Invest In India » Fixed Deposits

Say No to Readymade Pension Plans; Say Yes to Customized Retirement Planner for India

Malvika — Mon, 13 Feb 2012 09:05:04 +0000

Readymade Pension Plans/ Retirement Plans:

The existing pension plans/ retirement plans in India are from the insurance companies. They are available in the form of traditional products or in the form of ULIP schemes.

Indian Traditional Retirement Plan:

The traditional pension plan/retirement plan schemes from Indian insurance companies are expected to deliver only 6% to 7% CAGR as they are allowed to invest only in conservative avenues.

This 6% or 7% is not sufficient to beat inflation.

Indian ULIP Retirement Plan:

The ulip pension/retirement plans have huge front loaded charges. They also have higher regular running expenses and fund management expenses which pulls down the net return. That’s why market has rejected these products and they have become failures.

Customized Retirement Planner for India:

As a prudent investor, you should not rely on a single product or scheme for your retirement planning. A comprehensive and customized Indian retirement plan should consist of a bundle of schemes and not a single scheme.

Also you need to avoid schemes which deliver lesser return and schemes with huge charges. You need to select a combination of schemes which as a combination can deliver a decent inflation adjusted returns with low charges.

Schemes for Pre-Retirement Planner in India:

A combination of Term Insurance, Mutual Funds, and PPF will help you in creating a better pre-retirement planner in India.

Term Insurance:

In case of any mishappening to you, your spouse’s retired life needs to be secured. This can be protected with adequate term insurance. Online term insurance policies are cheaper by 50% to 60%. So opt for online term insurance instead of an offline term insurance.

Mutual Funds:

Equity mutual funds play a vital role in delivering positive inflation adjusted returns. Short term and Medium term debt funds are better alternatives to fixed deposits as they can deliver better post tax return.

PPF:

PPF delivers 8.6% tax free return. It has got a lock in of 15 years. One can save upto Rs.1 lac p.a. Safety and its tax free status makes this product a compelling option for an Indian pre-retirement planner.

Schemes for Post-Retirement Planner in India:

A combination of schemes like POMIS, Senior Citizen’s Savings Scheme, Bank FD, Mutual Fund MIPs and Debt funds could be considered for creating a post-retirement planner in India.

Creating an Indian Retirement planner

We have discussed enough about why should we have a Customised Indian Retirement Planner in the place of a readymade pension/retirement plan. Let us think about how to create a comprehensive and customized retirement planner for India.

Lifestage:

In this step, as an Indian retirement planner, you need to answer two questions. One is “How many years from now you are planning to retire?” and the other one is “ Your Estimation of Post-retirement years”. Studies reveal that the average life expectancy of an Indian is 75 years. But it is advisable to assume 85 years as your life expectancy so as to make sure that you will be covered enough during your post retirement.

Expected Retirement Expenses:

Again in this step you need to have an answer or 2 questions. The first one is “what will be retirement expenses in today’s cost of living”. Research reports show that approximately 70% of your current expenses will be your retirement expenses. The second question is “what would be the expected rate of inflation on these expenses”.

Expected Retirement Income:

The first question to be answered is “What is the expected amount to be received at the time of retirement from schemes like EPF, superannuation, pension commutation, gratuity?”. The second question to be answered would be is “What is the annual income you expect from the sources like pension schemes, rent, royalty?”.

Existing Investments:

“What is the current value of the investments made towards retirement?” and “What is the expected return from these investments?” are the questions to be answered in this step.

Working out the Retirement Planner:

We are going to work out the retirement planner in this step with the answers from the earlier steps.

a) You need to find out the future value of the retirement expenses with the present value of retirement expenses, number of years to retire, and the inflation assumed.

b) The expected retirement income by way of rent, pension, royalty need to be deducted from the retirement expenses (calculated in the point (a)) to arrive at the net retirement income to be generated from the retirement corpus.

c) Then the retirement corpus needs to be calculated by taking into account the net retirement income (calculated in the point above point), number of retirement years, inflation assumed post-retirement.

d) The retirement benefits like pension commutation, gratuity, superannuation, EPF needs to be deducted from the retirement corpus (calculated in the point (c)) to arrive the net retirement corpus required.

e) The monthly investment required to accumulate this net retirement corpus needs to be calculated taking into account the existing investments, and the rate of return from the investments.

The detailed approach for creating a comprehensive and customized Indian Retirement Planner is well explained in the above five steps.

Role of a Financial Planner in Creating an Indian Retirement Planner

A professional financial planner will be able to take into account ‘the rate at which your income grows’ to decide the monthly investment towards the retirement corpus.
Also the financial planner will be able to decide the asset allocation for your portfolio based on the required rate of income to accumulate the net retirement corpus.
The financial planner will be suggesting you the right mix of schemes for your pre-retirement planner and post retirement planner.
Also the professional financial planner will be able to tell you the required life insurance coverage and the health insurance coverage and when you need to opt for health insurance coverage.
Periodical review on the retirement planner has been conducted by the financial planner so as to accommodate the changes and deviation from the original retirement planner.

You can be a “do it yourself” Indian retirement planner or “seeking professional assistance” Indian retirement planner, the above points will help you in having a happy and peaceful retired life.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

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Say No to Readymade Pension Plans; Say Yes to Customized Retirement Planner for India

Malvika — Fri, 10 Feb 2012 07:39:32 +0000

Readymade Pension Plans/ Retirement Plans:

The existing pension plans/ retirement plans in India are from the insurance companies. They are available in the form of traditional products or in the form of ULIP schemes.

Indian Traditional Retirement Plan:

The traditional pension plan/retirement plan schemes from Indian insurance companies are expected to deliver only 6% to 7% CAGR as they are allowed to invest only in conservative avenues.

This 6% or 7% is not sufficient to beat inflation.

Indian ULIP Retirement Plan:

The ulip pension/retirement plans have huge front loaded charges. They also have higher regular running expenses and fund management expenses which pulls down the net return. That’s why market has rejected these products and they have become failures.

Customized Retirement Planner for India:

As a prudent investor, you should not rely on a single product or scheme for your retirement planning. A comprehensive and customized Indian retirement plan should consist of a bundle of schemes and not a single scheme.

Also you need to avoid schemes which deliver lesser return and schemes with huge charges. You need to select a combination of schemes which as a combination can deliver a decent inflation adjusted returns with low charges.

Schemes for Pre-Retirement Planner in India:

A combination of Term Insurance, Mutual Funds, and PPF will help you in creating a better pre-retirement planner in India.

