Taxation and Financial Concerns

Kids Academy Apps: For your young ones

noreply@blogger.com (Nikhil) — Sun, 31 Aug 2014 07:44:00 +0000

While we talk about investments, kids can't be ignored as well. Kids are one of the biggest investments. It takes a lot to raise a child into a good, responsible human being.

There have never been so many options to teach your kids. With the advent of smartphones and tablets the options have been ever increasing. There are innovators in this field that have been coming with new apps almost daily. I recently came across Kids Academy, makers of learning games for kids. They are available on App Store and Android Market.

The apps focus on the pre-schoolers, to help them read and write. They help the young kids to draw the letters, numerals and other symbols in an interactive manner. Very intuitive and easy to grasp for the young kids.The kids would be attracted to the cute pictures, the rhythms that play in the background. To keep the kids engaged, the apps present challenges such as filling the jar with fireflies.

I downloaded the following apps from them -

Learn To Read & Write Kid’ Puzzles, kids-puzzles-preschool-math, preschool-kindergarten-learning

5 Things to know before taking a Home Loan

noreply@blogger.com (Nikhil) — Tue, 10 Jun 2014 16:24:00 +0000

Buying a house is an important step in one's life. Remember the song "Ek Bangla Bane Nyara" by KL Sehgal? I took the plunge some time back and like most of the normal people, I took a home loan to help me in this. Today, I'll share the few things that I checked while taking the home loan -

1. What is your eligibility?

Home loan amount depends on your income, outstanding loans, credit card dues, previous payment records. Banks like to understand how much can you spare for the EMI. You should also be clear about the amount that you are willing to pay every month as EMI. As a rule of thumb, anything more than 40-50% of your monthly income would be difficult to pay regularly. Call a few banks and check about your maximum eligibility. It usually takes your last few salary slips to know an accurate amount.

Usually banks fund 80% of the property value as loan, rest of it would come from your savings. Thus, the maximum eligibility might not be the sole thing you need to consider.

2. Know your Credit Score (CIBIL)

Check with Credit Information Bureau (India) Limited (CIBIL) to know your credit score. It gives you a credit score on the scale of between 300 and 900 points. The points are given on the basis of your credit card bill payment, bank account statement, existing loans or liabilities, loan repayments and how many times you have applied for loan till date.

People sometimes apply at multiple banks to know their maximum limit. This is considered to negatively impact your CIBIL score and your chances of getting the loan reduces.

While it is a good idea to know this number so that you can use it if needed, I was not asked about it.

3. Loan Tenure and Interest Type

There are banks who provide a Fixed Rate loan as well a Floating Rate. While many of them now just provide a Floating Rate, some of them also combine the two, a Fixed Rate for a the first few years and a Floating Rate afterwards. It helps to have a fixed EMI in the initial years when the interest outflow is high.

The EMI also depends on the tenure. Based on the amount that you plan to let go every month, you should decide the Loan Tenure. A higher tenure means more interest outgo over the complete period, so you need to strike a balance.

4. Choose your lender

Do a detailed research to find a bank or financing company for home loan. Check with at least 4 to 5 banks and companies to know their terms and conditions of offering a loan, interest rate and tenure.

While the interest rate is important, you should also look at other aspects such as the customer service, charges for early termination of the loan and more before deciding the financier.

It is now a norm to provide the ability to prepay your loan anytime without any additional charges. This would affect you if you want to prepay the loan.

5. Extra Charges

Get complete information about the extra charges that you will have to pay to take a home loan like processing fee, service and administrative fee, etc. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home. Making modification in any of these later may come at a cost. Some banks want you to register the loan agreement at the sub-registrar.

How To Deliver a Killer Presentation That Will Earn You That Grade You Want

noreply@blogger.com (Nikhil) — Wed, 04 Jun 2014 15:59:00 +0000

Do you want to impress the professor and make sure you get an excellent grade? Do you want to leave an impression on your new boss? You could spend hours in the library or on the net researching your topic and making sure you will have a firm grip on every fact and opinion, issues and opinions or you could just get yourself a wishy washy understanding while focusing on what really matters: the presentation. Once you learn a little and have a great presentation you will be perceived far better than someone who knows everything but has poor presentation skills. The fact of the matter is. content matters, but the execution must be eye catching. Here are some tips that will make your presentation unforgettable.

1. Bring Cookies

It might seem like pandering, and that you will be perceived as trying to buy a grade. Maybe so! That’s precisely what it does, but for reasons you will possibly not think. The point of bringing cookies, or any sort of treat, to the class, is just to acquire folks in a good and comfortable mood. You will see someone there who is a touch peckish and can consider your snack a life saver. There’ll be other people who have a sweet tooth and will also be so psyched about the treat. Even those who will look disapprovingly at you will reluctantly and gratefully take a be and treat more prepared to hear your presentation. At any rate, you will be remembered and definitely stand out from the crowd. That can only help!

2. Go Pro using the Presentation

If you’re thinking of getting away with just a few handouts or a boring old Power Point presentation, you might too write that "B" down with your grade book yourself. No-one is going to be astounded by your moving images on Power Point, and the words swooping in. We’ve all seen it and it’s boring. So, go big or go home, I say. Do what the pros get and do real presentation materials. For example, you can utilize retractable banner stands to possess your topics and themes actually swoop in (as opposed to on the pc) almost like a genuine life power point presentation. How cool will that be? These materials are pretty cheap online at places like http://thedisplayoutlet.com, and it’ll be worth the investment (and you can reuse them for next presentation! ).

3. Dress for Success

In these days of slovenly attire, most college kids get by with sweats and sports team t-shirts. You peer a mess. And that’s ok, everyone’s doing it, and when everyone’s doing it, you don’t stand out. However, when it comes time to present, you need to stand out, and there’s no better technique of doing that rather than to go old fashioned and wear a tie and suit, or nice dress if you are of the female selection of human. If he or she tries to tell themselves which they won’t be swayed, dress up and provide well - the formal attire provides you with a sense of confidence which translates to your presentation and will impress the professor, even. Works every time!

This was a sponsored post.

Can I Outperform the Share Markets Ever?

noreply@blogger.com (Nikhil) — Sun, 13 Nov 2011 14:42:00 +0000

I have been investing in the share markets for about 4 years now. When I started, the great fall of 2008 happened. I didn't have an idea on how to react. So, I did what most of us did - Stopped investing. Partially because I was afraid and partially because I didn't have money as all that I had in spare was already committed when Sensex was at 21000!

As per this article - Why investors always underperform the market, Sensex has given 17.79% CAGR in the past 10 years. This means 1 lakh in Sensex at that time would be 5.14 Lakh now. But frankly speaking how many of us have had such returns? Not many that I know…

Why? What is it that we do wrong? Leave Outperformance, can we even go near to the returns mentioned here? The same article lists some personal traits and behavioral patterns that stop us from doing so. Here is my take –

Fear and Greed: This is a common one and I mentioned this at the start of the post as well. We all get afraid when the market goes down. I was afraid in 2008. Similarly I was greedy in 2007 and hence had invested and the “Mount Everest” levels of Sensex. This is because of the other common trait “Greed” that common men like you and I want to acquire as much wealth as possible in the smallest possible time. Both of these make it hard to follow a plan.

The above 2 traits make us follow the Herd. Following the advice of other so called experts is because of the fear and greed again. Fear of being the black sheep, the failure and greed of making fast money. This makes us buy a stock when it is over heated (at a high price) just to sell the same stock at a lower price because of the Fear of losing everything.

