Planning For It!

Investment planning is one of the most important steps in investment process, both for new as well as seasoned investors. Before beginning the investment journey, one should clearly outline the objectives and goals one wants to achieve while investing. Most of the seasoned investors are already aware of the nuances, but few important concerns which new investors need to address are related to return expectation, risk appetite, liquidity, inflation and taxation. In this article, we will try to understand the implications of these variables on investment decision process.

Return Expectation and Risk Appetite

We invest in an asset because it has earning potential and earning will come in the form of returns. Different asset classes have different earning potential together with the risk attached to it. Thumb rule is “High Return High Risk” /“Low Return Low Risk”. In simple terms, what it means is, you need to invest in high risk assets if you want high returns and vice versa. Now the question is how to identify a correct mix of risk and return. Answer to this question lies in the historical risk and return attached to a particular asset class. This data is freely available and you just need to google it. It’s recommended to peg your figures around historical data so as to avoid disappointment in future. Remember, whatever may be your risk appetite; capital preservation is of paramount importance as this capital will be generating future returns for you.

Liquidity and Transaction Fees

While planning investment and choosing asset class, liquidity (how fast the asset can be exchanged with cash) aspect should be properly considered together with the transaction cost. For example, even though real estate/land is a high return asset class, it’s highly illiquid. It comes with a baggage of high transaction cost and due diligence issues. Asset class with high liquidity and low transaction costs is considered a better investment. Equity/gold etf investment scores above property investment from liquidity perspective.

Inflation

This is the toughest enemy you would face while investment planning and asset allocation. Persistently high inflation (around 7%) now a days, has made savings deposit, fixed deposit and PPF investments highly unattractive. Returns in these investments are around 4 to 8% which barely covers inflation. At the end, you are gaining nothing out of these investments as your purchasing power remains the same. It’s recommended to place a part of your investment corpus in asset classes which act as hedge against inflation, like equities and gold. Government is planning to introduce inflation indexed bonds, which can be good investment option for conservative investors, as it will mitigate risk of inflation up to a certain extent.

Tax Implication

No one can escape tax demon. If we know this reality, then it sounds prudent to take it into consideration while planning for investments. There are some asset classes which are tax exempt and for others, there are ways to invest so as to minimize tax burden. As, for example, equity as an asset class is not tax exempt, but if you invest for long term i.e. more than one year, your capital gains are tax exempt. You should also consider investing in government promoted investment avenues as they help you in optimizing your tax burden.

Conclusion

Investment planning points mentioned above should be properly addressed, as ignoring any of them will eat away your returns in future. Remember the famous saying “Prevention is better than cure”, it applies to investment planning too.

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com

Calculators

SIP Maturity Calculator

Monthly SIP Calculator

The Indian telephonic search giant is sizzling to go ahead with its Rs 950 Cr. IPO offer opening on 20^th May 2013 and ending on 22^nd May 2013. After a long draught in the IPO market, this issue is expected to bring in some charm back into the primary market.

About Just Dial Operations

Just Dial is operating in the telephonic search services and it enjoys the advantage of early entrant in this business segment. It has approximately 9 million business listings along with a strong relationship with the advertisers. It provides services through the internet, voice channel (Mobile and Telephone) and mobile internet platforms. It is operating in a distinctive domain with very less competition.

The Issue description is as given below:

Should You Apply?

Investors can look forward to apply for this IPO in a positive note. Following are the reasons that make IPO outlook to be positive for investment:

• Strong Market Presence: Just Dial services are available all around with ease of free inquiry and it has laid down a strong presence in the voice search domain. It had started the telephonic search for the first time in the country and therefore it also takes advantage of being the first mover in this business segment.

• Big Expansion Plan: The company plans to venture into new geographical areas and expand its business reach. The experience and strength supports the plan well.

• Phenomenal Valuation: Just dial earns most of its revenue from the paid advertisers. It receives most of the fees in advance, therefore the working capital cycle is almost negative. The company’s balance sheet looks more attractive due to a debt free and cash rich position. The company is diluting a part of its equity and it can  further take use of the debt instrument to leverage its financial position for further expansion in the future.

Apart  from the positive side, there are a few negative notes for Just dial IPO. The company’s maximum business comes through google search engine. At present, google is not operating in telephonic search business, but in future if it plans to step into such services, then it can create a threat to Just Dial business. The appropriate use of fund is important, but business diversification is also required to reduce the risks.

Finally

Looking at the niche business, good valuation and big expansion plan of Just Dial, investors can take take a chance to apply for this IPO, the probability of shares being allocated will improve if multiple applications are used i.e. through the Demat of relatives, spouse etc.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com

Calculators:

SIP Maturity Calculator

Monthly SIP Calculator

I believe, “mother of all children across the universe is an amazing woman with multitalented qualities.” The definition of mom says, “A loving and adorable mother is a woman who takes on the selfless and unconditional responsibility to nurture the emotional and physical well-being of her kids.” She is a helping hand whenever we need her guidance. She loves her children unconditionally forever, no matter how old we will get. For me, a word “Mother” stands for:

M = Multitalented personality,

O = Organiser / Planner in right direction,

T = Teacher educating kids about moral values and ethics,

H = Helping hand to kids,

E = Endearing (lending a solution to the problems in family),

R = Radical (takes fundamental effective decisions).

I would like to share 5 financial planning lessons I have learnt from my Mother in 28 years of my life span:

1.       Work hard for money and learn to value it

Until I passed out from junior college, (i.e. 12^th Std) I used to get pocket money from my father and managed my monthly expense through it.  After joining first year of Graduation, my dad stopped giving me pocket money, as per instructions of my mother. She wanted me to take up a part time job in a field of my interest or take tuitions during free time so that I start learning the importance of hard earned money from an early age and value it wisely while incurring any expense. Earlier, I used to be upset on this decision of my mother, but after few months, I started enjoying my part time work of giving tuitions for few hours in a week. I started earning well to take care of my monthly expenses and managed to save some money from it.

