What is your Money Personality ?

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Do you know what your money personality is? Now you must be thinking what is the meaning of "Money Personality"? Let me give you a hint! . Ajay earns a lot of money, but his financial life is not that great, the main reason is that he is too conservative with his investments and all his money lies in Fixed Deposits and Cash in the Bank, that's all. This happens due to his internal design of being a "Saver". His life is all about saving and only saving and there comes his money personality. Let's explore more on this. Money Personality We have identified that each one of us have a money personality which we develop during our life and all our actions are driven by our money personality, even our financial life is driven by it and the product we choose, the way we look at each and every aspect is result of what money personality we have. Over the last few years, when we interacted with dozens of clients and thousands of readers like you, we identified that each one of us can be categorized in following money personalities which we will discuss today. Spenders Savers Avoiders Saints 1. Spenders The first money personality is "Spenders". People who fall in this category have an attitude that "Life happens now". They will spend their money all over which makes them feel that they are "living" the life. They will buy expensive gadgets, eat out at expensive places and will make sure that they are not at all compromising on enjoyment. The behavior also affects their financial life; their savings are not as much as it can be because most of the leftover money at the end of the month is saved. The simple rule of Savings = Income – Expenses is applicable for these people. Most of these people don't have much left in their bank account by the end of the month and they wonder "Where does it all go? " . 2. Savers The next personality is that of the "Savers". These people believe that life is all about saving and for being prepared for the future. They are not exactly misers, but they appear like misers to others. Whatever can save money for them looks attractive to them. This behaviour also enters their financial life and they invest in anything which claims to save money to them. You can also attach the word "Safety" with these people. They invest in Fixed Deposits , Recurring deposits , bonds , debentures and other investments which are safe avenues. These people like to buy stuff if it claims to save money to them . 3. Avoiders The third and an interesting category are of "Avoiders". These people are great avoiders, when it comes to taking actions, they will not spend or save, and instead they will just avoid the situation and find all the reasons in life for delaying things and avoiding it. They read, talk and learn about everything, but don't apply it to their life in any way. I personally think that a lot of us are like that. There are even many readers here who are learning things from months/years, but still they have not done anything with their learnings, they just read and feel happy that they know something good, but where is the action? 4. Saints The last category is really a different one and often forgotten, that is of "Saints". A person who belongs to this category feels that money is an unimportant thing in life. His beliefs would be "Money is not important thing in life", "More money is more trouble", "Life is all about being Happy and content" and "You just need bare minimum and satisfaction to lead a happy life". While that all is fine, these people over react and don't give much importance to money in life. Most of the people who talk like this are those who really can't make a lot of money and deep down they themselves are worrying for money, but they make sure they show themselves as not-interested-in-money kind of individuals. Conclusion So which money personality is better than the other and how to make change in your personality? First thing is that there is nothing bad or good about having one of these money personalities. These personalities get into us because of various reasons in life and it's not that easy to change them. What's important is that you need to be aware about your personality and how it's affecting your financial life. Try to find out how your money personality can help in having a financial life which you desire. What do you think about these personalities and which one are you ?

Source: Jago Investor


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Yours

Murali........

Reader comment about ICICI Home Loan

Piyush Modi had a very interesting comment on yesterday's post, and this is relevant for people with home loans from ICICI Bank. It seems that he called them up to get something done, and they offered him a lower rate on an existing home loan, and saved him a lot of money! I've been thinking about it, and can't understand why they did that, and I certainly don't know of any other such cases. I thought I'd publish his comment here to see if anyone else has a similar experience, and to let others know about this as well. It will only cost you a phone call, so there is no harm in trying your luck. Here is his comment verbatim: Though this comment is not particularly relevant to this post, but I wanted to leave it and want you to write about it cause I am sure it will help many many of your readers. My dad has a home loan with ICICI Bank which was once taken at a floating rate of 7.5%, and which now stands at 14.5% rate. I recently called up ICICI Phone banking to ask the procedures for a balance transfer to a different bank & I was told that they are running a scheme where existing customers could move to a lower rate of interest. I was skeptical at first, but then went through with the documentation required and apparently its an amazing scheme. Obviously ICICI wont advertise it or inform you, but it is available. My dad's rate has been reset from 14.5 to 10.5% a huge 4% difference. His tenure, which was originally 180 months, and had now gone up to 315 months despite making the EMI repayments for the last 4-5 years (60 months approx) stood slashed at one go to 160 something. Alternatively, one can choose to reduce one's EMI instead of choosing to reduce the tenure. For those wondering how such a drastic reduction in tenure is possible, it can happen. In this case, the total EMI was approximately equal to the interest charged in a year and only a very small amount (4-5%) of the EMI was being used to repay capital. With the fall in the rate charged by 4%, this shifted up considerably to 25-27% of the EMI, and this means that a lot more of the EMi is being used to repay capital instead of just service debt and this leads to drastic reduction in tenure. What were the documentation/formalities required – 1. Cheque for a charge of 0.5% of balance outstanding on the loan+service tax on the same. This is extremely cheap as I will recoup this charge within 2 months 2. Non-judicial stamp paper of Rs 30 signed by borrower & co borrowers 3. Some sort of an agreement which you will get from the bank itself and has to be signed by borrower & co borrowers 4. All outstanding EMI payments have to be cleared (obviously) Now I am not sure whether the scheme is available for all home loan borrowers or a particular category, as also the amount of reduction in rates will be the same for all borrowers or not. But give a call to ICICI bank and just ask. It will save you a tonne of money.

