Investment School

Hidden savings of an employee

noreply@blogger.com (Subramanian) — Wed, 30 Sep 2009 09:36:00 +0000

Writing a post after a loooong time. Most of us often feel bad that we are not saving enough from our net take home salary. Yes, one should feel bad about it and need not be bogged down because of this for a simple reason - you can find opportunities to save always if you are little bit more disciplined. But what is this hidden savings which i am talking about. Every employee in the organized sector saves 24% of the basic salary as Employee provident fund and EPF earns 8.5% annually. Following are the most likely hidden savings for an employee in organized sector. 1. Employee Provident Fund + Employee Pension Scheme = 24% of basic salary. 2. Super Annuation = 10-15% of basic salary ( varies between companies). 3. Gratuity = 4-5% of basic salary ( varies between companies) All the above components can be redeemed when an employee quits an organization and moves to another one. For a take home salary of 50k, one would save around 7-8k without knowingly...

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How to calculate your super annuation balance in LIC?

noreply@blogger.com (Subramanian) — Fri, 13 Feb 2009 05:32:00 +0000

I thought i could share some useful information on how to check your superannuation balance online in LIC if your employer maintains a super annuation fund in LIC. First let me give a brief description on Superannuation. What is Superannuation? Superannuation is a contribution made by your employer each year(usually it is 10-15% of your basic sal) on your behalf towards the group superannuation policy held by the employer. Conditions of Superannuation account: The amount that the employee gets is as under: a) 1 year but 2 years but 3 years : 100% of the contribution + interest earned At the end of each financial year, LIC pays an interest on the contribution made by the employer in your account. The interest rate for 2007-2008 was 9.25%. Benefits of Superannuation: Once the employee completes 3 years of service and works till his/her retirement, he/she can make use of superannuation balance as a form of...

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Cash is King

noreply@blogger.com (Subramanian) — Wed, 15 Oct 2008 08:11:00 +0000

When you take a look at the newspapers in the morning, you see more news on "DECLINE" in almost all asset classes and if not declining , they are volatile otherwise. So where can we put your money (if at all you are left with some money after being battered with losses in markets) In these troubled times, "Cash is King" the best way to survive this downfall is just to keep accumulating your savings bank account with loads and loads of cash as and when you get them. Reasons for being in Cash 1. The first and foremost reason to be in cash is that you have control over your money. In current scenario markets are driven by all kinds of external dependencies and is more sensitive to global economic condition. 2.Capital Protection is a must in these troubled times and one should minimize the risk of losing his/her money. Where to park my cash 1. The best and most safe instrument is fixed deposit. Most banks offer 10+% interest on 1 year deposit. This is the safe...

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Sensex Long Term Outlook

noreply@blogger.com (Subramanian) — Tue, 14 Oct 2008 06:21:00 +0000

I would like to introduce to Investment School Readers, a very good technical analyst -Mrs. Lokeshwari .For those who read Hindu Business Line, this name should be very familiar. She the technical analyst and writes technical analysis columns every sunday and she is associated with Business Line for past several years. Those who are curious to know the various resistance and supports of benchmark indices can definitely spare some time and read through her sunday columns in Business Line. In her recent column , she had given the long term outlook of Sensex and i would like to quote her technical calculations to our readers, In our review in July, we had stated that, “The decline below 13700 brings the next long-term supports for the Sensex at 11,900 (50 per cent retracement of the up-move from 2001) and then 9703 (61.8 per cent retracement) in to focus. We stay with our long-term count that the current down-move is the fourth part of the long-term cycle that began in 1980. The...

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Should you buy real estate now?

noreply@blogger.com (Subramanian) — Wed, 08 Oct 2008 04:00:00 +0000

Recently i read an article in Economic Times(not a opinion or sensex target kind of articles which is usually a trade mark of ET). This article was all about stats. The article was about the advance tax paid by the real estate companies. What is Advance tax? Advance tax is a tax paid by individuals who earn in addition to monthly income and corporates. These are paid in three installments, 1. Sep 15 - upto 30% of advance tax should be paid 2. Dec 15 - upto 60% of advance tax should be paid 3. March 15 - upto 100% of advance tax should be paid. Take the following example: Gross total income: Rs 160,500 Salary (Rs 100,000), income from house property (Rs 48,000), income from other sources (Rs 12,500) Deductions: Rs 14,500 Section 80D (Rs 2,500), section 80L (Rs 12,000) Net income: Rs 146,000 Total tax: Rs 15,970 Tax on net income (Rs 20,020) - section 88 rebate (Rs 5,500) + 10 per cent surcharge (Rs 1,452) Net balance: Rs 10,000 Total tax (Rs 15,970) - TDS (Rs...

