Old bank cheques to continue for three more months

RBI extends deadline for CTS 2010 cheques

Banks will continue to accept existing cheques for another three months, till March 31, 2013. The plan for replacement of the current cheque books with new features that was to start from January 1, 2013, across India, has been postponed by the Reserve Bank of India.

This means bank account holders can use their old format cheques for another three months to give time to all to switch over to the new CTS 2010 cheques with uniform security features. “Taking into consideration representations, it has been decided to extend the time up to March 31, 2013, for banks to ensure withdrawal of non-CTS 2010 Standard cheques and replace them with CTS-2010 Standard cheques,” the RBI said in a notification.

Though almost all the banks have confirmed that they are issuing only multi-city or payable at par CTS-2010 standard cheques at present, representations have been received from various stakeholders requesting for extension of the time beyond December 31, 2012, the RBI said. Banks in Delhi have already migrated to the new system since last year. But for all regions, RBI had fixed December 31 as the last date for phasing out non-CTS (Cheque Truncation System) 2010 cheques. The homogeneity in security features of CTS 2010 cheques will act as deterrent against frauds, and the fixed field placement specifications facilitate straight-through-processing at drawee banks’ end through the use of optical or image character recognition technology.

Rajiv Gandhi Equity Scheme launched

Rajiv Gandhi Equity Scheme for new retail investors as proposed in the union budget has been notified. Investors whose Gross Total Income is within 10 lacs, will get an additional deduction u/s 80CCG.
The objective of the scheme is to encourage the savings of the retail investors in the Indian capital market.
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Salient features of the Scheme are as under:

a. Scheme is open to new retail investors, identified on the basis of their PAN numbers. This includes those who have opened the Demat Account but have not made any transaction in equity and /or in derivatives till the date of notification of this Scheme and all those account holders other than the first account holder who wish to open a fresh account.

b. Those investors whose annual taxable income is ≤ Rs. 10 lakhs are eligible under the Scheme.

c. The maximum Investment permissible under the Scheme is Rs. 50,000 and the investor would get a 50% deduction of the amount invested from the taxable income for that year.

d. Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the above companies would also be eligible under the Scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years, would also be eligible.

e. In addition, considering the requests from various stakeholders, Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible securities as their underlying and are listed and traded in the stock exchanges and settled through a depository mechanism have also been brought under RGESS.

f. To benefit the small investors, the investments are allowed to be made in instalments in the year in which tax claims are made.

g. The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS.

h. After the first year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues to realize profits.

i. Investors would, however, be required to maintain their level of investment during these two years at the amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year. The calculation of 270 days includes those days pursuant to the day on which the market value of the residual shares /units has automatically touched the stipulated value after the date of debit.

j. The general principle under which trading is allowed is that whatever is the value of stocks / units sold by the investor from the RGESS portfolio, RGESS compliant securities of at least the same value are credited back into the account subsequently. However, the investor is allowed to take benefits of the appreciation of his RGESS portfolio, provided its value, as on the previous day of trading, remains above the investment for which they have claimed income tax benefit.

k. For the purpose of valuation of shares, the closing price as on the previous day of the date of trading will be considered so that new investors are certain about their debits and credits into the account.

l. In case the investor fails to meet the conditions stipulated, the tax benefit will be withdrawn.

Like all financial products which have reached out substantially to the retail investors (post office savings, life insurance policies etc) through tax benefits, this tax break for direct investment in equity is expected to substantially encourage the retail participation in securities market as well as to enhance their participation in the growth of Indian industry. Entry of more retail investors are expected to further deepen the securities markets as they bring in long-term stable funds, which can counteract the volatility created by the liquidity providers of the market. The Scheme, thus, also furthers the goal of financial stability and promotes financial inclusion. Since Exchange Traded Fundsand Mutual Funds have also been brought under the Scheme, the Scheme should provide encouragement and re-assurance to the first time investors.

The broad provisions of the Scheme and the income tax benefits under it have already been incorporated as a new Section – 80CCG – of the Income Tax Act, 1961, as amended by the Finance Act, 2012.

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Be sure before Insure

Why we insure our life ? There may be plenty of reasons but the prime cause is protection for eventuality. If the earning member passes away, the loss of life can not be compensated at any cost but the financial assistance that he used to provide to run the family also dries up. To support that flow in the need of crisis is the Insurance.

In our country people think otherwise, they consider insurance just another tool for investment. In most of the cases people go for endowment policies where they estimate the maturity value instead of the protection. In this way the premiums goes higher for same insurance cover than pure insurance and people actually neither benefits from insurance, nor the return from their investment.

So, what is the way out ? Simple, consider pure protection plans, popularly known as Term Insurance. In these plans you can get much higher insurance cover over a small amount of premium and in the most desirable condition, that means you survive the full term, no return for your premium payments. Just in the line of Mediclaims !

It means the amount you were likely to buy common endowment policies, divide it into two parts, pay the smaller part for term insurance without expecting any return and the with the larger part, invest in a REAL investment product like BANK F.D., Mutual Fund or stocks. But you may think why this idea is not so popular ? Reason is simple, the low rate of commission discourage the agents to actually sell the product ! And most of us buy insurance by motivated by those agents for their own benefit. Consider the case below before you decide.

