Analogy of Investing

Investing is no different from planting a tree and nurturing it . Every rupee that you have is like a seed , full of potential to blossom . Exactly like a seed , it would depend on you , how would you use it . If you spend it , that would be the end of it , as you are no longer in control of its destiny . if you sow it in a fertile soil like a really well managed company , you will see the seed you have sown grow into a magnificient tree.

The Analogy just does not end with where you have sown it . Once you have made sure that you have indeed sown it in the right kind of soil , you would need to have the patience to see it grow .

In case you realised that the soil you have sown it in , is not fertile enough, you would need to have the courage to uproot it and plant it some place else ( sell and invest it again ) where it can grow to its full potential and blossom with lots of flowers ( Bonus ) and fruits ( Dividends)

Image : FreeDigitalPhotos.net,Photographer: Sujin Jetkasettakorn

Online Trading

Three different accounts are needed to start trading or Investing in Equities Online

A Demat Account

A Bank Account

A Trading Account

Demat Account :

A Demat Account is exactly like a bank account , but is used to store stocks and MFs instead of money.Demat Account is usually provided by a  Depository Participant(DP) .

In India there are two Depositories NSDL and CSDL , these two institutions provide a national infrastructure for storing of Information .

Different banks and private firms act as franchise of these two Depositories , and allow Individuals and Organizations to open Demat Account. These franchise are called Depository Participants(DP).Each DP is assigned a unique number by the Depository this is called DP Id .

When a Individual opens an account, there would be a unique account number assigned to the Indiviual and this number is called Client DP Id

For example : Sharekhan , is a  franchise of NSDL , hence it is a Depository Participant (DP) of NSDL, NSDL has assigned Sharekhan, IN300513 as its unique number.

Trading Account

Trading accounts are usually provided by members of NSE  or BSE  ( Brokers ), the two main stock exchanges in India. These are just web sites , which would allow users to transfer money from their respective Bank Accounts to their trading account and to place buy and sell orders which would be executed by the brokers.

In the absence of a Trading account , an individual can still trade or Invest in equity . He would then have to call up his broker to place order and then give him cheques and his Demat Account details when he is buying and provide Demat Debit Slips ( these are exactly like normal cheques , but instead of money , this would debit your Demat Account of specified quantity of shares of the specified company )

For Example : Sharekhan provides a trading account , which would allow users to transfer money from about 15 different banks and also screens to place buy and sell orders on the NSE and BSE . Which would be executed by the sharekhan brokers.

Image : FreeDigitalPhotos.net,Photographer: jscreationzs

NFO , New Fund Offer

Mutual Fund Company ( AMC ) comes out with a NFO whenever they want to lauch a new fund . For the AMC there could lot of different motives for doing so

1) They want to lauch a new type of fund, not already in their porfolio of funds , for example say a Pharma Fund
2) They just want to increase their asset under management , since Asset managers bonus is based on this.
3) the valuation of an AMC is higher , higher the assets under its management.

Investor in a NFO needs to be very cautious

1) When the AMC sells initial units at Rs.10 , there is no underlying assets that is worth Rs.10 , as only after money is collected from the Investor the manager has to buy the underlying assets , which may end up at a value below Rs.10 in a highly volatile market

2) The New Fund , has no past performance records . Though we keep hearing the disclaimer that "Past performance is no gaurantee , as to how the fund will perform in the future" , still it is wise and prudent to see fast record of a fund and its manager through different market cycles . But with an NFO , there is no previous history

So Investing in NFO is like betting your money on a novice , who may have the potential , but yet to prove himself .

So my advice , avoid NFOs , there are sufficient well managed fund of every hue in the market for you to risk your money on a newbie

Image : FreeDigitalPhotos.net,Photographer: Sujin Jetkasettakorn

BONDS

Bonds are a way for corporates and Governments to borrow money . So we can say Bonds to be a contract between the borrower and the lender .

Types of Bonds that can be issued

Zero Coupon Bonds or Deep Discount Bonds: These Bonds are issues at a discount to their face value , and the investor would not receive any period interest during the duration of the Bond , but would receive the face value at the time of maturity
Eg: You may buy a Deep Discount Bond with face value of  Rs.5000 at a price of say Rs.3000 and will get Rs.5000 at maturity.

