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Financial planning, as most would believe is not only just about planning for your retirement or investing wisely. If you actually crunch it to the core, financial planning is all about applying determined and disciplined guidelines to deal with our past, present and future finances. The past always haunts you.

Nitin Vyakaranam
ArthaYantra.com

Some of us are carrying the baggage of financial mistakes of the past which in turn are affecting our present and future commitments. Mistakes made in the past such as buying a wrong insurance or a few too many insurance policies, buying a home you couldn’t afford, buying too much on credit, borrowing from the place not suitable to you, trying to make quick money by investing without adequate research resources and knowledge. Though everyone wants to drop the baggage of all such mistakes, it is hard to get rid of.

Dreams seldom materialize on their own. You need to act now in the present and make a plan to head towards a financially stable and safe future. Most of us even fail to realize our past financial mistakes. A financial planner can help us in correcting our past financial mistakes. Following are the steps in order to correct past financial mistakes:

• Learn to accept past financial mistakes and take decisions to mitigate them. You are the in charge of your future.
• Maintain due diligence on the financial products you invest in irrespective of the person/institution recommending it. Make a decision
• based on what they are selling rather than who is selling.
• Not only plan for unexpected events in life, plan for unexpected expenses as well.
• Don’t put all the eggs in the same basket. Similarly don’t put the good eggs in a bad basket.
• Set specific targets of what you want to achieve and when you want to achieve.
• Monitor and re-evaluate your financials periodically.

It is important to realize that we not only need money to harness money but we need to revisit the decisions that led us to the road to nowhere. We have to plan our financials in a systematic way to get rid of the baggage of past financial mistakes and channelize our savings towards achieving our goals in a more disciplined and scientific manner.

http://www.moneycontrol.com/news/planning/how-financial-mistakes-will-come-back-to-haunt-you_877949.html

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• Miscalculating insurance requirement: Determining the ideal amount of insurance cover needed is one of the most common insurance mistakes. One has to objectively address the question of: "How much Insurance cover do I need?" This can help the individuals in buying exactly what they need. Most of the times we end up being over-insured buying unnecessary insurance products or under-insured by failing to get required risk cover. Ideally, the risk coverage provided by the insurance policy should match the committed expenses of the individual for the years to come. One can also consider including the mandatory goals (retirement, child's marriage, etc.) while calculating the insurance requirements.

• Mixing insurance with investments: Considering insurance as an investment is another common mistake. It is a common misconception that insurance is a risk-free investment. One has to note that insurance and investments are two completely different financial entities. We buy insurance as a part of risk coverage which can be used in case of any unexpected eventuality of the earning member of the family. We make investments primarily to achieve our goals and build wealth. When we mix both these important financial entities, we fail to do justice to both. One has to pay higher premiums for the insurance policies which return the premium paid along with an interest after a stipulated time. So, the chances of getting adequate insurance cover paying such higher premiums are minimal. Even the returns one can enjoy on such insurance policies are significantly less than the money invested in a well-diversified portfolio.

• Insurance is the best way to save tax (primary motive of buying insurance): Insurance for long has been the front runner whenever investments regarding tax savings are considered. People often fail to realize that not all insurance payments are tax free. It is subjected to the upper limit of section 80C, which is caped at Rs. 1 lakh. Essentially, the contributions made towards provident fund and principal repayments of a home loan are also considered under section 80C. One should consider insurance just as a risk mitigating financial instrument, tax saving is just an icing on the cake and not the primary motive of buying insurance. Under the common myth that every premium paid is eligible for tax saving, most of us end up buying unnecessary insurance products.

• Expecting returns from life insurance: For most of us, the whole perception of insurance changes when it has a prefix of life to it. For example, consider auto insurance. We pay a premium for our auto insurance which covers from the damages done to our vehicle in case of any mishap. We pay the premium every year, we enjoy no-claim bonuses if no claims are made and most importantly at the end of it, we do not receive any money back along with interest. The same fundamentals should be applied for life insurance as well. The main motto of a life insurance policy is to protect the family from the risk of mishap to the bread winner of the family. Our behavioral nature of wanting to get back something from the insurance premiums make us opt for insurance policies which are other than term policies. Term insurance can be availed at much lower cost compared to other hybrid insurance policies.

http://profit.ndtv.com/news/cheat-sheet/article-four-life-insurance-mistakes-you-must-avoid-322438

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Many NRIs are often faced with the situation of maintaining a Rupee account in India. There are two options available with NRI interested in opening bank account in India - NRE or NRO account. Read this space to know the difference between these two accounts and know when to choose what account.

An Non-Resident Indian is often faced with the situation of maintaining a Rupee account in India. Sometimes the NRI wants to his overseas earned money back to India and keep it in Indian currency whereas sometimes he is earning money within India and wants to keep India based earnings in Indian Rupee in India. He/She has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account based on specific requirements. An NRO account can also be opened by Person of Indian Origin (PIO) and Overseas citizen of India (OCI).

Similarities between NRE and NRO accounts:

Both accounts can be opened as Savings as well as current accounts and are Indian Rupee accounts. One needs to maintain an average monthly balance of Rs 75000 in both NRE and NRO accounts.

The Differences between NRE and NRO accounts:

1. Repatriation: NRE account is freely repatriable (Principal and interest earned) while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant.

2. Tax Treatment: NRE account is Tax free (no Income tax, wealth tax and gift tax) in India. On the other hand the interest earned in NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax.

3. Deposit of Rupee funds generated in India: If an NRI/PIO/OCI  is earning income originating in India (such as salary, rent, dividends etc.) he/she is only allowed to deposit it in NRO account. Deposit of such earnings is not permitted in NRE account.

4. Joint Holding: NRE account can be iointly held with another NRI but not with resident Indian. On the other hand NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956.

Choose NRO account is you:

• (Primary reason) want to park India based earnings in Rupees in India;
• want account to deposit income earned  in India such as rent, dividends etc;
• want to open account with resident Indian (close relative)

http://www.moneycontrol.com/news/fixed-income-bank-deposits/knowdifference-between-nrenro-account-_875207.html

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Buying a home is an important personal finance decision for every individual, particularly in view of the fact that a home is usually the biggest investment in one's lifetime. And like anywhere else in the world, home loan or mortgage products have only made it easier for average salaried Indians to own a home they can call their own. One should, however, not forget the long-term liability that needs to be serviced and it would only help to keep some of the following things in mind when taking a home loan:

1. Impact of loan on your personal finance

Before opting for a home loan, it is always advisable to assess the impact of taking a loan and the subsequent EMI payments on the monthly cash out flows. It is a prescribed personal finance practice to get a new monthly budget in place which accommodates the new cash out flow in the form of EMI payments.

"The impact should be analyzed on the monthly available surplus and subsequent savings being done towards achieving other goals. This helps in determining the comfortable EMI payments one can make and respective loan amount one can opt for," says Nitin B Vyakaranam, founder & CEO of financial planning portal Artha Yantra.

In other words, what you can afford should be determined by your ability to service the re-payments of the liability you undertake with a home loan. This would be governed by the loan amount and the interest rate applicable on your home loan. "You also need to remember that taking a loan with a view of selling the house a few years down the line at a higher price to help you settle your liability may not always work, especially if the property prices start moving downwards or even if they remain static - as we have seen over the last couple of years the world over," observes Anil Sahgal, director, MAGI Research and Consultants, and co-founder of personal finance consulting portal 'i-save'.

Therefore, it makes sense to access your affordability and the loan's impact on your personal finance before opting for a home loan.

2. Know your maximum loan eligibility

As per the current market norms, banks can lend up to 60 times the monthly net salary of an individual. However, while assessing the income criteria, they do not consider some of the salary slip heads for calculating the net monthly income. They only consider the income heads which can be used to repay your loan.

"For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed," informs Vyakaranam.

3. Check your CIBIL score

The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Ltd (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan.

"Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being credit hungry. So the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant," says Vyakaranam.

4. Co-application

What you can afford will also be reviewed by the bank that is providing you the loan. This would depend on your past and current financial position and ability to service the loan in the future i.e. ability to pay back the loan with applicable interest.

"In case you want a loan amount higher than what you are being offered as an individual, you may want to have your spouse or parents as co-applicants. This helps you increase the overall limit that the bank can offer since there is more than one person sharing the repayment of loan and the combined limit will obviously be higher. Needless to say, this can only work if the co-applicants have an independent source of income," says Sahgal.

Having co-applicants can also make sense from a taxation perspective with each applicant being able to avail the tax benefit available on interest payment of an EMI.

5. Duration

Once again, keeping in mind how much you can afford to pay each month, try and keep the duration of the loan as low as possible. With a lower duration of loan, the EMI may be higher but what you would pay as interest over the term of your loan would be substantially lower. If you can't afford the higher EMI and have to necessarily take a higher duration loan, it would help to try and manage your savings in a way that help you pre-pay the loan with intermediate payments in the initial years itself so as to reduce your overall interest burden.

6. Type of interest rate

The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. For instance, if you opt for fixed rate home loan, the EMIs don't vary over the loan tenure. So it is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, interest rate is determined based on the prevailing base rates, plus a floating rate. The EMIs vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

But the choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products, but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. On the other hand, floating interest rate products, though cheaper, are linked to a base rate or benchmark rate and can go up or down with a change in the base rate.

"It would, therefore, make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. Even in this case, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10%, respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper," says Sahgal.

You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which in any case will defeat any assumption of certainty that you may want to build into your financial planning.

You should also remember that different banks offer different interest rates on home loans. Therefore, you must negotiate with them to get the best possible rate.

7. Pre-payment and foreclosure charges

One of the important features that you should consider in your home loan product is the availability of pre-payment facility. While some banks may not allow you to prepay your loans, others could be providing you the facility to prepay a certain percentage of your principal amount every year with or without a penalty charge.

"It would be worth your while to compare this feature across the product options you are evaluating since this flexibility can help you reduce your interest burden if you can manage to close your loan earlier," says Sahgal.

8. Read the documents carefully before you sign

Don't let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.

9. Take cover

Given the long-term nature of the liability, it also makes sense to protect yourself and your family from any unforeseen circumstances. In this case you can consider a life insurance plan.

"A life insurance plan that covers the re-payment of loan in the event of an unfortunate death of the borrower can at least help the family retain their home," says Anil Sahgal.

10. Loan transfers

Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer.

11. Implications of delayed payments

Delayed or missed payments can impact you not only financially but can also affect your credit history. On the one hand, you may have to pay a penalty or fees associated with delayed or missed payments, while on the other your credit history will reflect these missed or delayed payments.

You should, therefore, always try to clear your EMIs in time because once you are declared a defaulter or your credit history turns bad, then it will become very difficult for you to take a home loan again from another bank or housing finance company. It will also become very difficult for you to transfer your loan to another bank or lending institution which is offering you a lower interest rate. Not only this, you also won't be able to take even a personal loan in your entire life. Therefore, it is better to be safe than sorry.

http://articles.economictimes.indiatimes.com/2013-05-17/personal-finance/39336790_1_home-loan-emi-payments-loan-amount/2

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Fixed deposits (FD) are becoming popular investment among investors in the current interest regime. However, the actual return earned on a fixed deposit can be less that what is stated due to tax aspect attached to a FD. Financial expert Nitin Vyakaranam gives us insightful information on how tax is calculated and can be saved on FD investment.

Bank Fixed deposits are known for giving risk free returns. Fixed deposits for long have been one of the favorite avenues of investors in India who do not trust the capital markets. Fixed deposit as an investment instrument is very easy to understand. In simple terms one puts the money with the bank for a specified tenure and bank repays the money with a specified interest rate. It is regarded as one of the safest investments. However, we often overlook the tax implications associated with bank fixed deposits. The interest earned on the bank fixed deposit is taxable, if it exceeds INR 10,000 in a financial year. This clause holds good even for the tax saving fixed deposits made. In most of the cases, the tax is deducted at source. Banks have made PAN Card mandatory for the investments which attract an interest in excess of INR 10,000 in a financial year. The taxation on fixed deposits mean that the actual interest rate earned on the investment is less than the interest rate promised by the bank.

How is tax calculated on the fixed deposits?

The income accrued as interest on bank deposits in accounted under the income from various other sources head of income tax code. The excess interest earned on fixed deposits over INR 10,000 is taxed as per the tax slab rates of the individual. For example, consider an individual who accrues an interest of INR 15,000 in a financial year. Since the interest accrued till INR 10,000 is not taxable, the excess interest i.e. INR 5,000 is taxed. If the individual is in 20% tax bracket, 20% of INR 5,000 is charged and a 3% cess is charged on it. So the effective interest earned on the fixed deposit is INR 13,970.

Companies use corporate fixed deposits in order to raise debt for their operations. These investments bear more risk when compared to the bank fixed deposits. Though the repayment is agreed on a specific interest rate, default risk plays an important role in such investments. The repayment of corporate fixed deposits is directly linked with the performance of the company. If the company fails to perform, the chance of defaulting on the repayment increases. So, the company fixed deposits generally pay a higher interest rate than bank deposits. In case of company fixed deposit, the tax free interest earned is capped at INR 5,000. The companies would deduct tax at source if the interest earned in a financial year exceeds INR 5,000 as per the tax slab of the individual.

How to avoid tax on fixed deposits

Form 15G/15H: The investor should submit a 15G or 15H form stating that their total income from all sources in under permissible non taxable income levels. Individuals below 65 years should file form 15G and individuals aboe 65 should file form 15H. However, individuals whose income from sources which are considered under the income from other sources head exceed INR 1 lakh, cannot file a 15G form.  

Distributing the FD investments: Distributing the FD investments across various companies so that the interest earned does not exceed the permissible level is an effective option to avoid TDS. Previously the same strategy was also applied for bank deposits. However, introduction of Core Banking System (CBS) gave the banks an option to pool the investments based on PAN Number.

Timing of the FD investments: Timing of the investments can also be used effectively to avoid TDS. The investment is spread over two or more years to ensure that the interest earned in a single financial year does not exceed the limits.

Authored by ArthaYantra.com, an integrated online personal finance company.

http://www.moneycontrol.com/news/fixed-income-bank-deposits/tax-aspectbank-depositcorporate-fixed-deposit_872741.html

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Gold prices: It is a good option to hold gold as a part of your portfolio to counter the unanticipated economic or political situations. But vesting major money in gold especially during the times when bullion markets are looking for future signs (upwards or downwards) from major economies is not a smart option.

It is a common misconception that gold never loose its value. The history of gold prices have a different story to tell. Gold as an investment is no different from equities. The factors which affect the equity markets play their role in bullion markets as well. A study of the factors which affected the gold prices for the last 40 years will give us an insight.

1970-1980 : When Gold recoreded its highest ever price

The 1970 1980 period witnessed the first major bull in gold market. Rated at USD 35 per ounce at the start of 1970’s, gold recorded it peak at USD 850 in January 1980. The fall of Bretton Woods System was the governing factor for such a record high back then. Bretton Woods System was initiated in 1944 when dollar was pegged to gold. US had to maintain a constant reserve of 1 ounce of gold for every 35 USD. Bretton woods system was dissolved by US President Nixon in the year 1971. The yellow metal was allowed to trade freely after the collapse of Bretton Woods system. In the 1970’s most of the western countries faced high inflation rates, low growth and high unemployment rates. It was during this time the investors started intorducing gold as a part of their portfolio. Most of the countries started following floating exchange rate system as opposed to the fixed transactions in USD. In 1973, for the first time gold broke the USD 100 barreir. It was in January of 1980, gold recorded its highest price of USD 850 per ounce. The political turmoil at that point and weak economic data across the globe helped the gold reach its all time high of that period. If you consider the inflation adjusted prices, the USD 850 per gram still remains the all time high price recorded by gold.

1980-2001 : Correction Period

It was more like a one way down south for gold, after experiencing the record price in January of 1980. By January 1990, gold was trading around USD 400 per ounce. It started the new millenium in January 2000 at around USD 300 per ounce. So it was a two decades of downfall for the yellow metal. The economy of the western countries was booming in this period. These economies had stable economic conditions compared to the stagflation experienced in the 1970’s. The interest rates during this time were also at record high in order to control the inflation rates. The investors were favoring shares and bonds over gold. In the 90’s the major factor for downfall in gold prices was the technological revolution. US transformed itself from being a manufacture heavy industry to a technology and service based economy. There was a huge growth in productivity and expectations were riding high on the new technology wave. Gold lost its luster in this high tide.

Post 2001 : The bull run that seemed like forever

Gold prices have experience new highs post 2001. Trading at around USD 250 per ounce, it reached as high as USD 1400 per ounce in 2011. Lack of supply, demand from India and China had a role to play in this rally. India and China are the largest exporters of the gold. Starting 2001, the gold prodcution fell and demand from these countries was on a rise. It was still a steady growth for gold till the start of recession times. The start of recession times around the year of 2007 sparked substantial spikes in gold prices. The announcement of stimulus packages by US sparked this rally. The national debt of US was on the rise. Investors started favoring gold as a hedge against economic uncertainities. Even the central banks of various nations joined the gold buying spree to boost their gold reserves, driving the demand and prices higher.

Conclusion: 

Gold as any other investment do not always guarantee a positive return. It is a safe haven against inflation and economic/political turmoil. But the history always gave ample examples of how various economic factors played their role in determining the gold prices. It is a good option to hold gold as a part of your portfolio to counter the unanticipated economic or political situations. But vesting major money in gold especially during the times when bullion markets are looking for future signs (upwards or downwards) from major economies is not a smart option.

http://www.moneycontrol.com/news/commodity/gold-prices-jumps-5007-yearsnext_870787.html

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Buying a home is perhaps the biggest life and personal finance decision to be made by a family, yet we often take that decision based on here say, emotions, past performance metrics that are thrown at us and zealous real estate developers who claim to increase the price every other day, creating a false sense of urgency and artificial demand.