While Buying and selling stocks, we don’t look for bargains very unlike when we are buying vegetables.

Warren Buffet suggests that one should be greedy when others are fearful and vice-versa.

But generally it is the other way round. The key is -

To be patient, assume stress when the market is down.
Don’t look at your portfolio daily when the market is down.
Study the stock like a hawk does for his prey before catching it.
Buy the companies that you have researched on.
Have a plan. Follow it like you do to your religion.
Don’t look for a certain kind of return because your neighbor is getting the same. But make sure that you are getting what will fulfill your goals.

Few facts about LTA

noreply@blogger.com (Nikhil) — Fri, 28 Jan 2011 17:12:00 +0000

Some nice to know things about the LTA component of one's salary -

If you do not wish to claim LTA in one particular year you can have your employer carry forward your LTA for the next year.
You don't need to submit a proof/bills for the travel undertaken to the employer now. This has been termed in a judgement by Supreme Court in 2009. check this out. But this doesn't mean that you need not keep the bills. The taxation department might still want them from you directly.
The current block of LTA is 2010-13. You can claim tax benefits twice during these 4 years.
The bills can be any domestic travel. You cannot show fuel bills of the personal vehicle though.
You and your working wife can both claim LTA but not on the same travel.
LTA covers only travel and not the stay, which is weird.

You can find details in my old post on LTA here.

Can Holiday Package be claimed as LTA?

noreply@blogger.com (Nikhil) — Thu, 27 Jan 2011 17:10:00 +0000

Found this article on the above topic. Thought to spread the word. Do check out - [one mint].

The answer is - Yes, it can be as far as it is a domestic travel, another thing to be noticed is that LTA is for spouse, dependent children, dependent brothers or sisters only, so if you have taken a holiday with your extended family or children who are no longer dependent on you, then you can’t claim LTA exemption on that part of the expense.

Since LTA can be claimed only for travel – if your holiday package included hotel and sightseeing (which it normally does) – you won’t be able to take an exemption for that.

Infrastructure Bonds - A sneak peek

noreply@blogger.com (Nikhil) — Tue, 28 Sep 2010 07:54:00 +0000

The Budget for the fiscal 2010-11 introduced infrastructure bonds to facilitate financing of long gestation infrastructure projects. The government has notified an investment of up to Rs 20,000 in these bonds to be exempt from income tax over and above the Rs 1 lakh tax exemption under section 80C of the Income Tax Act. This should result in an additional tax saving of Rs 2,000 to Rs 6,000, depending on the tax slab applicable to each investor.

Structure of Infrastructure Bonds: Amount invested in infrastructure bonds will be used to finance various infrastructure projects in the country. As per the specifications of the central government, infrastructure bonds are to be issued by IFCI, LIC, IDFC and any non-banking infrastructure finance company recognised by the Reserve Bank of India.

While IFCI has recently closed its issue of infrastructure bonds, LIC and IDFC are now set to launch their issues in coming months. The tenure for these bonds is 10 years with a lock-in period of five years. Thus, after a period of 5 years, the issuing company can buy back these bonds from investors.

Alternatively, the investor can choose to trade these bonds in stock exchanges. The issuing company shall offer two rates of interest on these bonds — one is when the investor chooses the buy-back option after the lock-in period and the other is when he chooses to hold on to the investment till maturity period.

Returns and Tax Treatment

Infrastructure bonds will carry an interest rate, which will be determined by the issuing company. The central government, however, has notified that the interest rate so payable shall not exceed the yield on 10-year government bonds. As the current yield on 10-year government bonds is around 8%, investors can expect these infrastructure bonds to offer a rate marginally lower than 8%.

IFCI, for instance, had offered investors an interest rate of 7.85% for bonds with a buyback option after 5 years and 7.95% for bonds without the buyback option and redeemable after 10 years. IDFC, whose bonds have hit the market yesterday (click here), is likely to offer an interest rate ranging from 7.5- 8%.

Investors can opt for either an annual payout of interest or allow the same to be compounded annually and payable only on maturity. Though the principal amount of investment — up to Rs 20,000 — is exempt from tax, the investor shall be liable to pay tax on the amount of interest earned from such an investment. If the investor chooses to trade these bonds in the exchanges after the lock-in period, any gains accrued thereon shall also be subject to long-term capital gains tax.

5-year Tax Saving Bank FD v/s Infrastructure Bonds

As infrastructure bonds have a lock-in period similar to that of a tax saving bank fixed deposit and are expected to offer interest rates similar to the ones being currently offered by banks on their fixed deposits, it is very natural for investors to contemplate as to which one of the two is a better tax-saving avenue.

A 5-year tax saving bank FD is part of the existing 80C basket with a maximum exemption limit of Rs 1 lakh, an investment in infrastructure bonds is an additional exemption of Rs 20,000.

Thus, in case you have already exhausted the exemption limit of Rs 1 lakh through investments in Public Provident Fund (PPF), Employee Provident Fund (EPF), LIC Premium, Repayment of Principal on housing loan etc., you have to opt for infrastructure bonds rather than bank FDs.

As far as the returns from these two instruments are concerned, let us assume an interest rate of 7.85% (as offered by IFCI) for the 5-year infrastructure bond (with buy-back option) and an interest rate of 7.5% on a 5-year tax saving bank FD — as is the prevailing interest rate being offered by most banks.

Thing to note here is that the interest in case of a bank FD is compounded quarterly, but is annual for infrastructure bonds.

Given the above interest rates, an investment of Rs 20,000 shall fetch a pre-tax interest income of Rs 8,999 in the case of the bank FD and Rs 9,183 in the case of infrastructure bonds after a period of 5 years. Thus, it is not the yield on maturity, but the benefit accruing at the time of investment that needs to be considered before making an investment decision.

Risk Element: While there is no risk as far as the underlying asset of these investments is concerned, the embedded risk lies with respect to the institution offering these bonds. It is thus important for investors to carefully scrutinise the credibility of the institution offering these bonds. Moreover, there is still an uncertainity on the future of this mode of investment since with DTC in 2012, there is no mention of these bonds.

There are various articles on internet on this -

Buying ULIPS will Cost Less Now

noreply@blogger.com (Nikhil) — Tue, 29 Jun 2010 19:54:00 +0000

Insurance Regulatory and Development Authority (IRDA) has announced new set of guidelines for ULIPs. They will now cost lesser but have a longer lock-in period.

IRDA, on Monday, said that insurers will now be allowed to charge up to 4% on annual premium paid on Ulips for the first five years, and thereafter charges will be reduced during the tenure of the policy. For plans of 15 years and above, the charges will be restricted at 2.25% of the yearly premium.

IRDA has also increased the lock-in period for all Ulips from three years to five years now, including the top-up premiums. The decision is expected to make these products more like long-term financial instruments that can provide risk protection. Longer lock-in would also discourage those insurance buyers who often entered Ulips, which are market-linked products, for short term gains. The regulator also increased the insurance cover on such products to 10 times of the first-year premium compared to five times now.