2.       Invest your savings regularly for future consumption

Mom recommended conservative investment products like recurring deposits with bank / post office, fixed deposit schemes, etc during my teenage to start investing regularly from my savings. These investments gave returns on maturity / completion of investment term. Maturity amount was useful to pay my fees for classes and books during higher education. Now, each month I keep the amount for investment aside from monthly income. This savings will now be helpful to fulfill my future goals.

3.       Maintain record of expenses and use money wisely

In my childhood days, I have seen mom keeping record of daily expenses. Then periodically, mom would discuss this expense record with dad in detail. Together, they plan out budget for next month expense and follow it rigorously, so that there is no short fall of money by end of month. I also learnt to maintain record of my personal expenses and discuss with mother. She would help to identify unnecessary expenses during the month, places I have overspent, etc. Mom also taught me to create a budget of my expenses and maintain a cash flow of expense + income, which helps to analyse expenses by end of the month.

4.       Have a contingency fund for any kind of emergencies

Every month Mom keeps aside partial amount from monthly savings as liquid fund. This amount was useful whenever there was an emergency, such as hospitalization of grandfather and my father, unplanned travelling to native place due to sickness of grandparents, to manage everyday expenditure during a month when expenses have crossed the budget. Mom explained me the importance of contingency funds and how to maintain this fund to take care of my expenses for at least 4 to 6 months due to job loss or during emergencies.

5.       Set financial goals and work towards them by taking steps in right direction

From childhood days, I have seen mom planning the goals by consulting with dad. Together, they have fulfilled many goals in our family, such as giving education to me and elder brother, time-to-time they purchased valuable assets and electronic appliances for home, purchased new home on loan + savings, renovated the house, we had outdoor tours during summer / winter vacations, etc. Now, I also consult my mom and take her inputs to achieve my financial goals in life. She recommends me to set a time frame for each goal and stay invested in products which give calculated returns when time to achieve this goal is nearby.

“InvestmentYogi recommends three gifts for lifelong financial security of your super mom as discussed below:”

• Get adequate medical and health insurance, which offers coverage up to 75 years of age and above. These products are popular as senior citizens’ insurance schemes.

• Help your mom create a savings/investment plan for her retirement and advice to invest in some calculated risk assets besides conservative products. It’s important to have a balanced portfolio.

• Enroll your mom to some training which gives knowledge in financial planning and investment / insurance products. She will learn additional skills and take corrective decisions time to time at home by giving advice to family members.

About the Author:

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal. He can be reached at expert@investmentyogi.com

Calculators:

 Income Tax Calculator

Fixed Deposit Calculator

Money laundering in one of the most debated topics in our country right now. Cobra post revelations regarding involvement of the whole banking sector in laundering activities has pressurised the regulator to implement stringent rules and regulations to curb these practices. Money Laundering in a global problem and has serious socioeconomic impact. Let’s try to figure out what money laundering is and why it is a global problem. We will also discuss the economic impacts which force the regulators to be on tenterhooks.

What is money laundering?

Have you ever washed clothes (Laundering, I mean)? Laundering of cloths makes dirty cloth appear clean. Money laundering has the same effect – It makes dirty money appear clean. Dirty money (basically cash) here means the money earned from illegitimate sources like embezzlement, bribes, crime, frauds etc. You do not pay taxes on dirty money and there is a fear of seizure once it comes to the knowledge of regulators. So, basically, you cannot use dirty money until it’s cleaned via money laundering process.

How money laundering is carried out?

There are ‘n’ number of discovered and yet to be discovered ways of money laundering. We will discuss the most commonly used method which has three steps.

• Bringing the money into financial system – As the dirty money is purely in the form of cash, the very first step is to bring it into the legitimate financial system. Here, banks play a major role either willingly or unwillingly. If they are willing, (as is the case in cobra post revelations) they will guide you how to do that. Otherwise, dirty money is deposited in different anonymous bank accounts in small chunks so as to make it appear a low value transaction. As low value transaction is not reported, dirty money enters the banking system safely. This process is technically termed as placement.
• Hiding the source – In this step, money is made to move in such a way that it get’s untraceable. It is hopped through many accounts (local/overseas), changing the currency, buying financial products or costly items like gold, etc. Basic objective is to make the transactions complex so that reverse engineering gets difficult. Technically, this process is called layering.
• Receiving the money back in legitimate form – The money hopped and invested in previous step is recovered via sell transaction or overseas transfer into local accounts which is now invested in some local company. This local company is supposed to have full involvement in the whole process and more often than not promoted by the launderers themselves. This step is the final one and is termed as integration. Now, the dirty money is clean enough to be used with confidence and without fear of getting caught.

Economic Impact of Money Laundering

As regulators internationally are so worried about laundering, it must have far reaching effect on the economy. No tax is paid on the laundered money and it’s made to enter the legitimate system but there must be someone who is paying the cost. It’s basically the whole country which bears the cost. Shell companies which are promoted for laundering process go bankrupt when launderers are caught. The invested money in these companies is wasted without any economic profitability in case of bankruptcy. Banks that finance such companies too, are in a financial mess post the revelation. Money laundering also creates false demand and supply scenarios in sectors they operate leading to skewed economic policy announcements at times which are bound to fail once false demand dwindles. Money laundering has some social effects leading to increase in corruption, crimes and frauds. People who are not involved see money launderer racing ahead which motivates them to choose this path.

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com

Calculators:

Future Value Calculator

Recurring Deposit Calculator

In India, now-a-days millions of people swipe their credit cards for online / retail shopping, to pay monthly bills, insurance premiums, etc. There are people in our society, who use multiple credit cards and consider it a status symbol. However, not many people have heard of supplementary credit cards which can be applied by primary credit cardholders for family members, parents and children just above 18 years of age.

What is a supplementary credit card?

 Supplementary credit cards are issued by banks to family members we authorize to use. These cards have additional credit which you are eligible to get on your credit card but passed on to other family members by applying for these supplementary cards. Ideally, you can apply for 3 to 5 supplementary cards which vary from bank to bank. These supplementary credit cards can be used in India and abroad as stated on credit card. It will be accepted by all merchants while shopping online and in retail markets.