The great Indian dream, owning a home, is an aspiration of almost everyone in the country. However, the impact on personal finances for going after this dream could have substantial negative down side. While, renting home is not always considered an aspiration, the positive impacts on personal finance are significant. A typical middle class family always wrestles with the thought of buying home vs. renting a home.

Be it a first time home buyer or a home buyer who is looking to move up to the next big home, factors that often influence our decisions could be unrealistic in nature. But these are prevalent among the majority of the population. Renting a home or buying it has their share of advantages and disadvantages.

Renting a home is always considered an expense in our households. While, buying a home is considered to be an investment into an asset that could provide significant returns, perhaps at levels greater than any other asset class such as equity or fixed income.

Additionally, there has always been the social pressure on the middle class to be an owner rather than a renter. Buying a home is considered, a ticket to a superior standing in the social circles. Our physiological behavior patterns give us a sense of security, when we own a home. On the other and, renting home is still considered an option for the segment of people who have not made it yet.

The decisions made on the basis of the above mentioned factors can often lead a family into a path of financial misery. The common problems we come across today include, buying a home that was out of reach, stretching finances to meet down payments, losing money in buying home too early, not preparing personal finances for the new outflows, not preparing for emergencies etc. These mistakes could have a lasting impact on the economic future of the family and hit specific and important goals such as child’s education, retirement planning, marriage of child, living a set lifestyle etc. This problem is exasperated in the section of the population which constitute the "first time home buyers", who probably aspire to move from a rented home to an own home.

Buying a home is perhaps the biggest life and personal finance decision to be made by a family, yet we often take that decision based on here say, emotions, past performance metrics that are thrown at us and zealous real estate developers who claim to increase the price every other day, creating a false sense of urgency and artificial demand.

It is essential that buying a home v/s renting a home decision be taken objectively based on the personal finances of the individual or the family, cost of buying, cost of renting, city of stay, duration of stay and willingness to move to another city. While, emotional satisfaction is important, it cannot be allowed to cloud better judgment.

ArthaYantra addressed the issue of Buy vs Rent objectively, by introducing ArthaYantra Buy vs Rent Score (ABRS). Before making a decision, know your ABRS to know the impact on your finances.

Authored by ArthaYantra.com, an integrated online personal finance company.

http://www.moneycontrol.com/news/real-estate/buyinghome-why-personal-finance-matters_868934.html

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Buying a home is an important personal finance decision for every individual. Before applying for a home loan and paying your processing fee, make sure you analyze the following aspects:

1 Know your maximum loan eligibility

The loan amount to be sanctioned depends on your income and previous track record when it comes to repaying your loans and credit card dues. Home lone lenders generally provide 80% of the value of the property as the loan amount, subjected to your income. While assessing the income criteria, they do not consider some of your payslip heads for calculating your net monthly income. They only consider the income heads which can be used to repay your loan. For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed.

2 Check your CIBIL Score:

The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Limited (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan. Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being Credit Hungry so the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant.

3 Type of Interest Rate

The type of interest rate you choose has an impact on the monthly EMI’s you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. If you opt for fixed rate home loan, the EMI’s don’t vary over the loan tenure. It is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, Interest rate is determined based on the prevailing base rates plus a floating rate. The EMI’s vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

4 Negotiate:

Different banks offer different interest rates on home loans. Negotiate with them to get the best possible rate.

5 Loan Tenure:

The EMI is calculated on the basis of amount of home loan, home loan interest rate and loan tenure. The monthly EMI is inversely proportional to loan tenure i.e. the longer the tenure lower the EMI and shorter the tenure, the higher the EMI. Similarly, the total interest paid is directly proportional to the loan tenure. Higher the tenure, higher the total interest paid and vice versa. Know the impact of your EMI payments on your finances before deciding on the loan tenure. Calculate the available surplus under different scenarios and assess the available monthly surplus for each scenario.

6 Read the documents carefully before you sign

Don’t let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.

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Gold is an integral part of our lives in India. On the global front, India is the largest consumer of gold. India accounts for more than 30 per cent of the global gold market. However, the domestic production of gold in India is minimal. India meets the high demand of gold from its domestic consumers by importing it.

Also read: Investing in gold? 7 facts you should know

Though the universal acceptance, liquidity and safe haven against economic or political turmoil makes gold lucrative, it does not add much of a value to the economy.

Most of the gold bought by us Indians is used for consumption purpose in the form of jewellery. Even from the investment perspective, majority of the Indians still prefer the traditional way of holding it in the physical form. Gold ETFs, which were first introduced in India in 2007, witnessed slow growth in the initial years. Over the past couple of years, investments in gold ETFs gained momentum. However, as per the statistics of Gold Council, jewellery accounts for nearly 75 per cent of the gold demand in India. When we compare this consumption rate with the global scenario, even the second largest importer of gold, i.e., China lags by more than 30 per cent in terms of consumer demand. If we compare these demand levels against the size of economy of major nations, India's GDP is much lower than that of China or the US. The high consumption rate of gold among Indians is unproductive for the Indian economy.

The first major problem the Indian economy faces with this high gold consumption rates is the increasing current account deficit (CAD). India has to pay for its gold imports using its foreign exchange reserves.

Foreign exchange reserves hold a key especially among the developing countries, which have to import and use the industrial metals. Higher consumption of industrial commodities supports industrial production. The goods produced by consuming such commodities can be exported and the revenues can be used to fund the current account deficit. Even during its higher prices, the demand for gold did not go down. The oil imports are a huge burden on India's balance of payments. But oil consumption is something which India cannot reduce keeping its industrial usage in perspective. High gold imports and weak rupee have been the biggest stress points when it comes to narrowing the current account deficit.

Misallocated capital is the second problem faced by the Indian economy due to its gold rush. Keeping the consumption aside, physical gold (mostly jewellery) is also considered as an investment among Indians.

However, it is an investment that does not add much value to the productive capacity of the economy. Investments in the physical form of gold are either stored in bank lockers or get exchanged for making jewellery. It seldom gets traded for money. Imagine the same amount being invested in the capital markets. It allows the companies to raise capital in the form of debt or equity and expand their business. It can make a huge difference to the productive capacity of the economy. It not only just adds to the physical goods produced, it also has a potential to improve employment in a vastly populated country like India.

It is a given fact that over the last decade, gold has given returns which no other asset class has been able to match. However, the demand for gold among Indians has always been price independent. Gold is a traditional investment strategy Indians follow. The effect of high prices has been minimal on the volume of gold imported. The lower prices may increase the demand in the coming days. It is the economies of the US and Europe that play a major role in determining the price movements of gold. By importing gold for our consumption, we Indians are investing in the international markets and helping their economies.

Over the last few years, the Indian markets are supported majorly by the foreign inflows. Participation of Indian domestic investors becomes all the more important for the Indian markets to prosper. Even for the transition of India from a developing market to developed market, it is important that the domestic investors stay invested in the capital markets.

The lack of alternative investments is one of the reasons attributed for Indian investors favoring gold over domestic capital markets. More investors in the capital markets will also drive more investment options in the domestic markets. More than looking at it as an alternative investment, we invest in gold and real estate because we understand it easily.

http://profit.ndtv.com/news/your-money/article-akshaya-tritiya-why-buying-gold-is-bad-for-the-indian-economy-322139

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Tax planning is one of the most important aspects of personal finance. People often fail to look at tax planning objectively and straight away start with making investments related to tax saving. Most of the people try and mix tax planning and investment planning which are totally different and are made with varying objective.Insurance for long has been the front runner whenever investments regarding tax savings are considered. Life Insurance is not an investment option but a financial tool that helps you protect the family from any unforeseen eventualities. Buying excessive insurance defying its motto leads to holding unnecessary products. Savings under section 80C can be broadly classified as: Investment based (PF, PPF, EPF, NSC, NPS, Fixed deposit, ELSS) and Non investment based (principal repayment of home loan, tuition fee). Before making investments related to tax saving it is always important that the individuals must analyze their risk appetite and determine the percentage of debt and equity exposure they are comfortable with. Then they can match these percentages of debt and equity buy investing in the available tax saving investments.Since the risk appetite, liquidity needs and current portfolio of every individual are different, making investments based on just returns is not advisable.

Tax planning age wise:

23– 30

This is generally the starting phase of career for most of the professionals. HRA should It is the right time to start saving for the future. The investments made during this phase should have a long term investment horizon. Starting to save and investing for retirement will give an edge if started at early age because of power of compounding. Investing in a mix of ELSS and Pension related schemes like EPF, NPS or EPF is a good option for professionals of this age group. By doing so, they ensure that they plan for their retirement from an early age. It also provides the advantage of providing equity exposure to their retirement fund.
It is also advisable for the professionals of this age group to get required life insurance cover and health insurance cover. They can take the advantage of low premium rates if they start during this age. Avoid falling in the trap of endowment plans and ULIPs.

31 – 36

During this phase, most of the professionals can generally take advantage of avenues of tax savings other than investments. Contribution to PF by self and employer, required life insurance cover for self and family will form the major portion of 80C. Tuition fee of the children can also be claimed under the same section.

The average age of an Indian home buyer is 30. Most of the professionals in this age group can take advantage of tax savings related to a home loan. They can claim the principal repayment under section 80C and interest repayment under section 24B. For couples who are both liable to pay tax, it is advisable to take the home loan on a joint account.

It is also advisable to take required health insurance cover for self and family which would account for section 80D.
For professionals who can still make investments under 80C, before making any tax related investments they have to chalk out the goals they want to achieve and their respective timelines. Then based on their risk appetite and time horizon, they can invest in relevant tax saving investments. Avoid over doing tax saving investments.

36 – 45

Non investment related tax savings will play a major role in tax planning even during this phase. Principal repayment on existing home loan, employer and self contribution for PF, tuition fee of children, life insurance cover for self and family account for more than 1 lakh under section 80C for most of the professionals in this age group. So, most of them need not even make any investments for tax saving. In case they have an option to invest in 80C they can opt for investments pertaining to retirement. They can even claim the interest repayment of home loan under section 24B and health insurance premium being paid for self and family under section 80D.

This is also time for the professionals to undo the past mistakes made regarding tax savings. They have to assess all their existing tax saving investments and assess the pros and cons of holding them. It is also important that they avoid over doing tax saving investments. They have to assess all their expenditures and identify the expenses which are eligible for tax savings. This gives them a fair bit of idea whether they have to make investments or not.

46 – 60

This is generally the peak earnings phase of the professionals. Most of them try to pay off their existing debts and channelize their income towards savings for retirement. The same factors of home loan, tuition fee and PF account for majority of the tax savings. Most of the professionals do not opt for health insurance other than the one provided by their organizations. But getting a health insurance at age 60, after retirement is an uphill task. Most of the service providers have a cut off age of 60. So if you need not get a health insurance by now, get one. This can be claimed under section 80D.

The cut off age for opening a PPF account is also 60. If they do not have a PPF account by now, it is advisable to start one 60 years is the cut off for opening a PPF account. In case they have to make investments, they can choose any of the debt products related to retirement. Avoid buying excessive insurance or tax saving investments.

60+

Capital protection should be the motto of the investments being made after retirement. All investments should be in debt. Retired employees looking for timely pay outs (monthly or quarterly) can consider investing in Senior Citizen Saving Schemes (SCSS). Since SCSS is backed by government, it provides high security for your capital which is essential for post retirement investments.

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Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why home owners should refinance:

1. 1.Lower interest rate (most popular)
2. 2.Option of lowering tenure if one has an additional monthly surplus
3. 3.Increase the loan tenure to reduce EMI payments.
4. 4.Shift from floating rate to fixed rate or vice – versa.

Case in point : Mr. Sharma has a 40 lakh home loan at 11.25% interest rate and he has made payments for the last 3 years for a 15 Year tenure. Should he think about refinancing his home loan?

1. His current EMI = INR 46,094
2. Outstanding Principal = INR 36,34,030
3. Outstanding Interest payment = 30,37,655

Timing Matters!

Option 1 : Refinancing after 3 years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 12 years tenure-

• New EMI =  INR 44,486
• Total interest payments = INR 27,71,902

Potential Savings = INR 8,62,128

Option 2 : Refinancing loan after 10 Years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 5 years tenure-

• EMI = INR 45,307
• Interest Payment = INR 6,10,515.50
• Potential Savings = INR 67,231.50

The most important question to be answered before refinancing a home loan is : “When should I refinance my loan?”

Now let’s understand the Maths behind it :

• Interest rate is equated monthly interest i.e. if the bank offers a loan at 10.5%, the interest rate to be considered is 10.5%/12

• N refers to number of months i.e. tenure of the loan.

So the factors governing the EMI payments are loan amount, Interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.

1.Loan Amount:

EMI payments are a combination of principal repayment and interest paid on the principal amount.  So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.

2.Interest Rate:

Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally it is advisable to continue with the existing loan unless there is difference of at least 0.75% - 1.00% between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.

3.Loan Tenure

Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs and lesser the tenure, higher the EMIs. Similarly, the total interest paid is directly proportional to tenure. Higher the tenure, higher the total interest paid. So if one has increase in salary, but do not have substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.

Always remember, there is charge involved in refinancing your home loan. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

http://profit.ndtv.com/news/your-money/article-should-you-refinance-your-home-loan-321863

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Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why home owners should refinance:

1 Lower interest rate (most popular)

2 Option of lowering tenure if one has an additional monthly surplus

3 Increase the loan tenure to reduce EMI payments.

4 Shift from floating rate to fixed rate or vice – versa.

Case in point : Mr. Sharma has a 40 lakh home loan at 11.25% interest rate and he has made payments for the last 3 years for a 15 Year tenure. Should he think about refinancing his home loan?

His current EMI = INR 46,094

Outstanding Principal = INR 36,34,030

Outstanding Interest payment = 30,37,655

Timing Matters!

Option 1 : Refinancing after 3 years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 12 years tenure-

New EMI = INR 44,486

Total interest payments = INR 27,71,902

Potential Savings = INR 8,62,128

Option 2 : Refinancing loan after 10 Years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 5 years tenure-

EMI = INR 45,307

Interest Payment = INR 6,10,515.50

Potential Savings = INR 67,231.50

The most important question to be answered before refinancing a home loan is : “When should I refinance my loan?”

Now let’s understand the Maths behind it :

 Where,

Interest rate is equated monthly interest i.e. if the bank offers a loan at 10.5%, the interest rate to be considered is 10.5%/12

N refers to number of months i.e. tenure of the loan.

So the factors governing the EMI payments are loan amount, Interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.

Loan Amount:

EMI payments are a combination of principal repayment and interest paid on the principal amount. So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.

Interest Rate:

Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally it is advisable to continue with the existing loan unless there is difference of at least 0.75% - 1.00% between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.

Loan Tenure

Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs and lesser the tenure, higher the EMIs. Similarly, the total interest paid is directly proportional to tenure. Higher the tenure, higher the total interest paid. So if one has increase in salary, but do not have substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.

Always remember, there is charge involved in refinancing your home loan. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

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The changing socioeconomic structure of the country has increased the importance of retirement planning. Many Indians neither have the social safety net of joint families, nor do majority of them work in government organizations that provide pensions post retirement. The new dynamics of nuclear family, lack of social security and an inflation-driven economy have made retirement planning important.

The golden rule: Start early

The major problem most of the individuals face is the prioritization for retirement planning. People often fail to realize (or act) the fact that the earlier they start, more the benefits. Procrastination often leads to higher investment requirement which becomes an uphill task at later stages. For example, at 10 per cent RoR, a 25-year-old person investing Rs. 4,000 per month would retire with a corpus of Rs. 1.5 crore at the age of 60. On the other hand, a 35-year-old person investing Rs. 8,000 per cent would only make Rs. 1 crore at retirement.

This can be mainly attributed to the confusion they face regarding the product they need to opt for retirement planning and also the miscalculation on the part of Retirement fund requirements (when to start, how much to save etc.). The miscalculations without considering the provident fund and suitable expected inflation rates leads to enormously high amount of required retirement corpus.

Things to consider

The key factors that investors should keep in mind while planning and investing for their retirement are:

• The amount of provident fund accumulated till date
• The expected amount of future contribution to the provident fund
• Expected inflation rate during the post-retirement period. This is also referred to as the time value of money
• Realistic retirement corpus required should be calculated by excluding the expenses which might not be incurred after the retirement
• Medical inflation rates for the past decade have remained high (approximately 20 per cent). Considering the fact that for most of us the medical requirements are
• proportional to age, it is important to consider medical inflation rates in determining the required corpus.
• Selection of appropriate and suitable investment instruments from the gamut of products available in the market

How to calculate the required corpus for retirement:

While assessing the amount to be accumulated as retirement corpus, it is important to consider the provident fund contribution made till date and the expected future contribution. Ignoring these two factors leads to disproportionately high retirement requirements. In order to counter this it is advisable to adapt the following approach:

• Retirement fund shortage = Total fund required minus accumulated provident fund
• Yearly amount to be saved = Retirement fund shortage divided by years to retirement
• Monthly investment for retirement planning = Yearly amount to be saved divided by 12
• Actual investment to be made = Monthly investment minus monthly provident fund contribution

http://profit.ndtv.com/news/life-and-careers/article-are-you-ready-for-retirement-key-things-to-consider-321685

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Gold was the most sought after investment in the past decade. During this time, gold added to its reputation as the safe haven during the global economic crisis. But off late gold prices have experienced significant corrections. Here are the factors which made gold prices record new highs in the last decade and the factors which made it take a plunge in the previous months.

US Economy

Being a dominant player in Global Economy, US economy always maintained an inverse relation with the gold markets.

Past Situation

US faced a deepest and longest recession since the Great Depression of 1930s. The manufacturing industry took a severe hit. The economy was unable to generate new jobs driving the unemployment rate higher. The housing sector was affected by numerous foreclosures. US had to support its wrecked banking system by Quantitative Easing Methods. During that time, the investors were favoring gold over the US Equity markets.