[source]

ICICI Prudential Pinnacle Guaranteed NAV- Review

noreply@blogger.com (Nikhil) — Thu, 25 Mar 2010 19:34:00 +0000

Guaranteed return products are undoubtedly very popular among us Indians. We use at least one of these products, say, bank fixed deposits, NSC, KVP, PPF, REC Bonds, etc., to pick up a decent fixed return. The latest offering is by ICICI Prudential which has introduced ICICI Pru Pinnacle, a guaranteed return unit-linked insurance plan (ULIP). But the question remains as whether this plan will succeed in attracting investors by offering something new or fall flat.Here I'm presenting a review of this product from RupeeTalk.com

Highlights

On maturity, the plan offers the highest NAV recorded on daily basis in its first 7 years
There is an additional 3 per cent maturity bonus on the completion of term
Low charges make it a cost-effective guaranteed return plan

Background
ICICI Prudential, a joint venture between ICICI Bank and the UK-based Prudential Plc., was established in Dec. 2000. Over past nine years, it has built a strong distribution network of 2,074 branches (inclusive of 1,116 offices), over 2,25,000 advisors and 7 bancassurance partners. ICICI Prudential is the first life insurer in India to receive a National Insurer Financial Strength rating of AAA (Ind) from the credit rating agency, Fitch ratings. As of now, the company has a paid-up capital of Rs. 4,780 cr and the total Assets under Management (AUM) over $10 bn (Rs. 47,000 cr).
Product highlights

‘ICICI Prudential Pinnacle’ is an open-ended, unit-linked insurance policy with an advantage of varying exposure to equity with downside risk protected.
Limited premium-paying term (3 years) providing extended insurance protection (10 years)
An option to increase or decrease the sum assured anytime during the policy term
The minimum and maximum age for entry is 8 years and 65 years, respectively.
The policy is available for 10 years.
The minimum single premium is Rs. 50,000 per annum, with no cap on maximum limit.
Minimum sum assured is five times the annual premium.
The policy can be surrendered after the 3^rd year, and there are no surrender charges after the 5^th year.

Benefits of ICICI Pru Pinnacle

‘Guaranteed highest NAV’ as recorded on daily basis in the first seven years of the fund (from Oct. 24, 2009 to Oct. 24, 2016)

An additional 3 per cent of fund value (prevailing NAV) received upon maturity
Liquidity in terms of partial withdrawals allowed from the 6^th policy year
In case of the unfortunate event of death of the insured, the nominee gets the higher of the fund value and sum assured (reduced by partial withdrawals, if any)
100 per cent surrender value after the 5^th policy year
Tax benefits on the premium paid and benefits received under the policy as per the prevailing Income Tax laws.

Analysis
There are already a considerable number of guaranteed return products in the market such as SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus. All these plans have more or less the same features. However, they differ in charges like premium allocation charges, fund management charges, policy administration charges and others.
So where does ICICI Pru Pinnacle stand? This plan, too, is similar to the above-mentioned plans, but what sets it apart from them is its lower policy charges, recording of daily NAV and an additional maturity bonus of 3 per cent. The ICICI Pru Pinnacle fund guarantees the highest net asset value (NAV) recorded in its first seven years, subject to a minimum of Rs. 10. But there is a catch. This guaranteed highest NAV is applicable only at maturity. At maturity, the higher of Fund Value (units X NAV) and Guaranteed Value (units X guaranteed NAV) as on the maturity date shall be payable (refer Table 1).

As per the company’s benefit illustration, an annual premium of Rs. 3 lakh for three years for a 35-year-old healthy male with a sum assured of Rs. 15 lakh will grow to Rs. 11.63 lakh and Rs. 16.34 lakh at an interest rate of 6 per cent and 10 per cent, respectively.
Equating with other products
Here is the refrain, ‘Do not mix insurance with investment unless investment costs are very less and investment horizon is more than 20 years’. We are not comparing ICICI Pru Pinnacle with similar products like SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus, for they differ majorly in charges. Rather, we weigh it against a customised product – a combination of a mutual fund and a term insurance. Let us consider that the combo-product grows at the same 6 per cent and 10 per cent interest rate (refer Table 2).

In any circumstances, the combo-product of ELSS + term plan will outperform ICICI Pru Pinnacle by Rs. 1.11 lakh and Rs 1.45 lakh at a growth rate of 6 per cent and 10 per cent, respectively. Moreover, the death benefit in the MF investment will always be more than Rs. 15 lakh (Rs. 32.79 lakh at the 10th policy year). In terms of net returns also, the combo-product will yield 8.86 per cent and 4.43 per cent in comparison to 7.72 per cent and 3.25 per cent by ICICI Pru Pinnacle at a growth rate of 10 per cent and 6 per cent, respectively. Nevertheless, in ICICI Pru Pinnacle Fund maturity amount is guaranteed by its highest NAV recorded in the first seven years, but in ELSS maturity amount is applicable at the recorded NAV at the maturity date. So, in case the market tanks at the time of maturity, ELSS proceeds will go down, failing to provide the guaranteed return while ICICI Pru Pinnacle maturity proceeds are guaranteed at their highest NAV recorded.
Tax benefits
ICICI Prudential Pinnacle Fund provides tax benefits under Sec 80C of the Income Tax Act, where the premium paid is eligible for tax deductions up to Rs. 1 lakh. The maturity proceed is also exempt from tax under Section 10(10D).
Things to look into
• Top-up premiums are not allowed.
• Surrender benefit is limited to 30 per cent of the fund value within 3 years of policy term.
Recommendations
In India, products like ULIPs have become a push product rather than a pull product. By presenting delusive return charts to buyers and hiding the hefty charges applicable on ULIPs, insurance agents try to create a positive image for the product. ICICI Pru Pinnacle fund is no comparison to the combo-product of ELSS and term plan when it comes to tax saving and wealth creation, for the latter offers higher return. However, when compared with its peers like SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus, ICICI Pru Pinnacle Fund has an edge over the rest because of its lower policy charges and the unique feature of daily NAV, not applicable in Smart ULIP.
How to invest in the plan?
Investors can buy the plan directly from 2,074 branches (inclusive of 1,116 offices), over 225,000 advisors and 7 bancassurance partners of ICICI Prudential.
Summing it up
Innovation is the key to financial products. It is a known fact that most ULIPs face difficulty in offering guaranteed return as promised. Though fund managers try to invest as per the mood of investors based upon the economic scenario, they may not always succeed in generating desired return. ULIPs carry high risks as returns are linked directly to market performance, and thus insurers may not be able to honour their commitment of guaranteed NAV. However, the guaranteed maturity amount in ICICI Pru Pinnacle by its highest recorded NAV helps it score over a mutual fund whose returns are not guaranteed. So, it can be safely said that ICICI Pru Pinnacle is a good bet for the investors who have a low risk appetite.

[source]

