tag:blogger.com,1999:blog-29012800988794292542024-02-18T17:58:42.534-08:00 STUDY OF CASESPramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.comBlogger264125tag:blogger.com,1999:blog-2901280098879429254.post-33601889687014558742015-01-09T11:31:00.001-08:002015-01-09T11:31:13.318-08:00The 3 Decisions That Will Change Your Financial Life There’s nothing worse than a rich person who’s chronically angry or unhappy. There’s really no excuse for it, yet I see this phenomenon every day. It results from an extremely unbalanced life, one with too much expectation and not enough appreciation for what’s there.
Without gratitude and appreciation for what you already have, you’ll never know true fulfillment. But how do you cultivate balance in life? What’s the point of achievement if your life has no balance?
For nearly four decades, I’ve had the privilege of coaching people from every walk of life, including some of the most powerful men and women on the planet. I’ve worked with presidents of the United States as well as owners of small businesses.
Across the board, I’ve found that virtually every moment people make three key decisions that dictate the quality of their lives.
If you make these decisions unconsciously, you'll end up like majority of people who tend to be out of shape physically, exhausted emotionally and often financially stressed. But if you make these decisions consciously, you can literally change the course of your life today.
Decision 1: Carefully choose what to focus on.
At every moment, millions of things compete for your attention. You can focus on things that are happening right here and now or on what you want to create in the future. Or you can focus on the past.
Where focus goes, energy flows. What you focus on and your pattern for doing so shapes your entire life.
Which area do you tend to focus on more: what you have or what’s missing from your life?
I’m sure you think about both sides of this coin. But if you examine your habitual thoughts, what do you tend to spend most of your time dwelling on?
Rather than focusing on what you don’t have and begrudging those who are better off than you financially, perhaps you should acknowledge that you have much to be grateful for and some of it has nothing to do with money. You can be grateful for your health, family, friends, opportunities and mind.
Developing a habit of appreciating what you have can create a new level of emotional well-being and wealth. But the real question is, do you take time to deeply feel grateful with your mind, body, heart and soul? That’s where the joy, happiness and fulfillment can be found.
Consider a second pattern of focus that affects the quality of your life: Do you tend to focus more on what you can control or what you can’t?
If you focus on what you can’t control, you’ll have more stress in life. You can influence many aspects of your life but you usually can’t control them.
When you adopt this pattern of focus, your brain has to make another decision:
Related: Tony Robbins on the 7 'Forces' of Business Mastery
Decision 2: Figure out, What does this all mean?
Ultimately, how you feel about your life has nothing to do with the events in it or with your financial condition or what has (or hasn't) happened to you. The quality of your life is controlled by the meaning you give these things.
Most of the time you may be unaware of the effect of your unconscious mind in assigning meaning to life’s events.
When something happens that disrupts your life (a car accident, a health issue, a job loss), do you tend to think that this is the end or the beginning?
If someone confronts you, is that person insulting you, coaching you or truly caring for you?
Does a devastating problem mean that God is punishing you or challenging you? Or is it possible that this problem is a gift from God?
Your life takes on whatever meaning you give it. With each meaning comes a unique feeling or emotion and the quality of your life involves where you live emotionally.
I always ask during my seminars, “How many of you know someone who is on antidepressants and still depressed?” Typically 85 percent to 90 percent of those assembled raise their hands.
How is this possible? The drugs should make people feel better. It's true that antidepressants do come with labels warning that suicidal thoughts are a possible side effect.
But no matter how much a person drugs himself, if he constantly focuses on what he can’t control in life and what’s missing, he won't find it hard to despair. If he adds to that a meaning like “life is not worth living,” that's an emotional cocktail that no antidepressant can consistently overcome.
Yet if that same person can arrive at a new meaning, a reason to live or a belief that all this was meant to be, then he will be stronger than anything that ever happened to him.
When people shift their habitual focus and meanings, there’s no limit on what life can become. A change of focus and a shift in meaning can literally alter someone's biochemistry in minutes.
So take control and always remember: Meaning equals emotion and emotion equals life. Choose consciously and wisely. Find an empowering meaning in any event, and wealth in its deepest sense will be yours today.
Once you create a meaning in your mind, it creates an emotion, and that emotion leads to a state for making your third decision:
Decision 3: What will you do?
The actions you take are powerfully shaped by the emotional state you're in. If you're angry, you're going to behave quite differently than if you're feeling playful or outrageous.
If you want to shape your actions, the fastest way is to change what you focus on and shift the meaning to be something more empowering.
Two people who are angry will behave differently. Some pull back. Others push through.
Some individuals express anger quietly. Others do so loudly or violently. Yet others suppress it only to look for a passive-aggressive opportunity to regain the upper hand or even exact revenge.
Where do these patterns come from? People tend to model their behavior on those they respect, enjoy and love.
The people who frustrated or angered you? You often reject their approaches.
Yet far too often you may find yourself falling back into patterns you witnessed over and over again in your youth and were displeased by.
It’s very useful for you to become aware of your patterns when you are frustrated, angry or sad or feel lonely. You can’t change your patterns if you’re not aware of them.
Now that you’re aware of the power of these three decisions, start looking for role models who are experiencing what you want out of life. I promise you that those who have passionate relationships have a totally different focus and arrive at totally different meanings for the challenges in relationships than people who are constantly bickering or fighting.
It’s not rocket science. If you become aware of the differences in how people approach these three decisions, you’ll have a pathway to help you create a permanent positive change in any area of life.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-26917947840233633462015-01-09T11:28:00.001-08:002015-01-09T11:28:34.215-08:005 Ways to Sustain a Long-Term Career Focus 1. Become a professional student.
I don't necessarily mean return to school for an MBA or doctorate. What I urge you to do is to consistently engage in the process of learning new things, both within and outside your chosen field.
Today's entrepreneurs live in an era when free and readily accessible information is at their fingertips -- more so than ever before. If knowledge is power, then it's what businesspeople need to achieve the professional goals found at the finish line.
2. Remember that mistakes are simply expensive tuition.
I have learned that wisdom comes from taking more from mistakes than what they take out of you. Replay mistakes? Yes. Obsess over them? No.
Look at mistakes as a very necessary part of your education -- another way to test your resolve and prepare you to succeed. In the book Great by Choice, author Jim Collins put it brilliantly: “Treat mistakes as expensive tuition; better get something out of it, learn everything you can, apply the learning, and then don’t repeat.”
3. Rely on the old-fashioned work ethic.
Every week headlines announce yet another tech company that sold for millions, leaving the former owners instantly rich. One could infer from news like this that luck or a single stroke of genius is the impetus for success.
But if you question these entrepreneurs about the real reasons, the phrase “hard work" will pop up in every answer, I'm willing to bet.
A strong work ethic has a way of leveling the playing field. Put in the hours and you’ll be in the right place and luckier more often than those who don’t. Remember that time doesn’t discriminate. Everyone has the same number of hours in a day to work hard and move forward.
Related: The Real Person's Guide to Finding Your Passion and Loving What You Do
4. Work with a purpose.
There's work and then there's working with focus -- and the latter is always preferable. While you’re involved in a project, the intent should be mastery of the task at hand.
Do I believe hundreds or thousands of hours of deliberate practice will always accomplish the impossible? No. But if you're in a field or business that you're passionate about and work with unbreakable focus, then more times than not you’ll remain a step above the competition.
5. Weigh decisions with the long view in mind.
The battle between short-term versus long-term gratification has been waged for eons by the best and brightest.
It's captured in this everyday question: Should I eat this piece of cake or hit the gym? Devouring the sweet treat will undoubtedly make you feel better in the moment, but you know the gym is the better long-term decision.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-85209077523418449452015-01-09T11:25:00.001-08:002015-01-09T11:25:48.894-08:0010 Reasons You Have to Quit Your Job My boss screamed at me in front of my colleagues. I had done something wrong of course. I had sent a product to the client without debugging it thoroughly. It was my fault. But I don’t like being yelled at.
And fortunately I was sitting on a job offer that I decided to take that moment. So the next day I said the magic words, “I quit”.
And then a few years after that, I quit again, and never went back to work in the corporate world.
And now it’s too late. Now the course of history has finally written its next chapter. There’s no more bullshit. I’m going to tell you why you have to quit your job. Why you need to get the ideas moving. Why you need to build a foundation for your life or soon you will have no roof.
1. The middle class is dead.
A few weeks ago I visited a friend of mine who manages a trillion dollars. No joke. A trillion. If I told you the name of the family he worked for you would say, “they have a trillion? Really?” But that’s what happens when ten million dollars compounds at 2% over 200 years.
He said, “look out the windows”. We looked out at all the office buildings around us. “What do you see?” he said. “I don’t know.” “They’re empty! All the cubicles are empty. The middle class is being hollowed out.” And I took a closer look. Entire floors were dark. Or there were floors with one or two cubicles but the rest empty. “It’s all outsourced or technology has taken over for the paper shufflers,” he said.
“Not all the news is bad,” he said. “More people entered the upper class than ever last year.” But, he said, more people are temp staffers than ever.
And that’s the new paradigm. The middle class has died. The American Dream never really existed. It was a marketing scam.
And it was. The biggest provider of mortgages for the past 50 years, Fannie Mae, had as their slogan, “We make the American Dream come true.” It was just a marketing slogan all along. How many times have I cried because of a marketing slogan. And then they ruined it.
Related: Multi-Tasking Will Kill You (LinkedIn)
2. You’ve been replaced.
Technology, outsourcing, a growing temp staffing industry, productivity efficiencies, have all replaced the middle class.
The working class. Most jobs that existed 20 years ago aren’t needed now. Maybe they never were needed. The entire first decade of this century was spent with CEOs in their Park Avenue clubs crying through their cigars, “how are we going to fire all this dead weight?”. 2008 finally gave them the chance. “It was the economy!” they said. The country has been out of a recession since 2009. Four years now. But the jobs have not come back. I asked many of these CEOs: did you just use that as an excuse to fire people, and they would wink and say, “let’s just leave it at that.”
I’m on the board of directors of a temp staffing company with one billion dollars in revenues. I can see it happening across every sector of the economy. Everyone is getting fired. Everyone is toilet paper now.
Flush.
3. Corporations don’t like you.
The executive editor of a major news publication took me out to lunch to get advice on how to expand their website traffic. But before I could talk he started complaining to me: “our top writers keep putting their twitter names in their posts and then when they get more followers they start asking for raises.”
“What’s the problem?” I said. “Don’t you want writers that are popular and well-respected?”
When I say a “major news publication” I am talking MAJOR.
He said, “no, we want to be about the news. We don’t want anyone to be an individual star.”
In other words, his main job was to destroy the career aspirations of his most talented people, the people who swore their loyalty to him, the people who worked 90 hours a week for him. If they only worked 30 hours a week and were slightly more mediocre he would’ve been happy. But he doesn’t like you. He wants to you stay in the hole and he will throw you a meal every once in awhile in exchange for your excrement. If anyone is a reporter out there and wants to message me privately I will tell you who it was. But basically, it’s all of your bosses. Every single one of them.
4. Money is not happiness.
A common question during my Twitter Q&A (that I give every Thursday from 330-430 PM EST), asked at least once a week, is “should I take the job I like or should I take the job that pays more money”.
Leaving aside the question of “should I take a job at all”, let’s talk about money for a second.
First, the science: studies show that an increase in salary only offers marginal to zero increase in “happiness” above a certain level. Why is this? Because the basic fact: people spend what they make. If your salary increases $5,000 you spend an extra $2000 on features for your car, you have an affair, you buy a new computer, a better couch, a bigger TV, and then you ask, “where did all the money go?” Even though you needed none of the above now you need one more thing: another increase in your salary, so back to the corporate casino for one more try at the salary roulette wheel. I have never once seen anyone save the increase in their salary.
In other words, don’t stay at the job for safe salary increases over time. That will never get you where you want – freedom from financial worry. Only free time, imagination, creativity, and an ability to disappear will help you deliver value that nobody ever delivered before in the history of mankind.
5. Count right now how many people can make a major decision that can ruin your life.
I don’t like it when one person can make or break me. A boss. A publisher. A TV producer. A buyer of my company. At any one point I’ve had to kiss ass to all of the above. I hate it. I will never do it again.
The way to avoid this is to diversify the things you are working on so no one person or customer or boss or client can make a decision that could make you rich or destroy you or fulfill your life’s dreams or crush them. I understand it can’t happen in a day. Start planning now how to create your own destiny instead of allowing people who don’t like you to control your destiny. When you do this count, make sure the number comes to over 20. Then when you spin the wheel the odds are on your side that a winning number comes up.
6. Is your job satisfying your needs?
I will define “needs” the way I always do, via the four legs of what I call “the daily practice”. Are your physical needs, your emotional needs, your mental needs, and your spiritual needs being satisfied?
The only time I’ve had a job that did was when I had to do little work so that I had time on the side to either write, or start a business, or have fun, or spend time with friends. The times when I haven’t is when I was working too hard, dealing with people I didn’t like, getting my creativity crushed over and over, and so on. When you are in those situations you need to plot out your exit strategy.
Your hands are not made to type out memos. Or put paper through fax machines. Or hold a phone up while you talk to people you dislike. 100 years from now your hands will rot like dust in your grave. You have to make wonderful use of those hands now. Kiss your hands so they can make magic.
One can argue, “not everyone is entitled to have all of those needs satisfied at a job.” That’s true. But since we already know that the salary of a job won’t make you happy, you can easily modify lifestyle and work to at least satisfy more of your needs. And the more these needs are satisfied the more you will create the conditions for true abundance to come into your life.
Your life is a house. Abundance is the roof. But the foundation and the plumbing need to be in there first or the roof will fall down, the house will be unlivable. You create the foundation by following the Daily Practice. I say this not because I am selling anything but because it worked for me every time my roof caved in. My house has been bombed, my home has been cold and blistering winds gave me frost bite, but I managed to rebuild. This is how I did it.
