The Money Quest

Test your Financial IQ (#1): Calculating Stock Returns

2012-05-09T08:39:00.000+05:30

Learning to managing money intelligently and improving our financial lives also involves feeling comfortable while dealing with numbers. For those who invest in stocks, try this test to judge your Financial IQ:

Questions:

Q-1: A stock has fallen 30% this year after rising 80% last year. What is the net return? Is it 50%?

Q-2: If a stock you purchased is down, say 80%, how much it should rise to bring it back to your acquisition cost i.e., how much percent returns are required to bring it to the same level? Is it 80% , 100% or 200%?

Q-3: You own a stock which has continuously risen
during last 25 trading sessions? Is the chance of its price falling in next trading session high? What do you think? Will you be more willing to sell the stock?

Q-4: If a stock gives you a monthly return of 50 per cent, what is the expected annual return?

Q-5: Is the following statement correct: Markets are cheaper when the Sensex is at 15,000 as compared to a Sensex value of say, 18,000 or 20,000?

Answers:

A1: Not at all, the net return is just 26%...surprised…let me clarify you this way…Suppose the initial price of stock was Rs 100, after a rise of 80% last year the stock price at the end of last year became 180. Now again during this year, it has fallen by 30%, so in absolute terms the stock has fallen by Rs. 54 and not Rs 30 because the base changed from 100 to 180.

A2: The answer is 400%. This is due to base effect. 100% rise = 50% fall; If 100 becomes 200 the return is hundred per cent, but when 200 becomes 100, it is minus fifty per cent (-50%). Therefore, to recover from a 50% loss, 100% gain is required and to break even after a 80% loss, 400% gain is needed. In other words, if the investment rises by 100% and then falls by 50%, you get zero returns. Put differently, a ten per cent loss followed by a ten percent gain or vice versa equals one per cent loss. Similarly a 50% loss followed by a 50% gain or vice versa equals 25% loss. It follows from the above that there is no limit to upside but downside can never exceed 100%.

A3: The probability of fall remains 50 percent despite previous continuous rise. Markets don’t have a memory. In case of random events, the probability of occurrence / non-occurrence of an event is independent of previous event...that’s why it is foolish to buy a stock just because it has fallen continuously during last few trading sessions or conversely, sell a stock just because it has risen continuously during last many trading sessions.

A4: Most of the time, returns calculated for a period shorter than one year are not annualized. It is in fact misleading to annualize return of less than one year in case of volatile asset classes such as equity because of the associated volatility. For example let’s say the ABC stock you purchased one month back is now doubled; annualizing the returns would mean that we expect the stock to continue doubling every month. However, in case of debt, it is acceptable to quote a return of less than a year as an annual return but that also only simple annualized returns.

A5 : For this see the post: Are you an Investor or a Gambler?

Also See:

1. Money Teaser #7: Stock Investing

2. PMS: Is it Portfolio Management or Mismanagement

3. 5 Mistakes to Avoid while Investing in Mutual Funds

An Investor or a Gambler?

2012-03-28T07:53:00.000+05:30

Currently the Sensex is hovering in the range of ---.After touching ---it is on a continuous decline during last few weeks. The last Sensex closing price was ---with a P/E of ---. Still the market is overvalued because the historical long term average PE (Price to Earnings Ratio) of the Sensex and Nifty is around --- whereas the current P/E is ---.

Don’t you come across such statements in the pink papers? No discussion, analysis of either an individual stock or market is complete without the mention of P/E. Now please tell me: Does it make any sense to you or simply went over your head?

Photo by Gilzpics

Let’s say you’re thinking of buying a stock…you’ve to choose between
the two... the one quoting at Rs 15 with a P/E multiple of, say, 40 and the other is available at Rs 80 with a P/E multiple of 16 all other things being equal (such as industry, quality of management, growth rates)? Which one will you buy?

When you want to buy a stock, the first thing you look at is its price. But price in isolation can’t tell you anything. For example, if share X is quoting at say Rs 20 and another share Y is at Rs 250. How do you decide which is a better buy? Does share X is better or cheaper buy because it is available at much lesser price than Y? How do you decide the true value or worth of a share?

Similarly, how do you judge whether the market as a whole is over-valued? For example, how do you know when the market is overvalued: Sensex level of say, 25,000 with a P/E of 15 or SENSEX level of say 15000 with a P/E of 25?

Nobody can judge the actual worth of a stock or market without looking at the P/E multiple—the most basic & important valuation parameter. If you’re investing in the market without having idea of the P/E concept, then you’re simply a gambler and it will be better for you to buy lottery tickets than invest in stocks.

In fact, I’ve seen many self-proclaimed Warren-Buffet—idiots— who have invested their entire savings in stock markets without even knowing what is P/E Ratio.

Ok, now a question for you: Which category do you fall into?

But Fisher, you’ve still left the question unanswered what exactly is P/E and how do we make use of it while making investment decisions?

See, to find an answer, you’ve to first ask a question. Now, that question has been raised, you’ve started thinking about it…you’ll be able to discover the answer for yourself. Just give it a try…if you still find it difficult to understand, I’ll write another post.

Also see:

1. Resolving the Dilemma: Direct Investing Vs. Mutual Funds
2. Top 5 Stock Investing Mistakes
3. Best ELSS Funds 2012

PMS: Is it Portfolio Management or Mismanagement?

2012-03-04T09:17:00.000+05:30

Heads we win, tails you lose!

So you think that you’ve acquired the status of a HNI (High Net worth Individual) with a few lakh to spare and are looking beyond the realm of mutual funds either because already heavily invested in them or to design a customized portfolio for yourself or just to pamper your ego.

Photo by zabidazabadu

And here comes your wealth advisor with a exotic product called PMS (Portfolio Management Services) and tells you that it will provide you returns far better than plain-vanilla mutual funds. And you’re wondering, why not go for it?

Ok, now just try guessing
the name of a ULIP product offered by the mutual funds, brokerages and wealth management firms. Yes, you’ve guessed it right! PMS is another ULIP sort of product meant to fleece you. As I wrote earlier, one of the heights of financial stupidity is investing in Portfolio Management Services (PMS). Both ULIPs and PMS are used to make a fool of investors; the only difference being that while ULIPs are sold/mis-sold by Life Insurance Companies, PMS is mis-sold by Asset Management Companies (AMCs), Stock Broking Companies and Wealth Management Firms.

It is human nature to get tempted by fancy looking products; like moths to flame we’re invariably attracted by glamour. The term Portfolio Management Services (PMS) and ‘wealth management’ appear glamorous; similarly the name of various products offered under PMS also appear to be quite exotic; for example,

Here’s a list of few of these exotic investment products:

-ICICI Prudential PMS Aggressive Portfolio

-ICICI Prudential PMS Deep Value Portfolio

-Sharekhan PMS ProPrime

-Sharekhan PMS ProTech

-Absolute Freedom Option by Reliance Portfolio Management

-ING India BSE 200 Quant Equity Portfolio

-HSBC Alpha Account Signature Portfolio

I hope now you’ll remember what is the full form of PMS…it is ‘Portfolio Mis-management Scheme’.

But Fisher, making such generalized statements not supported by facts is not expected from you? Come up with some convincing arguments?

O.k. just wait, I’ll surely write a detailed post about what exactly is PMS and why it is considered harmful for your financial health.

Also see:

1. Height of Financial Stupidity

2. Truth behind Complex Financial Products

3. Money Quest Financial Stupidity Awards

Best ELSS Funds 2012

2012-02-17T08:44:00.000+05:30

Before we select the Best ELSS funds for the year 2012, let us first recall the earlier discussion:

1. Why ELSS is considered as the Best option under Section 80C?

2. How to invest in best ELSS funds

3. Best ELSS Funds for 2010

4. Which is the best option under ELSS: Dividend Vs Growth

5. 5 Guidlelines for investing in ELSS

Last time, the procedure adopted for selection of Best ELSS funds was a very detailed one…this time I’m simplifying it. Currently, there are around 37 Equity linked Saving Schemes (ELSS funds) in the market; before we choose the best ELSS, let us see the performance of
the elss category over a period of time (As on 10th Feb 2012):

Period………..Av. return…….Best……..Worst…….Sensex
1-Yr…..………3.32…………13.11………(5.93)……..1.64
3-Yr…………25.04……….35.38………14.53…..….22.53
5-Yr………….5.24…………13.11……..(2.38)………..4.07

Now, let's see the list of top performers:
As usual, this time again the Canara Robeco Equity Tax Saver (Our Aamir Khan) retains the top slot; to include it in a list of top-3 will be a disgrace because it has league of its own; nothing can beat it. So after excluding this super-star, the other top-3 elss are

1. Religare Tax Plan
2. Franklin India Tax Shield
3. Sahara Tax Gain

And if you wish to extend the list, you can include the following two ELSS:

4. HDFC Tax Saver
5. ICICI Prudential Tax Plan

However, I would like to again remind you one important point: no doubt it is important to choose the best performing ELSS funds—though a difficult task as performance keeps on changing— because even a one per cent variation can make a substantial difference over a period of time, it is more important to avoid the worst performing elss funds.

The worst five ELSS funds are listed here:

1. Escorts Tax Plan
2. LIC Nomura MF Tax Plan
3. Baroda Pioneer ELSS 96
4. Principal Tax Savings
5. UTI Equity Tax Savings

Any doubts or questions?

Also See:

1. 5 Things to Avoid while investing in Equity Funds
2. Beware of the Misleading Ads by Mutual Funds
3. How to Choose the Best Equity Fund
4. PPF—Best Debt Option under Section 80C
5. Section 80C: Investment Options for Tax Savings

EPF & EPS: Facts you should know about

2012-02-06T08:46:00.000+05:30

I’ve already covered PPF extensively, but hardly wrote anything about EPF (Employees’ Provident Fund) & EPS (Employees’ Pension Scheme) assuming people are well aware of its working…but the reality is otherwise…I’ve come across scores of people who hardly know anything about EPF working although making regular contributions through their employers.

So this post is an attempt to shed some light on the little known aspects of EPF & EPS:

Photo by Rainbirder

Provident Fund & Pension Contributions:

Q-1: What is EPF? What is EPS?
A: EPF (Employees’ Provident Fund Scheme 1952) and EPS (Employees’ Pension Scheme 1995) are the two different retirement saving schemes under Employees’ Provident Fund and Misc Provisions Act, 1952 meant for salaried employees. (Note: Government & Semi-Government Employees are covered under Provident Funds Act, 1925 which is not being covered in this post)

Q-2: Is it mandatory for every employee to make contribution towards EPF & EPS?
A: Yes, it is mandatory. However, employees drawing a basic pay of more than Rs. 6,500 have option to
opt out of the scheme.

Q-3: What is the total amount of contribution made to EPF and EPS?
A: Usually, both the employer and employee contribute @ 12% of the basic pay (plus DA if any). The entire 12% of employee’s contribution is towards EPF and out of employer’s contribution @ 12%, 8.33% gets diverted to the EPS and the balance 3.67% goes in EPF.

There is also a subsidy of 1.16% contributed by the central govt. to the EPS. So the total contribution which goes towards EPS is 9.49% of your basic pay.

However, where your basic pay exceeds Rs. 6,500, the contribution towards EPS gets restricted to 8.33% of Rs. 6,500 (i.e., Rs. 541) and the balance of employer’s contribution goes into EPF.

Q-4: Can I voluntary contribute more than the statutory limit to EPF?
A: Yes, you can contribute additional amount (over and above 12%) to Provident Fund by depositing VPF (Voluntary Provident Fund). However, employer is not bound to do a matching contribution.

Q-5: What is the rate of interest applicable on EPF & EPS?
A: EPF rate which was 8.5% since 2005-06 got increased to 9.5 per cent for the FY 2010-11...interest rate for 2011-12 is yet to be declared...might get reduced to 8.6%.

EPS being a pension scheme, interest is not applicable.

Q-6: What is the tax benefit available on EPF & EPS?
A: The employer contribution is exempt from tax and your own contribution is taxable but eligible for deduction under section 80C of Income tax Act.

Q-7: Whether premature withdrawals allowed?
A: Yes, the EPF scheme allows partial withdrawals for the purpose of marriage/illness/higher education/house construction etc.

Q-8: Is it also possible to check the EPF Account balance online?
A: Yes, indeed. The service has been launched in 2011…just spare 2 minutes and follow these steps:

-visit the link: http://www.epfindia.com/MembBal.html

-Follow these instructions: Click on the link mentioned therein; select the EPFO Office where your account is maintained; enter your PF Account number, name and mobile number and you’re done!

-Within a minute, you’ll receive a SMS.

Pension Benefits:

Q-9: When can an employee start receiving a Pension?
A: A employee can start receiving the pension under EPS only after rendering a minimum service of 10 years and attaining the age of 58/50 years.

However, no pension is payable before the age of 50 years and early pension after 50 years but before the age of 58 years is subject to discounting factor @ 4% (w.e.f. 26.09.2008) for every year falling short of 58 years.

In case of death / disablement, the above restrictions doesn’t apply.

Q-10: How long the pension is available?
A: Lifelong pension is available to the member and upon his death members of the family are entitled for the pension.

Q-11: What is the formula for calculating the monthly pension?
A: Under Employees’ Pension Scheme, the monthly retiring pension is decided on the basis of ‘Pensionable Service’ and ‘Pensionable Salary’ and is worked out as follows

Monthly pension=( Pensionable salary*Pensionable service)/70

Pensionable Salary is arrived at by considering the average contributing salary immediately preceding 12 months from the date of exit from the scheme …normally this would be limited to Rs 6,500 p.m. unless certain enhanced contributions are made by the employer with permission.

Pensionable Service is the service in years rendered by the member for which contributions have been received…maximum cannot exceed 35 years

Q-12: What is the maximum amount of Pension available under EPS?
A: Based on a maximum employment period of 35 years, the maximum amount of pension as per the Pension formula would be Rs 3,250 per month.