MoneyControl.com in discussion with Subhash Lakhotia on Budget 2010

noreply@blogger.com (Nikhil) — Sat, 06 Mar 2010 18:44:00 +0000

In an interview with CNBC-TV18, Subhash Lakhotia, Tax Guru; Sanjay Sinha, CEO of L&T Mutual Fund and Kamesh Goyal, Country Head of Bajaj Allianz Life Insurance evaluate the Union Budget and its impact on your wallet. Below is the edited transcript of Subhash Lakhotia, Kamesh Goyal and Sanjay Sinha’s exclusive interview on CNBC-TV18. Also watch the video.
Q: Upto Rs 50,000 seems to be the benefit—more so for people who are earning above Rs 5 lakh—Rs 5 to 8 lakh and of course above Rs 8 lakh as well gets the Rs 50,000 benefit. But under Rs 5 lakh earners seem to be getting a lesser benefit?
Lakhotia: Yes, the individuals having income upto Rs 50,000 to Rs 5 lakh will save Rs 20,000 and individuals having income of Rs 8 or 10 lakh they will save nearly Rs 50,000 income tax saving. But the worst part is the common man having income Rs 25,000 per month—his saving is a big zero. Not a single rupee saving inspite of the fact we are having big rise in inflation and other things in the country—it’s still the poor man or the common man with income of Rs 25,000 per month—no income tax saving at all because the initial exemption limit has not been changed—that’s the big problem.
Q: When we were talking ahead of the Budget, you had asked for an increase in the exemption limit under 80 C. The FM has left that totally untouched.
Lakhotia: No changes made in 80 C—Rs 1 lakh continues and this Rs 20,000, which has been made is a separate section 80 CCF. That is also only in the case of infrastructure bonds. My emotions are taken away. If he would have increased from Rs 1 lakh to 2 lakh—it would have been best one but this Rs 20,000 forced to make the investment in infrastructure bonds only.
Q: Maybe somewhere the Minister had the Direct Tax Code in mind. The Direct Tax Code does talk of an exemption increase to Rs 3 lakh for instance—the draft one. The FM hasn’t moved anywhere closer to that although on the basic exemption, the FM has tried to move in that direction—very small steps compared to what the Direct Tax Code proposes—but he has tried to move.
Lakhotia: Not in the basic exemption, but in the slab rate, FM has moved and that’s pretty good. It gives a chance that yes we can expect in the DTC the tax regime of Rs 10 lakh income and 10% tax only because this time the tax slabs have been changed. They are pretty good and very ideal one for the individuals having Rs 10 lakh or so. They are going to be happy. They will be able to fight the inflation as they are facing today.
Q: Did you expect even this much from him? Were you surprised?
Lakhotia: Not surprised at all because what I expected was for the common man initial exemption limit of Rs 30,000 coupled with standard deduction for salaried employed. Salaried employed the standard deduction is completely missing in this Budget.

Q: When we were talking before the Budget, you were hopeful that while the DTC does hang on our head from next year and that might not allow the Minister to tinker around too much—are you disappointed that from an investment category point there hasn’t been an expansion of the 80 C window at all?
Sinha: Yes one would have expected because as we were discussing that the tax slabs have been tweaked and this tweaking has been to make it come a bit closer to what the DTC proposes to do. One would have expected that the same philosophy would have extended to the tax benefits that you have under the exempt-exempt and then tax category that the DTC proposes. So on that count one is little disappointed.
But if you look at the larger picture, the fact that there is larger disposable income in the hands of people who are probably in the upper income bracket, there could be a possibility of that larger income now getting directed to savings if it’s not getting consumed.
Q: Are you okay with the fact that the category of people who are going to be getting this Rs 50,000 in their wallet are likely to come and invest in financial products?
Sinha: If you look at it from one perspective, this category of income generators may not be very large savers. But the FM has is not entirely left them out of the ambit of whatever he could do because the FM has a provision of putting about Rs 1,000 into accounts by way of the New Pension Scheme for the unorganised sector. So to some extent the FM has tried to cover and there the number of people that he proposes to cover is fairly large.
Q: But that’s not taken off—the New Pension System (NPS) has been a total disaster?
Sinha: Absolutely. In fact that’s why if there is an incentive that is provided by the government by incentivising people to start by making a contribution on the behalf of the pension saver.
Q: But Rs 1,000 a year?
Sinha: In the absence of zero, I would say this is better and given the fact that the NPS right now has only few thousand accounts. The amount that has been allocated for this scheme is about Rs 100 crore, which can potentially open 1 million pension savings accounts. I think that’s a positive sign.
Q: One statement of the FM, which has come in only recently in an interview to Network18, where the Finance Minister has said that issues concerning exempt-exempt-tax (EET), which is a big issue, that the exempt-exempt-exempt (EEE) category may go an be replaced by EET. He is re-looking at that, he is taking in the suggestions of the industry. He is just said a while ago. Is that something that heartens you because otherwise from next year onwards we are perhaps now on the path to moving to a DTC regime, which actually says that the only benefits you are going to get is on long-term pension products?
Goyal: Absolutely and if you look at it logically—for a common man who is investing about Rs 20,000-25,000 a year and he moves to an EET regime where even the premium, which he is been paid each year is not getting deducted, then the entire life savings actually becomes meaningless so that is extremely useful.
Q: Like Sanjay are you disappointed that he has not expanded the 80 C window and you get nothing out of the infrastructure bond because that’s probably going to end-up banks issuing it?
Goyal: Not at all. In fact, I would say that the limit of 80 C of Rs 1 lakh—if we see it as Mr Lakhotia was saying from a common man’s perspective—I do not think a person who is earning Rs 25,000 a month can actually exhaust the limit of Rs 1 lakh. So if he had expanded the limit under 80 C then the benefit would have again gone to the people who are Rs 5 or 8 lakh income bracket in a year. I am not at all disappointed and even on the infrastructure side, my feeling is that for a life insurance companies and mutual funds, we would actually be allowed to float funds, which would invest in those bonds.
Otherwise it will be very difficult for the government to take these bonds to the common man if the life insurance and the mutual fund industry don’t take this in a big way.
Q: So are you saying this time round these infrastructure bonds will not be issued only by financial institutions and banks like in the earlier days?
Goyal: I am saying they will still do the issuance. What we can do is we can float a fund, which will exclusively invest in those instruments.
Q: Have you had talks with the government towards this because he has been quite silent on this?
Goyal: No, we haven’t actually but my feeling is I see no reason why he shouldn’t allow this because we will still be investing in the bonds issued by those entities. The idea is can we take it public?
Q: The idea is will I get the tax benefit if I go through you instead of buying the bonds?
Goyal: My feeling is they should and then we can take this as a very big development next year. I am sure if I look it from a life insurance industry, we can definitely generate close to about Rs 5,000 crore on the infrastructure if he allows life insurance companies to float funds for this purpose.
Q: Do you fear that if this doesn’t happen what Kamesh is saying that we normally are in any case a very risk averse society? Do you fear that I would rather much go and put my Rs 20,000 there and make up that Rs 1 lakh with other incentives that are thrown into it like home loan, education of my children, my standard provident fund deduction rather than going and taking advantage of a mutual fund or of a unit linked insurance policies (ULIP)?
Sinha: We will also have to see what sort of coupon those bonds will have. What sort of lock-in will they necessarily impose—whether that is acceptable to me as an investor—would also be some of the considerations that you would have. Even today you have options within that 80 C, where you have instruments, which do not give you a very attractive rate of return but then there is certain amount of security with them. For example even banks deposits give you section 80 C benefits but why doesn’t all the investments flow into that category. I guess there is a healthy appetite for a trade-off between risk and return.
Ruchira Jalandhar, Jalandhar: Impact on tax slabs for women and senior citizens?
Lakhotia: This time round there is no special mention and that’s the reason that throughout India we have been receiving lot of calls—people are thinking that the Finance Minister has made Rs 160,000 for everyone. But I would like to give the happy news to the viewers that on the explanatory memorandum of the Finance Minister—Page 2 clearly speaks about the new income tax rates as are applicable for individuals, the women taxpayers and the senior citizens. It clearly states—talking about the women taxpayers—Rs 190,000 nil income tax, income between Rs 1,90,001 to Rs 500,000 at 10% and Rs 500,000 to Rs 800,000 at 20% and over Rs 800,000 at 30%. Similarly, happy news for the senior citizens—Rs 240,000 at nil, Rs 240,001 upto Rs 500,000 at 10% and Rs 500,000 to Rs 800,000 at 20% over Rs 800,000 at 30%.
The only big problem, which I feel in the senior citizen point, is age limit continues to be 65 years. I am going to retire 60 years—I get deduction from the airlines when I am 60, railways I get the deduction at 60 but income tax—why 65. This the question people are asking, “Why the age limit is 65?”
Nitin Mittal, Mumbai: Tax liability for Rs 6 lakh taxable income and exemption available under Section 80C?
Lakhotia: Definitely it will undergo changes but the fact is that he has not kept it in cold storage. I feel it will see the light of the day and I am very much optimistic that from 1 April, 2011 it will be implemented but people expect a little more with regard to the clear-cut roadmap of EET and other things.
Talking about the query which we have got of the viewer here from Rs 6 lakh income, Rs 120,000 putting under Section 80 C and the new Section 80 CCF, I would like to tell the views both are two different Sections, one cannot take advantage in the old Section 80 C itself so Rs 120,000 goes away and the balance amount remains Rs 480,000.
On this Rs 480,000 if he has got housing loan interest also that will continue to get him deduction and on the balance amount now he will be paying income tax, flat rate 10% only because the income up to Rs 500,000 now is 10% tax only.
Narayan Singh, Udaipur: ULIPs will become cheaper?
Goyal: This should make a big impact. I personal feeling is that if we look at ULIP for a ten year term or more this could actually increase the income from a customer’s perspective by close to about 1% each year. So this benefit and along with the new changes with the regulator had brought in from 1 January will make ULIPs much more attractive from a customer’s perspective.
Q: I want you to explain the infrastructure bond deduction a bit more -- it’s a deduction, right?
Lakhotia: It is not a rebate; it has no connection with the present limit of Rs 100,000. This means if I invest the entire Rs 120,000 in the new infrastructure bond I am not going to get the deduction. This is a new Section 80 CCF wherein it is provided that Rs 20,000 exclusively de-marketed for this one single item only.
Q: You mean deduction?
Lakhotia: Deduction mean deducted from my gross income.
Q: Quite like currently I do for my health investment up to Rs 15,000?
Lakhotia: Yes, Rs 15,000 plus Rs 100,000 80 C insurance etc same way this Rs 20,000 plain deducted from the income.
Q: We have been seeing that Finance Ministers over the years are abandoning their role as being financial planner. What has he done? He has basically said, “I am giving you more money. You go decide and figure out how you want to invest it. I am not going to give you more benefit under 80 C and therefore decide for you where you should really be investing and the choice is really yours as to how you want to put this Rs 50,000 (for above 500,000) to good use.” Do you think that’s the essence of what he has announced today, “I am giving you money. I am not going to decide for you where you invest” We always been arguing that your investments should not be driven by purely tax saving.
Sinha: Absolutely because if you look at historically many people have created their savings pool in the manner in which the tax benefit was provided at the point of saving. They did not pay attention on the fact as to whether this savings pool was going to meet their financial goals. I think we are now moving more to environment where we should save the way we ought to and not the way where we get more and more tax benefits. So that’s way it’s a healthy thing that the finance ministers are choosing not to be financial planners for the entire nation.
Q: Is your only fear though that people should not go and blow-up this Rs 50,000 that they get, they would rather invest?
Sinha: I would say there would be transitional benefit of that also because even if they go and spend this there will be a multiplier effect of the economy and while as mutual fund we would like to get the larger share of every pie that the saver would have but the larger growth will happen if the markets are stable and they are moving upwards, which would be a function of how the economy grow. So therefore if they go and blow-up the entire Rs 26,500 crore of tax benefit it has a multiplier which should take the markets up and we should be happy for that too.
Q: Not so happy -- probably wanted more?
Lakhotia: The point is how I can be happy? Please remember, savings we have seen but what about the inflation? Due to the inflation out of this income tax saving of Rs 50,000, my household expenditure will be additional expenditure of Rs 30,000-40,000. THe amount available for savings will be pretty small. Petrol prices gone up now, so virtually no impact on the net saving, net take-home money surplus available for the investor to save.
Q: What you are saying is it looks nice Rs 50,000 on the face of it but given the current circumstances may not actually leave much on the table for the citizens?
Lakhotia: Correct.