7. Your Retirement Plan is For S**t.
I don’t care how much you set aside for your 401k. It’s over. The whole myth of savings is gone. Inflation will carve out the bulk of your 401k. And in order to cash in on that retirement plan you have to live for a really long time doing stuff you don’t like to do. And then suddenly you’re 80 and you’re living a reduced lifestyle in a cave and can barely keep warm at night.
The only retirement plan is to Choose Yourself. To start a business or a platform or a lifestyle where you can put big chunks of money away. Some people can say, “well, I’m just not an entrepreneur .”
This is not true. Everyone is an entrepreneur. The only skills you need to be an entrepreneur: an ability to fail, an ability to have ideas, to sell those ideas, to execute on those ideas, and to be persistent so even as you fail you learn and move onto the next adventure. Or be an entrepreneur at work. An “entre-ployee”. Take control of who you report to, what you do, what you create. Or start a business on the side. Deliver some value, any value, to any body, to somebody, and watch that value compound into a carer.
What is your other choice? To stay at a job where the boss is trying to keep you down, will eventually replace you, will pay you only enough for you to survive, will rotate between compliments and insults so you stay like a fish caught on the bait as he reels you in. Is that your best other choice? You and I have the same 24 hours each day. Is that how you will spend yours?
8. Excuses.
“I’m too old”. “I’m not creative.” “I need the insurance.” “I have to raise my kids”. I was at a party once. A stunningly beautiful woman came up to me and said, “James, how are you!?”
WHAT? Who are you?
I said, “hey! I’m doing well.” But I had no idea who I was talking to. Why would this woman be talking to me? I was too ugly. It took me a few minutes of fake conversation to figure out who she was.
It turns out she was the frumpish-looking woman who had been fired six months earlier from the job we were at. She had cried as she packed up her cubicle when she was fired. She was out of shape, she looked about 30 years older than she was, and now her life was going to go from better to worse. Until…she realized that she was out of the zoo. In the George Lucas movie, THX-1138 (the name of the main character was “THX-1138″) everyone’s choices are removed and they all live underground because above ground is “radioactive”. Finally THX decides better to die above ground than suffer forever underground where he wasn’t allowed to love. He wasn’t free.
He makes his way above ground, evading all the guards and police. And when he gets there, it’s sunny, everyone above ground is beautiful, and they are waiting for him with open arms and kisses. The excuse “but it’s radioactive out there!” was just there to keep him down.
“This is easy for you to say,” people say to me. “Some of us HAVE to do this!” The now-beautiful woman had to do it also. “What are you doing now?” I asked her. “Oh, you know,” she said. “Consulting.” But some people say, “I can’t just go out there and consult. What does that even mean?”
And to that I answer, “Ok, I agree with you.” Who am I to argue? If someone insists they need to be in prison even though the door is unlocked then I am not going to argue. They are free to stay in prison.
[Or, you can see my Ultimate Cheat Sheet for Dealing with Excuses.]
9. It's OK to take baby steps.
“I can’t just QUIT!” people say. “I have bills to pay”. I get it. Nobody is saying quit today. Before a human being runs a marathon they learn to crawl, then take baby steps, then walk, then run. Then exercise every day and stay healthy. Then run a marathon. Heck, what am I even talking about? I can’t run more than two miles without collapsing in agony. I am a wimp.
Make the list right now. Every dream. I want to be a bestselling author. I want to reduce my material needs. I want to have freedom from many of the worries that I have succumbed to all my life. I want to be healthy. I want to help all of the people around me or the people who come into my life. I want everything I do to be a source of help to people. I want to only be around people I love, people who love me. I want to have time for myself.
THESE ARE NOT GOALS. These are themes. Every day, what do I need to do to practice those themes? It starts the moment I wake up: “who can I help today?” I ask the darkness when I open my eyes. “Who would you have me help today?” I’m a secret agent and I’m waiting for my mission. Ready to receive. This is how you take baby steps. This is how eventually you run towards freedom.
10. Abundance will never come from your job.
Only stepping out of the prison imposed on you from your factory will allow you to achieve abundance. You can’t see it now. It’s hard to see the gardens when you are locked in jail. Abundance only comes when you are moving along your themes. When you are truly enhancing the lives of the people around you.
When every day you wake up with that motive of enhancement. Enhance your family, your friends, your colleagues, your clients, potential customers, readers, people who you don’t even know yet but you would like to know. Become a beacon of enhancement and then when the night is gray, all of the boats will move towards you, bringing their bountiful riches.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-67012680794636386062015-01-09T11:23:00.000-08:002015-01-09T11:23:02.109-08:007 Tools Every Job Seeker Needs If you are considering a job hunt or revamping your current search in 2015, these are the tools and apps you need to succeed in finding your next opportunity:
1. Email signature. Your email signature is possibly one of the most important branding tools you're not taking advantage of. It's your chance to let everyone know what your expertise is, how to contact you and where to learn more about you online. Employees are often required to add the company logo, tag line and contact information to email signatures. As job seekers, an email signature is a subtle way to remind people what you do.
Quick tips: The most important information to include is your name, phone number, email address, desired occupation and link to your LinkedIn profile. An easy solution is to use an app like WiseStamp to create and insert your signature.
2. Active and robust LinkedIn presence. LinkedIn has become a go-to source for companies of all sizes to seek out talent. While your profile will be similar to your résumé, it is not exactly the same. LinkedIn is a social network where people share information. Besides having a profile rich in content and media, you should also share newsworthy articles to help build your online reputation and stay connected with your network.
Quick tips: You must have a headshot, a headline that describes what you do and a summary where you tell your story. But don't stop there. Embed a presentation that summarizes your experience or includes testimonials. Have you downloaded the SlideShare app for LinkedIn? What about the LinkedIn Connected or Pulse apps? These tools give you a better mobile LinkedIn experience.
3. An easily accessible, on-the-go r ésumé . There will be occasions when someone wants you to send your résumé ASAP or when you arrive at an interview and your résumé is MIA. Save your résumés so you can easily access them and share them from your mobile device.
Quick tip: Being able to access important documents from anywhere is critical not only in your job search, but at work, too. Learn how to save and share documents using Dropbox or Google Drive, which provide free storage and are easily accessible from any device.
4. Business cards. This may seem old-fashioned, but business cards make life easier. When you meet someone new or reconnect with an old friend, just hand him or her your card at the end of the conversation.
Quick tip: Your business card need only include the information you want to share: your name, occupation (or desired occupation), phone number, email address and links to any social media profiles, like your LinkedIn URL. If you want to use something more high-tech, try one of the apps that allows you to share your card from your phone, like CardDrop. Or pick up a business card with FullContact's Card Reader.
5. Your perfected pitch. You only have one chance to make a great first impression. Don't blow it. You'll need it when you meet people and they ask what you do. You'll also need one customized for every interview you take. Your pitch conveys what problem you can solve for an employer. Use words and language to ensure your unique style and personality come through. And avoid résumé-speak or jargon that isn't universally understood.
Quick tip: Keep your pitch under a minute, and practice so it sounds natural. If you need some guidance, check out the myPitch app created by Karalyn Brown of InterviewIQ.
6. Target list of potential employers. Rather than searching job boards all day, looking for the perfect job and getting lost in the black hole of applications, why not approach people inside companies you would like to work for? This route is more work up front, but it will help you stand out and rise to the top of the referral pile if you make the cut.
Quick tip: There are tons of apps for finding posted jobs, but what you really need is additional help networking. Don't miss Alison Doyle's new app called Career Tool Belt. It's loaded with job hunting tips, including the 30 Days to your Dream Job series to guide you day by day.
7. A dose of motivation. Job searching tends to lead to frustration. Rejection is an unfortunate part of the process. Invest time doing things that rejuvenate your energy and keep you feeling hopeful, such as exercising, volunteering or learning a new skill. Keep moving forward and create to-do lists and follow-up actions every day.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-45255994874931210182015-01-08T11:35:00.002-08:002015-01-08T11:35:29.607-08:00Essel Group pledge to invest Rs.20,000 crore in BengalKolkata, Jan 8 (IANS) Diversified media to education business conglomerate Essel Group Thursday pledged to invest Rs.20,000 crore towards developing two smart cities and and various vital infrastructural projects in West Bengal.
The group has submitted a letter of intent (LOI) to the state government to develop the two satellite townships Salt Lake and New Town into smart cities by investing Rs.10,000 crore.
"The group was also interested in participating in infrastructural, urban renewal and socially relevant projects worth Rs.10,000 crore through competitive bidding under Build, Own, Operate and Transfer (BOOT) model and/or EPC (Engineering, Procurement and Construction) model," the LOI said.
Essel is targeting projects like toll roads with an investment of Rs.3,000 crore, sanitation and water treatment worth infusion of Rs.2,000 crore, and a project to convert municipal solid waste to energy by pumping in Rs.2,000 crore. Besides, it is eyeing projects like, metro, monorails or Light Rail Transit mass transport involving investment of Rs.3,000 crore.
The group's integrated utilities company Essel Utilities Distribution Company Limited (EUDCL) is also looking at projects in power and water distribution services, drainage and storm water management, Wi-Fi, cable and broadband, city gas distribution and intelligent traffic management systems, a release by the Group said<b></b>Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-24504096176321812862013-02-15T08:30:00.001-08:002013-02-15T08:30:58.443-08:00ads<!-- START Adsplay International CODE -->
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<!-- END Adsplay International CODE -->Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com5tag:blogger.com,1999:blog-2901280098879429254.post-81526299990584743622013-01-21T07:24:00.005-08:002013-01-21T07:24:52.937-08:00Tips to create a household budget<div class="first">
Where does your monthly salary go? Do you allocate a
certain amount to be spent on the house, or is it a case of buying
things as you need? Did you know that there are huge savings to be had
from maintaining a budget, and not just in terms of cost?</div>
<strong>What is household budget management? </strong><br />
Managing a budget for your household is more than just keeping track
of all the expenses for the month. It is a chart of how much income
there is, how much will be spent, and what can be saved. The idea of the
budget is to broadly plan for living within your means. A budget
ensures that bills are paid on time, household debts are cleared and
savings goals are set and achieved.<br />
A really simple way to do this is to label different envelopes with
the heads of all the recurring expenses of the month (such as rent,
electricity, help, car EMI, etc.). You then know exactly what is going
where, and if there is any left over, it can either be carried over to
the next month, or set aside as a saving.<br />
You could also project your monthly income and create accounts from
which to debit or credit money as bills are paid and income is received.<br />
<strong>Where do you start?</strong><br />
<strong>Begin by making a plan</strong><br />
Create an inventory of needs and wants, from the biggest to the
smallest. Learn to differentiate between needs and wants; those things
that are essential to living, and those that make your life better.
Categorise between non-negotiables (such as food, rent, clothing,
education, transportation, and insurance) and everything else. Or
further divide into what is necessary, what is adaptable, and what is
expendable.<br />
<strong>Select an appropriate budget format</strong><br />
You can download these for free from the Net, or create one of your
own. You need to ensure your spreadsheet works on a monthly cost basis,
so all income and expenses should be multiplied or divided to fit this
calculation. A weekly expense should be multiplied by 52 (weeks in the
year) then divided by 12 (months of the year) to get a monthly
equivalent figure. A quarterly bill should be divided by 3 to get a
monthly amount etc.<br />
Track your expenditure for a month to establish your spending pattern.<br />
This also allows you to prune out those things that can be classified clearly as 'frills'.<br /><strong><br />
Become a conscious spender</strong><br />
Now that you have an idea of where your money goes, you have to
actually keep that in your mind while you spend. And set aside time to
review your finances and expenditure on a weekly basis.<br />
<strong>Go local</strong><br />
The supermarket may contain everything under one roof, but if you
spend a little time comparing prices, you will find that local shops
carry items of the same, or better quality, and at better prices. You're
also assured of freshness if you go to the market.<br />
<strong>Prepare for the unexpected</strong><br />
Car repairs, medical costs, weddings and birthdays, appliance
maintenance, emergency travel, all qualify as additional expenditure,
which you can actually plan for with the help of your spreadsheet, now
that your finances are clearly laid out before you.<br />
Reassess the budget after one month, making any adjustments that are necessary. Assess again after three months.<br />
<strong>Making and maintaining a good household budget: Tips</strong><br /><strong>Share responsibility</strong><br />
If you have a family, then it's very important that they know and
understand how income is distributed over the month, and what it is you
are working towards. You can even ask your children, if they are old
enough, to contribute to the budget. You will be surprised at the
innovative suggestions you will receive. Most importantly, you have
buy-in.<br />
<strong>Set targets</strong><br />
Save money on a monthly basis to achieve your target, whether it's a
high end mobile phone, or a holiday. Don't succumb to instant credit
card purchases or EMI payments on the smaller stuff. In fact, put away
your cards and stick to cash.<br />
<strong>Think out of the box</strong><br />
Emergencies are natural, and you will find yourself strapped for cash
at times. The point is not to panic, but figure out a way in which you
can spend less, save more, yet continue to live in the manner to which
you are accustomed.<br />
<strong>Review what you want</strong><br />
Differentiate between what is meaningful, and simply 'keeping up with
the Kapoors'. Continue to do this often, because your desires will
change, as you grow.<br />
<strong>Be flexible</strong><br />
A budget is not meant to tie you down; rather, it gives you defined economic freedom, not financial restriction.<br />
A good budget allows you control over your money, helps you enjoy
rather than worry over it, makes spending more purposeful, and protects
you from financial problems.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com1tag:blogger.com,1999:blog-2901280098879429254.post-55953568296052318462013-01-21T07:24:00.001-08:002013-01-21T07:24:12.206-08:00When you face steep interest rate hikes…!<div class="first">
In a rising interest rate scenario, times can be tough
for an existing borrower who is a couple of years into his tenure.