Fixed Interest Bonds: These are Bonds with fixed Interest rate throughout the duration of the Bonds and may pay interest periodically or at maturity as per the Bond document

Floating Interest Rate Bonds: These are Bonds , with a floating interest rate . Floating interest would be always be liked to MIBOR + x and this interest may be paid periodically or at maturity as per the Bond document .

Terms used with Bonds are "Coupon" for Interest rate and duration is called "Maturity" .
MIBOR:Mumbai Inter-bank Offer Rate

Corporates and Mutual Funds

Was watching a interview with Mr.Y.V.Reddy former governor of RBI , and one thing he mentioned was so right . He mentiones that currently big and small corporates are big investors in Mutual Funds , now there are two things that are not right about that.

1) Corporates are suppose to have dedicated finance teams ,teams with people who can understand much complicated financial products ,so what are these firms doing investing in Mutuals Funds .What this does is it gives these firms huge lever as they invest huge amounts and hence dictate terms to the Mutual Funds. and also cause serious damage to smaller investors when they redeem their investments

2) When Mutual Funds have access these huge amount of  money from BIG corporates , they have no incentive to go after the smaller retail investor

Net result , we have woefully small percentage of individual investors , invested in Mutual Fund and hence into equities.

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American Depository Receipts (ADRs)

ADRs are commonly used by Indian companies to tap into the US capital market. The process of issuing an ADR is simple. A non-US company (say a Indian company) deposits its shares with a US depository bank (similar to depositories such as NSDL and CDSL in India), which, in turn, issues ADRs to the company. So, ADRs are basically stock certificates listed on US exchanges such as the NYSE and the Nasdaq, offering access to US retail and institutional investors.

ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border and cross-currency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.

Each ADR is issued by a U.S. depository bank and can represent a fraction of a share, a single share, or multiple shares of the foreign stock .The share that is sold to as part of ADR is called ADS, remember that an ADR is not necessarly issues of new equity shares , but it is possible that exisiting indian share holders can submit their share holdings to be sold as an ADR , when the company intends to list their shares in US as an ADR .

For example Infosys has ADRs listed

Ratio of Infosys's equity shares to ADS : 1 equity share held/traded in India is equivalent to 1 ADS held/traded on NASDAQ

Do the Infosys ADSs have voting rights: Yes. In the event of a matter submitted to the holders of ordinary shares for a vote, the ADS holders on record as at a particular date will be allowed to instruct the depositary bank to exercise the vote in respect of the equity shares representing the ADS held by them.

Are the Infosys ADSs entitled to cash dividends:Yes, whenever dividends are paid to ordinary shareholders, cash dividends to ADS holders are declared in local currency and paid in dollars (based on the prevailing exchange rate) by the depositary bank, net of the depositary’s fees and expenses.

Source: Outlook Money,Infosys.com,Wiki
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How to Limit Credit Card Spends

Some of the ways people use to limit their Credit Card spend

• Carry the card only when you know that you need to make a BIG purchase , so that not only would you use your card much less , but when you pay using cash you feel the money moving out of your hand  compared to , when a card is being swiped
• Have a cover for your Card , which would warn you about over spending
• Never go to a shopping outlet without a Shopping List, Just sticking to the shopping list , prevents you from buying anything on an impulse.
• Have a card with very very low credit limit :
• Last and final one , never have a card , always use cash :)

Image : FreeDigitalPhotos.net,Photographer: Michelle Meiklejohn

Insurance is a subject matter of solicitation

"Insurance is a subject matter of solicitation" we hear/read this anytime we see/read a commercial from a Life Insurance company , what is this sentence suppose to mean

Here we go ...this sentence basically means that , a Life Insurance Policy is never to be sold , but is to be bought . Which means , Ideally a person must sit with a financial advisor , explain the circumstances in his life and the advisor is suppose to plan a policy for a suitable duration and term so that all the possible risks of the Insurer are adequately covered.

It is then that the Insurer is suppose to approach a Life Insurer and buy a policy as per those requirements .

The sentence just means that Life Insurance Policies are not be sold as a off the shelf product , as one size does not fit all.

This brings into picture , another aspect of policy making .. that is , it is important to the keep language of a policy/law simple , so that lay men like us can understand it .

So the bottom line is , if a sentence needs a blog post to explain it ...then it has not served its purpose.

