Thursday, June 16, 2005

RE: Invest in art, get fantastic returns!

rediff has this interesting article on how investment in art will have fantastic returns over a period of time. You can read the article below - here is a small quote and a link
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

Fixed deposits - Are they really worth it?

I have had a very strong view on putting money in fixed deposits(FDs) - CDs for you Americans :-) and why should we go about doing them. FDs in India has been the first love of retail investor for a long time. They have appear in so many shapes and forms to satisfy the investor's palette - all the way from automatic credit from your savings accounts to FDs to large and small companies themselves offering fixed deposits albeit at a higher rate. The big buffet of options exists I believe simply because fixed deposits are the apple of the eye for the retail investor. So let me take my stand here - I don't like fixed deposits! Why ? Today's interest rates are in the 5-6% range, The returns are 100% taxable since the days of section 80CCC are gone. Every paise that the institution pays you is taxable and so they will eventually have TDS before you lay your hands on the money. So effective return would be in the 3-4% rate. This is obviously less than today's inflation so net result, your money is slowly decaying away. So how do you handle this one may ask? The answer is basically many fold but the underlying philosophy for FDs which I am elaborating below should be your checklist for FD creation.

  • 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

Credit rating - The new Mantra in India

I received a note from my credit card provider that they would be reporting credit history to an RBI appointed agency for tracking my performance. That is the good part. Further they said they would also share the data with any agency that they thought would be deemed fit. That I have a problem with. In a country like India where both privacy and information security are relegated to secondary levels of importance before roti, kapda aur makhan, I think getting a letter from the credit card company was in itself a positive note unfortunately their practice of sharing to who they see fit is a problem. The good thing is that they have given me an option to raise a redflag if I want to and I have done that today. Let us see what the response would be.

Sunday, June 05, 2005

Buying property in India - The common man's guide - Part 3

Having successfully purchased your piece of the world, it is time to complete the final formalities. We have to make sure that the final leg of the journey is successful. The steps are easy. So let us go ahead and do it

  1. 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 :) .

  2. 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

An interesting approach to Investing

Santhosh at IndexNeXus has an interesting approach to investing in stocks using google. Here is a quick excerpt - you can read the full article at his site (URL below).

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 (beta) - Free Social & Business Networking | Community Blogging | India ]

Buying property in India - The common man's guide - Part 2

Having covered the legal verification of the real estate property in part 1, I will address the legal documentation for sale and the actual registration process in part 2. For successfully execution of sale, you need to have a document that clearly describes what is being sold and this should be signed by you (the BUYER) and the seller or a person authorized by the seller. This sale has to be registered with the government so that it will be recognized in a court of law. This registration is done in a sub-registrar's office.

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.

  1. 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.

  2. 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.

  3. 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.