Month: March 2011

Auto Sweep Account – Enable it in your Saving Bank Account

Posted on by Jagoinvestor

Do you have a Bank Account? Off-course you do! How much money do you have in your account? 5,000? 20,000? or a few lacs? If you have a lot of cash, lying idle in your Bank Account, and at the same time you don’t want to commit to long-term investment, you need to enable the Auto-Sweep facility in your Savings Bank account. This will make sure you earn good interest on a major part on the cash lying in your Savings account.

Auto Sweep Bank account

What is Auto-Sweep Account ?

“Auto Sweep” is a facility which provides, the combined benefits of a Savings Bank account and Fixed Deposits. Auto-Sweep facility interlinks your saving bank account with a Deposit account and makes sure any extra amount lying in your bank account above a threshold limit is automatically transferred to Fixed deposits and you earn better interest on your money.

How ‘Auto Sweep’ works?

This is how Auto-Sweep works. You define a “threshold limit”, and money up to that limit will be in the form of cash in your savings account and any amount above this, “limit” will automatically be converted into a Fixed Deposit and you will start earning normal FD returns on that part of the money. At any point in time, if you need money more than is lying in your bank account, the money lying in the Fixed Deposits is Reversed-sweeped into your savings account and you can withdraw the amount you wish.

Example

Ajay opens a new Savings Bank account with SBI. He enables Auto-Sweep facility on his savings bank account and defines the threshold limit of Rs 30,000 . Now suppose he has Rs 10,000 lying in the bank, He will be earning normal 3-3.5% interest on this money. After that if he deposits Rs 60,000 in his account, his total balance would be 70,000. But as this is above his “threshold limit”, the extra amount of 40,000 will be converted into a fixed deposit automatically and start earning returns equal to normal Fixed deposits with SBI (for example 8%). This way he always has 30,000 in his account for his daily requirements, and he has 40,000 converted into Fixed deposits which again is available to him incase he requires it.

Now suppose he has to withdraw 10,000 from his account, he will actually withdraw it from the cash lying in saving bank , and his balance will reduce to 20,000. However on the other hand if he wants to withdraw Rs 50,000 . then in that case, as his account balance will be just 30,000, an additional Rs 20,000 will be auto-reversed from his Fixed Deposit and he can withdraw total 50,000 .

Opportunity cost

A lot of us don’t bother about how much idle money is lying in our account and for how long. This happens because we think “I might need it soon, so lets not commit to any investment.” But then, the money keeps lying in the bank for months and months and sometimes even years.

Suppose your account has Rs 1 lac for 1 year, it will earn 3.5% interest on it, which is Rs 3,500 for a year. However if you have auto-sweep enabled in your savings account with threshold limit of Rs 20,000, the additional 80,000 will actually be in form of a fixed deposit and it will earn an interest of 8% (assumption). In this, you will earn 3.5% of 20,000 which turns out to be Rs 700 and 8% of 80,000 which is Rs 6,400 , a total of 7,100 , which is almost 100% more than the first case .

A lot of people have much more than 1 lac in their accounts, not just 1 lac. You can earn some extra returns if you just enable auto-sweep on your saving account . So find out if your bank provides the facility, just do it, and get it right away!

Also note that different banks have different names for this facility. For eg., ICICI Bank calls it ”Auto Sweep” , HDFC Bank calls it “Sweep-In” account , and SBI calls it “Saving Plus.” . Here is a list of other banks and the name by which they call this Auto-Sweep facility (thanks for Gopal Gidwani for the info)

  • IDBI Bank – Sweep-in Savings Account
  • Axis Bank – Encash 24
  • Union Bank – Union Flexi Deposit
  • HDFC Bank – Super Saver Facility
  • Bank of India – BOI Savings Plus Scheme
  • Oriental Bank of Commerce – Flexi Fixed Deposit Scheme
  • State Bank of India – Multi Option Deposit Scheme
  • Allahabad Bank – Flexi-fix Deposit
  • Bank of Maharashtra – Mixie Deposit Scheme
  • Corporation Bank – Money Flex
  • United Bank of India – United Bonanza Savings Scheme

Disadvantages of Auto-Sweep Account

Auto-Sweep has some disadvantages too. In general the interest rates of normal fixed deposit and FDs under Auto-Sweep are same, but some banks charge a penalty if the FD under auto-sweep accounts are broken before some duration like 1 yr and 1 day . But I think that’s fine.  If not 8% , you will at least get 7%, still better than 3.5% .

Some banks are also known to give simple interest on the Auto-sweep Fixed Deposits and not compound interest as in case of normal fixed deposits .

Don’t over do it

While Auto-sweep is a wonderful thing for salaried class people who want to maintain liquidity, as well as want to earn more interest on their unused money, one should not over do it. If you are very sure that the money lying in your account will really not be used for long, better to use the normal Fixed deposit or Debt funds. Only if you are unsure of your money lying in bank and when you might need it, you should be using Auto-Sweep facility.

The way auto-sweep works, it makes it an ideal place to park emergency funds . So if you have kept 6 months of expenses as your emergency fund in Saving Bank, then you can enable auto-sweep facility and set threshold limit as 2-3 months of expenses, so that rest of the money can earn a better interest.

Comments: Did you know about Auto sweep account earlier? Do you think it will be helpful for you and do you plan to enable it?

JagoInvestor launches its Paid Services

Posted on by Jagoinvestor

Firstly I want to thank & acknowledge each reader of jagoinvestor.com for their immense love and support from the bottom of my heart. Each reader is like an extended family to me. It is clear because you read my articles I write, the more you read the more I get connected to you. I am always excited to reply you on blog comments and e-mails.

I am really committed that each jagoinvestor reader experiences huge financial breakthroughs in their financial life, every reader achieving financial freedom. For a lot of you, jagoinvestor is just a blog which teaches them about personal finance and makes them an informed investor; as a reader you may or may not be aware about our paid financial services. Today I want to share what was happening from last many months and what is our vision in this space. I also want to officially launch our services today which we are providing from last 15-18 months.

Around a year back, I happen to connect with Nandish Desai. He is a powerhouse of amazing ideas and carries a powerful vision which I never saw in anyone. It was very clear that he really understood the real requirements of an Investor and what kind of assistance a person needs in his financial life. It went way beyond traditional financial planning; his style is non-linear in nature. Rather than just focusing on financial data and giving solutions to rectify those, he actually worked with people on their day today financial habits and showing them those internal mistakes which is causing all the financial mess in their financial lives. He works closely with people to get them in control of their financial life by being a coach. It is not just a plain vanilla planner. His coaching skills are deep and transformative in nature. Nandish was also the main speaker at our Pune and Mumbai meets and lots of readers have already interacted with Nandish and Me at these two cities . We plan to re-launch these meets soon in future .

