tag:blogger.com,1999:blog-87371238754102916722024-02-19T22:39:43.336-08:00Personal Finance UnpluggedDivyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.comBlogger45125tag:blogger.com,1999:blog-8737123875410291672.post-70906356817389085892015-09-30T01:41:00.002-07:002015-09-30T01:41:25.664-07:0050 Base Point Cut By Governor Rajan<div dir="ltr" style="text-align: left;" trbidi="on">
On 29th September 2015, RBI Governor Raghuram Rajan announced a 50 bps cut. What does this mean for us?<br />
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This is the rate at which banks borrow money. For us it means:<br />
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1. Home loans become cheaper. If you have a home loan with a variable interest rate then the interest rate will decrease.<br />
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2. This will help keep inflation in check which is always a huge relief for consumers.<br />
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3. Fixed deposit interest rate will decrease. The deposits which are currently in place will continue to have the same interest rate. However, if we sign up for an F.D. now, banks will be slashing rates soon.<br />
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4. Debt funds will perform better. If you have money in a debt fund, it will give better returns.<br />
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Overall, I think this is a welcome step and hope that banks pass on this to the consumers. <br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-31107255582003400552015-09-30T01:36:00.000-07:002015-09-30T01:36:20.774-07:00Let us pay our taxes<div dir="ltr" style="text-align: left;" trbidi="on">
March 31st 2015 will be the end of yet another fiscal year. <br />
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Fiscal year and financial year are synonymous. <br />
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Assessment year is the year in which you pay taxes; hereas financial year is the year for which you owe taxes. Example assessment year 2015-2016 means you are paying taxes for financial year 2014-2015. Earned income or unearned income generated from 1st April 2014 to 31st March 2015 will be taxed in assessment year 2015-2016 and the deadline to file is 31st July 2015. <br />
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Here is the link to the income tax calculator released by the IT website<br />
<a href="http://www.incometaxindia.gov.in/Pages/tools/income-tax-calculator.aspx">http://www.incometaxindia.gov.in/Pages/tools/income-tax-calculator.aspx</a><br />
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Let us pay our dues so that our dreams of having a <i>Swach and Sachcha Bharat</i> come true!<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-27877995261929349402015-01-06T22:39:00.000-08:002015-01-06T22:49:16.987-08:00Negotiate Your Way Through...<div dir="ltr" style="text-align: left;" trbidi="on">
I recently missed my flight. I was having nightmares at the thought of cancellation charges and rebooking.<br />
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I live in Bangalore. I was flying from Mumbai to Bangalore. I had booked a train from a town in West India to Mumbai. The train was delayed and we were rushing through peak hour Mumbai traffic to make it to the airport. We made it just fifteen minutes before the flight was about to take off and they refused to let us board the flight. They were right on their part.<br />
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I asked what we had to pay to rebook. It involved base charge and rebooking charges. Of course, everything was times two since I was not travelling alone. I requested the person to give me a discount. She said that she was not able to do it. I politely asked for her manager. It took her several phone calls to get the manager. The manager did not show up. Finally she sent us to another counter to put us on the next flight. It took the person about 45 minutes to book us on the next flight. They did it free of charge. We were very grateful.<br />
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The moral of the story - it never hurts to ask. Whether you are purchasing a gadget, buying clothes, furniture, signing up for a cable connection or rebooking flights; try asking for a discount and see if the company can cut you a deal. To be honest, the idea of negotiating with the airlines came from a stranger at the airport. He casually mentioned that I should ask for it. I tried and it worked!<br />
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It saved us quite a bit and thus I wanted share this idea.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-52609706233447154132014-12-08T00:14:00.000-08:002014-12-08T00:14:09.466-08:00What Counts As Savings?<div dir="ltr" style="text-align: left;" trbidi="on">
A personal finance blog talks about saving and being frugal all the time. Are savings and investments the same thing? Is buying an LIC policy saving? Are fixed deposits considered savings? If you wanted to buy a gadget and bought the older generation to pay less, is that a form of saving?<br />
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I will answer all the above questions.<br />
<a name='more'></a> But first, I would like to say that this article was inspired by my friend John. Whenever John brings lunch from home, he claims he saved Rs.50 since he did not buy anything at the office cafeteria. John and I had a discussion as to whether this saving is real. Does it count if he ends up spending this money on something else?<br />
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<u>Note</u>: If you have not been introduced to my friend John, please read about him <a href="http://www.financesunplugged.com/2014/11/i-paid-off-my-credit-card.html" target="_blank">here</a><br />
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<b>What counts as savings?</b><br />
Money not spent and<b> money that one can see at the end of the month in his or her account at the end of the month.</b> Both conditions should be satisfied.<br />
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Basically, savings involve two steps. Let us take John's example again. The day that John packs his lunch from home he is saving Rs.50 but for it to be real savings, <b>he should not spend it on anything else. </b>When he does not spend it on anything else, he will be able to see the money in his account at the end of the month.<br />
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<b>Is a recurring deposit (RD) a form of saving?</b><br />
Yes! It certainly is! RD is a neat way of saving month to month. Let the money be <u>automatically </u>deducted the day your salary credits to your account. Be aggressive and make it to be as large an amount possible.<br />
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<b>Is a fixed deposit a form of saving?</b><br />
Yes, it is!<br />
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<b>Is PPF/PF a form of savings?</b><br />
PPF/PF will only be built if you save. However, I like to look at them as more than savings. These are retirement funds which are probably better termed as investments.<br />
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<b>Mutual Funds?</b><br />
I think mutual funds are definitely an investment. They do not merely count as savings.They are savings and give inflation adjusted returns when you invest for the long term. Please refer to my articles on mutual funds:<br />
<a href="http://www.financesunplugged.com/2014/06/mutual-funds-part-1-basics-of-mutual.html">Basics of Mutual Funds</a><br />
<a href="http://www.financesunplugged.com/2014/07/mutual-funds-part-2-how-do-i-start.html">How Do I Start Investing In Mutual Funds?</a><br />
<a href="http://www.financesunplugged.com/2014/07/mutual-funds-part-3-how-to-build.html">How To Build A Portfolio With Mutual Funds?</a><br />
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<b>I did not buy lunch from the cafeteria - does it count as savings?</b><br />
Yes, it counts as savings as long as you can see the savings in your account<br />
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<b>I invested in an LIC policy. Does that count?</b> <br />
Let us not confuse insurance, savings and investment. An LIC is definitely buying insurance and is NOT a form of savings.<br />
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<b>But, I am saving tax by purchasing an LIC policy</b><br />
Let us get our financial goals clear. We buy insurance to insure our family and near and dear ones. This is not savings. The tax that you save is an advantage but we do NOT buy life insurance to save taxes.<br />
