Tuesday, December 18, 2012

New Year Resolutions

I was reading the interview with CEO of a well known stock brokerage firm. This firm is in business from 1980s. I was wondering how much money these people, staff and management of these kind of companies, would have made out of share market. In 1980s people were not much aware of the stock market. I wish I invested some money in the equity market in the initial years of my career. But, I was fully unaware of these things on those days. But these people are lucky, they have been working in equity business from 1980s.

But I was surprised when this CEO told the interviewer that he is not in the habit of investing in equity market. He even started purchasing mutual funds from last year only. I thought it is like some old small restaurant owners. They cook for the community, but never have food from their own shops. Their lunch was brought from their home. Is it like that? This CEO advises all people to invest in shares, but never invests by himself.

But this news relieved me. I am not only person, who is not practicing what he preaches. Yes, I am not practicing many things I write in this blog. Shocked? But, I started thinking about money just two years ago, and I promise you in next two years, my finance will be better managed. I am on my way.

Then what I need to improve? I think about it, as the new year is around the corner. Yes, it is time for new year resolutions. Usually, I don't believe in new year resolutions. If I find some thing is bad, I will stop it immediately. Similarly, if I find some thing is good, I will start immediately. I will not wait for a new year to stop or start new things.

Still, I think what I can improve in the new year, financially. These will be my new year resolutions. Not in any particular order.
  • I will setup enough emergency fund, just in case any thing goes unexpected.
  • I will get enough insurance coverage.
  • I will get enough medical insurance for me and my family.
  • I will stop using my credit card.
  • I will start tax planning from the start of the year.
  • I will reduce my monthly expenses, so that expenses are well below earnings.
  • I will start goal based investments. Now I have only one goal for my investments, get rich.
  • I will diversify my portfolio by including some of the areas, where I do not invest. 
  • Work hard, improve my competency at work, and do some apple polishing to my manager.
Enough? You can pick up any from these for your own new year resolutions.  New year is, of course, a great time for a new start.

Happy New Year!

Friday, December 14, 2012

Lies in the Tax Planning Session

We are into last month of the year, and people will soon start thinking about tax. In this month and in the first quarter of next year, we can see lot of seminars, articles on newspapers and magazines, speeches flooded everywhere. Ideally, the best time to start tax planning was last April, start of the last finance year. All these magazines should publish articles on tax planning during last April. So that people can join to Mutual Fund Systematic Investment Plans (SIP), Public Provident Funds (PPF), or even to insurance plans and keep on investing the entire year. But now we need to invest all money altogether. Some private employers will collect the investment proof to avoid TDS in December itself. So, we need to invest Rs 100,000 now to get full advantage of 80C.

People who are lucky to have Rs 100,000 in their Savings Accounts are lucky species. They can comfortably invest for tax saving. For others, what can we do now? Get personal loans? Go for Gold Loans? I have seen people are doing all these. If you have no money to invest for tax saving, just be a happy tax payer. I know losing a major part of your salary is painful. But, suffer that for long term advantage and promise to yourself that you will not repeat this again. Repeat what? Ignoring tax planning the entire year. Next year, start tax planning from April itself.

By the way, can we blame all publications for not reminding us about tax planning during the start of financial year? No. They publish what readers want to read. If they publish tax articles on April, who is going to read? We dig the well only when we are thirsty.

These thoughts came to my mind when I went for a tax planning session recently. That session turned out to be a canvassing by an LIC agent. The trainer quickly touched Home Loans and PPF to make it a tax planning session rather than an LIC session, and soon reached to his favorite LIC policies.

I am listing out some of the lies he shared in the session.
  • Home loans are the best investment method, because it saves tax and real estate will always appreciate.
  • Gold prices will never come down, so it is the safe investment.
  • Never go for term insurance, you will not get any maturity benefits.
  • Always go for LIC for insurance, because India Government is the guarantor for your investment in LIC.
  • Income from Mutural Funds are taxable even if you sell after holding one year.
  • Types of insurances - Money Back, Endowment and ULIPS. (Like any insurance agent, he will not speak about term insurance unless asked)
  • Money back insurance policy is the best investment method (it contradicts with first point). If you join 5 policies regularly for next five years (one policy this year, another one next year, etc). So after five years the money back paid by first policy can be used to pay other policies. 
  • Finally, the biggest one. Insurance and investment are same, so you can mix both.
I am not going to explain why I call these lies. Research and find out by yourself, if you want to. Or simply believe these and invest your money in endowment policies, money backs, ULIPS, wherever you like. After all, it is your money.You can do whatever you want with it.

Wednesday, December 5, 2012

Are You Working for Money?

Years ago I went for a job interview to a multi national company. One of the questions asked was "What do you work for". It did not take a moment to think, I answered "Money". The interviewer did not ask for an explanation then. But now recalling that question, I ask to myself, am I really working for money?

I have worked on many days 10 or 12 hours. There is no overtime pay in our company, so the company always pays for 8 hours a day. So, why do I work more hours? If I was really working for money, I would not have worked that extra time.

Not only me, I have seen many people working extra time ex-gratia. There are different reasons for this, passion for the job, satisfying their ego, insecurity feeling, competition, work culture, workaholism, you can name many. But if you say you are working the extra time for money, that will be a big lie.

Some companies have a grading system, which puts their employees in a rat race. For example, at the end of the year each employee is given a grade like A, B, C and D. So, every employee try to get an A, by beating other fellow employees. The employees are forced to work more time than their co-workers to get an A.Usually, these grades are linked to the percentage of salary hike the employees get. So, if they work extra time, they get an A. and A gets more money. So they are working more time for money?

But if you want to make more money, the easy and sure proof method is work 8 hours in your primary job, and for rest of your time work for a part time job. If you don't like to work for a part time job, start a business, where you can spend minimum time. But these methods are not comfortable as working long hours for your job.