[source]

Harsha Bhogle: The rise of cricket, the rise of India | Video on TED.com

noreply@blogger.com (Nikhil) — Sat, 06 Mar 2010 04:08:00 +0000

This is a nice presentation by Harsha Bhogle relating Rise of Cricket (T20) and the rise of India. Enjoy:

Harsha Bhogle: The rise of cricket, the rise of India | Video on TED.com

New Tax Slabs post Budget 2010

noreply@blogger.com (Nikhil) — Thu, 04 Mar 2010 18:41:00 +0000

Budget 2010 has been out and there has been a change in the Income Tax Rates that one would pay in FY 2010-11. This post has a brief detail about the changes:

Income Tax Slab for Financial Year 2010-11
Assessment Year 2011-12
Tax	Men	Women	Senior Citizen
Rate	(In Rupees)	(In Rupees)	(In Rupees)
0.00%	Upto 1,60,000	Upto 1,90,000	Upto 2,40,000

10.00%	1,60,001 to 5,00,000	1,90,001 to 5,00,000	2,40,001 to 5,00,000

20.00%	5,00,001 to 8,00,000	5,00,001 to 8,00,000	5,00,001 to 8,00,000

30.00%	Above 8,00,000	Above 8,00,000	Above 8,00,000
1) Surcharge is Nil and 3% Cess will be charged on Above Tax
2) Age of Senior Citizen is 65 Years

Section 80 C: A Tax Saving Tool (Part 1)

noreply@blogger.com (Nikhil) — Tue, 02 Feb 2010 14:51:00 +0000

Section 80C is the refuge that all of us take to protect our hard earned money against the sword called TAXES. But it is important to know this section intoto to get the full benefits. Here is my humble attempt at this:

Section 80C offers you a deduction of upto Rs 1 Lakh from the total income for a year. This money needs to be spent/invested on the instruments mentioned under this section. Here are some of the instruments that can be used to garner this deduction. I'll list only the instruments with fixed returns in this post.

Public Provident Fund (PPF): From Rs 500 to a maximum limit of Rs 70000 each year. This has a lock-in period of 15 years. The current returns from this instrument are 8% p.a. which is again tax-free.
National Savings Certificate (NSC): From Rs 500 to any amount. Only Rs 100000 is considered for Tax exemprion though. It provides 8% p.a. with a lock-in of 6 years. The point to be considered here is that the returns are taxable and the after tax returns are approx 5.53%.
Employee Provident Fund: Your contribution as well as your employers contribution to your EPF are also considered under section 80C. You can withdraw money after 5 years but only under certain defined conditions. The returns are 8.5 % p.a. tax free.
Life Insurance - Endowment Plan: Endowment plans give you a life cover as well a fixed amount on maturity. Premiums are usually higher than the term plans. The returns vary from plan to plan and are usually lower than other instruments listed above.
Tax Saving Bank FD: The minimum investment is Rs 100 and varies from bank to bank. There is a lock-in period of 5 years. Returns are usually 6% to 8% p.a.

Wait for the next post where I'll talk about the market linked products.

Tax Rates for FY 2009-10

noreply@blogger.com (Nikhil) — Sun, 31 Jan 2010 14:47:00 +0000

It's that time of the year once again. Everyone must be wondering what is their tax liability and be scampering to save money from being taxed. Let us start by knowing which tax bracket do we fall in for this year:

Here is a pictorial presentation of the different tax brackets [courtesy: Outlook Money]:

How to arrive at Taxable Income?

