is another parameter which decides the overall interest fee outflow that you will have on your loan. A shorter tenure is always better for a borrower since it minimises the interest component in your loan repayment , while a longer tenure will mean you will pay more interest on your loan. Banks use tenure too to play on the mindset of the customer to have a loan with lower interest rate. They will reduce the stated rate of interest but will increase the tenure. This will most probably do more damage to you than benefit you. You need to do your IRR calculation to know the exact scenario.

Simple way of calculating the interest Outflow - Well the best and most accurate way of knowing your actual rate of interest is to find out the IRR on your loan in Microsoft excel or from a scientific calculator. But for people who want some quick bank of the envelope calculations on this, they may consider this

Your loan EMI * Tenure = Total Money paid to the bank

Total money paid to the bank - Loan amount received in hand = Total interest paid

((Total interest paid/Loan amount received in hand)/tenure) *100= flat interest rate ( this is not same as reducing rate of interest)

But, I would suggest you find out the IRR of the loan as it gives the exact picture of the effective interest that you are charged on your loan.

How should you negotiate ? Now , you know that there are 3 elements which impact your IRR or effective rate of interest ( not counting the mode of interest charged that is reducing or fixed, always opt for reducing rate on interest), you must negotiate with the bank to get any one of the 3 elements down or lower while keeping the other 2 constant. Best would be to get all 3 elements down from the banks original offer.

Banks do have some scope to offer discounts on their original rate and hence you must negotiate hard with them.

8 REASONS WHY YOU SHOULD SHOP AT MALLS

2009-05-25T23:52:00.000-07:00

People with communist bent of mind have always associated the rapid growth of retail chains with mindless growth of capitalist greed which tends to make profit at the expense of the common man. In some states of India like UP and West Bengal, there were large scale protests over the opening of outlets by some large scale retail formats like Reliance Fresh etc. Unfortunately the company had to shut those outlets in view of the widespread protests. But, the moot question remains to be asked. Are these chains against the overall benefit of the common man? Do they really exploit the common man? These are fundamental questions the answer to which can be both yes and no depending on which side of the divide you are standing on. While there is no doubt that the consumers don't see these retails outlets as a part of the large corporates sinister design to fill their coffers by exploiting them, as is made out by the protesters. At the same time , some would argue that these large scale retail formats take away the livelihood of the traditional "mom and pop" shops or your traditional kirana stores. At the outset , this might look like a credible argument, the fact is that there is no credible evidence which strongly proves this.

My argument is that at the end of the day, the decision should be based on what is in the greater interest of the society. The consumers benefit a great deal because of these malls or retail outlets. Some of the benefits that accrue to the shoppers shopping at these malls are as under:-

1. Lower prices - The prices of the goods at the large malls/retails outlets are comparatively lower than the prices outside in the normal stores. This is because of the fact that these stores buy products in bulk from companies and because of the economies of scale they are able to negotiate better price from the manufacturers. Manufacturers gain due to higher volume sales while the retailer gets better price which he passes on to the ultimate user. This is a win-win for all the parties concerned.

2. More variety and range -The malls also offer better range of products as compared to the traditional "mom and pop" shops. These stores have better variety offering a greater range of products for the customer to choose from.

3. All under one roof - The biggest USP of the malls is that they tend to offer everything that one needs under one roof. One can shop for clothes,grocery, food items, gift articles,books, movie, etc all under one roof. This positions them as "one stop shop" for the customer which results in better shopping experience for the customer.

4. Loyalty discounts- Most of these stores also offer loyalty discounts to their customers who are regular shoppers from their stores. This kind of facility is not available in a regular shop. Stores like Shoppers stop, Pantaloon etc have cards for their loyal customers and offer extra discounts to the holders of these cards on their purchases .

5. Promotional offers - Other than the regular loyalty discounts, retailers at times also offer extra promotional offers to boost sales. For example, Pantaloon group is known for its special "Sabse Sasta Din" campaign in India on 26th january and 15th August of every month. On these 2 days, they offer great discounts at almost every product. This offer is hugely popular among the shoppers. Few retailers offer extra reward points on purchases, some offer extra discounts on use of particular credit cards etc.All these result in savings for the customer.

6.Doubles up as outing as well - The visit to the nearby mall for shopping purposes also doubles up as a recreational outing for the whole family as well where they can have fun while shopping. Kids can play games, family can have dinner together, watch movies etc besides shopping . This is an experience which no "mom and pop store can provide.

7. More taxes for the government - Since these retail chains are from corporates, they do pay corporate tax to the government of India. This money can be used by government of India towards social sectorss like education, rural employment etc. The "mom and pop" shops in India indulge in large scale tax evasion and thus the government does stand to gain a lot from these stores.

8. Expands the market - The argument that these stores will result in closure of mom and shop stores also seems far fetched as in western countries these formats have not really "killed " smaller stores. These large chains do expand the overall market and also provide opportunity to a lot of people in supply chain management . The farmers too get better price for their proceeds from the large format stores.

After listing down the advantages of shopping in a mall, it would be fair for me to point out few disadvantages to give you a balanced picture . There are no major disadvantage, but for the regular criticism against these stores that they encourage people to overspend . Overspending is not a nice habit to have and can be detrimental to your monthly budget. But this can be easily tackled by your discipline. My suggestion would be to have a list of stuff that you want from the store ready before you leave home . And once you are in the mall, ensure that you buy nothing which is not in the list.

With little bit of discipline one can easily save a lot of money shopping from the large malls . There are lot of people who have this preconceived notion that shopping in large air conditioned malls would be expensive. They sure can be if you do not do our research well and end up shopping for things which you don't need. But for smart shopper, it does offer a great avenue to save some bucks from his/her monthly grocery bill.

VEHICLE INSURANCE - THINGS TO DO AND EXCLUSIONS TO WATCH OUT FOR

2009-05-25T08:29:00.000-07:00

For all those who have vehicles and either have a vehicle isurance or are about to get one, there are few things which you need to keep in mind and check before you decide on the insurance provider. Lack of knowledge about the various standard policy details and exclusions at times results in unnecessary heartburn and difficulty for the vehicle owner. Following are the important points which you need to keep in mind with regard to your vehicle insurance.

THINGS TO DO

i. You must not take any action on the damaged vehicle -- repairs, moving the vehicle -- before the prior approval of the insurance company/ surveyor. Sometimes, an insurance company might decide to take a spot survey. It is important then that you keep the car at the accident spot till the survey is over.
ii. You must keep all replaced parts for inspection. Do not dispose them till the surveyor gives his/ her approval for the same.
iii. You should never enter into a compromise or make an out-of-court settlement with the injured or legal heirs of the deceased without the insurer's consent since these compromises or settlements are not payable in terms of insurance policy.
iv. The documents you need to deposit with your insurance company include the original bill of repairs/ replacements, cash memo, payment proof,etc, for finalisation/ disposal of your claim by the insurance company.
v. You cannot submit xerox copies of bills/ invoices to your insurance company. Do submit original bills.
vi. Once your claim is approved, arrange to deposit the salvaged/ damaged parts with your insurers. Else they may deduct the salvage value from the claim amount.
vii. Do cooperate with the advocate deputed by the insurance company.

