Difference between Saving and Investing – A video

March 3, 2014

I got this video link in my mailbox from Franklin Temepleton India. Found it useful so sharing with you people.

https://www.franklintempletonacademy.com/ftacademy/academy/video.page?courseID=CRSINV001&categoryID=CATINV001&nicamp=fta&nichn=ft_emailer&nismseg=difference-between-saving-and-investing_en_em001

Please feel free to share your views and comments and queries as usual.


Claiming money from a deceased person’s Bank account

February 23, 2014

This post is a real life example and solution provided in a discussion in our Facebook group discussion. The original query was, how to claim money from bank account if the depositor has died andnomination has not been registered.

https://www.facebook.com/groups/asanideasforwealth/permalink/598389263565304/

Now interestingly an offshoot query was also posted in the group based upon the above discussion and below is the same.

https://www.facebook.com/groups/asanideasforwealth/permalink/598439230226974/

 

Please feel free to post your queries, views, comments, suggestions on the above discussions.


Transferring PPF account from Post Office to Bank

January 1, 2014

Many a times, people want to transfer their PPF account from Post office to Bank. Not many are aware what to do and how to do. This post is a real life example of one of our facebook group member, Mr. Lalit Tyagi. In his own words –

Over an year or so ago, I have sought advise here on how to transfer PPF a/c from post office to a bank. Well, I have completed the process and here is my feedback:

1. Call me silly or careless, I had misplaced my ppf passbook !!…though, investment in it was very meager (few thousands). To rectify this blunder, the following things were required:
a. Report your loss of passbook in a nearby police station and get your reporting application stamped from that PS. It need not be a full-fledged FIR, just write and application mentioning your passbook loss with a/c no. and get it stamped. That’s it.
b. Fill a form for issuing of new passbook in post office and attach your this ‘reporting loss of passbook application’ alongwith that form.
c. Dealing window person in PO will process and issue a new duplicate passbook to you.

2. Regarding transfer to a bank, inquire from bank of your interest weather particular branch accepts ppf subscriptions. That info. can be obtained from bank’s website also. In my case it was IDBI bank.

3. IDBI bank branch gave an application format, just filled in my name, a/c number, etc….and submitted to the post office where I had a/c alongwith the original passbook. (Note: keep one photo copy of your pass book before submitting). PO also asked to submit one copy of PAN card and address proof alongwith it.

4. PO told, it’d be transferred in one week. … and it actually did. I received a letter from PO by courier, copy to IDBI bank that a/c is transferred. Then I once visited IDBI branch, they gave new a/c number, and on my request connected it with my savings a/c in same branch. They didn’t even ask for any application for it.

5. Now I am able to access my ppf a/c too alongwith my savings a/c online and deposit money too. ….and I like IDBI service in all respects.

That’s all…….

 

Was this post helpful to you in understanding the process? Can you now do it for you or some one else in your family? Please feel free to share your views, queries and comments below.


Importance of correct BLD

September 15, 2013

First of all let me share, what does BLD mean in the title of this post.

B stands for Breakfast

L stands for Lunch

D stands for Dinner

Now my readers may ask, where does BLD stands in the discussion related to personal finance? Before I make any comment, Just look at the picture below.

1176347_146104045598554_714809520_n

What do you people interpret from the above image?

There is an old say, Breakfast like a KING, Lunch like a PRINCE & Dinner like a BEGGAR. Can you people recall all the knowledged shared by Doctors and many others for our food habits? How & what should be our Breakfast or Lunch or Dinner? All that gyan is displayed in this one picture. As the old saying goes, ” A Picture is more than the 1000 words.”

Yes I do agree, a picture is more than the 1000 words. So it’s important to have a good, proper Breakfast followed by a little lighter Lunch & finally the very small and easy to digest Dinner. Now compare it with your financial life, the morning time i.e. Breakfast time is the time, when you are young, just into you first job, without any responsibilities, no dependents. This is the time to start working heavily for your future. Invest maximum part of your income to create a corpus which ‘ll help you in future consumption. The good start made by you during this time ‘ll ease out the pressure from your life in later part.

The Lunch time is actually your middle age, when family size is increasing & from 30s to end 40s you are too busy with family, kids, home loan, car loan, education of kids, career of kids. At this point, you need to assessed your situation & still keep on investing a good part of your income. Your Risk taking ability ‘ll be a bit lower So Debt part in your portfolio should increase.

The Dinner time is actually your pre & post retirement years, where your primary aim is to live a healthy (financial) life. The Debt part ‘ll be higher at this time but still you need a support of light Eq. This is also the time when you ‘ll start redeeming the rewards of your initial hard work. Your risk taking ability is very low or near zero at this point of time and preservation of your created capital is of prime importance for you now.

So What’s your view on CORRECT BLD? Please do share in comment section.


