Financial Planning Academy

Importance of Managing Personal Finances

2013-04-01T02:36:00.000-07:00

1. Establish your budget

Before creating a budget, review your financial history. Using bank and credit card statements identify both how much income you take in, and how much you typically spend on expenses. Compile the financial information into two separate categories: expected income and expected expenses. Expected income should include wages, self-employment income, investment income and other sources of income. Next, list expected expenses such as mortgage or rent, utilities, and cable and cellphone costs. Lastly, subtract expected expenses from expected income to determine the amount you have available after expenses are paid. The available amount should be put away for rainy days, used to pay down debt or applied to other financial goals.

2. Separate the necessities from the wants

Further separate your expected expenses into two additional categories: discretionary expenses and non discretionary expenses. Discretionary expenses are simply "wants," such as entertainment, dining out or gym memberships. Non discretionary expenses are necessities, such as rent, utilities and groceries.

3. Track your expenses

Periodically update your budget to list the actual expenses for each category. Compare budgeted amounts with actual spending. If you are tech-savvy, use Smartphone budgeting applications to help you keep track of expenses. Or, if you enjoy recording the old-fashioned way, keep a notepad to document your expenses.

4. Review and adjust frequently

Prepare a budget at the beginning of each month or every pay cycle. This gives you an opportunity to review your prior month's budget and identify areas where you need to control spending. Make any adjustments necessary to help you reach financial goals, such as saving or reducing debt.

5. Budget for life's pleasures

Consider planning for certain indulgences, such as date nights, or a new dress or pair of shoes. Planning ahead of time will help you understand what you can afford, and also serves as a reminder to treat yourself every now and then.

What is Estate Planning? Why everyone needs Estate Planning?

2013-03-30T00:02:00.000-07:00

When people hear the words “estate planning”, they often think it only applies to the rich and famous or those who have the potential of a taxable estate. This is a common misconception.Everyone, regardless of their net worth, needs to prepare some basic estate planning documents. Basic estate planning documents not only direct how your assets will be distributed upon your death but can also carry out your final medical wishes. Most importantly, these basic estate planning tools can help protect your loved ones during a difficult time.

Here are the two tools you should have:

Will – This is a legal document that lays out the distribution of your personal property after you die. You choose the person, your personal representative, who will oversee your estate as it goes through probate. A will not only protects your physical assets but also any children you have as a will allows you to appoint a legal guardian, rather than letting the court make this decision. A will must be drafted by a lawyer who can ensure that your will meets your home states legal requirements.

Living Trust – This is a legal entity where you are able to transfer title of your property during your lifetime. The first major benefit is you maintain control over all of the assets transferred to the living trust during your life. You also choose who the trustee of your living trust will be when you die. The trustee ensures, after your death, your assets are distributed to the named beneficiaries. The second major benefit of a living trust is that this trust avoids probate, which can be costly and time consuming.

What Is the Importance of Investing?

2013-03-29T05:48:00.000-07:00

Investment gives your business essential the capital that it needs to get off the ground (if you're a start-up) or to get to the next level (if you're more established). It can mean the difference between success and failure, or between reaching your full potential and only getting partly close to it.

The importance of investing cannot be overstated. Money is a fluid thing. Something worth one dollar one day could cost significantly more the next day. This is because history shows us that things always cost more over time. When you view this dynamic over years and decades, it becomes obvious that doing nothing with your money will cause it to lose its buying power. It is therefore important to invest to make your money grow rather than shrink.

Investing is also a way to help save money for a major purchase. This can be for a home, car or vacation. The more your money grows while it is invested, the faster you will reach your investing goal. Like the emergency fund, the investment should have as high a growth potential as possible without having too much risk. However, if the savings goal will take you several years to achieve, it is worth considering a little more risk in exchange for a little better return.

Investing is especially important for long term savings goals. The best example of this is college savings for children. The most important reason to invest is for retirement. When your working days are over you will need money to survive. Retirement investing has the longest time horizon of all. As a result, you can afford to take chances while you are young. As with college savings, you should shift to more conservative investments as you approach retirement age.

If you don't start investing now, expect to be in the poor house later.

There are many investment calculator tools available online. Investment calculator can help you plan your way to overcome the requirements identified by you in the Savings and Retirement Needs calculators.

Here is one of the investment calculator.

http://www.inglife.co.in/planningtools/planningtools-achieving.shtml#

Importance of Certified Financial Planner

2013-03-25T06:02:00.000-07:00

CERTIFIED FINANCIAL PLANNER Certification (CFP) is a mark of excellence granted to individuals who meet the stringent standards of education, examination, experience and ethics. It is the most prestigious and internationally accepted Financial Planning qualification recognized and respected by the global financial community.

CERTIFIED FINANCIAL PLANNER is marks which help you identify Financial Planners who are committed to competent and ethical behaviour when providing Financial Planning services. CFP practitioners have taken the extra step to demonstrate their professionalism by voluntarily submitting to the rigorous CFP certification process. In addition to significant education and experience requirements, they must pass a comprehensive exam that tests their personal Financial Planning knowledge and skills, continually update their abilities and abide by FPSB India Code of Ethics and Professional Responsibility (Code of Ethics) and Financial Planning Practice Standards (Practice Standards).

CFP practitioners can work in several settings including small Financial Planning practices, large financial services firms, banks and other financial institutions. The Certified Financial Planner (CFP®) designation can be of critical importance for reasons that are largely hidden by the financial services industry.

When it comes to ethics and professional responsibility, Certified Financial Planner™ professionals are held to the highest of standards. CFP Board's Code of Ethics outlines CFP® professionals' obligations to uphold principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence.

Importance of Financial Management

2013-03-20T23:15:00.000-07:00

Financial management is very important or significant because it is related to funds of company. Financial management guides to finance manager to make optimum position of funds.

With study of financial management, we can protect our business from pre-carious mismanagement of money. Suppose, you are small businessman and you took short-term loan and financed fixed assets with this loan. It means, you have to pay loan within one year but fixed assets cannot be sold within one year. In the end of year, you have not enough money to pay this long term debt and this will create risk to your business’s existence. You will become insolvent. This is the simple example of mismanagement of money in your small business, but we do large scale company business, importance of financial management is greater than small business. We should invest in fixed asset if there is any other source of funds. In financial management, we make optimum capital structure and we should buy all fixed assets out of share capital money because, it will reduce the risk of repayment.

In financial management, we deeply study our balance sheet and all sensitive facts should be watched which can endanger our business into loss. For example, a closing balance sheet shows you, you have to pay large amount of debt in next year and you have blocked all the money by purchasing goods or inventory. Financial management teaches you that this is not good outflow of funds which is invested in inventory. Blocked inventory never generate earning and your balance sheet’s stock value gives you idea that your company is not capable to sell products quickly. Financial manager can elucidate you that overstocking will increase go down expenses one side and it is also risky due to the danger of damage the stock. Moreover, it increases risk of liquidity. Inventory management is the part of financial management and merely using inventory management can be the best way to solve the problem of overstocking.

Financial management works under two theories. One theory reins bad sources of fund. This theory elucidates us that we should think cost, risk and control and these should be minimum when we get money from others. Only financial management makes good financial structure to minimize cost, risk and control of borrowed money. Second theory clarifies us that we should think about time, risk and return before investing our money. Our ROI should be more than our cost of capital. Our risk of investment should be least. We should get our money with high return within very short-period. All above things can be possible only after study financial management.

Achieve your financial goal with right investment approach and knowledge.