Advantages of supplementary credit card

• Withdraw cash from automated teller machines (ATMs).
• Get reward points equivalent to primary card holders and rights to redeem anytime in future.
• You can monitor spending habits of your adult child when he/she swipes.
• Gives financial freedom to your elderly parents for their shopping. Also, helpful in some emergencies.
• Single monthly statement for all transactions done by primary and supplementary card holders. This helps to keep a record of all expenses at one place and verify.

Setting the credit limit on supplementary credit cards

Supplementary credit cardholders will get a credit limit equivalent to primary cardholder or lower limit as set by primary cardholder.

For example: Mr. Shrikant is a primary card holder with credit limit of Rs 3 lakhs. Now, when he applies for supplementary card, he has rights to set a credit limit of Rs 3 lakhs or lower on each card. Assume, he has applied for 3 supplementary cards to distribute among family members. He will set credit limit of Rs 1 lakh on each card.

Primary card holder can set a maximum limit even on cash withdrawals from ATM for supplementary card users. Please note, supplementary cardholders don’t have rights to increase the credit limit or make purchases over-the-limit.

Cost to incur for applying supplementary card

The costs to apply for supplementary cards vary from bank to bank. However, few banks offer 2 to 3 supplementary cards initially, based on your credit worthiness or offer as complementary after completing few years of service and analyzing regularity while paying due payments. Some banks charge joining fees of around Rs 500 on each supplementary card.

Pay the dues on time

It’s the responsibility of primary cardholder to pay the dues on time since it’s a single account. Secondary cardholders have no liability to pay the charges while they use the card. Credit bureau keeps a track of your credit worthiness with credit scores. In case your payment gets delayed on a regular basis, it reflects in their database affecting your overall credit score.

Conclusion

To have supplementary credit cards requires careful consideration. It’s important to have a person who’s trustworthy and uses card for right usage. It shouldn’t happen that you keep paying dues on things which you don’t require. At the end, your expenses will rise and your efficiency to save / invest will be diluted. It’s your hard earned money, so think twice before you give the power to someone to incur expenses on your behalf.

About the Author:

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal. He can be reached at expert@investmentyogi.com

Calculators:

Retirement Corpus Calculator

Monthly Pension Calculator

Education Loan has become a way to help one getting proper education and settle comfortably in life. Getting an Education Loan has become an easy task as one can get the same by qualifying in a recognized institution for admission. Loan up to Rs.4 lac doesn’t need any kind of security and margin. The applicants in this segment are more and a large number of defaulters come from this segment only. Once anyone takes a loan, he should have a thorough plan ready, as to how he would pay back the same without delay. Normally, Banks give time up to 5-10 years for repayment of education loan but the recent data of banks have shown heavy percentage of defaults in repayment and the reason behind this is easy financing of loans up to Rs.4 lacs. Following tips can help one in planning the repayment of loan effectively:-

1. Interest Payment: - When one gets education loan, the bank charges simple interest on the loan amount till the completion of the course or commencement of repayment. So, its important to keep paying interest during the course as he would need to pay back just the original loan amount when he completes the course.
2. Discount on Interest: - 1% interest discount is offered by banks if the interest is continuously paid during the study period and till the commencement of repayment. So, this can allow you to take the benefit of a lower interest amount.
3. Don’t wait for the right job: - Many students wait for their dream job after completion of the course. In the process of doing so, they ignore initial job offers which are not so attractive or which have a lower salary than expected. Accepting such jobs at the time of campus placement is always better than sitting idle in the expectation of an ideal job. Once you get a job, you can start paying small amounts till the time you get a better job. This will keep your loan amount within original limits i.e. interest will not be due and repayment will never be tough.
4. Prepay or Not? : - Many consultants suggest that one should prepay the loan if possible as the interest rate is like a burden and one might have to pay more amount in such scenario. But, the student gets an unlimited deduction u/s 80E of Income Tax on the interest paid under education loan. If prepayment is done, one may get a reduced benefit under Sec 80E. So, proper calculation is required to be done before prepayment and if the benefit of prepayment is less than deduction under 80E, then it should be avoided.
5. Try small savings: - Once the student gets the job, he should make a habit of doing small savings  which could be of great help in case of any uncertainties like job discontinuation, inflation, interest rate hike etc.

Repayment of loan should be made within the stipulated time given by bank, otherwise this could lead to many problems like:-

1. Penalties: - Most of the banks have a schedule of charges on delay of repayment of the loan amount. Normally, a delay in payment up to 1-2 months is ok, but after this, the bank sends you a notice ignoring which they levy heavy penal charges on you which have to be paid along with the loan installment. If the repayment is done through post-dated cheque, then it should not bounce because banks put heavy charges upon cheque bounce and it can take you to legal proceedings also.
2. Insult on social media: - Trend of social media like Facebook. Linkedin, Twitter etc. is very popular these days. If anyone is a defaulter of education loan, the financial institution can embrace him through this social media. Recently, some cases of similar nature have been admitted. Some banks had found the details of the defaulter on social media from where they got the details of his employer where he was working. They publicly notified the defaulter on social media to repay his loan amount which caused a loss of his image in society. Further, the current employer also can pull your legs in such a scenario.
3. Attachment of property: - If the amount of loan is more than Rs.4 lac, then some  asset can be held as a security. In case of any default, the bank can attach the property so mortgaged.
4. Loss of Credibility: - The banks check CIBIL’S credibility report before lending amount to the applicant. This credit report is also your history which can reveal all the details like- the loans you have taken, the outstanding amount of loan till date, the EMIs paid by you and the EMIs defaulted by you, etc. The details related to the number of inquiries made by you with the credit card companies for loan are also flashed in the report. If one thinks that banks can’t do anything with such report, then he is mistaken. These days, when you apply for a job, the employer can ask for such credit report. So, if you are a defaulter anywhere, it would be tough for you to get the job.

