Author - Kapil

April 2010

12 sure shot investment tips for life.


The Best Investment you can make is on yourself. These 12 tips (In no particular order)will definitely enrich you in the long run and make life successfull, peaceful and happy

1. Get up early
Let the fresh and powerful energy of the early morning charge you for the day.
2. Exercise
Walk, Jog, Do Yoga, Pranayam, Swim, Play …. Any one — Just Do it, Do any one of these on a regular basis and keep yourself Fit and Healthy.
3. Meditate
Enjoy the silence within, find the power within, connect with your own self at least for 15 minutes in the day. This will de – stress you.
4. Contemplate
Take time out from busy schedules to contempate, so that you can achieve clarity in your thoughts and become productive and achieve more with less efforts.
5. Become aware of Breath at will
During the day , take time out to become aware of your breath, this helps to bring focus to the tasks at hand, it also helps to align to your larger goals
6. Cultivate Reading Habit
Feed your mind with good books, good thoughts, and make it grow.
7. Cultivate Optimism
Think positive, Think Big, Have goals, Reach for the sky, Imagination is your only limitation – Go ahead – dream , visualize, It is all in your mind.
8. Become Humble
Be Flexible, you cannot change the direction of the wind , but you can always adjust your sails. Grass survives a storm where trees are uprooted.
9. Learn to Be forgiving
First be less demanding on your own self, be forgiving on yourself and then also with others, it saves a lot of energy, which can be put to use for better purposes.
10. Learn to Say no
Time is a precious resource, use it effectively, learn to say no when you want to say no especially in close relationships. It will save you tons and tons of energy, and save your most precious resource — Time.
11. Have Purposeful goals of life
So that your energies , subconciously, every minute, every day, every month throughout life are working towards the larger satisfying goals of life.
12. Who will cry when you die?
Have this question on your mind when dealing with friends, family, coworkers, children, parents , strangers….. It will make you grateful, compassionate, helpful, selfless human being.
Oh By the way, Investment in stock markets is something which you should definitely do and which I will cover in some post later.  My earlier post , delves into the purpose of investment. Investment has to be done with a purpose……… Enjoy and Enrich.

March 2010

Understand charges other than Brokerage when Buying and Selling Shares

Understand charges ,other than Brokerage ,when Buying and Selling Shares,STT, Service Tax, Education Cess, Exchange Levy, Stamp Duty, DIS Charges, Interest ChargesMost of you must have bought and sold shares through intermediaries. Most of you are aware of the brokerage costs. However there are various other charges levied by Exchange. These charges are on top of brokerage costs and they kick in whenever you buy or sell shares or trade in Futures and options.


It makes sense to be aware of these charges, understand the calculation of these charges and how it impacts the cost of purchase.


Whenever you buy or sell shares, make sure you check the contract note. The contract note contains details of the purchase or sell you have made with the intermediary. Ensure that the quantities and the shares are correctly mentioned. You will see the following charges in addition to Brokerage charges – Securities Transaction Tax (STT), Stamp Duty, Exchange Levy, Service Tax, Education Cess etc.


The below mentioned table provides a quick overview of the various charges involved when buying or selling shares or trading in Futures and options.

Cash Market Delivery

Cash Market Intra-day

Derivatives Futures

Derivatives Options

Brokerage *

* Approx costs taken – pls check with your intermediary.




Rs 100 per lot

Service Tax on Brokerage

10% of Brokerage

Education Cess on Service Tax

2% of Service Tax + Secondary and Higher Education Cess 1% of Service Tax

Securities Transactions Tax (STT)

(Charged on Volume)

0.125% of Volume

0.025% of Volume on
SELL transactions

0.017% of Volume on
SELL transactions

0.017% for Option Premium * Qty on SELL transactions and 0.125% of Settlement Value where Option is exercised

Exchange Levy

(Charged on Volume)

0.0034% of Volume in BSE and 0.0035% of Volume in NSE

0.0034% of Volume in BSE and 0.0035% of Volume in NSE

0.002% of Volume

0.05% of Premium * Qty

Stamp Duty

(Charged on Volume)

0.01% of Volume

0.002%of Volume

0.002% of Volume and closeout

0.002% of Premium and Notional value for Exercise / Assignment

Miscellaneous Charges (* Assumptions) — can Vary.

Pls check with your Intermediary

Physical Contract Note charges

Rs 20 /- per contract note. In case of digital contract notes , charges still apply, albeit they are less say Rs 10/- per contract note.

Delivery Instruction Slip Charges

Rs 10/- per transaction

Cheque Bouncing charges/ Cancellation Charges

Rs 300/-

Interest on Delayed Payments

20% pa

There are some other charges involved like SMS alert facility monthly charges, Processing Charges, Minimum Brokerage per day etc. which you should be aware of.

Here is a quick example to understand the impact of other charges.

Let us take the case of Cash Market Delivery Shares purchase of Reliance shares

BUY 100 QTY RELIANCE SHARES @ 1000/- per share.