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<b>I bought an older generation gadget. I saved right?</b><br />
If you needed a gadget and bought an older generation, less expensive model - you did the wise thing and saved. <br />
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When you do not spend on something - yes it is money saved but we have to be careful not to spend it on something else!<br />
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I hope John agrees with me!<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com3tag:blogger.com,1999:blog-8737123875410291672.post-74848384322414337892014-11-12T05:30:00.000-08:002014-11-12T05:30:26.912-08:00Should You Replace The Screen Of Your Smart Phone?<div dir="ltr" style="text-align: left;" trbidi="on">
We all love our smart phones, don't we? It is almost a permanent fixture in most hands. We have to check messages, constantly chat with old friends and keep checking emails. So what happens when the screen of this beloved gets cracked? The crack hurts our hearts and we feel "heartbroken" for a while. But; is it worth replacing the screen?<br />
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Let me narrate a story. My friend (let us just call him Adam) tripped while jogging the other day. He had a few scratches on his palm and hurt his knee pretty badly. During this accident, another thing got hurt - his latest pretty smart phone. Adam told me that the screen of his phone cracked but the phone is fully functional. Adam could not resist and called the phone company. It will cost him Rs.7000 to replace the screen. This deal pretty much replaces everything in the exterior and preserves his interior which is tempting since it gives him a "new looking" phone.<br />
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<b>Should Adam replace the screen of his smart phone?</b><br />
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<b>My vote is no.</b> Here are the reasons:<br />
1. Yes, replacing the screen will give him a brand new phone feeling but the phone is functioning well and does not need a pretty exterior.<br />
2. This money will be spent only to make the exterior nice and has no functional value.<br />
3. After I had a look at Adam's screen, I realized that the screen has not cracked. It merely has a few scratches which are visible only when you reflect light off the phone. Adam disagrees and insists that the screen is cracked and these are not mere scratches. <br />
4. This money could be saved or even better invested somewhere.<br />
5. One can drop a phone again even after getting the screen replaced. There are no guarantees.<br />
6. A phone is not an asset. It is not a plot of land, piece of gold or equity that will appreciate in value. It merely depreciates and thus spending on it is not a wise financial decision.<br />
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Adam says he agrees with me and will not replace the screen but I would like to see if he gives in to temptation. <br />
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What would you do in a similar situation? If your smart phone screen cracked but was still working well, would you spend a similar amount to get a shiny screen?<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-72973185479724634892014-11-02T22:03:00.001-08:002014-11-02T22:44:13.661-08:00I Paid Off My Credit Card!<div dir="ltr" style="text-align: left;" trbidi="on">
This article is dedicated to a friend who recently paid off his credit card. Let us say his name is John. We are really proud of John!<br />
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John had over Rs.40,000 accumulated as credit card debt.<br />
<a name='more'></a> He lent money to friends, bought them expensive gifts, booked flights every time he visited family and spent lavishly on near and dear ones. He wanted every one in his home town to know that he is a good guy and will help them out when they are in need. He also wanted everyone to know that he has a good job and has achieved success. The outcome of all this is that he accumulated massive amounts of credit card debt and ended paying interest on interest.<br />
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When I met John, he started browsing through my blog and asked lot of questions. My first suggestion was simple, pay off the credit card. He said his target was to pay it off by 1st January 2015. I wanted him to pay it off by 1st November 2014. After much persuasion from a lot of friends, John paid off over Rs.40,000 on his credit card and he has a zero balance left. He is very tight on money this month since he used almost all of his salary towards paying off the card. He has been spending every penny he earns and obviously does not have an emergency fund or any savings.<br />
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Moving on, John has promised to do the following:<br />
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1. Spend less on eating out especially fine wining and dining.<br />
2. Open two recurring deposits beginning 1st December 2014. <br />
3. Pack lunch from home every day.<br />
4. Not to lend money to friends and family since he does not have enough to loan.<br />
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<b>What bothers me about John is this:</b><br />
<b>He still thinks it is okay to use the credit card as an emergency fund. This is the worst thing possible. A credit card is NOT an emergency fund and is only to be used if you can pay off the balance before the due date. The interest rates on credit cards are soaring high (between 22 to 34%) and due to compouding the effective interest rate keeps increasing. </b><br />
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I have tried to reason with John and persuaded him to start an emergency fund and go on an all cash diet. Some of him wants to listen and some of him just wants to go back to his old ways. He has also ordered a new credit card which he refuses to cancel. I want to help John but am not sure that he wants to be helped.<br />
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I am curious to see how this story turns out. We are proud of John but he still has a long way to go. To make a change in your life is always difficult. I hope John is able to break free of the shackles of the worst kind of debt. <br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-82643916977001092372014-10-21T01:23:00.000-07:002014-11-02T23:03:22.921-08:00Shopping Spree...?<div dir="ltr" style="text-align: left;" trbidi="on">
Today is the day that everybody wants to shop.. Today is Dhanteras, the day where Goddess Lakshmi is worshipped.<br />
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Confession - <br />
<a name='more'></a>I did not buy anything!<br />
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Okay okay, I will not tell you to stop shopping. I know everybody wants to get a steal of a deal, buy a superb yet cheap blender, invest in gold coins, get the latest gadget, shop online and get cash back etc. etc.<br />
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Here is my suggestion - buy something you need or want and if you are just buying because you want to buy then skip the activity<br />
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We can all worship Goddess Lakshmi by saving or investing. Start a recurring deposit or a fund that you like. For more information, please read:<br />
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<a href="http://www.financesunplugged.com/2014/07/mutual-funds-part-2-how-do-i-start.html">How Do I Start Investing In Mutual Funds?</a><br />
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<a href="http://www.financesunplugged.com/2014/06/mutual-funds-part-1-basics-of-mutual.html">Basics of Mutual Funds</a><br />
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I wish you all a happy and prosperous Diwali and Dhanteras. I hope that
there is an abundance of health and wealth and avoidance of debt and loans in your life.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-70756123086572183932014-10-09T03:29:00.000-07:002014-10-09T03:29:00.817-07:00Should I Record My Expenses?<div dir="ltr" style="text-align: left;" trbidi="on">
YES! Please record your expenses. Why should you record your expenses? Here is the answer.<br />
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Most people cannot believe how much they spend. The only way to really track something is to write it down. <br />
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I asked a colleague to estimate his expenses for the day. Let us call him John. John told me that he spends about Rs.200 a day. I requested that he open an excel sheet and note down each expense. It looked something like this :<br />