Q-13: Is it possible to commute pension fully or partly under EPS?
A: Earlier there was a provision under EPS allowing commuting of one third of monthly pension by paying 100 times the original monthly pension. However, the amended scheme w.e.f 26 Sep’ 2008 doesn’t allow it anymore.

Employees Deposit Linked Insurance Scheme (EDLI)

Q-14: Is there any other benefit under Employees’ Provident Fund and Misc Provisions Act?
A: Yes, PF Act also includes EDLI scheme under which life insurance cover is provided to the PF members. The cost of the scheme is borne by the employer but as the amount of life coverage under this statutory scheme is very low (a maximum amount of Rs. 60,000), usually employers opt out of the EDLI scheme by going for group insurance scheme which usually provides higher coverage to employees without any increase in cost to the employer.

Withdrawal of PF & Pension

Q-15: Is it mandatory to transfer EPF Account at the time of change of Job? What happens to EPS? Can one withdraw the entire amount?
A: Yes, legally it is mandatory to transfer EPF Account at the time of job change. But, people generally don’t do it; instead of transferring, they withdraw the amount.

In case of EPS, if the service period is less than 10 years, you’ve option to either withdraw your corpus or get it transferred by obtaining a ‘Scheme Certificate’. Once, the service period crosses 10 years, the withdrawal option ceases.

Q-16: Are there in any tax implications, if I withdraw the EPF balance at the time of a Job change?
A: See, Ten Common Income tax Fallacies

Q-17: How do I know the status of my withdrawal application?
A: Visit: http://www.epfindia.com/ClaimStatus_New.html ; select the EPFO Office where your account was maintained and furnish your PF Account number.

In next part, EPF Provisions applicable to International Workers will be discussed. Meanwhile, if there’s anything I missed out, you can write in the comment section.

Also see:

1. PPF: 10 Practical Tips
2. Tax Saving Options under Section 80C
3. Section 80C: 10 Smart Tips
4. Section 80C: Conditions & Restrictions

Health Insurance: Becoming a Necessary Evil

2012-01-14T07:36:00.001+05:30

Some time back I came across the news that insurance companies are planning to raise the premium of health insurance products to neutralise the rising cost of healthcare…the medical inflation was pegged at 15-20 per cent per year.

Photo by seiuhealthcare775nw

Now the moot question is whether inflationary healthcare costs are driving the demand for health insurance or increasing health insurance is driving the inflation in healthcare costs? Which is the cause and which is the effect?

If we say that
to begin with health insurance increases the price of healthcare services, but then why? Because it acts as inducement to hospitals to jack up the rates for medically insured patients who don’t seem to care thinking that over-billing doesn’t affect them. It is like a vicious circle; as more and more people opt for medical insurance, more expensive the medical treatment becomes as there is more opportunity to / inducement for hospitals to raise the healthcare costs which in turn raises the cost of medical insurance and force the already insured persons to increase their health cover and also force the self-insured to go for health cover.

In this game both the insured and the insurer are losers (the same article mentioned the loss ratio from medical portfolio of NIC to be 140%), only hospitals gain…that’s the reason a lot of 5-star type hospitals are mushrooming in the metros who don’t even hesitate to operate on a dead man…to make a few extra bucks.

Same is the state of affairs in US – where an individual can’t exist without having a health insurance—that’s why it’s a must for anybody going to US to have a medical insurance….and we’re trying to catch-up with the US gradually.

Similar is the case with motor insurance…both the insurer as well as the insured are loser…the real beneficiaries are Surveyors and the Motor Workshops…now, please don’t ask me why?

Also See:

1. Amazing Facts about medicines sold in India

2. 10 Tips for Buying Medical Insurance

3. Health Insurance vs. Critical Illness Insurance

GOLD ETFs: FAQs #2

2011-12-12T09:46:00.001+05:30

Since I wrote Gold ETFs FAQs around two years back, the gold prices have almost doubled ( Rs 28,960 per tola as on 9th Dec 2011)and every investor is trying to include gold in his portfolio.

While deciding about investing in paper gold, one comes across questions such as

1. Why should we invest in Gold ETFs or Gold Saving Funds (also called
Gold Funds) instead of Physical gold?

2. Is it right time to invest in Gold ETFs or Gold Funds?

3. How do we invest in Gold ETFs or Gold Saving Funds?

4. What is the difference between Gold ETFs and Gold Saving Funds?

5. Which is a better among the two: Gold ETFs or Gold Funds?

6. Which are currently available Gold ETFs & Gold Funds in the market and what is their performance track record?

7. Which is the best Gold ETF? How to choose among the so many available Gold ETFs available in the market? Similarly, which is the best Gold Fund?

See, I have already answered many questions in Gold ETFs FAQs and remaining ones are answered here:

Q-1:- Is it right time to invest in gold?
Ans: Indeed, a very difficult question to answer.

No doubt, it is the best performing asset class during last 5-10 years …during the last one year itself gold has generated returns of around 40% while equities are down by approximately 15-20%.

However, first, you need to answer the basic question: Why should I invest in gold? please don’t invest just to earn big returns hoping that the spectacular performance of last one year / last 5-10 years will keep on repeating. Know that gold can also move downwards or sideways for prolonged period of time as happened during 1980 to 2000.

The basic idea behind investing in gold is to diversify your portfolio to reduce investment risk and not to earn those spectacular returns; if you see the graph above, notice that it is only from 2001onwards, gold has started its upward movement, but you never know when the tide will turn.
So avoid greed and invest 5-10% of your portfolio and that too gradually in small proportions over a period of time.

Q-2: What are Gold Saving Funds (or, Gold Funds)? How are they different from Gold ETFs?
A: Gold Funds are mutual fund schemes; technically called FOF (Fund of Fund) schemes which invest in the Gold ETFs of the same mutual fund company. For example, ‘Kotak Gold’ invests entirely in the ‘Kotak Gold ETF’ and ‘Reliance Gold’ invests in ‘Reliance Gold ETF’. In simple words, putting your money in Gold Funds amounts to indirectly investing in Gold ETFs.

Currently, there are 8 Gold Funds: AXIS Gold, HDFC Gold, ICICI Prudential Regular Gold Savings, Kotak Gold, Quantum Gold Savings, Reliance Gold Savings, SBI Gold and Religare Gold, all of them launched in the year 2011. Reliance Gold Savings was the first one launched in Feb 2011 and Religare Gold being the latest entrant –launched in Nov 2011

The basic difference is that unlike Gold ETFs which can only be purchased from Stock Exchanges (NSE & BSE) through brokers & for which you require a Demat account, Gold Funds are purchased directly from the mutual fund house similar to the way you buy other mutual fund units.

The objective behind launching Gold Funds is to allow investors who don’t have a Demat Account to invest in gold.

Q-3: Should I Invest in Gold Funds or Gold ETFs?
A: Gold ETFs score over Gold Funds since cost of investing in gold funds is much higher as compared to gold ETFs which ultimately drags down your returns. In case ‘Gold ETFs’ you pay annual charges of both the Gold Fund as well as the Gold ETF. Further you’ll have to pay exit load if you redeem before a specified period; for example, in case of Religare Gold Fund exit charges are 2% for redemption before 6 months and 1% if redeemed between 6 months & 1 year from the date of purchase.

Although based on short term performance, there is not too much variation…but once these gold saving funds complete 2-3 years, you’ll notice the difference.

So, if you’re having a Demat Account, invest directly in gold ETFs. On the other hand, if you don’t have a Demat Account then invest through Gold Funds because opening a Demat account only for the purpose of investing in Gold Funds (assuming no intention to invest in equities) is a costly affair keeping in view that you’ll have to bear annual maintenance charges of Demat account which usually are in the range of Rs. 250-750 per annum (in addition to brokerage & transaction charges).

Q-4:OK, I’ve decided to invest in Gold ETFs instead of the Gold Funds? But how do I know which one to invest in? Should I choose any one on random basis or is there any criteria for selecting out of the 12 available Gold ETFs?Ans: Put simply, you would like to know: Are all the Gold ETFs currently available in the market performing similarly? Or, is there any best performing Gold ETFs?

As on date 12 Gold ETFs are available in the market: Axis Gold ETF, Birla SunLife Gold ETF, Goldman Sachs Gold ETF, HDFC Gold ETF, ICICI Prudential Gold ETF, IDBI Gold ETF, Kotak Gold ETF, Quantum Gold, Reliance Gold ETF, Religare Gold ETF, SBI Gold ETS and UTI Gold ETF.

Although, earlier I had mentioned that it doesn’t matter which one you invest in, but now when we see the track record, it comes out that it indeed matters. There is surely a way to choose the best performing Gold ETFs.

Let’s first see the performance in terms of returns (as on date)— on a 3 yrs basis, there’s a meager difference between the best & the worst. Out of the 5 Gold ETFs which are more than 3 years old, while the highest returns are 31.78% (UTI Gold ETF), the lowest is 31.67% (Reliance Gold ETF)…that’s hardly a difference.

However, when we see the one year performance of 10 Gold ETFs, we observe that there’s around 1% difference: Reliance Gold ETF stands top with 41.30% and ICICI Prudential Gold ETF is at the bottom with 40.33% but again on six months basis the difference again narrows down to around 0.7%. So what does it mean?

The conclusion is that there’s no significant difference and you can simply overlook it.

Q:5 - Does it mean I can invest in any one of Gold ETF? Or, is there any other criteria which needs to be considered in addition to the returns?Ans: As per the NSE data, among the 11 Gold ETFs traded on the NSE in the month of Oct’11, top 3 gold ETFs—GOLDBEES, KOTAKGOLD & RELGOLD contributed 90.52% of the total trading volumes during the month.

Now you’ll ask: how do these trading volumes affect the performance of the Gold ETFs? See, these have nothing to do with the returns but this is one important parameter you’ll have to watch out because what is the use of buying any asset if you face difficulty / time delay’s while selling it. Technically it’s called ‘Liquidity’ and is always a prime consideration while investing in any ‘Asset Class’ including Gold ETFs.

Q-6: Fisher, now can you please give us your final verdict?
Ans: Ok, instead of the best, let me tell you the worst which you should avoid at any cost…BSLGOLDETF (BIRLA SUN LIFE), AXIS GOLD (AXIS), IPGETF (ICICI), QGOLDHALF (QUANTUM)—irrespective of the returns because these GOLD ETFs are either hardly traded or have very low volumes.
Let’s see the latest trading data of one day 5th Dec 2011;

GOLD ETF-------------No. of Trades (Volume)
AXIS GOLD ETF--------------4 (70)
BIRLAGOLD ETF-------------16 (105)
IDBI GOLD ETF-------------21 (105)
QUANTUM GOLD ETF----------44 (131)
ICICI GOLD ETF------------43 (393)

GOLD BEES----------------998 (9K)
RELIANCE GOLD ETF--------322 (3K)
KOTAKGOLD----------------123 (454)

The number of trades as on 5th Dec 2011 of AXIS GOLD ETF, BIRLA GOLD ETF, IDBI GOLD ETF, QUANTUM GOLD ETF and ICICI GOLD ETF are less than 50. On the other hand, comparative trading volume of GOLD BEES, RELIANCE GOLD ETF and KOTAKGOLD is too high.

Still, if you feel I should narrow down the choice further, go for REL GOLD or KOTAK GOLD because out of the top 3 gold ETFs with good turnover, GOLD BEES lags behind REL GOLD and KOTAK GOLD in terms of short term performance; While 1-yr returns (as on 9 Dec 2011) delivered by GOLDBEES is 40.45%, the returns of REL GOLD and KOTAL GOLD are 41.30% & 41.15% respectively.

To conclude: REL GOLD and KOTAK GOLD emerges as the winner.

Happy Gold Investing!

Also See:

1. Gold ETFs FAQs (#1)
2. Gold ETFs: Best Way to Invest in Gold
3. 5 Ways to Invest in Gold
4. 5 Reasons to Invest in Gold

Money Teaser # 7 Stock Markets

2011-10-30T21:56:00.003+05:30

Photo by candlecharts’ photostream

Hi Friends!

It’s been a long time since I stopped blogging…was too busy looking for the fodder…now onwards, I’ll try to spare a few moments to remain in touch with you guys. To start with here is yet another Money Teaser; this riddle is meant especially for those who missed a chance to appear in KBC and are now in a hurry to become a CROREPATI by directly investing in stocks. Here we go:

Q-1: What’s the top-most benefit of day-trading?
Ans: You may win or you may lose but it’s almost sure that
you indirectly help raise / increase the share price of your stock-broking company.

Q-2: What’s the best way to invest in stocks for a layman?
Ans: Just buy on the basis of stock recommendations of broking houses. You can find those recommendation in pink papers, money magazines, business news channels etc.

Q-3: Any other alternatives to make money out of stocks without doing any efforts?
Ans: Buy ET (Economic Times) or BS (Business Standard), paste the paper on the wall, and now select the share by throwing a dart. Repeat as many times as you want to buy the stocks.

Second and more professional approach is to look for portfolios of top equity funds and buy the most common stocks held by them such as ICICI Bank, Reliance, Infosys etc

Q-4: What is the optimum size of an investment portfolio?
Ans: Hold at least 50 to 100 stocks. You can even go beyond 150-200 shares.

Q-5: How to invest & behave like a professional fund manager? Is there any special skill required?
Ans: It’s damn easy! Just see the portfolio’s of top equity funds and look for common holdings across majority of them and select 20-30 stocks out of those which should constitute around 70-80% of your portfolio value. Buy the remaining stocks on the basis of either the dart method or top picks based on stock broking research.

