Tuesday, November 10, 2015
Tuesday, November 3, 2015
Thursday, October 29, 2015
Recently, I come across portfolio of one of my close relative. It took me by surprise. The portfolio composition was like this :
95% of her portfolio was made up of investment in the company she was working with. Out of it 60% of the shares she accumulated in last 10 years by way of ESOPS. Looking at the bright prospect and growth of the company she bought balance from the market.
Hardly, she is having any wealth apart from the shares of her own employer.
Now, think of a situation if something goes wrong with the company may be due to political, environmental, global, sectoral or corporate governance issues(We have lot of such examples e.g Kingfisher, JP associates, Satyam computers, Amtek Autu, DLF etc..). Her future will go for a toss. She would be hit by a two edged sword at one end she might loose job due to crisis in the company and at the other end share prices will loose all the gains.
She was very confident and secured for her financial future, but now she realises she is taking a big risk with her and family members future.
Basic principle of investing is that "Don't put all your eggs in one basket" But it is some thing like putting all eggs in one basket and then taking it bull run festival of spain.
So please do take care and diversify your investment across good companies and across sector according to your need.
Do consult your financial planner, it really helps.
Friday, October 23, 2015
We all dream to be wealthy like Warren buffet, rather fact is most of us would have never ever dreamt of being as wealthy as him. But is it that difficult to be as rich as warren buffet.
I tried to evaluate and did certain calculation of what actually made warren buffet one of the wealthiest person in the world.
1) Long term : He never invested money looking at short term. Warren Buffet says -
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years.”
2) Start Early : He made his first investment at the age of 11 and still regrets that he started late.
3) Discipline : He has been an investor since he made his first investment.
4) Power of compounding : His biggest friend in wealth creation is power of compounding he compounded his wealth @22% per annum. It is very easy to get return of 50% or may be 100% once in your lifetime, but is very difficult to get return of 22% every year for almost 75 years.
5) Expenses : He still lives in 3 bed room house in omaha bought 57 years back . He drives his own car.Although he owns worlds largest jet company but never flies by a private jet.He also doesn't carry a cell phone. He believes :
" If today you buy things you do not need, soon you will have to sell things you need".
With all the above qualities, let's understand how any of us can create wealth like Mr.Buffet.
Date of Birth : 30/08/1930
Age : 85 Years
Started investing : 11 Years
Investing since : 75 Years
Present Wealth : 67 Billion US$
Compounded : @22%
Increase in rate of Investment : @10%
Investment in first year : USD.2682.00
That means if someone starts at age of 11 with just USD.220 per month increasing it 10% every year and compounding it @22% can accumulate such wealth. Is it that difficult?
The toughest task here is to compound your investment@22%/p.a. for such a long period.
But luckily we have some of the Equity Mutual fund which gave return @24% annualised, during last 20 years of its existence. So even if you are not having stock picking knowledge of Warren Buffet, you have easier way available to be wealthy like him.
Will conclude with one of his best words of wisdom :
"If you are luckiest 1 percent of humanity, you owe it to the rest of the humanity to think about the other 99%.
You would be surprised to note that his children will not inherit a significant proportion of his wealth, he has pledged 99% of his wealth to charity and already donated US$25.5 Billion.
Thursday, October 15, 2015
Have you ever thought why it is only me, who knows about all the investments, deposits, assets and liabilities. May be for convenience we would be accessing bank accounts and password of entire family. But is it not necessary to update atleast one of the family member about it.
Recently a report was published in the news paper that almost 64000 Crore is lying unclaimed in bank, post office, insurance company and EPFO for more then 10 years.
It suggests that there were people who invested this amount and have not passed on details to their heirs, who can claim it.
It take lot of efforts and hard work to earn, save and create wealth. Being Indian parents we always wish that we should pass on our legacy to next generation. But only wish doesn't work.It needs to be planned.
In today's fast moving technological world everything is either stored on our laptop,computer or mobile and have been saved with the password which only we know.
