Tuesday, November 3, 2009
Saturday, October 31, 2009
Why you should invest in gold
Gold has been considered as a symbol of wealth and prosperity in the Hindu religion. Whether it is Diwali or any marriage, Gold has been important part of any occasion. Apart from being an element of beauty, today gold is treasured more as a commodity and an investment.
According to the World Gold Council, the biggest source of growth in demand for gold has been investment. Investment demand rose by 248 percent on year-on-year basis during the first quarter of 2009.
But why should one consider investment in gold. Let us explore the reasons. The most compelling reason for putting money in gold is its role as a long-term or strategic asset. Even in situations where currency of a sovereign loses acceptance, gold still retains its value. Second, gold provides diversification to the portfolio given its lack of correlation with other assets.
What this means is that in case other asset classes (like stocks, bonds, realty) go up or down, gold is not affected to a large extent by such movements. Last but not the least; gold has been doing really good in recent years.
Growth in investment demand has been the primary driver of the rally that has taken gold from around $250 in early 2001 to peaks above or close to the $1,000 level in 2008 and 2009.
How to invest in gold is the next question that is popping up in mind. Gold can be purchased in real form, which has been the most common case in rural areas and majority of urban population.
But this form has its own weaknesses. First, storing gold requires cost of safe. Usually investors which prefer gold in this form do not take this cost in consideration.
Another way to store gold is at one's residence which is a very risky measure from security point of view. Another disadvantage of storing physical gold is that on purchase, buyer has to pay a handsome price for its making, if it is jewelry. Even if one chose to store gold in real form, it is better to go for gold coins or biscuits.
Finally, this form of gold cannot be said to be fungible i.e. it is not freely accepted by all. Usually, the vendor from whom one has bought gold does not provide full value to the gold of another vendor. This further reduces the value of investment.
With the advent of new financial products in the market, gold has also been made available as a paper or electronic investment. Some benefits include no making charges; no botheration about storing as one gets his investment in gold in demat form; no problem of finding a vendor who can provide the real worth of investment; wholesale rates and much more.
There are two major futures exchanges - Multi Commodity Exchange of India Ltd and the National Commodity and Derivatives Exchange Ltd. Another way to invest in gold as explained above is investment in Gold Exchange Traded Funds.
Gold ETFs invest in gold and the value of units (Net Asset Value) mirrors the price movement of gold. If on any given day, gold price goes up, NAV of Gold ETF moves up that particular day.
Each unit of fund is equivalent to one gram of gold. These instruments give investors a relatively cost efficient and secure way to access the gold market.
They are listed securities that are backed by allocated gold held in a vault on behalf of investors and are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange.
Gold ETFs were launched in India in early 2007. Six fund houses - Benchmark Asset Management Co., Kotak Mahindra Mutual Fund, UTI Asset Management Co., Reliance Capital Asset Management Ltd., Quantum Mutual Fund and SBI Mutual Fund - currently offer gold ETF products in India. Religare Mutual Fund has submitted a proposal to the Securities and Exchange Board of India to launch gold ETF.
An investor is always looking for an investment which provides returns matched with risk, diversification and liquidity. Gold, in its security form, provides us with these traits to a large extent. No doubt, gold is one asset class which every investor must consider.
However, the time to invest should be checked with the price history. As with shares or any other asset classes, investing at right time is said to be half work done. Investing in gold when prices are at historically high level might not be a good idea.
Source: http://business.rediff.com/report/2009/oct/30/perfin-why-you-should-invest-in-gold.htm
Source: bankbazaar.com
According to the World Gold Council, the biggest source of growth in demand for gold has been investment. Investment demand rose by 248 percent on year-on-year basis during the first quarter of 2009.
But why should one consider investment in gold. Let us explore the reasons. The most compelling reason for putting money in gold is its role as a long-term or strategic asset. Even in situations where currency of a sovereign loses acceptance, gold still retains its value. Second, gold provides diversification to the portfolio given its lack of correlation with other assets.
What this means is that in case other asset classes (like stocks, bonds, realty) go up or down, gold is not affected to a large extent by such movements. Last but not the least; gold has been doing really good in recent years.
Growth in investment demand has been the primary driver of the rally that has taken gold from around $250 in early 2001 to peaks above or close to the $1,000 level in 2008 and 2009.
How to invest in gold is the next question that is popping up in mind. Gold can be purchased in real form, which has been the most common case in rural areas and majority of urban population.
But this form has its own weaknesses. First, storing gold requires cost of safe. Usually investors which prefer gold in this form do not take this cost in consideration.
Another way to store gold is at one's residence which is a very risky measure from security point of view. Another disadvantage of storing physical gold is that on purchase, buyer has to pay a handsome price for its making, if it is jewelry. Even if one chose to store gold in real form, it is better to go for gold coins or biscuits.
Finally, this form of gold cannot be said to be fungible i.e. it is not freely accepted by all. Usually, the vendor from whom one has bought gold does not provide full value to the gold of another vendor. This further reduces the value of investment.
With the advent of new financial products in the market, gold has also been made available as a paper or electronic investment. Some benefits include no making charges; no botheration about storing as one gets his investment in gold in demat form; no problem of finding a vendor who can provide the real worth of investment; wholesale rates and much more.
There are two major futures exchanges - Multi Commodity Exchange of India Ltd and the National Commodity and Derivatives Exchange Ltd. Another way to invest in gold as explained above is investment in Gold Exchange Traded Funds.
Gold ETFs invest in gold and the value of units (Net Asset Value) mirrors the price movement of gold. If on any given day, gold price goes up, NAV of Gold ETF moves up that particular day.
Each unit of fund is equivalent to one gram of gold. These instruments give investors a relatively cost efficient and secure way to access the gold market.
They are listed securities that are backed by allocated gold held in a vault on behalf of investors and are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange.
Gold ETFs were launched in India in early 2007. Six fund houses - Benchmark Asset Management Co., Kotak Mahindra Mutual Fund, UTI Asset Management Co., Reliance Capital Asset Management Ltd., Quantum Mutual Fund and SBI Mutual Fund - currently offer gold ETF products in India. Religare Mutual Fund has submitted a proposal to the Securities and Exchange Board of India to launch gold ETF.
An investor is always looking for an investment which provides returns matched with risk, diversification and liquidity. Gold, in its security form, provides us with these traits to a large extent. No doubt, gold is one asset class which every investor must consider.
However, the time to invest should be checked with the price history. As with shares or any other asset classes, investing at right time is said to be half work done. Investing in gold when prices are at historically high level might not be a good idea.
Source: http://business.rediff.com/report/2009/oct/30/perfin-why-you-should-invest-in-gold.htm
Source: bankbazaar.com
Friday, October 30, 2009
Post Office Schemes in India
The following are frequently asked questions by the investors, agents and others involved in mobilization of savings and answers to these FAQs are as under:-
1.Why a person should invest in National Savings Products ?
Ans: The investment in NS Products which are the products of Ministry of Finance, Government of India, has a sovereign guarantee and therefore NS products are fully secured and safe. The rate of interest offered on NS products are quite attractive as compared to other schemes in the financial market. The important aspect is that 100% of the collections made in the state is invested in the securities floated by the state govt. as a loan by the Govt. of India on long term basis which is used by the state govt. for their developmental activities in the state.
2. What products are under the fold of NSI ?
Ans : The Ministry of Finance, Govt. of India has structured 8 products to cater the needs of different segments of the investors as given below.
All the products are need based and the investors can opt for the product as per their requirement.