2013-03-15T23:54:00.000-07:00

We all dream to be financially stress free, have a larger than life retirement, leave a fortune for our heirs etc. These are some of our major life goals and can be achieved with the right investment approach and knowledge. However the problem occurs when these investments go for a toss and one needs to compromise or give up on achieving their future goals. Most of our investments are either emotionally driven or instinct based. Even today when one wants to make an investment they will go to their father’s friend’s cousin for a tip, invest in the same and will realize after 10 years that the rate of return was as good as keeping the money in a savings bank account. When it comes to purchasing a life insurance policy or mediclaim one will go to their family insurance agent who will sell the policy that gives him a higher commission than the policy which is actually required for the client and all this without any calculations or need analysis.
Your money is lying in the savings account but not being invested: it is a very good habit to have a contingency fund in case of any loss of income. However most of us keep their entire earning in the savings a/c where the rate of return is too low. This will keep your money safe and liquid but with very little growth. Thus it is essential to invest your income in a better investment instrument which will give you a high rate of return to achieve your financial goals in time.

Your insurance cover is higher than you actually required: the amount of life insurance cover required should not be decided by your insurance agent but should to be calculated as per your need analysis i.e. the sum of projected cash flow required by the dependents, corpus for important goals and liabilities if any. Also if your investments add up to the total cover calculated you may not require life insurance. One may think that the higher the insurance cover the more secured one’s dependents will be, but one does not realize that higher the cover higher will be the premium, instead of paying high premium the same can be invested in a better instrument for a better future goal. Life insurance is not taken for self but for his/her dependents in case of any unfortunate demise of the bread earner. Thus one with no dependents does not require life insurance.

Your life insurance cover is not enough for your dependents: life insurance need analysis gives you an approx amount of cover you require. One is satisfied with 10 policies bought from their agent but do not bother to find whether the total sum assured is even close to their actual cover required. You may not realize now as you are happy with your 10 plus policies but the total sum assured may be too low for your dependents to survive after you or the entire sum assured is washed off in paying your liabilities. One may not be able to purchase more policies as they are already paying high premiums for their current policies, thus for life cover a term insurance policy should be considered as it is pure insurance with very low premium.

Save yourself before you fall in a debt trap: the psychological concept of instant gratification is the start of building a debt trap for yourself. You see some new expensive gadget in the market but currently you are not able to purchase by cash due to tight budget and so you will not think once before swiping your credit card. This will make you a proud owner of the “expensive gadget” but with a liability and in case you forget or are not able to pay your credit card bill on time you have just increased your liability. A good loan will help you build an asset but a bad or the ugly one will erode your money in no time and you may not be able to get out of the debt trap. Thus it is very essential to think twice before taking a loan and why is it required.

Lower the risk, the lower will be the returns: Most of us are risk averse and invest only in risk free instruments. Since risk and returns go hand in hand the lower the risk, the lower will be your returns. Thus manageable risks should be taken to get high returns to build a good corpus for your goals. Risk profiling is required for everyone, as you never know your current financial status may allow you a take a moderate risk and this will let your investment grow at a very high rate.

Long term goals also require attention: monitoring and reviewing your goals is something which gets easily forgotten. However it is essential to review your investments especially when the goals are long term. Long term goals can be 10, 15 or 20 years from now, investments for long term needs to be reviewed regularly and if required re-allocation should also be done. Rebalancing your portfolio is a must, in case you have invested in equity for a particular goal, your corpus needs to be shifted to debt few years before achieving the goals. This will help you keep your money safe and lower the risk when approaching the goal.

Financial advisor with his experience will help you make the right investment,purchase life insurance policy which is best for your dependents and can also save you from falling for a bad investment instrument or an expensive insurance policy with the help of his knowledge for the same.

Career options in financial sector.

2013-03-13T00:03:00.000-07:00

A career in financial sector means you would like to work as a financial manager, financial planner and look after the business financial aspects. If you specialize in finance major or minor in your management courses a wide variety of careers are open to you. “let us discuss few careers opportunity available in finance today in India.

Financial planning: A financial planner deals with planning for financial future of the firm. A good financial planner understands, capital market investment, money market investment, real estate, taxes investment basics, there are lot of jobs opportunities available in the above fields as financial planner.

Corporate finance: means a person work as financial manager. Financial manager play important role in planning, designing, implementing and monitoring financial plan & policies and procedure and executing various financial decisions. Corporate financial manager also look out for low cost funds and search profitable investment opportunity in the market.

Commercial and retail banking: today banking industry (SBI, ICICI, HDFC, PNB) are hiring largest number of employers as compared to any other part of the financial service industry. Now recruitment in banking is focusing more on management trainers in field of marketing, finance, HR and financial analyst.

Insurance: the various aspect of insurance are life insurance, loss by fire , theft, accident, medical insurance provides job in marketing distribution ,underwriting , operation . Risk and insurance management job in insurance involves variety of areas working as sales representative, an assets manager, an actuary or provides customer services.

Real estate: real estate field provide jobs in construction real estate appraisal, property management, leasing and brokerage and leasing and development of real estate.

International finance: companies are more interested to appoint financial professional who understand the global business environment and their operation. These financial professional helps companies deal with risk and return associated with company due to international operation and trade practices.

Investment banking: An investment bank is financial institutions that provide investment and other financial advisory services to corporation and high net worth individual’s job in basic includes financing for clients, deal structuring in merger acquisition, as a consultant and advisory services for corporate restructuring. Some investment banks are HSBC, Kotak investment.

Mutual Fund: Mutual fund in India has emerged as critical institutional linkage among various financial segments like saving, capital formation and the corporate sector.

What is true financial planning?

2013-03-08T04:32:00.001-08:00

Financial Planning has become a buzzword in the financial services industry nowadays. Banks, insurance companies, mutual fund companies, etc use this term a lot these days. An insurance agent will call himself a financial planner & a big bank may offer financial planning services. But what are they providing under the term financial planning. Most of them just use the term ‘financial planning’ very superficially & are actually just selling financial products. So an insurance agent will just sell you another Unit linked insurance plan saying that this is offering best returns, giving tax benefits & it is the best financial planning you can get. The question of insurance is usually omitted, ironically.

Banks which offer financial planning are actually just selling mutual fund schemes, portfolio management schemes or any new scheme which they can get their hands on. There are some who do give you a written document known as a ‘financial plan’ but this usually does not give you any insight on your finances but is usually a more polished way of telling you what to buy. The reason for this is that most of them earn good commissions on sales made. The question of good, practical & unbiased advice for consumers is very much absent.

Financial planning is a systematic approach to your personal finances. When you have a target, you tend to work towards it. Thus when you write down your financial goals such as comfortable retirement, child’s education or even a dream vacation, you have visualized a target. Then you need to see where you stand. This means seeing your current financial status i.e. income, expenses, assets & liabilities. These are just like the four legs of a table. The table being in this case, your financial plan. The next step is to bridge these two i.e. where you are & where you want to be. An unbiased approach is of importance here. You may or may not need a product. If you need a product, the best should be advised.

Only with a proper financial plan will you be able to understand what needs to be done to achieve financial nirvana. This is ‘true’ financial planning!

Diversification – A risk management strategy

2013-03-02T00:29:00.003-08:00

‘Don’t put all your eggs in one basket’ is a saying that simply explains what diversification is.

Diversification is the process of spreading your investments across different asset classes, countries, industries, and individual companies. It is a technique used to reduce the risk arising from holding an single asset in your portfolio.