We were inspired by each other, identified our individual strengths and decided to collaborate and work together, hence we teamed up and now we are “Jagoinvestor team“. We then started serving some of the readers of the blog who contacted us and were committed in working on their financial life, as paid service. We started to apply coaching principles. We started working with them in a way which we believed really connects to an individual. After working with lots of clients and repeated experience, we came with something called as Financial Coaching, which I will explain below.

Jagoinvestor Services

For many it might be a surprise that we started our services from today, but it’s not the case. Let me share with you that we are actually providing our services from last 12-18 months, but didn’t open it up for public till date, as we wanted to make sure we dont compromise on the service quality. We have already served many clients till date which are from different parts of India and a lot of NRI’s across some countries who contacted us and asked if we had any services. We offered them customized services which helped them in creating a financial life which they always wanted.

This blog was there to serve readers and give them immense knowledge . This is going to continue and get better each day now onwards. These services are extension of our committment to serve those people who need our deep personal involvement in their financial life, so that we can closely work with them and serve them. Now we are ready to offer our services to everyone. Right now we have total 5 services and I will give a brief overview of those.

1. Financial Coaching

When you hear the name “Financial Coaching”, you get many ideas in your mind, you will relate it as a better version of financial planning, but you are mistaken. It is not Financial Planning, It’s the next level of Financial Planning, and it goes deeper than just financial data and your goals. It works mainly on YOU. It understands why you have messed up your financial life till date? It works on your relationship with money. In Financial Coaching you have a Financial Coach working with you closely , and not a financial planner !

Financial Coach is someone who stands for your financial success , who is a mentor to you in your financial life , who observes you , listens to your financial worries and identifies the flaws in your financial life which is causing problems and not letting you move to next level. Financial Coach will make sure you are on track with your commitment to improve your financial life, Financial coach makes sure you are on track in your financial life and take actions which forwards you with each action.

Let me give you an analogy. Suppose you are not physically fit and have health issues. What will you do? Read below –

Model 1 : You go to a doctor and do a medical check-up. Doctor gives you a report and prescription to you on what to eat , how much to eat , When should you wake-up and how much exercise you should do each day. This is very much like financial planning where you get a Plan, actions required to improve your situation and overall roadmap. If you think, this is exactly what is required, you are mistaken, this works for only a very small number of people who are committed to stay on track and do things on their own. A lot of people are again lost in their personal life after few weeks and months and forget all this planning. They need an extra hand-holding to stay on track.

Model 2 : Let’s now see the same above example and see how coaching can help the same person in the same situation. Now the same person who has health issues gets a fitness coach. The coach studies person’s lifestyle, body, habits and designs detailed action plan for him. He reaches his residence each day in the morning at 7:00 am. The coach will make sure that he will complete his exercise in front of him, he motivates him each day to go to a next level in his exercise, and the fitness coach will observe him coach him each week/month. We can see that this model is more of action-oriented and not just solution-oriented.

In the same way Financial coaching works, financial coach does not just work on your data, he works on you. Financial coach re-designs your financial life and gives you a new eye to look at your financial life, he shows you NEW possibilities possible in your financial life which you can’t see yourself sometimes. He makes you understand how your situation got created, he tries to reach the source of the problem and attacks the source or cause of the problem, not just “the problem”, because unless the source of the problem is fixed, the main issues will keep on happening.

You can read more about financial coaching here

2. Basic Financial Planning

In general Financial Planning includes lots of things which can range from cash flow analysis, your debt management, Insurance and other goals planning along with Estate management. All of this important and everyone should aim to have it in their financial life. However what we feel is that a lot of people get stopped by this complexity and the denseness of financial planning. Hence we have come up with Basic financial planning which focuses on most important aspects of your financial life.

What if you’re Insurance Planning, Children goals and retirement is complete? What if you get guidance on health insurance and Emergency fund building along with this? Won’t you consider 90% of your financial planning complete? I am sure you will and many have told us that this is what the core of their financial life, and that’s exactly basic financial planning does. We make sure we complete your top most priorities in life and guide you on how to implement your plan.

You can read about Basic Financial Planning here.

Clients Testimonials

We asked some of our clients to give their feedback and their testimonial on how our services helped them in their financial life and what they think about us . I am putting up four such testimonials

Testimonial 1

“I wish I had gotten to know Manish and Nandish 5 years back when I started my professional career. My personal finance status would have been much more organized. I have known them for 6 months now and they have been singularly responsible for correcting my last 5 years of mistakes. They not just guide but more importantly educate their readers and clients. And that to me is their biggest contribution. Nandish has gone beyond the role of financial advisor to actually become sort of a personal mentor to me and I owe to him for bringing to my notice the most important SIP we all should make but usually don’t – “Health SIP” – investing every month in ensuring we stay healthy and fit.

I hope we will continue to engage for a long time and I wish them all the best in their future endeavors”

Brij Bhushan

Management Consultant , Gurgaon

 

 

Testimonial 2

I have always been grateful to my teachers in my school and my college right from my childhood because they were the one who opened me up to a sea of possibilities and an ocean of knowledge. I am educated ‘formally’ because of them. But was I financially literate? No. I wasn’t. I, then, went in search of quest for financial freedom through Education and subsequently Action. As the maxim goes if you ask the Universe gives, I came across Jagoinvestor blog and took a decision to pursue it seriously. You were my teacher encouraging me to learn about the most important aspect of our life, Money, which others ‘choose’ not to talk about either because of ignorance or because they don’t want to project themselves as running behind money.

Today (PRESENT), I can say, I am lot better in my knowledge of money than I was few months ago(PAST). Importantly, I am more confident of my FUTURE.

And all this is possible because of the awareness created by you guys. In short the most vital thing I learnt is Education combined with Action will lead to your Dream Destination.

Thanks a ton for that!!

Srinidhi Rajshekhar

Software Engineer, Bengaluru

 

 

Testimonial 3

My Husband and I are both in our late 30’s. While we were staying in Cambodia, about 1.5 years ago, I came across JagoInvestor and got hooked on to his site. I contacted Manish to help us do our investment planning and and he put us on to his team mate Nandish Desai. Nandish and Manish both worked on a detailed investment plan after understanding our needs, income etc and helped us be on track and motivated us to implement the plan. They are extremely professional and thanks to them we have a disciplined approach to investing now.

Shalu Mehra

Hiring Lead, Human Resources , Gurgaon

 

 

Testimonial 4

Once a girl asked to her dad “From when should I start saving for my retirement”, Dad replied”The day you get your first salary”. These words got engrossed on my mind, I started searching for guidance before I got on job so that I can save right from my first salary. In my journey I had been through various financial advisers who recommended me “Whole Life insurance”, “Ulips”,”Sick mutual funds”. With my research I knew everybody was trying to misguide me to attain their targets. I had been to big branded financial advisors but I found the same thing over there. I thought I am stucked, but to my grace I called Jago Investor on 25th Sept 2010 for the first time. After that no looking back I had been in touch with Nandish Sir, taking guidance on financial planning almost every alternate day and I wanted them to be my only financial advisors but due to certain financial problems I postponed the process but finally due to Nandish Sir faith I became part of there family on 22nd Jan 2011. I had read “Rich Dad and Poor Dad” where a Rich Dad, Business Man, guides a young chap to his journey to become America’s one of the Richest person called Robert Kiyosaki. At the age of 23 I found one named Nandish Desai, I am on my way to be what i intend to be. Thanks to Nandish and Manish Sir for their immense faith.

