The Orange Paper

Should You Be An Entrepreneur?

Austin — Tue, 09 Mar 2010 08:30:07 +0000

Should you join the millions of people every year who take the plunge and start their first ventures? Daniel Isenberg, a former entrepreneur and management practice professor, examines the personal qualities and mind set that tend to be common amongst the successfully self-employed.

Daniel further states, which caught my eye, on the average, people who set up their own businesses don’t make more money, although a few do succeed in grabbing the brass ring. But the “psychic benefits” — the challenge, autonomy, recognition, excitement, and creativity — make it all worthwhile.

Take the 2–minute Isenberg Entrepreneur Test, to help you find out.

photo credit: juhansonin

This is a post from: The Orange Paper ~ A blog about Personal Finance, Indian Stock Market, Financial Planning, Investing, Wealth Building, Taxes and more.

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Term Insurance Your Best Life Cover Bet

Austin — Sun, 07 Mar 2010 10:36:19 +0000

Imagine this scenario. You were leading a prudent financial life during 2004-07, having moderate expenses and small loan EMIs, while your stocks and equity MFs were giving rocking returns. But there was one chink in your armour — you had inadequate life cover. Then came the big plunge of 2008. If the worst were to have happened to you in December 2008, your family would surely had to make a fire-sale of your investments that you had painstakingly made.

The idea of this post came from a conversation I had with my colleague who wanted to know about term insurance plans, which company’s product to choose, which is the one I bought and why etc… etc.

When it comes to covering your life, in my personal opinion I’d recommend that you first have a pure term cover that secures you till retirement age.

While choosing a term plan, don’t only look for lowest premiums. Go for plans that also offer a longer term and cover you till maximum age.

Let’s take a look at the choices:

Plan names	Term (yrs)	Max. age covered (yrs)
AEGON Religare Level Term	10 to 30	75
AvivaLife Shield Plus	10 to 30	65
AvaivaLife Shield	5 to 40	65
Bajaj Allianz New Risk Care	5 to 40	65
Bharti AXA SecureConfident	5 to 25	70
Birla Sun Life Insurance Term	5 to 25	70
Future Generali Furture Care	5 to 25	65
Pure Term Plan (Canara HSBC OBC Life Ins.)	5 to 30	74
ICICI Prudential Pure Protect	10 to 30	75
HDFC Standard Term Assurance	10 to 30	65
ING Vysya Term	10 to 30	75
LIC Amulya Jeevan-I	5 to 35	70
LIC Anmol Jeevan-I	5 to 25	65
Kotak Term	5 to 30	70
Max New York Level Term	5 to 60 minus age	60
Met Suraksha	5 to 60 minus age	65
Tata AIG Raksha	5 to 25	60
SBI Shield	5 to 25	65
Reliance Term	5 to 35	65

Well, I guess then the next question is — How big a policy do you need, right?

The answer — Some say it should be 6 to 8 times your gross annual income while some say save your age. This rule of thumb is far from perfect, although it’s better than buying no coverage at all. The problem with a one-size-fits-all formula is that the policy you need really depends on your household situation.

photo credit: apdk

10 Money Tips for a Holiday Abroad

Austin — Sat, 06 Mar 2010 13:05:02 +0000

So finally you’ve decided that you’re going to take that well deserved vacation — away from all the madness at work. I won’t get into why you need a holiday but instead provide you with money tips when planning a holiday. What if your credit card isn’t accepted and you aren’t getting a decent exchange rate for your native currency? Here’s the checklist:

1. Take along your major credit cards — make sure they are really credit cards and not just debit cards with a credit card company’s logo on them. Many locations require a credit card and will not accept a debit card, so they may have limited use on your travel.

2. Notify your credit card company of your trip before you leave. The unfamiliar spending patters might cause them to suspect that the card is being used fraudulently and delay your approvals. Further, they will explain many of the services that they can provide while you are on your trip.

3. Inform your bank of your trip too so that arrangements can be made to pay bills that will come due while you are gone. Incase due to any reason you still need to make a bill payment while on your trip, all you need is internet access, debit card/netbanking login. Visit www.visabillpay.in and pay your bills (Indian billers only) from anywhere on the globe.

4. Confirm from your credit card company if your PIN number will work in the country you are visiting. They can also issue you another PIN number if your current PIN is unacceptable in the foreign bank’s system.

5. Ask your banker all about cash advance, ATM, foreign purchase and foreign exchange rate policies and fees.

6. Find out the number you can reach your bank or credit card company while you are abroad. The 800 number listed on the back of your card may not work from foreign locations.

7. Check for currency conversion rates of your credit card companies. In that case you can find the most economical card on which to place your foreign purchases.