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What is Balance Sheet?

noreply@blogger.com (Subramanian) — Mon, 06 Oct 2008 10:13:00 +0000

As a continuation of Fundamental Analysis Series, let us learn about balance sheets of a company and how to interpret it and how to utilize a balance sheet of a company. What is Balance Sheet? Balance sheet of a company indicates how healthy is a company with respect to financial factors. It lists the assets and liabilities of a company and you should remember that assets and liabilities are not same as revenue and earnings. Broadly balance sheet has the following components 1. Assets 2. Liabilities 3. Equity Asset: There are two types of assets Current Assets: It includes assets that be converted into cash in a financial year.It includes ready cash,inventories and receivables. A company with high cash holding in its balance sheet is a good bet compared to a company with debt or less cash. Inventories are nothing but goods which are yet to be sold to consumers and receivables are bills which are pending payment to the company. Non Current Assets: ...

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How to calculate HRA for Tax Exemption?

noreply@blogger.com (Subramanian) — Sat, 04 Oct 2008 08:53:00 +0000

Most of us pay more tax by neglecting to know about House Rent Allowance(HRA) component in our payslip. What is HRA? HRA is house rent allowance offered by employers to all its employees. HRA is exempted from taxable income and hence reduces the tax paid by an employee. How HRA is calculated? The HRA calculated by the employer is the minimum of the following three amount. 1. Actual HRA given by the employer as mentioned in the payslip. 2. Acutal rent paid by employee minus(-) 10% of his/her basic salary 3. 50% of basic salary in metro cities(delhi,mumbai,chennai,calcutta) or 40% of basic salary in other cities. Lets take an example. Ram lives in a house in bangalore and pays a rent of 7,000. The HRA offered by his employee is 6000/month and his basic salary is 20,000/month. Let us calculate the three amount stated above 1. HRA offered = 6,000 2. Rent - 10% of basic = 7,000 - 10% of 20,000 = 5,000 3. 40% of basic salary = 40% of 20,000 = 8,000 Hence...

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What is Capital Gain tax?

noreply@blogger.com (Subramanian) — Fri, 03 Oct 2008 08:58:00 +0000

Tax is one area where most of us have always loads n loads of questions. One major tax that is associated with any individual who owns an asset is Capital gains tax. What is Capital Gains? When a person sells an asset and makes profit out of it, the profit is called Capital Gains. The tax paid on profit of these asset sale is Capital Gains Tax. The asset may include mutual funds, stocks, house, land,gold and few other. When a person makes a loss out of his asset sale, it is called Capital Loss. What are 2 types of Capital Gains? Depending on how long you hold on to your asset before selling, there are two types of capital gains. Short Term Capital Gains If a person sells an asset before 3 years from its purchase and if he makes a profit , it is called short term capital gains tax. For mutual funds and equities, it is 1 year. Long Term Capital Gains If a person sells an asset after 3 years from its purchase and makes a profit, it is called as a long term capital gains...

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Importance of Stop Loss

noreply@blogger.com (Subramanian) — Wed, 01 Oct 2008 09:08:00 +0000

Sensex at 18 months low and global markets feeling the heat of us economic failure, and most of us have accumulated loss in our portfolio.We need to sit and analyse if we can digest the current loss and if we can digest more loss or should i cut back loss and move to fixed return investments. This is required because each one of us have a certain level of risk appetite and we should ensure that our investments are bearing a risk which is affordable by us. All of us invest our hard earned income and hence we should have a comfort level with your investments. Any investment made should have the following attributes associated with it. 1. Time period of investment. 2. Stop Loss. 3. Target Amount. Lets take a usecase and analyse it. Ram makes an investment of 2 lacs in sensex(sensex taken for easy reference) on Oct 1st 2007. Time period of investment = 3 years Stop Loss = 10% Target Amount = 3 lacs Current...

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What is super annuation?

noreply@blogger.com (Subramanian) — Tue, 30 Sep 2008 10:07:00 +0000

As explained in the previous article, employees like you and me , make another hidden savings by means of super annuation. So what is super annuation and what are its benefits? What is super annuation? Now a days, corporate have two sections in the compensation package. One of them is Gross Annual Income and the other is Cost To Company(CTC). Super Annuation is a fund maintained by the employer on behalf of all its employees. An employee needs to stay for more than 3 years in an organization to get the full benefit of super annuation fund. Amount invested in super annuation fund per year by employer for employee = 10% of basic sal. Duration of employment and super annuation benefits: IF employee stays in a company IF employee stays in a company for 1 -2 years, he gets 50% of amount + interest earned on his super annuation contribution. IF employee stays in a company for 2-3 years, he gets 75% of amount invested + interes earned on his...

