Will your children marriage be simple or grand ?

Posted on March 5, 2011August 6, 2019 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 March 2, 2011January 4, 2015 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

Health check-ups done by hospitals with more than 25 beds or those with air conditioning will now be in the service tax net .
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.
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 .

Comments ?

What you you feel about this budget ? how are you affected ? Do you see as a good budget or as a bad budget ? Download this great ebook by Livemint on Union Budget incase you want to dive deeper .

Importance of your Child’s Education plan in coming times !

Posted on February 27, 2011December 4, 2019 by Jagoinvestor

So, what’s your biggest financial goal in life? Your Child’s education? Their marriages? Planning your own retirement? What is the strategy you’ll follow to reach these goals? What if I tell you that in the coming times, your way of looking at these goals needs to change?

You can’t look at goals the same way as your parents did! The lives & times of our parents, ourselves and our children will have lots of differences; difference arising because of the way our society and economy changes from year to year, decade to decade.

Let’s question the beliefs we have about some financial goals in our lives, how we should change our way of looking at them and planning for them. I believe this is really important; important enough to cover this over a series of articles. This is the first of a 3 part series and we will cover Child Education in this series.

Child's education

Let me start from basics. Here’s how typical financial planning works in India. A financial planner captures your situation, helps you define your goals and then he plans for how those financial goals should be achieved. Take any financial plan and topmost goals are

Retirement Planning
Child Education
Child Marriage

For years, traditional financial planning has been going on like this, & no one questions the way we plan for these goals and how much importance we give to these goals in our life. Note that these goals take up a good amount of your monthly investments and you end up with less money each month!

How will you feel if after 2-3 decades you realize that you shouldn’t have worked so hard on these goals?

How is Child’s Education Planning done in India?

Right now, almost every average India plans for their child’s education in an unstructured way. They just put some random amount in some generic financial product, without understanding how much would they require at the end, when the goal actually arrives.

The amount of investment done is guided by the potential of a person or some whole number like 5,000 per month or 10,0000 per month.

Normally Financial Planners will take a better and more structured approach to plan for your child’s education. They would first take the amount required for funding education in today’s world (this is often given by you).

They then, take the target date of the goal (for example, 25 years), assume an “education Inflation” to figure roughly how much education could cost in the future, plug-in other important factors like “regular inflation”, “Your earning potential”, “Increase in your investments each year”, “you risk appetite” and some more factors to figure out the amount of money you need to invest monthly or yearly to reach that goal.

There can be many variations to plan, but this is how most of the financial planners plan for the child’s education goal.

Watch this video to know the best investment for newborn child’s education:

What’s the problem in child education planning?

The problem is that we have taken into consideration changes like inflation, costs, etc., but not considered other factors like how these goals will look like in the future. Whose responsibilities will be it seen as? Who will be responsible for taking care of funding the education costs?

Will it be the parents, the child, or both – the parents and the child?

Planning for child education is not just dependent on the numbers, rather it’s a combination of a number of factors; social, personal beliefs, religious, your way of approaching & looking at life…

In the image given below, you will see the steps of a child’s education planning:

Steps of child's education planning

If you are a person who has seen enough hardships in life and have taken care of yourself right from the beginning, you may believe that your duty as a parent is to provide minimum support to your child, up to a certain basic level and they should become independent, sooner or later and that their life is their headache, not yours.

As far as our society goes, earlier providing a great education to children was seen as a passport to a good retirement, because you do your duty of providing support to your child, and in turn, he completes his responsibility of taking care of you in your old age.

But friends, the times are a-changing! Gone are those days and people and relations are going farther and farther. Even in Health Insurance, family means immediate family (spouse and children), not parents.

We are entering (or have already entered) an era where parents will provide for their child all the necessities up to the age of 18, then consider him or her, “self-dependent” , and then expect him/her to make their own path in life.

So the question which we are trying to answer here is, Is “Child Education” so important in today’s life? Or more, will it be so important after 2-3 decades? I don’t think so.

Change in social trend and our thinking

For years, it has been the parent’s responsibility to save money for their child’s education. His grandfather saved for his father, his father saved for him and now he saves for his children.

But will this chain of “responsibility” be the same always? Will, it always be the sole responsibility of the parent to save for his child’s education and in case he fails, is he or she a bad parent?

In 70s and 80s , it would be a really, deadly shock for a child if his parents told him, “Listen, we as Indian parents know that we should help you with your education, but sorry old chap! We can’t! We would rather prefer to keep the money we saved, for our retirement. You go right ahead please, & find some alternatives to fund your education. You can live in this house till you find another one.”

The child would have gone straight into a coma after hearing this! You would also be shunned by friends, relatives & society at large and labeled as an unsupportive and bad parent because you didn’t do your duty!

Education Loan is the new tool for self-funding

In the new India, it’s not a big thing to hear that someone is doing his studies with the help of an education loan. The trend is not really new, but it has started gaining popularity only recently in the last 10 years or so. SBI was the first bank to start giving Education loans in 1995, but it was not really sought after much in those times.

Only now, do we see increased awareness and a shift in parents’ mindset that “It’s fine to take education loan.”

Even so, taking an “Education Loan” is the last option for most people, rather than the default choice of parents and children. Parents do everything they can do to fund education and only if they fail, do they opt for a loan. It’s still not seen as the best option to fund education by the majority of the population. (though this is changing)

More and more people are opting for higher education after a first job, It’s not uncommon to hear people pay back an education loan EMI while they’re working, so you can see the trend emerging now. It’s only going to grow bigger and bigger and take a big shape.

