Buying a Small House and its Benefits

       Buying a house is said to be a milestone moment of one’s lifetime. Everyone wants the house to be big, beautiful and blissful. The trend of desired house size is changing with the limitation of space and rising property prices. Bigger the better or smaller the best, the question of ideal house size seems to dazzle even the experts. In this article we would analyze the various situations under which the small house outweighs the bigger house. So, if you have a small family and thinking to buy a house, this article is for you.

Before looking at the benefits of buying a small house lets first check out, why people often like to buy a big house despite having a small family:

- Having big house is a status symbol and to impress others

- The property agent’s false explanation and forced convincing

- Mistaken thought that only a big house makes a dream home

- The wrong impression that a builder offers big house at a discount over small one due to lower cost

- Preconceptions that bigger is better

- Many buyers’ thinks that they have spare money so it’s better to buy a big house as it will provide space for living and also fulfill the purpose of investing.

We have discussed the reason for buying a big house; now let’s check the benefits of buying a small house so that we can come to an analytical conclusion.

Buying a Small House and its Benefits

 

- To Save Money

Obviously, the small house costs less than bigger one, so “to save money” is a genuine reason to buy a small house. It needs smaller amount of money to insure the house, less area means low energy requirement, so the electricity bill will be reduced and low maintenance costs.

- To Be Stress Free

Small house takes off the stress of paying huge EMI and also less financial pressure on your budgeting. The loan amount can be paid early and the buyer can keep his financial book to be debt free. One can invest the money thus saved into other avenues for a better return or use it for other important work.

- To Save Time

Less area means less time to clean and maintain the house. Small house makes everything seem to be kept in the easily accessible distance and hence it saves the time which otherwise required in the bigger house.

- Helps to curtail shopping bill

Quite often unimportant things are given space in the home due to useless purchasing, but small house curtails waste spending because the resident understands the space limitations and hence buys only necessary things whenever goes to a shopping.

- For Closer Family Tie up

It helps in developing a strong bond between the family members because everybody stays in a compact area and therefore it eliminates the communication gap between each other. The free interaction due to close living style helps in growing a happy feeling reducing the personal differences.

- Good Resale value

Small house has a very good market and the rate of such property also appreciates steadily. Due to low price involvement, the owner enjoys the choice of changing the house very frequently.

- Environment Friendly

Less area of construction means more space for the nature to grow, so a small house helps the environment and support the greenery.

Conclusion

Buying a house is a personal decision and it depends on numerous factors to finally select a house of one’s own choice. If the family consists of up to four members, then a small house can provide a cozy feeling, sense of security and self contentment to the buyer. Bigger the better is not always true, so buyers should start focusing on a smaller house to live a life of own choice and payback property loans easily.

Safeguard yourself form fake bank notes.

Recently (RBI) informed that there was steady rise in the number of counterfeit notes in circulation. Apart from attempts at detecting fake notes RBI has laid out a couple of other measures to tackle the counterfeit notes nuisance. Some of these are public education campaign for identifying fake notes, improvising on security features of notes and instructing banks to issue only genuine notes at their counters or ATMs.

Fake notes nuisance

In the year 2011-12 alone RBI had detected Fake Indian Currency Notes (FICN) of various denominations in the banking system having value close to Rs 25 crores. Like you’d have guessed this is just a tip of the iceberg. Government agencies have managed to detect about 25% of counterfeit currency notes in circulation. According to one government agency estimate there are about Rs 16,000 crores worth of fake Indian Rupee notes in circulation. Would you be surprised to find some forged notes in your wallet?

Much of the counterfeit notes originate in Pakistan where it is printed and sold for a quarter of its face value. Forged notes are common in real-estate transactions taking place in black. It is important to be vigilant about fake currency notes circulation since it could be a matter of national security. Counterfeit notes can be used by terrorists machineries for their activities as was the case in 26/11 attacks.

Circulating fake notes is an offence

Printing and/or circulating counterfeit notes is a criminal offence punishable with fine or imprisonment (ranging from 7 years to life imprisonment) or both. Of course none of us might be implicated in this, right? But remember that when you buy or sell in exchange for forged notes or tender it at a bank you are essentially circulating it! Relax; as long as you have not done it intentionally you won’t be implicated. But everyone who is aware of fake notes being printed or circulated on intention is required by law to inform the police.

What to do with fake notes?

If you realize your currency note is not genuine produce it at the nearest police station where an FIR is to be filed. Do not destroy the notes; if you do you would be covering somebody’s crime in an indirect manner.

If the bank cashier finds the currency note to be a counterfeit one on examination she would stamp on its face as ‘Counterfeit Banknote’. You would be issued an acknowledgement receipt which must be signed by yourself and the cashier. Thereafter the forged note will be forwarded to the local police station for FIR investigation.