A portfolio should be well diversified and consist of a combination of assets, to reduce the overall expected risk. By spreading out the risk, you lower the odds of all your investments falling at once, as all assets do not move in the same direction and grow at the same rate in a particular period of time. There are various sophisticated techniques used by professionals to construct a well diversified portfolio.

A few simple facts you could bear in mind to achieve a certain a level of diversification in your portfolio.

The traditional way to diversify is by investing across asset classes, such as equity, debt, real estate etc., as per your investor profile. You could also invest in alternative assets such as precious metals and other collectibles to further broaden your portfolio. The drivers of each asset class vary, hence you should construct a portfolio comprising of assets that move differently in different economic conditions. You can also diversify your investments within an asset class itself. You should invest in stocks of different sectors and industries, as each company is exposed to individual risks of its own. While certain economic conditions might be conducive for the growth of a particular industry or company, another stock might fall under the same conditions. Thus your portfolio must consist of a variety of stocks from varying industries to achieve proper diversification.

You can also diversify your portfolio by investing across geographies worldwide, as each region is exposed to a different set of regional risks, and has a different growth cycle from other economies. Thus by investing across regions the risk of making losses from a particular underperforming economy could get offset by the gains from another booming economy. In today’s globalised markets it has become much simpler to invest overseas, through various foreign funds and also through mutual funds that invest in foreign markets.

Diversification has become even more important today, as in volatile markets asset classes move differently, some move up some come crashing down. In such challenging times diversification can significantly reduce the risk arising from exposure to an individual asset class.

As a retail investor, you can take advantage of diversification by investing even in small amounts in well balanced mutual funds.

However, you must be careful not to over diversify, as over diversification can reduce the expected returns to very low levels.

It is also important to remember that no matter how diversified your portfolio is, the risk can never be eliminated completely, it can only be reduced. Therefore you must construct your portfolio in accordance with your investment goals, time horizon and risk appetite.

Are you aware about your liability to pay Wealth Tax?

2013-03-01T04:31:00.001-08:00

The word “Wealth Tax” itself is self explanatory, it is the tax imposed on the net wealth of an individual. However understanding the meaning to wealth in context of Wealth Tax is very important. Wealth is the monetary value i.e. the market value on the date of tax assessment of all the assets owned by an individual, HUF or company. Every individual and HUF whose net wealth as on March 31 exceeds Rs 30 lacs is required to pay wealth tax @1% of the amount that exceeds Rs30 lacs. Wealth tax is another type of direct tax by which tax is imposed on individuals falling under its purview. It is an annual tax like income tax.

Chargeability to wealth tax depends on the residential status of the assesses similar to the residential status for the purpose of the Income Tax. Net wealth means taxable wealth. Net wealth is the aggregate value of all the assets minus any loans taken in order to purchase these assets.

The assets that are subject to wealth tax are:- Guesthouse, farm-house and residential complex , valuable items like jewellery and any items made up of precious metals like gold, silver, platinum or any other precious metals, aircrafts, yachts, boats that is used for non-commercial purpose, cash in hand that is more than 50,000, for individual and Hindu undivided families, Motor car owned by an individual, Any urban land situated in the jurisdiction where there is a total population of ten thousand as per last census or within 8 kms of such jurisdiction.

There are some assets which are exempted from the list of wealth tax:- One house is exempt from wealth tax. This is the house you live in, air craft, boat or car used for business purpose provided by the company, furniture, apparels and electronic items that is for personal use, accommodation provided by the company or organization to its employee, the annual salary of the employee is less than Rs 500,000, any land donated for the religious purpose or to charitable trust, any property that is given out on rent for at least 300 days in the year, A residential or commercial house, jewellery, bullion and other precious articles, used as stock-in-trade, Any house occupied by the assessee for the purpose of his business or profession, Any property in the nature of commercial establishment or complexes, Urban land on which construction is not permissible.

To file Wealth tax is similar to filling Income Tax. Also before filing a wealth tax all the essential documents should be attached with the form A. Thus if u fall under the bracket of paying Wealth Tax one should not ignore it. The penalty for the same is 1% interest for every month of delay. Tax evasion invites penalty ranging from 100% to 500% of the evaded amount. Wealth tax returns have to be filed by 31 July.

5 Tips To Enter The Investing World

2013-02-21T04:15:00.000-08:00

If you want your money to grow and make you rich, you need to invest it. Think out of the box and experiment with the papers (or so called currencies) in your pocket. As Oscar Wilde said, "Anyone who lives within their means suffers from a lack of imagination."

Save Some Money To Begin With:

Build an emergency fund and start saving. This amount should be enough if you meet any financial loss in the near future. Once you are done with it, and then start keeping some money aside after your monthly expenses, which will make your way into the investment world.

Gain Some Financial Knowledge:

Don't be afraid if you don't about making money with investments. What you lack is only knowledge. Rest all you have got. Don’t be shy to discuss about money matters with your elders or friends. Meet a financial advisor. Explain what and how much asset you have got and how you want to use to make wealth.

Do a Proper Homework:

Don’t pretend that the knowledge gained from a financial advisor will make you wise enough to read the pulse of the market. Do not be overconfident. Sit and analyze the market. Keep a proper track of popular stocks.

Be Ready To Take Risk:

Risk is a formidable factor of the stock market. But you should be open to take risk to gamble in the market. It is not recommended to take a high risk. Being in the market you can also face loss. Even in such case, you should not think and regret about it for long. Learn from your experience, and rectify the faults and re-enter the market.

Don't Go With the Trend:

Once you know to sense the market, don't tend to ignore analyzing the market. There is always new new information roaming in the market. Neither believe them nor disrespect them. Evaluate the facts and cross check to come to an conclusion. Just don’t go with the trend. Just don’t follow because others are following it. This can be a biggest mistake of yours; even bigger than taking risk.

Is Financial Planning the Right Career for You?

2013-02-19T04:45:00.003-08:00

Take this quiz to help you find out:

1. How comfortable are you with making sales?

A. I could sell my grandmother a ticket to a SuperNova concert with no guarantee that she'll enjoy the performance.

B. I could sell my grandmother that SuperNova ticket, but I would feel guilty if she didn't like the show.

C. Only a bad person would sell his or her grandmother a SuperNova ticket.

2. At what stage of life are you?

A. I just graduated from college.

B. I've been out of school for a few years.

C. I've been in my line of work for several years, but I'm ready for a change.

3. How much of an extrovert are you?

A. I have been the president of nearly every club I have ever joined.

B. I have enough friends to make me happy.

C. A good book, a room to myself and no interruptions is my idea of heaven.

4. You could be described as:

A. both analytically and a good communicator.

B. analytically, but not a good communicator, or a good communicator, but not analytically.

C. neither analytically, nor a good communicator.

5. At work, I prefer to do my job:

A. completely independently

B. somewhat independently.

C. as part of a team.

6. What appeals most to me about becoming a planner is:

A. the challenge of building a client base.

B. the creation of my own business.

C. the analysis of investments.

7. According to the Bureau of Labor Statistics, the median annual income for financial planners was $64,750 in 2010 - this includes commission income. How do you feel about that?

A. I've never been average and I'll earn more than the median.

B. That would work for me.

C. Working for commissions only makes me nervous

Results

If you answered mostly "As", then financial planning could be the right career for you. You're energized, not terrified, by the idea of earning a substantial amount of your compensation through commissions. If you have the right connections and the energy level to work that network, you could succeed in this tough career.

If you answered mostly Bs, then you need a back-up plan. Financial planning might work, but you're likely to end up among the 80% of planners who, according to William F. Cole's "The Complete Financial Advisor," is in the business for less than five years. When sales don't work out, what will you do next and how will you sell yourself to your next employer?