8. Using the ATM card is also another idea. The ATM will issue money in local currency. But better check: some banks charge a high usage fee for their ATMs. Although, even high ATM fees may be less than others will charge for currency exchanges. Note, your ATM card might NOT work at any foreign bank ATM — from my personal experience, when on a trip to Thailand I found out that a VISA debit card issued in India would only work at Bangkok Bank ATMs.

9. Exchange your currency at the bank’s wholesale exchange rate.

10. Best currency conversion option is to carry US dollars. It’s easier to exchange.

11. One final tip, yeah I know it’s the eleventh one – from my personal experience nothing beats having foreign currency (USD / GBP / EUR) in hard cash when traveling abroad. Using your ATM card/ debit card/ credit card in a foreign country will be anytime expensive when compared to having converted your local currency into foreign currency before you leave the country.

Photo credit: nattu

PayPal to resume local bank withdrawals to India

Austin — Sat, 27 Feb 2010 15:14:19 +0000

Just received an email from PayPal stating RBI has allowed them to continue local bank withdrawals for settlements for exports of goods and services. Paypal anticipates that, as of Wednesday, March 3rd, customers will be able to use their bank withdrawal service. However, the bad news is — personal payments into India still stand suspended till further notice.

Below is the email I received from PayPal:

We have been diligently working with the RBI and our business partners to resume Indian bank withdrawals for the thousands of Indian businesses who depend on PayPal to sell their goods or services in the global marketplace.

Today, we are happy to announce that the RBI has allowed us to continue local bank withdrawals for settlements for exports of goods and services. We are currently making changes to comply with Indian regulations for settlements for exports of goods and services, and we anticipate that, as of Wednesday, March 3rd, customers will be able to use our bank withdrawal service.

As part of the changes, you will be required to fill out a new field entitled ‘Export Code’ when you request a withdrawal. This information is required under the current laws of India in order to identify the nature of cross-border merchant transactions.

On Monday, March 1st, we will be back in touch with specific instructions on how you can move your money into your bank account.

Moving forward, the RBI has told us that PayPal needs specific approvals to allow personal remittances to India, which we currently do not have. Until we get these approvals, personal payments into India will remain suspended. However, if you are an exporter, you will continue to be able to use the PayPal service for payments of goods and services. In fact, with the changes we are making to our system, PayPal is now set to be a more powerful engine for exporters in India. With purpose codes for export transactions and FIRCs (Foreign Inward Remittance Certificates), you should now be able to get the export related benefits you seek.

The Importer Exporter Code ['IEC'], is normally required by manufacturers and companies for international trade but with this new RBI ruling, the hundreds and thousands small companies, freelances etc who rely on PayPal for foreign payments might also have to apply for an IE code.

Let’s keep our fingers crossed and hope this issue gets resolved fast.

*Update*: Check out How to obtain an IE Code

*Update*: The PayPal blog incorrectly mentioned “Export Code” in their previous blog post whereas they actually meant “Purpose Codes”. Unlike IEC that is unique for every individual / business, Purpose Codes are pre-defined by the RBI and their value varies depending on the type of service that you are offering to the client. Checkout this post on Amit Agarwal’s blog where he mentions about some select purpose codes that are most relevant to us.

Online Money Transfer (NEFT) to become Faster

Austin — Tue, 23 Feb 2010 03:10:56 +0000

The National Electronic Funds Transfer (NEFT) system has been successfully handling significant volumes, ever since its launch in November 2005. More than 6 million transactions were processed by the system during the month of January 2010 alone. The coverage has also increased substantially with the participation of over 63,000 bank branches spread across the length and breadth of the country.

With a view to further strengthen the NEFT system in terms of availability, convenience, efficiency and speed, the the Reserve Bank of India has mandated the following refinements to process-flow and enhancements to operational features to be implemented from March 1, 2010.

Tightening of Return Window

Presently, the NEFT procedural guidelines mandate banks to return NEFT transactions in the very next available batch. The NEFT system has, however, been designed to allow destination banks to return transactions on a T+1 basis. The traffic analysis has revealed that a major chunk of returns are effected by banks either in the last batch of the day or in the first batch of the next day, indicating that the transactions are processed by the destination batches only at the end of the day instead of batch-wise. In order to streamline the system and complete the processing cycle on a near-real-time basis, the concept of return within two hours of completion of a batch is being introduced. The B+2 return discipline would require banks to afford credit to beneficiary accounts immediately upon completion of a batch or else return the transactions within two hours of completion of the batch settlement, if credits are unable to be afforded for any reason.