There was a recent case in which a client had updated his spouse about all the investments and name of the files stored in the computer. But when he died and her wife tried to access the details she was surprised to note that computer was locked with an password, which he didn't shared.
Remember in case of sudden death. Family has to bear 2 kind of losses one is emotional and other is financial loss. No one can fill the emotional gap only time can heal it up. But together with it if they have to go through financial problem then it is unbearable, that too when enough resources were planned.
Just assume that YUM DOOT has come to your dream and given you notice of 1 day. I think first thing you would do is provide with all your financial details to your family member.
For your ease trying to put down list of things you must prepare, update and give it to your family members :
- Will : Prepare a will. It is a simple statement mentioning how you wish your wealth should be distributed to your heirs. It is perceived that it requires lot of legal and technical hassles. But let me tell you that you may create it on a simple piece of paper which needs to be signed by 2 witnesses.
- Bank account details with login and passwords.
- E-mail account login and password, only in case there is no confidential details which you have even hided from your family and don't want them to know even after death
- Laptop and smart phone login/password
- Debit and credit card pin
- Nominee : Ensure all you investments have a nominee. Legally nominee is not the owner of the asset but just an authority to receive proceeds. If your one son as nominee and you die without making a will your another son,daughter or even your cousin can challenge it in court.
- Details of Saving Bank Account,Locker, Fixed Deposit, Demat, PF, EPF, Insurance (Life and non Life).
- Details of all your investment like Mutual Fund, Stocks,Physical Gold, Silver, Real Estate.
- List of outstanding loans.
- Money given or taken from friends and relatives.
Remember only providing the details will not solve the purpose it needs to be updated at regular interval. Your birth date or anniversay date can be a good reminder to update the list.
Thursday, October 8, 2015
It would be wrong if I only discuss financial aspect. Apart from financials, lot of other factors, which also needs to be considered.
Trying to cover most of it, with a word of caution and request to consult your financial advisor before taking decision. The right and timely decision can help to reap big benefits out of housing loan.
Request readers to go through complete article to understand benefits, assumptions and other aspect related to it.
1) Financial benefits :
Lot of people claims that it is always beneficial to prepay housing loan, some claims it is advisable in earlier years as interest cost is very high.
From financial benefit point of view IT IS ALWAYS BENEFICIAL TO INVEST THE SURPLUS AS COMPARED TO PREPAYMENT. Let me illustrate you with an example :
Lets assume following:
Case I - Prepayment :
Loan Amt. : Rs.20,00,000
Tenure : 20 Years
Interest : 9.4% (SBI Present rate)
EMI : Rs.18512/Month
Interest payment in 20 yrs. : Rs.2442931
Capital Repayment in 20 yrs: Rs.2000000
Total Payment : Rs.4442931
Let's say you have surplus of Rs.500000 and you prepay so the total amount comes like this:
Interest payment in balance reduced term : Rs. 889323
Capital payment in balance reduced term : Rs.1500000+500000 (Prepayment)
Total Payment : Rs.2889323
So the total benefit comes out to be Rs.1553608
Case II- Investing surplus without prepayment :
Let's say surplus amount of Rs.500000.00 is invested in tax free bond of PFC on offer right now @ 7.60% (Assuming annual interest is reinvested at same rate)
The maturity amount of Rs.500000 @7.60% after 20 years would become Rs.2163791
So the net gain by investing the same amount would be (Rs.2163791 - Rs.1679372) = Rs.484419.00.
Benefit for interest repayment on housing loan during the term (considering 30% tax bracket) :
2568680-889308 = Rs.1679372 @ 30% = Rs.503811
(Even,if we ignore tax benefit of 80C as in most of the cases it is covered by PPF,EPF and LIC Policies)
So the total benefit works out to be whoopping (503811+484419) = Rs.988230.00
2) Inflation : Although it look very beneficial at first go, but after taking inflation @6% works out to be equivalent to Rs.3.08 Lacs in present terms. So if you are higher tax bracket benefit is considerable.