Term Insurance:

In case of any mishappening to you, your spouse’s retired life needs to be secured. This can be protected with adequate term insurance. Online term insurance policies are cheaper by 50% to 60%. So opt for online term insurance instead of an offline term insurance.

Mutual Funds:

Equity mutual funds play a vital role in delivering positive inflation adjusted returns. Short term and Medium term debt funds are better alternatives to fixed deposits as they can deliver better post tax return.

PPF:

PPF delivers 8.6% tax free return. It has got a lock in of 15 years. One can save upto Rs.1 lac p.a. Safety and its tax free status makes this product a compelling option for an Indian pre-retirement planner.

Schemes for Post-Retirement Planner in India:

A combination of schemes like POMIS, Senior Citizen’s Savings Scheme, Bank FD, Mutual Fund MIPs and Debt funds could be considered for creating a post-retirement planner in India.

Creating an Indian Retirement planner

We have discussed enough about why should we have a Customised Indian Retirement Planner in the place of a readymade pension/retirement plan. Let us think about how to create a comprehensive and customized retirement planner for India.

Lifestage:

In this step, as an Indian retirement planner, you need to answer two questions. One is “How many years from now you are planning to retire?” and the other one is “ Your Estimation of Post-retirement years”. Studies reveal that the average life expectancy of an Indian is 75 years. But it is advisable to assume 85 years as your life expectancy so as to make sure that you will be covered enough during your post retirement.

Expected Retirement Expenses:

Again in this step you need to have an answer or 2 questions. The first one is “what will be retirement expenses in today’s cost of living”. Research reports show that approximately 70% of your current expenses will be your retirement expenses. The second question is “what would be the expected rate of inflation on these expenses”.

Expected Retirement Income:

The first question to be answered is “What is the expected amount to be received at the time of retirement from schemes like EPF, superannuation, pension commutation, gratuity?”. The second question to be answered would be is “What is the annual income you expect from the sources like pension schemes, rent, royalty?”.

Existing Investments:

“What is the current value of the investments made towards retirement?” and “What is the expected return from these investments?” are the questions to be answered in this step.

Working out the Retirement Planner:

We are going to work out the retirement planner in this step with the answers from the earlier steps.

a)      You need to find out the future value of the retirement expenses with the present value of retirement expenses, number of years to retire, and the inflation assumed.

b)      The expected retirement income by way of rent, pension, royalty need to be deducted from the retirement expenses (calculated in the point (a)) to arrive at the net retirement income to be generated from the retirement corpus.

c)       Then the retirement corpus needs to be calculated by taking into account the net retirement income (calculated in the point above point), number of retirement years, inflation assumed post-retirement.

d)      The retirement benefits like pension commutation, gratuity, superannuation, EPF needs to be deducted from the retirement corpus (calculated in the point (c)) to arrive the net retirement corpus required.

e)      The monthly investment required to accumulate this net retirement corpus needs to be calculated taking into account the existing investments, and the rate of return from the investments.

The detailed approach for creating a comprehensive and customized Indian Retirement Planner is well explained in the above five steps.

Role of a Financial Planner in Creating an Indian Retirement Planner

A professional financial planner will be able to take into account ‘the rate at which your income grows’ to decide the monthly investment towards the retirement corpus.

Also the financial planner will be able to decide the asset allocation for your portfolio based on the required rate of income to accumulate the net retirement corpus.

The financial planner will be suggesting you the right mix of schemes for your pre-retirement planner and post retirement planner.

Also the professional financial planner will be able to tell you the required life insurance coverage and the health insurance coverage and when you need to opt for health insurance coverage.

Periodical review on the retirement planner has been conducted by the financial planner so as to accommodate the changes and deviation from the original retirement planner.

You can be a “do it yourself” Indian retirement planner or “seeking professional assistance” Indian retirement planner, the above points will help you in having a happy and peaceful retired life.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

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To be or not to be in equity

Malvika — Mon, 06 Feb 2012 09:52:48 +0000

Are You a Lender?

A study revealed that only 47% of Indian households had bank account. In addition every 3 out of 4 households had a quarterly bank balance of only Rs.5000. With the recent savings bank account de-regulation many banks have raised their interest rate by 1%. But households would not benefit much, as banks could charge increased transaction fees to offset increased cost, and also the additional interest income from savings account is negligible.

A further study has revealed many other interesting facts. Most Indians prefer to be lenders and not owners that have enterprise.

We tend to play safe and prefer to be lenders by investing in fixed deposits and debentures of banks and companies. Investing in fixed deposit or debentures gives us a fixed interest. The bank in turn lends money to others for interest and makes a profit on the difference between the borrowing rate and lending rate.

Do you want to be an owner?

You can be a lender by investing in fixed deposits of SBI. Also you can be a part owner of SBI by investing in its shares.

As a part owner you would not get a fixed return in the form of interest. Since you own the company partly, you would share in profits or losses. You would get a part of the profits in proportion of the shares owned by you. Owning means risk-taking with the chance to get higher returns than lending to the bank or companies by making fixed deposit with them.

Suppose, Tomorrow Tata motors comes out with 12%interest paying debenture, what will be the response? There will be a huge response. It will definitely be oversubscribed. All investors will not get the allotment.

For a moment, just think. If TATA motors was to pay 12% interest to debenture holders, then it need make more than 12% with the borrowed money. Will you benefit more by being a lender (debentureholder) or part owner (Shareholder) of TATA Motors?

Lending or owning?

We as Indians should be proud to be a part of a developing country. Owning would give us an opportunity for long term capital appreciation and growth. However it is best to understand that the Sensex may fluctuate, but an increase is definite over a period of time.

In the last 10 years, sensex gas grown at 17.79% CAGR. That means, if someone could have invested Rs. 1 lac 10 years back, it could have grown to 5.14 lacs. In the last 10 years one third of diversified equity mutual funds have delivered a CAGR of more than 25%. That means if someone could have invested 10 years back in these mutual funds Rs.1lac, it could have grown to Rs.9.31 Lacs.

So the coming decade post 2011 is the golden period for owning. This period would help the so called middle-class people to build wealth. With the middleclass aspiring for quality education for children,   quality healthcare for their family and a decent lifestyle after retirement, owning equity is the only time-tested means to get a decent inflation adjusted returns. So we need to get our long term perspective right and start owning equities.

