Chaitanya Patel

A few days ago I did a post saying ‘Financial Peer Pressure’ – here is the link…http://www.subramoney.com/2014/04/financial-peer-pressure/

Largely people who get into financial trouble – at whatever level – is their inability to live within their own budget and have their own goals. Now if my goal is to make a trip to Australia and that trip is expected to cost me Rs. 300,000 I may put together that amount by saving on eating out, buying a cheaper phone, clothes, mode of travel to office – whatever. However if my goal is to buy a Canon 5 D camera and I need Rs. 4 lakhs for that, I would do the same things and buy the camera.

So it is PERSONAL FINANCIAL PLANNING. However, to give up on goals because you were forced to spend on things which YOU actually did not want is really cowardice. One needs to stand up to ones parents, siblings, friends, colleagues, – and make it clear that their priorities are different. IF YOU DO NOT, HEY you cannot end up blaming the world. Now take a person who wants to retire at 48, he may be frugal in whatever he does, but may be willing to buy his freedom. Or he may decide to EARN at a lower pace so that he can earn till he is say 66 years of age – thus choosing a ‘slower’ profession. Hey it is his/ her choice. Respect it.

Here are 2 responses to the earlier article – my post of today is in response to that:

Comment number 1:
Hi Subra – human beings are programmed to yearn for companionship and recognition. That is what peers provide. When the individual wants to be ‘more’ liked and ‘more’ companionship then they give in to peer pressure. Hence the way out from peer pressure does not lie in telling the peers – ‘ I have a socilising budget ‘ – she will be ridiculed even more for being stingy / cheapskate.

The solution is to have a balanced relationship with peers. To seek companionship and recognition from others / other activities. Pursuing a hobby, focusing on acquisition of new skills will also help.

I guess this is what you are also saying in points 3 and 5. But rest of the points in this post got my goat.

Comment number 2:

It is not just “young kids” who face peer pressure on the spending front. It follows you through your career and life. And the amounts just keep increasing in keep-up-with-the-joneses-style.

Why do you need to buy a “bigger” car as you climb the career ladder, if your basic requirement for a car hasn’t changed? Why after paying off one home loan, are you expected to buy a bigger house with an even larger amount and EMI? What is wrong in wearing Bata shoes instead of Nike and Reebok? Why does a party with friends not be about having a good time but depend on how much was the bill amount?

The worst part of it all is since everyone around you is doing the same thing, you don’t even think about it. If you are lucky (yes, I said lucky not unlucky), one day life takes you by the scruff of the neck forcing you to think and re-evaluate your life and the choices you made

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From reader after last night’s post.

I hope you are well. I think your blog is fantastic, thanks so much for sharing the time and wisdom for so little

I was wondering whether you could elaborate a bit more on the bad business models existent in the insurance field. If there would be a simple rule of thumb or similar it would be useful, but I’m guessing it has to be something (difficult  to analyze) like chasing growth when premiums are insufficient, hiding leverage through subsidiaries, etc.

This was your comment:

Now, let me list for you the companies I would avoid on this list: IFT, GLRE, AGO, AEL, CNO, AIG, XL, MBI, LNC, FBL, AHL, ING, AXAHY, AFG, GNW.  That does not mean that I endorse the others.  In general, those that I say to avoid have poor underwriting skills or a bad business model.

(AIG is the biggest position in my portfolio.)

And secondly, I was wondering whether the fact that some are based in Bermuda gives them (or the LT investor) a competitive advantage when it comes to compounding (t)BV over time, because they are paying a lower tax-rate, aren’t they?

[normally, investors have to suffer a double whammy for taxes: the companies they invest in are taxed when they have profits –the US has one of the highest tax rates internationally–; and then they are taxed when realizing the capital gains / receiving dividends. Which led me to think that if one would be investing in Bermuda-based cos. through a ROTH IRA account, he would be avoiding both fronts, right?

Thanks so much for your time David.

I know it was a long email, and I apologize for that, couldn’t make it shorter…

Okay, let me take it piece-by-piece.  I have biases, which I think are well-informed, but they are biases, ways of foreshortening the deluge of data, so that I can avoid making big errors.

1) I don’t believe that financial and mortgage insurers have an actuarially valid business model, and the last crisis proved me right.  Thus I am not interested in AGO and MBI.

2) I don’t believe that long-term care is insurable, and so I am not interested in CNO and GNW.

3) With AIG, I don’t think that all of the reserve strengthenings are done for them.  They have always been aggressive in reserving.  I am not sure that has changed.

4) I think the business that IFT is in is unethical, and difficult if legal.

5) I think the takeover of AHL will fail, and the stock price will fall.

6) I think that many common life insurance reserving practices are liberal, and so I don’t like AEL, LNC, FBL, ING, and AXAHY.

7) With XL, GLRE and AFG, I don’t respect the management.  Maybe with a few more years, that might change.

This explains my views on these companies.  Other questions, let me know.

Today was another reminder that India still does not have a national stock market. The Indian stock markets are closed because Mumbai goes to the poll today. The country as a whole goes to the polls on ten different days spread over more than a month. Either the stock market should be closed on ten days or on none.

It is high time that the regulators required that the exchanges should operate out of their disaster recovery location when Mumbai has a holiday and most of the country is working. That would also be a wonderful way of testing whether all those business continuity plans work as nicely on the ground as they do on paper. But something tells me that this is unlikely to happen anytime soon

Two decades ago, we abolished the physical trading floor in Mumbai. But the trading floor in Mumbai lives on in the minds of key decision makers, and it will take long to liberate ourselves from the oppression of this imaginary trading floor.

One boy in office walks up to me and says “Sir I have joined a Gym, and now my weight will go down”.

Now a little about his background. He is 25 years of age, about 5′ 10″ and weighs about 110kg. Overweight? No. Obese!! And has been having a problem with his weight for a long time – and now his Blood pressure is at worrying levels….

So I asked him…why is he joining a gym, will it really help types of questions. This was how the conversation went:

Me: Tell me more about the oldest person in your house…

Boy: My grandfather aged about 95 years lives with us. He has given up non-veg for the past 20 odd years, has a blood sugar problem – but no other health related issues. He goes for 30-45 minute walks twice a day. He eats frugally with lots of green veggies, UNCOOKED. He has his meals at fixed times…and if he is given a sweet he takes ONE. He eats that over the full day..but NEVER asks for a second helping.

Me: Why do you need a Talwalkar or a Leena Mongre gym to tell u the basics which your GRANDFATHER KNOWS? and DOES?

My take:

- Home made solutions are too basic, so people will ignore.

- They may listen to a trainer whom they pay Rs. 7000 a month,….

soch lo…

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When I was writing at RealMoney.com, I would often do little posts in the Columnists Conversation, and title them “Notes and Comments,” or something like that.  I don’t normally do that here, but I would like to tie up some loose ends.

1) I received the following e-mail six weeks ago, and I feel it is worthy to be shared with readers:

Hi David,

I follow the Aleph blog from time to time. I run value and special situations oriented hedge fund whose goal is to purchase businesses that sell for at least 50 cents on the dollar. It seems that we are like minded in investment terms. I have an extensive investment checklist which that I believe can add value to investors. It took me a few years and I derived it by reading stacks of annual reports from Buffett, Klarman, etc…

If it adds value to your readers, more than happy to share the 90+item investment checklist.

http://www.brarifunds.com/wp-content/uploads/BIF-Checklist.pdf

Regards,

Pope

Pope Brar, Managing Partner/Founder

Brar Investment Funds

I’ve read through the checklist and it is a good one.  It has all of the elements of my processes (though I am not as rigorous) and much more.  His checklist is worth a read.  Have a look at it.

2) From last night’s post, a reader asked:

Lots of insurers here.  Given your expertise in that area, I’d be curious to know if you think this screen is turning up names that are on the riskier end of the spectrum.

I wrote a seven part series on this, and here are the summary ideas, and the links:

1. Shrinking the share count
2. Growing Fully Convertible Book Value per Share
3. Price Momentum and Mean-Reversion
4. On Conservative Management & Reserving
5. Some Things Can’t Be Underwritten
6. Analyzing Insurance Sub-Industries and the PB-ROE model
7. Insurance Accounting and Miscellaneous Insurance Insights 

I’ve been decreasing my insurance shareholdings lately because:

• Pricing is weak for most P&C coverages, and
• I don’t trust the reserving for secondary guarantees in life and annuity policies.

Here’s the insurance companies from last might’s article in decreasing order of earnings yield:

Company	Ticker	Industry	Country	B/P	E/P	ROE
Imperial Holdings, Inc.	IFT	0709 – Insurance (Life)	United States	1.38	37.03	26.83
Greenlight Capital Re, Ltd.	GLRE	0715 – Insurance (P&C)	Cayman Islands	0.90	19.45	21.61
Assured Guaranty Ltd.	AGO	0715 – Insurance (P&C)	Bermuda	1.18	18.59	15.75
American Equity Investment Lif	AEL	0709 – Insurance (Life)	United States	0.86	16.77	19.50
Everest Re Group Ltd	RE	0715 – Insurance (P&C)	Bermuda	0.88	15.35	17.44
Validus Holdings, Ltd.	VR	0715 – Insurance (P&C)	Bermuda	1.00	13.30	13.30
Axis Capital Holdings Limited	AXS	0715 – Insurance (P&C)	Bermuda	1.01	13.20	13.07
Endurance Specialty Holdings L	ENH	0715 – Insurance (P&C)	Bermuda	1.31	12.55	9.58
CNO Financial Group Inc	CNO	0709 – Insurance (Life)	United States	1.29	12.39	9.60
American International Group I	AIG	0715 – Insurance (P&C)	United States	1.34	12.00	8.96
Montpelier Re Holdings Ltd.	MRH	0715 – Insurance (P&C)	Bermuda	0.99	11.83	11.95
Allied World Assurance Co Hold	AWH	0715 – Insurance (P&C)	Switzerland	1.00	11.73	11.73
XL Group plc	XL	0715 – Insurance (P&C)	Ireland	1.12	11.72	10.46
Argo Group International Holdi	AGII	0715 – Insurance (P&C)	Bermuda	1.27	11.55	9.09
Platinum Underwriters Holdings	PTP	0715 – Insurance (P&C)	Bermuda	1.02	11.25	11.03
Allianz SE (ADR)	AZSEY	0715 – Insurance (P&C)	Germany	0.92	11.08	12.04
ACE Limited	ACE	0715 – Insurance (P&C)	Switzerland	0.84	10.92	13.00
ProAssurance Corporation	PRA	0715 – Insurance (P&C)	United States	0.87	10.86	12.48
MBIA Inc.	MBI	0715 – Insurance (P&C)	United States	1.45	10.86	7.49
National Western Life Insuranc	NWLI	0709 – Insurance (Life)	United States	1.63	10.85	6.66
Partnerre Ltd	PRE	0715 – Insurance (P&C)	Bermuda	1.23	10.75	8.74
Old Republic International Cor	ORI	0715 – Insurance (P&C)	United States	0.88	10.53	11.97
Employers Holdings, Inc.	EIG	0706 – Insurance (A&H)	United States	0.93	10.46	11.25
United Fire Group, Inc.	UFCS	0715 – Insurance (P&C)	United States	1.05	10.30	9.81
Maiden Holdings, Ltd.	MHLD	0715 – Insurance (P&C)	Bermuda	0.93	10.11	10.87
EMC Insurance Group Inc.	EMCI	0715 – Insurance (P&C)	United States	1.02	9.88	9.69
Investors Title Company	ITIC	0715 – Insurance (P&C)	United States	0.86	9.85	11.45
Protective Life Corp.	PL	0709 – Insurance (Life)	United States	0.92	9.76	10.61
Lincoln National Corporation	LNC	0709 – Insurance (Life)	United States	1.07	9.76	9.12
FBL Financial Group	FFG	0709 – Insurance (Life)	United States	0.96	9.73	10.14
Assurant, Inc.	AIZ	0709 – Insurance (Life)	United States	1.00	9.67	9.67
Kemper Corp	KMPR	0715 – Insurance (P&C)	United States	0.95	9.64	10.15
Aspen Insurance Holdings Limit	AHL	0715 – Insurance (P&C)	Bermuda	1.12	9.61	8.58
Horace Mann Educators Corporat	HMN	0715 – Insurance (P&C)	United States	0.91	9.60	10.55
Unum Group	UNM	0709 – Insurance (Life)	United States	0.98	9.55	9.74
WellPoint Inc	WLP	0706 – Insurance (A&H)	United States	0.89	9.52	10.70
ING Groep NV (ADR)	ING	0709 – Insurance (Life)	Netherlands	1.14	9.46	8.30
Axa SA (ADR)	AXAHY	0709 – Insurance (Life)	France	1.19	9.46	7.95
Hanover Insurance Group, Inc.,	THG	0715 – Insurance (P&C)	United States	0.99	9.44	9.54
Baldwin & Lyons Inc	BWINB	0715 – Insurance (P&C)	United States	0.98	9.42	9.61
American Financial Group Inc	AFG	0715 – Insurance (P&C)	United States	0.87	9.15	10.52
Alleghany Corporation	Y	0715 – Insurance (P&C)	United States	1.01	9.15	9.06
American National Insurance Co	ANAT	0715 – Insurance (P&C)	United States	1.40	8.99	6.42
HCC Insurance Holdings, Inc.	HCC	0715 – Insurance (P&C)	United States	0.82	8.92	10.88
Allstate Corporation, The	ALL	0715 – Insurance (P&C)	United States	0.82	8.75	10.67
Symetra Financial Corporation	SYA	0709 – Insurance (Life)	United States	1.23	8.64	7.02
Selective Insurance Group	SIGI	0715 – Insurance (P&C)	United States	0.90	8.51	9.46
White Mountains Insurance Grou	WTM	0715 – Insurance (P&C)	Bermuda	1.07	8.49	7.93
Fortegra Financial Corp	FRF	0712 – Insurance (Misc)	United States	1.28	8.18	6.39
Cna Financial Corp	CNA	0715 – Insurance (P&C)	United States	1.10	8.15	7.41
Stewart Information Services C	STC	0715 – Insurance (P&C)	United States	0.83	7.96	9.59
Navigators Group, Inc, The	NAVG	0715 – Insurance (P&C)	United States	1.09	7.68	7.05
Reinsurance Group of America I	RGA	0706 – Insurance (A&H)	United States	1.08	7.49	6.94
Safety Insurance Group, Inc.	SAFT	0715 – Insurance (P&C)	United States	0.84	7.39	8.80
State Auto Financial Corp	STFC	0715 – Insurance (P&C)	United States	0.83	6.92	8.34
Genworth Financial Inc	GNW	0709 – Insurance (Life)	United States	1.72	6.87	3.99
First American Financial Corp	FAF	0715 – Insurance (P&C)	United States	0.87	6.75	7.76

Now, let me list for you the companies I would avoid on this list: IFT, GLRE, AGO, AEL, CNO, AIG, XL, MBI, LNC, FBL, AHL, ING, AXAHY, AFG, GNW.  That does not mean that I endorse the others.  In general, those that I say to avoid have poor underwriting skills or a bad business model.

3) Another letter from a reader, on a very different topic, the FOMC:

thanks again – I always look forward to this update.

My thoughts are, they are increasing their flexibility in one direction (towards “accommodation”).  While they did move the point about “after the purchase program ends” to a spot perhaps better suited to a discussion of that point, I also took it to mean that there may be less commitment to end QE.  (Although, so long as the deficit keeps declining, they really have no choice but to dial back purchases to keep the supply and the non-Fed demand in line.  This is the overlooked reason, I believe that long rates appear to be moving independently of Fed action.  Their demand is not the only variable).

 Final thought - to what extent do you think that the Fed’s great misunderstanding is their inherent bias towards lowest rates possible under any economic conditions: i.e. for any given level of inflation, that Fed policy is best that reflects the lowest level of non-inflationary interest rates [because this presumably encourages credit expansion and therefore economic growth]?

 To my way of thinking, the difficulty with this is that it assumes that credit always has to expand FASTER than the economy overall.  I don’t mean that credit expansion is not important, it is a big component of growth, just that credit can’t grow faster than income forever and at some point, we have to find a model that enables income to grow fast enough to increase living standards without overleverage.

 To me, this is the central policy challenge of the 21st century, because a) globally, credit has surged relative to national income and has reached a limit, b) populations are aging and must therefore favor lower levels of credit – and consumption – overall and c) the bills associated with 1 and 2 are now coming due.

 The Fed, however, seems stuck on the idea that their job should be to inflate rapid credit expansion regardless of the creditworthiness of the borrowers.  This strikes me as dumb, or perhaps more like wishful thinking that if credit expands, growth will drive incomes higher and somehow these will catch up (with some acceptable lag).

 Notice that no one at the Fed talks about things like the household savings rate any more?  I would be ok with QE if the Fed could explain that they were facilitating an orderly deleveraging: in which case Household Debt/Equity (which indicates potential for end-consumer final demand) would be a better metric than unemployment.

 As it is, I believe that what they are really targeting (large) bank balance sheets, and that QE is really a massive backdoor subsidy to money center banks to guarantee enough operating income to allow them to write off bad loans while increasing capital reserves to comply with Basel III.  (Full disclosure, I have a significant portion of my assets in a large US bank that was trading well below the strike price of the warrants issued against its shares to Berkshire Hathaway at the time I purchased the shares, which bank shall remain nameless).

 Politically, I suppose, saying, “well, we need to ensure banks are profitable so as to ensure the solvency of the payments system” looks disturbingly like a bailout for the 1% and is out of touch with a more populist America.

 Anyway, sorry for the diatribe, but curious to get your thoughts.  I think I am less reflexively sceptical about the efficacy of the Fed’s policy (but I fully agree with your view that they are not supporting employment with it).

 Thanks again for all the work you do.

The central idea I would like to comment on is that incremental easing has had less and less effect on the economy, at least in the short-run.  Aside from energy companies, willingness to invest in the business has been light, while willingness to buy back stock has been high.  That doesn’t produce growth in the economy.

The Fed doesn’t realize that it can’t stimulate the economy at the zero bound.  QE is ineffective, and may become fuel for high inflation if the banks start to lend aggressively.  Inflation is not the goal, and I think many policymakers are confused — the goal is real growth.

We can protect the payments systems by protecting the regulated subsidiaries of banks, and letting the holding companies bear the losses, which is what we failed to do in 2008-2009.

All that said, we have a punk economy, but what will happen if we get a large increase in bank lending, leading to inflation.  What will the Fed do then?

This is a guest post by Mr. Vikram Ramchand of MakeMyReturns.com

Filed your return online?

Forgot to send the ITR-V to CPC Bangalore?

Or are unsure whether the ITR-V reaches the Central Processing Center or not?

These are some of the general worries that the tax payer faces when he files his returns electronically. There have been a number of cases where such returns have not reached the CPC or have reached late due to lapses on the part of the taxpayer or some other reasons. As per the norms in force at present, a taxpayer who files an e-return has to mandatorily send a copy of the same by post to the I-T department’s Central Processing Centre (CPC) in Bengaluru. Since the post has not reached the CPC, the tax department categorized the taxpayers return as null and void.

In order to reduce the burden of the Tax Payer of sending the ITR-V to the CPC, the Income Tax department has decided to bring in the facility of electronic signatures for taxpayers to digitally sign their ITR-V’s. The CBDT has decided to implement this system and has plans to bring it into use by the next financial year in March, 2015.
The CBDT has been in touch with the Union Ministries of Law & Communication and IT to look into the Legal standing and Technology requirements before it brings into operations the new protocols for E-Filing of Returns called ITR-V. The only hitch is the procedure to obtain the Digital Signature for Tax Payers. Presently the digital signature used by corporates can be created by paying a fee and requires regular renewal. If the same system is used for the salaried class and other categories of small taxpayers then this would be an additional cost or procedural burden for the tax payer who opts to file his or her I-T returns online.

The department also wants to promote e-filing of I-T returns and it desires that e-filing should be “hassle free and sans any glitches”, which will prompt more number of people to file their tax returns by this way.
The I-T department is also bolstered by the fact that more and more number of people are opting to file their returns online.

As per existing rules, the CPC, on receipt of the posted ‘ITRV’, sends an electronic acknowledgement to the tax return filer. The problem arises when the document sent by post does not reach the CPC because of lapses on the part of the taxpayer or some other reason.

Caveat: I have no ability to understand taxation of 2014. In 1988 I used to appear before the Commissioner of IT and the ITAT (Income Tax Appellate Tribunal). So read understand and do what is right, I have no clue about the accuracy of this article. Other than what a spell check does, I HAVE DONE NOTHING

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As an entrepreneur or small business owner, life is obviously more difficult when compared to that which comes with a job. For the people who left their high paying careers and moved into entrepreneurship, memories of getting a paycheck every month seems like nostalgia.

Whether you are an experienced person trying to become an entrepreneur or a college goer starting his/her own venture, the pain remains the same. Even the savviest entrepreneur may get the blues. The confidence does not go down in a day but chips away slowly with time.

Similarly, confidence does not get built or lost in a day. When an entrepreneur creates something new, they are aware that they will not be successful in a few days or months. The initial enthusiasm pushes up the confidence to new height. If things don’t move as expected, the confidence level goes down slowly.

Confidence is like gaining / losing weight

One day of binge eating does not make one a fat person. Many days of eating does. Also, one cannot get fit by exercising only for a day. It needs to be a regular activity.

Just like the weight gain or loss, it is a good idea to work on the confidence levels too. During days of low confidence, one can complete small tasks that build up the confidence. Each addition to the confidence builds it up.

There are so many of us

Not all entrepreneurs are making huge money. There are people at every level of the pyramid. It is quite easy to find entrepreneurs at the level same as ours. That is the reality.

Networking with our “kind” of people will tell us that they are also going through similar issues. If that makes one feel better , so be it.

This is a time to “Switch off”

Things not working ? Not getting ideas ?

Staring into screen never helps. It is better to switch off and do something else. Meet family and friends, pursue a hobby. Even though business takes most of our life, business is not our life.

