Executive Summary: To start your own venture or business is a big challenge. It requires dedication, patience, hard work, money and some luck. Let us look at some factors that influence a startup's journey. Understanding these factors will enable you to be more prepared when you start your venture.
Executive Summary: There are five key changes in Income Tax rules that are applicable from September 1, 2019. These include changes in TDS on cash withdrawals, net amount received from life insurance company, payments made to professionals and contractors and purchase of immovable property. As per the new rules, PAN and Aadhaar are interchangeable while quoting for specific transactions.
The finance minister announced a few changes in income tax rules in the post election budget for FY 2019-2020. These were to come in effect from September 1, 2019. Let us look at these changes and how they affect us -
1) TDS on cash withdrawals from bank account
Cash withdrawals that exceed a total of ₹1 crore in a year will attract TDS at 2% of the amount withdrawn. This is applicable to withdrawals from banks, post offices or co-operative societies engaged in business of banking. This is as per the newly inserted Section 194N in the Income Tax Act.
2) TDS on payments made by individuals and HUFs to contractors and professionals
Payments made to a contractor or a professional or payments of commission or brokerage that exceed ₹50,00,000 in a financial year will be subject to TDS. The TDS applicable is 5% of the amount paid. This is applicable to individuals and HUFs (Hindu Undivided Family) that do not get their accounts audited. For example, this clause will be applicable for payments made for home renovation or event management.
3) TDS on life insurance
If the payout of life insurance maturity amount is taxable, TDS @ 5% of the net amount received will be applicable from now. Earlier TDS was 1% of the gross amount received under the policy
Net amount = Gross amount received - Total amount of insurance premium paid
4) TDS on additional payments made when purchasing immovable property
TDS is deducted @ 1% of the total amount when a person purchases an immovable property of the value of ₹50,00,000 or more. Other charges such as club membership fee, car parking fee, electricity and water facility fees, maintenance fee and other similar payments that are incidental to the transfer of immovable property were not included in this sum. Now all these additional charges are included for calculation of TDS amount. This is not applicable to agricultural land.
5) Interchangeability of PAN and Aadhaar
It has been proposed that PAN and Aadhaar are interchangeable from 1 September 2019 for transactions. People who do not have PAN can quote Aadhaar in their transactions that require PAN number details.
Executive Summary: E-commerce organizations are offering credit cards. Is it worth getting one of these? Here is a comparison of Paytm's First Card, Flipkart's credit card and Ola Money Card.
The big brands of new businesses are highly competitive. They look at different avenues to increase revenues and customer base. In the quest to be numero uno in payment solutions, Amazon, Flipkart and Snapdeal had already launched their credit cards. Now Paytm, Flipkart and Ola have jumped on the bandwagon and launched their own credit cards .
Here is a comparison of the two credit cards – Paytm First Card, Flipkart Card and Ola Money Card
Do you use credit cards? Have you used credit cards issued by e-commerce companies. Let us know your experience.
Executive Summary: NCDs are fixed income and fixed tenure instruments. Investors get interest income. It is taxed as per tax slab applicable to them. Look at the key features of the NCD issues of Tata Capital and JM Financial. NBFCs are in the news for investment risks and default of payment. Analyze all information thoroughly before investing. Gilt funds and debt funds are alternate investment options which invest in fixed income instruments and are managed professionally.
NCDs or Non-Convertible Debentures are issued by companies when they want to raise funds. Investors can buy these NCDs in return for interest income.
Features of NCDs
Should You Invest?
The interest rate is competitive. JM Financial offers higher interest but Tata Financials has better credit rating. But there could be risk of default. Therefore it is better to stick to secured NCDs if you are planning to invest in these NCDs. It might be better to go for the shorter term NCDs as the rating can change over a period of time. If you do want to consider investing in NCDs, invest a small part of the money that is not required in the short-term. Check factors such as the company performance and its financials.
Off late, NBFCs are considered risky for investments. The government has proposed some steps in the Budget to revive NBFCs from their liquidity and credit crisis. But it has to be seen, how it works. Moreover if you fall in the highest income tax slab, the post-tax returns are not that attractive.