If you answered mostly Cs, don't even think about financial planning. If you love the portfolio analysis side, consider working as a financial analyst. If math is your strong subject, go into financial engineering or quantitative analysis. You'll make more money without having to sell all day long.

Does checking your CIBIL report pull down your credit score?

2013-02-08T03:06:00.003-08:00

When Ishaan Patkar, a Mumbai-based banker wanted to apply for a top-up loan a couple of years after he took a home loan, his loan agent stopped him from getting his personalized credit score.

"The loan agent said that it would bring my credit score down. I was scared. So I did not apply," said Patkar. This is a very common myth doing rounds in the country today.

When someone tells you a "funda" like that think twice. It's your own score. A credit report shows your credit worthiness. If you do not have a right over it nobody does. What you need to know is that your credit score goes down if more than one lender pulls up your score constantly. You personalized credit score from Credit Information Bureau of India Limited (Cibil) will give you a list people who pulled out your score recently.

In fact by making a loan application you are indirectly giving a lender the right to check your credit worthiness. So, it is also necessary to make sure that a lender is not pulling up their credit report without your consent.

It is imperative that individuals check their credit report regularly to make sure it's up to date and accurately reflects their circumstances. Mistakes can hurt their credit rating. If there are any inaccuracies in your report, raise a dispute immediately.

Get in touch with a bank that has not updated your records. In worst cases banks can be penalized too if they refuse to correct your records.

These days, everybody who cares about their financial health has to check their credit score periodically. Globally telecom companies, insurance companies and in many landlords too check the credit worthiness of an individual before they take on a customer or a tenant.

So keep a control of who is watching your credit score. Make sure you logon to the Cibil website periodically to get a personalized credit score. Stay financially healthy and happy.

- Source creditvidya.com

Capital markets critical for overall economic growth

2013-02-07T03:03:00.000-08:00

Capital markets refer to segments of financial system that help enterprises raise long-term capital by way of equity or debt. In turn, they also help savers to invest their money optimally in productive enterprises. Capital markets comprise financial institutions, banks, stock exchanges, mutual funds, insurance companies, financial intermediaries or brokers etc.

A growing economy like India, where more than 15 million youth are added to workforce every year, needs huge investment on a continuous basis for new capacity as well as for expansion, renovation and modernization of existing productive capacity and creation of supporting infrastructure. This investment, technically referred to as ‘gross capital formation’, is crucial to sustain growth. Economists work out capital output ratio by computing units of capital required to produce a unit of additional incremental output. In the Indian context, the capital output ratio has historically been around 4, i.e. 4 units of capital are required to produce one unit of incremental output. Therefore, to sustain growth of 8% per annum, we need new investments or gross capital formation of 32% per annum. In other words to sustain growth, we need capital to invest. And to raise capital, we need an efficient capital market. Therefore, capital markets are critical for the country’s overall economic growth. There is broad consensus that macroeconomic policy framework should be conducive for the development and efficient working of the capital markets.

However, the development of capital markets poses its own challenges. If not overseen properly, capital markets can be vulnerable to frauds, volatility, and excessive speculation. Capital markets mobilize savings of naive investors, directly and indirectly. For policy makers, the conundrum is therefore to strike a balance between pace and order, sophistication and transparency, and regulations and simplicity.

Over the past two decades, Indian regulators have taken the path towards tighter regulations. As a result, in relative terms, our capital markets have been less vulnerable to crises or frauds. Quite justifiably, our regulators and government officials are proud about this. We have a robust regulatory structure in place for the capital markets. However, the flip side is that they are not geared to meet the capital requirement to realize the growth potential of the economy. India has tremendous potential to sustain higher economic growth compared with China because of favorable demographics and the enterprising nature of its people. India can sustain double-digit economic growth for at least a couple of decades more, which can lift millions of people out of poverty as has been the case with China, Singapore, and many other countries.

Let us separately look at equities and debt, the two major parts of the capital markets.

Our debt markets are evolving slowly and quite far from being mature, with multi-tier structure to handle risks and enable large capital flows. Several government committees have been appointed to look into this and develop corporate bond markets. However, very little has happened at the ground level. The absence of an efficient debt market has become a major constraint for new investments, especially in infrastructure, where debt component of a project is significantly higher. Given an underdeveloped corporate bond market and regulatory restrictions on deposits by non-banking sectors, a bulk of intermediation in the debt market is per force through the banking channels. The cost of intermediation in our country is perhaps the highest in the world. Typically, a good individual saver earns 4% p.a. whereas a good corporate borrower pays 12% p.a. A fair, market-linked, inflation-proof and risk-free return will go a long way in reducing the diversion of savings to unproductive asset classes such as gold and real estate. In today’s world, such spreads can exist only with regulatory protections because free markets elsewhere in the world have driven it down to a few basis points. Our policy makers would justify this as a social obligation to the agriculture and SME sectors. However, relative to their urban counterparts, our farmers have become much poorer since independence and the Indian SME sector is much worse than its global counterpart as far as availability of capital is concerned.

The bigger policy conundrum pertains to equities markets. Our policy makers need to understand and appreciate that:

a) Equities are risky but very crucial to sustain high economic growth.

b) There can be no equities markets without financing and speculation.

Equity investing is perceived as risky and akin to gambling. One should not forget that the risk capital or equity capital forms the base on which enterprises can leverage and raise debt capital. Without equities, no project can even be conceived. Therefore, a healthy equity market forms the foundation for an efficient capital market. It will also benefit individual investors over the long term as the equities market can generate 15-18% p.a. tax-free retruns compared with 7-8% returns p.a. in fixed income assets.

We have the most benign fiscal policy structure for the equities capital market. Return on Equity by way of dividend and capital gains is either tax-free or attracts lower tax rate compared with interest income. The same has not been effective nor will schemes such as Rajeev Gandhi Equity Investment will yield much results. This is evident from the fact that only 4% of household savings is directed to equities and retail penetration and participation continues to be weak. We are overly dependent on investment from Foreign Institutional Investors (FIIs) of US$20-25bn p.a, even though our domestic savings are more than US$400bn.

Equity investors are not lured by sops but expectations of above-normal profit which obviously will entail higher risk as well. We can have a conducive environment for equities only when our policy makers appreciate that neither super profit nor super loss (even to a small investor) by itself is a bad word. My favorite analogy is of a Church priest who becomes a football referee and does not want players to be violent, wants them to avoid injuries and follow queue discipline. No doubt, the game of football has to have rules of fair play. There are fouls and penalties for pushing, tripping, and rough tackling but normal injuries and aggression are an essential part of the game. In equities, although excessive speculation or manipulation has to be punishable but volatility, speculation and losses to investors, small or big, are part of the game.

It appears that our policy makers perceive all financing, intra-day, and speculative activities as undesirable or evil elements and want to encourage only genuine investors. The interesting paradox is that, investors can be attracted only in a market with financiers and speculators. Typically, equity shareholders are owners who do not directly manage the company’s affairs. For them, liquidity or an easy option to exit is important. World over, in the equities markets, liquidity is provided not by genuine investors but by traders, speculators, and arbitragers who essentially need financiers. The rapid growth of the derivative market also corroborates the same characteristic of the equity capital markets. The genuine investment transactions among investors are so rare and even a blue chip trades only a few times in a month. For instance, millions of shares are traded in a stock like Infosys; but the buyers and sellers are not those who have simultaneously got excited and unexcited about valuation and long-term potential of the IT sector and on Infosys as a company.