Present Situation

The US economy started to gain momentum in the month of March 2013. The employment data of US was encouraging with the private sector adding a substantial number of new jobs and posting good gains in the first quarter. Being a personal consumption driven economy, United States found support in the form of increased activity in motor vehicles and housing sectors. This in turn started stimulating the much needed labor market activity resulting in increased employment opportunities. Increased household wealth, Increased spending at retail outlets and stores also showed signs of recovery. Even the Home foreclosures and layoff rates were recorded at pre – recession levels. The economic recovery signs improved investors’ confidence in Equity markets. They started preferring Equity markets over Gold.

Global Economy

Past

Not just US but all the major economies across the globe experienced a major financial crisis post 2007. The turmoil in Europe with respect to the economic slowdown and debt crisis negatively affected the Euro. Japanese economy was spiraling in the effect of the “lost decade”.

Present

Though the current condition of Euro Zone doesn’t boast of full recovery, it started showing good signs. With Cyprus banks opting for selling their gold reserves to pay off the debt, supply of gold increased. In the anticipation of more Euro nations following the suit, investors have cut down their exposure to gold. Gold ETFs experienced huge sell off pressure.

US Dollar

Past

The quantitative easing measures by US weakened the US dollar. Demand for US dollar decreased.The major federal banks were opting for gold over US dollar, with China being the front runner. This acted as one of the driving factors for gold price rally. In anticipation of driving inflation rates higher once the quantitative easing measures end, investors preferred gold as a hedge against inflation.

Present

With signs of economic recovery, US dollar strengthened. The current inflation data across the globe is not in sync with the anticipations. The inflation numbers were recorded lower than expected. Investors started favoring US dollar over Gold.

Conclusion

When compared to the global markets, Indian markets experienced higher growth rates in gold prices. Indian rupee which used trade in the range of INR 43 per USD is now valued at around INR 54 per USD. The global economic conditions of the past decade along with the weakness of India Rupee acted in favor of higher gold prices during the last decade in India.

The economic indicators in coming quarter will define the direction of gold in future. If the US economy continues its good run, expect further slash in gold prices in the year 2013.

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In the past few weeks, there is lot of talk around how the yellow metal has lost its shine significantly since the start of Jan – 2013. Most of the investors are placing their faith and money in recovering markets over Gold. Gold funds have experienced huge sell offs during the past three months. Apart from the investors, the gold loan lenders are expected to take a hit because of the falling gold prices.

Basics of Gold Loan

Before analyzing the effect, it is important that we revisit a few basics of such loan. How do you avail a loan while pledging an asset? The value of asset is estimated as per the prevailing market rates and a certain percentage of the value of asset is granted as a loan. The percentage of loan given is called as “loan to value” ratio. The lender expects to make profit on it in the form of interest rate paid by the borrower. The default risk is countered under the assumption that the pledged asset will gain in terms of its value over the loan tenure. Once the borrower defaults on his loan repayment, the lender can then redeem the money he borrowed by selling the asset.

The problem

The current issue with gold loans is the “loan – to – value” ratio at which they were evaluated at the time of processing the loan. During the times when the gold rates were high, the gold loan companies were on a credit spree. They started issuing loans at higher “loan – to – value” ratios. Some companies even issued nearly 80 - 90 % of the value as a loan amount. RBI has to step in March 2012 to cap the maximum limit to 60% of the value of the asset.

The fall in gold prices has implications on the gold loans which were taken at higher “loan – to – value” ratio. The collateral i.e. the gold has diminished in value. In order to make up for the margin of current value of collateral and amount of loan issued, the loan provider would either need the borrower to pledge more collateral or pay the margin in cash. If the borrowers fail to match the margin, the probability of default risk increases. The lender will be forced to auction the pledged gold in open market. The realization value of used household gold in falling markets will be lower compared to the loan amount. If the lender wants to hold this for a longer period in anticipation of improved market conditions, they will be facing a liquidity crunch.

It is testing times for the age old assumption that gold prices will never fall. It is the same phenomena in which both the lender and borrower of a gold loan always believed in. The growth of gold loan companies kept pace with the gold prices till now. During the past decade, gold prices experienced new highs and gold loan providers posted strong numbers in their books. The finance ministry has asked all the banks to review their loans backed by gold and call their customers for more collateral if the prices fall further. It has to be seen whether the customers will match the margin or opt for default route.

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Credit cards are the most easily available form of loan. You shop now and pay the bills later. As attractive as it sounds, it comes with the danger of increasing debt if not used efficiently. Make sure you have the following points on your checklist, next time you are applying for or using a credit card.

Shop for a credit card before planning to shop with it

Before applying for a credit card, make sure you evaluate all the options available in the market. Different banks provide different offers on the credit cards. Don’t let your comparison stop at the card limit. Know the interest rates being charged on different credit cards and their respective processing fee and renewal fees. Analyze the benefits you receive on signing up for a credit card. Know the different benefits in the form of loyalty points or pay back points and also how to and where to redeem them.

Know what you are agreeing to

Read the documents carefully before signing your credit card application. Don’t just rely on the statements made the credit card executive. Know the clauses, interest rates and renewal fee of the credit card. This can help you avoid surprise payments and long phone calls with your credit card call center executives in the future.

Avoid excessive usage

Make wise decisions before making any purchases using your credit card. Differentiate between what you “need’ and what you “want”. This helps you avoid budget crunches during the month end when you are supposed to make credit card payments.

Avoid late payments

Making a late credit card payment can have significant negative consequences on your credit score. It negatively affects your credit worthiness. It not only increases interest rates when you are looking for a loan or credit card next time, but also drags down your loan eligibility amount. If possible, make the credit card due payments as and when you receive your monthly statement. Make sure you set reminders on the bill payment due date in order to avoid missing bill payments and late fee charges. You can also opt for automatic bill payment and avoid late payment charges.

Make sure you pay the total bill, not just the minimum payment

Don’t get into the habit of making only minimum due payments. Making only minimum payments every month will indirectly increase the time taken to clear the debt accumulated. You will also end up paying high amount of interest by deferring the credit card payments if you pay only the minimum amount.

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Having an emergency fund in your portfolio is an ideal way to tide over a family crisis or meet unexpected expenses. Therefore, the need for maintaining emergency funds, particularly keeping some cash at home or in a bank account, has always been emphasized by our forefathers.

"Even standard financial principles suggest that you should keep aside cash to cover three to six months of living expenses, which would be able to cover most emergency expenses. Your emergency funds can also come handy in case of a job loss as it takes some time to get a new job," says Anil Chopra, Group CEO, Bajaj Capital.

However, building an emergency fund is not that easy. It requires discipline. It may also require reducing your spending to free up extra cash, and many more things. But once you are able to build your emergency fund, it will surely help you in times of crisis.

Here we take a look at 10 easy steps which will help you build your emergency fund:

1. List your regular monthly expenses

The first step to building an emergency fund is listing down all your monthly expenses, ranging from household to loans. Differentiate between the expenses which are mandatory and which are not, considering unnecessary expenses will result in abnormal or wrong calculation of emergency fund requirements. "This process helps you in determining a realistic corpus required as an emergency fund. It also helps in chalking out the expenses you can cut on to increase your savings rate. So by going through the process of budgeting you not only gauge your emergency requirements, but also find the ways to fund your emergency corpus," informs Nitin B Vyakaranam, founder & CEO of Artha Yantra, a financial planning portal.

2. Assess your income streams

The next step is to analyze all your income streams. This is especially important for small time vendors and businessmen who have multiple income sources. Differentiate your various income sources which are continuous and which are periodic. For example, your monthly salary is a continuous income whereas your yearly bonus is a periodic income.

"It is always important that you determine your monthly savings based on the continuous income sources. More often than not the periodic income sources are variable in nature. Use the periodic income to make lump sum investments and the continuous income to make monthly investments," says Vyakaranam.

3. Improve the savings rate

Once you do the basic budgeting, you can exactly assess the monthly savings you are making. Check whether the current savings rate is good enough or not. Assess all your income and expense heads. Analyze the areas which are affecting your savings rate. If possible, chalk out plans to cut down or minimize your expenses.

This helps in increasing your monthly savings. There is always room for improvement when it comes to savings. Improving savings should be a continuous process. Find out the areas where you are spending more and assess whether you can cut down your spending in these areas.

4. Start small

Don't try to make all the savings required to build an emergency fund in one month. This can prove to be a burden on your purse. In the process of doing lump sum investments, most of us procrastinate the process of savings. Avoid such pitfalls while building your emergency fund. Start with smaller amounts.

"Make sure you set some money aside every month as a part of your emergency fund until you reach the optimal level. It is not important that you save in higher amounts, it is important that you make this process of saving a hobby and continue it for a longer period. The power of compounding also works in your favour if you start early," suggests Vyakaranam.

5. Reduce an expense

Find that one expense which you can cut back on. This is one of the best ways to increase your savings rate and generate money to fund your emergency requirements. It is also the best practice to replace your expense with savings. It helps in generating more savings from the existing income.

For example, if you have tea thrice in a day, try to have it once or twice. Similarly, if you eat out daily, see if you can pack a lunch box to office. Though you think it is just Rs 10-30 extra per day, by cutting down on them you can save nearly Rs 300 to 900 a month. This money can be used to boost your emergency fund.

http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/build-your-emergency-fund-in-10-easy-steps/articleshow/19558201.cms

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Health Insurance provides risk coverage against expenditure caused by any unforeseen medical emergencies. Provided the high medical inflation rates, failing to hold adequate amount of health insurance cover can often prove to be a major personal finance slip-up. It can either result in poor health care because of non-affordability or spiral an individual into financial distress due to high medical bills. Currently, majority of the salaried professionals are provided a health insurance cover by their respective organizations. However, they often fail to assess their health insurance requirements and realize the benefits of holding adequate health insurance. They also assume that the health insurance cover provided by their organization will be available even during the post retirement phase.

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One question we fail to ask ourselves before buying a life insurance policy is: what is the amount of insurance cover I need? We are often lost in assessing the gamut of life insurance products available in today's world.

Our emphasis lies in picking the insurance product rather than evaluating our insurance needs. The standard practice of financial planning advocates us to first calculate the insurance requirements and then start analyzing the available options before picking the suitable product.

In India, when it comes to life insurance we mostly hear about calculating the insurance requirements using the human life value (HLV) method. HLV takes into consideration only the income of the individual.

By considering only the income, the HLV method makes multiple assumptions that are not tenable over a long term.

One of the assumptions is that today's salary can be used as a reference point for future requirements, and often emergencies that are non-life threatening (eg: job loss, accidents, etc) are not considered, making it more likely to overestimate or underestimate the insurance requirements of the family.

The very purpose of taking an insurance cover is for the family to meet the expenses after the demise of the earning member. Need-based approach, often termed as expense replacement, considers the expense that the family would require to sustain in the absence of the bread winner. It is also important to understand that the family needs readily available cash to pay off the deceased member's medical expenses, funeral expenses, debts, estate settlement cost, emergency fund and final expenses as the inflation rate increases the cost of living also goes up. The family of the deceased should be able to sustain itself in such conditions as well. Hence, it would be prudent to link to the insurance requirement of individuals.

Need-based approach involves paying off the deceased persons' remaining obligations such as auto loan (if the loan is not insured), credit card dues, meeting child's future education needs, etc. It also takes care of the future expense needs of the family. Expense replacement approach is more accurate as it involves a detailed examination of the family's anticipated expenses during various periods after the insured's death. It provides more realistic estimates of life insurance needs.

Nitin Vyakaranam is the founder and chief executive officer, ArthaYantra, an integrated online personal finance company.

http://profit.ndtv.com/news/your-money/article-how-much-insurance-cover-do-you-need-320849

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Financial planning, as most would believe is not only just about planning for your retirement or investing wisely. If you actually crunch it to the core, financial planning is all about applying determined and disciplined guidelines to deal with our past, present and future finances. The past always haunts you.

Nitin Vyakaranam
ArthaYantra.com

Some of us are carrying the baggage of financial mistakes of the past which in turn are affecting our present and future commitments. Mistakes made in the past such as buying a wrong insurance or a few too many insurance policies, buying a home you couldn’t afford, buying too much on credit, borrowing from the place not suitable to you, trying to make quick money by investing without adequate research resources and knowledge. Though everyone wants to drop the baggage of all such mistakes, it is hard to get rid of.

Dreams seldom materialize on their own. You need to act now in the present and make a plan to head towards a financially stable and safe future. Most of us even fail to realize our past financial mistakes. A financial planner can help us in correcting our past financial mistakes. Following are the steps in order to correct past financial mistakes:

• Learn to accept past financial mistakes and take decisions to mitigate them. You are the in charge of your future.
• Maintain due diligence on the financial products you invest in irrespective of the person/institution recommending it. Make a decision
• based on what they are selling rather than who is selling.
• Not only plan for unexpected events in life, plan for unexpected expenses as well.
• Don’t put all the eggs in the same basket. Similarly don’t put the good eggs in a bad basket.
• Set specific targets of what you want to achieve and when you want to achieve.
• Monitor and re-evaluate your financials periodically.

It is important to realize that we not only need money to harness money but we need to revisit the decisions that led us to the road to nowhere. We have to plan our financials in a systematic way to get rid of the baggage of past financial mistakes and channelize our savings towards achieving our goals in a more disciplined and scientific manner.

http://www.moneycontrol.com/news/planning/how-financial-mistakes-will-come-back-to-haunt-you_877949.html

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• Miscalculating insurance requirement: Determining the ideal amount of insurance cover needed is one of the most common insurance mistakes. One has to objectively address the question of: "How much Insurance cover do I need?" This can help the individuals in buying exactly what they need. Most of the times we end up being over-insured buying unnecessary insurance products or under-insured by failing to get required risk cover. Ideally, the risk coverage provided by the insurance policy should match the committed expenses of the individual for the years to come. One can also consider including the mandatory goals (retirement, child's marriage, etc.) while calculating the insurance requirements.

• Mixing insurance with investments: Considering insurance as an investment is another common mistake. It is a common misconception that insurance is a risk-free investment. One has to note that insurance and investments are two completely different financial entities. We buy insurance as a part of risk coverage which can be used in case of any unexpected eventuality of the earning member of the family. We make investments primarily to achieve our goals and build wealth. When we mix both these important financial entities, we fail to do justice to both. One has to pay higher premiums for the insurance policies which return the premium paid along with an interest after a stipulated time. So, the chances of getting adequate insurance cover paying such higher premiums are minimal. Even the returns one can enjoy on such insurance policies are significantly less than the money invested in a well-diversified portfolio.

• Insurance is the best way to save tax (primary motive of buying insurance): Insurance for long has been the front runner whenever investments regarding tax savings are considered. People often fail to realize that not all insurance payments are tax free. It is subjected to the upper limit of section 80C, which is caped at Rs. 1 lakh. Essentially, the contributions made towards provident fund and principal repayments of a home loan are also considered under section 80C. One should consider insurance just as a risk mitigating financial instrument, tax saving is just an icing on the cake and not the primary motive of buying insurance. Under the common myth that every premium paid is eligible for tax saving, most of us end up buying unnecessary insurance products.

• Expecting returns from life insurance: For most of us, the whole perception of insurance changes when it has a prefix of life to it. For example, consider auto insurance. We pay a premium for our auto insurance which covers from the damages done to our vehicle in case of any mishap. We pay the premium every year, we enjoy no-claim bonuses if no claims are made and most importantly at the end of it, we do not receive any money back along with interest. The same fundamentals should be applied for life insurance as well. The main motto of a life insurance policy is to protect the family from the risk of mishap to the bread winner of the family. Our behavioral nature of wanting to get back something from the insurance premiums make us opt for insurance policies which are other than term policies. Term insurance can be availed at much lower cost compared to other hybrid insurance policies.

http://profit.ndtv.com/news/cheat-sheet/article-four-life-insurance-mistakes-you-must-avoid-322438

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Many NRIs are often faced with the situation of maintaining a Rupee account in India. There are two options available with NRI interested in opening bank account in India - NRE or NRO account. Read this space to know the difference between these two accounts and know when to choose what account.

An Non-Resident Indian is often faced with the situation of maintaining a Rupee account in India. Sometimes the NRI wants to his overseas earned money back to India and keep it in Indian currency whereas sometimes he is earning money within India and wants to keep India based earnings in Indian Rupee in India. He/She has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account based on specific requirements. An NRO account can also be opened by Person of Indian Origin (PIO) and Overseas citizen of India (OCI).

Similarities between NRE and NRO accounts:

Both accounts can be opened as Savings as well as current accounts and are Indian Rupee accounts. One needs to maintain an average monthly balance of Rs 75000 in both NRE and NRO accounts.

The Differences between NRE and NRO accounts:

1. Repatriation: NRE account is freely repatriable (Principal and interest earned) while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant.

2. Tax Treatment: NRE account is Tax free (no Income tax, wealth tax and gift tax) in India. On the other hand the interest earned in NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax.

3. Deposit of Rupee funds generated in India: If an NRI/PIO/OCI  is earning income originating in India (such as salary, rent, dividends etc.) he/she is only allowed to deposit it in NRO account. Deposit of such earnings is not permitted in NRE account.

4. Joint Holding: NRE account can be iointly held with another NRI but not with resident Indian. On the other hand NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956.

Choose NRO account is you:

• (Primary reason) want to park India based earnings in Rupees in India;
• want account to deposit income earned  in India such as rent, dividends etc;
• want to open account with resident Indian (close relative)

http://www.moneycontrol.com/news/fixed-income-bank-deposits/knowdifference-between-nrenro-account-_875207.html

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Buying a home is an important personal finance decision for every individual, particularly in view of the fact that a home is usually the biggest investment in one's lifetime. And like anywhere else in the world, home loan or mortgage products have only made it easier for average salaried Indians to own a home they can call their own. One should, however, not forget the long-term liability that needs to be serviced and it would only help to keep some of the following things in mind when taking a home loan:

1. Impact of loan on your personal finance

Before opting for a home loan, it is always advisable to assess the impact of taking a loan and the subsequent EMI payments on the monthly cash out flows. It is a prescribed personal finance practice to get a new monthly budget in place which accommodates the new cash out flow in the form of EMI payments.