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How to calculate your PF balance?

noreply@blogger.com (Subramanian) — Mon, 29 Sep 2008 09:01:00 +0000

There are some savings that we make without our knowledge. Sounds surprising? but thats what is the reality. An employee in an organized sector have mandatory savings like PF,Employer Pension Scheme,Superannuation,Gratuity. From our monthly gross salary, we make a significant contribution to all four of these. Lets see how much we are saving each month unknowingly in a provident fund. Provident Fund For all employees who work in an organized sector, following is the PF contribution every month. PF contribution by Employee = 12% of basic salary. PF contribution by Employer = 12% of basic salary. Employer Pension Scheme Out of 12% contribution from employer, 8.33% of the contribution (subject to maximum of 541 rs/month) is invested in employer pension scheme. Lets take an example and understand this. Ram's basic salary per month = 15,000 Ram's contribution to PF = 12% of 15,000 = 1,800 Ram's Employer...

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How double indexation increases return in FMP?

noreply@blogger.com (Subramanian) — Sun, 28 Sep 2008 03:45:00 +0000

Finance minister Mr P.Chidambaram in one of the award function asked the recipient of the award "What is your wish list in this year's budget" and the recipient "he din want to pay more taxes" and the recipient is none other than India richest person Mr Mukesh Ambani. In return FM commented that "India is a country where a normal person as well as the richest person does not want to pay taxes". If Mukesh Ambani himself is more conscious about paying taxes, aam aadmi like you and me should be trying to save taxes in a judicious manner. So lets see how we can reduce taxes on Fixed Maturity Plan by double indexation. How is the profit taxed from debt mutual funds? Debt mutual funds have a long term capital gain tax which is taxing the interest if the investment is held for more than a year. There are two methods of taxation. 1. 10% on the interest gained without indexation. Taxable amount = Amount Returned - Amount Invested ...

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What is Fundamental Analysis?

noreply@blogger.com (Subramanian) — Fri, 26 Sep 2008 09:41:00 +0000

When it comes investing in stocks, there are two schools of thoughts - Fundamental Analysis and Technical Analysis. Fundamental analysis focusses on company economic factors to make an investment decision whereas technical analysis focus on stock price movements to determine the investment. Let us get started with fundamental analysis and what are the various factors affecting fundamental analysis. Fundamental analysis of a stock should answer the following questions related to the stock. 1. How is the company growing in terms of revenues and earnings over the past?2. Has the company been able to maintain healthy profit consistently over the past?3. How good is the company placed with respect to its competitors?4. How good is the management of the company?5. How transparent are the company's operations and decisions? These are only few , more questions on the similar note needs to be answered to fulfill a fundamental analysis of the company. Factors affecting Fundamental...

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How does inflation affect your invesment?

noreply@blogger.com (Subramanian) — Thu, 25 Sep 2008 08:38:00 +0000

Before going on with the topic, i would like to take some time and say a "big thanks" to all readers/subscribers of "Investment School" on the occasion of the 50th post of my blog. I am encouraged by your astounding response to my blog and consistent tracking of my blog. Its your active reading that makes me to write more on investment and best practises. Thanks again! Come every friday morning, you get to see inflation numbers in bold figures in the newspapers and television channels. So how does inflation affect a common man and its investments?So lets understand inflation and its impacts. What is inflation? To put it in simple terms, inflation is nothing but an increase in cost of living for a person on a yearly basis. Eg. If inflation is 8%, then theortically a good which was sold for 100 rs an year back is now costing Rs 108. So inflation is not a very tricky and difficult to understand , it is as simple as the above example. How does inflation affects...

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What is P/E Ratio?

noreply@blogger.com (Subramanian) — Wed, 24 Sep 2008 08:03:00 +0000

"Company XYZ is available at a cheaper PE and is a good buy". You would have come across this phrase many a times in NDTV Profit or CNBC-TV18 or in the business newspapers. Most of us make an investment on recommendations from either friends/newspaper/TV channels and overlook technical parameters. Let us understand about these parameter and let me tell you it is not rocket science to learn these. What is P/E Ratio? P/E Ratio = Price of one share of a company/Earnings Per Share of the company. Usually, EPS of the last four quarters is taken into consideration and the resultant P/E is called trailing P/E.If the expected EPS for the next few quarters is taken into account, we arrive at Forward P/E. How to use P/E Ratio? P/E Ratio can help investor take their decision to buy a stock. P/E indicates how much Rs is needed to generate a earning of Rs 1. Eg. If P/E of company XYZ is 20, then it indicates, an investor is willing to pay Rs 20 to generate Rs 1...

