The Investment Tax

I was listening to the financial planner on BTVi and the Investment Tax was mentioned on the programme.

The word rang a bell in my mind and has been running through my mind for the last few weeks as to what does it really mean to me. This post is an attempt for me to write things down and provide clarity to myself to its meaning in my life ( please do send in your comments .. would be great do hear from you all )

1. Invest before you spend

This is the same thing as pay yourself first.. which basically means that as salaried people as our tax is cut before it reaches our hands , we should also consider investment as a TAX and cut the investment amount before we start spending.  If there is no money to spend... one will not spend.

2. Investment of your time to learn new things

Every professional career needs replenishment. Honestly none of my companies have given me the fuel by themselves to help me to think and learn something new through a training program. Usually the training programs are not what i would like to attend.

So , we need to make investment in ourselves to remain relevant to the organization and the markets. So we need to from our investment pie keep some money separate to be able to spend on learning experiences.

3. Invest in insurance

Insurance is a must. There is no two ways about it. Insurance cannot give you wealth or make you bankrupt, but it can definately save you from bankruptcy.

Make the investment in insurance before you spend on mutual funds

What do you think... i feel understanding and discussing such concepts makes people much better than what they were before..

Sharing and learning. . Co learning

Thats simplefinancialsense

Don't keep your money idling

What is good about me writing is I am writing from experience and hoping to get people to avoid the mistakes I have made or for people to follow the right decisions I have made.

One critical part of an investment strategy is to ensure that you make money work for you.


That basically means that we should not keep money idling in our bank accounts. Bank accounts in India gets us about 4% of interest per year which after a 30% post tax is about 2400Rs per annum on an average cash balance of Rs 1Lakh.

Now you ask...
1. did you not tell me that I should have 6 months of monthly expenditure as an emergency fund. That will be in the bank right ?
2. The market is too high.. I want to wait for a good opportunity..so I need to keep this in my account right ?

Well.. the answer is NO.. No longer.

There are quick and easy ways to invest in liquid funds which can get you around 7-9% returns per annum and because of indexation you will not need to pay that high a tax also as compared to a fixed deposit

When you want to sell the liquid funds one can get the money back into the bank account in max a days time.. great for liquidity.

Now there are certain conditions.. there maybe an exit load of 0.5% if you take out the money in less than 90 days.. but it depends on the liquid fund. In anyway.. the return is more than that of a fixed deposit.

Get your money to work..don't let it idle.. it's simplefinancialsense

ET money

The economic times has done a great job.. expanded into providing services of mutual funds and an expense plan.

The mutual funds investment is quite easy and the reporting is also great.

It takes about three min for you to register with et money.. all you need is your pan and banknaccount number .

The app has info on key recommendations on which mutual funds to buy and what their returns are.

The investment is on the same day itself IF you purchase before 230pm and it reflects in your portfolio in two days time..

The reporting is nice.. it tells you how much you have gained or lost. One can set the app to tell you daily updates or once a week through a notification. One can of course go into the app and see the update daily.

Not all funds are there.. definitely not the direct funds ( so et is like an broker and they get all the benefits) and some specific funds. It shows what you can buy

It is a must try.. its simple and effective.

Go ahead... try it... its simplefinancialsense

Banks and investing

Over the last week,while i was in the market last sunday and this weekend while i am reading some financial magazines, i  am starting to come around to a theory of investing with banks.

One can look at banks in two ways
1. Which banks to invest in, which means which banks we should buy shares of.
2. Which banks to park your funds in, which means which banks you should open your FDs in.


lets take each of these separately.

1. Which Banks to Invest In
The moral here is to invest in those scrips which will give you higher appreciation, lower risk . Those banks which are continuing to grow month on month, Qon Q, YoY. One can find such banks quite easily by doing fundamental analysis. Some of these banks are HDFC bank , SBI and the likes.
One can be sure that in an uptrend , these will continue to perform, and in a downtrend these will be impacted less negatively! Or as my dad says " Family Jewels"


2. Which banks to Park your Funds in

These should be with the same logic , those banks which will give you higher returns on the money that you invest in them, Fixed Deposits and Savings bank rates.
Now Savings bank rates are common across all banks, the RBI has started talking about deregularizing this, if that happens life is going to get very very interesting for a lot of banks.
Fixed deposit rates are deregulated. Depending on the banks requirement of funds, these banks will come in and offer differential FD rates. Usually the banks which are in top tier- SBI, HDFC, AXIS etc will offer lower FD rates, because they have a very strong pull on their customers. Because of these lower rates, their cost of funds is lower and because of this, they make a lot of profit- Which is the exact reason why they for part of the first point of "which banks to invest in".

So it is better to keep on the lookout for banks which offer a differential rate in the market- consistently higher and open an FD or a savings account with them. This will help us get higher investment income on our fixed portfolio.