3) Assumption : We have assumed investment in tax free bonds which are right now available, But It won't be possible everytime to get such an avenue of tax free investment for 20 year long period. Together with it we have also assumed that the reinvestment of interest amount would also be at the similar rate.
4) TAXATION : As we are aware that there are 2 component to EMI first is Interest and other Capital repayment.
As per section 24 your income shall be reduced by the amount of interest paid on Home Loan where the loan is taken by for Purchase/Construction/Repair/Renewal/Reconstruction of Residential House. The maximum deduction available for self occupied property is subject to a maximum of Rs.2 Lacs. In case it is not self occupied there is no upper ceiling.
In addition the amount paid as repayment of principal amount of home loan by individual/HUF is allowed as deduction under section 80C. This section also includes amount invested in PPF,EPF,ELSS scheme of Mutual Fund, NSC etc subject to total upper limit of Rs.1.50 Lacs.
So if you prepay your home loan, may be you loose tax benefit against interest part as the interest component would reduce considerably.
5) Funds Requirement : Never deep into your contingency or emergency fund in a hurry to prepay your home loan. You must keep atleast 3 to 6 months of expenses for contingency.
6) Prepay Costlier Debt First : Home loan is the cheapest loan available. So if you have other outstanding consumer, credit card or personal loan. Prepay them first.
7) Defensive investors : If you are a defensive investor then I would advise you to prepay your home loan for any surplus amount because mental peace and health is more important then financial benefit.
8) Retirement Planning : If you have not planned for your retirement yet and you are right now in your 30s or 40s consider investing in Equity mutual funds to build retirement kitty.It may give you much more benefits then shown in illustration. If I consider historical Equity returns of 17% then Rs.5.00 lacs may become almost Rs.1.20 CRORE
9) Nearing your retirement : If you are planning to retire soon, then it is advisable to prepay your housing loan so that you don't have any liability after retirement.
10) Planning to spend surplus : If you are planning to buy some white good or a gadget or a depreciating asset out of surplus then it is advisable to prepay your home loan without any of above consideration.
Please take decision of prepaying or investing the surplus after considering above factor. Remember every penny saved is penny earned.
Wednesday, September 30, 2015
Typically while planning our goals we consider inflation in the range of 6-8%. But there are certain areas like education and medical it is much above it.
With emergence of newer medical technology and innovation cost of medical treatment has increased many fold.
The biggest question which we all have in our mind is how much medical cover should I take to have minimum impact on me financial future.
There is no one size fit for all kind of formula for it, but yes depending on following points you may zero in on a particular amount :
1. Room, Boarding and Nursing Expenses : Most of the health policies permit you to spend 1% of the sum assured per day on room, boarding & nursing expenses or actuals whichever is less. Many a times all the other expenses from operation to investigations or treatment packages are also linked to it.
So one way to decide on minimum sum assured requirement is to inquire in a good nearby hospital the per day room rates of the category you are comfortable with. Like if yu are comfortable with semi deluxe category on twin sharing basis whose charges are Rs.2500/day. Then in that case you must select minimum sum assured as Rs.300000.00.
2. Family history: Health insurance must cover the entire family. Some families have a history of diseases like diabetes and of heart. If the lifestyle in not changed or improved to control it may result in bigger complication, so they need to have additional cover.
3. Your age: An early start helps. Premiums then are lower because you are unlikely to have pre-existing diseases. If you are 35 or below, you should start with a sum insured of Rs.2 - 3 lakh and increase it by 15% every year. Health insurance costs keep increasing sharply – much more than the average inflation figures released by the government.
Normally medical insurance companies do not increase sum assured beyond age of 50 and in some cases even if they do then it is subject to prior medical test and certain exclusions.Secondly, if you are covered under floater policy and as both of you are moving in higher age bracket there are chances of getting both you and your spouse to have medical complications in the same year. So it is necessary to achieve a particular sum assured as you move closer to that age.
4. Dependents: If you have dependents, wife and kids, you will have to cover them as well. You need a family floater plan which is much cheaper as compared to individual medical plan.