If you are looking for low risk investments, gilt funds and debt funds are useful options. Gilt funds and debt funds invest in fixed income securities. Well managed and good performing funds provide consistent and optimum returns.
I am sure, I not need to stress the importance of health and a health insurance policy. Health insurance policies are more relevant as one becomes old, as there is a fall in income usually and simultaneously, health care expenses are bound to increase as you age.
I have compared six health insurance policies here. This is an update of a post that was done a few years back so that we have updated information. The six policies covered are -
You can download an excel sheet with the same comparison here.
Please note that the analysis is valid for the date it is published. For more details and arriving at a decision, refer the website or prospectus or contact us. This is not an exhaustive comparison as well.
Executive Summary: After an amendment in the Hindu Succession Act done in 2005, daughters have the same rights and liabilities as sons with respect to the father's property. Read on to understand the finer details.
The Hindu Succession Act is applicable to Hindus, Jains, Sikhs and Buddhists. There was an amendment in September 2005 that changed the right of claim over proeprty for daughters. Let us look the details -
Daughters have the same rights as sons with regards to coparcenary rights in HUF property. Coparcerers are those who share equal inheritance rights in an undivided property
Section 6 of the Hindu Succession Act, 1956, which deals with coparcener’s right in the HUF property, was amended in 2005 w.e.f September 9, 2005. With this amendment, daughters have been put at par with sons, as far as coparcenary rights in HUF property are concerned. Consequently, the daughter gets all the rights attached with coparcenary, including the right to ask for partition of the property and to become a Karta of the HUF.
Ancestral property is undivided property that has been received by the father from ancestors. The father cannot deny this property to his sons and daughters as they are in the same lineage.
The daughter has the right to an equal partition of the HUF property that is ancestral whether she is married or unmarried.
It has to be noted that a daughter will be subject to same liabilities as that of a son irrespecitve of her marital status.
If the daughter is no more, her children are entitield to her share in the property. If none of her children are alive, the grandchildren are entitield to her share.
Self-Acquired Property is property that the father or mother has acquired on their own. Here the father/mother has the right to gift the property to anyone. They can will it to anyone. Neither sons nor daughters can raise an objection.
If the father dies without leaving a will, all legal heirs will have an equal right to the property. Legal heirs include sons, daughters and widow.
Key Points to remember
Legally adopted children have equal rights over ancestral property of the adoptive parents. They do not have automatic rights over property of their biological parents. But biological parents can gift self-acquired property to them via a will.
A widowed mother (biological or adoptive) is entitled to inherit from her son provided she has not remarried.
Executive Summary: Airtel and MobiKwik have tied up with insurance providers to offer term insurance policies. Airtel offers a life insurance cover when you purchase a ₹ 249 prepaid bundle. MobiKwik offers a life insurance policy for as low as ₹ 20. We compare and analyse the features here.
With increased competition, companies are trying out different strategies to compete for the customer's attention. Let us look at two companies offering life insurance though it is not in their business.
MobiKwik announced the launch of digital life insurance on its app to its users some time back. Now Airtel has a new prepaid bundle plan that has an inbuilt insurance cover.
Let us look at the key features of both products -
There are millions of uninsured people in our country. So this is a good initiative as it is easily accessible and not expensive. But the sum assured provided by both companies is pretty low. You should consider it only if the sum assured is appropriate for you. If the prepaid bundle is useful for you, then you can buy it and treat the insurance cover as a supplementary cover.
Moreover in the Airtel insurance policy, If you fail to recharge, your policy would lapse. It is better to have a more concrete term insurance policy.
The MobiKwik insurance policy is just for a year. A term insurance cover should be for a long term. It is better to go for more comprehensive insurance policies.
Term insurance is an important part of your financial plan if you have financial dependents. Choose a policy wisely. Choose a policy that will cover financial expenses of the family in your absence.
Executive Summary: Basic Savings Bank Deposit accounts are regular savings bank accounts that offer flexibility in terms of minimum balance. There are some restrictions on the number of transactions, balance limit and amount that can be withdrawn. We have compared the BSBD accounts of banks such as SBI, BoB, ICICI Bank and Axis Bank.