If you look at the scanned image on the right-

you can clearly see the interest rate differentials. eg DCB offering upto 8.25% ( 8.75% for Sr citizens) on a two year deposit. This is a clear 1 % differential vs the other banks.

Now if you use this technique , compound the benefit of investing over a period of 20 yrs for Rs 100.000, one can earn an additional 82.697 Rs or for 30 yrs , an amount of 2,62,297 Rs.

Not bad for clarity of thought!!

I know i am planning to open up an account in  DCB. In fact as you can see from the picture below- have already identified , where the bank is :)

One needs to identify areas where one can benefit more. Remember, you need to manage your finances actively than passively.!

Happy Investing
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Financial Calculators

There are a lot of financial calculators that are available out on the web which you can use to find out your financial health and plan for the future. I thought it might be some good information for my readers to get the links of a few of them that i thought were quire useful to me.

1. www.Fool.com
This is like one of the primary websites for finance. While there are a lot of pages which will interest you, the one that i am talking about has the link below

http://www.fool.com/calcs/calculators.htm

Now all of this is of course in USD, but just ignore the sign and you can use the calculators for Indian Rupee also ( am still awaiting the Re sign to come into my computer).

I did try and download the forms onto my computer- but was unable to do so. But what the heck- go online and get all the information you need.!


There are a lot of Indian websites also that provide similiar information. So here are a few that you can try out.
2. Moneycontrol.com
Here is the link where all the calculators are available in the website.

http://wealth.moneycontrol.com/calculatorlist.php

2. Outlookmoney.com
This is one of the fortnightly magazines that i regularly read. It also has a decent website that you can go to and read some old archived issues.

Here is the link which you can use for financial calculations

http://money.outlookindia.com/calculators.aspx

it has some additional tools which are more applicable to the Indian financial products.

3. Economictimes
Yes- this is the homepage on my computer. No one in India can afford to not read the ET if they have any kind of interest in finance.

They also have some decent calculators. The link is given below.
http://economictimes.indiatimes.com/calculators/5251408.cms

4. Google docs.

Yes, there are a lot of calculators already within google docs which you could use. The best part is that you can save them on your desktop too .

https://docs.google.com/templates?q=payment&category=14&sort=users&view=public&utm_source=en-lp-finance&utm_medium=lp&utm_campaign=en&pli=1


You can go to any one of them, or all of them to understand how well you are doing financially. These are useful links which you should bookmark- or even better bookmark this page.

comments are most welcome.

Happy Investing!

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Meru Cabs- Making mistakes on a great business model

Meru cabs has one of the best services and cab fleet in the metro's- At least i can confirm that for Bangalore and for Delhi. However, they have recently taken steps to start impacting their business model negatively.

Now if call their phone no and book a cab on the phone, you will need to pay an additional 50Rs. I mean how stupid can you be! Why would someone be willing to pay an additonal 7% to go the airport in Bangalore. Now they don't charge additional money if you go and book online on their site www.merucabs.com .

I tried doing this recently on the web. Here are a few obeservations.

1. One can register for free on the website
2. The website is quite easy to navigate.
3. The place where you book is quite easy to do- But you are not confirmed on the booking immediately. Once you submit your request, someone at the backend will schedule and send you an EMAIL . I did not get an SMS confirming the booking- which again is bad.

So, i am sure as time progresses, such means will not add value to the company and it will negatively impact their business as it goes forward.

I hope meru cabs owners reconsider this- i was actually a fan- but because of this- i am planning to shift to easy cabs instead of meru.

Happy Investing
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Making money taking surveys

Finally, I have found a link which does make some money :).

The company - X- is a company which is wholly into survey's and for every survey that you complete, you  get reward points. And once you have accumulated enough reward points you can convert those reward points into money.

Usually a lot of these survey sites have issues, with no regular surveys coming out and the no of points that one can make being small.

Understanding Fixed Income Investing

I have been trying to understand how does the fixed income scenario really work and finally i think i have gotten some semblance of understanding of it.

Its quite simple really as long as you understand the basics and like my dad always says-" understanding the problem is half solving it."

If you look at fixed income products , there are three critical levers to make money.

1. Time horizon of the investment. Every product has a time horizon- very short term, cash market, short term, medium term and long term. For example you can open an FD even for 10 days, or for 10 yrs!
2. The return that you are being offered.
3. The interest rate environment- upward, downward, stable.

So , when you invest in a mutual fund, you need to understand what is the strategy of the fund- does it invest in long term securities, or short term , or it is a combination of both. One should look at what is the portfolio of the fund and what is the horizon of the term of deposits it holds. One can easily get this information from different sites. I usually use http://www.moneycontrol.com/

Lets look at how different types of interest rate environment impacts fixed income securities.

Upward Bias

In an upward bias scenario, it is expected that interest rates will firm up ( go up) and hence it is best to invest for a shorter period of time so that when interest rates do firm up, you can make use of the higher rates to increase your portfolio returns. From a mutual fund point of view, buy into funds which have a short term horizon. If you have a fund which has longer term horizon- it is best to get out of it asap.