5. Cover from Employer: The company you work for, may offer you an insurance cover. That's great but most often is not sufficient. Also, you could lose these benefits upon quitting the job, especially in a situation where the group cover is the primary health insurance option. You may also ask your employer or his insurer to convert that group policy to individual policy while quitting the job. In most of the cases we miss that. So its better safe then sorry and have an individual policy as well.
6. Top up cover: Considering the rising medical costs, especially with new and advanced procedures being available in India, choose a product which can be taken as a top-up policy (with some deductions applicable). Such a plan would give you continuity benefits over your existing policy at a very low premium.
It is always advisable to consult your financial planner who can guide you much better in taking such crucial decisions.
Tuesday, September 29, 2015
Thursday, September 24, 2015
Investing for retirement is important at any age, but the same strategy should not be used for every stage of your life. Those who are younger can tolerate more risk and/or can contribute small amounts, if that's all they can afford. Those who are older should take advantage of higher salaries and lower expenses to make the most of their peak years.
Starting Out: Your 20s
Even though you may have recently graduated from college and are likely to have started buying smart gadgets please also use this time to start investing. Whether it’s in a company EPF account or a PPF account you set up yourself, invest what you can as a twenty-something, even if you can contribute the 15% of your salary.
You have the biggest advantage over everyone in investing right now: time. Because of compound interest, what you invest during this decade has the greatest possible growth. Since you have more time to absorb changes in the market, you should also invest aggressively in Equity Mutual funds and avoid slow-growing assets like bonds.
Remember to stay away from unnecessary borrowing or over spending on your credit cards and personal loans.
Career-Focused: Your 30s
If you put off investing in your twenties due to enjoying earlier carrier year or paying off student loans or the fits and starts of establishing your career, age 30's is when you need to start putting money away. You’re still young enough to reap the rewards of compound interest, but old enough to be investing 20-25% of your income. Also read:
Even if you’re now paying for a mortgage or starting a family, contributing to your retirement should be a top priority. You still have 30-40 active working years left, so this is when you need to maximize that contribution. Make sure to start an PPF account if your are not having an employee and having EPF account towards safer allocation.
Still you can invest majority of your investments for longer term needs like childs education, marriage or retirement in a diversified equity fund.
Retirement-Minded: Your 40s
If you’ve procrastinated saving for retirement until your forties, or if you were in a low-paying career and switched to something better, now is the time to buckle down and get serious. You’re at the midpoint of your career and you're probably reaching your peak earning potential.
Even if you’re saving for your kids’ college funds or continuing to pay your mortgage, retirement savings should be the forefront of every financial decision. You have enough time to play catch up if you’re careful, but not enough time to mess around. Meet with a financial advisor if you’re not sure about which funds to choose. You’ll need to save in aggressive assets like equity mutual fund so your funds beat inflation.
Do remember to start parking funds out of Child education, marriage goals to Bonds or FD's any need which is due in next 3-5 years should not go to equities at all.
Closing In: Your 50s and 60s
Since you’re getting closer to retirement age, now is not the time to lose focus. If you spent your younger years putting money in the latest hot stocks, you need to be more conservative the closer you get to actually needing your retirement savings.
Switching your investments to more stable, low-earning funds like bonds and money markets can be a good choice if you don’t want to risk having all your money on the table.
Now is also the time to take note of what you have and when might be a good time for you to actually retire.
The Bottom Line
A Chinese proverb says: “The best time to plant a tree was 20 years ago. The second best time is now.” That attitude is at the heart of investing. No matter how old you are, the best time to start investing was 20 years ago. The second-best time is now. It’s never too late to do something, though. Just make sure the decisions you make are the right ones for your age group — your investment approach should age with you.
It's also a good idea to meet with a qualified professional who can tell you where you stand and where you need to go. Professional help always pay in long run.
Thursday, September 17, 2015
From financial planning perspective it is a golden period for who are in their late 20s and 30s to plan and achieve what they dream of.
In 30s and 40s you should focus on building a base level financial security and moving along in terms of career. These are important financial planning years and you can benefit from solid financial planning advice.