Ofcourse his monthly budget may not be affected in the short term, as
often banks increase the loan tenure in most instances. However,
increase in tenure would mean more interest outgo and if hikes happen
repeatedly the borrower will take even more time to close out an already
long term loan.</div>
In such circumstances to either decrease his EMI burden or shorten
the loan tenure - as the case maybe he can try to discuss the situation
with the bank to arrive at a mutually beneficial solution. Though banks
or HFCs do not offer the option of negotiating interest rates half way
through one's loan tenure, some banks and housing finance companies do
consider a request from a borrower who has a good repayment track
record.<br />
On the basis of such a request, sometimes a loan conversion scheme
could be worked out by the bank where the bank can shift an existing
borrower to a new loan rate that a new borrower can lay claim to! In any
case banks are expected to be involved in such an exercise when the
base rate regime was introduced, where the old borrower can request to
shift to the base rate system of interest rates.<br />
Let us consider an example of how this works: Manoj took a loan from a
housing finance company in November, 2008. After factoring in all his
hikes he is currently paying a loan interest rate of 14% on his current
outstanding loan amount. He approaches his housing finance company in an
effort to negotiate his home loan interest rate as he finds that the
new borrower is able to take up a loan at a much lesser interest rate
than he is currently paying. On the basis of the good repayment track
record the bank agrees to consider his request especially since he would
always have the option of a loan transfer to a different bank.<br />
However, to avail a new interest rate he would need to pay an upfront
amount as a loan conversion fee. Banks usually charge a percentage of
your outstanding principal amount as the conversion fee. The minimum
percentage of your outstanding principal amount that is usually charged
as fee is 0.5% -1%. The higher the spread between the new interest rate
and the old interest rate, the higher the conversion fee that needs to
be paid to the bank.<br />
In case of a significant difference in spread, banks also calculate
it in the following manner - By charging the consumer one half of the
spread percentage of the outstanding principal amount.<br />
Let us understand how much Manoj paid as loan conversion fee:<br />
He took a loan of 30L on November 1, 2008 for a loan tenure of 20
years at an interest rate of 11.75%. His current interest rate is at 14%
and outstanding loan amount is Rs.28.9 Lac.<br />
The new interest rate he converted to in August 2011, will be 11%.
The difference in spread between the two interest rates is 3%.<br />
The percentage at which his loan conversion fee will be calculated on
his current outstanding loan amount is ½ of 3% which is 1.5%.<br />
Loan conversion fee =1.5% of 28.9 Lac = Rs.43,350.<br />
If you do this periodically, you will be able to bring down your loan
tenure considerably as the reverse happens (Increase in interest rate,
will lead to increase in tenure, while if you move to a lower interest
rate your tenure will decrease with the EMI being constant - i.e. same
as when you started your loan). Of course you need to factor in the
conversion fee and figure if it will still be beneficial. Chances are it
will prove beneficial, helping you close out your loan earlier than
planned.<br />
Another way to do this conventionally is of course prepay your loan
amount. Banks may have a clause stating you should not prepay
immediately after you convert a loan. This may vary anywhere between 3- 6
months depending on the bank.<br />
However, a combination of prepayment and conversion can yield good
results. If your bank is not amiable to a loan conversion you should try
prepaying in small amounts regularly instead. This is a more
conventional and viable manner of closing out a loan in good time as
well. Most banks offer prepayment rather than loan conversion.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-86469053498441779622013-01-21T07:22:00.004-08:002013-01-21T07:22:55.941-08:00Loan against shares: What should you know?<div class="yom-mod yom-art-content ">
<div class="bd">
<div class="first">
With consumer spending on rise and loans getting
expensive, individuals are finding new ways to fulfill their money
requirements. Providing Loans against Gold etc. is one more way in which
borrowers are able to procure loans from banks. Yet another way to
procure a loan is through LAS (loan against security). A loan against
shares would fall under this category. This option is not known to many
borrowers as banks do not advertise this often. The loan is granted when
you pledge your shares to the bank. More and more banks are offering
this option now and also expanding the financial assets that can be used
as for a LAS option.</div>
<strong>How does this work?</strong><br />
You cannot get a loan against all shares. Banks usually define the
shares of the companies which can be pledged against the loan. These
shares are very liquid, from high quality companies, and highly valued
securities. The amount depends on valuation of shares, margin allowed by
the bank, and your past credit history. The amount of loan is about 50%
to 70% of the value of the shares pledged with the bank. Hence if your
stock portfolio for these shares is 10 lakhs, you can get a loan of 5
lakhs to 7 lakhs against the stock portfolio. This again depends on the
liquidity of the stocks in your portfolio.<br />
You can pledge your shares with the bank, which will issue a current
account. You can withdraw money from this account. The advantage of loan
against shares is that you will be charged interest only on the amount
you withdraw from the account and for the span of time the fund is
utilized. The other advantage is that you require no personal guarantor
for loan against shares.<br />
Banks keep changing the shares against which loans can be taken. This
happens at regular intervals. This is done to ensure the stability and
liquidity of shares which can be pledged.<br />
If you have shares in the physical form, most of the banks require
that you convert them into dematerialized form and then only you can
apply for a loan. Dematerializing physical shares is not difficult. Few
banks may provide loan against shares in physical form too. However, the
interest rate will be higher and also the loan amount as a percentage
of the value of the share will be lower.<br />
<strong>When should you go for it?</strong><br />
You should opt for loan against shares only when you need instant
liquidity and you are sure to pay it back in few months. If you have any
doubt on your repayment capability, try other sources.<br />
The interest rate on loan against share depends on the prevailing
rate in the market. You should compare the interest rate for loan
against shares with other options such as a personal loan or need
specific loan. If you find a cheaper option, go for that.<br />
Many borrowers take loan against shares to invest it back in shares.
Don't do this. Taking a loan to buy shares is a financially harmful
habit. In fact many banks attach the clause that you cannot use it for
buying shares.<br />
<strong>Important points to keep in mind</strong><br />
Getting a loan against share is hassle free and the borrower is
mostly free to spend the money in a manner he or she wishes to. This
comes with no strings attached. You should have good and valued shares
in your portfolio to get a loan against it. However, you must keep some
factors in mind when you opt for this.<br />
The minimum amount of a loan against shares is 1 lakh while the
maximum amount is 20 lakhs. You can get the loan for a year and renew it
in future. The tenure may vary with individual banks. The maximum
amount in the case of physical shares is 10 lakhs.<br />
Don't be tempted to borrow just because you have a good portfolio.
You have built this portfolio over a period of time with due diligence.
Unless absolutely necessary, don't pledge your shares to obtain a loan.
If you do pledge to get a loan against the stock portfolio, make sure
that you pay it back at the first opportunity.<br />
Look at the various charges such as processing fees, one-time fee,
renewal charges, Government levies, and service taxes. Usually there is
no pre-payment penalty but it is advisable to ensure this with the bank.
These charges may make the actual cost of loan higher than the interest
rate charged.<br />
Shares are valued every week to see the maximum limit of loan
available to you. As long as the market is bullish, you will have no
problem. In fact if the share prices go up, the banks will be able to
give you a higher amount of loan. However, when the value of your
portfolio falls, banks ask you to pay the difference using cash or by
pledging more shares. This could be potentially dangerous if you do not
have any cash available with you or any more shares. Banks may sell
your stocks to recover the loan, if circumstances demand so.<br />
The dividends, bonuses, or any benefit on the pledged shares will accrue to you.<br />
<strong>On loan against other financial assets</strong><br />
Banks also provide loan against other financial assets such as mutual
funds, insurance, bonds, fixed maturity plans, exchange traded funds,
and Government securities. The total loan value against the pledged
assets varies with individual cases. The value is higher, almost 80% of
the asset value, for Government securities as these are risk free
assets.<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com1tag:blogger.com,1999:blog-2901280098879429254.post-70100642453003420102013-01-21T07:22:00.001-08:002013-01-21T07:22:18.055-08:00How can you cash in on inflation!<div class="yom-mod yom-art-content ">
<div class="bd">
<div class="first">
"Inflation" is the one dreaded word that can shake the
confidence of economists, investment bankers, policy makers and even the
government! Well, the harsh reality is that if the economy is growing
inflation will definitely raise its head to haunt you. Let's try to
explore why it is such a dreaded word and is there any hidden
opportunity for an investor to generate profit out of this?</div>
Inflation is a state where there is steady (at times not so steady)
increase in price of goods and services. If there is too much money
rolling in the system it will lead to inflation as people will have more
money, which makes them willing to pay more for the same amount of
goods or services.<br />
<strong>Effects of Inflation on the market</strong><br />
Increasing inflation affects each and every sector of economy either
directly or indirectly. The best buddies of inflation are rising
interest rate, crashing stock markets, unemployment, rising bond yield
and of course stress, which makes it appear on everybody's watch list.<br />
<em>Market Behaviour</em> —<br />
Inflation numbers are closely watched by analysts and investors. If
there is slow and steady growth in inflation stock market behaves
positively as inflation is considered a necessary evil. If the number is
too high then we always see a knee jerk reaction in the negative
direction.<br />
<em>Interest Rate cycle</em> —<br />
The prime reason for inflation is too much money in the system. Hence
to curb it, policy makers increase interest rates so that liquidity is
sucked out of the system. But as the interest rate rises, so does the
cost of capital. Increasing cost of capital hampers the earning
potential of companies leading to decreasing confidence of investors,
resulting in stock market fall. Once the stock market falls people start
running towards safer options like investment in government securities.
At this point excess money seems to be resting in peace and the
interest rate starts to decline and the whole cycle starts again!<br />
<strong>Effect of inflation on investment decisions</strong><br />
So should you be bothered about inflation and alter your investment
decisions based on it. If majority of your investment is in fixed income
securities or in bank deposits then the answer is YES. Returns from
fixed income securities are quite closer to inflation rates and hence
you do not gain much in long run. The situation is worse if you sit on
pure cash as your purchasing power is dwindling day by day.<br />
If we cannot avoid inflation, let's figure out how to extract the
most out of it. Two options which will provide a shield against eroding
nature of inflation are the following.<br />
<em>Investment in stock market</em> —<br />
Generally every good company in the long run generates earnings,
which is above inflation rate. Companies have the option of increasing
prices of its products to enhance earnings and this pricing power acts
as a weapon to fight inflation. As a smart investor, one should look for
companies which can utilise this pricing power in times of persistent
inflation.<br />
Commodity prices are quite reactive to inflation and adjustments in
prices are very fast so one should not ignore companies which deal in
commodities. In an inflationary environment, most of the time we witness
market crashes. One should use this opportunity to enter the stock
market to reap better returns in future.<br />
<em>Investment in real estate </em>—<br />
In an inflationary environment, investment in home and land is always
a safer option. Generally the price of a house and land increases with
time and rate of appreciation is higher, as land is a limited resource.<br />
<em>Inflation Indexed Bonds — </em><br />
RBI is also exploring the possibility to bring out inflation indexed
bonds. The return on these bonds will be a little above the rate of
inflation. When this is launched, inflation indexed bond could be a very
good option for risk averse investors.<br />
<strong>Final Words</strong><br />
As it's clear that we cannot avoid inflation let's make some smart
investment choices to cope with it better. An interesting aspect is that
inflation at times provides you an opportunity to buy some good stocks
at cheaper prices. Just remember to be vigilant and be on the look out
for opportunities.<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-18736706486853945742013-01-21T07:19:00.004-08:002013-01-21T07:19:57.181-08:00Group Buying: A better way to buy your dream home?<div class="yom-mod yom-art-content ">
<div class="bd">
<div class="first">
Utopia Builders is a real estate company. The company
has just built a housing complex comprising of 55 flats. Since the real
estate market is down, Utopia could not sell all the flats and is left
with 25 flats still up for sale! Utopia is ready to give heavy discounts
if someone can buy in bulk, say 5 flats. Quite a few builders are in a
similar situation as Utopia. In spite of the heavy discount for a bulk
purchase offer, there were no takers as why would anyone want to
purchase 5 flats in one go?</div>
Ramesh, Shan, and Sayeed are software engineers at Pune, Mumbai, and
Bangalore respectively. They know that the market is down and want to
make the most of this situation to buy a home. However, they are not
able to find a good property deal with attractive discounts in such a
subdued market.<br />
How can Utopia Builders and potential home buyers like Ramesh,
Sayeed, and Shan get in touch with each other? It seems obvious that if
these potential buyers and Utopia Builders got together, a mutually
beneficial arrangement can be worked out!<br />
<strong>Group Buying — a new trend in real estate buying</strong><br />
This is where the group buying concept comes into the picture. Since
the last few years, group buying has been touted as a viable option for
home buyers looking forward to get attractive discounts.<br />
Here is how it works. Potential home buyers connect with one another
through a common platform, usually provided by a third party or a group
buying company (referred to as company hence forth), and form a group.
The company then goes to the builder with a couple of orders and
negotiates for possible discounts. The builder, sensing a good
opportunity to sell a number of his properties, agrees to the discount.
Typically, there is negotiation on discount but the discount is higher
than what is offered in individual cases.<br />
There are exclusive platforms such as <a href="http://www.groupbookings.in/">http://www.groupbookings.in/</a>,
dedicated to group buying of homes, which help individuals to sort
themselves out into like-minded groups, who are interested in bulk
purchases of certain properties. Once a group is formed, the company
negotiates with the builder on the group's behalf to get better
discounts.<br />
<strong>Compelling proposition for property developers</strong><br />
One of the reasons for the popularity of group buying is the
advantage it offers to builders. Usually down payment in group buying is
higher and hence developers who are just starting to build the complex
get much needed cash. In the era of high interest rates and uncertain
stock market, the higher down payment comes as a blessing for cash
strapped developers.<br />
Moreover, developers get a readymade market to sell their properties
in bulk without spending anything in customer acquisition and marketing.