Are you a person who does not like to keep a minimum balance in the savings bank account? Well, then do you know that RBI had mandated all banks to offer Basic Savings Bank Deposit accounts (BSBD)? These accounts do not have requirements regarding minimum balance or any pre-requisite for minimum monthly average balance. These accounts are also called zero balance savings accounts. You can convert your existing account to a Basic Savings Bank Deposit account.
The main conditions of this account are -
The RBI has given some freedom for banks to tweak the features and conditions on these accounts provided they are fair.
Apart from the conditions as per RBI's mandate, the usual features and conditions such as free Internet Banking, Debit card, bill payment options are available. Let us look at the other features/conditions provided by banks on the BSBD account -
Bank of Baroda
The main aim of these accounts are financial inclusion and convenience to customers. The account is useful if you want want a savings account without having to maintain high balance in it.
Executive Summary: There is a widespread adoption of the gig economy across the world. Most of us have the option of being part of the gig workforce. But before jumping the bandwagon of the gig workforce, it might be a good idea to evaluate our personality and financial status.
The gig economy is a form of market where organisations engage with independent workers for short-term or long-term engagements. It consists of freelancers, independent contractors, project-based workers and the organisations that hire their services.
In a gig economy, the organization hiring freelancers need not invest in additional workspace, training costs or provident fund. Freelancers benefit in terms of independence, flexibility and work-life balance.
There are some negatives which undermine gig economy. For example, gig workers do not have the stability of a regular job and have to constantly market themselves for work. Organisations may have issues with communication, worker engagement, company values and compliance too.
As per a report by PayPal, one in every four freelancers is from India. As per a survey done in the United States by EY, one in two companies reported increasing their use of gig workers over the last five years.
So the gig economy is on a upward trend. But not everyone or every organization is suited to work on a freelance basis. How do you know if you are suited for a role in the gig economy as a contract worker or a freelancer?
- You Want More Than Just Security and Stability
As a regular employee, you usually have the benefits of a fixed salary, insurance and some form of contribution to retirement. Your life is stable and secure. If you are okay to lose that for flexibility, niche career etc., you can consider freelancing. If you are constantly looking for new jobs, new challenges or new roles, you might be a good fit for the gig economy.
- You Are Motivated By Achievement Alone
Do you like being surrounded by colleagues or look forward to company events? Are you more motivated when there is competition around or supervision? Do you look forward to the recognition you get in your company when you do a good job? In that case, you are better suited to being a regular employee in an organization. Freelancers usually work alone. They are motivated by good work or when their goals are achieved.
- You Are Disciplined
It sounds idyllic to work sitting on your bed and not having to adhere to a formal dress code. But it might not be effective. If you are a person who is self-disciplined, does not check out the latest social media posts every hour while working on your project, you are a good candidate for freelancing. If you can be your own boss, i.e. set up a schedule, assign tasks to yourself and set up deadlines, you can be an effective freelancer.
- You Can Deal With Uncertainty
As a freelancer or an independent contractor, you may be swamped with work in some months and there may be times when you are literally jobless. You will not have a guaranteed cashflow but are financially skilled or equipped to manage your monthly expenses and investments then freelancing is a good fit for you.
If you are a person who panics when there are no projects or like the office environment or are a person who needs some external motivation for doing your job, it might be better to stick to the usual day job. You can work on these traits and skills and rethink on joining the gig economy.
The gig economy can open up many opportunities for you. It might be a good idea to test waters by taking up some small projects while you are still at your day job and see how feasible it is for you.
Executive Summary: There are some changes to the ITR forms. You have to be aware of these before filing your returns for FY 2018-19.
The deadline to file income tax returns is looming around the corner. We need to file our taxes before that. There are some changes in the forms that are to be used for the financial year 2018-2019. Let us look at those changes -
Individuals with income from business or profession have to file the ITR-3 form.
All details and disclosures expected to be provided in ITR-2 are applicable for ITR-3 as well.
Additional details are asked for in the ITR forms of AY 2019-20 such as -
Check out the portal – https://www.incometaxindiaefiling.gov.in/home for more filing of your returns.