"The impact should be analyzed on the monthly available surplus and subsequent savings being done towards achieving other goals. This helps in determining the comfortable EMI payments one can make and respective loan amount one can opt for," says Nitin B Vyakaranam, founder & CEO of financial planning portal Artha Yantra.

In other words, what you can afford should be determined by your ability to service the re-payments of the liability you undertake with a home loan. This would be governed by the loan amount and the interest rate applicable on your home loan. "You also need to remember that taking a loan with a view of selling the house a few years down the line at a higher price to help you settle your liability may not always work, especially if the property prices start moving downwards or even if they remain static - as we have seen over the last couple of years the world over," observes Anil Sahgal, director, MAGI Research and Consultants, and co-founder of personal finance consulting portal 'i-save'.

Therefore, it makes sense to access your affordability and the loan's impact on your personal finance before opting for a home loan.

2. Know your maximum loan eligibility

As per the current market norms, banks can lend up to 60 times the monthly net salary of an individual. However, while assessing the income criteria, they do not consider some of the salary slip heads for calculating the net monthly income. They only consider the income heads which can be used to repay your loan.

"For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed," informs Vyakaranam.

3. Check your CIBIL score

The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Ltd (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan.

"Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being credit hungry. So the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant," says Vyakaranam.

4. Co-application

What you can afford will also be reviewed by the bank that is providing you the loan. This would depend on your past and current financial position and ability to service the loan in the future i.e. ability to pay back the loan with applicable interest.

"In case you want a loan amount higher than what you are being offered as an individual, you may want to have your spouse or parents as co-applicants. This helps you increase the overall limit that the bank can offer since there is more than one person sharing the repayment of loan and the combined limit will obviously be higher. Needless to say, this can only work if the co-applicants have an independent source of income," says Sahgal.

Having co-applicants can also make sense from a taxation perspective with each applicant being able to avail the tax benefit available on interest payment of an EMI.

5. Duration

Once again, keeping in mind how much you can afford to pay each month, try and keep the duration of the loan as low as possible. With a lower duration of loan, the EMI may be higher but what you would pay as interest over the term of your loan would be substantially lower. If you can't afford the higher EMI and have to necessarily take a higher duration loan, it would help to try and manage your savings in a way that help you pre-pay the loan with intermediate payments in the initial years itself so as to reduce your overall interest burden.

6. Type of interest rate

The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. For instance, if you opt for fixed rate home loan, the EMIs don't vary over the loan tenure. So it is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, interest rate is determined based on the prevailing base rates, plus a floating rate. The EMIs vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

But the choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products, but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. On the other hand, floating interest rate products, though cheaper, are linked to a base rate or benchmark rate and can go up or down with a change in the base rate.

"It would, therefore, make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. Even in this case, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10%, respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper," says Sahgal.

You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which in any case will defeat any assumption of certainty that you may want to build into your financial planning.

You should also remember that different banks offer different interest rates on home loans. Therefore, you must negotiate with them to get the best possible rate.

7. Pre-payment and foreclosure charges

One of the important features that you should consider in your home loan product is the availability of pre-payment facility. While some banks may not allow you to prepay your loans, others could be providing you the facility to prepay a certain percentage of your principal amount every year with or without a penalty charge.

"It would be worth your while to compare this feature across the product options you are evaluating since this flexibility can help you reduce your interest burden if you can manage to close your loan earlier," says Sahgal.

8. Read the documents carefully before you sign

Don't let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.

9. Take cover

Given the long-term nature of the liability, it also makes sense to protect yourself and your family from any unforeseen circumstances. In this case you can consider a life insurance plan.

"A life insurance plan that covers the re-payment of loan in the event of an unfortunate death of the borrower can at least help the family retain their home," says Anil Sahgal.

10. Loan transfers

Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer.

11. Implications of delayed payments

Delayed or missed payments can impact you not only financially but can also affect your credit history. On the one hand, you may have to pay a penalty or fees associated with delayed or missed payments, while on the other your credit history will reflect these missed or delayed payments.

You should, therefore, always try to clear your EMIs in time because once you are declared a defaulter or your credit history turns bad, then it will become very difficult for you to take a home loan again from another bank or housing finance company. It will also become very difficult for you to transfer your loan to another bank or lending institution which is offering you a lower interest rate. Not only this, you also won't be able to take even a personal loan in your entire life. Therefore, it is better to be safe than sorry.

http://articles.economictimes.indiatimes.com/2013-05-17/personal-finance/39336790_1_home-loan-emi-payments-loan-amount/2

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Fixed deposits (FD) are becoming popular investment among investors in the current interest regime. However, the actual return earned on a fixed deposit can be less that what is stated due to tax aspect attached to a FD. Financial expert Nitin Vyakaranam gives us insightful information on how tax is calculated and can be saved on FD investment.

Bank Fixed deposits are known for giving risk free returns. Fixed deposits for long have been one of the favorite avenues of investors in India who do not trust the capital markets. Fixed deposit as an investment instrument is very easy to understand. In simple terms one puts the money with the bank for a specified tenure and bank repays the money with a specified interest rate. It is regarded as one of the safest investments. However, we often overlook the tax implications associated with bank fixed deposits. The interest earned on the bank fixed deposit is taxable, if it exceeds INR 10,000 in a financial year. This clause holds good even for the tax saving fixed deposits made. In most of the cases, the tax is deducted at source. Banks have made PAN Card mandatory for the investments which attract an interest in excess of INR 10,000 in a financial year. The taxation on fixed deposits mean that the actual interest rate earned on the investment is less than the interest rate promised by the bank.

How is tax calculated on the fixed deposits?

The income accrued as interest on bank deposits in accounted under the income from various other sources head of income tax code. The excess interest earned on fixed deposits over INR 10,000 is taxed as per the tax slab rates of the individual. For example, consider an individual who accrues an interest of INR 15,000 in a financial year. Since the interest accrued till INR 10,000 is not taxable, the excess interest i.e. INR 5,000 is taxed. If the individual is in 20% tax bracket, 20% of INR 5,000 is charged and a 3% cess is charged on it. So the effective interest earned on the fixed deposit is INR 13,970.

Companies use corporate fixed deposits in order to raise debt for their operations. These investments bear more risk when compared to the bank fixed deposits. Though the repayment is agreed on a specific interest rate, default risk plays an important role in such investments. The repayment of corporate fixed deposits is directly linked with the performance of the company. If the company fails to perform, the chance of defaulting on the repayment increases. So, the company fixed deposits generally pay a higher interest rate than bank deposits. In case of company fixed deposit, the tax free interest earned is capped at INR 5,000. The companies would deduct tax at source if the interest earned in a financial year exceeds INR 5,000 as per the tax slab of the individual.

How to avoid tax on fixed deposits

Form 15G/15H: The investor should submit a 15G or 15H form stating that their total income from all sources in under permissible non taxable income levels. Individuals below 65 years should file form 15G and individuals aboe 65 should file form 15H. However, individuals whose income from sources which are considered under the income from other sources head exceed INR 1 lakh, cannot file a 15G form.  

Distributing the FD investments: Distributing the FD investments across various companies so that the interest earned does not exceed the permissible level is an effective option to avoid TDS. Previously the same strategy was also applied for bank deposits. However, introduction of Core Banking System (CBS) gave the banks an option to pool the investments based on PAN Number.

Timing of the FD investments: Timing of the investments can also be used effectively to avoid TDS. The investment is spread over two or more years to ensure that the interest earned in a single financial year does not exceed the limits.

Authored by ArthaYantra.com, an integrated online personal finance company.

http://www.moneycontrol.com/news/fixed-income-bank-deposits/tax-aspectbank-depositcorporate-fixed-deposit_872741.html

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Gold prices: It is a good option to hold gold as a part of your portfolio to counter the unanticipated economic or political situations. But vesting major money in gold especially during the times when bullion markets are looking for future signs (upwards or downwards) from major economies is not a smart option.

It is a common misconception that gold never loose its value. The history of gold prices have a different story to tell. Gold as an investment is no different from equities. The factors which affect the equity markets play their role in bullion markets as well. A study of the factors which affected the gold prices for the last 40 years will give us an insight.

1970-1980 : When Gold recoreded its highest ever price

The 1970 1980 period witnessed the first major bull in gold market. Rated at USD 35 per ounce at the start of 1970’s, gold recorded it peak at USD 850 in January 1980. The fall of Bretton Woods System was the governing factor for such a record high back then. Bretton Woods System was initiated in 1944 when dollar was pegged to gold. US had to maintain a constant reserve of 1 ounce of gold for every 35 USD. Bretton woods system was dissolved by US President Nixon in the year 1971. The yellow metal was allowed to trade freely after the collapse of Bretton Woods system. In the 1970’s most of the western countries faced high inflation rates, low growth and high unemployment rates. It was during this time the investors started intorducing gold as a part of their portfolio. Most of the countries started following floating exchange rate system as opposed to the fixed transactions in USD. In 1973, for the first time gold broke the USD 100 barreir. It was in January of 1980, gold recorded its highest price of USD 850 per ounce. The political turmoil at that point and weak economic data across the globe helped the gold reach its all time high of that period. If you consider the inflation adjusted prices, the USD 850 per gram still remains the all time high price recorded by gold.

1980-2001 : Correction Period

It was more like a one way down south for gold, after experiencing the record price in January of 1980. By January 1990, gold was trading around USD 400 per ounce. It started the new millenium in January 2000 at around USD 300 per ounce. So it was a two decades of downfall for the yellow metal. The economy of the western countries was booming in this period. These economies had stable economic conditions compared to the stagflation experienced in the 1970’s. The interest rates during this time were also at record high in order to control the inflation rates. The investors were favoring shares and bonds over gold. In the 90’s the major factor for downfall in gold prices was the technological revolution. US transformed itself from being a manufacture heavy industry to a technology and service based economy. There was a huge growth in productivity and expectations were riding high on the new technology wave. Gold lost its luster in this high tide.

Post 2001 : The bull run that seemed like forever

Gold prices have experience new highs post 2001. Trading at around USD 250 per ounce, it reached as high as USD 1400 per ounce in 2011. Lack of supply, demand from India and China had a role to play in this rally. India and China are the largest exporters of the gold. Starting 2001, the gold prodcution fell and demand from these countries was on a rise. It was still a steady growth for gold till the start of recession times. The start of recession times around the year of 2007 sparked substantial spikes in gold prices. The announcement of stimulus packages by US sparked this rally. The national debt of US was on the rise. Investors started favoring gold as a hedge against economic uncertainities. Even the central banks of various nations joined the gold buying spree to boost their gold reserves, driving the demand and prices higher.

Conclusion: 

Gold as any other investment do not always guarantee a positive return. It is a safe haven against inflation and economic/political turmoil. But the history always gave ample examples of how various economic factors played their role in determining the gold prices. It is a good option to hold gold as a part of your portfolio to counter the unanticipated economic or political situations. But vesting major money in gold especially during the times when bullion markets are looking for future signs (upwards or downwards) from major economies is not a smart option.

http://www.moneycontrol.com/news/commodity/gold-prices-jumps-5007-yearsnext_870787.html

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Buying a home is perhaps the biggest life and personal finance decision to be made by a family, yet we often take that decision based on here say, emotions, past performance metrics that are thrown at us and zealous real estate developers who claim to increase the price every other day, creating a false sense of urgency and artificial demand.

The great Indian dream, owning a home, is an aspiration of almost everyone in the country. However, the impact on personal finances for going after this dream could have substantial negative down side. While, renting home is not always considered an aspiration, the positive impacts on personal finance are significant. A typical middle class family always wrestles with the thought of buying home vs. renting a home.

Be it a first time home buyer or a home buyer who is looking to move up to the next big home, factors that often influence our decisions could be unrealistic in nature. But these are prevalent among the majority of the population. Renting a home or buying it has their share of advantages and disadvantages.

Renting a home is always considered an expense in our households. While, buying a home is considered to be an investment into an asset that could provide significant returns, perhaps at levels greater than any other asset class such as equity or fixed income.

Additionally, there has always been the social pressure on the middle class to be an owner rather than a renter. Buying a home is considered, a ticket to a superior standing in the social circles. Our physiological behavior patterns give us a sense of security, when we own a home. On the other and, renting home is still considered an option for the segment of people who have not made it yet.

The decisions made on the basis of the above mentioned factors can often lead a family into a path of financial misery. The common problems we come across today include, buying a home that was out of reach, stretching finances to meet down payments, losing money in buying home too early, not preparing personal finances for the new outflows, not preparing for emergencies etc. These mistakes could have a lasting impact on the economic future of the family and hit specific and important goals such as child’s education, retirement planning, marriage of child, living a set lifestyle etc. This problem is exasperated in the section of the population which constitute the "first time home buyers", who probably aspire to move from a rented home to an own home.

Buying a home is perhaps the biggest life and personal finance decision to be made by a family, yet we often take that decision based on here say, emotions, past performance metrics that are thrown at us and zealous real estate developers who claim to increase the price every other day, creating a false sense of urgency and artificial demand.

It is essential that buying a home v/s renting a home decision be taken objectively based on the personal finances of the individual or the family, cost of buying, cost of renting, city of stay, duration of stay and willingness to move to another city. While, emotional satisfaction is important, it cannot be allowed to cloud better judgment.

ArthaYantra addressed the issue of Buy vs Rent objectively, by introducing ArthaYantra Buy vs Rent Score (ABRS). Before making a decision, know your ABRS to know the impact on your finances.

Authored by ArthaYantra.com, an integrated online personal finance company.

http://www.moneycontrol.com/news/real-estate/buyinghome-why-personal-finance-matters_868934.html

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Buying a home is an important personal finance decision for every individual. Before applying for a home loan and paying your processing fee, make sure you analyze the following aspects:

1 Know your maximum loan eligibility

The loan amount to be sanctioned depends on your income and previous track record when it comes to repaying your loans and credit card dues. Home lone lenders generally provide 80% of the value of the property as the loan amount, subjected to your income. While assessing the income criteria, they do not consider some of your payslip heads for calculating your net monthly income. They only consider the income heads which can be used to repay your loan. For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed.

2 Check your CIBIL Score:

The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Limited (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan. Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being Credit Hungry so the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant.

3 Type of Interest Rate

The type of interest rate you choose has an impact on the monthly EMI’s you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. If you opt for fixed rate home loan, the EMI’s don’t vary over the loan tenure. It is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, Interest rate is determined based on the prevailing base rates plus a floating rate. The EMI’s vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

4 Negotiate:

Different banks offer different interest rates on home loans. Negotiate with them to get the best possible rate.

5 Loan Tenure:

The EMI is calculated on the basis of amount of home loan, home loan interest rate and loan tenure. The monthly EMI is inversely proportional to loan tenure i.e. the longer the tenure lower the EMI and shorter the tenure, the higher the EMI. Similarly, the total interest paid is directly proportional to the loan tenure. Higher the tenure, higher the total interest paid and vice versa. Know the impact of your EMI payments on your finances before deciding on the loan tenure. Calculate the available surplus under different scenarios and assess the available monthly surplus for each scenario.

6 Read the documents carefully before you sign

Don’t let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.

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Gold is an integral part of our lives in India. On the global front, India is the largest consumer of gold. India accounts for more than 30 per cent of the global gold market. However, the domestic production of gold in India is minimal. India meets the high demand of gold from its domestic consumers by importing it.

Also read: Investing in gold? 7 facts you should know

Though the universal acceptance, liquidity and safe haven against economic or political turmoil makes gold lucrative, it does not add much of a value to the economy.

Most of the gold bought by us Indians is used for consumption purpose in the form of jewellery. Even from the investment perspective, majority of the Indians still prefer the traditional way of holding it in the physical form. Gold ETFs, which were first introduced in India in 2007, witnessed slow growth in the initial years. Over the past couple of years, investments in gold ETFs gained momentum. However, as per the statistics of Gold Council, jewellery accounts for nearly 75 per cent of the gold demand in India. When we compare this consumption rate with the global scenario, even the second largest importer of gold, i.e., China lags by more than 30 per cent in terms of consumer demand. If we compare these demand levels against the size of economy of major nations, India's GDP is much lower than that of China or the US. The high consumption rate of gold among Indians is unproductive for the Indian economy.

The first major problem the Indian economy faces with this high gold consumption rates is the increasing current account deficit (CAD). India has to pay for its gold imports using its foreign exchange reserves.

Foreign exchange reserves hold a key especially among the developing countries, which have to import and use the industrial metals. Higher consumption of industrial commodities supports industrial production. The goods produced by consuming such commodities can be exported and the revenues can be used to fund the current account deficit. Even during its higher prices, the demand for gold did not go down. The oil imports are a huge burden on India's balance of payments. But oil consumption is something which India cannot reduce keeping its industrial usage in perspective. High gold imports and weak rupee have been the biggest stress points when it comes to narrowing the current account deficit.

Misallocated capital is the second problem faced by the Indian economy due to its gold rush. Keeping the consumption aside, physical gold (mostly jewellery) is also considered as an investment among Indians.

However, it is an investment that does not add much value to the productive capacity of the economy. Investments in the physical form of gold are either stored in bank lockers or get exchanged for making jewellery. It seldom gets traded for money. Imagine the same amount being invested in the capital markets. It allows the companies to raise capital in the form of debt or equity and expand their business. It can make a huge difference to the productive capacity of the economy. It not only just adds to the physical goods produced, it also has a potential to improve employment in a vastly populated country like India.

It is a given fact that over the last decade, gold has given returns which no other asset class has been able to match. However, the demand for gold among Indians has always been price independent. Gold is a traditional investment strategy Indians follow. The effect of high prices has been minimal on the volume of gold imported. The lower prices may increase the demand in the coming days. It is the economies of the US and Europe that play a major role in determining the price movements of gold. By importing gold for our consumption, we Indians are investing in the international markets and helping their economies.