Now you can start boasting of your stock picking skills (also need to learn some technical stock market jargon: bottom’s up or top down stock selection approach, market valuation, p/e discounting ). I can guarantee you that nobody will doubt your ability. Finally, if the portfolio value is up, you can boast about your stock-picking skills and if it comes down just blame it on market forces.

Q-6: What’s the difference between issue of bonus to employees vs issue of bonus to shareholders?
Ans: Unlike shareholders, a company can’t make a fool of employees (they get real bucks to spend).

Q-7: What’s the main difference between investing in real estate / gold vs investing in stocks?
Ans: Unlike real estate / gold investing, you can’t invest black money in stocks.

Q-8: Where will be the Sensex in 2012?
Ans: Sorry, I’ve yet to acquire a sixth sense; you can raise this question to astrologers hired by the business news channels.

I hope you like it!

Also See:

1. Money Teaser # 6: Claiming LTA / LTC
2. MQ Financial Stupidity Awards
3. Coffee with Fisher

Koffee with Fisher: CEO of a Life Insurance Company

2011-03-14T06:41:00.001+05:30

Photo by mpieracci

I got worried after hearing the recent news about the intentions of Indian Government following in the footsteps of China and curtailing our freedom of speech by covering blogging under IT Amendment Act 2008; so before government goes ahead with the proposed online censorship of blogging and restrain bloggers from voicing their opinion, I thought I should not delay publishing this uncensored interview.

First, let me tell you that it took many unsuccessful attempts, before I finally got permission to meet and interview a CEO of a leading life insurance company… after a lot of persuasion, he agreed for a discussion on Indian life insurance scenario over a cup of coffee. So here
goes the interview:

Q-1: What do you think is the best life insurance policy for an individual?
Any life insurance policy other than term plans.

Q-2: What is the purpose of a life insurance policy?
Obviously, to invest your life savings because insurance is the best investment instrument designed for the benefit of the masses. The major purpose is to take care of your investment and taxes together. It is the most tax efficient instrument...by the way, we also provide some life cover as a bonus.

Q-3: Who should go for a life insurance policy?
Everybody needs to invest in life insurance irrespective of whether he is a child or an adult, male or female, young or old, working or not working.

Q-4: How much life insurance cover does a person require?
It depends upon the premium paying capacity of an individual, the more he can pay the more cover he requires, however, in any case the maximum is around 10 times of premium e.g. if a person is ready to fork out Rs 10,000 per annum, he requires a cover of Rs 1 lakh and if he is willing to pay Rs 1 lakh, he requires a coverage of anywhere between Rs 5 lakh to Rs 10 lakh.

Q-5: What is the minimum no of policies a person should invest in?
The attempt should be made to buy maximum number of policies and in any case not less than 10-15 plans comprising at least 2 Child Ulips, 2 Guaranteed Ulips, 3 plain vanilla Ulips, 2 money back plans, and 2 whole life plans

Q-6: How do you train your agents for selling life insurance policy?
You’re talking about those 3 million foot soldiers whom we have hired to do this dirty job. Actually, we don’t have to do any hard work…it’s quite easy…we employ the technique of parroting… somewhat like training a parrot in rote repetition.

Q-7: What is the role of life insurance council?
False propaganda and Lobbying.

Q-8: And what about IRDA?
See, actually both are there to protect the interest of life insurance companies and therefore work in tandem, the only difference being that while one association is created by life insurance companies, the other is appointed by the government.

Q-9: Isn’t it that IRDA of late has become quite aggressive for reforming the life insurance after the spat with Sebi…Don’t you think as a result cosy relationship between Life Insurance Council and IRDA has taken a hit / come under strain?
Come on Fisher, you already know, there were only some cosmetic changes which IRDA was forced to do but only after due approval from Life Insurance Council.

Q-10: What if in future there comes an intelligent government who would really like to work for the welfare of common people and therefore change the life insurance regulatory environment. What steps have you taken to manage this risk?
Please don’t ask such a stupid question…the world is full of stupid people….when the idiots are in majority how can there be any chance of intelligent people getting elected and forming the government? So there is nothing to fear. Our lobbying is more stronger than that of TATA’s and Ambani’s and we know how to lubricate the government machinery. Moreover, till our big brother LIC is there, we’ve nothing to fear.

Q-11: How do you succeed in making fool of so many people who are otherwise well educated?
Let me quote Will Rogers,“There is nothing so stupid as the educated man if you get him off the thing he was educated in”. For achieving this we have to create high decibel noise…how do we create this noise? As you already know all those that idiotic stuff about insurance you read in the our product brochures and even that published in the newspapers and magazines is all written by us…how many negative product reviews do you come across? The information broadcasting through electronic and digital media is also vetted by us; in other words, the entire information network is controlled by us…there is no independent media–don’t give me the crap that you’re not aware of ‘Paid News’–they have do it because paper is getting costlier ..they are ready to publish anything we wish so long as they keep on earning advertisement revenue through us…don’t you know customer is king…how can you take pangaa’s with your client…dear fisher money is power and we have got plenty of it.

Now, why do we do all this…again to create more confusion in the minds of a confused customer…ultimately he has no option but to listen to the commentary of the those insurance agents who themselves don’t know what they are talking about…anyway, what is the need to understand a product when they get a hefty sum without understanding it….in other words, there is complete brainwash of everybody including journalists, insurance agents and the customer…nobody has time to unveil the truth…Haamare haath bahut laambe hai fisher.

Q-12: Sir, which insurance policy do you have?
Shhhh! I cannot answer this…it is a very tricky question you are asking me and you already know the answer …so let’s keep it under wraps.

Q-13: Sir, do you mind if I publish this discussion?
No, not at all; see intelligent people are a minority on this planet; for example, out of say, 5000 people who will read this post, I bet not more than 10 will understand it…and hopefully those ten already know the truth…so tell me how does the scenario change…so dear fisher, even if you start shouting from the top of Kutub Minar, nobody is going to hear you…you have already written enough damaging material, but tell me has it in any way dented our sale…our policies are still selling like hot cakes e.g. , LIC’s Unit-Linked Endowment Plus Plan has already sold 1.16 million policies and collected Rs 5,600 crore since its launch in September 2010.

Fisher, I feel sorry for you…because you efforts are all going waste… your voice gets drowned in the noise we create…I challenge you…you won’t get more than one or two comments on this post…go and publish it, I’ve nothing to fear…best of luck!

Q-14: Sir, one last question please…what you’re doing is morally and ethically wrong…still you do it. Doesn’t at times your conscience pricks you for doing such a dirty job?
Jab Kasai bakara katath hai to wo ye nahin sochta ki yeh ghalat he ki sai hi, wo sirf apna farz nihbhata hai…moreover, do you think all other industries are working for the benefit of mankind? For example, Are these cola’s , bottled water, all other kind of packaged foods really required by the masses?

Fisher, there is nothing good or bad in this world…Do you think nature is fair? Yes, at times I do feel bad about it but soon it’s over…
Fisher, for your kind information let me inform you that even Warren Buffet is trying to make an entry into distribution of life insurance products in India.

Q-15: Sir, what do you have to say about The Money Quest?
Tumahaara Blog kitane log padthe hai fisher…you know we also make sure that no good stuff ever makes it to the google top 10….likhte likhte bude ho ja ho gai fisher, kuch nahi hone wala…

If you don’t mind, let me give you a suggestion… start writing only positive reviews of our products…you’ll gain in two different ways…those ad sense guys will approve your blog in one shot and also your traffic will increase and you can start making a lot of money…apne biwi bacho ke bare me socho…logo ko samjahoge to kudh pagal ho jao ge…tumne galat kholi me haat dala hai fisher…

Thank you, Sir. I feel enlightened from your talks!

“It’s difficult to get a man to understand something when his salary depends upon his not understanding it”.

-Upton Sinclair

Also see:

1. How to Check Life Insurance Abuse – Some Random Thoughts
2. Hidden Facts about Term Plans
3. New Tax Code – Impact on Life Insurance
4. Understanding Life Insurance –Ask Yourself a Few Questions

MQ Awards for FINANCIAL STUPIDITY 2010 (MQ-FSA 2010)

2011-02-07T07:04:00.002+05:30

Photo by JeanM1

"We are all born ignorant, but one must work hard to remain stupid"__Benjamin Franklin

When every publication and media outlet under the sun is instituting awards for recognizing excellence in one area or the other, I also thought of starting the awards but with a difference…the prestigious awards are meant for individuals and institutions contributing significantly to the cause of financial stupidity rather than excellence. The Awards theme is ‘Great Indian Scam Bazaar’.

Warning: The Awards have received ‘A’ Certificate from the Censor Board of India, so if you’re younger than 18, please don’t waste your time here…you can find plenty of other stupid stuff on the net.

The winners are selected by an eminent jury comprising of financial wizards: Mr. Rajesharma, the SMD of Money Tree Financial Services Ltd (MTFSL), who succeeded in raising around Rs 400 crore via QIP issue by fooling FIIs—Who’s Who of Wall Street—including Goldwoman Sachaa Soda and Moorgi Stanley; Mr. Rama Rajoo—ban na paaya gentlemen— of Satyam Shivam Sundaram, world famous for riding a tiger; and the late Shri Shri Harsh Mahatma ji—the Big Bull—who was back to earth on a few days holiday to enjoy the scam season.

So, dear friends, hold your breath! I’m just going to announce the first time winners of ‘MQ Awards for FINANCIAL STUPIDITY 2010’ (MQ-FSA 2010):

MQ Awards for FINANCIAL STUPIDITY: List of Awardees

1. Financial Stupid Regulator
Institutional Award for Financial Stupidity for 2010 goes to SRDA; SRDA has contributed immensely to the already confused & stupid insurance scenario...proposed mandatory life or health cover with Pension Plans …though made it optional later on; also made it mandatory to offer a guaranteed return on Pension Plans.

2. Financial Stupid Corporate
Corporate Award for Financial Stupidity goes to Zero Group for investing in high returns scheme designed by Catbank Relationship Manager Bhagwan Shiv in connivance with Mr. Sanjoo, a Senior Employee of the Zero Corporate Services; hats off to Shivoo for luring a leading Corporate Group in his trap.

3. Financial Stupid Investor
In the individual category the awardee is 75 year old retired businessman Shri Hari Bhakt for investing in hundreds of mutual funds schemes and for receiving an average of 3 dividends per day which is again reinvested in some other scheme; see the stats: investment in almost all the AMCs with around 1900 SIP investments; 90 dividends per month; not missing a single NFO…what a unique way of passing time after retirement…you can find the detailed story on Google search. I’ve also forwarded his name for inclusion in the Stupid Book of World Records. This Award will be jointly shared with Mr. Sanjoo (HSI)—a Venture Capitalist—for handing over Rs 30 crore to Shivoo to mismanage by signing blank documents…after all, VCs are known for assuming high risk while investing in the hope of getting high returns.

Awards Ceremony
In view of his excellent event management skills, I’ve hired the services of Mr. Kaali Mandi to manage this gala event …let’s hope he can spare sometime out of his tight schedule…nowadays quite busy in attending close door meetings with SBI; he will be supported by Mr. Ladoo Moody, the man behind the success of SPL. The marketing which will be mostly through social media will be taken care of by none other than Mr. Shasoorji, who’s known for his 6L twitter followers.

Mr. Bunty Mad-on —a prominent Wall Street trader and former chairman of NASDAQ currently holidaying in a SS jail—being the man behind the largest and the longest running Ponzi Scheme in the world has kindly consented to grace the occasion… to make sure Mr. Mad-on is able to secure a bail to come to India for honoring the awardees… we’ve hired the services of Ms. Radio to do some lobbying with the Grey House to secure his bail…with this project she’ll get international recognition and if she succeeds there’ll be a big queue of SS Clients—lobbyists are in great demand in SS—in front of Vaishno Mata Communications and she can start thinking of an SPO (there’s a lot of appetite for good quality SPOs in India) to fund her international expansion plans.

There will also be a panel discussion on “How to run a Ponzi scheme”, the discussion will be moderated by Mr. Rajmaa of ‘HAAMARI ADALAT’ fame, the participants will be Mr. Mad, Mr. Shivoo and a senior executive from AAMWAY. Another panel discussion will be on the ‘Legalized Way to Defraud Investors’ in which CSOs of leading Life Insurance Companies, Wealth management Firms, Banks and Brokerages will take part and the moderator will be Mr. Vikoo Akela (the founder of SSS Micro-Finance) who tweaked the micro-finance model—wants to make his investors’ rich while helping the poor become entrepreneurs …loans for buying consumer durables like TV, Fridge and Washing Machines …adopting the ‘Bottom of the Pyramid’ Strategy of Mr. Prahalad—so as to give a concrete shape to the vision of Mr. Muhammad Yunus, the founder of Grameen Bank and winner of Noble Peace Prize .

To make it a fun-filled event, we’ve also arranged ‘Munni’ dance by Ms. XX Anderson, a leading Stupywood actress for which advance payment of Rs 10 crore has already been made. She’ll be arriving shortly in India under tight security—2 battalions of CRPF have been deployed in addition to local police force— to guard her assets.

To make sure that there is no unwanted exposure of any behind the scene stupid activities, I have personally signed an agreement with Russi-leaks Founder Mr. Rasputin –requires a lot of money to fight legal cases (the poor chap forgot to wear his raincoat while cooking not knowing it is illegal)—not to hack our computer systems; to rule out any terrorist threat during the ceremony, another million dollars secret deal with SSI has been signed—thanks to the special efforts of Miss Macho Guts…you know, I don’t have faith in security apparatus of Mr. Chidamambaram. Further, to preempt any government organisation from tapping our phones, we’ve started communicating through PCO’s and BlackBerry message services…you just can’t take any chances when so much is at stakes.

Journalists have been paid their dues by Ms Radio so as to ensure only positive coverage in the press; moreover, as we’re one of the major advertisement clients of all the leading publications, there is nothing to fear about.