To conclude, we can say that understanding the responsibility of loan repayment is very important. The start of repayment is the start of your career too, and a small mistake can easily spoil your bright future. So try to build a good reputation with the banks and repay the loan on time!

Also read: Education loan part1, Education loan part2

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com.

Calculators:

Home loan EMI Calculator

Double your money Calculator

Financial management is not an easy task. For fund managers, entrepreneurs, businessmen and individuals, the chances of cash crunch arising are pretty common. Having said that, individual cash crunch is difficult to mitigate as the resources are limited and the expenses are ever increasing. Consider the Indian scenario where a person is facing the double digits (10%) inflationary heat and the salary is static, or in case of business, the slowdown is eating the consumer demand. Under all such cases, it is necessary that you are mature enough to sense the financial liabilities and cash straps emerging from time to time. It is also essential that you prepare yourself early and plan for any contingency in case of cash shortages. Here are a few tips by which you can increase the flow of cash:

1. Set Aside Money for Countable Expenses: This is a usual housewife sort of saving habit that you can adopt to shield yourself from rainy days. Always count the expenses that you have to shred every month. These expenses are known as fixed expenses but chop a large pie from your income. The expenses may be EMIs, electricity bills, water bills, tuition fees, society maintenance charges, mobile recharge/ top ups, rents etc. A sum total of all this gobbles a large percentage of your salary or business income. You might not want to include petty expenses like watchman charges and newspaper bills as it sounds weird. But this can happen if the planning is imperfect. So count these expenses beforehand and separate that portion.
2. Cut Unnecessary Expenses: Although some expenses are unavoidable, cutting down expenses is saving in indirect manner. Avoid purchasing  things you might not find relevant. Or, rather, purchase things that are most relevant as per your needs. The problem with most of us is that we never think this way when the money is available to spend. It is only when one is cash strapped  that these unnecessary spending comes to haunt us. Better be more realistic and spend based on needs.
3. Deferment of Expenses: Some expenses can be deferred for the future. For example: your Air Conditioner might need servicing, you can defer the same to winter in case you have spending issues. You might want woodwork in the house, defer it if you are struggling to generate cash for the same. The other way is to save a small small amount for a particular purpose and utilize it afterwards.
4. Privately Generate Funds: If the liability is not bigger and you are certain you can repay it afterwards it is better to search for avenues within family and friends. If they pay the sum it is nothing like it. You can repay afterwards and in most cases you will be saved from personal loan interest or any sort of short term loan from the bank or financial institution.
5. Don’t Liquidate Your Long Term Investments: Until absolutely required, it is always advised that you don’t liquidate your long term investments like fixed deposits, PPF, NSC or insurance premium. Liquidate these only when you have used all your cards. These investments are meant for long term and can bring decent returns to you, so ideally they should not be used to set off short term claims.
6. Monetize Your Gold Holdings: This is a great scheme if launched by RBI that can be a savior for persons stuck with their finances. One will be able to deposit his gold holdings with the commercial banks for which they will get cash certificates. These certificates will carry a fixed interest that is given based on Gold holdings. It will induce additional source of income for cash appreciation.  

Disciplined approach should be followed in dealing with finances. Instinctive rush to purchase something or to spend heavily on unnecessary items will slash your money and you might face a crisis situation at the end of the month. Better to spend smartly and keep the savings habit intact.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com.

Calculators:

Expense based insurance calculator

Income based insurance calculator

Monetary policy refers to attempts by a central bank like RBI to control inflation and increase growth rate of economy by employing tools which changes the money supply and interest rates. Let’s try to understand how use of monetary policy tools effects inflation and economic growth in the Indian context. We will also try to understand the trader’s mentality regarding the monetary policy announcements.

Objectives of Monetary Policy

There are two primary goals which an effective monetary policy aims to achieve. First, by monetary policy tools, RBI wants to maintain price level stability and, second broader objective is to maintain a strong and growing economy. RBI tries to maintain price level stability by controlling the inflation rate. By maintaining a stable inflation rate, RBI can also maximize potential GDP and the growth rate of GDP. While maintaining price level stability, the central bank achieves its secondary goals of increasing the incomes and the living standard of common people.

Common investors and Monetary Policy

Since taxation is based on nominal returns and not real returns, high inflation decreases real after-tax return. High inflation rate decreases the tendency of saving and investment as greater uncertainty about future returns increases the risk. This risk element pushes current consumption rather than saving and investment. Lack of savings and investment slows the growth rate of country's economy over time.

Monetary policy tools

Most tracked and talked about tools used by RBI for implementation of monetary policy are Repo Rate, Reverse Repo Rate and Cash Reserve Ratio (CRR). Repo is the rate at which banks borrow money from the RBI. Reverse Repo is the rate at which banks lend money to RBI and cash reserve ratio (CRR) is the portion of saving deposits that banks are mandated to park with RBI.

Following the traders

The announcements regarding key policy rates like repo, reverse repo and cash reserve ratio are tracked by the traders in stock and bond market. They utilize these announcements to make some short term but substantial profit. This profit potential lies in understanding some basic after effects of the policy rate changes. By cutting rates, RBI gives room to banks to lower the cost of loans for their customer’s. The whole business model is heavily dependent on interest costs. This list includes companies from sectors like Auto, Housing Finance, Real Estate and Banks themselves. This whole lot is termed as interest rate sensitive as prevailing policy rates have a huge impact on their profit margins. Similarly bond prices are also rate sensitive and are inversely proportional to the prevailing interest rate. If the interest rates are high, bond prices will be low and vice versa.

When there is an announcement regarding policy rate cut, all the interest rate sensitive sectors react positively providing a short term profit opportunity. However, you need to plan your investment prior to these announcements. The price adjustment is relatively fast and there is very limited scope of profits in the short run post announcement. Hence, to benefit the most you will have to act quickly.

Normally, policy rate revision rumours start popping up one month in advance. Carefully track the news and once convinced that the rumours are not baseless, you can take long position in interest rate sensitives.

