Personal Finance Blog- India V 2.0

NPS to save additional tax

2012-02-05T19:17:00.000-08:00

Be ready with your NPS account ! if your employer is convinced, you may start getting additional tax benefits.

http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/you-can-save-additional-tax-through-nps/articleshow/11753274.cms

To know more about NPS, click here

Single premium or yearly premium

2012-01-23T21:46:00.000-08:00

" Term insurance policies" are the way to go for those who look for life insurance . If you are confused on whether it is better to opt for a single premium term policy over yearly premium , you must read the following post .

Also, do not forget to go through the comments on this blog post.

http://www.subramoney.com/2012/01/buying-term-insurance/

Know your priority!

2012-01-23T21:32:00.000-08:00

Life is all about choices. When it comes to spending your hard earned money , its again about your choices.

Recently was having a conversation with a friend who was keen to loose weight. (He is above 30, weighs almost 90 kg and is 5 ft 6'. ). One of the options before him was to join a gym near his house. The gym charges Rs 1500 pm as membership fees. A cheaper option @ Rs 500 pm was available but a bit far from his home.

Now, the friend told that it was way beyond his limit to pay Rs 1500 Pm and he would better accumulate that money every month to buy a treadmill.

To give the financial profile of this person. He earns around 70 k a month , out of which 40 K is eaten up by the EMI ( house and car). He spends at least 3k a month on dining out and needless to say the remaining money is consumed by other expenditure.

Recently he used his bonus money to furnish his house with a wooden cot and jazzy dining table ( both totalling to 100k ..yes one lakh).This person who pays at least Rs 25k/pm in interest alone and Rs 3 k/pm in dining out thinks that they go into building assets ( house ,car and tummy :-)) and feels that 1500 per month is an unaffordable 'expenditure'.

Even after a long conversation, he stood to his point!. Life is all about choices we make.

Peeping into 2012

2011-12-28T20:48:00.000-08:00

Here's an article which states that 2011 has been the second worst year for the Indian markets in last 14 years!.

Although ,such plain statistics do not matter a lot for the individual investors, the fact is 2008 has been the worst year. 2009 the best i.e the one which followed the worst. ( in the last 14 years,-I am not sure why 14 years were picked up)

So , what do you expect after the second worst year.. No predictions :-))

http://business-standard.com/india/news/2011-second-worst-for-investors-in-14-years/460101/

5 years , still no gains

2011-12-20T19:56:00.000-08:00

Whenever someone asks , what do you think is a long time horizon from an investment perspective, my answer has been always, time span > 5 years.

Imagine some one who started 'investing for the long term' in 2007 ( that too buying stocks in one go , holding it for 5 years , they would not be so happy now)- The so called long term stocks bought in 2007 most probably would still be in RED.
Now, the questions that may arise are -Does investing in equity really work??. Even a fixed deposit would have helped increase your base amount by 80% before tax. Was it a mistake not to sell off in 2010 rally??. Doesn't it defeat the purpose of long term??

Even a good stock bought in a wrong time may chicken out for a long time and not yield good results. So. how to know whether it is a right timer to buy. Again, a question that cannot be answered so easily.

What's the way out?

1. SIP in Equity mutual fund spread over a greater span ( 36 to 60 months) can diminish the risk.

2. Buying a stock after solid analysis ( this is not fail proof , but helps avoid major glitches) and buying at a time when everyone is panicking .

Any day no.1 is the best option for a retail investor. Simple looking things at times can do wonders.

Policy matters!

2011-12-04T23:27:00.001-08:00

Rajesh was quite excited about the progress, so far. He was working for a software company and had now cleared his interview with a consulting company.

He had to meet the VP of the division before the roll out of his offer.

'Should be just a formality to meet the head of the division', Rajesh thought.

He was waiting outside the VP's room for the chat.

The HR manager emerged from the VP's room and pulled Rajesh in for the final round.

Rajesh glanced at the VP, smiled. This guy should be a veteran (aka old guy :-) in this industry, he smiled as the VP greeted him.