EXCLUSIONS TO WATCH OUT FOR

Most insurance policies come with a set of exclusions that we almost never pay attention to.
i. There is a compulsory deduction made when you claim the loss amount. For example, IFFCO-TOKIO General Insurance Co Ltd deducts Rs 500 when a claim is made. This amount differs from company to company and is meant to protect against petty claims.
ii. Other exclusions under the package policies include wear and tear, breakdowns and consequential loss among others.
iii. But the most important exclusion, is the damage to tyres, tubes and other nylon, glass and plastic accessories.
Damage to tyres and tubes is not paid for unless the entire vehicle is damaged at the same time of accident. Liability is limited to 50 per cent of the cost of replacement.

FINANCIAL CRISIS - MORE THAN WHAT MEETS THE EYE

2009-05-24T05:39:00.001-07:00

What if someone told you that this "recession and slowdown" that the whole world is reeling today from is a deliberate and man made creation? What if someone told you that this was deliberately created by US government to achieve their sinister goal? You would not believe it. But, this is exactly what this video says that.

It explains how the policies of the US Fed of artificially lowering the interest rates led to an artificial boom in the commodities and housing sector which ultimately resulted in a collapse. The video further explains " they create the problem and then offer us solution...which gives them unlimited power , capital and control.."

It argues that US and UK want a unipolar world with a single global currency. And the fact that Obama is already talking about a "New World Order" is a clear pointer towards that.World famous trend forecaster Gerald Celente also says that this depression will be worst in the history of US and will result in mass protests , tax revolts etc in 2012.And revolts have already started and 2012 is good 3 years away.

Check out this video . Its a must watch, even if you do not agree with what is said here.

PRE-APPROVED LOANS ARE NOT REALLY " PRE-APPROVED"

2009-05-23T00:06:00.000-07:00

You must have received SMSes,calls from telecallers or letters from banks saying that they approved loan of certain amounts for you. To take it, you should contact your branch, or send a message from your phone to a particular person or number. While using your phone to check the details of your credit or debit card, you will often find an automated message saying that you are eligible for a loan on phone of a particular amount. Offers of credit cards, too, fall in the same category since the issuing bank is comfortable extending a certain amount of credit to you. Typically, people receive such offers from banks with which they have some relationship—loans, salary accounts, credit cards, among others—and there is often a time limit for accepting the offer. The question is, does it make sense to go for them?

Eligibility criteria- Generally, a bank judges your eligibility before offering a pre-approved loan. This is based on your track record with the bank. For instance, if you have a salary account, the bank will have an idea of your income and cash flow. It could also be based on the amount in your savings account or your servicing of existing loans with the bank.For a secured pre-approved loan, banks not only verify if you meet the above criteria, but also do an asset quality check. An asset quality test simply means the bank will check the kind of asset you are set to buy using the loan—the type of house or car, for instance. They will sanction and disburse the loan only if it fits their predetermined criteria.
So how is it different from the normal loans ? Well actually, they are not different at all from them. Its just that here the bank is making an effort to reach out to you and offer you a loan, rather than you approaching the bank.In terms of cost etc there is no difference at all . Sometimes, banks might sweeten the deal by offering processing fee waiver etc but those concessions are generally available to all the customers on negotiation.

Will you definitely get the loan since its pre approved? No . Infact the whole offer is just to entice you to approach the bank. The bank will conduct its due diligence like it does for all cases and only if you meet all their criteria will you get the loan. The pre approved is infact not really approved loan. So you should be prepared to have your loan request rejected or declined by the bank which offered you the pre-approved loan.

Why do banks do it? Banks do it get as many customers as possible. They are driven to run such campaigns out of competition to garner maximum customers. Also since most of the terms and conditions are similar across banks, they try and differentiate themselves by running such offers. But , in reality they are just trying to get customers to approach them for loans.

Is their any benefit at all in this? One area where a pre-approved loan may have an edge is the time taken in processing the loan. Since banks typically extend such offers to existing customers, the processing can be simpler and quicker, and the paperwork done with a bank representative at a place and time that suits the borrower. The bank already has the PAN, bank statements, proof of residence and most of the other information that is required to have an a prospective borrower under the Reserve Bank of India’s ‘Know Your Customer’ norms. This also helps in processing the loan.

Should you fall for it? You should look at these offers with a pinch of salt. You must not approach a bank simply because it is offering you a "pre approved loan". Rather you must do your research properly by shopping around to find the best deal for you in terms of rate of interest charged, penalties like cheque dishonour cheque, late payment fees etc, the repayment period,prepayment penalty etc. Based on all this , you must approach the bank. Pre-approved or not ,you must take loans only from the lender which is offering you the best deal.

DO YOU KNOW HOW RBI ENSURES THAT YOUR BANKER STAYS HONEST?

2009-05-22T12:25:00.000-07:00

While putting our hard earned money in our bank accounts we feel safe and secure knowing fully that our money is safe with the bank. This is primarily because of the stellar role played by our central bank namely Reserve Bank of India. RBI , as a central bank , ensures that all the banks are financially sound and solvent. It is also the guardian of the customer's interest. Managing such huge network of banks with their ever increasing branches is not an easy task . Just to put things in perspective, State Bank Of India alone has over 11000 branches in the country. RBI has to ensure that the interest of every single customer of each these branches is safeguarded. So how does RBI manages to accomplish all this ? What are the things that it does in order to ensure that your and my money is safe at our respective banks.The following are the few of the important things RBI does in order to achieve this goal.

1. Regulating entry of banks - RBI, by virtue of being the Central Bank of the country, acts as a regulator to all the banks and NBFCs operating in India. It does look at each of the bank's request for a banking license very carefully and only after careful evaluation and due diligence , the RBI allows banks to operate in India. Foreign banks find it even more difficult to get an entry in India as of now, considering that Indian financial system is not yet fully open and globalised.As far as Indian banks are concerned, even they need to have proper permission from RBI before opening any new branch. RBI intends to ensure that banks growth is in a phased and controlled manner.