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Auto rickshaw ride from home to work - Rs.110<br />
Breakfast - Rs.55<br />
Lunch - Rs.65<br />
Bus ride from home to work - Rs.50<br />
Recharged Cell Phone - Rs.200<br />
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Total expenses for <b>ONE DAY - Rs. 480</b><br />
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This person was shocked to find out how much he had spent in one day.<br />
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Next, I requested that he jot down whatever he can remember since the 1st of the month since it is 9th October and only 9 days have passed. He noted down rent, cell phone bills, grocery shopping, movie theater trips during the weekend and the excel sheet total was up to <b>Rs.17,565</b>. <br />
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<b>Rs.17,565 spent in 9 days.</b><br />
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It was an eye opener for John. He has promised to jot every single expense but let us see if he sticks to it.<br />
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The only way to track expenditure is by penning it down. Let me rephrase that. <b>The only way to have an idea of your expenditure is by writing down every Paise you spend. </b><br />
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Please use whatever tool suits you - excel sheets, cell phones, computers etc.<br />
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<b>Of course, there is the good old pen and paper!</b><br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-91276271422750863132014-09-29T03:20:00.000-07:002014-09-29T03:20:34.543-07:00What Percentage of My Income Should I Save?<div dir="ltr" style="text-align: left;" trbidi="on">
Let us rephrase that question. What is the percentage of income that you should NOT be spending? 10%, 20%, 30% .....can it go as high as 50%?<br />
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The answer lies within you. Be true to yourself about income, expenditure and savings. So how does one get started?<br />
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<b>1. Save as soon as you get your salary</b><br />
The best way to do this is to start a recurring deposit or an SIP and stash away some money as soon as you receive your salary. Things that get deducted before you get your salary seem "non existent" which means that savings will grow leaps and bounds.<br />
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<b>2. Jot It Down</b><br />
Write down every penny you spend. This will help you track what unnecessary expenditure can be eliminated. <br />
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<b>3. At The End</b><br />
If there is money left at month end, it should go towards savings or should be invested. You already have a head start and can boost the initial savings made at the beginning of the month.<br />
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So what percentage should I really save?<br />
1. <b>In Your Twenties</b><br />
If this is your first job or you just started out, try and see if you can stash away 50% of your take home salary. These are the years when one wants to enjoy and reap the benefits after having studied the long hours in college. Stashing away 50% might seem a lot in the beginning and if it does not work, simply bring down the percentage.<br />
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<b>2. In Your Thirties</b><br />
By this time, your income has grown and so have your responsibilities. You will have a better sense of putting money away and investing in different products. Try and achieve as high a percentage as possible after paying all EMIs and accounting for all expenses.<br />
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<b>3. In Your Forties, Fifties and Sixties</b><br />
Income is at its peak and so should your savings. Stash away extra bonuses and raises. This will make a huge difference.<br />
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<b>Do I Have To Commit To A Percentage?</b> <b> </b><br />
<u>Saving 10% of your income should be a starting point.</u> There will be good and bad months but try and stick to the target. Steadily increase the percentage you save at your pace.<br />
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Remember, small savings make a big difference. </div>
Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-6902193710668629942014-09-17T03:34:00.000-07:002014-09-17T03:41:21.574-07:00Mutual Funds Part 7/7 - Fixed Maturity Plan<div dir="ltr" style="text-align: left;" trbidi="on">
<b>What is a Fixed Maturity Plan? (FMP)</b><br />
It is a fund where money is locked in for a period of time. Exiting it is next to impossible. It has given "fixed deposit like" returns in the past.<br />
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<b>Why do people invest in FMPs?</b><br />
People invest because it has the potential of giving good returns. Earlier FMPs had a tax advantage if you invested for more than a year. They returns were taxed at 10% without indexation or 20% with indexation if you stayed for more than a year.<br />
Budget 2014 has changed the taxation policy and now the LTCG applies only if you stay put for three years.<br />
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<b>Safety?</b><br />
FMPs are NOT fixed deposits. They are "fixed" in terms of the tenure but the returns are not guaranteed and the principal is not safe. It is considered a pretty safe product but there are not guarantees. <br />
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<b>Are FMPs still worth it?</b> <br />
If you can stay locked in for three years, FMPs might still be worth it. If you want liquidity and close to FD returns, choose a debt fund. <br />
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I am wrapping up the mutual fund series with this article. </div>
Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-36220463157024107552014-08-27T03:06:00.001-07:002014-09-17T03:41:40.147-07:00Mutual Funds Part 6/7 - Gold Funds<div dir="ltr" style="text-align: left;" trbidi="on">
If you believe in investing in gold, mutual funds offer gold funds. The value of these funds increases and decreases with the value of gold. <br />
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The funds are taxed like debt funds. Remember the taxation changed with budget 2014.<br />
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I have written all about it <a href="https://www.blogger.com/blogger.g?blogID=8737123875410291672#editor/target=post;postID=5796867153834020191;onPublishedMenu=allposts;onClosedMenu=allposts;postNum=16;src=postname">here</a><br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-51965018062437856052014-08-18T22:44:00.000-07:002014-09-17T03:41:50.373-07:00Mutual Funds Part 5/7 - Taxation on Mutual Funds<div dir="ltr" style="text-align: left;" trbidi="on">
After doing a few articles on mutual funds (<span style="color: purple;"><a href="http://www.financesunplugged.com/2014/06/mutual-funds-part-1-basics-of-mutual.html">Part 1</a>, <a href="http://www.financesunplugged.com/2014/07/mutual-funds-part-2-how-do-i-start.html">Part 2</a>, <a href="http://www.financesunplugged.com/2014/07/mutual-funds-part-3-how-to-build.html">Part 3, </a><a href="http://www.financesunplugged.com/2014/08/mutual-funds-part-4-how-do-i-choose-fund.html">Part 4</a></span>) the series would be incomplete if I did not discuss taxation on funds. <br />
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<b>Taxation on Equity Funds</b><br />
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<li>Short Term Capital Gains (STCG) tax is applicable for redemption within a year. This is levied @ 15%</li>
<li>Long Term Capital Gains Tax (LTCG) - for funds held more than a year, there is no LTCG tax.</li>
<li>Dividend is tax free in the hands of the fund holder/individual. </li>
<li>Equity funds includes all funds investing mainly in equity and arbitrage funds.<b> </b></li>
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<b>Taxation on Debt Funds</b><br />
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<li>STCG is applicable for funds held for less than 3 years. This is levied as per the tax bracket you fall under. E.g. if you fall under the 20% tax bracket, you pay taxes STCG tax @ 20%.</li>
<li>LTCG - for funds held for more than 3 years, LTCG is levied @ 20% with indexation. This is the latest as per budget 2014</li>
<li>Dividend is tax free </li>
<li>This includes all debt funds, liquid funds, gold funds, FMPs (Fixed Maturity Plans) and balanced funds which are debt heavy.</li>