1) Senior Citizen’s Savings Scheme
2) Post Office Monthly Income Account
3) 15 Year Public Provident Fund Account
4) National Savings Certificate (VIII Issue)
5) 5-year Post Office Recurring Deposit Account
6) Post Office Time Deposit Account
7) Post Office Savings Account
8) Kisan Vikas Patra
3. Who formulates and introduces the schemes of National Savings?
Ans. Ministry of Finance designs the product in consultation with experts committees /National Savings Institute.
4. From where the investor can buy the National Savings products?
Ans. All products are available at Post offices. PPF and Senior Citizen Savings Scheme are also available with designated Bank’s Branches.
5. Is post Office a member of clearing house to expedite Cheque clearance as banks?
Ans. Yes. All the HPO/GPOs are the members of clearing house for the purpose of Cheque clearance.
6. Is nomination facility available in National Savings Products?
Ans. Yes. The depositor can nominate one or more persons as the nominee and also mention the share of nominee in case of more than one nominee.
7. Whether NRI(s) can invest in the National Savings Products?
Ans. NRI(s) are not authorised to make investment in National Savings Products.
8. What is the mode of payment on maturity / premature closure of National Savings Products?
Ans: On Premature Closure or maturity, the deposits accepting authorities make payment in cash upto Rs. 20,000/- and by cheque in excess thereof.
9. Whether NS products enjoy the benefit of tax concession under Income Tax Act ?
Ans : The deposit in PPF, N.S.C. VIII Issue enjoy the benefit of tax concession under I.T.Act. The deposits in PPF qualify for deduction upto maximum of Rs.70,000/- and deposits in NSC VIII Issue upto Rs.1,00,000/- under Section 80 C of Income Tax Act. The interest accrued in NSC VIII Issue for 5 years also enjoy the benefit of Sec. 80 C of I.T.Act. The interest on PPF and POSA is tax free as per the tax provisions under Sec.10 of I.T. Act.
PRODUCTS BASED FAQs P.O.S.A.
1. Whether Cheque facility is available in P.O.S.A.?
Ans: Yes. Cheque facility is available in Post Office Savings Account like any other Bank.
2. Is there any maximum limit of deposit in the Post Office Savings Account?
Ans: Yes. In single account maximum deposit limit is Rs. 1,00,000 and in joint account it is Rs. 2,00,000 only.
3. Can a minor open a P.O.S.A. ?
Ans: Yes. A minor who has attained the age of 10 years can open POSA Account, More over a guardian can also open a account in the name of minor.
4. Can a person open a single as well as joint account separately?
Ans: Yes. A person can open a single and/or joint account separately even in the same post office.
P.O.R.D.
1. Can a Post Office Recurring Deposit Account (PORD) be continued / extended beyond maturity period?
Ans: Yes, for a further period of 5 years by depositor at his option with or without deposits.
2. Whether premature closure of the P.O.R.D. account is permissible?
Ans: Yes. The holder of the account may prematurely close the account after three years from the date of opening and in such a case interest @ of Post Office Savings Account shall be payable.
3. Is there any provision of interest on discontinued account after maturity?
Ans: Yes. If maturity value of a discontinued account is retained by a depositor after the date of maturity, post maturity interest is allowed at P.O.S.A. rate as applicable from time to time.
4. Is there any social security benefit in PORD account?
Ans: Yes. All accounts upto maximum deposit Rs. 50/- P.M. are eligible for social security benefit subject to certain terms and conditions and maturity amount is paid to the nominee/legal heir of the depositor.
Post Office Monthly Income Scheme
1. Can a depositor open more than one P.O.M.I.S. account?
Ans: Yes. A depositor may open more than one account subject to the condition that deposits in all accounts taken together shall not exceed the prescribed limit.
2. Can joint MIS account be opened by 3 persons?
Ans : A joint MIS account can be opened by 2 and 3 persons and in such case, the share of the individual account holder will be ½ or 1/3 of the total deposits as the case may be. The maximum amount that can be deposited in a joint account opened with 2 or 3 persons will however be Rs.9,00,000/- only.
3. Whether a depositor is entitled for bonus on MIS?
Ans : No bonus shall be paid on the deposits made in the POMIS account opened on or after 13th Feb. 2006.
However, bonus will be paid on all the accounts already opened before 13th Feb. 2006, on their maturity.Government of India announced bonus @ 5% on M.I.S.accounts opened on or after 8th December 2007.
4. Can a MIS account be prematurely closed?
Ans : A MIS account can be prematurely closed at any time after the expiry of a period of one year from the date of opening of such account subject to the condition that –
i) If the account is closed on or before expiry of 3 years of opening of such account, an amount equal to 2% of the deposit shall be deducted and remainder paid to him.
ii) If the account is closed after expiry of 3 years from the date of opening of such account, an amount equal to 1% of the deposit shall be deducted and remainder paid to the depositor.
KISAN VIKAS PATRA
1. Whether replacement of lost or destroyed K.V.P. is permissible? Ans: Yes. The holder should apply for the issue of duplicate certificate and comply with the prescribed procedure..
2. Whether the K.V.P. can be encashed through messenger? Ans: Yes. If endorsement on the back of the certificate have been signed already by the holder and accompanied by a letter of authority containing specimen signature duly attested.
POST OFFICE TIME DEPOSIT ACCOUNT
1. Whether post maturity interest is paid on Time Deposit Accounts or not?
Ans: Yes. In case payment of a deposit becomes due and the same has not been made, interest shall be allowed on the amount at the post office savings account rate for a maximum period of two years only.
2. Whether Time Deposit Account can be pledged? Ans: Yes. An application should be made in the prescribed form by the transferors and transferee as per rules.
3. Can the interest of Time Deposit Account be credited to the Post Office Savings Bank account standing in same post office?
Ans: Yes, on request in writing from the investor.
4. Can a POTD account be prematurely closed?
Ans: Yes. After six months. If premature closure is made after six months but before 1 year, no interest will be payable. In case the premature closer is after 1 year, the depositor will be paid 2% less than the rate of interest applicable for the period of deposit remaining with the Post Office.
5. Can a POTD account be prematurely closed ?
Ans : A POTD account can be closed prematurely after six months but before one year without interest. A POTD account for 2, 3, 5 years can be closed after one year and depositor will get 2% less than the rate of interest specified for a deposit of one year, two years, or three years as the case may be.
N.S.C. VIIIth Issue
1. Can Post Office issue certificate of annual interest in respect of N.S.C.s (VIII issue) for purpose of filling of income tax returns?
Ans: Yes. Post office issues the certificate on demand by the investors.
2. Can premature encashment be made in NSC VIII th issue?
Ans: No premature investment is allowed. However, the premature encashment can be made only in three conditions i.e. on death of the holder, on forfeiture by a pledgee & when ordered by Court of Law.
PUBLIC PROVIDENT FUND ACCOUNT
1. Can PPF account be extended after 15 years and is there any time limit?
Ans: Yes. The account can be extended for one or more blocks of five years by giving option in form ‘H’ within one year from the date of maturity of the account.
2. Whether the PPF Account can be continued without further deposits after maturity?
Ans: Yes. The depositor can continue the account without deposits after completion of maturity /extended block period.
3. Can a PPF account be opened by HUF ?
Ans : A PPF account is not allowed to be opened by HUF w.e.f. 13.5.2005. However, all the accounts which were opened earlier will continue to earn interest till their maturity.
4. A PPF account where no subscription has been made in a year is treated as discontinued?
Ans : A subscriber can deposit the minimum subscription of Rs.500/- + default fee of Rs.50/- for each year of default subject to the condition that the total deposit during the year in which defaulted subscription is deposited should not exceed the maximum deposit ceiling of Rs.70,000/- and it is not treated as discontinued.