If you are a workaholic, my advice for you is to start your own business, rather than working for some one else. Because, if it is your own business, as you work long time, you will be benefited. On the other hand if you work for some one else, you work hard, and he will make more money.

If you can strictly stick to the policy working-for-money, that has lot of advantages. For one, you will not care to work extra time, unless there is extra payment. For another, you will not care much about a confrontation with your manager, for another you will not care much about the rat race.

The primary reason for we are all working is money. Then we should not forget this primary reason due to the challenges and pressure we face at work.

Wednesday, November 28, 2012

Conversation with an Insurance Agent

Phone sings...

"Hello Sir, I am ... an Insurance agent. We met at XYZ's marriage"

"Yeah, I remember. How are you?"

"Fine Sir. I would like to meet you personally to discuss on an Insurance Plan"

"Sorry, I am busy these days"

"It will not take more than 15 minutes. And no commitments. You can simply say no, no questions will be asked"

"OK, come on tomorrow"

Next day.

"Good morning, Sir. I am Mr. Agent"

"Hi, I am bit busy, so hope we can wind up soon."

"Sure, here is the plan I want to discuss. This is an endowment plan, Endowment plan is a saving and insurance at the same time"

"Wait, I am more interested in Term Insurance"

"Term insurances are not profitable sir. You will get the sum assured only if you die. Who wants money after dying"

"That is insurance for. In endowment policy also part of my payment is utilized for insurance, right?"

"That is true. But still you will get sum assured + bonus when the policy matures. In term insurance, it is a pity you will not be rewarded for surviving the insurance term"

 "OK, in your endowment plan, tell me how much coverage will I get for Rs 5,000 premium per month"

"For Rs 5,000 and for a 20 years you will get Rs 12 Lakhs coverage"

"12 Lakhs! That is seldom sufficient for my family to survive in my absence. So to get a Rs 50 Lakhs coverage, I need to pay my entire salary as premium? Do you know that I can purchase a online term insurance coverage of 50 Lakhs just for Rs 9,000 annually."

"But online term insurances are sold only by private companies. You cannot trust on them, sir. What if they don't pay after your death?"

"Some of them have above 95% claim settlement rate."

"But there is no survival bonus"

"I am paying same way for my vehicle insurance and medical insurance. No benefits on maturity. Then why not for Life insurance?"

"That is true. But you see this endowment plan. It is very attractive."

"OK, go ahead"

"This plan is an insurance and investment at the same time. In this plan, if you pay Rs 5,000 per month for a 20 year period, you will get 12 Lakhs coverage.In addition to that if you survive these 20 years, the company will pay you the survival bonus acquired so far. For 5,000 premium it will come around 10 Lakhs. For the rest of your life, you will get 5.5% of the sum assured  monthly. This will continue until you turns 100. If you die before that age, the sum assured will be handed over to your dependents. So, this plan is an insurance, retirement plan and investment"

"It seems too complicated. So, you are saying that I will get 10 Lakhs after 20 years?"

"Well, sir. It is not guaranteed. Our company usually pays that much"

"What do you meant by usually?"

"Sir, our company pays 5-6% as bonus nowadays"

"But there is no guarantee it will continue for next 20 years?"

"No sir. But every one knows that traditional insurance policies are safe"

"How can you say it is safe, if there is no guarantee of returns?"

"Sir, all these people are purchasing insurance policies thinking those are safe investment. Are all these people fools?"

"Probably they are. If there is no guaranteed returns, I prefer Mutual Funds."

"But in Mutual Funds, you can even lose your investment"

"Then there are other investment tools where return is guaranteed. "

"But those are not combined investment, insurance and retirement plan"

"See, if I pay Rs 5,000 per month for next 20 years in a PPF, I will get Rs 31 Lakhs at 8.8% interest rate, compared to your 10 Lakhs and 12 Lakhs later. And it is fully guaranteed. PPF has all tax benefits as insurance has. Only problem is PPF is for 15 years, not for 20 years. Still it gives you better returns for 15 years"

"But you will not get insurance coverage"

"Well, if I spend Rs 1000 per month for a term insurance, I will get coverage of nearly Rs 50 Lakhs. Then if I invest the rest Rs 4,000 in PPF, I will get more than Rs 25 Lakhs. Still it is much more profitable than your brilliant endowment plan."

"You calculations seem correct, however, do you think lakhs of people, who are purchasing this policy, don't know how to calculate?"

"I think so."

"Sir, it is very hard to sell insurance policies these days. People are getting more and more knowledgeable. Good bye, I need to find some one ignorant today to sell my insurance"

"Good Luck"

Friday, November 23, 2012

What did I Learn at School?

All financial experts will agree on one thing - our kids at school are not taught even the basics of personal financial management. We teach them how to make money but do not teach them how to handle it. I am not sure how are the things now, but back in my days, the teachers thought even speaking about money will spoil the students.

When I look back to my school days, I cannot say I was taught nothing on money. I can remember two lessons I learnt at school about money, other than calculating simple interest and compound interest. I will narrate those two things here.

At my third standard, there was one chapter on Life Insurance. It was written as a dialog between a Father and his son. The son is gloomy to go to school as his best friend, Ramesh, is discontinuing his education. The reason? Ramesh's father, who was the sole bread winner of the family, passed away recently.

Then father consoles his son saying Ramesh can continue his studies, because his father had an insurance coverage. Then father explains to his son about the Life Insurance and how it works. At the end of the story, the kid becomes happy and goes to school.

We need to appreciate the people who included such a topic for such small kids. It was, of course, better than nothing. However, the second lesson I was taught at school is a horrible one, and  I had to struggle hard for years to unlearn it.