Our only concern is the Ministry of Climate Change…although permission letters have already been obtained under twenty three different environment laws after consulting best legal brains and moreover Ramu is my childhood buddy, but you never know…he is in hyperactive mode these days…(anyhow, I sincerely appreciate his activism).

I request all my readers to either attend the ceremony ….tickets will be sold through online auction and the initial price have been kept very nominal at Rs 1000 per ticket—a leading Merchant Bank did the valuation—and is already quoting at a 20% premium in the grey market…and once the initial sale is finished, tickets will be listed on the stock exchanges; however, you’ll require a PAN, DMAT and KYC…we’re also thinking of making the UID compulsory. Payment will be accepted only through credit cards …if you don’t have any credit card, apply immediately, get rewards points, 10% cash back and pay back in 6 EMIs.

The ‘FSA Event Tickets’ will also offer you minimum guarantee of 1.5% return in addition to free life insurance cover of Rupees one thousand, if you invest a minimum amount of Rs 10,000 every year…as this is a unique financial product being launched for the first time in the Indian markets, we’ve obtained regulatory approvals from both Sebi and IRDA…I don’t want regulators washing their dirty linen in the public…anyhow, the point worth noting is that even if you don’t want to attend the ceremony, think of it as the best investment opportunity of the year 2011…the Analysts are already expecting listing gain of minimum 40%...please don’t ask me the annualized returns.

However, in case you’re unable to attend due to any reason, please watch it live on idiot box…the exclusive telecast rights have been granted to one of the prominent Stupid Business Channel …we’ll also try to ensure that the date and timings of this stupid event does not clash with the release of any big budget stupid movie; a stupid gooli-taanda match; Stupid Indian Soap Operas like Kyunki Wise Bhi kaabhi Stupid Thi & Kahaani Stupid ki and Stupid Realty Shows like Stupid Boss & Stupid Ka Insaaf.

Now I’m going to tell you the best kept secret: yes, Ms. Radio has successfully lobbied with the Ministry of Stupidity–despite stiff resistance from Stupid Insurance Council—to grant the ‘FSA Event Tickets’ a special status under the Stupid Tax Act, 1961 and accordingly government has acceded to our request; CBST will be shortly issuing a notification allowing you a special deduction of Rs 25,000 under section 80 of the ST Act with no lock-in period and on top of it capital gains will also be exempted from tax…I can guarantee that you’ll never find such a stupid investment during your life time… such a phenomenal returns and that too tax free…now there’s gonna be a real competitor against ULIPs.

Note: Nominations for ‘MQ - Financial Stupidity Awards 2011’ (MQ – FSA 2011) will remain open through out the year…the theme will be ‘Being Financial Stupid’… if you think you’re a financial stupid or if you come across any such stupid, please send your nominations to fsa@themoneyquest.com . From next year there’ll be two new additions: Life Time Achievement Award for Financial Stupidity and Global Stupid.

Stupid Message(Strictly Private) for Rajkumar Hirani, Vidhu Vinod Chopra & Aamir: I know you’ve started thinking of making a sequel to ‘3 idiots’ naming it ‘3 Stupids’, but before you steal my stupid idea—I don’t want my mother to wipe her tears with her sari sitting in a cinema hall—let me make it amply clear to you that either willingly sign a ‘Revenue Sharing Deal’ with a ‘Minimum Guarantee Clause’ in addition to prominent display of the following words “IDEA by Fisher of The Money Quest” just after “Directed by” in the casting…and in case the movie gets nominated for Oscars, I would like to accompany Aamir for marketing of the movie…would like to meet Paris Tilton and that Nagina babe from Haryana…. or else get ready to fight a long protracted legal battle and even if you win the battle of stupidity, I’ll make sure Baloo Thakoor doesn’t let the screening of the movie in Maharashtra …moreover, before its release, the movie will be available for public viewing on My Tube…so, I think it is in your best interest to sign the deal with The Money Quest.

-------The end--------

Disclaimer: This is a work of fiction; any resemblance to any events, organisations or persons, living or dead is purely coincidental. Please desist from filing any frivolous lawsuit…we’ve no intentions to share the booty with anybody by making out of court settlement…one third of proceeds will go to build the largest, tallest and the most expensive Villa (to be named Fishilla) in the World as my sweet home—every day I’ll sleep in a different room; another one-third will be gifted to my wife and son to keep them busy…they would like to build a Animal Farm for their entertainment for which they require some holy cows in addition to different breeds of dogs, cats, monkeys, donkeys, camels, pigs, bulls and elephants—auctioned at ‘SPL-4 Cattle Fair’ televised live—so as to get perverse pleasure, learn a few practical business lessons and get some visibility; the remaining one-third will be donated to Harvard Business School to build a new building—to be named Fisher Hall—for soon to be introduced ‘Executive Education Programme in Financial Stupidity’.

Finally, if you think you’re wise, let me remind you that we’re all equally idiots. Don’t we all do stupid things on day to day basis? So, let’s acknowledge & embrace stupidity and laugh at ourselves instead of taking it seriously…now, if you wish you can share the most stupid financial decision of your life.

"In view of the fact that God limited the intelligence of man, it seems unfair that he did not also limit his stupidity"__Konrad Adenauer

Also see:

1. Height of Financial Stupidity
2. Is it Complexity or Confusology?
3. Funny Thoughts about Leave Travel Allowance

How to Claim LTC / LTA Tax Exemption

2011-02-02T22:01:00.002+05:30

Photo by KayVee INC

Enough of jokes about LTA, it is time to write some serious stuff and sincerely answer and resolve your various doubts regarding this mysterious LTA / LTC tax provisions. Here I go:

Income tax allows you tax benefit called leave travel concession (LTC) or leave travel allowance (LTA) for touring and holidaying in India. Section 10(5) of IT Act 1961 read with rule 2B of Income Tax Rules grants you tax exemption for proceeding on leave to any place in India. So what exactly is LTA / LTC and what kind of journey is allowed? What kinds of expenses are allowed for tax purpose? Who can accompany you during the trip? How frequently you can
avail this benefit? This post is going to discuss all these features about LTA / LTC in detail.

What is Leave Travel Concession (LTC)/ Leave Travel Allowance (LTA)?
LTC is reimbursement of your private travel expenses by the employer. But, why does the employer provides you this additional facility? No, this is not an extra burden on employer –Government organizations including PSUs are an exception—because it is a part of your CTC. This concession is included as a separate component of your pay package for tax planning purposes so that the amount becomes tax free in your hands. However, to get tax exemption on LTC, you need to claim the amount only twice in a block of 4 years and that too only after meeting certain conditions as specified below:

Kind of Expenses Eligible for LTA
Only Fare allowed; boarding, lodging, sight-seeing or any other kind of expenses are not allowed. Even charges of local taxi hired for sight-seeing are not allowed.

Maximum LTA (Fare) Entitlement:

Travel by Air -> Economy class fare of National Carrier (i.e., Air India) by shortest route.

Travel by Train -> AC 1st Class Rail fare by shortest route.

Travel by ‘any other mode’ (though rail facility available) -> AC 1st Class Rail fare by shortest route.

Travel by ‘any other mode’ because rail facility not available but Bus Service available -> First / Deluxe Class Bus Fare by shortest route

Travel by ‘any other mode’ because rail facility not available but Ship Service available -> First /Deluxe Class Ship Fare by shortest route

Travel by ‘any other mode’ because no ‘Public Transport’ exist -> AC 1st Class Rail fare by shortest route (as if the journey is performed by rail).

‘Any Other Mode’ includes journey by Bus, Taxi or a Ship.

The point worth noting is the ‘shortest route’. What if you went to several places situated in different directions such as Delhi –Mumbai—Bangalore—Hyderabad—Delhi? In this particular case the farthest point from Delhi is Bangalore, so you will be allowed only return fare between Delhi and Bangalore.

However, the amount of exemption can’t exceed the actual amount spent on fare subject to the maximum entitlement of the employee. If your LTA / LTC entitlement as per company salary rules or as part of your CTC is higher than the amount spent by you or the maximum amount allowed as per the rules then the excess amount drawn by you will be taxable.

Journey Details
Place of Travel: Travel within India allowed. Overseas travel not allowed.

Mode of Transport: It includes journey by air, rail, ship, bus or taxi.

Persons Eligible to Travel: You actually perform the journey either individually or along with your family. Family includes your spouse, 2 children (no restriction on number of children born before October 1, 1998) and dependent parents, brothers and sisters. But remember that your family can’t make the trip without you.

No. of Journeys: 2 journeys within a block of 4 years allowed. The current applicable block is 2010-13. Note that the applicable year is calendar year and not financial year. In other words, the current block period started on January 1, 2010 and will end on December 31, 2013. For example, if you travelled during the month of November 2009, it falls in the block of 2006-09. But if you travelled in the month of January 2010 to March 2010, it falls in current block (2010-2013) though financial year in both the cases remains the same i.e., 2009-2010.

Carry Over Concession
Further more, if not able to avail 2 journeys in a block of 4 years, you’re allowed to carry forward it to the next block but subject to following conditions:

a) Only one journey is allowed for carry over concession.

b) It has to be availed within the first calendar year of the next block.

Suppose that in the previous block of 2006-09, you undertook only one journey. Now, you’ll be allowed to carry one journey forward to current block of 2010-13 – without affecting your entitlement of 2 journeys’s during the current block – but you would have to avail the carry forward journey within the calendar year 2010. Put simply, you’ll be entitled for 3 journeys in the current block of 2010-2013; however, out of the 3, you’ll have to undertake at least one journey within 2010. Otherwise, the carry over will lapse and you would be left with only 2 entitlements instead of 3.

Evidence of Journey
There is no prescribed form to submit to your employer or along with the income tax return. To claim the exemption you’ve to submit proof of travel. Though in a last year judgment Supreme Court exempted the employers from collecting travel bills to allow LTA/LTC exemption to employees while calculating TDS on salaries; however, most employers still demand it.

Even if your employer allows you exemption based solely on the declaration filed by you, you still need to have all the documentary evidence supporting the travel claim which can be demanded by the assessing officer.

Furthermore, it is needless to mention that you should be on leave during the period of journey. Finally, tax laws do not bar you from claiming LTC every year; rather tax exemption is allowed only for 2 journeys in a block of 4 years. And at your option you can even make both the journeys in a single year instead of spreading over 4 years.

FAQs: Claiming LTA/LTC Benefit

1. Can I claim LTA every year?
Definitely yes, provided your company rules allow it and you’re ready to pay tax on it.

2. Can I claim two journeys in one year?
Yes, this is also possible. There is no restriction on undertaking both your entitled journey’s in one year itself.

3. Can I encash LTC amount before undertaking the journey?
Yes, if your company rules allow; it becomes taxable if you don’t undertake the journey.

4. Can I receive LTA without undertaking the journey?
Yes, you can if it is part of your CTC—subject to the policy of your company in this regard, but the amount becomes taxable.

5. Can I undertake journey to my hometown to claim LTA?
Yes, there is no restriction on travel to hometown.

6. What is the minimum number of days leave required?
You’re asking a wrong question; the right question is: what is the minimum duration of travel to claim LTA? Under tax rules, there is no limit on the minimum or the maximum number of days of travel to claim LTA.

7. Is travel to foreign country allowed for claiming LTA exemption from tax?
No, under tax rules, you can undertake travel within India; foreign travel is not allowed.

8. Can both working spouses claim separate tax exemption for LTA from their respective employers?
Yes, but for separate journeys.

9. Is there any limit to the maximum amount of LTA which can be claimed as tax exempt? A fixed maximum amount has not been specified under tax rules. The maximum travel fare you can claim exempt under tax laws depends upon your mode of journey as already specified above.

10. If I draw LTA on alternate years, does my two year entitlement gets added for the purpose of claiming tax exemption?
Yes, certainly; for example, if your LTA entitlement for a year is say Rs 20,000 and if you don’t avail it in the first year, it gets carried forward to next year. Now in second year if you undertake a journey you can claim the entire amount of Rs 40,000 as tax exempt subject to the actual amount spent and the maximum specified as per tax rules.

11. Whether our Parents can also accompany us during travel?
Yes, they can but tax exemption on their travel tickets can be claimed only if they’re dependent upon you.

12. If I make a ‘round trip’ (say Delhi—Mumbai—Bangalore—Kolkata—Delhi) by rail, can we consider the air fare of ‘shortest route’ for the purpose of calculating maximum entitlement?
No, it is not possible; in such a case the maximum LTA you can claim as exempt is limited to the AC 1st Class rail fare (and not Air fare) between Delhi (the place of origin) and Bangalore (the farthest point).

13. What if my journey falls in two different calendar years?
No problem! First, the financial year will always remain the same even if the period of journey falls in two different calendar years. Second, it hardly matters so long as both the calendar years falls in same the block period; in case of change of block period you should consider it journey for the block period in which you begin the journey.

14. What is meant by ‘National Carrier’?
Air India

15. Does it mean that I cannot travel by a Private Airline?
No, it doesn’t mean that you have to compulsory travel by Air India…you can travel by any airline of your own choice, but for the purpose of calculating the maximum fare you can claim, the fare of ‘Air India’ for the shortest route will be considered. Suppose your air journey from Delhi to Bangalore via Pune was by Jet Airways Business Class…so in this case you can maximum claim an amount equal to fare of ‘Air India’ economy class direct flight from Delhi to Bangalore.

16. Does it mean that my employer can’t reimburse the amount of LTA which is in excess of the tax rules?
Your employer can reimburse you the entire amount spent by you on travel including boarding and lodging based on your entitlement as per the LTA reimbursement policy of the company, but for tax purposes the excess amount will become taxable.