Asset allocation:

Owning and investing in shares means creating wealth with a long term perspective. But balancing the way we invest matters.

First, we need to allocate some amount of money for risk coverage. This could include money set aside for insurance, medical insurance and critical illness coverage. Next we all need to set aside money in liquid sources as savings accounts / bank deposit / liquid funds that would come handy in contingencies like loss of job and sudden illness. Then money required for short and medium term needs has to be set aside in debt investments.

Once this is done you are free to buy equities and build wealth. Equities can beat out all other investment categories in the long run. Equity is one of the few investments which can give you a positive return after adjusting for inflation.

Last but most important, feeling motivated that you are an owner would make a significant impact on the way you multiply your wealth. It would also give you the positive spirit and affirmation to stand by your decisions during the downs of the economic market.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

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Principles and Decision-making for wealth creation

Malvika — Fri, 30 Dec 2011 10:29:22 +0000

Whenever people have surplus money, they want to invest. When they invest, they just want to act or execute. They don’t want to spend time on understanding the product and various investment strategies. They would like to take investment decisions without doing any homework. There is no plan of action. Their attitude is “I have surplus money; just tell me where to invest”.

Misselling:

These kinds of investment decision making will make you fall prey for misselling. As you are not interested in doing the homework and if someone comes with a long chart and calculations for 20 years, then you may find it interesting and end up buying products like ULIPs. When you realize that you have invested in a mediocre product, you will blame the agent or broker and not yourself and your wrong decision making approach.

Market Moods:

When you just want to act, your investment decisions will swing based on the market moods. If the stock markets are highly volatile and it is comes down day by day then you may think that instead of investing in stock market investing in debt funds are fixed deposits are safe and wise. If the stock market goes up and everyone is investing in the market including your driver, then you may think it is opt to invest in shares or equity funds. So in this case you will never buy low and sell high. In fact you end up buying at peak and avoiding the market when the share prices are low.

Aggressive Trading:

Blindly, some investors believe that by doing aggressive trades in shares and derivatives are the quick way to make money in the stock market. They enjoy their higher degree of involvement with the stock market. They feel very happy about the few successes in the stock market which give them comfort in accepting many losses. They don’t go back and calculate how much they have made or lost in a trade; what is the total profit or loss they have made in a particular year. These investors will learn very old lessons of investment after losing a huge amount of their hard earned money.

Wealth Creation Secret:

The mistake investors do is they don’t understand the basic investment principles. They simply try to make some investment decisions. How can these investment decisions be right? Very difficult. As an investor, you need to understand the investment principles. Then based on the investment principles, you need to take the investment decisions. These investment decisions will be right for sure. Without right investment principles, right investment decisions become impossible. Without right investment decisions, long term wealth creation is just a day dream.

Sound Investment Principles:

Asset Allocation:

Depending upon your financial goals, you need to arrive at the required rate of return from your investments. You need to decide what kind of allocation needs to be given to different kind of investment avenues (like Fd, Debt funds, Equity Funds, Gold ETF..) in order to achieve the required rate of return. Once decided, don’t change this asset allocation ratio depending upon the market movement.

Risk Vs Safety:

Whatever the long term savings you have got you can invest in risky assets like equity funds. You will be adequately rewarded for taking risk in the long run. Whatever the short term savings you have got you can park it in FDs or debt funds.

Investing your long term money in safe avenues will be a destruction to create long term wealth. You will not be able to beat inflation. Similarly investing your short term money in risky investments is also dangerous.

Fundamental Factors:

The returns an investment generates will be based on its fundamental factors. Analysing fundamental factors only will lead to a long term success. There is a lot of difference between taking one right investment decision by fluke and taking right investment decisions regularly by analyzing the fundamental factors.

These investment principles are very simple and straight forward. At the same time these principles are very authentic and profound. The magic formula for creating long term wealth is “Sound Investment Principles + Right Investment Decisions = Long Term Wealth”.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

©2009 Copyright by Invest In India

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Annual Bonuses Is The Time For Wise Money Management

Malvika — Tue, 04 Oct 2011 07:08:58 +0000

The month of annual bonuses seems like paradise when we start planning in advance on how to spend it. This excitement will get us into impulses of spending on things that give momentary pleasure only. This leaves us regretting for our decisions later. Wise money management and productively using annual bonuses will help us to take care of not just present needs but also of future needs and contingencies.

My idea of being a financially prudent and smart person would involve wise money management of bonus according to the life’s priorities and expenses. It is true worldwide that living in uncertain economic times after the global economic turndown, we all need to learn powerful lessons on wise money management. Every individual has his/her own peculiar set of priorities, but I believe that some suggestions would be well appreciated by all.

Ways that have helped in wise money management of annual bonuses include:

Tax planning has and will always play a role in saving taxes and making meaningful investments for the future such as investing in mutual funds, fixed deposits and insurance related investments to save taxes under Section 80C. However I would suggest investing in mutual funds is best done through Systematic Investment Plans (SIP) or Systematic Transfer Plans (STP) that is best accomplished with opting for systematic transfer of funds kept in a savings bank account spread over a year. This helps to take advantage of market fluctuations and get good returns.

I am sure we all realize the great benefit of living a life free of debt, than having to worry about expensive loans taken like credit card debts, personal loans, and low priced loans like education loans, home loans and vehicle loans. The priority should be on utilizing annual bonuses to first pay off loans carrying a high rate of interest, with it giving the advantage of saving on higher amount of money being paid towards interest on such loans.

Life has never been certain and it is futile to expect it to be certain at any time, so wise money management needs to take care of unexpected and expected contingencies that could arise at any time. Being financial smart requires every person to set aside at least 3 to 4 months of one’s monthly income for contingencies like loss of job, illness, and accidents that could leave you in a financial crunch for a few months. This is best accomplished with setting aside some portion of the annual productivity bonus towards the maintenance of a contingency fund in the form of liquid and semi liquid funds like mutual funds and bank deposits.

“Live in the present” is what many psychologists would tell you, but I would say it is best to take lessons from our past mistakes and set the stage to meet some of our future expenses and financial goals. The past is gone and would never come back again, but it is never too late to start saving for future goals like retirement, higher education of children, their marriage or maybe your goal to start a consultancy business based on your experiences. This requires carefully planning the period that you would not need the money and setting aside a portion of your annual productivity bonus in bonds and mutual funds with the correct allocation between equity and debt to meet your needs.