Image : FreeDigitalPhotos.net,Photographer: Nutdanai Apikhomboonwaroot

Type of Life Insurance Covers

Traditional life insurance plans : - Traditional life insurance plans make sure that the investments made by the policy holders are not exposed to equities

Unit Linked Insurance plans (ULIPs) : - Allows for the investments made by the policyholders to get exposed to equities

Different Traditional life insurance plans

Whole Life Plan :
As the name suggests, a Whole Life Policy is an insurance cover against death, irrespective of when it happens. Under this plan, the policyholder pays regular premiums until his death, following which the money is handed over to his family. So the insurer

Endowment Plan:
In an Endowment Policy, the sum assured is payable even if the insured survives the policy term.

If the insured dies during the tenure of the policy, the insurance firm has to pay the sum assured just as any other pure risk cover. If the person covered remains alive beyond the tenure of the policy, he gets back the sum assured with some other investment benefits.

There is a term for the policy , say 20 years , which denotes the premium paying period

The Insurer gets the amount in one lump sum at the end of the term or in case of death.

Money Back Plan:
A portion of the sum assured is payable at regular intervals. On survival, the remainder of the sum assured is paid. In case of death, the full sum assured is paid to the insured.

The Insurer gets the amount once every few years , as per the policy document, say every five years.

Term Plan:
A term insurance policy is a pure risk cover for a specified period of time. What this means is that the sum assured is payable only if the policyholder dies within the policy term.
 
Source: http://insurance.kotak.com
Image : FreeDigitalPhotos.net,Photographer: jscreationzs

Personal Accident Policy

A personal accident policy not only protects your family in the event of an accidental death much like a life insurance policy, but also covers disablement leading to loss of earning capacity, at low premiums.

You can plan to have a Personal Accident Policy in combination with your Term Plan for a Life cover , what must be noted is that premium amounts for Personal Accident Policy are much lower then the Term Plan premiums ( Term Plans are the cheapest Life insurance covers )

A Personal Accident Policy covers various kind of accident disabilities and may also have a clause to pay the insured person a fixed amount for every non-working day, due to a accident

The premium of a Personal Accident policy is usually decided by the age of the person and more importantly by his occupation , which are categoried based on risk of meeting with an accident, on job.

These are the different types of disabilities covered :
Death,Permanent Total Disablement,Permanent Partial Disablement,Temporary Total Disablement and also loss of limb and eyes .

What must be noted is that , there are many Insurers especially private insurers who do not cover "Temporary Total Disablement ", this is serious draw back .

In case of "Temporary Total Disablement " the level of disability reflects an injury that has rendered the person completely unable to perform any job on a temporary basis. But the person is expected to make a full recovery and return to work.

So if you are buying a Personal Accident policy make sure that "Temporary Total Disablement ", is covered.

Image : FreeDigitalPhotos.net,Photographer: renjith krishnan

Bonus, Rights,Dividends,Buy Back,Split

Click on the image below

Index Funds

Index Funds as the name suggest are based on an Index . Now what is an Index, Well Nifty ( NSE Index ) and Sensex (BSE Index ) are two well known Indexes( or list of companies ) in India.

Index funds are also called Passive Funds , that is because the fund manager who manages these fund is not suppose do anything other than just follow the Index , that is, he is suppose to buy shares of only those companies which are in the Index and in exactly same ratio as they are in the Index.

Since the fund manager is suppose to just follow the index , fund management charges are suppose to be the lowest of all types of mutual funds schemes.

It has been found that in developed countries, investment in Index funds have returned far superior returns compared to the investment in a diversified equity fund . But this trend has not been seen in India , as we find many diversified equity fund manager out performing the Index. As India becomes more and more of a matured market , we may see this trend in India too .

Tracking error is a term used with Index Funds , which indicates , how much is the return from a Index fund different from the Index itself . Smaller the tracking error better is that fund

So investing in Index fund may be a lazy way of investing , but in mature markets it has done wonders. 

Image : FreeDigitalPhotos.net,Photographer: graur codrin

Investing in ELSS

Equity Linked Saving Scheme ( ELSS) is just a normal Mutual fund with few exception :

Pros:

• Any investment in ELSS can be used to claim deduction under sec 80C upto a limit of Rs. One Lakh
• Any investment in ELSS is locked for a period of 3 years . you cannot even pledge these MF unit during the lock-in period
• If any good ELSS declares dividend and you would like to invest , go ahead as do so , as ELSS is the only type of MF in which any dividend makes sense . Because you would still get to claim deduction on the entire amount you invested , though you got back a part of the investment as dividend

I do not think there is any other difference , between a normal MF and an ELSS .