Kamaljit Ridlon

Deputy Manager
Kotak Mahindra Bank
Mumbai

Comments ? I would love to hear what do you think about our services and what other kind of services we can provide in future .

How to plan for retirement and think about retirement in India

Posted on by Jagoinvestor

How will your retirement look like? Have you thought about anything on retirement planning ?

This is something, which you should spend some time on. Our parents and grand-parents might not have given much importance to their retirement, they might have just took it as it came to them, but can we also afford to do the same with our retirement? Would you like your retirement to take shape just like your parents?

Lets discuss it and take some food for thought from this article today. This is the 3rd and last article in the series called “Financial Planning and Social changes in India” . You can read other two parts here and here .

Retirement Planning in India Future

In our country, where a very small number (less than 10% of the workforce which is in the organised sector) has access to some social security like provident funds, but the rest – almost 90% of the workforce – has no social security, Retirement Planning is a major issue .

If you take care of your retirement planning, your future will probably be much better and in control than without doing anything. It has become extremely important to plan for one’s retirement and at least take a step towards it. I will list down some pointers which shows why retirement in future India will be much bigger and serious issue.

Look at all the points in totality and you will realize that planning for own’s retirement is not just an option but a necessity these days.

1. Increase in life expectancy in India

One of the major problem while doing retirement planning is to assume how long the retirement will last. This has a direct relation with life expectancy. As a country develops, its healthcare and overall life style level improves and life expectancy increases. You can see the life expectancy in India is moving up and up with each passing decade .

It was 49 yrs in year 1970 , increased to 64 yrs today in 2011 and is set to increase upto 73-76 yrs in 2040-50 (projections) .

Now this life expectancy of 76 yrs does not mean that everyone will die at age 76 , it’s an average . If you personally have a better life style , better health and better medicare access compared to a average Indian, chances are you will have a much more life expectancy which will cross 85-90 yrs .

Leave future, even today you can see more and more people living upto an age of 80-85 . So, you can safely assume that you will have to accumulate enough money which can last atleast 30-35 yrs after your retirement, else make sure you die with your money itself 🙂 .

Overall the conclusion is “Longer life in future will mean more money required in retirement compared to  today. Simple !”

2. Increase in Dependency Ratio

Dependency ratio means the ratio of Old age population vs Young population. To calculate it, just take total population above Age 60 and divide it with population between 15 yrs – 60 yrs and you will get Dependency Ratio.

You will be surprised to know that right now in 2011 , the dependency ratio is around 5% in India, but in year 2050 this ratio will rise to 15% , which shows you that more and more people are going to be in the old age group compared to young population . See the chart below .

india future age

Source : here and here

This is not a small issue. More and more people will be shifting to this “retired” category in coming decades with more load on the working population.

At this current moment, we are one of the youngest country today with as high as 50% population below 25 yrs of age , but will this continue forever? With more population control measures at government and public level, these numbers are going to be different in future.

Hence the conclusion is “More and more people will come into retired category as percentage of population in coming future”.

3. Decline of joint family structure

If it was 1970 , you could have safely assumed that you will be probably spending your retirement with your grown up kids , playing with your grand children, but is it happening anymore in these changing times?

More and more people are moving in different parts of country in search of education, jobs and settling there compared to old times. Parents on the other hand dont choose to move most of the times as they feel connected to the same place where they have spend all their life and more than that , they have their social groups at those native places.

Very rarely I have seen that parents leave those places where they have spent 30-50 yrs of their life .

Bigger opportunities in life and a complex life style has resulted in smaller family size and its going down each decade. As per research reports of National Family Health Survey , Ministry of Health and Family Welfare (MOHFW), Government of India , average household size in the year 1992 was 5.7, which means each family had 5.7 members, this came down to 5.4 in 1998 and as per last reports of 2007 , average family size is  4.8.

Now imagine this, each family having  approx 4.8 members , that’s today ! . Will it shrink further to 4.0 in coming decades , what do you think ? I think if it does not go down , it will definitely not go up ! . Thats my personal opinion .

This clearly shows that families size are shrinking on average. More and more parents these days are living in their home town where they raised their kids , but kids have moved to other places and settled elsewhere. By no means I am saying that not living together has resulted in less love or less harmony , NO !

All I want to say is people are living separately and “expecting” to live separately now a days.  This will only rise , and not come down by the time you retire.

So the conclusion is “There are higher chances that you will be living separately and not with your kids , by choice or by society structure , unless you are living in smaller towns and villages.”

Change in perception about Retirement Planning

Now leave all the factors we talked above. Lets look at how people today feel about their retirement in coming years. I ran a poll on this topic which was taken by as high as 412 unique participants and you will be amazed to hear that as high as 83% said that they would like to be self-dependent and want to save all the money they would require in their retirement.

Around 10% said that this is the first time they are having any thoughts about their retirement after seeing the poll and just 7% people expect to be fully or partially dependent on their children for their retirement. Which shows us that as high as 93% readers on this blog who participated in the poll want to be self dependent and plan their retirement themselves.

Look at the poll results below .

Retirement Planning in India futureBest Investment for your Retirement ?

So whats the best Investment you can do today which will make sure you live happily in retirement? If you thought that it’s some financial product or a strategy to make some extra bucks, you are wrong ! I am talking about your Health here.

Note that reaching destination is important, but after reaching the destination if you don’t feel joy and happiness and are not able to enjoy the fruits later, all the hard work you will put for reaching for destination will go waste.

You will be living for 25-30 yrs minimum in your retirement, Now if you have all the money , but no proper health at the end, you will not be able to eat what you want, you will not be able to roam around places , you will not be able to enjoy each moment of your life , what’s the use of all your hard-earned money in that case ?

I would say all your efforts will be waste. This is one serious point I want you to take home today. Think about it.

People who are neglecting their health and financial life today are living in illusion that future has a lot for them. Start working on your health today, do a daily SIP investment in your health through exercising in gym or working out in park or at least jogging. lumpsum investments in health does not work , It can only work in your financial life.

I want you to download this e-book called Food and Thought right now.

What do you think about retirement after 30-40 yrs ? I want to hear your action plan for your retirement in comments section. Do you think the points made for Retirement Planning by me makes sense ?

Write us your opinion in the comment section.

Goal Visualisation or Goal Setting ? – Which one is better ?