Volume = Qty * Price = Rs 1,00,000/-

Brokerage = (Using the above assumption of .50%)

= .50% of Volume = =(.05/100) * 100000

= Rs 500/-

_______________________Other Charges__________________

Service Tax = 10% of Brokerage = Rs 50/-

Education Cess = (2 % + 1 %) of Service Tax = 3 % of Rs 50/- = Rs 1.5/-

STT = .125% of Volume = Rs 125/-

Stamp Duty = .01% on Volume = Rs 10/-

Exchange Levy = .0035% of Volume (NSE) = Rs 3.5/-

Total Cost= Rs 690.5/- This is Rs 190.5/- more than only the brokerage cost.

The Securities Transaction Tax (STT) is a second biggest cost after the brokerage. STT was introduced by Mr P Chidambaram in the union budget of 2004-2005. Securities Transaction Tax is applicable on purchase or sale of equity shares, derivatives, equity-oriented funds and equity-oriented mutual funds.

It makes sense to be aware of these costs and use them in your calculations.

You can find more information on some of the terminologies related to Demat at

Costly Investment Mistakes to avoid at all Cost – Final Part – IV

Costly Investment mistakes Part 4, Investment Planning, Financial Advise, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

In the process of investing, one often makes mistakes.

Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience.

You can also cultivate good habits of investing by avoiding the following mistakes.

This series is in continuation to the earlier 3 posts which contains the first 7 common mistakes committed by investors. You can read posts here. (Part I, Part II and Part III)

This post (Part IV) will throw light on the following common 3 mistakes generally committed by investors:

#8. No proper grip on Diversification – If Too little is bad , Too much is no good either

Don’t put your all your eggs in one basket.

There is wisdom is this old saying. Diversification is essentially spreading out investments across different types of asset classes.  (Different kinds of asset classes like Equities, Debt, Gold, and Real Estate etc.)

Even within one asset class – say, equities / mutual funds, portfolio has to be diversified eg: having stocks spread across sectors like Power, Banking, Oil, Telecom sectors, FMCG etc.

Example of over diversification: Having 20 different mutual funds, 50 different stocks and portfolio size is say 5lacs.

Example of under diversification: Having 2 stocks each of 2.5Lacs and both are from Oil sector.

Now, Great investors like Buffet and Munger of Berkshire Hathway, do engage serious money in specific stocks. However, you need to understand that they do intensive research, have access to top management of companies and are into serious investing business.

But for people , looking for investment avenues with the objective – that over a period of time it beats inflation, generates sufficient retirement corpus, provides emotional security, beats the debt instruments by couple of percentage points annualized, which does not provide sleepless nights —- for all such investors,having an optimal diversified portfolio is the way to go.

#9. Not paying attention to Fees, Expenses, Commissions, Taxes involved

If you think education is expensive, try ignorance.

Do you know that themajor earnings source of Mutual fund Providers(Players) are not via entry load (which is now banned by SEBI) , or via exit load (Incidentally these costs are the most advertised). They make their money thru thejuicy AMC charges, which each mutual fund charges you annually. So if you own around 10lacs of mutual fund. You are paying around 25,000/- Rs annually just for holding the units(Assuming highest expense ratios of 2.5% pa). The expenses get factored into the NAV (Net Asset Value) of the Mutual Fund Units. It is intangible and most investors do not feel the pain.

Do you know that over a period of 10 years, or 15 years what kind of negative impact this annual expense ratio business can have on your portfolio? This is over and above the widely known fact that around 80% of the mutual funds worldwide areknown to underperform the Indices. And the fund manager is also subject to performance pressures from the fund house and so has to keep churning his portfolio in order to keep up with the pressure of performing leading to further expense costs. This is one of the reasons I personally do not like mutual funds which do a lot of churning. (You can get the information on portfolio turnover and various expenses of mutual funds from websites like or

Do you know that ULIP’s (an Investment+Insurance product) carry various expenses which ca be as high as 45 – 60% in the first year. There are umpteen number of charges like (premium allocation charges, mortality charges, admin charges, fund management charges etc, service tax) However the same is never explained by agents.

Do you know the various types of charges associated when you buy/sell shares? There are brokerage charges, service tax, education cess, securities transaction tax (STT), Stamp Duty, Exchange Levy etc.

It makes sense to be aware of these and various other charges involved so that you can make informed choices towards your way to successful investment.

#10. Stop trying to Copy others and Understand your self

Always be a first rate version of yourself instead of a second rate version of somebody else.

Please understand that there is no one-size-fits all solution in the field of investments. Needs and Wants, Risk taking capabilities, vision, emotional quotient, varies from person to person. Many investors make a mistake in simply copying a friend’s (or a relative’s) strategy. Please understand that the strategy might work for him or her. But you need to assess your own situation before jumping into investments and regretting later.

Example: You friend might be doing Futures and Options and Speculation and he might be perfectly all-right with it. He might be having a substantial portfolio base (maybe a good ancestral inheritance) and would be willing to take the additional risk in search for higher returns. However the same strategy of jumping into F&O might not be good for you, if you are basically looking for investments to fulfill your child’s education needs.

Avoid the above common investment mistakes mentioned in this series and become a aware, intelligent and wise investor.

Costly Investment Mistakes to avoid at all costs – Part III

Costly Investment mistakes Part 3, Investment Planning, Financial Planning, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

In the process of investing, one often makes mistakes.

Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience.

You can also cultivate good habits of investing by avoiding the following mistakes.

