Before Memory Fades

I'am currently reading this amazing autobiogaraphy of Fali S Nariman "Before Memory Fades" and in the realm of this i find another instance of JRD Tata's thoughtfulness . Since Air India was a Tata Enterprise , which Government of India Nationalised ( Or rather flew to ruins) , Mr Tata was still at the helm of affairs for quite some time and he had instructed his staff that, any time Mother Theresa were to travel by Air India , Mother would always be accommodated in Business Class and at the end of the flight , she needs to be presented with all the chocolates and other eatables which childeren can use, neatly wrapped .

Intend to keep this post going. adding more of this great man's thoughtfulnesses

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How to stop an ECS

Have you ever tried to stop an ECS mandate that you might have given for a credit card payment or may be to a mobile phone bill payment .. Well i know of few who had quite a experinece .

Well i intend to tell, how to go about

Step -1 : Approach your service provider with a written copy of a letter clearly stating you intend to cancel the ECS mandate , mention all relevant details and make sure you get an acknowledgement from the service provider for your request , either through email or a letter

Step -2 : Approach your bank , where the ECS is registered and given a letter clearly stating your intent to stop the ECS. If in case Bank tries to inform you that you must approach your service provider show them the acknowledgement from the service provider .

Step - 3: In case the Bank still refuses to accept your request for ECS cancellation , then you need to tell them , there is a clear gideline from RBI , which states
"for action on the withdrawal instruction by the bank branches, it is not necessary for the bank branch to obtain a confirmation from the user institution. The user institution is not supposed to include transaction in the ECS file on receipt of withdrawal notice and for any reason, if the transaction gets included in the ECS file, it may be dealt in a way ‘stop payment’ instructions are handled in the cheque clearing mechanism."

What this means is that ECS cancellation requests must be accepted by banks from its customer , irrespective of the approval of the service provider and must treat all future ECS request from the service provider as a "Stop Payments"

This is not a new giudeline , but something , that has been around for a long time , check this for more details.
http://tinyurl.com/2bcdoal

Stop Sign by Robert Kraft

No Third Party Cheques

Association of Mutual Funds in India (AMFI) issued best practice guidelines on ‘Risk mitigation process against third party cheques in mutual fund subscriptions’. In line with these recommendations Mutual Funds shall not accept applications for subscriptions with third party payment instruments .

What is a Third-Party instrument
· When payment is made through instruments issued from an account other than that of the beneficiary investor, the same is referred to as Third-Party payment.

Exception to the Rule
· Payment by Parents/Grand-Parents/related persons on behalf of a minor in consideration of natural love and affection or as gift for a value not exceeding Rs. 50,000/- (each regular purchase or per SIP installment);

· Payment by employer on behalf of employee under Systematic Investment Plan (SIP) facility through payroll deductions;

· Custodian on behalf of an FII or a Client.

· Payment received from a joint bank account where the first holder of the mutual fund folio is one of the joint holders in the bank account from which payment is made.

Source HDFC Mutual Fund

Filling your Mutual Fund Application - watchout for these

Today i received a email from Quantum Mutual Fund , with four points to look out for when filling your Mutual Fund Application either for SIP or Lump sum investment . I have added a few more to those four

• Cheque in favour of the Scheme Name

The cheque that you issue must always be in the name of the fund that you are investing in . For example in case you are investing in HDFC Top 200 Fund , then cheque must be drawn in favour of "HDFC Top 200 Fund" and not in favour of HDFC Mutual fund .

• Wrongly dated Cheque

This pertains to SIP cheques , Make sure the First cheque that you submit withe application is dated , atleast on the day of submissin of the application , as the Cheque be send for collection on the day of submission

Example : In case you are submitting an application on 10th of a month for a SIP to start from 15th of each month , Please make sure the date on the cheque is 10th or pre dated to 10th , as MF will send it for collection on the very same day and not on 15th and actually SIP would start at least a month from date of submission of application not before that .

• Wrong SIP start date

SIPs usually start atleast a month from date of submission , never before that , so make sure your SIP start date is a month away and not before that .

• No Third Party Cheques

If you are investing in the name of your spouse make sure you are attaching a cheque from your spouse's account . That is, person in whose name the mutual fund is bought and person who is issuing the cheque must be same .

This is new regulation being bought in to prevent MF agents from misuse client cheques. To buy units in their own name.Watch out for a detailed post on this !!!!

• Fill in your Email Id

Have a email Id and make sure that you use the same email Id for all the MF investments , as you can later use this to get a consolidate statement across MFs from camsonline.com

• Fill in Nomination Details

Always have nominee for your MF folio

• KYC compliant

If possible be KYC compliant , this may not seem as necessary when you start investing , but down the line in case you wish to make a lump sum investment of more than Rs.50,000/- you will not be allowed to do so , unless you are KYC compliant.