Over the last few years, the Indian markets are supported majorly by the foreign inflows. Participation of Indian domestic investors becomes all the more important for the Indian markets to prosper. Even for the transition of India from a developing market to developed market, it is important that the domestic investors stay invested in the capital markets.

The lack of alternative investments is one of the reasons attributed for Indian investors favoring gold over domestic capital markets. More investors in the capital markets will also drive more investment options in the domestic markets. More than looking at it as an alternative investment, we invest in gold and real estate because we understand it easily.

http://profit.ndtv.com/news/your-money/article-akshaya-tritiya-why-buying-gold-is-bad-for-the-indian-economy-322139

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Tax planning is one of the most important aspects of personal finance. People often fail to look at tax planning objectively and straight away start with making investments related to tax saving. Most of the people try and mix tax planning and investment planning which are totally different and are made with varying objective.Insurance for long has been the front runner whenever investments regarding tax savings are considered. Life Insurance is not an investment option but a financial tool that helps you protect the family from any unforeseen eventualities. Buying excessive insurance defying its motto leads to holding unnecessary products. Savings under section 80C can be broadly classified as: Investment based (PF, PPF, EPF, NSC, NPS, Fixed deposit, ELSS) and Non investment based (principal repayment of home loan, tuition fee). Before making investments related to tax saving it is always important that the individuals must analyze their risk appetite and determine the percentage of debt and equity exposure they are comfortable with. Then they can match these percentages of debt and equity buy investing in the available tax saving investments.Since the risk appetite, liquidity needs and current portfolio of every individual are different, making investments based on just returns is not advisable.

Tax planning age wise:

23– 30

This is generally the starting phase of career for most of the professionals. HRA should It is the right time to start saving for the future. The investments made during this phase should have a long term investment horizon. Starting to save and investing for retirement will give an edge if started at early age because of power of compounding. Investing in a mix of ELSS and Pension related schemes like EPF, NPS or EPF is a good option for professionals of this age group. By doing so, they ensure that they plan for their retirement from an early age. It also provides the advantage of providing equity exposure to their retirement fund.
It is also advisable for the professionals of this age group to get required life insurance cover and health insurance cover. They can take the advantage of low premium rates if they start during this age. Avoid falling in the trap of endowment plans and ULIPs.

31 – 36

During this phase, most of the professionals can generally take advantage of avenues of tax savings other than investments. Contribution to PF by self and employer, required life insurance cover for self and family will form the major portion of 80C. Tuition fee of the children can also be claimed under the same section.

The average age of an Indian home buyer is 30. Most of the professionals in this age group can take advantage of tax savings related to a home loan. They can claim the principal repayment under section 80C and interest repayment under section 24B. For couples who are both liable to pay tax, it is advisable to take the home loan on a joint account.

It is also advisable to take required health insurance cover for self and family which would account for section 80D.
For professionals who can still make investments under 80C, before making any tax related investments they have to chalk out the goals they want to achieve and their respective timelines. Then based on their risk appetite and time horizon, they can invest in relevant tax saving investments. Avoid over doing tax saving investments.

36 – 45

Non investment related tax savings will play a major role in tax planning even during this phase. Principal repayment on existing home loan, employer and self contribution for PF, tuition fee of children, life insurance cover for self and family account for more than 1 lakh under section 80C for most of the professionals in this age group. So, most of them need not even make any investments for tax saving. In case they have an option to invest in 80C they can opt for investments pertaining to retirement. They can even claim the interest repayment of home loan under section 24B and health insurance premium being paid for self and family under section 80D.

This is also time for the professionals to undo the past mistakes made regarding tax savings. They have to assess all their existing tax saving investments and assess the pros and cons of holding them. It is also important that they avoid over doing tax saving investments. They have to assess all their expenditures and identify the expenses which are eligible for tax savings. This gives them a fair bit of idea whether they have to make investments or not.

46 – 60

This is generally the peak earnings phase of the professionals. Most of them try to pay off their existing debts and channelize their income towards savings for retirement. The same factors of home loan, tuition fee and PF account for majority of the tax savings. Most of the professionals do not opt for health insurance other than the one provided by their organizations. But getting a health insurance at age 60, after retirement is an uphill task. Most of the service providers have a cut off age of 60. So if you need not get a health insurance by now, get one. This can be claimed under section 80D.

The cut off age for opening a PPF account is also 60. If they do not have a PPF account by now, it is advisable to start one 60 years is the cut off for opening a PPF account. In case they have to make investments, they can choose any of the debt products related to retirement. Avoid buying excessive insurance or tax saving investments.

60+

Capital protection should be the motto of the investments being made after retirement. All investments should be in debt. Retired employees looking for timely pay outs (monthly or quarterly) can consider investing in Senior Citizen Saving Schemes (SCSS). Since SCSS is backed by government, it provides high security for your capital which is essential for post retirement investments.

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Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why home owners should refinance:

1. 1.Lower interest rate (most popular)
2. 2.Option of lowering tenure if one has an additional monthly surplus
3. 3.Increase the loan tenure to reduce EMI payments.
4. 4.Shift from floating rate to fixed rate or vice – versa.

Case in point : Mr. Sharma has a 40 lakh home loan at 11.25% interest rate and he has made payments for the last 3 years for a 15 Year tenure. Should he think about refinancing his home loan?

1. His current EMI = INR 46,094
2. Outstanding Principal = INR 36,34,030
3. Outstanding Interest payment = 30,37,655

Timing Matters!

Option 1 : Refinancing after 3 years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 12 years tenure-

• New EMI =  INR 44,486
• Total interest payments = INR 27,71,902

Potential Savings = INR 8,62,128

Option 2 : Refinancing loan after 10 Years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 5 years tenure-

• EMI = INR 45,307
• Interest Payment = INR 6,10,515.50
• Potential Savings = INR 67,231.50

The most important question to be answered before refinancing a home loan is : “When should I refinance my loan?”

Now let’s understand the Maths behind it :

• Interest rate is equated monthly interest i.e. if the bank offers a loan at 10.5%, the interest rate to be considered is 10.5%/12

• N refers to number of months i.e. tenure of the loan.

So the factors governing the EMI payments are loan amount, Interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.

1.Loan Amount:

EMI payments are a combination of principal repayment and interest paid on the principal amount.  So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.

2.Interest Rate:

Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally it is advisable to continue with the existing loan unless there is difference of at least 0.75% - 1.00% between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.

3.Loan Tenure

Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs and lesser the tenure, higher the EMIs. Similarly, the total interest paid is directly proportional to tenure. Higher the tenure, higher the total interest paid. So if one has increase in salary, but do not have substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.

Always remember, there is charge involved in refinancing your home loan. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

http://profit.ndtv.com/news/your-money/article-should-you-refinance-your-home-loan-321863

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Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why home owners should refinance:

1 Lower interest rate (most popular)

2 Option of lowering tenure if one has an additional monthly surplus

3 Increase the loan tenure to reduce EMI payments.

4 Shift from floating rate to fixed rate or vice – versa.

Case in point : Mr. Sharma has a 40 lakh home loan at 11.25% interest rate and he has made payments for the last 3 years for a 15 Year tenure. Should he think about refinancing his home loan?

His current EMI = INR 46,094

Outstanding Principal = INR 36,34,030

Outstanding Interest payment = 30,37,655

Timing Matters!

Option 1 : Refinancing after 3 years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 12 years tenure-

New EMI = INR 44,486

Total interest payments = INR 27,71,902

Potential Savings = INR 8,62,128

Option 2 : Refinancing loan after 10 Years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 5 years tenure-

EMI = INR 45,307

Interest Payment = INR 6,10,515.50

Potential Savings = INR 67,231.50

The most important question to be answered before refinancing a home loan is : “When should I refinance my loan?”

Now let’s understand the Maths behind it :

 Where,

Interest rate is equated monthly interest i.e. if the bank offers a loan at 10.5%, the interest rate to be considered is 10.5%/12

N refers to number of months i.e. tenure of the loan.

So the factors governing the EMI payments are loan amount, Interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.

Loan Amount:

EMI payments are a combination of principal repayment and interest paid on the principal amount. So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.

Interest Rate:

Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally it is advisable to continue with the existing loan unless there is difference of at least 0.75% - 1.00% between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.

Loan Tenure

Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs and lesser the tenure, higher the EMIs. Similarly, the total interest paid is directly proportional to tenure. Higher the tenure, higher the total interest paid. So if one has increase in salary, but do not have substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.

Always remember, there is charge involved in refinancing your home loan. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

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The changing socioeconomic structure of the country has increased the importance of retirement planning. Many Indians neither have the social safety net of joint families, nor do majority of them work in government organizations that provide pensions post retirement. The new dynamics of nuclear family, lack of social security and an inflation-driven economy have made retirement planning important.

The golden rule: Start early

The major problem most of the individuals face is the prioritization for retirement planning. People often fail to realize (or act) the fact that the earlier they start, more the benefits. Procrastination often leads to higher investment requirement which becomes an uphill task at later stages. For example, at 10 per cent RoR, a 25-year-old person investing Rs. 4,000 per month would retire with a corpus of Rs. 1.5 crore at the age of 60. On the other hand, a 35-year-old person investing Rs. 8,000 per cent would only make Rs. 1 crore at retirement.

This can be mainly attributed to the confusion they face regarding the product they need to opt for retirement planning and also the miscalculation on the part of Retirement fund requirements (when to start, how much to save etc.). The miscalculations without considering the provident fund and suitable expected inflation rates leads to enormously high amount of required retirement corpus.

Things to consider

The key factors that investors should keep in mind while planning and investing for their retirement are:

• The amount of provident fund accumulated till date
• The expected amount of future contribution to the provident fund
• Expected inflation rate during the post-retirement period. This is also referred to as the time value of money
• Realistic retirement corpus required should be calculated by excluding the expenses which might not be incurred after the retirement
• Medical inflation rates for the past decade have remained high (approximately 20 per cent). Considering the fact that for most of us the medical requirements are
• proportional to age, it is important to consider medical inflation rates in determining the required corpus.
• Selection of appropriate and suitable investment instruments from the gamut of products available in the market

How to calculate the required corpus for retirement:

While assessing the amount to be accumulated as retirement corpus, it is important to consider the provident fund contribution made till date and the expected future contribution. Ignoring these two factors leads to disproportionately high retirement requirements. In order to counter this it is advisable to adapt the following approach:

• Retirement fund shortage = Total fund required minus accumulated provident fund
• Yearly amount to be saved = Retirement fund shortage divided by years to retirement
• Monthly investment for retirement planning = Yearly amount to be saved divided by 12
• Actual investment to be made = Monthly investment minus monthly provident fund contribution

http://profit.ndtv.com/news/life-and-careers/article-are-you-ready-for-retirement-key-things-to-consider-321685

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Gold was the most sought after investment in the past decade. During this time, gold added to its reputation as the safe haven during the global economic crisis. But off late gold prices have experienced significant corrections. Here are the factors which made gold prices record new highs in the last decade and the factors which made it take a plunge in the previous months.

US Economy

Being a dominant player in Global Economy, US economy always maintained an inverse relation with the gold markets.

Past Situation

US faced a deepest and longest recession since the Great Depression of 1930s. The manufacturing industry took a severe hit. The economy was unable to generate new jobs driving the unemployment rate higher. The housing sector was affected by numerous foreclosures. US had to support its wrecked banking system by Quantitative Easing Methods. During that time, the investors were favoring gold over the US Equity markets.

Present Situation

The US economy started to gain momentum in the month of March 2013. The employment data of US was encouraging with the private sector adding a substantial number of new jobs and posting good gains in the first quarter. Being a personal consumption driven economy, United States found support in the form of increased activity in motor vehicles and housing sectors. This in turn started stimulating the much needed labor market activity resulting in increased employment opportunities. Increased household wealth, Increased spending at retail outlets and stores also showed signs of recovery. Even the Home foreclosures and layoff rates were recorded at pre – recession levels. The economic recovery signs improved investors’ confidence in Equity markets. They started preferring Equity markets over Gold.

Global Economy

Past

Not just US but all the major economies across the globe experienced a major financial crisis post 2007. The turmoil in Europe with respect to the economic slowdown and debt crisis negatively affected the Euro. Japanese economy was spiraling in the effect of the “lost decade”.

Present

Though the current condition of Euro Zone doesn’t boast of full recovery, it started showing good signs. With Cyprus banks opting for selling their gold reserves to pay off the debt, supply of gold increased. In the anticipation of more Euro nations following the suit, investors have cut down their exposure to gold. Gold ETFs experienced huge sell off pressure.

US Dollar

Past

The quantitative easing measures by US weakened the US dollar. Demand for US dollar decreased.The major federal banks were opting for gold over US dollar, with China being the front runner. This acted as one of the driving factors for gold price rally. In anticipation of driving inflation rates higher once the quantitative easing measures end, investors preferred gold as a hedge against inflation.

Present

With signs of economic recovery, US dollar strengthened. The current inflation data across the globe is not in sync with the anticipations. The inflation numbers were recorded lower than expected. Investors started favoring US dollar over Gold.

Conclusion

When compared to the global markets, Indian markets experienced higher growth rates in gold prices. Indian rupee which used trade in the range of INR 43 per USD is now valued at around INR 54 per USD. The global economic conditions of the past decade along with the weakness of India Rupee acted in favor of higher gold prices during the last decade in India.

The economic indicators in coming quarter will define the direction of gold in future. If the US economy continues its good run, expect further slash in gold prices in the year 2013.

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In the past few weeks, there is lot of talk around how the yellow metal has lost its shine significantly since the start of Jan – 2013. Most of the investors are placing their faith and money in recovering markets over Gold. Gold funds have experienced huge sell offs during the past three months. Apart from the investors, the gold loan lenders are expected to take a hit because of the falling gold prices.

Basics of Gold Loan

Before analyzing the effect, it is important that we revisit a few basics of such loan. How do you avail a loan while pledging an asset? The value of asset is estimated as per the prevailing market rates and a certain percentage of the value of asset is granted as a loan. The percentage of loan given is called as “loan to value” ratio. The lender expects to make profit on it in the form of interest rate paid by the borrower. The default risk is countered under the assumption that the pledged asset will gain in terms of its value over the loan tenure. Once the borrower defaults on his loan repayment, the lender can then redeem the money he borrowed by selling the asset.

The problem

The current issue with gold loans is the “loan – to – value” ratio at which they were evaluated at the time of processing the loan. During the times when the gold rates were high, the gold loan companies were on a credit spree. They started issuing loans at higher “loan – to – value” ratios. Some companies even issued nearly 80 - 90 % of the value as a loan amount. RBI has to step in March 2012 to cap the maximum limit to 60% of the value of the asset.

The fall in gold prices has implications on the gold loans which were taken at higher “loan – to – value” ratio. The collateral i.e. the gold has diminished in value. In order to make up for the margin of current value of collateral and amount of loan issued, the loan provider would either need the borrower to pledge more collateral or pay the margin in cash. If the borrowers fail to match the margin, the probability of default risk increases. The lender will be forced to auction the pledged gold in open market. The realization value of used household gold in falling markets will be lower compared to the loan amount. If the lender wants to hold this for a longer period in anticipation of improved market conditions, they will be facing a liquidity crunch.

It is testing times for the age old assumption that gold prices will never fall. It is the same phenomena in which both the lender and borrower of a gold loan always believed in. The growth of gold loan companies kept pace with the gold prices till now. During the past decade, gold prices experienced new highs and gold loan providers posted strong numbers in their books. The finance ministry has asked all the banks to review their loans backed by gold and call their customers for more collateral if the prices fall further. It has to be seen whether the customers will match the margin or opt for default route.

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Credit cards are the most easily available form of loan. You shop now and pay the bills later. As attractive as it sounds, it comes with the danger of increasing debt if not used efficiently. Make sure you have the following points on your checklist, next time you are applying for or using a credit card.

Shop for a credit card before planning to shop with it

Before applying for a credit card, make sure you evaluate all the options available in the market. Different banks provide different offers on the credit cards. Don’t let your comparison stop at the card limit. Know the interest rates being charged on different credit cards and their respective processing fee and renewal fees. Analyze the benefits you receive on signing up for a credit card. Know the different benefits in the form of loyalty points or pay back points and also how to and where to redeem them.

Know what you are agreeing to

Read the documents carefully before signing your credit card application. Don’t just rely on the statements made the credit card executive. Know the clauses, interest rates and renewal fee of the credit card. This can help you avoid surprise payments and long phone calls with your credit card call center executives in the future.

Avoid excessive usage

Make wise decisions before making any purchases using your credit card. Differentiate between what you “need’ and what you “want”. This helps you avoid budget crunches during the month end when you are supposed to make credit card payments.

Avoid late payments

Making a late credit card payment can have significant negative consequences on your credit score. It negatively affects your credit worthiness. It not only increases interest rates when you are looking for a loan or credit card next time, but also drags down your loan eligibility amount. If possible, make the credit card due payments as and when you receive your monthly statement. Make sure you set reminders on the bill payment due date in order to avoid missing bill payments and late fee charges. You can also opt for automatic bill payment and avoid late payment charges.

Make sure you pay the total bill, not just the minimum payment

Don’t get into the habit of making only minimum due payments. Making only minimum payments every month will indirectly increase the time taken to clear the debt accumulated. You will also end up paying high amount of interest by deferring the credit card payments if you pay only the minimum amount.

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Having an emergency fund in your portfolio is an ideal way to tide over a family crisis or meet unexpected expenses. Therefore, the need for maintaining emergency funds, particularly keeping some cash at home or in a bank account, has always been emphasized by our forefathers.

"Even standard financial principles suggest that you should keep aside cash to cover three to six months of living expenses, which would be able to cover most emergency expenses. Your emergency funds can also come handy in case of a job loss as it takes some time to get a new job," says Anil Chopra, Group CEO, Bajaj Capital.