VP- ' Hi , I am xxxx. Please be seated'

Rajesh - ' Hello..... Thanks'

VP- ' Your profile looks awesome and the comments of the interviewers, impressive'

Rajesh- ' Thank you. Even I am excited and thoroughly impressed with your company so far. Looking forward to work in this organization'

After the customary inquiries, The VP declared that he can't wait to have Rajesh on board. He said ' We have a project starting next week, Hope you would be able to be on board our company next Monday'

Rajesh was a bit shocked, ' But, I do have a months' notice and it's not negotiable with my employer'

'All along, I thought that you were a person who looks forward to challenges and that's the reason we are hiring you ... You should take this as a challenge and join by next Monday', the old man was smiling.

'But our organization policies do not allow this and it would take a month for me to neatly handover the responsibilities'

'That's the challenge, I exactly ask you to take up now... You can actually take it as a test. In consulting, you might have to face so many challenges like this', this man was simply unstoppable and was pushing Rajesh to the best. ' Rajesh,I am surprised that in the pretext of policy you are hiding yourslef from the challenge. Dont chicken out. You have to start questioning policies.. May be you can take this challenge, prove yourself and be a part of our Organizarion.'

Rajesh knew for sure that he can't get relieved so soon, He took a deep breath, looked at the silent HR guy for a while and then he turned towards the VP to say,

'OK, I am ready to take up the challenge. (Pointing to HR)I had asked for X as my CTC considering a normal notice period. But, If you can make that 3 X, I would be able to join tomorrow (Leave aside next Monday :)))). I would see this as a reward for taking up the challenge'

Silence prevailed for a while. The HR guy mumbled something about the consulting companies' policy on remuneration' before the VP said that ' We would get back' and thanked Rajesh for meeting him.

As he walked out, Rajesh realized that he had outspoken the old guy and his chance of getting the offer was almost nil.

To his surprise, the offer popped into his mail box a couple of days later with the same condition agreed with HR prior to meeting the VP ( X CTC and one month joining time).

Policies do matter!

PS: - Rajesh declined theoffer and he later came to know that those recruited by the consulting company during the period were for some consulting assignement in some yet to be named country in Africa.

Things beyond money

2011-11-30T01:28:00.001-08:00

Over the years, updating the blog on a regular basis has become a real difficult task. Not that I don't have the time to do so. To be honest, I have really run out of ideas on personal finance articles. The articles that have been written can be classified into a few broad categories and the investment ideas primarily running around SIP in Equity MF , bashing ULIPs, real estate , tax planning etc.

So, was in two minds as to whether should start a new blog to write more of generic stuff. Then thought , ' why not continue here at ideasmoney'. Now, the blog is officially on version 2.0 and the theme is to genuinely look beyond personal finance . This does not mean that personal finance posts would be discontinued hereafter.

This is again an attempt to metamorphosize the blog and I am eager to see how it shapes out.

Medical insurance

2011-10-30T22:04:00.000-07:00

This post is not regarding the best medical insurance policy or whether you need a medical insurance. If you are one who have a medical insurance , this post is for you.

1. Have the medical insurance information handy to yourself and your family members. If there is a medical insurance card provided by the insurer or service provider, have the card in an accessible and safe place.

2. If you are dependent on your employer's medical cover , then please get your insurance details from your employer as soon as you join the company.

3. Track the expiry date of the policy carefully and ensure it's renewed on time by you / you get the renewed policy details form your employer as applicable.

4. Please go through the policy information and be sure as to whom/how to inform in case of a medical contingency for an insurance approval. Take time to educate your family members on the policy too .( This is important because , your family would need the information when you fall sick).

Same situation, Different reaction !

2011-10-12T00:56:00.000-07:00

When there is a discount SALE on clothes, FMCG, gadgets, car....We grab the opportunity and buy

But when stcoks are beaten down and are available at cheap prices , we PANIC instead of buying.

Stock market downturn, most of the times are great opportunities to invest for the long term.

From next time when there is a SALE in stock market, dont PANIC. Look for OPPORTUNITIES

Confusion of Mr. i , Q3 2011, Where to invest my money?

2011-10-02T08:07:00.000-07:00

Note: - Click on the image to see enlarged picture.