Public Provident Fund forms

August 5, 2013

Many a times people search for the correct form to be used for various services of PPF. Here in this post I’m compiling the forms for PPF. The source of these forms is indiapost.

PPF-Public-provident-fund-india

Form A – This is the PPF account opening form. You need to fill it at the time of opening your PPF account in Post Office or Banks.

Form B – This is the deposit form. Your deposits into your PPF account can be done by this form at the counter of Post Office or in Banks.

Form C – This form is your withdrawal form, to be used whenever you want to withdraw from your PPF account.

Form D – This is loan form. whenever you want to avail loan from your PPF account, use it.

Form E – This is your first time nomination enrollment form for your PPF account.

Form F – This form is to be used for cancellation/variation in your existing nomination

Form-G – This form is to be used to claim the amount of PPF lying in a deceased person’s account by his/her legal heirs/successors/beneficiaries.

Form H – This form is to be used for continuation of your PPF account after first 15 year block & after every 5Y block.

Please feel free to share these forms with your friends, family, relatives.


House Purchase or Rent

May 5, 2013

Rent-or-Buy

Should I buy a house property or not?

So many times, people have asked me this question. There are 2 parts for answering this question.

  1. Emotional Part
  2. Financial Part

I w’d like you to keep your emotional part (a roof of your own, a sweet home, a place of your own to rest & calm & many others) on backseat while reading this article. Please think only on the financial impact the house purchase ‘ll make on your life.

All over India, property prices have increased many times in past few years. So there is a common feeling in the mindset of every person that there is only one way for house prices – TO GO UP. Can it happen endlessly? The answer is NO. the prices w’d have to correct for a level where people can buy for actual needs. As of now, too much speculation is chasing the prices. Most importantly there is no fix benchmark to decide the price of a house or for the area, you want to purchase in. Still I’m trying to test your decision on financial nos. only.

Many of you are aware of PE ratio in stock picking. For the people who are not familiar with this PE thing. Here is the general definition of PE ratio. Here P stands for Price & E stands for Earning. If we divide the Price of a stock from the earning (profit of the company per share basis), the ratio thus arrived is called PE ratio. Based upon this PE ratio, many a times, people decide that the stocks is undervalued (cheap), fairly valued or overvalued (costly). Now what’s the significance of PE in a non stock purchase decision? Well my dear friend, the same things & principles apply here too in case of a house purchase. How?

The amount you are paying to purchase the house is your PRICE. the possible rent that you may earn from the house or you w’d have to pay for the same house if not purchased by you is the earning from the house. Let’s understand it with an example. Say mly rent for a house is 5000 Rs. & Price of the same house is 1200000 Rs. Now what ‘ll be PE ratio of this house?

To calculate PE ratio, first convert the mly rent to yly rent.

Hence Yly rent = 5000*12 = 60000

Price = 1200000

Earning = 60000

So PE ratio = 1200000 / 60000 = 20

Now if the price of the same house is 1800000 & 2400000, what ‘ll be the PE ratios for these two different price points.

PE @ 1800000 Rs. price = 1800000 / 60000 = 30

PE @ 2400000 Rs. price = 2400000 / 60000 = 40

Now can you people use your own common sense to decide, which deal is the most favorable to you or should I say cheapest option while you are purchasing the house? Of course the 1200000 Rs. purchase price. For simplicity of calculation I’m not counting the property tax, maintenance & other expenses against this house property. So taking our clue from Stock picking, can we decide now a PE range to judge a property’s valuation?

If PE is 20, the property is under valued, hence one should buy. In other words, living on rent here is costly. So purchasing & living in your own house ‘ll be a sensible idea.

If PE is 30, the property is fairly valued, hence one should look for other factors also like job distance, school, market, health facilities, …. to decide that rent or purchase as it’s a balanced position.

If PE is 40, the property is overvalued, hence one should not buy. In other words, living on rent here is cheap. So purchasing & living in your own house ‘ll not be a sensible idea. It’s advisable to live on rent in this property.

Now, many of you may ask, how did I decided these points of 20, 30 & 40 PE for 3 different answers for a same property. the answers lies in the detailed math. Here it goes.

I assume you are not availing home loan to purchase this property & you do have full amount with you for all the 3 different price points. I also assume post tax return from the 3 price point amounts ‘ll be 6% if deposited in a simple product like bank FD.

  • Case 1:-

Price 1200000 Rs. if you are not purchasing the house, income from the amount @ 6% post tax return = 72000 Rs. which is very close to the rent you are paying. so you can afford to purchase instead of paying rent.

  • Case 2:-

Price 1800000 Rs. if you are not purchasing the house, income from the amount @ 6% post tax return = 108000 Rs. which is way above the rent you are paying. But still not out of the reach at all. so it’ll be a personal call that you can opt to purchase or keep living on rent.