However, building an emergency fund is not that easy. It requires discipline. It may also require reducing your spending to free up extra cash, and many more things. But once you are able to build your emergency fund, it will surely help you in times of crisis.

Here we take a look at 10 easy steps which will help you build your emergency fund:

1. List your regular monthly expenses

The first step to building an emergency fund is listing down all your monthly expenses, ranging from household to loans. Differentiate between the expenses which are mandatory and which are not, considering unnecessary expenses will result in abnormal or wrong calculation of emergency fund requirements. "This process helps you in determining a realistic corpus required as an emergency fund. It also helps in chalking out the expenses you can cut on to increase your savings rate. So by going through the process of budgeting you not only gauge your emergency requirements, but also find the ways to fund your emergency corpus," informs Nitin B Vyakaranam, founder & CEO of Artha Yantra, a financial planning portal.

2. Assess your income streams

The next step is to analyze all your income streams. This is especially important for small time vendors and businessmen who have multiple income sources. Differentiate your various income sources which are continuous and which are periodic. For example, your monthly salary is a continuous income whereas your yearly bonus is a periodic income.

"It is always important that you determine your monthly savings based on the continuous income sources. More often than not the periodic income sources are variable in nature. Use the periodic income to make lump sum investments and the continuous income to make monthly investments," says Vyakaranam.

3. Improve the savings rate

Once you do the basic budgeting, you can exactly assess the monthly savings you are making. Check whether the current savings rate is good enough or not. Assess all your income and expense heads. Analyze the areas which are affecting your savings rate. If possible, chalk out plans to cut down or minimize your expenses.

This helps in increasing your monthly savings. There is always room for improvement when it comes to savings. Improving savings should be a continuous process. Find out the areas where you are spending more and assess whether you can cut down your spending in these areas.

4. Start small

Don't try to make all the savings required to build an emergency fund in one month. This can prove to be a burden on your purse. In the process of doing lump sum investments, most of us procrastinate the process of savings. Avoid such pitfalls while building your emergency fund. Start with smaller amounts.

"Make sure you set some money aside every month as a part of your emergency fund until you reach the optimal level. It is not important that you save in higher amounts, it is important that you make this process of saving a hobby and continue it for a longer period. The power of compounding also works in your favour if you start early," suggests Vyakaranam.

5. Reduce an expense

Find that one expense which you can cut back on. This is one of the best ways to increase your savings rate and generate money to fund your emergency requirements. It is also the best practice to replace your expense with savings. It helps in generating more savings from the existing income.

For example, if you have tea thrice in a day, try to have it once or twice. Similarly, if you eat out daily, see if you can pack a lunch box to office. Though you think it is just Rs 10-30 extra per day, by cutting down on them you can save nearly Rs 300 to 900 a month. This money can be used to boost your emergency fund.

http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/build-your-emergency-fund-in-10-easy-steps/articleshow/19558201.cms

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Health Insurance provides risk coverage against expenditure caused by any unforeseen medical emergencies. Provided the high medical inflation rates, failing to hold adequate amount of health insurance cover can often prove to be a major personal finance slip-up. It can either result in poor health care because of non-affordability or spiral an individual into financial distress due to high medical bills. Currently, majority of the salaried professionals are provided a health insurance cover by their respective organizations. However, they often fail to assess their health insurance requirements and realize the benefits of holding adequate health insurance. They also assume that the health insurance cover provided by their organization will be available even during the post retirement phase.

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One question we fail to ask ourselves before buying a life insurance policy is: what is the amount of insurance cover I need? We are often lost in assessing the gamut of life insurance products available in today's world.

Our emphasis lies in picking the insurance product rather than evaluating our insurance needs. The standard practice of financial planning advocates us to first calculate the insurance requirements and then start analyzing the available options before picking the suitable product.

In India, when it comes to life insurance we mostly hear about calculating the insurance requirements using the human life value (HLV) method. HLV takes into consideration only the income of the individual.

By considering only the income, the HLV method makes multiple assumptions that are not tenable over a long term.

One of the assumptions is that today's salary can be used as a reference point for future requirements, and often emergencies that are non-life threatening (eg: job loss, accidents, etc) are not considered, making it more likely to overestimate or underestimate the insurance requirements of the family.

The very purpose of taking an insurance cover is for the family to meet the expenses after the demise of the earning member. Need-based approach, often termed as expense replacement, considers the expense that the family would require to sustain in the absence of the bread winner. It is also important to understand that the family needs readily available cash to pay off the deceased member's medical expenses, funeral expenses, debts, estate settlement cost, emergency fund and final expenses as the inflation rate increases the cost of living also goes up. The family of the deceased should be able to sustain itself in such conditions as well. Hence, it would be prudent to link to the insurance requirement of individuals.

Need-based approach involves paying off the deceased persons' remaining obligations such as auto loan (if the loan is not insured), credit card dues, meeting child's future education needs, etc. It also takes care of the future expense needs of the family. Expense replacement approach is more accurate as it involves a detailed examination of the family's anticipated expenses during various periods after the insured's death. It provides more realistic estimates of life insurance needs.

Nitin Vyakaranam is the founder and chief executive officer, ArthaYantra, an integrated online personal finance company.

http://profit.ndtv.com/news/your-money/article-how-much-insurance-cover-do-you-need-320849

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Financial planning, as most would believe is not only just about planning for your retirement or investing wisely. If you actually crunch it to the core, financial planning is all about applying determined and disciplined guidelines to deal with our past, present and future finances. The past always haunts you.

Nitin Vyakaranam
ArthaYantra.com

Some of us are carrying the baggage of financial mistakes of the past which in turn are affecting our present and future commitments. Mistakes made in the past such as buying a wrong insurance or a few too many insurance policies, buying a home you couldn’t afford, buying too much on credit, borrowing from the place not suitable to you, trying to make quick money by investing without adequate research resources and knowledge. Though everyone wants to drop the baggage of all such mistakes, it is hard to get rid of.

Dreams seldom materialize on their own. You need to act now in the present and make a plan to head towards a financially stable and safe future. Most of us even fail to realize our past financial mistakes. A financial planner can help us in correcting our past financial mistakes. Following are the steps in order to correct past financial mistakes:

• Learn to accept past financial mistakes and take decisions to mitigate them. You are the in charge of your future.
• Maintain due diligence on the financial products you invest in irrespective of the person/institution recommending it. Make a decision
• based on what they are selling rather than who is selling.
• Not only plan for unexpected events in life, plan for unexpected expenses as well.
• Don’t put all the eggs in the same basket. Similarly don’t put the good eggs in a bad basket.
• Set specific targets of what you want to achieve and when you want to achieve.
• Monitor and re-evaluate your financials periodically.

It is important to realize that we not only need money to harness money but we need to revisit the decisions that led us to the road to nowhere. We have to plan our financials in a systematic way to get rid of the baggage of past financial mistakes and channelize our savings towards achieving our goals in a more disciplined and scientific manner.

http://www.moneycontrol.com/news/planning/how-financial-mistakes-will-come-back-to-haunt-you_877949.html

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• Miscalculating insurance requirement: Determining the ideal amount of insurance cover needed is one of the most common insurance mistakes. One has to objectively address the question of: "How much Insurance cover do I need?" This can help the individuals in buying exactly what they need. Most of the times we end up being over-insured buying unnecessary insurance products or under-insured by failing to get required risk cover. Ideally, the risk coverage provided by the insurance policy should match the committed expenses of the individual for the years to come. One can also consider including the mandatory goals (retirement, child's marriage, etc.) while calculating the insurance requirements.

• Mixing insurance with investments: Considering insurance as an investment is another common mistake. It is a common misconception that insurance is a risk-free investment. One has to note that insurance and investments are two completely different financial entities. We buy insurance as a part of risk coverage which can be used in case of any unexpected eventuality of the earning member of the family. We make investments primarily to achieve our goals and build wealth. When we mix both these important financial entities, we fail to do justice to both. One has to pay higher premiums for the insurance policies which return the premium paid along with an interest after a stipulated time. So, the chances of getting adequate insurance cover paying such higher premiums are minimal. Even the returns one can enjoy on such insurance policies are significantly less than the money invested in a well-diversified portfolio.

• Insurance is the best way to save tax (primary motive of buying insurance): Insurance for long has been the front runner whenever investments regarding tax savings are considered. People often fail to realize that not all insurance payments are tax free. It is subjected to the upper limit of section 80C, which is caped at Rs. 1 lakh. Essentially, the contributions made towards provident fund and principal repayments of a home loan are also considered under section 80C. One should consider insurance just as a risk mitigating financial instrument, tax saving is just an icing on the cake and not the primary motive of buying insurance. Under the common myth that every premium paid is eligible for tax saving, most of us end up buying unnecessary insurance products.

• Expecting returns from life insurance: For most of us, the whole perception of insurance changes when it has a prefix of life to it. For example, consider auto insurance. We pay a premium for our auto insurance which covers from the damages done to our vehicle in case of any mishap. We pay the premium every year, we enjoy no-claim bonuses if no claims are made and most importantly at the end of it, we do not receive any money back along with interest. The same fundamentals should be applied for life insurance as well. The main motto of a life insurance policy is to protect the family from the risk of mishap to the bread winner of the family. Our behavioral nature of wanting to get back something from the insurance premiums make us opt for insurance policies which are other than term policies. Term insurance can be availed at much lower cost compared to other hybrid insurance policies.

http://profit.ndtv.com/news/cheat-sheet/article-four-life-insurance-mistakes-you-must-avoid-322438

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Many NRIs are often faced with the situation of maintaining a Rupee account in India. There are two options available with NRI interested in opening bank account in India - NRE or NRO account. Read this space to know the difference between these two accounts and know when to choose what account.

An Non-Resident Indian is often faced with the situation of maintaining a Rupee account in India. Sometimes the NRI wants to his overseas earned money back to India and keep it in Indian currency whereas sometimes he is earning money within India and wants to keep India based earnings in Indian Rupee in India. He/She has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account based on specific requirements. An NRO account can also be opened by Person of Indian Origin (PIO) and Overseas citizen of India (OCI).

Similarities between NRE and NRO accounts:

Both accounts can be opened as Savings as well as current accounts and are Indian Rupee accounts. One needs to maintain an average monthly balance of Rs 75000 in both NRE and NRO accounts.

The Differences between NRE and NRO accounts:

1. Repatriation: NRE account is freely repatriable (Principal and interest earned) while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant.

2. Tax Treatment: NRE account is Tax free (no Income tax, wealth tax and gift tax) in India. On the other hand the interest earned in NRO account and credit balances are subject to respective income tax bracket and are also subject to applicable wealth and gift tax.

3. Deposit of Rupee funds generated in India: If an NRI/PIO/OCI  is earning income originating in India (such as salary, rent, dividends etc.) he/she is only allowed to deposit it in NRO account. Deposit of such earnings is not permitted in NRE account.

4. Joint Holding: NRE account can be iointly held with another NRI but not with resident Indian. On the other hand NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956.

Choose NRO account is you:

• (Primary reason) want to park India based earnings in Rupees in India;
• want account to deposit income earned  in India such as rent, dividends etc;
• want to open account with resident Indian (close relative)

http://www.moneycontrol.com/news/fixed-income-bank-deposits/knowdifference-between-nrenro-account-_875207.html

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Buying a home is an important personal finance decision for every individual, particularly in view of the fact that a home is usually the biggest investment in one's lifetime. And like anywhere else in the world, home loan or mortgage products have only made it easier for average salaried Indians to own a home they can call their own. One should, however, not forget the long-term liability that needs to be serviced and it would only help to keep some of the following things in mind when taking a home loan:

1. Impact of loan on your personal finance

Before opting for a home loan, it is always advisable to assess the impact of taking a loan and the subsequent EMI payments on the monthly cash out flows. It is a prescribed personal finance practice to get a new monthly budget in place which accommodates the new cash out flow in the form of EMI payments.

"The impact should be analyzed on the monthly available surplus and subsequent savings being done towards achieving other goals. This helps in determining the comfortable EMI payments one can make and respective loan amount one can opt for," says Nitin B Vyakaranam, founder & CEO of financial planning portal Artha Yantra.

In other words, what you can afford should be determined by your ability to service the re-payments of the liability you undertake with a home loan. This would be governed by the loan amount and the interest rate applicable on your home loan. "You also need to remember that taking a loan with a view of selling the house a few years down the line at a higher price to help you settle your liability may not always work, especially if the property prices start moving downwards or even if they remain static - as we have seen over the last couple of years the world over," observes Anil Sahgal, director, MAGI Research and Consultants, and co-founder of personal finance consulting portal 'i-save'.

Therefore, it makes sense to access your affordability and the loan's impact on your personal finance before opting for a home loan.

2. Know your maximum loan eligibility

As per the current market norms, banks can lend up to 60 times the monthly net salary of an individual. However, while assessing the income criteria, they do not consider some of the salary slip heads for calculating the net monthly income. They only consider the income heads which can be used to repay your loan.

"For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed," informs Vyakaranam.

3. Check your CIBIL score

The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Ltd (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan.

"Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being credit hungry. So the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant," says Vyakaranam.

4. Co-application

What you can afford will also be reviewed by the bank that is providing you the loan. This would depend on your past and current financial position and ability to service the loan in the future i.e. ability to pay back the loan with applicable interest.

"In case you want a loan amount higher than what you are being offered as an individual, you may want to have your spouse or parents as co-applicants. This helps you increase the overall limit that the bank can offer since there is more than one person sharing the repayment of loan and the combined limit will obviously be higher. Needless to say, this can only work if the co-applicants have an independent source of income," says Sahgal.

Having co-applicants can also make sense from a taxation perspective with each applicant being able to avail the tax benefit available on interest payment of an EMI.

5. Duration

Once again, keeping in mind how much you can afford to pay each month, try and keep the duration of the loan as low as possible. With a lower duration of loan, the EMI may be higher but what you would pay as interest over the term of your loan would be substantially lower. If you can't afford the higher EMI and have to necessarily take a higher duration loan, it would help to try and manage your savings in a way that help you pre-pay the loan with intermediate payments in the initial years itself so as to reduce your overall interest burden.

6. Type of interest rate

The type of interest rate you choose has an impact on the monthly EMIs you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. For instance, if you opt for fixed rate home loan, the EMIs don't vary over the loan tenure. So it is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, interest rate is determined based on the prevailing base rates, plus a floating rate. The EMIs vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

But the choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products, but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. On the other hand, floating interest rate products, though cheaper, are linked to a base rate or benchmark rate and can go up or down with a change in the base rate.

"It would, therefore, make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. Even in this case, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10%, respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper," says Sahgal.

You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which in any case will defeat any assumption of certainty that you may want to build into your financial planning.

You should also remember that different banks offer different interest rates on home loans. Therefore, you must negotiate with them to get the best possible rate.

7. Pre-payment and foreclosure charges

One of the important features that you should consider in your home loan product is the availability of pre-payment facility. While some banks may not allow you to prepay your loans, others could be providing you the facility to prepay a certain percentage of your principal amount every year with or without a penalty charge.

"It would be worth your while to compare this feature across the product options you are evaluating since this flexibility can help you reduce your interest burden if you can manage to close your loan earlier," says Sahgal.

8. Read the documents carefully before you sign

Don't let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.

9. Take cover

Given the long-term nature of the liability, it also makes sense to protect yourself and your family from any unforeseen circumstances. In this case you can consider a life insurance plan.

"A life insurance plan that covers the re-payment of loan in the event of an unfortunate death of the borrower can at least help the family retain their home," says Anil Sahgal.

10. Loan transfers

Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer.

11. Implications of delayed payments

Delayed or missed payments can impact you not only financially but can also affect your credit history. On the one hand, you may have to pay a penalty or fees associated with delayed or missed payments, while on the other your credit history will reflect these missed or delayed payments.

You should, therefore, always try to clear your EMIs in time because once you are declared a defaulter or your credit history turns bad, then it will become very difficult for you to take a home loan again from another bank or housing finance company. It will also become very difficult for you to transfer your loan to another bank or lending institution which is offering you a lower interest rate. Not only this, you also won't be able to take even a personal loan in your entire life. Therefore, it is better to be safe than sorry.

http://articles.economictimes.indiatimes.com/2013-05-17/personal-finance/39336790_1_home-loan-emi-payments-loan-amount/2

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Fixed deposits (FD) are becoming popular investment among investors in the current interest regime. However, the actual return earned on a fixed deposit can be less that what is stated due to tax aspect attached to a FD. Financial expert Nitin Vyakaranam gives us insightful information on how tax is calculated and can be saved on FD investment.

Bank Fixed deposits are known for giving risk free returns. Fixed deposits for long have been one of the favorite avenues of investors in India who do not trust the capital markets. Fixed deposit as an investment instrument is very easy to understand. In simple terms one puts the money with the bank for a specified tenure and bank repays the money with a specified interest rate. It is regarded as one of the safest investments. However, we often overlook the tax implications associated with bank fixed deposits. The interest earned on the bank fixed deposit is taxable, if it exceeds INR 10,000 in a financial year. This clause holds good even for the tax saving fixed deposits made. In most of the cases, the tax is deducted at source. Banks have made PAN Card mandatory for the investments which attract an interest in excess of INR 10,000 in a financial year. The taxation on fixed deposits mean that the actual interest rate earned on the investment is less than the interest rate promised by the bank.

How is tax calculated on the fixed deposits?

The income accrued as interest on bank deposits in accounted under the income from various other sources head of income tax code. The excess interest earned on fixed deposits over INR 10,000 is taxed as per the tax slab rates of the individual. For example, consider an individual who accrues an interest of INR 15,000 in a financial year. Since the interest accrued till INR 10,000 is not taxable, the excess interest i.e. INR 5,000 is taxed. If the individual is in 20% tax bracket, 20% of INR 5,000 is charged and a 3% cess is charged on it. So the effective interest earned on the fixed deposit is INR 13,970.

