Keeping track of things - Personal financial calendar

Keeping track of one's financial events always a good thing and my challenge has always been remembering dates - as a teen I couldn't remember a single girl's birthday and now as an adult, I cannot remember the maturity dates of my FMPs and my bond expiry dates. Given this, I decided to institute an universal distributed calendar on Google where I can have all key financial events entered in there. I picked google calendar since it allows for a centralized calendar, allows addition of tasks from remote software clients and also integrates with Outlook. So here is my setup and how I use it. YMMW.

1. Mozilla Sunbird at home with remote google calendar configured at home
2. Outlook calendar at work synced to google calendar one way (I dont want my work events to get into this calendar) using Google calendar sync
   

This setup allows me to have all personal events uploaded by me or the family into google calendar and they appear in my outlook and further google calendar can also send SMS messages as alerts to events prior to the actual date based on configuration. We are further able to use Mozilla sunbird as a good solid client on our home computer to be able to add events to the google calendar. So enough about technology - how do we use this setup you may ask. Well here is what my calendar contains today

1. Repeated Events
1. Credit card payment reminders
2. School fees and other such stuff
3. Reminders of events at school (I never said you have to use it only for finance !)
4. Insurance payments
   
2. One off Events
1. FD maturity dates
2. Other long term investment maturity
3. Completion of any investment plans (STP/SIP etc.,)
4. PPF event dates (5 years, 7 years etc.,)
5. Other key events that you want to remember

This is a big relief off our minds as a family since all important actvities are being tracked by an external system and I get a sync up of the data on my outlook and my wife gets SMS alerts of events. The idea stems from GTD to get things out of our collective minds and have a system to track it.

Getting things done - my current savior

Warning : This really isn't a personal finance blog entry but sort of related ...

I have recently been adopting David Allen's - Getting thing done a philosophy of how to do work in a productive manner, it has been quite an interesting journey and really been helpful. It has also helped me get in control of various aspects of my life including my personal finance management. Google around, you will definitely find a lot of material about GTD as it is called.

This post was created by Vivek Venugopalan at http://desimoney.blogspot.com

Public provident fund in India - the rules of the game

I have been on and off asked questions about PPF account and all the details behind it. Here are a quick summary of the rules for Public Provident fund (PPF) in India - hope this helps you folks out.

Eligibility

1. Non Resident Indians are not eligible to open an account under the Public Provident Fund Scheme.
   
2. If a resident who subsequently becomes Non Resident Indian during the currency of the maturity period prescribed under Public Provident fund Scheme, may continue to subscribe to the Fund till its maturity on a Non Repatriation Basis
3. Minimum amount that should be deposited in a year is Rs 500
4. You can’t transfer money from your EPF account to your PPF account
   

Transactions

1. Investment per year should range between Rs. 500 and not more than Rs. 70,000 in a year.
2. You cannot do more than 12 transactions in a year in a PPF account.
   
3. You can transfer the account from one "office" to another "office" (never tried this one. Can someone let me know their experiences here?)
   
4. If you don't pay the minimum Rs. 500 in a given year, you will have to reinstate the account for a fees of Rs. 50.
   

Duration

1. The account should be held for 15 years.
   
2. Any time after the expiry of 15 years, you can extend the account for another 5 more years, to a total of 20 years maximum.
   

Opening an account

According to the RBI website, the list is given below. Obviously your luck will be in the fate of the employee who is going to deal with you when you walk in to one of these banks :).

1. State Bank of India and its Associates
   
2. Allahabad Bank
   
3. Bank of
   Baroda
   
4. Bank of India
   
5. Bank of Maharashtra
   
6. Canara Bank
   
7. Central Bank of
   India
   
8. Corporation Bank
   
9. Dena Bank
   
10. Indian Bank
    
11. Indian Overseas
    Bank
    
12. Punjab National Bank
    
13. Syndicate Bank
    
14. UCO Bank
    
15. Union Bank of
    India
    
16. United Bank of India
    
17. Vijaya Bank
    
    
18. ICICI Bank Ltd
    

Returns

1. Currently the interest is 8% tax free. This would equate to 12% roughly on the highest tax bracket.
   
2. Interest is credited on the lowest balance on the account on the 5th of each month. It makes sense to deposit the whole Rs. 70,000 on or before April 5th of
   each year so that your money earns interest over the full year.

