Monday, April 29, 2013

Debt Markets In India

The Stock Market and Stock Market related instruments like Shares & Mutual Funds have been discussed on numerous occasions in this blog. One thing which we have not covered in detail here is about the Debt Markets of India. Part of the reason being the fact that Debt Markets are considered Safe Havens and so, most people (including me) don’t really care about it until they are in their late 40's to 50's. Well, I recently realized that it was a grave mistake and so, here we are...

This and a few more articles that will follow will cover in detail about the Debt Markets in India, the type of Debt Instruments we can invest in and other relevant details that you will need to know before actually investing in such products.

Even the most aggressive investor needs to have at least a 15 - 20% exposure to Debt Instruments to cushion losses and provide much needed liquidity. So, even if you are young and can afford to bear losses, I would suggest you strongly consider Debt Instruments to constitute at least 20% of your portfolio

Why Do We Tend to Overlook Debt Markets?

The Answer is very Simple: Rate of Returns

Most people are excited about Equity Markets because they tend to offer much higher rates of returns at much shorter timeframes. For some people, it motivates them to be aggressive risk takers who try to double or triple their money in a short span of time. For the others, the risk factor keeps them away from the Equity Markets. Irrespective of which category you fall into, most people are excited about equity markets and are more interested in learning about them than the Debt Markets.

Equity markets are a great choice for earning higher returns over the long run, but do remember that high returns do entail high risks too. It means you need to put your invested capital at a risk and
that too without any expectation of preserving your capital (i.e. You May End up losing all the money invested). And so to reduce the risk or to preserve your capital, you need an asset class which performs the function of preserving or protecting your capital from eroding. It is not something new we are talking about. Instead, this asset class is a traditional asset class which existed even much before ‘equities’ became popular and exciting as an asset class.

Yes, We are talking about "Debt Instruments".

Capital Preservation is one of the biggest motivators for people to invest in Debt Instruments.

What is meant by the word "Debt"?

Debt, in simple terms, is an obligation or a commitment from the borrower to repay the money borrowed from the lender on or before a pre-specified date. In return, the borrower will pay the lender an additional sum to compensate for the lender parting with their money.

Real Life Examples:

1. Home Loan
2. Car Loan
3. Bike Loan
4. Personal Loan

How Big is the Indian Debt Market?

India’s debt market is one of the largest debt markets in Asia, and serves as a useful source for banking channels to meet their financial requirements. In terms of size, the Indian debt market is the third largest in Asia after Japan and Korea. The Indian debt market has grown massively over the years. Before 1990’s the debt market in India was characterized by administered interest rates i.e. the interest rates were closely monitored and fixed by the Government. Also the high Statutory Liquidity Ratio (SLR) requirements led to the existence of captive investors in banks in the absence of a liquid and transparent secondary market. The coupon rates offered on government securities too, were not market determined.

Such was the crude and unsystematic form in which the Indian debt market existed earlier. However, through various reforms in phases over the past 20 years, the Indian debt market underwent a process of a structural overhaul wherein the captive debt market was transited to a more dynamic debt through market-determined interest rates, which in turn brought about the much needed transparency and liquidity into the Indian debt markets.

Worldwide debt markets are three to four times larger than equity markets. Even in India the ratio would hold good if we consider Bank Deposits as part of the Debt Markets in India. Unfortunately most people still think of "Bank Fixed Deposits" the moment we talk about debt instruments and so a huge or should I say the largest chunk of Debt Investments in India cannot be considered as part of the Debt Market.

So, the debt market in India is very small in comparison to the equity market. This is because the domestic debt market has been deregulated and liberalized only recently and is at a relatively nascent stage of development. The debt market in India is comprised of two main segments, the Government securities market and the corporate securities market. Government securities form the major part of the debt market, accounting for about 90-95% in terms of outstanding issues, market capitalization and trading value. In the last few years there has been significant growth in the Government securities market. Even the Corporate Securities Market is growing well of late. Many high profile bond/debenture issues amounting to multi-thousand crores of rupees have been successfully offered and subscribed in the past few years.

In the next 5-10 years, the Indian Debt Market has the potential to surpass the size of the Indian Equity Markets many times over, just like it is in other major nations worldwide.