By the time you reach 30s it's time to get down to business with your financial plan if you haven’t done so already.
The most basic financial step is to get spending under control. It is always best to live below one’s means. This allows for saving for retirement, car, kids education, a home and all of the other things you eventually want out of life.
Address excessive debt as soon as possible. This could be any outstanding education loan, personal loans or credit card debt—get what you can paid off and develop a payment plan for the rest.
BUILDING A SOLID FINANCIAL PLAN
Ideally, you should be thinking in terms of having a comprehensive financial plan done by a fee-only financial advisor. This is not about succumbing to an advisor out to sell expensive or unnecessary financial products, but rather about getting objective financial planning suggestions with as few conflicts of interest as possible.
You are moving forward in your career, buying home, starting business, getting married, having children and a whole bunch of other grown-up things. Financial success can involve juggling a lot of balls in the air. A qualified financial planner can help in providing a financial road map.
You should create a contingency fund which can take care of your expenses in case of a job loss or any medical emergency.
Life insurance is the most critical part of financial planning. Every individual who have dependents and loans to be paid, should need to have sufficient insurance coverage which can take care of family's future in case of premature death of earning member.
Together with sufficient life cover ensure you have taken Medical and Disability insurance if not provided by employer. The rising medical cost can disturb all your future goals and present lifestyle.
EXPLORE INVESTING I/o SAVINGS
In present low interest and high inflationery period when real return post taxation is negative. It is always advisable to consider investing in equities in systematic way. In long term it can give you good real return.
SAVING FOR RETIREMENT
If you are employed automatically you have starts contributing to EPF. But in present high inflationary environment only EPF corpus will not be sufficient to take care of retire years.So, by the time you reach in mid 30s you are likely to be more established in careers, which means salting away money for retirement and other financial goals. This is a great time to do some retirement projections and planning.
A financial plan and retirement projections should be a must at this stage of life. Are you on track towards accumulating what you will need for retirement? Do you need to save more? In 40s there is still time to close any gaps. A detailed retirement savings and investment strategy should be key outgrowths of the financial planning process discussed above.
THE BOTTOM LINE
In 30s you need to focus on financial planning. Retirement is still a bit far off, but not as far off as it used to be. Retirement savings should be a priority. For those who are married and have kids, protecting their loved ones in the case of death or disability should also be a priority.
Friday, September 11, 2015
However, this will happen only if your accumulated PF balance is Rs.30,000/- or more and you withdraw it before five continuous years of service
While provident fund (PF) is an instrument meant to help a person save for the long term, it provides for premature partial or full withdrawal as well. One relevant rule regarding this is that if an individual withdraws money after at least five continuous years of employment and contribution to the PF account, the withdrawn amount is not taxed.
However, if the withdrawal is made before five continuous years, tax is deducted at source (TDS). Let’s see how this works.
TDS ON PF WITHDRAWAL
The amount that you withdraw is taxed either at the marginal rate or at the rate at which you pay income tax. From 1 June, if you withdraw from your PF amount, TDS will be deducted. However, this will happen only if your accumulated PF balance is Rs.30,000 or more and you withdraw it before five continuous years of service. Those who don’t fall under the taxable income can avoid TDS by submitting forms 15G or 15H.
WHAT ARE FORMS 15G, 15H?
These are self-declaration forms in which you can state that your total income is below the taxable limit and, therefore, you are not liable for TDS.
Form 15G is for individuals below 60 years of age having no taxable income, while form 15H is for senior citizens who are 60 years and above. You have to quote your Permanent Account Number (PAN). These forms are accepted in duplicate.
However, there are a few limitations. Forms 15G and 15H are not applicable if the amount of withdrawal is more than Rs.2.5 lakh and Rs.3 lakh, respectively for form 15G and 15H.
If you don’t submit the applicable form, and only submit your PAN, then tax will be deducted at source at 10% if your PF withdrawal amount is Rs.30,000 or more with service of less than five years. In case you fail to submit PAN, TDS will be deducted at maximum marginal rate of 34.608%.
