I have started seeing PPF , as part of the bigger picture and would request readers to do that . Yes , contributions to the PPF , help you save tax as part of 80C . But if you see PPF from the context of retirement planning , that would be a great tool too. PPF could be your debt component of the retirement planning along with may be Pension plans,MF,Direct equity exposure , which form your equity component of retirement planning .
What better instrument to be in for retirement planning , then something which could compound your contributions over 15 year period to start with and which can be extended to keep compounding until you retire .
You will find people who say that, Equity exposure , would be the most appropriate way for retirement planning , i would not disagree , but feel that PPF would de-risk to some extent your retirement corpus
Thursday, April 23, 2009
Repo Rate, Reverse Repo,CRR
We quite often keep hearing these terms and also keep hearing that with change in these , there is a possibility that Interest Rates offered by banks may either increase or decrease. So what are these terms that we keep hearing , here is my understanding.
Repo Rate
Whenever the banks have a shortage of funds they borrow from the RBI. Repo rate is the rate at which banks borrow money from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate.
Reverse Repo Rate
Reverse Repo rate is the rate at which RBI borrows money from the banks. An increase in Reverse repo rate can cause the banks to lend more money to the RBI.This can cause the money to be drawn out of the banking system or economy .
Cash Reserve Ratio
Cash Reserve Ratio (CRR) is the amount of money that the banks have to deposit with the RBI. If RBI decides to increase the percent of this, then the available amount with the banks , for lending to general public reduces. RBI uses this method (increasing of CRR rate), to drain out the excess money from the banks.
How does "drain out the excess money" control inflation ?
Well the logic used is that , when there is too much money floating in the economy , people are willing to pay more for commodities or simply put , when lot of money chases a commodity , price of that commodity keeps increasing ( especially , when there is limited supply ) . So pulling out money from the market using the CRR , or by making cost of borrowing money more, by increasing the interest rates , RBI tries to control the amount of money( Liquidity) in the system . Hence tries to control inflation from the demand side , as there is nothing much it can do about the supply side
Repo Rate
Whenever the banks have a shortage of funds they borrow from the RBI. Repo rate is the rate at which banks borrow money from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate.
Reverse Repo Rate
Reverse Repo rate is the rate at which RBI borrows money from the banks. An increase in Reverse repo rate can cause the banks to lend more money to the RBI.This can cause the money to be drawn out of the banking system or economy .
Cash Reserve Ratio
Cash Reserve Ratio (CRR) is the amount of money that the banks have to deposit with the RBI. If RBI decides to increase the percent of this, then the available amount with the banks , for lending to general public reduces. RBI uses this method (increasing of CRR rate), to drain out the excess money from the banks.
How does "drain out the excess money" control inflation ?
Well the logic used is that , when there is too much money floating in the economy , people are willing to pay more for commodities or simply put , when lot of money chases a commodity , price of that commodity keeps increasing ( especially , when there is limited supply ) . So pulling out money from the market using the CRR , or by making cost of borrowing money more, by increasing the interest rates , RBI tries to control the amount of money( Liquidity) in the system . Hence tries to control inflation from the demand side , as there is nothing much it can do about the supply side
Wednesday, April 15, 2009
Individual v/s Family Floater Health Insurance
Remember when I bought my first Mediclaim Policy, there was nothing called a Family Floater and Individual Policy were the only once available . In recent years we see this new innovation hitting the market
The Individual Policy are no brainers , where by based on your age you buy a policy , the premium is decided by your age and as per terms of the insurance company there could be some exclusions . So the bottom line for these policy is "YOU" or the person who is insured and nothing else mattered. These policy also provided you with no claim bonuses , which gets carried forward every year, when you renew the policy.
Family Floaters are different , here the entire family is covered so the insured amount is higher . Any member of the Family can use the entire insured amount.The thought behind such a policy was that all members of family may not fall ill simultaneously and since this is somewhat like a group policy it is cheaper too. These policy also provided you with no claim bonuses , which gets carried forward every year, when you renew the policy
These are the broad outlines.Family Floaters have been very popular and I'm sure all the General Insurance companies are aggressively promoting it . But are the below mentioned fact ever clearly stated to the buyers , is something to be considered
these are from http://www.apnainsurance.com/health-insurance-india/indiviual-floater.html
"There are other disadvantages to a family floater policy as well. The policy will be renewed only till the senior most member reaches the maximum age of renew ability allowed by that company. As it stands today, at that stage, the other family members will need to take a fresh policy without having the benefit of their claim history and pre-existing disease coverage that comes from continuous renewal of the policy.
The same thing applies to children who reach the maximum age (normally 25 years in most cases) after which they will need to buy a separate policy for themselves without the benefit of the earlier continuous coverage that they have got under the family floater policy.
Most policies also make no specific provision for continuing cover of the surviving members in case of the unfortunate death of the senior most member"
So remember to get these clarified , in writing , before you opt for a Family Floater or keep life simple and buy individual cover for all members of the family
The Individual Policy are no brainers , where by based on your age you buy a policy , the premium is decided by your age and as per terms of the insurance company there could be some exclusions . So the bottom line for these policy is "YOU" or the person who is insured and nothing else mattered. These policy also provided you with no claim bonuses , which gets carried forward every year, when you renew the policy.