Some Stats

There is a steadily growing market for education loans and govt is also encouraging and setting better targets. Banks had given Rs. 35,000 crore in education loans last year. The government has set a target to increase the amount in education loans to Rs122,838 crores in 2017 and Rs1,66,541 crores in 2020.

This would help increase the enrolment ratio from the present 12% to 30% by 2020. (source) .

Here is the chart which shows you the relative size of education loan disbursed by banks and you will be able to see the fast growth. Given the number of youth our country has, there is a huge demand as well as supply for loans.

eduation loan in india

As per a survey, 81% students would like to go for education loans if they are eligible for it. Only 2-3% of Indians apply for education loans compared to 85% in the UK and 50% in the US (2005 data).

Don’t stress a lot on Child Education

The motive of this article is to give you some idea about future and how child education will look like. This article is not discouraging you to save for your child education. The only point is that you can take some of your tension away from it, atleast partially. In the coming times, there can be more important goals in life, which needs more priority.

If you are an earning member of your family and feeling the pressure of creating a corpus of several lacs for your child after 20-25 yrs, I would suggest lower your tension! 🙂

While you can still save and plan for that goal to fulfil your “kartavya” as Indian parent, I say, don’t worry so much. Your target amount might be correct, but don’t worry, the India of 2040 will not ask you to fund 100% of your child’s education. If you even save for 50% of what you have planned, rest would be funded by education loan.

Don’t become slaves to numbers! Understand and be with the changing India! Focus on some things more important in your life! We will talk about these in the last article of this series.

Please share your thoughts about this topic? How much do you agree with this way of thinking about a Child’s education?

Disclaimer : All the thoughts are purely authors opinion and does not reflect the opinion
of financial planners.

4 Home Loan rules most of the investors don’t know about

Posted on February 22, 2011December 4, 2019 by Jagoinvestor

Can you claim a tax deduction for your under-constructed house? Can you claim tax for the home loan taken from your friend and not from Bank? These are some of the questions which are not generally discussed over and a lot of investors have no idea about actual rules. In the video below I will talk about four not so known rules of home loans. Keep reading. Readers on email can watch the video on this article.

1. Tax deductions for House under-construction

Can you claim tax benefits for home loan taken for under-construction house? A lot of investors assume that they can claim tax deductions and without doing much research, they go ahead with the loan. However, they should know the fact that claiming tax in the case of the under-construction houses is different. You cannot claim the tax deductions for the principal amount for the under-construction house. You need to have possession and certificate of ownership to claim tax under 80C. However, the Interest part is a little different. You can not claim the interest amount unless you get the possession of the house. However, you can always claim the deductions later in 5 equal installments for the next 5 yrs from the end of the financial year of possession.

Example : Suppose Ajay bought a house on loan on 5th June 2010 and he pays total 4 lacs as interest in next 2.5 yrs and gets possession on 7th Nov 2012 . He will be able to claim this 4 lacs Rs in equity installments in the next 5 yrs period , which is 80,000 per year in 2013 – 2017 . However the total limit for exemption will still be 1.5 lacs per year.

2. Selling the House before 5 yrs reverses the tax saved earlier

We think of saving tax, but once the tax is saved for a particular year, it does not mean the story ends here. The tax benefit under sec 80C is allowed for home loans considering the condition that it won’t be sold before 5 yrs from the date of purchase. Read some nice tips for house buying from real buyers

If you sell your house before the expiry of 5 yrs, all the money you saved under sec 80C in earlier years will be deemed to be your income in the year of sale and added to your salary. For example, if you bought the flat in Oct 2010 and in the next 4 yrs you saved 1 lac in tax under sec 80C, then this 1 lac will become your income in the year of sale and will be taxed. However, the interest component once saved is saved and it won’t be reversed.

The tax benefit under section 80c is allowed subject to the condition that house property should not be sold before a period of 5 years. If you sell the house before the expiry of five years from the end of the financial year in which you obtained the possession, the deduction will be discontinued and the entire tax deduction claimed in earlier years under section 80c – for repayment of principal component of the home loan – will be deemed to be your income (in addition to capital gains) in the year in which you sell the property. However, the housing loan interest deduction claimed under section 24(b) won’t be reversed.

3. A loan taken from Friends and Family is eligible for Deductions (Interest)

In case you want to take a loan from your friends, parents or any other person, you can still claim the interest on the loan under sec 24, which is up to 1.5 lacs per year. However you can not claim the principal amount under sec 80C, that’s applicable only if you take up the loan from some bank or financial institution. So you don’t always need to take the loan from Bank. if you can take it from a friend or family, you can still claim tax deductions on the Interest part.

4. 80C is not allowed for loans taken for Extension or Renovation of House

If you take a loan for extension or renovation of your existing house, in that case, you can not claim the principal part under sec 80C, but you will be able to claim interest amount under sec 24, but the limit, in this case, is only up to Rs 30,000 for self-occupied properties. However, for houses which are let-out (a rented or second home which is not occupied), there is no limit for a tax deduction.

Comments? Which one of above 4 facts you didn’t knew about?

SBI bonds @9.95% , Who should buy ?

Posted on February 17, 2011December 4, 2019 by Jagoinvestor

SBI retail bonds or SBI bonds are the latest offers from the State Bank of India. These savings bonds issue will open from 21st Feb 2011 and closes on 28th Feb 2011.