Taxable Income = Income from (Salary + House Property + Capital Gains + Business/Profession + Other Sources) - Deductions under (Section 80 C + Section 80 D)

My next post will be about the various tax saving investments under section 80 C.

Dividend Delusion

noreply@blogger.com (Nikhil) — Fri, 22 Jan 2010 07:52:00 +0000

An article from Valueresearchonline.com today: One of the most persistent confusions that mutual fund investors have is with the concept of dividends. Many fund investors seem to think that a mutual fund dividend is some sort of a bonanza, an extra bit of money that comes their way because of something special the fund has done. This is not a fringe belief, yet it is so pervasive that giving out dividends has long been a standard method of attracting new investments among fund companies. I have been told by senior sales people of more than one fund company that they even work out thumb rules to figure out how much dividend payout will bring in what amount of fresh investments under which conditions.

This propensity to choose funds based on their dividend payments is a major problem. It is a completely spurious factor with absolutely no merit in it. The only reason why this belief persists can well be that investors do not understand the arithmetic of mutual fund dividends and confuse them with corporate dividends. A mutual fund dividend is basically redemption of your investments in a fund. It (redemption) just happens to be called a dividend. To pay this dividend, the management simply sells off a part of the assets held in the dividend plan of a fund and pays off the proceeds as dividend.

Here's an example of the accounting. Let's say you own a thousand units in a fund with a net asset value (NAV) of Rs 30. Your investment is worth Rs 30,000. The fund declares a dividend of 10 per cent. That's 10 per cent of the Rs 10 face value of each unit. Thus, the dividend is Re 1 per unit. Since you own a thousand units, your total dividend amount comes to Rs 1,000. However, this money will simply be deducted from the residual value of your investment. To pay the dividend, the fund will sell off an appropriate proportion of its assets. When the dividend is paid out, the NAV of the fund will drop by Re 1 to Rs 29. The end result is that when you receive Rs 1000 as dividend, the value of your investment goes down from Rs 30,000 to Rs 29,000. Dividends have no impact on the return you are getting from your investment.

Receiving dividends does have a tax implication. In equity mutual funds, dividends can play a role in tax planning since equity dividend income is tax free. If you invest in a fund and immediately get part of the investment back as dividend then you'll have a loss on your capital. However, one has to hold an investment for at least three months to qualify for a tax set-off with that loss.

The most important thing is the basic non-dividend nature of mutual funds' dividend and that's something that investors must understand. Perhaps the problem is in the nomenclature. Till a few years back, new fund launches were called initial public offerings (IPOs). Then the Securities and Exchange Board of India (SEBI) forbade the use of that term because it led investors to mistakenly believe that new fund launches shared some of the characteristics of new stock offers. Now, new fund offers are called just that - NFOs.

While a similar renaming is unlikely in the case of dividends, knowledgeable investors should stop themselves from choosing funds on the basis of payouts.

[source]

Skepticism: A tool to investing prowess!

noreply@blogger.com (Nikhil) — Tue, 19 Jan 2010 19:43:00 +0000

Investing, as they say, is not difficult, but requires a little bit of effort.

Skepticism: By definition means, A doubting or questioning attitude or state of mind. If one maintains this doubting state of mind while making investment decisions as well, one can make some really calculated and good decisions.

Here are a few examples that Dhirender Kumar of Valueresearchonline gives for this:

let's say that a fund distributor wants you to buy a fund on the basis that it gave wonderful returns over the last six months. You could be impressed and just put down your money. Or, you could be sceptical, find out returns over different periods and calculate the effective rate of return, come to the conclusion that other types of funds would be better and invest in that alternative instead.

A perfect example would be when you are being sold a complex product, unit-linked insurance policies (ULIPs) being the perfect example. Typically, you will be told that you will pay charges under different heads like 'premium allocation', 'fund management', 'mortality charges' and so on. If you are not suitably empowered with both scepticism and arithmetic then you would just be impressed by the returns projections shown to you by the agent. On the other hand, if you were empowered with these two qualities, then you would reduce the entire stream of charges and payments and returns to a single rate of return. Then you would see how this rate of return would be impacted if the reality of market returns would prove to be a little less rosy than the insurance company's projections. Then, you would calculate whether buying the ULIP would be better, or buyin g a term insurance and investing somewhere else.

However, if you don't doubt others advice, you may end up buying things that are not as good for your future as they are for other's. So, be a skeptic, doubt/question whatever is told to you about any investment vehicle and then make your decision based on your own research.

Should you Invest Or Repay your Loans?

noreply@blogger.com (Nikhil) — Sun, 17 Jan 2010 17:55:00 +0000

Found this article on Outlook Money (Dec 30, 2009 issue) and thought to share it on this platform.

The traditional wisdom says that you probably shouldn’t be investing while in debt unless you can reasonably expect to outperform the interest rates that you’re paying. In other words, if you’re carrying a high-interest debt, you should focus on getting out of debt instead of building your portfolio. This sounds simpler than it is.

What you should do will depend on two factors: the rate of after-tax interest that you are paying on your debt; and the after-tax return that you will be earning on your investments. Understand the types of debt and their impact on your financials.

One type of debt is the high-interest credit card debt, which is mostly used to meet comforts and luxuries, not needs. This kind of debt will eat your financials like a termite and should be avoided unless absolutely necessary.

The other type of debt is the lower interest rate variety, like housing loans, education loan, etc. Often the interest payable on these loans is either fully or partially tax-deductible, thus making them even more attractive.

If your cash flows support you in terms of meeting the debt prepayment and you still have surpluses, you can continue to invest and pay your debt at the same time. For example, you have a housing loan for which you are paying monthly EMIs. Treat this EMI as monthly rent and continue the debt, as you also get tax benefits for the interest portion on the housing loan. Invest the surplus in the asset type depending on your risk appetite. There’s certainly no harm in carrying the loan while building up your investments for the future. In fact, if you wait until you’ve paid off your loan over 15 to 20 years, you’ll find yourself in a very difficult situation by the time you turn your attention to the future. In case your cash flows are not very predictable, and you have surplus today, it will be better to clear the debt and reduce or zero your liabilities rather than investing the surpluses. Imagine a situation where you have invested in the market with the hope of generating returns that are more than what you are paying for the debt. Suppose the markets fell and your investments lost half of their value, while, at the same time, your cash flows took a hit. You will have a couple of painful choices to make—either you sell your investments at a loss and meet your commitments, or borrow afresh at a higher rate. It is better to clear your debts and then start your investments. The illustrations below will help you decide whether to continue the debt or to retire it.

Example I. You have an outstanding balance of Rs 50,000 on your credit card and you are paying 24 per cent annually and the interest is also not tax deductible. In such a situation, you should invest only if you think you can earn over 24 per cent per annum. Historically, the long term returns from equities have been around 18 per cent. It would be detrimental to your financial health to invest in a situation like this. So, clear the debt and use credit cards only if absolutely necessary.

Example II. You have a housing loan of Rs 20 lakh at 9 per cent, to be paid over 20 years. Let us also assume that you are in the 30 per cent tax bracket and as per current tax laws interest up to Rs 1.5 lakh is deductible from your taxable income. This will bring down the cost of your loan further. In such circumstances, it will be wise to continue your EMI of housing loan and the balance surplus is invested in long-term assets to generate returns higher than the interest cost.

What are you waiting for? Work out the numbers, see which is financially economical and just execute it even if it means you have to make a few painful decisions. Remember: “No pain, No gain”.

money.outlookindia.com Invest Or Repay?