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What is short covering?

noreply@blogger.com (Subramanian) — Tue, 23 Sep 2008 03:14:00 +0000

In the previous article, we have seen about short selling and what are the risks involved. As promised in the last article, let us see how to mitigate the risk associated with short selling. We shall look at this with an example. Trader Ram, borrows 50 stock of company XYZ at Rs 100 and promises to give back the stocks to the lender in a months time. Ram anticipates that the stock price of the company would go down to 80 rs and he is planning to buy back the share at 80 rs. Unfortunately , due to external and market conditions, the stock price of the company XYZ rallies to Rs 120 and there is only 3 more days for the month end and Ram has to buy back the shares and deliver it to the lender. So Ram is in a loss of 20 rs/share and he has only 3 days to go and the market sentiment is very bullish and the stock price of company XYZ can appreciate further. Hence Ram decides to trim his loss at 20 rs/share and buys the share at 120 rs. Share market is not a place with only Ram...

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What is short selling?

noreply@blogger.com (Subramanian) — Mon, 22 Sep 2008 03:17:00 +0000

Most of us are taken back with the stock market crash of late eroding our investment value, but you would be surprised to know that you can make profits even in a crashing market. Want to know how is that possible at all? To know how to make money in a bear market, we need to understand the concept of short selling. What is short selling? Short selling is selling of a stock which is not owned by a seller. When a trader feels that the stock price of a particular company will fall in the near future, he indulges in short selling. Let us see how it works with a simple example. Eg. Suppose say, trader Ram feels that stock price of company XYZ currently trading at 1000 rs will go down significantly in the near future due to market correction or any other reason. Ram borrows certain number of stocks,say 20, of company XYZ from his broker for 1000 rs/share.The commitment is that he will have to return back 20 shares to the broker on a specified date in the future say in one...

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Things to know about mutual funds

noreply@blogger.com (Subramanian) — Sun, 21 Sep 2008 03:06:00 +0000

In a previous article , we have seen about famous investment myths about investments in general. There are also misconceptions about mutual funds prevailing among the investors. Let us dig through them and understand how they are misconceived. 1.Diversified funds invests across all sectors. Ideally an investor would expect the fund to be invested in all sectors . However the funds usually have a bias towards large cap or mid cap or small cap. They have significant exposures in one or two sectors as they take sectoral bets. So investor should not go by the label "diversified fund". One should look at the funds past track record and identify what are the funds major bets over the past. So long term funds are a better option than new funds. 2. Mutual fund dividends are same as stock dividends. Investors tend to believe that mutual fund's dividends are same as stock dividend. However it is not true. When a mutual fund declares dividend in a scheme, the dividend...

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What is Dividend Yield?

noreply@blogger.com (Subramanian) — Sat, 20 Sep 2008 03:34:00 +0000

Continuing on the series of explanation of technical parameters of stock analysis, let us now get to know about one another important ratio known as "Dividend Yield". Dividend yield of a company indicates the annual dividend paid by the company relative to its share price. Dividend Yield % = (Annual Dividend Per Share / Price per share)*100 If a company A pays dividen of rs 10 and its stock price is 100 rs, then dividen yield is (10/100)*100 = 10% Dividend yield indicates how much cash flow is generated for each rupee invested in the company by the investor.Dividend yield mutual funds are category which invests in stocks which has higher dividend yields.In general FMCG stocks have a higher dividend yield. Who can invest in dividend yield stocks? It is suitable for investors who wanted minimum cash payouts on a regular basis from their investment.

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What are Gold ETFs?

noreply@blogger.com (Subramanian) — Fri, 19 Sep 2008 03:30:00 +0000

As a country, India is the largest consumer of gold and Indians value gold very high than anyone else in the world. In the past few years, apart from physical gold, other channels of gold investment have opened up. One of the most interesting option is Gold ETF. So what are GOLD ETF? Gold ETFs are mutual funds which listed and traded in the stock market.All you need is a demat account to buy and sell Gold ETFs. The advantages of ETF as explained in the previous article holds good for Gold ETF too. While investing in Gold ETF, take into account the following information. 1. Avoid buying Gold ETF funds during the NFO. The reason is during NFO Gold ETF charge 1.5-2.5% as entry load. However when these Gold ETFs are listed in the stock market, you can buy them without entry load but with a marginal brokerage of 0.2-0.5%. 2. Check the expense ratio of Gold ETFs. Currently they are in the range of around 1% for most Gold ETFs. 3. Gold ETFs cost includes cost of annual fees for...