5. Whether a person is entitled for interest on the deposits made in excess of the prescribed limit i.e. Rs.70,000/- in a PPF account ?
Ans : Accountholder is not entitled for interest on any amount deposited in excess of Rs.70,000/- in a financial year in the PPF account.
6. If a person opens PPF account in the name of individual and also in the name of a minor(s), how the limit of deposit is determined?
Ans : The maximum amount of Rs.70,000/- can be deposited by a person in a financial year in a PPF account opened in his name and in the name(s) of a minor(s) taken together.
7. Whether the investment in N.S.C., KVP, POMIS, POTD earns post maturity interest?
Ans : The post maturity interest on all the above schemes will be paid up to maximum period of two years from the date of maturity at the POSA rate applicable from time to time.
8. If the investment is made in NS products by cheque, what is the date of deposit ?
Ans : In case of deposit by cheque in the NS products, except PPF and R.D., the date of deposit will be the date of realization of cheque. However, in the case of PPF and R.D., the date of deposit will be treated as date of presentation of cheque.
SENIOR CITIZEN’S SAVINGS SCHEME
1. Can a joint account be opened with any person under the Senior Citizen’s Savings Scheme?
Ans : The account can be opened jointly with the spouse only.
2. What should be the age of the spouse in the case of Joint. Account?
Ans : In the case of Joint account, the age of first applicant /depositor is the only factor to decide the eligibility to invest under this scheme. There is no age bar/limit for the 2nd applicant/joint holder (i.e. spouse).
3. What is the share of the joint account holder in the deposit in SCSS ?
Ans : The share of the joint account holder under the scheme is attributed to the first applicant/depositor only. Question of any share of the 2nd applicant/ account holder (spouse) therefore does not arise.
4. In case, the depositor does not close the account on maturity and also not extend the account for a period of three years within a period of one year, how the interest is to be calculated/paid after the maturity period ?
Ans : The account shall be treated as matured and post maturity interest at the rate applicable to the deposits under POSA from time to time shall only be admissible for the period beyond maturity in accordance with the rules. The amount of excess interest paid (at higher rate applicable to deposits under SCSS) after the maturity shall be deducted.
5. Whether TDS will be deducted on the interest paid on SCSS ?
Ans : The tax will be deducted at source in respect of interest payable under SCSS. However, senior citizen can avail the facility of furnishing the form no. 15-H under income tax rules who is a resident in India and of the age of 65 years or more.
6. Can SCSS account be transferred from one deposit office to other?
Ans : A depositor may apply enclosing the pass book thereto for transfer of his account from one deposit office to another provided that where deposit is Rs.1 lakh or above transfer fee of Rs.5/- per lakh on deposit for the first transfer and Rs.10/- per lakh of the deposit for the 2nd and subsequent transfers shall be payable by the depositor.
7.What is the period up to which post maturity interest can be given?
Ans : In case, the account is not closed on completion of the five years, maturity period and also not extended under rule 4(3), post maturity interest at the POSA rate from time to time shall be paid till the end of the month preceding the month of closure. No time limit has been prescribed. Agency System
1. Whether the services of National Savings Agent’s are available to the investors?
Ans. Yes. Except in case of Post office savings Bank account. However investors in their own interest should either tender Cheque drawn in favour of the deposit accepting agency i.e. post office or bank to the agents or obtain proper Agent’s Receipt as a token of receipt from the agent.
2. How an individual can become agent of NSI ?
Ans: There are three types of agents operative in the National Savings Agency system namely ,
1. Standardised Agency System(SAS)
2. Mahila Pradhan Agency System(MPKBY)
3. Public Provident Fund Agency System(PPF) The work relating to appointment, renewal and servicing of the agents has been transferred by Govt. of India to the respective State Governments and in most of the cases District Collector/Dy. Commissioner is the appointing authority in their respective area of operation. The procedure regarding appointment also varies from State to State depending on their requirements of agents and any person interested to work as agent in National Savings can approach the concerned District Magistrate / Dy. Collector/Director Small Savings of the respective state, Regional Director, NSI, of the concerned area.
3. What is the procedure for payments of commission?
Ans: Agents under National Savings are paid commissions at the rate of 1% in SAS and PPF agency system & 4% in MPKBY Agency System which is applicable in case of ladies only and they are authorized to canvass only Recurring Deposit Scheme. The payment of commission is made by the deposit accepting authorities at source. However, in case of deposit canvassed under Senior Citizen Savings Scheme, the commission is payable only 0.5% to women/men agents working under SAS agency.
Sources: National Savings Institute
http://www.nsiindia.gov.in
Wednesday, October 28, 2009
Interest rates set to rise
Interest rates set to rise, signals RBI
Prabhakar Sinha , TNN 28 October 2009, 01:52am IST
Interest rates are likely to start rising soon. This was clearly indicated by the second quarter review of the monetary policy, 2009-10, unveiled by RBI governor D Subbarao on Tuesday. Releasing the review, the governor said that in the light of mounting inflationary pressure, which is projected to touch 6.5% by March 2010, the monetary policy's first priority would be to contain the inflationary expectation. The RBI left all major policy rates like repo and reverse repo rates — the rates at which it lends to and accepts money from banks respectively — and cash reserve ratio (CRR) — the percentage of deposits banks are supposed to keep with the central bank — unchanged. But it took the first step towards rolling back its easy money policies, pursued for the past year to counter the economic slowdown. It terminated special liquidity facilities like credit refinance limits extended to banks against the loans given to exporters and mutual fund companies ahead of the original March 31, 2010 expiry date. The central bank also reversed its earlier decision to reduce the minimum required investment by banks in government securities from 25% to 24% of deposits. The statutory liquidity ratio is now once again 25%. As most banks have already invested more than 25% in government securities, this decision will not have an immediate impact on the availability of funds, but these measures clearly indicate the RBI's intent to discontinue the accommodative monetary policy. Responding to the measures, finance minister Pranab Mukherjee said that the RBI's assessment, on the whole, is in conformity with the government's thinking on both fiscal policy and monetary policy. However, he said the government would continue with the stimulus packages till the economy is back on a firm recovery path. Mukherjee also disagreed with RBI's projection of 6% economic growth with an upward bias for 2009-10. He said he would prefer to go with the growth projection of 6.5% to 6.75% given by the prime minister's economic advisory council in its mid-year review. In the light of inflation rising to 6.5% by March 2010, the central bank will be left with little choice but to raise the policy rates. With the rise in the inflation, the net interest rates of all the policy instruments will become negative. In that situation, Subbarao said, the central bank will use its monetary policy rates to anchor the inflationary expectations in the country. Keeping this in mind only, he said, the money supply target has been reduced by one percentage point to 17%. However, he was quick to add that exit of the easy money policy will be calibrated in such a fashion that while the recovery process is not hampered, inflation expectations remain anchored. He further hoped that with the new prime lending benchmark system likely to be introduced soon, the lending rates would become more transparent and competitive. This would make the banks lend at lower rates with lesser margin over the cost of funds. Global investment banker, Goldman Sachs, said that in its second quarter review statement the central bank, in fact, has reversed its priorities from the first quarter review statement made in July, when reviving the growth was the first priority. The governor, however, maintained that inflationary pressure is mainly coming from the rise in prices of food articles due to supply constraints, which cannot be influenced much by monetary policy. But, in its policy statement, the central bank said, ``Even though the current inflationary pressure are driven by food prices, they can strengthen expectations of higher inflations and lead to generalized inflation.'' The governor also expressed his concern over rising asset prices, which could be because of surplus liquidity in the system. In the statement, he said, ``There is already some evidence of excess liquidity feeding through asset prices with potential financial stability concerns. In this background, bankers feel that the central bank will soon resort to tightening of liquidity condition. The Nomura securities said that the central bank might increase CRR to mop up surplus liquidity by December 2009. Therefore, the second quarter review, bankers felt, is in the direction to build a ground to pursue tight money policy in time to come.