It was a poem on Money. It is written with a good intention, to educate students against greed. Well, it goes like this. If you get Rs 10, you will want Rs 100. If you get Rs 100, you will wish for Rs 1000. If you get Rs 1000, you will want Rs 10,000. The greed of human beings will never end. It was a Malayalam poem, and please excuse my poor translation. (They say what's lost in translation is poetry).

What's wrong here? Of course, we need to educate our children against greed. Greed and consumerism can easily spoil one's personal finance. But, if you have Rs 10, what's wrong if you try to make it Rs 100? Ideally, every one should try this. That's why we are investing our savings, to make it grow. We work for money, and if you invest the money wisely, the money can work for you, and grow by itself.

The purpose of education is to produce good citizens of the nation, not a few saints. In that case, we cannot accept including such pessimistic poems in school curriculum.

It was nearly three decades ago, and what worries me is that our outlook hasn't changed much. Recently I read an article that Central Government is planning to make finance education mandatory for school kids. A very welcome move. But not all people are happy, and some people commented that finance education will ruin the kids. Another one commented that we should teach our students moral values instead of personal finance. The moment we hear money, we assume that it is against values. It is disappointing to see that some people still believe money is such a bad thing.

I wish some one taught me the basics of personal finance management in the early years of my career. I wish some one told me how bad it is using credit cards, the importance of keeping track of expenses, and the importance of saving and investing. Do we want our kids also grow up as ignorant as we were? I believe it is high time we should include personal finance in school curriculum. Managing money is as important as earning it.

Thursday, November 15, 2012

Is it Possible to Buy a Car without Car Loan?

In my childhood if some one got a car, that means he is rich. Nowadays every household got one or two cars, is it every one getting rich or are the cars becoming cheap?

If I say that a major percentage of the cars running on roads are on car loans, it will not be an exaggeration. Is it possible to purchase a car without a car loan? If I ask this question to a group, I will get different answers like, "Yes, only if I won a lottery" or "I am not rich enough to buy a car without car loan" or "It is not worth buying a car by paying lump sum amount."

There are people who's monthly salary is near to half lakhs, and still believe buying a car without loan is impossible. Well, in this post I want to analyze one scenario to find out it is mathematically possible to buy a car minus a loan without any additional burden.

This is the scenario. You want to buy a new car worth Rs 5 Lakhs. Usually the banks will finance only 80% of the car value. So, you will get Rs 4 Lakhs as loan. If you go for loan from State Bank of India, who claims providing loans with most economical interest rates, you will have to pay Rs 1699 as EMI per One Lakh for seven years at 11.25% interest rate. So, for Four Lakhs you have to pay Rs 6796.

Then what will you do for the Rs One Lakh down payment? I have seen people going for other kind of loans like Chitties or Gold Loans. This can make things worse. For this example, I am assuming that you have Rs One Lakh with you.

But, I told you I will explain how to buy a car without the loan. Imagine, you have started a recurring deposit with any bank for the same amount you pay as EMI, that is Rs 6796. Well, most banks will not accept this amount as recurring deposit, so let's round it to Rs 6800. Keep on  investing this for next 4.5 years, exactly 55 months (again rounded). Just think you are already purchased the car and paying the loan. Considering 8.5% interest rates compounding quarterly, at the end of 55 months you will have Rs 4,57,919.62 with you.

Now, invest the Rs One Lakh, which you have for the down payment, in a Fixed Deposti for 55 months at the same rate (8.5%). That One Lakh becomes Rs 1,47,035.19 after 55 months.

So, after 55 months, you will have a total of Rs 6,04,954.81 with you. Assume the price of your new car increases by 20% by this 4.5 years. So, it will worth you Rs 6,00,000. So, you have enough frunds to purchase it comfortably.

So how much you paid for this? Rs 1,00,000 + 55 x 6800 = Rs 4,74,000.

If you have gone for the loan, how much you should have been paid? 1,00,000 + (6796 x 12 x 7) = Rs 6,70,864. That means you should have paid an additional amount of Rs 1,96,864. So you have saved nearly Rs 2 Lakhs. Not a small amount, eh?

I am not considering the petrol expenses and other maintenance expenses you saved for the 4.5 years, because as you have no car now, you are paying for public transportation.

Also, I am not considering the Income Tax acquired on the interest received. In this example, you receive Rs 130954.81 as interest (including both on recurring deposit and fixed deposit). If you are in 10% IT slab, you will have to pay nearly Rs 13,000 as income tax. In that case, you will need to pay two more installment for your recurring deposit. One way to avoid this income tax is go for a mutual fund SIP, rather than recurring deposit. This can provide more returns, and you can buy the car sooner. However, understand the risk associated with it.

It is not only about money. For the 4.5 years you are paying same money to RD that you would have been paying for EMI. But is there any difference? Yes, you are still not in a debt trap. You have freedom to stop it at any time before you purchase the car. But if you stop your loan EMI, well, the bank knows how to deal with it. So, it is all about your freedom.

When you are not in debt trap, you are more armed to face any unexpected financial emergencies, like loss of job or medical emergencies. OK, I don't want to be so much pessimistic, I will say a positive benefit. At the end of 4 years, you see one opportunity to make a big profit by investing 5 Lakhs. What you can do? Postpone your car purchase and invest there. On the other hand if you are in loan trap, you will have to watch the opportunity vanishing.

So you saved lot of money, you have financial freedom, still there is one big drawback to this method. You have to wait for 4.5 years to buy a car. Your wife is not going to accept this. What if you have planned this 4.5 years ago, and started an investment from then? You would have purchased your dream car. We cannot go back in time and start a regular investment in the past, however, we can learn from this. We can start planning now for our future financial needs. If you think about your retirement after 20 years, it will be too late. Retirement, Children's education, Children's marriage - let's list all our future financial needs and start planning.