This series is in continuation to the earlier 2 posts which contains the first 5 common mistakes committed by investors. You can read posts here at ( Part I and Part II )

This post ( Part III )  will throw light on the following common mistakes generally committed by investors:

#6. Having Unrealistic Expectations from Investments & Wrong understanding of Risk

Indexes (Sensex and Nifty) have gained more than 85% returns from the lows of March 2009. All the TV channels and newspaper headlines have started to focus on this aspect a lot andfuel greedin common people. Similarly just 2 months earlier to March 2009, or so,  when there seemed no end to the global markets falling down, were down more than -ve 50% , the same TV channels and newspapers were fueling fearsinto the minds of the people.

Expecting similar returns consistently from the stock markets is one of the common mistakes. This happens when expectations from the market are unrealistic (like doubling money in 1 year. etc).

The other side is when there is fear in the markets there perception that markets are extremely risky and all investments should be moved to safe instruments like FD’s etc.

Point is :

Markets test patience and reward conviction.

1. Equity Markets cannot keep rising 100% year on year every year & cannot keep falling 50% year on year every year.

2. There are various phases to the markets, long periods of range bounded ness, sudden spurts either up or down due to sentiments, global factors etc.  All this causes violent moves in the markets in short term. In the long run or long periods of time 5yr, 10yr, 15yr the ups and downs and returns from the marketseven outtoyield mean (or average) realistic returns. Being aware of this point is important.

3.Riskin equity marketsappears very highin short period of time. HoweverRisk in Equity markets is reduced significantly when investments are spread over long periods of time.

4. Risk and Returns are inseparable. Once the objective is clear which is get better returns over a period of time, then you must be willing to invest in instruments which carry more risk, intelligently. And marry the risk with passage of time to yield good returns.

#7. Leaving Investments in Auto Mode – No Periodic Assessment, No periodic Re balancing

You do periodic health checkup with the objective of finding if there is any need to take preventive measures to keep the body in good shape. If you are gaining weight and becoming overweight, you need to start taking steps to cut down on the weight. Similarly, if you are losing weight and have become underweight, you need to start taking steps to regain health.

Similarly, periodic assessment of portfolio (once a quarter, every 6 months at least) is necessary. This has to be done with the similar objective of taking preventive measures (if at all required) to keep the portfolio in good shape. Portfolio rebalancing has to be done as per asset allocation.

However, many investors make mistake of leaving the portfolio in auto mode once the investments have been made. Investments is indeed a long term process, but If some investment goes sour, and it is not acted upon in a timely manner,  it probably becomes too late / or too costly to get the portfolio back on track , if preventive measures are not planned and executed.

Final Part to be contd…… You can read the final installment here at Part IV

Costly Investment Mistakes to avoid at all costs-Part II

Costly Investment mistakes Part 2, Investment Planning, Financial Planning, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

In the process of investing, one often makes mistakes.

Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience. You can alsocultivate good habitsof investing by avoiding the following mistakes.

This series is in continuation to the earlier post which contains the first 3 common mistakes committed by investors. You can read the Part I here. (Costly Investment mistakes to avoid at all costs – Part I)

This post will throw light on the following common mistakes generally committed by investors:

#4. No “Homework” before getting into Investments, and learning costly lessons afterwards: Lack of understanding
Doing what’s right is not the problem. It is knowing what is right.

This mistake is akin to putting the cart before the horse. Adequate homework needs to be done before investing in any financial products (eg: Stocks, Mutual Funds, Real Estate, ULIP’s, Child Insurance Plans, PPF or even FD’s for that matter) .

You should understand the products well, understand the risk-reward ratio, understand the expenses

involved, tax implications, and do not easily buy an investment just because someone wants you to buy it. You need make sure that the investment objective and risk tolerance are compatible with your investment goals.

Even the world’s greatest investor Warren Buffet core philosophyis to not investin business models which hedoes not understand. Obviously, being the world’s most successful investor,there is wisdom in what he says.

#5. Not getting the basic difference between Saving and Investments

Many investors do not understand this basic principle. Getting this right is one of the key principles to wealth generation.

Savingis when you try to build funds for some needs, like maybe purchasing a house or going for overseas vacation. Once the adequate target is achieved, you withdraw the whole amount (Capital engaged + Income generated from the capital involved), and then spend it. Then you have nothing left and the process of investment needs to begin all over again.

For building wealth, the above strategy does not work. This is where the process of investment needs to be understood. (This strategy is similar to preached by worlds famous investors like Benjamin Graham, Phil Fisher, and Warren Buffet etc.)

Investmentis when you try to build funds with the help of assets which in turn also produce income year after year. In this you invest in assets like shares and property. The income generated can be taken out whenever needed or reinvested. However themajor portion of the capital stays put. It stays there to keep growing and compounding which in turn producing more and more income every year.

This process will take a lot of time. It requiressolid discipline and immense patience. However , as the years go by , the additional income stream from investments can supplement your earning potential to a large extent.

To be contd Part III. You can read part III of the series here. Click here for Part III

Costly Investment mistakes to avoid at all costs – Part I

Costly Investment mistakes to avoid at all costs , Investment Planning Tips, Financial Planning, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

Life can only be understood backwards; but it must be lived forwards.

