Save tax on fixed deposit interest

All interest that one makes on savings accounts or fixed deposit is taxable in your hands . It is considered as part of other income in the tax returns.
Any interest over 10,000 Rs is also tax deductible at source.

Now lot of us keeps money in savings accounts and also invest in fixed deposits.

On savings account one earns around 3.5 % and post tax is 2.31% or if invested in fixed deposit @6.5% post tax is 4.29%

Now my advice has been to invest in liquid funds vs keeping money in the bank account . The liquid funds will give around 6% pre tax returns but is still taxable in your tax rate .

This tax needs to be paid because these are all debt products and hence tax is applicable even post three years.

There is one product which is an equity product which enables this to be tax free in one years time.

This is called as arbitrage funds . These have been giving around 5-5.5% returns which when invested for more than one year will be tax free... Which means more than the 4.3% returns from fixed deposit.

This is an interesting product and can be used to get the 1% additional benefit as compared to fixed deposit or more than investing in the liquid funds for emergency fund.

This is a good way to get better returns. Investing in it is good opportunity.

Use it if you can wait for more than one year .. that's simplefinancialsense

Holiday cash... invest them

It is the season of holidays, more accurately it was in the month of October with both dusshera and Diwali in the same month .

I am sure all of you had good times enjoying with friends and family and did not burst too many crackers on Diwali to ensure we invest in our future ... our environment for our children . 

In such a festive mood , one would have received gifts for self and for children.. maybe some nice amounts of cash also.

Usually we keep those in our pockets after thanking our elders and family members profusely but fail to ensure we just don't spend it as part of pocket money or over and above the monthly budgets!

That is what I would like you to change .. the 1000 or 2000 from parents to you , a few to sisters from their brothers a few where your friends decided to give you cash vs getting you a gift ( gift buying is tough).. all can quickly add up to nice sums and if we are not careful can be easily spent over and above our budget lines .

What would be good and must is for everyone  to calculate these sums and invest for the long term goal - retirement or children's education or children's marriage .

Some of these amounts can grow when you collect and invest them into quite some tidy sums.

It's almost like a sip.. but on special occasions like birthdays , festivals and anniversaries.. twice or thrice a year and clearly over and above your existing investments - a bonus of sorts.

Here are certain rules I would suggest you follow ..

1. These are long term or short term as per the horizons... invest in the plans accordingly.  Equity for long term and debt plans for short .
2. Keep separate folio numbers for these.. for each of your goals so you can appreciate it's growth and as you see it growing it will provide you immense satisfaction
3. You can take a higher risk in these investments if they are longer term.. since they are over and above your already investment plans... if required go for mid and small caps.. but ensure it is only when it is long term
4. Invest in the direct mutual fund category... it will give you the 1-1.5% additional fillip to your returns ( read my previous blog on this topic).
5. Keep them in the separate folio with the right nomination for your children .. ensure you don't just allocate an equal amount.. ensure you allocate the right amounts .
6. Round them off to the next higher amount.. add some from your pocket .. save a little more

As you do this , you will find it enables you to drive some significant savings towards your goals on a bonus basis.

It's all a plan to make your money work harder ...

It's simplefinancialsense

( let me know what you think about this)

Save me today so i can save you tomorrow

An interesting quote that I got from my financial advisor... And that struck me as an interesting way to look at things

In the heat of the moment , we always look to spend money on small things.. A pizza , a watch , a new mobile or even a nice coca cola even though you really did not need to spend on it .

I analyzed my own data for the last month .. What I ate in the office , how much I spent on coffee ( its like ten steps from my room) and what I spent with my family over the weekend .

The amount when it comes out looks a little uncomfortable.. 6780 Rs in the last 30 days.. The last month. ( and I was travelling for most of last month!)

This doesn't really include the really important stuff which couldn't be avoided ... School stuff, clothes for growing children ... Just stuff that could easily have been avoided .

Now, I don't mean to say that don't go out and enjoy- with my tough weekdays of 15-16 hr days.. This is the only time I get to spend with my family and they do deserve this.. But we need to find some different things to do vs just going to the malls and having coffee and a dinner in crowded places . More on this topic in another post

But lets get back to the point .

If I am able to save 3000 Rs a month additonal.. That's 36000  Rs a year. In 20 years @15% this would be significant benefit adding to your retirement kitty..

Save today.. So it can save you tomorrow.

It's simplefinancialsense

Liquid funds

It is clear ( I hope!) that we need to park funds for an emergency. This fund is required to ensure that during an emergency we are not running around to get money released and are focusing on resolving the emergency.