2.By regulating via CRR,SLR,repo rate,reverse repo rate etc - RBI also keeps a check on the various aspects of the economy and banks health by managing its monetary policy. Increase in inflation tends to reduce the purchasing power of people's savings and RBI tends to tackle this by reducing key rates, while it keeps a check on bank's financial stability by regulating its CRR, SLR etc. Few of the common monetary policy variables with RBI are

Cash Reserve Ratio (CRR) -This is the amount of money that the banks have to necessarily park with the RBI. The base of this is the total of the deposits that a bank has. The RBI pays the bank interest on the amount parked with it.
Statutory Liquidity ratio(SLR)-The amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves. The statutory liquidity ratio is a term most commonly used in India.

Repo Rate - Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.
Reverse Repo rate -This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels
there is too much money floating in the banking system.If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk). Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy
3.By mandating a limit on investment to risky industries and sectors - In order to ensure that the money deposited by the customers are invested wisely by banks, RBI also , sometimes mandates a ceiling only upto which a bank can invest in a particular industry. For example, recently RBI had advised banks to be cautious towards realty sector lending as it was perceived to be relatively risky. On the other hand, it also makes banks lend to few sectors on priority basis.
4. By carrying out compliance and quality audits- RBI has laid down rules and regulations for banks . Each and every bank is required to follow these regulations while running the branch operations. These rules and regulations are meant to protect the customers interest while keeping the bank's balance sheet in good health. To ensure that each and every bank is following these rules and regulations while discharging their duty, RBI carries out compliance audits regularly where it checks the process compliance on part of the bank. It also checks the books of accounts for any irregularity. if any violation or irregularity is noticed, banks are expected to take note of that and are required to resolve that in a time bound manner.
5. By releasing financially unsound banks - RBI also comes out with an advisory where it lists down the names of banks which are financially not sound and advises customers to stay away from these banks.This is done to ensure that such banks do not continue to operate .
6. By getting insolvent bank to merge with a large bank - At times, even after doing everything, banks fail. It is a reality and one needs to tackle this as well. Sometimes RBI compensates every customer of a bank which went bust upto a maximum of Rs 100000 or his actual savings whichever is higher. But RBI has in the past also tried to salvage the situation by getting the insolvent bank to merge with a large financially sound bank/ This ensures that the new entity is a larger one and the customers of the old bank do not suffer. An example which comes to our mind is the case of Global Trust bank into Oriental Bank Of Commerce following the insolvency of GTB.

RBI does a whole host of other things as well to ensure that the money we put with our neighbourhood banker is not only growing and earning interest but is also completely safe and secure. We owe it to the RBI on this .

YOUR CREDIT CARD SET TO BECOME MORE SECURE

2009-05-22T00:22:00.000-07:00

Reserve Bank Of India has taken cognisance of the fact that credit cards need to be more secure in the hands of the users to ensure that their misuse and frauds are minimised if not eliminated completely. RBI has taken whole host of steps in this year to make banking an easier and user friendly process. Some of the most recent steps include the removal of ATM transaction fee charged by the banks in case the customer removed money from non-bank ATM. Some other steps include making provision for calculating interest on savings account on daily balance basis as against the current provision of paying interest on monthly average balance in savings account.

Now RBI has mandated that from 1st August 2009, all the banks need to provide another security code to each of its credit card users in addition to the credit card number, CVV etc which the banks already provide. This extra code is meant to be made available to the user directly and wont be on the card. This is significant since currently a card can be used by anyone since all the required information to use the credit card is already mentioned on the card. One needs to know the credit card number, expiry date and CVV number in order to be able to use the card. All the three information is printed on the card itself. So , once a person flicks a card from the user, he/she can easily misuse it.

Now with this extra code , the chances of this misuse will be greatly minimised as one will need an extra security code in order to be able to use the card . This security code will only be there with the genuine user of the card. The banks still need to finalise the technology that they will use in order to make this a reality , but , the bottom line is that the credit cards are set to become much more secure.

So after 1st Aug 2009, you can afford to be little more relaxed while paying your restaurant bills or petrol bills by your credit card. This will go a long way in reducing the losses of the banks as well since most of the outstanding on cards due to credit card misuse or frauds end up becoming NPAs and are finally written off by the banks. So its a win-win for both the bank and the credit card user.

FIXED DEPOSIT - 5 WAYS TO GET THE MOST OUT OF IT

2009-05-21T00:10:00.000-07:00

For people looking to invest their hard earned in money in safe investment options, Fixed deposits with banks comes on top of their priority list. This is because of the fact that bank FDs are absolutely safe and secure investments. The chances of banks defaulting on fixed deposit payments are almost nil since the banks are heavily regulated by RBI which ensures that the bank is in sound financial position. Fixed deposits become more popular in times of instability in equity markets. Fixed deposits are also a favourite with senior citizens. Considering that FDs are one of the most widely used investment options by millions of people, we need to know the various ways in which we can get the maximum benefit out of FDs.I am listing down the following "5 Points to Ponder" before you put your money in a fixed deposit.
1. Rate of interest- The first and the most obvious thing to look at while deciding on your fixed deposit is the rate of interest being offered by various banks. The rate of interest can vary a great deal between banks for similar tenure of fixed deposit and hence it makes sense to find out the bank which gives you the best deal. However, you must also consider the safety and stability of the bank itself . Generally , the co-operative banks offer higher rate of interest as compared to other bigger banks like SBI, ICICI etc. But since co-operative banks are not as solvent and stable as some of the other banks, you will do well to stay away from them. You must compare rates offered by similar banks. For example, you may consider the rates offered by SBI, ICICI, PNB, HDFC, AXIS,CITIBANK,HSBC etc. This is just an indicative list. The idea is to stick to larger banks.

2.Frequency of compounding of interest rate - The second point to consider while choosing the bank for your FD is the frequency with which the bank compounds the interest. Banks generally compound interest earned quarterly, half yearly or yearly. The best frequency is quarterly as it results in higher effective rate of interest for you. For example, If both bank A and Bank B offer to take FD for a year at 10% pa. and offer compounding of interest at quarterly and yearly basis respectively, then the effective rate of interest that you will get on your FD with bank A (quarterly compounding )will be higher than the effective rate of interest on your FD with Bank B.

3. Tax Benefit - If you are looking to invest your money in safe and secure manner while also saving tax under Sec 80 C on Income Tax Act, then tax saving FDs are just right for you.In that case , choose only those FDs which offer tax benefits under Sec 80 C. All FDs do not qualify for tax break under Sec 80C. Also you must consider the rate of interest offered by various banks on their tax saving FDs and settle for the one giving you the best deal.These fixed deposits have a lock-in period of five years and premature withdrawal is not allowed. You can’t use this deposit as a means to secure loan from the bank and the maximum amount you can invest in this instrument is Rs 1 lakh. HDFC Bank at present offers 9.50% interest (calculated quarterly) on tax-saving FDs as well as on regular FDs for 5 years. ICICI Bank, on the other hand, gives 8.5% interest (calculated quarterly) on tax-saving FDs and 9.5% (calculated quarterly) interest on regular FDs for 5 years.
If you fall in the higher tax-slab, investing in tax-saver FDs will fetch you more return than a regular FD as tax-saving FDs are exempted under Section 80C.