Word of Caution

This strategy is of short term nature and you should book your profits before actual announcements are made, as rumours might actually be rumours only and if there is no policy rate cut, your profits might get wiped out. I am reiterating, treat this investment as a short term investment and book your profits before the actual announcement. Better be safe than feel sorry.

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com.

Calculators:

Future Value Calculator

CAGR Calculator

Rakhi, Diwali, Christmas, Eid, Birthday, Wedding, Anniversary, Valentine’s Day, Friendship Day and the list goes on. In our society, there is no dearth of occasions for gifting. And let’s accept it; we all love to get gifts. But do we like every gift that we get? The answer is no. Then what is the use of gifting something that the person at the receiving end may not like. This is the one of the many reasons that led to Gift Cards.

Gift card or a Prepaid card is a stored value magnetic strip based card in which a monetary value can be stored and can be used for spending on purchases in pre-specified outlets. Unlike credit cards, in Gift card the payment is made before the transaction.

Who issues Gift Cards

Gift cards are issued by almost all banks such as ICICI Bank, HDFC Bank, State Bank of India, Bank of Baroda etc. and payment service providers like American Express in India.

How to get a Gift Card

If you are not a customer of the bank, then the following steps are required to purchase a gift card:

1. Walk in to a branch of the bank
2. Fill application form for Gift Card
3. Undergo KYC check, i.e. provide proof of identity and address proof
4. Pay the issuance fee, which is generally Rs 50–100 and amount to be loaded in the card

An existing customer of the bank can also apply for gift card from the branch in which case, KYC check is not performed. Existing customers can also apply for gift cards through internet banking.

Value and Validity

A Gift Card’s denomination needs to be minimum Rs 500 and maximum Rs 50,000 and it is valid for one year. Gift cards can either be recharged/reloaded or are non re-loadable. Majority of the banks issue cards which cannot be reloaded.

Key Benefits

The following are the benefits of gift cards:

• Buying Discretion – As already discussed, gift cards allow the person receiving the gift the discretion to select the gift.
• Free use by anyone – Gift card is not necessarily made by any name, i.e. anyone can redeem a gift card, irrespective of who has paid for it. This means that one can order any number of prepaid cards and fill it with certain amount and gift them to anyone.
• Safe – Gift cards are better option than giving cash as gift cards are safer and easier to carry. Gift cards can also be replaced if lost or stolen
• Widely accepted – Unlike gift vouchers, which are issued by retailers like Shoppers Stop, Lifestyle etc., gift cards can be used for shopping, in restaurants, movie theatres etc. A gift card powered by Visa /MasterCard/American Express is accepted at all retail outlets accepting Visa /MasterCard/American Express debit and credit cards.
• Clear Accounting – Large corporations prefer issuing gift cards to employees than money transfer to employees account because it is easier to account for in company books.

For retail buyers, gift cards can be preferred if the amount to be loaded is substantial so that the issuance fee ends up being a small percentage of the value loaded. It is hard to think why a person wanting to gift Rs 500 would pay Rs 100, i.e., 20% extra for gifting through a gift card. Despite this, gift cards are fast growing as the preferred gifting solution and the convenience provided by gift cards is sure to make it a premium choice for gifting in times to come.

(Also read: Tax on Gifts)

About the Author:

Uma N Goel is an MBA (Finance) from SJMSOM, IIT Bombay and has worked for 5 years in financial advisory. She can be reached at expert@investmentyogi.com.

Calculators:

Savings to become Crorepati Calculator

Time to become Crorepati Calculator

The pheras done, honeymoon over, now comes the harder part, the dreaded ‘F’ word – Finances.

As our elders rightly said, marriage is never with a person, it means embracing a new family, an additional set of parents, sisters, brothers, uncles, aunts etc.

Now along with the extended family come extended responsibilities. With the assumption that you have the basics figured out, the objective of this article is to give you a list of items which you should do now to win brownie points in ‘sasural’ and of course ensure that you are not financially drained, come a situation like this.

Life cover (Term plans)

If you already have a term plan, you are a smart step ahead, but it is time to evaluate whether or not the amount is sufficient. Now that you have two families, your parents and your spouses’, both need to be assured of a financial support even if you are not there.

You can choose to take two separate term plans with different nominees (parents on one and spouse on another) or you can choose to use the same term policy and nominate a percentage of amounts to your parents and spouse respectively.

If you don’t have a term cover, it is essential you take one as early as today. With age, the premium you pay also increases and it is easier to get a term plan without hassles at a younger age.

Medical Check-ups (Annually)

Ensure both set of parents undergo an annual comprehensive medical check-up. This will help you detect onset of ailments at an early age and attend to them before it blows up into significance. This is also a good way to earn brownie points from spouse and in-laws and somewhere deep down you will have the satisfaction that you have averted a major outflow in your Cash reserves which may have come in the future, by being proactive.

Medical Insurance

While one can be proactive, with age parents (both sides) are susceptible to injuries and ailments, hence a good medical insurance backing is of utmost importance. You may have been proactive in taking medical insurance for you and your parents, but now that you have embraced another set of parents, it is essential you cover them under a good health insurance plan. If they already have one, assess if it is good enough or an additional cover is needed. As they grow older, it will become difficult to get an additional cover. With medical costs rising, a minimum of Rs. 5 Lakhs should be the amount that they need to be covered for.

Critical Illness Plans

You and your spouse are the pillars of your parents’ world. And should anything happen to either of you they will be shattered. Also, financially it will be a big drain, with our lifestyles changing; incidences of lifestyle ailments are on the rise. A critical illness policy will give you that lump sum amount when you need it for your treatment expenses.

Cover your Asset backed loans

If you have a home loan or plan to take a home loan, ensure that you take a credit shield policy along with it. You want to leave back to your kin an asset, if you are no longer alive that very asset becomes a liability with the EMI payments every month. A credit shield policy will pay any of your outstanding loans, should anything happen to you and you can safely leave behind an asset for your family.

Budget your Credit Card expenditure

Keep a threshold beyond which you will not spend (except in case of emergencies). This will help you control your credit card expenditure to a certain extent. A monthly investment tracker will also help you trace where all the money going, and what you know you can any day control.