However I do not mean to say that enjoying life or luxuries like a dream vacation, an LCD TV or home theater should not be your cup of tea, because all of us earn and perform well at work to live life and not just to exist as some suppose. Enjoy your annual bonus king size with planning your financial priorities with the advice of your financial planner.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

Follow these four rules to get rich!

Malvika — Thu, 08 Sep 2011 11:58:20 +0000

Do you want to create wealth? Are you satisfied and happy as you are?

Most of us would answer the first question as Yes, and the second as No, and if you are one of them then you are at the right place at the right time. My Hearty Congratulations! to you. Wallace D. Wattles said, “Every person who gets rich by creation opens a way for thousands to follow – and inspires them to do so.”

Wealth creation is not the privilege of a few, but as Ralph Waldo Emerson pointed, “Man was born to be rich, or inevitably to grow rich, through the use of his faculties.”

Here come the 4 maxims to wealth creation as jacks out of the box:

1. When young be a youngster, when old be mature.

“Don’t let the opinions of the average man sway you. Dream and he thinks you’re crazy. Succeed, and he thinks you’re lucky. Acquire wealth, and he thinks you’re greedy. Pay no attention. He simply doesn’t understand.” By Robert Allen

Some youngsters are easily influenced by the ideas, advice and experiences of others, like Vijay, 27 years old, believed in safe and secure investments in fixed deposits in banks and companies, just because his father lost heavily in the share market. However Rahul invested in mutual funds and created more wealth.

Youngsters in their 20’s should invest in stocks and shares as they can afford to wait and benefit with compounding effect and lower taxes. Likewise an old person should play mature and responsible and invest in safe and secure investments like debt instruments and big cap mutual funds.

2) Know the depth of ocean before stepping in, and your investment risk:

Investment risk calculation of each portfolio helps judge risk. Your age, appetite for risk, and length of investment decides your investment portfolio. M.R. Kopmeyer said, The great road to wealth is to learn useful facts”, how true it is that many investors had lost heavily in future stock selling in a bull market without much knowledge. A safer investment would have been multi cap mutual funds with wealth creation period of 10-15 years. However senior citizens should invest in big cap mutual funds with much lower allocation.

Wealth creation decisions should be long term, for it is futile to be swayed to sell units/shares in a rising market and miss on opportunities for further wealth creation. Follow the market trend and do as J. Paul Getty quotes, “Buy when everyone else is selling and hold until everyone else is buying”

3) Set an optimum leverage between debt for wealth creation and lifestyle assets.

“Abundance is not something we acquire. It is something we tune into.” By Wayne Dyer

There is an urgent need for quick wealth creation to meet inflation demands, but we need lifestyle assets like car, TV, furniture and a house to live in. Unplanned debt can be a barrier to your wealth accumulation process. It is true with easy debt options available, there is a choice to borrow for lifestyle assets alone or for also for wealth creation investments like real estate. In addition, payment of EMI leaves youngsters with less capital to invest in wealth creation assets.

In addition, leverage requires not investing in same type of assets like land and house, as price fluctuations could adversely affect all in that type of asset. Also investing on lifestyle comforts pay nothing in the long run.

4) No one created wealth by laying all eggs in one basket.

Variety is the spice of investment decisions too, helping in diversifying risks, and making it possible to offset the fall in value of one asset by profits in another. So having a diversified portfolio of real estate, gold, shares, mutual funds and house, and avoiding investment just in one asset class helps. In addition, portfolio diversification proves effective in tax saving, and better wealth creation.

Now finally you too are on the path to being a high networth person. How do you view yourself?

Do you quote George Claso, “Wealth is power. With wealth many things are possible.” and end on a final note, with John Emmerling, “Study well what the billionaire does. It may make you a millionaire.”

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

Is lack of time making you go crazy in your attempt to plan your finance?

Malvika — Wed, 07 Sep 2011 07:10:51 +0000

Does your busy professional schedule offer you time to monitor your personal finance?

Balaji is working for an MNC. Today he has got a deadline for a particular assignment. His day is fully packed. First thing in the morning, he receives a mail from his HR Dept stating that today is the last date for producing proofs for tax saving investments; otherwise a huge amount will be deducted from his salary as tax. He wanted to do some tax saving investments urgently and submit the proof on or before end of the day.

Mahesh is an NRI, working for a software company in US. He has got a couple of crores in his overseas fixed deposits giving a return of 1.50% p.a. Returns are taxable. At times, he thinks that the return what he getting is very low. He wanted to check up with a professional financial planner in India. He thinks he will contact as soon as his present project gets completed. Like this he has not contacted any financial consultant for the last 3years because of some reason or the other.

Most of the investment decisions are either taken because of some compulsion or urgency or postponed because of compulsion or urgency in some other area of life. This is because we want to complete the urgent thing first not the most important thing. Many important things that contribute to our overall financial objectives and give richness don’t tend to give any pressure on us. Though they may not be urgent, they are the things that we must give importance and carry out immediately.

We act upon things like pressing problems, deadline-driven projects, and official meetings. We don’t give importance to

prepare for a meeting with a financial planner; appraising a financial planner before making investments

planning activities like budgeting, children’s future planning, retirement planning;

protective activities like taking a term insurance, house holder policy, health insurance;

empowering ourselves by upgrading our knowledge with reference to investments

Why we are not able spend time on important things and spend most of our time on urgent things? Because, we are following a way that focuses on how fast or efficiently we are getting things done. We are not following a way that focuses on why we are doing things.

Take the case of Mr.Balaji. Why didn’t he do his tax planning during the beginning of the financial year itself? Why is he chasing at the last minute? Balaji is much worried about his deadline for assignment than tax planning. As he is making investment urgently, it is difficult for him to choose the right financial advisor and also difficult to judge which one would be the best tax saving option for him. He will be investing with an advisor who can get the investment proof on the same day.

Is this the basis on which we select an investment advisor? Will the relationship of Mahesh and this advisor be a long term one? Will this investment is going to be of any help to Balaji in meeting the higher education expenses of his son after 15 years?

Coming to the case of Mr. Mahesh, he had couple of crores at 1.5% pre-tax return. He could have tripled his returns by investing in an Indian liquid fund which is very safe. There are far better investment options available for him to choose. But he has settled for 1.5%.

If he could have spent a day or two in carefully choosing the right financial advisor and investment product he could have earned more. The earning opportunity which he missed with his investments might equal to his 6 months or 1 year salary.

He could have generated that passive income equivalent to 6 month or 1 year salary without any pressure from the top management; without meeting any deadlines by just spending a day or two.