Just for fun and not to be taken as a serious advice :-)

Real estate bashing

2011-09-04T02:13:00.000-07:00

It has been quite a while since I posted. What would be a better way to start out than providing a link that bashes current real estate prices. ??

"Anmol Choubey, 35, a general manager in a media company, has lived in Malad, north Mumbai, on rent for five years. Despite pressure from his parents and wife to “settle down”, he has no plans to buy a house in the foreseeable future. To him, it adds up. “I want a certain standard of living, certain amenities, certain kinds of people as my neighbours, certain kinds of children to play with for my son. I get that here for a rent of R
s. 20,000. The 10% hike in rent written into my contract gets covered by an average 15-20% hike in my salary every year. To buy the same place, I’d be spending Rs.80k as EMI on a housing loan, apart from exhausting my savings on down payments. If I try to lower my EMI, I will end up moving to a place I don’t really want to live in,” he explains. He first rented the place in Malad when he worked in that area. Today, he works in south Mumbai. “Tomorrow, I may move closer to work, or out of town, or out of the country. I don’t see why I should be tied down by a large financial commitment,” he says."

Another one..."The sense of ownership of 850 sq. ft has come at a price: “I do not remember the last time I went to a pub. I do not own a credit card. I dine out sometimes, but I do not go to a fancy restaurant. I live a simple, hermetic life,” he says. With a

57 lakh loan, he even questions the cost of his food. To what end? “I don’t foresee myself living here 10 years from now—infrastructure, water, traffic—this is not the dream. Imagine having children in this state! I can’t even think about it"

Read the full article at Livemint

Impact of raising interest rates.

2011-07-26T19:58:00.000-07:00

RBI has been increasing the base for interest rates quite often in 2011. This measure is primarily aimed at containing inflation.

Inflation has already had a severe impact on the middle class. If one is paying a home loan under floating rates, their EMIs are bound to go up.

If the impact is severe on you and you are wondering what to do, here are some possible suggestions.

1) Have a look at your budgets and actual expenses , determine the areas where you can cut down your expenses ( nice to have expenses). If you have not been budgeting or recording your expenses , this is the right time to start doing now.

2) If you have had any decision to purchase some electronic gadget or a home appliance, pull of the purchase under the carpet for some time.

3) If you are using a credit card, put that in a locker for few months , so that your impulsive purchases can be avoided. Moreover, you tend to spend less when you pay through cash ( when compared to a card or cheque payment).

4) Pre-pay your loan as much as possible . Spare money ( except that kept aside for contingency) should be used to pre-pay your loans and don't even think of investing with an idea to make quick returns.

5) Finally, be prepared for another hike and make a provision for that too.

One simple question

2011-07-03T05:30:00.000-07:00

I was being followed up regularly by a company (where I hold a demat account) for an attractive investment option. When I asked for details, I got to know that ' It is a single premium product' and the returns from the product has been around 16% last year.

One more ULIP sale. I asked them one simple question. How much of the premium would actually be invested in the scheme??. The answer was that regulations on ULIP have changed and the invested amount has actually gone up. I wanted a quantified answer. If I am say investing 1 lakh rupees into the scheme, for what portion do I get NAV allotted?

The answer was 94000.

i.e. Out of the 1 lakh , I would invest ......The units allocated would actually be 94,000. Based on past returns , If the fund manager provides 16% returns next year then I would actually get the return of 16% in 94,000. (((6,000 gone somewhere immediately on investing and my investment actually starts growing form 94,000)))

So, when you are sold any product ask this simple questions.

" How much of my money will actually be invested ??"

Ensure it's somewhere around 100%. :-) and never club insurance with investment.

Addicted to subsidy !

2011-06-27T08:36:00.000-07:00

Pre logue :- I know, many of the readers may not like this post !!!

Whenever diesel, petrol, kerosene or gas price increases, there is a hue and cry created in the media. People talk about, how government is insensitive to the burden of the common man.Many want the government to roll back all the taxes that the government charges on petroleum products, some talk about how cheap oil is in other countries and many tell that cheap fuel is their fundamental right!!!.