Are you thinking all these too complicated? Then the easiest and simple thing is to just check you can afford the EMI payment. If yes, purchase the car in loan. If not, wait for your next salary hike. After all, most of people are doing it, no? As I always say it is your money. You can spend whatever way you want.

Image Courtesy: Wikimedia Commons

Friday, November 9, 2012

Stop Drinking, Save Tax!

A few years ago, me with one or two my friends went to a spiritual session by a well known Yoga Guru. During the session the Guru said "Alcohol is the major reason behind poverty". That makes sense, because I have seen many daily wagers spending most of their earning in liquor shops after a full day's work. This leads to poverty in their family.

Hearing this, one of my friends commented. "In that case, Government should make the liquor available free of cost. That way we can eradicate poverty". Another interesting aspect.

Recently I happen to see a liquor bill. I am not saying that I saw it from my friend, neither I am disclosing where I have seen it. What interested me is the liquor costs Rs 142 only.  The Government levies a sales tax of 100%. So, it becomes 284. The story is not over, an education cess of Rs 16 is also charged. So totally a drinker has to pay Rs 300. Just for the contents worth 142.

Let alone Goverment making Liquor free of cost, it is charging more than 100% of tax. And they say it is the major cause of poverty. Isn't the Government fueling poverty here?

I am really irritated when I see advertisements by Government Public Relations department, against alcohol. Why do they spend money to educate people to avoid liquor, when they can simply ban it? They say if liquor is banned, the families of the people who work in alcohol industry will be starved. Well, good argument. What happens if all the people take these advertisements in the right sense, and stop drinking? Then also the liquors workers will go jobless. So, the Goverment is sure not all people are going to stop drinking because of these advertisements. Probably they can save one or two from drinking. Does it worth? Spending so much money to save only a few people? I want the Government to stop this nonsense.

All the facts I said here apply to cigarettes and other tobacco products as well.  Even they are harmful to your family and neighbors. They are more addictive.This article in Economic Times says that the cost of smoking for 30 years is Rs 52 Lakhs (Rs 5.2 million).

We do different things to save tax. Now we know that for alcohol and tobacco, they charge 100% tax. Then why don't we stop drinking and smoking and save tax?


Image Courtesy: Wikimedia Commons

Saturday, November 3, 2012

What Stops you from investing?

I was reading the news that a college out from Kerala is offered a job in Google with annual salary Rs Seventy Lakhs (Rs 7,000,000). The immediate thought that came to my mind is what he is going to do with this much money.  His salary is a public figure now, I am wondering how he will deal with numerous requests for alms. He cannot say he has no money, no one will believe. Also, I am feeling happy our Government will get a big amount as Income Tax from him.

Some people may be thinking same thing about the IT Professionals (Not lucky enough to draw 7 million salary, but still their annual salary goes to a few lakhs). What these young guys are doing with this much money? But what the questioners don't know is when people get more money, the expenses also go up. They travel in big cars, stay in big houses, they get best treatments, but at the end of the month salary account of most of the people are in same way, no or less money. 

I read somewhere that average Americans save 3-5% of their monthly salary, whereas Indians Save 25-30% of their income. As per the statistics, Indians doing better here. I have still one or two friends, who are very reluctant to investments. I asked then during casual chats, what stops them from investing, despite their high profile salaries. I got many reasons, I am listing top 5 reasons I got.

Top n list was best way to get reader attention. Like top 10 mutual funds to invest, Top 10 stocks to buy, Top 10 investment habits etc. But nowadays it is overused by bloggers and authors, I usually skip such articles. I am not posting this top-5-reasons-not-to-invest to get more reader attention, but I want to counter some of the arguments against not investing. Some of the below were my excuses for not investing for a long time. As I told you, these are from my personal experience, not from any scientific surveys.

Here you go.

1. It is too complicated.

Some people think investment tools are too complicated. They have a point there. Some of the investment tools are overly complicated and opaque. But, the good news is there are simple and transparent investment tools as well. A bank recurring deposit, for example, is very simple. You pay fixed amount monthly and you will get a lump sum amount at the end of fixed term. If you are not mathematics savvy, you may think that the underlying compound interest calculation is complex. But who cares? You know what you are going to get at the end.

2. No leftovers for investment

"The expenses are so high that at the end of the month nothing left for investment. I will start investment when I get next salary hike." This is a serious problem. But who told you  to invest at the end of the month? Why don't you do it at the begining of the month? Immediately after you recieve your salary? If you do so, you will have to tighten your belts at the end of the month. Yes, do it, and it will make you stronger financially. Needless to say, don't use your credit cards at the end of the month, that will make things worser.

If you were rich enough to have some balance in your salary account at the end of the month, you can manage without the finanace management. Because, each month some amount is accumulated in your salary account. This amount will help you in case of a financial crisis. But what if no amount left at the end of the month? That definitely means you need to give immediate attention to your finances. You need to think about investment more than any one else.

3. Inflation may eat up my investment

Again, this is a valid point. If you have Rs 100 now with you, you can purchase goods or services of worth Rs 100. But if you save it for one year and use same amount to buy goods next year, you will not able to purchase goods worth today's Rs 100. Because, the prices of everything is going up year by year. This is the effect of inflation. So, don't you think it is better to spend now every penny you have?

When you invest it should be in a way that it should grow to beat inflation. For example, if your Rs 100 grows to 110 by one year (10% return), and inflation rate is 10%, you can still buy goods, which worth Rs 100 today, next year. If your investment gives 12% return, you can beat inflation. So, if inflation is your concern, you should invest in schemes, which offer high returns.

