Financial Resolution No.1 for 2012: Stay on top of your Credit Card

This is the first of the series of financial resolutions for the new year 2012. Everyone is making resolutions for the new year and its time we too hop on that train. After all, its a good habit to take sound financial decisions. Isnt it?

So, lets get started!!!

Few years ago, a Credit Card was just a hi-fi piece of plastic that was the possession of just a few rich and powerful people in India. Today, the Credit Card is a part and parcel of life for even the common man. With banks aggressively marketing their cards and offering awesome deals for customers, everyone is tempted to get one and utilize the benefits. Well, it is all not that simple as it sounds.

Have you ever stopped to wonder, why banks are offering so many gifts to make you buy their card? If not, can you just close your eyes for one minute and think "How can the Bank afford it?"

Don’t worry, if you couldn’t answer it. Just read on and you will know pretty soon.

How Can a Bank afford so many benefits & perks along with your credit card?

Well, here is why

1. Every shop/merchant who has a card swiping machine (a Point of Sale or POS device) in his establishment has to pay a yearly fee to have the machine at his place
2. Every time you swipe your card at a shop, the bank retains a small percentage of the amount you swiped as a fee and credits only the remaining to the shopkeeper. This is why some shopkeepers charge you an extra fee if you offer to make the payment via Credit Card (This fee is usually around 4% and varies from bank to bank)
3. Every time you withdraw cash from your credit card, the bank charges a fixed fee of around Rs. 250 or 2-3% of the withdrawn amount as transaction charges. Plus, the interest is payable right from the moment you took out the money. And, the interest rate for cash withdrawals is usually more than purchases and may be around 5% or even more. For ex: If you take Rs. 10000/- from your credit card today and want to repay it tomorrow, you have to pay at least Rs. 10,267 (250 for transaction fee and 17 rupees interest for 1 day)
4. Every time you do not pay your full statement due amount, the bank charges you an interest rate on the whole amount (Usually around 2-3% per month) until you finish the payment

Example: Let’s say you Swipe your card and buy a LCD TV for Rs. 40,000/-. The month end credit card statement says “Total Amount Outstanding = Rs. 40,000/-“. Assuming you don’t have that much money with you and choose to pay Rs. 10000 instead and think of repaying the money as Rs. 10,000 every month, do you think you can repay the whole amount in 4 months? Unfortunately it doesn’t work that way. This is how it will work out.

Balance at the end of Dec 2011: Rs. 40,000/-
Payment made on 1st Jan 2012: Rs. 10,000/-
Interest charged by the bank in Jan 2012: Rs. 1000/- (@ 2.5% per month on Rs. 40000)
Balance at the end of Jan 2012: Rs. 31,000/-
Payment made on 1st Feb 2012: Rs. 10,000/-
Interest charged by the bank in Jan 2012: Rs. 1000/- (@ 2.5% per month on Rs. 40000) (See, here the bank doesn’t care if you repaid 10000, they still charge you interest for the full 40000 you swiped)
Balance at the end of Feb 2012: Rs. 22,000/-
Payment made on 1st March 2012: Rs. 10,000/-
Interest charged by the bank in Jan 2012: Rs. 1000/- (@ 2.5% per month on Rs. 40000)
Balance at the end of March 2012: Rs. 13,000/-
Payment made on 1st April 2012: Rs. 10,000/-
Interest charged by the bank in April 2012: Rs. 1000/- (@ 2.5% per month on Rs. 40000)
Balance at the end of April 2012: Rs. 4,000/-
Payment made on 1st May 2012: Rs. 4000/-

As you can see, Mr. Ramesh paid the bank, an interest of 4000 rupees for a period of 4 months for borrowing the 40000 rupees he needed for the LCD TV.

A point to note here is that, I have not considered any further transactions done by Mr. Ramesh on his card during this 4 month period. If he had done so, the bank would have charged an interest of 2.5% on any further amounts he borrowed because, he has not yet settled the full amount and the bank has the right to charge an interest on all outstanding amounts irrespective of the time you swiped the card.

5. If the cheque you pay the bank bounces (by any chance, be it any overwriting in the cheque or a mismatch in signature or for any other reason) the bank will charge you a one-time penalty of around Rs. 500 as cheque bounce charges plus interest on the outstanding amount as explained in point no. 3
6. If by any chance your payment gets delayed and you don’t make the payment by the due date, the bank will charge you a late payment fee of around Rs. 250 plus interest on the outstanding amount as explained in point no. 3

As you can see, there are 5 golden reasons why banks offer such great rewards for getting their credit card.

Important Note:
All the numbers mentioned above (Interest Rates, Late Payment Fee, Cheque Bounce Charges etc. are all indicative numbers and they vary from bank to bank)

After reading the Important Note above, the next question in your mind will be “Where in the world will I find all these charges?”

Well, the package that came along with your credit card would have contained a bunch of booklets that say “Card Member Agreements” or “Card Usage Terms & Conditions”. All these can be found in them.

If you were one of those eager card holders, who just ripped the package, picked up the card and all those reward vouchers and threw away the booklets, it’s high time you stopped the practice and visit the bank website for these details. Every credit card issuing bank must display these details in their bank website and also mention them in the monthly statement they send you every month. So, it’s not too late. Just visit your or take some time out to read your credit card bill properly.

New Year’s Financial Resolution No. 1:

Make this your New Year’s Financial Resolution No. 1:

“I will Stay on Top of my Credit Card Spending’s”

Now that the resolution is made, below are some tips that can help you stay on top of your credit card spending’s.

Tips to Stay on Top of your Credit Card Spending’s:

1. Try to use your debit card for all purchases

Reason: It is cash you have and nobody can charge you any fee for it. Spending cash you have is always better than borrowing money to spend

2. Never Withdraw Cash from your Credit Card

Reason: Banks charge a fixed fee per transaction plus an exorbitant interest rate. Withdrawing cash from your credit card must be a last resort option and must be utilized only for emergency situations. If you can afford to wait a few days for the cash, think about borrowing from a friend or a family member or go for a Personal Loan

3. Make your Credit Card bill payment “In Full”

Reason: Paying the full statement amount due is a good habit and the best way to stay away from finance charges

4. Make your Credit Card bill payment “On Time”

Reason: Paying the credit card bill before the due date is a good habit and the best way to stay away from late payment charges. Always give at least 2 days for the cheque to clear. So, if your due date is 5th of every month, make sure you drop the cheque in the drop box on or before the 3rd of the month

5. If you are not able to pay the full statement due amount, pay as much as possible. Do not pay the minimum due amount unless you are in a dire financial situation

Reason: Though the bank is going to charge you an interest on the whole borrowed amount, paying as much of the borrowed money as possible helps minimize the interest you pay the bank. Go back to Mr. Ramesh’s example a paragraph before. If he had paid Rs. 20,000 each month, he would have paid only Rs. 42,000 instead of the Rs. 44,000 he ended up paying.

6. If you are not able to pay the full statement amount due, don’t use your credit card any more.

Reason: If you have an outstanding balance on your credit card, any subsequent purchases too attract interest charges. So, the best idea is to keep your card in your locker until you settle your dues against the credit card in full

7. Always read your statement carefully

Reason: Sometimes bank charge late payment fee or interest rate charges by mistake. They wouldn’t mind such mistakes because; you are the one who is paying the money. So, it is your responsibility to review your statement and call up customer care and have them revert such incorrect fees or charges

8. Always check the Statement Due Date

Reason: Sometimes banks change their billing cycle or the payment cycle. You may be used to making the payment every month on or before the 10th and overlook the fact that the bank changed the due date to the 5th instead of the usual 10th. You may happily drop the cheque on 7th of the month and receive the shocker in the bill which will include a “Late Payment Fee”. There have been many instances like this due to oversight and if the statement mentions a due date, the bank will not accept to revert the late payment fee even if you argue that, last months due date was the 10th and not 5th.

9. If by any chance you have a lot of credit card dues outstanding, think about taking a personal loan and paying them all off in full

Reason: Interest rates on personal loans are currently around 15% or more per annum but the interest rate on credit card outstanding is 2.5% or more per month and it works out to more than 35% or more per annum. Example: If you had an outstanding of Rs. 10000 as of Jan 1st 2011, and paid just the minimum balance every month, the interest amount alone would amount to nearly Rs. 3500/- which is nearly 35% of the amount you borrowed. A Personal Loan is definitely much cheaper than this. Isn’t it?

If you are an impulse spender who just buys stuff as when they want, the best option is to use your debit card and keep your credit card locked away to ensure you don’t mess up your financial situation.

Happy Saving & Less Spending this New Year!!!

Sensex is no longer a Trillion Dollar Market

At the outset, I am really sad to write this article, but unfortunately the reality is that the Indian Stock Market (BSE-Sensex) is no longer a Trillion Dollar Market.

Before we proceed any further, some of you may ask, "Was India a Trillion Dollar Market?"

Oh YES. India was a member of the elite group of country's whose market share is over a Trillion US Dollars. The Indian market had first achieved a trillion-dollar size about four and half years ago on May 28, 2007. It was a historic landmark, but about a year later on July 1, 2008 it lost its tag of "A Trillion dollar market". However, India again joined this elite club of markets with trillion-dollar valuation about a year later on June 3, 2009. The Indian market was, in fact, seen inching towards the two-trillion dollar mark at least twice in the past; first in early 2008 and then at the beginning of 2011 when our Market Size was as high as USD 1.9 trillion.

What is a Trillion Dollar Market?