Source: OneMint


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Yours

Murali........

Don’t confuse yields with interest rates

Last week, a reader pointed me to fixed deposits from Avon Corporation, and my eyes naturally gravitated towards the highest number in the table viz. 14.19% yield  p.a. for a 3 year fixed deposit. On the face of it this looks quite high, but that's because your reference is usually a fixed deposit interest rate, which is different from this yield. It is important to understand this difference because there are a lot of private companies that offer fixed deposits, and they usually do advertise the effective yield. I don't write about company fixed deposits a lot, but when I checked a 2009 article about Tata Motors fixed deposit – I saw that they used the same annual yield as well. Usually companies give you two options: Periodic interest payment Cumulative option The periodic interest option is usually straightforward, as they advertise the rate of interest you will get for your deposit. However, the cumulative plan becomes confusing because they advertise an interest rate and an annual effective yield. Let's use the numbers given in the Avon example. They say that the minimum investment is Rs. 5,000, tenure is 3 years, interest is compounded quarterly, and the yield per annum is 14.19%. So, what does that mean – are you getting 14.19% interest per year which is then re-invested for you? No, absolutely not. Their brochure tells you that  you're getting 12.00% interest rate for the 3 year maturity period, so where does the 14.19% number come from? Since, this is a cumulative option you won't get any interest payments, and get a lump – sum payment at the end of three years. Use the Compound Interest calculator to calculate how much you will get at the end of 3 years. This gives us Rs. 7,128.80 at the end of 3 years. So, for Rs. 5,000, you get interest of Rs. 2128.80 for 3 years. Divide that by 3 to get the annual interest – Rs. 709.43. And (709.43 /5000) x 100 = 14.19%. This is your annual effective yield. Conclusion You can't compare this 14.19% with the interest rate that banks normally show because that's like comparing apples and oranges. This number is high only because it has been compounded for 3 years, then divided equally by three years, and you use the initial principal of Rs. 5,000 as base. If you were to get a fixed deposit with a bank at 12% for a year, and re-invest that money again for two more years you will get the same effect. I think this post is important for people who are interested in depositing money with companies, so please keep the distinction between yields and interest rates always in your mind, and don't confuse one with the other.

Source: OneMint

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Yours

Murali........

Is investing in FDs alone enough?

The person estimates that if his daughter were to be married today it would cost about Rs. 5 lacs. He has this 5 lacs today, and wanted to know what would happen if he deposited this in a fixed deposit and took it out after 20 or 25 years. Will inflation eat into the earnings, or will the interest rate from the fixed deposit be enough over such a long term to beat inflation. I can't think of a time in the last five years or so when you could make more in fixed deposits than inflation, but then we all know that people have a short memory and your memory is always colored with what happened recently. This question is one of real interest rate (Nominal Interest – Inflation), and I looked to see if I could find this data over a really long scale. Here is what I found on the World Bank website:   World Bank Data on Real Interest Rate in India They describe Real Interest Rate as follows: Real interest rate is the lending interest rate adjusted for inflation as measured by the GDP deflator. I will dig deeper into these numbers and their definitions in a later post, but for now I wanted to show that in the past we've had better real interest rates than what we see now. And if oil prices don't spiral totally out of control, we will probably see the end of the high inflation period we have seen recently. That said, the way these numbers are calculated lend me to believe that just putting money in a fixed deposit and earning interest on it will not suffice. So, what should  you do? The thought of getting into equities is tempting, but for someone who is looking at fixed deposits as an end -  I'd not recommend that.  You'd lose too much sleep and probably won't be able to handle the volatility the share market brings with it. Personally, I'd recommend saving more. Yes, I know we're not in a recession any more, and this kind of talk is not sexy these days, but you have to understand that there is risk in equity, and you should be able to handle it. There is no point in getting into shares if you can't handle risks, and I don't think you can handle risk very well if you use the money that you're counting on to conduct your daughter's wedding in the share market. The volatility will drive you insane. Save more, build a buffer, and then if you have money that you think you can lose without losing your sleep over it – enter equities. Remember, it's the good times when you get an opportunity to save more and build wealth – times such as these when everyone is talking about hot stocks are the times when you get carried away and make bad decisions. Stick to the basics; be thrifty, and everything will fall in place. Thoughts?

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Yours

Murali........