These bonds are offering attractive interest rates to investors which are better than even fixed deposits, however, it does not suit every kind of investor. Only if you are looking at income generation, these bonds will be good for you, but if your aim is capital appreciation, you will benefit by investing in PPF instead of these bonds.

Lets look at the details of these retail bonds . .

SBI retail bonds

Tenure and Interest Rates on SBI bonds

These SBI bonds will come in two variations. The first one is with 15 yrs maturity period offering 9.95% interest and the other option is with 10 yrs maturity period offering a 9.75% interest rate. Note that these interest rates are applicable only if you are investing less than Rs 5 lacs (retail category).

If you invest more than Rs 5 lacs then you will come into the category of non-retail investors for whom the interest rates are 9.30 percent for a 10-year bond and 9.45 percent for 15 years bond. The interest offered by these bonds is a payable yearly, which makes them a great alternative to Bank Fixed Deposits.

Following is an illustration which will clear a bit about how it works.

Ajay invests Rs 1,00,000 in 10 yrs SBI Retail bonds. He is entitled for 9.75% interest each year. So he will get Rs 9,750 per year for next 10 yrs . Note that each year this interest amount of Rs 9,750 will be added to his income and he will pay the tax on it accordingly as per his tax slab.

He can sell off these bonds on stock exchange incase he is getting a good deal . One more thing which can happen is that SBI can force him to sell off the bonds back to them if SBI exercises their “call options” , which we have talked about below ! .

Call option

There is something called “Call Option” in these SBI Bonds. For people who are familiar with “Futures and Options” , they know that a Call option is nothing but “Right to Buy” . So as per this call option, SBI has the right to buy back these bonds from you and terminate the contract with you much earlier than the actual maturity.

If they choose to “exercise” the call option, SBI will pay the principal back to you. For 15 yrs bonds, the call option can be exercised in 10th yr and for 10 yrs bonds, the call option can be exercised in 5th yr. Note once again that it’s the right of SBI, not yours.

For example: If you buy 15 yrs bond in 2011, then if SBI wants to buy back the bonds after 10 yrs which is the year 2021, they can do it. In which case, they will pay back the principle amount to you and close the contract. But in case they dont want to do it, they will continue the bond and you can’t do anything :).

How to Apply for SBI Retail Bonds

There is no way to apply for these bonds online. You will have to physically go to SBI Bank and get the form from there and fill it up (See the list of all the designated branches of SBI in PDF and EXCEL format, thanks to Babu for providing the list).

However, these bonds will be issued in Demat form only and therefore you will need to have Demat account for buying these Savings Bonds from State bank of India. So be clear on two points

You need to have Demat account to apply for these SBI Bonds
For applying you need to go to SBI Bank Branch and fill-up the form , there is no way to apply online

sbi retail bonds summary

Listing on Stock Exchange

One great thing about bonds is that they are listed on a stock exchange so that you can buy and sell them in the secondary market in case you want to exit from it before maturity. SBI retail bonds will also list on the stock exchange after 1 month of the issue, after which you can buy or sell them on the stock exchange.

Last time when SBI came with a similar issue, the buyers benefited a lot because the bonds listed at 5% premium on the first day itself, so there was an instant 5% gains for those who bought these bonds. However, there is no guarantee that it will happen again.

Taxation

The interest which you get from these bonds will be taxable. The interest will be added to your salary and taxed accordingly. Also, these bonds do not give you any tax benefits on investment amount and are not covered under sec 80C. So effective return for these bonds will be much lesser for investors in 20% and 30% bracket post-tax. Watch this video on 7 tips of saving tax

Should you Invest in these bonds?

So the main question anyone will ask is “Should I invest in these bonds?“. It would depend on your goal as an investor. Just by looking at 9.95% you cant say that its the best investment. Note that the interest payout if yearly. It’s not compounded like your PPF or FD’s. This means that the returns do not earn anything on it later, but its paid out to you.

So in case, your goal is to generate yearly income at decent rates, It would be a nice investment. However if your goal is capital appreciation and you are looking at the growth of your investments, these bonds would not be the best option. Note that even PPF would give more money to you at the end.

Below is a chart that shows the yearly amount you have got by the end of each year.

SBI bonds vs PPF

You can see that in the case of PPF you are having more money with you even though the interest you get on it is just 8% because of the compounding of money which is happening there .. However, in the case of SBI bonds, it’s not the case.

Here the reinvestment of those yearly payouts is not taken into consideration. So the point here is that if you want yearly income, only then these bonds make sense.

What about interest rates in the future?

But the only suspense is what will be the interest rates in the coming years? What you don’t know is how interest rates will move in the long-term and if interest rates offered by these bonds will look attractive in the future?

SBI might not be too dumb to offer these returns for such a long-term. Here is an except Deepak Shenoy …

“why is SBI doing this? They don’t need to. They’re really smart people. Let me reiterate that. SBI has extremely smart people. If they could have offered a lower rate, they would have. That means this is actually a low rate compared to what they expect rates to go to.

Meaning, there will be more rate hikes, and the 9.95% that looks good now, won’t look so great if you can get, say, 12% outside. (Don’t tell me 12% is out of reach, please. Even 10% was out of reach a couple of years ago) So that’s the risk – the feeling of regret if rates go up to 12% – in fact, you will think of it as a “loss” because the market value of the bonds will be below par, in that case.