Small steps go a long way in ensuring happiness in the long run. Marriage is all about planning the future as “WE”, and the financial planning therefore must also include the “WE”.

So, good luck to a secure financial future together!

About the Author:

The author, Daisy Fernandes has a Masters in Management from SP Jain, a Banker by profession and currently pursuing CFP certification. She can be reached at expert@investmentyogi.com.

Calculators:

Retirement Corpus Calculator

Monthly Pension Calculator

There are about 70 million physically challenged people in India, out of which only 2% are educated and 1% employed. The dismal basic qualifications and growth figure represents the situation of these people. Therefore, the Government of India has initiated a lot of support programs in the field of education and employment through the special minority quota. Many banks and financial institutions are also offering benefits to the physically challenged people through various programs. All the benefits are available only for Indian citizens with 40% or more disability.

Apart from status of special minority quota declared by the government organization for employment and education, many NGOs and companies registered under Sec 25 i.e. non-profit organizations like NHFDC are also working for their better living and employment.

National Handicapped Finance and Development Corporation (NHFDC) is working by way of providing loans at concessional rate to disabled people (aged between 18-60 years and annual income below Rs.5 lakh and 3 lakh for urban and rural areas respectively) for income generating activities through Punjab & Sind bank (P&SB), Oriental Bank of Commerce (OBC) and also through Regional Rural Banks in the State of Haryana, Gujarat, Uttar Pradesh and Uttaranchal etc.

Interest rates charged are as shown in the table:-

A rebate of 1% on interest is given to disabled women.

The income generating activity should be among the following:-

1. Setting up a small business in the Service / Treading sector.
2. Purchase of Vehicle for commercial hiring.
3. Setting up a Small Industrial Unit.
4. Agricultural activity.

Loan also provided for:-

• Self-employment amongst persons with Mental retardation (problems with learning and developing), Cerebral palsy (unable to use some of the muscles in the body in normal way) and Autism (a kind of brain disorder that causes kids to experience the world differently from the way most other kids do).
• Professional or Educational or Training courses in India as well as abroad.

**Above Mentioned Data taken from NHFDC’s portal.

Apart from above, banks are also providing special loan schemes to disabled persons, like Bank of India is offering a scheme called ‘star mitra’ personal loan upto Rs 1 Lac, Oriental bank of commerce is offering a special savings account called ‘Jeevan sarathi yojana’ with close to zero charges along with disabled supportive services.

Special Aadhar Card Support

The government has started special mobile van to include all the physically challenged and senior citizens to enroll for Aadhar card. The biometric rules for the disabled has been significantly eased to include each and every physically challenged citizen.

Other Financial Support

Insurance companies are providing disability specific insurance plans with special benefits for physically or mentally handicapped people. LIC of India offers two plans i.e. Jeevan Aadhar and Jeevan Vishwas for disabled people who are dependent on someone else. 

Many banks and financial institutions time to time offer an increased rate of interest on fixed deposit as well as on savings A/c.

Indian Railway is giving 25% to 75% concession on fares of different classes. Similarly, disabled people are also getting rebates on fares of air journey.

The Income Tax Act, 1961 provides deduction u/s 80U for the people having at least 40% disability. They are eligible for a deduction to the extent of Rs. 50,000/- and in case of severe disability to the extent of Rs. 1,00,000/-

Among disabled people, visually impaired have additional difficulties. Being unable to see creates lots of problems. Although they have job opportunities but in case of dealing with investments, insurance or any other investment related agreements the disabled are scared due to lack of faith. It is important to deal with these types of activities with special care. They should take help of trusted people like a family member or a friend after proper identification. To solve these problems, Braille-supported documents are used in some of the key documents but many financial products still lack such facility. Banks have introduced talking ATMs with Braille-supported card reader and card slot. But, in India, most of the financial companies and insurance companies, even LIC of India is not providing the facility of Braille-supported documents i.e. forms, agreements etc. Only a few banks have introduced talking ATMs and finding them itself is not easy.

Conclusion

To conclude, we can say that there are some specific employment options available in India for physically challenged people according to their capacity and skill to perform. But, it has been observed that among such disabled people, very few are educated and therefore employment is very low. So, first disabled people have to be encouraged towards education so that they get aware of those benefits which are available for them. Finally, there is a requirement of more work in the field of investments, financial support as well as in the field of insurance to uplift the status of physically challenged people.   

NOTE: The Article has been written and dedicated to all the physically challenged, who can’t read, understand and use the content. But, everyone who can read this, I request you to help such deprived people by passing the info.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com.

Calculators:

Inflation Calculator

SIP Maturity Calculator

It’s difficult for any developing nation to grow without foreign capital post globalization. Attracting foreign capital to one’s country is one of the most important tasks of finance ministry and central banks. Foreign capital not only increases the growth rate of economy but also brings new ideas and technology which empowers the local industries. So, what are the sources of foreign capital and how are they classified? If there are different classifications, then which one is the most important with respect to growth perspective? What are the rules and regulations which govern the foreign capital and how will it affect common investors like us? Let’s try to find answers to these crucial questions from India’s perspective through this article.

What is Foreign Capital and how is it classified?

Any capital which is invested in India from foreign sources (Like Foreign Investors, Companies, NRI’s, PIO’s, etc) is considered as foreign capital.

Classification of foreign capital:

Classification of foreign capital is primarily based on the source of capital. Broadly, it’s classified into four categories:

1. Foreign Direct Investment (FDI)
2. Foreign Institutional Investment (FII)
3. Non Resident Indian i.e. NRI investment
4. Person of Indian Origin i.e. PIO Investment

Category three and four are self explanatory, so we will focus on category one and two as a lot of confusion prevails in investors minds regarding FDI and FII.

What are FDI and FII?