ELSS Mutual Funds: Effect of DTC and Current Status

There is still a year to go before DTC (Direct Tax Code) kicks in, and there seems to be some amount of confusion in people's minds on how DTC will affect the tax saving ELSS mutual funds. To understand the effect of DTC you need to first know how ELSS mutual funds give you tax benefit. These mutual funds are covered by Section 80C, which mean that the money you invest in these funds is reduced from your taxable income (up to a limit of Rs. 1 lac) and hence you pay less taxes. With that said – let's take a look at how DTC impact on your existing as well as new ELSS purchases. Effect of DTC on your existing ELSS MFs The funds that you've already bought have given you the tax benefit in the year you bought them, and after the year of purchase there is no tax benefit from them. Given that, you shouldn't be worried about the ELSS funds you have already bought. The only thing I'll add to that is some people choose for the dividend re-investment option, and the re-investment is treated as a fresh investment. This is important because ELSS funds have a lock in period of 3 years, and your new units are locked for a further 3 years. With that in mind, change your dividend reinvestment option to a simple dividend or growth option. ELSS Purchases from now till April 2012 Since DTC will kick in from the next financial year, you can still buy them this year and get tax benefit under 80C this year. ELSS Purchases After DTC Kicks In Under DTC – ELSS mutual funds will no longer enjoy the tax benefits that they currently do. I don't know whether they will still have the 3 year lock in period, but it doesn't make any sense to have the lock in period if they're not going to have any tax benefit. Will DTC affect the performance of the existing funds? There was an interesting comment where a reader asked that since the popularity of ELSS funds is bound to go down, the assets under management are likely to come down, and will that have any effect on the performance of these funds? I can't think of any reason why it will play out like that. If anything, it should be easier for a fund manager to produce better returns because the base is lower. These were some thoughts that came to my mind while answering ELSS related questions here, please feel free to leave a comment if you have any questions or observations on these.

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Yours

Murali........

How often does India win when Sachin scores a century?

There is this thing I keep hearing that Sachin's centuries are not all that lucky for India, and we generally lose when he scores them. A lot of people have this impression, and I thought I'd dig deeper and figure out if there's anything behind this. The data that I found surprised me quite a bit. Sachin's centuries only result in about 69% wins for India whereas Sehwag's 14 centuries have led to 13 wins! Similarly the winning percentage for Ponting, Jayasuriya and Ganguly who have scored many more than Sehwag is much higher as well. Looking at all the data behind these numbers – I see that there is a simple explanation, but I won't spoil the fun for you and let you enjoy this little graphic with a lot of other interesting stats as well. So, you see – it just happens that Sachin has scored more of his centuries against tougher opponents, and while his centuries have in general markedly improved India's winning chances; those chances were so low to begin with that it gives a semblance that India doesn't win as often as it should. I've taken the data from How Stat and CricInfo.

Source: OneMint

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Yours

Murali........

Planning gold purchases for a future occassion

Amit left the following comment a few days ago: I want to buy gold for my sisters marriage which will be in december 2012. So i am planning to buy gold(in solid form) for making jewellery for her wedding. Please let me know which month is the best to buy gold in solid form. Before I could get to the answer – Niraj Kothari replied to it in a very comprehensive manner, and I think his response has some good insight for people who are planning to purchase gold in the near future for a wedding or some other occasion, so I'm bumping it up to a full post. Even if you're not planning to buy gold – this is a good thing to be aware of. Dear Amit, First of all, it is highly unpredictable to say in which month the gold rate will be lesser/ optimal so that you can buy buy pure gold . I suggest you the below options by which I hope that you can take advantage of current high gold rate fluctuations and also get some benefit from jewellers schemes 1. You can go with monthly savings scheme / monthly fixed amount investment scheme with reputed jewellers in your city, the advantages of such type of schemes are a. These monthly fixed amount investment schemes give you a bonus amount at the end of the     scheme. Ex: Deposit Rs.5000 / month for 13 months and get a bonus of Rs.5000 at the end of 14th month , so you will be benefitted to buy gold worth Rs.70000/- though you have deposited Rs.65000/- in total for 13 months. b. These schemes have some discount on the making charges* * The discount should be taken in written on the day when you start the scheme. c. Usually the gold price is taken on the final day on which you purchase the jewellery. d. Make sure that whether the jeweller is offering the bonus only on purchase of gold jewellery or also on purchase of on gold bullion( 24kt gold ). e. The jewellery which you purchase should be all BIS 916 hallmarked on every product. Ex: If you buy a 6 piece bangle set, EACH BANGLE should be 916 BIS hallmarked for 22kt gold and 958 Bis hallmarked for 23kt Gold. 2. You must have decided how many grams of gold jewellery you are planning to buy for your sisters marriage, so for Example , If I assume it to be 200 grams and you 20 more months in hand. So, you can buy just 10.000 grams 24kt pure gold of 99.50 purity or above every month on a fixed date , this way you will make an average price at which you buy gold and also it won't overload your investment portfolio/monthly budget. At the end of Nov.2012 you will accumulate 200.00 grams of 24kt gold, now when you go to a jeweller to exchange this 22kt gold jewellery , make sure of the below mentioned points. a. Your 24kt gold should be converted in cash at that day's prevailing 24kt gold purchase rate of the jeweller.( Rs.100 – Rs.300 / 10 grams is difference between sale and purchase price of 24kt gold at reputed jewellers ) b. You pay ornament rate + making charges to the jeweller for the jewellery you purchase , in this total amount your 24kt gold total value should be deducted. c. Again make sure you buy in Bill/ and all the jewellery is 916 BIS hallmarked. Hope the above information is useful to you… I think there is value in exploring this option not so much because of the math of it but because of the psychological benefit of setting aside a certain sum every month for a very specific purpose with a jeweler. If you decide to get into a scheme with a jeweler where you invest a sum regularly to get a bonus at the end, then make sure to compare that with at least a bank recurring deposit, and see that it's not too far off. Be it stocks or other assets – regular investing is likely to trump timing the market as far as the retail investor is concerned. Finally – thank you to Niraj for sharing his experience with everyone.