There is another side of this story. The debt based investment schemes, like bank recurring deposit and Public Provident Funds, usually give return below the inflation rate. For example, these schemes give 7-8% return, and for the last a few years inflation is near 10%. So, you will need to take risk, and invest in equity based investment tools, like Stocks or Mutual Funds. These usually give returns above inflation rate in long term.

4. I am not sure what happens in long term

This is one of the nasty excuses. "15 years ago, we were not heard of mobile phones or LCD TVs, except in science fictions. So, who can predict what happens in next 15 years? There may be drastic changes in future. What if those changes affect my investment? For example, what if the Government decides to catch all investments of citizens? or Who knows in what condition I am in after 15 years? So, I think it is better not to invest."

I have no comments on this. If some one believes in this, don't invest. That's all.

5. I am ignorant

I believe this is most common reason for not investing. People are not aware of the power of investment. I will tell you one scenario, which is narrated in an advertisement of a retirement plan.

If a person invests Rs 500 each month from his 18th age, and the investment gives a return of 12%, by the age of 65, he will get a lump sum of 1 Crore (10 million). This is the power of accumulation and power of compounding.

Well, if you are above 18 years of age, don't worry. Still if you start investment now, you will get a good amount in long term.


If you are not investing due to any of the reasons above and you are convinced by my explanations, start investing now. Or if you are still not convinced, don't invest. It is your money, I have no right to tell you what to do with it.

For others, happy investment.

Mean time, if you have any other reason for not investing, please feel free to put it in the comments.

Monday, October 29, 2012

10 Useful websites worth bookmarking

Knowledge is of two types. First kind, you know it. Second kind, you know where you can find knowledge. In today's world, both of these kinds of knowledge are important. Even if you don't know it, if you know how to google or you know which website can tell you about it, then that is more than enough.

In this post, I present you URLs to a few websites, which are worth bookmarking for a money conscious person. These are more of my personal bookmarks, I have not conduct a review or comparison between their competitors.

01. www.moneycontrol.com - This is all about Indian Share market, Finance and Investing, commodity and what not. The portfolio section helps you to track the performance of your stocks, mutual funds, ULIPS, Fixed Income, etc.

02. www.moneybhai.com - No one can learn how to swim without getting wet. However, this site helps you practice share trading without losing money. You can take it as a learning tool if you are new to trading, or investment challenge if you are experienced trader.

03. http://www.investmentyogi.com/income-tax-calculator.aspx - Want to calculate your income tax, recurring deposit/fixed deposit returns, Loan EMIs? 22 finance calculators in this site are very handy.

04. www.fundsupermart.com - Want to invest in mutual funds online? This is the best site you can find.

05. ManageYourExpenses.com - If you want to get rich, the first step is start tracking your income and expense. If you are in the habit of noting down your expenses daily, this site helps you do it online.

06. http://crisil.com/capital-markets/crisil-mf-ranking-list.html - People usually ask me which Mutual Fund is best to invest. I redirect them to this website. You can find the crisil rating of Mutual Funds here.

07. http://www.epfindia.com/MembBal.html - Want to know your Employee Provident Fund balance? Fill in details here, they will SMS to your mobile.

08. https://incometaxindiaefiling.gov.in/ - Want to e-file your Income Tax returns? This site can help you. Hope they will make the process more user friendly in future.

09. https://tin.tin.nsdl.com/oltas/refundstatuslogin.html - Want to know your Income Tax refund status? check here.

10. http://www.keralapost.gov.in/SB/SavingsBank.html - Know the interest rates of different Post Office deposit schemes.

Do you know any useful site, which not listed here? It will be great if you can share it through comments.

Image Courtesy: freedigitalphotos.net

Tuesday, October 16, 2012

Grand Father's E-mail

My dear grandson,

Please accept my congratulations on joining your first job. It is really great to get a job during your final years of study, and join in a multinational company immediately out of college. Things were very much different in my good old days. In our days, we need to finish our exams, scan the news papers every day for opportunities, prepare and attend the tests and interviews and finally get an appointment letter. It would have taken a few years after study before you join  your first job. 

I know you are celebrating your success. You deserve it well. I guess you are getting many pieces of advices on how to succeed in your career from virtually every one you know, from your neighbors, from your teachers, from your Dad's friends and whom not. However, please understand that it is your career and life, and you are responsible for every decisions you make. Whether to accept or reject these advices - it is upto you.

I will also give you advice on some thing different. Who likes advices? Better we can call these tips. There is high probability that no one told you these things, despite the heavy load of advices you received. So, I thought I should write this.

Once you join your job, you will start doing a new thing, you have never done before. Can you guess what it is? Yes, It is handling your own money. You may have limited experience handling your pocket money, but handling your own money is entirely a different ball game. I hope the below tips will help you to overcome your inexperience in handling money for a certain extend. However, certain things you will have to learn from your own experience. In that case, learn fast and move forward, rather than crying on spilt milk.

As I told you earlier, to accept or reject these tips, is entirely your own judgement. You are only responsible for your deeds.

Here you go.

1. Do not ignore money

This is my first tip. I am sure you got one piece of advice from your Dad's friend "don't think about money, work hard and money will follow". There is no bigger mistake than this. The old saying is that what you give attention grows, and what you ignore wilts.

I am not asking you to think about money all the time. What you need to do is spend some time regularly to plan your finances and to track your expenses. Spend some time to read articles and books on money management. It may not be your obsession, but you need to know the basics to succeed in this world. Believe me there are lot of things to learn about money, than you expect.

There are many instances people will judge you based on money you earn. But it is your life, no need to live it the way your neighbors want. But, please take my word on it, my dear son, without money no matter what else you have you will not be happy. So you can consider money as an umbrella necessity. Just like love and health, money is also very important in human being's life.