Increase in Operating Hours

NEFT is currently available from 9 am to 5 pm on week days and from 9 am to 12 noon on Saturdays. There have been constant requests from various individual and business segments to elongate the operating hours. After examining the feasibility and customer benefits, it has been decided to extend NEFT operating hours from 9 am to 7 pm on week days and from 9 am to 1 pm on Saturdays.

Move to Hourly Settlements

On date, NEFT has six batches of settlement at 9 am, 11 am, 12 noon, 1 pm, 3 pm and 5 pm on week days and three batches of settlement at 9 am, 11 am and 12 noon on Saturdays. An analysis of daily data has shown that the volume of transactions processed in batches that have a gap of two hours between batches is double the volume of transactions processed in batches that have only an hour’s gap between them. With a view to evenly space out transactions across batches, as also to make the system near-real-time, it has been decided to introduce the concept of hourly settlements. Accordingly, there would be eleven hourly settlements starting from 9 am to 7 pm on all week days and five hourly settlements from 9 am to 1 pm on Saturdays.

Implementation of Positive Confirmation

At present, the un-credited NEFT transactions are returned by destination banks and it is presumed that credit for all other transactions have been afforded to beneficiary accounts. In order to remove any ambiguity and to introduce the element of positive confirmation, the NEFT outward message format is being modified to contain two additional fields, wherein mobile number and / or e-mail address of the originating customer can be populated. A new message format is also being introduced to relay to the originating bank an acknowledgement containing the date and time of credit, immediately after the credit is afforded to beneficiary accounts. This message would flow from the destination bank / branch to the originating bank / branch. The originating banks after receiving the positive confirmation from the destination banks shall have to initiate a mobile SMS or generate an e-mail to the originator to convey the fate of the transaction.

Photo: t3rmin4t0r

Go Green, SMS the Money

Austin — Mon, 22 Feb 2010 03:50:12 +0000

The State Bank of India is planning to quadrapule its branch network not by the conventional branch network manner but by using Mobile Banking. Yes, and the idea is to reach out to all those rural areas where it would be costlier to expand via the conventional branch network way.

The way this works is that the bank appoints a Banking Correspondent (‘BC’) in a village, say the kirana shop-owner, and villagers come and give their deposits to the BC. The BC services them in one of two ways. She has a phone on which the amount is entered and is wirelessly synced to the bank’s server — if the customer has a mobile phone, she gets as SMS receipt and, if not, the BC then prints out a receipt (such a printer-phone set-up, which includes a scanner for fingerprints, costs around Rs 30,000). The BC keeps the money and the bank, which has a deposit from the BC, debits this from that. When the money is withdrawn, another wireless sync gets done, another SMS/receipt gets generated and, this time around, the BC’s deposit account with the bank gets credited.

Photo: catmachine

Source: Business Standard

Payment of Interest on Savings Bank Account on a Daily Product Basis

Austin — Sat, 20 Feb 2010 14:13:06 +0000

Well, the party is (almost) over for banks in India. Seriously, with the kind of interest calculation method being currently used for saving account holders it indeed is a party for the bank to enjoy such an enormous amount of free float at the cost of the janta.

Hopefully if the banks don’t make some lame excuses to push the deadline, come April 2010 the deposits in our savings account should earn us more by way of interest. That’s because the Reserve Bank of India has asked banks to start calculating interest rates on these accounts on daily basis from April 1, 2010.

Checkout the RBI directive issued in April 2009.

Banks currently calculate interest on the lowest available balance, from 11th and the last date of a month. In the existing system, if one withdraws certain amount from his savings accounts on the last day of a month, he will lose interest on that amount for the whole month.

For example, if you have Rs 1,000 on say on December 10 and deposit say Rs 1 lakh on December 11, and withdraw Rs 1 lakh on January 30, then you will get interest on only Rs 1,000 for the entire period of 51 days. Similarly, if you deposit Rs 1,000 on say July 11 and withdraw it on August 31, then the bank enjoys the full amount of Rs 1,000 without paying any interest. You will get zero interest.

But, under the new system, even if he withdraws in the last day of the month, he will get the interest income on the first 29 days of the month.

It is told that some banks are resisting to the switchover to the rational system of paying interest on a daily balance basis from first April 1, 2010, by providing all types of excuses. And why not when they (banks) can enjoy the free float at the cost of the common man, who now sincerely hopes that the RBI would ensure that the banks comply with the directive from April 1, 2010.

Photo credit: net_efekt

5 Things to Know if You’re Interested in a Reverse Mortgage

Austin — Sat, 30 Jan 2010 16:02:41 +0000

Photo courtesy: prakhar

What is a reverse mortgage?