We are all working hard for money. Is our hard earned money is working for us or lying in our SB a/c or really growing?

We find a ladder and see there are so many people trying to reach the top of the ladder faster. Then we also follow the group, deadlines to be met in each and every step; focusing more on reaching the top and finally reached the top. Only after reaching the top, we realize that we have come to a very wrong place or a place which is not worth missing so many things and opportunities in life. This is how the today’s world is.

Nothing wrong in working harder or focusing more on completing the assignment or spending more time on finishing the project on deadline. These are all good thing to do. But always remember, there are better and best things to do. We keep too many good things ahead of a few best things.

Setting up financial goals; working out a plan for achieving those goals; and implementing those plans are all best things to do in life. You know in advance where you want to reach exactly, by doing this exercise. As we progress, we enjoy the journey. As we reach the place, we really feel happy and we have not missed any important thing on the way.

Procrastination and not giving priority to financial goals and investment plans are costliest mistake one can take. So let us stop procrastinating and give priority to our financial goal setting and investment planning. Then life will be really so beautiful.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

ALL you wanted to know about Company Deposits

Malvika — Fri, 22 Jul 2011 06:57:35 +0000

Company Deposits are simply nothing but fixed deposits in companies that earn a fixed rate of return over a period of time. Company deposits are really down-to-earth products. The influential advantage of the company deposits is its plain simplicity. Company deposit is understood even by the most novices among the investors community.

Have you ever wondered the logic behind why pure vanilla flavored ice cream sells more than any other flavor? Similar logic is just as true when it comes to the company deposits vis-a-vis many other modern investment options.

With the meltdown of NBFCs almost a decade ago, company deposit market had a major slow down, but volumes still remain significant and there are loyal investors who prefer company deposits to other investment products.

Advantages of Company deposits:

v Assured return.

v Higher interest when compared to bank deposits.

v Low risk when compared to stock market investments.

v Service at your doorstep.

v Lock in period in most of the cases is 6 months only.

v If the interest income is less than Rs.5000 in one financial year, then NO TDS.

Risk in Company Deposits:

Company deposits are basically unsecured. That is if the company defaults in repaying the interest or principal, the investor will not be able to recover his capital. As a company deposit holder, you don’t have any lien on any asset of the company, in case it goes into financial difficulties. This makes the company deposits a risky investment option.

Identifying Risky Company Deposits:

One of the important tasks in investment planning in company deposits is to identify the risky company deposits and avoiding them. If you find any of the below symptoms in any of the company deposit scheme, then it is better to avoid such company deposit schemes.

ü Poor credit ratings like A or lesser ratings.

ü Companies making losses.

ü Companies that skip dividends.

ü Companies that offer higher than 3% to 4% of bank deposit rates.

Checklist for choosing right company deposits:

There are some good investment options in company deposits. Also there are some bad investment options. If you know how to select the right company deposit then company deposits can be really an interesting investment option in your portfolio.

Ø You need to ignore all the unrated companies and need to choose companies with the rating of AA or higher.

Ø Choose the company with better reputation within a given rating grade. If you read business papers and magazines periodically, it is not difficult for you to check the credentials of the company.

Ø Take the help of the qualified financial advisor in choosing the right company deposit. But mind you, there are very few reputed and qualified financial advisors.

Ø Company deposits need to be spread over a large number of companies in different industries. By this, you can diversify your risk. Irrespective of the rating and reputation of the company, don’t invest all your investments in a single company deposit scheme.

Ø You need to check on the servicing level and standard of the company. You need to ignore companies that don’t care or care little about issues like sending interest warrants and principal cheques.

Ø After investing in a company deposit, you need to constantly track the company’s credit rating. The times are uncertain and downgrades are rampant.

Ø Check the company’s balance sheet for its asset back up, profitability, reserves, existing borrowings and loans.

Every investment has its distinct features and benefits. Likewise each investor has specific risk taking ability and personal needs. Professional investment planning needs matching of the product benefits and features with the financial objectives of the investors. So one need to weigh the various alternative investment options like bank deposits, debt funds vis-a-vis company deposits before making a choice.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

How & Why Should you invest in Stock Markets Even After Your Retirement?

Malvika — Thu, 31 Mar 2011 08:07:07 +0000

Inflation and Retirement

Most Retirees feel great getting a bulk sum as provident fund and gratuity, and wish they knew a magician, who could spin their money 2 to 3 times in just 5 years, in addition to ensuring a regular return for their day to day expenses. It is true we all want it to keep up with the inflation rate in the market. I know of no such magicians, and it is practically not possible to multiply your money 2 to 3 times in just 5 years. But I definitely know of smart investment planning and investment advisors that could help you to beat inflation.

A step by step look at your considerations to come out with smart calculated investment decisions:

¨       Post-retirement, you know that you would no longer earn a regular income and would have to stay on your savings, provident fund, gratuity, and other benefits that have been given to you. You would definitely want more good returns on your investments, but your appetite for risk is low, for you would not want to lose your precious savings. So you would prefer to shift your portfolio of investment from risky ones to safer ones like fixed deposits in banks and good rated companies.

¨       However your need for more income, capital gains to keep up with inflation, and rates of interest on fixed deposits decreasing each year may make you puzzled about coping up with the increased financial needs. You, as a senior citizen are lucky to be getting additional interest, however taxes leave you with not much more. However you are not prepared to subject your savings to the volatile bullish and bearish trends of the share market of over-confidence and pessimism.

¨       You retire at 60, considering 5% is the rate of inflation annually, with life span as 85, and spending Rs.20000 per month, you would require a retirement corpus of Rs.42,00,000 if the return rate was 8%, while you would require Rs.47,00,000 if the return rate was only 7%. I am sure you would invest smart, reducing your retirement corpus by 10.5% by just investing for 1% more return.

¨       It is true that stocks and shares gave an annual compounded return of 17 to 18% in the last 15 years, with long term stocks giving a compounded returns of about 15 to 18% annually. However you have not appetite for risky and volatile investments, and may want to play safe with low or moderate risk to capital and in not putting all your eggs in one basket or to divide your risk.

¨       After your retirement you would do best to follow the advice of financial experts and invest no more than 10 to 20% of your retirement corpus in shares and stocks. A novice to the share market, or lack of time, inclination or shrewdness may not prove right to deal in the share market, and most financial advisors advice senior citizens to invest in mutual funds. These companies have experienced fund managers and researchers with in-depth knowledge of various industries and valuation principles and also offer diversified investment options in shares in companies, debt instruments and government securities.