Posted on by Jagoinvestor

Do you know how to write your financial goals? How many lines or words does it take? Think about your retirement goal for a moment. Now if you thought, “I have to generate a corpus of 5 crores in next 30 yrs” is a goal, you are mistaken… to a really large extent! While this way of defining goals is better than not defining a goal at all, this is not how you’d do it if you want to be inspired each moment as you work towards that goal. After a point, you’d just be lost again in your daily life. There is another way of writing financial goals and today, I show you how to do just that.
 
Goal visualization

Let me ask you a simple question. When are you excited about watching a new upcoming movie? What if I tell you that there is a new movie out soon, called “Kuch Log”? Will this tiny bit of information do anything in your mind? Does it excite you any? Does it inspire you to go to theatre and watch the movie? No! .

But what if I show you a trailer? Some exciting snapshots of the actual movie that give you a feel of how it will look like? The best tantalising glimpses?  Won’t it then, create a shift in your mind and motivate you to actually consider watching the whole movie?  I’d say Yes! . In the same way your financial goals defined in just one dry, boring line, with a target amount & date can not motivate you enough. It can motivate only those people who really are disciplined and committed in life .

In this article, I’ll share something very personal about us at Jagoinvestor. This process, is what we do with our clients. The way we work with them, goes way beyond traditional financial planning. Instead of just goal setting in the traditional way, we do something additional called Goal Visualization! . Goal Visualization is converting your target amount and target date into a more descriptive paragraph and see how your life will be in future . It gives you more clarity and what you actually want your goal to look like .

Here’s an example…

Year : 2040

I am retired now, and living in my native town of Bangalore. My house is a little far away from the city because I like to spend most of time in nature related activities like hobby farming and some social causes like consulting with poor farmers on how can they use today’s technology in their work.

I am trying to get back to my routine work, these days, as I’ve just returned from Australia , where I spent a month-long holiday. Next year’s destination is South Africa which recently got added to my list as the next world cup is there! I have all the time now, to go watch my country win there. It will also give my wife a chance to explore various historical sites of that country, which she loves a lot. Its part of my “30 countries I visit before I die” target that I had set for myself.

It gives me immense pleasure and satisfaction, when I teach mathematics to a group of 30 poor students who can’t afford a fee! That’s exactly I am doing these days. As I am retired now and really love the subject, I want to help in sharing my knowledge any way I can.

Me and my wife go for a daily walk in the morning; we have been doing it for years now, the last 20-25 years in fact. We have made sure that we won’t be victim of deteriorating health which will make all the money we have saved, all our lives fruitless! We have always done our best to keep ourselves on the move and now we have joined one the biggest health clubs in the city. It’s cost us more than 70 lacs for a lifetime membership, but it’s been worth the cost and it gives us all the time and resources we need from it, whenever we visit it.

I have generated enough wealth in my life which takes care of my basic needs and luxuries in life. I never have to think twice, before buying  something important. Money does not come in the way of my leading the kind life which I always dreamt of! I have achieved this! While I like to live simply, I have created a situation where money is the last thing which I have to worry about, as far as my life is concerned.

I have spent most of the time working for software giants across India and US, and  I never felt as if “This is exactly what I want to do!” Now I am free of those worries, which came in the way of  my desired life. I feel I am really spending each day of my life the way I always wanted to, not the way I am forced to because of various reasons in life. I am happy!”

Goal Visualization is not Dreaming

Goal visualization is not dreaming ! . You need to have a visions in life and this goal visualization is looking at how your vision will look like in future . Remember that Dhirubhai Ambani never had a goal of have 5 crore in retirement , He had a vision and that vision inspired him each moment in his life to move forward. To do anything which makes his vision true .

Goal Visualization gives you the power, it inspires you ! . It makes you crave for your financial goal which you create for yourself. You will not believe but most of our clients discover themselves and are amazed to find out how they themselves wanted their future life to be , and it happens only after they approach us to work on their financial life. There is less of number crunching here and more of human activities which connect to a person , motivates them and fills them with energy.

Your Action today after doing Goal visualisation

When you do goal visualization, go into the future and see yourself – Are you are happy? Excited to see yourself getting what you really want?  Then, come back to reality (come back to NOW). The next step is to answer a bigger and important question. You now, have to write what commitments are you willing to make, what efforts are ready to do today which can lead you to the goals you want for yourself.

It goes a little like this…

Year : 2011 ( Today)

I was actually thinking of upgrading my car from Santro to Honda as my salary has gone up by 100% in last 3 yrs, but If I look closely now, I feel that it was a “wish” created out of nothing. It’s not actually a  “need” !.  If I ask myself whether it’s really required, I see myself answering “Not Really”. I can actually continue with same Santro for next 3-4 years. Better that I, use my increased income to reach my retirement goal at the earliest.

My wife has subscribed to a gym membership but her trips to the gym are very limited. On second thoughts, we will stop paying 3,000 per month fees and better use Rs 150 per day pass every time she goes. Anyway she goes about twice a week, so it would save 1,800 bucks without compromising what we are doing right now. It’s just that we have to relook things and restructure them.

I save around Rs 5,000 a month, but after doing the goal visualization exercise, now I am committed to achieve it at any cost. I am not just committed, reaching my financial goals is my sole focus now. I will car-pool, I will cut on my smoking, I will limit my outings (at least the ones that do not matter), & I will cut down wherever I really can.  I will not compromise on things which I love or add to my family lifestyle and happiness, but I will be really merciless when it will come to things which I truly don’t want in my life. I will be now committed, on finding a better opportunity to work, I will get out of my comfort zone and take some hard decisions in life to make things happen now. I am going to start my SIP next week, Wait… why next week? What’s stopping me from doing it today?  What’s keeping me from doing right now? I will call someone right now and find out how its done! I will not let “I don’t know” kind of excuses come on my way! I’ll use “I just want it at any cost, no matter what” kind of energy to reach it.

This is the new mantra of goal setting which we are trying to incorporate in each person we meet or each person we encounter at Jagoinvestor. We give them food for thought, we make them connect to their own financial life and show them the power of doing Goal Visualization and not just scribble some numbers. If we were just computers, it would have worked! .

We make them write these things down. We do more of listening and less of instructing, because we make people instruct themselves!

Goal Visualization is not a replacement of Goal Setting

Note that goal visualization is not an alternate of traditional goal setting , rather its a supplement and additional exercise to make your vision stronger , make your commitment more strong and a reason for you to look at your goal with high priority and seriousness.

I hope you appreciate the fact that this way of goal visualization is better than fooling yourself with something like “I want to create 5 crores in 30 yrs for my retirement?” . It only gives you a short-term orgasmic happiness and then you start you day next week in the same manner as if nothing happened ! , unless you are high on discipline to save for that goal . Only then it can work ! . If you mix goal visualization with traditional way of goal setting , it can be much better than just goal setting and finding a number which you need to save monthly .