A Trillion Dollar Market is one, where the total value of the shares listed in the exchange (Market Capitalization of the Exchange) is worth over 1 Trillion US Dollars. This is calculated by taking the Market Capitalization of every single share that is listed in the exchange and summing them all up. The value in terms of Indian Rupees is then converted into US Dollars at the prevailing exchange rate and the Market Value in US dollars is calculated.

1 Trillion USD at todays exchange rate = Rs. 52800000000000. Dont try to convert this into words, this is over 52 lakh Crores Indian Rupees

Note: 1 USD as of End of Trading Day 20th December 2011 is 52.801

Why did this happen?

The causes are many fold

1. Global Economic Scenario - The Economic Scenario world over is very volatile and as a result stock markets world wide have lost significant ground. The Indian market is no exception. The Indian Stock Market (BSE Sensex) closed at around 15175 which is nearly 2000 points down from what the Sensex was last year in December. (Sensex was around 17000 points in December 2010)

2. Foreign Investors (FII's) Pulling Out Funds - Again, this is a direct result of the previous point "The Global Economic Scenario". Due to turbulence in the markets world wide, foreign investors have pulled out lakhs of crores worth money from the Indian Stock Markets, which has not helped the Indian Markets.

3. Local Investor Sentiment - Again, this is also due to the "Global Economic Scenario". Due to the turbulents in the markets world wide, Indian Investors have panicked and begun selling off their investments and moving over to more secure investments like Bank Deposits, Gold and Real Estate. This coupled with the FII's pulling out funds, has made the BSE Sensex tank over 2000 points when compared to the same time last year (December 2010)

4. Indian Currency Depereciation - As you may have read in my previous post Is the Indian Currency Rupee Depreciation against the US Dollar Good or Bad? the Indian Rupee has depreciated significantly against the US dollar over the past few weeks. Just 6 months ago, One USD was worth around 45 Indian Rupees and now it is worth more than 52 rupees. Though the Indian market capitalization in terms of rupees has fallen, the fall in value of the Indian Rupee has further aggravated the situation because, the market capitalization has to go up by a further 7 rupees to catch up every dollar to meet the 1 Trillion Mark.

What is the Current Market Capitalization?

As of 20th December 2011, the Market Capitalization of BSE Sensex was Rs 5260441 crores. As you can see from just a few paragraphs away, the total market cap must be atleast 5280000 crores in order to touch the 1 Trillion Mark.

Will the Indian Market Regain the Prestigious 1 Trillion Dollar Tag?

Yes. This is not the end of the road. The Indian Stock Market has lost over 20 lakh crores (2000000 crores) over the past year. If you add this to the current market capitalization of 5260441 crores we get over 72 lakh crores and that is more than sufficient to regain the Trillion Dollar Tag.

Due to the year end bull run (Yes, this happens almost every year. During christmas & new year, markets worldwide go through a rally that see's a hike in market value due to the holiday sentiment) which may happen this year too, if the stock market regains around 500 odd points, I am sure the Indian Market will regain its tag of "A 1 Trillion Dollar Market".

Lets keep our fingers crossed and hope for the best.

Happy Holidays Everyone!!! Lets hope that the New Year will bring in good news for the markets worldwide and bring a smile in the face of every investor!!!

Indian Rupee Depreciation against the US Dollar - Your Questions Answered

In the previous post "Is the Indian Currency Rupee Depreciation against the US Dollar Good or Bad?" we had taken a look at the reason why the Indian Rupee is getting beat up by the US Dollar in terms of value and why is the rupee going down so drastically. However, after the post, you might've had some questions about the whole phenomenon. Some readers posted their questions as comments.

Below are some questions that might arise in your minds about the Depreciation of the Indian Rupee against the US Dollar. Have tried to answer them as best I could. Do, drop a comment if you aren’t satisfied with the answer :-)

Thanks to Manish & Anonymous for the questions. I have included your questions too in the list below. Here we go!!!

1. Why is the Rupee Depreciating So Badly?

Because of many factors that are occurring in a simultaneous fashion. The crucial ones are:
1. Due to Risk Aversion on the part of Currency Investors, the Demand for the US Dollar has gone up world over
2. Uncertain Economic Situation around the globe
3. FII’s turning Net-Sellers and withdrawing funds from the Indian Market

2. In 2008, we saw a similar/drastic Rupee Devaluation against the USD. Is the current scenario similar?

Well, not really. Last time around, the devaluation was driven mainly by rise in Oil Prices. The price of oil reached USD 147 per barrel and was one of the key contributing factors. However, Risk Aversion was also a part which affected the value of the Indian Rupee.
Though the effect is the same, the combination of causes is different. Risk Aversion is the common culprit if you want to identify the common cause…

3. Has the Risk Aversion among the Investor Public changed when we compare the times in 2008 to now?

The concept of Risk Aversion is the same irrespective of what timeframe you are talking about. But, the current situation is much more riskier & pronounced than what was in 2007-08. Back then, the problem was localized to debt problems (loans & mortgages) in USA and had only a ripple effect across the globe. Right now, the problem is more profound and markets world-over are in a crisis and some countries are on the verge of Default. So, people are much more risk averse than what they were in 2008 and hence the situation is much worse than during the mortgage economic crisis.

4. How long do you think this economic crisis is going to last?

Well, frankly speaking I don’t know… speaking optimistically maybe a year or so. But, as more and more data comes out regarding the mess that the world economies have pushed themselves into, the timeline gets blurred. Practically speaking, nothing major can happen in short term (3 to 6 months). Any recovery can be felt or realized only after a year or so of sustained efforts from government’s world over.

5. Could the Reserve Bank done anything to protect the value of the Indian Rupee?

Yes, the RBI could have taken steps to protect the value of the Indian Rupee. But, unfortunately they did not. That is why Rupee is dangling at over Rs. 52 per US Dollar.

6. Why didn’t the RBI do anything?

The Central Bank of any country is entrusted with the responsibility of protecting the value of its home currency. They usually kick into action when they suspect any speculative attack on their currency by external forces (Intentional attempts to devalue a country’s currency)
In this case, the devaluation of the Indian Rupee was not due to some intentional attempt by anyone. It was due to the global economic scenario and any steps they take might backfire if the global economic situation worsens.
The RBI just let the economy take its course with the exchange rate between US Dollar and Indian Rupee because there was no foul play suspected.
A point to note here is that, the RBI is closely monitoring the situation and may intervene if they feel the depreciation is too much.

7. What can the RBI do to curb the depreciation of the Indian Rupee?

They can sell US Dollars. Last time around when there was such a problem, the RBI sold US dollars worth nearly 18 billion. This time around, they would have to cough up an even larger number to prevent the depreciation. Most importantly, this will be only temporary. The RBI selling dollars alone cannot fight the global dynamic risk and hence will not have any long term effect on the exchange rate. That is exactly why the RBI isn’t doing anything explicit to protect the rupee value.

8. What do you think the Indian Rupee will value against the US Dollar by next year (2012)?

Maybe around 46 or 47 Indian Rupees per US Dollar. To substantiate my claim, if the economic scenario recovers, there will be a lot of FII inflow of funds into India that will give a lot of strength to the Indian Rupee. And hence, it should come down below the 50 rupee mark and settle down between 46 to 48 Indian Rupees per US dollar.

9. Will all IT company’s post stellar profits due to the Rupee going down?

No. Not really. IT company’s in India have the concept of Hedging their foreign exchange income. They usually hedge against a particular value and project earnings/profit numbers for the subsequent quarters. So, the profit they make due to this rupee depreciation may not be as stellar as one might expect, but nonetheless, IT Majors will most probably post impressive numbers this quarter.

10. Will the Indian Rupee depreciate further against the US Dollar?

Maybe… This is not something that we can predict right away. But, by the look of things it looks like it may go up by another one or two rupees. Maybe 53 or 54 is realistic and possible.

11. If investors take out their investment from European countries to invest in US, would it have any effect on the exchange rate of rupee?

Not much. US Dollar investments made in India only will affect the exchange value between US Dollar and Indian Rupee. US Dollar investment in Europe will not affect the exchange rate in India

Is the Indian Currency Rupee Depreciation against the US Dollar Good or Bad?

All of us who read news would’ve seen the fact that the exchange rate between the Indian Rupee and the US Dollar has gone over the roof. In 2009 – 2010 the exchange rate was hovering around the 43 – 45 rupees per US Dollar level. Over the past one year, the rupee has consistently depreciated against the dollar with the last quarter of 2011 (calendar) being one of the worst in terms of Rupee Value Depreciation. The US Dollar is currently worth over Rs. 52.50 (as of this writing on 22-Nov-11 evening) and experts expect it go up.

The purpose of this post is to:
1. Understand why this happened in the first place
2. What this means for us – Is this Good News or Bad News?

So, lets get started!!!

Why would the Rupee Depreciate against the US Dollar?

Well, this is not something that can be answered in a single sentence. But to give an overall picture without getting into the deeper details, the reason would be:

“Exchange Rate is nothing but the price of a Currency in the International Market. If the demand for the dollar is higher than its supply, the Rupee should depreciate. If it is the other way round, it should appreciate”

The Key reason for this would be the global economic scenario. The economic situation, world over is very volatile. People are worried about the safety of their investments. Because of risk aversion on the part of people, US Dollar regained its place as a Safe Haven. People still believe that the US Dollar is much safer than any other currency in the world and hence are accumulating the US Dollar. This effectively means that, the demand for the Dollar is going up which essentially means the price of other currencies (Exchange Rate) may be affected.

Why did the Rupee Depreciate so much?