Know your Credit Worthiness

noreply@blogger.com (Nikhil) — Fri, 15 Jan 2010 18:38:00 +0000

You can now access your Credit Information Report (CIR) directly from CIBIL. As you may be aware, your CIBIL CIR is a factual record of your credit payment history compiled from information received from credit grantors. The purpose is to help credit grantors make informed lending decisions - quickly and objectively, and enable faster processing of your credit applications to help provide you speedier access to credit at better terms.

You can request for a copy of your CIBIL CIR in three quick steps through Email, Mail or Fax:

Email: myreport@cibil.com

Email the CIR Request Form duly filled in
Mail self attested hardcopies of your lastest Identity Proof and Address Proof documents and Fees to P.O.BOX 17, Millennium Business Park, Navi Mumbai- 400710
Once CIBIL receives the documents and Fees3, your request will be processed and copy of your CIR will be dispatched to you.

Letter: Address (mentioned at the end of the post)

Write to CIBIL with the CIR Request Form duly filled in
Also mail self attested hardcopies of your Identity Proof and lastest Address Proof documents and Fees to P.O.BOX 17, Millennium Business Park, Navi Mumbai- 400710
Once CIBIL receives the documents and Fees, your request will be processed and copy of your CIR will be dispatched to you.

Fax: 022-40789007

Fax CIBIL the CIR Request Form duly filled in
Mail self attested hardcopies of your Identity Proof and latest Address Proof documents and Fees to P.O.Box 17, Millennium Business Park, Navi Mumbai 400710
Once CIBIL receives the documents and Fees, your request will be processed and a copy of your CIR will be dispatched to you.

Valid Identity Proof: PAN Card/ Passport/ Voters ID (Mail self attested hard copy of any one of these Identity Proofs)

Valid Address Proof: Bank Account Statement/ Electricity Bill/ Telephone bill (Mail self attested hard copy of any one of these Address Proofs)

Payment terms: Demand Draft (DD) of Rs 142/- (inclusive of all taxes and express delivery charge) , in favour of Credit Information Bureau (India) Limited payable at Mumbai

Please note that the fee once paid is non-refundable.

Download Request Form

CIBIL has no authorised agents. Please do not contact anyone other than CIBIL in order to gain access to a copy of your Credit Information Report.

Your CIBIL CIR will be presented to you in a simple and easy to understand format. However, on receiving your CIBIL CIR, if you require any explanation/clarification, you can email us at consumerqueries@cibil.com.

* Credit Information Bureau (India) Limited

P.O Box 17,

Millennium Business Park,

Navi Mumbai- 400710

All your correspondence to CIBIL must be sent through Indian Post only.

Tips to tackle Inflation

noreply@blogger.com (Nikhil) — Wed, 13 Jan 2010 12:24:00 +0000

Inflation as we have discussed, is bad. It affects your buying power as well as it hurts your investments. This is because, the interest on your investments is now worth less than what you were expected to get. The hardest hit are the retired people, who are risk averse and have most of their investments in fixed income instruments.

Inflation adjusted rate: ((1+i)/(1+r))-1 x 100

Here, i is the interest rate and r is the inflation. Thus, an interest rate of 10% would reduce to 3.77% if inflation is 6%.

Here are a few tips to leash the monster called inflation:

Choose investments with returns greater than the rate of inflation.
Select investments with tax deferral of contributions and earnings.
With many retirements now lasting 15 to 30 years, retirees should choose investments that will hedge against inflation. The best ones would be capital indexed bonds, whose returns are linked to inflation.
Look for instruments with highest interest rate and shortest maturity.
Review the limits of your insurance coverage’s periodically, especially homeowners, renters, and umbrella coverage.
Don’t buy into the argument that it is better to borrow and spend money now, paying the debt later with “cheaper” money.

Fixed Income Laddering - This is an inflation tackling strategy where one invests in fixed income securities over fixed periods. Equal amounts must be put in fixed time intervals (for example 2, 3, 5 year FDs). It gives you:

a steady income stream
money that is not locked for long durations (gives you the ability to invest in better returns options)
freedom to adjust your investments as per the financial and market situation.

How does India calculate Inflation?

noreply@blogger.com (Nikhil) — Mon, 11 Jan 2010 11:29:00 +0000

Continuing from the last post, I'll try to discuss how India calculates Inflation and how is that different from the rest of the world. But first let's discuss what is Wholesale Price Index (WPI) and Consumer Price Index (CPI).

Wholesale Price Index - WPI was first published in 1902, and was one of the more economic indicators available to policy makers until it was replaced by most developed countries with the Consumer Price Index in the 1970s.

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.

Cosumer Price Index - CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.

CPI is a fixed quantity price index and considered by some a cost of living index. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one.

India is the only major country that uses a wholesale index to measure inflation. Most countries use the CPI as a measure of inflation, as this actually measures the increase in price that a consumer will ultimately have to pay for. WPI does not properly measure the exact price rise an end-consumer will experience because, as the name suggests, it is at the wholesale level.

WPI is basically helpful to measure the inflation at business level but we are using this to measure the inflation at consumer level. Moreover, it doesn't take into account most of the services relevant to today's consumer since it was last updated in 1993-94.

What should we do to counter inflation? Wait till the next post...

The monster of Inflation

noreply@blogger.com (Nikhil) — Sat, 09 Jan 2010 11:23:00 +0000

Inflation has been a big cause of concern world over in the recent past, especially in India. So, I thought to present a crash course on this topic today. My source is obviously the ever-expanding Internet.

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[source]

Inflation is a world problem. Here is a view of inflation all over the world.

So, what causes Inflation? Why do prices rise? Many people mistakenly believe that prices rise because businesses are "greedy". This is not the case in a free enterprise system. Because of competition the businesses that succeed are those that provide the highest quality goods for the lowest price. So a business can't just arbitrarily raise its prices anytime it wants to. If it does, before long all of its customers will be buying from someone else.

It is actually the supply on money in the market that increases the prices!!! Yes! Prices of comodities rise because people have more money to spend and hence are willing to pay more for the same thing. In other words, with more money supply or monetary inflation (govt printing/minting more Rupees), everyone has more money in their pockets and that results in buying more. Basically when the government increases the money supply faster than the quantity of goods increases we have inflation. Interestingly as the supply of goods increase the money supply has to increase or else prices actually go down. The basic Demand and Supply theory we read in class 12!!

How does India calculate Inflation? Well, that is for the next post!!! Keep checking this space...

Understanding SIP

noreply@blogger.com (Nikhil) — Sun, 27 Dec 2009 17:58:00 +0000

You Earn Regularly…

You Spend Regularly…

Do You Invest Regularly?

Systematic Investment Plan (SIP), is a is a simple and time honored investment strategy for accumulation of wealth in a disciplined manner over long term period.

SIP or systematic investment planning is method through which you can invest in mutual funds through small and periodic installments. Infact you can invest as low as Rs. 1000/- on a monthly basis. Moreover you can also select the tenure of the instalments.

The systematic style of investing is actively promoted by practically everyone who gives advice about fund investing. Whether these are fund companies, advisors, or the media, an SIP is supposed to be the holy grail of mutual fund investing. Unfortunately, there seem to be a growing number of investors who have cottoned-on to the notion that SIP investing is some sort of magic. There are two widespread misconceptions about SIPs: some investors believe that an investment through the SIP route cannot have poorer returns than a lump-sum investment made at the same time that the SIP was started. The other, more extreme point-of-view is that you can’t make a loss in an SIP, no matter what. Both are equally wrong.