17. I have submitted the air ticket / bill of travel agent but my employer is insisting on ‘Boarding Pass’?
In case of air travel, the proof of travel is boarding pass and not air tickets.

18. Can I travel by taxi? If yes, can I claim the entire taxi fare?
Yes, you can hire any vehicle including a taxi. The entire taxi fare can be claimed subject to the maximum exemption limit as specified above.

19. How can my company insist on travel proof despite the decision of Supreme Court?
There is a difference between right and the obligation; it is no longer mandatory for employers to collect travel bills from employees to allow the tax benefit, but to satisfy themselves about the genuineness of the claim, company can still demand the documentary proof of journey depending upon its policy in this regard.

Moreover, the Supreme Court ruling has only shifted the onus of submitting the evidence from employer to the employee, so in any case you need to have the documentary proof which can be demanded by the assessing officer.

I think the above discussion takes care of most of your doubts about tax treatment of LTA / LTC claims. Finally, before leaving have another look at Funny thoughts about LTA Claims.

Also see:

1. Idiotic Tax Advice about LTA
2. Enjoying both HRA and Home loan tax benefits
3. Section 80C - 10 Smart Tips

Money Teaser #6: Funny thoughts about LTA

2011-01-21T09:29:00.006+05:30

Photo by NASA

Last night I lay in bed looking up at the stars in the sky, and I thought to myself, "where the heck is the ceiling?"

—Scott Adams (Dilbert)

The MQ Money Teaser #6 is about the various questions you think about while trying to understand and navigate your way through the complex maze of tax provisions concerning the claiming of LTA / LTC from your employer. There are too many misgivings about the mysterious tax regulations regarding filing a claim for Leave Travel Concession / Allowance. So this money teaser should resolve all your LTA / LTC tax exemptions queries:

LTA / LTC: FAQs

1. Why only travel expenses are allowed for LTA tax exemption? Why hotel stay expenses are not covered?
By implication, there is no need to stay; come back the same day. Anyway, if you would really like to stay and tour the place, there areDharamshalas
and Night Shelters meant for the purpose; for your food needs, enjoy langar in a Gurdwara.

2. What is the minimum no. of days leave required to avail the LTA tax benefit?
As tax laws are silent about the leave, I think even half- day leave will suffice.

3. Shouldn’t the LTA (Leave Travel Allowance)be replaced with VTA (Virtual Travel Allowance) which will be more in tune with the realities of this digital age?
Very correct! Moreover, nobody has time to avail leaves due to hectic work schedules (half the working time gets spent in Social Media); availing PL/EL also results in indirect loss of earned leave encashment benefit; also government should be encouraging savings instead of spending. I think we should ask for another revision to DTC so that this proposal can be incorporated in it.

4. Why foreign travel is not allowed?
Tax Rules have been designed to preserve India’s precious foreign exchange reserves.

5. Why only two childrens are allowed?
Good question! See this is unique initiative by the Indian government: Population control through fiscal incentives. Before the introduction of this measure, people were producing children like cats and dogs just to claim more LTC benefit; now couples are forced to think twice before going for the third child so as not to lose their LTC tax exemption.

6. Can I avail medical leave instead of PL/ EL?
Yes, nobody can stop a sick man from travelling…it is a violation of fundamental right enshrined in Article 420 of the constitution …file a PIL in the Supreme Court.

7. How to know whether my Parents are dependent upon me?
Sorry, don’t know; May be you get a certificate from the Chartered Accountant.

8. Why ‘shortest route’?
This is as per the directive of ministry of environment so that people limit their travel to a single place…it’s our duty to conserve the environment.

9. I lost my boarding pass; while trying to claim LTC on the basis of Air Tickets, my company is not accepting my claim.What should I do now?
File a FIR report; attach a FIR copy plus an affidavit along with your LTA claim. If your employer still refuses, go to a labour court. Remember one thing: If you also claim mobile reimbursement from your employer, please don’t submit your mobile bill for the period of leave travel.Don’t ask me why?

10. Now that Supreme Court has exempted organizations for collecting proof of travel, why my company still insists on submission of travel bills for LTA Claims?
Old habits die hard!Moreover, by hurting you, the poor accounting chap is trying to get some illusion of power and ego nourishment, so you should not mind…just try to get a bit friendly with him.

11. Why the provisions regarding claiming tax exemption of LTA/ LTC are so complex?
When this whole universe is complex—Do you know abut black holes?— isn’t it naïve of you to expect simple tax laws? Just imagine the efforts put in by the Draftsman while writing the secret tax code.

12. I’m having a live-in relationship…so whether the definition of family under section 10(5)of Income Tax Act, 1961 includes live-in partner?
Sorry, don't know…why don’t you ask a tax expert??

13. I’m a Gay …can I also have a family?
Please excuse me!

I think the discussion is going too far…before it gets too close, it is better to wrap it up!

LTA Tax Planning Tips

1. Avail medical leave – half day will do—instead of wasting your PL/EL for tax purposes.

2. If you’re planning for 3 kids, there’s a way out; as per the rules, children born out of multiple births after the first child are treated as ‘one child’ only…so while planning your second child, plan for twins or triplets. Now please don’t ask me how to conceive twins…try googling!

Please no more questions?? Opinion is welcome!

There is nothing so stupid as the educated man if you get him off the thing he was educated in.

—Will Rogers

Also see:

1. Money Teaser # 5: Income Tax
2. Money Teaser # 5 Answers
3. Money Teaser # 4: Financial Crisis

Idiotic Tax Advice: A Few Examples

2011-01-17T07:22:00.001+05:30

Photo by Gregory Taylor

Beware of false knowledge; it is more dangerous than ignorance.

_George Bernard Shaw

Sometime back, I came across a regular ‘Expert View Column’ in the print media (special supplement to a well reputed National Publication read and relied upon by millions of readers) where experts chosen from different fields answer the questions raised by readers. Here are two tax questions—tax exemption of LTA and tax benefits on home loans— taken from two different editions of the publication:

Query: My Company contends that I must take privilege leave to claim LTA. Is it necessary to take privilege leave for claiming LTA?

Tax Expert view: The tax law has not prescribed the minimum number of days’ leave that should be availed for claiming LTA exemption. Therefore, in my view, even one day’s leave will suffice for claiming LTA exemption.

So what’s wrong with the advice? It is yet
another height of financial stupidity! The querist would like to know how to claim LTA/LTC without undertaking the journey. The company official advised him that he just needs to take a few days off just to show he went on the journey and file a false declaration that he indeed undertook the journey …the tax expert goes a step ahead and advises the querist that even one day leave will suffice for the purpose. It implies that just by taking one day off without undertaking the journey, one becomes entitled for LTA/LTC tax exemption. Is it lack of common sense??... making mockery of tax laws?? Or, what?? Is this tax planning or tax evasion??

Why should there be a specific mention of availing leave? Is it possible to undertake journey while sitting in an office? …virtual travel is yet to become a reality!

Query: My wife and I jointly took a housing loan of Rs. 28.5 lakh in March 2010. Possession is expected by March 2011. I fall in the 30% tax bracket and my wife in the 20% bracket. Can I take rebate in 2010-11 on interest being paid in a ratio other than 50:50?

Tax Expert view: You can claim tax deduction on interest payable and principal amounts repaid for your housing loan only from the year of possession. Hence, if you do not receive possession by 31 March 2011 you will not be eligible to claim either of the deduction. If you wish to claim tax deductions on interest payable and principal repayments in equal proportion, you should bear the EMI in equal proportion.

Again, do you sense anything wrong with the advice? There are two errors: First, tax deduction on principal repayment and tax deduction on interest are governed by separate provisions; unlike allowability of interest on housing loan after acquisition or completion of the house, deduction under section 80C is available as soon as one starts repaying the loan [See: Home Loan Tax Deduction: Section 80C vs. 24(b)]. Second, in case of joint home loans, for availing tax deduction on interest under section 24 it is a necessary that co-borrowers are also co-owners. Therefore, in this particular case, just paying the EMI in equal proportion is not enough to claim interest in the ratio of 50:50.

In a hurry to answer the query, the tax expert forget to answer –or, is it a tactful dodge?—the real question asked by the querist. So let me answer the question of querist where he would like to know whether it is possible to claim interest deduction in the ratio other than 50:50 (as he falls in 30% tax bracket and wife in 20% bracket).

Yes, it is certainly possible to claim tax benefits in the ratio other than 50:50, say 60:40; but for that the querist needs to ensure the following:

a. the sale deed also makes a specific mention of the ratio of co-ownership to be 60:40.
b. the down payment made towards purchase is also in the 60:40 ratio
c. the repayment of loan should also be in the ratio of 60:40
d. the 40 contribution of wife towards down payment and repayment of installments is also from her own funds / sources of income (this condition seems to be already satisfied as wife has her own source of income and is an income tax assessee).

Note: While writing the review of online SIP Calculators— later deleted—I promised to mind my own business…I resist a lot, but sometimes I can’t help it…this is just one example of misleading advice…my due apologies to the publication and the tax expert and hope that tax expert will take this in the right spirit and will be careful next time...will refurbish his tax basics before advising people …one can ignore a techie trying to fool people on financial matters but such kind of misguidance from an individual proclaiming to be a tax expert and too printed in a national publication is not acceptable …the intention is not to hurt anyone’s feeling.

Lesson for you: There is no shortage of bullshit advice floating in the print and electronic media including internet. Therefore, before relying on any kind of advice from any publication be it print or electronic media including The Money Quest, it is always better to cross-check or else it might cost you a fortune…though in my case, I try to make sure that the information is 99.99% correct before publishing it but 0.01% chance of error still remains…so, why take a chance?

What do you say?

Also Read:

1. Top 10 Tax Myths
2. Tax Queries: Housing Loans
3. 8 tax considerations to know before buying a house
4. Legal Implications of buying a Benaami Property

Tax Calculator: FY 2010-11 (PY 2010-2011)

2011-01-12T21:29:00.002+05:30

Photo by Dave Dugdale

Budget 2010 has made significant changes in the tax slabs and has also introduced section 80CCF for claiming deduction up to a maximum amount of Rs 20,000 by investing in infrastructure bonds. This is in addition to section 80C limit. Hence, your tax liability stands reduced up to a maximum of Rs 57,680 as compared to tax outgo for FY 2009-2010. Accordingly, I’ve revised the income tax calculator for FY-2009-10 by incorporating the above changes. Here’s the new tax calculator
for FY 2010-2011:

INCOME TAX CALCULATOR (FY 2010-11 & AY 2011-12)

Notes / Instructions for Using Tax Calculator FY 2010-11:

1.The calculator is meant only for tax calculations of resident individuals. In other words, it is not applicable for non-residents.

2. It is presumed that there is no agricultural income.

3. This calculator is meant to calculate tax provided you know your GTI (i.e. Gross Total Income). GTI includes all your taxable income under various heads of income (Salary, House Property, Income from Business & Profession, Capital gains and Income from other sources) after excluding all your exempt income (i.e. income which is not taxable) and also after set off and carry forward of losses of current year & earlier assessment years.

4. Please note that LTCG on equity shares or equity oriented mutual funds on which securities transaction tax has been paid are exempt from tax u/s 10(38) and therefore doesn't form part of long term capital gains (LTCG). So, ensure that you exclude it from GTI also.

5. Please also note down that "Incomes subject to special rates of tax" is to be included under GTI and also to be mentioned separately under the relevant column in the tax calculator.

6. In the “Tax Payer Status” column, please enter 1 for senior citizens [i.e., if you’re an individual (man / women) above 65 years at any time during the FY 2010 – 11 (Apr 2010 – Mar 2011)], 2 for Women and 3 for other individuals.

If you want to calculate your tax liability for the FY 2009-10 (AY 2010-2011), check out: Income Tax Calculator FY 2009-2010.

Also see:

1. Income Tax Rates for FY 2010-11

2. Budget 2010: Impact on Individuals

3. HRA Tax Calculator

4. Tax Saving Options under Section 80C

New Year Resolution for 2011: Change of Strategy

2010-12-31T18:05:00.005+05:30

Photo by florriebassingbourn

“Why are you drinking?” demanded the little prince.
“So that I may forget,” replied the tippler.
“Forget what?” inquired the little prince, who already felt sorry for him.
“Forget that I am ashamed,” the tippler confessed, hanging his head.
“Ashamed of what?” insisted the little prince, who wanted to help him.
“Ashamed of drinking!”

_Quote from The Little Prince by Antoine de Saint-Exupéry

This is the time of the year when we analyse our achievements and failures and based upon that we resolve to make course corrections, shed some bad habits and adopt some good ones. However, this year I’ve decided not to make any more resolutions till I fulfill the resolutions made last year.

Instead of making new resolutions, why not change the strategy; do some critical thinking and self-reflection. Here’s a list of questions for anybody who is interested in taking charge of life and leading a fulfilled and meaningful life using the money as a tool…let’s start the year 2011 with some soul searching and asking the following questions:

1. Why am I working? If for money, then how much? Is it to make both ends meet or to become rich? Do I have a figure in mind? Ok, if I get the money I’m looking for, will I stop working?

2. How long do I plan to work? Am I saving or have I saved enough for my retirement? What’s my retirement number?

3. What if I die right now? What will happen to my family? Have I left enough for my family? If yes, then have I made proper arrangement for the distribution of my wealth? If no, do I have adequate life insurance coverage?

4. What will happen if I meet with an accident today and become permanently incapacitated to work?

5. How do I manage my money? Do I budget my spending? Do I save and spend consciously? What is my current savings rate?

6. How and where do I invest my money? Do I go by asset allocation model or adopt an ad-hoc approach? Do I know the relationship between risk and returns? Do I know the difference between life insurance and investment?

7. Do I waste resources be it food, water, electricity, petrol, paper, pencil, soap, clothes or anything else? Am I aware that all my actions have direct and indirect impact on the environment and ultimately going to affect future generations?