This reduces their cost of selling. This savings can be passed to the
home buyers in the form of extra discount.<br />
Group buying also helps developers sell the properties faster and focus on the next venture.<br />
<strong>Advantages of Group Buying for Home Buyers</strong><br />
The typical home buyer is in constant search for a better deal. As
individuals, home buyers cannot negotiate for a better deal since it
will not make economic sense for developers. The transaction cost with
each individual will be high for developers. Also, an individual home
buyer will not have bargaining power in a market dominated by real
estate developers. By coming together and forming a group, the
individual buyers can increase their bargaining power and hence will be
able to bag a better deal!<br />
For example, suppose Xanadu developers' prices 2 BHK apartments in
its residential complex at 2800 per square feet. The company can
negotiate the price and bring it down to 2300 to 2700 per square feet
for group buying of apartments. This discount will be much more than
what an individual home buyer can negotiate with the builder.<br />
Typically, the company which negotiates on behalf of the home buyers
will probably be able to get a 4% to 10% discount on the price of the
property. This means if the price of your dream home is 40 lakhs, you
can save up to 4 lakhs in discount!<br />
Another advantage is that the group can share common services needed
to complete the transaction such as a home loan, lawyers' fee, and
compliances. In these areas the individual home buyer as part of a
group, will have more power for negotiation.<br />
Here are some group buying examples:<br />
<table border="1" cellpadding="0" cellspacing="0" style="width: 100%px;"><tbody>
<tr>
<td valign="bottom" width="39%"><strong>Area</strong></td>
<td valign="bottom" width="22%"><strong>Actual Price</strong></td>
<td valign="bottom" width="22%"><strong>Group price</strong></td>
<td valign="bottom" width="14%"><strong>Discount</strong></td>
</tr>
<tr>
<td valign="bottom" width="39%">Bombivali, Mumbai</td>
<td valign="bottom" width="22%">4000 per sq feet</td>
<td valign="bottom" width="22%">3200 sq feet</td>
<td valign="bottom" width="14%">20%</td>
</tr>
<tr>
<td valign="bottom" width="39%">Krish City Bhiwadi</td>
<td valign="bottom" width="22%">13.75 Lakhs</td>
<td valign="bottom" width="22%">12.95 Lakhs</td>
<td valign="bottom" width="14%">80,000</td>
</tr>
<tr>
<td valign="bottom" width="39%">Paramount Floraville, Noida</td>
<td valign="bottom" width="22%">3750 per sq feet</td>
<td valign="bottom" width="22%">3525 per sq feet</td>
<td valign="bottom" width="14%">6%</td>
</tr>
</tbody></table>
<strong>How does it work?</strong><br />
Let's see how group buying works. Essentially, there are two ways.<br />
<em>Buyer initiates the deal</em><br />
In this case, the potential home buyer posts his or her wish to buy a
home in a housing complex. The deal is then listed on the website and
potential home buyers are encouraged to form a group if they want to buy
a house in the same housing complex or from the same real estate
developer. The home buyer can also visit the office of the company and
get the required information. Once the group reaches the critical
number, the sales team contacts the home buyers, aggregates the demand
and submits the bid to the builder. The deal is then negotiated, and
finalized. The home buyers get the agreed group discount.<br />
The other way buyer can initiate the deal is to provide his or her
requirement to the company. The company looks at its database and find
out home buyers with similar requirements. Based on their requirement,
the company proposes some of the housing complexes. Once a critical mass
accepts the recommendation, the sales team negotiates with the builders
and gets the discount as applicable.<br />
<em>Broker Company initiates the deal</em><br />
In this case, the company posts a potential housing complex that will
come up or an existing one. The deal is displayed with discount on
offer at the website of the company. The deal also has an expiry date
after which buyers cannot form the group. The buyers are encouraged to
form a group to avail the discount. Buyers typically register and then
show interest in the property posted by the company.<br />
Once the group achieves the critical number, the company submits the
bid to the builder. The deal is then negotiated, and finalized. The home
buyers get the agreed group discount.<br />
<strong>Important Points</strong><br />
While as a home buyer you need to consider all important aspects
typical to a home purchase process, you have to consider the following
additional points:<br />
The broker company is likely to charge for the services. The charges
could be up to 1% of the price of the property. The charges vary with
brokers though and hence you should compare and check with companies
that provide group buying. You should factor these charges to the total
cost of buying your home. Usually charges will only work out to be
lesser than the incremental discount you get from group buying. In some
cases, the group buying company doesn't charge anything from home buyers
but gets its service charge from the developer.<br />
You may have to shell out higher upfront or advance money to a
developer. The money asked upfront is usually more than what you pay in
case of an individual buy. The amount could be twice as much.<br />
Building critical mass of people to buy houses in a specific location
and housing complex takes time. The buyers should like the place;
should have the same requirement; should have convenience of
communication to their office, and should meet many more requirements of
individual buyers. Assimilating all such buyers to form a group will
take time and hence home buyers should be ready to wait for the deal to
materialize.<br />
Last and most important, read the deal and all its features
carefully. In a group buy, most of the buyers think that others have
read the terms and conditions and hence do not bother to read it. Do not
make such mistakes. Ask if you do not understand some features. This is
the most important aspect that you need to provide maximum attention
to! When it comes to doing the due diligence, think like an individual
not as if you are the only one buying the home and take utmost care to
ensure the credibility of builders, papers, and possession.<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com1tag:blogger.com,1999:blog-2901280098879429254.post-86866296880534196392013-01-21T07:18:00.002-08:002013-01-21T07:18:22.243-08:00Manage your home loan in smart ways!<div class="first">
<em>Moving into one's own home is a joy, which is to be
felt not explained. It is utopia what with the poojas, house warming
functions, searching for just the right furniture and fittings, praises
you get for having taken care of the finer parts in construction and
decorating the house and the pride in having acquired a physical symbol
of success.</em></div>
After the festivities are over, and with the dawn of a new month, a
new realization comes home. For the fortunate few, it is the reminder to
fund your bank account, as the loan EMI is due after a week. For others
the money simply flew out of the bank account.<br />
<strong> </strong><br />
It is time for us to act like the fund manager of a mutual fund or
investment fund. Taking informed decisions to manage the asset that we
call home and the liability that we call housing loan. By being prudent,
you can get high "returns" in the form of saving on interest outflow.<br />
<strong>Fund Management When Carrying a Home Loan</strong><br />
As a fund manager of the house, one has to find ways to maximize the
benefits of the cash flows. Make a list of all the loans and
savings/investments that you have made. Do you find places where the
savings/investment is giving lesser returns than the loan rates? This
can typically be seen with your endowment insurance plans, your EPF and
PPF, the postal deposits, sometimes-even ULIPs. Why should you be
invested in something when you are paying higher interest to somebody
else? It is better to close all or most of these lesser returns
savings/investments and divert the funds to close the home loan.<br />
Care should however be taken to replace an endowment insurance plan
with a term plan of higher cover. Your employer and your EPF officer
will allow withdrawal of funds from the EPF account for buying and
closing the loan of a house. The PPF is not so flexible with letting go
of your money. ULIPs and the postal deposits can be closed only after
the stipulated 3 years of lock-in.<br />
<strong> </strong><br />
<strong>Ways to repay your debt quickly:</strong><br />
There are ways to come out of the EMIs and make your loan tenure shorter:<br />
1. Partial pre-payment<br />
2. Switching to a lower rate<br />
3. Increasing the EMI<br />
Now let us look at the options in more detail. The best part is that, the options do not in any way add to your existing budget.<br />
<strong> </strong><br />
<strong>Partial Pre-Payment</strong><br />
This is the easiest way to close a housing loan faster. The method is
to make use of any one-time income like a bonus, salary arrears, gifts
from friends/relatives, any wind fall gains from shares, property sold,
deposits closed, tax saving investments maturing, closure of savings
that are giving you lesser returns than the housing loan, etc to
partially close the housing loan.<br />
The effect is that the one-time payments help to reduce the principal
balance in the loan. And when the EMIs continue, they have lesser of
the principal to cover. So the same EMIs need a lesser time to close the
loan. More earlier and more frequently the partial pre-payments happen
the faster the loans close.<br />
Banks generally allow partial pre-payment starting from Rs.10,000/-.
There are no charges for partial pre-payment of housing loans.<br />
<strong> </strong><br />
<strong>Switching To a Lower Rate </strong><br />
The interest rates current are in a rising trend. There are times
when the interest rates start going down too. Based on the interest rate
reset period, different banks will reduce their rates at different
times. If the reset interest band of your lender is a wider band, you
may be at a higher interest rate for a long time after other banks have
started to reduce their rates.<br />
Switching to a lower interest rate will shave off a few years from
your housing loan. Care however has to be taken about not jumping too
many times or with low interest rate differences. This is because there
is a charge for switching loans, i.e. prepayment penalty, which the RBI
has been stressing, should be removed from the system. While some banks
have already done away with it, some still charge if you do not pay from
your own sources. However, it could just be a matter of time till it is
totally removed from the system easing the cost burden for the loan
borrower further!<br />
Do remember that property verification and other legal paperwork will
have to be done afresh in the case of a loan transfer. Also, for a loan
transfer to be effective you should have a clear track of having
cleared all the EMIs on time, every time.<br />
<strong> </strong><br />
<strong>Increasing the EMI</strong><br />
This is another option to close the loan faster. If you can spare a
portion of an increment to increase the EMI, considerable saving could
be made. For example a Rs.30,00,000/- loan for 20 years will need an EMI
of Rs.28,950/-. If you can spare an additional Rs.2,300/- per month,
the loan can be closed in 15 years itself.<br />
The EMI can also be increased by making use of money that was going
into an endowment insurance plan or a recurring deposit in a post
office.<br />
Increasing the EMI can be done at any point during the tenure of the
loan. There are generally no charges for increasing the EMI.<br />
<strong> </strong><br />
<strong>Summary</strong><br />
Only after closing the home loan does one really become the owner of
the house. Closing the loan as soon as possible not only relieves the
mental strain of carrying a debt but also releases more money into the
family budget.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-90261527898532309402013-01-21T07:17:00.002-08:002013-01-21T07:17:44.117-08:00Debt investments: A safer bet now?<div class="first">
In uncertain times everyone takes comfort with their
best friends. Similar is the case with the investor community. Whenever
market volatility increases, inflation raises its head, interest rates
are rising and there is fear of economic down turn, focus of investors
shift from capital appreciation to capital preservation. This is the
time investors remember the old and trusted buddy "Debt Investment",
whom they normally forget in good times. In this article we will try to
understand why this instrument acts as a savior and find out the
reason why it takes the back seat when the investor community is in a
positive mood. We will also try to figure out when the right time to
invest in debt instruments is and what are the options available with
us.</div>
<strong><span style="text-decoration: underline;"> </span></strong><br />
<strong>Debt Instrument</strong><br />
A debt instrument is an asset that pays fixed returns over time. It
has a fixed maturity period after that the investors can liquidate the
asset and gets the principal with the remaining interest dues.<br />
Debts are low risk, low return assets. The liquidity is low to medium.<br />
There are many debt types available to investors to choose from.<br />
a. Fixed Deposits<br />
b. Debt Mutual Funds<br />
c. Bonds and Debentures<br />
d. Government managed saving schemes (NSC, KVP, PPF)<br />
<strong><span style="text-decoration: underline;"> </span></strong><br />
<strong>Debt Instrument — Savior in the time of market uncertainty</strong><br />
Whenever there is doubt regarding the economic growth, inflation is
high, and interest rate is rising due to monetary tightening, equity
valuation goes down as the expected returns from equity investment goes
up in a increasing interest rate scenario and return from debt
instruments becomes lucrative. As the interest rate is rising, so is the
return from the debt instrument. Due to risk aversion investors with a
low risk appetite prefer to invest in debt instruments. High risk
appetite investors also get into capital preservation mode and
reallocate funds towards debt instruments.<br />
The best time to park your money in a debt instrument is at the peak
of the interest rate cycle. We all know inflation is increasing day by
day and RBI is trying to tame it by monetary tightening. The interest
rates have been going up slowly since the last one year as the RBI is
tightening the monetary policy. We have seen that RBI has increased
interest rates 11 times in last 2 years.<br />
There is also uncertainty about RBI's next move when they meet in
this month (September, 2011). It's expected that RBI will increase rates
further as till now it has not been able to contain inflation. Based
on this assumption we will be somewhere near the peak interest rate
scenario around November. So investors should start planning for
investment as the risk reward ratio is going to be in favor of investors
in another two months.<br />
<strong>Choices available for investors</strong><br />
Despite low risk low return nature of debt investment, debts within
their own set vary in risk and return. Government securities and bank
deposits are almost risk free (let's ignore inflation and interest rate
risk) while corporate debts are riskier. Let's take a look at the
choices available to investors.<br />
<em>For investors with low risk appetite and long term investment horizon </em><br />
As per new DTC which is expected to be implemented from April 2012,
PPF investments will continue to be governed by EEE (Exempt, Exempt,
Exempt) and not EET (Exempt, Exempt, Taxable) meaning investment,
accumulation and withdrawal - all three related to this investment will
be tax exempt. So investment in PPF is recommended if DTC implements
this rule from 2012. Investment in PPF also acts as a tax saving
instrument which adds to the overall return on investment. Government
securities and schemes are other options for risk-averse investors.<br />
<em>For investors with moderate risk appetite and short term investment horizon </em><br />
Investment in Debt Funds and FD is a good option for investors with
short to medium term investment horizon. Debt funds invest in various
types of debt securities and are professionally managed. Most of the
debt funds are highly liquid so money can be parked in them for a short
term. Once the economic condition improves and interest rate eases,
this money can be reallocated to equity portfolio. If you as an
investor simply want to sit and enjoy life till normalcy in market
returns then medium term FD can be a very good option for you as the
return on them is attractive too.<br />
<strong>A note on Direct Tax Code (DTC)</strong><br />
The direct tax code is expected to take out various debt instruments
available to investors for tax saving purpose. Investment in Government
managed saving schemes (NSC etc.) and infrastructure bonds for tax
saving purpose are a strict no for the time being as upcoming DTC
proposes to remove them from the categories of exempted income.