Friday, April 26, 2013

All Your Questions about Employee Provident Fund - Answered!!!

In the past few articles in our blog, we had taken a detailed look at the Employee Provident Fund Scheme of India. After reading it, I am pretty sure you would have a number of questions that come up in your mind. The purpose of this article is to try to answer all those questions.

If any of your questions arent available below, please feel free to leave a comment and I would be happy to answer them...

1. Is it Compulsory for the all the employees to contribute to the Employee Provident Fund?

Yes. Anyone who is an employee of an organization that is Registered with the EPFO, has to contribute towards their respective EPF Accounts.

PS: An Employer and Employee can come to a consensus and opt not to contribute EPF if the employee's salary is above Rs. 6500/- per month. However, the employer would have to convince all other employees to agree to this because the employer cannot opt to contribute the employer portion of EPF to one employee and not do so for the rest. So, technically speaking, it is not compulsory but it is in all practical cases.

2. Can I Nominate someone to receive the proceeds of my EPF Account?

Yes. Each member has to make a nomination against their EPF Accounts, to receive the amount accumulated under it, in the event of his/her death. Usually it is the Spouse/Children for married individuals and Parents for unmarried people.

3. Can I Nominate my Brother or Sister or any of my In-Laws for my EPF Account?

No. Only Spouse, Children and Parents can be nominated as receivers of the Proceeds of our EPF Accounts.

4. Can I Nominate more than one person?

Yes. When you nominate multiple individuals, you need to mention the % share each individual must receive. If that is done, the amount will be distributed accordingly.

5. If one does not have any family, what are their options?

If an individual has no family he/she can nominate any person or persons of his choice but once they subsequently acquire a family (Marriage) such nominations become invalid. The invidual has to make fresh nominations of one or more persons belonging to his/her family.

Ex: Let us say Mr. X was brought up in an Orphanage and has no family. He finished is studies and joined ABC Private Ltd. as an employee and opened up his EPF Account. As he has no immediate family, he nominated his best friend Mr. Y against his Account. After 5 years, X fell in love with Z and eventually married her. As a result, his earlier nomination of Mr. Y became invalid and he has no choice but to nominate Z as the receiver of his EPF corpus. In future if X and Z have kids, X can include his kids too as nominees.

6. When does an employee become eligible for the employee pension scheme?

For an employee to become eligible for Pension fund, he/she completes 10 years of continuous service.

7. Does the 10 years of continuous service refer to - working in the same company?

No. 10 years of continuous service refers to keeping your EPF Account and EPS Accounts open and active for a period of at least 10 continuous years. Let us say if you switch your job from Company A after completing 7 years of service to Company B, you need to transfer your EPF and EPS Accounts to your new job. If you do so, after 3 more years, you will satisfy the 10 continuous years criteria. In case you opt to withdraw your accumulated corpus, you have to start afresh in company B and work for 10 more years to be eligible for EPS.

8. Do contract staff need to open an EPF account?

No. The EPF account is only for permanent staff of the company. Contract staff, Temporary staff and other people who arent on the permanent payroll of the company are not covered by EPF

9. Can I withdraw my EPF money anytime I want?

Yes. However, you need to satisfy a few conditions in order to be eligible for withdrawal. Read the article titled Can I Withdraw Money from My Employee Provident Fund (EPF) Account? to learn more about this.

10. Can I withdraw my EPF corpus when I resign from my Job?

Yes and No. Actually speaking it is illegal to withdraw your entire PF corpus when you switch jobs if you are going to join your new job within 2 months of resigning from your current job. Many people manage to withdraw their PF corpus when they switch jobs and join the new company immediately. Though it is possible, it is actually illegal and has to be avoided.

When you move from one job to another without taking the 2 month break as stipulated by the law, you need to get your PF Account transferred. Read the article titled Can I transfer my PF Account to my new Employer? to learn more about this.

11. Is PF Withdrawl Taxable (In case of withdrawal of the entire corpus)?

Yes and No.

If you are withdrawing your corpus after at least 5 years of continuous service, the amount received is not taxable.
If you are withdrawing your corpus before complete 5 years of continuous service, the amount received is fully taxable. The amount received will be added to your total income for the financial year and taxed according to the prevailing tax slabs.