8. What is my current self worth and net worth? Where do I stand today spiritually and financially?

And Finally,

9. Where am I going? What exactly do I expect from my life? Am I leading the life I want to? Am I enjoying my life or postponing my happiness to a future date? What if I die within next 24 hours? Is there anything which I have been planning to do for long but didn’t? Other than working, what other interest do I have?

However, a word of caution: you cannot answer all of them in one sitting; answers won’t come easy and they shouldn’t; will require a lot of deep contemplation and also some number crunching.

Finally, here’s the resolution for 2011 in a single sentence:

“To acquire financial and spiritual wisdom”

For those who are really desirous to gain the wisdom, Fisher promises to lend all possible help in this acquisition process.

Happy New Year!

Also see:

1. Surviving in a corporate jungle
2. How to Simplify your life
3. Hidden Flaws of Spending #2

3 Realty Tools to help you in property purchase

2010-12-17T18:14:00.001+05:30

photo by James Thompson

Are you thinking of buying a property? If yes, then here’s something which can help you in making an informed decision.

First, it is a well known fact that complex nature of real estate coupled with lack of regulation in Indian property market and existence of fly-by-night operators makes a property deal highly risky. It is indeed very difficult for you as a prospective buyer or investor to search properties, benchmark property prices, understand the real estate price trend prevailing in Indian residential property market and assure yourself about the reliability & credibility of the project & the developer. Now there’s a solution:

These following three real estate tools available online will help in making the process of property acquisition easier for you:

1. NHB RESIDEX for understanding price trends
NHB REXIDEX is a property index launched by the National Housing Bank, the regulator of housing finance in India and can help you to study the real estate price trend in India. The purpose of this real estate price index is to bring more transparency by bridging the information gap. It is similar to Sensex which tracks the stock prices and on the basis of which we decide whether stock market is overvalued or undervalued and whether to buy/sell or to hold and wait for the market to correct.

Although measuring house prices developed accurately over time is not simple, most developed countries have housing price indices and with the launch of NHB RESIDEX in July 2007 as the India’s first official housing price index to capture price movements in residential properties a beginning has been made in India also.

Currently the index covers following 15 cities: Hyderabad, Faridabad, Patna, Ahmedabad, Chennai, Jaipur, Lucknow, Pune, Surat, Kochi, Bhopal, Kolkata, Mumbai, Bangarulu and Mumbai. Gradually, it will cover more cities across India. Each city is further divided into various zones for price comparison as the price movements are not uniform across the cities.

The only limitation of NHB RESIDEX is that the prices are not being updated on monthly basis, the index figures are quarterly (half-yearly till 2009) but published after a lime lag of 3-4 months which reduces its relevance. Anyway, it helps you in assessing and understanding the price trends prevailing in residential property market.

Let’s see how to interpret the figures of NHB RESIDEX …here is the current index values:

In the above table I’ve mentioned the city wise NHB RESIDEX values and also tabulated the zone wise NHB RESIDEX values for Jaipur City. You can see the zone wise NHB RESIDEX details of other cities from the NHB site (http://www.nhb.org.in/).

We can observe that similar to stocks, there is wide variation in property prices over a period of time and across the cities. Comparing the index values for the qtr ending Jun 2010 with the period ending Jun 2008, you can notice that during the last two years, while the best performing property market is Chennai (CAGR of 32.65%), the worst performer is Jaipur city with a CAGR of minus 28.40%.

You can also note that the price trend don’t remain uniform across the city. There is a wide variation in property prices in different parts of the city. While some zones show a rising trend, others show a decline; continuing the above example, while the property prices in Jaipur city as a whole shows a negative trend, some zones in the city are showing a rising trend. Note that while last 2 years property returns in Hawaa Mahal and Mansarovar zones are in positive territory, rest all other sectors are in negative including the worst hit zones of Moti Dungri (down by around 73 percent with a CAGR of -47.48%) and civil lines (down by 68 percent with a CAGR of -43.46%.).This should be an eye opener for those who think that property prices only follow a one way movement.

This real estate price index will help you whether or not to buy the house and also help you compare the performance of real estate with other asset classes such as stocks and debt.

2. Online Realty Portals for making the search process easy
You have understood the broad price trends in the property market with the help of NHB RESIDEX. That’s fine! Now, won’t you like to search for availability of various properties for sale / rent from the comfort of your house avoiding making visits to property dealers.

The online real estate portals make the process of property search a lot convenient for you. Unlike print advertisements, here you get more detailed information. The major benefit is that you can search while sitting anywhere, filter the results the way you want and cut down the time in finding a suitable accommodation to buy/rent in the location of your choice.

Some of the top real estate search sites in India are makaan.com,99acres.com, magicbricks.com, indiaproperties.com and sulekha.com. In addition to allowing you to search the available properties, these online real estate portals also allow you to list the property you intend to sell or give on rent.

3. Crisil Real Estate Star Ratings for judging the project quality
After having assessed the broad price trends in the property market and after searching for properties in various locations you’ve shortlisted a few of them for making the final selection. Now here the Crisil Real Estate Star Ratings System started a few months back (August 2010) can help you get an assurance about the quality of the project.

Crisil Real Estate Star Ratings takes into account the following parameters for awarding a star rating to a construction project:

-construction quality, building design, availability of various amenities & location of the project
-after-sale services; time & cost overruns
-clear & marketable land titles
-legal documentation
-financial viability of the project
-financial strength and track record of the project sponsor

The ratings are based on city-specific eight point scale: While ‘City 7- Star’ is highest, the lowest rating is ‘Non-Deliverable’ Project. City specific means that an individual real estate project is benchmarked against other projects within the same city. So, it is quite possible that a particular project of a developer, say, Project ‘Grand Heights’ in a particular city will receive 6-Star, the same or similar project in an another City receives 5-Star or a 4-star.

The other important point worth noting down about Crisil Real Estate Star Ratings is that it is possible for an affordable housing project to get higher rating than a premium luxury apartments project. Why? Because the rating considers the expected performance of a project to the stipulated specifications.

Another thing to understand is that these ratings will be continuously reviewed by the Crisil at least once a year till the receipt of occupancy certificate and can be downgraded or upgraded at any time.

These real estate star ratings will surely help you in identifying quality projects and by investing / buying only for properties with a rating of 5-star to 7-star will substantially reduce your risk involved in property deals such as sub-standard projects, delay in project completion, incomplete documentation, faulty titles etc. However, as the ratings are not mandatory, only a few developers are opting for it, but gradually as the demand for rated properties increase, developers will have no choice but to go for it. Obviously, good projects will surely go for it as it will enhance the credibility and pricing power of the developer.

The current list of projects rated by Crisil (as on 16 Dec 2010) is as follows:

More details about the above rated projects can be downloaded from the CRISIL Site (http://www.crisil.com/star-ratings/index.html).

You can make use of the CRISIL Real Estate Star Ratings before making the final selection of property, the way you use Mutual Fund Star Ratings while investing in mutual funds.

Going forward, I think the above three online real estate tools will immensely help you at the time of property acquisition. In short, they will radically change the real estate market. What do you think?

Also see:

1. What is the right time to buy a home
2. Selling Your House: Know the tax implications
3. Home Loan EMI Calculator

Life Insurance Online Term Plans: Review

2010-11-30T18:50:00.001+05:30

Photo by philipp daun

Term life insurance is finally getting a push. The initiative was taken by AEGON Religare to provide a remedy for people suffering from K.I.L.B (Kum Insurance Lene ki Bimaari); the baton was subsequently picked up by ICICI Prudential Life Insurance and now gradually other life insurance companies are trying to follow suit. In the month of October and November 2010 itself, three life insurance companies (Kotak, MetLife and Future Generali) have entered the fray to sell online life insurance term plans through the internet. So here we try to review these Online Term Life Insurance Plans and answer the common questions you have about them:

Everything you want to know about Online Term Life Insurance Plans:

1. What are Online Term Life Insurance Plans?
These are pure protection life insurance policies available for purchase only on the net. These Online Term Plans provide you with instant life insurance cover with simple online application process.

2. Which Online Term Plans are available in the market as of now?
As on date (26 Nov 2010) following Online Term Plans are available in the market:

a. AEGON Religare iTerm plan
b. ICICI Pru iProtect
c. Kotak Life e-term and Kotak e-Preferred Term
d. MetLife Met Protect
e. Future Generali Smart Life

Note: Kotak Life Online Term Plan has two variants: Kotak e-term for sum assured up to Rs 24.99 lakh and Kotak e-Preferred Term for sum assured of Rs 25 lakh and above, all other terms & conditions remaining the same.

ICICI Prudential Life Insurance also offers two variants of iProtect: Option 2 of ICICI Pru iProtect offers ‘Accidental death benefit’ rider which is equal to sum assured (subject to a maximum of Rs 50 lakh).

3. Why are Online Term Plans cheaper than conventional term plans?
Due to absence of agents / distributor from the picture, no commission needs to be paid and that results in direct savings which is passed on to the customer in the form of lower premiums.

4. Is the buying entirely online?
No, it’s not. First, if required one has to go through a medical test. Second, documents have to be handed over to the company representative who might never come to collect it.

5. What is the process of buying Online Term Plans?
It consists of two parts: Online and Offline
Online Process: First decide about the sum assured and term of the policy; fill up the online proposal form; make the payment online

Notes:
a. Some Online Term Plans doesn’t support Mozilla Firefox, you will require Internet Explorer

b. Know your correct weight, height, previous major illnesses, family medical history and details of all previous life insurance policies before you start the online process

c. For making online payment, you’ll have to use your own credit card or internet banking account. For example, terms and conditions of ICICI Prudential Life Insurance iProtect specifically mention that “Use of credit card or internet banking account of persons other than the proposer’s will lead to decline of proposal/payment”. I presume that all other online term plans also impose the same restriction.

Offline Process: Go for medical tests if required; hand over the documents such as age and income proof to the company representative.

6. What are the various payment options available in Online Term Insurance Plans?
Usually two modes of online payment are allowed: Credit cards and Net banking except in case of MetLife India Insurance. MetLife Met Protect doesn’t allow internet banking account but allows payment via Credit card/Debit card, Cheque and MetLife’s IVRS (Interactive Voice Response System).

7. What are the major benefits of buying these Online Term Plans?
The one and only benefit is lower cost than offline term plans.

8. What are the other major differences with offline life insurance term plans?
No agents available to guide you; non-availability of riders; available only in selected cities; need to be net savvy; only online payment options.

9. Which life insurance plan is the cheapest among the 5 Online Term Plans?
In case of a 30 year non-smoking male looking for term plan for 25 years, e-Term / e-Preferred Term from Kotak Life Insurance is cheapest up to a sum assured of Rs 60 lakh, beyond which iProtect from ICICI Prudential Life Insurance becomes the cheapest Online Term Plan. However, the difference in premium is not significant except for a policy amount of Rs 25 lakh and Rs 2 Crore.

10. Can an NRI buy these Online Term Plans?
No, these Online Term Plans are meant for resident individuals only.

11. Are these Online Term Insurance Plans similar in all respects other than premium?
No, these Online Term Plans also differ in respect of minimum/maximum duration, minimum /maximum sum assured, maximum age at maturity, premium paying frequency, availability of riders etc.

Furthermore, unlike other Online Term Plans, ICICI Prudential Life Insurance iProtect also provides you option to buy ‘Accidental Death Benefit’ Rider on payment of additional premium. Kotak Life e-term offers flexibility to Step-up and Step-down your insurance cover in future based on your needs. Let’s compare them on various parameters:

Online Term Plans Features: Comparative Chart

12. Is there any limitation of Online Term Plans?
Inconvenience involved in buying these plans. Read about the bad customer experiences and the difficulties being encountered by people while buying the ICICI Pru iProtect online term plan.

13. What if I live in a city not included in the plan coverage?
In case your city is not covered, you’re not allowed to purchase an Online Term Plan. However, the ICICI Prudential Life Insurance iProtect provides you an option to buy it in offline mode i.e., through agents/brokers in which case you have to pay a slightly higher premium which should be approximately in the range of Rs 100—500. Still, it is much lower than the conventional offline term plans.

14. Is there any limitation as to the maximum sum assured?
No, there is no such restriction except in case of Future Generali Smart Life. The maximum coverage allowed under all the other four online term insurance plans is decided by the respective company on case-to-case basis depending upon your income/age/lifestyle/medical history etc. which is subject to underwriting.

15. Should I buy these Online Term Plans?
No, in view of bad customer experiences, it is better to follow a wait and watch policy. If you’re in a hurry consider the cheaper options among the conventional offline plans.

16. What if still want to buy one of these Online Term Plans? Are there any pitfalls?
Before rushing to buying into online term plans, understand the following points:

i. If you are buying ICICI Pru iProtect don’t go for Accidental Death benefit rider. It is always preferable to buy a separate Personal Accident Policy which will also cover you for Permanent and Temporary disability benefits.

ii. If you would like to buy AEGON Religare iTerm policy, know that claim settlement record of the company is very poor. Furthermore, as per the iTerm policy conditions, at the time of making a claim, in addition to a death certificate claimant is also required to provide ‘Certificate of Doctor/Medical Officer certifying the cause of death’. It seems to be a ridiculous condition and I suspect the intention is only to raise spurious objections to delay the settlement of claim or reject it out rightly. So Beware!!!

iii. If you buy Kotak e-term or Kotak e-Preferred Term Plan, ensure that you select annual premium payment option instead of monthly/quarterly/half yearly payment option and if going for MetLife Met Protect avoid single premium payment option.

iv. If you’re already having a life insurance Term Plan, please don’t discontinue it to buy the cheaper online version. You can surely add to your existing policy in case you need to increase your risk coverage.

v. Finally, please don’t get tempted to hide any material facts…disclose correct income, lifestyle and health related particulars. Also ensure that you declare all the previous life insurance policies otherwise you might face problem at the time of the claim.