If you don’t take action after reading this post, it would be waste of your time truly speaking. So now, is the time you start writing down your goals in detail and visualize it. Do it right now! Not later, not after dinner today, not on the weekend and definitely not when you are free!

It has to be today, right now at this moment.

Send your goals visualization to me (A strong exercise)

What about this ? Download this Goal visualization sheet, Take two prints, You fill one of them and let your wife fill another (incase you have). Goal visualization is a joint family exercise, not just yours. It has to be taken by your spouse separately. You will be amazed to see how much it differs for you and your partner even if the target amount and date was same. You two, might visualize it very differently.

Once you are done with the goal visualization, send the filled sheets to me at  manish [at] jagoinvestor [dot] com. I’ll do my level best to look at them and give my comments if they are of any help to you. I don’t guarantee that I will get back the next hour, but I will try to get back as soon as possible . This exercise alone however, will give you some power to take action which you are missing till now in your life!

Comments ? You can also pick up a goal and do goal visualisation on the comments section too. See if you feel it is strong enough! , Do you feel it helps you to generate some commitment and leads you one step closer to taking action ?

Disclaimer : The examples given in this article for goal visualization are created just for article and it’s not a real example of some person.

How Interest rate and Bond prices are related ?

Posted on by Jagoinvestor

Bond prices go up when interest rates go down! . Have you ever heard that and wondered how is it possible ? What goes behind the scene which makes it happen? It’s important for you to know this, because now a days there are enough financial products which depend on interest rates, for example Debt funds, Fixed Maturity Plans, Infrastructure Bonds and many products. In this article I will show you in simple language how bonds prices and interest rates are related.

Interst rates and Bonds prices relationship

How interest rate and bonds prices are related ?

You must have heard or read often that when Interest rates fall, bond prices go up and when interest rates rise, bond prices go down. Also in many articles you would have read a term “Interest rate Risk”, but always wondered why its is a “risk”.

Let me give you a simple example . Suppose in the market the interest rates are around 10% , Now Ajay lends Rs 1,000 to Robert for 1 yr at the interest rate of 10% , which means Ajay will get Rs 100 as interest next year plus his initial 1,000 of principle , so Ajay will get back total Rs 1,100 at the end of 1 yr. Now suppose they sign a paper where all these terms and conditions are written and we call this paper as “BOND” . Who ever has this bond at the end can go to Robert and get Rs 1,100 by giving them that BOND paper. Now imagine two situations where interest rates move up and down and a third person called Chetan wants to buy the bonds after interest rates has moved. Lets see how bond prices move in both the cases here.

Case 1 : Interest rates go down

Suppose interest rates in market falls to 9% because of government policies or some other reasons (in our country RBI keeps change interest rates).

Which means now if a person lends Rs 1,000 to some one, he can get only 9% as interest. But Ajay has a special bond! , which actually gives 10% return (also called as coupon rate) and not 9%.  He is getting 1% more than what a new bond in market will give. Now if Chetan comes to Ajay and wants to buy this Bond from Ajay, Will Ajay give this bond at 1,000 ? No , This bond is worth more now, because this bond is giving more than what a normal bond in market can provide. What will be price Ajay can charge from Chetan ? It’s very simple maths.

If Chetan goes to market and invests 1,000 , He will get 1,090 at the end of the year because interest rates are at 9% only. So how much should Chetan pay for the bond Ajay is holding as he will get Rs 1,100 with that bond. It’s a simple calculation

=> To get 1,090 at maturity , Chetan has to pay 1,000 in current condition. so ..

=> To get Rs 1 at maturity, Chetan has to pay 1,000/1,090 in current condition.

=> To get Rs 1,110 at maturity, Chetan has to pay 1,100 * 1,000/1,090 today = Rs 1,009.2 (approx).

Which means as Ajay bond is giving 1,100 at the end , Its worth 1009.2 because interest rates moved down ! . So Ajay’s bond commands a premium of Rs 9.2 . You can see that 9% of 1,009.2 is equal to 90.8 and 1009.2 + 90.8 = Rs 1,100 which completes the equation .

Case 2 : Interest rates go up

In the same manner suppose interest rates move up to 12% in market from initial 10% . Now if a person lends Rs 1,000 to someone , he can get 1,120 at the end . Now Ajay’s bond is actually giving less than the new bonds in market . Why will some one pay 1,000 to Ajay to get 1,100 at the maturity , when they can lend the same money in market to get 1,120 at maturity , which is Rs 20 more .

So now if a person has to buy Ajay’s bond they will pay a less price (discount) . Using the same process you saw above you can find out that the new value of bond will be 982.2

=> To get 1,120 at maturity , Chetan has to pay 1,000 in current condition. so ..

=> To get Rs 1 at maturity, Chetan has to pay 1,000/1,120 in current condition.

=> To get Rs 1,110 at maturity, Chetan has to pay 1,100 * 1,000/1,120 today = Rs 982.2 (approx).

Now both the examples I showed you was a very simple example, considering maturity after 1 yr. It was just to give you a brief idea about how interest rates and bond prices are interconnected. However in reality bond pricing is much more complex as maturity can be much more than 1 yr. It can be 5 yrs or 10-15 yrs (SBI bonds). In that case finding a new bond price become a little complex . However the overall funda remains the same . You see what are the future cash payments you can expect from the bond and relate it to the current interest rates and find out the Net present value of the bond in today’s term. We will not go into how the complex formula is arrived at , but I am giving you the formula below which you can use incase you want some time.

Here is the formula which you can use directly for Bonds New price after change in interest rate .

Interest rates and Bonds price change formula

Where

P = New Bond Price

C = Yearly Interest received from the Bond

i = New Interest rate

N = Number of years for bond to mature

M = Maturity value of Bond (generally its same as face value of Bond)

Real Life Example

Recently SBI came up with their Bonds issue. Lets say you invested Rs 1,00,000 in those bonds with maturity of 15 yrs and you are getting 9.95% interest on it and lets say that after 3 months SBI again comes up with another bond issue but this time they are giving interest of only 9% on those bonds. In this case your bonds will become more valuable now as your bonds give more interest that whats going on currently in the market . So now if you want to see your bonds on stock exchange it will quote a higher price which is P in the formula above and lets calculate it. Also lets see what are different variables in this case as per the formula above .

P = This what we have to find .

C = 9950 (9.95% of 1,00,000)

i = 9% (new interest rate)

N = 15

M = 1,00,000 (value you get at the end in maturity)

Now if we use the formula above we will get

P = 9950 * {( 1 + 1.09^15)/.09 } + {1,00,000 / (1.09^15) }

P = 1,07,657.7

Which means you will fetch 7.6% premium in market because of decrease in interest rates . Now you find what will be bond price if the next SBI issue comes with 11% interest ? Tell me in comment section . The example I gave you is based on the formula only and small details are not taken care of which can further affect bond prices in market.