12. How long does a usual EPF Withdrawl take?

Usually the processing time is around 2-3 weeks but in reality you will receive the money only after around 90 days. The reason is because - your previous employer cannot submit the withdrawl request until 60 days pass after your last date with them. The EPF office takes another 2-3 weeks and eventually you will get the money around the end of the 3rd month.

13. How will I receive my EPF withdrawl money?

Earlier people used to receive Postal Orders or Demand Drafts. These days people are asked to submit their bank details and the money is credited electronically (Through ECS)

14. How will I know the current accumulated EPF corpus?

Most large organizations generate EPF Account statments on a regular basis (Once a quarter or once a year) and share the same with their employees. One of my old employers in India, had an intranet website where I could login and check my running EPF corpus value on a monthly basis. Alternately you can visit your nearest EPF office and find out your EPF balance by submitting your EPF Account number along with your identity proof.

Recently, the EPFO has launched a website where people can check their balances online. Pls refer to the article titled Breaking News for EPF Account Holders in our blog for details on how to check your EPF Account balance online.

15. What is the minimum number of permanent employees an organization must have, in order to open EPF accounts for its employees?

At least 20.

16. What happens if, a company had more than 20 people and registered with EPFO but at some point in time in future, the number fell below 20?

Any establishment which has been covered under the Act once shall continue to be governed by the Act even if the number of persons employed by them at any time falls below 20.

17. Are Trainee employees covered under the EPF Act?

Yes, a trainee would be considered as an employee as per the Act but in case the trainee is an apprentice under the Apprentice’s Act then he/ she will not be considered as an employee.

18. What are the details I need to know in order to view my EPF Balance online?

You need to know your Employee Provident Fund (EPF) Account Number, Name (As per in EPF Slip/Statement) in order to use the online facility. First you need to register and then you can view the details.

19. What can I do, if my PF withdrawal or transfer request is stuck and is not getting completed?

The EPF Organization has a Grievance Redressal Mechanism in place. You can submit an online complaint and you will get a response within 30 days. Refer to the article "EPF Grievance Redressal" in our blog to learn more about how to get our grievances addressed.

20. Does the EPF Organization come under the Right To Information (RTI) Act?

Yes. All Government organizations, including the EPFO fall under the RTI Act. Refer to the article about EPFO and the RTI Act by clicking here

21. What would happen if my Employer fails to remit the EPF contribution (Both employee and employer share) after deducting it from the employees salary?

Deducting EPF from an employees salary and not remitting it to the EPFO is considered a Criminal Offense. If found, the regional PF Inspector can even arrest the employer.

22. Could the employer be punished in case the remittance of contribution by him is delayed in a Bank or post office ?

No. The Employer cannot be punished or penalized in case there is a delay in the remittance of the contribution on account of delay in Bank or post office.

23. Can I contribute more than 12% of my Basic Salary as PF?

Yes, you can. It is called "Voluntary Provident Fund or VPF". Any additional money (beyond the minimum 12%) you wish to accumulate in your EPF Account must be contributed via the VPF scheme. The money will earn the same interest as the EPF contribution and is subject to all rules and regulations that are applicable to EPF. Remember here that, any additional contribution you make will not result in an equivalent contribution from your employer. The employer's share of PF contribution will be limited to 12%

24. What is the current prevailing interest rate offered on the PF accumulations?

8.6% Compounded on an yearly basis. You can take a look at the Historic Interest Rates Offered on EPF to know how the current rates fare in comparison to history.

If you have any more queries about EPF please feel free to leave a comment in this article and I will be glad to answer them...

Tuesday, April 23, 2013

Should I Invest in Gold Now?

The price of gold has fallen to a two year low. Gold prices haven’t gone down like this ever in the past 30 years. Yes, you read it right. Gold prices haven’t fallen like the current fall in 30 years. I know that most of you are worried because your investments have fallen by almost 20% in the past few months and that’s a pretty big hit. In the previous article we took a look at the reason for this fall. The idea behind this article is to understand what is next for Gold and more importantly answer the question – Should you invest in Gold Now!!!

Before We Begin:

All investments have a downside and given the volatility in Gold prices, there could be a significant correction in Gold Prices in future. Please invest only if you feel you can absorb the losses, if any.