Infrastructure Bonds and Demat Account

Better sense seens to have prevailed over the issuers of Infrastructure Bonds . After the first of the issues from IFCI , which issued these bonds only in compulsory demat mode, IDFC , L&T are not so particular about the compulsory demat mode . Must be the low key responce to the issue that is forcing current issuers to, not only extend the issue period but also to issue these Infrastructure Bonds in non demat mode, provided KYC guidelines are adhered to

KYC guidelines :

You must already have a KYC compliance letter , which you must have used for your MF investments , else you must submit these documents along with Bonds application

a) PAN card photocopy

b) Address proof

You can check if you are KYC compliant from this link http://www.cvlindia.com/inquiry_kyc01.asp

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Tax Deduction at Source (TDS)

Tax deduction at source , is the tax which a person responsible for making a payment has to deduct from the amount he is paying , in lieu of the tax the receiver of the amount is suppose to pay and deposit it into the government coffer, quoting PAN of the receiver of the amount .

This one of the most effeciant ways of tax collection for the government .

Take the case of the transaction that took place between Vodafone and Hutch . When Hutch sold its telecom business to Vodafone , as per law Vodafone which was making the payment , should have resorted to TDS and must have paid Hutch the balance amount . But they did not , claiming that both Hutch and Vodafone , were Non Indian companies ( or some reason like that ) .

But now the Indian courts have decided that Vodafone , must have deducted TDS before they paid Hutch , hence the TDS amount , which must ideally have been paid by Hutch, would now have to be paid by Vodafone and the amount involved is a staggering $2 billion as TDS along with another $2 billion as penalty.

For lesser mortals like us , we see our employer resorting to TDS every month when our salaries are credited . Now the question is how do we check if that amount has been credited to the government.

Well this is what you could do
Log on to the website http://www.incometaxindiaefiling.gov.in/ and register here . After you login in navigate to My Accounts > View Tax Credit Statement (Form 26AS)

you will able to see all the TDS credits in your account across different financials years

What is Dividend Stripping

Imagine a situation where a investor would buy MF units just before the record date of a MF dividend , pockets the dividend and then sell the unit at a loss , thus showing it as a capital loss and then tries to adjust the capital loss with some other capital gains is known as dividend stripping .

Let me give you an example , suppose you bought some units of MF at an NAV of Rs.25 , after few days , the AMC annouces a dividend payout of Rs.3 per unit . So on the date the dividends are paid out to you the NAV of the scheme gets adjusted to Rs.22 ( 25-3 ) . Now, if you look just at the NAV , yes you are in a loss , but since dividends have already been credited to your account you are actually not at a loss .
Also note here that in case of Equity MFs , dividend is totally tax free in the hands of the Investor

Government figured this loop hole , and bought a fix for this and this is the fix
If an investor buys MF units within THREE months prior to the record date of a dividend, and then sells those MF units within NINE months after the record date, any capital loss from the transaction would not be allowed to be set off against other capital gains of the investor, up to the value of the dividend income exempted.

How many Bank account you ought to have

I would recommend that a salaried person , Ideally must have atleast three accounts

First of the account is the Salary account , the account into which your salary would get credited , this account would not be used for any other purpose other then salary credit . The day you change your job and the new employer is not able to use the existing account this account must be closed

Second account would be your Investment Account , this account would be used to route all your investment , all your premium payments ,credit card payments,all ECS, all bill payments . Take care to choose a bank for this account ,which would provide internet banking ( with a very good customer care ), bank which would proactively make sure that it is enrolled as preferred payment bank across various vendors and service providers.

Third account would be your Emergency account , this account would be used to put some or substancial money for emergency and This account must be , no excuse, has to be a sweep account , so that money lying here will not just lie idle, but earn optimal interest .

What is advantage of splitting accounts , well
1) When closing old unused salary account , you are sure , you will never receive DDs,ECS request , which will be drawn on the closed account , as all investment were routed through Investment account

2) You want to find detail of all payments , Investments made , Dividends received just get a statement of your Investment account and lo .. all details are there for you

3)You are concerned , that you may accidently invest money in illiquid instrument , money meant for emergency , that would never happen as your emergency cash is in a totally different account

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How to store your important documents

The latest scanners allows you to not only scan your important documents , but would also allow you to scan a set of related documents into a compact PDF document and then email them, so that it can be access online or write it on to a DVD .

This is a very elegant way to of storing documents . Imagine what you can do with this feature

a) Scan all you tax returns say in blocks of five years as a single PDF document
b) Scan all your educational marks card/Certificate as a single PDF document
c) Scan all your documents like Driver License , PAN card as a single PDF document
d) Scan all your Life Insurance Policies as single document , so your family can easily find them

There could be more uses ...above would be good list to start off with

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How not to miss your payment due dates

I'am sure everyone of us have quite a few bills that we have to pay once a year , which make them so much harder to remember . These could include our Life insurance premiums , Health insurance premiums , Accident insurance premiums , Property taxes ,Vehicle insurance premiums, could be renewal of some annual maintaince contract, Well is there a way we could make our life a little easy to remember these . Well Yes , try and use the reminder calender for example use the google calender , make sure you take care of these when you set the reminders

a) Set a recurring reminder , so you get a reminder every year

b) Make sure you set the reminder atleast a week to ten days ahead of your due day , so that you have enough time to pay the amount.

c) Include enough details in your reminder , so that you know exactly what the reminder is for and approximate amount you would need to pay.

