What is National Savings Certificate (NSC)?

National Savings Certificate (NSC)  is a fixed income/debt long term investment option offered by The Indian Government through postal department. Being backed by the GoI, they are secured and risk free investment option which provides you with a guaranteed return. Also, the minimum investment amount is a meager Rs. 100 which is affordable by most of the people. Its maturity period is 5 years which is comparatively lesser than other small savings scheme. Investors will make a onetime deposit and interest along with principal amount will be returned on the maturity.

NSC is categorized as ‘highly secured’ in the basket of Investment options. It is an Investment that gives Tax benefit while (i) Investing, (ii) during the life as well as (iii) at the time of maturity of the Investment.

NSCs qualify for investment under Section 80C of Income Tax Act. Also interest earned from NSC qualifies under Section 80C which means that investment in NSC (principal amount) as well as interest earned on it every year, up to Rs. 1 lakh, is deductible from the income of the investor.(NO TDS)

In terms of liquidity, NSCs have a drawback that premature withdrawals are allowed only under certain circumstances. Considering various factors, NSC can be an ideal investment for those who want to safe long term investment options that give guaranteed returns; do not need liquidity and who sought for tax benefits.

Features/Characteristics of National Savings Certificate (NSC):

Factors to consider before making an investment

Your investment portfolio should consist of products that match your needs and work towards achieving your goals. But how do you determine which products are suitable for you?

Below mentioned are a few factors that can help you find the right type of investment.

Risk tolerance

According to experts, there is a direct correlation between the risk associated with an investment and the returns it provides. Generally, higher the risk, higher is the potential return. However, different investors have different risk taking ability, according to their financial condition and preferences. It is essential to assess the level of risk you can take before selecting any instruments for investment. Once you know your risk taking ability, you can choose from a variety of options available for that risk type. For instance, high risk investments include equity investments, while moderate and low risk instruments include fixed income investment options like fixed deposits.

Age

One of the most important factors to consider while investing is your age. When it comes to investing, being young is an advantage. This is because you have more disposable income, not many responsibilities, a higher risk taking ability, and can wait for a longer period for an investment to bear fruits. As you grow older, you will have to take into account different factors like responsibilities, retirement planning, etc. In addition, you will have lesser time for your investments to provide returns. Hence, your ideal investment instruments change according to your age.

Investment objective

Before you put money in any instrument, it is essential to determine your investment objective. If your goal is simply keeping your money safe, you can choose investment options like fixed deposits or bonds that may provide moderate returns. However, if you are looking for higher profits and do not mind taking some risk, you can invest in shares or mutual funds.

Understanding of financial products

A variety of financial products provide many benefits today; however, they are complicated in nature. It is crucial to understand these products before adding them to your portfolio. Knowing the intricacies of the products will ensure that they not only meet your needs, but also provide higher profitability. For instance, if you are looking for only life cover, a term life insurance, which comes at a lower cost, is sufficient. However, if you are looking for returns with the coverage, you need money-back or endowment policies, which cost a little more.

Analysing these factors will help you determine which instruments are a good fit for your age, financial condition, risk profile and goals.

Comparison Between Personal Loan And Other Loans?

Personal loans are a wonderful and easy means to raise funds in case of an urgent requirement. There are no security requirements for availing a personal loan whose processing time is the minimum. Thus many people prefer this option over the other kinds of loans that are available in the market. However there are a few inherent disadvantages of personal loans which have negative financial implications. The interest rates of personal loans are the highest ranging around 15-20% as they are unsecured. Additionally the repayment tenure of the personal loans is shorter typically being restricted to 5 years or less. Thus the EMI commitment in case of personal loans is higher. Keeping in view these limitations of personal loans it is worthwhile to examine other options that can be used in such requirements.

Gold Loans: These are preferred over personal loans as they come at a much lower interest rate of about 12-15% since one has to pledge gold as a security against the loan. Normally the financing companies provide up to 90 % of the value of the gold pledged as the loan amount and the processing time is very less.

Loans against Insurance Policy: Loans against existing insurance policies are available for an interest rate of 9-13% which is much lesser than personal loan rates. By providing the insurance policy as a security one can avail such a loan within a short span of a couple of days. The policy has to be paid for at least a period of 2 to 3 years before being provided as security.