Sources: Times of India
Prabhakar Sinha , TNN 28 October 2009, 01:52am IST
Interest rates are likely to start rising soon. This was clearly indicated by the second quarter review of the monetary policy, 2009-10, unveiled by RBI governor D Subbarao on Tuesday. Releasing the review, the governor said that in the light of mounting inflationary pressure, which is projected to touch 6.5% by March 2010, the monetary policy's first priority would be to contain the inflationary expectation. The RBI left all major policy rates like repo and reverse repo rates — the rates at which it lends to and accepts money from banks respectively — and cash reserve ratio (CRR) — the percentage of deposits banks are supposed to keep with the central bank — unchanged. But it took the first step towards rolling back its easy money policies, pursued for the past year to counter the economic slowdown. It terminated special liquidity facilities like credit refinance limits extended to banks against the loans given to exporters and mutual fund companies ahead of the original March 31, 2010 expiry date. The central bank also reversed its earlier decision to reduce the minimum required investment by banks in government securities from 25% to 24% of deposits. The statutory liquidity ratio is now once again 25%. As most banks have already invested more than 25% in government securities, this decision will not have an immediate impact on the availability of funds, but these measures clearly indicate the RBI's intent to discontinue the accommodative monetary policy. Responding to the measures, finance minister Pranab Mukherjee said that the RBI's assessment, on the whole, is in conformity with the government's thinking on both fiscal policy and monetary policy. However, he said the government would continue with the stimulus packages till the economy is back on a firm recovery path. Mukherjee also disagreed with RBI's projection of 6% economic growth with an upward bias for 2009-10. He said he would prefer to go with the growth projection of 6.5% to 6.75% given by the prime minister's economic advisory council in its mid-year review. In the light of inflation rising to 6.5% by March 2010, the central bank will be left with little choice but to raise the policy rates. With the rise in the inflation, the net interest rates of all the policy instruments will become negative. In that situation, Subbarao said, the central bank will use its monetary policy rates to anchor the inflationary expectations in the country. Keeping this in mind only, he said, the money supply target has been reduced by one percentage point to 17%. However, he was quick to add that exit of the easy money policy will be calibrated in such a fashion that while the recovery process is not hampered, inflation expectations remain anchored. He further hoped that with the new prime lending benchmark system likely to be introduced soon, the lending rates would become more transparent and competitive. This would make the banks lend at lower rates with lesser margin over the cost of funds. Global investment banker, Goldman Sachs, said that in its second quarter review statement the central bank, in fact, has reversed its priorities from the first quarter review statement made in July, when reviving the growth was the first priority. The governor, however, maintained that inflationary pressure is mainly coming from the rise in prices of food articles due to supply constraints, which cannot be influenced much by monetary policy. But, in its policy statement, the central bank said, ``Even though the current inflationary pressure are driven by food prices, they can strengthen expectations of higher inflations and lead to generalized inflation.'' The governor also expressed his concern over rising asset prices, which could be because of surplus liquidity in the system. In the statement, he said, ``There is already some evidence of excess liquidity feeding through asset prices with potential financial stability concerns. In this background, bankers feel that the central bank will soon resort to tightening of liquidity condition. The Nomura securities said that the central bank might increase CRR to mop up surplus liquidity by December 2009. Therefore, the second quarter review, bankers felt, is in the direction to build a ground to pursue tight money policy in time to come.
Sources: Times of India
Monday, October 26, 2009
Sunday, October 25, 2009
Financial planning for the retirement years
Financial planning assumes a different role when an individual walks into the golden years of retirement. This a phase in which an individual bears the fruits of his savings which he has built over 20-30 years of his working life. As financial planners say, it’s a stage where you have a healthy mix of debt and equity. The idea is to build a portfolio which is safe and generates a steady monthly stream of income.
AVOID EXOTIC INVESTMENT OPTIONS
Often senior citizens fall prey to ‘ponzi schemes’, which promise high returns. Unregulatred, unrated schemes are best avoided. “If an interest-bearing instrument promises to offer a return close to double the return of a nationalised bank’s fixed deposit for the same tenure, avoid it,” says a product specialist with a private banking outfit.
INVEST ACROSS ASSET CLASSES
Multi-asset exposure is key to financial success. “As inflation keeps eating into the money’s worth, it is prudent to have some inflation beating instruments such as equities in the form of index funds in one’s portfolio,” says Veer Sardesai, a certified financial planner from Pune. But an investor has to stay long on stocks and mutual funds to make good gains. There are 21 index funds on the Nifty and they are low cost in nature.
“Also to generate a tax-efficient income, one should put a judicious mix of investments of both long term investments beating inflation and investments with monthly cash-flow.”
Only put a share of your total wealth in fixed-income instruments that generate frequent interest income equal to your monthly bills. You can use the remaining amount for some longer term commitments.
Though interest rates on small savings schemes are low, they still make sense as an investment option. These are guaranteed by the sovereign and there is little scope for default. One can also consider the bonds and fixed deposits floated by the public sector undertakings. “Given the upward bias the interest rates may show in CY2010, it makes sense to not to commit money for more than two years,” says the product specialist.
Joint holdings in all financial transactions is one of the simplest steps that help at the operational level. One should also ensure that the nominations are in place and in favour of the persons of one’s choice to ensure smooth transfer of ownership. After all, it is hard- earned money. Nominations, however, are far safer as the right of the nominee comes into existence once the account holder is no more.
DATA BANK
One should create a databank of financial assets and the insurance cover for them. A couple of family members or a good friend should be aware of their whereabouts. The databank should not only account for the financial assets, but also offer some cues about what actions should be taken if the owner is made incapable of taking any decisions. Dealing with medical emergencies could prove to be a difficult task to handle. A databank that provides with the contact numbers of service providers and hospitals is of great help. Carrying a photocopy of the mediclaim card in one’s purse can be of help.
“Given that money is the root cause of all evils, it is important to plan for the inevitable. A Will with clarity of the assets held by the person with clear-cut demarcation of asset classes and the respective nominees is a must,” says Devangi Bhuta, AVP, Lotus Knowlwealth. Will is the second-best tool next to joint ownership to exercise this right. One should set aside some assets for the spouse and other dependents in the family if they don’t have any source of income. It’s best to keep the language simple, precise and clear for an easy interpretation.
Otherwise the relatives may interpret to their benefit, which may lead to problems for the actual legal heirs.
But besides the financial decisions there are a number of other issues for which one needs to be prepared. You need to invest in physical security like a home security device or objects of convenience. The most important decision is to plan on how to use your time. Some prefer to offer their expertise to the community at large by training the next generation for a small honorarium, while others get into philanthropic activities and keep themselves occupied.
Sources: The Economic Times http://economictimes.indiatimes.com/articleshow/5151084.cms?flstry=1
Some investment avenues for the NRI in India
Citizens of India who have the NRI status (Non-Resident Indian) can invest in India in almost all avenues that are open to a citizen with
Resident Status. However, there may be some limitations or requirement for approval when investing in certain avenues. This article will analyse the options for NRI investments in brief.