Creating a  list

While working, I remember a number of trivial tasks I need to do. When I lose confidence, I start working on them. I note down tasks in an excel sheet and finish them when I am not in a mood to do my regular activities.

It helps me to develop confidence and keep negativity away.

Counting all the successes stories

All ventures irrespective of failure or success has some stories to tell. It is a good idea to note down these stories. If we have a blog, we could write those experience. Looking back later we would know how much we have learned.

Building confidence is like losing weight. We do it slowly and with the right attitude we will have all the confidence that we need.

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From now to September kids will qualify and start looking for success.

So first of all Congrats for successfully completing your course. Now apologies for creating a world where jobs are not as automatic as the head of the placement committee in your college told you.

We will all give you advice. Tons of it. First of all, do not take it.

Most of us are not qualified to tell you what to do. We did not listen to our parents. Most of us did not know what degree to get, and why. So clearly we are not qualified to tell you what to do. Our only qualification seems to be the fact that we were born BEFORE YOU were born, so we happen to be in the ‘giving’ age. If you do not respect age, great. Respect should be for something else other than age. Damn age.

Go and define success. Do not listen to me, your parents or anybody born before 1977. Or even better 1990.

What do YOU want to do? Go on a World tour? stay with animals and avoid humans? Go hiking and cycling? What gets you excited? See how you can do that AND GET PAID FOR DOING THAT.

If doing that makes you happy do it. Do not let your qualification (or lack of it), money, ego, parents, peers, be an hindrance.

Write down your OWN goals. Let it not read like society’s goals have been cut pasted. Typical society goals are marriage, house, children, ….blah blah. If you want it, fine. If you do not want it, dump it. Remember to pay off your loans – remember your parents funded it or your bank funded it. BOTH LOANS SHOULD BE REPAID. Without fail. Bank will hound you, parents will be indulgent.

Experiment, but put your heart, soul and sole into it! Complete dedication and effort should go into what you do. Attitude, Effort, Single Minded devotion are necessary.

Even when you do create something – it is the market which decides how much it is worth. If somebody had ‘described’ FB people would not have valued it at more than a few ’00 thousand US $. Somebody had to create it, unleash it, and then the market valued it at a few billion US $. Google was not the first mover in the email business.

For every successful product company that you see, a few ’000 maybe lying unrecognised and struggling.

Keep all this in mind.

Now go and conquer the world. If you want to.

If you want to set up an NGO to rescue girls trapped in brothels go and do that. The world is waiting for the next mother Theresa.

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Share Market is something which is always talked about by Investors. People at large still looks at this investment avenue as a source of income creation rather than wealth creation. Now a days, when we read and hear about Sensex, we get to know that Sensex is going up, making new highs every day etc. At this moment, there are different reactions by different set of investors.

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Since we deal with investors day and night, let us share their views:

Category 1: Investors who are sitting on losses as they invested only when the markets were booming at 20-21000

These set of investors are the most anxious one. They seem to be waiting to recover their losses as soon as possible and then get out of share market. These set of investors are those who entered with greed to make quick money when the markets were going up and then got caught in bear market, did not invest anything when the markets were down, never believed on SIP and are now blabbering “ab mere paise barabar aa gaye ab, nikal leta hoon aur dobara share market me nivesh kabhi nahi karoonga”.

These set of investors will never make money in stock market as the they work with no strategy, they just bank on their fate/luck & love following market fancy.

Category 2: Investors who are having some amount of profits and are now thinking to exit markets:

These investors can again be sub-divided into two types.

a) One who had invested in late 2006 or early 2007, got panicked in 2008 and did not invest during bear market and are now looking to exit. These investors also believe that they will not return to market as it is risky here.

Now here we would like to make a point that many of the investors in category 1 and 2(a), will return to the markets when they will again see their friends, neighbors, colleagues etc making money in stock market. They will never benefit out of share market in real sense.

b)Another type are those who do believe that it is possible to make money out of share market but believe on TIMING OF MARKET rather than giving TIME IN THE MARKET. For these set of investors, it is my sincere advise that do read about WARREN BUFFET, PETER LYNCH and many more great investors who have accumulated wealth by staying invested for long time. They always believed as long as Economy is doing well and the business in which they have invested is doing well, they will remain invested. Short term price movements don’t really bother them.

Now those who believe in timing of the market, let us tell you that even the best fund managers who manages thousands of crore of money and have in depth knowledge of market do not time the market. They have created wealth for investors by investing in quality businesses and not by making use of market movements.

To give you few examples, WIPRO is a well traded stock and lakhs of shares of this companies are bought and sold in BSE/NSE terminals everyday. But if you would invested Rs. 10000/- in WIPRO, in 1980 today its worth in over 450 crores. Can anyone make more money by trading this stock. Even Sensex in the same period gave return of over +17% compounded annually.

Market timing requires two perfect things: one WITHDRAWING HIGH and another INVESTING LOW. If we make mistake in any of the one, the cost of mistake is huge.

Category 3: Investors who believe in Equities as Long Term Investments and believe in Indian Businesses:

They are the one who make the best use of their investment. They believe that business is a long term investment, they believe that equity has consistently outperformed all other asset classes in long run and works well against rising inflation. They believe that share market is volatile in short run but has the potential to create immense and stable wealth in long run. They believe that their long term financial goals can be met by Equities and not by investing in Debt which does not beat inflation in long run.

Now to validate their views, please check the 2 tables.

Table 1

Table 2

Read these articles – I wrote these articles in August 2013, when Sensex was at 18500 & Investors were really concerned

3 Principles & 3 Practices to Generate Superior Life Time Returns

Indian Equities – Past, Present & Future 

A dumbo (but still smart) investor who started his SIP when sensex touched 21000 in Jan 2008 – he generated +11% returns in this period, much better than any other financial product.

There is no short cut to success and we all know it but why should people think of making money in short run! So you decide what you should do!!

 

THIS IS A HUMOR COLUMN – AND THIS IS A PARODY – DO NOT BUY AVANTI FEEDS…

Suddenly I found a scrip called Avanti Feeds quoting at Rs. 600. I was stunned because I used to know this company ONCE UPON A TIME.

In the late 1980s Avanti feeds came out with an IPO and the issue was about to bomb at the IPO. So the company approached one of the best fixers in the IPO market and asked him to fix it.

So he approached a few ‘Mumbai’ brokers who could EASILY fix such failing IPOs. Coming from a Hyderabad promoter with a TN fixer was not unusual, and the negotiations began. I was offered Rs. 2-3 per share. All one had to do was subscribe to the share at Rs. 10 (for which you got a brokerage of Rs. 2) and the management PROMISED that the share would be listed at Rs. 20 and you could sell it in the market.

NO LOCK IN, NO NOTHING – AND YOUR CUSTOMERS GOT 100% RETURN.

Only problem was it was in the fish business which meant my Jain clients would not touch it. Fine with us, we were not in the elite brokers who were doing this fixing.

However a few friends jumped at the opportunity and put in the money. True to their word the share got listed and MOST of the people sold it off for Rs. 20. Many of them held back and sold it at Rs. 50, Rs. 60, etc. after holding it for a few years. Company also paid dividends and it did not look like a bad company.

I too tracked the company for a long time (but with my no Hyderabad rule!!) I did not hold more than 1000 shares of this company at any time. I remember i sold off at a nice profit. Was never serious about this company, till I saw the price recently at Rs. 500!

I HAVE NO CLUE HOW THE PROMOTERS ARE, I have no holding now, I just penned some thoughts. I have not seen the PnL, B/S NOTHING….

I HAVE NO VIEW, I do not look at a B/s if it does not have a market cap of at least Rs. 5000 crores….

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If you think that smartphones are getting too expensive, you’re not alone. The psycologial Rs50k barrier was broken long back by the iPhone 5S and now the Galaxy S5 and HTC One (M8) are also selling at around the Rs50k mark.

Ultimately, many companies have realised that it makes sense (at least in India) to adopt a ‘skimming’ price strategy – a name derived from the action of skimming layers of cream off the top of milk.

Since the class divide is so wide and people with deeper pockets tend to (and want to) pay more for exclusivity, the skimming makes sense – it grants the exclusivity to those who desire it and maximises profits for the company.

Here’s how skimming works – you start by artificially inflating the price of a new, much-hyped phone. You can generate hype by announcing the release of the phone way before it’s actually available. You can generate hype by starting pre-orders for the device (without a declared final price). The pre-order supposedly ensures that you get preference over others for delivery. You engineer ‘leaks’ in the press and social media, where a pricing is given out so that you can gauge reactions. All this is step 1.

Step 2: Launch the phone at the artificially inflated price but at the same time, tie up with leading banks to offer cash back schemes – as much as 20% (a maximum of Rs 5,000 off) – for anyone who purchases with a credit card. This works in two ways – people with tons of black money don’t care anyway – they’ll just spend the extra cash. The early adopters with deep pockets full of white money will get Rs 5,000 off on launch date. A good deal right?

Step 3: Keep a close watch on sales – as soon as they start dipping, it means that the first couple of layers of customers have been successfully ‘skimmed’. Then, announce a buyback scheme wherein you get an absurdly high buyback amount for your ratty old phone – a price that you never thought possible and in some cases, higher even that the price you originally paid for it. This step also involved trying to convince everyone that there are limited stocks and that this is a limited time offer. This layer has to be skimmed fast, you see? Wait too long and the other genuinely interested people who want to pay a lower price will get put off and more attracted by another new phone model. It’s been about 2 to 3 months since launch at this stage.

Step 4: Reduce the sticker price by a substantial amount – this is when the phone starts looking like a good deal. This price reduction applies without any cash back or buy back scheme. At the same time, interest free EMIs can also be announced – interested buyers can split up the total cost into 3, 6 ot 9 EMIs without any added interest charges.

Income Tax Slabs ,Rates,Forms for Assessment Year 2014-15,  or Financial Year (FY) 2013-14, applicable on income earned during 01.04.2013 to 31.03.2014) for various categories of Indian Income Tax payers are given in the article

Income Tax Slab rates for FY 2013-14 or Assessment Year 2014-15

For Financial year 2013-14 or Assessment Year 2014-15 for individual resident aged below 60 years or NRI / HUF / AOP / BOI / AJP

TAX	MEN and WOMEN	SENIOR CITIZEN(Between 60 yrs to 80 yrs)	For Very Senior Citizens(Above 80 years)
Basic Exemption	200000	250000	500000
10% tax	200001 to 500000	250001 to 500000	-
20% tax	500001 to 1000000	500001 to 1000000	500001 to 1000000
30% tax	above 1000000	above 1000000	above 1000000
Rebate or Tax Credit	2000 deducted from net tax
Surcharge	10% of the Income Tax, where total taxable income is more than Rs. 1 crore
Education Cess	3% on Income-tax plus Surcharge.