So the little time spend to set these reminders , would be well spent , if you could avoid late payments fee or policies being lapsed .

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Reduce fix cost overheads

Further to my earlier post , regarding keeping cost low . I would say , we would need to keep an eye on cost , not just during investing , but in other aspect of spending too,Take you mobile phone plan , if you are an employee of a MNC or rather of a well known Indian corporation , do make it a point to check with your HR for corporate Mobile Tariff plans . Not only will these corporate plans have lower monthly rentals ,but would also have very competitive call rates and also they will not have CLIP charges associated and also have a feature called CUG ( Closed User Group ) free calling , That is unlimited free calls between number on coporates plans of same company.

So if the service provider is OK , you can pick more then one connection or change plans of exisiting connection to the corporate plans , so that people who you frequently calls say spouse , parents , use the other connection , and you can end up with unlimited free calls at a fraction of the cost

Any recurring cost , be they Internet connections Plans, Magazine subscriptions,Cable TV subscription plans , there is always scope to optimise and cut on wasteful expense .

The bottomline is to keep recurring cost low , because , in long run benefits of optimising recurring cost would be phenomenal , as it could also help you get into a "optimise" mindset

Let us try to do the simple things first .

Nurture - Get rid of the duds

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Was reading this article in Forbes from Sanjoy Battacharya , he was so correct , when he writes that, it is so tough to get rid of the non performing stocks in your portfolio, we would invariable wait for those stock to at least get back to our purchase price . And Battacharya also goes on to write that , the other reason we fail to get rid of these duds is our "EGO", as we would then have to accept that we were wrong , and that my stock selection was wrong . To accept one is wrong is something unacceptable to the EGO.

Taking forward this "Get rid of the duds" , was fascinated by a articles on GetrRichSlowly.com by JD about minimalistic living , living with few wants and fewer material possessions and how some people are even trying to own not more then 50 item ( all included )
http://www.getrichslowly.org/blog/2009/10/09/minimalist-money-6-steps-to-simplify-your-financial-life/

Similarly , on IWillTeachYouToBeRich.com , Remit , points us to be aware of the biases in life that we unknowingly carry with us and tells us to get rid of those
http://www.iwillteachyoutoberich.com/blog/10-scripts-email-signu/

All these three different guys are point to one thing and one thing alone "Get rid of the duds" be they be stocks,possessions,thoughts.

FMP Fever

MF funds are back with a flood of Fixed Maturity Plan (FMP) . What really are FMPs , as i understand ,they are closes ended plans ( that is ,you can only buy them when , AMC opens the subsciption , and can either hold it till maturity or may be sell it on the stock market , where it will be listed ) , which invests in rated corporate bonds and and other such instruments , which ideally have term equal to the term of the FMP .

Currently MFs are coming up with FMPs of duration of as low as 35 days, 3Months to 370 days to may be 36 Months.

With the current interest rate scenario , which has a upward bias , it is not a good idea to lock into a instrument with a longish term and FMP may just fit right for this scenario.

With too many MFs comming out with FMP issue , it would be quite a pain to track , which offer is open for subscription , I usually use http://www.mutualfundsindia.com/ to track FMP NPOs.

HDFC,DSP Blackrock and many other provide you a way to buy these online without any hassel ,but for some reason Fidelity MF had some problems after their first couple of FMP subscription online ,and since then they have taken it offline

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Keeping cost low

Once a individual has overcome the initial intertia to start investng , it would help investor to keep a eye on the cost involved . The cost could be what you pay you broker/online broking account , what your MF agent ( if there is still such a guy around ) .

One of the best way , atleast for me , regarding my MF investing has been that , i have been able to keep my trading account completely isolated from my MF holdings, thanks to more and more Asset Management Companies (AMC) going online , allowing investors to invest from their website.

The backend of most of these MFs , CAMS and Karvy , have been equally proactive to provide investor with an option to see their entire portfolios across AMCs as a single consolidated PDF file and on demand, that too free.

So if you ask me, i would say , use the AMC websites to purchase you MF units , you can even use these sites to start off your SIPs. if not, a trip to the CAMS or Karvy office with physicals forms is not a bad idea .

Bottomline, be in firm control of your folios and not be at the mercy of your online trading websites , atleast not for your MF folios.

Shopping at the big retail stores

I do shop at these big retail stores for the range of convenience they provide . But there is something that i'am geting increasingly concerned . These big retails change your shopping habits , for one i see they never carry smaller SKUs or smaller packs of most stuff and you invariably end up buying the bigger pack ,though you wanted a smaller pack and so does it goes to the brand that you pick , these retailers do not carry all the brands so you end up buying brands that they carry instead of which you want .

Let me give you an example, I usually buy these mosquito repellent which are available in different pack , 30 day pack is what like to buy , and i find that big retailers are trying to move you to 45 days or 60 days pack , for retails it make sense as the same shelf space is trying to generate higher revenue for them, which is good for them , but not for the customers .

Watch out for this , next time you shop .

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