17. Can I claim income tax deduction under Section 80C as payment is neither made in cash nor through a cheque?
Yes, you can definitely claim tax deduction under Section 80C even though payment is made online through internet bank account or credit/debit card.

18. Whether the premium calculated as per the Online Premium Calculators shows the total cost to be borne by the applicant? Or, are there any other charges involved?
Premium shown as per the online term plans brochures/calculators is exclusive of service tax and education cess except in case of Kotak Life e-Term and e-Preferred Term. To arrive at the total cost, you need to add 10.3% to the premium calculated as per the online premium calculators. For example, if the premium shown by the online calculator is, say, Rs 3,900, you’ll have to pay an extra amount of Rs 402 as service tax thereby raising the total cost to Rs 4302.

Please also note down that these rates are standard rates applicable to non-smoking healthy male and you might be asked to pay more depending upon your lifestyle/health conditions.

19. Should I buy one policy or split the coverage between two policies?
I’ve discussed quite elaborately that it is always prudent to buy a single term policy instead of splitting your total coverage and buying multiple term insurance policies as it involves various hassles in addition to extra cost.

But, it’s ok, if you want to go for splitting your total risk coverage by buying two different plans from two different insurance companies so as to better manage your risk due to poor settlement record of various life insurance companies.

However, as it involves additional cost, it is always prudent to take an informed decision by calculating the ‘Cost of Splitting’ your sum assured. For instance, continuing the above mentioned example of a 30-year old non-smoking male, if instead of buying a cover of, say, Rs 60 lakh from ICICI he buys 30 lakh cover from ICICI and balance 30 lakh from iTerm, he’ll be required to pay an extra sum of Rs. 2,580 every year excluding service tax. So, the total cost of splitting comes to Rs 71,143(2,580*1.103*25).

20. How should I choose the most suitable term plan in terms of sum assured and premium? How do we make a premium comparison between these Online Term Plans?
There’s still immense scope for planning, even if you’ve already decided your risk coverage. Ok, let’s first calculate the premium (exclusive of service tax) on various online term plans for varying sum assured in case of an individual, say, a 30year old healthy non-smoking male who would like to buy a term plan for 25 years.

Here’s the Premium Comparison Table:

First, let’s exclude Future Generali Smart Life from the comparison because premium rates are too high. Therefore, we are now left with four online term plans to compare.

Second, another interesting point to note is that for a sum assured up to 24 lakh, Met Protect is not available and among the rest three, Kotak e- Term is slightly cheaper than the ICICI Pru iProtect and Aegon Religare’s iTerm. For a term plan insurance coverage anywhere between 25 lakh and 49 lakh, we observe that iTerm is very costly as compared to other three online term plans so it is better to avoid it. For sum assured of 50 lakh and more, all the four term plans are almost at par except iTerm.

Finally, here’s a little secret about these term plans:

Term plans offer you discount/rebate after you cross a particular threshold. This threshold limit is 25 lakh in case of iProtect and e-term and Rs 50 lakh for iTerm and Met Protect.

If you want to buy ICICI Pru iProtect, avoid buying a cover for 20/25 lakh, instead go straight for Rs 30 lakh cover. In fact it will be outright foolish to buy coverage of Rs 25 lakh from iProtect because by opting for Rs 30 lakh cover, you get additional 5 lakh coverage absolutely free at no additional cost.

Similarly, in case of kotak e-term, instead of buying a cover between 20 and 24 lakh, you will be better off by opting for a sum assured of Rs. 25 lakh, because you get additional sum assured of Rs. 5 lakh by paying just Rs 100.

Applying the same logic to Aegon Religare iTerm where the threshold limit for discount starts from 50 lakh onwards, it will be another height of financial stupidity if somebody go for a sum assured of anywhere between 30 lakh to 49 lakh ; e.g., in the above example by making a jump from 30L to 50L, an individual can buy an additional coverage of Rs 20 lakh at an extra amount of just Rs 440 or somebody looking for a 35 lakh sum assured can get an additional sum assured of Rs 20 lakh for Rs 140 (excluding service tax).

Also see:

1. Review of highest NAV Guarantee plans
2. Best ELSS Funds
3. Life Insurance Term Plans: FAQs
4. Section 80C Tax Savings – 10 Smart Tips

PPF: 11 Pitfalls to Avoid

2010-11-17T18:14:00.002+05:30

Photo by Samout3

Public Provident Fund (PPF) is really very interesting and a great topic to write about. I’ve already mentioned practical tips to be kept in mind while opening and operating a PPF account. However, there are many pitfalls which you should avoid while investing in a PPF account.

Here’s a list of 11 things you need to be careful about while operating your Public Provident Fund Account:

1. Don’t open two PPF accounts in the name of one individual. Even if your current account is inactive, you’re not allowed to open a new PPF a/c.

2. Don’t deposit more than the maximum allowed. You won’t get the interest on excess deposit in your PPF account.

3. Don’t forget to deposit a minimum amount of Rs 500 every year to avoid the PPF account become inoperative. You will be denied loans / partial withdrawal before maturity.

4. At the time of extension of PPF account, submit Form H, otherwise the continuation will be deemed as “extension without subscription” or “irregular” and you will be denied interest on additional deposits and also become ineligible to claim section 80C deduction.

5. Don’t forget to nominate, otherwise your family will have to obtain a succession certificate to receive the PPF proceeds in case of your death.

6. Avoid premature withdrawals and loans unless there is an emergency because PPF is one of the best long term saving instrument available to you.

7. Understand that post-maturity of PPF if you choose 'extension without further deposits', you can’t change it to 'continuation with further deposits' after the expiry of one year. So make an informed choice.

8. Don’t recycle the PPF account because it defeats the very purpose of opening a Public Provident Fund account.

9. After the subscriber’s death, nominee should consider closing the PPF account at the earliest instead of continuing it because a nominee can’t appoint a further nominee.

10. While making deposits in your PPF account at the end of the financial year for tax savings purpose ensure that you deposit the cheque / demand draft well in time…remember that date of realization is treated as date of deposit. If the cheque/draft is not encashed by 31st March, the amount will be treated as deposit for the next financial year and you will lose tax benefit for the current financial year. This is as per the amendment made by the Government of India in February 2010 in the Public Provident Fund Scheme. Earlier in case of PPF (unlike other small savings), date of presentation/tender of cheque was treated as date of deposit.

11. Don’t open a PPF account in the name of your HUF because vide an amendment made in the year 2005, PPF account can’t be opened in the name of HUFs although existing accounts are allowed to earn interest till their maturity.Besides, even the existing PPF Account in the name of HUF is not allowed any further extension after the initial maturity period of 16 years.

Finally, be aware of the rules and regulations regarding the correct operation of Public Provident Fund scheme as updated from time to time instead of relying on the advice of bank officials because in case of wrong advice you’ll have to bear the consequences… read this interesting incident mentioned by Ms. Sucheta Dalal in moneylife.

Also see:

1. Comparing PPF with NSC
2. How to invest in PPF
3. PPF Interest Calculator
4. Public Provident Fund FAQs

Height of Financial Stupidity

2010-10-22T08:57:00.002+05:30

Photo by purplemattfish

Only two things are infinite; the universe and human stupidity, and I’m not sure about the former.

--Albert Einstein

Tenzing on Hillary and Hillary on Mount Everest is the height of heights; peeing through key hole of a glass door is the height of stupidity.

Now, what’s the height of financial stupidity…there’s a not one but many…most of us continue to violate some basic and simple financial truths and make stupid financial choices.

It is very amazing to see how people get sucked in by the financial traps set up the financial industry; banks, stock brokers, life insurance companies, wealth management firms continue to harness the financial stupidity of people to make money.

Human stupidity is the other name of irrationality, self deception and willful ignorance and is the single biggest contributor to human suffering. Let’s see some of the ways in which people act stupid to ruin their financially life:

Examples of Financial Stupidity

Real Estate is the best form of investment

1. Investing in property thinking that just because land is in short supply, property prices can only move skywards.

2. Buying a residential house just to save on rent without considering the opportunity cost of money.

3. Going for a home loan to save tax even if one has enough of spare money to invest forgetting that like tax, interest is a cost borne by the borrower.

Investing means trading stocks/ mutual funds

4. Either going 100% in stocks or 100% in bank fixed deposits.

5. Indulging in ‘market timing’ or ‘stock picking’ ignoring the fact that more than 80% returns of an investment portfolio are determined by ‘asset allocation’.

6. Investing in Mutual Funds solely on the basis of returns without considering the risk undertaken to earn those returns.

7. Investing in Mutual Funds based on short term returns and / or dividend declaration.

8. Investing in IPOs by borrowing money to make listing gains.

9. Investing in PMS considering it to be a wealth management product not understanding that it is a high cost ‘Portfolio Mismanagement Scheme’.

10. Getting lured by the fancy names of financial products.

11. Having an over-diversified investment portfolio with too many stocks/mutual funds leading to unnecessary duplication.

12. Buying jewellery for investing in gold instead of investing through gold ETFs.

Insurance is a tax savings and investment tool

13. Investing in life insurance not knowing that it can be lethal for financial health.

14. Not buying adequate insurance coverage.

15. Investing in life insurance policies from LIC thinking that money is safe.

16. Buying life insurance just to favor a relative, family friend or a neighbor.

17. Mistaking insurance agents––peddling life insurance––for financial advisors.

18. Buying / investing in multiple insurance policies.

19. Falling for guaranteed returns schemes.

Enjoy now, pay later

20. Considering fuel as the only cost of running a vehicle.

21. Buying /renting an expensive/unaffordable house by overstretching the finances.

22. Falling for zero interest rate schemes forgetting that processing charges is also a cost.

23. Spending to gain more points on loyalty cards and credit cards.

24. Not thinking twice before buying an expensive car or the latest gizmo, just to impress friends, relatives and neighbors.

25. Handing over a tip to a waiter even if not satisfied with the service…just to avoid the embarrassment.

26. Borrowing to finance a depreciating asset while own money is lying idle in bank accounts.

27. Borrowing money based on quoted ‘flat rates of interest’, not understanding that actual cost of borrowing is 2 to 3 times that of flat interest rates.

28. Choosing complexity over simplicity by mindlessly acquiring multiple credit cards, opening multiple bank accounts, investing in multiple mutual funds, buying multiple insurance policies.

Photo by ImageLink

29. Taking a casual approach towards managing money which has been earned the hard way, not understanding that managing money is as important as earning it. Put differently, working hard for money but not allowing the money to work hard.

Taxing the brains

30. At last, the height of financial stupidity: Standing in long queues to file tax return on the last date.

Is there any other financial stupidity I have left out? How do you handle your money? Judge yourself whether you’re a financially intelligent or a financial idiot?

The only way to comprehend what mathematicians mean by infinity is to contemplate the extent of human stupidity.

--Voltaire

Also see:

1.The reason behind increasing complexity
2. Hidden Flaws of Spending

How to survive in a corporate jungle

2010-10-10T21:20:00.004+05:30

Photo by Rubén Díaz Alonso

We spend significant part of our life in office, so professional life is as important as personal life and it’s important to strike a balance between the two. First of all, let’s understand what the workplace reality is:

1. Why do we work? To make money, everything else is secondary.

2. A lot of work is boredom…doing repeated specialized tasks is nothing but boring…more particularly in case of BPO & IT Companies. It’s up to you to devise ways to make it fun.

3. Being intelligent and hard working is not enough; self-marketing i.e., making your boss and others aware of your contribution is also important; to get recognition you deserve, seeking attention and becoming visible to the power centers in the organization is necessary.

4. Peer pressure makes us constantly benchmark and compare ourselves with our peers; the resultant envy is self-destructive.

5. Modern day organizations are anything but rational. Rivalry, office politics, sycophancy, favoritism, manipulation, diplomacy, dog eat dog competition, rat race, gossiping, rumours, jealously, use of innuendos/snide remarks/expletives, sexual harassment, bullying, lobbying are all oddities of daily corporate life and essential part of modern day workplace.

6. The most harsh reality about survival in the corporate jungle is getting along well with your immediate boss because he is the one who can make or mar your career

Here are a few practical management lessons to survive in corporate jungle without losing sanity:

Elders of the tribe eat first

1. There is no need to feel bad if your boss takes credit for your ideas because according to David F. D’ Alessandro you simply cannot fight the power structure. In his book Career Warfare, he writes that, “Within the world of people who can actually advance your career, your image is almost entirely in your boss’s hand”.

2. There are plenty of ‘pointed headed bosses’ —a character made famous by the comic strip Dilbert by Scott Adams —roaming in the corporate corridors; nothing to feel ashamed of in playing the game of fool to satisfy their inflated egos. Again, David F.D’ Alessandro says that you’ve to manage the relationship intelligently, even if your boss is an idiot.

3. If you’re stuck with a bully boss, never fight back or confront him; it’s no use fighting a loosing battle. On the other hand, enduring him for long can do a lot of harm to your confidence and self-esteem. The best and the most practical solution is not to complain, stay calm and find a new job at the earliest. Don’t fool yourself by remaining under a delusion that he will have a change of heart or things might otherwise improve in the future…expecting a scorpion not to sting is simply foolish. Understand that bullying is the worst form of power abuse and even HR is of no help in such cases.

4. Know the difference between a Mentor and a Godfather and if you’re competent avoid the latter.

5. Under promise and over deliver.

6. Never say “yes”, when you- want to say “no”.

7. Finally, the golden rule of managing bosses, in the words of Devdutt Pattanaik, “be like Draupadi, but always behave like Sita".

FISH Philosophy

8. Don’t take your work too seriously; take it as a game and have fun. In fact, life itself is nothing more than a game.

9. It’s important that you love the work you do even if it is not your calling…to make it enjoyable, practice FISH Philosophy.