Income Tax Table for Individual resident Individual or NRI / HUF / AOP / BOI / AJP with Calculations

	Income Slabs	Tax Rates
i.	Where the total income does not exceed Rs. 2,00,000/-.	NIL
ii.	Where the total income exceeds Rs. 2,00,000/- but does not exceed Rs. 5,00,000/-.	10% of amount by which the total income exceeds Rs. 2,00,000 Less : Tax Credit Rs 2000.
iii.	Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.	Rs. 30,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.
iv.	Where the total income exceeds Rs. 10,00,000/-.	Rs. 130,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Financial Year,Assessment Year

A Financial Year (FY) runs from April 1 to March 31. Income earned in, say, FY 2013-14 is assessed for tax in FY 2014-15.  Financial Year is also called Previous Year (PY)
FY 2013-14 is called Previous Year and FY 2014-15 is called Assessment Year.

Resident Individual

The person who is  in India for 182 days or more during the relevant previous year is called Resident. Other categories are NRI – Non Resident Individual; HUF – Hindu Undivided Family; AOP – Association of Persons; BOI – Body of Individuals; AJP – Artificial Judicial Person

Surcharge

A surcharge is an additional levy on the tax that an individual pays. It is levied on the income tax and not on the income.

• For FY 2013-14 there is no surcharge for income less than 1 crore.
• For income more than 1 crore there is a surcharge at the rate of 10% of the Income Tax, Marginal Relief in Surcharge, if applicable explained later.

Education Cess

Education cess 3% of the total of Income Tax and Surcharge.  2% is education cess and 1% is  a higher education cess . The cesses are earmarked taxes collected to finance education and higher education. Tax was brought in effect from April 1st, 2004

Tax rebate

For taxable income  up to Rs.5 lakh, you will get a rebate of Rs.2,000

Income Tax Return Forms, ITR for AY 2014-15 or FY 2013-14

The Income Tax Department has released the Income Tax Return Forms for Assessment Year 2014-15 (Financial Year 2013-14). These are the forms you need to file your Income Tax Returns for the Income earned between April 1st 2013 and March 31st 2014.31st July 2015 is the last date Submission of return of income for individuals for PV 2013-14.  Our article Filling ITR-1 : Bank Details, Exempt Income, TDS Details explains filling ITR1 in detail.

Paper forms have been released for

• ITR1
• ITR2
• ITR-4S

E filing

e-Filing of Returns/Forms is mandatory for:

• Any assessee having total income of Rs.  5 Lakhs and above from AY 2013-14 and subsequent Assessment Years.
• Individual/ HUF, being resident, having assets located outside India from AY 2012-13 and subsequent Assessment Years.
• An assessee required to furnish a report of audit specified under sections 10(23C)(iv), 10(23C)(v),10(23C)(vi) ,10(23C)(via) , 10A, 12A(1)(b), 44AB, 80-IA, 80-IB, 80-IC, 80-ID, 80JJAA, 80LA, 92E or 115JB of the Act, shall furnish the said report of audit and the return of Income electronically from AY 2013-14 and subsequent Assessment Years.

ITR1 (Sahaj) and ITR-4S(Sugum) are available in online and offline utility for efiling at https://incometaxindiaefiling.gov.in/e-Filing/

Offline utilities  are ITR Forms are developed using the latest in JAVA technology and effort has been made to make it user friendly, simpler and faster preparation of tax returns. This utility can be run on operating  systems like Windows 7.0 or above and latest Linux, where Java Runtime Environment Version 7 . Update 13 (jre 1.7 is also known as jre version 7) or above is installed.

How to interpret the income tax slabs, surcharge?

Total taxable income, Deduction, TDS, Form 26As, Challan 280

Total taxable income is sum of income from all the categories minus all the deductions under 80C,80U,80TTA etc. Various categories of income are given below Our article Income Tax Overview explains computation in detail

• Income from Salary / Pension
• Income from Business / Profession
• Income / Loss from House Property
• Income / Loss from Capital Gains
• Income from Other Sources

Tax slabs and Income Tax Calculation:What does 20% income tax slab mean?

Income tax in India is charged based on one’s total income, more the income more the tax. India has four  income slabs or groups given below. The income slab  also varies with age(less than 60,between 60 – 80  years, more than 80), residence(india/non-resident India), gender(male/female).   Tax slabs keep on changing from year to year. These are announced in budget by the Finance Minister every year.  Our article Understanding Income Tax Slabs,Tax Slabs History  explains it in detail.

• income not taxed at all,
• income  taxed at 10%,
• income taxed at 20% and
• income taxed at 30%.

If someone has income of say 8 lakh , which is between 5 lakh to 10 lakh , hence as per above table he/she falls in 20% bracket. Calculation of tax on his income uses exemption for first 2 lakh, 10% of tax on income between 2 lakh to 5 lakh and 20% on income exceeding 5 lakh.

• So for first 2 lakh he pays nothing , on 3 lakh he pays 10%  and remaining 3 lakh he pays 20% =30,000( 10% of 3,00,000) + 60,000(20% of 3,00,000) = 90,000
• Other way of calculating is = 30,000 + 20 % of his income exceeding 5 lakh . 30,000 tax for income of 3 lakh (between 2 lakh to 5 lakh) at rate of 10% + 20 % of income exceeding 5 lakh = 30,000 + 60,000(20% of 3,00,000)
• On tax he needs to pay surcharge (0%) and education cess (total 3%) = 3% of 90,000 = 2700
• Total tax he is liable to pay = 90,000 + 2700 =92,700

You can use Income Tax Calculator to calculate tax liability.

Rebate and Income tax calculation

Rebate is provided under Section 87A from Financial Year 2013-14 (AY 2014-15) onwards. The rebate is available if you satisfy both these conditions-

• a RESIDENT INDIVIDUAL.
• Total Income Less Deductions ( under section 80) is equal to or less than Rs 5,00,000
• The rebate is limited to Rs 2,000. Which means if the total tax payable is lower than Rs 2,000, such lower amount of tax will be the rebate under section 87A.
• This rebate is applied on total tax before adding Education Cess.
• This rebate is also available to Senior Citizens.

If total taxable income is less than 5 lakh one gets the rebate of maximum upto Rs. 2000 or tax due whichever is lower. So if one’s total income after applying all the deductions is Rs 5,00,000 then one will get Rs 2000 on total tax calculated. So after applying the calculation on income tax calculated 2000 Rs is subtracted.

Example :

Resident less than 60 years with total income as 6 lakh.

• So if one’s total income is 6 lakh.
• He claims all deductions so that one’s total taxable income is 5 lakh (5,00,000)
• then as per tax formula his income-tax should have been 10% of 3,00,000 which is 30,000. 
• But as one gets a rebate of Rs 2000. So total tax payable is 30,000 – 2000 = 28,000.

For senior citizen (between 60 years to 80 years of age) with total income as 6 lakh

• as exemption limit is two and half lakh (2,50,000) the tax is 10% of 2.5 lakh (25,000) and
• due to rebate total tax comes out to be 23,000 (25,000- 2000)

Resident less than 60 years with total income as 3.15 (3,15,000) lakh.

• • So if one’s total income is 3.15 lakh.
  • He claims all deductions so that one’s total taxable income is 2.15 lakh (2,15,000)
  • then as per tax formula his income-tax should be 10% of 15,000 which is 1500.
  • But as one gets a rebate of lesser of Rs 2000 and 1500. So total tax payable is 1500 – 1500 = 0.

Senior Citizen and Super Senior Citizen

Individual resident aged below 60 years (i.e. born on or after 1st April 1954)

A resident senior citizen is 60 years or more at any time during the Financial year but less than 80 years on the last day of the financial year, i.e., born during April 1, 1934 and March 31, 1954

A resident super senior citizen is 80 years or more at any time during the financial year, i.e., born before April 1, 1934

What is surcharge?Marginal Relief in Surcharge

A surcharge is an additional levy on the tax that an individual pays. As mentioned above For FY 2013-14 there is no surcharge for income less than 1 crore. For income there is a surcharge if income is more than 1 crore.  Even for income above 1 crore the marginal tax relief is provided.

For example, if the tax on an income of Rs 1 crore is Rs 28.3 lakh (28,30,000) .

If income is 1000 rs more than  1 crore 100010001 then

• tax is 28,30,300  
• Surcharge of 10 per cent is levied ,283030, the total tax liability on the taxpayer would be Rs 3113330 .
• But actually one’s tax liability is increased only by 700 due to marginal relief in surcharge.

Concept of mariginal relief is  the additional amount of income-tax payable (together with surcharge) on the excess of income over 1 crore should not be more than the amount of income exceeding 1 crore. So income tax calculations become as follows

1	Income Tax	Rs. 28,30,300
2.	Surcharge @10% of Income Tax	Rs. 2,83,030
3.	Income Tax on income of Rs. 1 crore	Rs. 28,30,000
4.	Maximum Surcharge payable (Income over Rs. 1 crore less income tax on income over Rs. 1 crore)	Rs. 700 (1000 – 300)
5.	Income Tax + Surcharge payable	Rs. 28,31,000
6.	Marginal Relief in Surcharge	Rs. 2,82,330 (2,83,030 – 700)

Alternate Minimum Tax (AMT)

Alternate Minimum Tax (AMT) was introduced with effect from  01.04.2012 on Limited Liability Partnerships (LLP). Later on from 01.04.2013 this has been extended to all assesses other than companies.  The AMT will apply only to those assesses who prefer claim of exemption under section 10AA and deductions under Chapter VIA- C  in relation to certain incomes (except deduction u/s S.80P). In case of individual, HUF, AOP and BOI further relaxation from AMT is provided if the adjusted total income does not exceed Rs. 20 lakh

PAN, TAX Deduction, TDS, Challan 280,Computation of Income Tax

Permanent Account Number,PAN, is essential for processing the Return of Income and for giving credit for taxes paid.

• Every assessee is required to obtain 10 alpha numeric Permanent Account Number (PAN) and quote the same in his returns, challans & correspondence.
• If a person who is required to quote his Permanent Account Number fails to do so or intimates false number, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of Rs.10,000.
• PAN can be obtained by applying in new Form No.49A at the designated Service Centres of UTITSL OR NSDL.

Tax Deduction is a legal way to reduce the income hence the tax that one needs to pay. One can claim the reduction under different heads such as 80C,80D etc.

Tax deducted at Source or TDS is a certain percentage deducted at the time of payments of various kind such as  salary, commission, rent,  interest on dividends  etc and deducted amount is remitted to the Government account.  This withheld amount can be adjusted against tax due. One can know his TDS details through online Form 26AS

If you have some tax to pay, Advance Tax, Self Assessment Tax , you can pay through Challan No. ITNS 280 is used for payment of Income tax

• Online deposit
• Nationalised banks

The image below recaps the process of calculating income tax.

 Related Articles

•  Income Tax Overview
• Income Tax Calculator
• Understanding Income Tax Slabs,Tax Slabs History
• Income Tax articles organized , example articles
  • Understanding Form 16: Part I,
  • E-Filing of Income Tax Return,
  • Filling ITR-1 : Bank Details, Exempt Income, TDS Details
  • Paying Income Tax : Challan 280
  • Understanding Income Tax Notice under section 143(1) 

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

This article gave overview of Income Tax for AY 2014-15. While filing income tax return is no rocket science, it takes a little bit of hard work. Even if you get your returns filed by your Chartered Account, other party please make sure you understand what has been filled in, if something is left out.