Source: OneMint
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Yours

Murali........

Just to Relax

Ø   No : 1

நிறுத்துங்க சார்.., ஏன் படிச்சிட்டு இருக்கிற பையனை போட்டு இப்படி அடிக்கறீங்க..?

சும்மா இருங்க சார்.., Exam-க்கு கூட போகாம ஒக்காந்து படிச்சிகிட்டே இருக்கான்..!!!

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Ø   No: 2

உன் பேரு என்ன..?

" சௌமியா "

உங்க வீட்ல உன்னை எப்படி கூப்பிடுவாங்க..?

தூரமா இருந்தா சத்தமா கூப்பிடுவாங்க., பக்கத்தில இருந்தா மெதுவா கூப்பிடுவாங்க.,

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Ø   No : 3 ( இண்டெர்வியூ.. )

உங்களுக்கு பிடிச்ச ஊர் எது..?

சுவிஸ்சர்லாந்து..

எங்கே Spelling சொல்லுங்க..

ஐயையோ.. அப்படின்னா " கோவா "

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Ø   No : 4

( புயல் மழையில் ஒருத்தன் பீட்ஸா வாங்க கடைக்குச் போறான். )

கடைக்காரர் : சார் உங்களுக்கு கல்யாணம் ஆயிடுச்சா...?

வந்தவர்: பின்ன.. இந்த புயல் மழைல எங்க அம்மாவா என்னை பீட்ஸா வாங்க அனுப்புவாங்க...!?? அந்த லூசு பொண்டாட்டி தான் அனுப்புனா...

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Ø   No : 5

நடிகர் Vijay : இனிமே நடிக்கிறதை நிறுத்திட்டு மக்களுக்கு பொதுசேவை பண்ணலாம்னு இருக்கேன்..

நிருபர் : நீங்க நடிக்கிறதை நிறுத்தினாலே அது மக்களுக்கு பண்ற பொதுசேவை தானே சார்..!!

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Ø   No : 6

டாக்டர் : உங்க கணவருக்கு இப்ப ஓய்வு ரொம்ப முக்கியம்., இந்தாங்க தூக்க மாத்திரை..

மனைவி: ஒரு நாளைக்கு எத்தனை தடவை கொடுக்கணும் டாக்டர்..

டாக்டர்: இது அவருக்கில்லை...உங்களுக்கு..

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Ø   No : 7 ( கல்யாண மண்டபம்.. )

"வாங்க., வாங்க..!! நீங்க மாப்பிள்ளை வீட்டுக்காரரா.? பொண்ணு வீட்டுக்காரரா..? "

" ம்ம்.. நான் பொண்ணேட பழைய வீட்டுக்காரர்..!!"

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Ø   No: 8

அவர் : நேத்து உங்க காருக்கு எப்படி Accident ஆச்சு..?

இவர் : அதோ, அங்கே ஒரு மரம் தெரியுதா..?

அவர் : தெரியுது...

இவர் : அது நேத்து எனக்கு தெரியலை..!

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Ø   No : 9 ( கட்சி ஆபீஸ்.. )

தொண்டர் 1 : நம்ம தலைவர் தன்னோட எல்லா சொத்தையும் கட்சிக்கே எழுதி வெச்சிட்டாரு..!

தொண்டர் 2 : சந்தோஷமான விஷயம் தானே..!

தொண்டர் 1 : அட போப்பா.., கட்சியை அவரோட மகனுக்கு எழுதி வெச்சிட்டாரு..!!

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Ø   No : 10 ( Exam ஆரம்பிக்கும் முன்...)

மாணவன் : டீச்சர் ஒர் Doubt...

டீச்சர் : Exam ஆரம்பிக்க இன்னும் அரை மணி நேரம்தான் இருக்கு.., இப்ப போயி என்னடா Doubt..?

மாணவன் : இன்னிக்கு என்ன Exam..?

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No: 11

மகள் : அப்பா., நான் சாதிக்க விரும்பறேன்..

அப்பா : Very Good.., பொண்ணுங்க இப்படிதான் இருக்கணும்.., எந்த துறையைல சாதிக்க போற..

மகள் : ஐயோ அப்பா.., நான் எதிர் வீட்டு பையன் " சாதிக்" -ஐ விரும்பறேன்..

 

 

Regards,

Murali  

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How does mutual fund NAV affect performance of a fund?