Basic Requirements
As an NRI there are a few additional requirements in the form of documentation that a citizen has to comply with while investing in India. As any other citizen, documents such as a PAN card, ID Proof and Address Proof (the passport will suffice to be the single document for both), a KYC certificate (Know-Your-Client Certificate) for Mutual Fund investment above Rs.50,000/- and Passport size Photographs are required.
Apart from this an NRE (Non-Resident External Account - Dollar Account), and / or an NRO (Non-Resident Ordinary Account - Rupee Account) is/are required. The difference between these accounts is that the investments made and the returns got from those investments, using the NRE account can be repatriated to other countries.
Investment in Mutual Funds
NRIs can directly invest in any mutual fund from their NRE/NRO account. For investment above Rs.50,000/- the KYC documentation is required. Investment can be in any mode - only once, regular (monthly (SIP), quarterly, etc). The NRI investment returns in Mutual funds can fully be repatriated.
To make the investment the KYC forms given at any of the "Service Points" listed on the AMFI website. This will take about 4 days. A letter is sent back to the address for communication stating that the investor is verified. A copy of this letter has to be attached will all the mutual fund investment / withdrawals above Rs.50,000/-.
The investments will require forms to be signed but can be downloaded from any of the respective Asset Management Company (Mutual Fund) websites. So the NRI could sign, fill and have the forms sent directly to the Mutual Fund Company or to a relative / friend / financial advisor who could then give it to the Fund Office.
Investment in Shares
NRIs can invest in shares using a Demat (Dematerialised Format) account. However RBI approval has to be got for each transaction. This is a cumbersome process unless the investment is large (>Rs.1 crore) and/or to acquire significant stock holding in a company. The better way is thus to use the mutual fund route for exposure to the stock market.
Investment in Real Estate
Investment in land and buildings (housing and commercial) can be done by NRIs with the same rules as for the Resident Indians. However since buying land is a long drawn process, giving a Power of Attorney to a close relative (normally the parents) for executing the purchase / sale process may be advisable.
One limitation to the investment in real estate is that only the original money invested in the land can be repatriated even if invested from the NRE account. For example if Rs.50,00,000/- was invested in a house and it was sold after 4 years for Rs.1 crore, the capital gain of Rs.50 lakhs will need to be taxed and reinvested in India itself. Only the initial investment of Rs.50 lakhs can be taken back out of the country by the NRI (if the investment was made from the NRE account).
Investment in Gold and Jewellery
Here again the investment is as per the norms for normal resident Indians. A point to note for even the resident Indians is that gains made from buying and selling gold and gold jewellery is subject to capital gains tax. So keep the receipts safely while making gold purchases.
Becoming a Partner in a Business
Here again approval from RBI has to be sought as becoming a partner is akin to buying shares in the business.
Bank Fixed Deposits
An NRI can invest in all the bank deposits. The interest is taxable and is generally subject to TDS unless a request from for not deducting tax at source is submitted.
Postal Deposits
Most or all of the postal deposits are out of bounds for the NRI. They cannot invest in the National Savings scheme, Kisan Vikas Patra, Monthly Income Scheme nor the Public Provident Fund. Typically these schemes are coming under the Small Savings Schemes and the NRIs are expected to save BIG!!!!.
However schemes that were started before one becomes an NRI can be continued till the end of the scheme. They cannot be renewed at the end of the term if the NRI status continues at that time.
Summary
This article is a primer which covers most of the common investment avenues and their investability for NRIs. All avenues but for direct investment in shares and being a business partner (which require approval for each investment); and the postal deposits (which clearly does not permit) are open for an NRI to invest based on their needs.
Source: BankBazaar.com - An online marketplace for your personal loan and home loan needs.
SOURCE: THE ECONOMIC TIMES
Resident Status. However, there may be some limitations or requirement for approval when investing in certain avenues. This article will analyse the options for NRI investments in brief.
Basic Requirements
As an NRI there are a few additional requirements in the form of documentation that a citizen has to comply with while investing in India. As any other citizen, documents such as a PAN card, ID Proof and Address Proof (the passport will suffice to be the single document for both), a KYC certificate (Know-Your-Client Certificate) for Mutual Fund investment above Rs.50,000/- and Passport size Photographs are required.
Apart from this an NRE (Non-Resident External Account - Dollar Account), and / or an NRO (Non-Resident Ordinary Account - Rupee Account) is/are required. The difference between these accounts is that the investments made and the returns got from those investments, using the NRE account can be repatriated to other countries.
Investment in Mutual Funds
NRIs can directly invest in any mutual fund from their NRE/NRO account. For investment above Rs.50,000/- the KYC documentation is required. Investment can be in any mode - only once, regular (monthly (SIP), quarterly, etc). The NRI investment returns in Mutual funds can fully be repatriated.
To make the investment the KYC forms given at any of the "Service Points" listed on the AMFI website. This will take about 4 days. A letter is sent back to the address for communication stating that the investor is verified. A copy of this letter has to be attached will all the mutual fund investment / withdrawals above Rs.50,000/-.
The investments will require forms to be signed but can be downloaded from any of the respective Asset Management Company (Mutual Fund) websites. So the NRI could sign, fill and have the forms sent directly to the Mutual Fund Company or to a relative / friend / financial advisor who could then give it to the Fund Office.
Investment in Shares
NRIs can invest in shares using a Demat (Dematerialised Format) account. However RBI approval has to be got for each transaction. This is a cumbersome process unless the investment is large (>Rs.1 crore) and/or to acquire significant stock holding in a company. The better way is thus to use the mutual fund route for exposure to the stock market.
Investment in Real Estate
Investment in land and buildings (housing and commercial) can be done by NRIs with the same rules as for the Resident Indians. However since buying land is a long drawn process, giving a Power of Attorney to a close relative (normally the parents) for executing the purchase / sale process may be advisable.
One limitation to the investment in real estate is that only the original money invested in the land can be repatriated even if invested from the NRE account. For example if Rs.50,00,000/- was invested in a house and it was sold after 4 years for Rs.1 crore, the capital gain of Rs.50 lakhs will need to be taxed and reinvested in India itself. Only the initial investment of Rs.50 lakhs can be taken back out of the country by the NRI (if the investment was made from the NRE account).
Investment in Gold and Jewellery
Here again the investment is as per the norms for normal resident Indians. A point to note for even the resident Indians is that gains made from buying and selling gold and gold jewellery is subject to capital gains tax. So keep the receipts safely while making gold purchases.
Becoming a Partner in a Business
Here again approval from RBI has to be sought as becoming a partner is akin to buying shares in the business.
Bank Fixed Deposits
An NRI can invest in all the bank deposits. The interest is taxable and is generally subject to TDS unless a request from for not deducting tax at source is submitted.
Postal Deposits
Most or all of the postal deposits are out of bounds for the NRI. They cannot invest in the National Savings scheme, Kisan Vikas Patra, Monthly Income Scheme nor the Public Provident Fund. Typically these schemes are coming under the Small Savings Schemes and the NRIs are expected to save BIG!!!!.
However schemes that were started before one becomes an NRI can be continued till the end of the scheme. They cannot be renewed at the end of the term if the NRI status continues at that time.
Summary
This article is a primer which covers most of the common investment avenues and their investability for NRIs. All avenues but for direct investment in shares and being a business partner (which require approval for each investment); and the postal deposits (which clearly does not permit) are open for an NRI to invest based on their needs.
Source: BankBazaar.com - An online marketplace for your personal loan and home loan needs.
SOURCE: THE ECONOMIC TIMES
Saturday, October 24, 2009
There are several alternatives to bank deposits as a means of investment.
If your blood pressure moves in sync with the stock market or your mood swings according to the notional profits/losses your equity investments make, it might be time to buy yourself some peace of mind. Enter the world of debt.