10. Work smarter and harder; distinguish between important and urgent; apply Pareto’s 80:20 rule; prioritize; have a time limit for every task—as per Parkinson’s law, work expands as per availability of time.

11. Never marry your job; workaholism can ruin your professional life as well as personal life.

12. There’s always a better way of doing things; be creative, clear mental blocks, continuously challenge present practices / set ups.

One-Minute Manager

13. Don’t be afraid to delegate because no individual can run the whole show.

14. Never pinpoint the errors; even if you know. Rather ask the person doing the task to find out himself.

15. Be a One-Minute Manager—according to Kenneth Blanchard, there are 3 secrets behind effective management: one minute goals, one minute praising and one minute reprimand.

16. Focus on strengths instead of wasting time on fixing the weaknesses; recognize the unique talent of each individual. In the words of Marcus Buckingham & Curt Coffman, the writers of the book, First, Break All the Rules: Bad Managers play checkers, good managers play chess.

Personal Branding: Packaging is more important than the product

17. Take responsibility for yourself. Don’t wait to get noticed.

18. Be yourself – genuine/authentic.

19. Have a sense of humor. It is the most valuable quality and can alleviate boredom, relieve the work place stress, help ride the difficult situation and establishing rapport with others.

20. Be ethical, never compromise on integrity.

21. Be wiser than others, but don’t tell them so.

22. Be cool & patient. Don’t get ruffled if heckled.

23. Everything matters but looks / appearance matter more than the real stuff.

24. Don’t be too good in whatever you do, rather diversify your knowledge & skills; Over specialization has both upsides as well as downsides.

25. Run your own race, at your own pace.

26. Take time out for yourself. From time to time keep on enriching and re-energizing your professional life by playing, exercising, reading, vacationing and learning something new.

27. Constantly update your resume; if there is nothing new to add for a period of six months, it’s time to look for a change.

Networking in the corridor

28. Networking is a necessary evil; don’t consider it a waste of time. However, it is better to build and nurture only genuine relationships.

29. Know the difference between casual office friendship and personal friendship; be cautious. about revealing too much personal information. In other words, familiarity breeds contempt, so keep your secrets.

30. Never try to please everybody. One cannot keep everyone happy.

31. Never underestimate anybody.

Finally,

32. Accept the reality; don’t flow against the tide.

33. Anticipate the change and embrace it.

34. Don’t be afraid of failures or admitting your mistakes.

35. Don’t judge anybody; just observe.

36. Opportunity never knocks twice, so keep your doors open.

37. Don’t unnecessary worry about little things; work is just one aspect of your life.

38. In case of physical and mental burnout, apply the brakes; diversion/cooling-off helps.

39. Don’t run so fast in life that anybody has to throw a stone at you to get noticed.

The final truth is that nobody owes us a living and life is rarely the way we want it to be. We’re solely responsible for our professional life; difficulties & hardships are always encountered while climbing the corporate ladder.Have faith! Do not postpone living; enjoy every moment.

At last, some things are within our control and some things not, so let’s not forget the Serenity Prayer:

God grant me the serenity
To accept the things I cannot change;
Courage to change the things I can;
And wisdom to know the difference.

Also see:

1. How to live a purposeful life
2. 4 other ways to live a simple life

Message

2010-06-26T09:47:00.003+05:30

Photo by Dr. Wendy Longo

Fisher…seeking new horizons…promised not to write anymore…will miss u all…Good-bye!

UPDATE (10/10/2010):

First, a thank you to the readers who wrote in asking me to continue…my special thanks to Hari. Yes, I’m back and finally decided to continue writing. However, I’ll not be able to write more than two or at the most three posts in a month.

Answers: Money Teaser #5

2010-06-25T18:50:00.001+05:30

Photo by luna715

The answers are based on the Original version of DTC and not the revised one:

Ans 1: Taxman assumes that house rentals in Delhi are still a lot higher than Gurgaon and Noida.

Similarly, according to government, cost of living is higher in Kolkata as compared to Pune, Bangalore, Gurgaon and other such non-metros.

Ans2: To compensate for the extra expenses incurred by women to make themselves look presentable for office.

Ans 3: To encourage daily commuters to use public transport (or start cycling) thereby reducing traffic congestion and pollution levels and also saving money in the process.

Ans 4: So that CAs and Lawyers can make a living out of it. And, Fisher can blog about it.

Ans 5: To simplify the tax laws for a CA student who was finding it difficult to comprehend the complex provisions of current tax laws. Now he can have a sigh of relief because probability of his passing the examination increases manifold.

Ans 6: Because it contains so many secrets.

Ans 7: Now there won’t be any need to submit fake bills (Rent bills, LTA vouchers, Medical bills etc.) to claim the tax benefits. It was particularly a big headache to arrange bogus travel tickets and fake medical bills.
Further as the number of choices for investments for tax saving purposes stands reduced, the tax planning will become a lot easier. After depositing some amount in PPF, the balance will go to life insurance. In other words, DTC will make it easier for individuals to invest in life insurance. However, there’s one pitfall also: you might have to run after your insurance agent because they will get too busy (now there won’t be any need for agents to convince you any more regarding the importance of investing in life insurance product). It might also reverse the maxim “the insurance is sold and not bought”.

Ans 8: The DTC will help companies reduce the work of HR & Accounts department because now there will not be any need to bifurcate your pay package into different components such as HRA, LTA, Medical reimbursement etc. And there won’t be any need to collect all the evidence (rent receipts, LTA & medical claim vouchers) from the employees.

Ans 9: Because it is one of the best long term saving instrument available for your retirement.

Ans 10: Every transaction of purchase, sale or expenses exceeding Rs 50 need to be supported by a serially numbered bill / receipt containing the name, address and such other particulars as may be prescribed. And for expenditure less than Rs 50, payment vouchers shall be required.

Also see:

1. Money Teaser # 5 – Tax
2. How to live a Purposeful Life

How to live a purposeful life

2010-06-19T16:52:00.001+05:30

Photo by Hadock

Most gulls don’t bother to learn more than the simplest facts of flight – how to get from shore to food and back again. For most gulls, it is not flying that matters, but eating.

--Quote from Jonathan Livingston Seagull by Richard Bach

The message from this truly inspiring book is that you can follow your passion to seek a higher purpose in life despite opposition from your family and society. It says, wake up Sid! Don’t be content with just eating, sleeping, making money and spending it. There is more to life...you can always strive to make yourself better.

A purposeful life is one which makes you feel alive, and also make this world a better place to live. So here is a list of 5 ways to live a life worth living:

1. Find your calling
The tragedy of life is not death, the tragedy of life is what we allow to die inside us while we live.

--Dr. Normal Cousins

Have you ever asked yourself: Am I living the life I want to live? If yes, then ok, otherwise read on: To make your life fulfilling, you need to find your true calling where your talent can be put to best use. But it’s easier said than done. It may take you years to find it and that too if you really want to (even though it’s already inside you).

This is the most important and most difficult task in living a purposeful life and which can make all the difference to your life. You should also read this wonderful post about finding your calling by Hunter Nuttall.

2. Never stop dreaming
When we talk of dreams, the first thought which comes to mind is the quote from the bestselling book The Alchemist by Paulo Coelho

“It is the possibility of having a dream come true that makes life interesting.”

However, to make your dream a reality you need to be obsessively passionate because it’s usually a lonely journey. You also require lots of self-belief, patience, and ability to take criticism in your face (because others will sometimes let you down).

But remember, it is indeed possible to turn your dreams into a reality. Again The Alchemist says,

“When you want something, all the universe conspires in helping you achieve it.”

3. Learn to take risks
“When you move beyond your fear, you feel free”

--A quote from Who Moved My Cheese

To try new things and take on new challenges, one needs to come out of the comfort zone. This concept of coming out of your comfort zone and embracing new changes in life is best described by Spencer Johnson in the short story Who Moved my Cheese.

What if someone fails?...nothing to worry about because failure does not mean that you’ve accomplished nothing, rather it means you’ve learned something. Failure doesn’t mean that you can never make it, rather it means that you’ve an excuse to start over again.

4. Be ethical
Never compromise on integrity. It will give you inner peace.

5. Become Environment friendly
Living a life with purpose also means showing concern for the environmental consequences of our mass consumption lifestyles. Understand that every one of us can contribute towards the environment in small ways. The best way in which you can contribute towards environment is to use fewer resources and not to waste anything. Put simply, use anything and everything until it wears out.

6. Contribute towards social Justice by Living a simple life
Life is simple but we insist on making it complicated.

--Confuscious

Simple living is about frugality, about non-consumerist lifestyle, being environmental friendly and also about social justice… What? Social Justice!! Yes, read Richard Gregg’s views:

“ The first step I can take to cut down my share in exploitation is to live simply. All luxuries require unnecessary labour, as John Woolman so clearly showed. The production and consumption of luxuries divert labor and capital from tasks which are socially more productive and beneficial; they often take land away from wise use; and they waste raw materials which might be used to better advantage.”

I hope this time you’ll surely write a few words telling me how did you like this post?

Also see:

1. How to live a simple life
2. 4 other ways to live a simple life
3. Savings: A step towards sustainable living
4. My new year resolutions for 2010

Money Teaser (# 5): Income Tax

2010-05-23T08:39:00.000+05:30

Photo by Rajesh Kunnath

I’m the parliamentary draftsman
I compose the country’s law
And of half the litigation
I’m undoubtedly the cause

Enough of life insurance, now let’s do some mental exercise to test your understanding of Income Tax Law and Direct Tax Code.

Tax Riddle

Q-1: What’s the difference between Delhi and Noida / Gurgaon from tax point of view?

Q-2: Why females are allowed more basic exemption limit compared to males?

Q-3: Why the government doesn’t increase the limit of Rs 800 p.m. for transport allowance?

Q-4: Why the tax laws are so complex?

Q-5: Why the government has introduced the DTC to replace existing IT Act, 1961?

Q-6: Why this new version of direct tax is named Code instead of the Act?

Q-7: How’s the DTC going to benefit the individuals?

Q-8: What is the major benefit of DTC for the Companies?

Q-9: Why the government is indirectly encouraging investment in life insurance through DTC?

Q-10: Most interesting aspect of DTC for business & professionals?

Wait for the Answers!

Also see:

1. Money Teaser #4
2. Money Teaser #3

How does inflation impact your finances?

2010-05-21T09:11:00.005+05:30

Photo by taoboy49

Let’s say your average monthly outgo is Rs 1 lakh currently. Have you ever thought how much you’re going to require, say, after 20 or 30 years hence to buy the same bag of items? Try guessing!

If inflation is pegged at 6%, you’ll require Rs 3.21 lakh after 20 years and Rs 5.74 lakh after 30 years to buy the same basket of goods & services. In other words, you’re going to require an extra sum of Rs 2.21 lakh in the 21st year and Rs 4.74 lakh in the 31st year to buy the same qty of goods and services.

Inflation is a fact of life and erodes the purchasing power of money. Just about every good and services (with the exception of a few such as electronic goods) we consume goes up in price over a period of time. When prices of goods & services go up, your purchasing power goes down since each rupee now buys a smaller share of goods and services. For example, Rs 1 lakh in hand today will be worth only Rs 17,411 after 30 years assuming an inflation rate of 6%. And, if the average inflation figure turns out be a tad higher, say 8%, the purchasing power will further gets reduced to less than Rs 10,000.

What’s your inflation number?
Now, let’s come to the moot question: What’s your inflation number?
An inflation index such as Wholesale Price Index (WPI) or Consumer Price Index (CPI) doesn’t truly reflect the inflation figure relevant to your lifestyle. The actual inflation figure relevant to you is always substantially higher than these official indices.

As mentioned above, current spend at Rs 1 lakh per month at a projected inflation rate of 6% should be 3.2 lakh after 20 yrs to retain the same quality of life as now. But don’t our aspirations also increase with our rise in income over a period of time? Just think: Are you consuming the same qty and quality of goods and services you were consuming 5 or 10 years back? Will you continue to maintain your current living standard or upgrade it with the passage of time? Won’t you be consuming more of new / better goods & services? If yes, then you need to consider the ‘lifestyle inflation’ and take it into account while planning for your retirement kitty.

Suppose, 10 years back you used to reside in a 2 BHK house with a monthly rental of Rs 3000 p.m. and now the current monthly rental of the same flat is around Rs 8,000. But around 5 years back, you shifted to 3 BHK house and currently paying a rent of Rs 12,000 p.m. So we can say that while general housing inflation is 10.30%, the one applicable in your case is 14.86%. The difference of 4.56% is nothing but lifestyle inflation. This is a very crude example to clarify the concept of lifestyle inflation.

So, instead of wholesale price index (WPI) or consumer price index (CII), the relevant index for financial planning purposes is Personal inflation index (PII). To calculate the rate of inflation relevant to arrive at your future expenditure, you should add around 1-4% to general inflation rate depending on how fast you’re upgrading your lifestyle.

Following table list the Personal Inflation index (PII)

Yrs\Inflation -----------6%----------8%-----------10%---------12%

10-----------------------179----------216---------259----------311
20-----------------------320----------466----------673---------965
30-----------------------574--------1,006-------1,745-------2,996
40---------------------1,028--------2,172-------4,526-------9,305
50---------------------1,842--------4,690------11,739-----28,900

And if you want to calculate it for a different period and / or different inflation rate, you can take the help of this calculator:

Inflation Calculator
If you want to know how much something would cost after a particular period increasing it by the inflation number, use this Inflation Calculator:

Finally, a question: Does this article make you realize the importance of planning for your future financial goals such as child education and your retirement? Or, do you like shooting in the dark?

Also see:

1. 10 Reasons to have a Savings Plan
2. Why do we make fatal money mistakes?