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There were two recent comments that prompted me to write this post, and both had to do with mutual fund NAV (Net Asset Value), and how they impact the performance of a fund. The truth is that mutual fund NAVs have no impact on the performance of a mutual fund, and you should ignore the NAV while making a decision to buy a mutual fund, and it shouldn't figure in your decision process at all. One reader asked me if the NAV and performance of a fund are inversely related, and I think that question has its roots in listening to people touting benefits of investing in a mutual fund NFO, and getting a mutual fund at a ten rupee NAV. In reality, there is no relationship between the NAV and performance of a mutual fund. The fund's NAV will have absolutely no bearing on how it's going to perform in the future or how it has performed in the past. The second comment was about the relationship between a dividend payout and the NAV of a mutual fund, and even that doesn't have any effect on performance. The NAV of a mutual fund will adjust according to the dividend payment, but that doesn't mean you stand to gain or lose anything based on when you choose to buy the mutual fund. Let's take an example to understand this. Suppose you want to start up a mutual fund of your own, and give your family members a chance to invest with you. You go ahead and shoot out an email to all family members who you think are interested in it, and ask them how much money they are going to invest with you. Being as smart as you are – you get a lot of responses from your family members, and at the end of your subscription period you get the following sums: Rs. 500,000 $10,000 At an exchange rate of 45 rupees to a dollar you convert your 10,000 USD and see that you have Rs. 450,000. So, now your total assets under management are Rs. 9,50,000. You send out a letter to all your subscribers with the information that the fund has collected Rs. 950,000 and you will send them a quarterly report of your progress. At the end of the 3 months, you see that your investments have grown smartly, and that you have grown the money to 10,45,000. Most of your subscribers are happy, but the cousin in US who invested in your fund says that he can't really understand if you did good or bad, and needs a simple way to compare your performance with the Dow. You tell him that the fund made 10% in that quarter, and the Dow gained by 3%, and add that from the next statement onwards you are going to send a percentage gain along with the funds under management as well. Time goes by, and you forget to wish your uncle on his 50th birthday. He does what any loving uncle would do – withdraw his Rs. 50,000 investment from your fund to teach you a lesson. Ouch. You are the honest nephew, so you tell your uncle that his original investment grew by 10% in the 3 months you handled it so you hand him over a check of Rs. 55,000. The market remains stagnant in the next quarter, and the fund doesn't move at all. You shoot an email to your readers telling them that the fund value is now at 9,90,000 and this quarter has been no profit no loss for it. You get a barrage of emails the next morning from your subscribers who ask you what kind of a scammy outfit you're running since the value came down from 10,45,000 last quarter to 9,90,000 this quarter, and you saw no loss at all? You are at a loss on what to do, and decide to call up your good friend Loney who tells you that you need to split up the fund into units, and assign a NAV to the fund. Then tell each of your subscribers how many units they own based on their initial investment, and declare the NAV every quarter instead of declaring the total assets under management. The NAV is not impacted by redemption or new investment, and your current subscribers will better understand your fund performance. Aha – so now you know why you need that blasted NAV in the first place. Now, the next question is what to base it on. You decide that you are going to go the extra mile and make it really easy for your US subscribers to compare your fund's performance with the DOW and make one unit of your fund equivalent to one unit of the DOW! You see that the Dow closed at 12,391.25 on February 18th, and decide that one unit of your fund will also represent that sum. So you divide the initial investment of Rs. 950,000 with 12,391.25 and arrive at 76.67 units. In this case the NAV of 1 unit of your fund is equal to 12,391.25 at the start, and instead of the earlier 95,000 units you just have 76.67 units in your fund. You then tell each of your subscribers how many units they own based on how much money they invested with you. When your aunt sees your email about one unit having a NAV of Rs. 12,391.25 she flips out and calls you asking what's this DOW, and why should she care about it. After listening to your explanation she understands what you're doing but wants you to compare your performance to gold instead of DOW because everyone "knows" gold is the next big thing, and you should at least better that. You try to reason with her, but when she threatens to complain to your mom you go back home, and see that one gram of gold is about Rs. 2,000, so based on that you say that one unit of your mutual fund will be Rs. 2,000 as well, and the total units will now be 450 instead of the earlier 76.67 based on the initial corpus with you. You draft the email informing subscribers of this change, but before hitting the send button decide to take a second opinion from your brother in Delhi. When you call him up and tell him about the Rs. 2,000 NAV – he is livid. He hadn't read your earlier email, and it's good that he hadn't because the only reason he invested in your mutual fund was to get a 10 rupee NAV! What's the point of investing with you if you give him such an expensive NAV? He demands you to give him a 10 rupee NAV immediately. You are at the verge of going insane now, and call me up to ask me what you should do. Unfortunately I'm too busy sending people their infrastructure bond statements and doing the needful so I ask you to call up my buddy Shiv who is an adviser. Shiv tells you to take it easy and keep the NAV at Rs. 10 and placate everyone. It doesn't matter what the NAV is anyway, it's just a number you pull out from a hat. This way at least everyone will be happy. You take this sound advice, and shoot out an email the next day saying that the initial NAV was Rs. 10, and that the fund had 90,000 units, and tell everyone their units individually as well. You wait for angry emails, but no one replies – no news is good news you decide, and smile for the first time wondering how easy it is to pull out any NAV from your hat, and get everyone all riled up for nothing. You can make up any NAV you want at the start of the fund, it doesn't matter if it's 10 or 10,000, so ignore NAVs while making your investing decision.

Source: Onemint

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Yours

Murali........