As suggested in the previous paragraph, the availability or rather the supply of the US Dollar in the Indian markets is pretty limited. Because of uncertainty in the global economic scenario, foreign investors (especially from USA) have turned net-sellers and USD Inflows into the country has fallen sharply. The US dollars into the Indian economy by the FII’s (Foreign Institutional Investors) not only guides the movement of the Indian Stock Markets, it also is a potent force that can determine the exchange rate movement of the Indian Rupee. The synopsis of this FII situation is as follows:

“If there is a net inflow of money (USD) from FII’s the rupee strengthens or appreciates against the US Dollar. When there are net outflows, it depreciates“

For Example: During 2010, there were record inflows of funds from FII’s into the Indian system and hence the Rupee was very strong. Remember the days when the Rupee was around 42-43 rupees per US Dollar??? Now in 2011, FII’s are withdrawing their funds and hence the value of the rupee is depreciating.

Is this Good News or Bad News?

Well, the answer is differnet depending on who you are.

Good News If:

1. You are an IT company like Infosys or TCS. Most of your revenue comes from USA and is in US Dollars. So, if the Rupee Depreciates, you earn more in terms of Indian Rupees even though, the US Dollar amount you get paid is the same.
2. You are someone working in United States of America. You send money to India for your family or investment. So, you are going to get more rupees for the same amount. For example, if you send USD 1000 every month to your parents, the would have got around Rs. 45000/- every month last year and now they will get Rs. 52000/-
3. You are a Manufacturer who exports stuff to USA or any other foreign country and get paid in US Dollars. (Reason, same as mentioned in the above two points)

Bad News If:

1. You are an Oil Company like Indian Oil or Bharat Petroleum. Since the price of oil is determined on a per barrel basis in USD, for the same barrel of oil, you end up paying more in terms of rupees
2. You are a manufacturer who imports stuff from other countries for your manufacturing. Not all stuff you want for your production is available in India. If your work has importing stuff from abroad, you might incur extra expenses in procuring the stuff you want

What’s the Verdict?

On the whole, this is more Bad News for the General Public. The price of oil and other materials which are imported from foreign countries are going to go up. This essentially means that Petrol, Diesel and other items are going to cost more. Already Petrol has crossed the Rs. 70/- mark per litre and the rupee depreciation may affect the situation further and drive the prices of petrol & diesel even further. This will mean that all items like vegetables, fruits, any and all items that are transported from one place to another before they are sold will get costlier. The cost of moving stuff from place to place is going to go up and the manufacturer/producer is going to pass on the extra cost to the end customer – “You and Me”. So, as a whole this is

REALLY BAD NEWS!!!!

Note: You might have a lot of questions about the Rupee Depreciation. So, if you have any, feel free to drop a comment and I will include the answer to your question in the next post, which is going to be about the various questions about the Rupee Depreciation…

Children & Money – Can We Teach Our Kids about Finance & Money Early?

When was the first time you spent some money, on your own? Am not asking about when you earned it, am asking about when did your mom or dad or any of your elders give you some pocket money for the first time and what did you buy?

I remember a bit vaguely but I think I was around 10 or 11. It was ten rupees that my grandma gave me and I got those WWF Action Cards. The cards where Hulk Hogan was Rank 1 and Undertaker Rank 2. Those were the good days!!!

Coming back to topic, we all work; we all earn and want to set up a happy family. Family means having a wife/husband and most importantly “Children”. The arrival of a baby in a family is cherished by every couple and involves a lot of fun and happiness. Most couples start saving money for their children’s future, for their education, for their marriage etc. Well, this article isn’t about that… It is about a question that many of us may have thought of, "Can we teach our kids about Finance & Money early?"

Children & Money:

In India, children aren’t allowed to learn much about money until they are in their teens. They aren’t allowed to carry money by themselves and they don’t know much about money until their parents teach them. This article is about how we (as Parents) must teach our kids about money and its value/worth.

Every responsible parent has almost the same dream. A dream to provide the best education to their children. They want them to progress in every field, whether it is related to studies, sports, music or any other activity.

A child will be able to be really & truly successful in his/her life only if they have the financial knowledge and wisdom required to survive in the current competitive world. Experts say that children who learn about money and finance early in their life are usually better at managing their finances in future. A kid, who knows the value of his pocket money and knows how to save it, will be able to earn more and invest it efficiently in future.

Does the Indian Education System teach our kids Money & Finance?

Unfortunately, NO. The current school education doesn’t do much to impart the monetary wisdom to children. There is a pre-defined syllabus and all kids are expected to study and pass subjects in order to finish their education. And sadly those subjects don’t include anything about money or finance until they are old enough to learn about it themselves. Though it happens, it doesn’t happen at the right age and kids are left wanting for monetary education until they actually get some money to spend after they grow up.

Was the Indian Education System always like this?

Unfortunately, NO. Our ancient education system had many things to teach children about money from their elementary education itself. The children were supposed to complete their education in the ashram. For a complete education term, they had to work hard and in return, they were provided with education. During the final pass-out, students had to pay guru-dakshina (in other words fees) to their gurus (in other words the teacher) from their own earnings. This process was very encouraging for children as it made them partially financially independent.

Some Ways to Impart Finance Education to Children

Teaching kids how to save money and how to manage their money is not such a difficult task. Kids these days are pretty smart and sharp. They will learn it very easily, provided you are willing to spend some time with them, teaching them and nurturing them to learn more about money.

Some things you can do, to inculcate finance education into your kids are:

1. Teach children about money from the day they learn numbers and counting. Educate them about its importance through stories and games.
2. As children grow, they tend to demand more. Gradually teach them about the value of money. Tell them stories of your struggle and what difficulty you faced while started earning. Teach them about importance of saving and spending wisely.
3. A lot of demands by the children are not genuine. Teach them to understand the importance of their demand. Let them decide about the importance of a demand being need or want.
4. It is easy being impulsive and want to get anything your son or daughter wants. Well, that’s what fathers are for, but think before you buy everything. There may be things that are pretty costly. Use that as an opportunity to teach your child the value of money and explain them that need is fine but greed isn’t.
5. For their every requirement, provide a fix amount of money and try to give them a choice, so that they can select the one that suits them best, while saving some money. For example, if they want to buy shoes. Give them Rs. 500 for purchasing the shoes and tell them that whatever they will be able to save; they can keep it as pocket money. Your kid will probably keep aside some money and buy shoes only for around Rs. 400 or so. Having pocket money is cool, even for kids at school…
6. As children grow, start giving them allowances for their monthly expenses. Keep strict watch on how they spend it. Tell them to make details of expenses every month. If your kid can control his/her expenses well, reward them with gifts. Try to motivate them to save more.
7. Sometimes borrow money from children for their motivation and repay with some interest on the amount. This way, they will learn about interest and investment. They will be encouraged to save more.
8. If children ask some question about money, don’t just ignore them. Answer them for all their queries until they are satisfied. Groom them to use their mind as they grow and not just follow instructions.
9. It is very important to allow children to experience the loss and profit on themselves. The loss will increase their risk assessment ability, and profit will motivate for better performance. In case your child gets dejected in case he suffers any losses, you are there as the caring parent to motivate him. Cheer him up, take him out and teach him how to be careful in future.
10. When the kid is old enough to make a career choice, sit with him. Talk over the various earning opportunities in the career choices he wants to make. Explain him the pro’s and cons of choosing each career and ask him to take a decision after taking into consideration all the requisite aspects
11. Well, this list could be potentially endless. A lot of things are mostly common-sense. Remember that, your child’s bright future is directly dependent on how well he can save and spend money and that is entirely dependent on how well you teach your kid.

Our elders have had this opinion “Money can make children money minded, selfish, and even they can slip into wrong hands”. Unfortunately the saying or rather opinion isn’t entirely true. If money can so easily change your kid, what exactly are we doing as Parents? I am sure that, if you spend proper time and care on your kid, there is no doubt that your kid will grow up to be a noble and responsible citizen of this society. Teach him early about money and how to handle it, and he will be a successful person just like his proud mom or dad…

Happy Teaching folks!!!

Mutual Fund of the Month – HDFC Prudence Fund

Well Folks, this is the first time I am writing an article like this. Starting now, we will be picking out one Top-Rated/Top-Performing Mutual Fund in India and will be analyzing them in detail. To begin with, we are starting with one of the best funds available in India right now, a fund that has been the darling of Investors in India for years.

HDFC Prudence Fund

Details of the fund – HDFC Prudence

Below are the key details of the HDFC Prudence Mutual Fund Plan.

Fund Name	HDFC Prudence
Asset Management Company	HDFC Mutual Funds
Fund Type/Category	Open-Ended/Balanced Fund
Scheme Options	Dividend Plan & Growth Plan
Launch Date	16-December-1993
Minimum Investment	Rs. 5000 for One time Investments (first time) Rs. 500 for SIP (Monthly) Rs. 1500 for SIP (Quarterly)
Fund Manager	Mr. Prashant Jain
Entry Load	0%
Exit Load	1% (If Redeemed within 1 year since purchase)
Assets Under Management	HDFC Prudence Dividend Plan – 3131.3165 Crores HDFC Prudence Growth Plan – 3224.85 Crores
Address of Fund House	Ramon House, 3rd Floor, 169, Backbay Reclamation, Churchgate, Mumbai
Email Address	cliser@hdfcfund.com

Fund Objectives – HDFC Prudence Fund

The investment objective of the Scheme is to provide periodic returns and capital appreciation over a long period of time, from a judicious mix of equity and debt investments, with the aim to prevent/ minimise any capital erosion.