Although manipulation is not healthy, lack of liquidity will prevent growth and participation. Our regulators frown on speculation and on financing. SEBI’s margin funding guidelines are too onerous to secure any meaningful response. RBI has put several restrictions on bank’ finance to the capital markets and it discourages capital market financing by NBFCs.

As we look at the next five years, to get our infrastructure ready to sustain growth, the magnitude of capital required is staggering. Our policy makers need to have clarity on the macroeconomic objective, which to my mind can be: we need to encourage directing savings into equities, particularly from retail investors. We should reduce our dependence on FII hot money, which causes greater volitility in the market. We need more competition, more products and easy regulations in the debt markets and in banks. The fiscal, monetary, and all other policy framework should recognise this and be conducive.

The above views were expressed in the December 2012 edition of the Boston Consulting Group – Confederation of Indian Industry publication on Deepening of Capital Markets: Enabling Faster Economic Growth

2013-02-02T00:24:00.000-08:00

What is Financial Planning

“Financial Planning is the process of meeting your life goals through a systematic and disciplined arrangement of your personal finances.”

With the above definition, we realize three main things.

Financial Planning is a Process
It’s about Your Life Goals and,
It’s about disciplined arrangement of your personal finances.

Let’s see the first step in this process.

What is financial planning

Financial Planning is a process consisting different steps. Look at the image below.

1. Determine your current financial situation

You may be a salaried person, a professional or a businessman, check your current financial situation. Where are you now?

Do you have enough savings and investments to back your aspirations?
Is your salary enough to pursue your personal and financial aspirations?
Are you able to manage your home loan and personal loan responsibilities?

Ask these questions to yourself. Be very clear and honest with your current financial situation.

2. Develop your financial goals

What financial goals you want to achieve?

Retire at 50?
Be debt free at 40?
Want to invest in a second home?
Want to go abroad for further studies?
Want to send your children abroad for further studies?
Daughter’s marriage?

The list is endless.

Where to start?

Start with important goals first, that can give you financial independence. How about being a debt-free at 40? I know some people who are debt-free at 35.

It’s possible and it needs a disciplined and systematic planning.

3. Identify alternative courses of action

What alternative actions you can take to achieve your financial goals?

I believe some actions like learning good saving habits, learning your relationship with money, living frugally and keeping positive mindset are some of the ways that help you achieve your financial goals.

4. Evaluate alternatives

Consider your current life situation, your personal values and economic factors. Also assess risk and time value of money of each alternative.

Here, you should check different products available in market and select the best ones based on your need. You may need to do some changes in your lifestyle so that you achieve your financial and life goals that are close to your heart.

5. Create and implement your financial action plan

Once you take all the five steps mentioned above, you will get a clear idea about your financial goals and what you need to do to achieve them.

The key words here are implementation and action.

The plan remains on paper if you don’t implement it. So take the first step and rest will follow.

6. Review and revise the financial plan

As you go and implement your financial plan, you should revise your plan periodically, every 6 months or whenever you achieve a milestone.

This step is the last step in the financial planning process.

How personal financial planning is different from corporate finance?

The jargons used are same but meaning is different.

For example, when you use the word ‘Net Worth’ in corporate finance, it’s about company’s capital plusreserves and surplus.

Likewise, a person’s net worth is his total assets minus total liabilities.

Can I create my own financial plan?

Yes. If you follow these steps and do a bit of calculation, you can create your own financial plan and you don’t need to hire any financial planner for this.

Essentials of unsecured loans!

2013-02-01T02:25:00.001-08:00

There are several types of unsecured loans available in the market which a person can opt for when in dire requirement of money. However before availing any of the unsecured loans one needs to understand the intricacies involved and the pitfalls that must be guarded against in such loans.

What are Unsecured Loans?

Essentially the unsecured loans are those types of loans where the borrower does not have to provide any kind of security or collateral against the money being taken from the bank. The secured loans require some kind of security which acts as a guarantee against defaults in loan repayment.

Types of Unsecured Loans

There are 3 basic types of unsecured loans prevalent in India currently.

Personal Loans: These are loans given to individuals for short durations without any specific purpose attached thereof with reasonably high rate of interest. The income and repayment capacity of the individual are the only criteria for providing such loans.

Credit Card: This arrangement refers to the ability of people to buy goods or services using plastic money which they have to recoup within a specified period of time after which they shall be charged a certain interest on the dues.

Loans against Credit Cards: Credit card holders are offered loans against their cards in terms of cash advances at a prohibitively high rate of interest.

Typical Interest Rates of Unsecured Loans

Type of Loan	Rate of Interest	Use of Funds
Personal Loan	12% – 24%	Unrestricted
Credit cards	18-40%	Flexible

Reasons for availing Unsecured Loans

These are some of the situations in which one should opt for unsecured loans:

When you are sure about being able to repay within a short span of time without incurring too much interest.
Unforeseen urgent requirement of funds which cannot be met from any other sources. These circumstances may include emergency conditions like medical expenses etc.
Short term funding acquiring assets or secured investments when you are sure to get your capital back in time to repay the unsecured loan.

Risks Associated with Unsecured Loans

Apart from the inherent risks that the financier faces while disbursing unsecured loans there are some risks for the borrower which he must appreciate:

Extremely high rates of interest involved in the unsecured loans imply that a huge amount will have to be repaid back by the time the loan tenure ends.
Since the unsecured loans are for shorter tenures the EMI shall be high and there will be high penalties involved in case of defaults the chances of the borrower landing up in debt trap is also high.
In case the borrower is unable to keep up the payments and defaults in between his credit ratings will also be adversely affected that shall affect his chances of securing loans in the future too.

As far as possible one should stay away from such unsecured loans with high interest rates unless the requirement is pressing with no other option. One has to keep the penalty factors in mind and carefully calculate the repayment possibilities while taking such a loan. Before taking the loan and whenever unable to make timely payment the only golden mantra that the borrower should stick to is – “Negotiate and Negotiate”.

CFP (Certified Financial Planner)

2013-01-23T04:29:00.003-08:00

Certified Financial Planner^CM Certification is an internationally accepted Financial Planning qualification. The qualification is recognized in more than 20 countries across the world. In India, the Certification is granted by Financial Planning Standards Board (FPSB India).

The qualification gears candidates to provide comprehensive financial advisory services to individuals. It covers insurance, retirement planning, investment, taxation and estate planning. For those looking for a career in the financial services sector, CFP^CM Certification provides a definite edge over other candidates. One’s expertise and credibility as a qualified professional is instantly communicated if he/she has a CFP^CMCertification. The services of CFP^CM Certificants are sought by Banks, Asset Management Companies, Insurance Companies, Equity Broking Houses and Financial Planning firms.

There are currently over 1,00,000 CFP^CM Certificants worldwide and around 450 + CFPs in India. As per industry estimates, the requirement for financial advisors will be approximately 50000 in the coming years.

Who Should take this course?

The financial market is rapidly changing. With new investment opportunities and schemes being launched, it is becoming increasingly neccessary to have the requisite skills in financial planning. If you have an aptitude for numbers and financial reasoning, then this course is for you.

There are about 8000+ Stocks, 1000+ Mutual Fund Schemes; Equity, Debt, Commodities and Real Estate; Investment, Insurance, Taxation and Estate planning. If you have a skill in financial planning, you can help your client sift through these ever increasing and complex choices. You can grow wealth for your clients and for yourself by building expertise in the financial planning process.