Note that in your life, you make many investments where interest rates come into picture but it’s behind the scenes . I will talk about some of those here .

Infrastructure bonds and other Bonds

You know that we have infrastructure bonds offered in markets , Weather tax-saving or non-tax saving , most of those bonds are going to be traded on stock exchange, so if you bought any of those bonds  in future when interest rates fluctuate , you know 2 things , what is the current interest rates and what is the final maturity value , using just 2 of these factors you can discover what is the current worth of those bonds and incase you want to buy/sell those bonds in stock market , you can command the right price .

Fixed Maturity Plans and other Debt funds

When you invest in Debt funds or Fixed Maturity plans , you give money to mutual funds and the fund manager uses this money to invest in bonds issued by Companies, government and other bodies . Based on the interest rates fluctuations in market they fetch good or poor returns based on their judgement . You as an investor would have more clarity about whats going on behind the scene . Just don’t be an ignorant investor who does not know how things work .

What you should learn from this ?

This article shows you how an investment can become attractive or unattractive based on interest rates, so incase you are planning to buy anything which depends on interest rates , better look at interest rates and study a bit on how it can move in future . If you are planning to buy some bonds today and there is anticipation in markets that interest rates are going to be raised at some time in near future , Your investments today in those bonds will go down in value because interest rates have moved up . At the same time if you feel interest rates will move down , It’s the time to buy those bonds !

This simple information is used by companies and govt to issue bonds , in the recent issue of SBI bonds even though SBI is giving 9.95% interest , if after 5th year they feel that interest rates can move down , they have kept their options open to kick you out of bonds and close the contract. Where as if the interest rates move higher , you can’t do nothing but you are stuck in those bonds for all 10 yrs , unless you choose you get rid of it by selling it on stock markets .

Share your comments about this and don’t forget to forward this article to any of your friends who were always confused about interest rates and bond price relation 🙂 .

Will your children marriage be simple or grand ?

Posted on by Jagoinvestor

Marriages are made in heaven! But what about families who have to fund the marriages by taking loans? Those, who sell their assets and properties for these, at the most, 1-2 day events? Does it make sense at all?

You, as parents have goals for your children education sometime in future. Despite the pressure you undergo today to spend a lot on money for your children marriages sometime in future, will it be relevant to spend so much on that goal?

This is the second series of articles which sees how social and economical changes in our country will have impact on our financial goals in future, so that we can take decisions for saving for those goals today ! (Read first article of the series about Child Education here).

source

When we coach our clients in their financial lives, we see that one of the main goals in their life is “Children’s Marriage.” For most, the present cost of this goal is around Rs 10,00,000, and by the time their children will be marrying, it definitely would cost a bomb!

These investors keep investing money for that goal for several years and work hard all their life at it.

But the question is –

After 20-25 years when the time comes, will it be worth spending so much on this goal? Can’t you lower the target of that goal and instead use the money on something else which would add more value to your life? What about buying a better house? How about living a 20% better retirement than you have planned? Or best, why don’t you just fund the education of say 2 kids from the streets? That to me, is more inspiring, more satisfying and a much better act to boot !

What happens today?

Now a days, marriages have become more of an event where the whole focus has deviated from the main goal of the rituals, the gathering of friends & loved ones, spending quality time and shifted to show-bazzi, razz–matazz, DJs, expensive decorations, partying, showcasing 100 types of food, and functions which last long hours !

And the biggest problem, if it can be called that, is that all this is done for people who actually don’t matter most of the time! I personally come from Uttar Pradesh and I have seen marriages there, If you want to compete with our state in Show-bazzi and non-sense extravagance, I give you an open challenge !

We all know, what is the goal of marriage. It’s bringing together two individuals and their families. They enjoy the event, get to know each other and perform rituals which really contribute to marriage. For people who don’t know, the Arya Samaj rituals which is the simplest and purest form of Hindu marriage, takes only an hour to complete the marriage !

And it has all the rituals from Hindu vidhi! Even with regular marriages it does not take much time to complete the marriage. It’s normally, a balancing acts between parents who push for making sure the “rituals” are there and the current generation who look for speed and simplicity.

As per an Indian study, as close as 15% of all grains and vegetables in India are wasted through “extravagant and luxurious functions”.

Parents and society pressure

Most of the people who are pissed off by the idea of useless spending still have to pass through this trauma because of the parents. Parents have attended all the marriages till date in their “circle” and it was all nice and full of events and 3 days long. Now it’s their turn to show off or at least give back !

No matter how much logic you can throw at parents in doing a simple marriage with less people and a low budget, it still does not help!

Even though we are in the 21st century, the majority of parents still start saving for their daughters marriage from day 1.  I say daughter’s marriage because its considered as the bigger headache and there is this ‘rule’ in our society that girls side bear the main expenses. What a cheap mentality is this !

If its going on from years, we have to change it, but lots of guys family still show as if they are bound by some imaginary forces to follow it !  Shame ! .  A lot of families go into debt because of this “happy event” in their daughters life. They sell their land, houses at times, & even mortgage their assets to fund marriages.

Is this a happy event or a sad one?

Why do people spend in weddings in the first place? There is enormous pressure in the conservative society for marriage spending. These are costly social get-together’s, in this country of more than 900 million middle class and poor people. In the marriage celebrations, the hosts have to feed couple of meals to some 500 to 1000 guests.

They have to give gifts to some 50 to 100 relatives and wedding guests. The cost of lighting, flowers, decoration, booze, music, dresses and gifts to bride and groom, and travel expenses often hits the economic foundation of most families.

I personally know families, in which a man loses almost all his retirement benefits to get two of his daughters married, even when there is no dowry involved. For a middle class person, even the simplest wedding can cost rupees 5 lakhs (half a million rupees).

Does society or culture coerce people directly or indirectly to bear huge expenses during marriage of their children? Yes. People are coerced or forced by the culture to spend money to prove themselves in front of friends, relatives and neighbors. It is a social expectation imposed on people, which tramples their freedom and choice to lead a dignified life.  – by Desicritics

How our Indian marriages and our customs took their shape !

Lets flashback few centuries back and understand how the procedure of marriages got to where it is today. In earlier times, it was parents who decided who the life partner would be. In most cases, the girl and boy would not have even seen each other!

Marriage was then, actually an event of getting every one familiar with each other – all the relatives, neighbors, friends, everyone came with purpose of getting along, and knowing each other. And it was an event which was “opportunity to meet!”  People lived far apart, and communication & travel wasn’t as easy as it is today.

Marriages were therefore long events with series of ceremonies and rituals . A strong reason for this was that girl can spend more and more time with their future family members and get familiar with her “new” life & family. With the passage of time, the real meanings have been lost and only the rituals remain.

What do people think about Indian Marriages ?

I conducted a survey few days back and there was a great response . I came to know what urban Indian (mostly metro’s) thinks about Indian marriages and some interesting results came out . See the survey report which I have created out of it .