Under section 192A of the Income-tax Act, 1961, TDS is deductible at the time of payment. Submitting form 15G or 15H is a convenient approach for those who don’t have a taxable income as they would have to claim a refund later.
NO TDS IN SOME CASES
If you withdraw from the PF account after five years of continuous service, the amount is tax-free. In such as scenario, TDS is not deducted and you are not required to submit PAN or form 15G or 15H. In case of unforeseen circumstances such as loss of job due to ill health or discontinuation of business by employer, you get an exemption from paying any kind of tax on the PF withdrawal amount. In such cases, no TDS will be deducted either.
If you transfer your PF account from one employer to another, or if the PF amount is less than Rs.30,000 but you have not completed five years, you don’t have to pay TDS.
**Source - Mint
Saturday, July 4, 2015
Systematic Investment Plan (SIP) is not an asset class in itself, it is an option that will help you to accumulate money. In simpler terms you may say it is an recurring deposit in mutual fund.
A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.
Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.
With volatile markets, most investors remain skeptical about the best time to invest and try to 'time' their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor,your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.
Power of Compounding
Albert Einstein once said,The rule for compounding is simple - the sooner you start investing, the more time your money has to grow.
If you started investing Rs. 10000 a month on your 40birthday, in 20 years time you would have put aside Rs. 24 lakhs. If that investment grew by an average of 7% a year, it would be worth Rs. 52.4 lakhs when you reach 60.
However, if you started investing 10 years earlier, your Rs. 10000 each month would add up to Rs. 36 lakh over 30 years. Assuming the same average annual growth of 7%, you would have Rs. 1.22 Cr on your 60birthday - more than double the amount you would have received if you had started ten years later!
Other Benefits of Systematic Investment Plans
· Disciplined Saving - Discipline is the key to successful investments. When you invest through SIP, you commit yourself to save regularly. Every investment is a step towards attaining your financial objectives.
· Flexibility - While it is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.
· Long-Term Gains - Due to rupee-cost averaging and the power of compounding SIPs have the potential to deliver attractive returns over a long investment horizon.
· Convenience - SIP is a hassle-free mode of investment. You can issue a standing instruction to your bank to facilitate auto-debits from your bank account.
SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. Specially in equity funds as investors tend to stop fresh investment during bearish phase but SIP helps you to overcome that emotion as it is getting deducted every month directly from your account irrespective of market conditions.
So keep SIPing it will create a big wealth for you in long term.
Friday, July 3, 2015
We all are aware that Greece is in deep trouble after defaulting on its debt to the International Monetary Fund.
The Greek economy is shrinking.At such time one of the tool available government is to tinker with the currency. Unfortunately Greeks cannot do so because they share their currency with other nations of the Euro Region.
To Understand their predicament one needs to imagine Euro Zone as a train.
Now imagine various countries as the bogies (compartments) of the train and let's say train is trudging along smoothly and all seems well.
Suddenly, few of the passengers in the "Greece" bogie fall sick, so they send a request to the engine driver, via a telecommunication system fitted in the bogie, to speed up. They need to reach their destination fast as they are feeling unwell.
The engine driver sends a message to all other bogies that they have received a "speed up" request from the Greeks due to an emergency.On hearing this announcement. the German passengers seated in the German bogie take serious objection. They want to enjoy journey at leisurely pace and vehemently object to "speed up" suggestion.
Their contention being that they had paid a premium for enjoying this leisurely journey and were not prepared to get short changed.
They caution the engine driver that if he were to "speed up". then they would demand a refund.
The engine driver find him in an "impossible" situation is left with no choice but to maintain status quo . The Greeks are left with no choice but to suffer their ordeal.One of the Greeks regrets his decision to travel by train. He feels has they travel by their own car, the decision of speeding up would have been theirs. But now since they are a part of the train, they can do little to influence its speed.
The situation in the Europe is similar to the story of the Euro train. The common currency "Euro" is like the train. Some countries like Greece, Italy, Spain, Portugal, and Ireland are not comfortable with the valuation of the Euro (it is exactly how the Greeks were not comfortable with the speed up of the Euro train).