Program Modules

Module 1: Introduction to Financial Planning

What is overall comprehensive Financial Planning , The place, role & importance of each module in this process, Holistic approach & code of ethics, Personal/Intra personal communication skills required.

Module 2: Risk Analysis and Insurance Planning

Different kinds of risks & how to manage them, How does insurance works, Doctrines of insurance, How the cost of insurance is determined, Rating practices in general insurance, How to plan the insurance –Life stage wise? Case study

Module 3: Retirement Planning & Employee Benefits

Need for Retirement Planning, How to determine the retirement corpus & planning for it’s achievement, Statutory retirement benefits offered by the Govt. / Pvt. Employees, Mathematical calculation of Gratuity / EDLI / Leave Encashment / EPS 1995 / EPF/PPF, Tax treatment of the above, Group Insurance schemes, OASIS

Module 4: Investment Planning

Different classes of assets and their characteristics, Liquid Assets & Fixed Interest Earning Securities, Equity/Mutual Funds, Asset Allocation, Concept of Risk and Returns, Derivatives

Module 5: Tax Planning & Estate Planning

Tax Avoidance / Tax Evasion / Tax Planning, Ways & Means of Taxation Planning, Use of Taxation Planning in Management Decision Making Process, Taxation Laws & Rules applicable to Individuals / HUF / Firms / Companies Co. Op. Soc. Etc.

Module 6: Advanced Financial Planning

How to make a Full Financial Plan of an Individual

Investment Considerations in a Bear Market

2013-01-18T23:15:00.003-08:00

The idea of investing is to make your money grow, but there are times when the stock market doesn’t want cooperate. Regular market fluctuations are common and expected, but extended periods of decline can strike fear in even seasoned investors. These bear markets can last months or even years. So, what should you do when faced with a bear market?

Examine Your Investment Objective

The first thing anyone should do before making changes to their portfolio is to think about what the purpose of the investment is. Is it money for retirement? College savings? A down payment on a house? Each of these investment goals have to be treated differently, and you need take into account what the money is going to be used for before you can decide if any changes need to be made.

The investment objective is important because it primarily deals with a specific time horizon. If you’re 35 years old and saving for retirement, you know that your money has a few decades left to grow. On the other hand, if you’re 35 and preparing to send your child off to college in 8 years, that is a completely different scenario.

Consider Your Risk Tolerance

Most people make changes to their investments because of losses. When you begin to see your account drop in value, it’s only natural to want to stop this from happening. Unfortunately, this type of behavior is reactionary, and it can often do more harm than good.

If the idea of seeing a loss on your statement has you feeling uneasy and ready to make changes, then chances are you’re taking on more risk than you should be. You should be allocating your investments in a way that minimizes risk, maximizes returns, and allows you to sleep at night regardless of what the market is doing. If you’re losing sleep because of a few bad days in the market, it’s time to reconsider how much risk you’re willing to take.

Don’t Chase the Market

You’ve probably heard the saying “buy low and sell high” many times, and we all know that’s how you make money, but the reality is that most people do just the opposite. The average investor will happily put more and more money into the market, and take on more risk when the market and economy is strong, and pull back or stop investing at all when the markets are heading south.

This is the opposite of what you want to do. If you’re only saving and investing when the markets are doing well, and investing little or selling stocks when the markets are down, you’re buying high and selling low, which is a very ineffective way to make money.

If you have a regular investment plan through your 401(k) or individual retirement accounts, keep those investments flowing through good times and bad. Because you’re investing on a regular and frequent interval, you’re buying stocks when they are up, down, and everywhere in-between. This is called dollar-cost averaging, and it is a great way to take some of the volatility out of your portfolio and maximize your overall returns.

Rebalance Your Portfolio

When the markets experience an extended period of growth or decline, it can throw your portfolio out of its original investment mix, or asset allocation. For example, if you’ve determined that a 70% stock and 30% bond portfolio is suitable for you and the stock market has taken a bit of a dive, you might find that after just six months, your investment mix might be at 60% stocks and 40% bonds, or even a 50% mix.

Ideally, you want to maintain your portfolio so that it remains close to your target investment mix. By re-balancing to your target mix, you’re forced to sell some of the investments that have done well, and buy more of the investments that haven’t done as well. This is allowing you to buy low and sell high instead of the reverse.

Shore Up Your Short-Term Investments

Investing your short-term savings takes a different approach from investing for retirement or other long-term goals. The general idea here is not to generate as much money as possible, but instead it is more focused on safety of principal while making as much money as possible.

When the economy is struggling, it pays to have a well-funded emergency fund. A weak economy can put some uncertainty in the air in terms of job security and obtaining credit. This is where your savings can come in handy. If you have the cash on hand in the event of an emergency, you don’t have to worry about using credit cards or possibly hurt your credit score.

So, when it comes to your savings, whether an emergency fund, money for a down payment on a house or a vehicle, or just the extra spending money you like to keep on hand, you want to make sure it’s safe and working as hard as it can for you. There are a number of places to safely keep your cash, so you’ll want to explore all the different options. It’s also a good idea to make sure your money is FDIC insured so that if times get really tough and your bank goes under, you’ll be protected.

Ways to Reduce Principle Balance of Loan Amount

2013-01-15T04:21:00.000-08:00

The principle balance of a loan is the total amount owed. When the loan is being granted, amount to be repaid and the term for repayment is determined by the lender and the borrower has to follow it in order to avoid any penalty. The principle amount keeps reducing as the loan amount is repaid every month. Cutting the principle balance further down is indeed very difficult and requires a good budget, but it's not unachievable.

For reducing the principal, the best way is to use cash at hand. If one has any kind of saving such as bonds, investments, stocks, retirement funds or others, now is the time to utilize them. Based on the amount available with the payee, one can cut back a lot on his principle amount.

Another good way is to hike up the standard payment. To do that, one has to cut down his monthly spending such as eating out, frivolous shopping, traveling and other expenses. A little change in the lifestyle for a while will reduce quite a good amount from the principle balance. While beefing up the standard payments, one has to ensure that his lender is aware in order to precisely reduce the principle balance.

It's very important to consider equity amortization. Prior to making extra payments each month, one should consult the lender about paying principle balance without resulting in equity amortization. During the early years of loan repayments, principle balance is significantly lesser and a good amount can be repaid during this time.

Whatever extra amount one is paying a month, it's not supposed to give him relief the coming month. In other words, one has to keep in mind that if he repays good enough amount this month, he still has to make a payment the next month. And missing even a single payment calls for late fee. Therefore, he should plan his payments carefully.

One can make repayments biweekly. Choosing to repay the amount twice a month will help reduce the interest paid on the loan and decrease the principle amount rapidly. Additionally, one can seek financial help from a family member which will have a huge impact on the principle balance.

Reducing the principle amount is beneficial indeed but it will also wipe out the tax benefits. So, if a person is paying low interest, it will be quite beneficial for him to hang on to paying it over the tenure suggested by the bank. This will definitely serve him better plus he can put the extra money to a better use like a retirement fund.

Note: Prior to paying off money early in the tenure, one should ensure that the repayment schedule doesn't come with any penalty regarding prepayments.