But if you have a different view on interest rates or can swallow such regret, go ahead.” – Excerpts from Deepak Shenoy on his blog post.

Some Great Advice from Experienced Investor

In case you are going to buy these bonds, you need some real-life tips. One of the readers Mr. Sundar shares some good and worthy points based on his experience of applying in these SBI bonds in 2o10. Read it below …

1. Apply in retail quota and do it on the first day. It is first to come first depending upon the day. I applied for HNI Quota and failed. Retail gets preference over HNI. Read the offer document carefully.

2. Those who apply for 15-year bonds get first preference over the 10-year bond applicant. Read the offer document carefully. So don’t apply for 10 years if you want to improve your chances of allotment.

3. SBI Bonds are listed on the NSE as N1 and N2. Go to NSE Website and search for SBI equity. You will get SBI, N1, and N2. Trading per day is not that good. 15-year bonds are trading with a premium of 4% (N2)and 10 years (N1)at 2.5% as of yesterday.

4. On the whole this offering is good. But if you are looking for holding it up to maturity you will be shocked to know that the gains will be treated as interest and not as capital gains. So it will be better to sell this bond in the market in which case it will be treated as capital gains on Debt Funds.

Unfortunately, the trading is small and only small lots can be sold on a per-day basis. See the trading pattern on NSE.

Other Features

There is no Loan facility on these bonds. You will not be able to pledge these bonds for taking the loan.
The minimum investment is Rs 10,000 and the maximum is Rs 5,00,000 for the retail investors.
NRI and PIO can’t apply for these bonds
CRISIL has assigned a rating of “AAA” to these bonds which comes into the “safe” category.

Comments? Have I missed anything in the article which you want to point out? Are you investing in these bonds?

Calculate returns from your Insurance Policies [Video]

Posted on February 12, 2011December 4, 2019 by Jagoinvestor

How many times have you come across a situation when you wanted to know the returns from your Policies , It can be Endowment Plans, Money-back plans, Pension plans or a ULIP plan . You might be some money going out of your pocket in some years and money might be coming in your pocket in some years, which would eventually translate to some return overall . In this video tutorial, we will see how you can use MS Excel and use a tool called IRR (Internal Rate of Return) to find out the returns from your policies.

When can you use IRR?

Actually, IRR is a tool which you can use in any kind of situation where you are paying some premium across some fixed time frame, like per year or per month or any period with equal gaps! , not random payments with unequal gaps.

For the sake of simplicity, I have taken the case of yearly payment in this article. In the above video, I have covered 4 types of situations, like See More Financial Calculators

Endowment plans with maturity amount
Moneyback plans with money coming back to you in between
Pension Plans
ULIP Plan

Important Points

There will be years when money goes out of our pocket, we have to put negative value. For example, if we pay a premium of 20,000, we will pay -20,000.
In years when we get some money, we have to put positive value, like if we get 20,000 in some year, we have put +20,000.
If we pay a premium of Rs 20,000 in some year and we also get 25,000, eventually, the money coming to us is Rs 5,000, so we put +5,000 for that year.

Bonus Quiz to test your understanding!

Ajay bought a pension plan with maturity tenure of 15 yrs , but his premium paying term was only 10 yrs . So he does not have to pay anything after 10th year .

He is paid the premium of Rs 40,000 each year for 3 yrs, but after that he missed paying premiums for 4th and 5th year. He revived his policy in 6th year and payed 6th year premium along with 4th & 5th year premium with 8% interest (8% interest on 80,000) in the 6th year and thereafter He continued paying the premiums after that till 10th year . After the maturity period of 15 yrs, he has two options

Option A) Get 4,00,000 lump sum + pension of 25,000 for next 40 yrs , starting from 16th year

Option B) Take the lump sum of 10 lacs and Policy terminates

Question : Which option should Ajay choose ? which one is better than the other ?

Lets see who gives the right answer !

So now if someone tells you that you can invest Rs XXX for Z yrs and get amount Y for next ABC yrs you can find out how much IRR its turns out to be , if its claims to be a safe fund and IRR is more than 9-10% , you can clearly see that its a pure cheating ! .

Your Homework

Now go back and take out your ULIP’s , Insurance Plans and use this method to find out what is the return you are getting out of those policies , are you satisfied with it? if not , its time to rethink if you really want to continue those plans or not . Take Action !

So , go ahead and calcualte the IRR for your policies and ULIP’s and Share your examples and numbers with everyone on the comments sections , I will personally verify each one’s number and confirm if those are right or not . Happy IRR’ing !

LIC Bima Account Policy [with Return analysis]

Posted on February 7, 2011December 4, 2019 by Jagoinvestor

LIC Bima Account is the latest product launched by LIC of India on this festive tax season (generally known as JFM, JAN-FEB-MARCH, Tax saving season). There are mainly two varieties of this insurance plan called LIC Bima Account 1 and LIC Bima account 2, which differ a bit in terms of premiums, tenure, etc. No wonder that it’s the best time to launch the insurance plan as everyone is looking forward to investing in tax-saving, and when something has a tag of “Guaranteed returns” + “LIC” , its an instant favorite :).

LIC Bima account comes under sec 80C, you can save income tax on the amount invested. A lot of risk-averse investors will be investing in these plans. However, It’s important to know what these plans have to offer in terms of returns and see if it’s as transparent as it looks like. The company claims to pay a 6% return, but will it be 6% by the time it reaches your hand? Let’s look at it.