Investors should wait for the clarity in DTC before they invest in them
for tax saving purposes.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-50091108249806160222013-01-21T07:16:00.001-08:002013-01-21T07:16:15.593-08:00How your loan repayment works!<div class="first">
To meet some of your goals like buying a car or
building a home might require additional financial help in the form of a
loan from a bank. In the current scenario of rising interest rates it
is vital that you understand important elements in the loan taking
process, helping you make an informed decision when it comes to
balancing your monthly budget and your loan repayment.</div>
<strong>What is an EMI?</strong><br />
An equated monthly installment (EMI) is the amount of money that is
paid back to the lender on a monthly basis. It is essentially made up of
two parts, the principal amount and the interest on the principal
amount divided across each month in the loan tenure. The EMI is always
paid up to the bank or lender on a fixed date each month until the total
amount due is paid up during the tenure.<br />
Now, you might assume that the equal parts of the principal and
interest is repaid to the financial institution every month, however
this not the case. During the initial years the interest component
repaid is higher and during the latter years of repayment the principal
component is higher. So, if you think you have paid half of the amount
borrowed from the bank in 5 years in a 10 year loan tenure that would
not be the case. You would probably have reduced the total interest
component due considerably and would have only repaid the interest
component for the most part.<br />
Here is a simple example that explains how the repayment of your EMI
reduces your loan amount during the repayment period leading up to the
end of the loan tenure.<br />
<strong><span class="yom-figure yom-fig-right" style="width: 630px;"><a href="http://l3.yimg.com/bt/api/res/1.2/n0q5pWIhOiRqnX_F8swK5w--/YXBwaWQ9eW5ld3M7cT04NQ--/http://media.zenfs.com/en/blogs/finbankbazaarin/banakbazaargraph.jpg"><img alt="" class="aligncenter size-full wp-image-356" height="496" src="http://l2.yimg.com/bt/api/res/1.2/XE2GDa99efWhIWXiMNV8Tw--/YXBwaWQ9eW5ld3M7cT04NTt3PTYzMA--/http://media.zenfs.com/en/blogs/finbankbazaarin/banakbazaargraph.jpg" title="banakbazaargraph" width="630" /></a><span class="legend">banakbazaargraph</span></span></strong><br />
Here the loan amount is 20L, which is lent at an interest rate of say 10% with loan tenure of 10 years.<br />
The monthly EMI is calculated at the annualized rate of 10% and amounts to Rs. 26,430 per month.<br />
You will notice that the interest repaid decreases with each passing
month and the principal repaid increases with each passing month. In the
case of large loan amounts with long tenures, the interest component
will be the greater portion of the EMI, which will reduce leading up to
the end of the loan tenure, while the reverse is true for the principal
component.<br />
Remember to request your bank for an amortization table, which will
indicate at any point in time, what exactly your outstanding loan amount
is!<br />
<strong>EMI and your income</strong><br />
Did you ever wonder why your EMI is generally restricted to 30% or
40% of your monthly income? Here is why. Salary details, qualifications,
employer/business, years of experience, growth prospects, alternate
employment prospects and sources of other income, if any, are all
aspects that determine the amount of loan you are eligible for.<br />
Generally, the repayment schedule is worked out in a manner that
allows only around 40-50% of your monthly take home income to be repaid
as EMI. It is thus restricted keeping the following factors in mind:<br />
- Around 10% of your income is spent on other loans, if you have any or if you avail one in the future.<br />
- Around 20- 25% of your income could be deducted by way of statutory deductions and for investment purposes.<br />
- Around 20-25% of your income is generally spent to meet your monthly expenses.<br />
This leaves back around 40-50%, which is taken as your repayment capacity for your loan.<br />
For self-employed applicants, profit is the benchmark that determines
loan value. The longer the time frame for repaying the loan the lower
the EMI and this also means you can opt for a larger loan amount. The
loan amount you are eligible for is also dependent on other factors like
the company you are employed with, city of residence and your credit
history.<br />
A long term loan like a home loan is a debt that is part of your
budget every month. If you invest too much into it, there might not be
adequate funds to manage a huge list of other expenses that will tend to
accumulate with time. For eg. You need to make allowances for future
expenses like education expenses for children, emergency funds for a job
loss or the loss of one income in a situation where two people have
taken a joint loan.<br />
There might be spikes in interest rates. In such a scenario usually
banks will increase the loan tenure in order to not put the loan taker
in a tight spot by increasing his EMI.<br />
However in such a situation if you have adequate funds in hand or
when your income increases with time you could prepay at regular
intervals, allowing scope for closing your loan early and reducing your
total interest outgo. It is best not to commit to a higher EMI that
might cause a strain in your finances; rather it should be the other way
around where you can actually control the repayment pattern of your
home loan.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-13917617549823321762013-01-21T07:15:00.001-08:002013-01-21T07:15:07.811-08:00Home loans and the festive season<div class="first">
The interest rate for home loans has been going through
the roof for the last couple of quarters. At the same time, CPI
inflation is stubbornly at double digit. As a result, people have
postponed their decision to buy a home or invest in real estate. In such
a scenario, banks are looking for ways to become innovative with their
loan offerings with all the more reason to do so, as we are in the thick
of the festive season!</div>
In this article, we will discuss the discount schemes that are on offer.<br />
<strong><em>Dual rate scheme</em></strong><br />
Dual rate scheme fixes the interest rate for first few years and then
changes it to the prevailing interest rate. The prime example of this
type of loan offered by banks is ICICI bank. ICICI bank is giving home
loans with interest rate fixed for 1<sup>st</sup> year and 2<sup>nd</sup> year. After 2<sup>nd</sup>
year, the interest rate charged will follow the prevailing interest
rate. The prevailing interest rate will be the base rate of ICICI bank
plus the premium. The premium can be anywhere between 0.5% and 1.5%
depending on the size of the loan. Here is what ICICI bank is offering:<br />
<table border="0" cellpadding="0" cellspacing="0" style="width: 100%px;"><tbody>
<tr>
<td valign="bottom" width="37%"><strong>ICICI Bank Dual interest rate scheme</strong></td>
<td valign="bottom" width="20%"><strong>Fixed for 12 months</strong></td>
<td valign="bottom" width="20%"><strong>Fixed for 24 months</strong></td>
<td valign="bottom" width="20%"><strong>Fixed for 36 months</strong></td>
</tr>
<tr>
<td valign="bottom" width="37%">Less than 25 lakhs</td>
<td valign="bottom" width="20%">10.50%</td>
<td valign="bottom" width="20%">10.75%</td>
<td valign="bottom" width="20%">10.75%</td>
</tr>
<tr>
<td valign="bottom" width="37%">Between 25 and 75 lakhs</td>
<td valign="bottom" width="20%">11.00%</td>
<td valign="bottom" width="20%">11.25%</td>
<td valign="bottom" width="20%">11.25%</td>
</tr>
<tr>
<td valign="bottom" width="37%">Above 75 lakhs</td>
<td valign="bottom" width="20%">11.50%</td>
<td valign="bottom" width="20%">11.75%</td>
<td valign="bottom" width="20%">11.75%</td>
</tr>
</tbody></table>
<strong><em>Discount on processing fee</em></strong><br />
This is one of the ways to provide discount on total cost of loan.
Punjab National Bank has done away with processing fee completely. This
will certainly lower down the cost of home loan by few points.<br />
<strong><em>Concession on home loan</em></strong><br />
State Bank of India, Dena Bank, and Corporation bank are giving
discount of few basis points for home loan till the end of this year.
SBI and Dena bank have offered discount of 25bps while corporation bank
has offered up to 100 bps discount. Corporation bank has also waived off
60% of the processing fee.<br />
<strong><em>Progressive monthly instalment scheme</em></strong><br />
Few banks are providing loans on progressive monthly instalment
scheme where the borrower's liability or EMI is based on increase in
salary. Hence the EMI will be lower in first few years and will be
regular after the period. Corporation bank offers this scheme. This
scheme is especially good for young people who expect their salaries to
rise in future.<br />
<strong><em>Fixed rate home loan scheme for few initial years</em></strong><br />
This is another addition to the schemes offered by banks to home loan
borrowers. HDFC bank is offering two variants of the scheme. Home loan
borrowers can choose either 3 years fixed or 5 years fixed home loan
scheme. The offers are as follows:<br />
<table border="0" cellpadding="0" cellspacing="0"><tbody>
<tr>
<td valign="bottom"><strong>HDFC Bank fixed rate for few years</strong></td>
<td valign="bottom"><strong>Fixed for 3 years</strong></td>
<td valign="bottom"><strong>Fixed for 5 years</strong></td>
</tr>
<tr>
<td valign="bottom">Less than 30 lakhs</td>
<td valign="bottom">10.75%</td>
<td valign="bottom">11.25%</td>
</tr>
<tr>
<td valign="bottom">Between 30 and 75 lakhs</td>
<td valign="bottom">11.25%</td>
<td valign="bottom">11.50%</td>
</tr>
<tr>
<td valign="bottom">Above 75 lakhs</td>
<td valign="bottom">11.75%</td>
<td valign="bottom">11.75%</td>
</tr>
</tbody></table>
<strong><em>Fixed rate home loan scheme</em></strong><br />
Fixed rate home loan scheme is offered by Axis bank. This fixed rate
will remain fixed for the complete tenure of the loan. This scheme is
known as "Nischint". There is no change in EMI and no surprises. The EMI
will be set once and for all. The interest rate is 11.75%.<br />
<strong>Points to note</strong><br />
Due to the rising interest rate scenario, product innovations abound
in the market, however borrowers should take care to weigh the pros and
cons of the scheme. Finally, borrowers should compare the rates and
overall charges from different banks to arrive at the effective cost of
the loan and then make their decision.<br />
The general perception in the market is that interest rates are near
its peak; it might go up once or twice and then begin a downward trend.
Keeping this aspect it mind, explore the home loan options available
with an open mind, especially if you have bagged a good home deal, which
could become a lost opportunity, if you failed to latch on to it.<br />
On the other hand, borrowers should do their due diligence and
research loan schemes where the interest rate or EMI in the initial
years is low. Borrowers should arrive at a rough estimate of the
possible interest rates after the initial years. They should check the
base rate, premium over base rate, and historic data on past loan
schemes to arrive at this possible interest rate as part of their
decision making process.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-10337541157292532482013-01-21T07:14:00.003-08:002013-01-21T07:14:23.036-08:00Stock Investing – Short Term Strategies<div class="first">
There was a research conducted in United States on the
average number of days investors hold the stock. The number was 187
(about 6 months) in 1991-1996 period. The median was worse with just 90
days. With internet boom era and overpriced IPOs in 2000s, this came
down to about 3 months. There is no data available for Indian market but
looking at the volatility of our stock market, the numbers will be very
close or even less.</div>
This tells us there are mostly short term traders in the market. Is
there anything wrong with short term trading? Absolutely not, but
investors should know the rules of the game before they trade short
term. Apart from knowing the rules, investors should also understand
that short term trading mostly relies on luck and on study, which at
best can be termed speculative.<br />
In the current volatile market scenario, you could be tempted to try
your luck in some short term investment strategies to make the best out
of a bad situation. Here is an understanding of some short term trading
strategies usually followed by short term traders. Knowing these
strategies will make you aware of your own actions. However, do proceed
with caution.<br />
<strong>Day-trade in stocks</strong><br />
In this trading style, traders buy and sell the stocks on the same
day or in a very short period of time. The traders take advantage of
daily market volatility to profit. They buy when the stock prices go
down hoping the prices to appreciate in the day. They square-off by the
end of the day. This can result in profit or loss depending on whether
the price they sold at was higher or lower than their buy price. This is
a very popular way to trade. The popularity stems from the fact that
this looks exciting. Even if traders lose money, the loss doesn't seem
big as daily variation is not very volatile.<br />
Day-trading, however, is the most popular way to lose money. Majority
of day-traders either lose money or do not make better than a long term
investor. Investors look at daily loss and assume that this is not a
big loss but accumulate the losses for the year and they can see the big
picture.<br />
Take an example. If I have 1 lakh and I gamble, I will be happy to
earn Rs 2000 from my gamble. However, I will not be too worried if I
lose Rs 2000. This psychology works against traders. The happiness to
get marginal profit is more than the sorrow of suffering a marginal
loss. Take another example. A buyer goes to a showroom and to buy a car
worth 3 lakh. At the last moment, he comes to know that the seller is
giving Rs 6000 coupon free to be spent in lifestyle. At the same time,
another buyer goes to another shop and buys the car at 2 lakh and 94000
rupees. Both come out of the shop. Whom do you think will have bigger
smile?<br />
<strong>Risk mitigation</strong><br />
Investors should not put all their money in day-trading. If you are
too excited by daily price volatility and want to try your hands in
day-trading, put at most 10% of your total investment for this and play
with this. Do not gamble more.<br />
<strong>Trading on margin</strong><br />
In margin trading, the investor spends some part from his or her
pocket and borrows the rest from the broker at an interest. In this
context, investors have to understand the concept of initial and
maintenance margin. Initial margin is the % of total investment that
investors have to put. When the prices go down, your contribution in
terms of percentage will go down. After it goes below a certain
percentage, the broker will ask you to put more money to take it to the
initial margin. This "certain percentage" is called maintenance margin.<br />
Take an example. Let's say an investor, Rakesh buys 100 stock of
Airtel at Rs 400 a share. The initial margin is 25% and maintenance
margin is 10%. This means Rakesh has to put 10,000 (25% of total
investment of 40,000). The rest 30,000 is borrowed by broker. Suppose
the prices start going down and goes to Rs 330 a share. In this case,
the total value is 330*100 = Rs 33,000. Let's calculate what the
contribution by investor at this point is. The investor contribution is
(33000-30000)/33000. This is less than 10%. Hence investor will get a
call to put more money so that his or her contribution is 25% of Rs
33000 which is Rs 8250. Since his amount is 3000, he will have to
deposit another 5250.<br />
This is high risk high return strategy. The advantage is that if the
prices go up, you earn all the profit minus the interest you pay to the
broker on his contribution. However, the loss is equally yours because
the broker will anyway charge the interest. This is a double whammy.<br />
<strong>Risk Mitigation</strong><br />
The only risk mitigation strategy is that the investors should never
put more money when margin call is given by the broker. The investor,
instead, should ask the broker to square off the position with whatever
loss has happened. Avoid the temptation to put more money after the
margin call.<br />
<strong>Selling short</strong><br />
In this short term strategy, investors borrow and sell the shares and
later they have to buy this from open market and give it back to the
lender. The idea is to benefit from decreasing prices. Investors
short-sell stocks because they assume that prices will go down and when
it goes down they buy it cheaper and give it back. The difference is the
profit to investors.<br />
Take an example. An investor Rakesh expects the price of Airtel with
current market price @400 to go down. Since he has no stocks, he borrows
100 Airtel stocks from the market and sells it immediately earning
40,000. After sometime, as he expected, the Airtel price went down to
350. He buys 100 stocks back at 35,000 and gives it back. He earns Rs
5000 from this transaction. We are ignoring transaction costs and other
charges for the sake of simplicity.<br />
Short term is tempting to investors. Short term trading offers
excitement, action, and instant gratification. Compared to this, long
term is boring, tedious, and requires extreme patience. However, there
is no way to build wealth but by using long term strategies. This is
true for most of the investors. There are short term investors who have
done tremendously well but they are few and far between. Hence investors
should put their major portion of investment corpus for long term
wealth building assets and segregate a minor portion for short term
speculation.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-22478262449871437452013-01-21T07:13:00.002-08:002013-01-21T07:13:32.091-08:00Currency fluctuation and your investment!<div class="first">
Rupee falls at Rs 48 a dollar. Do we even care for such
news? We leave it to NRIs to worry about the exchange rate. For
domestic investors, does rupee fluctuation hardly make any difference?