Most of the people participating in the survey said that they feel marriages should be simple and fast, which indirectly tells that there should be less spending on marriages. However still a quarter of the participants said that it should be a grand event as its once in a lifetime event and hence deserving of expenditure!

There was also a interesting pattern seen on what people think about who should be part of a marriage. There were equal number of people who opted for “close family and friends” as well as “All the family, relatives and all kind of friends.”

Some even went ahead to say that they would like to call everyone who can embarrass them later saying “Arre yaar, tumne bulaya nahi” .. Believe me whoever says that kind of sentence never actually comes anyway! You can safely request him to come and then forget about him/her 😉 .

This clearly shows that while most of the people would like to spend less on their marriages, they still feel the pressure of society and therefore would would like to invite people. This is very obvious, given the way our society is shaped.

While a person attends many marriages in a year, only 1-2 of those marriages are the one which he actually cares about. Most of the others are just a formality. Imagine, while just inviting others is a headache, even the person whom you invite, also gets a headache of attending it!

Attending marriage is also becoming like actually getting organizing a marriage! No one wants to do it, but everyone has to do it!

As many as 58% of the survey participants said that if they attend a marriage, it has to be fast and simple as its just another formality for them, 12% even went ahead and declared those events to be a headache for them. Only 30% participants said that they would love to attend marriages which are grand, after all they are guest ! .

All ceremonies are driven by “Looking Good” factor

We live an ordinary life but our eyes would like to capture things in movies or television shows which are larger than life. Most Indian weddings shown in Indian movies and television shows are larger than life. They are shown as if our entire life is about spending on weddings and nothing else.

While watching movies we forget that everything is fake, it is not a real wedding happening on screen. The scene is created where everything shown is picture perfect. ‘Everything is created so that it LOOKS GOOD’.

When we have a family function each person wants to look good or wants to avoid looking bad in the eyes of relatives. They want the event to be the best, they want it to be different, they want people to say “kya kharcha kiya hai, kya baaat hai”.

This is what it’s LOOKING GOOD, nothing else.

The spirit of celebration is quietly taken over by the looking good factor. Most people don’t know this, they are not present to how the looking good factor is running their financial life. They simply want to look good and inside of that they over shoot budget, invite more people to the event and will try his level best to impress the guests.

Looking good element is not only present in the Host , please don’t be mistaken. It is fully present in the guests who are invited. When we receive an invitation to attend any marriage or function we attend the event just to look good.

We go to the functions thinking “Nahi gaye toh aache nahi lagega”. Even the gifts we give on each wedding or occasion is decided by the looking good factor inside us. (Think about it). By the way where is all this coming from.

It is either to look good or you want to avoid looking bad when it comes to attending functions, giving gifts, organizing events. Some say it is my first son getting married so I will spend, some say it is my last son getting married so I will spend.

NO BOSS it is simply the looking good factor running the financial show of your life.

The point is you can go beyond “The looking good factor” you can get in touch with your true self-expression and focus on celebration rather than burning your hard earned money just to look good.

We have served dozens of our clients and almost all of them have been victim of this “Looking good” and messed up their financial life. however we have been successful in coaching them on how they should come out of this “looking good” and concentrate on a bigger goal in life , which is attaining financial freedom. I am sharing this with you, because I don’t want you to be one more victim of looking good factor. If you can get this lesson, you can design and live a simple yet extraordinary financial life.

But marriage is a one time event and to be remembered !

I agree !

Who’s stopping you from making it memorable and enjoyable? Life is to make each moment memorable and marriage is an event which has to be memorable. However do it in your capacity, thinking past and future and what impact it can have on you , not others.

If you want to spend 20 lacs on marriage, and you can afford it, then damn it all & just go do it! But shower it all on your family and people who matter, do it on people for whom you will be happy with, do it for everyone whom you will miss if they are not part of the marriage.

Instead of wasting it all on 750 people, of whom 600 are just weird acquaintances, better spend all 20 lacs on just 150 who are close to you and you would not regret spending it all on them. I would suggest, spend 15 lacs on marriage and go for a amazing honeymoon with those 5 Lacs!

Your spouse will love you for at least next 2 years for sure! Guaranteed! 😉

However if you spend 20 lacs on those 750 bums and are irritated at each moment, and then complain that real estate prices are high, paisa nahi hai, kaisa karenge, and all, then God help you! You choose your path and boy, please work on your emotional quotient! 🙂

Marriage’s in future

Now coming back to the point, If this is the condition today, in 2011, you can only imagine the scenario after 20-30 years. In this new India, more and more people are travelling to other parts of country, settling in other states, mingling with other communities and end up marrying with other castes.

This will only rise in future , not come down. Which means marriages will have to be more simpler. People will have much lesser time than today for “external” events .

With everyone busy in the rat race of life, and with new breed of individuals who will be “us”,everyone who will be part of your children marriage would be your friends and relatives who are almost of same age, and hopefully think alike and will be wise enough to accept that “uske ghar ki shaadi bade sidhe sade tarike se who rahi hai”.

We would not mind attending faster and simpler marriages.

So I want to give you no suggestions today; just food for thought. If you have a goal of your children marriage, discuss with yourself, rethink stuff…

It might happen that in future you might not have to spend so much money on marriages because the situation and those environment might not demand it. It may be they don’t even care for it! You might be losing on some other goal or some sleep over night on these points!

Experiences of Readers about Indian marriages

You can skip this part now if you wish to, I am just sharing some of the experiences of readers who have taken the survey and shared their personal views on Indian marriages .

Reader 1

Today people spend so lavishly on their son/daughter’s wedding like never before, even when they have to take personal loan for it. I really don’t understand the reason behind all this, I guess this is to do with their social/personal image.

Who dont want their daughter to be happy and not to face any taunt from future in-laws because uski baap ne uski shaadi acche se ni ki?? Maybe this fear makes them spend so much..!! For these people, I have a question, does spending so lavishly on their son/daughter’s wedding boost their social image and stop the taunt from in-laws family (PRACTICALLY)?

Did they work hard and save whole life to spend like this? Why not spend it on their own vacation, son/daughter’s honeymoon, things they desire most in their life etc? Why not buy a home they desire for (if they don’t have one), why not plan for retirement?

Why not use the money they want to spend to fund poor & needy child’s education than to spend on decoration & food at the marriage on rich & well settled family and friends (read everyone) who can say “arrey yaar, tumne bulaya nahin!”..

I am sure, the marriage can happen in small banquet hall (lawn) with only close friends and relatives invited, sharing the happiness immensely than to manage large crowds seeing your hard earned money flowing like daru from the bottle forming the ocean.. Shadi 3 crore ki can become shadi 3-5 lakh ki with happiness multiplied many times!

 

Reader 2

Today’s marriages are more of a show – “my cousin had a grand wedding, I will show them what a ‘grand’ wedding is next month when my son gets married.” It’s more like the Onida advertisement – neighbours envy sort of thing.