Investment Pattern

The fund aims to have an equity exposure of between 40-75% and debt exposure (Debt & Money Market) of between 25-60%

During times when the interest rates are high, investment in debt would be more attractive versus equities and accordingly the Fund is likely to increase the debt component in the Scheme's portfolio. Similarly in times when the interest rates are low and the equity valuations are cheap, the Scheme is likely to reduce exposure to debt and increase exposure to equities. In addition to debt and equities the scheme will also invest in money market instruments. The exact proportion in money market instruments will be a function of the liquidity needs and the attractiveness of the debt/ equity markets. At times when neither the debt market nor equities are attractive for investment, more resources may be temporarily invested in money market investments to be invested in debt/ equities at a more appropriate time.

The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the Regulations and Guidelines.

The Fund Manager strives to minimize risks and maximize returns for investors who invest in the fund.

About the Fund Manager

Mr. Prashant Jain has been the fund manager of this fund since June 19th 2003. He is one of the most respected fund managers in the Mutual Fund Industry in India. He is also the Fund Manager for some other funds from the HDFC Mutual Fund Family that have been considered the Industry’s top performers. Some of the top performing funds he manages are:
1. HDFC Top 200 Fund
2. HDFC Equity Fund
3. HDFC Infrastructure Fund

Note: HDFC Top 200 & HDFC Equity have been two of the top performing Equity Diversified Mutual Funds for many years. We will probably take a look at them in subsequent MF Review posts in future.

Asset Allocation % of HDFC Prudence Fund

HDFC Prudence Fund is a Balanced Fund that invests a healthy portion of its assets in Debt and other Fixed Income Instruments. The Asset Allocation % on the various asset categories for this fund is as follows:

Equity – 61.36%
Debt – 20.85%
Others – 14.13% (This includes Equity related products like Derivatives & other Instruments)
Money Market – 2.3%
Cash – 1.35%

Sector Weightage for HDFC Prudence Fund

HDFC Prudence fund invests over 60% of its assets in Equities (shares) and has a diversified asset allocation spanning the various sectors of company’s available. The Sector Weightage (%) for this fund is as follows:

Sector Name	Weightage %
Banking & Financial Services	13.89%
Information Technology	8.09%
Manufacturing	6.63%
Oil & Gas	6.23%
Pharmaceuticals	4.86%
Metals & Mining	3.76%
Telecommunication	2.79%
Engineering & Capital Goods	2.46%
Automotive	2.12%
Media & Entertainment	2.04%
Consumer Goods Non-durables	1.80%
Cement & Construction	1.45%
Chemicals	1.39%
Food & Beverages	1.06%
Consumer Goods Durables	0.86%
Others	1.93%

Top Stocks in HDFC Prudence Fund's Portfolio

HDFC Prudence Fund invests in a number of large-cap and blue-chip company stocks. Some of the top stock holdings of this fund are as follows:

Stock Name	Weightage (As a % of their Overall Assets)
State Bank of India	4.16%
Infosys	4%
TATA Consultancy Services (TCS)	3.35%
ICICI Bank	3.21%
Page Industries	3.01%
Bharti Airtel	2.79%
Bank of Baroda	2.38%
TATA Motors	2.12%
TATA Steel	2.08
Coal India Ltd	1.68%
Crompton Greaves	1.49%
Jaiprakash Associates	1.45%
Cipla	1.40%
Pidilite Industries	1.39%
Reliance Industries	1.37%
Oil India Ltd	1.37%
Bharat Petroleum Corporation	1.20%
Axis Bank	1.18%
LIC Housing Finance	1.18%
Ipca Laboratories	1.13%
Zydus Wellness	1.08%
Zee Entertainment	1.06%
Procter & Gamble	1.06%
Info Edge India	1.01%
HT Media	0.98%

This is not the full/consolidated stock holdings of HDFC Prudence Fund. Only the top 25 stock holdings that are held by HDFC Prudence Fund are available here.

Debt Holdings of HDFC Prudence Fund

As you might have seen in the Asset Allocation section, the HDFC Prudence Fund invests a healthy 20% of their assets in Debt Instruments. As you might already know, debt instruments are bonds and other debt obligations that are held by HDFC Prudence and will have to be paid-back by the debt issuer at maturity. The Top Debt Holdings of HDFC Prudence Fund are as follows:

Debt Category	Weightage (As a % of their Overall Assets)
Government of India Bonds	9.76%
Other Bonds	11.10%

About the Government of India Securities Owned by HDFC Prudence Fund

The Government of India Securities held by HDFC Prudence are long term bonds issued by the Government of India and have a Maturity period starting from 2015 upto 2027. When these bonds mature, the fund will re-invest an equivalent amount in other debt instruments per the Fund Managers discretion.

About the Other Bonds held by HDFC Prudence:

The Other Bonds & Debt Obligations held by HDFC Prudence are from some of the most credit worthy bond issuers in India. The major issuers of bonds held by HDFC Prudence are:

1. National Bank for Agriculture & Rural Development
2. State Bank of India
3. Indian Railways Finance Corporation
4. LIC Housing Finance Corporation
5. Power Finance Corporation
6. The TATA Power Company
7. Rural Electrification Corporation
8. Punjab National Bank
9. State Bank of Indore
10. HDFC
11. Infrastructure Finance Development Corporation
12. TATA Motors
13. State Bank of Bikaner & Jaipur
14. ICICI Bank Limited
15. State Bank of Patiala &
16. Jet Airways India Ltd

All of these Bond Issuers are rated ‘AAA’ by CRISIL and are of the highest creditworthiness.

Money Market Instruments held by HDFC Prudence

As you might have seen in the Asset Allocation section, HDFC Prudence fund invests around 2% of its assets in Money Market Securities. These Money Market Securities are issued by the following entities:
1. State Bank of Patiala
2. Punjab National Bank

These entities are rated as ‘A1+’ by CRISIL and are of very high creditworthiness.

NAV Movement:

NAV Stands for Net Asset Value. You can learn more about how a Mutual Fund works and how the NAV is calculated by Clicking Here

HDFC Prudence Fund – Dividend Scheme

1. NAV As on January 2009 – Rs. 19.29
2. NAV As on June 2009 – Rs. 23.728
3. NAV As on January 2010 – Rs. 30.14
4. NAV As on June 2010 – Rs. 28.734
5. NAV As on January 2011 – Rs. 33.811
6. NAV As on June 2011 – Rs. 29.216
7. NAV As on September 2011 – Rs. 27.902
8. NAV As on October 2011 – Rs. 27.613
9. NAV As on November 2011 – Rs. 28.223

HDFC Prudence Fund – Growth Scheme

1. NAV As on January 2009 – Rs. 95.504
2. NAV As on June 2009 – Rs. 134.357
3. NAV As on January 2010 – Rs. 174.258
4. NAV As on June 2010 – Rs. 187.067
5. NAV As on January 2011 – Rs. 220.119
6. NAV As on June 2011 – Rs. 214.327
7. NAV As on September 2011 – Rs. 204.684
8. NAV As on October 2011 – Rs. 202.561
9. NAV As on November 2011 – Rs. 207.038

Net Returns:

The HDFC Prudence Fund has outperformed almost all of its peers in the Equity-Balanced Fund Category over the past 5 years. Even during extreme turbulent times in the Indian stock markets over the past 2-3 years, the fund has posted only marginal losses and has always rebounded to meet customer satisfaction. The Net Returns over the past 5 year time period is as follows:

Time Period	Returns %
1 Month	2.1%
3 Months	-2.8%
6 Months	-3.3%
1 Year	-10.4%
2 Years	11.1%
3 Years	29%
5 Years	13.5%

A point to note here is that, even though the NAV Movement may seem higher on the Growth Scheme when compared to the Dividend Option. That is because, the Dividend Scheme pays a periodic dividend (Usually once ever year) and hence the net returns inclusive of dividends earned in the Dividend Scheme will be comparable to the Growth Scheme. Don’t worry, the Dividend history is available in the next section.

Dividend History – HDFC Prudence – Dividend Plan

Dividend Date	Dividend Amount (Per Unit Held)
6-Aug-1999	Rs. 2
29-Nov-1999	Rs. 2
7-Apr-2000	Rs. 1.5
09-Mar-2001	Rs. 0.9
15-Mar-2002	Rs. 1
15-Jul-2003	Rs. 2
26-Dec-2003	Rs. 3
15-Mar-2004	Rs. 1.5
18-Mar-2005	Rs. 5
03-Mar-2006	Rs. 5
21-Feb-2007	Rs. 5
21-Feb-2008	Rs. 5
19-Mar-2009	Rs. 2.5
18-Mar-2010	3.5
17-Mar-2011	3.5

Sample Returns Comparison – HDFC Prudence Dividend Plan & Growth Plan

Date of Investment: 01-Jan-2009
Amount Invested: Rs. 25,000 (Each in Dividend & Growth Plan)
No. of Units: 261.769 (Growth) & 1296 (Dividend)
Current Value of Investments: Rs. 54,196 (Growth) and Rs. 36,577 (Dividend)

Dividend Earned in Dividend Scheme:

1. On 19-March-2009 @ Rs. 2.5 per unit = Rs. 3,240/-
2. On 18-March-2010 @ Rs. 3.5 per unit = Rs. 4,536/-
3. On 17-March-2011 @ Rs. 3.5 per unit = Rs. 4,536/-

Net Dividend Earned = Rs. 12,312/-

Net Value of Investments in Dividend Plan (Including Dividends) = Rs. 48,889/-

Though the Net value of Investments in the Dividend Plan is Rs. 5,307/- less than the Growth Plan, if you consider the fact that you could’ve invested this amount in any decent investment that earns at least 8% returns (like a Bank FD) then the net worth of the Dividend would be Rs. 13,996/- which means the net value of investments in Dividend Plan would be = Rs. 50573.8/-

Why Such Value Adjustment?