Family Floaters are different , here the entire family is covered so the insured amount is higher . Any member of the Family can use the entire insured amount.The thought behind such a policy was that all members of family may not fall ill simultaneously and since this is somewhat like a group policy it is cheaper too. These policy also provided you with no claim bonuses , which gets carried forward every year, when you renew the policy
These are the broad outlines.Family Floaters have been very popular and I'm sure all the General Insurance companies are aggressively promoting it . But are the below mentioned fact ever clearly stated to the buyers , is something to be considered
these are from http://www.apnainsurance.com/health-insurance-india/indiviual-floater.html
"There are other disadvantages to a family floater policy as well. The policy will be renewed only till the senior most member reaches the maximum age of renew ability allowed by that company. As it stands today, at that stage, the other family members will need to take a fresh policy without having the benefit of their claim history and pre-existing disease coverage that comes from continuous renewal of the policy.
The same thing applies to children who reach the maximum age (normally 25 years in most cases) after which they will need to buy a separate policy for themselves without the benefit of the earlier continuous coverage that they have got under the family floater policy.
Most policies also make no specific provision for continuing cover of the surviving members in case of the unfortunate death of the senior most member"
So remember to get these clarified , in writing , before you opt for a Family Floater or keep life simple and buy individual cover for all members of the family
Thursday, April 9, 2009
Safer online usege of Credit Cards
If online use of Credit Card has been your concern , I do understand that earlier this years RBI made it mandatory for online sites to add a addditional layer of authentication , but the problem with this is that only India based websites have this additional layer, that leaves your card open for a misuse on all non India based website ( which is pretty much the entire internet )
This virtual Card offering from HDFC , takes card of this too http://www.hdfcbank.com/common/onlineservices/netsafedemo/demo_new.htm
If you find anything better let me know
This virtual Card offering from HDFC , takes card of this too http://www.hdfcbank.com/common/onlineservices/netsafedemo/demo_new.htm
If you find anything better let me know
Rule of 72
I always used to wonder how long it would take for money to double at any given rate of interest. I seem to have found this easy way out
Assume that you are promised 8% rate of interest .Now, as per this "Rule of 72" , you would need to divide this number 72 by 8 to get at that (72/8 = 9). That would mean, you would need 9 years for your invested money to double in value , provided you invest it for that period of time and let the amount compound annually.
Please correct me if i'am wrong
Assume that you are promised 8% rate of interest .Now, as per this "Rule of 72" , you would need to divide this number 72 by 8 to get at that (72/8 = 9). That would mean, you would need 9 years for your invested money to double in value , provided you invest it for that period of time and let the amount compound annually.
Please correct me if i'am wrong
Monday, April 6, 2009
Sweep Account
These are Hybrid Savings Bank accounts that are being provided by public as well as private bank , they are being offered for some time now
How do these account work:
Most of the banks have a pre defined amount say Rs.10,000 as the limit .Any amount above this would be automatically be swept into a FD, mostly in multiples of Rs.1000. You can even chose the durations of these FD (Fixed Deposits )
Let us say you have Rs.30,000 in you account, that would mean Rs.10,000 in saving account and Rs.20000 as 20 FD of Rs.1000 each , In case you issue a cheque of Rs.11,000, then one of those FDs would be encashed and used to honour your cheque.
Advantage :
The advantage of such an account would be , your money starts to work a bit harder , instead of Savings Bank interest rate , you money starts earning higher interest rate of an FD
Most of the Pubic sector bank have lower limit for the swap to be triggered compared to the private sector banks .
Corporation Bank : http://www.corpbank.com/asp/0100text.asp?presentID=1355&headID=19
SBI : http://www.sbi.co.in//viewsection.jsp?id=0,1,19,113,185
These are just a few , would recommend that you , always try to open a sweep account instead of a normal savings bank account
How do these account work:
Most of the banks have a pre defined amount say Rs.10,000 as the limit .Any amount above this would be automatically be swept into a FD, mostly in multiples of Rs.1000. You can even chose the durations of these FD (Fixed Deposits )
Let us say you have Rs.30,000 in you account, that would mean Rs.10,000 in saving account and Rs.20000 as 20 FD of Rs.1000 each , In case you issue a cheque of Rs.11,000, then one of those FDs would be encashed and used to honour your cheque.
Advantage :
The advantage of such an account would be , your money starts to work a bit harder , instead of Savings Bank interest rate , you money starts earning higher interest rate of an FD
Most of the Pubic sector bank have lower limit for the swap to be triggered compared to the private sector banks .
Corporation Bank : http://www.corpbank.com/asp/0100text.asp?presentID=1355&headID=19
SBI : http://www.sbi.co.in//viewsection.jsp?id=0,1,19,113,185
These are just a few , would recommend that you , always try to open a sweep account instead of a normal savings bank account
Subscribe to:
Posts (Atom)