Loans against Fixed Deposits: Even fixed deposits can be pledged to raise loans in an emergency. The interest rates for such loans are about 1-2% higher than that specified for the fixed deposits. The amount available in such loans is up to 85% of the value of the FD at that point of time. Such loans are required to repaid in full before the maturity of the fixed deposit against which they were availed.

Loans against Property (LAP): Most banks and financing institutions provide loans against existing property of the customer to a maximum of 60% of the prevailing market value of that property. Typically such loans come at a interest rate of 15016%. The processing time involved may be longer in this case as the valuation of the property needs to be done prior to sanctioning the loan.

Temporary advance from Employer: this is yet another alternative to personal loans that salaried people can explore. The processing time is minimal as the sanctioning authority in this case is the employer and the rates will be minimum as it is only a temporary advance that the employer can easily recover from the salary of the individual.

The need and the current financial situation of the burrower will determine the exact level of utility and efficiency of availing any other type of loan as against a personal. The time factor in processing of the loan is a major criteria in deciding on the type of loan in an emergency situation.

3 Ways to Control Unnecessary Spending

"The safest way to double your money is to fold it over once and put it in your pocket." - Kin Hubbard

Kin Hubbard is right in saying that if we do not spend money unnecessarily we would be able to save money and double it. However most of us like to spend and would find it difficult to not spend at all. We feel that it could stress us further. However far to the contrary, accepting the challenges to not spend money on 1 day, not using credit cards for a week and not dining out for a month could help render certain important lessons for life.

Here are the challenges:

The challenge to eliminate the use of credit cards for a week.  We all tend to spend a lot on small and big purchases with using the credit card that carry a high rate of interest. Credit card tends to make us spend excessively on unwanted purchases. This creates stress of paying back the credit that includes the amount spent and interest. It is true that the use of credit cards have pushed many into bankruptcy and decreased their credit-worthiness.

Buying things on cash would only make us spend on things that we absolutely consider necessary. It is found that sometimes postponing the purchase and preferring to pay cash could make us realize that the need was just momentary. It is also true that buying with credit cards causes financial stress and spoiling of important life relationships. So avoiding plastic money could reduce stress, save relationships and safeguard your credit worthiness.

The next challenge of not spending for a day could be difficult, but could help save and render some important life lessons.  It is true as most of us have regular daily expenses on coffee, tea, lunch, snack at regular intervals and fuel to travel to and from work. Effective planning with implementation of this challenge involves ensuring that your fuel tank is full on the earlier day. Then setting the coffee vending machine the night before could ensure you refreshing brewed coffee to enjoy before you leave for work. Similarly, carrying homemade lunch and healthy snacks like salads, nuts, seed and snack bars could help you eat healthy and save money. It is not important how much you saved, but that you saved and also learnt some of life’s most important lessons.

The last challenge of not dining out for a month could be difficult for many today, with some feeling that there is propaganda against restaurants and cafeterias. This is difficult but you would realize on implementation that it saves you a lot of money that is usually spent eating out in restaurants and cafeterias. Some of us eating in cheap fast food joints may not realize it immediately, however its long-term health consequences would prove you wrong.

Avoiding eating in restaurants would not only effect huge savings, but also would help you avoid excesses in foods. In addition eating out only on special occasions as a family would help you enjoy the food. It would make the family realize the value of spending money lavishly when you have it or would like a change from homemade food.

The last thought:

This does not mean that you should not spend at all on dining out or on getting good things of life. It only means you should have enough money and savings to spend it. This self-control would only help you save and prepare you psychologically for a consumerism behavior when you cannot spend. I am sure you would learn a lot with these spending challenges once you try them.

Source Nandan Narula (n2moneymatter)

Mutual Funds in India Basics

What is mutual funds? Most people are not clear about even the basics of mutual funds in India as an investment instrument. Through this article, I will try to answer all the questions related to mutual funds. There are thousands of mutual funds in India which are almost similar to each other and this created confusion among investors, some of the examples of mutual funds are Fidility mutual funds, SBI mutual funds or Reliance mutual funds. Here is a Video on Basics of Mutual Funds which will help you understand some facts about mutual funds in easy manner. Lets first understand from very basic which will be helpful of a person totally outside the personal finance space.