You might be wondering, why I did such an elaborate calculation to compare the returns. This is because, some people might think that the Growth Plan is better by just looking at the net worth of the Investments but the fact it, that method is incorrect. We cannot do such an assumption because of the following reasons:

a. You are getting a regular cash inflow (though small, it is around 13-18% of your net investment every year) which is superb in terms of just the returns
b. Your capital is intact and has grown on an average of around 15% year on year over the past 3 years which again us superb in terms of just the returns

Note:
1. The AUM numbers are as of 30-Sep-2011. Fund houses release AUM numbers only once every quarter and the next release will be only by end of December 2011.
2. The Sector Weightages, Asset Allocation% etc are as of end of October 2011. These details are released only once every month by the fund house.

Important Disclaimer:

Past Performance May or May Not be Sustained in Future. The Fund House does not Guarantee any returns. As with all equity market related investments, the value of the investment will move in accordance with the stock market and may go up or down depending on the world economic situation. Investors are advised to exercise caution before investing in the above mentioned fund. The Author does not endorse or recommend this fund to investors. The purpose of this article is just a Fund Review and should not be treated as Investment Advise.

Different Types of Mutual Funds Available for Investors in India

The Indian Mutual Fund Market is one of the largest MF Markets in the world and investors world-over invest in our top MF Plans. Mutual Funds in India are diverse and as an investor, there is a wide array of investment options available. This post is about the various categories of Mutual Funds that are available for us to invest.

Why Mutual Funds?

Mutual Funds are a boon to the investor who does not have the time or the know-how to identify and buy/sell securities themselves. There is a knowledgeable fund manager who is entrusted with this responsibility when we invest in their fund.

The below list is just an introductory post. To know more about Mutual Funds – you can view the below posts.

What is a Mutual Fund
Types of Equity Mutual Funds
Debt Mutual Funds
Monthly Income Plans
Contra Mutual Funds

The Different Mutual Fund Categories in India are:

1. Equity Diversified Funds
2. Equity Midcap Funds
3. Equity Infrastructure Funds
4. Equity Banking Funds
5. Equity Pharma Funds
6. Equity FMCG Funds
7. Equity Technology Funds (IT)
8. Arbitrage Funds
9. Equity Index Funds
10. Balanced Funds
11. Monthly Income Plans
12. Debt Funds
13. Liquid Funds
14. Income Funds
15. GILT Funds
16. Gold ETFs
17. Fund of Funds – Equity Oriented
18. Fund of Funds – Debt Oriented

What are these Different Categories?

Equity Diversified Funds

These are the most common types of Mutual Funds. They invest upto 100% of their Assets into Stocks and other Equity Market instruments. They invest predominantly in Large-cap and Blue-chip stocks. Their returns depend on the overall stockmarket performance and the stock selection of the Fund Manager.

Example:

a. HDFC Top 200
b. HDFC Equity
c. ICICI Prudential Focused Blue-chip Equity
d. Fidelity Equity
e. Etc

2. Equity Midcap Funds

These are Mutual Funds that invest in companies that fall under the Small & Midcap category. They usually search for small to medium sized companies with good fundamentals and growth potential and invest in them.

Example:

a. DSP Blackrock Small & Midcap Fund
b. HDFC Midcap Opportunities Fund
c. IDFC Premier Equity
d. ICICI Prudential Discovery Fund
e. etc

2. Equity Infrastructure Funds

These are Mutual Funds that invest in stocks of Infrastructure Companies in India.

Example:

a. Birla Sunlife Infrastructure
b. Canara Rebecco Infrastructure
c. ICICI Prudential Infrastructure
d. etc

3. Equity Banking Funds

These are Mutual Funds that Invest in stocks of Banks and other financial companies.

Example:

a. ICICI Prudential Banking & Financial Services Fund
b. Reliance Banking Fund
c. UTI Thematic – Banking Sector Fund
d. etc

4. Equity Pharma Funds

These are Mutual Funds that invest in Stocks of Pharmaceutical & Healthcare companies.

Example:

a. Reliance Pharma Fund
b. SBI Magnum Pharma Fund
c. UTI Pharma & Health
d. etc

5. Equity FMCG Funds

These are Mutual Funds that invest in Stocks of the Fast Moving Consumer Goods (FMCG) companies.

Example:

a. SBI Magnum Sector Umbrella – FMCG Fund
b. ICICI Prudential FMCG Fund
c. etc

6. Equity Technology Funds

These are Mutual Funds that invest in Stocks of Information Technology Companies.

a. SBI Magnum IT Fund
b. Franklin Infotech Fund
c. ICICI Prudential Tech. Fund
d. etc

7. Arbitrage Funds

These are Mutual Funds that invest in Arbitrage Opportunities.

Note: Arbitrage Opportunities are a special class of investment where the fund manager tries to make a profit out of the pricing mismatch between the Equity and Derivatives Market. It is a separate topic in itself and will probably be covered in a later article.

Example:

a. ICICI Prudential Equity and Derivatives Fund – Income Optimiser Plan
b. HDFC Arbitrage Fund – Retail
c. Kotak Equity Arbitrage Fund
d. etc

8. Equity Index Funds

These are Mutual Funds that invest in Stocks that comprise the Index they are tagged to and buy those stocks in the exact ratio that their weightage is in the respective index. For example, a Sensex Index fund will buy the 30 stocks that comprise the BSE Sensex in the exact ratio that these 30 stocks are given weightage by the Sensex.

Note: Since the BSE(Sensex) and NSE(Nifty) are the two prominent exchanges in India, most Equity Index funds tag themselves to either of these two indices.

Example:

a. HDFC Index Fund – Sensex
b. Reliance Index Fund – Sensex
c. IDFC Nifty Fund
d. HDFC Index Fund – Nifty
e. ICICI Prudential Index Fund – Nifty
f. Reliance Index Fund – Nifty
g. etc

9. Balanced Funds

These are mutual funds that invest in both the Stock Market as well as Debt (Fixed Income) Instruments. Stock Market investments do not exceed 65% of the total assets. The presence of 35% or more of Fixed Income Instruments gives it much more stability than the regular Equity funds. The returns from these funds are comparatively lesser than the Equity Oriented Funds. However, during turbulent times, Balanced Funds are much sought after and often post much lesser losses than Equity Funds.

Example:

a. HDFC Prudence Fund
b. HDFC Balanced Fund
c. Birla Sun Life 95 Fund
d. DSP Blackrock Balanced Fund
e. etc

10. Monthly Income Plans

These are Mutual Funds that invest in Fixed Income (Debt) Instruments and aim at providing a regular income/cash-flow to the investor. Usually a lump-sum investment is received from the investor and dividends are paid out regularly to the investors.

Example:

a. HDFC Monthly Income Plan – LTP
b. Reliance Monthly Income Plan
c. Birla Sun Life MIP II – Savings 5 Plan
d. etc

11. Debt Funds

These are Mutual Funds that invest in Fixed Income (Debt) Instruments and aim at preserving the capital invested in them. Depending on whether they are Long-Term or Short-Term the fund manager would invest in debt securities that are either long or short term. Usually the returns in Long Term funds are marginally higher than Short Term funds.

Example:

a. Long Term

i. Birla Sun Life Income Fund
ii. BNP Paribas Bond Fund
iii. ICICI Prudential Long Term Fund
iv. etc

b. Short Term

i. UTI Short Term Income
ii. BNP Paribas Short Term Income
iii. TATA Short Term Bond Fund
iv. etc

12. Liquid Funds

These are Mutual Funds that invest in Debt Instruments with the aim of preserving the liquidity of the investment. The main aim here is to make money available to the investor anytime he/she wants and at the same time, try to generate decent returns for them. They usually invest in very short term debt securities.

Example:

a. Birla Sun Life Cash Manager
b. DSP Blackrock Liquidity Fund
c. HDFC Liquid Fund
d. etc

13. Income Funds

These are Mutual Funds that invest in Fixed Income (Debt) Instruments and aim at providing income/cash-flow to the investor. Unlike MIP’s there is no fixed monthly/regular payments. Instead, the fund house will share profits/dividends as and when possible.

These funds too are classified based on the timeframe of the debt securities they invest in and are categorized as Ultra short term, short term and long term funds.

Example:

a. Ultra short Term

i. HDFC Cash Management Fund – Treasury Advt.
ii. ICICI Prudential Flexible Income Plan
iii. Reliance Money Manager Fund - Retail
iv. Etc

b. Short Term

i. Birla Sun Life Dynamic Bond Fund
ii. HDFC High Interest Fund – Short Term Plan
iii. ICICI Prudential Short Term Plan
iv. etc

c. Long Term

i. BNP Paribas Flexi Debt Fund
ii. HDFC High Interest Fund
iii. ICICI Prudential Income Plan
iv. Reliance Income Fund
v. etc

14. GILT Funds

These are Mutual Funds that invest exclusively in Government Securities like Government of India Bonds, RBI Bonds etc.

Example:

a. Birla Sun Life GILT Plus – Regular Plan
b. ICICI Prudential Gilt – Investment – PF Option
c. etc

15. Gold ETFs

Gold ETF’s are funds that invest in gold. Each unit of a gold ETF is equivalent to either 0.5 or 1 gram of pure 24 carat physical gold.