4.Interest reinvested or paid - Almost all FDs offer the option of either having the interest amount reinvested in your FD or have the interest amount cashed out. The option that you need to choose will depend on your needs. For example, if you are a retiree or a senior citizen who requires liquidity at regular intervals, then you might consider opting to cash out your interest payment. However, if you are still young and in accumulation stage, then you must have your interest component reinvested . this will ensure higher effective rate of interest for you at the end of the tenure and your interest component too earns interest on it.

5. Splitting the FD -TDS (tax deductible as source) at 10% is applicable on fixed deposits in India , if the interest earned exceeds Rs 10,000 in a financial year. To avoid TDS, you can split your fixed deposits, that is, open fixed deposits in different branches of the bank, so that the interest earned does not exceed Rs 10,000 in a particular branch. You could also open fixed deposits in different banks to avoid TDS. Splitting you fixed deposits has another benefit as well. If you are in need of urgent cash and need to withdraw money, you won't have to break all your fixed deposits.

CREDIT CARD / ATM FRAUDS AND SCAMS

2009-05-20T12:58:00.000-07:00

We all know that frauds in credit cards and ATM cards are on the rise these days. The various methods in which credit card and ATM fraudsters scam us shown in these videos below.

1. CHEATING PEOPLE OF MILLIONS BY MAKING FAKE CREDIT CARDS

2.CREDIT CARD SKIMMING FRAUD

3. ATM SCAM

4.CHIP AND PIN FRAUD

Hope that these videos would have given you the insight into the grave danger these scamsters pose to everyone carrying this plastic . We need to be more vigilant and careful with our cards. Its after all money that we are dealing with so what if its in plastic form.

GOOD CREDIT HISTORY IS GOOD NEWS FOR YOU

2009-05-20T03:13:00.000-07:00

Credit scores are becoming increasingly important in today's world. These scores determine whether or not a person gets credit or loan from the lender and at what rate . The use of credit scores is being made at various places and its usage is increasing at exponential rate.As such having a good credit score can do a great deal of good to you. Few of the direct and obvious benefits that you will get because of good credit score are as under:-

1. Loans at lower interest rate - While a person having a bad credit score is denied a loan completely, a person with good credit score will not only get a loan ,but, will get the loan at a much lower rates. This is because banks and financial institutions follow risk-based pricing, while extending credit. Risk based pricing means , the banks charge interest rate as per the perceived risk profile of a customer i.e. charge higher rate of interest to a customer who is perceived risky and lower rate of interest to a person who has good credit history. A higher CIBIL/credit score denotes better credit history and consequently, you will get loans at lower rate of interest.

2. Utilities too will be linked to your credit score - In most of the western countries , credit scores are used by utilities providing company to verify the credit history of the applicant before deciding to extend the facility to them. In India too going forward, your credit scores will be used by mobile company, electricity provider etc before they decide to offer their services to you. So, a good credit score is not only handy while availing credit or loan , but also for availing other services as well. Not only this, the credit rating agencies will going forward also consider your payment of utility bills history also while arriving at your final credit score. So its imperative that we pay off all our utility bills promptly and on time.

3. Better chance at getting a new job- Some of the recruiters in sensitive industries like financial services, BPO etc do a check on the candidates credit score also to find out his/ her credit history. A peek into credit history of a person gives vital information about his financial condition , but, more importantly it also can point out "integrity issues" of the candidate ,if any.Thus having a credit history full of cheque and loan EMI bounces ,loan defaults etc wont be viewed very positively by the prospective recruiter. This is though not done in India currently since credit score is not available to anyone other than banks/FIs as on today. However, this is expected to change with CIBIL working on a proposal to make CIBIL scores available to general public on payment of a fee.
So,what are the ways in which we can improve or maintain a high credit score? I am listing down few of the tips for the same.

Tips to Improve or Maintain a High Credit Score:

1. Make loan payments on time and for the correct amount.

2.Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score.

3.Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible.

4. Be aware of what type of credit you have. Credit from financing companies can negatively affect your score. 5.Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly.

6.Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of accounts, or prescreens), but most are.

Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history.
Hope by following the above mentioned tips , you will have a credit score which will be ,to borrow a line from Onida's devil, "Owner's pride ,neighbour's envy".

BUDGETING- KEY TO YOUR FINANCIAL SUCCESS

2009-05-19T09:30:00.000-07:00

One of the first steps in your journey towards financial security and independence is to start budgeting for all your expenses. Having a budget is a must for each and every person who aims to become rich and amass wealth over a period of time. In the book "Millionaire Next Door" , the author comes out with various traits that rich millionaires share between them. And the most common of them was the fact that they all had a strong ethic of making a monthly budget for all expenses and then sticking to it. The study also noted that most of the people who earn a fat salary but are not wealthy also share a habit between them. And that was that none of them had the habit of preparing a budget for themselves.

Budgets help you in number of ways like

1. It helps you get an idea of your necessary and non-necessary expenses.

2. It tells you the areas where you need to cut down on expenses.

3. Helps you deploy your money effectively and efficiently.

4. It helps you get the habit of saving going.

5. It helps you keep a tab on impulse expenses like eating out etc.

So, the moral of the story is that you must have a monthly budget of your household expenses and income if you don't have one already. For those of you wondering how to get started on it, please refer the video below. Gives you a nice idea about how you should have your budget. People who prefer to make budget on paper can do so by using the same concept.

CREDIT CARD THAT CAN NOT BE MISUSED OR STOLEN

2009-05-19T00:04:00.000-07:00

Online shopping just got easier and safer with the virtual credit card. But, what's a virtual card? A virtual card is just like your credit/debit card; only it isn't tangible. It was introduced to check the rising instance of fraudulent transactions over the internet.

How does it work?Many banks offer this facility but the process works differently with different banks. However, here’s a general outline: Let's assume you have a bank account with ABC Bank. Now, follow these steps to get your very own card.

Step 1: Log on to your online account

Step 2: Register for the use of this virtual card

Step 3: Fill in the amount you will need for shopping

Step 4: The bank will generate an exclusive 16 digit number, a CVV2 number and expiry date for this virtual cardThere you go, you are ready for shopping online.

However, the card will be valid only for a particular period of time; usually, it’s valid for 24 hours. So, you need to use it within that time frame. It can be used at any merchant website, which accepts the service provider (VISA, Master card) mentioned in the card.