Executive Summary: David Bach's book, Smart Couples Finish Rich focuses on frank discussions about money between couples. It talks about financial relationship between couples and the activities they can do to improve their financial equation and their financial well-being.
David Bach, a financial expert and author; who is also a financial advisor on TV has written the book – Smart Couples Finish Rich.
The book gives an insight into the relation between money and couples and how to go about money related issues. The book also talks about different financial concepts and financial planning. It is oriented towards the United States but is a guide for any couple from any country to stay on track to become rich.
Here is a summary -
Myths and Facts
David Bach first separates myths from facts. He busts myths such as
If we don't talk about money, everything will be okay – He says the couple will be broke if they don't talk about money. Wealthy couples spend time talking about money, aligning their goals and planning to make their dreams a reality.
It takes money to make money
He talks about how his not-wealthy grandparents invested bit by bit and became wealthy. It is a matter of systematic saving and investing .
Couples can take a financial quiz in the book to understand their financial knowledge and current net worth. They can use it to break communication barriers regarding money.
Purpose of Money
The couple is encouraged to think about the true purpose of money for them using an exercise. The exercise aims at aligning money goals and guiding decision-making.
When you do not plan, you are planning to fail. The couple has to understand each other and plan their finances such that -
Their goals are articulated. The goals are SMART (Specific, Measurable, Agreed Upon, Realistic and Time based).
They create a system to maintain financial records.
The book provides resources for budget maintenance; filing system and net worth determination.
The Latte factor is a concept that talks about small items of frivolous expenditure that we make regularly which snowballs into a big figure. If this expense was instead; saved and invested, it would make a big difference to the couple's financial kitty.
Retirement Basket, Security Basket and Dream Basket
Plan your retirement. He has given US (United States) centric steps. He has asked to set aside 10% of your income in retirement plans. But the idea can be reused in other countries based on the retirement products available.
We all know that we need to save for a rainy day. He reiterates the fact here and suggests that about three months of expenses should be available as an emergency fund. Couples should speak to each other about handling unexpected circumstances like loss of job. He talks about getting the right amount of insurance and writing a will.
The couple should save and invest for realising their dreams as well. It should be separate from the retirement basket. Bach suggests to keep 3% of your after-tax income for your dreams.
He talks about ten big financial mistakes that couples make. Some of them are
This section deals with increase in income. There are tips on asking for a raise, knowing the value of your services and products, raising the prices of your services/commodities etc.
It is a good book to read if you are a couple who need some guidance on how to tackle money conversations or want some guidance on how to organize and manage finances and financial goals.
Executive Summary: Banks have to offer Doorstep banking to senior citizens (above 70 years of age), differently abled people and people with chronic illness as per an RBI directive. Many banks are offering these services. Check out the services offered by ICICI Bank, Axis Bank and SBI.
Do you know that the RBI had issued a circular in 2017 that banks should offer offer doorstep banking to senior citizens and differently abled persons. It advised banks to offer basic banking facilities to citizens over the age of 70 years and persons who have a medically certified chronic illness or disability and cannot go to the bank branches.
Banks were supposed to implement this by 31st December 2017. They were instructed to give publicity to these services as well.
Some of the banks have implemented doorstep banking. Here is a comparison of the facilities offered by three banks.
Check out with your bank about their doorstep banking services and make use of it if required.
LIC Micro Bachat Plan
What Is It
Numbers to Know
- 105% of basic sum assured
- Sum Assured on Maturity.
Illustration of Benefit (from LIC Brochure)
The image below shows the premium payment and benefits availed from a policy with
Scenario 2 indicates the benefit possibility with loyalty additions.
Analysis and Conclusion
The policy has a very low sum assured amount. Even if it is meant for lower income groups, schemes such as Jan Dhan Insurance Scheme with zero premium and a sum assured of Rs. 30,000 and PM Jeevan Jyothi Bima Yojana with a premium of Rs. 330 p.a. and a sum assured of Rs. 2,00,000 seem to be a better choice.
The returns on the policy are also pretty low. If the policyholder expires within first five years of policy, his nominees will not get the loyalty additions which means lower returns.