Why Should We Even Consider Investing in Gold?

One of my all-time favorite inspirations Mr. Warren Buffet always followed a simple philosophy. He considered market corrections as an opportunity to invest. He always said that, when the price of good company stocks are falling just because the market is falling, we should treat that as an opportunity and buy those stocks because the shares of a good company will always rise in the long run. Though Gold and Stocks are different like oil and water, the basic underlying philosophy holds true. I feel that this correction in price of gold is a great opportunity to invest – for the long term investor. The following are some reasons supporting my theory.

Reason 1: Gold Supplies are Limited
Gold, as you might already know, is mined and is a precious or should I say a limited resource. There is only so much gold ore present beneath the earth and at the rate we are mining this precious yellow metal out, we may run out of our gold reserves in the next 20-30 years. So, any entity that does not have an endless supply is a valuable resource and as its supply becomes limited, its value goes up.
In t
he next few years, when Gold Mining Co’s realize that the reserves are depleting, they will have to cut-down on the amount of Gold they mine and this inevitably will result in a supply crunch and a demand rise. What would happen as a direct result of this – Gold Prices will Rise…

Reason 2: Gold Demand is not Coming Down

Even though the price of gold is going down, as I explained in the previous article, it is not because of the demand for this precious metal. The price is coming down because of excess supply and the easing inflation. So, the demand for Gold is going to continue to be strong.

Gold as an Investment - Bars & Bullion only comprises around 10% of the global gold demand. Even if investors are cautious and ignore gold bars and bullion, Other segments will continue to use/demand gold.

For ex: The demand for gold in Electronics has been steadily rising every year. A couple of years ago, the demand was close to 85 tonnes and it went up to around 90 tonnes last year and with all these hi-fi gadgets being produced like cookies, don’t expect this to come down.

The demand for gold in the Jewelry sector too has been rising every year. India isn’t the only country where the fascination for Gold Jewelry exists. In fact, in many European, African and Asian countries demand for Gold Jewelry has picked up. For as long as Man lives, his fascination for this precious yellow metal will live and I don’t think this is going to come down.

The demand for Gold in the Investment segment – Gold Bars, Bullion etc is the one that has taken a big hit in the past 6-8 weeks. This is expected to continue but I am sure that in the long run, the sustained demand in the other segments will offset this hit slowly. So, the demand for gold will be there.

Reason 3: Gold as a Hedge Against inflation – Will Not Change

For as long as Man has used the term Inflation, there is one entity that he has used as a hedge against it and that is Gold. This isn’t going to change in the future as well. Gold is and will continue to be one of the best hedges against inflation – Period…

Reason 4: This Boost in Gold Supply is only Temporary

As I explained in my article yesterday, this sudden boost in gold supply because countries like Cyprus are selling their gold reserves is only temporary. They cant keep selling forever. They can only sell a certain amount of gold and considering the demand for gold worldwide, even if all the EU Nations decide to sell a % of their gold reserves, the gold demand will gobble up the supply in a matter of 1 or 2 years. As per the World Gold Council statistics, we consumed around 4,500 Tonnes of Gold in 2012. Cyprus is planning to sell gold worth around 400 million Euros which is approx. 12 tonnes in sheer weightage as of prices in Euros today. Even if a few more EU Nations join the fray and sell their share of gold, the global demand for Gold will absorb the supply in a matter of a few months. After that, the supply will get restricted like usual and the price of Gold is bound to rise – Again.

No country will sell all its gold holdings. They will probably sell 5 or 10% of their holdings and even that I feel is a lot of selling. However, the demand is going to continue at least in the non-investment segments where gold is consumed and hence this supply will be used up pretty soon.

Final Decision:

All in all, the signs point that this downward movement in price of gold is temporary and will start moving upwards (like what it has done in the past many many years). So, even now, Gold as an Investment is a good idea.

What Should You Do Now?

After reading this article, by now, you must have some thoughts about buying gold. That’s a good thing but, just like any investment in a volatile market, don’t come to the “All In” mode. If you want to invest let us say Rs. 5 lakhs in gold, don’t buy 5 lakhs worth of gold in one shot. Split up your purchase into smaller amounts and spread it across 6 to 12 months. Follow the SIP – Systematic Investment Plan strategy. Decide on an amount every month and buy gold for that amount only. Don’t get tempted or demotivated in case gold prices move eitherways. Stick your course and continue investment for a period of 6 or 12 months based on your choice.