Example:

a. Kotak Gold ETF
b. Quantum Gold ETF
c. Religare Gold ETF
d. Axis Gold ETF
e. etc

16. Fund of Funds – Equity Oriented

A Fund of Fund is a Mutual Fund where the fund manager does not buy individual stocks. Instead he buys mutual funds of a particular type. In this case, Equity Oriented Mutual Funds.

Example:

a. Quantum Equity FOF
b. Kotak Equity FOF
c. Principal Global Opportunities Fund
d. etc

17. Fund of Funds – Debt Oriented

A Fund of Fund is a Mutual Fund where the fund manager does not buy individual debt instruments. Instead he buys mutual funds of a particular type. In this case, Debt Oriented Mutual Funds.

Example:

a. IDFC All Seasons Bond
b. ICICI Prudential Advisor Series – Very Cautious Plan
c. etc


Disclaimer: The Mutual Funds named above are not investment advise. These are just examples of funds that fall under a particular category. Some of these funds are Top Rated and the best in their given class. They will be dealt with in separate posts!!!

Happy Investing in Mutual Funds!!!

Bank Fixed Deposit Interest Rates in India - November 2011

With the stock market being as volatile as it is, investors are looking for safer investment options that guarantee both the principle and the interest. At this Juncture, Fixed Deposits are the best Investment option for the Risk Averse Investor. With Banks in India offering more than 9% per annum (Even 10% in some cases) on Fixed Deposits, this is the best time to invest in Fixed Deposits if you have surplus cash.

Below are the Best Interest Rates available from various Banks in India.

Note: This is not a consolidated List. Only the Timeframes where the Bank is offering the best Rate of Interest is chosen. For the full list, please visit the respective bank websites.


Nationalized Banks:

1. State Bank of India

Time Period	Rate of Interest
91 days to 179 days	7.25%
241 days to Less than 1 year	7.75%
> 1 year	9.25%

Extra 0.5% for Senior Citizens.

2. Punjab National Bank

Time Period	Rate of Interest
180 days to Less than 1 year	8%
1 year	9.25%
555 days	9.3%
777 days	9.35%
1000 days	9.4%

Extra 0.5% for Senior Citizens.

3. Indian Bank

Time Period	Rate of Interest
181 days to Less than 9 months	7.25%
9 months to Less than 1 year	9.25%
1 to 3 years	9.5%

Extra 0.75% for Senior Citizens.

4. Indian Overseas Bank

Time Period	Rate of Interest
91 days to 120 days	7.75%
180 days to 269 days	8%
270 days to 332 days	8.5%
1 year to 443 days	9.25%

Extra 0.75% for Senior Citizens.

5. IDBI Bank

Time Period	Rate of Interest
46 days to 90 days	7%
91 days to less than 6 months	8%
6 months to 269 days	9%
270 days to 1 year	9.25%
1 year to 499 days	9.5%

Extra 0.75% for Senior Citizens.

6. Bank of Baroda

Time Period	Rate of Interest
1 year to 443 days	9.25%
444 days	9.35%

Extra 0.75% for Senior Citizens.

Private Banks:

1. ICICI Bank

Time Period	Rate of Interest
190 days	7.75%
390 days	9.25%
590 days	9.25%

Extra 0.5% for Senior Citizens.

2. HDFC Bank

Time Period	Rate of Interest
6 months 16 days	7.75%
9 month 16 days	8%
1 year 1 day to 1 year 15 days	9%
1 year 16 days	9.25%

Extra 0.5% for Senior Citizens.

3. Karur Vysya Bank

Time Period	Rate of Interest
31 days to 270 days	7.65%
271 days to Less than 1 year	8.5%
1 year to 3 years	9.75%

Extra 0.5% for Senior Citizens.

4. Axis Bank

Time Period	Rate of Interest
3 to 6 months	7%
6 months to Less than 1 year	7.5%
1 year 1 day to 14 months	9.4%

Extra 0.75% to 1% for Senior Citizens depending on time period chosen.

5. Kotak Mahindra Bank

Time Period	Rate of Interest
91 days to 180 days	7.75%
181 days to 270 days	8.75%
271 days to less than 1 year	9.5%
1 year to 389 days	9.5%

Extra 0.5% for Senior Citizens.

Pick of the Lot:

Short Term (Approximately around 6 months)

Bank Name	Rate of Interest	Deposit Period
HDFC Bank	7.75%	6 month 16 days
ICICI Bank	7.75%	190 days
Punjab National Bank	8%	180 days to Less than 1 year
State Bank of India	7.25%	91 days to 179 days
Indian Bank	7.75%	181 days to 9 months
Axis Bank	7.5%	6 months to Less than 1 year
Karur Vysya Bank	7.65%	31 days to 270 days
Indian Overseas Bank	7.75%	91 days to 120 days
IDBI Bank	8%	91 days to Less than 6 months
Kotak Mahindra Bank	7.75%	91 days t0 180 days

Long Term (1 year or More)

Bank Name	Rate of Interest	Deposit Period
HDFC Bank	9.25%	1 year 16 days
ICICI Bank	9.25%	390 days
Punjab National Bank	9.35%	777 days
State Bank of India	9.25%	Greater than 1 year
Indian Bank	9.5%	1 to 3 years
Axis Bank	9.4%	1 year to 14 months
Karur Vysya Bank	9.75%	1 to 3 years
Indian Overseas Bank	9.25%	444 days
Bank or Baroda	9.35%	444 days
IDBI Bank	9.5%	500 days
Kotak Mahindra Bank	9.5%	1 year to 389 days

Important Disclaimer: The Article above is not an investment advise. All Interest Rate numbers were picked up from the respective bank websites as of November 2011. Banks may change their rates from time to time and the author does not guarantee accuracy of the dates if the Banks wish to change their rates.

Happy Depositing!!!

Awesome News for Savings Account Holders

In one of my earlier posts Good News for Savings Account Holders I had explained the fact that Savings account interest rates have been hiked to 4% from the 3.5%. Recently the Reserve Bank of India (RBI) came up with another blockbuster announcement.

What is this Announcement?

Banks can set their own rates for Savings Accounts

This means that, banks can essentially set the rate of interest they choose to pay for money held in savings accounts to their customers.

What does this mean?

This means that, you are not stuck with the flat 4% rate of interest for savings accounts across all banks. Banks can decide what interest they wish to pay on savings accounts to attract customer deposits.

Earlier, since the rate of interest was a flat 4% in all banks, customers chose banks based on proximity to their home/office, features offered etc while selecting banks. Now, banks that offer higher interest rate on savings accounts will be preferred over those that offer lesser rate of interest.

Is this Good News?

Yes & No. Of Course, this depends on whether you are the Customer or the Bank.

Yes - For the Customer:

1. Your money that is laying idle in your savings account is going to earn a much higher rate of Interest
2. You need not worry about creating a Fixed Deposit & Breaking it when you need cash. Instead you can just let it stay in your Savings account and take it whenever you wish to.

No - For the Bank:

1. If your competitor banks are offering a higher rate of interest, you too would have to do so, to attract or rather retain your customers. If ICICI Offered me 4% and HDFC Offers me 5% for the same savings account, I would rather shift my account to HDFC to take advantage of the higher interest rate they offer me.
2. Most banks will take a hit in their profit margin. Offering a higher interest rate on Savings Accounts essentially means leaner profit margins. This will affect their stock prices because, customers tend to dump stocks whose profit margins go down
3. Managing Liquidity would be an Issue. When a bank has to offer a higher interest rate, they can do so only if they lend out the money to loan customers. They cant lend all of it because they have to maintain a liquidity ratio to meet customer withdrawal demands. So, banks have to work harder now to make profits.

Are there any Side-Effects for Customers?

Of Course YES. Every coin has two sides and even this news has its downfalls. Since the bank has to offer a higher rate of interest on savings account (Due to Competition), they may pass on this burden to Loan Customers. Customers who borrow money from banks will have to bear this extra charges in order for the bank to retain its profitability.

Have Banks Revised their Rate of Interest on Savings Accounts Already?

Yes. Not many banks have done it so far, but some of the Private Banks have done so already.

1. YES Bank - 6% for all Savings Accounts
2. Indus Ind Bank - 5.5% for Savings Accounts with balance of less than 1 Lakh and 6% for Savings Accounts with balance of greater than 1 Lakh
3. Kotak Mahindra Bank - 5.5% for Savings Accounts with balance of less than 1 Lakh and 6% for Savings Accounts with balance of greater than 1 Lakh

More Banks are expected to follow suit.

Is it a Good Idea to shift banks right away?

Well, I wouldnt suggest that. We should wait for a few more months to see what rate of interest the bank we hold a Savings Account with is offering before taking the shift decision. However, if you want to open a new Savings account and have any of the higher interest paying banks near your home or office, it would be a good idea to choose them instead of the other banks.

Will Nationalized Banks offer such attractive Savings Account Interest Rates?

Well, this is something that only time can tell. Some Reasons why they may delay the rate hike or not give such an attractive Savings Account rate of interest could be:

1. In most Nationalized Banks, a bulk of the customers with Savings Accounts are "Pensioners" and "Senior Citizens". They can receive their pension only with Nationalized Banks and hence cannot shift to private banks.
2. They do not have aggressive targets to attract customers because the uncle who writes their pay-check is the Government of India and hence their policies are not usually Customer Friendly.

However, to keep their market share with the younger population who dont receive their Pension, they would eventually have to hike their rates. Otherwise, customers will move on to Private Banks that offer a much higher interest rather than being stuck with Nationalized Banks.

Happy Saving!!!