It is better to take a term insurance plan and look for other micro-insurance plans if the need arises. The remaining amount can be put in an SIP of a well-performing Mutual fund where your money will work better for you.
By Vidya Kumar
Filing of Income Tax returns even if there is no income to be taxed is useful as it is a proof of income and documentation. It allows to carry forward capital losses, claim tax refund and increase one's chances of getting a high value loan or insurance cover.
You might find it unnecessary to file your tax returns if your taxable income is nil.
But filing tax returns is a good practice even if you will not pay any tax. You can file a nil return. It helps in many ways -
Proof of Earning
The ITR will be a proof of your income. It will come handy in many situations like overseas travel, financial planning and tax scrutiny.
Carry Forward losses
You can carry forward capital losses for eight years and write it off against capital gains. But this is possible only if you have filed your ITR in the year when you made a loss.
Loans and Insurance
IT Returns are useful as documentation while applying for home loans as they show proof of regular income. They can also equip you with better chances to get a high insurance cover.
Claim Tax Refund
TDS might have been deducted from your income and while filing returns you realise that your investments etc. can help you get a refund.But do note that you can claim tax refund only if you have filed your tax returns.
ITR is a key component of documentation for many purposes such as visa processing, loan processing etc.
Executive Summary: Forensic audit is a process to find out white collar crime using a combination of accounting and investigative skills and tools. It can be used to find evidence against fraud, embezzlement, misappropriation of assets, theft and misrepresentation of financial records in companies.
What is forensic audit?
Forensic audit is an accounting process that examines and investigates a company's financial records to investigate matters of fraud or embezzlement. The findings of a forensic audit can be used as evidence in case of legal proceedings.
Why is forensic audit conducted?
Forensic audit is conducted to find out if there have been issues such as -
Can Forensic audits be conducted in India?
Forensic audits are valid in India. RBI has made them mandatory for large advances and restructuring of accounts. If a company itself , a lender to a company; or the government suspects financial irregularities in a company, a forensic audit can be asked for.
Who conducts forensic audits?
Audit firms can conduct forensic audits. Forensic audit requires a specialised skillset. There are specialised courses related to fraud psychology, financial crime patterns, criminal laws and forensic software available to accountants so that they are equipped to conduct forensic audits competently. For example, Certificate Course on Forensic Accounting and Fraud Detection is provided by the Institute of Chartered Accountants of India.
How is forensic audit being used in India?
Unitech, a construction company has not been able to complete projects on time leaving homeowners disgruntled. So the Supreme court has asked for a forensic audit mainly to find out how the funds from buyers and financial institutions have been utilised by Unitech.
A forensic audit had been asked for by RBI on many banks to track how money was moved and extent of fraud involved in the case against Nirav Modi, Mehul Choksi and Gitanjali group.
What are the challenges for forensic audit?
Forensic audit is important as it helps to keep a check on white collar crime and mitigates risk of fraud, misappropriation of assets and corruption. It also ensures companies do their part to have a transparent working environment, have strong internal controls and implement anti-fraud policies and systems.
Executive Summary: Every mutual fund scheme has a benchmark index associated. We can measure the performance of the fund against the benchmark. A mutual fund scheme is said to over perform if the returns are considerably higher than that of the index or in a market downturn has lost less value as compared to the benchmark. It is said to underperform if the returns are equal to or lower than that of the index or in a market downturn or has lost the same or more value as compared to the benchmark.
A benchmark is a standard against which you can measure performance. Mutual fund schemes have to mandatorily specify a benchmark index against which they can be measured. The performance of a mutual fund and the fund manager's skill is evaluated against the specified index. The benchmark has to be meaningful. It should reflect the fund's investment philosophy and objective.
It is important to set a benchmark for mutual funds -
Funds will either over perform or underperform against the benchmark.
This table explains how to decide if a mutual fund scheme is over performing or underperforming.
If a mutual fund which is being actively managed generates returns similar to the index, it is considered as underperforming as in spite of the management fee charged, the goal of beating the benchmark returns is not attained.