In the process of investing, one often makes mistakes. There is nothing wrong in it. However, repeating the same mistakes should be avoided. This is so much easier said then done. Never-the-less, we can always try. So, Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years.

I have been investing since 1997. Earlier part of the investment was when I was in US and then later after moving to India in 2005. I have been investing in both shares and real estate.

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience. You can also cultivate good habits of investing by avoiding the following most common mistakes.

So here goes……..

#1. Investing without a Goal

If one does not know to which port he is sailing, no wind is favorable.

Beginning investors often begin by Casual Investing without any goals. This quite often leads to pain and heartburn because, without any goals, investments are treated as speculation instruments solely aimed at making more money in a shorter span of time, by chasing market performance and acting on market swings, something similar to get-rich-quick scheme. (Speculation is a different ball game and of course, many people do succeed at it. However as in Investments, there are different set of rules, full time efforts, and a different mind set and discipline which needs to be followed.).

Different goals require different strategies. Broadly goals can be divided into three types according to time frames.

Long term Goals– typically 7+ years (e.g.: retirement corpus, child education, child marriage etc.) should invest in Long term high risk/high return growth investment assets.

Medium term goal– typically 2 – 7 yrs (e.g.: deposit on house, planning a sabbatical from work etc.)  Require balanced risk investment strategy,

Short term goals– typically less than 2 yrs (e.g.: overseas holiday, purchase of car, any major house improvement expense etc) require conservative investment strategy.

So, Some of the following questions have to worked upon and answered to full satisfaction before setting out for investment: What am I investing for (Goal)? How much do I need for the goal to be met? What is the time frame of the investment going to be? Where do I need to invest? Should I do lump sum investment or Periodic investment? And so on…

Remember, failing to plan is planning to fail

#2. Not Starting to invest Early enough

This is one of the most common mistakes made by investors. Most of us keep waiting for the right time, or the right price, or the right time to begin investing. Remember, Time in the market and not timing the market is the simple way to success in investing. Please read my earlier post on Invest early, Invest Wise, Utilize the power of compounding.

#3. Emotional Investing , being short -sighted, falling to greed and fear, Not following the Investment Plan

A wise man should have money in his head, but not in his heart. –Jonathan Swift

Investing is a long term deliberate process. Long term investment strategy may not make you super rich overnight, but it will not make you a pauper either.

Getting emotionally involved with the portfolio movement is another mistake committed by many. Becoming greedy when markets rise or fearful when markets drop.Paper Money plays on emotions. Investors begin to time the market. Emotional buying and selling of shares based on sentiments often leads to selling low when market sentiments are bearish OR buying high when market sentiments are bullish.

This often results in additional costs, lost opportunities. And of course, if at all the investment was to meet some goals, and then all of that goes for a toss.

To be contd………. Part II. You can read Part II of this series here. (Costly Investment mistakes to avoid at all costs – Part II)

How much Life Insurance do I Need?

How much Life Insurance do I Need, Human Life Value, Need Based Insurance, Term insurance, Dependents, Future requirement, Current assets,You never know what is enough, until you know what is more than enough.  ~William Blake

There are so many people, who ask me the big question: how much life insurance do I need? I have heard it from 21 yr old working in BPO’s, 35 yr old married person with wife and children,from super rich HNI’s and so on.

Many life insurance sales agents who are out selling life insurance start out by asking the following question : ‘How much insurance premium do you want to pay in a year”. Unfortunately many people take up wrong life insurance product on the basis of thier premium paying capacity.

My advise to you is that if you come across such life insurance agent, simply get up and walk away. Insurance is a need and should not be reverse engineered. The sum assured has to be decided first. And then the appropriate life insurance product has to be chosen. So, this leads us to the question – How much life insurance do I need?

If at all you are looking for insurance coverage, and truly there is a need, then the term life insurance is the way to go. All Other types of policies have some kind investment built into the insurance policy and may turn out to be inadequate. Term policies are simple to understand. They offer a certain amount of coverage over a certain period of time. If you die within that time period, your beneficiary will receive the value of the insurance. Period. As simple as that. Pure insurance.

Point number 1Not everyone needs life insurance. The Super Rich HNI’s or People who have accumulated enough wealth throughout their lives often might have no need for life insurance as they’ve accumulated enough wealth on their own to sustain their family. Also, people with no dependents often have little need for life insurance.

The important question – how much insurance do I need? The following pointers should help in answering this all important question:

(A) Income shortfall for the dependents – How much money each year would your survivors need to maintain their current standard of living? Take into consideration the annual expenses like home loans , auto loans, Rent, Debt repayment, education expenses, household running expenses, entertainment expenses, home maintainance, general insurance, and various other expenses (which are recurring in nature) and add them up.

(B) Time for which they need this income – If children are young, it will be quite a while (say 20 yrs or so). If you just have a spouse, the need might not need it for as long. For parents, get a term which is long enough so that the children become independent before the term expires. Shorter terms tend to have cheaper monthly premiums, but you may find yourself buying a new, more expensive policy in 10 or 20 years time frame. Remember the younger you are the cheaper are the insurance premiums. Of course, one can plan to increase the policy in a staggered manner in 5-10 years depending on the major changes in life)

(C) Future Lump Sum requirements: Things which should be considered : child education cost in future (Graduation/ Post Graduation), child marriage cost in future,  any special care needs (for example, taking care of elderly parents after you’re gone?).