Features of a virtual card

1. It is a safe and risk-free option

2. It has temporary PIN numbers, which assures safety

3. It is time bound; one needs to use it within the time limit specified before the virtual card expires

4. You need to set a limit to your spending and will be eligible to avail the amount specified on the card, which is dependent on the credit limit of your credit card or cash reserves on your debit card.

5. You can use both your credit card and debit card to generate your virtual card!

6. The balance amount, if any, will be credited back to the main account.

There are a few disadvantages: There could be delay in shipping merchandise, as the merchants might wait to receive the money before dispatch of goods. Also, you need to complete a transaction within 24 hours. So, forget about paying at your leisure. Once a transaction has been completed successfully, the card cannot be used a second time. There is also a spending limit of Rs 50,000 with most banks that you need to keep in mind.Cost Most banks provide the use of a virtual card for free. You only need to be registered with online banking, and you can generate several virtual cards in a day.

BALLOT AND WALLET SING A CHORUS - SINGH IS KING

2009-05-17T23:19:00.000-07:00

The 15th Lok Sabha election results came out last Saturday(16th May) and boy what a result it was. The Indian democracy is celebrated all across the globe for its vibrancy and dynamism and this time the results proved it beyond doubt. This election result has been unprecedented and unexpected for a variety of reasons. The elections have thrown lot of stories within the large story of return of the electorate to the national parties. The government will now be more stable and hopefully more effective and decisive one. How will this impact your and my life? Should we be really rejoicing like the whole world is doing or should we be cautious? Well , I think its a momentous occasion in the Indian democracy and is a good news for all the citizens . The reason I say this is because:-

1. Stable government means more money in the economy - A stable government headed by the original reformist Mr . Manmohan Singh will send a strong signal to the whole world about India's pro-reform stance and its ability to push thorough tough decisions which were not possible till now, because of various opposing parties in the parliament like Left etc. This will bring large money in the Indian economy in form FDI, FII etc. India is a capital starved nation, as on today, and the expected money flow can do wonders to its much needed infrastructure programs . More money will mean more investment leading to better growth rate.Andits no secret that better grwoth means higher income and better lifestyle for you ,me and Joe.

2. Reforms will get a push - With anti-reform parties biting dust in the election, it is expected that government will push through reforms is key areas like Insurance (increasing FDI limit to 49% from current 25%), pension, banking etc . Reforms in areas of health care, education, police ,judiciary,administrative reforms etc are also much needed to ensure that the country reaps full benefit of its demographic advantage, it has over other countries. Divestment of PSUs and 3G spectrum sale will also see the light of the day. All this will bring in more money to the government exchequer which will improve its fiscal deficit situation.

3. Better sovereign risk rating - With more investment in the economy, improved fiscal status,more revenues due to divestment etc and higher growth rate will ultimately result in better sovereign rating for the country. This will make India an even better investment destination.

4. Continued focus on equitable growth - With implementation of NREGS , the government has made a laudable attempt to include the poorest or poor in the growth story of India. This also is an attempt to provide some sort of social security to the poor people in the country. This is likely to continue. Schemes like these ensure that the rural economy keeps ticking which in turn benefits companies in FMCG, pharma, durables industry. This too helps the growth of the country. In fact one of the reasons why India is relatively better off than its peers in the western world today is because of its vibrant and growing rural economy.

As I write this, the stock markets in India have given a thumbs up to the new verdict and how. The trading has been temporarily suspended because the markets zoomed 20% in less than a minute of trade. This speaks volume about the confidence the investors have reposed in Mr. Manmohan Singh and his party. But, the government needs to siege this opportunity and use this mandate to make a difference to the long term story of India like Mr Singh did in 1991 with his first reforms. The time is right and Mr Singh has all the arsenals he needs to fight the gloom and doom of recession. He needs to use his vision and conviction one more time. I am sure Mr. Singh will remember what US President George Bush said before leaving whitehouse."Histroy will judge me" .

WHICH INDEX SHOULD MATTER MORE FOR INFLATION TRACKING - CPI OR WPI?

2009-05-15T02:47:00.000-07:00

In a country where elections are won and lost on the issue of price rise , it is ironical that most of the economists and also the media focuses on Wholesale Price Index and not the Consumer Price Index. The inflation , in India, is tracked by measuring the percentage change in WPI index over same period a year back. This denotes the price change in the goods and services comprising the wholesale price index. In my opinion, while WPI is an effective indicator of inflation in the economy, it does not fully represent the inflationary pressures facing the common man on the street. Why is it so? This is because the rate of change in WPI and CPI index can vary a great deal. While the WPI in India is currently at 0.4% , the CPI is pegged at well over 9%. This means while , the whole country is looking at WPI index and thinking that the rate of price rise is only 0.4%, the same is not true for the common man on the street. He still has to pay 9% more for buying the same goods and services over last year's price. So should we not look at CPI more closely and should we not give it more importance. The answer is Yes. In fact RBI does give CPI due importance , but, more needs to be done.The political parties too don't seem to understand this. Congress party launched a campaign in the last election where they took credit for fall in prices. Firstly, fall in inflation means fall in the rate of increase in prices and not an actual fall in prices. These are two very different things. Secondly, they were referring to WPI index and not the CPI, while the voter who votes is concerned with the rate of inflation in CPI and not in WPI.CPI gives the real picture of the inflationary pressure or stress being faced by the common man and as such needs to given little more weightage.

WHO IS ENTITLED TO GET THE LIFE INSURANCE CLAIM MONEY?

2009-05-14T03:01:00.000-07:00

Have you ever thought who is supposed to get the life insurance claim money after the insured person's death? Is it the nominee or is it the legal heir or is it the wife and children? Who is the real heir to the claim money? Well the answer to this is that the money that one gets as life insurance claim is to be paid in the hands of the nominee mentioned by the policyholder in his policy document. But, he or she is not the only claimant to that money.

The nominee only gets the money in his/her hand from the insurance company. This money is then to be distributed to all the legal heirs of the deceased as per their legal share. This includes his wife, kids ,dependent parents etc. Thus , the nominee can not claim the full money as his or her own.

In lot of cases, due to lack of understanding of this legal clause, the nominees refuse to pass on the legitimate share to other legal heirs and as such the money gets locked in a legal battle. So, one must avoid going to courts etc as it can take time during which period no one gets to use the money. This will result in the dependents not getting the money when they need it the most.So, one must try and avoid this situation by mutually settling the issue between the various legal heirs.

LOAN AGAINST MUTUAL FUND UNITS

2009-05-13T04:29:00.000-07:00

We all know that we can avail loans against our gold jewellery,LIC policy , equity shares etc. But, did you know that you can take loan against your mutual fund units as well? Yes, you can pledge your mutual fund units and take loans against them. The unit holder will have to pledge the units of his mutual funds in favour of the bank/financial institution granting him the loan . These pledged units will serve as security for the loan sanctioned by the bank/financial institution.