  • Case 3:-

Price 2400000 Rs. if you are not purchasing the house, income from the amount @ 6% post tax return = 144000 Rs. which is very high & even after paying 60000 Rs. rent from this post tax income of 144000 Rs, you are still having 84000 Rs. in your pocket. So you can afford to pay rent & drop the idea of purchasing this property.

Many of you may argue, here that I’m not considering the capital appreciation that ‘ll happen over the period. My answer – Very true, the capital appreciation ‘ll happen but as you had purchased this house for self consumption, w’d you sacrifice that thing for a higher sell price & w’d you & your family be agree to relocate to a new area (mostly in the outskirts) so that you casn reap the profit from the house? Only you can answer this thing.

Was this article helpful to you? Can you take an informed decision now? What’s your take on the things discussed in the article?


Tax on Short Term Capital Gains from Shares & Eq. MFs

April 29, 2013

I thank Nikhil for giving the Idea for this article. (Here is the background). How the STCG tax liability ‘ll be decided if the income source for the person in question is only interest + STCG?

If a person has only interest income + Short Term Capital Gain income, First we should check the gross income figure before deciding the tax liability. To understand the concept better, I’m providing the different cases. (Tax slabs are considered for FY 2013-2014). It’s assumed that Securities Transaction Tax is paid for both shares & Eq. MFs to keep the tax calculation simple.

Case – 1 –  age less than 60Y, interest income 125000 Rs. & STCG 55000 Rs. No investment in section 80c.

Here Gross income = 125000+55000 = 180000 which is less than taxable income limit of 200000.

So even after earning 55000 Rs. STCG amount, the tax liability is zero.

Case – 2a –  age less than 60Y, interest income 175000 Rs. & STCG 55000 Rs. No investment in section 80c.

Here Gross income = 175000+55000 = 230000 which is more than taxable income limit of 200000. Now what ‘ll be tax rate here for excess amount of 30000 Rs? it ‘ll be same 15.45% as applicable for STCG from shares or Eq. MFs.

So tax payable = 30000*15.45% = 4635 Rs.

Case – 2b –  age less than 60Y, interest income 175000 Rs. & STCG 55000 Rs. 50000 Rs. nvestment in section 80c.

Here Gross income = 125000 (adjusted for section 80C 50000 Rs. benefit)+55000 = 180000 which is less than taxable income limit of 200000. So even after earning 55000 Rs. STCG amount, the tax liability is zero due to benefit of section 80c on interest income.

Case – 3 –  age more than 60Y, interest income 175000 Rs. & STCG 55000 Rs. No investment in section 80c.

Here Gross income = 175000+55000 = 230000 which is less than taxable income limit of 250000. (applicable for Sr. Citizen)

So even after earning 55000 Rs. STCG amount, the tax liability is zero.

Case – 4a –  age more than 60Y, interest income 225000 Rs. & STCG 55000 Rs. No investment in section 80c.

Here Gross income = 225000+55000 = 280000 which is more than taxable income limit of 250000. Now what ‘ll be tax rate here for excess amount of 30000 Rs? it ‘ll be same 15.45% as applicable for STCG from shares or Eq. MFs.

So tax payable = 30000*15.45% = 4635 Rs.

Case – 4b –  age more than 60Y, interest income 225000 Rs. & STCG 55000 Rs. 50000 Rs. nvestment in section 80c.

Here Gross income = 175000 (adjusted for section 80C 50000 Rs. benefit)+55000 = 230000 which is less than taxable income limit of 250000. So even after earning 55000 Rs. STCG amount, the tax liability is zero due to benefit of section 80c on interest income.

Case – 5 –  age more than 80Y, interest income 375000 Rs. & STCG 55000 Rs. No investment in section 80c.

Here Gross income = 375000+55000 = 430000 which is less than taxable income limit of 500000. (applicable for Very Sr. Citizen)

So even after earning 55000 Rs. STCG amount, the tax liability is zero.

Case – 6a –  age more than 80Y, interest income 475000 Rs. & STCG 55000 Rs. No investment in section 80c.

Here Gross income = 475000+55000 = 530000 which is more than taxable income limit of 500000. Now what ‘ll be tax rate here for excess amount of 30000 Rs? it ‘ll be same 15.45% as applicable for STCG from shares or Eq. MFs.

So tax payable = 30000*15.45% = 4635 Rs.

Case – 6b –  age more than 80Y, interest income 475000 Rs. & STCG 55000 Rs. 50000 Rs. nvestment in section 80c.

Here Gross income = 425000 (adjusted for section 80C 50000 Rs. benefit)+55000 = 480000 which is less than taxable income limit of 500000. So even after earning 55000 Rs. STCG amount, the tax liability is zero due to benefit of section 80c on interest income.

Please feel free to discuss the related issues on the basis of info provided above.