2. Spend below what you earn

This tip may seem simple to you. But you will realize how difficult to follow this, only when you start living your own. You may be wondering how some one can spend more than what he earns. There are thousand ways to do this. Below are a few examples
  1. Lend money/loans
  2. Break your previous investments
  3. Use Credit Cards.
 The third one is most common one. Credit cards are to money what smoking to health. Whatever advantages credit cards have, if you want to check your expenses below your income, say no to credit cards. People, who have the habit of tracking their expenses, know how complicated it is when credit cards are involved.

Follow this simple rule, and I am sure you will end up in trouble whenever you break this rule.

3. Track your expenses

Read this tip related to the previous one. They say what you can measure, you can manage. How to measure your expenses? Get into the habit of writing down your expenses every day. It may seem difficulty initially, but once you make it a habit, you will realize how useful it is.

Spend some time at the end of the month to analyze your expenses. And see how you can avoid some of the misspending.

If you have the habit of noting down your expenses, you will think twice before going for a eating out after work (not to mention the boozing)

4. Prepare for the worst

Life is more complicated than you think.  Emergencies pop from nowhere when you least expect those. You need to be prepared all the time for such emergencies. What I am going to say here is about two things, insurances and emergency fund.

Who needs a life insurance? To answer this question we need to understand the purpose of life insurance. Here is the definition of life insurance from Wikipedia "Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary sum of money (the "benefits") upon the death of the insured person.". Yes, that's it. If some one purchase a life insurance policy, and dies during the coverage time, the insurer pays sum assured to the dependents of the insured person. It is a great tool to make sure your dependents continue their life without financial struggles, even without you. I am sorry to discuss things related to death at this time, but then you cannot discuss life insurance without mentioning death. So who needs life coverage? A person who has dependents. But I know many bachelors purchasing multiple insurance plans, considering those same as recurring deposits.

I hope you are clear now that you don't need a life insurance coverage at this time, as you are a bachelor and your parents can support themselves. So say no to that your Dad's friend and insurance agent, who has already approached you to sell you insurance policies.

Having said that you need Life insurance coverage when you start a family. At that time make sure that you have enough coverage to protect your family. Don't purchase insurance policies where you have to pay huge amount as premium and gives you coverage equal to six months of your salary. I cannot discuss different kind of insurances at this time, but in current situation term insurances are most economical. I will write more on this when you start a family.

But this does not mean you don't need any insurance coverage now. I told you don't need a Life insurance coverage. There is another kind of insurance, medical insurances. These insurances protect you against medical emergencies. If you company provides you one, it is well and good. Otherwise spend some money to purchase a good one, which provides adequate coverage.

Treat insurance coverage and investments as separate entities and never mix those. Plan both separately.

The second aspect of preparing for the worst is setting up an emergency fund. This emergency fund is your investment in liquid cash (or which you can encash in short notice). This will help you to meet really emergency situations like loss of job, medical emergencies and emergency vehicle maintenance. Experts say you need to keep an amount equal to six months of your expense as emergency fund. I bet, without this emergency fund, you will need to break your long term investments, before it is that long.

If you don't have ready cash to setup an emergency fund right now, start a bank recurring deposit and invest regularly to meet your target.

5. Plan your retirement early

When do you need to start planning your retirement? After turning 50 years old? After a few years after getting a job? No, my dear son, you need to start planning the retirement from the first month of your job.

The golden rule is start early and continue investing regularly (read it monthly). Do you know that if a person invests Rs 500 monthly from his age of 25 and continue until his 60th age, he will be left with more than Rs 170,000? That too considering an return rate of 10% annually compounding.

Goal based financial planning is the game of the hour. You need to figure out your financial goals (like your marriage, children's education, children's marriage and of course your retirement) and start investing for each. This kind of planning will help you to meet your future financial needs, without getting into big debt traps.

We, Indians are risk aversive people and when it comes to investment, we always want to play it safe. But like in any other fields, taking calculated risks is unavoidable for success. Never insist that you will invest only in schemes which assure guaranteed returns. For example, your PPF account, assures you return with 8.5+% interest, whereas the mutual funds never guarantees anything. So, play-it-safe people goes to PPFs and bank recurring deposits. Wise people builds an investment portfolio, which is a mixture of both. Please remember that unguaranteed 20% is always better than guaranteed 10%.

When you take risk, there is a possibility for failure. Never dishearten, learn from your mistakes and continue your investments.

6. Pay your taxes gracefully 

Income tax is irrational and complicated. If you make more money, you will have to pay more tax. It is like the Goverment is fining you for making more money. You may think it is more of Robinhood style. Take money from the rich, give to the poor.

Whatever you think you are legally obliged to pay tax. However, understanding and planning tax will reduce your burden. I am not asking you to evade tax. On the other hand, understand how to save tax legally.

Go through your salary structure and understand different ways to save tax. It may not be practical to go through all legal books on I-T. However, your can read good articles to understand more on this.

7. Spend for charity

We are all lucky people and always spend some money for the less fortunate ones of the society. I am talking about charity. Do this regularly, and realize the great feeling. Just like investment, do this at the start of the month, so that you will not run out of money, before doing this.

8. Say No to illegal money.

Any discussion on money will not be complete without this one. During different stages, Life will tempt you with opportunities to make quick and dirty money. Believe in your values and say no. There is no meaning in making money without the peace of mind. As you understand more about money, you will realize that there are thousands of other legal ways to make money. So, Enjoy.

I would like to conclude now. This is of course a long email. When I started my career, no one was there to tell me these things. In schools and colleges, they teach us how to make money, but never taught us how to manage it. That's why I took all the pain to write such a big email. After all, it is your life and accept or reject these tips, it is up to you.

with Love,

Your Grand Father

Image Courtesy: Wikimedia Commons

Wednesday, October 3, 2012

Money can't grow in trees.