(D) Current Assets – how much do you have now? What’s in your savings? Your investments (FD’s, Provident Fund, Mutual Funds, Stocks, Real Estate)? What other insurance policies do you have? Will the dependents be willing to sell off the house and downgrade or would you like them to maintain the current lifestyle?

The above pointers are essentially doing a Gap Analysis and Identifying the Gap. A*B + C – D That’s how much life insurance you should have, Roughly speaking, which will be required to plug the Gap. Please read the time value of money in my previous post (What is Time Value of Money) , to better understand future value requirements and converting them to present value. This will help you to arrive at proper numbers.

In case of unsure of certain numbers, you can make a rough estimate. It is always better to make the estimates on the upper side rather than letting your loved one’s down in case if ever the unfortunate event were to happen.

Finally , be aware that life insurance is bought for the benefit of loved ones. Having sufficient cover provides you with a peace of mind.
Do the calculations, ask pertinent questions to the people selling insurance. Asking the right questions will help in procuring optimal policies. And of course the knowledge will give a good night sleep.

Good luck!
Pls note that the above method is to quickly and roughly estimate the insurance need. Inflation etc, needs to be considered in doing a detailed analysis. In future post, I will cover some quantitative methods  (Human Life Value, Need Based Analysis, Income replacement method etc.) and probably present a spreadsheet with case study which will help you in actually understanding the doing the calculation.

You will find this post on (What is adequate life insurance coverage) interesting.

February 2010

Tax Savings – Section 80C – Part II

Tax Planning,minimizing the tax liability, section 80C, 80CCC and 80CCD,ELSS (Equity linked savings scheme), 5-Yr tax-saving bank fixed deposits (FDs) of banks, PPF (Public Provident Fund), EPF (Employee’s provident fund),In this part, I will cover the Life Insurance premiums, pension plans on mutual funds and from insurance companies, and various expenses which are also eligible for deductions under 80C.

Life Insurance premiums covered under Section 80C
Premium paid towards life insurance for yourself or your family (spouse and children) is eligible for section 80C tax break. The maximum deduction available is upto a maximum of Rs. 100,000/- under Section 80C. The sum received (including bonus) under life insurance policy (excluding Key man Insurance) is tax free. Please note that Life Insurance needs to be planned properly and should not only be taken for the purpose of Tax savings. (Note that most of the Life Insurance companies come up with innovative , yet inadequate products during the Jan-Feb-Mar period every year to lure investors into schemes which offer inadequate coverage and inadequate returns. They know that people are looking out for avenues). Be-aware.

Types of Life Insurance Policies briefly are :

– Term Policy : This is the undoubtedly the best life insurance scheme which covers only Risk of Death and no survival benefits. This offers maximum coverage for lowest premiums.

– Endowment Policy : This plan accumulates capital over a period of time, returns sum assured + bonus at end of period and covers risk in case of premature death

– Money Back Policy : This plan accumulates capital over a period of time, provides periodic payment during the policy + balance and bonus at the end of period and covers risk in case of premature death

– Whole Life Policy : This plan runs through the life of the policy holder, requiring the payment of premiums throughout the life. There are no survival benefits to the policy holder as he is not entitled. Sum assured + bonus is payable to beneficiaries.

– Annuities : This is an investment that is made ( single lump sum payment or through installments ), in return for a specific sum that is received every year/ 1/2 year or every month, either for life or for a fixed number of years.

– ULIP – Unit linked insurance plans : Unit Linked Insurance Plan – is a financial product that offers you life insurance as well as an investment like a mutual fund. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire – equity, fixed-return or a mixture of both. Ulips gets covered under life insurance – 80C, and they are popular. However, you should avoid ULIPS as far as possible. I will discuss about this more on my ULIP Awareness post later on.

Pension Plans from Mutual Funds covered under Section 80C

There are two mutual fund pension plans –Templeton India Pension Plan  and UTI Retirement Benefit Pension Plan. Both have a mandatory lock – in period of 3 yrs. And they encourage investors to invest for long term. THese funds are primarily debt oriented mutual funds and offer tax benefit under Section 80C. However these funds have not yet gained popularity among investors. Pls note that unlike traditional pension plans of insurance companies, these mutual funds do not provide pension or annuity.

Regular Pension plans of Insurance Companies covered under section 80C


Pension plans are offered by insurance companies and the contributions, qualifies for tax benefit under section 80CCC instead of section 80C.

Payment of premium for annuity plan of LIC or any other insurer Deduction is available upto a maximum of Rs. 100,000/-. (aggregate deduction under Sec. 80C, 80CCC and 80CCD)

Tax Savings – Section 80C – Part I

Tax Planning,minimizing the tax liability, section 80C, 80CCC and 80CCD,ELSS (Equity linked savings scheme), 5-Yr tax-saving bank fixed deposits (FDs) of banks, PPF (Public Provident Fund), EPF (Employee’s provident fund),Tax season is around the corner.