LIC Bima Account

Did you notice the above picture? It’s very much related to our financial services industry. Every other financial product has a face, which is shown to public, but if you analyze it further and look at it from the mirror of IRR, you can see its real face which is too horrifying sometimes .. Be it ULIP’s, Endowment plans and even PMS schemes, every other product has some real face which we need to find out . I have tried it find the real face of LIC Bima Account policy here. It’s up to you to decide is it beautiful or not!

Features of LIC Bima Account 1 and LIC Bima Account 2

The chart below gives you an idea of both the variants of the policy. While LIC Bima Account 1 is for investors who can pay smaller premiums, Bima 2 is for investors who are looking fo paying higher premiums.

LIC BIMA ACCOUNT INSURANCE PLAN

The lock-in period for these policies is 3 yrs, You can surrender the policy after paying the premium for 1 yr, but you will be paid back only after completion of 3 yrs lock-in period. The common part of both the plans is that you will get 6% returns from these plans if you continue paying the premiums till maturity, but only 5% return if you make it as paid-up policy. There will be a bonus also paid by LIC in these plans, but it would depend on the company experience with the plan and bonus is not guaranteed. Also the bonus will only be applicable for investors who have completed the whole tenure.

Important: Taxation of LIC Bima once DTC is in Force

Another important point worth nothing is taxation of LIC Bima Account policy after the Direct Tax Code is in effect. As per DTC, the tax exemption will be allowed only if the Sum assured is more than 20 times the yearly Premium, however, both LIC Bima Account 1 and LIC Bima Account 2 offers options where a person can choose Sum Assured which is less than 20 times the yearly premium (see the chart above).

In that case, they will be able to claim the tax deductions in this current year and next year also, however there after they won’t be able to claim any deductions on this policy. I am not sure how many investors are looking at this point. The majority of investors in LIC Bima are going to be from small cities, who will definitely have no idea about this taxation point.

Commission for agents in LIC Bima Account 1 & 2

So what is the commission LIC agents will make from selling these policies? Here are the numbers shared by an LIC agent with me over the phone.

16.5% for first year
3.5% for the second and third year
2% for 4th year onwards

What are the returns from LIC Bima plans?

This is where one has to pay attention to. Note that the returns of 6% are offered only in the Net amount invested (Final Amount in the charts below). We will take an example of LIC Bima account 2 Plan 806 below which I got from. Suppose you invest 1,00,000 per year in this plan for tenure of 10 yrs, then at the end of the tenure you will receive 12,36,911, guess how much actual return does it translate to? So we have to do an IRR analysis for this to find out the actually CAGR return an investor will get. As per IRR analysis, the returns turn out to be 4.217 %. So this is the return an investor would earn in 10 yrs, note that is the return without considering any bonus. For investors who will make the policy paid up or surrender it, for them the IRR would be drastically low and might be as low as 0% or negative also depending on how early investor makes it paid up.

Look at the chart below which shows you the IRR analysis for LIC Bima Account 2 policy, The numbers below are provided by an LIC agent over email to me.

LIC bima account insurance plan returns

So the main point here is that why is an investor not informed about the actual return which he gets in his hand? Why the returns of 6% are shown in a way that common public will not be able to find it out. One can also show the returns like 9% or 10% and then increase the charges to such a level so that the investors in hand returns are just 4-5 %. These plans are going to generate a lot of attention and crores and crores will be generated. Do you feel it can be called misselling or Mis-use of Public trust, as the returns are in a way misleading? This is a question from you as an investor !.

A trusted source Dhawal Sharma had a talk with LIC Development Officer and here is what he found out –

I met with an LIC DO yesterday and he explained to me that BIMA ACCOUNT is for someone looking for other option than Saving Bank Account and thus the name.. Bank Account gives 3.5% and here it is with Minimum Guarantee of 6%, that too with Insurance Cover and tax benefit.

It’s another LIC stunt of JFM (JAN-FEB-MARCH) Tax saving season..Remember, LIC launched WEALTH PLUS last year on 8th FEB…Crores of policies were sold and crores of premium was raised by LIC in 2 months flat..I am eye-witness to last year’s madness when LIC agents were asking people to come along with FILLED FORMs for WEALTH PLUS and public obliging..and there we were, the KOTAK (or PVT PLAYERs) doing everything for the client but still being made to look second-grade in comparison to LIC..That the NAV of WEALTH PLUS now is Rs 9.63 is a different matter altogether 😉 Just wait and look for a new product from LIC every year in FEB..

Actually its not misselling, its MISSUSE of the TRUST that people have in LIC..”Whatever LIC come up with must be good” according to Indian public and thus the result..

Note that the actual returns from LIC Bima after considering the non-guaranteed bonus will be higher, but still it would hardly be attractive enough.

Comments? Are you buying it? What kind of investors should buy LIC Bima Plan?

Is Stock Market Crash on the way ? [ 4 charts ]

Posted on February 3, 2011December 4, 2019 by Jagoinvestor

Did you invest in ELSS recently for tax saving? If you have done that with the intention of getting quick great returns in 3 yrs and then liquidate the funds, you might not like this article. Indian stock markets are seeing some serious sell-offs in the last 1-2 months and there are some reasons for it. In this article we will look at some indicators which can help you take further decisions.

Why Nifty Started Falling from levels of 6300?