Loans

1. You can avail a loan anytime after one year after opening the account and upto five years from the year of opening the account. The loan amount cannot be greater than twenty five percent of the balance on the account at the end of the second year immediately preceding the year in which the loan is applied
2. After 5 years, you can withdraw upto 50% from the balance in the account at the end of the 4th year.

This post was created by Vivek on http://desimoney.blogspot.com

Funds during an emergency - how do we get it?

We all need emergency funds in our life. We never know when we need it but we all know that we need it some time or other. There was a detailed post on CNN some time back on how to get hold of emergency funds when we need them. I have adapted it to the Indian context since a lot of avenues that we have a are very specific to personal financing in India. So without much ado here is my list.

1. Tap emergency funds : You did save for the rainy day somewhere didn't you? This would be the right time to start using it. If you have not started doing this as a habit. It might be worth doing something like this after you get out of this crisis. So what is next, let us look forward.
   
2. Sell long term equity investments : Long term equity investments are investments over a year's timeframe. They have most probably given you handsome returns given that stock market has done well for quite some time now. So far the sources of emergency funds that we have looked at were
3. Ask parents for a gift : If your parents were planning to give you a gift in cash / money, this would be a good time to do it. Gifts from parents wont be taxable and would help you tide over the current crisis.
   
4. break into a FD : Fixed deposits can provide the next level of quick access to money that comes with some penal interest for early withdrawal. You probably wont lose the principal but definitely a large portion of the interest when you do this one.
   
5. Take a loan on Jewels : Jewel loans are not a pawn broker domain anymore. Many banks will help you with a jewel loan. All that jewelery you have lying around in a locker can actually come in handy. Talk to your bank and close the transaction right there from your locker to the banker's locker. Gold has in recent times appreciated well so this option makes it even more worthwhile.
   
6. Borrow on your PPF : Your public provident fund could be a good source of income from the third year onwards of establishing the account. The loan amount
   should not exceed 25 per cent of the balance in your PPF account at the end
   of the preceding financial year.
7. Loan against shares : This is an option that comes with specific risks. If the stock under lien goes down in value, the institution providing the loan will automatically liquidate it and you will be responsible for tax implications on the same. This option also has a higher cost associated with it as compared to some of the previous options.
   
8. Loan against property : If you hold property that is not in lien already , then you can go for a loan against property. This is low on our options list since this option is probably going to take some time to work and not exactly going to help in an emergency situation.
   
9. Personal loan : The ubiquitous personal loans with their so called low rates are your next best option if you have reached down so far in selecting a source for your funds. There are quite a few options available but none of them can be qualified as cheap. The costs are just "structured" well so you can never find them :)
   
10. Cash advance on your credit card : You got to be kidding right? This is really not a real option given the cost of this loan.
    

Hope this helped you in coming to an easy conclusion on what are your sources of money. Good luck.

Lump sum vs SIP in ELSS

Every fund house has been touting the benefit of SIPs for quite some time now and how it is relevant for long term asset building. I firmly believe that is the right direction in terms of building an asset. One thing that does stand out is the fact that we have a concept called as ELSS in India. ie. Equity linked savings scheme. Essentially this is a equity based mutual fund that allows for tax saving.