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It is good to be able to plan taxes along with your investments. It gives a clear idea of net returns and what should be declared at the time of filing tax returns.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-41907861927950430332014-08-11T22:15:00.000-07:002014-09-17T03:42:21.246-07:00Mutual Funds Part 4/7 - How Do I Choose A Fund<div dir="ltr" style="text-align: left;" trbidi="on">
How does one choose a mutual fund? It involves looking at a lot of things. In the beginning it might seem like a wave of information, but over a period of time it becomes second nature. <br />
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First and foremost, any fund one chooses should be <u>in line with your financial goals.</u> If investing for the long term (at least 5 years; the longer, the better), choose an equity fund. If your goal is short term investing, choose a debt fund. Either way make sure that you take into account the taxation details. Also decide whether you want the dividend or growth option. <u>Choose dividend, only if you need regular income. Ideally, choose a growth oriented fund.</u><br />
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Here is what I look at before making a decision about investing in a fund:<br />
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<b>1</b>. <b>Launch Date</b><br />
I like to look at the launch date to note how long the fund has been in the market. The longer the the fund has been in the market, the longer the history I can look at.<br />
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<b>2</b>.<b> Composition </b><br />
If it is a balanced fund, I like to note if the fund is debt or equity heavy. I choose the mix that suits my goals.<br />
For equity or debt funds, I like to note the break up which any fund provides. E.g. HDFC Top 200 Fund has 8% of its net holdings in State Bank of India. of the equity portfolio in ICICI. The top 10 holdings give me an idea of how the investment is bifurcated<br />
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<b>3</b>. <b>Returns for the last 10 years</b><br />
It is important to note the returns the fund has generated for the last 10 years. Look at both absolute and annualised returns. It will give you a fair idea of the fund's performance.<br />
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<b>4</b>. <b>Exit Load</b><br />
Most funds have an exit load. In any fund an exit load can range from 0.1% to 1% if you withdraw money anywhere between 3 days and 18 months.This is an information to look at up front so that you know that the horizon suits you. If possible, it is best to avoid the exit load. <br />
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<b>5</b>.<b> Expense Ratio</b><br />
Expense ratio is something that will be levied regardless of the time that you are invested and regardless of whether your fund is doing well or not. Unlike the exit load, this cannot be avoided. This is a number to be aware of so as to be aware of the real returns.<br />
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<b>6. Returns vs. benchmark</b><br />
It is good to note the returns of the fund and compare it to the benchmark. Ideally, we want our fund to beat the benchmark. It shows consistency in performance.<br />
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<b>7.</b> <b>Websites To Look At </b><br />
Many websites evaluate funds. A few examples are <a href="http://valueresearchonline.com/">valueresearchonline.com</a>, <a href="http://moneycontrol.com/">moneycontrol.com</a> and <a href="http://economictimes.com/">economictimes.com</a>. This is certainly not an exhaustive list and I am not recommending these websites. Every website rates funds based on a different criteria and it is important to understand the criteria of ranking.<br />
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<b>8</b>.<b>Current Affairs</b><br />
Taxation rules change. E.g. the 2014 budget changed the way debt funds are taxed. LTCG (Long Term Capital Gains) tax for debt funds kicks in after 3 years instead of 1 year. If you withdraw from a debt fund before 3 years, STCG is applied based on the tax slab you fall under. Equity funds in India currently do not have a LTCG tax i.e. returns are tax free after a year. It is imperative that we align any investment with our goals and study the taxation so as to get a fair idea of the net returns.<br />
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<b>9. Gold Funds</b> <br />
Instead of buying physical gold, one can invest in gold funds. I have written about this in detail <a href="http://financesunplugged.blogspot.com/2014/04/all-that-glitters-is-not-gold.html">here</a>. Remember, that gold is a hedge against inflation and should not make up more than 5 to 10% on your portfolio.<br />
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Choosing a fund requires careful evaluation. It is also of utmost importance to evaluate your risk appetite. If you are a high risk investor, invest in mid and small cap funds else stick with large cap funds.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-65710304772954611102014-08-05T00:02:00.002-07:002014-08-12T02:19:29.872-07:00Not Too Late To File Taxes<div dir="ltr" style="text-align: left;" trbidi="on">
While writing an article and while reading other articles, I came across something that I really wanted to share. <a href="http://economictimes.indiatimes.com/wealth/tax-savers/tax-news/missed-july-31-deadline-for-i-t-returns-you-can-file-them-till-march-2015/articleshow/39473745.cms" target="_blank">Here </a>it is...<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-85475452685271220422014-07-29T22:49:00.000-07:002014-08-12T02:14:36.640-07:00Last Day To File Taxes - 31st July 2014<div dir="ltr" style="text-align: left;" trbidi="on">
Hope people have been planning to file taxes! The last day to file taxes for fiscal year 2013-14 (which is the same as assessment year 2014-15) is 31st July 2014.<br />
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If your income is greater than 5 lakhs in a year, it is mandatory to file taxes online. There are a number of websites which offer this service. The government website is :<br />
<a href="https://incometaxindiaefiling.gov.in/">https://incometaxindiaefiling.gov.in/</a><br />
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I hope most of you reading have already filed taxes. If not, here are a few humble reminders:<br />
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1. Remember to declare income from all employers even if they did not provide you with a Form 16.<br />
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2. Remember that interest on savings account is taxable. An exemption can be claimed for up to Rs.10,000.<br />
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3. Interest on fixed deposits is taxable as per the taxation slab you fall under. Even if the fixed deposit has not matured, you are liable to pay tax on the interest accrued.<br />
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4. A deduction can be claimed under 80G if you have donated to any charitable organizations.<br />
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5. Section 80C has a deduction of Rs.1 lakh which includes life insurance. PPF, PF and any tax saving fixed deposits.<br />
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6. Interest on PPF and PF are non taxable.<br />
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Happy e-filing of taxes!<br /><br/>
</div>Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-13091651425577810972014-07-22T00:00:00.000-07:002014-09-17T03:42:32.787-07:00Mutual Funds Part 3/7 - How To Build A Portfolio With Mutual Funds<div dir="ltr" style="text-align: left;" trbidi="on">
This is the third article in the mutual fund series. <a href="http://financesunplugged.blogspot.com/2014/06/mutual-funds-part-1-basics-of-mutual.html" target="_blank">Part 1</a> and <a href="http://financesunplugged.blogspot.com/2014/07/mutual-funds-part-2-how-do-i-start.html" target="_blank">Part 2</a> were about mutual fund basics and how to start investing in mutual funds. Today I am going to write about building a portfolio with mutual funds in it. <br />
<a name='more'></a>Please remember that before coming to mutual funds one must have the following:<br />
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1. An emergency fund - 6 to 8 months of living expenses stashed away. Please refer to my article on emergency fund <a href="http://financesunplugged.blogspot.com/2014/03/what-is-emergency-fund.html" target="_blank">here</a>.<br />