Company: Company is a voluntary association of persons formed for the purpose of doing business having a distinct name and limited liability. These company needs to be registered under The Companies Act, 1956, However, company is not a citizen so as to claim fundamental rights granted to citizens.

Shares: To put in simple terms , its a share in a company. So it can be a very minuscule part of ownership in some company, For Example, if some one has 100 shares of Rs. 100 each for Company XYZ , it means that he has invested that much money in that company and is owner for that much part. Commonly called “stocks” and “equities.”

As we have got some understanding of what are these terms. we can proceed further.

Now anyone who has good knowledge of Stock markets, good knowledge of analysing the company performance, buying and selling of shares , timing the market, etc can directly buy and sell shares and do the investment directly in stock market. But there are people who have no good understanding of these things and they can’t take good decisions themselves, For them MF comes into picture.

Mutual Funds Pool the money

So Mutual fund is a financial instrument that allows a group of people to pool their money to build a huge corpus and then this money is invested by group of people (refereed as FUND MANAGERS) who are investment experts, have deep understanding of investing in stock market and overall financial markets. All the mutual Funds have there Units just like “shares” in Company. So if someone wants to invest Rs 10,000 in ABC MF and price for a unit is Rs. 10, he gets 1000 units of ABC MF , and over a period of time as the MF investment grows, the unit price also grows with almost same ratio.  The price of these units are referred as Mutual Funds NAV (Net Asset Value) .  When a new MF launches , its called NFO of Mutual Funds (New Fund Offer , just like IPO in case of new Company’s Share issue to public)

So for example the total corpus of the MF on 1/1/2010 was Rs 100,000,000 and per unit price was Rs 10 . and after an year on 1/1/2011 the total investment has grown to Rs. 134,000,000 , the unit price will be now Rs 13.40 (approx , it may be little less as there are some administrative cost and other expenses to be incurred).

Different ways of classifying Mutual Funds

A mutual fund can invest your money in different kind of things like shares , debentures , gold , Fixed Deposits and cash also. So based on where it will invest and what kind of risk it will take there can be different ways of classifying a mutual funds

Open end or Close Ended mutual Funds

One way of classifying a mutual funds can be close ended and open ended mutual funds. An open ended mutual fund is open at all time for entry and exit . So one can invest in it anytime and can get out of it anytime. Where as, in a close eneded mutual fund, there is a specified entry time and exit time and it comes with a duration. Large Cap, Mid Cap or Small Cap

Other way of classifying a mutual fund is there what kind of companies it invests in ? A large cap mutual funds puts most of its money in large cap companies and less money in small or mid level companies . Large Cap mutual funds have less risk because the companies it invests is big enough and have a long term record . A Mid cap fund invests in middle size companies and it has more risk and more return possibilities because mid level companies have high potential to grow and high risk to fall . The last one is Small  Cap fund which invests in very small companies with highest risk and return potential.

Equity Funds, Debt Funds and Balanced Funds

Another way of classifying mutual funds is to see which kind of underlying asset class it invests in ? If a company invests majority of its money in companies shares (equity) then its referred as Equity Mutual funds and if it puts majority of its money in Debt Instruments like Govt Bonds , Company Bonds and Company papers which are safe assets , then its Debt mutual funds . A balanced mutual funds are those funds which invest in both equity and debt in a balanced ratio (like 60:40 or 50:50 for example) .

I am sure this must have given you a good enough idea of basics of mutual funds in India and a general idea of types of mutual funds . In case you have any comments, please leave your message.

Investment plans for housewives.

It is essential for women, be it working women or homemakers to keep themselves and their family financially secure. In the olden days, women generally had a habit of keeping savings in the containers in their kitchen, but today that is not going to get our savings anywhere when confronted with ever-growing inflation. It is wise to choose to invest and wiser to choose the best investment in order to keep our family and ourselves financially secure. A good Investment gives better returns than merely saving in a bank deposit or in our piggy bank and helps us to cope up with inflationary pressures.