The basic idea behind an SIP is that while the general direction of an investment (a fund or even a stock) is upwards, it is not possible to reliably predict the actual fluctuations that it may undergo as part of its general trend. Instead of trying to time one’s investments, one should regularly invest a constant amount. As time goes by and the investment’s net asset value (NAV), or market price, fluctuates, it will automatically ensure that when the NAV was low, you ended up purchasing a larger number of shares or units. Eventually, when you want to redeem your investment, all the units are worth the same price. However, because your SIP meant that you bought a larger number of units whenever the price was low, your returns are higher than they would otherwise have been.

There is another reason why SIPs make sense. They are a great way to override the normal psychological instinct to stop investing when prices fall. In my experience, this is the real value of SIPs. The normal tendency is to invest more when prices are high and to stop investing when prices fall. This is the opposite of what is the most profitable way of investing. SIPs force you to follow the opposite approach, much to your eventual benefit.

[source]

4 Key Ratios for Fundamental Analysis of stocks

noreply@blogger.com (Nikhil) — Wed, 09 Dec 2009 18:07:00 +0000

Hi Friends,

It has been quite a few days that I last wrote about the Fundamental Analysis (see EPS). I was pretty busy with the regular work and couldn't devote time to this blog.

Today, I have decided to give a shot at other important financial ratios that should be considered while buying/selling stocks. I have decided to put 4 of them in a single post as against my original wish to devote a separate post for each one. This is to avoid people waiting for my posts to get the basic knowledge when I'm not getting time to update the website.

The ratios that we will discuss today will be:

Price-to-Earnings Ratio (PE)
Projected Earnings Growth (PEG)
Price-to-Sales Ratio (PS)
Price-to-Book ratio (PB)

Price-to-Earnings Ratio (PE)

This is the ratio of the current stock price to the Earnings of the company. This is one of the most popular ratios discussed around the market.

P/E = Stock Price/Earnings Per Share

This value gives you an idea of how much the market ready to pay for every Rupee that the company in question earns per outstanding share in the market. A high PE thus means that the company is overpriced, but it also means that market in general is willing to take more risks on this company as it thinks that this is a good company with bright future.

A lower P/E on the other hand may mean that the company doesn't have the market's confidence and hence is trading at a relatively lower price. This may also mean that the company is being overlooked by market players right now and could be a real asset when it gets market's eye.

I myself don't have an answer of what is a right PE ratio, it generally depends on how much are you willing to pay for a company. I generally treat a PE of under 12 to be fairly valued company.

Projected Earnings Growth (PEG)

This is another ratio that you can use to check the future earnings growth of the company. PEG is used to calculate the inbuilt worth of the share. To derive the ratio, you have to associate the P/E ratio with the expected growth rate of the company. It assumes that higher the growth rate of the company, higher the P/E ratio of the company’s shares. Vice versa also holds true.

PEG = (P/E)/Expected EPS growth rate

For example, a stock with a P/E of 30 and projected earning growth next year of 15% would have a PEG of 2 (30 / 15 = 2). The lower the number the less you pay for each unit of future earnings growth. So even if a stock has a high P/E, but high projected earning growth may be a good value. In general, a PEG lesser than 0.5 is a lucrative investment opportunity. However if the PEG exceeds 1.5, it is time to sell.

Price-to-Sales Ratio (PS)

The above 2 were the ratios where the company has earnings history. What if the company you are looking at is new and has no earnings history? You can use P/S to measure such a share. It looks at the current stock price relative to the total sales per share. You calculate the P/S by dividing the market cap of the stock by the total revenues of the company.

You can also calculate the P/S by dividing the current stock price by the sales per share.

P/S = Market Cap / Revenues

P/S = Stock Price / Sales Price Per Share

Much like P/E, the P/S number reflects the value placed on sales by the market. The lower the P/S, the better the value, at least that’s the conventional wisdom. However, this is definitely not a number you want to use in isolation. When dealing with a young company, there are many questions to answer and the P/S supplies just one answer.

Price-to-Book ratio (PB)
You calculate the P/B by taking the current price per share and dividing by the book value per share.

P/B = Share Price / Book Value Per Share

Like the P/E, the lower the P/B, the better the value. The Book Value per Share is calculated as follows:

Book Value per Share = Shareholders' funds/Total quantity of equity shares issued

Shareholders' funds = Total assets (equity capital to the company's reserves) - Total liabilities (money owed to creditors)

Value investors would use a low P/B is stock screens, for instance, to identify potential candidates.

Hope you ind this information useful. If so, you can subscribe to our regular updates in you email by clicking here.
sources:

What happened in Dubai?

noreply@blogger.com (Nikhil) — Sat, 28 Nov 2009 17:15:00 +0000

We suddenly found our markets go deep in red this Friday (11/27/2009). There was some buzz about something happening in Dubai that sent the entire world financial markets on a downward spiral. Every minister in Indian government was talking about this. RBI asks all the banks to declare their exposure in Dubai. So what was it that could transpire in something so big? Let's try and ind out.

Dubai has been one of the many economies that lived and thrived on debt. So, when the financial markets around the world were in a boom, Dubai racked up a debt of $ 59 Billion to build lavish townships, to attract people with a great lifestyle.

Now that the boom has gone bust, Dubai is stuck with a glut of real estate that no one wants to buy or rent. Creditors and markets had always assumed that in any such situtation, Abu Dhabi would bail out Dubai. But that assumption was called into question this week, and the resulting fear that Dubai might not be able to pay its bills sent a wave of uncertainty rippling through markets just as investors thought the worst of the global financial instability was over.

News Clippings:

- NYTimes

- Indian Express

Earnings Per Share (EPS)

noreply@blogger.com (Nikhil) — Fri, 13 Nov 2009 00:31:00 +0000

It has been quite a few days that I posted here. I was actually not able to decide where to start.After due diligence, I decided to start with the most basic of the fundamental tools: THE EPS a.k.a. Earnings per Share.

Why is EPS so Important

While evaluating two companies, one needs to compare the companies on a common basis. We can't compare them on the basis of their market price as that changes daily and also doesn't represent the total worth of a company. Consider company A having only 100 shares of Rs 10000 each and company B with 10000 shares of Rs 1000 each. Obviously, Company B is the bigger one in size!

Similarly, comparing the earnings of one company to another really doesn’t make any sense, if you think about it. Using the raw numbers ignores the fact that the two companies undoubtedly have a different number of outstanding shares. For example, companies A and B both earn Rs 100, but company A has 10 shares outstanding, while company B has 50 shares outstanding.

EPS comes for your help here! In the above example, Company A has an EPS of 10 as compared to 2 for Company B, making Company A as more profitable for the stock holder. So, you should go buy Company A with an EPS of 10, right? Maybe, but not just on the basis of its EPS. The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn’t tell you whether it’s a good stock to buy or what the market thinks of it. For that information, we need to look at some ratios (My next Post). Today, we would only concentrate on EPS.

Definition

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:

There are 3 kinds of EPS:

Trailing EPS – last year’s numbers and the only actual EPS
Current EPS – this year’s numbers, which are still projections
Forward EPS – future numbers, which are obviously projections

Diluted EPS

expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. This is because all of these can be converted into shares at a particular date. This reduces the EPS value making the stock look more expensive.

In most cases, the diluted earnings-per-share figure is far more accurate estimation of the total earnings per share and receive special attention when valuing a company.

Hope this helps. Do let us know your feedback through comments. If you liked this post and want to receive regular updates, you can subscribe via email.