2. A PPF account. Article on PPF <a href="http://financesunplugged.blogspot.com/2014/02/should-i-invest-in-public-provident-fund.html" target="_blank">here</a>.<br />
3. A term life insurance if you have dependents. Article on life insurance <a href="http://financesunplugged.blogspot.com/2014/02/do-i-need-life-insurance-policy.html" target="_blank">here</a>.<br />
4. A medical insurance for you and your dependents.<br />
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Now that you have a sound foundation we can start investing in mutual funds. To build a mutual fund portfolio:<br />
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1. Start with 2 large cap funds. As and when you build confidence, add small and mid cap funds to your portfolio. Mid and small cap funds are more risky but give your portfolio the kick it requires.<br />
<ul style="text-align: left;">
<li>Mutual fund investing can start with as low as Rs.5000 and then SIPs can be started for Rs.500 or Rs.1000.</li>
<li>SIPs are a good way to start and not think of the market.</li>
</ul>
2. While choosing mutual funds; take into account the exit load, expense ratio, past performance and comparison against the benchmark. We want returns that beat the benchmark.<br />
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3. Invest in equity funds for the long term (at least five to ten years). This is the only formula to generating wealth.<br />
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4. Debt funds provide the safety net to your portfolio. It is good to have some money in debt funds and understand the product thoroughly. Remember that you can lose money in debt funds also and it will never generate equity like returns.<br />
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5. The market returns will fluctuate. Just stay invested even if the market goes down. When the boom happens, you will be happy.<br />
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6. Diversify with about 6 to 8 funds. More than this number in the same category will not provide any further benefits in terms of diversification.<br />
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7. Nobody can time the market. Anybody who claims to time the market is clearly lying. Try not to time and just continue contributing in the form of SIPs.<br />
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Yes, one can lose money in mutual funds but when investing for the long term it is the way to generate inflation beating returns.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-102077581270935462014-07-16T01:11:00.000-07:002014-09-17T03:42:44.682-07:00Mutual Funds Part 2/7 - How Do I Start Investing In Mutual Funds<div dir="ltr" style="text-align: left;" trbidi="on">
Is mutual fund investing necessary? It is certainly not mandatory but it is one of the ways to generate inflation beating returns.I introduced mutual funds in <a href="http://financesunplugged.blogspot.com/2014/06/mutual-funds-part-1-basics-of-mutual.html" target="_blank">Part 1</a> of the mutual fund series This article is not about how to choose a mutual fund but how to choose the medium to invest in a fund. These are the following ways to do it:<br />
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1. <b>Bank</b><br />
An individual can open an investment account (a non Demat account) with a bank. There are basic charges for the account and you can invest in different Asset Management Companies (AMCs). There are bank employees that you can seek help from. It is convenient since you already have an account with the bank but the negatives are higher expense ratios and bank employees can give misleading advise. Remember that all funds have an expense ratio which varies between 0.1% (usually debt funds) to 3% (equity funds). This is the money collected from you regardless of whether your fund is doing well or not.<br />
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2. <b>Asset Management Company (AMC)</b><br />
This is the way to directly invest with Asset Management Companies. E.g. HDFC AMC has a website hdfcfund.com. SBI, ICICI and others have their own AMCs. This is the most economical way to invest in mutual funds since an individual can invest in a direct plan. A direct plan basically means that you will not be charged a distributor's fee so you will have a lower expense ratio. The fallback is that you will have different usernames and passwords for all AMCs and you will not have all investments listed in one place.<br />
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3. <b>Agent</b> <br />
Most people are familiar with this route since it has been around for a long time and provides the human interaction a lot of us desire. An individual from some AMC or bank tells you to buy a mutual fund and does all the paper work for you. This agent is getting a commission from the fund he sells. It might seem hands off and convenient but it is difficult to find an agent one can trust and who will work in your benefit rather than the benefit of his/her commission.<br />
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4. <b>Online Portals</b><br />
Online portals like fundsindia.com and fundssupermart.com are simply distributors or agents with an online presence. You can choose the fund you want, you can talk to an advisor and research about different funds. If you fill up a form online, someone will come collect all the KYC documents and make it easy for you. The fall back is that this medium does not offer direct plans which means that you pay more in terms of expense ratio. The expense ration is usually 0.5% lower for direct plans. This may seem like a low percentage but the amount lost over a long period of time (ten to fifteen years) adds up and becomes significant. The positives are the excellent interface it provides and you can see all MF investments in one place.<br />
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<b>Which method do I choose?</b><br />
The method you choose should consider costs, convenience and individual traits. I am a person who does not like advise from agents and likes to do research about my own investments and mutual funds. Personally, I wish I had the memory and patience to invest in different AMCs so as to keep lower costs. However, I do not have that in me. I use an online portal for most funds and then have about two to three funds in my favorite AMC. It is a combination approach that suits my needs.<br />
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How do you invest in funds and why did you choose that method? Please share. <br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-46316937761557930312014-07-08T01:32:00.001-07:002014-08-12T02:20:17.261-07:00Moving Your Pet To Another Country<div dir="ltr" style="text-align: left;" trbidi="on">
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Besides being involved in personal finance, I am an animal lover. I have lived a big chunk of my life in the U.S. I returned to India in 2013 and wanted to bring my cat from the U.S to India. I wrote an article about this. Check it out <i><b><span style="color: lime;"><a href="http://animalswecare.com/articles/how-to-move-a-pet-from-united-states-to-india/" target="_blank">here</a></span></b></i>.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-62057368748292569062014-06-30T23:16:00.000-07:002014-09-17T03:42:55.734-07:00Mutual Funds Part 1/7 - Basics of Mutual Funds<div dir="ltr" style="text-align: left;" trbidi="on">
<b>What is a mutual fund?</b><br />
A mutual fund is a fund that invests in holdings of different companies. This offers the benefit of diversification and is professionally managed. I often get emails asking me if one should invest in mutual funds. Here is what one should know before beginning to invest in mutual funds<br />
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1. Yes, you can lose money in a mutual fund. However, if you invest long term the chances of gains averaging out are very high.<br />
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2. Mutual funds are a good option for people who do not understand the stock market. Funds are professionally managed by a fund manager who has more knowledge about market than the layman.<br />
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3. Mutual funds are divided into <b>equity funds and debt funds</b>. Equity funds invest in shares of different companies whereas debt funds invest in debt instruments like government bonds.<br />
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4. Mutual Funds have an <b>exit load</b> - exit load is a cost deducted if you withdraw your money before a certain amount of time. E.g. a fund will have an exit load of 0.5% if you exit before 3 months. Meaning - if you exit after 3 months there will not be an exit load.<br />