Cons

• ELSS is not being recognised for deduction in the DTC ( new tax law ) that will be in force from April 2012, so in case you intend to invest in ELSS through a SIP make sure that the SIP end before April 2012
• Never opt for the Dividend Re- Invest option . In case of ELSS ,as in case of dividend Re-Invest your dividend would be used to buy more units of ELSS , but the problem with this is , these newly bought units would be again locked for 3 years from date of purchase

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Folio Consolidation In Mutual Fund

When ever you invest in a Mutual Fund , you will be provided with a unique number called Folio Number . This is like a account number and would have your details like Name, Contact address, Bank Details , PAN details all stored linked to this account number .

Please note each Mutual Fund company (AMC) like HDFC , Fidelity follow their own way of having this Folio Number , so it is not same across companies , so each of these companies will give you a Folio Number when you invest in their schemes.

Initially when i started investing in MFs , i did not realise the importance of this number , so when i invested in the same Mutual Fund , but in their different schemes i did not use the same Folio Number , hence ended with many different Folio Number for the same MF company


Why is having too many Folios not a Good Idea

•  You would end up with many different Account Statements , making it hard to get a overall picture of your MF investments. 
• In case you want to change your contact address or any other details  you would have to make sure that you do that for all the Folios involved
•  In case you have mentioned different Bank Account details in each of these Folios , then you would have a hard time to track, if you have received the dividends and redemption proceeds.
•  As per article 3 Accounts , if you decide to close some of your unused Bank Accounts , you need to be careful , as you might have mentioned this account in one your many folios.
•  KYC compliance that is currently being made mandatory would needs to be done for all Folios

The different Folios from a same AMC can be consolidated, you would just need to give a letter clearly mentioning your different Folios and the Target Folio into which you would like to consolidate all your Folios.

Conditions under which Folios cannot be consolidated

1) You name appears differently ( could be without initials or expanded or not expanded initials )

2) Bank Details are different

3) There are ELSS investments which are locked for 3 years ( AMC are very cautious with such Folio ) , especially if this Folio is not the Target Folio of your merge.

So my advice would be, if you are just starting off on you MF investing journey try and keep a single Folio . and In case you have already ended up with multiple folio numbers , try and consolidate them .

Life would be a lot simpler with a single consolidated Folio

Image : FreeDigitalPhotos.net,Photographer: Filomena Scalise

Irresponsible Financial Advice

I was shocked to see this 3 Dividends a day articles on Economic Times . I would consider this to be irresponsible financial journalism on part of a high calibre financial newspaper like Economic Times .

This article tries to portray as a hero, a senior citizen who has invested in more than a thousand different Mutual Funds scheme and has chosen Dividend Payout option for all those schemes and hence receives 3 dividends a day each month

The point is , in their exuberance to fill pages , the news paper did not deemed it necessary to explain to its readers that a MF dividends is a farce that MFs try to pull on the investors .

All that i can say about the investment strategy employed by the gentleman in the article is, it is a bomb waiting to explode

Image : FreeDigitalPhotos.net,Photographer:  graur razvan ionut

Employer's Contribution to PF

For a salaried employee , when ever we take a look at our Salary Slips we always see a Employee Provident Fund (PF) deduction of  12% of our Basic Pay in it and we also know that our employer would need to match that with a equal contribution

But if we see our annual PF statement and try to calculate the amount in our EPF account , it never adds up and it seems like something is missing ... well this is the missing bit

Of the 12 % that our employer is suppose to credit to our EPF( PF) account only 3.67% of  Basic Pay goes into EPF and rest that is 8.33% of Basic Pay goes into Employee Pension Scheme (EPS)

Image : FreeDigitalPhotos.net,Photographer: renjith krishnan

Indirect lesson from WikiLeaks

One of the developments from WikiLeaks, that really shocked me was the clout Visa and Master Card , the payment gateways have and their swift move to strangle the cash flow for WikiLeaks. What these gateways did for WikiLeaks ,they could tomorrow do for any other organization .

This is a wake up call for India and RBI , that ,over dependence on these payment gateways to process our credit card and debit card processing is asking for trouble and to be at the mercy of these foreign service providers , can eventually put our entire economy at risk. As RBI tries to encourage more and more card based payments to weedout black money we will be more and more at the mercy of these payment gateways.