However, keeping the money in bank accounts will only get you a 4% ( or 6% at kotak) return. Definitely not inflation beating returns.

Also on this return you need to pay tax @ 30% which brings the return to 2.8% .

So , we need to try and optimize the return in this scenario and the best way to try and do this is to use the option of liquid funds.

Liquid funds are funds which are used to  fund short term requirements of big corporates and have given returns of around 8% over the last year. Also as the name suggests you can easily take out the money... Because it is short term.

I suggest that this is a good model and something all should look to do.

It's simplefinancialsense.

Post those petrol savings

My my.. petrol prices are falling... in Noida it is down from 82 rs to 74 over the last three months .around 10% reduction .. giving back significant savings back to families..

For someone who would have spent 5000 rs a month on petrol,  this would be equivalent to around a 500 rs saving per month... or 5600 rs per annum.

This I found when I kept a little track never got invested in savings- I just spent it on more entertainment.

I find such leakages quite common among people and here are a few ideas on how we can use this better..

1. Lock in the savings... add in a sip for 500 rs per month
2. If you think that this maybe difficult because petrol prices will rise again and you don't want to lock in an additional saving...

  A. Put the money in a piggybank and at the end of the month put it in a fixed deposit ( or end of every quarter )

B. Put the money in Ppf... there is no limit to deposit every month... min is 500 Rs.

These are quick ideas which will enable significant savings ... especially when prices come down ...

Any more from anyone? 

Freecharge.in- Update

I know i had written about freecharge.in in my previous post ( click here to read)...

Yesterday i actually reconfirmed my belief that this it is is great.

I went and bought a 100 Rs worth of products from Mcdonalds and i got an ice tea and aloo tickii burger free....

so a nice meal...

Have you tried it?

www.freecharge.in

its simplefinancialsense.

( Please click on the link to join in)

Selling prized assets

Today jp power venture announced sale of two of its power plants to help reduce.debts by almost 9900 crore Rs.

However the stock as of writing is down by almost 10%....

An interesting status ... even though their debt is reducing by 1/2 the stock is down....

Reason is very much simple... they have sold off good assets...earning assets ... because in trying times only good assets sell ... not the bad ones.

So what does this mean for us as personal investors?

Simple... don't bite more than you can chew..
Don't take on more debt that one runs after to show off or to run after fast returns...

Small returns but more times with low risk is better ... because boond boond se ghadga bharta hai.

That's simplefinancialsense

Creating the saving pot

One really interesting way to save some money is to identify opportunities where one has saved money and convert that into a "pot".. which then gets invested.

Here is the idea..

Everytime we in some way or the other negotiate, walk or save some money... just identify it and find out how much does that convert into ...

I use two means... one a real pot and another a mobile application ... any sort of expense manager which you can download from the application store for free...

So what all have I found I have been able to save on

1. Differential pricing in petrol from delhi and Ncr ... its quite significant and I can save 500 rs on a full tank... so whenever I go to delhi... I get the tank filled.

2. Parking charges... so instead of spending a lot of money on parking.. I prefer to walk... saves both money on parking and petrol and it's good for health.

3. If I want to buy something and I contain the urge... that's a saving ... :)

4. Using some coupon websites ( wait for the next post on this )

So these ideas build up to a significant value .. over and above the regular savings that I do...

Small drops just add up... from a financial perspective .. its just simplefinancialsense!!

Banks charge for your sms updates

The Indian banking Juggernaut continues to higher and higher and higher profits.. creating processes and services which they can charge more and more to their customers.

Recently banks started charging around 25-50 rs per account for SMS updates on credit or debit.  This was in some cases for a month and for some in a quarter.

Now lets take some scenarios

Rs 25 per month per account
usually every person has three accounts..

So basically the cost of this service is Rs 75 per month ...or 900 Rs a year per person

Now if in a family you have two working people... multiply this by two ... so 1800 Rs.

Lets look at what all we can buy for this amount... a nice jacket ... a one night two day stay in a three star hotel,  a small phone! !!

With these calculations I was thinking of how to approach this ... so I cancelled the SMS updated and settled.for my email updates ( which were free ) and over the last few months I have seen that the email updates were good.enough.

So, always take a look at some of these creeping costs ...in your financial statements...

Its simplefinancialsense ..

New investment tools

As time progresses there are newer investment tools that come up - new ideas that make a lot more sense.

Today I visited my bank and the branch manager was trying to sell me an equity fund which basically is over a period of 10 years and the highest NAV gauranteed is 50% higher.