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Famous Investment Myths

noreply@blogger.com (Subramanian) — Thu, 18 Sep 2008 03:21:00 +0000

Though there is more participation from retail investors in Indian investments, but still most of us have not changed our perception on some investment myths although the awareness about investment has increased in the recent past. Let us go through some of the famous beliefs/myths that people still give importance. 1. I am very young to think about retirement In today's world, a youth in early 20's having a good job at hand will most likely not even think about retirement planning. He is more inclined to spend on modern accessories. Nothing wrong in spending but it should not happen at the cost of "retirement planning". Its never early to start for retirement planning. Early planning will give the benefit of compounded annual return on your retirement investment. 2.Investment should be made only for 80(c) limit of 1 lac. Most of us think about tax only in the month of march and collect funds upto 1 lac to be invested in tax instruments to save tax. People don...

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What are Exchange traded funds?

noreply@blogger.com (Subramanian) — Wed, 17 Sep 2008 03:11:00 +0000

Of late ETF(Exchange traded fund) has gained more attention among the Indian investors. So what is all about ETF? What is ETF? ETFs are mutual fund schemes whose units can be sold or bought in the stock exchanges during the regular trading hours. They do not have cut off timings like other mutual funds for buying or selling units. You need a demat account to operate with ETF. Types of ETF Passive ETFs - These mutual funds mirror a index and invests in a same set of stocks which comprimises an index. It is similar to index funds. Active ETFs - These funds invest in a set of stocks that pertain to the mandate of the fund. How ETFs work? 1. ETF units have two prices - market price and NAV. So usually market price of ETF unit will be at discount or premium to underlying NAV. 2.Investor does not deal directly with mutual fund company for purchase of units, he purchases the units via stock exchange. 3. Direct purchase of units from mutual fund company is...

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What to look for in a Fixed Deposit?

noreply@blogger.com (Subramanian) — Tue, 16 Sep 2008 03:16:00 +0000

Fixed Deposit is considered as a safe haven for the investors, but there is some level of scrutiny to be done even in Fixed deposits. Fixed Deposits are not offered only by public sector banks, they are offered by large corporates, co operative banks and other financial institutions. So the FDs in non psu banks are not "totally" secure. They can technically default on payments if the financial institution is caught in a trouble. Though the occurence of such an event is very minimal, lets look at some basic fundamentals to look at before putting your money in a FD. Credit Profile Check for the credit ratings of the instruments in which the bank FD is depositing the money.The rating of AAA is of higher quality. The higher the credit rating, the lower the return it delivers. Do not chase for a FD which gives 2% extra than the other prevailing FDs, because the risk exposure is higher in such a FD. Rate of Return Check the return on FDs prevailing in the...

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Need for Health Insurance?

noreply@blogger.com (Subramanian) — Mon, 15 Sep 2008 01:57:00 +0000

Insurance is all about tackling unseen risks that might affect an individual finance to a greater extent. In India, insurance is seen as a savings instrument and not as a risk mitigator. Moreover health insurance in india is less penetrated than life insurance. So what is health insurance? Health insurance reimburses the expenses of medical treatment,hospitalization and other expenses related to the treatment of your disease. There are various clauses with different health insurance policies which defines the expenses which it covers. Why is health insurance needed? As medical emergencies do not come well planned and these are completely unpredictable, when a person is diagnosed with a disease and requires treatment, the immediate requirement of fund for treatment takes a big toll on a person's finance and hence affects his planned investments. With health insurance, you can be least affected with your finance, since the insurance companies takes...

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What are child insurance plans?

noreply@blogger.com (Subramanian) — Sun, 14 Sep 2008 02:35:00 +0000

As most of us have plans on fulfilling our children's upcoming dreams on their career, we are more vigilant in planning for their future financial needs. As with any other financial needs, proper planning will ensure that your child's future financial needs are catered to. Most of you would have heard about "children's life insurance plan". The very common misconception is that it insures child's life, but it is not so. It is a policy which insures the parent only but the child get benefited out of it. Lets see how it works. 1. A children policy is taken by the parent as the policy holder. 2. The important feature of the policy is WOP(Waiver of Premium). In case if the parent dies during the term of the policy, all the future premiums are waived for the policy and the sum assured is paid immediately to the child of the parent. Eg. For a 25 years old with a kid of 1 year old, the child insurance policy from hdfc for 20 years of sum assured of 1 lac have a premium of...

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