The world has been running on this fossil fuel for quite sometime now. The demand for this is increasing in leaps and bounds in a growing economy like India. The prices to the consumers should actually reflect the international crude prices. I do not want to comment on tax structure of petroleum products alone ( we need a separate article to talk about taxation in India).

The international crude prices increase not only based on demand but also on speculation. If we tag our retail prices in tandom with international prices, then the high price would automatically pull down demand. The cure for 'High prices' is always high prices. We should follow examples of countries like Denmark where petroleum products and vehicles for personal use are taxed heavily., This in one way would reduce the ever increasing traffic :-)

Good public transport systems, Penalising single person driving (a car/four wheeler), Encouraging cycling in cities ( again Copenhagen has > 30% of population commuting by cycles), Heavy investment on alternate source of energy ( esp. Solar power for India) are the need of the day. We need to fight for all this instead of crying about increasing prices. We need to make our growth GREEN and SUSTAINABLE.

I would strongly suggest the reader of this blog to read the book "Hot, Flat and Crowded" by Thomas Friedman, If you have not already done so. ( In the context of oil prices).

Finally , Never ever expect any SUBSIDY from the government in the long run. It is not good for the progress of the nation.

Advertisement and product/service quality

2011-05-03T08:33:00.000-07:00

Most of the purchases that we do or services that we avail are determined by the brand image of the product/service. Brand image is primarily built by advertising, the feedback that we hear from others , brand ambassadors, our previous experience with the product/service, etc.

However when we haven't had personal experience about a product or service , or do not have someone who can share their experience reliably with us, we may get carried away by the advertisement image.

There is a corporate chain from the health care industry who advertise about their " caring " attitude towards the patients . Their advertisements are flamboyant and they promise 'heaven to earth' of possibilities and

' Why worry , when we are there' kind of an image in their advertisements.

When one of my relatives availed their service, it was pathetic. The 'care' displayed by their staff was not even basic and the staff weren't well trained to live up to the image created by the ads. The treatment ended up being substandard and the person had to shell out 200% extra over what a normal competitor would charge.

So never ever get carried away by the advertisements alone in making a decision. This is just a sample ( "We have ads promising to make children 'tall', Guys get girl friends at the whisk of buying a deodorant and so on). Of course, it's the job of the advertisers to create a larger than life image of the companies to the masses.

Be a prudent customer. Don't fall an easy prey to the BIG advertisers. Well, it is easier said than done in a world which revolves around on advertisements ( including this blog :-)

Advantages of going green!

2011-04-15T23:42:00.001-07:00

Going green makes a lot of sense , at least when we are seeing such dramatic climatic changes around us. Hotter summers, colder winters, off seasonal seasons may take the zeal out of life. so, going green going forward may not be an option but THE WAY FORWARD.

Here's one article that suggests way to go green with your drive.

http://www.financialexpress.com/news/ways-to-drive-green/776739/0

God does not make this anymore!!

2011-04-15T23:08:00.000-07:00

Whenever a justification for phenomenal increase in price of land ( in India , in current context) and Gold ( globally) is asked for, a reason given is " these resources are limited " and " God does not make it anymore". So, the prices will always keep going up.

At the outset, this looks like a very compelling argument. But , if you think more deeply all products or many services are also dependent on natural resources for that matter . Also most of these natural resources are not available for ever example, clean potable water, mineral ores, oil, forests, etc and so on.

Nothing is really non depletable unless the man kind use them prudently.

So, the argument of limited availability can be extended to man made products also which the listed companies sell ( as they are dependent on some natural resource or the other which God doesn't make anymore).

Buying something as an investment only based on the above argument doesn't sound logical.

Health or Wealth , its the same approach!

2011-04-14T07:26:00.000-07:00

If you have been looking to be healthier ( Health is not only absence of disease but more than that :-)), look in shape or be in a proper weight range, you need ...

1. Determination to start a regular work out.

2. Not to consume anything that deteriorates your health.

3. Be regular in step 1 and stick to step 2 throughout.

These three steps that are easier said than done!!. Especially the third step!!

To build wealth you need the same determination to start your investment , not to spend your hard earned money on gratifying something unnecessary and all the more being regular in investing .

So its health or wealth , its the same approach to be followed.!