So far I have asked around 10,000 Indians if they have read the Indian Constitution. Not one of them admitted to having read it. A few say yes initially but when probed a bit admit that they haven’t really read the whole thing. Some claim to have read the preamble. That is like saying that they have seen the movie merely because they have seen the ad in the newspaper or have had lunch because they checked out the lunch menu.

The constitution is not a holy book, to be kept on an alter and worshiped, to be believed but not examined, to be considered divinely inspired and therefore implicitly trusted.

With very rare exceptions, all Indians whom I have met believe that the constitution is great and wonderful. The operative word is “believe.” Although they have not read it, they are nevertheless fully convinced that it is simply marvelous.

A very intelligent, well-read, awesomely informed, truly articulate, highly educated friend of mine just a few days ago confessed that he did not even know how long the Indian constitution was.

It is a pathetic state of affairs. A document that lays the foundations of a nation, which lies at the core of what the nation is about, which dictates what the government is about, which informs all policies that affect every aspect of public affairs and the lives of all citizens is a closed book. Not only is the constitution unread, it is probably unreadable.

An informed citizenry is the necessary precondition for a functioning democracy. Widespread ignorance of the constitution is inconsistent with any meaningful democracy.

In my opinion, the constitution is the fountainhead of all of India’s troubles. Unless and until it is replaced, India will continue to languish at the bottom of the heap. Scrap it and write one that is good and worth a read.

From today's NY Times:

Thomas A. Hirschl of Cornell and I [Mark Rank of Wash U] looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking. 

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.... 

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).... 

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

Narendra Modi as India’s Prime Minister?

Many people do not want him there, and there are many people who want him there. This post is not about that.

This post is about the anglophiles, and anglo subservient people at the top in India. They think that SPEAKING ENGLISH is a skill which is essential in life. Typically upper caste, well educated, some exposure to Oxbridge, these guys can speak on a lot of topics – but had not done much.

For them ‘Cannot speak English’ is not just a disqualification, it MEANS such people should not hold any post of significance. All this came from Nehru (Anglophile Grade 1), Jinnah, etc. and has done a lot of harm for the people of this land.

Go back to the 1970s. Cricket was played in Bombay, Madras, Bangalore, and of course Delhi. Commentators like Talyarkhan, Vijay Merchant, etc. would speak in the Queen’s English and I am not sure if SM Gavaskar would have been chosen if he did not have a degree from St. Zavier’s (or equivalent).

Then came a guy named Kapil Dev. No English, only cricket. Got selected, Hindi commentary was introduced. So suddenly a person who could not speak the Queen’s English could captain India, AND win the world cup.

SO WE WENT HINDI and conquered the world.

Then the flood gates opened. Today cricketers do not consider lack of English as a big stumbling block to their international success.

I hope Na Mo does that to Indian politics.

We need somebody who would put all out bureaucrats, judiciary, journos who flaunt English as a knowledge qualification and hide their lack of subject knowledge. It is time we got rid of the anglophiles and anglo subservient. We must be the only country agonising over electing a PM who does not know some other country’s National Language. I am sure Russia, Germany, China, Japan – would not even understand what are we cribbing about.

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It is quite surprising as to why India does not have Target Date Funds. Of course it is a great opportunity for the Financial Planner to use ‘Family Solutions’ kind of a plan of Franklin Templeton to create ‘Target Date solutions’ and plug in the loophole.

What are Target Date funds?

If a person wants a particular amount of money say 20 years hence – say 2034 he goes to a TDF(2034) and invests in that fund. It has a fund manager with a clear mandate about the asset allocation, reallocation, quality of assets, etc. Thus in 2014 it might start out as a fund with about 90% equities and 10% in long term debt – say 20 year G sec or 20 year corporate bond (not that it is easy to find such an instrument, but this is an example!).

This need not be a close ended fund, but clearly the maturity is in 2034 and has to have very huge withdrawal penalties. After about 10 years it could be made into a close ended fund – and listed. Initially it should start off as an ETF – so that in case somebody wants to withdraw they can sell it off on the stock exchange. This will allow the fund manager to concentrate on FULLY INVESTING the money got and need not worry about holding any cash.

What is the advantage of such Target date funds?

Well the fund manager can do the asset allocation according to the remaining time duration of the fund.

He can hold bonds to maturity – and avoid the trading losses. He can keep buying funds with 2034 maturity KNOWING that he needs the funds on the MATURITY DATE ONLY.

He can plan reinvesting the DIVIDENDS – assuming that the accumulation is ‘Growth’ and ‘Reinvestment’ only and does not include payouts.

The fund manager can invest in bonds like infrastructure bonds, prefernce shares with assured return and maturity before the due date, and can generally take a Target date exposure.

For the investor (if i were turning say 75 in 2034) I could invest in target date funds of 2034, 2036, 2040 RIGHT NOW and use these funds as ladders.

The common investor talks about rebalancing, but never finds time to do it in real life. After that it is only LUCK.

Surprised why Indian fund managers are not creating such products? Please do not be. They are making so much money that they NEED NOT BE INNOVATIVE. And I have no clue how our regulator will related to a product like this….

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CEOs of midsized companies who make big bets can lose the farm. The executives of Fortune 500 companies might be able to lose the same bet with impunity, and the founders of venture capital-funded startups are only renting the farm (with the VC’s money) anyway. But for a midsize company, an ambitious investment that you don’t have the wherewithal to execute on can be fatal.

These travails don’t just happen to declining midsized firms making the business equivalent of a Hail Mary pass. In fact, rapidly growing midsized companies are even more vulnerable to running out of cash while gunning for growth than are shrinking firms. Even what appears to be a small investment risk can turn into a big one, especially when information technology comes into play.

That was the case at a toy importer that was pressing the growth pedal to the metal. The company was hell-bent on entering a new market but knew it had to automate its warehouse to do so. Warehouse automation systems are big and complicated; if they don’t work, you’re worse off than before since it becomes almost impossible to ship product. Unlike a Fortune 500 company that can spend tens of millions of dollars on external consultants to help implement such a system, this company was stingy with its IT dollars. It put one of its executives in charge of the project and told him to team up with the head of IT, even though neither had ever run a project this large or complex.

The project budget paid for the software and not a lot more. The timeline was unrealistic, so the installation took a month longer than planned. And when the company did the cutover – right before its customers’ biggest selling season – the system just . . . didn’t . . . work. The malfunction caused major delays shipping toys to retailers. Not surprisingly, many of those retailers refused to pay when the toys finally did arrive, too late for the holiday season. The importer lost millions of dollars and began running out of money. Its growth had been derailed.

This particular toy importer violated every one of the rules that govern the success of a midsize company’s strategic initiative: It gave an unproven team an unrealistic budget and asked it to do a highly technical, risky, but mission-critical job without strong external partners or a proven implementation process.

In contrast, one California manufacturer of data storage equipment grew by making a much less reckless bet. BlueArc was venture-funded, but in 2008 VC money was getting hard to find. (The chill winds of the Great Recession were blowing through Silicon Valley, too.) BlueArc’s devices were high-end, but its management believed it needed a mid-priced product to get it through the recession. However, cash flow from operations had shifted from positive to negative, the company’s cash pile was dwindling, and the new product would demand R&D investment.

BlueArc’s top team remained confident because they knew the company was strong in three critical areas:

1. The ability to predict the market. BlueArc’s CFO, Rick Martig, and other executives gathered market data to support the investment in the mid-tier data storage product. Poring through the IPO documentation of several larger competitors that had introduced similar devices, they produced a set of financial data that showed the growth and profitability of competing products. That helped BlueArc raise another $28 million in VC funds. Then it cut general and administrative expenses and sales staff to contain operating losses. The company’s leaders promised the board of directors (largely, their VCs) they would make further cuts in areas not related to the new product if the company fell short of its sales and profit targets.
2. Their ability to execute. The R&D team that had brought the company’s successful higher-priced data storage system to market had no doubt that they could pull off a lower-priced version. Blue Arc’s R&D had a track record of success; it was a proven team.
3. Forecasting acumen. Martig was a seasoned CFO with years of forecasting experience in technology firms. He knew where the surprises would come from, and he built them into the forecast.

BlueArc’s new product hit the market and was an instant success. The company achieved its forecasts which, after 18 months, enabled it to break even. By 2011, the company revenues were $86 million, and it filed for its own public stock offering. But before that could happen, a much bigger competitor made an offer that the VCs couldn’t refuse, one that was a strong multiple of revenue.

Like the toy importer, BlueArc made a major investment risk: developing and launching a new product while cash was dwindling. But the difference was that BlueArc’s bet was highly informed and far better executed than that of the toy importer.

It had to be. Most midsize companies – especially those that aren’t VC-funded – never recover from ambitious investment bets gone bad.

What was scary is a recent default by Orbit – that too for an amount of Rs. 96 crores. For a builder with operations in Mumbai…this should not have been a big amount…but well, it did happen.

It is amusing that the middle class keeps its money in savings accounts, fixed deposits, RD, etc. – and banks lend to builders. Builders use that money to buy land – and take the price high.

Then the same people go and borrow from a bank and buy the property WHICH was driven up by them. If you go to any builder he tells you that prices can never come down, and you should always buy a house slightly bigger than you need BECAUSE you will buy only one house in life. Completely wrong.

The lesser amount that you borrow, the lesser interest you pay. Life is as simple as that. And it is not difficult to LEARN TO LIVE ON LESS. Because a lesser house means a lesser EMI and thus lesser pressure of job loss. The generation that is currently in the under 30 year age category need to be worried about loss of job AND NOT BEING ABLE TO FIND a job of similar salary IMMEDIATELY. Not that it will happen to everybody, but please remember some of the old norms are being questioned.

I know of one very big BFSI which has dramatically cut down on the MBA recruits – and shifted to graduates being put through a 18 month training program. They have even tied up with an University to give them a diploma and a degree (later on – 24 months). Thus the industry is coping up with the salary hikes in various ways.

Many jobs may just shift out of Mumbai – be careful about that too.

A recent example of a real estate deal was almost spine chilling. Standard Chartered bank which bought a property in 2007 for Rs. 325 crores (and should have expected about Rs. 1300 crores according to retail optimists!!) sold it in 2014 for a price of Rs. 285 crores (a nominal loss of Rs. 40 crores)- and an inflation adjusted loss of about Rs. 300 crores.

Wake up to the new realities.

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The Euro area inflation came lower than expected in March and this has raised concerns about deflation (or "lowflation" as labelled by the IMF). In today's Financial Times, Jurgen Stark, a former ECB board member argues that deflation or low inflation is not a problem. One of his arguments is that there are benefits for low inflation, in particular:

"It is likely we are living in an extended period of price stability. This is good news. It boosts real disposable income and will eventually support private consumption."

(By the way, Mario Draghi used the same argument in his last press conference).

So low inflation raises real income and it helps boost demand and output. The economic logic behind this statement is at best unclear, at worst completely wrong. Unfortunately, the misconception involved in this sentence is not that uncommon and it reflects the poor understanding of the general public (and public officials) about inflation, nominal and real variables. But it also reflects poorly on academic arguments based on models with price rigidity that, in my view, are not always as clear as they should when it comes to the dynamics of absolute and relative prices.