So what is the implications of doing a SIP on an ELSS. Well here are the gotchas

1. ELSS has a 3 year lock-in. So that if you do a SIP on this, each installment will have a lock in for 3 years. So your SIP will become your SWP :)
2. If you pick a dividend reinvestment option, each time a dividend is issued by the fund house, that would get invested on that day back into the ELSS which will result in a 3 year lock-in of that dividend.
3. All your gains will be taxfree (considering today's tax rules) since this will qualify for long term capital gains tax on equity which is currently 0%

Hope this information helps you make the right decision on SIP with ELSS.



This post was written by Vivek Venugopalan on the blog Personal Finance in India - The not so obvious stuff

Technorati :

ELSS, SIP, Mutual Fund

The new Rage in safe investing : FMP vs Bank deposits

Its the talk of the town folks - to FMP or to FD is the question. The stock market showing signs of behaving what it always does in the long run, i.e. being rational and correcting the exuberance of the past 5 years of heady growth, Every retail investor is looking to run and hide with safer avenues and that has traditionally been bank fixed deposits.

I have always had my reservations on bank fixed deposits and this has been from years ago even when fixed maturity plans (FMP expanded just so you know ) were an unknown entity, Finally mutual fund institutions have found a new way to lay their hands on your money and provide "safe and secure" returns to you. Welcome to the world of Fixed maturity plans or FMPs. Think of this as a mutual fund equivalent of an FD (is it really an equivalent? we will talk about that soon) where the returns nowadays match a fixed deposit.

What are they

These instruments are essentially debt mutual funds which are typically close-ended with a maturity period ranging from one month to five years. FMPs are typically setup by the fund manager by purchasing debt instruments that align with the fund's maturity period so that they can protect the returns and meet market expectations

Why are they touted to be better

The key to FMP's fame is the tax treatment viz a fixed deposit. Since these are debt mutual funds, they enjoy all the benefits that a debt fund gets, ie.

Short-term capital gains

Short-term capital gains on debt-oriented funds are added to income and taxed as income tax.

Long-term capital gains

Long-term capital gains on debt-oriented funds are taxed at higher of the two i.e.10% without indexation and 20 per cent with indexation. To help understand the benefits, the following table below illustrates the comparison between Bank deposits, FMPs both dividend plan and growth plan.



The last row shows the returns for various options

The detailed spreadsheet that shows the calculations is found here on google docs

Essentially three things stand out here

1. FMPs are far superior to bank deposits in terms of net returns
2. When buying FMPs less than one year always prefer the dividend option
3. When buying FMPs greater than one year, always pick the growth option
4. If possible try to get double indexation benefit by buying FMPs at the very end of a financial year that redeems at the very beginning of a future financial year

Given that FMPs are superior and everybody is rooting for it (if you looked at the recent spam that you have received from your favorite financial institutions, its FMP galore. So what are the key problems?

What are the pitfalls

There are a few underlying assumptions in the spreadsheet above that I want to call out so that you can understand the key issues with FMP.

1. Returns: The above sheet assumed that banks and FMPs return the same returns. While that is helpful to compare apples to apples, the real truth is that returns in an FMP is neither guaranteed nor secure. The Hindu carried a dated but detailed article on how FMPs fare with respect to bank deposits and they concluded that short term FMPs really do fare badly. I had personally tried out one FMP for 4 months and received a fabulous 7.7% returns in 4 months which is > 20% annualized.
2. Risk : FMPs typically invest in commercial paper of many businesses. Commercial papers have various CRISIL/ICRA ratings and FMPs announce their intent on investment spread across various ratings in their prospectus. An aggressive FMP can put your capital at risk in a bad economic situation where the business can default on payments thereby putting principal at risk.

In conclusion, not to sound as an alarmist, FMPs obviously if chosen well, can be a superior tool as compared to a debt fund. As in all investments, caveat emptor or "Let the buyer beware". Ensure that you read the FMP offer document to understand their investment strategy.

Back after a long Haitus

Well folks, I thought I will resume my posting after a long haitus. Thanks for being patient with me and also sending me feedback, comments and encouragement during these days of absense. will keep you posted :)