RBI as part of their vision document did have
"Establishment of e-payment gateways for the benefit of customers (such as the gateways for funds transfers and other account related transactions) and for facilitating e-commerce "

RBI Vision Document

But I'am not sure if RBI has started work on this , but seems this now needs to be expedited , so that, atleast card processing and transactions within the country could be routed through this RBI's gateway instead of these foreign gateways .

There would be other advantages too by having this RBI gateway .

RBI need not charge the 2%  which most these gateways charge, making card transactions more attractive and also prevent this 2% outflow of money from the system.

Image : FreeDigitalPhotos.net,Photographer: renjith krishnan

Voluntary Deductible in Auto Insurance

Everybody who has a Auto Insurance knows that , they would never try to make a insurance claim in case there is small damage to the vehicle either to avoid the lengthy claim process or to make sure they get the No Claim Bonus


Ideally this mindset can be used to lower your premium amount .

When buying a Auto Insurance , do tell the agent that you would like to increase the "Voluntary Deductible" .

Voluntary Deductible: is that portion of any claim, which the insured( that is YOU ) is willing to pay out of his pocket. The standard rule is, the higher the deductible, the lower the premium.

Example:
Suppose there is a damage to your vehicle and if it going to cost you two thousand five hundred to fix it , you may never make a claim . So when you buy a Auto Insurance you make sure to mention that you would want your policy to mention that Voluntary Deductible on your policy is two thousand five hundred rupees . This would mean even if the damage is larger , you would need to foot the first two thousand five hundred rupees of the bill and rest would be borne by the insurer as per the policy document.

It is just that since you are willing to bear a part of risk of an accident , the Insurance company reduces the premium

Image : FreeDigitalPhotos.net,Photographer: graur razvan ionut

Banking Ombudsman

The dictionary defines 'Ombudsman' as "A government appointee who investigates complaints by private persons against the government "

A Banking Ombudsman, is a officer appointed by the Reserve Bank Of India (RBI), to look into complaints raised by customers of any bank that functions under the perview of the RBI.

All over India there are 15 Ombudsmans appointed each have their own jurisdiction List of Ombudsmans

The customers can approach these Ombudsmans , if they find deficiency in service that they receive from the bank, provided they have first raised their concern with the bank and the bank has not set right the issues or if the bank has outrightly refused to entertain their concern .

The customer has to be aware of these

a) Expain the problem on a sheet of paper with all the details
b) There are no charges involved for raising a compaint with the Ombudsmans.
c) The Complaint has to be raised with the Ombudsmans for respective region ( where he bank branch is located )
d)The compaint can be regarding any aspect of banking like credit cards,loans,deposits,etc.

Image : FreeDigitalPhotos.net,Photographer: Idea go

How to make the most of your PPF

I read a similar sounding article in economic times - Weath, today , but felt i can put it in a more simpler and understandable way..so here i go

In case you do not have a PPF account , wake up , open one today , as a debt component of your retirement planning , i do not think there is any better instrument in the market

One you have a PPF , make sure you do these to get the maximum benefits

1) Contribute max limit of Rs.70,000 each year .

This is maximum you can contribute , so use the entire limit

2) Make sure you deposit this amount by 5th of April, each year

Interest is calculated on the amount in the account between the 1st and 5th of each month , so if you deposit by 5th of April , it would accrue full interest for the entire year

3) Never withdraw any amount from this account

For compounding to work to its full potentially , never touch the money in your PPF account

4) Always renew the PPF account once it has completed 15 years

So that you can continue to use the power of compounding

Take care to follow these four steps , and your PPF account would contribute substantially to your retirement nest egg

Image : FreeDigitalPhotos.net,Photographer: renjith krishnan

Section 80G of Income Tax

80G. Deduction is in respect of donations to certain funds and charitable institutions

The question that we would have is , is the entire donation under section 80G deductible and the answers to this is -----NO

For the sake of Section 80G , instituions are classified under four different exempt categories

Category 1
Donations to whom qualify for 100% deduction.

Category 2
Donations to whom qualify for 50% deduction.

Category 3
Donations to whom qualify for 100% deduction , but to be restricted to 10% of Total Income

Category 4
Donations to whom qualify for 50% deduction.but to be restricted to 10% of Total Income

Let me explain

Example 1: Assuming that an individual has a Total Income of Rs.6,00,000
so after the standard 80C deduction of about 1 Lakh , the total income reduces to Rs.5,00,000.