The effect of inflation on your financial future

2013-01-09T03:19:00.000-08:00

Inflation is a major factor in the realm of personal finance; it’s a risk that affects investment positively or negatively. In broad terms, inflation is the general increase in prices because of a change in the money supply or the availability of goods. It is not merely a macro-economic concept, since it is relevant to the finances of individuals in four primary ways:

· Determining the real return of an investment

· Evaluating the purchasing power risk

· Interest rates for savings

· Effect on financial instruments

The real return of an investment

This concept refers to the discounted nominal interest rate (rate after inflation is discounted). In the realm of investment, this effect is referred to as inflation risk. Although this risk has a significant effect on investors, the combined risks of taxation and inflation are far more serious than inflation risk on its own. A good example is the treatment of deferred annuities, where tax is paid on annualized payments and the payments are typically fixed. Even after discounting for inflation, tax must be levied against the accumulated nominal returns (and not the discounted one – unfortunately). The real return is further eroded by the effect of inflation on the payments received.

Purchasing power risk

Inflation is also influential in this aspect of investment risk. The loss of purchasing power on investment returns is tied to the reduced purchasing power per dollar. Purchasing power risk affects the capital invested significantly. With low-yield investment instruments, the purchasing power of the principal declines rapidly.

Interest rates

In macro-economics, there is a link between inflation and interest rates; a link that filters down to the individual. One of the methods of controlling inflation is to increase prime lending rates in an attempt to discourage borrowing. High interest rates also make investing more attractive than consumption, which reduces aggregate demand in the economy.

Financial instruments

Interestingly, inflation is not always a bad thing. Certain financial instruments benefit from high inflation. Usually these are the types of investments that have intrinsic value, because such assets remain in high demand regardless of the level of inflation. Examples of such assets include art, real estate, gold and other commodities. High inflation increases the absolute returns on such investments. Notice that the opposite happens with regard to cash/income instruments like savings accounts and money market funds. When inflation is low, it is less risky to invest in cash and income options.

While many persons who are risk averse are afraid to “lose,” inflation causes real loss for the ultra-conservative investor. Portfolio diversification is not only important in managing market risk, but can also mitigate inflation risk. While limiting investment in growth options reduces market risk, increasing investment in them reduces inflation risk. It is a trade-off that emphasizes the delicate balance of diversification. Such information can only redound to the benefit of a prudent investor.

Why You Need an Emergency Fund

2013-01-04T03:08:00.004-08:00

In life you should expect the unexpected, and this is why you need an emergency fund. The best you can do is to prepare for emergencies that require access to additional money and having an emergency fund is the ideal solution.

Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of. The last thing you want to do is be forced to rely on credit cards or a loan which could simply compound the problem.

How Big Should Your Emergency Fund Be?

Most experts agree that you should keep between three and six months worth of your living expenses set aside in your emergency fund. Depending on your specific situation and whether or not you have children, carry substantial debt and types of insurance coverage will determine what amount is best for you.

The reason you want to have three to six months of expenses saved up is that the most common reason for the need of an emergency fund is due to a sudden loss of income. If you or your spouse loses a job you still have bills to pay and it may take a few months to find suitable new employment. It is best to plan for a worst-cast scenario so that the smaller emergencies such as replacing the hot water heater that just went out will be easily covered.

Start Small

If you currently don’t have an emergency fund or find it difficult to save money the key is to start small. You have to realize that accumulating one month’s worth of expenses will take some time, let alone three to six months. If you set your immediate goals to be small and manageable you will have a better chance in reaching them.

The best way to get started would probably be through your bank. Open up a new savings account if you currently don’t have one and begin to save with this first. The next step is to get into the habit of making regular deposits into this account. Whether it is weekly, bi-weekly or monthly, create a schedule and stick to it. Once you make saving automatic you won’t even have to think about it.

If you feel it is difficult to begin saving simply start with a small amount. Maybe you begin with $10 a week initially. While this won’t amount add up all that quickly the important thing is to start putting something away and to make it a habit. After a few weeks you won’t even notice that $10 missing so you can bump it up to $15 or $20 after a month or so. You will begin to get used to that money not being there and can slightly increase it again.

Where to Keep Your Emergency Fund

You should start with a savings account because it is simple to use and generally does not cost anything. The convenience factor is what is important when getting started. As your account grows you will want to find an account that can earn reasonable interest so that your money is working for you. The next best options to look into are money market accounts or certificate of deposits (CDs).

It is important to keep this emergency fund in a place that will fairly liquid so that you can get to the money quickly in the event of an emergency. You also don’t want to have this money tied into stocks or mutual funds because the volatility of the market could cause you to lose money over the short-term.

Buying a Small House and its Benefits

2012-12-26T04:59:00.000-08:00

Buying a house is said to be a milestone moment of one’s lifetime. Everyone wants the house to be big, beautiful and blissful. The trend of desired house size is changing with the limitation of space and rising property prices. Bigger the better or smaller the best, the question of ideal house size seems to dazzle even the experts. In this article we would analyze the various situations under which the small house outweighs the bigger house. So, if you have a small family and thinking to buy a house, this article is for you.

Before looking at the benefits of buying a small house lets first check out, why people often like to buy a big house despite having a small family:

- Having big house is a status symbol and to impress others

- The property agent’s false explanation and forced convincing

- Mistaken thought that only a big house makes a dream home

- The wrong impression that a builder offers big house at a discount over small one due to lower cost

- Preconceptions that bigger is better

- Many buyers’ thinks that they have spare money so it’s better to buy a big house as it will provide space for living and also fulfill the purpose of investing.

We have discussed the reason for buying a big house; now let’s check the benefits of buying a small house so that we can come to an analytical conclusion.

Buying a Small House and its Benefits

- To Save Money

Obviously, the small house costs less than bigger one, so “to save money” is a genuine reason to buy a small house. It needs smaller amount of money to insure the house, less area means low energy requirement, so the electricity bill will be reduced and low maintenance costs.

- To Be Stress Free

Small house takes off the stress of paying huge EMI and also less financial pressure on your budgeting. The loan amount can be paid early and the buyer can keep his financial book to be debt free. One can invest the money thus saved into other avenues for a better return or use it for other important work.

- To Save Time

Less area means less time to clean and maintain the house. Small house makes everything seem to be kept in the easily accessible distance and hence it saves the time which otherwise required in the bigger house.

- Helps to curtail shopping bill

Quite often unimportant things are given space in the home due to useless purchasing, but small house curtails waste spending because the resident understands the space limitations and hence buys only necessary things whenever goes to a shopping.

- For Closer Family Tie up

It helps in developing a strong bond between the family members because everybody stays in a compact area and therefore it eliminates the communication gap between each other. The free interaction due to close living style helps in growing a happy feeling reducing the personal differences.

- Good Resale value

Small house has a very good market and the rate of such property also appreciates steadily. Due to low price involvement, the owner enjoys the choice of changing the house very frequently.

- Environment Friendly

Less area of construction means more space for the nature to grow, so a small house helps the environment and support the greenery.

Conclusion

Buying a house is a personal decision and it depends on numerous factors to finally select a house of one’s own choice. If the family consists of up to four members, then a small house can provide a cozy feeling, sense of security and self contentment to the buyer. Bigger the better is not always true, so buyers should start focusing on a smaller house to live a life of own choice and payback property loans easily.

Safeguard yourself form fake bank notes.

2012-12-22T12:00:00.000-08:00

Recently (RBI) informed that there was steady rise in the number of counterfeit notes in circulation. Apart from attempts at detecting fake notes RBI has laid out a couple of other measures to tackle the counterfeit notes nuisance. Some of these are public education campaign for identifying fake notes, improvising on security features of notes and instructing banks to issue only genuine notes at their counters or ATMs.