A reverse mortgage, as the name suggests is opposite of normal housing loan (mortgage) and is available only to senior citizens.

How does it work?

Once you pledge your house for reverse mortgage, the bank after carrying out its due diligence will arrive at the value of the house. After creating the room for interest cost and price fluctuations, the bank will disburse the balance amount to you depending on the payment amount you choose.

With every payment that the bank gives you, your equity in the house decreases. This line of credit is open, typically for 15 years. Simply put, any senior citizen opting for reverse mortgage will get annuity (reverse EMI) from the bank for 15 years. Even after the tenure you can continue to stay in the house. Only if you leave the property permanently, or in case of death, the lending institution will seel the property, and from the proceeds it will take the amount that is payable by you to the bank; the balance will be distributed to your legal heirs.

What are the features of a reverse mortgage?

Any house owner over 60 years of age is eligible for a reverse mortgage. Married couples will be eligible as joint borrowers provided one of them is above 60 years of age and age of spouse is not below 55 years at the time of application.
Should be the owner of a residential property (house or flat) located in India in his/her own name.
The maximum loan is up to 60% of the value of the residential property. So, for example if you pledge a property worth Rs 50 lakh (INR 5 million), then the loan amount that you can get is Rs 30 lakh (INR 3 million).
The maximum period of property mortgage is 15 years with a bank or HFC (housing finance company).
The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
The revaluation of the property has to be undertaken by the bank or HFC once every 5 years. This is to ensure that the value of the house is more than the amount payable by you.
The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.

Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.

What happens after the death of one or both of the spouses?

If one of the spouses dies, the other can still continue living in the house. If both die, the bank will give their heirs two options — settle the overall outstanding loan and retain the house, or the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs.

Which are the financial institutions offering reverse mortgage?

Punjab National Bank, State Bank of India, Union Bank of India, LIC Housing Finance, Dewan Housing Finance, Canara Bank, Andhra Bank, Corporation Bank, Indian Bank, Central Bank of India.

Pay your credit card bills online

Austin — Sat, 23 Jan 2010 14:22:42 +0000

Paying your credit card bill is now easy and convenient. You can now pay your bill online from the comfort of your home / office using any bank account of your choice.

Just pay in 3 simple steps:

1. Enter details of the Card number and the amount you wish to pay.

2. Choose the bank account you wish to debit.

3. Login to this account, verify details and confirm payment.

You can follow the links below depending on the credit card for which you wish to make a payment.

Standard Chartered Bank Credit Card

Citibank Credit Card

ICICI Credit Card

HDFC Credit Card

SBI Credit Card

Deutsche Bank Credit Card

Barclaycard

Home Loans: Joint ownership

Austin — Sun, 17 Jan 2010 10:11:04 +0000

Photo by: kevindooley

Tax benefits on home loans have turned out to be an important aspect of home buying . Here is how you can benefit from the same.

Tax breaks

For self-occupied house property, the annual value of the house property is considered to be nil. Further, an individual could claim a deduction for the interest paid on the home loan (for purchase or construction) up to Rs 1.5 lakh, subject to certain conditions. This would result in a loss under the head house property of up to Rs 1.5 lakh, which could be set off against other income. If the property is let out, the actual amount of housing loan interest, without limit, could be claimed as deduction. Also, an individual can claim a deduction up to Rs 100,000 for re-payment of the principal amount U/S 80C of the Income Tax Act, 1961.

Joint benefits

This advantage gets multiplied if the property is acquired in a joint name, as each individual is entitled to claim tax benefits. Thus, if a husband and wife have a property with equal share, both are entitled to claim these deductions. There is no restriction as to who the co-owner should be and there is no limit on the number of joint owners. Property can be jointly owned with your spouse, brother or parents.

Here, the following points merit consideration: First, the house should be bought in the joint name and proof of co-ownership should be maintained. Second, the housing loan should also be taken in joint names.

The repayment of loan should preferably be made individually by the co-owners directly, if feasible, or from a joint bank account in which funds for repayment of loan should be contributed by the co-owners in proportion to their ownership/loan. All the co-owners should have their independent income sources from which the loans are re-paid.

Typically, the tax benefits are available in proportion to the joint ownership and the loan taken by the co-owners.

Additional benefits

Buying a house jointly facilitates a larger loan as income of all the co-owners would be considered by the lenders. Also, in many states, a lower property registration fee is levied in case the property is owned by women either individually or jointly. Further, in case of husband and wife, joint ownership also helps reduce succession issues.

A point to be noted here is that under the proposed Direct Tax Code, these tax benefits are proposed to be restricted. Till then, however, one can enjoy the same.