Smart Strategies to make money in falling markets

With the stock markets world over being as volatile as it is now, investors are looking for smarter ways to make money even in falling markets. If you are one of those investors, then this post is for you.

Although we believe it's probably best during volatile markets to maintain a balanced portfolio or stick to debt instruments until the markets get on the Bull again, there are potential ways to make some money even in such volatile/falling markets.

Note: Some of these strategies may be extremely risky for novice investors and you are hereby requested to do your research and invest only on your own risk.

Some Smart Stretegies:

1. Switch to cash or currencies

The easiest approach of all is to switch to Fixed Deposits. Banks in India are offering around 9% or more these days plus it is safe and secure. Another option would be to park the surplus cash in your bank account until the market stabilizes.

This is probably the best approach for Risk-Averse/Novice Investors. However, it is not a wise idea to let cash lay idle in your bank account. Instead a Fixed Deposit will atleast give you decent returns.

2. Switch to gold/commodities

Gold, other precious metals, oil and soft commdities (such as wheat futures) can be safe havens or even highly profitable in times of crisis. Gold is probably the best bet for investors who are not too sure about investing in the commodity markets. Gold has been one of the best performing asset classes of all times and would be a good addition to your portfolio.

To learn more about Historic Demand for Gold and the Historic Price Movement of Gold in the past 2 decades, you can Click Here

To learn more about Investing in Gold and other precious metals, you can Click Here

To learn more about Gold as an Investment, you can Click Here

This would be a nice option for Risk-Averse/Novice Investors. However, a point to note is that the price of gold too can fall and can cause losses in the short term. However, as a whole the price of Gold will always go up and you can expect decent profits in long term.

3. Buy when stocks are cheap or Average out your prices

Stock Market crashes can create great buy opportunities for the smart investor. Stocks of even the top performing companies fall when the market crashes. Though, they are company's with solid fundamentals and good profit making capability, their stocks fell just because of the negative investor sentiment. Such times can be a nice time to enter the market and buy stocks that have a proven track record. If you are someone who bought shares of a good company sometime back and are worrying because the market is bottoming out, you can go ahead and average out your costs by buying more of those stocks. This way, your average investment per share will come down and you can make better profits when the market rebounds.

Buying shares when the market is down is a risky strategy and you may lose your investment as well. So, you need to be cautious while buying at such troubled times. If you are uncertain about which stocks to pick, the best approach would be to pick out the best performing Equity Mutual Funds and let the Fund Manager do the thinking.

4. Do Short Selling

Short Selling is a Derivative Strategy that you can use to make profit when stock prices fall. Let us look at a Scenario.

Step 1: You expect that Shares of ICICI Bank are going to fall next week once their quarterly results are out. Lets say the current share price is Rs. 1000 per share.
Step 2: You Initiate a Short Sell request for 10 shares of ICICI in the stock market (You are selling 10 shares that you do not own). You will get Rs. 10,000/- for the sale transaction under the obligation that you will buy it back after some days.
Step 3: Lucky for you, the price of ICICI has indeed gone down after 2 weeks. It is trading at Rs. 900 per share.
Step 4: Now, you buy the same 10 shares of ICICI for Rs. 9000/- and settle the trade with your broker. This is what happens when you finish the buy
1. You literally bought back the 10 shares you did not own and now your broker has no fake shares on your name
2. You pay your broker the price @ Rs. 900 per share which is Rs. 9000 and complete the trade
Step 5: Since you fulfilled your obligation of buying back the 10 shares the Short-Sale transaction is complete. You got Rs. 10000 for the sale and paid Rs. 9000 for the purchase two weeks later, leaving you with a profit of Rs. 1000

In Short "You successfully sold shares you didn't own, then bought the shares back at a cheaper price, thereby pocketing a profit."

On the contrary, if ICICI had gone up to Rs. 1200 after 2 weeks, you still would have to buy back those 10 imaginary shares you sold thereby paying Rs. 12,000 to your trader which essentially means you are losing Rs. 2000 from your pocket. It would have been better if you had just purchased ICICI shares on day one instead of placing a Short-Sell order.

A point to note here is that, your trader will expect some Margin Requirements in order to fulfill such trades and the above is just a hypothetical example with no strings attached.

This is an extremely risky proposition. Novice or Risk Averse investors should stay away from such transactions because if the price of the shares go up, you still would have to buy back the shares at a later point in time and you will end up losing money instead of earning it

5. Buy Puts

A Put option (sometimes simply called a "Put") is a financial contract between two parties, the buyer and the writer (seller) of the option. The Put allows the buyer the right but not the obligation to sell a share to the writer of the option at a certain time for a certain price (the strike price). The writer has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option. The buyer pays a fee (called a premium) for this right. The Put buyer either believes it's likely the price of the underlying asset will fall by the exercise date, or hopes to protect a long position in the asset. The advantage of buying a put over shorting the asset is that the risk is limited to the premium.

Unlike the short-sell scenario just explained in the previous paragraph, you are not expected to buy the shares in case the prices go up. Instead you just let the Put-Contract expire and limit your losses to the premium you paid. However, if the price of the shares fall, you can purchase them and try to make a profit.

This again is an extremely risky proposition. Novice or Risk Averse investors should stay away from such transactions

Even if the stock market is volatile, there are options for the smart investor to make money. However, it carries a lot of risk and Novice Investors must stay away from such complicated Derivative products unless they are willing to bear the losses that may arise.

Happy Investing!!!

Is it Wise to Invest in Contra Funds Right Now?

Whenever there is any turbulence in the stock markets, talks of Contra funds (Mutual Funds) being a better choice than regular equity diversified mutual funds. Now that the stock market is so volatile, the patrons of Contra Funds have started advising for investment in such funds.
Is it really wise to invest in Contra Funds? This is the question this article is going to answer. So, lets get started!!!

What is a Contra Fund?

A Contra Fund is another type of Equity Mutual fund that has a contrarian view to investment which is supposed to be the opposite of the view that regular MF’s take.
Theoretically speaking, a contra fund is one that invests in stocks that are out of favour with investors and are being sold/avoided by them but have the potential to grow in the long term. A regular MF manager will avoid such stocks while the fund manager of a contra fund will go in search of such stocks.

Do we have Contra Funds in India?

Oh yes, we have. If we didn’t, would I be writing this article?
Anyways, we don’t have as many contra funds as we have in the Equity Diversified and other MF categories. Some of the leading Contra Funds available for us to invest are:

1. ING Contra Fund
2. Kotak Contra Fund
3. L & T Contra Fund
4. SBI Magnum Sector Funds Umbrella – Contra
5. TATA Contra Fund
6. UTI Contra Fund and
7. Religare Contra Fund

How have the Contra Funds Performed in the past few years?

Contrary to popular expectation, the Contra Funds haven’t performed as well as investors would expect. The Category Average Returns of Contra funds has been:
a. In the past 6 months = -16%
b. In the past 1 year = -25%
c. In the past 2 years = -2%
d. In the past 5 years = 4%

If we compare the returns that Equity Diversified Funds have given as a category average, they stand at:
a. In the past 6 months = -14%
b. In the past 1 year = -22%
c. In the past 2 years = 2%
d. In the past 5 years = 7%

As you can see, Regular Equity Diversified Funds, as a whole have outperformed the Contra funds in the past 5 years.

Are these Contra Funds Really Contra in terms of Investment View?

Unfortunately No. If you compare the stocks portfolio of any of these Contra Funds and any of the top Equity Diversified funds you will see that they are similar. Atleast 60% of the stocks that Contra Funds have invested are present in the portfolio if a regular equity diversified fund. Even the Sectors in which these Contra Funds have invested is more or less the same as regular equity diversified funds.

Sector Name	Contra Fund - Sector Weightage	Regular Fund - Sector Weightage
Financial Services	19%	21%
Energy & Power	14%	15%
Consumer Goods	10%	9%

The weightage in other sectors are comparable too.

Actually speaking, if we pick up the top stocks like ICICI Bank, HDFC Bank, Reliance Industries, Infosys etc, both the Contra Funds and Equity Diversified Funds have invested in them. Almost all of these funds have exposure to such stocks even though, they claim to be following a contrarian investment approach.

Is it a Good Idea to Invest in Contra Funds?

Well, If you ask me, the answer would be “NO”. I believe as a good investor, the next thing that comes up in your mind is – “Why?” If you did think of it, then kudos to you. If you did not, then my friend its time to fire up those brain cells. No matter, who gives any investment advise, it is not a good idea to believe without asking “Why?”

Reason 1: Underperformance
As you may have noticed in the paragraph on the performance of the Contra Funds, you can see that they have underperformed the Regular Equity Diversified Funds consistently over the past 5 years.

Reason 2: Shrinking Fund Corpus
When these Contra Funds were introduced almost a decade ago, they were selling like hot cakes. People invested in them heavily, but seeing their poor performance, most investors have sold their holdings in these funds. Some of these funds had AUM of over 1000 Crores but have come down significantly. The AUM as of November 2011 are:
a. UTI Contra fund – 165 Crores (Was nearly 1200 Crores in 2006)
b. ING Contra Fund – 8 Crores
c. Religare Contra Fund – 66 Crores
d. SBI Magnum Contra Fund – 2900 Crores
e. Kotak Contra fund – 61 Crores (Was nearly 350 Crores in 2006)
f. TATA Contra fund – 97 Crores (Was nearly 200 Crores in 2007)
g. L & T Contra fund – 8 Crores

Note: For the rest of the funds I could not find the historic AUM. But, based on the data for the rest of the funds, you can see that the AUM Corpus has shrunk significantly in these funds and suggests lesser investor confidence

Reason 3: Not much Contrarian Investment Approach

Bottom-line: The Stock Market is volatile and a contrarian investment approach may produce better returns. But, unfortunately the Contra funds available in the Indian MF Market right now are not so Contra and haven’t performed well either. So, it is better to give them a pass and choose top performing Equity Diversified Mutual Funds that have outperformed other classes of MF’s on a regular basis.