You should ask why shouldn’t it fall? Everyone has bad memories about markets and 6300 in nifty is a level from where we saw one of the biggest crashes in 2008. A lot of investors had a really bad experience at that point, as they were stuck at that point and could not sell-off in 2008. They kept their stocks with them in the hope to sell it off next time when the market reach the same levels. This is what exactly happened when markets reached the levels of 6300 recently, everyone said .. “BOSS. I am now getting out of markets as I have reached my previous levels, No matter what happens next, I am just out !”, which is very natural and well-known phenomena is markets.

When the majority of people do this, there is serious sell-off suddenly. In technical terms, this phenomenon is called Resistance and we can see a probable double TOP at the level of 6300, not a very great thing for people looking to BUY :). I say probable double top because it will only be confirmed after markets break the target of 5350 at nifty (got this tip from Nooresh Merani). It would be a bad situation to watch ours for. Look at the last 11 yrs chart of Nifty below.

3 major indicators indicating the fall in Indian Markets

There are some serious events which are worth looking at. Let’s look at them

1. FII’s are selling

The biggest reason for the current market fall is due to FII (foreign institutional investors) selling off. Suddenly American and European markets are looking better than Indian or Asian Indices. Note that US markets are rising from last some months and Europe has outperformed Indian markets by 20%+ in Jan alone. FII’s have sold a lot of in the last 1 month, below is the data are taken from the NSE website.

However, not everyone agrees to this argument. “FII’s have invested around 50,000 crores in Indian markets from the point when Nifty was around 5,400 last time, which was around Aug 2010, However FII’s have sold taken out just 15% of what they invested, and right now we are at the same levels , so still lot of FII’s money is lying around.

So, the biggest reason for the fall is the fear of rising inflation and interest rates and the way it will affect our markets and economy in coming days”- says Deepak Shenoy of Capitalmind.in .

2. Markets broke its 200 day EMA + important Support points

This is not a small thing to ignore, breaking of 200 EMA is a significant event, and it has happened only twice in last 2 yrs, but it bounced back from that point, However, this time it has broken it again and got below it and not bouncing back. Incase it does not bounce back above it, It’s not a comfortable situation. So if you know GOD personally, please pray.

Look at the 3 yrs chart below which shows the 200 EMA breaking and other trend line breaking. Learn more about Support and Resistance and other important things related to stock markets here, here and here

Should retail Investor Buy right now for the long-term?

I had a talk with Nooresh Merani, a technical analyst at Analyse India, and he feels that the main panic button is still not triggered.

As per him – “The major point comes at 5350 on Nifty which is very crucial, we can not say we are entering a Bear market unless market crashes below the levels of 5350. If that is broken, then there can be further weakness in Indian markets and sell off, However if markets bounce back from these levels of 5350-5400 and go up further, it would be safe to buy only if markets move above 5700 levels , unless then better to be high on cash and not take any action. If markets can move above 5700 again , it would be a great idea to deploy cash and see levels of 6800-6900 on Nifty” – Nooresh Merani (blog) .

3. Nifty PE touched 25 and now moving down

Please read this post on Nifty PE incase you have no idea what is it. Nifty PE has been a good indicator till now to show the over-bought and over-sold regions and we can expect it to be a good indicator. In the last 10 yrs, It was the second time when Nifty PE went beyond 25, Only in 2007-2008 it was around 27-28 and even body knows what happened after that. Even now Nifty PE touched 25 and now it’s moving towards 20, I would not be very bullish for long-term in this kind of scenario. But there are cases where it has bounced back from 20 again to move higher, so keep it as a possibility. See the chart below which shows you the Nifty PE movement in the last 10 yrs.

Conclusion

Technical analysis is an art of reading charts and there are some serious concerns seen in the chart, however, it’s not at all recommended to take the words on rock and believe it blindly. This article and the information here are to facilitate your decision-making process. By no means, this article suggests you sell off anything.

If you are a long-term investor with monthly SIP’s running in Mutual funds, you should better concentrate on what you are good at in life and keep your SIP’s running. Only traders or short-term investors trying to catch the market movements should take decisions based on the information provided. Also if you are going to invest in markets or mutual funds for 1-3 yrs and are a first-time investor, you should understand that there is a possibility that you do not get much out of markets in returns.

Comments please. Give your comments on the charts above and what do you think should be the next move? Let’s not predict, but prepare ourselves for whatever happens next.

Note : Nifty was at 5526 at the time of publishing this article .

Post Office Monthly Income Scheme (POMIS) – How it works and Rules

Posted on January 31, 2011December 4, 2019 by Jagoinvestor

Are you looking for a safe option to invest your money and earn decent returns? If yes, then I can explore one of the post office schemes. Today, we look at post office monthly income schemes (POMIS) which are not that well-known among urban investors. We often look to fixed deposits and other debt options to park our money or generated monthly income. But the monthly income scheme post office offers myriad possibilities. Let’s explore!

Post Office Monthly Income Account

Post Office Monthly Income Scheme is one of the post office schemes which gives you a guaranteed return on your investment. Anyone who wants to generate a monthly income can open this account and get an assured monthly income. You get an 8% interest per year, which is payable on a per month basis. You will get the interest each month from the date of making the investment, not from the start of the month.

For example Ajay invests Rs 4.5 lacs in the post office monthly income scheme. His interest per year is Rs 36,000 @8%, hence he gets Rs 3,000 per month as income. If you do not withdraw the amount for some month, it would not earn any interest and just lie in the account.