L&T Infrastructure Bonds Open from 7th Feb to 7th March 2011

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L&T has come up with the second tranche of their infrastructure bonds, and this will be open from the 7th Feb 2011 to the 7th March 2011. The bonds are issued under section 80CCF so they will get you an additional tax relief in the form of reduction of taxable salary outside of what you get under Section 80C. L&T Infra bonds have been rated CARE AA+ by CARE which denotes low credit risk. The bonds can be purchased in the physical or Demat form, and the minimum investment needed in the bond is Rs. 5,000. There are two series on offer by L&T and the maturity period of both the series is 10 years. However, there is a buyback option that can be exercised by you at the end of either 5 or 7 years. Here are some details about this issue. L&T Infrastructure Bonds As you can see above the series which pays annual interest rate has a slightly lower interest payment at 8.20% when compared with the series that pays out cumulative interest. Personally, in the high interest scenario we are in I'd go for the slightly lower interest rate for getting an annual payout, but that's just my preference. You can invest in these bonds through your trading accounts like ICICI Direct, through financial advisers, or you could do it directly by filling out a form, and submitting it in one of the collection centers.

IIFCL Infrastructure Bonds Issue IIFCL is also offering infrastructure bonds under section 80CCF, and their issue started on the 4th February and will close on the 4th of March. IIFCL Infrastructure bonds have a face value of Rs. 1,000 and the minimum investment needed in them is Rs. 5,000. The bonds can be issued in both physical and Demat format, and the issue has been rated AAA / Stable by CRISIL and CARE AAA by CARE, which indicates their highest safety rating. These are secured bonds, and have a lock in period of 5 years after which they will be listed on the BSE. No TDS will be deducted on bonds on Demat form, and for the bonds in paper form no TDS will be deducted if the interest is less than Rs. 2,500. Here are some details of the IIFCL Infrastructure bonds. IIFCL Infrastructure Bonds As you can see from the above table there are 4 series, and every series has the buyback option on it as well. The buyback means that even though the maturity period of the bond may be 10 or 15 years, you can get your principal back earlier than that. In series 1 and 2 – you can ask the company to buyback these bonds after 5 years whereas if you opt for series 3 or 4  – you can ask the company to buyback the bonds after 7 years. Since the main benefit of these 80CCF bonds is tax saving, I'm of the opinion that the series with the shorter tenure makes more sense, but this is ultimately your decision and you have to see what makes most sense for your finances. One more thing I'd like to emphasize is that these 80CCF bonds are all under the cumulative limit of Rs. 20,000. If you have already invested in some other infrastructure bond then there is no point in investing in this again since you won't get the additional tax saving.

source: OneMint


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Yours

Murali........

What is the difference between debt and equity products?

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This time we're going to take a look at the difference between debt and equity products, and some examples of both. Difference between Debt and Equity Products What is equity? Equity refers to part ownership in a company, and in the Indian context – equity and shares are used inter-changeably. So, if OneMint were a company that had 100 shares in the market, and if you bought 1 share of OneMint – you would be the owner of 1% of OneMint. If OneMint was valued at 1 lakh rupees today, then your share would be worth Rs. 1,000. If 5 years from now – OneMint were valued at Rs. 10 lacs then your share would be worth Rs. 10,000. If however, the company went bankrupt then your share would be worth nothing. Equity products are generally considered to be high risk – high return products for this reason. Examples of equity products: Shares: Shares trading on the stock exchange are the most direct examples of equity products. Equity Mutual Funds: Mutual funds that own shares are another example of equity products. ELSS mutual funds that are eligible for 80C tax savings are a popular example of equity mutual funds. Equity based ETFs: ETFs that are based on shares like Nifty Index Funds are also an example of equity products. What is debt? Debt is loan, and carries a fixed rate of interest, and a promise to repay. Debt is generally safer than equity, and there is generally no upside in it. You get paid the promised interest, and as long as the company (or country) is not bankrupt – you're safe. For example – OneMint could issue debt of Rs. 1 lac at an interest rate of 15% per annum, and as long as OneMint is not bankrupt – you can expect your interest repayment, and also the repayment of your principal. If OneMint goes bankrupt, then first the shareholders are wiped out, which means that your shares in OneMint are worth nothing now, and then the debt is paid off according to the hierarchy of creditors. A secured debt is debt that is secured against a collateral like a building, land, machinery etc. and they have a higher repayment priority than an unsecured debt, which is not secured against any collateral. Examples of debt products: Fixed Deposits with banks are the prime example of debt products. They are extremely safe investments, which have a pre-determined interest rate. The stock of SBI may have wild swings but your fixed deposit with SBI is safe, and won't be affected till something really serious happens. Infrastructure bonds that have recently been launched are another type of debt product as they pay you a fixed interest rate, and the principal is protected as well. They are not as safe as bank fixed deposits, but if any infrastructure company defaults on their debt – that would be an exception rather than the norm. FMPs – These are a special type of mutual funds that have become popular in the past few years, and work like fixed deposits (though not as safe as them). They have become popular due to favorable tax treatment when compared with a fixed deposit,  so people don't mind taking the little bit of extra risk. POMIS: Post Office schemes are also debt schemes as they pay a fixed interest, and are also guaranteed. These are very safe instruments. Provident Funds: This is also a debt product, which is quite safe and pays a fixed rate of interest. These are some of the key things that come to my mind when explaining the difference between a debt and an equity product – feel free to add anything that I have missed, and as always – comments are welcome.

Source: OneMint


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Yours

Murali........