Mr A buys conventional endowment policy at the age of 31 of Sum Assured Rs 10,00 000 for a 25 year period. His yearly premium stands Rs 37,080(without Service Tax) and the total outflow in 25 years comes to Rs 9,27,000. And his maturity amount is assured Rs 10 lakh + Rs 5,62,500 (anticipated yield @6% per year). [The anticipated return is calculated at lower rate as only a little portion of the premium is used for investment purpose and the larger part is the expense to carry the risk. The return is taken from a leading Insurance Co. site.]

Mr B buys a Protection Plan (Term Insurance) at the same age, same sum assured and for same period. His yearly premium stand only Rs 3371 (without service Tax) and the total outflow in 25 years come to Rs 84,275 only and there is no maturity value. The balance amount (9,27,000 – 84,275) 8,42,725 if invested(monthly installment of Rs 2800 for 25 years, compounded annually)  even in safe investment like Bank F.D, it will be as high as Rs 31,40,000 Yes you read it right , it is above 31 Lakh !!!!

Amazing !!! Could you guess it before ? Yes, that is the magic. With the same amount spent by Mr A and Mr B for same number of years with same insurance cover, Mr B is gifted to over Rs three crores for just excercising the RIGHT choice.

So, take the proper decision after considering all aspects yourself, not motivated by the agent. After all, it is your hard earned money.

Is it really wise to invest in physical gold ?

Thinking of buying gold in dhanteras ? Have a re look.

Buying the precious yellow metal is a long drawn custom in this country , particularly in the festive season. Most of you have decided to buy some gold ornaments/coins or bars in this auspicious occasion of diwali and dhanteras. From the ancient times, gold is treated as symbol of wealth and financial security. If the ornaments are bought as wearing apparel, It is  O.K. But if it is purely for investment, I beg to differ. In the ornament, you have to pay about 12% extra as making charge which you cannot get back when you sell or exchange the ornament. Moreover, when you like to sell your ornaments, the merchant seldom shows interest to buy back rather than insisting you to get a new ornament in exchange. And if you agree, another 12% drains out!

Banks do sell 24 carat coins and bars but you must know that they never buy it back. In case of necessity you have to go to the jeweler and after showing reluctance to buy it, they will give you only a discounted price for your pure gold !

And remember, you have already shelled out a considerable amount as locker charges to keep your investment secured.

Why not think about investing in paper gold. Easy to buy, hassle free preservation and smooth transparent selling procedure. Only you have to open a demat account to buy and sell exchange traded gold funds. Not interested to open demat account ? No problem, you can invest in gold mutual funds which deal with these exchange traded funds.  You can invest in SIP mode also in these mutual funds. That means only a little sum of Rs 1000 per month may accumulate substantial asset in long go. As and when the value of physical gold goes up and down in the market, the value of this paper gold also goes up and down. So without any significance expense you can enjoy the fruit of appreciation of the yellow metal. In the last few years, gold has increased significantly. Just see the chart below.

How did you feel ? Amazing ?  So act now, make the hay while the sun shines.

Can you ever repay your home loan?

It may sound ridiculous as you are regularly paying your EMIs and you think that it is going toward the interest due and reducing your principal loan amount every month. But things may not be that easy in all cases. Let me share my own experience about this.

I have transferred my home loan from a private bank to a nationalized bank just more than three years ago. The interest rate was very lucrative, 8% for the first year, 9% for the next two and then at the market rate (floating rate). They named it “teaser rate” for new borrowers. So I switched over to the nationalized bank with paying some pre payment penalty to the previous one ( the prepayment penalty was there at that time). My loan amount was Rs 7,12,000 and EMI fixed at Rs 5955 for a 20 year term. It was provided in the agreement that Bank can increase the EMI as and when required. Everything was smooth and my bank never made any communication, neither altered the EMI.

Just about a week ago I enabled netbanking for my savings account maintained with the same nationalized bank and amazed to see that the loan A/C is also tagged there. On analyzing the loan A/C I surprised to see the present rate of interest as 12.5% and monthly interest due is about Rs 7200, while I am paying EMI @Rs 5955. That means a deficit of over Rs 1200 per month ! And it is being added to my outstanding loan amount every month !! Instead of being reduced, the loan amount is swelling every month and if things go like this, after a few years the outstanding amount is going to be added a few lakh rupees more !!! It was simply too hard to digest for me.

So, I advise you to check your home loan A/C right now and if you are in the same boat, explore any of these options, A) Increase your EMI substantially so that there may be at least some surplus than your monthly due interest and B) consider part pre payment (There is no pre payment penalty now), or if possible exercise the both options before it is too late, otherwise you may leave a “Home with horror” for your successor.

If even a few of the borrowers get benefited from this experience which I gathered , I shall be obliged.

Thank you for patient reading, waiting for your response.

Want to be a crorepati ?