This post office saving scheme does not come under sec 80C so there is no tax-exemption for the amount you invest in this, and interest income is taxable, but there is no TDS cut in this scheme. Read 7 Tax saving Tips

You can deposit the money in the POMIS with cash, demand draft or local cheque. Once you open a monthly income scheme account, you will be issued a scheme certificate and a passbook to record the transactions against the post office MIS scheme. The maturity period of this scheme is 6 years. You will also be eligible for a 5% bonus if you retain your scheme foe 6 years, so eventually, your overall return including this bonus can turn out to be around 8.9 %. There is a limit on the amount you can invest in POMIS. It’s limited to Rs 4.5 lacs for a single account and 9 lacs for a joint account. You can have any number of accounts, but within the overall upper limit. There is no compulsion to take your money out after maturity, you can leave the money in the account, but then it would earn the interest equal to saving bank account for the next 2 years only.

Getting Interest income in your Saving account

You get to withdraw the POMIS income amount by directly going to the Post-office. However, there seems to be a bit of confusion, if you want the income in your savings bank account. According to per some resources, you can get it credited to your savings bank account, provided it’s in the same post-office. But elsewhere, some guys confirm that you can provide ECS information at the time of opening the account and get the interest amount created in your Bank account (see the list of cities covered by Post-office). I found the comment below on this website, where a user claims of using ECS.

YES! you can opt for a ECS facility whereby your monthly interest amount will be credited to any savings account of your choice (here HDFC). After you open the POMIS account, you need to fill up the ECS form, attach a blank cheque of your HDFC savings account and you’re all set. You don’t need to open a Savings account at the Post office just for credit of monthly interest.

The information I’ve given here is authentic, because I’m personally using the ECS facility.

Pre-mature Withdrawal from Post-Office monthly Saving Scheme

Even though the maturity period for POMIS is 6 yrs , there is a facility to break it and take your money out. However you can take your money only after 1 year. You have to pay some penalty which is as follows

If you break it within 1-3 yrs: 2% penalty on Deposit amount
If you break it after 3 yrs: 1% penalty on Deposit amount

Example: If you deposit Rs 1 lac in POMIS , and want to take money out in 2nd year, you will have to bear the penalty of 2,000 and you will get back 98,000. If you take money out in 5th year, you get 99,000.

Confusion of returns by mixing POMIS along with RD?

There are some claims which say one can invest the monthly income coming from Post office monthly income scheme into the Post office RD and earn a return of 10.5 %. This at first looks amazing, but its kind of untrue and marketing gimmick. I did a XIRR analysis of the whole cash flows and found out that considering everything , your final and actual return is just 8.77% , which means that when you invest your money in POMIS , direct all the monthly income to an RD and at the end when you get the maturity amount along with the bonus of 5 %, in total you have made an annual return of just 8.77%, which is quite ok considering the safety and conservativeness of the product. But considering the tax to be paid at the end of the tenure, again you might not get great Real Returns! , Remember that the RD comes for the 5 yrs, but it can be extended for 1 more year and it can be made for 6 yrs.

Returns from POMIS + RD

However, the Post office website claims that you earn 10.5% when you put your monthly income into an RD, which is just to attract investors and not give a complete picture. This 10.5% figure is actually only after considering the bonus amount you get at the end, If you remove the Bonus of 5% from the scene , then the return drops to 7.92% . In the below example, you can see that a person who has invested Rs 1,20,000 will get Rs 800 as monthly income , and he gets 72808 as maturity amount from RD, 1,20,000 back as the initial investment and 6,000 as bonus amount .

Scene 1 : If you consider the 800 payment per month in RD for 6 yrs and the maturity amount of 72,806 at the end of 6 yrs , then the returns are just 7.92% (XIRR)

Scene 2 : If you consider scene 1 along with the Bonus amount also , which means you get 72,806 + 6,000 Bonus also = Rs 78,806 , in that case your returns are 10.32% , but its misleading as this bonus is the cost of your 1,20,000 getting stuck at one place for 6 yrs and not an RD feature . So this is not the right way of looking at it . (See chart above)

In case of scene 2 into consideration , then the return from “Only POMIS” is just 8% , but if you consider POMIS + Bonus only then its 8.91% .

Note that this setup operates automatically, you have to set up this once and then no more overseeing. It will happen automatically each month (official link)

Nomination

You have to make the nomination for your Post office monthly Income scheme at the time of applying, however, if you don’t do it at the time of opening, you can also do the nomination later. Incase of the death of the account holder the money will be paid to the nominee. Read more on nomination here.

11 Faces of Investors : Which one is yours ?

Posted on January 25, 2011January 4, 2015 by Jagoinvestor

What kind of investor face do you have ? Each and every one of us leads our financial life in a different way and we have an internal design, based on our beliefs about money. In my interaction with thousands of readers and dozens of paid clients, I can see each one of them with a face and I am sure you would be able to identify yourself with your face today. You will enjoy it 🙂

Cribbing Investor : This investor always find problems with the system, he keep on blaming Regulators, agents, companies and everyone else but not himself! He cribs at every one and about every thing around, from how he was mis-sold an endowment policy 8 yrs back to how IRDA never responds. The biggest mystery is how the agent “forced” him to pay! Did he shoot him or what! You can find him on all the reviews site complaining about some product and how he was cheated.

I-want-everything-Free Investor : This one needs everything for free or at throwaway price. He’ll say “It’s very expensive, Will get back to you later” to a financial planner after hearing their fee, and then he’ll buy a ULIP with 100% allocation charges in first year! . He won’t find this expensive enough! You might be the right advisor for him and they badly need your help, but the moment you tell them it would actually cost something, they would say “Ohh .. Tab to nahi chahiye” ..