¨       The choice of retirees should be to invest in big cap funds, funds investing in huge paid-up capital companies, while mid cap funds suit those who do not mind medium risk-taking. However small cap funds, invested mostly in start-up companies are to be avoided, being highly volatile in nature.

¨       Time plays a vital role in investment in mutual funds, and a good investment advisor would advice you appropriately. The best option for senior citizens would be to first invest a lump sum in a debt based funds that promise good, safe and regular return. This could be followed up by a systematic investment/transfer plan of investing or transferring through ECS regularly a fixed amount for units of a mutual fund. This definitely proves beneficial to take advantage of the volatility of the market, as buying different number of units each month helps to spread the risk also.

A Final Thought:

However your smart calculated investment choice of mutual funds requires evaluating every 3 to 6 months. This would help switching between mutual funds at the right time. My last but most important advice again especially to senior citizens is never go in for stock trading in a big way without proper knowledge and inclination and lose due to volatility of stock and share market.

(The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

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Is lack of time making you go crazy in your attempt to plan your finance?

Malvika — Mon, 28 Mar 2011 05:46:39 +0000

Does your busy professional schedule offer you time to monitor your personal finance?

Balaji is working for an MNC. Today he has got a deadline for a particular assignment. His day is fully packed. First thing in the morning, he receives a mail from his HR Dept stating that today is the last date for producing proofs for tax saving investments; otherwise a huge amount will be deducted from his salary as tax. He wanted to do some tax saving investments urgently and submit the proof on or before end of the day.

Mahesh is an NRI, working for a software company in US. He has got a couple of crores in his overseas fixed deposits giving a return of 1.50% p.a. Returns are taxable. At times, he thinks that the return what he getting is very low. He wanted to check up with a professional financial planner in India. He thinks he will contact as soon as his present project gets completed. Like this he has not contacted any financial consultant for the last 3years because of some reason or the other.

Most of the investment decisions are either taken because of some compulsion or urgency or postponed because of compulsion or urgency in some other area of life. This is because we want to complete the urgent thing first not the most important thing. Many important things that contribute to our overall financial objectives and give richness don’t tend to give any pressure on us. Though they may not be urgent, they are the things that we must give importance and carry out immediately.

We act upon things like pressing problems, deadline-driven projects, and official meetings. We don’t give importance to

prepare for a meeting with a financial planner; appraising a financial planner before making investments

planning activities like budgeting, children’s future planning, retirement planning;

protective activities like taking a term insurance, house holder policy, health insurance;

empowering ourselves by upgrading our knowledge with reference to investments

Why we are not able spend time on important things and spend most of our time on urgent things? Because, we are following a way that focuses on how fast or efficiently we are getting things done. We are not following a way that focuses on why we are doing things.

Take the case of Mr.Balaji. Why didn’t he do his tax planning during the beginning of the financial year itself? Why is he chasing at the last minute? Balaji is much worried about his deadline for assignment than tax planning. As he is making investment urgently, it is difficult for him to choose the right financial advisor and also difficult to judge which one would be the best tax saving option for him. He will be investing with an advisor who can get the investment proof on the same day. Is this the basis on which we select an investment advisor? Will the relationship of Mahesh and this advisor be a long term one? Will this investment is going to be of any help to Balaji in meeting the higher education expenses of his son after 15 years?

Coming to the case of Mr. Mahesh, he had couple of crores at 1.5% pre-tax return. He could have tripled his returns by investing in an Indian liquid fund which is very safe. There are far better investment options available for him to choose. But he has settled for 1.5%. If he could have spent a day or two in carefully choosing the right financial advisor and investment product he could have earned more. The earning opportunity which he missed with his investments might equal to his 6 months or 1 year salary.

He could have generated that passive income equivalent to 6 month or 1 year salary without any pressure from the top management; without meeting any deadlines by just spending a day or two.

We are all working hard for money. Is our hard earned money is working for us or lying in our SB a/c or really growing?

We find a ladder and see there are so many people trying to reach the top of the ladder faster. Then we also follow the group, deadlines to be met in each and every step; focusing more on reaching the top and finally reached the top. Only after reaching the top, we realize that we have come to a very wrong place or a place which is not worth missing so many things and opportunities in life. This is how the today’s world is.

Nothing wrong in working harder or focusing more on completing the assignment or spending more time on finishing the project on deadline. These are all good thing to do. But always remember, there are better and best things to do. We keep too many good things ahead of a few best things.

Setting up financial goals; working out a plan for achieving those goals; and implementing those plans are all best things to do in life. You know in advance where you want to reach exactly, by doing this exercise. As we progress, we enjoy the journey. As we reach the place, we really feel happy and we have not missed any important thing on the way.

Procrastination and not giving priority to financial goals and investment plans are costliest mistake one can take. So let us stop procrastinating and give priority to our financial goal setting and investment planning. Then life will be really so beautiful.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

SBI to raise capital of Rs 2000 crore through bonds

Malvika — Mon, 17 Jan 2011 12:09:46 +0000

India’s largest money lender State Bank of India (SBI) is planning to raise up to Rs 2,000 by offering bonds to retail investors in the next month.

SBI Chairman, O P Bhatt, said, “We are planning to come out with the bonds in February after third quarter results are announced.”

SBI’s central board committee members of the bank last month give their consent and approval for raising the capital through bonds.

The board has also given approval for raising Rs 1,000 crore with a green-shoe option.

SBI issued first retail bond worth of 1,000 crore in October, which was subscribed over 17 times on the opening day itself.

The bonds issued in two variants, Series 1 and Series 2 having maturity of 10 years and 15 years respectively, with a face value of Rs 10,000 each. The bonds offer an interest of 9.25 per cent for 10 years and 9.5 per cent for 15 years.

The bonds are not deposits of the bank and are not guaranteed or insured and they may not be used as collateral for any loan made by the bank or any of its subsidiaries or affiliates. Bonds are different from fixed deposits and are not covered by deposit insurance, it added.

Speaking about expectation from forthcoming quarterly review of RBI, , O P Bhatt said the central bank is likely to increase its key policy rates by at least 25 basis points.

The RBI is scheduled to unveil its third quarterly review of monetary policy on January 25.