Probably this will be the quote of the year. It is a simple fact every one, including ruling parties, opposition parties and financial experts, should agree. If money were growing in trees, we should not have to work to get money. Instead, we should have been growing money trees.

Now this simple fact is associated with reforms by central government. First they allowed FDI in retail. Then cut the subsidy for diesel and LPG. Some of the other reforms followed. All financial experts welcomed these moves, however, the opposition parties cried foul. I am not keeping sides here, just sharing my thoughts. I am neither the financial expert nor politician.

The FDI in retail can affect the small and medium retailers badly. So they say. On the other hand, it can help the consumers thanks to more competition. Also, help farmers due to better distribution networks. But, due to big media hype, even the common man is thinking that FDI in retail will hurt them.However, with my limited reading, I can't find any one furnishing any data to prove any of these claims.

The shop owners in Kerala shut down their shops on 3rd October, 2012 to oppose against FDI in retail. We cannot blame them, who wants more competition in business? We, Keralites are the people who protested against computers, attendance punching in Government offices, and whatever we think come against our comfort level. Our CM confirmed FDI in retail will not be allowed in state. So, I am wondering if it were allowed, the shop keepers might have kept their shops shut down for a week. They are enjoying a monopoly here. I wish there are more multi-brand retailers here to challenge them.

Coming to second point, unlike the above one, increase in fuel price hurts the common man a lot. The most basic principle of financial management is that your expense should be less than your income. The Government forgot this for some time, and our deficit was very big. Finally the government has waken up on a fine morning, and cut the subsidy for fuel. This caused the increase in prices.

The stock market responded to it positively, the Sensex went above 18500. The foreign investors are coming back to India, I read.  Rupee is improving against Dollar. All positive news.

However, I read somewhere that increase in fuel prices will lead to hike in prices of virtually everything. This will lead to high inflation rates. Will not this high inflation rates hurt our economy? As the inflation goes up, RBI will increase the interest rates. That means, I will have to pay more for my car and home loan. Life is going to be miserable.

I have read in some of the newspapers that Pakistan is reducing fuel prices to make their economy stronger. And, we are increasing fuel price for the same reason. Who is right and who is wrong here?

We have seen many of the financial forecasts by experts gone wrong. These politicians may be arguing to get support of the masses. So, we will have to take a wait and see approach.

Happy waiting.

Image courtesy: FreeDigitalPhotos.net

Thursday, September 27, 2012

Unprofit Plus

Four years ago, I purchased a ULIP plan from Life Insurance Corporation of India. Maturity is 10 years, and policy payment term is Five years. That means, as explained by my insurance agent, I need to pay the quarterly premiums for Five years, and next Five years, I will get coverage without paying the premiums. Great.

In layman's terms, a ULIP is a type of insurance, where the insurer (here LIC) invests the money in equity (Stocks) or debt funds. The value of the policy is determined by the NAV (net asset value) of underlying assets.  For an example, if I pay Rs 1000 as premium, and if the NAV is Rs 10 per unit, they will purchase 100 units on each payment. In fact, they will purchase less than that because, from the premium, allocation charges are reduced. In initial years, they will charge up to 20%, that means they will purchase only for Rs 800, so you will get only 80 units.

In this scheme the risk is borne by the policy holder. That means, if the NAV goes down, we will lose money. But that seldom happens in long term, told by my agent.  

Why did I join this ULIP? Answer is simple. To invest money. I know this is the same reason most Indians purchase insurance policies. Your agent will never tell you the difference between insurance and investment. And of course, it was long before I turned money conscious.

The advantage of ULIP is that it is both insurance and investment at same time. However, financial experts say that ULIP will serve neither as insurance nor  investment. Let's examine one by one.


When I joined this ULIP, the sum assured was two month's my salary. After four years now, the sum assured is less than my salary. That means in the unfortunate event of my death, my family will receive less than month's salary as insurance.  The purpose of life insurance is that in the event of the death of the insured, his family should be able to continue their lives in the same life style. Is it possible with this coverage? No.

The recommended insurance coverage of a person is 10 to 12 times of his/her annual income. Again this depends on many factors, like your life style, number of dependents, etc. If you have no dependents, or your dependents can support themselves, you don't need an insurance coverage. To get 10 times of my annual salary as sum assured, I will have to pay nearly 25% of my salary as monthly premium. This means as an insurance plan, ULIP is very expensive.

This explains my insurance seldom covers my needs.


Let's come to the second part, Investment. For years, I was happily paying the premiums without analyzing the performance of the scheme. Anyway, my agent told me that the returns will be good only in long term. Long term means Five to Ten years. Initially the allocation charges are high, so it will take more years to make up these allocation charges. (some one may ask, why should you pay these allocation charges in the first place, and wait for all these years to make it up. I have no answer). Once I started to learn about financial management, I started to monitor the performance of this ULIP.

LIC website does not show you the historical NAV of any of their ULIP schemes. Well, they designed their website for traditional insurance policies, and it will take time to update it. The websites like moneycontrol.com allow you to view the historical NAVs. Once I checked the NAV, I shocked to find that the value of the NAV is in the same range as what was it four years ago. In the history I can see the NAV is gone 20% up during year 2010, but then it came back.

During this four years, the prices of virtually every thing went up by at least 50%. Even my salary is doubled. Then why this NAV is not increased even by 1%? With all the allocation charges, I am at losing end. I wish I had gone with bank recurring deposit instead of this complicated ULIP. But honestly I was not aware of the bank recurring deposits at that time and how simple it was to start one.