These countries are facing a slowdown and need to revive their economy. One of the best ways to do that is to sell more products to the world and reduce debt. And in order to do that, it is vital do devalue currency like we did in 1991.
But since the currency (Euro) is common for all the countries, just a handful countries cannot decide about changing the valuation of the EURO all be themselves.
This is just like how the Greeks in the Euro train failed to "Speed up" the train. For countries like Germany and France who are not in a "debt" problems like the Greeks, a reduction in the value of the Euro works against their interest because it unnecessarily makes their imports more expensive and prices of commodities in general increases.
Basically tinkering of the currency works on the opposite way for two sets of countries. Had Greece own their currency, they would have easily devalued their currency to make exports more attractive.
This would have boosted their economy by creating demand and thereby jobs. This would be like having to travel in their own car instead of being part of a larger train.
Courtesy : TATA AMC
Inside India's Digital Locker: What Is DIGILocker and How Does It Work?
Between your wallet and that locker in your house where you keep things safe (in theory; in practice you forget to put things in there safely, and then have a panic attack as you desperately search everywhere for your missing passport), how many government documents do you think you have? A quick check shows that there are several at hand - an Aadhaar card, a driver's license, voter ID, PAN card, all in the wallet, and a passport at home. Then there's old income tax returns, property tax receipts, and educational certificates from school and college, all kept "safely" archived for when they're needed.
That's a huge number of documents to keep and manage, and the government also seems to have taken notice. As part of Digital India week , Prime Minister Narendra Modi officially launched a digital locker service called DIGILocker, though the service was soft-launched sometime back.
So what exactly is DIGILocker? Very simply, it's a website where you can store your various government issued documents, using your Aadhaar card as your identification. While it hasn't been stated as such, to us, it also looks like a good way of bringing data from different government agencies together under the aegis of the Aadhaar card, potentially making the document more useful to people carrying it.
To sign up, you need only enter your Aadhaar number, and an SMS is set out to the mobile phone number you registered at the enrolment camp. This one-time-password is the only way to get inside your DIGILocker for the first time, but afterwards, you can set your own password or link the DIGILocker to your Google or Facebook login.
After you've signed up, you can upload your government documents to the DIGILocker - there's only 10MB of storage at present - but you can also save the Uniform Resource Identifiers (URIs) of government documents using DIGILocker.
The idea is that this should minimise the need for physical documents; if your birth and education certificates are online, and you apply for a passport, then the Passport Office could use your Aadhaar number to request the DIGILocker for your details, without needing you to carry a large file of documents for the application.
Or, the RTO could issue your Driver's License directly to your DIGILocker, based on your Aadhaar information alone; this way, if you need to send your new license to any agency as verification, you'll have an online, authenticated version available whenever you need it.
There's also a planned e-Signature facility with DIGILocker, though that will be launched later; between digital signatures and government documents in the cloud, it is clear that the government wants to make it easier for people to use government services online. Today, getting almost anything done with the government requires you to produce ID documents, which requires a visit to the government offices. Few, if any, government branches allow you to mail a copy of your documents - which actually makes sense for security reasons - but DIGILocker will be a way to authentically curate your documents, and make it easy to share them to different departments.
There's also the question of external threats. While the DIGILocker website looks to have the basics in place by using HTTPS (the same protocol that your bank uses to secure communication between your computer and their servers) for the main part of the website, you have to wonder how secure the backend is. You can be pretty sure that a place where everyone is keeping their official documents will be a target for hackers foreign and local.
Right now, there's not too many ways in which DIGILocker is useful, but it's a clear signpost to the direction we're moving in. Some people worry that this much centralised data could lead to misuse, and also warn of the potential of small mistakes in documents now creating much bigger problems than before, but there's no denying that the convenience of having all our documents digitally accessible and easily shared to different government departments when needed is very appealing.
To access your digital locker, visit DIGILocker and you can sign up now for free with your Aadhaar details.