Most investors do not read between the lines regarding how rupee
fluctuation impacts their investments. Moreover, the exchange rate
phenomenon seems esoteric for most of the common investors. In this
article we will discuss some aspects of rupee fluctuation on our
investment.</div>
<strong>Currency fluctuation</strong><br />
There are mainly two ways by which currency rates are managed.
Firstly, countries fix their currency against dollar. Hence the exchange
rate doesn't change. Government takes action to manage any fluctuation
that may happen. Secondly, countries leave it to the market to decide
their exchange rate. In such a system, countries follow policy of
non-interference.<br />
India doesn't have a fixed value of rupee against dollar but it also
doesn't keep its currency completely floating against dollar. We have a
system where the central bank allows rupee to fluctuate within a
specified range.<br />
Usually, rupee appreciation is taken as economy gaining strength while depreciation is taken as Indian economy losing strength.<br />
<strong>How it impacts investors</strong><br />
Let's look at how rupee fluctuation impacts investors' decisions. Let's look at appreciation first.<br />
<strong>Rupee appreciation -</strong><br />
Rupee appreciation is considered bad for companies where major part
of their revenue comes from export. Appreciation of rupee makes products
more expensive for export. When the products become expensive,
importing nations either reduce the import or look out for other nations
that can produce the same product at cheaper prices. Hence, any
appreciation in rupee is often accompanied with clamour by export
companies to devalue the currency.<br />
Rupee appreciation is good for companies that depend on import from
other countries. For example, oil companies, Parma, Engineering, and
medical device companies will be fine with rupee appreciation. The
machinery, oil, and engine used in such industries will be cheaper to
buy. Investors can consider investing in such companies when rupees
appreciate.<br />
Let's take an example. Suppose the rupee dollar exchange rate is 50
(i.e. Rs 50 - $1). A company in export sector earns a profit margin of
15% from export. If the rupee appreciates and the new exchange rate is
Rs 40 = $1. In this case, the company has lost 20% of the income.<br />
This impacts investors in sectors that depend on export for their
income. The typical examples are software industry and textile. Their
dependence on export is heavy. Any rupee appreciation will hit software
and textile industries hard. We have seen what happened in 2008 when
America went into recession, dollar lost value and rupee appreciated
against dollar. There were lay-offs, increased hours, flat revenues, and
reducing profit. Investors in export oriented sector will be hit by any
appreciation in rupee.<br />
<strong>Rupee depreciation -</strong><br />
Rupee depreciation is when it loses value against dollar. For a
nation like India where import is more than export, rupee depreciation
makes things worse because imports get expensive. This increases the
deficit. Rupee depreciation is not a good signal except for export
driven companies.<br />
For Indian economy, which depends on oil import, any fall in rupee
will impact its oil bill. This will increased inflation because of
increased oil bill. Increased inflation eats into the returns of
investors. Moreover, a high inflation reduces the economic activity and
consumption.<br />
Software companies, textile companies, and many other export driven
sectors such as tourism are the ones where investors can think of
investing. Their export becomes cheaper and hence they can sell more to
the overseas clients. These companies will do well.<br />
<strong>Important points to keep in mind</strong><br />
Since the global crisis is yet to stabilize, there will be extreme
fluctuation of currency or rupee. Greek crisis, Eurozone, America's
growth, and many other factors will impact the currency rate. The most
recent example is rupee's fall from Rs 44 a dollar to Rs 48 a dollar
within a month. This happened because Euro went down against dollar as a
result of Greek crisis. As a consequence dollar improved not only
against euro but against many currencies. Investors are requested to
trade based on currency fluctuation only when they have some expertise
in this.<br />
There will be times when rupee fluctuation may not impact individual
companies or sectors because of other factors present. For example, if
rupee depreciates against dollar further, there is not much chance that
software industry will improve its income as they did in the past. They
have become quite matured and going from here to the next level will
require different ways to develop software.<br />
Finally, the rupee dollar exchange rate will remain volatile till the
crisis persists. Hence investors should practice caution when investing
in exchange rate sensitive sectors.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-91365631300021090962013-01-21T07:12:00.003-08:002013-01-21T07:12:53.519-08:00Understanding your true net worth!<div class="first">
An accurate understanding of one's financial well being
is of utmost importance at every stage of life. So, whether you are a
student, fresher into the job market or a veteran - assessment of
personal financial health is important in order to make good financial
decisions. For example, even if are purchasing a car, purchasing a home,
taking a student loan, liquidating an investment or making a risky
investment - all these decisions can be made only if you know your
financial status well.</div>
An individual's financial health is computed by means of his personal
net worth. In simple terms, personal net worth is the net asset value
of an individual. Personal net worth is calculated as follows:<br />
<strong>[Total Assets] less [Total Liabilities]</strong><br />
One must assess his / her net personal worth on a regular basis. This
is because corrective measures can be taken in time if the net personal
worth starts declining. It is much easier to recover at early stages
than once you find yourself in deep financial crisis. Your net personal
worth will also give you an idea about how financial institutions
perceive you as a borrower. For example, Deepak, an IT consultant with a
software company wants to purchase a car. He has set his eyes on the
Toyota Corolla. The car dealer informs him that the on road price of the
car will come to Rs.11.25 L. If he takes a car loan, he will have to
pay a monthly EMI of Rs. 15,000 towards repayment of the car loan and
pay an amount of Rs. 1.0 L as down payment. Deepak's monthly salary is
Rs.0.9L and the EMI as well as the down payment seems easily affordable.
However, Deepak should assess whether he can afford to buy this car at
present by considering all his liabilities and assets. His personal net
worth should give him a fair idea of his current financial status and
whether he can afford to buy the car.<br />
<span style="text-decoration: underline;">Computation of Deepak's personal net worth</span><br />
<table border="1" cellpadding="0" cellspacing="0" style="width: 389px;"><tbody>
<tr>
<td valign="top"><strong>Assets</strong></td>
<td valign="top">Rupees in '000</td>
</tr>
<tr>
<td valign="top">Current Market Value of his apartment</td>
<td valign="top">5000</td>
</tr>
<tr>
<td valign="top">Market Value of his TVS Scooty (two - wheeler)</td>
<td valign="top">10</td>
</tr>
<tr>
<td valign="top">Value of Fixed Deposits</td>
<td valign="top">500</td>
</tr>
<tr>
<td valign="top">Market Value of shares held by him</td>
<td valign="top">200</td>
</tr>
<tr>
<td valign="top">Market Value of Mutual Funds owned by him</td>
<td valign="top">500</td>
</tr>
<tr>
<td valign="top">Market Value of Jewellery</td>
<td valign="top">300</td>
</tr>
<tr>
<td valign="top">Value of NSCs</td>
<td valign="top">5</td>
</tr>
<tr>
<td valign="top">Amount in PPF</td>
<td valign="top">10</td>
</tr>
<tr>
<td valign="top">Cash in bank and in hand</td>
<td valign="top">100</td>
</tr>
<tr>
<td valign="top"><strong>Total Assets (A)</strong></td>
<td valign="top"><strong>6625</strong></td>
</tr>
<tr>
<td valign="top"><br /></td>
<td valign="top"><br /></td>
</tr>
<tr>
<td valign="top"><strong>Liabilities</strong></td>
<td valign="top"><br /></td>
</tr>
<tr>
<td valign="top">Outstanding home loan</td>
<td valign="top">4500</td>
</tr>
<tr>
<td valign="top">Outstanding loan on TVS Scooty</td>
<td valign="top">2</td>
</tr>
<tr>
<td valign="top">Outstanding student loan</td>
<td valign="top">200</td>
</tr>
<tr>
<td valign="top">Outstanding credit card bills</td>
<td valign="top">50</td>
</tr>
<tr>
<td valign="top"><strong>Total Liabilities (B)</strong></td>
<td valign="top"><strong>4752</strong></td>
</tr>
<tr>
<td valign="top"><br /></td>
<td valign="top"><br /></td>
</tr>
<tr>
<td valign="top"><strong>Personal Net worth (A-B)</strong></td>
<td valign="top"><strong>1873</strong></td>
</tr>
</tbody></table>
Assuming that Deepak's monthly outflow towards EMIs of outstanding
loans is Rs. 35,000/- and looking at his personal net worth, a corolla
is a viable option. This is because he has a positive net worth of
Rs.18.73 L. Further he is able to make payments of EMIs with ease
considering his current income and should also be able to pay the EMI on
the new car loan.<br />
Note that knowledge of current personal net worth is essential to
make financial decisions. It is important to reevaluate personal net
worth while making any important financial decision as the value of
assets and liabilities is likely to change. Also, net worth should not
be considered in isolation. It is a good idea to consider factors like
current and future income levels, future liabilities etc. For example,
if Deepak has to bear the expenses of his sister's wedding which costs
him approximately Rs. 9 L and he has to sell off some of his investment
to meet the wedding expenses, his personal net worth will look
different. Further, if the market value of assets declines, his personal
net worth will also take a hit. Let us take a look:<br />
<span style="text-decoration: underline;">Deepak's Personal Net worth if he has to bear his sister's wedding expenses and if the economy takes a down turn:</span><br />
<table border="1" cellpadding="0" cellspacing="0" style="width: 389px;"><tbody>
<tr>
<td valign="top"><strong>Assets</strong></td>
<td valign="top">Rupees in '000</td>
</tr>
<tr>
<td valign="top">Current Market Value of his apartment</td>
<td valign="top">3000</td>
</tr>
<tr>
<td valign="top">Market Value of his TVS Scooty (two - wheeler)</td>
<td valign="top">10</td>
</tr>
<tr>
<td valign="top">Value of Fixed Deposits</td>
<td valign="top">0</td>
</tr>
<tr>
<td valign="top">Market Value of shares held by him</td>
<td valign="top">100</td>
</tr>
<tr>
<td valign="top">Market Value of Mutual Funds owned by him</td>
<td valign="top">200</td>
</tr>
<tr>
<td valign="top">Market Value of Jewellery</td>
<td valign="top">100</td>
</tr>
<tr>
<td valign="top">Value of NSCs</td>
<td valign="top">5</td>
</tr>
<tr>
<td valign="top">Amount in PPF</td>
<td valign="top">10</td>
</tr>
<tr>
<td valign="top">Cash in bank and in hand</td>
<td valign="top">0</td>
</tr>
<tr>
<td valign="top"><strong>Total Assets (A)</strong></td>
<td valign="top"><strong>3425</strong></td>
</tr>
<tr>
<td valign="top"><br /></td>
<td valign="top"><br /></td>
</tr>
<tr>
<td valign="top"><strong>Liabilities</strong></td>
<td valign="top"><br /></td>
</tr>
<tr>
<td valign="top">Outstanding home loan</td>
<td valign="top">4500</td>
</tr>
<tr>
<td valign="top">Outstanding loan on TVS Scooty</td>
<td valign="top">2</td>
</tr>
<tr>
<td valign="top">Outstanding student loan</td>
<td valign="top">200</td>
</tr>
<tr>
<td valign="top">Outstanding credit card bills</td>
<td valign="top">50</td>
</tr>
<tr>
<td valign="top"><strong>Total Liabilities (B)</strong></td>
<td valign="top"><strong>4752</strong></td>
</tr>
<tr>
<td valign="top"><br /></td>
<td valign="top"><br /></td>
</tr>
<tr>
<td valign="top"><strong>Personal Net worth (A-B)</strong></td>
<td valign="top"><strong>(1327)</strong></td>
</tr>
</tbody></table>
Clearly, in the above situation, Deepak should not purchase a car at
present and should concentrate on improving his personal net worth.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-37364397779915777512013-01-21T07:11:00.004-08:002013-01-21T07:11:55.631-08:00Understanding how HRA works!<div class="first">
The end of another financial year is drawing close and
is a couple of months away. The words "income tax" start ringing a
frantic bell towards the end of every financial year, and many questions
arise. Please do note that it is best to be prepared in the beginning
rather than the end of a financial year!</div>
There are many tax components you need to be clear about and also
figure out how to plan your investments to gain maximum returns as well
as maximum tax benefits. One such tax component is the tax benefit you
can claim from your house rent allowance. This article helps you
understand how this works!<br />
HRA (house rent allowance) is provided to salaried people under
Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of
Income Tax Rules. Self employed professionals are eligible for tax
deductions under section 80GG of Income Tax Act, 1961.<br />
<strong>Dependent factors</strong><br />
When you are calculating HRA for tax exemption you take into
consideration four aspects which includes salary, HRA received, the
actual rent paid and where you reside, i.e. if it is a metro or
non-metro. If these aspects remain constant through the year, then tax
exemption is calculated as a whole annually, if this is subject to
change, as in a rent hike or shift in residence etc. then it is
calculated on a monthly basis.<br />
The place of residence is significant in HRA calculation as for a
metro the tax exemption for HRA is 50% of the basic salary while for
non-metros it is 40% of the basic salary.<br />
<strong>On paying rent</strong><br />
It is not essential that you should pay rent only to a landlord to
avail your HRA benefits. You can pay rent to your parents to claim tax
benefits. However, they need to account for the same under `Income from
house/property' and will be entitled to pay tax for the same.<br />
Remember you cannot try the same with your spouse, as it is not
permissible under income tax law, as you are expected to reside together
for all practical purposes.<br />
You need to submit proof of rent paid through rent receipts, for
which only two need to be submitted, one for the beginning of the year
and one towards the end of the financial year. It should have a one
rupee revenue stamp affixed with the signature of the person who has
received the rent, along with other details such as the rented
residence address, rent paid, name of the person who rents it etc.<br />
<strong>How is HRA calculated</strong><br />
To figure out how much HRA exemption you are eligible for, consider
these three values which includes a. The actual rent allowance the
employer provides you as part of your salary, b. the actual rent you pay
for your house from which 10% of your basic pay is deducted, c. 50% of
your basic salary when you reside in a metro or 40% if you reside in a
non-metro.<br />
The least value of these three values is allowed as tax exemption on
your HRA. You can discuss restructuring your pay structure with your
employer in order to avail the most of your HRA tax benefit.<br />
Here is a sample illustration for your understanding:<br />
Sheetal earns a basic salary of Rs. 40,000 per month and rents an
apartment in Delhi for Rs. 20,000 per month (hence eligible for a 50% of
the basic pay for HRA exemption). The actual HRA she receives is Rs.