As I explained above, gold prices will continue to rise in the long run. So, even if the prices go down sharply in the next few months, just take it in the stride and keep investing. You will be accumulating a lot of wealth for your future. 15 or 20 years down the line, the price of gold would have easily double or tripled when compared what it is now.

Happy Investing!!!

Caution: As said before, gold prices are volatile and are moving both up and down. So, do not invest in gold for your short term or even medium term cash requirements. This strategy explained above is only for the very long term investor – time frame at least 5 years or more.

Monday, April 22, 2013

Why is Gold Price Falling?

Is your mother worried that the price of gold has come down and that her precious possession is losing its worth? Is your wife nudging you to get her some jewelry because gold prices have come down? As a layman almost everyone in our country is bothered to a certain extent because of the fall in the price of this yellow precious metal. January 1st 2013 – the price of 1 gram of 24 carat gold was Rs. 2937.72/-. As of yesterday end of day – 21st April 2013 – the price of the same 1 gram of 24 carat gold is Rs. 2437.98 a fall of almost 500 rupees – Rs. 499.74 to be exact.

This is a fall of 17% from its price as of 1st January this year in just a mere 4 months. What caused this damage? The idea of this article is to cover the main reasons as to why this yellow metal which has been the darling of all women and investors in India is losing its shine – and that too in a hurry…
The price of Gold is at a 2 year low – Gold price has never been so low in the past 2 years.

So, why is gold price falling?

There are many reasons for this sudden and catastrophic fall in the price of gold. The main reasons in the order of importance are as follows:

Reason 1: Panic

Investor’s world over share one common trait – Fear & Panic. When people in one market exhibit a fear or panic towards one asset class, it echoes everywhere. This fall in price of gold isn’t localized to the Indian market. Worldwide the price of gold has tumbled the same amount and investors are selling their gold assets to recover whatever they can at the current price.

Any person who knows the basic of economics knows that when Supply exceeds Demand, the price of the item is bound to take a hit and that is exactly what is happening now…

Reason 2: Cause for the Panic 1 – Inflationary Concerns

One of the key reasons why investors prefer gold as an asset class is as a “Hedge against Inflation”. Believe it or not, the inflation rate worldwide is coming down. According to one business website, the rise in prices last year was only 2.5% for essential commodities (From the global consumer price index covering around 90 countries) when compared to 4% the year before. You may be wondering how true this could be considering how much prices have gone up in India of late, but the reality is, the price rise in india isn’t a result of inflation. It is a direct result of the rise in oil prices.

When inflation eases, investors worldwide start moving away from Gold and start investing in other asset classes.

Reason 3: Cause for Panic 2 – A Resurgence in Equity Markets worldwide

It is a known fact that the equity markets worldwide have been steadily growing in spite of the significant setbacks. Though we aren’t in a bull market right now, we aren’t in a bear either. Markets are growing and growing steadily. The good companies and their stocks are making good numbers which in turn is attracting more and more investors.

Reason 4: Cause for the Panic 3 – Cyprus and Other EU Nations Selling Gold

A few days ago, news came out that Cyprus is planning to sell its gold reserves to raise approximately 400 million Euro’s (approx. 2500 crore Indian rupees) to fund a financial bailout for the country. There is speculation that other European Union nations may start selling their gold to fund the bailout of their respective economies.

If this trend were to pick up, there will be more gold in the market than what can be absorbed and hence price would take a hit. This fear is the reason why investors worldwide panicked and aggravated the fall in price of Gold.

This was the knockout blow. Gold as such was teetering because of the blows from inflation and equity markets. When news broke out that Cyprus and other EU Nations may sell their gold holdings, that was the Knock Out Blow. Gold unfortunately could not stand up from this blow and hence is falling...

The end result is for everybody to see.

Will this trend continue?

I am afraid, Yes. This trend will continue at least for a few more months. I am planning to write another article in the next few days about why this trend could continue and when we can expect a turnaround in the fortunes for gold. Along with this, our focus will be on – whether we can consider Gold as an Asset class in this current turmoil…

Watch out this space for more!!!