Fake notes nuisance

In the year 2011-12 alone RBI had detected Fake Indian Currency Notes (FICN) of various denominations in the banking system having value close to Rs 25 crores. Like you’d have guessed this is just a tip of the iceberg. Government agencies have managed to detect about 25% of counterfeit currency notes in circulation. According to one government agency estimate there are about Rs 16,000 crores worth of fake Indian Rupee notes in circulation. Would you be surprised to find some forged notes in your wallet?

Much of the counterfeit notes originate in Pakistan where it is printed and sold for a quarter of its face value. Forged notes are common in real-estate transactions taking place in black. It is important to be vigilant about fake currency notes circulation since it could be a matter of national security. Counterfeit notes can be used by terrorists machineries for their activities as was the case in 26/11 attacks.

Circulating fake notes is an offence

Printing and/or circulating counterfeit notes is a criminal offence punishable with fine or imprisonment (ranging from 7 years to life imprisonment) or both. Of course none of us might be implicated in this, right? But remember that when you buy or sell in exchange for forged notes or tender it at a bank you are essentially circulating it! Relax; as long as you have not done it intentionally you won’t be implicated. But everyone who is aware of fake notes being printed or circulated on intention is required by law to inform the police.

What to do with fake notes?

If you realize your currency note is not genuine produce it at the nearest police station where an FIR is to be filed. Do not destroy the notes; if you do you would be covering somebody’s crime in an indirect manner.

If the bank cashier finds the currency note to be a counterfeit one on examination she would stamp on its face as ‘Counterfeit Banknote’. You would be issued an acknowledgement receipt which must be signed by yourself and the cashier. Thereafter the forged note will be forwarded to the local police station for FIR investigation.

Save all the trouble, identify fake notes before taking possession

Prevention is much, much better than cure. With a little bit of patience you can make out counterfeit notes from the real ones. Especially in case of currency notes of large denominations like Rs 100, Rs 500 and Rs 1000 make a quick look out for identification marks.

Since according to recent RBI figures it is the Rs 500 denomination notes that have the highest number of counterfeits we have mentioned below a few look-outs in a genuine Rs 500 note.

1. Security thread

The silver security thread going through the breadth of the note has the words ‘RBI’ and ‘bharat’ inscribed in it. The thread changes colour from green to blue when viewed from different angles. It is seen as a single line from the back of the note. Fake notes could have gray line printed or an aluminium thread inserted.

2. Alignment in floral pattern

Floral pattern on the front and back of the note in the middle of the vertical band just next to the large blank space (having watermark) has numeral ‘500’ inside it. The numerals on both sides appear as one when held against light. This too is a featured difficult to imitate with accuracy.

3. Watermark

Mahatma Gandhi’s portrait hidden in the large blank space in the front left hand side of the note can be seen when held against light. You can also see multidirectional lines and numeral ‘500’ in the section.

4. Optically variable ink

Colour of the numeral ‘500’ in the front centre changes from green when held flat to blue when tilted.

5. Intaglio print

There is a circle in the centre of the band at the front left hand side. This intaglio printed circle can be felt by touch. Similarly the print ‘Paanch sau rupaiye’ at the front centre is in intaglio.

If you find ink to be smudged, printed lines to be broken, variation in alignment of numerals, inadequate gaps in numerals treat it with suspicion. Identification for notes of other denomination is covered in a separate article.

Cheque Truncation System or CTS

2012-12-19T03:03:00.000-08:00

It might happen that your cheque’s start bouncing and do not get accepted from Jan 1, 2013 . There is a new standard in banking called as Cheque Truncation System or CTS 2010 , which all the banks have to follow now. RBI has issued a circular telling all banks that they should only process and accept those cheques which follow CTS guidelines.

What is Cheque Truncation System or CTS ?

It's just a new improved structure for chqeues and a set of guidelines which will change the way cheques are being processed and cleared. Right now, all the cheques are sent directly physical to the other bank for clearance, but with this new Cheque Truncation System guidelines, the banks will send the digital version of cheques (read scanned image) to the other bank and the clearance will happen almost same day or very fast. Some of the features of CTS cheques would be

It would have the wordings “please sign above this line” at right bottom
All CTS-2010 cheques will have a watermark with the words “CTS INDIA”, which can be seen against a light
A bank logo will be on cheque with a Ultra Violet Ink , which can be seen only under UV Scanners.
The Cheque Truncation System 2010 enabled cheques will not allow any alterations. If there is any mistakes, the cheque will be invalid
“payable at par at all branches of the bank in India” text will be at the bottom of all the cheques
There will be IFSC and MICR code on the cheque
You will have to sign the cheque will a darker ink, so that your signatures are valid for scanning.

If you look at these features, you can simply see that these are required for digital processing and once these Cheque Truncation System enabled cheques arrive , the whole banking system will start clearing the cheques in a must faster time. This will improve banking and save paper. Below is a sample of cheque which fulfill CTS criteria’s.

SBI has already told all its customers to get new cheques because all the old cheques will become invalid , In the same way HDFC bank and ICICI bank have also told their customers to get new cheque books.

What you must do ?

Replace your Post Dated Cheques

If you have given any post dated cheques to someone like for your home loan payments or for some other kind of payment, then it's the time to replace them with fresh cheques else it will just bounce and you might have to pay the bounce charges

Deposit any Old Cheque now

At times, we accumulate old cheques and deposit them for clearing only after many days or weeks. If you have any cheque which is to be cleared, better deposit it and encash !

A lot of banks have also asked its customers to give return back the old invalid cheques at their branch and collect new cheques, not sure why they need old cheques , why can't they issue the new cheques directly ? Also note that the cheques will be sent to the last updated address only. Learn more about CTS here .

You already have CTS-2010 compliant cheque books ?

Note that RBI has directed all banks to issue Cheque Truncation System 2010 enabled cheque books already from last many months. So it might happen that your cheque books are already complaint with those standards . So please check it once and don't rush to bank to issue you new cheque books . Like one of the reader found out that he already has the right cheque’s .

"Banks like ICICI Bank and Axis Bank had already started issuing CTS-2010 compliant cheque books since last year. So please verify whether cheque book you have a already CTS-2010 before rushing to bank to get a new one. "

7 good reasons to invest in SIPs

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Fact No. 1: Over a long term horizon, equity investments have given returns which far exceed those from the debt based instruments. They are probably the only investment option, which can build large wealth. Fact No. 2: In short term, equities exhibit very sharp volatilities, which many of us find difficult to stomach. Fact No. 3: Equities carry lot of risk even to the extent of loosing ones entire corpus. Fact No. 4: Investment in equities require one to be in constant touch with the market. Fact No. 5: Equity investment requires a lot of research. Fact No. 6: Buying good scripts require one to invest fairly large amounts.

Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming. (Also Read - 5 corners of a sound Investing Strategy)

1. It's an expert's field Let's leave it to them

Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research - on the company, the industry and the economy thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative. (Read more - The Investors biggest Dilemma)

2. Putting eggs in different baskets

Another advantage of investing through mutual funds is that even with small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us. Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector.

3. It's all transparent & well regulated

The Mutual Fund industry is well regulated both by SEBI and AMFI. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry. This makes it safer and convenient for investors to invest through the mutual funds. (Check out - Foolproof strategies to maximize your profits)

4. Market timing becomes irrelevant

One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of where to invest, SIP helps us to overcome the problem of when. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru regular investing.

5. Does not strain our day-to-day finances

Mutual Funds allow us to invest very small amounts (Rs 500 - Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.

6. Reduces the average cost

In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. (Read more - Invest wisely and get rich with equity MFs)

7. Helps to fulfill our dreams

The investments we make are ultimately for some objectives such as to buy a house, children's education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

Source: Moneycontrol.com