Lost Investor : These are the investors who have literally no idea about anything! He gets confused between Filing Tax returns vs Paying Tax. They get confused between IRDA, SEBI and RBI! If an agent comes to them and shit jargons on their face, they will most probably buy it as they feel bad to admit that they are dumb in the area of personal finance. This guy also thinks that 80C is compulsory and keeps buying unsuitable products every year with personal loan.

Fun-Making Investor : These investors are very naughty. They are experts and make fun out of situations. If they get a sales call, they ask tough questions like “Can you tell me IRR of this product?”, which leads to a call escalation to the senior manager and fills the trainee with guilt! This guy also records the call and posts it on youtube and facebook (example). For them, sales call they get is nothing but a way to practice english speaking, its free and no one points out their vocabulary mistakes!

Virgin Investor : These are fresh entrant in the area of money, who don’t even know what’s CTC and Take-home salary and choose the jobs based on CTC figures and cry later. When it comes to personal finance, they have no idea of how customer cares irritates, why disclaimer is written in small fonts, how agents look at them as targets! . They also feel that CFA or CA are great in personal finance.

Not Interested Investor : They are just not interested in Investments. Only at the gun-point you can force them invest and even then, they will start an SIP of Rs 1000/per-month and start skipping their breakfast ! . They dont claim their LTA, medical bills & even HRA, it’s too much of documentation and you have to physically move from one place to other, not worth the effort! And why take term insurance for spouse, they can always re-marry.

Fantasy Investor : These investors live in fantasy world when it comes to money. Even in today’s world their aim is to become a “crorepati” (calculate). Misselling a product to them is an easy thing, make product illustration with unrealistic numbers & present it to them, make sure you have cute children pictures on it, it helps!. They also learn Forex/Currency trading or Future & options and think they can do it part-time. They also have many investment books with bookmarks !

Pissed-Off Investor : These investors get pissed off with everything. If Insurance company increases the premium because they are smoker, they get irritated . If their demat account charges him a yearly fee, he is irritated. He is also irritated because his mutual fund now ranks 3rd, which was a top performer when he bought it. They get pissed off at ICICIDirect site for not opening at right time and they are forced to sell their stock at Rs 156 instead of Rs 157 sometime back ! .

Informed Investor : Tele-marketers really cut their name from their lists, as they get embarrassed each time in front of these investors by talking something non-sense. These investors happily let their SIP’s run irrespective of markets. They were able to conclude that term plan is the only insurance product they should buy and not Endowments, as they know maths and are open to use their common-sense. They dont go for the free coffee mugs at investment seminars conducted here and there!

No-Idea Investor : These are investors who have no-idea about things in their financial life. they often find their insurance policies and other important papers here and there. They struggle to mention the funds name in their portfolio . Their Policies get lapsed often,They have no idea why they are saving, Their demat accounts are active from years and they have no idea that they are paying yearly charges . They never match the actual spending and their credit card bills, ever!

Tax-Saver Investor : These investors are really mad about tax-savings!. Their financial life is at mercy of tax-saving products. You can suddenly see a new energy in them after Jan 1st each year. If you need blood, you can get it from these investors provided you convince them that they can get a tax exemption on that. Mention a section like 80K or 80Z for faster response. His last wish in life is to find out everyone involved in designing Direct tax code and then kill them to death one by one, slowly!

Read these 7 tax saving tips with Video

Mirror exercise to change your financial face

I am sure you were able to identify which face above resembles yours 🙂 . Do you think you were born with that face ? No ! . We all are born with same face and while we were growing up and finally entered this stage , something happened ! and we got a face and there are many factors which resulted in it . Starting from our upbringing , our relationship with money and how kind of memories we have about money .

Lets do a short exercise which would help you change your face and give you a new direction. Make sure you do this exercise seriously, else just skip it.

Step 1 : Look into a mirror and think about all the situations like investing , thinking about hiring a planner , when you got to find out those hidden charges in the ULIP , when customer care does not entertain you etc . Note down what are your expressions.

Step 2 : Go back and see which faces above resemble your expressions , It can be a single face or mix of some faces , which is fine .

Step 3 : Now look at your own financial life closely. If you look deeper I am sure you will be able to identify some things in your financial life which would are just not working, you feel stuck at it . It can be “not able to save more” , “Fear of loosing money” or something like “I keep delaying taking actions” .

Step 4 : Now ask yourself, how do those financial faces which you are carrying from years is helping you to in solving your financial mess ? How do you use the energy from your current financial faces to transform your financial life ? I am sure you will not have any clue because that the blocking point ! . You financial face which you are carrying from long time , would not help you in coming out of your stinking financial life.

Step 5 : You need to change your face, now ask yourself which is that face/faces above which if you had would help you ? Which would make sure you slowly change the way you look at your financial life . Try to change your face soon , slowly , but do it !

Note that this small exercise is for you to realise that its only you who is responsible for your current financial face and your financial life . So let me know which expression will empower you as an investor?

Conclusion

When it comes to your financial life, Have a good face. Go for a facial. Hire a financial counsellor or mentor in your life, who can guide you and show you the possibilities which you have never imagined. Read some stuff which would help you transform your financial life . So which face resembles yours out of these 11 faces ? Which one do you think are negative faces and which one’s are positive? Share your thoughts ?

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But the question is –