It may sound a bit ridiculous, but believe me, it may be amazing and true. No, you don't have to buy lottery tickets or answer tricky questions at the HOT SEAT in front of Mr Bachchan !!

The simple way is nothing but starting early and bear a little bit of risk.

Start investing as early as you can. The ideal time may be the time as and when you start earning income. As early as you can start investing, the savings burden will be lower for you. Just invest a little portion of your earning every month over a long period of time and you will be amazed to see the outcome !

A monthly savings of Rs 2681 for 30 years with a moderate 12% return may turn to Rs 1 crore rupees, yes, 1 crore. And if the return is calculated @ 15% per anum, the monthly investment requied is only Rs 1444.

Don't have that much time ? OK. Just invest a little above Rs 6500 per month for 20 years, your wealth will be 1 crore at a yearly return of 15%.

 This is called the power of compounding. But the million dollar question is where to invest the amount. That depends about your risk bearing capacity. Over different asset classes, it is seen from the history that stocks can give maximum amount of return in a long horizon. Of course, the return may be volatile in the shorter duration but historically, it yields maximum among different assets. Yes, taking into account of the precious yellow metal also. See the chart below.

Nature of Investment	% Returns after 5 Years	% Returns after 10 Years
Real Estate	30%	14%
Gold	10%	7%
Bank FDs	8.50%	12.50%
Equity	35%	16%

Figure represents of the year 2010.

But the problem in investing in stock is the selection. It is very difficult to select the RIGHT stock to invest. A lot of things to be monitored like EPS, PE ration, dividend history etc to be carefully analyzed to select a real good share. I advise that if you don’t have the time and expertise to analyze these things, why not leave it to professionals ? Yes you guessed correct! I am talking about the mutual funds who can manage your money in a better and professional manner. Moreover having the knowledge and expertise about the stock market you can hardly buy even a handful of quality shares with your monthly savings. But if you invest systematically in a mutual fund, your purpose is achieved. Moreover, you can never time the market. Even the master of this field can not predict the ideal time for investment in stock.

If the investment is made monthly, the rupee cost averaging is there. That means when the market is up your investment value yields and in the contrary when it is down, your unit number appreciates. So you are beneficial in both ways.

Which mutual fund to invest ? We will talk later about this. Till then, Good Bye, Happy Diwali!!!!

How much to invest ?

How to make money!

 

The longer you put off saving, the more you stand to lose, so to make more money start investing today! Look at the figures below for some insight:

 

Time Horizon

 

	25 Years	20 Years
Amount invested (Rs)	10,000	10,000
Rate	10%	10%
Amount at Maturity (Rs)	9,83,471	5,72,750

                

One can easily comprehend the loss of income by a delay of 5 years!

A = P (1+R) ^n is a simple formula to calculate compound interest. Here, A is the interest accrued, P is the principal amount, R is the rate and n is the tenure of investment.

 

So how much should one save and invest?

 

There are no magic numbers or percentages to be saved and invested. A few financial ratios will augment your decision-making ability.

 

Liquidity Ratio: (Spare Cash+ Savings Account) / Average Monthly Expenses.
You should have the bare minimum as per the above ratio to meet sudden emergencies in life. A value of 3 for this ratio is appropriate i.e. money 3 times your monthly expenses should always be parked for liquidity!

 

If you earn 20k per month and have expenses to the tune of 8k, then it will be prudent to have at least 24k (8k * 3) in ready available cash.

 

Opportunity Ratio: (Spare Cash+ Contingency Fund) / Net Salary

 

This ratio calculates the idle cash lying with you, which in turn relates to the missed opportunity of investment! 10-15% of Net Salary lying as idle cash is optimum. Anything over and above it needs to be invested. Say with a take home pay of 20k you should not keep more than 3k (15% of 20k) in idle cash.

 

Savings Ratio: (Amount Invested Per Month / Net Salary)

 

This formula will be a guide for your investment needs. Taking inflationary factors, retirement corpus, illnesses, etc. into consideration, one has to set one’s expectations. Age and financial liabilities after the earning potential dwindles will be the issues to ponder over.

 

Savings to the tune of 20 to 25%, i.e. 4k to 5k per month on a take home of 20k, depending upon your age and financial liabilities, are worthwhile. Maximize this number!

 

Solvency Ratio: Total Assets / (Total Loan + Other Liabilities)

 

Last, but not least, in case some exigency arises and you have to pay off all your liabilities, this ratio will help you determine your financial health. Solvency ratio >1.5 indicates a relative comfort zone. Anything close to 1 or < 1 indicates a red flag!

 

Example:

 

A person has credit card liabilities to the tune of 80k and personal loans of 40k with an Asset Value of 1.5 lakhs. The Solvency Ratio for such a person is 150,000/(80,000+40,000) = 1.25

 

New initiative from Paycommission

Paycommissionupdate gladly announces the launch of it's new blog. In this blog, various investment options will be discussed. Information about Bank deposits, Mutual Funds, Insurance, Stocks etc may be available here. 

We expect that we will get the support of our viewers in this effort as we enjoyed earlier.

Kindly wait for the first article which will be published shortly.
Thank you and best wishes for the ongoing festive season.