Let me start with Jurgen Stark's comment: his assumption is that prices are growing at a slower rate than income. But he forgets that income is linked to prices as well. It is possible that as a result of low inflation the real income of some agents is growing but it would be at the expense of the real income of others. For example, if wages are growing at a decent rate but prices are falling (or growing at a lower rate) it means that real wages are increasing. But this is a redistribution effect that shifts income towards workers and away from profits. Total demand can only be affected if we assume some differences in the propensity to consume of different groups. And if this is the model that we have in mind, then let's push for higher wages across the board to get out of a crisis (I doubt Jurgen Stark favors this conclusion).

But what do academic models have to say about the relative price effects of changes in inflation? Not much or, at least, not in a way that is clear enough to drive consensus in policy recommendations.

Let's start with the basic model we teach in macroeconomics: the textbook IS-LM model. In most textbooks this is originally presented as a pure demand-side model. Inflation (or prices) matter: lower prices increase demand. Demand depends on the ratio of nominal money to prices (M/P) and lower prices are associated with increases in output. This is indeed the main mechanism by which lower prices help restore the long-term equilibrium. So in this world low inflation or deflation are good (i.e. Jurgen Stark is right).

The notion that M/P drives demand and output is not always intuitive for many students so it is very common that when we teach the IS-LM model we also make a reference to the potential role that some relative price can play to generate the same output dynamics. In particular we bring wages into the story. But here is where the logic becomes confusing. By bringing wages we argue that recessions are periods where nominal wages are rigid and as prices go down the real wage increases and causes employment and output to contract. The recovery from a recession corresponds to a period where nominal wages are going back to normal (decreasing relative to inflation) and helping employment and output grow. But there are two problems with this logic: this is a supply effect, not anymore a demand effect. Second, if this logic is true, higher prices/inflation is the way to restore the equilibrium (as opposed to lower prices in the first argument). The relative dynamics of different prices are crucial to support the logic of this argument and talking about inflation (as Jurgen Stark does) without making a clear statement on how different prices and wages are moving will be misleading.

But what happened to demand in that story? The real wage argument is a supply-side argument and the assumption is that demand will match supply. But what if we consider the possibility that different agents have different propensity to consume in the short run? Then any change in relative prices might affect demand. In that world, it might be that lower prices help raise real wages (and lower profits) and under the assumption that workers have a higher propensity to consume than capital owners, this could raise demand and output (so Jurgen Stark is right again).

It gets more complicated as real wages are not the only relative price that matter. There are two other arguments that can affect the potential effects of low prices. First, if nominal interest rates are fixed (or stuck at the zero-lower bound), falling prices/inflation will raise real interest rates and reduce demand. In addition, if financial assets and liabilities are denominated in nominal terms any unexpected fall in prices/inflation will raise the real value of the debt. This is again a redistribution effect (the real value of savings falls so those agents are hurt by inflation) but under the assumption that either borrowers have a higher propensity to consume or simply need more help to restore their damaged balance sheets, there could be a positive effect on demand.

And things get a lot more complicated in an open economy where prices (and wages) play a role determining exports and imports. Typically we teach that lower prices is the right recipe to engineer a real exchange rate devaluation that helps regains competitiveness and improve growth (but when we do so, we ignore the other potential negative effects of low prices or inflation).

Finally, it might be that the effects of low inflation are not at all related to relative prices. The confusion between nominal and real variables has been documented many times and falling inflation even if all prices and interest rates are moving in sync could trigger real effects if it is misinterpreted as a real change in income or relative prices.

So we are left with a set of arguments using models with some type of nominal rigidity that are not always consistent in their predictions. They make use of both supply- and demand-side arguments and under some scenarios inflation (in some prices) is good, under other scenarios inflation (in some prices) is bad. In this environment, making policy recommendations becomes very difficult.

As an example, what do we want to see in the Euro periphery? Lower inflation or higher inflation? Lower inflation sounds good as a way to generate an adjustment in the real exchange rate. But do we want lower price inflation or lower wage inflation or both? How do nominal wage rigidities and potential income distribution effects (from capital to labor or from savers to borrowers) affect demand?

My sense is that the consensus is that we want a high enough level of inflation in the Euro area that allows for significant changes in relative prices within countries (this is what the IMF argues in this blog post. But exactly which relative price has to move and in which direction it might be less obvious. We normally thing that the periphery will need lower wage inflation (to be more competitive). But not too low so that do not run into the fact that wages are unlikely to fall in nominal terms or that potential deflation increases the real value of debt. This all sounds reasonable but implicitly we are assuming that falling real wages in the Euro periphery is good. But are we sure that the redistribution effects of such policies do not affect demand (the same way we argue that the redistribution effects between savers and debtors affects demand)? It would be nice to have more clarity both on the theoretical arguments and the empirical size of each of these effects.

Antonio Fatás

One reason for the UPA's declining fortunes is the preponderance of 'scams' under UPA-II. One big 'scam' that has proved its undoing is the 2G 'scam'. Right from the time, the CAG report came out, I had argued that not opting for the auction route for spectrum rights and adopting a first-come-first-served policy, based on a low price, did not constitute a scam.

First, the policy had been practised by the NDA as well. Secondly, the low price ushered in competition and helped boost telecom density to great heights. So the policy itself was a success. Where things may have gone wrong- and this has to be established in a court of law- was in the manner in which first-come-first-served was implemented under the then minister, A Raja. PC Chacko, who headed the JPC enquiry into the subject, mounts a vigorous defence of the 2G policy in a recent interview:

The 2G scam is no scam. The media must have celebrated the 2G scam, but it is no scam.
There was some impropriety in giving licenses irrespective of the priority of the application and that mistake was done by (former telecom minister) A Raja. He was in jail for that failure, but the government did not defend him. He is still undergoing trial.
According to the CAG (Comptroller and Auditor General), the government's mistake was selling spectrum at a lower price and not by auction. This is totally unfounded. That is the basis of the allegation.So, I can repeatedly say that 2G is no scam at all.

Unfortunately, this defence and others put up by the UPA is likely to drowned in the general election din. Public perceptions are shaped by the media and the media loves a corruption scandal as much as the general public. Once the damage is done, it is hard to salvage a reputation. 

Is it or isn’t it? The second coming of the great dotcom bust? That’s the big question that everyone in the markets is asking, and despite all the beautifully colourful charts and intense analyses I’ve seen, nobody actually seems to know.

Still “tech” is the new bad word in global markets. Those mind-boggling superstar tech companies — Twitter, Facebook, Google et al — are facing equally shocking crashes in their valuations. Nasdaq has stumbled down to new lows, and even the bigger indices like FTSE and S&P are shaken. At one estimate, approximately over $270 billion has been wiped out from tech companies’ valuations.

Numbers like that always make people jittery. There are plenty of theories going around. This is a much-needed correction, since tech stocks were overvalued. It’s a result, to some extent, of the US Fed making it clear that easy money era is over, and investors switching to safer if stodgier options. With a slew of new biotech and Web-based companies coming to market, the money’s being spread more thinly. It’s a rotational switch from “growth”-oriented stocks, ie those that seek valuations on future projections and not current profits to “value” stocks, those that already have a track record, even if they seem stodgy. Or, at worst, it’s just the start of a bigger sell-off which will tank global markets. Take your pick.

It is perhaps inevitable that comparisons are being made to the great dotcom bubble and bust of 2000. In the mid-to-late 1990s, everyone who just set up a website and “burned” cash could expect eager investors to come rushing up with bags of money. And unlike what many people now remember, not all of them were me-too ideas, there were plenty using innovative technologies and ideas.

The basic premise that many were building their business models on was not very different from today: sell things to consumers online, and create audiences for advertising dollars to target. Some of the things people take for granted today — online shopping, banking, information searches, comparison sites — a lot of those ideas were born in the earlier dotcom era.

The expert types on markets and technology are going around telling people that today’s crop of tech companies are not in the same league as in the ’90s. There is a wider variety of companies, engaged in different business, they’ve got wider reach and spread with clouds and mobiles and so on. So why is everyone still worrying about a dotcom bubble? Because a lot of people didn’t quite believe that these same tech companies deserved the eye-popping valuations they got on listing, not even Facebook.

It’s Not 1990s Once Again

Take, for instance, online takeaway service Just-Eat, which listed last month with a valuation of £1.47 billion, more than 100 times its underlying earnings of £14.1 million. It’s a perfectly good service, it links up restaurants locally and lets users order online and pay by credit card from a list of available local choices. It actually has a revenue model, charging a listing fee and commission from the restaurant.

The trouble is, while it may be a leader in the UK market, its model is easily replicable — and, in fact, has been by a number of other contenders. It already has competition in other potential markets. It listed in the LSE’s new high-growth segment, justifying its valuation on fast-growing revenues. But just how many Chinese takeaways will add up those valuations? And by when?

When valuations start looking unrealistic, some investors start voting with their feet. The minute a few start doing that, the herd follows. I don’t think this can be seen as another dotcom bubble bursting. The last one pretty much wiped out an entire genre of start-ups and companies, and an entire investing philosophy. This one is being a lot more selective. And valuations or not, internet-based and tech companies now have too much momentum to be wiped out like their previous generation.

 

 

 

In the early 90s, there were not many investment actuaries.  One of the Holy Grail ideas of the early-to-mid ’90s was creating floating rate funds with yield so that floating rate Guaranteed Investment Contracts could be profitably written.  I chronicled my efforts there in this article.

One avenue that I went down and rejected was ARM [Adjustable Rate Mortgage] funds.  There was a minor craze for them in the early-to-mid ’90s, and there were not enough ARMs issued to meet the demand for high floating rates.  As such, the prices for blocks of ARMs rose above par, sometimes significantly.

One truism of buying mortgages at a premium in the ’90s was that the ability to refinance got sharper and sharper.  Those willing to buy mortgage securities above par usually took losses as rates fell.

Thus when I read articles about rising rate ETFs, which either invest short-term, or short the bond market synthetically or actually, I think “we’ve been here before.”  It is difficult to gain incremental yield on short duration instruments without taking on risks like:

• Credit, including weak covenants
• Structure (another form of credit & illiquidity)
• Negative optionality

So be wary here.  Pay more attention to the return of your principal than the return on the principal.

For the past hundred years, central bankers – men and women with the magical power to create and extinguish money – have been perceived as a club of freemasons. Among them, they even shared a few secrets that they held back from the rulers who put them in office. Disagreements, which couldn’t be sorted out over a glass of wine, rarely found their way to the Press. It had been left to authors of financial history to discover subtle clefts years later while rummaging through archival papers and yellowing documents; some differences, had these been ironed out in time, could have cushioned busts and minimised miseries.

KEPT IN THE DARK

So, when a closely tracked central banker, flags off his differences with counterparts elsewhere, possibly for the media to lap it up, it, in a way, marks the start of an era. Last week, when Raghuram Rajan forcefully argued that monetary authorities across continents should consult with each other, make a mental note of the turbulence their policies could cause on emerging markets, he made news. First, it came from an economist of the stature of Rajan; secondly, the RBI governor chose Washington to make his point at a time diplomatic relations between India and US have worsened.