©2009 Copyright by Invest In India

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Use FD overdraft to pay for big purchase deals

Tushar Mathur — Fri, 19 Feb 2010 11:04:00 +0000

To make payment of big purchase deals go for overdraft facility rather than taking personal loan or swiping a credit card. In case of personal loan or credit card you have to pay high interest. Whereas in overdraft facility you can place a fixed deposit with a bank and avail this facility.

When you place your fixed deposit with bank you earn return on investment and can use the same money to leverage funds at a low interest rate which can be used for the payment of purchases.

Moreover in overdraft facility you can borrow funds at 1 per cent to 2 per cent above the fixed deposit rates. Currently, the deposit rates of most of the banks range from 6 per cent to 7.50 per cent for a one to three years time period. However, SBI is offering 6 per cent, ICICI Bank 6.25 per cent and HDFC Bank is offering 6.50 per cent interest on fixed deposits for a one-year period.

If the payment is done through credit card, it is split into equated monthly installments for over a period of one year, which means you might have to pay an interest of 36 per cent to 45 per cent per annum. Whereas personal loan is an unsecured loan, the interest rate can range from 16 to 18 per cent.

According to an official of Oriental Bank of Commerce, “It is always better to take an overdraft facility against a fixed deposit than pay through a credit card for long-term repayments’ because it will carry a minimum interest rate, even lower than personal loans”.

An official of United Bank of India said, “During the time when interest rates were very high, many customers who had placed their long-term fixed deposits managed at a very low rate to take the advantage by financing their purchase of cars.”

According to Financial planner Kartik Javeri, “During an emergency, it (overdraft) is the best source for financing, but one should also have the capability to pay money quickly.”

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Best investment option for senior citizen to earn regular income

Tushar Mathur — Tue, 09 Feb 2010 11:57:00 +0000

Whether a person is employed or approaching the retirement age, everyone searches for investment avenues which are safe and can offer regular income. Although one can find various schemes of investment but security of money is most important factor.

In 2004 Government of India introduced one such special scheme known as Senior Citizen Savings Scheme or SCSS to cater the financial needs of senior citizens.

However the scheme had become very popular amongst the people, but last year when banks offered high rates on fixed deposits had overshadowed the scheme. But in the past few months the banks are reducing deposit rates due to which senior citizen can go for this scheme.

The only shortfall of the scheme is the interest earned on it is taxable. In case the interest income in a year exceeds Rs 10,000, then the TDS (tax deducted at source) is cut.

Although in the recent amendment the investment of up to Rs 1,00,000 in a year done under this scheme has been exempted under Section 80C of the Income Tax Act.

Here the advantages and disadvantages of the scheme have been discussed to help the senior citizens to compare it with other options available.

Senior citizen, a person who has completed 60 years or above is eligible for the SCSS but there is a provision that a person who has completed 55 years and opted for voluntary or any special retirement scheme, can avail this scheme subject to certain conditions.

The scheme is basically for senior citizens therefore it has some special features.

1. The scheme offers a fixed rate of return at 9% per annum, which is higher than the returns offered on other fixed income instruments like PPF and NSC.
2. The investor gets interest income quarterly. Generally, it is the last working day of every quarter. There is no option of getting interest income yearly or cumulative interest at the time of maturity.
3. The tenure of the scheme is 5 years, but premature withdrawal after a year is permissible which gives the benefit of better liquidity to meet unforeseen expenses. Premature withdrawal involves some cost. In case the deposit account is closed after the first yea, but before the second year, 1.5% of the principal amount is deducted otherwise 1% of the principal amount is charged once the scheme completes two years.
4. One gets the option of extending the scheme for another three years on maturity at the prevailing interest rate at that time.
5. The minimum amount of investment is Rs 1,000 while the maximum investment can be Rs 15 lakh. The investment has to be made in multiples of Rs 1000.
6. One also gets the option of opening more than one account, but the new account can be opened after a one month gap. The account can be opened in an individual’s name or can be opened jointly with spouse. Joint account with any other family member or relative is not allowed. Although one can open more than one account but there is the cumulative investment limit has been set to Rs 15 lakh.

There is one perception among the people that it can be opened only with post office but it is not so. Few of the designated branches of nationalized banks and the ICICI bank are authorized to receive deposits under the scheme.

Looking at the above points the scheme looks fruitful but is it really worth investing in this scheme. To get the answer we need to compare this scheme with other investment avenues having similar features.

A bank fixed deposit features are some what same. At present banks are offering interest rates in the range of 7-7.5%. But the nationalized banks and some of the private banks offer additional interest benefit to senior citizens in the form of 25-50 basis points higher. Therefore the interest rate offered on fixed deposit can range of 7.25-8%, but this is less than 9% offered on SCSS. Thus the SCSS is a bit more profitable than bank fixed deposits.

Let us compare SCSS with MIS (Monthly Income Scheme) offered by post offices in India, having same features. Under MIS the fixed rate of return is 8%.

The interest in MIS is paid monthly and the tenure is six years. In this comparison we consider the returns under SCSS over six years.

For instance Mr A deposits Rs 1,00,000 under SCSS, while Mr B invests Rs 1,00,000 with the post office under MIS.

Mr A will receive Rs 2,250 every quarter till the end of the sixth year and the principal amount will be Rs 1,00,000 which he will get back on maturity. Thus the total interest payout over 6 years will be around Rs 54,000.

While Mr B will get around Rs 660 every month, which comes to Rs 2,000 every quarter till the end of sixth year, which stands to be Rs 250 less than the quarterly receipts under SCSS. But under MIS a bonus of 5% on principal amount is paid at the time of maturity. Therefore Mr B will be receiving Rs 1,00,000 along with Rs 5,000 as bonus at the end of sixth year.

Thus the total profit Mr B earns over six years amounts to Rs 53,000. However in terms of total profit earned under MIS or under SCSS over the tenure, there is not much difference. But in case once money requirement increases periodically then the SCSS is a better option as the investor gets more money in the hand every quarter.

Looking at the above points and comparison one reaches to a conclusion that senior citizens must invest a portion of their retirement corpus in the Senior Citizen Savings Scheme as they will get everything – safety, liquidity and regular periodic income under this scheme.

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Investment options to Save Tax under Section 80C

Tushar Mathur — Tue, 09 Feb 2010 05:57:00 +0000

No one likes paying tax and it prompts everyone to look for options that may reduce their tax liability. There are many provisions to do this and one of the most common options is the tax deductions under Section 80 C of the Income Tax Act. There are various investing options under 80 C that enable you to reduce your taxable income up to a maximum limit of Rs 1 lakh.