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5. <b>Expense ratio</b> - Expense ratio varies between 0.1% and 3% in a fund. Equity funds usually have a higher expense ratio. This is the amount deducted regardless on whether your fund is doing well.<br />
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6. Funds are an apt way of earning inflation beating returns.<br />
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7. <b>Tax benefits</b> - mutual funds offer many tax advantages especially to the people who fall under the 20 or 30% tax bracket.<br />
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8. Funds should be chosen based on careful evalution and an individual's risk appetite.<br />
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In the next few articles, I will be discussing how to invest in mutual funds, taxes on mutual fund returns, gold funds and Fixed Maturity Plans.<br />
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Here is to generating and creating wealth!<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-10002145002613990312014-06-10T03:31:00.000-07:002014-06-10T03:32:16.965-07:00Education and Education Loan<div dir="ltr" style="text-align: left;" trbidi="on">
We feel proud when our children study, do well and earn prestigious degrees. It is a feeling that is immeasurable and we encourage our little ones to strive for the best. The child should be at the top of the class, aim for high ranking colleges and universities and secure a job which pays a big fat salary. Earlier education costs were part of the budget but now it is a strain on the budget. A lot of students are now going in for an education loan. Is a loan worth it? Is it worth starting your first job with a big loan that you have to pay off?<br />
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<b>Documents Required</b><br />
When applying for a loan plenty of documents will be required. Mark sheets of the student, proof of admission, passport size photos, assets of the co-owner, salary slips of the borrower etc. <br />
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<b>Loan Amount</b><br />
The loan amount will vary depending upon the university or college location and the bank providing the loan. For colleges/universities within India, the loan amount limit is smaller. E.g. SBI is currently offering loans up to 4 lakhs for Indian education and HDFC is offering up to 10 lakhs. For foreign universities, SBI offers up to 30 lakhs and HDFC loans up to 100% of education expenses. <br />
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<b>Margin</b><br />
This is the lump-sum amount or down payment one must have before applying for a loan. For a smaller amount of loan, there is no margin. E.g. for a loan of up to 4 lakhs, SBI does not have a margin. For loans above 4 lakhs, the margin is 5% or 15% depending on whether it is an Indian or foreign university.<br />
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<b>Security and Collateral</b><br />
Depending on the loan amount a collateral may or may not be required. Security is provided in the form of a co-owner of a loan. E.g. SBI requires a co-owner for up to Rs.4,00,000. For an education loan over and above 4 lakhs a co-owner and some form of collateral is required.<br />
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<b>Processing Fee</b><br />
Banks may or may not charge a processing fee. PSUs usually do not charge a processing fee whereas private banks usually charge between 1 and 3% of the loan amount.<br />
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<b>Interest Rates</b><br />
Interest rates on student loans are high. They range between 13 and 15%. There are fixed and variable rate loans.<br />
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<b>Repayment</b><br />
Repayment should begin after 1 year of finishing the degree or within 6 months of finding a job. The interest paid is deductible under Section 80E .<br />
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Should a student loan be taken?<br />
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Sometimes taking a loan for education becomes a reality. If you take a loan, be diligent about paying it back. If possible, pay back the interest even while your degree is on. If this is not possible, be aggressive about paying it back as soon as you get your first pay cheque. Repayment period provided by the bank may be ten or twelve years. Target paying it off in less than that. <br />
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I wish I could make education affordable for everyone so that no one would have to take a loan. Needless to say, it may not be possible. Education is a right and everybody should have access to it. Before getting into a loan, read all the paperwork and promise yourself that you will make it a priority to pay it off.<br />
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Note - I am not advertising for any bank or organization. <br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-47264978082581211772014-05-26T03:14:00.000-07:002014-06-10T03:32:44.147-07:00The Bull Run<div dir="ltr" style="text-align: left;" trbidi="on">
The new Indian Prime Minister's oath ceremony is today and there is a lot of hope floating around. Spirits and expectations are at an all time high since India has not had a majority like this in ages. These high spirits and hopes have sky rocketed the Sensex and nifty numbers and foreign investment is at an all time high.<br />
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The market and the bull run. I hear this term often these days. <br />
<a name='more'></a>The equity market is up and people in the equity market are benefiting from it. The excitement has made new investors enter the market.<br />
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So I have received several emails asking me - whether this is the right time to invest? The answer is simple. It is always a good time to invest in equity as long as you are in it for the long run. If you invest in equity for five to seven years, it will give good averaged returns.<br />
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Investments should not be decided based on whether the market is up or down. Disciplined investments in the form of SIPs will give good returns as long as funds are chosen carefully and match the goals of your life.<br />
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We all have hopes attached that the new government will bring about the change that India needs. I hope our dream of making this country grow and prosper comes true. <br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-42872045467423341462014-05-12T21:15:00.000-07:002014-05-13T03:37:31.202-07:00Change The "No Change" Problem<div dir="ltr" style="text-align: left;" trbidi="on">
In India, I am often stuck with this problem where the shopkeeper or delivery person does not have any money to give in return after I have given more than the required amount. "No change madam" is an expression I hear often. I have always wondered why this is the case.<br />
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I remember the days, when India had 1 Paisa, 5 Paisa and 50 Paisa coins. The manufacturing of these coins has been stopped since it is tedious and expensive to make these coins. However, most of the times the shopkeepers do not have five and ten Rupee notes or 1 or 2 Rupee coins . Why is this?<br />
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To ensure whether not having different notes of the Indian currency is a real or artificial problem, I walked into a bank, handed the teller a thousand Rupee note and demanded a specific denomination. It was given without a problem. I tried this at several branches and it has never been an issue.<br />
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After this exercise, I have concluded that not having change is an artificial scarcity created by shopkeepers out of their yearn for the extra two to three rupees. It is also sheer laziness on the shopkeeper's part that they do not want to organize some change before the day begins. They could even walk into a branch at the end of the day to plan for the next day.<br />
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My request - we should not accept "I do not have change" so easily. It is a little thing but it annoys the hell out of me. Next time a person says that, please ask where he/she has their current account and request that they prepare for change as a necessity to facilitate business.<br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-30878834265530260082014-05-06T01:34:00.000-07:002014-05-06T01:34:28.697-07:00National Pension Scheme<div dir="ltr" style="text-align: left;" trbidi="on">