Women and investment? Homemakers and Investments?

Not a good combination, most people would say. Definitely not, many people think homemakers make very bad investors, as they do not have knowledge about the share markets and the technical aspects of investing. Looking from a fundamental analysis point of view, they are the ones who could be good investors as they make all purchase decisions for the entire family and they are aware which company performs better for what reason. They need not have to make decisions by looking at the balance sheet of the company; they are the main consumers of most of the products around. This is a strength, which can help them analyze stocks and invest in shares and equity. They are uniquely qualified to buy and sell shares.

How does a homemaker choose appropriate investment options?

The best way to plan your investment is to know your goals. Try to take a piece of paper and write down what you would like to achieve in your life time, you might want to have a house of your own, probably a luxurious car, a world tour etc. these things that are not immediate but needs to be achieved some day. These are your long-term goals. There are a few other things that you need to achieve in another two years/ three years or more, for example higher studies, marriage, purchase a two wheeler etc., these are your short term goals, remember your short term goals keep changing as you move on in your life. Your short-term goals today are not going to be the same when you become a mother. The article discusses in detail about the investment options for homemakers at different stages of life.

Where to invest in your 20s

In your 20s, you are likely to be in your college or at your first job, so your income is definitely going to be very less. You can choose to invest them in a recurring saving deposit or bank deposits where you can earn low but regular and fixed returns. You can also choose to invest your money in mutual funds because the risk involved is lesser and you can invest very small amounts of money. Once you have started earning good money in your late 20s you can start investing your money in equities where the risk and returns are higher.

Where to invest in your 30s

In your 30s as homemakers, you might not have plenty of money to invest in, but make sure you have a term insurance for yourselves and your family. A health insurance will help keep you more secure during times of emergency. Try to cut down unwanted expenses and invest in education funds for your childrens’ higher education, take up a suitable retirement plan for yourselves and your spouse. Avoid endowment plans; they carry higher charges and may not give high returns.

Avoid buying gold ornaments, they are only going to eat away your money in the form of wastage and making charges, instead, invest in gold-based funds and buy gold in the form of coins/bars.

Where to invest in your 40s

In your 40s, you need to boost your children’s education and wedding investments and your investment for retirement. If you are planning to build a house for 1500 Square feet, take only 1000 Square feet for your accommodation, rent the 500sq feet space, and use the money for investments. You can also take in a paying guest and use the rental and food charges for your short-term investments avenues.

Where to invest in your 50s

In your 50s you should invest in risk free investments. If you need to withdraw your long-term investment for your son’s higher education, withdraw it or switch it to a debt fund at least a year before he gets the admission. Do not wait until the last minute, as you will be at risk if there is a sudden fall in the market.

In the 60s and beyond

Transfer the amount of money you have into bank deposits or into a recurring deposit (RD) so that you will receive good returns and your money will be safe. Avoid risky investments in your 60s.

Basics of choosing the right life insurance

1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage, and the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.

The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest - and without the high commissions of whole-life policies.

6. Buy enough term coverage to fill your needs.

Life insurance is no place to skimp, especially with generally low rates.

7. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest - or for your retirement income to kick in.

8. Buy when you're healthy.

Older people and those not in the best of health pay steeply higher rates for life insurance - so buy as early as you can, but don't buy until you have dependents.

9. Tell the truth.

There's no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the Web to shop.

Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes - and avoid the pushy salespeople.

Basics of Forex

Commonly referred to as FX in short, the forex market is by far the largest in the world with over trade worth $ 4 Trillion on an average day. Simply stated this implies exchange of currencies of foreign countries with the purpose of trading. In India there are three aspects of Forex starting with the RBI which is the overall regulator, the bank to bank or inter bank trading and bank to customer or merchant rate transaction trading of foreign exchange. An interesting fact about Forex is that it cannot be dome at the individual level and all transactions have to be dome through a bank only. With these facts as premises this article will discuss some of the basic elements of Forex trading.