Friday, April 19, 2013

What Options Do I Have if the EPFO Grievance Redressal Does Not Work?

In the previous article titled "Can I Get my PF Related Grievances Addressed?" we had taken a look at the EPFO's Grievance Redressal Mechanism. As with any process involving Government Officials, there are chances that our request gets lost in the sheer volume of requests. So, if that is the case, what options to we have?

Well, the only option we have in such a scenario is to use our constitutional right of "Right To Information or RTI"

The purpose of this article is to help us understand, how to use the RTI system to find out what happened to the Grievance we filed. Remember - The RTI Can be used only after our Grievance garners no response after the 30 day waiting period. If you file an RTI before, there is practically no information that you can request. So, if you have any issues with EPFO, file your Grievance first and if that doesnt work, use RTI.

Steps to Submit your Right To Information Request:

Step 1: Buy a postal order from any Post Office. The charge for this is Rs. 10. This should be in favour of the Accounts Officer of the concerned EPFO Office.

Step 2: Start Drafting a detailed letter to the RTI. Make sure you mention the subject of the letter as: “Seeking Information Under the RTI Act 2005”

The Letter has to be addressed to the "Central Public Information Officer, Employees’ Provident Fund Organisation" of your Concerned EPF Office. If you do not know the address of your regional EPF Office, you can find the same from the EPF website through this link:

Step 3: Furnish As much details as possible

Mention all required details, such as your Full Name, EPF account number, and your contact information including Address, telephone number and email ID. Then, clearly state your various queries, without leaving out any information that would be required.

For ex: If your grievance was related to a PF Withdrawal request that was submitted in November 2012, make sure you mention the same. If you just mention that your Withdrawal Request hasnt been looked into, chances of delay are significantly higher.

Step 4: End the letter with the following declaration:

“I do hereby declare that I am a citizen of India. I request you to ensure that the information is provided before the expiry of the 30 day period after you have received the application”

Step 5: At the end of the letter, mention the proof of payment of fees as - Proof of payment of application fee: Attached Indian Postal Order for Rs. 10 /- dated dd/mm/yyyy favoring “Accounts Officer of EPFO” as application fee.

Step 6: Finish the Letter by Signing it along with Date.

Step 7: Send your letter by Speed Post or Registered Post. Couriers will not be accepted.

Step 8: Wait for 30 days and You should receive a response within 30 days as per the RTI Act.

Hope this helped. Best of luck!!!

Monday, April 15, 2013

Is Buying a Second Home an Investment?

Are you someone who thinks that buying a home is an investment? Do you hear from elders and random relatives about being an intelligent investor and buy a house in some place where you have absolutely 0% idea of relocating to? Buy it now, property prices are soaring, you can make a profit in future – this is the standard dialog you will hear almost all the time. Every month there is a property show or property exhibition by large builders in major cities where they sell properties like cakes and cookies. It is easily possible for the normal individual to get tempted by all this hoopla about property investing and even think about buying a house that we don’t need. If you are one of those guys, this article is just for you…

Who this Article is Not For:
This article is not for the first time home buyer. Every individual dreams of owning a house, something they bought or built. There is nothing better than being able to fulfill this dream. If you are someone who is planning to buy your first home, this article is definitely not for you.

This article is for all those guys who already have a home (where they are living) and are contemplating buying a property just as an investment – esp on Loan.

Is Buying a Second or Third Home a good idea?

YES – If you are paying Cash in full to buy the house
NO – If you are going to take a loan to buy the house

The YES part is a no-brainer. So, let us concentrate on the NO Part of the answer.

Buying a Second or Third Home on Loan – A BAD IDEA!!!

Whatever I am going to explain below is just simple mathematics. Let us say you are buying a home worth 60 lakhs. As part of the standard process, banks offer loans worth 80% of the property value and you fund the remaining 20%. Let us assume that you were approved a loan of 50 lakhs and you came up with the remaining 10 lakhs and are thinking about buying this property that you feel is an awesome deal…

Rate of Interest on the Loan:

Home loan rate of interests vary from bank to bank but they are usually in a certain range. Depending on whether you want a fixed rate or a floating rate loan, your rate of interest and EMI will change. The average interest rate for floating rate loans in India currently is in the range of 10% to 12% whereas for fixed rate loans it is 12% to 14%.
For our calculation purposes – let us assume your home loan is at 12%

Loan Tenure:

Buying a home is a huge investment and the EMI is going to be significant. So, most people choose a long tenure so that they can repay the money in smaller amounts every month. For our calculations, we will check three tenures – 10, 15 and 20 years.

