Sunday, September 25, 2005
This came as a revelation to me since I have seen the cost of labour being extremely high in developed nations leading to economic models where buying a new product is cheaper than getting an existing one fixed due to the cost of labour required to fix it. It looks like we are also moving in the same direction. How would the middle class indian society adopt to this kind of change? I am not sure. Maybe they will become more self reliant and move away from the hired help model? That I am afraid would actually reduce the number of available job opportunity which could mean a bad thing.
Whatever be our evolution path, I think that labour costs are going to raise to very high levels in the future and we need to learn to cope with it in new ways than what we have done before. Maybe the world of kaamvalis will be gone for good.
Friday, July 08, 2005
Thursday, June 16, 2005
Art as an investment is an increasing area of interest for many financial institutions, high net worth individuals and even connoisseurs of art.
[Via rediff: Personal Finance]
Also in the economic times, I read the headline yesterday that investor wealth jumped by something like 18K crore due to the current boom in the market - obviously we indians have a lot of disposable money now and so we have a unique problem - where do we wisely invest our money? Thus avenues such as art start appearing as investment options. Is this good or bad? Only time will tell.
Monday, June 13, 2005
- Philosophy 1: Quick access to money for emergencies : One of the key principles of creating an FD is the fact that we need quick access to money for emergencies. So much of money does one need for quick access? If you have a formula for it, great otherwise a 3 month salary would be a good yardstick to use. Anything beyond that in a FD would be underutilized funds.
- Philosophy 2: Safe and secure returns : This is a bit of a misnomer. If you had followed the logic in the first paragraph, there is no " real return" from a FD post inflation. At best you can feel that your money has not vanished but it is still around. A lot of people found out this is not true during the days when companies that offered fixed deposit vanished overnight.
- philosophy 3: Temporary parking space of excess cash:A lot of people park excess cash in FDs for short periods as a temporary parking space until they find better investment opportunities. This is a good practice since the returns from a savings account is a lot less than what at 3 - 6 month FD can give you. Interestingly there are new and better avenues to park cash.
Now that we have reviewed what the primary goals for having an FD are, let us explore what are the options available to satisfy these goals to better manage our money.
- Philosophy 1: Quick access to money for emergencies : To have quick access to cash (< 8 hours), there are very few options available in the market other than a fixed deposit linked savings account. Most banks have such accounts where the money is transparently swept into a FD from the savings account until you attempt to withdraw the money. At that point in time the FDs are "broken" to handle the request. Having said that FDs are the traditional option here, there are a few other options that one can look at to get better benefit. Credit cards provide access to reasonably large sum of money without physically having money available until the next billing cycle. Thus make your emergency payment through a credit card and then when it is time to pay those credit card bills (typically within the month) you access your funds from other sources and pay the card off.
- Philosophy 2:Safe and Secure Returns : In today's world this is hard to come by but there are various options out there that can provide this option for your money with reasonably higher return than the FD. The post office monthly income scheme (POMIS) is a good option here - it is guaranteed by the government so it is as safe as it can be. it pays 8% returns with 10% additional maturity bonus thus a higher effective rate than the average FD. In terms of liquidity, it does not score well - it does allow encashment after 1 year but the penalty clause of 5% of principal is pretty high. Investors have to wait for 3 years if they wish to close without penalty.
Investors who are able to digest slightly higher risks can look at debt mutual funds. They provide good liquidity and sometimes very good returns but these instruments are fundamentally more risky than a government backed investment schemes
- Philosophy 3: Temporary parking of excess cash : If you are one of those fortunate souls that has excess money that should be temporarily parked, you should explore the following options - Liquid mutual funds with their typically better returns than FDs will offer a good parking space for cash. They are highly liquid (you will get your money in a couple of days) and unlike a few FDs, there wont by any clauses for sudden exit. They thrive on the ability to provide parking space for large amounts of cash.
With this we have explored various options for money management beyond Fixed deposits. Hope you folks get into active money management beyond FDs through the various routes mentioned here. Do send in comments and feedback if you have other means/options of managing your funds.
Wednesday, June 08, 2005
personal finance in india
Sunday, June 05, 2005
- Get an encumberence certificate : If you get an EC after a week of registration, it will typically contain your name on it. That is a good indication that you own the property :) .
- Get a Patta : The patta is another significant document that will reinforce the fact that the ownership of the property is registered in your name. You can typically get a patta in Tamil Nadu in 2-3 months. I suggest you apply for one soon.