Considered a low-risk, low-return investment avenue, debt investments were in much demand last year following the stock market meltdown. The basic principles of investments, in addition to diversification and capital appreciation, also stress on the importance of capital preservation.
While equity market investments help in building wealth, certain amount of funds, based on investor’s risk profile, has to be deployed into debt instruments.
So, even as the equity market recovers, one must not refrain from exploring debt options.
What follows is a primer on various fixed income instruments you can explore:
Bank fixed deposits: It is perhaps the most preferred savings instrument for an average Indian, which is explained by the fact that more than half of Indian financial savings every year go into these deposits. What makes them attractive is that they come in various tenors and there is no limit to the amount one can invest. Besides, the deposits up to Rs 1 lakh are insured.
As the network of bank branches increases by the day, it would be easy to open a fixed deposit at a branch close to your place. You can also get loans if you are an FD holder. However, the illiquid nature of these instruments puts it at some disadvantage. Currently, fixed deposits of major banks offer anywhere between 2 per cent and 8 per cent across all tenors.
Small saving instruments: With a fall in interest rates of fixed deposits, small saving instruments are back in vogue. These include National Savings Certificate, Public Provident Fund, Post Office Monthly Income Scheme and Kisan Vikas Patra. These instruments are backed by sovereign guarantee and offer returns of at least 8 per cent. In addition, PPF and NSC also provide tax relief.
However, the tax benefit under Section 80C is limited to Rs 1 lakh a year. Higher tenure of these funds may however expose you to interest rate risk. Here again, the illiquid nature of these instruments puts it at a relative disadvantage.
Corporate deposits: The deposits of companies offer a higher rate of interest than a normal bank fixed deposit, thanks to the disintermediation (that is, by bypassing the bank, which is an intermediary between a lender and a borrower). However, these come at a higher risk as they are unsecured and uninsured.
Consider them if you are willing to raise the stake a bit, but not before you take a look at the company’s fundamentals.
Well, if we were allowed to transgress a bit — why would one want to invest in debt of a company instead of equity? Simple. These instruments aren’t prone to volatility. Also, if the company goes bust, debt investors would have first right to the assets.
Non-convertible debentures: NCDs are not only secured in nature and give a high coupon rate but are also traded on the stock exchange. That addresses the liquidity constraint.
Another advantage is that in this case the market discovers the price of the issue and you needn’t pay any penalty for early exit as you can either cash out in the secondary market or use the put and call options the company provides for premature exits. However, the corporate debt market is still in its nascent stage and volumes traded in secondary market are still low.
Fixed maturity plans (FMPs): This is a fund, which has a fixed maturity and provides indicative yields similar to a fixed deposit. The yields of FMPs are higher than most of the debt instruments, making it an attractive option if you are looking for lock-in options. FMPs also have lower tax outgo, thanks to the dividend distribution tax. However, they are close-ended funds and therefore illiquid.
Monthly income payout, gilt funds and debt mutual funds are other investment options in the mutual funds category which provide liquidity. An optimal mix of investments have to be made in long-term and short-term income funds to reduce the risk of interest rate volatility and get steady income.
Gilt funds only invest in government securities reducing the default risk, but the yields may be lower than higher risk debt funds.
Debt floating funds are also a good investment option, especially during rising interest scenario as they eliminate interest-rate risk. However, there are very limited debt investments in India that have a floating rate.
Note that the debt funds’ net asset value fluctuates as the debt securities are adjusted to market prices.
Evaluating options: While the pre-tax returns for most of these products may come at higher single digits, the problem lies in what remains after adjusting for tax.
Given the present situation, wherein expectations of interest rate hikes are ripe, it may not be advisable for investors to opt for long-term debt options now.
Instead, consider short-term options and wait for interest rates to rise to take full benefit of the interest up-cycle.
Sources: http://www.thehindubusinessline.com. / V.S. Santosh Kumar
Considered a low-risk, low-return investment avenue, debt investments were in much demand last year following the stock market meltdown. The basic principles of investments, in addition to diversification and capital appreciation, also stress on the importance of capital preservation.
While equity market investments help in building wealth, certain amount of funds, based on investor’s risk profile, has to be deployed into debt instruments.
So, even as the equity market recovers, one must not refrain from exploring debt options.
What follows is a primer on various fixed income instruments you can explore:
Bank fixed deposits: It is perhaps the most preferred savings instrument for an average Indian, which is explained by the fact that more than half of Indian financial savings every year go into these deposits. What makes them attractive is that they come in various tenors and there is no limit to the amount one can invest. Besides, the deposits up to Rs 1 lakh are insured.
As the network of bank branches increases by the day, it would be easy to open a fixed deposit at a branch close to your place. You can also get loans if you are an FD holder. However, the illiquid nature of these instruments puts it at some disadvantage. Currently, fixed deposits of major banks offer anywhere between 2 per cent and 8 per cent across all tenors.
Small saving instruments: With a fall in interest rates of fixed deposits, small saving instruments are back in vogue. These include National Savings Certificate, Public Provident Fund, Post Office Monthly Income Scheme and Kisan Vikas Patra. These instruments are backed by sovereign guarantee and offer returns of at least 8 per cent. In addition, PPF and NSC also provide tax relief.
However, the tax benefit under Section 80C is limited to Rs 1 lakh a year. Higher tenure of these funds may however expose you to interest rate risk. Here again, the illiquid nature of these instruments puts it at a relative disadvantage.
Corporate deposits: The deposits of companies offer a higher rate of interest than a normal bank fixed deposit, thanks to the disintermediation (that is, by bypassing the bank, which is an intermediary between a lender and a borrower). However, these come at a higher risk as they are unsecured and uninsured.
Consider them if you are willing to raise the stake a bit, but not before you take a look at the company’s fundamentals.
Well, if we were allowed to transgress a bit — why would one want to invest in debt of a company instead of equity? Simple. These instruments aren’t prone to volatility. Also, if the company goes bust, debt investors would have first right to the assets.
Non-convertible debentures: NCDs are not only secured in nature and give a high coupon rate but are also traded on the stock exchange. That addresses the liquidity constraint.
Another advantage is that in this case the market discovers the price of the issue and you needn’t pay any penalty for early exit as you can either cash out in the secondary market or use the put and call options the company provides for premature exits. However, the corporate debt market is still in its nascent stage and volumes traded in secondary market are still low.
Fixed maturity plans (FMPs): This is a fund, which has a fixed maturity and provides indicative yields similar to a fixed deposit. The yields of FMPs are higher than most of the debt instruments, making it an attractive option if you are looking for lock-in options. FMPs also have lower tax outgo, thanks to the dividend distribution tax. However, they are close-ended funds and therefore illiquid.
Monthly income payout, gilt funds and debt mutual funds are other investment options in the mutual funds category which provide liquidity. An optimal mix of investments have to be made in long-term and short-term income funds to reduce the risk of interest rate volatility and get steady income.
Gilt funds only invest in government securities reducing the default risk, but the yields may be lower than higher risk debt funds.
Debt floating funds are also a good investment option, especially during rising interest scenario as they eliminate interest-rate risk. However, there are very limited debt investments in India that have a floating rate.
Note that the debt funds’ net asset value fluctuates as the debt securities are adjusted to market prices.
Evaluating options: While the pre-tax returns for most of these products may come at higher single digits, the problem lies in what remains after adjusting for tax.
Given the present situation, wherein expectations of interest rate hikes are ripe, it may not be advisable for investors to opt for long-term debt options now.