Companies use corporate fixed deposits in order to raise debt for their operations. These investments bear more risk when compared to the bank fixed deposits. Though the repayment is agreed on a specific interest rate, default risk plays an important role in such investments. The repayment of corporate fixed deposits is directly linked with the performance of the company. If the company fails to perform, the chance of defaulting on the repayment increases. So, the company fixed deposits generally pay a higher interest rate than bank deposits. In case of company fixed deposit, the tax free interest earned is capped at INR 5,000. The companies would deduct tax at source if the interest earned in a financial year exceeds INR 5,000 as per the tax slab of the individual.

How to avoid tax on fixed deposits

Form 15G/15H: The investor should submit a 15G or 15H form stating that their total income from all sources in under permissible non taxable income levels. Individuals below 65 years should file form 15G and individuals aboe 65 should file form 15H. However, individuals whose income from sources which are considered under the income from other sources head exceed INR 1 lakh, cannot file a 15G form.  

Distributing the FD investments: Distributing the FD investments across various companies so that the interest earned does not exceed the permissible level is an effective option to avoid TDS. Previously the same strategy was also applied for bank deposits. However, introduction of Core Banking System (CBS) gave the banks an option to pool the investments based on PAN Number.

Timing of the FD investments: Timing of the investments can also be used effectively to avoid TDS. The investment is spread over two or more years to ensure that the interest earned in a single financial year does not exceed the limits.

Authored by ArthaYantra.com, an integrated online personal finance company.

http://www.moneycontrol.com/news/fixed-income-bank-deposits/tax-aspectbank-depositcorporate-fixed-deposit_872741.html

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Gold prices: It is a good option to hold gold as a part of your portfolio to counter the unanticipated economic or political situations. But vesting major money in gold especially during the times when bullion markets are looking for future signs (upwards or downwards) from major economies is not a smart option.

It is a common misconception that gold never loose its value. The history of gold prices have a different story to tell. Gold as an investment is no different from equities. The factors which affect the equity markets play their role in bullion markets as well. A study of the factors which affected the gold prices for the last 40 years will give us an insight.

1970-1980 : When Gold recoreded its highest ever price

The 1970 1980 period witnessed the first major bull in gold market. Rated at USD 35 per ounce at the start of 1970’s, gold recorded it peak at USD 850 in January 1980. The fall of Bretton Woods System was the governing factor for such a record high back then. Bretton Woods System was initiated in 1944 when dollar was pegged to gold. US had to maintain a constant reserve of 1 ounce of gold for every 35 USD. Bretton woods system was dissolved by US President Nixon in the year 1971. The yellow metal was allowed to trade freely after the collapse of Bretton Woods system. In the 1970’s most of the western countries faced high inflation rates, low growth and high unemployment rates. It was during this time the investors started intorducing gold as a part of their portfolio. Most of the countries started following floating exchange rate system as opposed to the fixed transactions in USD. In 1973, for the first time gold broke the USD 100 barreir. It was in January of 1980, gold recorded its highest price of USD 850 per ounce. The political turmoil at that point and weak economic data across the globe helped the gold reach its all time high of that period. If you consider the inflation adjusted prices, the USD 850 per gram still remains the all time high price recorded by gold.

1980-2001 : Correction Period

It was more like a one way down south for gold, after experiencing the record price in January of 1980. By January 1990, gold was trading around USD 400 per ounce. It started the new millenium in January 2000 at around USD 300 per ounce. So it was a two decades of downfall for the yellow metal. The economy of the western countries was booming in this period. These economies had stable economic conditions compared to the stagflation experienced in the 1970’s. The interest rates during this time were also at record high in order to control the inflation rates. The investors were favoring shares and bonds over gold. In the 90’s the major factor for downfall in gold prices was the technological revolution. US transformed itself from being a manufacture heavy industry to a technology and service based economy. There was a huge growth in productivity and expectations were riding high on the new technology wave. Gold lost its luster in this high tide.

Post 2001 : The bull run that seemed like forever

Gold prices have experience new highs post 2001. Trading at around USD 250 per ounce, it reached as high as USD 1400 per ounce in 2011. Lack of supply, demand from India and China had a role to play in this rally. India and China are the largest exporters of the gold. Starting 2001, the gold prodcution fell and demand from these countries was on a rise. It was still a steady growth for gold till the start of recession times. The start of recession times around the year of 2007 sparked substantial spikes in gold prices. The announcement of stimulus packages by US sparked this rally. The national debt of US was on the rise. Investors started favoring gold as a hedge against economic uncertainities. Even the central banks of various nations joined the gold buying spree to boost their gold reserves, driving the demand and prices higher.

Conclusion: 

Gold as any other investment do not always guarantee a positive return. It is a safe haven against inflation and economic/political turmoil. But the history always gave ample examples of how various economic factors played their role in determining the gold prices. It is a good option to hold gold as a part of your portfolio to counter the unanticipated economic or political situations. But vesting major money in gold especially during the times when bullion markets are looking for future signs (upwards or downwards) from major economies is not a smart option.

http://www.moneycontrol.com/news/commodity/gold-prices-jumps-5007-yearsnext_870787.html

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Buying a home is perhaps the biggest life and personal finance decision to be made by a family, yet we often take that decision based on here say, emotions, past performance metrics that are thrown at us and zealous real estate developers who claim to increase the price every other day, creating a false sense of urgency and artificial demand.

The great Indian dream, owning a home, is an aspiration of almost everyone in the country. However, the impact on personal finances for going after this dream could have substantial negative down side. While, renting home is not always considered an aspiration, the positive impacts on personal finance are significant. A typical middle class family always wrestles with the thought of buying home vs. renting a home.

Be it a first time home buyer or a home buyer who is looking to move up to the next big home, factors that often influence our decisions could be unrealistic in nature. But these are prevalent among the majority of the population. Renting a home or buying it has their share of advantages and disadvantages.

Renting a home is always considered an expense in our households. While, buying a home is considered to be an investment into an asset that could provide significant returns, perhaps at levels greater than any other asset class such as equity or fixed income.

Additionally, there has always been the social pressure on the middle class to be an owner rather than a renter. Buying a home is considered, a ticket to a superior standing in the social circles. Our physiological behavior patterns give us a sense of security, when we own a home. On the other and, renting home is still considered an option for the segment of people who have not made it yet.

The decisions made on the basis of the above mentioned factors can often lead a family into a path of financial misery. The common problems we come across today include, buying a home that was out of reach, stretching finances to meet down payments, losing money in buying home too early, not preparing personal finances for the new outflows, not preparing for emergencies etc. These mistakes could have a lasting impact on the economic future of the family and hit specific and important goals such as child’s education, retirement planning, marriage of child, living a set lifestyle etc. This problem is exasperated in the section of the population which constitute the "first time home buyers", who probably aspire to move from a rented home to an own home.

Buying a home is perhaps the biggest life and personal finance decision to be made by a family, yet we often take that decision based on here say, emotions, past performance metrics that are thrown at us and zealous real estate developers who claim to increase the price every other day, creating a false sense of urgency and artificial demand.

It is essential that buying a home v/s renting a home decision be taken objectively based on the personal finances of the individual or the family, cost of buying, cost of renting, city of stay, duration of stay and willingness to move to another city. While, emotional satisfaction is important, it cannot be allowed to cloud better judgment.

ArthaYantra addressed the issue of Buy vs Rent objectively, by introducing ArthaYantra Buy vs Rent Score (ABRS). Before making a decision, know your ABRS to know the impact on your finances.

Authored by ArthaYantra.com, an integrated online personal finance company.

http://www.moneycontrol.com/news/real-estate/buyinghome-why-personal-finance-matters_868934.html

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Buying a home is an important personal finance decision for every individual. Before applying for a home loan and paying your processing fee, make sure you analyze the following aspects:

1 Know your maximum loan eligibility

The loan amount to be sanctioned depends on your income and previous track record when it comes to repaying your loans and credit card dues. Home lone lenders generally provide 80% of the value of the property as the loan amount, subjected to your income. While assessing the income criteria, they do not consider some of your payslip heads for calculating your net monthly income. They only consider the income heads which can be used to repay your loan. For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed.

2 Check your CIBIL Score:

The home loan eligibility depends on credit worthiness of the individual. Credit Information Bureau India Limited (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any check bounces, existing loans, uninsured existing loans, loan repayments, how many times you have applied for loan or a credit card. Individuals with a CIBIL score greater than 700 are more likely to get a home loan. All the home loan lenders approach CIBIL for this score whenever you apply for a credit card or any sort of loan. Paying the processing fee to know the maximum limit at more than 3 or 4 banks is one of the common mistakes committed by many people. The more times you apply for loan, CIBIL considers it as being Credit Hungry so the chances of getting a loan are minimized. CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant.

3 Type of Interest Rate

The type of interest rate you choose has an impact on the monthly EMI’s you pay. It is important that you know the difference between fixed rate home loan and floating rate home loan. If you opt for fixed rate home loan, the EMI’s don’t vary over the loan tenure. It is beneficial when the interest rates are expected to rise in the near future. In case of floating rate home loan, Interest rate is determined based on the prevailing base rates plus a floating rate. The EMI’s vary based on the movement of base rates. It is beneficial when interest rates are expected to fall in near future.

4 Negotiate:

Different banks offer different interest rates on home loans. Negotiate with them to get the best possible rate.

5 Loan Tenure:

The EMI is calculated on the basis of amount of home loan, home loan interest rate and loan tenure. The monthly EMI is inversely proportional to loan tenure i.e. the longer the tenure lower the EMI and shorter the tenure, the higher the EMI. Similarly, the total interest paid is directly proportional to the loan tenure. Higher the tenure, higher the total interest paid and vice versa. Know the impact of your EMI payments on your finances before deciding on the loan tenure. Calculate the available surplus under different scenarios and assess the available monthly surplus for each scenario.

6 Read the documents carefully before you sign

Don’t let the bunch of home loan documents bog you down and just sign on the dotted lines. Check the documents to ensure that the terms are same as what you negotiated and agreed upon. Read the documents carefully and know the different charges applicable. Importantly, know the processing fee, late payment fee and any charges that are applicable for pre paying the loan.

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Gold is an integral part of our lives in India. On the global front, India is the largest consumer of gold. India accounts for more than 30 per cent of the global gold market. However, the domestic production of gold in India is minimal. India meets the high demand of gold from its domestic consumers by importing it.

Also read: Investing in gold? 7 facts you should know

Though the universal acceptance, liquidity and safe haven against economic or political turmoil makes gold lucrative, it does not add much of a value to the economy.

Most of the gold bought by us Indians is used for consumption purpose in the form of jewellery. Even from the investment perspective, majority of the Indians still prefer the traditional way of holding it in the physical form. Gold ETFs, which were first introduced in India in 2007, witnessed slow growth in the initial years. Over the past couple of years, investments in gold ETFs gained momentum. However, as per the statistics of Gold Council, jewellery accounts for nearly 75 per cent of the gold demand in India. When we compare this consumption rate with the global scenario, even the second largest importer of gold, i.e., China lags by more than 30 per cent in terms of consumer demand. If we compare these demand levels against the size of economy of major nations, India's GDP is much lower than that of China or the US. The high consumption rate of gold among Indians is unproductive for the Indian economy.

The first major problem the Indian economy faces with this high gold consumption rates is the increasing current account deficit (CAD). India has to pay for its gold imports using its foreign exchange reserves.

Foreign exchange reserves hold a key especially among the developing countries, which have to import and use the industrial metals. Higher consumption of industrial commodities supports industrial production. The goods produced by consuming such commodities can be exported and the revenues can be used to fund the current account deficit. Even during its higher prices, the demand for gold did not go down. The oil imports are a huge burden on India's balance of payments. But oil consumption is something which India cannot reduce keeping its industrial usage in perspective. High gold imports and weak rupee have been the biggest stress points when it comes to narrowing the current account deficit.

Misallocated capital is the second problem faced by the Indian economy due to its gold rush. Keeping the consumption aside, physical gold (mostly jewellery) is also considered as an investment among Indians.

However, it is an investment that does not add much value to the productive capacity of the economy. Investments in the physical form of gold are either stored in bank lockers or get exchanged for making jewellery. It seldom gets traded for money. Imagine the same amount being invested in the capital markets. It allows the companies to raise capital in the form of debt or equity and expand their business. It can make a huge difference to the productive capacity of the economy. It not only just adds to the physical goods produced, it also has a potential to improve employment in a vastly populated country like India.

It is a given fact that over the last decade, gold has given returns which no other asset class has been able to match. However, the demand for gold among Indians has always been price independent. Gold is a traditional investment strategy Indians follow. The effect of high prices has been minimal on the volume of gold imported. The lower prices may increase the demand in the coming days. It is the economies of the US and Europe that play a major role in determining the price movements of gold. By importing gold for our consumption, we Indians are investing in the international markets and helping their economies.

Over the last few years, the Indian markets are supported majorly by the foreign inflows. Participation of Indian domestic investors becomes all the more important for the Indian markets to prosper. Even for the transition of India from a developing market to developed market, it is important that the domestic investors stay invested in the capital markets.

The lack of alternative investments is one of the reasons attributed for Indian investors favoring gold over domestic capital markets. More investors in the capital markets will also drive more investment options in the domestic markets. More than looking at it as an alternative investment, we invest in gold and real estate because we understand it easily.

http://profit.ndtv.com/news/your-money/article-akshaya-tritiya-why-buying-gold-is-bad-for-the-indian-economy-322139

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Tax planning is one of the most important aspects of personal finance. People often fail to look at tax planning objectively and straight away start with making investments related to tax saving. Most of the people try and mix tax planning and investment planning which are totally different and are made with varying objective.Insurance for long has been the front runner whenever investments regarding tax savings are considered. Life Insurance is not an investment option but a financial tool that helps you protect the family from any unforeseen eventualities. Buying excessive insurance defying its motto leads to holding unnecessary products. Savings under section 80C can be broadly classified as: Investment based (PF, PPF, EPF, NSC, NPS, Fixed deposit, ELSS) and Non investment based (principal repayment of home loan, tuition fee). Before making investments related to tax saving it is always important that the individuals must analyze their risk appetite and determine the percentage of debt and equity exposure they are comfortable with. Then they can match these percentages of debt and equity buy investing in the available tax saving investments.Since the risk appetite, liquidity needs and current portfolio of every individual are different, making investments based on just returns is not advisable.

Tax planning age wise:

23– 30

This is generally the starting phase of career for most of the professionals. HRA should It is the right time to start saving for the future. The investments made during this phase should have a long term investment horizon. Starting to save and investing for retirement will give an edge if started at early age because of power of compounding. Investing in a mix of ELSS and Pension related schemes like EPF, NPS or EPF is a good option for professionals of this age group. By doing so, they ensure that they plan for their retirement from an early age. It also provides the advantage of providing equity exposure to their retirement fund.
It is also advisable for the professionals of this age group to get required life insurance cover and health insurance cover. They can take the advantage of low premium rates if they start during this age. Avoid falling in the trap of endowment plans and ULIPs.

31 – 36

During this phase, most of the professionals can generally take advantage of avenues of tax savings other than investments. Contribution to PF by self and employer, required life insurance cover for self and family will form the major portion of 80C. Tuition fee of the children can also be claimed under the same section.

The average age of an Indian home buyer is 30. Most of the professionals in this age group can take advantage of tax savings related to a home loan. They can claim the principal repayment under section 80C and interest repayment under section 24B. For couples who are both liable to pay tax, it is advisable to take the home loan on a joint account.

It is also advisable to take required health insurance cover for self and family which would account for section 80D.
For professionals who can still make investments under 80C, before making any tax related investments they have to chalk out the goals they want to achieve and their respective timelines. Then based on their risk appetite and time horizon, they can invest in relevant tax saving investments. Avoid over doing tax saving investments.

36 – 45

Non investment related tax savings will play a major role in tax planning even during this phase. Principal repayment on existing home loan, employer and self contribution for PF, tuition fee of children, life insurance cover for self and family account for more than 1 lakh under section 80C for most of the professionals in this age group. So, most of them need not even make any investments for tax saving. In case they have an option to invest in 80C they can opt for investments pertaining to retirement. They can even claim the interest repayment of home loan under section 24B and health insurance premium being paid for self and family under section 80D.

This is also time for the professionals to undo the past mistakes made regarding tax savings. They have to assess all their existing tax saving investments and assess the pros and cons of holding them. It is also important that they avoid over doing tax saving investments. They have to assess all their expenditures and identify the expenses which are eligible for tax savings. This gives them a fair bit of idea whether they have to make investments or not.

46 – 60

This is generally the peak earnings phase of the professionals. Most of them try to pay off their existing debts and channelize their income towards savings for retirement. The same factors of home loan, tuition fee and PF account for majority of the tax savings. Most of the professionals do not opt for health insurance other than the one provided by their organizations. But getting a health insurance at age 60, after retirement is an uphill task. Most of the service providers have a cut off age of 60. So if you need not get a health insurance by now, get one. This can be claimed under section 80D.

The cut off age for opening a PPF account is also 60. If they do not have a PPF account by now, it is advisable to start one 60 years is the cut off for opening a PPF account. In case they have to make investments, they can choose any of the debt products related to retirement. Avoid buying excessive insurance or tax saving investments.

60+

Capital protection should be the motto of the investments being made after retirement. All investments should be in debt. Retired employees looking for timely pay outs (monthly or quarterly) can consider investing in Senior Citizen Saving Schemes (SCSS). Since SCSS is backed by government, it provides high security for your capital which is essential for post retirement investments.

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Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why home owners should refinance:

1. 1.Lower interest rate (most popular)
2. 2.Option of lowering tenure if one has an additional monthly surplus
3. 3.Increase the loan tenure to reduce EMI payments.
4. 4.Shift from floating rate to fixed rate or vice – versa.

Case in point : Mr. Sharma has a 40 lakh home loan at 11.25% interest rate and he has made payments for the last 3 years for a 15 Year tenure. Should he think about refinancing his home loan?