Here is the way she tried to sell it

1. Highest NAV will be taken in the first 6 yrs
2 . We are the only one giving you a gauranteed 50% increase in your capital.
3. Tax free returns

Now I tried to do a little bit of calculation and asked her a few more probing questions..

1. The 50% gauranteed is over what period.

The answer to this was ten years . a little back of the envelope calculations gets this to be around a 3% return.. Very similiar to a savings account return.. What's so exciting about this???

2.Guaranteed highest NAV- I asked her what is the guarantee that the fund manager will invest in a manner to get the highest return possible in the first six year- she had no answer to that

Why bank managers try and make fool of their customers I don't know.


However to her credit she did give me an idea about a debt policy that I thought was interesting - I will write about it as I investigate it further

Simple financial sense is about keeping it simple

Insurance and EET

With a potential change in the direct tax code from the forthcoming budget, everyone should understand the impact on the change of the taxable status of investments.
There will be a change in the status of investments from the EEE tax rule to EET.

What this means today - as an example ppf or insurance is tax free at every stage, at investment, returns and at maturity. However going forward, the plan is to make the entire returns taxable.

One point in this is that the eet will be applicable to those investments which have occurred post the implementation of the DTC.

So go ahead- make the insurance investment now.. Its your last chance in the EEE framework

Smart investing

NRE deposits at 9.5%

NRI it's raining benefits for you. With the forex crisis and FDI focus in India banks have opened their doors to you.
While in the us the return rates are like 0.5-1% or in some banks they charge you to keep your money with them, india is offering a 9% return on your investment.

With the Indian rupee on it's way up.. You will have a double benefit on the returns

Invest in India

Be smart

Muthoot finance CD

Muthoot finance has recently launched a company deposit at an interest rate of 13.25% pa for deposits with a tenure of three and five years.

This as you would have noticed much higher than what the banks offer today in the banks fixed deposits and also higher than the infrastructure bonds .

These are times when one should lap up these good CDs and their higher interest rates.

In front of such good opportunities , companies like tanishq should rethink their golden harvest scheme which was a great opportunity one year back , but today it is not so attractive.

For all of my NRI readers.. This is a huge opportunity.. Do take the plunge

Be smart while investing

Tax free bonds

A recent advertisement in the newspaper talked about the NHAI tax free bonds for a period of 10 and 15 years at a tax free coupon rate of 8.2% and 8.3%.- Tax Free!

These are great to invest for long term and get you a great fixed income product.. Much better than the insurance products that one mat find in the market.

These are also available in demat form and are going to be listed on BSE and NSE.

These are open from 28th dec to Jan 11th on a first come first serve basis- so dont think they will wait for the 11th jan to close this- if they have their funds that they need by then- they will close it.

Great one to invest in

Happy investing

Tips for buying a new electrical product

Why companies and retailers shy away from providing customer service , I am not sure of.
I just recently bought a heater from an electric retailer . It was a product of Usha Lexus.
From the day I bought it , the fan did not work. When I took it back to the retailer, he basically washed his hands of it. He gave me a number to call - companies customer service and gave all the work to me. After calling multiple times and trying to schedule with my busy timings it has taken me a week and a half to try and get a new product fixed!
I am a highly dissatisfied customer

If this was a situation with walmart, they would have immediately taken it back and replaced it with a new one. It's not tour problem, but theirs.
Unfortunately , even with big retailers here in india, this is not the case. A friend of mine bought an amplifier from reliance digital, and had a problem , they again pointed them to the manufacturer.

The retailers in india it seems havens very different model... One that needs to change.

So, what could I have done to ensure I did not get into this problem.

1. When taking the product. Get it checked before taking it home.
2. Lots of times the retailer says that he cannot open a new piece, it is factory packed. DO NOT accept that . Ensure you check it, or take your business elsewhere !!
3. Check for the gaurantee card immediately. Get it signed in front of you. Dont believe the retailer.
5 check for testing signs from the factory. Somewhere it should say "tested ok"
6. While going for a retailer, get feedback about them, search the web for feedback.( it's a great idea for an application)

Remember, the retailer will not accept your claim, the headache and heartache will be yours

Be smart

Changing your bank- what to evaluate

I know, in my last post i had mentioned that i was going to move away from HDFC bank to maybe Kotak because of the higher savings interest rate. ( here is the subbu advertisement from kotak on youtube)

Now, i got quite a few responses about how great HDFC bank is.