25,000.<br />
These values are considered to find out her HRA tax exemption:<br />
a. Actual HRA received, i.e. Rs. 25,000,<br />
b. 50% of the basic salary, i.e. Rs. 20,000, and<br />
c. Excess of rent paid over 10% of salary, i.e. Rs. 20,000 — Ra 4,000 = Rs. 16,000<br />
The value considered for her actual HRA exemption will be the least
value of the above figures. Hence, the net taxable HRA for Sheetal will
be Rs. 25,000 — 16,000 (available HRA deduction) = Rs. 9,000.<br />
<strong>Availing tax benefits on your home loan and HRA</strong><br />
As long as you are paying rent for an accommodation, you can claim
tax benefits on the HRA component of your salary, while also availing
tax benefits on your home loan. This could be the case if your own home
is rented out or you work from another city etc. However, you need to
account for any rental income you receive from the property you own.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-76684057968173592702013-01-21T07:11:00.001-08:002013-01-21T07:11:08.278-08:00Are You Looking To Buy A Home?<div class="first">
The year 2011 witnessed a high interest rate scenario,
shrinking profit margins and soaring input costs for property developers
in India. The economic slowdown added problems for property dealers, as
the number of customers dwindled in 2011. Most of the developers had to
put their expansion plans on hold, and their existing projects also
faced a setback due to slow sales, resulting in a piling inventory. In
2012 the realty market is expected to consolidate, and most of the
developers are likely to focus on generating liquidity for better cash
flow by selling their existing projects at a lower rate to tackle the
stagnation in sales. The first priority for every developer would be to
complete their existing projects to cut the capital involved for
projects in progress. This situation would wash out players who just
exist in a market to create competition against the genuine developers.</div>
Now the question is what step a home buyer should take under such market conditions?<br />
A person would be interested to purchase a property to either reside
in it or to invest or both. In this article, we will focus on the
various issues related to purchasing property for residential purpose.
The current market condition has categorized residential property buyers
into two categories, which are:<br />
- Existing Buyers: Those who have already put their money for buying a home but the possession is not received.<br />
- New Buyers: Those who are contemplating buying a home.<br />
<strong><span style="text-decoration: underline;">The state of existing buyers: </span></strong><br />
Due to the economic slowdown, there are lots of property buyers who
have already paid for their homes, but the developers have delayed
proving them possession. Due to lack of funds and rising input costs,
developers have either stopped the project or restructured the plan by
adding more homes under a project to bring liquidity and cost
averaging. If the buyer has included the penalty clause in the purchase
agreement for delay in possession, then they can claim it immediately
from the developers. The delay penalty safeguards a buyer by binding a
developer to pay interest on the amount invested, if the possession is
delayed for some reason.<br />
However, it must be noted that the delay penalty may not depend on
the prevailing interest rate in the market. This means that the existing
customers who have not received the possession, have to pay home loan
EMIs at current interest rate, which is at peak, whereas the delay
penalties they obtain from the developers are at a lower interest rate
as it has been agreed upon at an older interest rate when loans were
cheaper. Existing buyers could be quite disappointed in such a scenario
as they are losing possession as well as money!<br />
<strong><span style="text-decoration: underline;">What the new buyers can expect:</span></strong><br />
The new buyers have all their options open before they decide to buy a
home. Though the market may not seem very attractive for an existing
buyer for a new buyer it is a different story. This is a very good time
to buy a home. Here is why:<br />
- The interest rate for home loans is at peak, and RBI has
recently hinted a fall in coming days; so new buyers are likely to pay
their EMIs in a falling interest rate scenario! Hence, the interest
burden will be reduced significantly in such a situation.<br />
- Many buyers anticipate an interest rate drop and postpone
their purchase decision, but it should be noted that, at present the
developers are offering very attractive discounts as they need liquidity
and are left with a huge inventory. If the interest rate falls, then
this offer would not be available as the liquidity position would
improve in the market.<br />
- As there is considerably less investor rush in the current
market due to high borrowing cost, choices are aplenty!The buyer can
customize his purchase of the home for its location, size, price and
other important aspects due to sluggish market conditions.<br />
- Also, new buyers have the option of purchasing both from a
developer and an existing buyer in the current market situation and
better bargains can be struck.<br />
<strong><span style="text-decoration: underline;">Points to remember for the potential buyers</span></strong><br />
The new buyer should take a cautious approach while finalizing a home purchase bearing the following aspects in mind.<br />
- If the new buyer decides to buy a home in an ongoing
project, then chances of delay in possession is always possibility so
due diligence is very necessary.<br />
- To rule out the loss due to possession delay, the delay
penalty must be incorporated in the agreement with the developer. Though
the interest rate is expected to fall in coming days, the penalty
should be based on a floating basis because in case the interest rate
increases due to any unexpected event, then the delay penalty would also
increase and protect the buyer from loss.<br />
Let's understand this with the help of an example:<br />
Suppose a person "B" has decided to buy a home and raised a home loan
at 10% p.a. The developer "S" promises to handover the possession of
the house within two years or else agrees to pay a penalty at 1% lesser
then the bank's interest rate, i.e. penalty at 9%. B has two options,
either to fix the penalty interest at 9% or keep it floating at 1 %
lesser than the bank's interest rate. If S defaults in giving possession
after two years and delays for one extra year, then the following
situations would arise:<br />
<strong><span style="text-decoration: underline;">Case I:</span></strong> Penalty fixed at some rate say at 9% p.a.<br />
Suppose if the bank's interest rate falls to 8% p.a., then S would
pay penalty at 9% for a one year delay. Hence B would get the benefit of
extra penalty over bank's interest rate. However, if the bank's
interest increases to 12%, then also S would pay penalty at 9%, hence B
would lose more against the bank's interest rate. Hence, buyer has
chances to gain as well as incurs the risk of loss in this situation.<br />
<strong><span style="text-decoration: underline;">Case II:</span></strong> Floating Penalty<br />
Since S agreed to pay a penalty at a floating rate system it does not
matter whether bank's interest falls or increases because the penalty
rate would be 1 % lesser in every scenario. Hence buyer would hedge his
position against increase or decrease in interest rate.<br />
- If the buyer decides to buy a house from an existing buyer
who owns a ready flat, then it is very important to check the
encumbrances thoroughly. The other basic aspects such as electricity
bill, telephone bill, and building society bill along with developers'
agreement should be checked properly before finalizing the deal.<br />
- The new buyer should select a floating rate system while
applying for a loan and also negotiate with banks to waive the
prepayment penalty charges for future. According to the RBI mandate
prepayment penalty is expected to be done away with but do ensure if
this is indeed the case as some banks might still be imposing it.
Prepayment can be done either as a one-time payment or switching the
loan to another bank with a lesser interest rate or even a partial
prepayments over a period of time. The prepayment decision should be
taken based on the remaining loan amount, term and the ease with which
the funds can be arranged.<br />
- Many developers are compromising with the quality of
construction materials due to high input costs, so the new buyers must
check to verify such aspects before buying the house.<br />
- In the recent past, lots of hue and cry was made by
developers and buyers in Delhi NCR due to court orders to stop
construction on account of multiple land disputes. The new buyers must
verify all the legal aspects before finalizing the deal. The contract
with a developer should be verified properly to avoid fraudulent
intentions. The buyer should always insist on the developers including
the time binding clause to avoid excess delay in the project. If the
project is delayed much beyond the promised time, then the buyer should
not hesitate to knock the doors of the court. Recently, lots of cases
have come into the picture where courts have provided relief to the
buyers by ordering complete refund along with penalty against the
developer.<br />
Keeping in mind the various points discussed above in this article,
an existing buyer should strive to make an early repayment of the loan,
as many banks have waived the prepayment penalty. If the flat is under
construction stages, then they can also opt for exiting the deal by
reselling or canceling the agreement if possible to avoid loss due to
uncertainty of project completion. The new buyer has a good opportunity
to buy a house at a discounted price and desired location. Proper due
diligence and price negotiation are key aspects for the new buyer.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-85156704980214591502013-01-21T07:10:00.002-08:002013-01-21T07:10:21.756-08:00Infra bonds and other alternatives<div class="yom-mod yom-art-content ">
<div class="bd">
<div class="first">
Government of India has outlined a plan to spend $1
trillion in next 10 years on infrastructure development. This
development is needed because infrastructure needs to support and
sustain the projected growth rate of Indian economy for next few
decades. To fund this initiative, the Government is trying to tap the
various sources at its disposal. Infrastructure bond is just one source
where Government has given tax breaks for up to Rs 20,000 for
individuals. This is to attract retail investment.</div>
<strong>Infrastructure bond vis-à-vis other debt instruments</strong><br />
Infrastructure bond is widely welcomed by salaried individuals who
have been demanding to increase the tax break from 1 lakh. It has given
them another avenue to invest for tax saving purpose. Let's take a look
at other investments that are available and provide a fixed income.<br />
<em>Debt oriented mutual funds</em><br />
The other debt instruments available for investment are debt oriented
mutual funds. These funds allocate major part of the fund in Government
securities, corporate bonds and debentures, and sometimes in fixed
deposit. They can be a good alternative. However, even though they are
debt oriented funds, a small part (up to 30%) goes towards equity. Hence
investors do see fluctuation in returns. The average returns from debt
oriented funds over a period of time can be about 12% depending upon the
market condition and proportion of fund invested in equity.<br />
<em>Bank fixed deposit</em><br />
The other option is banks where the rates of interest have gone up.
Few banks are giving good returns on fixed deposits. For example, bank
of Baroda is giving 10% returns on fixed deposit. This is certainly
better returns in absolute term. The post-tax returns will be about 7%.
There are other banks which are offering similar rates on fixed
deposits.<br />
<em>Corporate fixed deposit</em><br />
Then there are fixed deposits offered by blue chip companies. These
are highly rated debt instruments. For example, Mahindra Finance or Tata
Motors deposits are two prominent offers that offer 10.25% returns.
Mahindra fixed deposit scheme is rated FAAA, the highest rating. The
payment is done quarterly. There are other firms which offer even better
returns but those firms rated lower. Investors should consider these
alternatives too.<br />
<em>Fixed maturity plan</em><br />
There are mutual funds, also known as, fixed maturity plans (FMP).
They are as good as fixed deposits and offer an "expected" return of 9%
to 10% . We use "expected" because there is always the risk of corporate
default (though it rarely happens).<br />
Hence all the options look better till you consider the tax advantage
that the infrastructure fund provides you. Tax advantage is the biggest
advantage that infra bonds provide. The interest received on infra bond
is taxable though.<br />
<strong>Investors' response</strong><br />
Infrastructure bond has seen tremendous response from retail
investors for tax saving purpose. The demand goes up before the end of
the financial year. Even though it is a big hit among salaried
individuals and retail investors, it did not impress big ticket
investors in India and abroad much because they are more focused on
getting better returns than saving tax.<br />
To encourage response from FII, Government is planning to reduce the
lock in period of infra bonds. The lock in period currently is 5 years.
In all probability, this may come down to 1 year. The reduced lock in
period may be able to bring foreign capital for infrastructure projects
which are delayed because of lack of funds.<br />
Ideally, reducing the lock in period should bring more investors,
both domestic and multinational. This seems to be a good way to increase
participation and transaction. However, the downside of this is that it
will increase speculative investment.<br />
Retail investors anyway invest in infra bonds to save taxes and hence there isn't much scope left in retail segment.<br />
<strong>Important points to keep in mind</strong><br />
First, you must invest in infra bonds because you will save taxes.
There is no other way you can save taxes on Rs 20,000 extra. Do not
invest more than Rs 20,000 as the tax benefit is limited to just Rs
20,000. Any investment beyond this will be taxed as usual. The
disadvantage of infra bonds is the lock in period and the taxable
interest.<br />
Second, look at the rating assigned by rating agencies before
investing in infra bonds. All bond issuers have to go through rating
process before they can raise debt. A high rating such as AAA or even AA
is good and implies the capability of the company to pay the interest
and principal.<br />
Finally, understand the risk associated with bond investment. While
the nature of fixed return looks risk free, it exposes the investors to
interest rate risk and inflation risk. Inflation at the rate of 10% will
essentially give you negative returns on a bond that offers 9% returns.<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-47639775249211514012013-01-21T07:09:00.001-08:002013-01-21T07:09:23.957-08:00To claim or not to claim – The HRA and Home loan dilemma!<div class="yom-mod yom-art-content ">
<div class="bd">
<div class="first">
Ajit, currently employed with Company A, is staying in a
rented apartment in Mumbai and has bought himself a property in Chennai
for which he has taken a home loan. He finds himself in a dilemma while
filing tax returns — "Can I claim both HRA and home loan benefits?"