1. His current EMI = INR 46,094
2. Outstanding Principal = INR 36,34,030
3. Outstanding Interest payment = 30,37,655

Timing Matters!

Option 1 : Refinancing after 3 years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 12 years tenure-

• New EMI =  INR 44,486
• Total interest payments = INR 27,71,902

Potential Savings = INR 8,62,128

Option 2 : Refinancing loan after 10 Years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 5 years tenure-

• EMI = INR 45,307
• Interest Payment = INR 6,10,515.50
• Potential Savings = INR 67,231.50

The most important question to be answered before refinancing a home loan is : “When should I refinance my loan?”

Now let’s understand the Maths behind it :

• Interest rate is equated monthly interest i.e. if the bank offers a loan at 10.5%, the interest rate to be considered is 10.5%/12

• N refers to number of months i.e. tenure of the loan.

So the factors governing the EMI payments are loan amount, Interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.

1.Loan Amount:

EMI payments are a combination of principal repayment and interest paid on the principal amount.  So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.

2.Interest Rate:

Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally it is advisable to continue with the existing loan unless there is difference of at least 0.75% - 1.00% between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.

3.Loan Tenure

Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs and lesser the tenure, higher the EMIs. Similarly, the total interest paid is directly proportional to tenure. Higher the tenure, higher the total interest paid. So if one has increase in salary, but do not have substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.

Always remember, there is charge involved in refinancing your home loan. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

http://profit.ndtv.com/news/your-money/article-should-you-refinance-your-home-loan-321863

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Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why home owners should refinance:

1 Lower interest rate (most popular)

2 Option of lowering tenure if one has an additional monthly surplus

3 Increase the loan tenure to reduce EMI payments.

4 Shift from floating rate to fixed rate or vice – versa.

Case in point : Mr. Sharma has a 40 lakh home loan at 11.25% interest rate and he has made payments for the last 3 years for a 15 Year tenure. Should he think about refinancing his home loan?

His current EMI = INR 46,094

Outstanding Principal = INR 36,34,030

Outstanding Interest payment = 30,37,655

Timing Matters!

Option 1 : Refinancing after 3 years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 12 years tenure-

New EMI = INR 44,486

Total interest payments = INR 27,71,902

Potential Savings = INR 8,62,128

Option 2 : Refinancing loan after 10 Years

If Mr. Sharma refinances his loan at 10.50% interest rate for the remaining 5 years tenure-

EMI = INR 45,307

Interest Payment = INR 6,10,515.50

Potential Savings = INR 67,231.50

The most important question to be answered before refinancing a home loan is : “When should I refinance my loan?”

Now let’s understand the Maths behind it :

 Where,

Interest rate is equated monthly interest i.e. if the bank offers a loan at 10.5%, the interest rate to be considered is 10.5%/12

N refers to number of months i.e. tenure of the loan.

So the factors governing the EMI payments are loan amount, Interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.

Loan Amount:

EMI payments are a combination of principal repayment and interest paid on the principal amount. So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.

Interest Rate:

Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally it is advisable to continue with the existing loan unless there is difference of at least 0.75% - 1.00% between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.

Loan Tenure

Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs and lesser the tenure, higher the EMIs. Similarly, the total interest paid is directly proportional to tenure. Higher the tenure, higher the total interest paid. So if one has increase in salary, but do not have substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.

Always remember, there is charge involved in refinancing your home loan. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

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The changing socioeconomic structure of the country has increased the importance of retirement planning. Many Indians neither have the social safety net of joint families, nor do majority of them work in government organizations that provide pensions post retirement. The new dynamics of nuclear family, lack of social security and an inflation-driven economy have made retirement planning important.

The golden rule: Start early

The major problem most of the individuals face is the prioritization for retirement planning. People often fail to realize (or act) the fact that the earlier they start, more the benefits. Procrastination often leads to higher investment requirement which becomes an uphill task at later stages. For example, at 10 per cent RoR, a 25-year-old person investing Rs. 4,000 per month would retire with a corpus of Rs. 1.5 crore at the age of 60. On the other hand, a 35-year-old person investing Rs. 8,000 per cent would only make Rs. 1 crore at retirement.

This can be mainly attributed to the confusion they face regarding the product they need to opt for retirement planning and also the miscalculation on the part of Retirement fund requirements (when to start, how much to save etc.). The miscalculations without considering the provident fund and suitable expected inflation rates leads to enormously high amount of required retirement corpus.

Things to consider

The key factors that investors should keep in mind while planning and investing for their retirement are:

• The amount of provident fund accumulated till date
• The expected amount of future contribution to the provident fund
• Expected inflation rate during the post-retirement period. This is also referred to as the time value of money
• Realistic retirement corpus required should be calculated by excluding the expenses which might not be incurred after the retirement
• Medical inflation rates for the past decade have remained high (approximately 20 per cent). Considering the fact that for most of us the medical requirements are
• proportional to age, it is important to consider medical inflation rates in determining the required corpus.
• Selection of appropriate and suitable investment instruments from the gamut of products available in the market

How to calculate the required corpus for retirement:

While assessing the amount to be accumulated as retirement corpus, it is important to consider the provident fund contribution made till date and the expected future contribution. Ignoring these two factors leads to disproportionately high retirement requirements. In order to counter this it is advisable to adapt the following approach:

• Retirement fund shortage = Total fund required minus accumulated provident fund
• Yearly amount to be saved = Retirement fund shortage divided by years to retirement
• Monthly investment for retirement planning = Yearly amount to be saved divided by 12
• Actual investment to be made = Monthly investment minus monthly provident fund contribution

http://profit.ndtv.com/news/life-and-careers/article-are-you-ready-for-retirement-key-things-to-consider-321685

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Gold was the most sought after investment in the past decade. During this time, gold added to its reputation as the safe haven during the global economic crisis. But off late gold prices have experienced significant corrections. Here are the factors which made gold prices record new highs in the last decade and the factors which made it take a plunge in the previous months.

US Economy

Being a dominant player in Global Economy, US economy always maintained an inverse relation with the gold markets.

Past Situation

US faced a deepest and longest recession since the Great Depression of 1930s. The manufacturing industry took a severe hit. The economy was unable to generate new jobs driving the unemployment rate higher. The housing sector was affected by numerous foreclosures. US had to support its wrecked banking system by Quantitative Easing Methods. During that time, the investors were favoring gold over the US Equity markets.

Present Situation

The US economy started to gain momentum in the month of March 2013. The employment data of US was encouraging with the private sector adding a substantial number of new jobs and posting good gains in the first quarter. Being a personal consumption driven economy, United States found support in the form of increased activity in motor vehicles and housing sectors. This in turn started stimulating the much needed labor market activity resulting in increased employment opportunities. Increased household wealth, Increased spending at retail outlets and stores also showed signs of recovery. Even the Home foreclosures and layoff rates were recorded at pre – recession levels. The economic recovery signs improved investors’ confidence in Equity markets. They started preferring Equity markets over Gold.

Global Economy

Past

Not just US but all the major economies across the globe experienced a major financial crisis post 2007. The turmoil in Europe with respect to the economic slowdown and debt crisis negatively affected the Euro. Japanese economy was spiraling in the effect of the “lost decade”.

Present

Though the current condition of Euro Zone doesn’t boast of full recovery, it started showing good signs. With Cyprus banks opting for selling their gold reserves to pay off the debt, supply of gold increased. In the anticipation of more Euro nations following the suit, investors have cut down their exposure to gold. Gold ETFs experienced huge sell off pressure.

US Dollar

Past

The quantitative easing measures by US weakened the US dollar. Demand for US dollar decreased.The major federal banks were opting for gold over US dollar, with China being the front runner. This acted as one of the driving factors for gold price rally. In anticipation of driving inflation rates higher once the quantitative easing measures end, investors preferred gold as a hedge against inflation.

Present

With signs of economic recovery, US dollar strengthened. The current inflation data across the globe is not in sync with the anticipations. The inflation numbers were recorded lower than expected. Investors started favoring US dollar over Gold.

Conclusion

When compared to the global markets, Indian markets experienced higher growth rates in gold prices. Indian rupee which used trade in the range of INR 43 per USD is now valued at around INR 54 per USD. The global economic conditions of the past decade along with the weakness of India Rupee acted in favor of higher gold prices during the last decade in India.

The economic indicators in coming quarter will define the direction of gold in future. If the US economy continues its good run, expect further slash in gold prices in the year 2013.

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In the past few weeks, there is lot of talk around how the yellow metal has lost its shine significantly since the start of Jan – 2013. Most of the investors are placing their faith and money in recovering markets over Gold. Gold funds have experienced huge sell offs during the past three months. Apart from the investors, the gold loan lenders are expected to take a hit because of the falling gold prices.

Basics of Gold Loan

Before analyzing the effect, it is important that we revisit a few basics of such loan. How do you avail a loan while pledging an asset? The value of asset is estimated as per the prevailing market rates and a certain percentage of the value of asset is granted as a loan. The percentage of loan given is called as “loan to value” ratio. The lender expects to make profit on it in the form of interest rate paid by the borrower. The default risk is countered under the assumption that the pledged asset will gain in terms of its value over the loan tenure. Once the borrower defaults on his loan repayment, the lender can then redeem the money he borrowed by selling the asset.

The problem

The current issue with gold loans is the “loan – to – value” ratio at which they were evaluated at the time of processing the loan. During the times when the gold rates were high, the gold loan companies were on a credit spree. They started issuing loans at higher “loan – to – value” ratios. Some companies even issued nearly 80 - 90 % of the value as a loan amount. RBI has to step in March 2012 to cap the maximum limit to 60% of the value of the asset.

The fall in gold prices has implications on the gold loans which were taken at higher “loan – to – value” ratio. The collateral i.e. the gold has diminished in value. In order to make up for the margin of current value of collateral and amount of loan issued, the loan provider would either need the borrower to pledge more collateral or pay the margin in cash. If the borrowers fail to match the margin, the probability of default risk increases. The lender will be forced to auction the pledged gold in open market. The realization value of used household gold in falling markets will be lower compared to the loan amount. If the lender wants to hold this for a longer period in anticipation of improved market conditions, they will be facing a liquidity crunch.

It is testing times for the age old assumption that gold prices will never fall. It is the same phenomena in which both the lender and borrower of a gold loan always believed in. The growth of gold loan companies kept pace with the gold prices till now. During the past decade, gold prices experienced new highs and gold loan providers posted strong numbers in their books. The finance ministry has asked all the banks to review their loans backed by gold and call their customers for more collateral if the prices fall further. It has to be seen whether the customers will match the margin or opt for default route.

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Credit cards are the most easily available form of loan. You shop now and pay the bills later. As attractive as it sounds, it comes with the danger of increasing debt if not used efficiently. Make sure you have the following points on your checklist, next time you are applying for or using a credit card.

Shop for a credit card before planning to shop with it

Before applying for a credit card, make sure you evaluate all the options available in the market. Different banks provide different offers on the credit cards. Don’t let your comparison stop at the card limit. Know the interest rates being charged on different credit cards and their respective processing fee and renewal fees. Analyze the benefits you receive on signing up for a credit card. Know the different benefits in the form of loyalty points or pay back points and also how to and where to redeem them.

Know what you are agreeing to

Read the documents carefully before signing your credit card application. Don’t just rely on the statements made the credit card executive. Know the clauses, interest rates and renewal fee of the credit card. This can help you avoid surprise payments and long phone calls with your credit card call center executives in the future.

Avoid excessive usage

Make wise decisions before making any purchases using your credit card. Differentiate between what you “need’ and what you “want”. This helps you avoid budget crunches during the month end when you are supposed to make credit card payments.

Avoid late payments

Making a late credit card payment can have significant negative consequences on your credit score. It negatively affects your credit worthiness. It not only increases interest rates when you are looking for a loan or credit card next time, but also drags down your loan eligibility amount. If possible, make the credit card due payments as and when you receive your monthly statement. Make sure you set reminders on the bill payment due date in order to avoid missing bill payments and late fee charges. You can also opt for automatic bill payment and avoid late payment charges.

Make sure you pay the total bill, not just the minimum payment

Don’t get into the habit of making only minimum due payments. Making only minimum payments every month will indirectly increase the time taken to clear the debt accumulated. You will also end up paying high amount of interest by deferring the credit card payments if you pay only the minimum amount.

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Having an emergency fund in your portfolio is an ideal way to tide over a family crisis or meet unexpected expenses. Therefore, the need for maintaining emergency funds, particularly keeping some cash at home or in a bank account, has always been emphasized by our forefathers.

"Even standard financial principles suggest that you should keep aside cash to cover three to six months of living expenses, which would be able to cover most emergency expenses. Your emergency funds can also come handy in case of a job loss as it takes some time to get a new job," says Anil Chopra, Group CEO, Bajaj Capital.

However, building an emergency fund is not that easy. It requires discipline. It may also require reducing your spending to free up extra cash, and many more things. But once you are able to build your emergency fund, it will surely help you in times of crisis.

Here we take a look at 10 easy steps which will help you build your emergency fund:

1. List your regular monthly expenses

The first step to building an emergency fund is listing down all your monthly expenses, ranging from household to loans. Differentiate between the expenses which are mandatory and which are not, considering unnecessary expenses will result in abnormal or wrong calculation of emergency fund requirements. "This process helps you in determining a realistic corpus required as an emergency fund. It also helps in chalking out the expenses you can cut on to increase your savings rate. So by going through the process of budgeting you not only gauge your emergency requirements, but also find the ways to fund your emergency corpus," informs Nitin B Vyakaranam, founder & CEO of Artha Yantra, a financial planning portal.

2. Assess your income streams

The next step is to analyze all your income streams. This is especially important for small time vendors and businessmen who have multiple income sources. Differentiate your various income sources which are continuous and which are periodic. For example, your monthly salary is a continuous income whereas your yearly bonus is a periodic income.

"It is always important that you determine your monthly savings based on the continuous income sources. More often than not the periodic income sources are variable in nature. Use the periodic income to make lump sum investments and the continuous income to make monthly investments," says Vyakaranam.

3. Improve the savings rate

Once you do the basic budgeting, you can exactly assess the monthly savings you are making. Check whether the current savings rate is good enough or not. Assess all your income and expense heads. Analyze the areas which are affecting your savings rate. If possible, chalk out plans to cut down or minimize your expenses.

This helps in increasing your monthly savings. There is always room for improvement when it comes to savings. Improving savings should be a continuous process. Find out the areas where you are spending more and assess whether you can cut down your spending in these areas.

4. Start small

Don't try to make all the savings required to build an emergency fund in one month. This can prove to be a burden on your purse. In the process of doing lump sum investments, most of us procrastinate the process of savings. Avoid such pitfalls while building your emergency fund. Start with smaller amounts.

"Make sure you set some money aside every month as a part of your emergency fund until you reach the optimal level. It is not important that you save in higher amounts, it is important that you make this process of saving a hobby and continue it for a longer period. The power of compounding also works in your favour if you start early," suggests Vyakaranam.

5. Reduce an expense

Find that one expense which you can cut back on. This is one of the best ways to increase your savings rate and generate money to fund your emergency requirements. It is also the best practice to replace your expense with savings. It helps in generating more savings from the existing income.

For example, if you have tea thrice in a day, try to have it once or twice. Similarly, if you eat out daily, see if you can pack a lunch box to office. Though you think it is just Rs 10-30 extra per day, by cutting down on them you can save nearly Rs 300 to 900 a month. This money can be used to boost your emergency fund.

http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/build-your-emergency-fund-in-10-easy-steps/articleshow/19558201.cms

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Health Insurance provides risk coverage against expenditure caused by any unforeseen medical emergencies. Provided the high medical inflation rates, failing to hold adequate amount of health insurance cover can often prove to be a major personal finance slip-up. It can either result in poor health care because of non-affordability or spiral an individual into financial distress due to high medical bills. Currently, majority of the salaried professionals are provided a health insurance cover by their respective organizations. However, they often fail to assess their health insurance requirements and realize the benefits of holding adequate health insurance. They also assume that the health insurance cover provided by their organization will be available even during the post retirement phase.

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One question we fail to ask ourselves before buying a life insurance policy is: what is the amount of insurance cover I need? We are often lost in assessing the gamut of life insurance products available in today's world.

Our emphasis lies in picking the insurance product rather than evaluating our insurance needs. The standard practice of financial planning advocates us to first calculate the insurance requirements and then start analyzing the available options before picking the suitable product.

In India, when it comes to life insurance we mostly hear about calculating the insurance requirements using the human life value (HLV) method. HLV takes into consideration only the income of the individual.

By considering only the income, the HLV method makes multiple assumptions that are not tenable over a long term.

One of the assumptions is that today's salary can be used as a reference point for future requirements, and often emergencies that are non-life threatening (eg: job loss, accidents, etc) are not considered, making it more likely to overestimate or underestimate the insurance requirements of the family.

The very purpose of taking an insurance cover is for the family to meet the expenses after the demise of the earning member. Need-based approach, often termed as expense replacement, considers the expense that the family would require to sustain in the absence of the bread winner. It is also important to understand that the family needs readily available cash to pay off the deceased member's medical expenses, funeral expenses, debts, estate settlement cost, emergency fund and final expenses as the inflation rate increases the cost of living also goes up. The family of the deceased should be able to sustain itself in such conditions as well. Hence, it would be prudent to link to the insurance requirement of individuals.

Need-based approach involves paying off the deceased persons' remaining obligations such as auto loan (if the loan is not insured), credit card dues, meeting child's future education needs, etc. It also takes care of the future expense needs of the family. Expense replacement approach is more accurate as it involves a detailed examination of the family's anticipated expenses during various periods after the insured's death. It provides more realistic estimates of life insurance needs.

Nitin Vyakaranam is the founder and chief executive officer, ArthaYantra, an integrated online personal finance company.

http://profit.ndtv.com/news/your-money/article-how-much-insurance-cover-do-you-need-320849