Now if this Individual has donated Rs.70,000 to a Category 1 institution , then total taxable income of this individual would be
Rs.5,00,000 - Rs.70,000 = Rs.4,30,000 . Entire seventy thousand would be considered.

Example 2: Assuming that an individual has a Total Income of Rs.6,00,000
so, after the standard 80C deduction of about 1 Lakh , the total income reduces to Rs.5,00,000.

Now, if this Individual has donated Rs.70,000 to a Category 3 Institution , then total tax able income of this individual would be
Rs.5,00,000 - Rs.50,000 = Rs.4,50,000 . Fifty thousand is subtracted and not seventy thousand as 10% of the total Income of Rs, 5 Lakhs would be fifty thousand , which cannot be crossed , even though a higher amount has been donated .

So in case you are donating to a instituation to avail tax exemption , be very clear of what to expect from taxation stand point .

All that i would like to add is that, if you are donating, do so as an act of faith and as an act of giving back to the society from which you have gained so much , rather than as an act of saving tax

Section 80G

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Calvin and Hobbes completes 25 years

Calvin and Hobbes completes 25 years . What amazing joy this kid and his adventures have provided us .

I have a friend who adores Calvin and when he had a son wanted to name him Calvin , I warned him "do what you want to , but make sure your kid does not read this cartoon comics , else you will regrest it the rest of your life :)"

Read this article in "The Hindu", where somebody so rightly wrote that Hobbes is Calvin's saner side .

the adoreable Susie Derkins and baby sitter Rosalyn just make sure this comics remains that much more interesting always

Thank you Bill Watterson for all those wonderful moments with Calvin and Hobbes.

Super Topup

Image : FreeDigitalPhotos.net,Photographer: jscreationzs
As a salaried employee ,one of dilemmas we face regarding medical Insurance is , "I have a medical cover provided for, by my employer , which is pretty decent , then do I really again need to buy a medical cover on my own ? "

Consider these situations in life
1) You intend to take a sabbatical , go back to school , as you feel this extra knowledge would help you in the long run , so you quit and go back to school

2) You intend to change jobs and for first time you realise that you will be able to take a break before joing your new employer , but after you have been relieved from your previous employer

3) You were on maternity leave and as days went by , you realised your little bundle of joy means a lot more to you then returning back to work and decide to stay back at home .

4) You retire ( buying a new health insurance policy at this age is not only very costly , but many pre exisiting diseases will be excluded )

In all these circumstances there would be a time , when you will suddenly find that you are not under the medical cover of any employer and in case you are hospitalised during these times , you would have to foot the medical bills on your own .

My recommendation would be , you need to have a medical Insurance on your own irrespective of employer cover . Buy a normal mediclaim cover for about 2-3 lakh and then by a "Super Topup medical cover" from United India Insurance

Top-up medical insurances , as the name suggests are a type of medical cover , which would kick in over and above someother insurance cover .

For example you may have bought a medical cover for 2-3 lakh , this would be your normal medical insurance , now also buy a Topup medical cover , which would cover any expenses above the 3 lakh limit .
The advantage with topup policies is that since they kick in late( that is after 3 lakhs of expense ) , they are cheaper. You could buy a cover which would kick in from 3 lakh and cover you upto 7 lakh ( that would mean a total cover of 10 Lakh ) for about Rs. 2500 per year for the Toup cover

These medical insurance premiums are tax deductibles over above the 1 lakh limit , hence making them still cheaper to buy .

Check these links on Medical Insurance
Super-Topup - A Super Idea
Do not buy Family Floaters

Gold ETF - "Invest with caution"

Gold ETF are probably the easiest way to deal in gold , be it buying , ensuring the purity , storing or finally selling . All these featues made Gold ETF extremely popular and investment advisors also started recommeding it since, a person dealing in stocks can so easily diversify into Gold without any extra expense.

Once the Gold ETFs started being popular , a whole lot of AMCs jumped into this bandwagon , though there is hardly any differentiation between the product offered .

The way the Gold ETFs works is the AMC would buy gold and issue ETF units to the Investor and each unit would represent 1(One) gram of gold . The physical gold bought by the AMCs is stored with a "Custodian" and in case of Gold ETFs this is "Bank of Nova Scotia" .

Just do a casual search on "Bank of Nova Scotia" and you would find troubling stories on the way Bank of Nova Scotia has handled these gold .