SBI Retail Bonds at 9.95% for 15 years and 9.75% for 10 years

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This time we're going to cover the recently announced SBI retail bonds, and if last time was any indication these will become hot as hell when they open for subscription. SBI Retail Bonds SBI Retail Bonds: Open and Close Date I think only the open date is important in this issue because last time around the issue got over-subscribed the first day itself, and it's quite likely that it gets over-subscribed this time again. The open date for Tranche 1 is February 21, 2011 and close date is February 28 2011. If you decide to buy these bonds, then I'd highly recommend doing so on February 21st itself. If you're not able to buy them on February 21st then make sure to check how much they have been over-subscribed by since these SBI bonds are on first come first serve basis, and there might be no point in applying for them after the 21st. Interest Rate on the SBI Retail Bonds For retail investors these bonds will pay out 9.75% for the 10 years series, and 9.95% for the 15 years series. 10 years 15 years 9.75% 9.95% There are banks that give you 10% for fixed deposits, but none of them allow you to lock in to that rate for this long a period. In that sense – these SBI bonds are offering quite a good deal compared to whatever is available at present. I say at present because that's important. When SBI came out with their retail bond issue last time around – there was a huge demand for that and it was a pretty sweet deal too. But, that was at a lower rate than the current offering, so you don't know how interest rates are going to look like 5 years from now or 10 years from now. Your money does get locked in with the SBI bonds since this is not like a fixed deposit that you can break at your will. If you go for the 10 years tenure then it will be redeemed at the end of 10 years. SBI has the option of redeeming them at the end of 5 years and 10 years as well (more on that later), but they will only do so if the interest rates are lower at that point in time, so in that sense – keep in mind that you are committing to the redemption time period. SBI Bonds will list on the stock exchange These bonds are going to list on the stock exchange so you will have the option to sell them in the secondary market even if you can't redeem them. Keep in mind though that bond prices move about in the secondary market, so this is not the same as redemption because the prices will depend on the demand and supply plus the interest rates at that time. Minimum and Maximum Application The face value of one bond is Rs. 10,000 and that's the minimum investment for the retail investor. The maximum application amount for the retail investor is Rs. 500,000. Compulsorily in Dematerialized form These bonds will not be issued in physical form, so you will need a demat account in order to apply for these bonds. Since this is a short point I'll add that for the 3 of you who care these are unsecured bonds, but are rated AAA by CRISIL. Can I get loans against these SBI Retail bonds? No, you won't be able to pledge these bonds like fixed deposits, and get loans against them. Similarly, you can't break them before time like I said earlier. Can NRIs apply for these bonds? No, NRIs are not allowed to apply for these bonds. When will the bonds start trading in the stock exchange? You won't have to wait for a long time for the SBI bonds to start trading on the stock exchange. If last time was any indication then the trading will start in less than a month of allotment. What kind of listing gains can I expect? I wish I knew because then I could make money without doing any real work, but alas that's not to be. I'm sure there is going to be a lot of speculation around this, and the only input I can provide is that last time around the SBI retail bonds listed at a 5% premium. Can I apply for the SBI bonds online? No, there's no option of applying for these bonds online – you have to necessarily apply using the physical form. Is the interest from these bonds tax free? I've had at least a couple of questions last time on this, and I think somehow the fact that the bonds are listed makes some people think that the interest is tax free or that there is no capital gains tax on it. This however, is not true – the interest is taxable, and if you make any capital gains selling the bonds then that's liable to tax as well. Where can I buy the SBI bonds from? You can get the application form in a bank branch, and then fill it and submit it there. Someone told me last time that it helped to go to the bank before hand and get the forms and fill it because of the rush later on. I don't know how true this will be for everyone, but sounds like a good idea. What does the call option mean? There is a call option with this bond which means that for the bond with 10 years tenure SBI has the option to redeem it after 5 years if they want to, and for the bonds with a 15 year tenure SBI has an option of redeeming it in 10 years if they want to. Remember, this is their option – not yours. They will exercise it if they see it fit, but you can't ask for buyback after 5 years if you want. In that sense this is different from the infrastructure bonds, which are the other bonds currently selling in the market. I've tried to answer all questions I could think of, and have kept the post as simple as possible. Please feel free to ask any question that I have left out, and I'll try to answer them, and of course there are a lot of other smart readers who answer questions these days, so you may not even need me.

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Yours

Murali........

14th Feb 2011: Do not buy Petrol.

 