But, it was not over. As I started periodically monitoring my ULIP account, I found that a few of the units are missing every month. Like today I have 1000 units, and if I check after one month, it is only 998. With my experience with Mutual Funds, I knew that once I purchase a few units, no one can take it away from me without my knowledge. Then where have these missing units gone?

I wrote to them through the LIC online website. Within 30 minutes I received a call from the local branch. They are very fast. The lady over phone explained to me that the units are utilized for my insurance coverage. That means they reduce 2 or 3 units each month, which will be utilized to cover my insurance coverage. Again, I am on the losing end.

So it did not serve as an investment either.


Neither of the above facts are my invention. I can find these information all in many articles and blogs. The important point here is I had to learn all these through the hard way.

Now, what is the alternative to this? Ideally what should I have done four years ago, instead of joining a ULIP?

You need to treat insurance and investment separate things. For insurance, the term insurance policies are the most economical ones. A term insurance policy is a type of policy, in which you pay premium for insurance coverage for a certain period. Once the period is over, you are not paid anything. No bonus, no sum assured, no survival benefit, whatever you call it.

For investment? Well, thousands of methods are there. Bank recurring deposits, Public Provident Funds, Mutual Fund SIPs, etc. All these are designed purely for investment purpose. You need to do some research before finding the one most suits you. Don't tell me you have no time for research, you are working at least 6 to 8 hours a day to earn money, so it will definitely worth  spending some time to plan your investment.

Happy investment

Image courtesy: FreeDigitalPhotos.net

Monday, September 17, 2012

At the Party...

Years ago during a fun party in my previous company, our CEO asked a riddle. "Rich man needs __, Poor man has __, if you eat __ you will die.". He asked a common word to replace all __. After much brain storming, we came up with answer. It was "nothing". Then in the party it followed a debate on Rich and Poor. Every one presented their views on rich, poor and money.

Some argued that being rich and poor is relative. Of course, that makes sense. For one person, I am poor. For another one I am rich. So, it depends on perception. I can choose to be rich or poor, as I want to be. Definitely a positive thought.

Some others argued that money is not important, because it cannot bring happiness. What about a life with full of money, but no love, no health? It will be definitely miserable. This view is good, if you have no money. But disappointing if you are rich (again relative). As the famous saying goes by "If you have money enjoy it, if you don't, be philosophical".

If money cannot bring happiness, and it is not important, why don't the supporters of this school, give all their money to me? They will not. They will say that they want some money to make the wheel rolling and they are happy with whatever money they are earning, so they don't worry about money. So, they are getting enough. They are happy. They don't want additional money. Hope they will give me the extra money they get as part of their next salary hike. Good.

Some one said there is no need to worry about money. You need to think about money, You need to be aware of money. Don't worry about money, because your health is also important..

And of course there are people who argued thinking about money is a taboo. They believe money and fame are like shadows. When you go toward it, it will go away from you. If you walk back, it will come to you. Good example. But money is really like that?

Further they argued that only greedy people think about money. Those who think about money will end up doing illegal activities for making money. They will make money, but lose peace of mind.   Solution? Pinch the money thoughts in the beginning so that you will have peace of mind. Great!

Then, is greed such a bad habit? If it was not greed, why do you work hard? People, of course, need more inspiration than the satisfaction of  a work well done. Because of the greed only, many entrepreneurs started their business and some changed the world.

One of my friends presented the most interesting aspect of money. Money cannot bring happiness. Money cannot bring peace of mind. But, Money can bring you more choices. For example, suppose you want to go to city from your office. If you have no money, you have only one choice. Walk all the way! If you have Rs 10, you have two choices. You can either walk or go by a bus. If you have Rs 50, you have three choices. Walk, go by bus, or go by Taxi. As the money increases, it give you more and more choices. Interesting.

As any argument, we departed without any conclusion. I am sharing this experience just thinking it will inspire you to think and understand about money. Please feel free to comment, if you have a different opinion on money, other than what we discussed in the party.

Have a nice day.

Image courtesy: FreeDigitalPhotos.net


Friday, September 7, 2012

Confessions of a Money Unconsious Person

I started my career nearly a decade ago, with a minimal salary. I was struggling to make both ends meet, and my hope was that any moment I will get a good job and all my problems will be solved. However, It took nearly Seven years to get that dream job and cross my salary Five digits.

To my astonishment, I found that as my salary increases, the expenses are also going up. Whatever salary I got, it disappears by end of month latest, and mostly by middle of the month. I am still struggling to make both ends meet.

This puzzled me. Why am I always struggling for money? Finally I decided to find a solution by using the most common method software engineers use to solve problems, by googling!

So I googled "how to get rich". I got thousands of links, and to my disappointment, all are saying about saving money and getting rich. What a foolishness! It will take years to accumulate little money and get rich. Is there no easy way?

Then one link in Google results got my attention. It was a review of a book called "Rich Dad, Poor Dad". It reads "Poor think The love of money is the root of all evil, while rich think The lack of money is the root of all evil" (writing from my memory). Even though, I was skeptical about the idea of saving and getting rich gradually, the innovative thought attracted me. I purchased that book and read it.

Then onwards, I started to think about money seriously. and of course, without the guilt feeling. I realized there is no short cut to get rich.

Once I started understanding these things, one thing most astonished me was why no one told me about this so far. Some people gave me lazy advices like "you should save", but no one told me the importance of that. But then I was playing a blind eye toward financial things. In newspapers, TVs, books, blogs every where lot of financial articles were there, but I was simply skipping those. Thinking not for me!

Once I realized the mistake, I thought I should tell others about this to avoid my mistakes by them. You can find thousands of blogs by experts on financial management, but I am no expert. Still don't know meaning of many financial jargon. So, I can think and write in the level of thousands like me.

Have a nice day.

Image courtesy: FreeDigitalPhotos.net