• All communication in Forex trading is done from the bank point of view. If a customer wants to buy a certain amount of USDs, then instead of referring to it as the customer wants to buy, it is always said as the bank wants to sell.
• The two market rates referred to in Forex are the Bid and Ask. Bid is the rate at which the foreign exchange is bought and Ask is the selling rate of the same.
• Conventionally the market if Forex buys at a lower rate of the exchange and sells at a higher rate. Assuming that 1USD = 55.50 INR this implies that the bid is Rs. 55.50 and the Ask maybe a higher figure like Rs. 56.00
• Quotes in Forex are two types – Direct and Indirect. The direct quite is the pricing of a certain number of units of currency of home country as against one unit of the foreign currency. For example Rs. 55.50 for 1$. In the UK this can be 0.19 Sterling Pounds = 1$ since the home currency there is pound sterling. In an indirect quote the opposite happens. In this case the quote is for number of units of foreign currency against one unit of home currency. For example Rs. 1 = 1/56^th of $.
• Conventionally the direct quote is referred to as American and the indirect quote is referred to as European across the globe.
• Spread in Forex is the difference between the Bid and Ask value of currency at that time. For example if the Bid is 1$ = Rs 55 and the Ask is 1$ = Rs 60 then the spread at that time is Rs. 5. As an indicator of the market a lower spread indicates a stable market as compared to a higher spread.
• Cross rate in Forex refers to indirect relationship between two currencies. For example if quotes are 1USD = Rs 55 and 1 Euro = Rs 80 then this is a cross rate between USD and Euro.
• In Forex the exchange rate can be based on Spot market or Future market. Spot market implies that the settlement will be made on the second working day after the transaction. Future market implies that the rates will be fixed for a future date. Thus if a bank fixes a particular exchange rate for a day in near future but the prices change, the bank will still have to buy at those rates and face the losses. The same is applicable for individual bidders in the Forex markets.
• The appreciation and depreciation formulas referred to in the Forex simply mean the change in value of a particular currency against another one over a period of time typically calculated for a year. For example if USD/INR ratio has moved from 45 to 54 in a year then the depreciation for INR is calculated and the appreciation of USD is calculated. For direct quotes (Forward Rate – Spot rate)/Spot rate x 12 Months gives appreciation or depreciation rates for that year. But in case of indirect quotes the formula used is (Spot Rate – Forward Rate)/ Forward rate x 12 months is used to calculate appreciation or depreciation.
• Swap Points in Forex refers to the difference between Forward rate and the prevailing Spot Rate.

These are some of the more often used terms in Forex which are useful in getting the preliminary idea about this sphere of trading. Forex trading is an arena worth exploring for people who have the inclination and interest in gaining maximum from their investments. However Forex trading has its own share of risks which must be understood prior to investing. With a little study and research the Forex trading can be mastered by any one with basic knowledge of finances and markets.

How Much Life Insurance Do You Need?

Life insurance is often just an afterthought after more rewarding financial obligations are taken care of, but it is one of the most important. If you don’t have enough life insurance, you could put your family in a difficult situation upon your death, but having too much could mean you are throwing money out the window. So, how much life insurance do you need?

If You’re Single Without Children

If you don’t have a spouse or any dependents, you may not need much, if any life insurance at all. In this situation, when you pass, you probably aren’t leaving anyone behind that relied on your income. Even so, you may still want some very basic coverage to ease the family’s pain by covering final funeral expenses.

If You Have a Spouse or Dependents

Life insurance becomes increasingly important when you get married or have children. Typically, a death is not only emotionally difficult, but the loss of a significant source of income can leave your loved ones facing an additional financial burden. Here are a few things to consider:

·         What immediate financial expenses will your family face upon your death?

·         How much of your salary is required to meet your current expenses? If you were to die tomorrow, how long would your dependents need financial support?

·         How much, if any, would you want to leave behind to fund your child’s education, giving to charities, or leave an inheritance?

Consider Your Needs

There is no right or wrong answer to how much insurance you need as your values and goals will ultimately determine what is right for you. For some people this could mean enough coverage so that their spouse would never have to work again, while for others it may mean just enough to pay off outstanding debts. Whatever you decide, your loved ones will appreciate it in the unfortunate event that it is needed.