Should I invest in the National Pension Scheme? <br />
<a name='more'></a>I have been asked this question many times. The Central and State government employees are automatically enrolled in this scheme. The others are free to join. Let us discuss whether one should join or not?<br />
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<b>Eligibility</b><br />
You have to be an Indian citizen between the age of 18 and 60 to be enrolled in the National Pension Scheme. You can open an account in a bank.<br />
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<b>Types of Accounts and Contribution</b>s<br />
There are two kinds of accounts, Tier 1 and Tier 2. Tier 1 accounts have restrictions on withdrawal and Tier 2 is an account where one can withdraw money freely. Tier 2 can only be opened if a Tier 1 has been opened. Minimum annual contribution is Rs.6000 which can be made in installments of Rs.500. The minimum annual contribution has to be made, else the account will go into default.<br />
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<b>Charges</b> <br />
There are charges to open the account, account maintenance and fees for transactions. <u>These charges are minimal compared to any other investment.</u> <br />
- Account Opening (one time) : Rs.50<br />
- Maintenance : Rs.100 per annum<br />
- 0.25% of contribution is charged per investment<br />
- Rs.6 is charged per transaction<br />
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<b>Asset Allocation</b><br />
There are 3 kinds of<b> </b>funds in NPS :<br />
Class E - Index Based Funds (Equity)<br />
Class C - Bonds issued by state government and private firms<br />
Class G - Bonds issued by central government.<br />
At any given point of time, exposure in equity cannot exceed 50%. An individual can decide asset allocation but if you choose the default asset allocation, equity exposure is 50% up to the age of 35 years. Thereafter, exposure to equity reduces by 2% every year till it comes down to 10% at the age of 55. You can also choose a fund manager from eight different fund managers - SBI, HDFC, ICICI, DSP being a few names. If you do not want to choose, SBI pension fund will be your default fund manager.<br />
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<b>Employer Match - Only if you are a government employee</b><br />
Employer match is only available for central and state government employees. The rest of us, do not get a match.<br />
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<b>Withdrawal</b><br />
Withdrawal terms are not very flexible. Before 60 years of age, one can withdraw 20% of the corpus in the Tier 1 account and the rest has to be put in an annuity.<br />
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<b>Taxes During Investment</b><br />
Investment is tax deductible under Section 80C. Additional 10% of basic salary plus DA (dearness allowance) is tax deductible over and above the 1 lakh under 80C as long as the contribution comes from the employer. <u>This does NOT mean that the employer has to contribute but that the employee has to contribute via the employer.</u><br />
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<b>Taxes On Maturity</b><br />
On maturity; 40% of the amount is to be put away in an annuity, 40% is tax free and 20% is taxable.<br />
Annuity received yearly is taxable in the individual's hands as per the income tax slab he or she falls under.<br />
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<b>Pros and Cons</b><br />
<u>Pros</u><br />
- Low charges/fees which add up in the long term in any investment<br />
- Exposure to equity. An individual requires exposure to equity in his portfolio.If he/she gets cold feet while investing in equity then NPS is a good way to start.<br />
- A good way to build a retirement corpus<br />
- Government employees can get their contribution matched from the employer<br />
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<u>Cons</u> <br />
- This product is in its early stages and has the potential of becoming a great product as it matures.<br />
- If you are not a government employee, you do not get a match on the contribution<br />
- Taxation exists on 20% of the retirement corpus and on the annuity proceeds as per the individual's taxation slab.<br />
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Overall, this is a good product. If it is possible in your situation, then contribute till age 45 (instead of the default age 35 in the scheme) to equity which have the potential to give good returns. I sincerely hope that the retirement corpus becomes tax free and the annuity requirement is waived. <b></b><br />
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<b>References</b><br />
<a href="http://businesstoday.intoday.in/story/national-pension-system-attractive-option-for-investors/1/190176.html">http://businesstoday.intoday.in/story/national-pension-system-attractive-option-for-investors/1/190176.html</a><br />
<a href="http://anandvijayakumar.blogspot.in/2011/03/national-pension-scheme-all-your.html">http://anandvijayakumar.blogspot.in/2011/03/national-pension-scheme-all-your.html</a><br />
<a href="http://articles.economictimes.indiatimes.com/2013-09-23/news/42324225_1_uti-retirement-solutions-nps-funds-lic-pension-fund">http://articles.economictimes.indiatimes.com/2013-09-23/news/42324225_1_uti-retirement-solutions-nps-funds-lic-pension-fund</a><br />
<a href="http://anandvijayakumar.blogspot.sg/2012/08/national-pension-scheme-and-taxation-at.html">http://anandvijayakumar.blogspot.sg/2012/08/national-pension-scheme-and-taxation-at.html</a> <br />
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Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com1tag:blogger.com,1999:blog-8737123875410291672.post-1138597190765644412014-04-28T02:52:00.000-07:002014-05-06T01:50:34.014-07:00I Got A Raise! Now What?<div dir="ltr" style="text-align: left;" trbidi="on">
There are those times when we are showered with wealth! Okay, may be not showered but occasionally we do get some extra money. If we are salaried then we could get a raise or a bonus. For entrepreneurs, there could be a surge in profits. There are various ways to deal with it. You could spend it, save it or invest it. What do you do with it?<br />
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Let me narrate the story of my friends - Dollar, Pound,Rupee, Euro, Bitcoin<br />
"Dollar" got a raise.<br />
<a name='more'></a>His income went up by 20% per annum. He simply lived the way he has been living for the last and saved the rest.<br />
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My friend "Pound" got a raise. His income went up by 30%. He went and bought a lavish car. He is still paying EMIs on the car.<br />
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"Rupee" got a raise. He invested it. <br />
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"Euro" got a raise. Right after he was informed that he was going to get a raise, he spent on buying a brand new motor bike. The raise was going to take effect four months from the time that he bought the bike.<br />
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"Bitcoin" got a raise. He bought a house. He took a 20 year home loan.<br />
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Are you like Dollar, Pound, Rupee, Euro or Bitcoin?<br />
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Let us discuss them one by o<span style="background-color: magenta;"></span>ne...<br />
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<span style="background-color: lime;"><span style="font-size: small;"><b>Save The Extra</b></span></span></div>
Dollar is definitely wise since he saved the extra. He did not succumb to lifestyle inflation which is awesome. A lot of us think of extra cash as a way of buying something we have been eyeing even though we do not need it. Sometimes buying becomes a recurring expenditure and leads to lifestyle inflation. E.g. a more expensive cell phone plan would mean extra expenditure every month and is an example of lifestyle inflation. I like Dollar since he thought of stashing away the extra. It not only shows commitment to saving but also contentment.<br />
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<b><span style="background-color: lime;">Spend The Extra?</span></b><br />