The eligible deductions that everyone might be aware of are contributions to Employee Provident Fund, Payment of tuition fee or repayment on home loan. In addition there are investment avenues that are eligible for tax deduction about which you might have little knowledge.

Investing in Government Securities

For those who seek absolute protection of their capital, Investing in Postal Saving schemes such as NSC or putting money in PPF (Public provident fund) is an option.

Public Provident Fund (PPF)

PPF offers interest income in the range of 8% with annual compounding. However, the maximum amount that can be invested in PPF is Rs.70,000 and money cannot be withdrawn before the completion of 6 years. Those who look at PPF in terms of their retirement corpus and feel that their current PF deduction is not sufficient, may consider this option.

National Savings Certificate

Another popular avenue investing – NSC also offers a return of 8% on half yearly compounding basis. Another feature is that interest accrued on NSC is also eligible for Section 80 C benefit. The interest on NSC investment, except in the sixth year, is not paid but credited to the investor’s account. So, the interest that accumulates is treated as invested in NSC and the accumulated interest thereby qualifies for tax deduction. The duration of NSC is for 6 years with an option of premature encashment after 3 years. However, that would reduce the net yield from NSC.

Tax saving FD’s

This is a relatively new kid on the block. Tax saver fixed deposits are issued by banks for a tenure of 5 years and premature withdrawal is not permissible. It generates interest income of 8% with quarterly compounding. The interest income is taxable. If we compare tax saving FD’s to NSC, Tax saving FD’s have an edge on lock in period which is lesser by one year. However NSC have an edge from the fact that interest accrued is also eligible for 80 C limit for the first five year.

Investment in Equity linked Saving Scheme(ELSS)

ELSS are funds invested primarily in equity shares of companies. They have been in limelight for their superior performance in the recent past and are a popular tax saving investment. Due to their tax saving nature, they are also known as tax saving mutual fund schemes. Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years which means that they cannot be withdrawn for a period of three years from the date of investment. The ELSS Fund manager basically invest 80% of the total amount in the equity shares and the remaining 20% is invested in other instruments like bonds, debentures, government securities and others.

However the basic risk with ELSS scheme is that since it has a considerable equity exposure, the returns are linked to market returns and hence there is no guarantee of returns and even capital. At the same time, ELSS can also be seen as a way to long term investing in equity markets and with India growth story unfolding and fundamentals looking intact, investment experts anticipate that equities would continue to outperform other investing avenues for at least next 5-7 years. Investing in ELSS provides dual benefit of capitalizing on superior returns as well as tax saving. With the current market turmoil avoid this instrument unless you are looking for a long term investment. If that is the case look for good fund managers with stellar tax records.

Life Insurance and Tax savings

As far as life insurance is concerned, endowment plans (money back plans) have been a popular source of investing.There are various long term life insurance policies which give you good returns, tax savings under 80C and an insurance cover as well.

ULIP’s have taken a center stage now since they offer insurance as well as market related returns in a single product. However, investors should understand the underlying structure of ULIP carefully since these offerings have a substantial charge towards expense in the initial years and is advisable only for investors with a large investing horizon. Avoid ULIPs if you do not like to risk money. Also invest in ULIPs with a long term horizon of a minimum of 10 years.

Another avenue within insurance domain is Pension plans. Pension plans have got a boost in last finance bill with the overall limit raised from Rs. 10,000 to Rs. 100,000. Senior Citizen Saving Scheme 2004 and Post Office Time Deposit Account have also been included in Section 80 C.

However some people may be biased towards other investing options as compared to Life Insurance products since they may prefer insurance and investments separately.

Infrastructure development Bonds

With a return in the range of 5-6% this is the last avenue a tax saver would resort to. The dismal returns provided by these bonds have resulted in the investors shying away from these bonds. The return is hardly good enough to fight inflation, leave alone wealth creation.

So investing in any of the above avenues would help you reduce your taxable income by a maximum of Rs 1 lakh, irrespective of how much you earn and under which tax bracket you fall.

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Banks report surge in Casa ratio as against fixed deposits

Tushar Mathur — Thu, 04 Feb 2010 11:24:00 +0000

In the past few months term deposit rates have lost sheen as banks have reduced rates. Now people prefer to park their money in current account savings accounts (Casa) rather than investing their money in fixed deposits for longer duration. Banks have reported a significant rise in their current account savings accounts (Casa) ratio for the quarter ended December 31, 2009.

State Bank of India (SBI), country’s largest commercial bank is the major one to witness surge in the ratio of its Casa. Bank’s Casa surged to 42.94 per cent as on December 31, 2009, against 36.58 per cent in the corresponding period a year ago, thereby registering a growth of 29.94 per cent. Earlier in the same period SBI overall deposits growth stood at 11.26%.

When bank Casa ratio increases its cost of funds comes down. On the other hand HDFC Bank Casa ratio surged close to 49 per cent as on December 31, 2009, as against 40 per cent as on December 31, 2008. And, as of December 31, 2009 the savings account deposit of HDFC Bank stood at Rs 46,696 crore, registering a growth of 41.2 per cent over December 31, 2008, whereas current account deposits amounted to Rs.33,276 crore as of December 31, 2009, a growth of 37.2 per cent over December 31, 2008.

Ashish Parthasarthy, head of treasury, HDFC Bank, said, “We traditionally have the highest Casa ratio in the industry. Since, the difference in interest rates offered on term deposits and savings are not significant, many people prefer to keep their balance either in current or savings accounts, which is resulting in higher Casa.”

A similar trend was also reported from ICICI Bank, the largest private sector bank in the country. ICICI Bank Casa ratio registered at 39.6 per cent at the end of third quarter of the present financial year as against 27.4 per cent on December 31, 2008 and 36.9 per cent on September 30, 2009.

Regarding savings deposits ICICI Bank reported an increase of Rs 1,736 crore and in case of current deposits it was Rs 3, 581 crore, during the quarter ended December 31, 2009. Besides major players improvement in Casa ratio was also reported from mid-size and smaller banks such as Yes Bank and IndusInd Bank. Improvement in low-cost deposits was also reported from these two banks.

Yes Bank Casa ratio increased to 10.1 per cent at the end of December 2009 from 9 per cent at the end of December 2008.

Rana Kapoor, founder Yes Bank told Financial Chronicle, “Though, our Casa is at 10.1 per cent, the share current deposit is much higher at 80 per cent, which effectively means that 15 per cent of our total deposits are low-cost deposits.”

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