Instead, consider short-term options and wait for interest rates to rise to take full benefit of the interest up-cycle.
Sources: http://www.thehindubusinessline.com. / V.S. Santosh Kumar
Guidelines for Making a Legally Valid Will in India
it is very important to make the will of your assets during your life time only so as to ensure the proper distribution of your assets after your death. I have compiled some useful tips on making a will in India.
http://www.associatedcontent.comarticle/490185/guidelines_for_making_a_legally_valid.html
Guidelines for Making a Legally Valid Will in Indiait is very important to make the will of your assets during your life time only so as to ensure the proper distribution of your assets after your death. I have compiled some useful tips on making a will in India.
http://www.associatedcontent.comarticle/490185/guidelines_for_making_a_legally_valid.html
Make your money work for you
The power of compound interest. : If you start saving now, over a longer period your savings will build up even more because you will earn interest on your interest. Over a long time it can make a big difference.
Why worry about saving?
Living from one payday to the next can be stressful. Having some money set aside can reduce your worries and help you deal with large bills or unexpected expenses. As your savings grow you won’t have to reach for your credit card as often and your savings will earn interest for you.
If you stick at it, you can achieve bigger goals such as buying a car, having a deposit on a home or paying off your home early.
How to get started
The secret to successful saving is simple: start now. You could start by setting up an automatic deduction from your pay or transaction account so that you won’t forget to put it away.
If you’re not sure how much you can save, see Know where your money goes.
Otherwise, you could start by setting aside part of your weekly income into a separate savings account. It doesn’t have to be a large amount.
If you leave your savings to grow, you’ll get the benefit of compound interest. This is where you earn interest on the amount you’ve deposited, as well as on interest you’ve already accumulated.
Even if you only contribute a small amount, your savings can really build up over time.
Tips to help you save
Start now, no matter how small your savings.
Pay yourself first – deduct savings from your pay automatically.
Put your savings in a separate account that doesn’t have ATM access.
Try to save any pay rises, bonuses or tax refunds.
It helps to have a plan or goals for your savings. This gives you an idea of how much you need to save and it helps keep you focused on the end result, particularly when you’re tempted to spend. You could set a small goal first and then build up to saving larger amounts.
Where can I save?
There are lots of options. Some people like to save in accounts that lock your money away for a while, like bank fixed term deposits. There are also a good range of
Indian postal savings schemes.
Tips to find the best account for you
Choose an account that pays the best interest rate for your needs.
If you think you’ll be tempted to withdraw it, put your savings into an account that’s harder to access.
Compare fees and other charges.
Investing your money
You don’t need to have lots of money to invest – it’s all about making your money work harder.
Some people start with a small amount of savings they’ve built up, while others invest regular amounts. The trick is to start and then keep adding to your investments as you can.
Don’t put all your eggs in one basket
You might worry that investing is risky. In general, the higher the earnings or return you expect from an investment, the more risky it will be. Investments that offer lower returns are generally less risky.
You can reduce your risk by spreading your money around and investing in different types of investments – this is called diversification. This is a good way to help protect your money, as it’s unlikely that all your investments will perform badly at the same time.
What can I invest in?
There are lots of different investments to choose from. The four main areas – also known as asset classes – are shares / mutual funds, property, bonds and cash.
You can invest in some of these asset classes directly (such as by buying shares, buying mutual fund units or starting a term deposit). Others can be indirect – for example, where you buy shares or property through a managed fund. With a managed fund, your money is pooled with that of other investors and invested on your behalf.
The right investment for you will depend on a number of things. Ask yourself:
How long do I want to invest for?
Do I want an investment that can be sold quickly if necessary?
What level of risk am I comfortable with, and what can I afford?
What’s my plan? What do I want to achieve from my investments?
If you need your money for emergencies and don’t want to lock it away for a long time, you might want to choose investments that can be cashed in easily, like a higher interest savings account. If you’re willing to invest for a longer period you might choose property or shares, where values may fluctuate more but the returns are generally larger.
If you’re new to investing, you can learn more by reading financial books, magazines and newspapers. You can also get financial advice to help you to choose the best investments for your situation.
Watch out for investments that promise returns that sound too good to be true. It could be a scam and you could risk losing your money.
Fees, charges and taxes
Most investments have fees, charges or other costs and they’re not always obvious. Make sure you do your homework on fees and charges before making an investment, as these costs can really have an impact on the size of your nest egg.
Your investments may also be taxable. Make sure you understand the tax effects of your investments. Talk to a registered tax agent if you’re unsure.
Why worry about saving?
Living from one payday to the next can be stressful. Having some money set aside can reduce your worries and help you deal with large bills or unexpected expenses. As your savings grow you won’t have to reach for your credit card as often and your savings will earn interest for you.
If you stick at it, you can achieve bigger goals such as buying a car, having a deposit on a home or paying off your home early.
How to get started
The secret to successful saving is simple: start now. You could start by setting up an automatic deduction from your pay or transaction account so that you won’t forget to put it away.
If you’re not sure how much you can save, see Know where your money goes.
Otherwise, you could start by setting aside part of your weekly income into a separate savings account. It doesn’t have to be a large amount.
If you leave your savings to grow, you’ll get the benefit of compound interest. This is where you earn interest on the amount you’ve deposited, as well as on interest you’ve already accumulated.
Even if you only contribute a small amount, your savings can really build up over time.
Tips to help you save
Start now, no matter how small your savings.
Pay yourself first – deduct savings from your pay automatically.
Put your savings in a separate account that doesn’t have ATM access.
Try to save any pay rises, bonuses or tax refunds.
It helps to have a plan or goals for your savings. This gives you an idea of how much you need to save and it helps keep you focused on the end result, particularly when you’re tempted to spend. You could set a small goal first and then build up to saving larger amounts.
Where can I save?
There are lots of options. Some people like to save in accounts that lock your money away for a while, like bank fixed term deposits. There are also a good range of
Indian postal savings schemes.
Tips to find the best account for you
Choose an account that pays the best interest rate for your needs.
If you think you’ll be tempted to withdraw it, put your savings into an account that’s harder to access.
Compare fees and other charges.
Investing your money
You don’t need to have lots of money to invest – it’s all about making your money work harder.
Some people start with a small amount of savings they’ve built up, while others invest regular amounts. The trick is to start and then keep adding to your investments as you can.
Don’t put all your eggs in one basket
You might worry that investing is risky. In general, the higher the earnings or return you expect from an investment, the more risky it will be. Investments that offer lower returns are generally less risky.
You can reduce your risk by spreading your money around and investing in different types of investments – this is called diversification. This is a good way to help protect your money, as it’s unlikely that all your investments will perform badly at the same time.
What can I invest in?
There are lots of different investments to choose from. The four main areas – also known as asset classes – are shares / mutual funds, property, bonds and cash.
You can invest in some of these asset classes directly (such as by buying shares, buying mutual fund units or starting a term deposit). Others can be indirect – for example, where you buy shares or property through a managed fund. With a managed fund, your money is pooled with that of other investors and invested on your behalf.
The right investment for you will depend on a number of things. Ask yourself:
How long do I want to invest for?
Do I want an investment that can be sold quickly if necessary?
What level of risk am I comfortable with, and what can I afford?
What’s my plan? What do I want to achieve from my investments?
If you need your money for emergencies and don’t want to lock it away for a long time, you might want to choose investments that can be cashed in easily, like a higher interest savings account. If you’re willing to invest for a longer period you might choose property or shares, where values may fluctuate more but the returns are generally larger.
If you’re new to investing, you can learn more by reading financial books, magazines and newspapers. You can also get financial advice to help you to choose the best investments for your situation.