At the meeting of central bankers, the Guv met with surprising resistance. His counterparts reacted the way ministers do on trade barriers and subsidies at WTO summits. Rajan’s advice may be ignored for years to come, but his statement, besides bringing out into the open differences between central banks, would carry a brewing debate beyond the confines of academia. Five years ago, the same central banks which were willing to spell out their woes, discuss and seek support from peers (or inferiors) all over the world for a co-ordinated action to bail out America and Europe, are today unwilling to share information, or even give a sense of what they have in mind. When there was an urgency to save basket economies through stimulus, everyone mattered; today, when things are beginning to look up and windows of easy money are being shut gradually, the distant central banks of emerging economies (EMs) – which had to deal with the inflow and outflow of hot money and trail of destruction such flows leave behind – are being kept in the dark.

It’s a valid argument and Rajan’s views would certainly find takers among central bankers of some of other EMs who are hesitant to voice similar concerns. A possible sharing of information on tapering and views on interest rate cycle by Fed with other central banks is not exactly insider information or parting with a state secret. It would reflect a certain maturity that central bankers have displayed in the past. The meltdown of 2008, after all, was an outcome of inept monetary policy feeding the greed of foolish bankers.

But while Rajan’s may not be a voice in the wilderness, he may not find support from countries that are less affected by sudden cross-border money flows. Information of what Fed’s and ECB’s plans are more crucial for India which needs more dollars for imports than what it earns through exports. China, for instance, will be less bothered. Even India, which looked more helpless a year ago when it had to grapple with news of tapering and high current account deficit, was largely unruffled by the crises in Argentina, Turkey and Ukraine, thanks to a dramatic improvement in the deficit number.

BATTLE AT HOME?

As a central banker in an inter-connected world, Rajan strongly feels what he said at Washington. His remarks bring to the fore arguments that economists like Helene Rey of the London Business School had made in the past. It’s a polemic that would play out in the ethereal world of central banking, and occasionally find mention in newspapers.

But at home, with a new government a month away, Rajan will have to deal with another question that is more immediate and lot more noisy. It’s “inflation targeting” -- a subject that’s core to Rajan’s thinking. He was quick to dismiss reports of his differences with BJP as mere speculation. Faced with a pointed question, there is little else that he could have said. But it would naïve to think that BJP’s stance on interest rates was a surprise to Rajan. By the time he took charge at RBI, it was fairly certain that UPA was a fading force. He wasted no time to put down his thinking on inflation and interest rates in black and white. Now, irrespective of whether a crop failure or demand recovery pushes up inflation, chances are he would display a streak of stubbornness if the next FM nudges him to cut rates.

Parents who talk to their kids about finances give them a strong foundation to understand how to use money and credit wisely? Yes or No I tweeted (that’s something new I am trying out,asking questions on twitter and or facebook) . Within minutes I get a tweet back from Chethan. And when I asked him to shares his lessons he happily agreed. This article is about what he learnt about Money from his parents and how he applies it now as an adult.

About Chetan S

Chethan S is GIS Professional who loves the power of Social Media in changing things. His interest range from GIS, Linux, Social Media, Telecom and Personal Finance. He is from a typical South Indian middle class family. His father, now retired, worked for a leading co-operative company in accounting section and mom is the homemaker. He is nearly three years old in Software Industry after completing his Master’s and his sister is about to complete her Master’s. You can follow him on twitter at @gischethans

Chethan often shares interesting articles with bemoneyaware regarding personal finance on twitter such as OMG! Personal loan to construct house, later for interiors, associated EMIs & how hell broke loose – cc 

What I Learn From my Parents about Money

Life is full of opportunities to make choices and our choices made today shapes our future tomorrow. Everyone wants to lead a quality life and this makes it essential to have enough money in hands. For this one needs to save money with a vision for future needs. Note the bolded text – I say with a vision to highlight the importance of planning. I sincerely believe that things like importance of saving money needs to be learnt early on in life and parents can play a significant role in this. In this post I am trying to make an account of how I learnt money matters from parents. Examples I cite below do not directly mention money but are sure shot indirect ways to save money.

My Childhood and Money

Right from childhood days (when a kid is 4-5 years old or even little earlier) we humans are demanding. We see a nice toy in another kid’s hand and we feel time to have it. Naturally kids know how to make a fuss and parents yield to that! After all these days it is one or two children in a home and parents feel there is no world beyond their kid’s happiness. While this is all good, a kid who demands chocolates today and gets the demand fulfilled today will not see anything wrong in demanding an iPad or a two-wheeler tomorrow – not to mention the speed at which the child (now adult) expects the demand to be fulfilled. On a daily basis, we read news about how teenagers resort to harsh measures like suicide when their demands are unfulfilled. What I’m trying to stress here is, fulfill your kids demand – no problems there, but make them understand the necessity of having patience. Though certain things are well within your means make kids wait for a day or a week. In my case when I demanded toys or a small gadget, my mom made me wait, sometimes till the next final exams are over. She also used to encourage me to perform well in exams to earn the demand as a gift. This makes the toy sweeter and I used to have ample time to play during vacation.

On several occasions I was told by my mom that money does not come easy. I was often reminded, “Your dad has to work from morning to evening to make our lives comfortable.  You must learn to appreciate the hard work he puts in everyday.”

These learnings are still fresh in my mind even today and when I feel the impulse of buying something, I decide to wait for up to a week. Several times I did realize that the desire to buy was triggered just due to some random email discount coupon sent by the online retailer and not due to real need! This results in money savings.

My Family and Investing or Growing Money

Growing the money you have demands that you invest it for reasonable returns. My parents knew the importance of this and made investments in safe avenues. No, dad did not invest in stock market (except for few paper stocks of established brands subscribed during IPOs) and had very few mutual funds. Back then there was no internet and he had seen several of his friends book losses in stock market! Nevertheless, we had several Recurring Deposit accounts, fixed deposits opened at regular intervals, investments through different postal department schemes etc. Investments were tax efficient. I must also add that our risk appetite was minimal – we could not afford to lose money due to wrong decisions. The costs were rising in all fronts – particularly growing children means substantial education expenses. Mom always used to time Recurring Deposit maturity such that they mature by end of May to pay our fees in June. Dad’s investments were timed for the February – March tax season.

At the same time, my parents were smart enough not to trust investment avenues which offered unrealistic returns. Those days they were in the form of chit funds and deposits with Maharashtra Apex or ICDS. Many of our relatives and friends lost money after investing there. Thanks to our diligence, we never lost money like that.

My Experiments with Money

I developed interest for money by counting coins! This made my Maths strong and parents used to encourage my interest. We kids were not kept in dark when it came to money. Discussions on money were encouraged in our home and I used to discuss about taxes etc. with my dad after I read newspaper articles on finance and investing. As far as my memory goes, I remember talking about money since I was in 7th Standard.

I got my first savings account when I was in 11th Standard. It so happened that even bank officials questioned my mother’s rationale on trusting a teenager son to open a savings account in his name. My mom didn’t look back and I never breached my parents’ trust by mishandling money. Even today, we don’t differentiate between my money, dad’s money, mom’s money – it’s our money! There was never a thing called pocket money at our home and parents never locked cupboards – we trusted each other. We kids used to justify our needs and parents never said no to things. If a need was unjustified, we were made to understand that.

Stock markets was something which fascinated me but no one in our circles had a strong know-how of them. It’s only after I started working that I invested in stock markets. I am still a small investor and studied things for at least an year before I opened my demat and trading account. Coming to investments, I have RDs in bank and Fixed Deposits. I started my own RD right away when I got my first salary. I didn’t blow it all up in the name of enjoyment.

How to lead a fruitful life with frugality

Leading a fruitful life and a little bit of frugality can go a long way in achieving your savings targets.

1. Cook at home – this is good for your health and will work to be a lot cheaper than eating out. After all if you ask me, it is not a value for money proposition with these restaurants. Hardly did Indian households have outside breakfast during 1990s – but now that seems to be the order of the day. Wake up, go for walk or jogging and come home with breakfast packet from the nearest hotel. What a way to start a day?!

2. Live within limits – Thanks to EMI culture, people hardly think before committing to EMIs. To make things easier banks have integrated convert to EMI right in the payment gateway when you pay for things online. Don’t fall into this trap. If you need to borrow money, never do it from friends or relatives – this spoils relationships. Borrow from a bank. Even if the interest is a tad higher, peace of mind is important. See if you can accumulate money for what you want to buy – say for LCD TV you can invest small amounts in RD every month and then buy it with your money.

3. Healthy lifestyle – develop a healthy lifestyle. When possible walk to office (I do this everyday). I see people walk for exercise and then drive to office barely 2 kms away. Even public transport is better. Walking or taking a city bus or cycling can simply take away a large portion of stress from everyday life thus adding to healthy lifestyle.

4. Budget Travel – I know people who take flight for a 1000 km journey instead of taking an overnight bus trip in a Volvo. Bus would set them back by Rs. 2500 – 3000 for a round trip but flight would cost up to Rs. 10000 for a round trip. How about investing the saved Rs. 7000? At least, that’s how I think!

5. No showoff – people buy branded clothes in the name of durability and primarily to show off. I see no point there and normally don’t go for them. At the same time, if I am buying a gadget I spend for a reputed brand. There I look at after-sales service, durability and not initial costs.

Related Articles :

• My experiments with money : My own journey with money. How I realised after having child that I am financially illiterate.
• If only I had taught him about Money when he was a kid.. : If you don’t teach your kids about money at young age, who faces the consequences
• An Interview: 20s and Money, : An interview with our reader Subbu  20 year old with a job, not married on his thoughts on money, financial planning,investment,insurance
• What are you teaching your kids about money?
• Kids and Money Conversations : Kids talk about money, directly or indirectly. Check out the conversation.
• Books on Money for Children
• Is It a Need or a Want? : Teaching kids about what is want or need.

Our website Bemoneyaware.com has articles organised on of salary, credit cards,debt, loans, investing,insurance which will be helpful for readers in 20s-and-30s  

So what lessons did you learn from your parents? How your money values are defined by what you learnt,directly or indirectly from your parents? What are you teaching your kids about money? With what sort of money values are your kids growing up? Who plays an important role in teaching kids about money – mother or father?

My parents always managed to make ends meet, even though my mother was a stay-at-home mom and my father worked in a factory!

Neither my sibling nor I did things like ‘tuitions’ and these kind of income supplementing stuff. Of course unlike many people of my father’s generation he did not have to support his parents or pay / support his siblings. That scenario is basically impossible today. Virtually every family I know either has both parents working full time or one of the partners earning a really huge income – surely upwards of 100 times what their fathers made!

The idea that one parent can work a typical factory / bank / government job while the other parent stays at home is a historic idea. Very rarely do you find somebody who can lead a simple life. Obviously there cannot be just one reason that has caused this change. Of course people will point to inflation – how things were cheap in the 1970s and even in the 1980s.