This seems to be a confusing factor for most tax payers. When Ajit pays
rent, under the Income tax act, he is definitely allowed to claim both
HRA and home loan benefits (interest payment and principal repayment).</div>
Let us evaluate various possible situations an individual can find
himself in and understand what the income tax act permits him to do.<br />
<strong>1: You live in your own house</strong><br />
You have taken a home loan and residing in the house purchased with
it. Since you are residing in your own house, you will not be able to
claim HRA. However, you will be able to claim tax benefits on both, the
principal and interest repaid on the home loan.<br />
<strong>2: You own a house in another city</strong><br />
This situation was the one faced by Ajit. He resided in Mumbai but
had bought an apartment in Chennai taking a home loan. Ajit will be
entitled to HRA exemption and tax benefits on both, the principal and
interest repaid on the home loan.<br />
<strong>3: Your house cannot be occupied at this point (e.g. under construction) </strong><br />
You have bought a house in Mumbai taking a home loan and you're
currently living in Mumbai in a rented apartment because the house is
under construction. In such a case, you are eligible to claim HRA.<br />
In the case of tax breaks on the home loan, you can claim tax
benefits only for your principal before the completion of your house.
Once your house is completed, you can claim tax benefits on the total
interest paid up to the date of completion in five equal installments in
five years beginning from the year of completion.<br />
<strong>4: You have a house which is ready for occupation but you cannot reside in it </strong><br />
You have bought a house in Delhi taking a home loan and now you
aren't residing in it but are living in a rented apartment in Delhi
itself for genuine reasons e.g. the house that you have bought is far
away from your office. In such cases, the Income tax act permits the
individual to claim HRA and home loan benefits which includes both
principal and interest repaid on the home loan.<br />
Also, please note that if your house remains vacant, then you will still need to pay tax on a notional rent income.<br />
<strong>5: You have rented your own house and currently residing in a rented house</strong><br />
You took a home loan and your house is now ready for occupation. You
have rented the same out while you reside in a rented house. The Income
tax act allows you to claim both HRA and home loan benefits. However, in
such a case, since you are the recipient of rent because you have let
out your own house, that income is taxable at your hands.<br />
The Income Tax Act treats HRA and home loan deductions under separate
sections independently. The two are not interconnected to each other.
HRA is dealt with in section 10(13A) Rule 2A while home loans are
entitled for tax benefits under section 80C (tax benefit on principal
repayment) and Section 24 (tax benefit on interest payment) of the
Income Tax Act. Hence, figure out where you stand to avail both tax
benefits accordingly.<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-39233073835662695912013-01-21T07:08:00.001-08:002013-01-21T07:08:13.363-08:00Which Credit Card Personality Are You?When we talk about credit card usage we find different people
managing it in a different way. Some people are highly disciplined and
never default on their monthly installments and others are so messy that
they are always on the top of the defaulter list. Managing finance is a
complex task and it's very easy to fall into a debt trap if you misuse
the power of free credit. Credit card provides you the power but it
never suggests that this power is unlimited. You have to pay the dues
back at the end of the free credit period but somehow the human mind
doesn't listen. To avoid getting into trouble in future it's advisable
to understand your credit personality and choose the credit card which
suits you the best. Credit card companies provide credit cards with
different features like different interest rate, different reward
structure, different credit limits etc. If you understand the way you
deal with credit it gets easier to choose the best combination for you.
Let's see what kinds of credit personalities exist and what card they
should opt for.<br />
<strong> </strong><br />
<strong>The Beginner</strong><br />
You are just out of college enjoying your first job. You never had
surplus money and hence no financial planning was required. You have
never used credit previously and find the concept amazing. As expected,
you are in a hurry to apply for one.<br />
For beginners it's advisable not to go for cards with high credit
limits. You still do not know how you are going to use your card. Your
financial wit has never been tested so better be cautious. This is just
the beginning and once you are sure that you can manage your finances
well, you can opt for credit cards with a higher limit.<br />
<strong> </strong><br />
<strong>The Disciplined</strong><br />
You have been there and done it all. You are great at financial
planning and almost everything is in perfect shape. You never default on
your monthly payments and never spend beyond your means. Reward offers
don't alter your spending pattern and you plan every move before
executing.<br />
For the disciplined the best suited card is one with cash back
facility and good reward structure. The reward points should accrue
irrespective of the type of purchasing done and can be redeemed at one
go. Interest rate on your card doesn't matter much as you always pay on
time.<br />
<strong> </strong><br />
<strong>The Carefree</strong><br />
You love spending and believe that spending is the motivation for
earning. You plan things beforehand but don't mind going overboard at
times. You cross your spending limit at times so you don't make full
payments on your credit card.<br />
The most important feature which the carefree should look for in a
credit card is the interest rate. As you carry forward the balance your
interest expense is going to be high. It's advisable to choose the card
which offers the lowest interest rate. You should also make sure that
your card does not have any annual maintenance charges attached to it.<br />
<strong>The complete mess</strong><br />
You don't understand financial management. Almost every time you do
not even pay the minimum amount due on your credit card. All the
customer care executives of the bank know you by name and are in
constant touch with you. You always end up paying heavy interest and
late payment charges.<br />
For the messy it is better to use prepaid cards as it will save a
great deal of money which you pay in the form of interest and various
charges. This will prevent you from spending beyond your means.<br />
<strong>The Credit Fearing</strong><br />
You never wanted a credit card in the first place. According to you
being in debt is a crime. You applied for the card just because it made
your life easy in some scenarios like booking air tickets and overseas
purchases. You only swipe it in some kind of emergency and it goes
unused at times for months.<br />
The best card which will suit your needs is the one with no annual
maintenance charge. You never make late payments and you are not a
frequent user so interest rate and reward structure of the card doesn't
matter much for you.<br />
<strong> </strong><br />
<strong>Conclusion</strong><br />
There are a wide variety of credit cards available in the market and
it's not possible to research all of them. The better approach in such a
scenario is to research your personality and then research the cards
available. While you define your personality you get to know the basic
traits your card should have. Once you are sure about the traits the
list of cards automatically gets shorter. The best approach is to talk
to the bank and discuss with the executive regarding your needs and
spending behavior. They will definitely guide you with better options as
banks are getting more and more cautious about their relationship with
the customer. The existing competition in the market compels them to
give better services to their clients. Rather than doing the entire math
yourself, put forth some direct questions to them, which will help you
make the best decision.Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-35682884348209033542013-01-21T07:07:00.001-08:002013-01-21T07:07:06.120-08:00Impact of budget on common man<div class="yom-mod yom-art-content " id="yui_3_5_1_1_1358780779849_1173">
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<div class="first">
Union budget 2012 will be unveiled in another three
days from now and as is the case with every budget season there are a
lot of expectations, aspirations as well as doubts. However, most people
have several questions in mind like 'how is it going to affect me and
my lifestyle?' Here we analyze the budget impact on the common man in
our daily life.</div>
<strong>Impact on individuals</strong><br />
The most direct way by which the union budget affects the common man
is through changes in taxations- both direct and indirect. Direct
taxation impact involves changes in income tax exemption and deduction.
For instance, in this year's budget the finance minister may raise the
income tax exemption limit to Rs. 3 lakh from the existing Rs.1.8 lakh.
This could have a long term impact on the spending and saving patterns
of individuals.<br />
Another proposal that is expected is an increased tax deduction on
housing loans. This is eagerly expected by both the builder community as
well as people looking to purchase their homes as this would be an
added incentive to look forward to!<br />
Apart from such direct benefits, there are many indirect ways in which the budget affects the<em> </em>common
man. A hike in duties of consumer goods can affect the budget planning
of every middle class household. Similarly changes in subsidies of
cooking gas and other fuels will decrease the disposable income of
middle class families. An increase in service tax and sales tax would
increase a plethora of expenses ranging from mobile bills, insurance
premium, property purchase, courier expenses, credit card bills etc.
These are awaited with a certain degree of anticipation as the budget
draws closer.<br />
Changes in excise duties and sales tax can make a product dearer or
cheaper. The budget forecast suggests that duties on diesel cars as well
as gadgets like laptop will increase which can eventually lead to
impact in purchase decisions.<br />
<strong>Impact on business</strong><br />
The<strong> </strong>business classes in the society are the top
groups who have much to look forward in the budget. It is a practice
among top business houses to release a 'wish list' in the pre-budget
weeks stating the things they want to see in the forthcoming budget
proposals. The list may revolve around a variety of duty cuts, which
they believe will boost their investment and demand.<br />
As of now, high on the wish list are various boosters to investment
and the implementation of direct tax code, goods and services tax. The
biggest fear is an expected increase in the rate of corporate tax or
surcharges. An easing in direct taxation slabs will create surplus in
the hands of businessmen, which may encourage them in further
investments and thereby leading to more employment and betterment of the
society.<br />
As governments increase or decrease allocations for certain sectors,
businesses in those sectors will be affected. For instance, an increased
spending in infrastructure is expected, which will be a gain for the
companies in that segment.<br />
Budget is eagerly looked upon by investors<strong> </strong>as well<strong> </strong>to
review the tax rates on trading transactions in the stock market as
well as foreign investments. Investor's budget expectation is the
cutting down of security transaction tax- i.e., the tax applied to all
transactions in the cash segment of the market which would make trading
less expensive and there by boost the market.<br />
Last year's budget proposal to allow foreign investors to invest in
equity mutual funds was warmly welcomed in the markets as more foreign
investments will make the market buoyant. But unfortunately the buoyancy
did not last long due to the global economic slowdown. Many foreign
investors became net sellers in the market.<br />
<strong>Direct Tax code</strong><br />
A direct tax code is expected to be finalized to come into effect by
this year's budget which would have a direct impact on the salaried
individual. There could be a reduction in the tax exemptions from Rs.
1,00,000 to Rs. 50,000 which will de-incentivize the salaried to invest
more, though tax saving is not the only target while planning an
investment.<br />
Whatever the outcome, we have to deal with it with a proper plan in
place and as of now prepare our wish lists and wait for the budget to
unfold!<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0tag:blogger.com,1999:blog-2901280098879429254.post-74514819604137059242013-01-21T07:05:00.002-08:002013-01-21T07:05:23.745-08:00Education sector waiting for the big push<div class="yom-mod yom-art-content ">
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<div class="first">
There are many innovative and helpful developments in
the Indian education sector since the past 4-5 years. Government of
India has been putting consistent efforts to strengthen the sector as a
whole and to improve the quality by private—public partnerships and
through IT based education. In the union budget 2011-2012, Finance
Minister Pranab Mukherjee allocated Rs 52,057 crore for this sector
alone.</div>
A favourable budget allocation is expected this year also as it is
very important in meeting the challenges that the sector faces in
dealing with raising standards, developing education work force,
improving the learning environment and delivering services to the
institutions.<br />
This year, members of this sector expect a big push in expenditure
especially in connection with the effective implementation of The Right
of Children to Free and Compulsory Education Act (RTE Act). As there are
many issues in connection with the RTE Act, like setting up a
neighbourhood school in every locality, providing essential
infrastructure for the existing and new schools etc, which require a
considerable allocation of resources for this sector. This is a major
challenge for the government. Steps have to be taken to increase
enrollment rates and reduce dropout rates, reduce gender inequality
among girls and to recruit more teachers and train them to impart
education more effectively.<br />
The wish-list of the education sector in the upcoming budget includes an
accelerated tax break of 150 percent to companies for their investment
in education infrastructure. This will definitely call for more
investment in education sector. Many others agree on the need to set
up a regulator for quality and compliance in education sector.<br />
Budget is also expected to address rationalisation in higher
education regulatory framework through passing key pending legislations
like Prohibition of Unfair Practices Bill, Foreign University Bill and
Education Tribunals Bill, as well as ensuring a an effective centralised
regulator for higher education like the NCHER.<br />
Another major expectation from Union Budget 2012 is the extension of
interest subsidy to all courses and more allocation towards interest
free education. The Ministry of Human Resource Development during the
2009-10 fiscal had launched a new scheme to provide full interest
subsidy on educational loans for students belonging to families whose
annual income is less than Rs.4.5 lakhs under the Educational Loan
Scheme of the Indian Bank's Association (IBA).<br />
According to the scheme, a student hailing from a family that has an
annual income of less than Rs 4.5 lakh, on procuring income certificate
from the concerned local authority, will be required to repay only the
principal, and the interest will be borne by the central government.<br />
It was a great initiative to make higher-education loans more
attractive to students from financially weaker families. But during the
current financial year, many students claimed that the education loan
subsidy is still kept under the wraps by most banks. Banks also
indicated that they had several reasons for their caution, like the lack
of proper directions from the nodal agencies for processing subsidy
claims. There were also a lack of coordination between banks, state
governments and HRD ministry and shortage of funds allocated. Many
states are still not notified a designate authority for issuing income
certificates. So, greater hopes are there this year to see a better
result by more allocation and proper coordination, as India wants to
increase its higher education enrollment by nearly 30 million in a
decade.<br />
India's education sector at present has a good percentage of private
partnership which would help a rapid expansion in the sector. Still an
increased emphasis on public private partnership (PPP) model to
compensate the shortfall in existing resources is expected through
specific budgetary allocations for public—private partnerships and
fiscal benefits for PPP projects.<br />
A way to attract private investment in higher education, is to
promote Foreign Direct Investment (FDI), by making certain changes in
the Foreign Currency Regulation Act (FCRA).<br />
Even though the current law allows 100 per cent FDI in education,
for-profit entities are not allowed to get licences from the University
Grants Commission and the All India Council for Technical Education
(AICTE). They function as private universities under acts of various
state governments.<br />
Indian education sector is one of world's largest, comprising 1.3
million schools, 30,000 colleges and 542 universities. It is estimated
that the size of the public education sector in India is $40 billion and
the private sector amounted to $60 billion in 2011. So, lets hope the
Union Budget 2012-13 would effectively level out some of the key issues
pertaining to the education sector.<br />
</div>
</div>
Pramit Saranhttp://www.blogger.com/profile/12491142172927682360noreply@blogger.com0