How does this work?

The Units of the mutual funds will have to pledged by the unit holder in favour of the concerned bank or financial institutions. The AMC will note and record such pledged units. A standard form for this purpose is normally available on request from any mutual fund.

Can you redeem your pledged units? The pledger will not be able to redeem the units that are pledged until the entity to which the units are pledged provides the written authorisation to the Mutual fund that the pledge charge may be removed. As long as units are pledged, the pledgee (bank/FI) will have the complete control over its redemption.

Does Mutual fund have any say in loan disbursement? No. It is important to understand that disbursement of such loans will be at entire discretion of the loan sanctioning authority i.e bank/financial institution/NBFC etc. The Mutual Fund will have no role to play in this regard.

Where can you get such loan? In India, as of now there are only limited companies offering this facility. However, Birla Global Asset Finance Company is an aggressive player in this segment.

NEW PENSION PLAN - FEW PROBLEM AREAS TO BE IMPROVED UPON

2009-05-12T23:54:00.001-07:00

New Pension Plan has been opened up for everyone in India with effect from 1st May 2009. While its a very good saving scheme aimed at providing everyone with an option to save for pension , it has few problems or disadvantages which the government will do well to iron out.

In my view , few of the problems with the New Pension Plan are as under:-

1. No Tax Benefit on Maturity Proceeds - New Pension Plan works on EET tax regime. This means that while the contribution and the interest on the contribution is tax free under this plan, the maturity proceeds are taxed . This is not the case with other long term savings plan like PPF, PF, NSC etc which operate on EEE (Exempt.Exempt,Exempt) tax regime. This makes the NPS a little less attractive in its current form . The government needs to bring about uniformity in tax treatment to this plan as well by making the maturity proceeds tax free.

2. Very Little Awareness about NPS- While NPS has been launched , there is not much awareness about it among the masses. This is because of the lack of promotion on part of the government. In contrast, we are inundated with promotional campaigns from insurance companies regarding their own pension schemes. Max New York will tell you "retirement ho to aisa" while Religare Aegon will urge you to find your own pension amount. The same is true for whole host of other insurance companies. But sadly, there is very little promotional effort going in towards making NPS popular. The government needs to understand that a good product by itself is not enough. It needs to be promoted well so that its received well by the masses.

3. Banks yet to sell NPS at full throttle- DNA newspaper did a reality check on the preparedness of banks nominated to sell NPS in Mumbai, by checking with the respective banks about the availability of forms etc. Most of the bank officials very not very sure about the way NPS works . This was obviously due to training issue, which is expected to be sorted out in due course. Another potential threat to success of NPS could be the danger of bank officials trying to convince the NPS customers to buy the pension plans from insurance companies. This is a possibility since banks get more as commission on insurance company's pension. PFRDA needs to keep a tab on this. Also as a customer , we need be more aware of this. Insurance company's pension plan is not same as NPS.

These problems notwithstanding, NPS is a revolutionary product which is superior to all other pension plans available in India as of now. Once these problems are sorted out, this will become even better and customer friendly.

HOW TO DEAL WITH LOAN RECOVERY AGENT'S HARASSMENT

2009-05-12T02:10:00.000-07:00

We have had number of instances where bank's and financial institution's customers were abused, badly treated and at times physically harmed as well at the hands of debt recovery agents . Nuisance of recovery agents, is a genuine concern, facing each and every borrower today. While it is obviously not correct on the part of the customer to not honour his commitment of repaying the loan , it is also to be noted that most of the loans are of long term and it is very common for people to go through bad phases financially once in a while. During such period, borrowers deserve to be treated fairly by the banks. But ,that most of the times,does not happen. So much so that , the menace of recovery agents has driven few to take the extreme step of taking one's own life, just to avoid the mental and physical disgrace meted out to them by these agents.So, the question to be asked is , is this justified? Can recovery agents do all this ? And as a borrower cant we do something about it? Well the answer to this is that obviously none of this is justifiable and in fact in most of the cases even banks don't want this to happen to their customers.It is the recovery agents , who do it . These recovery agents
are mostly from an outsourced agency ,not banks employees hence the bank has limited control over them. However this does not absolve the banks from their responsibility. And as a customer there are lot of things that you can do to ensure that none of this ever happens to you.
In order to deal with recovery agents better, you must know and understand the broad guidelines RBI has issued in this regard. These are the guidelines which every bank/financial institution must follow.

1. Banks are supposed to carry out due diligence before recruiting agents. They have to do detailed background check on the agents, which includes police verification as well, to ensure that they don't end up recruiting anti social elements as their recovery agents.

2. The banks are supposed to inform the customer the details of the agent before handing over the customers details to the agent. In case this is not possible, the agent is supposed to carry the letter from bank mentioning all his details when he meets the cutomer.

3.Banks are required to record all the calls made to the customer by the agent and vice versa.

4. Banks are required to ensure that the agents don't resort to any form of abuse either physical or verbal, with the customer.

5.Recovery agents are not supposed to make visits at the customers place at late hours in the night.

6. Banks must resolve all the complaints received against the agents within stipulated time frame.
Now , you have a fair idea of the broad jurisdiction in which a recovery agent is supposed to carry out his duties on the bahalf of the bank. Ideally, no one should ever be harassed or hurt by an agent because the RBI guidelines say so. But, we don't live in an ideal world and hence we need to be prepared for the worst. So what can you do ? Try this.

1.Avoid taking loans from private banks - As far as possible , you should avoid taking loans from private banks. This is because , In India at least, most of the public sector banks have a better record when it comes to dealing with delinquent customers as compared to the private banks. The fact that public sector banks are owned and controlled by banks means that they stick to the guidelines laid down by RBI much more than private banks. Private banks , in their quest of maximising profits, put unnecessary pressure on recovery agents to recover money anyhow , which leads them to resort to arm twisting tactics. In fact,if you notice, all the major incidents of harassment at the hands of recovery agents have happened to the customers of private banks like ICICI, Citibank etc. So my first advice would be to stay clear of private banks while taking any loan. As they say ,prevention is better than cure.

2.Inform the bank - In most of the cases, the recovery agents resort to arm twisting tactics without the bank's
mandate to do so. They do it on their own . So if you get into such a situation ever, first thing to do is to inform
the local bank branch about this incident. Make a formal complaint with the bank manager Have a copy of the
complaint letter acknowledged by the bank officials. This will ensure that the banks put pressure on the agency
handling your case not to harass you in future. These days RBI is very strict on banks failing to protect
customers right against recovery agents and as such banks will take your complaint seriously.