They will tell you about increasing cost of petrol, housing, food grains and what have you talking about how much housing prices have gone up since the 1970s without a similar increase in wages. Others will point to food prices, or the cost of education. Actually in the 1970s too you had movies complaining about inflation.

Today’s movies do not – the hero and heroine seem to be from a different planet with different problems. The change is in the number of bills – and the amount per bill – that a ‘normal’ family has.

My parents, for example, had their electricity bill, and phone service. There was of course the newspaper, and the ‘society charges’ which included the mortgage. That was all. We had an antenna on our roof to watch television. Entertainment was restricted to an occasional movie – twice a year in our case, a little more frequently for some cousins.

We would eat out on birthdays – however that was not ‘obligatory’. An annual vacation meant a stay at a cousin’s place. It was all right to share bathrooms.

Compare this to our situation. We now have many more bills – education loans, personal loans, wedding loan (if your father or father-in-law did not pay the bill, Icici bank paid!) mortgage, life insurance, cable, mobile phone, net, – and what have you. This is a guess – but I think every 5 years we add one item of expense which we did not know existed, but after 5 years wonder ‘how could mankind live without this’! This adds up to thousands of rupees a month for services that my parents simply didn’t have or need. We have it as a habit.

What can be done about this? The first thing to look at is whether or not these bills are actually required, or if they just seem to be. Do we need internet access at home? I use it for writing, my wife for doing projects for my daughter. I could survive but my family may not.

Do we need cable? Not really – we could spend more family time. My neighbor lives without cable.

Do we need a cell phone? In Indian conditions it is cheaper than a landline phone. How much does Rs. 40 a day for 30 years become in an index fund? Well about Rs. 200 million (Rs. 2 crores). Of course it could be much lower if the equity market returns are much lower in the next 30 years, but this is what happened over the past 30….

Not bad, right? What does this mean for us? Well we have chosen our life styles let us not crib about it. Our parents chose their simpler life-styles we have chosen our more complicated (perhaps expensive) ones.

Having made our choices we should not blame our bills! If you get stuck with bills, sit back and relax. See what expenses have been committed in a weak movement and you are pretending that you cannot live without it. If you did not know from where your next meal would come from, would you still have it. What would your parents have done in similar circumstances? Control your actions, the reactions are not in your control. – Bhagwad Gita.

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Immaterial of what age you are there are times when you get into a sticky financial situation. What are such situations and how do you handle them?

1. A close friend of yours has taken a loan – and is not making any attempt to repay that!

Well this could be a friend, a sibling, a colleague – and the amount is substantial. Best of course is to ask for the money, clearly. If talking is embarrassing, send an email. Or if there is a common friend ask in his/ her presence. There is no point in waiting, thinking, etc. – ASKING is a very important first step.

Of course going back in time, one simple lesson is NEVER to lend an amount that you cannot afford. Blame the tax authorities, your spouse, parents or whomever you want, but have the lending and repaying terms in writing. Once a person puts things in writing and issue post dated cheques, life becomes easier for everybody around.

2. You have a friend who pulls you along for trips you can ill afford:

Thanks to whatever reasons you have a friend who goes on those expensive vacations. Fine as long as you were not tagged along. Sometimes you just do not want to spend Rs. 8000 on a room night for a hotel. You may have other priorities.

You just need to say NO. I find that in group activities if you do not participate, it hurts the relationships – but better safe than sorry. Each person has different priorities in life. Maybe you have a more expensive hobby to support than your friend has. Maybe you prefer travelling by air, and he prefers travelling by train – so he has a greater budget for hotels. Maybe you take 3 vacations a year and he takes one vacation in 3 years. Maybe you go to exotic locations during an off season but he goes during a peak season.

Saying No politely will leave you safe, and keeping mum will leave you sorry. Take your pick.

3. Some friends do not know to split costs

I find this a big issue – especially with younger people going for parties and eat outs. There is a huge amount of different ways in which a bill could be split. Get the boozers to pick up the booze bill separately. Among the kids going out every Friday – obviously the girl who had only the soup does not want to pay for the food.

Again it makes sense to talk about bills, how will it be split, will the petrol / toll costs be split.

Do not let political beliefs or money matters interfere with your friendship!

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The attitude of the West towards Narendra Modi reflects a deep political dilemma. Used to dealing with pliable dictators in the Middle-East and weak, corrupt governments in the Indian subcontinent, the West for the first time faces the prospect of a democratically elected leader – Modi – who is neither pliable nor corrupt. 

Western media often hews slavishly (but with dexterous sophistry) to official Western foreign policy. That policy is often self-interested, disruptive and intrusive. It has propped up brutal Arab dictators, bankrolled a terrorist state like Pakistan and destablised countries ranging from Syria to Ukraine. 

The US and its allies in Europe were delighted to work for ten years with a government like the United Progressive Alliance (UPA). A prime minister without real power like Manmohan Singh and a de facto leader like Sonia Gandhi with limited accountability but absolute power created a fertile geopolitical arena for Washington.  

The liberal power elite in Delhi was similarly co-opted. The Americans know how easily journalists, academics, think-tankers and NGOs fall for sponsored foreign seminars, gifts, donations and other rewards. 

In return the Indian liberal, intellectual elite – much of it neither really liberal nor really intellectual – was compromised. 

Modi provokes a hostile reaction in both these constituencies – Western governments and media on the one hand and their co-opted Indian quasi-elite on the other. 

The vitriolic, at times vicious, recent attacks on Modi in the Western media are a product of the real fear that a Modi government will upend the fraudulent elite power structure in Delhi with geopolitical consequences well beyond India’s borders. 

Modi will be tough on Pakistan, pragmatic with China and cooperative with Japan. He will deal with the West on India’s – not the West’s – terms. 

Grandees like Amartya Sen and his fellow-travellers in India and the West blanch at the very thought. Their idea of India is not most Indians’ idea of India. It is a lesson they may learn the hard way on May 16.

                                                             * * *

As I wrote in my book, The New Clash of Civilizations: How the Contest Between America, China, India and Islam Will Shape Our Century, America’s history provides many clues to its current dilemma over dealing with India’s likely new political leadership. 

The United States was founded by working-class families escaping religious persecution from newly-Protestant England 425 years ago. These English settlers (Britain as a nation did not yet exist) massacred indigenous Indians, appropriated their land and shipped in slave labour from Africa to work the cotton fields. 

The US won independence in 1776 and as it grew more powerful, it invaded Mexico and by 1848 had annexed what are today California, Texas, Arizona, Colorado, Nevada, Utah, Wyoming and New Mexico. By the 1890s, it had colonized the Philippines and built a silent empire arching from the Pacific to the Atlantic. 

After the Second World War it invaded Korea, Vietnam and Grenada, and propped up dictators and puppet-monarchs in Latin America and the Middle-East (including the early Saddam Hussein and the sybaritic Shah of Iran). It made a pact with the sheikhs of the post-Ottoman Middle-East to deny Arab citizens voting rights in return for US military protection, ostensibly against Israel but in reality against popular democratic movements in their own countries. 

In 1932, the US and Britain established Saudi Arabia—custodian of the holy mosques in Mecca and Medina and a part of the Ottoman Empire since 1818—as an independent Islamic kingdom under the Wahhabi Al Saud dynasty. 

Over the next thirty years, a pro-West military dictator or sheikh was installed in virtually every Arab country. Caught in a pincer between Anglo-Saxon politicians and Arab sheikhs, the Arab citizen had no democracy, few freedoms but, thanks to oil, reasonable prosperity. 

The US continues to follow a foreign policy of ruthless self-interest in Asia to secure its geopolitical goals. But America is a declining power. By 2045, it will not only be relegated to the status of the world’s third largest economy (after China and India), but it will also, for the first time in its history, become a non-white-majority country. 

African-Americans, Latinos and Asians comprise nearly 30 per cent of America’s population today. By 2045, that figure will rise to 51 per cent. The implications of this demographic shift will resonate across social, ethnic, economic and cultural faultlines. 

As India’s own demographic dividend kicks in, the new government’s bargaining power with a declining US will grow—if South Block gets its strategy right. 

That strategy involves deepening India’s economic and diplomatic engagement with East Asia, Africa and Latin America, influencing the course of the post-US Af-Pak world and creating a secure environment in the Indian Ocean to the south and the central Asiatic republics to the north. 

Can a putative Modi government achieve these objectives? The West and sections of its media would appear to hope not. Strong Indian leadership is anathema to its historical agenda which favours a geopolitically accommodative status quo. 

That status quo is about to be demolished by an outsider. Modi will not give Western governments – or its over-rated media – the deference they have long taken for granted in the incestuous power warrens of Lutyens’ Delhi. 

 Follow @minhazmerchant on twitter 

Whenever people see me in a group gathering, they come and talk to me about equity markets. I am not sure why they do it, but it is very useful for a guy looking for topics to write on.

So a few people will come and tell me “I lost money in 1992 and then stopped investing” or “My father lost money in Harshad scam…”

Of course some people come and say “My father/ grandfather bought Asian Paints, Britannia, Colgate, ….” and we made a lot of money. They will also say…”Only last year we found that my Grand dad has/had lots of Nirlon, Power cables, Mysore paper, Shaan interwell, etc…..and we lost a lot of money.

Normally one Wipro or one Reliance, Hdfc, Infosys…would have covered all their mistakes. If they have (had) been lucky to hold on to one of these, then their views are different!

Once upon a time I used to react in horror and argue. These days I am searching for fodder for my blog, so I keep quiet. Sometimes I tell them, well I do not know what you will do, but it helped me fund my retirement and allows me to live a simple life.

No financial planner or wealth manager can tell you what you should do in the markets. You need to meet a lot of people, talk to them, read research reports, balance sheets, etc. BUT STILL BE ABLE TO COME TO YOUR OWN conclusions. That is the beauty of the market.

The next thing people do is to ask for ‘tips’. This is a bigger danger for you. Let me tell you why.

I recently (5 months back) bought some shares of EiD parry at 150. Then I had the mortification of seeing it drop to 103. So technically I could have saved 50 Rs. per share. If you had bought with me, and kept a stop loss of say 105, it would have been triggered off! I actually BOUGHT more at 118. Now the price is back to 153…

Now why is it RISKY to ask somebody for a tip. Let me explain my position in EiD parry:

1. I bought this company for the first time in 1986

2. I have never gone to zero holding in this scrip, but have sold many times – even in the 330s.

3. I have sold at much higher levels from where we are now and covered it later on.

4. For me the dividend income from EID is attractive on a cost: yield basis.

5. Fairly obviously, I am biased and I have major interest in the share price going up.

6. My margin of safety is now huge and a 30% fall in EiD will not kill me. In fact I may be buying more.

Now for the share itself:

1. It is the holding company for Coromandel International – which now includes Liberty and Sabero Organics.

2. Am surely expecting sugar prices to improve – taking the EPS higher.

3. UP government mismanaging the sugar in their state, and Maharashtra’s inaction will improve sugar profits for South based companies.

4. The play on commodity companies is very very different from regular companies. You buy shares of a comm company when the commodity prices are low and sell when the prices are high.

———-could be many many more’

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