Tenure = 20 years
EMI Per Month = 55,054/-
EMI Per Year = 6,60,048/-
Total Money repaid = 1,32,12,960/-
For a 50 lakh loan, we are repaying 1.32 crores at the end of 20 years

Tenure = 15 years
EMI Per Month = 60,008/-
EMI Per Year = 7,20,096/-
Total Money repaid = 1,08,01,440/-
For a 50 lakh loan, we are repaying 1.08 crores at the end of 15 years

Tenure = 10 years
EMI Per Month = 71,735
EMI Per Year = 8,60,820
Total Money repaid = 86,08,200/-
For a 50 lakh loan, we are repaying 86.1 lakhs at the end of 10 years

If we consider the 10 lakh initial investment you made, the amount you incurred at the end of the loan to buy your property (that was worth 60 lakhs at the time of purchase) will be:
• 96 lakhs at the end of 10 years – Almost 60% appreciation from purchase value
• 1.18 crores at the end of 15 years and – Almost a 100% appreciation from purchase value
• 1.42 crores at the end of 20 years - Almost a 125% appreciation from purchase value
Do you really think your property will be worth that much at the end of those durations? I don’t think so..

What if Property Prices continue to rise like the past 10-15 years?

Yes, that is a valid question. If and I mean a big IF property prices continue to rise like what it has in the past 10 to 15 years, then your property may be worth much more than what you will end up paying for the loan. But, this IF is a really big IF due to the following reasons:
a. The boom in property prices was fuelled by the industrial growth in the country. This has been happening for close to 15 years now. If you watch the market price movement of properties closely, you would’ve realized that the rise in property prices isn’t as sharp as it was just 5 years ago
b. Builders and Promoters are making a killing profit selling properties which many intelligent buyers are able to figure out. As a result, people aren’t buying properties when they are launched. Builders make never-before-never-again kind of offers at launch to attract customers but if they cant attract enough people, they reduce the price and offer better deals as time goes bye. People who book apartments at launch are paying around 4-5% more money than guys who book a few months later, esp in cases where the demand for the apartment is lower.
c. The price of property has been fuelled by industrial growth only to a certain extent. The remaining price rise has been artificial inflation done by our businessmen and agents. Just because people claim that property prices are going up doesn’t mean it is actually going up. It is being pushed up by our crooked businessmen and agents so that they can make a profit.
d. The Indian housing bubble may burst any time… The indian housing market boom is closely resembling the US Housing Market burst that happened 4-5 years ago. In spite of inflated prices, the demand for houses still looks like is pretty good but this isn’t permanent. The builders and banks in india are doing the same mistake that our friends in the US did. It is easily possible that the Indian housing bubble will burst very soon and if it happens, you can surely see a solid correction in property prices.

If you still feel that property investment is safe and you feel that property prices will rise invariably, you should read one last comparison.

If you invest the same Rs. 6 lakhs (50,000 per month) in yearly fixed deposits that pays 8% interest per year and let the deposits cumulate for 20 years, your deposits will be worth as follows:
a. At the end of 10 years – 94 lakhs
b. At the end of 15 years – 1.76 crores
c. At the end of 20 years – 2.96 crores
Even in the case where your property values surged to these numbers, are you really making all the profit? The bank is going to eat a huge portion of your money – between 46 lakhs and 92 lakhs depending on your tenure. Why pay the bank so much money just because you want to see a meager profit at the end of 20 years? If you rather invest in a bank fixed deposit, you will end up making more profit.

The cost of property 20 years down the line is not your profit. You need to deduct your initial payment of 10 lakhs and the repayment you made to the bank from it and the remaining amount will be your profit. Some people ignore the bank repayment part. I bought the home for 60 lakhs and sold it for 1.2 crores after 15 years. A 100% profit – right?
Unfortunately No. If you just scroll up and see the calculation, your cost incurred on the house for the 15 year loan was 1.18 crores. Do you really want to invest 1.18 crores and get a 2 lakh profit after 15 years?
I am sure – your answer is a NO.