If a mutual fund scheme outperforms the benchmark over several time periods, we can conclude that that it performs consistently. If the outperformance is sporadic, it may not be a great fund to invest in. If the fund has been giving lesser returns of late even when the benchmark is doing well, check if there are changes to the fund or its management. It might be worthwhile to stop fresh investments in it. indicate consistency in its performance.
Here is a comparison of three MF schemes against their benchmark – CNX 100/Nifty 100 -
Please note that performance against benchmark is not the only factor to consider before investing in a fund as past performance does not guarantee future returns. You have to consider other factors such as investment objective, fund management, expense ratio, exit load, your risk appetite and investment portfolio considerations.
Executive Summary: Equity risk premium is based on the risk-reward trade-off. It predicts how a stock will perform as compared to less risky investments such as bonds. It is a good metric to select stocks to invest in. In the past, it has been seen that long-term investors in equity are better off than those who buy and sell stocks without much research, analysis or professional guidance.
What Is Equity Risk Premium?
Investing always comes with a risk factor. Different investment options have different risk factors. The image has the risk and returns of a few instruments.
You can see the returns from equity are higher than returns from Debt Mutual Funds. Returns from bonds are lower compared to Debt Mutual funds. The excess return compensates investors for taking on higher risk. An investor investing in more risky instrument has the potential to earn more than the investor who invests in a low-risk instrument. The excess return earned by investing in the stock market or a particular stock is called equity risk premium. It is the compensation paid to the investor who takes upon himself the higher risk of the equity market fluctuations.
How To Calculate Equity Risk Premium
A simplistic way to calculate is to compare the equity stock returns and a zero risk investment like Government Bonds. The difference between them is equity risk premium.
A more comprehensive way to calculate is to use the Capital Asset Pricing Model (CAPM). It is calculated as -
Rs = Rb + βs (Rm - Rb)
Rs - expected return on investment in a stock.
Rb - risk-free rate of return, which can be the return on bonds
βs - volatility of the stock
Rm - expected return of market
Of course, there is probability of loss in every investment. If that risk is to be considered, a calculated percentage can be deducted from the returns on the Government bonds.
Why Use Equity Risk Premium?
It can be used to predict how a stock will perform compared to zero risk or low risk investment options. It is assumed that the stock, market and bonds will perform as they have performed in the past which may or may not be true. Moreover other factors such as net profit margin, revenue and the earning per share etc. also play a role in the price of a stock. So the equity risk premium should be considered factoring in these parameters as well.
The equity risk premium of the overall market is different from that of a particular stock.
It is a good metric to choose stocks. Stocks with a higher equity risk premium are more risky. If the yields on bonds go higher, then returns from stocks should be more to compensate for the risk. You can select stocks on the basis of the equity risk premium and match it to your risk tolerance levels and risk capacity levels. Volatility plays an important role too. If there are many uncertain events or volatile market conditions, volatility will be higher which will affect β. For example, in 2019, we have the elections. There are pressures on the rupee and crude oil supplies. There is a demand slowdown in China. So, volatility can be higher; leading to higher risk.
It is therefore important to research and analyse stocks and invest based on based on fundamentals.
Returns from equity are not constant. They can fluctuate and sometimes be less than returns on bonds. Therefore there is a higher chance for the long-term investor to earn more in equity than on bonds as compared to short-term investors or traders.
It is time to plan your taxes for the year. There are many things that you can do to claim the tax benefits you are entitled to. Here are nine income tax deductions that can be made from the gross taxable income. These will lead to the net income on which tax is calculated to be reduced leading to lesser tax payable.
Executive Summary: Rich people have the problem of plenty. They grapple with various options to invest money and how to maintain a certain lifestyle. They are worried about their kids lives and whether they will have enough money and if their money is earning enough. It is important to develop and follow a financial plan irrespective of the amount of wealth you have.
How Much Money Will Make Your Problems Disappear? Will a lump sum of Rs. 50,00,000 or Rs. 1,00,00,000 be enough or do you need Rs. 10,00,000 every year to be rich?