Thats all there is to it. Good luck with property buying!
Thursday, June 02, 2005
Many of us trade in stocks becos our friends told us to do so or found the recommendation on some business channel or trade magazine. But this is not an intelligent investment. The Internet so full of information that you can at-least do some basic research there and back up your decision with info you have researched
I am not into stocks. I am not a stock savvy person. So dont treat this as a very serious advice. But this way of gathering information is just another way of cross-verification and company profile research.
I have used Google for in genereal web search and Google News for finding the latest information from various news sources around the world. The other most important tool is the company website itself, from where you will get the pointers what to search ?
[Via IndusNeXus.com (beta) - Free Social & Business Networking | Community Blogging | India ]
First let us cover the buyer (you ) scenarios. There are basically two options here, you pay for the property yourself or you have a bank fund the purchase.
- Funding yourself : If you are funding it yourself, you will have to have a legal document signed with the seller - this document is called as the sale deed. It is a legal document that will be printed on stamp paper and will describe the property and its surroundings. Then it would clearly describe the fact that the seller is selling the property to the buyer. This document should first be reviewed by the lawyer before it is executed on the stamp paper. So ask the seller or the VENDOR for a draft copy of the sale deed and have your lawyer review it and suggest corrections if any.
- Funding through a bank: Banks offer loans to purchase realty. The process they undertake would be to do a verification of the property papers (legal review through their lawyers), verify if the property price as negotiated by you with the seller is fair market value (through a property surveyor) and finally ensure that there is an agreement of sale between the seller and buyer, executed by the seller or his representative. Once they are satisfied with the three steps, the will finance the purchase and have you execute the registration process through the sale deed (similar to funding yourself). The only difference being that they will have physical possession of the sale deed until the loan is repaid.
During the registration process there are a few items you need to verify to ensure that there are no hitches in the future for the property ownership.
- Registration Price :The price quoted in the sale deed. Ideally this price would exactly match what you pay for purchasing the property. In reality though, this seems to be hardly the case when I spoke to a few buyers and sellers . You should ensure that the difference is not too large for the simple reason that you are paying a higher price for purchasing than what is being registered for would mean that if you decide to sell the property in the future, the net gain on which you pay tax is higher than what it really should be. Further the logic of reduced cost in the sale deed to reduce registration cost (which is a % of the sale price) escapes me since what you gain marginally in registration costs you pay a substantially higher penalty during a future re-sale of the property - bottomline it is not worth the trouble.
- Execution of sale:The sale execution, the process of signature on the sale deed at the registrar office should be done by you and the seller or an authorized representative of the seller. Nobody else is authorized to sign this document from either yourself or the seller's behalf. Ensure that the power of attorney given by the seller to the authorized representative is valid on the day of sale registration.
Congrats, you have now completed the sale and own the property. In the next article in this series I will cover the post sale steps that you need to take to protect your property.
Sunday, May 29, 2005
So let me start off with the process - The plots are typically part of a large acreage of property that is owned by one or more vendors. These plots are sold by an organization that is called as the VENDOR and the buyer of the plots is called as the PURCHASER which would be us. The VENDOR in many cases will not own the property themselves but they will be representing the owner of the property who would be the actual seller. The vendor to represent the seller will have a power of attorney from the seller.
The first step in the game is to check out whether the property is legally OK for purchase. I would advise that you should do this step even before you start discussing the price of the lot that you want to buy. The legal check is the non-negotiable part of the deal - If the lawyer says no, I suggest you walk away.
You will have to pay a small advance to get a copy of the original paperwork for the property. If you have a good VENDOR he will give you an entire file of documents that will look positively daunting. At this point in time you need a competent lawyer who can check the paperwork for the following key items (and a lot of other things)
- The seller has complete current ownership of the property : If the property is under lein or there are multiple owners then necessary steps have to be taken by the seller to sell the property (get all the owners to sign, close the lein etc.., ) . This is typically found through what is called as an encumberance certificate (EC). Thus most lawyers will demand for an up to date original EC. This can be easily obtained from the local body which handles registration of property (Sub registrar office typically). In Chennai and suburbs, you can actually apply it on the web and have it delivered at home - how is that for convenience? The website is http://www.tnreginet.net
- How did the seller obtain ownership of the property : If the seller bought the property himself then this is the easy part - they have every right to sell it off. Otherwise check if the property that is being sold is not inherited (gifted property)
- Patta, Chitta and Adangal documents : This is the part where I am also a bit hazy. The patta is the official definition of the property that is being sold (dimensions etc..,) and also says which government survey number that the property is part of. If anybody has more details on this, please let me know.