Foreign Direct Investment (FDI):

FDI stands for Foreign Direct Investment and it’s a part of country's financial accounts. FDI basically comprises of investment by foreign individuals or entities into Indian companies. FDI’s have ownership and controlling interest in the company and are treated as promoter group shareholders. A foreign company buying a majority stake in an Indian company is an example of foreign direct investment. FDI does not include foreign investment into the stock markets.

Foreign Institutional Investment (FII):

Foreign institutional Investment is the investment by foreign companies into Indian financial market. Its mandatory for FII’s to register with the Securities and Exchange Board of India (SEBI) to participate in the financial market. Normally the FII’s do not have ownership interest in Indian companies and their share holding can be compared to public share holding in a company. According to SEBI, foreign pension funds, mutual funds, charitable/endowment/university funds etc are treated as FII.

To remove the ambiguity related to FDI and FII, Finance Minister Mr P Chidambaram has proposed that India will follow global practices to define foreign institutional investors (FIIs) and foreign direct investment (FDI) based on their share holdings in domestic firms. According to international practice, when an investor has a stake of 10% or less in a company, it is treated as FII and, when an investor has a stake of more than 10%, it is treated as FDI.

Which is more reliable – FDI or FII?

FDI is of long term in nature as the foreign investors have ownership interest. Exit route is relatively tough as FDI is a planned investment and most of the investment goes to physical assets. As a lot of future planning is involved, FDI is not speculative in nature. Compared to FDI, FII is short term in nature as most of the investment is done through secondary market. Entry and exit, both are relatively easy and hence the investments have speculative element in them.

Using FDI/FII data as common investors

As we can see that FDI is long term in nature and FII is short term in nature, investors and traders can map their style of investing with FDI and FII data. If you are a trader (short term time horizon) you should be more concerned about the FII data. Historically, it has been observed that stock index follows the FII cycle. When there is increase in FII flow stock market rises and when there is fall in FII activity stock market falls. Simply following the FII activity can be hugely beneficial for traders.

If you follow long term investing style, you should be more concerned about FDI data. Track the sectors and companies which are attracting heavy FDI inflow. Tracking the government policies can provide a great insight into FDI inflow data. Planning your investment in accordance with the FDI data can create great fortune for you in long run.

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com.

Calculators:

Double your money Calculator

Home Loan EMI Calculator

Swelled budget is as bad as an excess fat in your body. Excess fat can be burned by exercise while swelled budget can be taken care of by discipline. Budget deficits are not the problem of Indian government alone. In the modern day life, individuals face similar problems. The financial crisis has become more and more a regular word these days. The mismanagement of finances without proper arrangements of funds leads to panic at the month end. Clearing your budget with unnecessary burdens helps the friction of fund flow to ease. This not only gives you the freedom to do certain things but it also eases your financial problems to a large extent. Here are some useful tips to clear your budget and make it stronger.

Back to basics:

It’s very easy to talk about keeping a track of expenses, but in reality it is so difficult to follow. Stricter money schedules are more difficult to follow. You can keep expenses in two separate columns for every month. One should be the ‘Necessity’ account, like expenses towards household items and another one  the ‘Optional’ account which would contain expenses that you will need from time to time. Keep cash aside for your major expenses like Rent, EMI and Personal Loan ECS. Other expenses that are discretionary in nature are travelling, movie tickets and eating at restaurants, etc. They are called discretionary since they vary depending on the persons handling them. These expenses can be controlled to a large extent.

Smart Use of Online services:

Utilize your net banking and internet services smartly. Automatic bill payment services of mobile phones or the internet or even Electricity payment through online medium can save time and money. In case of savings, you should use the bank’s fund transfer facility also known as NEFT and transfer the amount to separate accounts. This will ensure that you have remaining cash for other expenses. The method can be adopted after your salary gets credited. In case of contingencies, you will have spare funds in your savings account. Pay the other expenses using your internet.

Spend Cash:

People paying cash are often less deprived than the ones using credit cards. Credit card gives you the freedom to spend on unnecessary items which you might not need at that juncture. Cash is spent more wisely than a plastic card. In case of holiday, the lure to spend is further more. Therefore, it is advised not to prefer credit cards.

Shared Responsibility:

Your partner or spouse should share the responsibility of the budget. You should not be the only member in family who would be caring for the budget. Insist that it is equally divided. In case of a non working partner or housewife, her irregular spending habits can make a huge difference in your budget. Make sure that your spouse realizes the responsibility.

Invest Wisely:

Investments in proper asset classes can fetch profits and support your budget. Good investments in Equities, Commodities or safer investment options like Fixed Deposit or PPF can get you good interest and profits. Ideally, reserves should be utilized in a manner in which opportunities in investments can be utilized.

Recording the Transactions:

Recording your expenses and income is a good practice in budgeting and should be followed. Recording of transactions will help you have a re-look at your finances when you want it to. In case of online expenses and transactions, this facility is provided by banks. But if you keep everything in one place and have good record keeping habits, it can save you from a lot of confusion and unnecessary expenses.

Finally

Budgeting should be treated as an art. Small favors and changes in your budget can bring wonders to your finances at the end of the month. You will save more and invest more if you follow sound budgeting techniques, some of which are mentioned above.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com

Calculators:

Savings to become Crorepati Calculator

Time to become Crorepati Calculator

There were days when people used to plan to buy a two or four wheeler. However, we stay in a different era altogether. We are worried more about the fuel prices than the automobile prices. The concern is obvious, with govt. testing our patience through the fuel price hikes. Here are a few things which can help us in saving expenditure on fuel.

Use your Credit Card to beat the fuel hike!

Petrol and diesel prices are skyrocketing and cash in hand (read salary) is not keeping pace with the expenditure. It is time to look at innovative measures to survive.

Plastics (read Credit cards) have become an indispensable part of our lives. Can they be used for beating the fuel hikes?

Let’s look at two fuel based credit cards and then decide.

Citibank Indian Oil Titanium Credit Card

This Citibank card is offered with a partnership with Indian Oil and the benefits are limited to only select Indian Oil outlets which have the Citibank EDC machines to swipe your Citibank Indian Oil Titanium Credit Card.