I recently saw an article , that SEBI has directed "physical verification of gold underlying the Gold ETF units shall be carried out by statutory auditors of mutual fund schemes and reports to trustees on half-yearly basis" This is a good move , If it can be implemented .

All that i would like to say for now is "Invest with caution"

Image : FreeDigitalPhotos.net,Photographer: Salvatore Vuono

NEFT

National Electronic Funds Transfer (NEFT) is a nation-wide system to electronically transfer funds from any bank branch to any other account with any other bank branch in the country as per RBI 80,000 bank branches are currently part of this network

Office hours
NEFT operates in hourly batches - there are eleven settlements from 9 am to 7 pm on week days and five settlements from 9 am to 1 pm on Saturdays .

Transactions from 9 am to 5 pm and on Saturdays transactions from 9 am to 12 noon get credited on the same day. Transactions between 6 and 7 pm and on Saturdays transactions after 1 pm batch would get credited either on the same day or on the next working day

How does this work
All NEFT request which is presented to our respective banks are forwarded by the bank to National Clearing Cell of the RBI ,which is focal agency for forwarding this request to the bank at the receiving end of the request .

IFSC
Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system. This is a 11 digit code with the first 4 alpha characters representing the bank, and the last 6 numeric characters representing the branch.
Find IFSC Code

Answer to all your NEFT questions
Image : FreeDigitalPhotos.net,Photographer: renjith krishnan

How to be KYC (Know Your Customer)compliant

All Individual Mutual Fund Investor has to be compulsorly KYC compliant from Jan 2011

1. A KYC application form along with 3 documents needs to submitted
2. Application can be submitted at investor service centres of the Fund or CAMS or at designated POS of CDSL Ventures Ltd .
3. The documents required are:

• Recent passport size photograph
• PAN card copy
• Address proof

After KYC application form and accompanying documents are verified, you will receive a letter certifying KYC compliance by courier.

When investing, a copy of this letter should be attached to the application form

Link to download KYC Application

List of POS

Check your compliance

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How IT inclusive are our PSU banks

We keep hearing out our PSU banking giants rolling out more and more ATMs , Internet and Mobile banking . But there is one piece of information about which i have never seen any statistics and that is , what percentage of staff in these banks actually use ATM cards and if i may be allowed to push my luck , intenet banking .

Feel the responsiveness of all these PSU bank IT initiatives can be increased by a factor by just ensuring that bank employees are their own customers as i'am sure PSU bank employees will be as demanding as any of their other customers .

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ASBA

When a retail investor invested in an IPO ( Initial Public Offer ) or an FPO ( Follow Up Public Offer ) , the Investor had to pay the entire application amount upfront and it would take upward of 15 days to get through this process, before stocks are finally listed .

This means that your application money would we LOCKED up during this period and in case there has been over subscription to a issue , you will not be allotted your entire applied quantity of shares and then you would have to wait for your refund

So in order to avoid all these confusions ASBA or Application Supported by Blocked Amount was introduced .

This is how it work , when you apply instead of actually transferring the entire amount to a escrow account, the amount would continue to be in your account , but this amount would be LOCKED , hence you cannot withdraw this amount .

So after all the allocation process have been completed , the requisite locked amount will be debited from your account .

So what does this mean to the investor

a) The Investor's money would continue to earn interest for him ,untill it is finally debited

b) In cases of over subscribed issues, only amount for the allocated shares would be debited , so there is no question of refund and hence all delays and disputes associated with refund is removed.

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MF Dividend and Stock Dividend

When i mean MF , i would be referring to Equity mutual funds ( Those with greater then 65% invested in equity .Would start off with

Similarities
a.The Investor gets cash in hand
b.The Dividend is tax free in the hands of the investor
c.Investor may not get dividends each year
d.Dividend always a percentage of the face value

Differences
a.The stock price may or may not be affected after a dividend , But NAV of a Mutual Fund invariably reduces by an amount equal to the dividend
b.Dividend stripping law , would be applicable to the MF units, once the dividend has been received
c.When a company declares dividend it would be from its profits or may be reserves ,but a MF would have to sell its underlying assets to pay the dividend .

The final point in "Differences" is what makes all the difference . That is , in case of MF it is AMC just selling off something that already belonged to you and giving you the money and then making it look like they have been phenomenally generous.