Downward bias
In an downward bias scenario, it is expected that interest rates will go south ( down)- like what is happening in the US. In this case, if a fund has a longer term horizon, when interest rates come down, the market value of those securities goes up because such large interest rates are no longer available in the market.

Stable Scenario
 In a stable scenario, the fund manager becomes extremely important, on how he balances the portfolio.In these historical performance becomes extremely critical. So look for news and interviews and feedback on the fund manager and his performance.

Sometimes one might have invested in a different geography, global fund. So in such a case it is important to understand how the interest rate scenario is panning out in the other geographies.

In short, in India , we have an upward bias- so short term funds make sense. Soon in November, RBI will come out with its credit policy and it is expected that interest rates will increase. Inflation doesnt seem to be coming down at all , todays food inflation was at 18% !! Not sure why the government is not able to control inflation- its not taking enough steps in the right direction against hoarders.

Quite simple really- as long as you understand it.

Please do evaluate how this will change your investment portfolios- evaluate and make the change.

Happy Investing.
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Secret of 20% risk free returns!

Financial sense is about common sense. Trying to identify where one can make money without losing sleep over it and not taking too much risk. Of course, with higher risk comes higher rewards, but what would you do if I could get you 20% annual return with no risk? I mean, we always hear that the equity market long term return rate would be 20%, but that comes with risk.

Somehow i get the feeling that you are now getting interested !

I am talking about employee stock options . Not the ones that you get in terms of awards, but a lot of companies ( like mine) have schemes going where you can buy company shares at a discount of 15% to the market.

What usually happens is that you keep accumulating a certain part of your salary with the company, and once in 6 months , the company uses the amount accumulated by people who wanted to participate in the scheme to buy shares in the open market on their behalf. These shares are immediately transferred to the employees account on the same day.
Since there is no requirement that you keep the shares for a certain period of time, you can sell of the shares the same day itself. Which means a neat 15% capital gains in your pocket. Repeat the process twice a year and you have made yourself a pre tax profit of 30% on the amount invested!! Not bad for a return.

Of course , if your company is not listed in India, you will need to pay taxes on this- which is upto the tax bracket you are in- which is 30%. Hence the post tax return is 20%!!

Risk free!!

This month my company launched this program for employees and i decided to participate in this program. I will ensure that i sell of my shares ,unless i am expecting a big jump in the share price of my company, the day i receive my shares and pocket a neat 15% !

I know this sounds simple, but man, its taken me 2 years to understand this and execute it . But it made so much sense that i decided to write about it and share my thoughts with my readers.

This is actually a neat trade, with min to zero risk.

Dont miss the bus- find out what your company offers.

Happy Investing - I know i am going to laugh my way to the bank in this case!

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PPF- take the action Now!

Its the second of April-- the beginning of the new year and if you usually invest in PPF please invest NOW!

Two basic reasons for this

1. Its always better to invest upfront in the year- so that you get the benefit for the entire year.

2.With the change in the Direct Tax Code from April 2011 expected any interest savings will become taxable going forward. So if you invest in the PPF during march 2011-- Its interest will be taxable! So if you are planning to invest in march 2011- this investment will not be as lucrative as other investment opportunities.

So -- INVEST NOW

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Market Fall-- What to do now.

Barack Obama policies look theoretically quite sound. His recent talk on banks taking on additional risk and profiting from it and it they fail-- ensuring that the government bails it out - makes a lot of sense.

Where is the capitalism fundamentals when you make money if you take risk and call it right and you still make money if you take risk and you call it wrong. ( check out all the bonuses that the investment banker made in the recession)

So because of these comments -- markets have fallen quite a bit-- sharp falls across the world.

In India compounded with the above comments, inflation is starting to really heat up and because of that the RBI is planning to increase bank rates ( CRR) in its next policy in the coming week. Market pundits are  skeptical that the firming up of the rates will slow down growth.

Here are some points in favour of what the pundits are saying.

1. If you look at the GDP growth which has come out quite strong most of it has been because of government spending and not really infrastructure investment by private companies. A clear view of that can be seen by the bad nos shown by L&T -- an infrastructure major. Investment has lagged the GDP.

2. Exports are just coming into positive territory-- but still need a lot of support.


I think that while there is a definite consensus on the fact that RBI will hike rates on jan 29th, it is the right think to do-- growth has some momentum to it-- and the growth in the world is also on an upward trend-- however what will kill us is inflation and that must be contained!

So what to do now. I think that the markets are headed for a small correction-- which is good for the markets and will give us great opportunities to buy into companies. ( read my previous post)

This is also a good time to invest in gold ( read my previous blog). Here is something from the economictimes on gold... read this also

so wait with a little patience and you will be well rewarded.

what are you doing now? What about preparing a watch list of stocks you'd buy once the correction really starts dissapearing

happy investing.!