What if I am going to rent out my second house and/or Avail tax benefits on it?

In this case, the whole calculation may change but not by much. You will get a rental income that will be around 20 – 30% of your EMI payments which is good. But, considering the amount of money you will end up repaying the bank and the property value after the loan, it may not be that good a deal. Even if you manage to get tax benefits on the second house, the actual profit you will end up making at the end of 15 or 20 years will only be mediocre at best. It can never equal the kind of returns you will get if you actually invest the money in proper investment options like Bank Deposits, Equities etc.

Some last words:
This article was not for first time home buyers or for people who are buying a home by paying full cash. For you guys the above logic does not hold good because – for the first time buyer, a home where you and your family will live far outweighs these calculations. Similarly, for the cash buyer, you will end up making a good profit nonetheless because you aren’t paying anyone, any interest.

Let me reiterate my opinion – I am not saying that don’t buy a house. I am just saying that don’t buy a second or third house on loan. For your first house, ignore these calculations and buy your second or third house only if you can pay cash for the house…

Happy Investing!!!

Friday, April 12, 2013

Can I Get my EPF Related Grievances Addressed?

"Can I Get my PF Related Grievances Addressed?" - This is a question that most salaried employees in India who have tried to withdraw/transfer or even try to access their accounts through the system get in their mind. Though there is a proper grievance Redressal mechanism that is present to help out people who are in need, not many of us know about it. In fact, I can make a safe guess and say that more than 99% of us did not know that such a Grievance Redressal Mechanism for EPF matters existed. Are you one of those? If so, this article is just for you!!!

EPF Organization's Grievance Redressal System

The EPF Organization has a grievance Redressal mechanism in place and it is covered under the Consumer Protection Act. Since late last year, the EPFO has become a part of the Centralized Public Grievances Redressal and Monitoring System, which allows you to register the grievances and track their status online. It is a centralized system, so all your complaints are also monitored by the head office and they endeavor to respond to all grievances within 30 days.

What Types of Grievances are handled by this System?

Grievances related to the following are handled by this system:

1. Final Settlement/Withdrawal of EPF
2. Transfer of EPF Corpus
3. Issue of PF Statements/PF Balance
4. Payment of Insurance Benefit
5. PF Payment Cheque Returned/Lost

Any other grievance that you may have with respect to your EPF Account will also be addressed by the Grievance Redressal Mechanism.

How Do I Submit my Grievance?

The EPFO's Grievance Redressal Website is ""

The Steps to submit your request are as follows:

1. Login to the EPF Grievance Redressal Website. It would look like below:

2. Click on the “Register Grievance” link. The following page will open up

3. Fill up your EPF Account related details in the first section titled “Enter EPF Details”
4. Then fill up your personal details in the second section titled “Enter Personal Details”
5. Once done, scroll down to the third section on the page which is titled “Enter Grievance Details”

6. Select your Grievance Category correctly and clearly explain your Grievance and submit your request.

Once your request is submitted, the EPF Organizations Grievance Redressal Team will look into your request and will respond to you within 30 days.

Tuesday, April 2, 2013

Historical Interest Rates Offered by EPF Scheme in India

The Employee Provident Fund Scheme of India has been in Existence for many decades and is probably the main source of funds for the salaried class of India when they retire. As mentioned in the article titled "Employee Provident Fund - Demystified" the Government offers a fixed Rate of Interest on the contributions that we make towards our individual EPF Accounts. The purpose of this article is to find out what the current EPF Interest Rate is as well as take a look at the historical interest rates that were offered by EPF in the past 20+ years.

What is the Current Interest Rate Offered on EPF Contributions?


What is the best Interest Rate that was ever offered on EPF Contributions?


What is the worst Interest Rate that was ever offered on EPF Contributions?


Historical EPF Interest Rates:

The following table lists down the Rate of Interest as a %, that was offered on EPF Contributions starting the Financial Year 1981-82.

Financial YearInterest Rate (%)

Hope you found this article useful.
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