If you use the Citibank Indian Oil credit card at the select Indian Oil outlets which appear on their website, the following benefits accrue:

You can save over 5% on all your fuel spends at Indian Oil Outlets

How?

1. You earn 4 Turbo Points for every Rs. 150 of fuel purchased. (Turbo points are nothing but reward points that you earn on this credit card and can be used for redemption against your fuel purchases).
2. You also get a full waiver of the fuel surcharge (2.5%) on fuel purchases. However, both of these apply on Citibank EDCs only and hence will not be available in all the Indian Oil Outlets.
3. Also, the reward points earning is capped to a maximum of Rs. 10,000 per transaction.
4. If you use the card for daily expenses, you earn turbo points.You earn 2 Turbo Points on every Rs. 150 spent at grocery and supermarkets. These are also a selective list and available on their website. On all other purchases, you get 1 Turbo Point on every Rs 150 spent.

Each Turbo Point equals Rs 1 worth of fuel.

So if you carry and use this card and as an illustration your expenses are in the following fashion, let’s see how this card benefits you -

This equals to cash back of about 2.8% on your expenses which you can earn on fuel and redeem against fuel.

The ICICI Bank HPCL Credit Card

ICICI Bank offers a fuel based credit card similar to Citibank however in partnership with HPCL.

What do you get?

1. 2.5% Cash back on fuel purchases at HPCL pumps every month, when the card is swiped on ICICI Merchant swipe terminals. The Cash back is capped to Rs. 100 per month.
2. 2.5% fuel surcharge waiver at HPCL Pumps and can be availed on fuel transactions of maximum Rs. 4000 at HPCL Pumps, again limited to transactions swiped on the ICICI Merchant services.
3. Accelerated 2.5X rewards i.e. you get 5 Payback points for every Rs. 100 spent on fuel at HPCL pumps and 2 Payback points on all other spends

How to Redeem?

You can redeem 2000 Payback points for the HPCL Insta Fuel card with Rs. 500 worth of fuel.

In addition to this, there is also a promotional offer where you spend Rs. 5000 on your card in the first 60 days and you get cash back of Rs. 500

The card comes with a fee of Rs. 500, which is waived off if the annual spend on your Card is Rs. 50,000 annually.

Final Word

The choice of your card should depend on the availability of the relevant petrol pumps (where the Banks have their swipe machines installed) close to your house or workplace.

While the saved amount seems piddly, not to forget, this is a credit card purchase so you also ensure you don’t pay up in cash for re-fuelling. And if you are amongst the salaried folks who can claim these expenses then you also enjoy a credit period within which you can actually claim it from your company, to avoid a cash flow at your end.

About the Author:

The author, Daisy Fernandes has a Masters in Management from SP Jain, a Banker by profession and currently pursuing CFP certification. She can be reached at expert@investmentyogi.com. expert@investmentyogi.com.

Finance Minister Mr. P Chidambaram has accelerated the reforms process since September 2012 as India cannot afford any adverse economic developments at this point of time. The looming threat of sovereign ratings downgrade by credit rating agencies is not out of sight yet. Keeping this in mind, finance minister presented a prudent, non reformist budget. It had more misses than hits, but delivering on the fiscal deficit front is a key positive. This is crucial for averting sovereign ratings downgrade together with ensuring stability of capital inflows so as to keep the current account deficit under control. Finance ministry is pitching for India’s rating upgrade with various rating agencies which reduced its rating last year. Why is averting a ratings downgrade so crucial for the country? Let’s try to find out the implication of sovereign rating on countries economic health and where India stands.

What is Sovereign Rating?

A sovereign credit rating is the measure of credit worthiness of a country or a government. It shows the capacity of a national government to pay its debt obligations. Credit rating also signifies the risk involved in investing (for business) in that particular country.

Impact of High Sovereign Credit Rating

Ratings downgrade could adversely impact capital inflows, currency valuation and availability of cheaper capital for the corporate sector in overseas market. This results in overall slowdown of economy and exposes country to further downgrades. Primarily, there are two impacts which accompany ratings downgrade:

• Funding in international/national bond markets gets costly – Good credit rating is a mandatory requirement for raising cheaper capital. If the sovereign rating is not of investment grade, it gets difficult for the government/corporate to sell its securities to foreign investors. Same effect happens in local bond markets too. Due to lack of cheaper capital, pace of economic growth slows down and investor’s sentiment is negatively impacted.

• Reduction in foreign direct investment – An important parameter which is considered by foreign investors before taking investment decisions, is sovereign rating. Investors avoid countries with poor credit rating as their capital is at risk.

Reasons for Downgrade

Sovereign rating downgrade is not an easy decision to take as it can have adverse effect on global economic health. A lot of factors need to be taken into consideration before taking a decision. The primary indicators of ratings downgrade are listed below:

• Widening Current account deficit
• Widening Fiscal deficit
• Weakening Currency
• Political Uncertainties
• Rising Inflation

Cumulative effect of all these factors are considered and post careful evaluation, a rating is assigned which can be positive, negative or stable.

Indian Scenario

Both Fitch and S&P have assigned BBB minus rating to India with a negative outlook, which is the lowest investment grade rating among the BRIC group of nations. Recently Fitch Ratings has reiterated its 'negative' outlook on India's credit rating citing concerns related to fiscal deficit, slowing economy and persistently high inflation.

To avoid ratings downgrade, government is taking necessary actions. It has set up a panel to expedite regulatory clearances for major projects and finance minister has unveiled plans so as to reduce fiscal deficit to 3% in next five years. Recent fall in oil and gold prices will also reduce the current account deficit, which will help in putting pressure on rating agencies to revise their outlook. Overall, India cannot afford downgrade to "junk" status which would force foreign investors to pull their funds out of the country, increasing the cost of capital both for government and corporate houses in overseas money markets.

Let’s hope finance ministry is able to convince rating agencies with the reform measures, as a junk status will be detrimental to both, economy as well as stock market.

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com.

Calculators:

Income Tax Calculator

Fixed Deposit Calculator