Value of money

2011-04-11T00:46:00.000-07:00

Got to see this video link on marketvision.in

How to sense a bubble /scam ?

2011-04-07T02:44:00.000-07:00

A bubble/ scam is often known only when its bursts out. But we can possibly look for some indicators to see whether we are in a bubble.

Trying to list such indicators here

1) When everyone believes something is a very good investment ( including the layman/uneducated/elite and all) and can never falter.

2) When most of your neighbours invest in something and cannot justify how the ( more than average) return can be made.

3) Newspaper /media focus shifts too much on the investment opportunity and you start feeling that you will miss the 'Bus' , if you do not get onto it now.

4) There is a strong justification for the thing to be a good investment and 90% of people agree to the justification . There's nothing unique about what you know about the investment.

We have seen stock market bubbles, teak plantation scams, Benefit fund ( NBFC) bubble and burst, IT bubble (recollecting all those that are significant and that I can remember ), oil spikes et all.

Two things that are falling into the category ( you need not agree with me ) as of now are real estate in India and to some extent gold...

But still if you want to invest in real estate , go for Dubai and not for Mumbai ...why ????? read this in ET :-)

Squeeze the salaried class

2011-03-29T20:53:00.001-07:00

This is one more step in 'extracting' more from the salaried class.

http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/trouble-ahead-i-t-dept-tells-epfo-to-tax-premature-pf-withdrawals/articleshow/7822221.cms

Info on EPFO

2011-03-28T22:16:00.000-07:00

ET carries an article today about provision of monthly slips with PF balances to contributors every month from EPFO ( Employees provident fund office). This seems to be the step in right direction. As of now, things like transfer, withdrawal, inquiry are not as transparent or as swift as they should be.

Whenever I have tried to transfer my PF ( when I have changed employers), I have really had a tough time. When a query is made to the PF offices concerned ( From and To PF offices), both of them point to each other or they say that they haven't received the form yet. This in spite of the fact my employer assuring that the form has been sent.

( You can use this link to register your EPF grievance)

Such loopholes and lack of transparency with one's money is definitely painful. They should try to emulate the NPS website in terms of providing all information to subscribers online.

Now when the new government employees pension funds are managed by NPS ( Funds managed by six private funds), the EPF funds of private employees is managed by EPFO ( government organization).

In the long run, these organizations / schemes should be clubbed together for efficiency and everyone should have an unique identifier to manage his pension funds ( PRAN Number probably or UID
), irrespective of where he works and change of employment.

We have a long way to go!

Here's the link of the ET article mentioned above.

Sensex to touch 30000

2011-03-27T20:09:00.000-07:00

"In our view, Sensex 30,000 could be a reality in the next few years...

It could happen sooner or maybe even later. "

There was a mail from a group which solicits subscription for equity tips in my inbox. The first two sentences of the mail is posted for your reference above.

The statement is so funny. They say it may happen soon or may be even later ( say 20 /30 years). Over a longer period the sensex would definitely cross 30,000 at least to keep pace with inflation and population growth. By such a statement the news letter tries to be smart and get their statement to be true in any circumstance (sooner or later).

I am not telling anyone to stop subscribing to such news letters( that's your own decision). But any day I wouldn't invest based on a (unsolicited or solicited) tip from a person who's not even sure about what he is talking.

Instruction Manual for Investing *

2011-03-26T06:52:00.000-07:00

*-guest post by Ramalingam K

Let’s open the manual:

Every gadget you buy in the market comes with an instruction manual or user’s manual. But your salary, savings...retirement don’t come with an instruction manual. So we don’t know how to handle these and we end up mishandling. The result is poor investment choices and unhappy retirement. This article is an effort to draft an instruction manual for our investments.

Investment forms an integral part of our work life, with many wanting to save and invest to meet our long-term financial needs. We would all agree that just living from paycheque to paycheque would leave us in a bad financial state making us incapable of meeting our family’s financial commitments and our expenses after retirement.