Credit Suisse's 2018 global wealth report says that there were 3,43,000 millionaires in India by mid-2018. Do the rich have money problems or are they content in life spending on all their whims and fancies? Well, it turns out that the rich also have money problems. Here are some problems that they face -
More Money – More Complex Financial Decisions
The rich have a lot of money. They need to think about all the different investment opportunities and choose the most optimum ones. The ticket size of their investments are big too. Moreover they are bombarded with investment ideas and have to constantly analyse and decide the best investment avenues. They worry about the returns, losses and also the opportunity loss of not investing in certain investment options
People Ask For Money
Wealthy people are surrounded by many people beyond the family and close friends - extended family, friends of friends etc. Many of these people ask for money either as a loan or as investment for their business ideas or personal problems and it is difficult for them to refuse to give money. Random strangers too put in requests for money which can be overwhelming.
Increased Lifestyle Spending
As one grows rich, the wants increase. There is an upgrade from a sedan to a luxury SUV. The family of four has three cars instead of one. Weekend getaways become expensive. More people are hired for help. For example a successful actress hires a manager to manage her schedule, bodyguards, fitness expert, beautician etc. There is a feeling to buy the best brands and most expensive things for the family as anything less seems a compromise.
Deal with expectations and comparisons
Many have to keep up with their counterparts or feel they have to live up to others expectations of the rich. They feel obliged to buy bigger houses, bigger cars, and more accessories due to peer pressure. In certain social setups, people are pressurised to throw lavish parties and maintain a certain image. This results in wasteful expenditure.
Finiteness of Money and Possibility of Opportunity Loss
Money is a finite resource. If it is not managed properly, it will disappear. Rich people constantly worry about earning more to keep up with their increasing expenses. They are also worried about how best to make the money work. People who have not invested properly have lots of idle cash or money invested in low return assets and worried about the opportunity loss.
It might be good to worry about issues such as how best to make your money work or how to earn more. At the same time, spending sleepless nights over purchasing one more limited edition timepiece or a private jet will just prevent you from having a content or a happy life.
Rich or middle class or poor, however you may classify yourself, it is important to have a financial plan in place. Tracking expenses and income and investing regularly for optimum returns will help to ease off some of the worries.
Happy New Year! The festivities and celebrations are done and it is time to work on making 2019 a worthwhile year. Let us make resolutions for our personal finances and stick to them so that we have a successful financial year.
Executive Summary: The Government has approved some changes in the NPS such as increased Government contribution, tax benefits, better withdrawal conditions and compensation for delayed payouts towards contribution by the Government. These changes are beneficial to NPS subscribers.
National Pension Scheme (NPS) is a retirement scheme. It is a defined contribution based pension fund. It is compulsory for Central and State Government employees and optional for other employees.
Employees and employers contribute to their account and the collective fun is invested in equity, government securities, corporate bonds, fixed deposits etc and managed by fund managers. Employees can then withdraw part of their corpus and invest the rest in an annuity product.
Recently, there were some changes approved and announced for NPS. The image below shows these amendments and their implications -
The government is trying to make NPS an attractive product which is useful for investors. For more information about NPS, click here.
Executive Summary: Liquid funds are considered to be a good investment option due low risk, high liquidity and optimum returns. You should consider factors such as credit quality, investment portfolio, fund performance, expenses, your financial goals and average holding period to decide where to invest.
Liquid Mutual funds invest in short-term money market instruments and other debt securities. They key features of liquid funds are -
Liquid funds may not give returns as high as equity funds but are a good option to park idle cash or to meet short term financial goals. Here are some parameters that you should focus to zero in on which liquid fund to invest in -
1) Average Credit Quality
Check the type of securities that the fund is invested in. Its better if the fund has most of its investments in instruments with credit rating AA and above and some holding in the form of cash holdings.
2) Investment Portfolio
Liquid funds invest in treasury bills, certificates of deposits (CDs), commercial papers (CPs) etc. If a scheme is overweight in commercial papers, you need to evaluate the risks. If the extent of CP investment is more and in lesser known companies, it might be a good idea to avoid the fund.
If the investments are across many securities, the risk is less. For example, when the IL&FS bonds were downgraded, mutual funds that held those bonds but had a a diverse investment portfolio were not affected as much as those schemes that had a high exposure to these bonds.