Tax Planning involves making investments with the objective of minimizing the tax liability and maximizing returns. You should try do tax planning to maximize your income by saving on taxes. Section 80C, of Income Tax Act, 1961, gives a number of options that can be used for the purpose of tax deduction.  The total deduction under this section (alongwith section 80CCC and 80CCD) is limited to Rs. 1,00,000/- (One Lakh).

There are avenues such as ELSS (Equity linked savings scheme), 5-Yr tax-saving bank fixed deposits (FDs) of banks, PPF (Public Provident Fund), EPF (Employee’s provident fund), VPF (Voluntary provident fund), NSC (National Savings Certificates), Various types of Life Insurance schemes, ULIPs (Unit-linked insurance plans), 5-Yr Post Office Time Schemes, NABARD (National Bank for Agriculture and Rural Development Bonds) and Life Insurance Premium

Equity Avenue:

Equity linked savings scheme (ELSS)

This is considered as the one of the best 80C option. It is a mutual fund scheme investing entirely in equities and therefore has the potential to deliver the best returns. There is a 3-yr lock in which is involved in this option. (This is also the shortest lock in period available when compared to other avenues) You can visit the following sites to get more information on the best performing mutual funds in this category Some of consistent good performers in this category are Canara Robeco Equity Tax Saver, HDFC Taxsaver, Sundaram Tax Saver.

Debt Avenues:

PPF – Public Provident Fund

This is a assured returns small saving schemes. Current rate of interest is 8% and the normal maturity period is 15 years. The interest earned on deposits in PPF accounts is fully exempted from income tax. Minimum contribution is Rs 500 and maximum is Rs 70,000. (There is flexibility to make Deposits in installments up to maximum 12 installments) Note that the interest rate is assured but not fixed. The interest and principal in a PPF account cannot be attached by a court decree. Open a PPF account and invest at least the minimum amount of Rs 500, maintain every year, even if you do not intend on using it for investment immediately. The reason is that  after 10+ years, original lock in period of 15 years will get reduced to just < 5 years. And this is of good advantage for parking funds, assured returns, (for short period) at that point in time in future.

EPF – Employee’s Provident Fund

PF is deducted from your salary.You and your employer contribute to it. Your contribution forms part of 80C investments.

NSC – National Savings Certificate

This is a 6-Yr small savings instrument . Rate of interest is 8% compounded half-yearly, so, the effective annual rate of interest is 8.16%. If Rs 1,000 is invested, then it becomes Rs 1601 after 6 years. Minimum amount is Rs 100/-. There is no max limit. The interest accrued every year taxable, Interest accruing annually is automatically reinvested, and such re-invested interest qualify for tax rebate under section 80C of the Income Tax Act.

POTD – 5-Yr Post-Office-Time-Deposit Scheme

Post Office Time Schemes are similar to bank fixed deposits. Scheme offers the facility of investing surplus funds at relatively higher rates of interest. They are available for variable duration like one year, two year, three year and five year. However , 5-Yr post-office deposit qualifies for tax saving under section 80C (This is w.e.f financial year 2007-2008, assessment year 2008-2009). This offers 7.5 per cent rate of interest and the Effective rate is 7.71% per annum (p.a.). The rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable. Minimum amount is Rs 200/-. No Maximum limit.

BTDS – 5-Yr Special Bank Term Deposit

BTDS is the only deposit scheme with banks where tax benefits under section 80C are available to depositors. Interest rate varies from bank to bank. Interest is taxable. Tax is deducted at source. Unlike FD’s , premature exit is not possible. For , as of Feb 2010, Eg: Axis Bank Interest Rates On Domestic Deposit is 7% (7.5% for Senior Citizen). Interest Rate for Tax Saver deposit is 7.25% (8% for Senior Citizen). Minimum amount is Rs 100/-. Maximum amount is Rs 1,00,000/-

POSCS – Post Office Senior Citizen Savings Scheme 2004

Post Office Senior Citizen Savings Scheme (SCSS) is the is meant only for senior citizens.It is the most lucrative scheme. Current rate of interest is 9% per annum payable quarterly.Interest is payable quarterly and not compounded quarterly. Thus, unclaimed interest on these deposits will not earn any further interest. Interest income is chargeable to tax. Minimum amount is Rs 1,000/- and maximum amount is Rs 15,00,000/-.

I will continue this post in next couple of days and cover other avenues as well……

What is adequate life insurance coverage?

What is adequate life insurance coverage,foundation of financial planning, current liabilities, financially secure the foreseeable future, .

“Death is certain and Life is uncertain.”

You work hard, You earn , You save. You plan and have dreams. You do this to secure your future and the future your loved ones.

However, your untimely demise, can jeopardize the future of your loved ones. Emotional needs, of your loved ones and your dependents cannot be replaced or compensated.
However in case of financial needs, you can always plan ahead, so that your loved ones are left behind with adequate financial resources to take care of their future needs. This is all the more important in case you have dependents who are financially dependent on you (like your non-working spouse, children , old parents etc.).

This is where “adequate”  insurance of  “life” assumes such a significance.
Life Insurance is the foundation of financial planning and you should ensure that it is properly planned, first.