Watch out for investments that promise returns that sound too good to be true. It could be a scam and you could risk losing your money.
Fees, charges and taxes
Most investments have fees, charges or other costs and they’re not always obvious. Make sure you do your homework on fees and charges before making an investment, as these costs can really have an impact on the size of your nest egg.
Your investments may also be taxable. Make sure you understand the tax effects of your investments. Talk to a registered tax agent if you’re unsure.
Protecting your money
No-one likes losing money. The good news is, you don't have to lock your money away to protect it.
• Have enough insurance
• Make a will
• Choose the right investments
• Watch out for scams
Understand some common risks, take a few precautions and know what to do if things go wrong.
The bottom line
• Be prepared. You’ll find it easier to protect yourself when things go wrong if you make a plan, do a budget and get the savings habit.
• Do your homework and shop around before investing your money. Say no to scams – and report them when you find them, to protect other people.
Have enough insurance
Insurance can cover you, your family and the things you own if something goes wrong.
It pays to shop around. Compare premiums, excesses and details of exactly what is covered in the policy and what you have to do to make a claim.
Be careful not to take shortcuts when you get insurance. Read everything you can about your policies before you sign the contracts. It’s as important to make sure you have enough cover as it is to get a good price. You can lose a lot of money if you find your insurance doesn’t cover what you thought it did.
Make a will
It’s a good idea to think about what you want to happen to your money after you die. The time you take now to sort out your plans and make a will could really help the people you love after you’ve gone.
A will is a legal document that sets out your wishes for how your money and assets are to be divided up after your death. It can also cover other matters such as who should take care of your children.
Choose the right investments
An investment may be perfectly legal and above board but you may still lose money if you buy something that does not suit your needs.
For example, you might be tempted to buy some shares in a company that is doing well but if your goal is to save for a holiday next year, a high interest savings account might be a better choice. If the shares fall in price before you need to sell them to fund your holiday, you could lose money. Investing in shares can give good returns over the long-term but can risk losing money in the short-term.
Do your homework, have a plan and shop around when choosing investments.
Watch out for scams
Some so-called investment opportunities are nothing of the sort. They are scams, confidence tricks designed to cheat you out of your money.
Scammers have fooled people into parting with a lot of money over the years. Even people who thought they knew a lot about money and business have been tricked.
New versions of old scams pop up all the time. Extravagant promises can be mixed with high-pressure selling techniques and sophisticated looking brochures or internet sites.
Scammers try all sorts of ways to get your attention. You might get a glossy leaflet in your letter box, you might get an email, you might even get a phone call at home. A salesperson might knock on your door, you might see an intriguing advertisement in the paper or you might get a tip from a friend.
Typical claims include:
• “Congratulations! You have won first prize in our lottery. Send us the $50 processing fee as fast as you can so we can send you your reward.”
• “You’re going to make 10% a month with this investment! We’ve had a great response and there aren’t many shares left. Call this number today. You’ll kick yourself if you miss out!”
• “Owing to a computer error, we need to reconfirm customer information. Click here to visit our website and update your account details.”
• “This seminar is reserved exclusively for top drawer investors like you. For only $5,000 you will learn in just one weekend the investment secrets the finance experts try to keep to themselves.”
The best way to protect your money is to stop and think. Resist the pressure to sign up quickly. Throw the leaflet in the bin, hang up on the call, turn the salesperson away from your door. Don’t respond to suspect emails and never click on the links they may contain.
Sorting scams from real investments
You can save yourself a lot of trouble by taking the time to check out the scammer’s claims. There are three clues that can warn you that the offer you’re looking at could be a scam:
• It may promise much larger returns than other investments.
• It may suggest that you can avoid tax or hide money from the authorities.
• It may promise secret, insider knowledge of the market that can only be shared with special people – like you!
Report and complain
If you hear of something you think is a scam, report it. If you think you’ve been ripped off, complain.
The sooner you act, the more chance there is that the scammers will be caught.
Unfortunately, there is no guarantee that the authorities will be able to get your money back if you have been a victim. The best protection is to say no and not get sucked in by the scammers.
• Have enough insurance
• Make a will
• Choose the right investments
• Watch out for scams
Understand some common risks, take a few precautions and know what to do if things go wrong.
The bottom line
• Be prepared. You’ll find it easier to protect yourself when things go wrong if you make a plan, do a budget and get the savings habit.
• Do your homework and shop around before investing your money. Say no to scams – and report them when you find them, to protect other people.
Have enough insurance
Insurance can cover you, your family and the things you own if something goes wrong.
It pays to shop around. Compare premiums, excesses and details of exactly what is covered in the policy and what you have to do to make a claim.
Be careful not to take shortcuts when you get insurance. Read everything you can about your policies before you sign the contracts. It’s as important to make sure you have enough cover as it is to get a good price. You can lose a lot of money if you find your insurance doesn’t cover what you thought it did.
Make a will
It’s a good idea to think about what you want to happen to your money after you die. The time you take now to sort out your plans and make a will could really help the people you love after you’ve gone.
A will is a legal document that sets out your wishes for how your money and assets are to be divided up after your death. It can also cover other matters such as who should take care of your children.
Choose the right investments
An investment may be perfectly legal and above board but you may still lose money if you buy something that does not suit your needs.
For example, you might be tempted to buy some shares in a company that is doing well but if your goal is to save for a holiday next year, a high interest savings account might be a better choice. If the shares fall in price before you need to sell them to fund your holiday, you could lose money. Investing in shares can give good returns over the long-term but can risk losing money in the short-term.
Do your homework, have a plan and shop around when choosing investments.
Watch out for scams
Some so-called investment opportunities are nothing of the sort. They are scams, confidence tricks designed to cheat you out of your money.
Scammers have fooled people into parting with a lot of money over the years. Even people who thought they knew a lot about money and business have been tricked.
New versions of old scams pop up all the time. Extravagant promises can be mixed with high-pressure selling techniques and sophisticated looking brochures or internet sites.
Scammers try all sorts of ways to get your attention. You might get a glossy leaflet in your letter box, you might get an email, you might even get a phone call at home. A salesperson might knock on your door, you might see an intriguing advertisement in the paper or you might get a tip from a friend.
Typical claims include:
• “Congratulations! You have won first prize in our lottery. Send us the $50 processing fee as fast as you can so we can send you your reward.”
• “You’re going to make 10% a month with this investment! We’ve had a great response and there aren’t many shares left. Call this number today. You’ll kick yourself if you miss out!”
• “Owing to a computer error, we need to reconfirm customer information. Click here to visit our website and update your account details.”
• “This seminar is reserved exclusively for top drawer investors like you. For only $5,000 you will learn in just one weekend the investment secrets the finance experts try to keep to themselves.”
The best way to protect your money is to stop and think. Resist the pressure to sign up quickly. Throw the leaflet in the bin, hang up on the call, turn the salesperson away from your door. Don’t respond to suspect emails and never click on the links they may contain.
Sorting scams from real investments
You can save yourself a lot of trouble by taking the time to check out the scammer’s claims. There are three clues that can warn you that the offer you’re looking at could be a scam:
• It may promise much larger returns than other investments.
• It may suggest that you can avoid tax or hide money from the authorities.
• It may promise secret, insider knowledge of the market that can only be shared with special people – like you!
Report and complain
If you hear of something you think is a scam, report it. If you think you’ve been ripped off, complain.
The sooner you act, the more chance there is that the scammers will be caught.
Unfortunately, there is no guarantee that the authorities will be able to get your money back if you have been a victim. The best protection is to say no and not get sucked in by the scammers.
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