The only occasion where a dividend from MF may make sense ,not from being invested in equity for long term ,but purely from money in hand sense would be dividends declared by ELSS , as you claim tax deduction for money invested and dividends here mean you are indirectly claiming higher percentage of tax deduction
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Number Portabiliy and Dual SIM phones

Mobile number protability is the next of services to be lauched , But in our country where more than 90% of the mobile phone subscribers are post paid customers , not sure if this is really going to be such big game changer . Well i do see one product , whose purchase may be severely dented going forward , the Dual SIM mobile phone .

I have been a mobile phone user for ten years ( Intially it costed Rs.4/min to call and Rs.2/min to receive a call ) but never felt the need to either carry more than one mobile nor for a dual SIM phone . But for some reason this species of phone has been a huge hit , forcing even market leader Nokia to reluctantly introduce dual SIM phones .

We just have to wait and watch how much churn of subscribers will this new service cause . May the operators with strongest signals survive !!! .

Well , when on this topic , IDEA cellular, seems to be the only operator looking forward to this service. Kind of liked their new number portability Ads..but don't think i'am going to change my operator anytime soon .

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Using your Airline Miles

I had occasion to travel abroad a few years back . After the end of my travel, one of things i had done was to enroll in the loyalty program of the airlines .

But one of the things that i noticed was that, thought i had lots of miles with me , I did not have much option of utilizing those miles, either i may use them during my next travel ( i never travelled after that ) or else use it on the airlines website to purchase some stuffs , this was a problem too as most of the stuff would be shipped from abroad , hence would be subjected to customs and other duties .

It was about a year back that while i was browing casually , i noticed that there were websites in India , which were letting you purschase and pay using those airline miles . This was something great , as it opened a whole new way of shopping.

The airline i used was Lufthansa and web site i finally used those miles on was http://shopping.indiatimes.com/

So whenever you travel , make sure you do enroll and save those miles . you never know when you can use them
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Saving without Goals

I have been reading a lot of articles across blogs about goal based saving . I agree it may be easier to save when you kind of know what you are saving for .

But i have a problem with this . I believe many of us know that we have A GOAL we would like to accomplish but are not clear of when we would like to hit that goal . Lets say buying a house , we may all want to buy one , but may be unsure when or where . Would that mean we should not be saving or not know how much to save .

I think it would be a far better idea to make saving in itself a goal . May be trying to save a certain percentage of your salary or Income as a goal may be a far better strategy . Say i would like to save 30% of my income

Another positive of this strategy would be that , you would start being more value conscious , as every penny you save would be a step towards your goal .

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CIBIL

With increasing rate of defaults of loans , the Government and RBI felt the need for a mechanism where by the credit worthiness of a borrower could be found , so that risk involved in lending to that person or institution could be better assessed.

This was when CREDIT INFORMATION BUREAU (INDIA) LIMITED [CIBIL] was formed , which would collect data from a crossection of lenders and then share it with Banks, Financial Institutions, Non Banking Financial Companies, Housing Finance Companies and Credit Card Companies.

The collection of data is done using PAN details and such other uniquely identifiable atributes of the borrower . So before a lender lends any loan , he would first get a report from CIBIL about this borrower , see if there are any other liabilities for this borrower and then try to take a much better informed decision .

For a individual ,it is possible to get a copy of their own Credit report either from a Financial institutuion where they have applied for a loan or directly from CIBIL

CIBIL website can be accessed at http://www.cibil.com/

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Begining of End of Teaser Home loans

Teaser Home loans are those home loans that would be initally ( for first 2 or 3 years ) offered at a low rate of interest and then the rate of interest would be increased to the prevailing market rate, which is definitely higher.

The problem with Teaser Home loan was that , the initial low rate of interest kind of gave the borrower a false sense of confidence that , they can borrow more and also that they can repay the loan without much problem . But it would be only after the initial teaser period is over that , the borrower realises that , he actually would have to shell out much more, as Interest rates are from then on ( may be for next 12 - 18 years ) at a much higher rate .

What this does is , there are higher risk of borrower defaulting on his payments as he start feeling he does not have the repayment capacity at the higher rate of interest , thus making teaser loans a high risk lending for the banks .

But despite this banks had continued with teaser rates , as they wanted to increase their loan disbursements . But now with RBI stepping in and increasing teaser rates loans risk weightage , banks have to keep aside a bigger amount of money , for every teaser loan disbursed , thus making it less attarctive for bank to continue with teaser rates home loans.

This is welcome move from RBI .

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