Many a times , I am truly surprised when I ask clients and people about their insurance coverage. I get responses like the following :
“I believe I am adequately covered” (– Salary 20Lacs/yr, Home Loan 40K / month, Car Loan 3Lacs, 2 young school kids, Insurance coverage – sum assured around 40Lacs ONLY – 2 policies, annual premium around 2Lacs) And he believes he is adequately covered. Badly mistaken……………

“I have one investment flat, and one flat in which I currently live – In case something happens to me , my wife can sell that flat and that can easily service the needs of the future”. I told him, why does he need to wait for his death, in order to sell the flat. Why is he not doing it now.? An hence why should his spouse sell the property to finance family needs ……………? This person understood the crux and went ahead to increase his insurance………….

“My father tells me about the futility of insurance – See, he is 65 yrs of age and he is still going hale and hearty” – This is such a stupid response. It is really difficult to believe seemingly intelligent people making such comments………….

“I will get 20Lacs at the end of the policy” Upon asking , how much money his wife will get in case he were to die today  – His reply was ” I do not know, I will have to check my policy”. He does plans his weekend outing to Lonavla and Khandala or other places near Mumbai along with friends meticuluosly. But hey , no plans for life………

” I have a child insurance policy which will give me 15 Lacs in due course apart from my endowment life policy of 20Lacs” Again , this fellow has been sold into these policies is paying roof high premiums for paltry insurance. And by the way, why insure your child , when you yourself are inadequately covered. Also does one really need child’s life to be insured to cover financial needs. No……….

” I have a ULIP (Unit Linked) policy and the agent has promised me guaranteed (LOL……..) returns in next 15 years” ……… I am sure the agent also must be laughing his way to the bank ………..

” I had bought policy from LIC to to save taxes. And I am happy to save on taxes”Now buying insurance just to save taxes is one of the worst mistakes one can make. Buying Life insurance to save taxes or to invest is just not right………

These are responses of intelligent,hardworking , well educated people. However, they fail to get the financial planning act together. I am sure that they can also put in little extra effort to get this part right as well.

As you can see, all the responses above have one underlying theme – all of the different sets of people have inadequate Life Insurance coverage. In some  cases unplanned, some have planned but due to thier ignorance have been sold products which will truly not help in case of insurance.

Let us face it , no one likes to really think about his own death. However, the truth also cannot be denied that death is indeed certain.It can happen in (a) normal course of time (let us say avg 70yrs)  (b) earlier in an untimely fashion (let  us 30 -45yrs) — this is prime time when dependents really need you (c) or later than normal. (>85+ yrs)

All the three cases can be properly planned for.

So, that brings us to the question — What is adequate life insurance coverage?

Simply put, an adequate life insurance coverage should cover the current liabilities of the descedent and should financially secure the foreseeable future needs of the dependents in such a way that the lifestyle of the dependents remains unaffected going forward and life goes on normally as if nothing truly happened……………..

Later we will see , how much insurance do you need. Or How to arrive at the magic figure of sum assured. You can read the post here at How much life insurance do I need?

Invest Early, Invest Wise, Utilize Magic of Compounding

Invest Early, Invest Wise, Utilize Magic of Compounding, Time value of money.

If you have built castles in air, your work need not be lost; that is where they should be. Now put the foundations under them. —- Henry David Thoureau, Walden.

In the previous post , I had mentioned about the importance of time value of money. Let us see here the impact of the same over a period of time on investments – And why investing early and then making it work for long periods of time makes such a BIG difference.

In this example , Early Investor starts putting aside Rs 10,000 a year beginning age of 22 yrs until the age of 30 and then decides to stop making contributions. Over this time, he puts aside a total of only Rs 90,000.

On the other hand, Late Investor doesn’t start making contributions until he is 31 and puts aside Rs 10,000 a year until he reaches age 65. Over that time, his contributions total Rs 3,50,000.

In both cases, assume that their account grows 10% a year. Despite the fact that Late Investor contributes  almost 4 times , at age 65 his account is hardly 2/3rd as compared to the Early Investor!!!!

This clearly illustrates the benefit of starting to invest early.

The power of time and impact on the the value of money, the benefit of investing with patience and discipline and the magic of compounding is truly amazing.

Even, if it may be late for some of you to maximize your lifetime investment potential, it may not be the case for your children.So, go ahead, start thinking , plan , and invest for long terms with conviction.

You will find the related post on Time Value of Money as interesting as it is one of the most important concepts in finance.

What is Time Value of Money

What is Time Value of Money

“A bird in the hand is worth two in the bush” – Miguel de Cervantes

The time value of money is one of the most important concepts in finance. Money that is in possession today is more valuable than future payments because today’s money can be invested to earn positive returns in future.The understanding of Time Value of Money leads to better decision making in some of the major financial decisions like — calculating sum assured requirements for your life insurance needs, computing monies which will be required for child education/wedding in future, corpus needed to fund retirement, comparing alternative investment decisions, comparing house lease v/s buy decisions, horrendous impact of carrying credit card debts etc.

What is time Value?What is Time Value of Money, Present Value , Future Value, Compound Interest, Time and their Relationship,

Money has time value. The value of Rs. 1 today is more worthy than the value of Rs. 1 tomorrow. This economic principle recognizes that the passage of time affects the value of money. This relationship between time and money is called the ‘Time Value of Money’.