Happy Investing!!!

Credit Ratings – Explained

In one of our previous articles, we learnt what Credit Ratings are.

It was just an introductory article about credit ratings. In this article we are going to learn what these credit ratings are and what they are not.

What are Credit Ratings?

Credit Ratings are:

a. An Expression/Opinion about Credit Risk
b. Are provided by Rating Agencies
c. Are Continually Evolving & Forward Looking
d. Are Intended to be Comparable across different sectors and regions

Credit Ratings are not:

a. An Investment Advise
b. Assurances of Credit Quality
c. Absolute measures of Default Probability

The points may look self-explanatory. Nonetheless, let us look in detail as to what each point means.

An Expression/Opinion about Credit Risk

Credit ratings express opinions about the ability and willingness of an issuer, such as a corporation or city government, to meet its financial obligations. Credit ratings are also opinions about the credit quality of an issue, such as a bond or other debt obligation, and the relative likelihood that it may default.
Are provided by Rating Agencies

Credit Ratings are provided by Rating Agencies. There are many agencies whose sole purpose is to provide credit ratings about issues. Some of the famous ones are Standard & Poor’s, Moody’s, Fitch etc.

Are Forward Looking & Continually Evolving

Though credit ratings are arrived at based on the analysis and evaluation of historical data, rating opinions are designed to be forward looking. Simply put, ratings take into account not only the present situation but also the potential impact of future events on credit risk. For example, while assigning ratings, agencies factor in anticipated ups and downs of business cycles in specific industries as well as trends and events that can be reasonably anticipated.

At the same time, ratings are not static. Rating opinions may change if the credit quality of an issue or issuer alters in ways that were not expected at the time a rating was assigned. For example, the acquisition of a line of business, a change of policy by government, or erosion in the credit markets that was not foreseen may result in a rating adjustment that reflects this new information. The agency might choose to re-publish a revised credit rating for the affected party.

Are Intended To Be Comparable Across Different Sectors and Regions

Most rating agencies use the same rating scale across different types of companies. The rating scale is designed to provide a common language for comparing creditworthiness, regardless of the type of entity or assets underlying the debt instrument or the structure of the financial obligation.
This means that a ‘A’ rated party irrespective of whether it is a bank or a government or an automobile manufacturer carries the same level of credit risk as with other entities that have been assigned the same rating.

Are Not Investment Advise

Credit ratings are not designed to indicate the value, suitability, or merit of an investment. They are opinions of credit quality and, in some cases, the expected recovery in the event of default.

Credit ratings do not suggest whether:

• Investors should buy, sell, or hold rated securities
• A particular rated security is suitable for a particular investor or group of investors
• The expected return of a particular investment is adequate compensation for the risk it poses
• The price of a security is appropriate given its credit quality
• The market value of the security will remain stable over time

Though credit quality is an important consideration in evaluating an investment, it is not the sole criteria based on which you must base your investment decision.
Before deciding whether to invest in a particular investment option, the investor (you and me) must consider a wide range of factors like the investment strategy, time horizon, rate of returns, history of the house issuing the investment option etc. During this process the credit rating too will be considered but I repeat, we cannot and should not base our investment decision solely on the credit rating alone.

Are not Assurances of Credit Quality

Credit Ratings should not be viewed as an assurance of credit quality or the exact likelihood of default. Instead, ratings denote a relative level of credit risk that reflects a rating agency’s carefully considered and analytically informed opinion as to the creditworthiness of an issuer or the credit quality of a particular debt issue.

Are Not Absolute Measures Of Default Probability

Credit ratings are not exact measures of the probability that a certain issuer or issue will default instead, they expressions of the relative credit risk of rated issuers and debt instruments.

Most rating agencies, rank order the issuers and issues from strongest to weakest based on their relative creditworthiness and credit quality.
For example, a AAA rated issue has a higher credit quality than a BBB issue.

Similarly, if we compare the historic data, the annual average default rate of BBB rated issues was 0.30%. this does not mean that it is a prediction that, any BBB rated issue has a 0.30% default probability. It may so happen that, this year the default rate could be 0.6% or even 0.2%. in fact, the actual default rates for any specific rating category may fluctuate over time and are governed by the economic factors.

Moodys Bank Financial Strength Ratings

In the past few days there have been many news flashes about Moody's changing the Bank Financial Strength Ratings for banks in India. The most significant of which was, the downgrading of State Bank of India, the nations premier state owned banking institution from C- to D+. This caused shock waves across the stock market and the SBI shares tumbled to their 2 year low.

The purpose of this post is to understand what this Bank Financial Strength Rating is and understand the different ratings available.

What is this Bank Financial Strength Rating?

"Moody's Bank Financial Strength Ratings reflect Moody's opinion of a bank's intrinsic or stand-alone financial strength relative to all other rated banks globally."

This BFSR is a measure of the likelihood that a bank will require financial assistance in order to avoid a default.

What are the different Ratings available?

Rating Name	Rating Description
A	Banks rated A possess superior intrinsic financial strength. Typically, they will be institutions with highly valuable and defensible business franchises, strong financial fundamentals, and a very predictable and stable operating environment.
B	Banks rated B possess strong intrinsic financial strength. Typically, they will be institutions with valuable and defensible business franchises, good financial fundamentals, and a predictable and stable operating environment.
C	Banks rated C possess adequate intrinsic financial strength. Typically, they will be institutions with more limited but still valuable business franchises. These banks will display either acceptable financial fundamentals within a predictable and stable operating environment, or good financial fundamentals within a less predictable and stable operating environment.
D	Banks rated D display modest intrinsic financial strength, potentially requiring some outside support at times. Such institutions may be limited by one or more of the following factors: a weak business franchise; financial fundamentals that are deficient in one or more respects; or an unpredictable and unstable operating environment.
E	Banks rated E display very modest intrinsic financial strength, with a higher likelihood of periodic outside support or an eventual need for outside assistance. Such institutions may be limited by one or more of the following factors: a weak and limited business franchise; financial fundamentals that are materially deficient in one or more respects; or a highly unpredictable or unstable operating environment.

A point to note is that wherever appropriate, a "+" modifier will be appended to ratings below the "A" category and a "-" modifier
will be appended to ratings above the "E" category to distinguish those banks that fall in intermediate categories. So, a B+ is better than a B and a C- is better than a D.

This post is just the introduction about these Banking Financial Strength Ratings. Watch out for more articles on how it is calculated in future!!!

Retirement Planning Series - Conclusion

We have come to the end of the Retirement planning series. So far, we have covered the following:

1. Why plan for Retirement? and
2. How much money will I need?
3. Where will the money come from?
4. Building the Retirement Corpus


While it's impossible to learn everything you'll ever need to know about retirement planning in a single article, the topics we have covered in this series should give you a solid start.

Retirement planning is an ongoing, lifelong process that takes decades of commitment in order to receive the final payoff. The idea of accumulating hundreds of thousands of rupees in a retirement corpus can definitely seem intimidating, but as explained in my articles, with a few basic calculations and commitment it's not difficult to achieve.

Let's revise what we have covered so far:

• Every individual is responsible for planning for his/her retirement
• How much money you'll need to save for retirement will depend on your desired standard of living, your expenses and your target retirement age.
• To determine the size of the retirement corpus, you'll need to:

o Decide the age at which you want to retire.
o Decide the annual income you'll need for your retirement years.
o Add up the current market value of all your savings and investments.
o Determine a realistic real rate of return for your investments.
o Obtain an estimate of the value of your company pension plan.

• Assume that an annual inflation rate will erode the value of your investments and adjust your savings plan accordingly to provide yourself with a margin of safety.
• Income during retirement may come from the following sources:

o Employment income,
o Employer-sponsored retirement plans,
o Savings and investments,
o Other sources of funds, including inheritance money, prizes and lottery winnings, gifts, raises, bonuses and real estate.

• There are several investment options that can be used to achieve your retirement savings goals. These include, but are not limited to

o Bank Deposits
o Stock Market Investments
o Gold
o NSC, PPF etc

• Beginning to save for retirement at an early age is one of the biggest factors in ensuring success.
• Asset allocation is a key factor in building any successful portfolio. The assets you choose will depend on your risk tolerance and investment time horizon.
• Diversification will help you to reduce the amount of risk in your portfolio, increasing the chances that you'll reach your retirement savings goals.
• Make a household budget to ensure that you are contributing as much as possible to saving for retirement and aim to reduce unnecessary expenses

Other Considerations:

1. Remember that most investment options have tax implications
2. Make sure to factor in the amount of tax you may have to pay on the income earned through your investments (don't worry, you can find out the tax implications of the investment options in my blog in the various articles and if you cant, just leave a comment and I will get back to you)
3. Make sure to revisit your retirement plans at the end of every 2-3 years and make adjustments if required
4. Make sure you re-jig your portfolio at the end of every decade. As you progress in age, your risk capability comes down and moving from an aggressive portfolio to a conservative portfolio is a must for any individual who wants to preserve his capital around retirement age


I hope this retirement planning series was useful to you. Do leave a comment if you have any queries and I will try to answer them.

Happy Retirement Planning!!!