Dear Friends! Petrol in Pakistan Rs17 per litre. Malaysia Rs 18 per litre. In India it's Rs.65per litre. Why is there a difference within India itself? World Market CRUDE Oil is not the reason for this. It's all Gain for private owners? As we are the general public, or Common Man as R.K.Laxman wud hv said, we have to raise our voice, let's raise thru Emails. Forward this to all Indians who care. IT HAS BEEN CALCULATED THAT IF EVERYONE DID NOT PURCHASE A DROP OF PETROL FOR ONE DAY AND ALL AT THE SAME TIME, THE OIL COMPANIES WOULD CHOKE ON THEIR STOCKPILES. AT THE SAME TIME IT WOULD HIT THE ENTIRE INDUSTRY WITH A NET LOSS OVER 4.6 BILLION DOLLARS WHICH AFFECTS THE BOTTOM LINES OF THE OIL COMPANIES. THEREFORE " Feb.14 th" HAS BEEN FORMALLY DECLARED "STICK IT UP THEIR BEHIND " DAY AND THE PEOPLE OF THIS NATION SHOULD NOT BUY A SINGLE DROP OF PETROL THAT DAY. THE ONLY WAY THIS CAN BE DONE IS IF YOU FORWARD THIS E-MAIL TO AS MANY PEOPLE AS YOU CAN AND AS QUICKLY AS YOU CAN TO GET THE WORD OUT. WAITING ON THE GOVERNMENT TO STEP IN AND CONTROL THE PRICES IS NOT GOING TO HAPPEN. WHAT HAPPENED TO THE REDUCTION AND CONTROL IN PRICES THAT THE ARAB NATIONS PROMISED TWO WEEKS AGO? REMEMBER ONE THING, NOT ONLY IS THE PRICE OF PETROL GOING UP BUT AT THE SAME TIME AIRLINES ARE FORCED TO RAISE THEIR PRICES, TRUCKING COMPANIES ARE FORCED TO RAISE THEIR PRICES WHICH AFFECTS PRICES ON EVERYTHING THAT IS SHIPPED. THINGS LIKE FOOD, CLOTHING, BUILDING SUPPLIES MEDICAL SUPPLIES ETC. WHO PAYS IN THE END? WE DO! WE CAN MAKE A DIFFERENCE.IF THEY DON'T GET THE MESSAGE AFTER ONE DAY, WE WILL DO IT AGAIN AND AGAIN. SO DO YOUR PART AND SPREAD THE WORD. FORWARD THIS EMAIL TO EVERYONE YOU KNOW. MARK YOUR CALENDARS AND MAKE* * *Feb.*  14 th A DAY THAT THE CITIZENS SAY "ENOUGH IS ENOUGH" We forward so many junk email to many of our friends, now let us do it for some useful cause to cut down the price of the petrol .. .... REMEMBER :  *Feb * 14 th Coming together is a beginning. Keeping together is progress. Working together is success.

Can a holiday package be claimed for LTA exemption?

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Holiday package can be claimed for LTA exemption, but the only thing to keep in mind is that LTA exemption 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. Another thing is that since LTA exemption 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. The following points need to be kept in mind while taking the LTA or producing bills for it to get  LTA Exemption: Can We Claim LTA Every Year? One of the most common questions about LTA is whether it can be claimed every year or not? The answer is Yes – you can claim LTA every year, but you will not be able to claim LTA exemption ever year. Other Points About Tax On LTA 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. For getting LTA tax exempt you will have to produce bills, but you can't get your LTA exempt every year. A supreme court judgment said that it's no longer mandatory for employers to collect travel bills. You can get your LTA exempt twice in a block of four years. Right now the block that is relevant is 2006-2009 2010 – 13. This block is decided by the Government so does not have a bearing on when you start your job and also these blocks are calendar years and not financial years. The bills can be air, rail or even a private rental company however the exemption is only for domestic travel so an international ticket won't do. The bills have to be for a journey that has been undertaken when you are on leave and should be for you and your family that is spouse, children and dependant parents, brothers and sisters. Your family can't claim the exemption if you have not accompanied them. If you and your wife both get LTA – both of you can't claim exemption for the same travel but you can avail exemption independently for different travels. So effectively between the two of you, you can claim exemptions four times in four years. If for some reason you fail to claim LTA exemption in the bucket of four years – you still have the option to claim exemption in the first year of the next block. Only travel bills can be used for LTA exemption, so a hotel bill can't be produced for claiming LTA exemption even though you might have stayed in the hotel during your leave. The maximum LTA for the purposes of LTA tax exemption is Rs.20,000 so normally most organizations design the salary structure in such a manner that they don't give the employees more than Rs. 20000 as LTA. In terms of proof for air travel – although there is no fixed rule as such, it might be a good idea to preserve the boarding pass along with the ticket to make sure there are no problems in claiming LTA exemption later on. LTA can only be claimed for the shortest distance between two places. So if you are planning to travel from Goa to Mumbai then you will be allowed exemption on tickets from Goa to Mumbai and back. You will not be allowed to produce tickets that are via some other place like Mumbai to Hyderabad and then from Hyderabad to Goa and so forth. LTA can only be claimed on tickets or rented private vehicles, you cannot show petrol or diesel vehicles for your own vehicles and then claim exemption on it. The above are just some of the points that need to be kept in mind while discussing LTA exemptions. I never liked tax, and have never been good with it, so there are many chances of a mistake, so please correct me if you see anything wrong. Let me give you an example of why I don't like tax. Here is this thing from the Income Tax Act that tells you how many children you can claim exemption for: HAS ANY CHANGE BEEN MADE IN RULES FOR EXEMPTION OF L.T.C. TO DENY THIS BENEFIT TO LARGE FAMILIES? Yes. Exemption of L.T.C. shall not be available to more than two surviving children of an individual after 1 st October 1998. However, this shall not apply in respect of children born before 1.10.98 and also in case of multiple births after one child. If an employee has before 1.10.98 even five children or more, exemption would still be available to all children. However, if an employee begets a third child after 1.10.1998, the L.T.C. for the third child will not be exempt.

Source: OneMint

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Yours

Murali........