One who has attended a relatives wedding feels he can do a better show of it , like ‘people will forget that wedding, they will remember my wedding for a long time to come.  All show. I say go feed or look after some really needy people in that money spent on the lavishes of the wedding. Keep the wedding simple with minimum rites as required.

 

Reader 3

Few thoughts on the way today’s marriages are conducted these days in our country ( I may be little over the top being a bania 🙂  . First about the marriage ceremony itself – they are all the same.

A large glittering hall with a huge gathering of unrecognized people and a very few close friends / relatives. What’s the point of such expense ?

I’d think couple may be better off performing a simple marriage ceremony & utilize the money saved for themselves – expense on close friends / Honeymoon / Car purchase / House purchase etc.

Second, the marriage invitations have become much more transactional than an emotional invite. Your option of “Anyone who can say tumne bulaya nahin” captures that (wonder how many people will select it 🙂 ).

People invite everyone they can remotely relate to (it’s high fixed cost anyways as per grand arrangements – adding few people doesn’t matter).

If the ceremony were to be conducted in simpler manner, a much better & thoughtful function / reception party can be arranged for fewer people with lots of personal attention & hospitality that makes the event memorable for all rather than “aaj phir ek shaddi mein jana hai…dinner karke zaldi aa jayenge” 🙂 .

Ofcourse our parents generation for whom shaddi is an event to call upon the whole society would disagree. It ‘ll be nothing less than a crime not to call upon all and spend it all on a marriage.

I ‘d think as the current generation takes over the role of parents and arranging for child’s marriages (hopefully they will let us :P), we might move towards simpler marriages and grand functions for a lesser number of people.

 

Reader 4

Marriage used to be a divine affair, 2 people getting together and taking oath to live together until death, through thick and thin. Today some of the marriages I visit are more of wealth show and ego pumping affair for the couple and their parents.

Sure, those with hidden black money would want to spend it all here (visit a marriage of a real estate developers son/daughter, you will know).

I am a South Indian, and had visited a north Indian friends marriage in UP. It was an high expenditure marriage, with great food and gifts to all attendees.

Everybody enjoyed the food and drinks, and by the time the mooharat, started (midnight), there were hardly a handful of close relatives left to witness the rituals. It made me realize how fake and shallow Indian marriages have become.

How will Budget 2011 affect you ?

Posted on by Jagoinvestor

How much will you benefit with this budget ? There are some direct and indirect effects on a common man due to this budget which we will look in this article point by point . There has been not a major changes on exemption limits, but there are some changes which aim to simplify the whole process of Income tax.

Budget 2011 India changes

Tax Exemption limit raised

Earlier the limit of exemption was Rs 1,60,000. It has been raised from 1,60,000 to 1,80,000 . Which means roughly Rs 2,000 saving for individuals. For women, the exemption limit is at the same 1,90,000 .

Senior citizen definition and limits

Senior citizen definition is changed. Now any one above age 60 yrs will considered as senior citizen, earlier this was 65 yrs . This is a good move as more and more people will be able to enjoy the benefits of senior citizens. The exemption limit for senior citizens was also raised to 2,50,000 from previous limit of 2,40,000 .

No Tax Return filing if income less than Rs 5 lac

This has been the best point of this budget , from years small tax payers who were having smaller salaries had to go with the cumbersome process of filing tax returns , But from now on tax payers having income of less than Rs 5,00,000 will not have to file their tax returns, if their TDS is cut by their employer.

But incase one has additional income from other sources like dividends, capital gains , interest from Bank deposits or Income from House and Property etc , in that case they will have to file the tax returns or they will have to notify their employer in advance about these additional source of income so that the employer can take these points in consideration and deduct the extra TDS. In this case employees form 16 will be treated as their tax returns. This change can be a bit of blow for tax return filing service providers, a big relief for small tax payers who are purely salaried.

“CBDT will be issuing a notification, which clarifies about the  ‘classes of persons’ exempted from the requirement of furnishing income tax returns. This will be implemented for the year 2011-2012 and will come into effect from June 1, 2011” – said Sudhir Chandra , CBDT chairman .

New category called “Very senior citizen”

There is a new category of senior citizen called “very senior citizen” in this budget. Any one above 80 yrs of age will be under this category and they will not be taxed up to the income Rs 5,00,000 . While this looks a nice addition, the benefits of this move should be very limited, as I wonder how many 80 yrs old will have their personal income more than 5 lacs in our country. But it’s would be a good strategy to gift a big lump sum to very senior citizen and let it be invested on his name and generate income for him.

Infrastructure bonds extended by one more year

We saw the introduction of Infrastructure Bonds last year which can save you additional Rs 20,000 exemption other than sec 80C. In this budget , the this benefit is extended by one more year . Which means that in 2011 – 2012 also you can invest in Infrastructure bonds and save some tax.

Insurance policies other than Term Insurance to get expensive

In this budget, our financial minister has warned all the insurance companies to have a deeper focus on pure risk cover. Service tax net has been widened to insurance policies which have “investment” component, which means ULIP’s , Endowments plans , money back plans and even return of premium term insurance plans will have a higher service tax on the premiums. Earlier there was 1% service tax on the premiums, but now it has been raised to 1.5% . Which means that incase your premium is Rs 50,000 in ULIP , you were paying service tax of Rs 500 earliar, but now it would be Rs 750 , which will be adjusted from the premium itself . So that gives another reason to opt for term insurance now ! .

Medical , Air-travel and hotels becomes Expensive

Healthcare , Air-travel and expensive hotels is set to become more expensive due to some changes in this budget. The changes are

  1. Health check-ups done by hospitals with more than 25 beds or those with air conditioning will now be in the service tax net .
  2. There will be service tax of 5.15% on  hotels where the tariff is more than R1,000 a day or they are air-conditioned restaurant that has a licence to serve liquor.
  3. The service tax on economy class airfare has been increased by R50 to R150 on domestic sectors and by R250 to R750 for international travel.

So you will have to add some more thousands to your bill incase you were planning to go on vacation with your family and it required air travel + hotel stay !

Day to-day basic items to get costlier

There is excise duty of 1% levied on 130 items which includes day-to-day items like tea, coffee, sauces, ketchup, mobile phones , soups and all kinds of food mixes, ready-to-eat packaged foods . This would mean a bit of cost increased on them .

DTC coming in 2012

Financial minister has once again confirmed in his speech that DTC will be implemented from year 2012 . As per this article DTC would affect the NRI definition and it would negatively impact them.

Employer contribution towards NPS goes out of sec 80C

If your employer was contributing towards NPS , his contribution was eligible under 80C , but with this budget while it will still get tax deductions , it would come out of 80C , which means that some space will be left under 80C for people whose employer was contributing in NPS . The person can now invest more in sec 80C because of this .

Tax Slabs India 2011

Comments ?

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