- Plot have been defined according to the rules :Check whether the defined plots on the lot has been done according to the town planning rules that is prevalent in that location - for example have the roads been gifted through a gift deed to the local town planning body say the panchayat so they are responsible for owning & maintaining the roads.
- The VENDOR has sufficient authority to sell the property: Verify if the power of attorney (POA) granted to the VENDOR by the seller is current and rightfully states that the VENDOR has sufficient rights to represent the seller.
- Originals verification : This is one step that you should insist your lawyer do even if he does not show keen interest for the same :). He should verify the paperwork that he has reviewed has an equivalent original document either with the seller or in case of registered documents with the registrar. This will ensure that the copy of documents documents that you have verified have not been "altered" during the copy process.
This is by no means an exhaustive checklist but these are critical things that needs to be looked at for sure. Your lawyer is your friend during this part of the transaction. Since he represents you, he has your best interests in mind. You should definitely find an independent lawyer if you don't have your own already. During this process you will be involved in a lot of back and forth discussion with the VENDOR or seller and what the lawyer wants. If you have a vendor/seller who is not ready to cooperate with the necessary paperwork, it should ring some danger signals to you.
If your lawyer is happy with the paperwork that he has seen, he will give you a report saying that this property is good to be bought. Sometimes they would give a report that says the property is OK to buy subject to certain conditions being satisfied. You should followup with the seller or the VENDOR to ensure that these preconditions are satisfied.
Congrats - if you have reached this point, the property is good enough to buy. You should start negotiating the price on the vendor and start on drawing up the sale deed and sale agreement if needed. In the next article, I will touch upon what are the steps that you need to take with you lawyer if you are planning to finance on your own vs. Your are financing through a financial institution. The rules are slightly different. On the whole, you have crossed the big legal hurdle if you have reached this point.
Thursday, May 26, 2005
Now what can happen going forward? I believe that the price has only one direction to go - down in the short to medium term. Here is my rationale behind it - the ADR at $67 is now going to have a large free float thereby increasing the available volume for trades on NASDAQ. This new float will bring a volatility in the price due to the market adjusting to the available float. The stock price which was about $60 has recently run upto $67 post ADR announcement. Thus there is a good reason for the price to swing back to its original levels. This will definitely have an effect on the Indian market. The price in the local market will be influenced by the ADR price since the ADR float is now larger. Thus the price locally would also come down.
So what can one do at this moment? Short Infosys in the futures market. That would be a good strategy if you were not lucky to be on the $67 gravy train.
Tuesday, May 24, 2005
As a side note, the whole concept of options and options strategy is a fascinating concept and one of my favourites. Do spend some time to understand the mechanics of it. If you like complex problems with elegant solutions, this is probably an area that will offer hours of fun. There is very good book on options - considered one of the best books written about various derivative instruments. The book is Options, Futures, and Other Derivatives - John C Hull
Monday, May 23, 2005
- RBI Bonds (Currently 8% taxable returns)
- Post office monthly income scheme (8% taxable monthly income + 10% maturity bonus)
- Voluntary provident fund (currently 9.5% non-taxable)
- Public provident fund (currently 8% tax free)
So if you think about it, the first two options are not really that good for a simple reason. They are taxable returns. For people in the highest tax bracket, that means 30% of the returns are gone poof. Thus the 8% really means 5.6% effective returns and the POMIS with the trick involving the POMIS and RD supposedly gives a return of 11%. This would still be 7.7% post tax return. Thus the real race is between the VPF and PPF. Currently the VPF's 9.5% tax free return is absolutely unbeatable. So there you go folks, the absolute winner is VPF. Go ahead and have a quick chat with your payroll department. Ask them to post a large chunk of your pay back into the VPF and you are rest assured that the money is earning 9.5% returns.
So what is the downside you ask? Provident funds are illiquid instruments - i.e. you really cannot get to your money if you want it in a hurry. VPF especially can be accessed only under some special circumstances such as building a home or children's education etc..., So there you go, park some of that surplus cash in a VPF before it reaches your purse.
Sunday, May 22, 2005
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