3.Record the abusive calls- Sometimes the agents call the customer and abuse them. On phones they are more abusive because they know that you cant reach them (since they call from call centre location of which they wont tell) and also of the times they call using fake names. While banks are supposed to record all the calls made to the customer, you cant always be sure of that. Hence it makes sense to record the abusive calls from the agents. You can use this as an evidence against them.

4. Lodge a Complaint to the Police - Since harassing a person is an offence, you can also take police's help in dealing with the agents. If they continue to harass you , lodge a complaint with the police.The agents are generally very wary of the police and hence this works almost at all times.

5.Move Banking Ombudsman - You can also approach the banking ombudsman with your complaint. But before you approach them ,make sure that you have approached the bank with your complaint and given them sufficient time to resolve it.

6.Go legal - You can also file a legal case against the recovery agent/agency as well. You can make the relevant
bank a party to it as well.

7.Approach Media - As a last resort,you can approach the media. Most of the banks do not want any negative
publicity and as such would like to do everything possible to avoid that. Use the power of media , if all other
channels fail you.

But, these measures are meant to cure the symptoms only, not the disease. Hence , the most effective and long lasting cure to this menace is to pay off the debt. Remember, banks have lent you money when you needed it and hence now you must pay it back. In case of financial stress, you may approach the bank officials and they will be more than happy to help you by restructuring your loan terms etc.

OBAMA'S PUSH FOR REFORMS IN CREDIT CARD INDUSTRY - INDIA WILL DO WELL TO EMULATE THIS

2009-05-11T00:09:00.000-07:00

US President Barack Obama is pushing for a legislation to control the unfair rate hikes and penalties levied by the credit card companies in US. As of now, the biggest complaint against credit card companies is that they rip off customers at will and there are far too many hidden charges in a credit card. The same is also true in India. Here too the credit cards companies have been charging interest rates as per their own whims and fancy. There is no benchmark and the rates charged on credit cards can vary from 36% to 45% pa. These are atrociously high interest rates.Worse is that the credit card companies reserve the right of increasing the interest rate at any time with them. Also there is no uniformity in the penalties like late fees , cheque bounce charges etc that are charged to a credit card user. To top it all , there are issues of sales malpractices being used by company representatives to push card sales which ultimately harms the user financially.
So, India too needs to take a cue from Mr Obama and push for greater clarity and uniformity in credit card industry in India. The RBI in India did try to restrict the maximum interest rate that banks can charge on the credit cards , but , the same is yet to be implemented as Banks association are against it. There are quite a few issues in the way credit card companies work and needs to be corrected. Lets look at some of the major problems facing the credit card customers and the possible solutions to it.

1.No uniformity and ceiling in the interest rates charged - As of now, there is no maximum limit on the interest rate that a bank can charge on the credit cards. Also the rates vary a great deal between banks . The interest rates on credit cards can vary from 35% p.a. to 50% p.a.

Solution - The RBI/government needs to fix a ceiling on the maximum interest rate, that credit cards can charge to their customers. This was done by RBI but the Banks Association went to court against it. Also the banks need to charge similar rates to all the credit card customers. Any differential pricing must be based on customer's credit worthiness only . For example, banks ,may charge higher rate to a person having lower credit score than a person having higher credit score. But, this must also be told to the customer so that they know why they are charged the rate that they are on their cards.
2. Banks can change the interest rate at any point in time - The banks reserve the right to change the interest rate at any point in time without giving any notice to the customer. So effectively, banks can increase the interest rates whenever they want without really bothering to inform the customer.This is case of high handedness on the part of banks and must be done away with.

Solution- The banks must be forced to inform the customer about any change in the credit terms before implementing it. Also they must give notice period of at least 30 days before they implement this. This will ensure that those who don't agree with changed credit terms have an option to pay off the outstanding balance and exit out of the credit card by surrendering it.
3.Uniformity in the penalties imposed - Credit card issuers charge penalties like late payment fee, cheque dishonour fee etc to the customer. These charges are necessary to ensure that customers behave rationally, but, the charges need to have some sort of uniformity between the various credit card issuers. As of now there is great deal of variation in these charges charged by banks.

Solution - RBI can mandate minimum and maximum limit on each of these charges so as to protect the customers from being fleeced by the banks.

MY ARTICLE IN CARNIVAL OF PERSONAL FINANCE

2009-05-09T12:04:00.000-07:00

My article on "Benefits of using Credit Card Wisely" was selected and featured in the "Carnival of Personal Finance". You can read the article here.

HOW MANY FUNDS SHOULD YOU HAVE IN YOUR MUTUAL FUND PORTFOLIO?

2009-05-09T01:09:00.000-07:00

Mutual funds have always been a preferred choice of investment for people all across the world. In India too, mutual funds are quite popular as an investment option. We all know that mutual funds offer us the benefit of diversification,professional management of funds etc . But, its not clear to a lot of people on the number of funds they should invest in.Should they invest in just 1 mutual fund scheme or should have more than 1 mutual funds in their portfolio? And if more than 1 then how many? Whats the reasonable number which offers an investor best value for his money?Well, the answer to this is that one should look at having more than one mutual funds for sure in their portfolio, as investing in just one mutual fund would expose them to the risk of concentrated investment. While mutual funds do invest in various stocks and are thus diversified to that extent, one also needs to invest in multiple schemes to ensure that their investments gets diversified also in terms of fund house managing the fund, the fund manager etc.
So whats the most ideal number? The most ideal number should be about 5-6 funds at the most for an investor looking to invest in mutual funds. One should look at having following 6 funds in their portfolio

1. Diversified equity fund - 2 funds

2. Tax saving Funds - 2 funds

3. Aggressive Equity fund - 1 fund

4. Income Fund - 1fund
1. Diversified Equity fund - Diversified equity funds invest their money in stocks of companies from various sectors . They also diversify their investment by investing in large caps, medium and small caps. Thus, these funds are well diversified and offer greater stability to the investor against market volatility. One can choose any 5 star rated equity diversified fund from morningstart.com or valueresearchonline.com. I suggest that one should have 2 well diversified equity funds in one's portfolio.Some of the well diversified equity funds are - HDFC Top 20, Magnum Contra
2. Tax Saving Funds (ELSS) - Tax saving is an importatnt aspect driving investments as such everyone needs to invest for the purpose of tax planning or tax saving, in India. Thus investing in ELSS or tax saving mutual funds is a must for most of us. To meet this goal one should invest in two ELSS funds which are the best in their class. As per valueresearchonline.com SBI Magnum Tax Saver and Sundaram BNP Tax Saver are among the best ELSS in India. One can choose any 2, 5 star rated ELSS fund.

3. Aggressive Equity Fund - While planning one's investment, one also needs to plan for wealth creation over a period of time along with safety of the investments. Aggressive equity funds provide an excellent opportunity to create wealth over a long period of time and as such one must have atleast one such fund in their portfolio. I would suggest Kotak Opportunities fund looking at its past performance.