If someone owes you Rs 10,000/- , it is advantageous to get the money today If you get this money today:
–> You could earn interest and invest it and you will receive this quantity plus some other amount in the future.
–> You can use it to pay your debts and therefore, lower the interest amount paid on your debt.
–> Or you can spend it and enjoy it as you wish.

Understanding Present Value , Future Value, Compound Interest, Time and their Relationship:

A sum of money today is called a present value (PV). A sum of money at a future time is termed a future value (FV).

The time period in between the present and future value can be no of years, no of months, no of quarters or any unit of period. (n).

The interest rate or growth rate in which the present value can be employed . This is the interest rate per period.(i) The effects of value versus time is best usually described by compound interest. Change in Value over time is impacted by factors like inflation, tax rates , discounting rates etc.

Future Value is calculated as follows : Future Value (FV) = Present Value (PV) * (1 + i) ^ n

Alternatively, given a future value then,

Present Value can be calculated as follows : Present Value (PV) = Future Value (FV) / (1 + i) ^ n


Compounding is the mathematical procedure for determining “future value” and is virtually the reverse of discounting


Discounting is the mathematical procedure for determining “present value”.

Some Examples :
1. If you invest Rs 1,000 today at an interest rate of 10 percent, how much will it grow to be after 5 years?
FV = 1000 * (1 + .1) ^ 5 = Rs 1,610.51

2. If you were given an option to get Rs 1,00,000 , six years hence OR option of receiving Rs 55,000 now. What will you choose.
In this case, you bring down the future value to the present value and then make a decision (or judgement). Let us assume a discounting rate of 12%.

So, PV = 1,00,000 / (1 + .12) ^ 6 = Rs 50,663.11.

Option A Present Value comes to Rs 50,663.11 and Option B is Rs 55,000. And the choice becomes obvious. In this way different rates can be used to make alternative quality decisions and arrive at decisions quantitatively.

3.If you invest Rs 11,000 in a mutual fund today, and it grows to be Rs 50,000 after 8 years, what compounded, annualized rate of return did you earn?

Using the above formula again : FV = PV * (1 + n) ^ i
50000 = 11000 * (1 + n) ^ 8 ; So, n = 20.84 % (Wow!! — This is a good investment)

4. Rule of 72 (Quick!!! — )

How long does it take to double Rs 5,000 at a compound rate of 12% per year (approx.)?

Approx years to double = 72/ i% (Cool!!)

In the above case it will be = 72/ 12% = 6 years. (This is rough, Actually it will be 6.12 years)

Thus, Your ability to measure time value of money can be THE vital difference between your making a good or bad investment decision.

Purpose of Investments

Purpose of Investments, Wealth Management, Wealth Generation, Accumulation, Distribution, Estate Planning, Tax Planning, Power of compounding.

The world of finance can be intimidating, But as Raplh Waldo Emerson says “Fear always springs from ignorance”. The stock market and so called greater financial world is not complicated once you become aware of the basics of investing and dispel fear of ignorance.

First let us see What is not a Investment? Now, This is fun….

First of all, Investing isn’t a get-rich-quick scheme. (There are other risky, very risky avenues of speculation to get-rich-quick which very often turn to get-poor-quick for people with no discipline and patience. Remember – High Risk , High Return, Less Risk, Less Return) . Investing is not speculation. Investing is not buying stocks on a “Hot Tip”. Always remember a Hot Tip leads to a bottomless Pit.:-). Investing is not following the herd which often leaves the investors high and dry. Investing is not listening to channels to analysts and always clicking on your portfolio to see it (along with your heartbeat) fluctuate on a daily basis. Investment should not be done emotionally (Oh, my uncle’s wife’s son’s friend’s sister wants to sell me a insurance cum investment policy, How can I say No. Well — Learn to say No. There are many things in life where you have to say No. ).  Investment is also not just about returns.

So that brings us to What is a Investment : Well, What does wikipedia have to say : “Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument”

Investing is putting your money to work for you in order to generate wealth. Generally Money is earned by income generated for some work done for which we trade our precious time. Problem is: for more money, you have to work more hours and give more time. And time is a limited resource. One way is to make your money work for you and start earning. Quite simply, making your money work for you maximizes your earning potential.


Again, Investments have to be planned and done with a purpose, a meaning, and should be done to realize goals of life. Investments are not a one-size-fits-all manner and are individual specific, situation specific. Goals like, Retirement , Child Education, Child Marriage, House Purchase in future, Purchasing assets in future, — goals in different times/ stages of life. etc. And so Investment Planning is utmost important. Plan , Plan , Plan and then execute. Look at the big picture and do not miss the forest (long term enrichment goals) for the trees (unplanned short sightedness)

There are many different ways you can go about making an investment. Stocks, Mutual Funds, ETF’s , Money Market Liquid Funds, bank FD’s etc., or real estate , or  starting your own business. It does not matter which method you choose for investing your money. However, the objective is always to put your money to work over long periods of time (5 yrs-10yrs-15yrs+) with adequate margin of safety, and let the magic of compounding take over,  so that it beats inflation and generates wealth and fulfills the purpose and more or less  achieves the goals.

This is the most important concept in investing.