3) Fund Performance
Check the fund performance. Here is a list of few liquid funds and the returns they have generated.
As on December 5, 2018
It is better to go for funds that have good returns for the longer duration as it indicates consistency.
4) Average Holding Period
Liquid funds can invest in securities that have maturity periods ranging from 1 day to 90 days. If the holding period is on the lower side, it means percentage of cash is more. The more holdings in cash, the lower the returns. So select those funds that have the average holding period on the higher side.
5) Expense Ratio
Though SEBI has a cap on the expense ratio which is the annual management fee, it is important to check the value for the scheme you want to invest in as the expenses are paid from the returns which means the higher the expenses the lower the returns. Here is an indication of the expense ratio of some liquid mutual funds.
6) Your Financial Goals
Liquid funds are better than cash or bank accounts to create an emergency fund. If you have short-term goals like buying a car or funding an exotic trip, you can invest in liquid funds. You will generate better returns and you will not have easy access to the amount to spend it irrationally.
Investing in liquid funds is not risk-free. Use the above mentioned criteria to select funds that have the potential to give good returns.
Executive Summary: 'The Science of Getting Rich' written by Wallace D. Wattles tries to show how to get rich using a scientifically proven method. The book talks about how the right thoughts and right actions can increase our income and wealth.
The core concept of the book - The Science of Getting Rich, written by Wallace D. Wattles is that to become rich we must have a combination of the right thought and right action.
A summary of the book -
The author believes that you have to do your part in the right manner continuously to become successful. You will become rich in proportion to the firmness of your vision, steadfastness in purpose, extent of faith and gratitude and the creative action you put in towards reaching your goals.
The book does not talk about financial concepts but is a self-help guide on your right to be rich. Some of us probably know most of the things in it but it is a good reminder that a certain way of thinking and living will help us become successful.
Executive Summary: Banks are launching credit cards designed for the e-shopper. We compare three e-commerce co branded cards – ICICI's Amazon Pay Credit Card, Snapdeal HDFC Bank Card and Axis Bank Buzz Credit Card.
Co-branded credit cards have been around for quite some time. Online shopping is on a boom in India and has transformed the way we shop. Therefore companies launch products catering to customer wants. Let us look at some credit cards that have been launched to take advantage of the online shopping boom and increase customer base.
ICICI Bank's Amazon Pay Credit Card
ICICI and Amazon have joined hands to launch the Amazon Pay Credit Card.
Regular Amazon customers who are ICICI account holders will be able to apply for the card on the Amazon app. After a certain period, regular Amazon shoppers will be able to apply for the card.
It is a good credit card for Amazon shoppers. Amazon offers a variety of products so there is a chance of earning a lot of reward points. You will get the digital card immediately after applying for it which means you can start shopping and earning points immediately. Your phsyical card will arrive later. There is no expiry of earnings and no limit on the Amazon pay points that you can earn.
Do note that there are no reward points for EMI transactions and purchase og gold. Moreover rewards can be used only on the Amazon portal.
Snapdeal HDFC Bank Card
It is launched by HDFC and Snapdeal together.
If you are a regular Snapdeal shopper, it might make sense. But reward points expire within two years. The scheme of 20 reward points given for every Rs. 150 is applicable only till March 2019. Moreover there is a payment to be made for redemption of rewards. There are better credit cards that can be considered as this does not offer airpot lounge access or dining benefits if you prefer those kind of benefits.
Axis Bank Buzz Credit Card
Axis Bank has launched the Buzz credit card in collaboration with Flipkart.
If you are an avid shopper on Flipkart, you might like this card as there are many Flipkart vocuhers given. You can also convert your purchase to EMI. The interest charge is reasonable at 1.5% per month. The joining fees and renewal fees are high. The cashback points are not so attractive.
A credit card is like a double edged sword. Smart usage of a credit card improves credit score, make large payments and earn attractive rewards and discounts. At the same time, some may over spend or lose track of payments and end up paying interest. Be a disciplined credit card user who does not spend beyond the credit limit, pays dues on time and makes the best of the perks and rewards associated with the card.