Don’t Fly Blind; Have a Financial Plan

It is vital to chalk out a financial plan at the very beginning of our career. This plan would tell us how much we should save and invest. This plan also ensures that our long-term financial needs are met. It may prove difficult and sometimes costly in the long run if we chalk out a financial plan on our own. So it is better to engage a professional financial planner, who would be in the right position to advice us on the investments to meet our long-term objectives in life.

Generally investment advisors or financial planners ensure that we invest in the right type of investments that are relatively safe and tax efficient. They ensure that our investments do not divert away from the set financial goal. The advisors or planners who charge a fee, can be expected to act in the best interest of us; their clients. But we will not be in a position to trust those who live out of the commissions earned from selling insurance policies or mutual funds or stock broking.

However, it is best for you also to be cautious and not allowed to be fooled by flattery. Since it is your money you need to be cautious and vigilant.

Do control what you can:

The first thing that we can control is unnecessary expense on investment. It is in our interest to try to minimize or avoid investment expenses like entry load, exit load, fund management fees, commissions for buying and selling stocks, account maintenance fees, allocation charges, administration charges, surrender charges, and other overheads. Small drops make a mighty ocean. Similarly these small amounts of cost cutting will definitely pay us in the long run.

The second control is over the diversification of your investment. You also need to ensure that at all times your investments are done over a wider variety of assets. This will ensure that you do not suffer large losses in one type of investment. The losses in one would then be offset by the gains in the other and you will be financially safe at all times.

The third control is the maintenance of our asset allocation to reach our financial goal. We need to keep a check over the asset allocation or ratio of equity to debt and to other things in your portfolio with the help of a professional financial planner. This will help us ensure that we are not taking more risk than what we want or can possibly handle.

Do pay as little attention as possible to the financial media.

It is best not to be influenced too much by the media to buy and sell investments. Investing is not a competitive sport. Buying and selling stock frantically by being influenced by the media is counter productive to your financial objectives.

It is best to understand that our conscious investment is for long-term wealth appreciation. So we should not be distracted by the investment shows that run 24 hrs a day, investment column they publish 365 days a year. Media doesn’t understand your requirements. So it is difficult to get a customized solution for your personal finance.

Don’t fall into “Invest and Ignore”

We have invested your precious savings, so do not be careless and sleep over it. Though our investment advisor would make sure that our investment grows, it is better that we too are vigilant and keep track of market conditions. It is our precious savings that we have invested. So if we lose it, we would be losing not only money but also our peace of mind.

Don’t fall into “HNI Trap”

Being a high net worth person exposes us to being influenced to invest in dubious projects that may bring down your financial status. This is true because the financial industry are on the look out for people that have a lot of money and are of a high status. They try to influence them to invest in dubious projects appealing to their status and vanity.

Being a HNI doesn’t mean that you need a completely different set of investments. They try to pack something and will say “This is a HNI product”, just to massage your ego and get business. Many HNIs would be lot richer, if they could have bypassed their private banking department and just invested in an index and a very few diversified equity funds.

A final thought:

The instructions in the user’s manual need to be used to get the maximum benefit and long life of the gadget. Similarly, having read the set of instructions to make wise investment decisions, it is up to you to follow them strictly or leave it and go back to your routine life.

If you decide to follow these instructions, you will definitely see a lot of positive changes and financial prosperity in the long run. So today is going to be the first day for rest of your life.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Confusion on HRA exemption.

2011-03-22T20:56:00.000-07:00

Most of us would be aware of the 3 rules for calculating HRA exemption and how it works .

(Recap-

As per the Indian income tax law, the HRA exemption should be calculated as the least of the following.

1. Rent paid in excess of 10% of basic salary.

2. Actual HRA received by the employee.

3. 40% of BASIC ( non metro) (50% if metro) )

If during a particular year

1) a person remains unemployed for some time or
2) changes employment between metro/non metro and his HRA and rent paid change
3) remains as salaried employee for a particular period of the year only
4) HRA / Rent changes when working for the same company

and many more such scenarios, how to calculate HRA exemption ( at a yearly/ monthly level)

There is no definite answer I could figure out ,but the following link sounds logical.

If any of the readers have more authentic information, please do drop a mail

http://www.simpletaxindia.org/2011/01/hra-exemption-calculation-monthly.html