Tuesday, June 30, 2015
The Reserve Bank of India (RBI) is the monetary authority of the country. RBI sets the monetary policy with the objectives of price stability, economic growth and financial market stability. RBI uses its monetary tools for effective pass through of monetary policy. RBI sets its annual monetary policy for a fiscal year in April and then subjects the policy to reviews every quarter with mid quarter reviews held a month before the quarterly review.
RBI Policy tools
The tools used by the RBI for its monetary policy are:
1. Repo Rate
2. CRR (Cash Reserve Ratio)
3. SLR (Statutory Liquidity Ratio)
4. OMO (Open Market Operations)
5. MSS (Market Stabilization Scheme)
1. Repo (7.25% as of June 2015)
The repo rate is the benchmark policy rate. The repo rate is the rate at which the RBI lends money to banks. The lending operation is done through an auction called the LAF (Liquidity Adjustment Facility) auction. This auction is done on a daily basis and banks wanting to borrow funds from the RBI at the repo rate have to bid for funds in the auction. RBI lends successful bidders funds at the repo rate. The LAF is a collateralized lending platform where banks have to pledge government bonds or treasury bills with the RBI for borrowing money.
A rise in repo rate increases cost of funds for banks while a fall in repo rate reduces cost of funds for banks.
Rates linked to repo rates are the Reverse Repo rate and the Marginal Standing Facility (MSF). The reverse repo rate is the rate at which RBI borrows money from banks in the LAF auction. Banks with excess liquidity lends funds to RBI by bidding for reverse repo in the LAF auction. RBI gives government bonds or treasury bills as collateral to the banks.
The reverse repo rate is set at 1% below the repo rate.
The MSF is an emergency window for funds for banks. The MSF is set at 1% above the repo rate and banks in need of emergency funds borrow from the MSF window by bidding for funds at the MSF rate. Banks pledge government securities or treasury bills to borrow funds under MSF window. Under the Marginal Standing Facility (MSF), banks avail funds from the RBI on overnight basis against their excess SLR holdings. They can also avail funds on overnight basis below the stipulated SLR up to two per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of second preceding fortnight.
2. CRR (4% as of June 2015)
Banks have to keep a percentage of their NDTL (Net Demand and Time Liabilities) as CRR with the RBI. RBI sets the CRR rate to reflect its monetary stance. The CRR rate is set higher if RBI wants banks to keep more money as CRR and lower if RBI wants banks to keep less money as CRR. The more money kept as CRR the less money banks have to lend and less money kept as CRR the more money banks have to lend
3. SLR (21.5% as of June 2015)
SLR is the percentage of NDTL that banks have to invest in government bonds. RBI sets the SLR rate to reflect its monetary stance. The higher the SLR rate the more money the banks should invest in government bonds and the less money they have to lend. The lower the SLR the less money banks should invest in government bonds and the more money they have to lend.
4. OMO (Open Market Operations)
RBI buys and sells government bonds directly in the bond market or through bond purchase and sale auctions. RBI buying government bonds adds liquidity into the system while RBI selling government bonds sucks out liquidity from the system. The higher the liquidity the more money banks have to lend and the lower the liquidity the less money banks have to lend.
MSS securities are special government securities and treasury bills that are used to suck out liquidity from the system. RBI sells MSS bonds through auctions to banks and other investors. The money paid for buying the MSS bonds by investors are then held by the RBI in a special account and does not come into the system. The act of issuing MSS securities is an act of sterilization of excess liquidity, when the liquidity is generated by excessive capital flows into the country.
How does MSS work? Take for example RBI buying USD 1 billion. RBI USD purchase would add around Rs 630 billion of liquidity into the system. RBI does not want this liquidity staying in the system and wants to take it away. RBI will ask the government to issue MSS bonds, which can either be treasury bills or dated government securities. Government will auction MSS bonds and the money collected from auctioning the MSS bonds will be kept in a separate MSS cash account, as the government cannot spend this money. Hence liquidity goes out of the system and stays out of the system until the MSS bonds mature or until the MSS cash balances are released through de-sequestering of the cash balances.