4. Income Fund - Any portfolio without debt component is a skewed portfolio. To balance it out and make it more stable one also needs to have an income fund in their investment portfolio. Income funds invest in debt instruments and as such are relatively less volatile and safer. Among the best liquid funds is Canara Rebecco Income fund. One can choose any 5 star rated income fund.
These 6 funds will ensure that your portfolio is well diversified but not too diversified and cluttered as it can become with more funds. Also it will let you have better idea of your investments and its performance. tracking the funds performance becomes easier as well. It also does not have any exposure to any thematic fund and as such this is a better, balanced and safer approach to investing.

BEST MUTUAL FUNDS IN INDIA

2009-05-07T23:47:00.000-07:00

Outlook money -Morningstar ratings have come up with names of mutual funds which has been stellar performer in the last 12 months. This is critical, considering last 12 months have been amongst the worst 12 months for stock markets in a long long time. The markets lost almost 60% of its wealth at its Oct lows before regaining some ground in April 09. So lets look at the best mutual funds in the year gone by, as per Outlook Money- Morningstar ratings.

A. EQUITY

1.Equity - Large Cap -DSP BlackRock Top 100 (DBT100)-It returned 64 per cent against 57 per cent by the category in a raging bull market in 2007, it fell by just 45.5 per cent against 53 per cent by the category, in 2008.

2.Equity—Mid- and Small-Cap. DSP BlackRock Equity (DBRE) tops.

3.Equity-linked Savings Schemes (ELSS). -Sundaram BNP Taxsaver.

B. HYBRID

1. Equity—Conservative Allocation.-UTI Mahila Unit (UMU)

2. Equity—Moderate Allocation.-ICICI Prudential Child Care-Study (IPCCS)

C. DEBT

1. Bond—Medium-Term-Canara Robeco Income (CRI) and Canara Robeco Gilt PGS

2.Bond—Long-Term-IDFC Dynamic Bond (IDB)

3.Bond—Short-Term-JM Short Term

D. LIQUID- LIC MF Liquid’s (LML)
So, depending on your risk appetite and investment horizon (equity - riskier while debt is safest) you will do good to have a look at these mutual funds for your investment, as they have been category toppers in difficult times. However, the standard disclaimer is that mutual fund's past performance, that too only of 1 year is not a good enough indicator of its future performance. You may also check the shortlisted fund's 5 year performance and performance since inception as well. The same cane be checked at morningstar website or valueresearchonline.com

BANKS DEDUCTING TDS ON YOUR DEPOSIT INTEREST? TRY FORM 15G

2009-05-07T02:30:00.000-07:00

Banks follow a practice of deducting TDS on the interest payouts on the deposits (like FD etc)of their customers ,before making the interest payout. This is as per the law, which banks follow. But, this also causes problem to lot of people , who are not in the tax paying income bracket i.e thier annual income is not above Rs 1.5 lakhs for males and Rs 1.8 lakhs for females. All such people, who are not in the tax paying bracket , are not supposed to pay any income tax on the interest earned over thier deposits with the banks. But , banks still deduct TDS on the interest and the same has to be claimed by the assessee while filing his/her income tax return. The income tax department, however, refunds this later.

All this casuses lot of inconvenience to the common man, who has to go through arduous process of TDS refunds from IT department. However, acknowledging this fact, IT department has provided for a way out for all such people . Those whose annual income is below the taxable income limit prescribed the government can submit Form 15G to their banks asking them not to deduct TDS on their income interest. This form can be downloaded from the incometax website.

After you submit this form, the banks will not deduct TDS on the interest earned and you can then save yourslef from the misery of going through the whole process of claiming refund from IT dept. However, for all those whose annual income is withing tax payable limit, this is not applicable.

NOW NANO HOMES FOR YOU FROM TATA

2009-05-06T07:51:00.000-07:00

After stunning the whole world with the launch of ultra low cost passenger car "Nano" , TATA group is out to bring about a revolution in the field of housing in India. TATA group has launched a new low cost housing project in Boisar near Mumbai where the the company will build 1000 low cost flats. The flats will be of one room kitchen,large one room kitchen and 1 BHK sizes. The clincher in this project like the Nano car project will be its price tag. The prices of these flats would range from Rs 3.9 Lakhs to 6.7 lakhs only.

This kind of price range for housing in India was unheard of till now and as such this might bring about a revolution in low cost housing in India. The company will also build similar projects in Delhi and Bangalore.

The bookings for this can be done from State Bank of India branches , like Nano car bookings. Also the booking amount is kept at Rs 10000 only. This project is aimed at meeting the housing demands of lower income group who did not have much of an option till now.

Many developers have been claiming of coming up with low cost housing projects, but, nothing which has come till now has been "low cost". Off course TATA 's have corrected this.

HEALTH INSURANCE TO BECOME BETTER AND MORE TRANSPARENT

2009-05-05T23:45:00.000-07:00

From June 1 2009, IRDA has mandated each of the health insurance providers to come clean on the policy renewal terms and conditions. It has laid down certain conditions which will go a long way in making the experience of having health insurance easier,better and more transparent for the end user.The notable changes that will result due to IRDA's instructions are as under:-
1. Insurers will have to clearly indicate the maximum age till which the policy will be renewed - The insurers as of now, only mention the minimum and maximum age of entry, in a plan along with the premium charges. They are however silent on the age till which they will renew the policy. The general understanding is that the company will renew the policy till the insured person achieves the maximum age . However , this does not happen in all cases. And
hence, now IRDA has mandated that all the health insurance providers will have to clearly state the age till which the plan will be renewed in the policy document.

2. Companies can not decline policy renewal on any ground except fraud- This is the biggest change that IRDA has brought about. There were numerous cases of companies declining the renewal of policies to its existing polciholders on grounds which were frivolous at best.They did so to avoid renewing policies where chances of claim were deemed higher. Now every insurer will have to renew the plan unless there is an issue of fraud being committed by the customer/insured person.Now, if the policy document mentions that an insured person can renew the plan till age 75, the insurer can’t refuse him a cover or nudge him into a different plan.

3.Grace period of 15 days to renew the lapsed policy- As of now, there are few companies which provide grace period after the last date of renewal of premium is over. At the same time , some companies still don't provide any such grace period and issue a fresh policy to policyholder after his earlier policy expires. In order to streamline this process, now IRDA has mandated that all the companies will have to provide 15 days grace period for renewing the policy.Here, a renewal would mean continuity in the cover. So, all pre-existing diseases covered under the policy would continue to remain covered after the renewal. Also, other benefits, such as the no-claim bonus and waiver of initial waiting period would continue.

All these changes are meant for health insurers only. This does not apply to life insurance companies or policies.