<b><span style="background-color: lime;"><span style="background-color: white;"></span></span></b><span style="background-color: white;">Pound and Bitcoin spent the extra that they got. Pound bought a car and Bitcoin bought a house. Pound bought a car which requires regular maintenance and expenditure. It is somewhat of a lifestyle inflation. If he can afford the payments and he did not take a car loan for more than five years, it is justified.</span><br />
<span style="background-color: white;">Bitcoin bought a house. The house loan payments can pinch but buying a house is somewhat of a reality. It gives most people peace of mind and pleasure to own a house. Bitcoin bought a nice place which he can afford. </span><br />
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<span style="background-color: white;"><span style="background-color: lime;"><b>Spend Ahead Of Time? - I hope not!</b></span></span><br />
<span style="background-color: white;"><span style="background-color: lime;"><b> </b></span>No matter who you are, please do not follow Euro's footsteps. Please do not spend money in anticipation. Euro spent the money before the raise took effect. He emptied his savings and put the rest of the charge on his credit card. Things go wrong in life. The raise may not take place, you may lose your job, you may get a raise which is a little less than you anticipated because of company turnovers, losses, policies and decisions etc. The same thing with a bonus. The bonus due to you at the end of the year may or may not come. Do not look forward to spending something that has not arrived.</span><br />
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<span style="background-color: white;"><span style="background-color: lime;"><b>Invest The Extra...<span style="background-color: #f3f3f3;"> </span></b></span></span><br />
<span style="background-color: white;"><span style="background-color: lime;"><span style="background-color: #f3f3f3;"><span style="background-color: white;">Rupee is definitely ahead of the game. He not only stashed away the extra but also invested it for the long term in mutual funds<b>.</b></span></span><b><span style="background-color: #f3f3f3;"></span></b></span></span><br />
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There are times when we get a little extra cash and we feel like splurging. We want to buy clothes, fancy gadgets, may be some new kitchen items, get some renovation work in our homes, a new car etc. For the most part, I hope we are like Dollar or Rupee. In the long run, Dollar and Rupee will be rich and will create wealth to sustain a sound and stable financial life. </div>
Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0tag:blogger.com,1999:blog-8737123875410291672.post-57968671538340201912014-04-21T02:30:00.000-07:002014-04-25T02:29:19.595-07:00All That Glitters Is Not Gold!<div dir="ltr" style="text-align: left;" trbidi="on">
Us Indians have an involved relationship with gold. Gold is considered auspicious, pretty, is an investment and and is supposed to provide security to any portfolio. Our weddings are dazzled with the amount of gold displayed in the form of jewellery and ornaments. Not just women, but men also wear gold jewellery in one form or another.<br />
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<u>Confession</u> -<br />
<a name='more'></a>I have never been attracted to gold as jewellery. My mother says that I will start appreciating the value and beauty of gold once I reach a certain age. I have to say - I find gold jewellery prettier now than when I was in my twenties. I think gold jewellery can be very artistic but I question whether it is worth the expenditure. I hardly wear gold. I enjoy wearing jewellery, just not gold jewellery. Even though I have pretty pieces of gold jewellery, I do not think that wearing it is a status symbol. In fact, I look at gold jewellery as a responsibility. I have to take care of it and be careful not to lose it. If my opinion changes, I will be sure to let you guys know!<br />
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Gold was considered the prime liquid instrument and till today people look at it as a secure investment. Gold prices have risen manifold in the past twenty years and those who invested in it two decades ago are bearing the fruit of their investment. The traditional way of investing in gold was through jewellery or gold bars. Jewellery has the problem of making charges. Both jewellery and gold bars have the issue of safety, arranging a safe deposit locker at the bank to protect it and having different buying and selling rates. This is the reason financial advisers recommend gold ETFs and gold funds. What are gold ETFs and gold funds?<br />
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<b>Gold ETF's - Gold Exchange Traded Funds</b><br />
These are exchange traded funds which one buys and sells through a Demat account. One unit of a gold ETF equals 1 gram of gold.<b> </b>The returns on ETF's are higher than a mutual fund but buying and selling does have a commission involved. Most Demat accounts also have an annual charge.<br />
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<b>Gold Funds</b><br />
This is a mutual fund which invests in a gold ETF. The returns are slightly lower than an ETF. The expense ration is also lower than the commission of an ETF.A demat account is not needed. <br />
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<b>Physical Gold vs. Gold ETFs vs. Gold Mutual Funds</b><br />
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Physical gold has the longest history in the Indian economy. Buying and selling gold after holding on to it has yielded 20% on average year after year over the last two decades. However, it poses risks of theft and making charges. Moreover, buying gold is adversely affecting our economy. It is the reason, gold ETF's and mutual funds were released. <br />
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Gold ETF's have a longer history in the Indian economy as compared to gold funds. I looked at fundsindia.com and most gold ETFs have been around for more than six years. You will need a demat account but the returns look fairly good since 2008. As with any ETF, there are no guarantees as to what it will yield in the future. <br />
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Gold funds have the shortest history. To gather data, I looked at the gold funds available on fundsindia.com. Some have a 3 year history and most have less than a 3 year history. Gold funds provide the convenience of being bought without a Demat account.<br />
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<b>Which one should I buy? - Physical Gold, Gold ETF or Gold Mutual Funds</b> <br />
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My vote is for Gold ETFs or gold funds. ETF's have had longer history and do not have the problem of storage, safety and making charges. Gold funds should closely resemble the returns of the ETF since they are comprised mainly of the ETF. E.g. Kotak gold fund is 99.01% Kotak gold ETF and Reliance gold fund is 99% Reliance ETF. If you find ETFs complicated because of brokerage and the chase for buying and selling, opt for funds. I would avoid physical gold because of the drawbacks discussed. <br />
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<b>Should gold be a part of my portfolio at all?</b><br />
Most financial advisers recommend that investments in gold should not exceed 5 to 10% of your portfolio. I am not clear about how the numbers came about. Gold prices are independent of the stock market which is why it is good to have a little bit of gold in your portfolio. However there have been economic depressions in the world when gold was not considered worth anything at all.E.g. The Great Depression of 1920 in the U.S where money and gold became worthless and people adopted the barter system - exchanging goods someone else needs for the ones that they required. However, advisers say that investing in elements is not like investing in stocks since it does not generate goods and services and prices of gold are simply decided by demand and supply. I agree that gold does not generate goods and services but price of anything is determined by demand and supply. I guess the advise out there is not to over-invest in gold like our earlier generations did. <br />
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There are plenty of people I know who choose not to invest in gold or invest very little in gold. The flip side of a portfolio which is gold heavy also exists. You will have to decide your investment strategy but please do it logically. Gold is something that people get attached to. We should not get attached to our investments. We should be detached and yet not indifferent. </div>
Divyahttp://www.blogger.com/profile/15750760232429846926noreply@blogger.com0