Here are a few positives that i got from some of my readers..

1. We have been banking with them for so long-- its our bank!
2. They give so many additional facilities- like lockers.
3. Its tied to HDFC - we may get preferential rates!


Now, here are a few of my answers.

its not as if i am against HDFC bank-- in fact it was my first bank post my MBA- my first salary account continues with HDFC bank.

But lets make some clear distinctions.

1. Its not "Your Bank". They will not hesitate to charge you money for services used. In fact they give you one of the lowest deposit rates on FDs and charge you always- on time.
2. Lockers cost around 2000Rs per annum. So if you have one lakh Rs in your SB account usually- the additional interest will easily cover the cost of the locker. In fact HDFC will give free lockers only if you are a premium customer for them with a large bank deposit or relationship... so why not move the money and get additional interest. Also , how do you know that Kotak or other banks will not give you the same facilities if you have the same amount of relationship with them.
3. Its not tied to HDFC - they are not even related.. they were a long time back- they do however sell the homeloans and may help you get a lower initial upfront cost.


Now- the other piece that one must consider is "reach". One can see HDFC bank on every nook and corner and Kotak is far and few in between. ATMs are also not that wide a reach. This is an important factor for people- convenience.

Evaluate what makes sense for you as a family, individual, company.. and then take a smart decision- one that works for you..

Smart investing.. :) 

.. and enjoy--- " why this kolavari di" http://www.youtube.com/watch?v=YR12Z8f1Dh8

Is buying from the big retails worth it??

This is the first page of the Delhi times today.

Now they have given two scenarios one of Mr Sharma family who are four in number and one of Mr Malhotra family who are six people in their family.

The savings for malhotras are Rs 284 in their monthly budget.

Let's make a few calculations here.

With petrol prices at 70Re per liter , the cost of going to big bazaar will be one liter at the min. There will be parking fees of an average Rs 30.

There is of course the time that you would need to spend on travel and standing in the line for paying the bills. Add the 5 Rs that people in Delhi now charge you for plastic bags. You would need at least two for the sharma family purchases.

So, some calculations

Saving : 284

Costs:
Petrol: 70
Parking : 30
Polythene bags: 10
Two hrs of time: 240

Total costs: 350

Actual savings: 284- 350= - 66

We have not assumed that you cab actually ask your nearby retailer fr discount , which they usually anyways will give.

So, for the Sharma family going to the big retailer doesn't make sense.
For the malhotras .. They could save around 300 Rs a month or so.

Usually we find that the maximum number of people who are going to these retailers are the sharmas and not the malhotra's ...

What makes more financial sense ??

Be smart

Ensure you look at the entire costs

Savings account rates hdfc vs others

My bank which is hdfc bank is only offering 4% as savings account interest to it's customers.

There are other banks which are offering upto 6% per annum interest rates.

Now the difference is quite a decent amount .. Or if you look at it 50% more than hdfc bank .

It looks like it's time to change?

Let's do the smart thing

Are you paying for the grocers new car

Have you ever thought about the fact that your friendly grocer is buying his mercedes from the money in your pocket.

A study on the entire supply chain of all types of varying goods found that the manufacturer only took back 40% of the mrp , including his profits - while all other players took the balance 60% ( 10% the government takes away for service tax)

The grocer / dealer/ insurance agent takes away from 30-45% of the mrp into his pocket.

As the new age companies are trying to reduce these gaps , people are realising more and more that why should we pay the middle man?

I hate giving the biyanis , or the chemist or the nearby hardware store his new mercedes or new car or house from my hard earned money.

Because of this, direct marketing or network marketing companies have come into existence and are making more and more products available in their portfolio.

They distribute the 40% back to you- the one who buys from them directly , using a strong distributor network and new technologies .

I think this is a great way to put money back into your pocket- where it belongs

I have started on this journey and love the way it liberates me.

Join me in this journey . it definitely is smart investing!!

Ppf limit is now Rs 100,000!

Recently the RBI changed the limit of investing in ppf from a maximum of Rs 70000 to Rs 100,000.

This is a huge boon for all people in India and everyone should try and maximise the limit.

The first rule of investment as I have always said is to max the ppf limit, even before investing in equity or other types of funds.

Ppf is completely risk free and tax free. So a 8% is actually around the 10.5% pre tax return with Zero risk!

The impact of saving Rs 30,000 per annum additionally to your retirement or Childs education planning is huge.
This also goes directly to your Rs 100,000 limit of 80c tax benefits.

Don't wait.. Go ahead max it up and sleep well!