Save all the trouble, identify fake notes before taking possession

Prevention is much, much better than cure. With a little bit of patience you can make out counterfeit notes from the real ones. Especially in case of currency notes of large denominations like Rs 100, Rs 500 and Rs 1000 make a quick look out for identification marks.

Since according to recent RBI figures it is the Rs 500 denomination notes that have the highest number of counterfeits we have mentioned below a few look-outs in a genuine Rs 500 note.

1. Security thread

The silver security thread going through the breadth of the note has the words ‘RBI’ and ‘bharat’ inscribed in it. The thread changes colour from green to blue when viewed from different angles. It is seen as a single line from the back of the note. Fake notes could have gray line printed or an aluminium thread inserted.

2. Alignment in floral pattern

Floral pattern on the front and back of the note in the middle of the vertical band just next to the large blank space (having watermark) has numeral ‘500’ inside it. The numerals on both sides appear as one when held against light. This too is a featured difficult to imitate with accuracy.

3. Watermark

Mahatma Gandhi’s portrait hidden in the large blank space in the front left hand side of the note can be seen when held against light. You can also see multidirectional lines and numeral ‘500’ in the section.

4. Optically variable ink

Colour of the numeral ‘500’ in the front centre changes from green when held flat to blue when tilted.

5. Intaglio print

There is a circle in the centre of the band at the front left hand side. This intaglio printed circle can be felt by touch. Similarly the print ‘Paanch sau rupaiye’ at the front centre is in intaglio.

If you find ink to be smudged, printed lines to be broken, variation in alignment of numerals, inadequate gaps in numerals treat it with suspicion. Identification for notes of other denomination is covered in a separate article. 

Cheque Truncation System or CTS

It might happen that your cheque’s start bouncing and do not get accepted from Jan 1, 2013 . There is a new standard in banking called as Cheque Truncation System or CTS 2010 , which all the banks have to follow now. RBI has issued a circular telling all banks that they should only process and accept those cheques which follow CTS guidelines.

What is Cheque Truncation System or CTS ?

It's just a new improved structure for chqeues and a set of guidelines which will change the way cheques are being processed and cleared. Right now, all the cheques are sent directly physical to the other bank for clearance, but with this new Cheque Truncation System guidelines, the banks will send the digital version of cheques (read scanned image) to the other bank and the clearance will happen almost same day or very fast. Some of the features of CTS cheques would be  

• It would have the wordings “please sign above this line” at right bottom
• All CTS-2010 cheques will have a watermark with the words “CTS INDIA”, which can be seen against a light
• A bank logo will be on cheque with a Ultra Violet Ink , which can be seen only under UV Scanners.
• The Cheque Truncation System 2010 enabled cheques will not allow any alterations. If there is any mistakes, the cheque will be invalid
• “payable at par at all branches of the bank in India” text will be at the bottom of all the cheques
• There will be IFSC and MICR code on the cheque
• You will have to sign the cheque will a darker ink, so that your signatures are valid for scanning.

If you look at these features, you can simply see that these are required for digital processing and once these Cheque Truncation System enabled cheques arrive , the whole banking system will start clearing the cheques in a must faster time. This will improve banking and save paper. Below is a sample of cheque which fulfill CTS criteria’s.

SBI has already told all its customers to get new cheques because all the old cheques will become invalid , In the same way HDFC bank and ICICI bank have also told their customers to get new cheque books.

What you must do ?

Replace your Post Dated Cheques

If you have given any post dated cheques to someone like for your home loan payments or for some other kind of payment, then it's the time to replace them with fresh cheques else it will just bounce and you might have to pay the bounce charges

Deposit any Old Cheque now

At times, we accumulate old cheques and deposit them for clearing only after many days or weeks. If you have any cheque which is to be cleared, better deposit it and encash !

A lot of banks have also asked its customers to give return back the old invalid cheques at their branch and collect new cheques, not sure why they need old cheques , why can't they issue the new cheques directly ? Also note that the cheques will be sent to the last updated address only. Learn more about CTS here .

You already have CTS-2010 compliant cheque books ?

Note that RBI has directed all banks to issue Cheque Truncation System 2010 enabled cheque books already from last many months. So it might happen that your cheque books are already complaint with those standards . So please check it once and don't rush to bank to issue you new cheque books . Like one of the reader found out that he already has the right cheque’s .

    "Banks like ICICI Bank and Axis Bank had already started issuing CTS-2010 compliant cheque books since last year. So please verify whether cheque book you have a already CTS-2010 before rushing to bank to get a new one. "

7 good reasons to invest in SIPs

Fact No. 1: Over a long term horizon, equity investments have given returns which far exceed those from the debt based instruments. They are probably the only investment option, which can build large wealth. Fact No. 2: In short term, equities exhibit very sharp volatilities, which many of us find difficult to stomach. Fact No. 3: Equities carry lot of risk even to the extent of loosing ones entire corpus. Fact No. 4: Investment in equities require one to be in constant touch with the market. Fact No. 5: Equity investment requires a lot of research. Fact No. 6: Buying good scripts require one to invest fairly large amounts.

Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming. (Also Read - 5 corners of a sound Investing Strategy)

1. It's an expert's field  Let's leave it to them

Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research  - on the company, the industry and the economy thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative. (Read more - The Investors biggest Dilemma) 

2. Putting eggs in different baskets

Another advantage of investing through mutual funds is that even with small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us. Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector.

3. It's all transparent & well regulated

The Mutual Fund industry is well regulated both by SEBI and AMFI. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry. This makes it safer and convenient for investors to invest through the mutual funds. (Check out - Foolproof strategies to maximize your profits)

4. Market timing becomes irrelevant

One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of where to invest, SIP helps us to overcome the problem of when. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru regular investing.

5. Does not strain our day-to-day finances

Mutual Funds allow us to invest very small amounts (Rs 500 - Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.

6. Reduces the average cost

In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. (Read more - Invest wisely and get rich with equity MFs)

7. Helps to fulfill our dreams

The investments we make are ultimately for some objectives such as to buy a house, children's education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

Source: Moneycontrol.com

5 Important questions to be asked before investing

There are two types of persons, first, who don’t have money and second, who have money. Now those who have money, want to make further money out of it, just like a person who has an egg and expects that one day the egg will hatch and very soon the hen will lay more eggs and then there will be more hens and more eggs and so on. Money can be made out of money, provided there is a proper investment plan and the same is implemented well. But, even before designing an investment strategy, one should look for answers to these five questions ;

Q 1. What are my Financial Goals?

Ans : Goal is something which we desire to achieve or complete, sometime in the future. A financial goal is a goal which has a monetary value. Every person has his set of financial goals which can be classified as ;

Short Term Goals : like going for a vacation

Medium Term Goals : like purchasing a house, buying a new car

Long Term Goals : like Child’s education, retirement planning

Every investment should be made with a financial goal in mind. These goals should be realistic. Before investing your hard earned money, you should have a very clear idea as to what are your financial goals and what shall be their monetary value in future considering the general inflationary trends. For example, if you are saving for your retirement, then you should have a long term investment strategy and opt for such schemes where the money is locked in compulsory for a substantially long period in order to build a sizeable corpus at the time of retirement. On the other hand if you are saving for a vacation then you should look for short term investments options without any lock in period . Financial Goals can be said to have been achieved if you have the right amount of money at the right time.

Q 2. What are my current resources?

Ans. Financial planning and investment decisions should be made after assessing the current disposable income. As a matter of fact, a person cannot save whatever he has earned, however he can spend his entire earnings very easily. If a person is earning Rs. 50,000 a month then neither he should plan his investments in such a way that he is compelled to save the entire amount of his earnings nor should he spend the entire amount of Rs. 50,000. A proper assessment of monthly expenses and other liabilities should be done and then the disposable income should be invested to achieve the financial goals.

Q 3. What is my future income potential?

Ans. An estimation of future cash flows also assists in taking wise investment decisions. If you are in an employment where your job is quite secured and you have fair chances of promotion in the years to come, then you should plan towards increasing your savings gradually and at the same time maintaining a decent standard of living. But in any case, uncertainties cannot be ruled out completely. Therefore a liquid fund of 2 to 4 months expenses should be made to provide for any contingencies arising due to loss of job.

 Q 4. What is my risk appetite?

Ans. Before investing, ask yourself

- How long can i wait for the returns to materialize?

- How much loss can i bear on my investments in case of a downfall?

Higher the risk tolerance level of an investor, greater is the potential for him to earn higher returns. But risk tolerance levels also keep fluctuating with the market conditions and then the classic mistake which the investor makes is that when the markets are bullish, he becomes blind to the risk and in bearish markets, he becomes blind to the opportunities. Risk appetite also keeps changing with age . A 60 year old person may not be willing to invest in equities which is considered to be a risky investment option. On the other hand a 30 year old investor may even route half of his investments towards equities due to higher risk tolerance levels.

Q 5. What is the tax situation?

Ans. Last but not the least, an investor must identify the impact of various tax laws which may have an effect on his investment income. For example, if you sell your equity shares within a period of 12 months at a profit then you will have to pay 15% of the profit as tax on short term capital gain, but if the same shares are sold after 12 months, then any profit earned on it is totally exempt from tax. Also investment in certain schemes of Mutual Funds may give you an added advantage of deduction under section 80C of the Income Tax Act. At the same time, you should also be aware of the tax slabs applicable on you, so that your investments can be properly planned and your post tax returns can be maximized.

Why To Invest In Bank Auctioned Property?

The opportunities in the real estate market are shrinking with the entry of a large number of investors. The traditional way of investing in real estate has many flaws and therefore it is difficult for many investors to participate in such asset class. Let’s check the problems in a property investment through a traditional route:

-  Risk of Litigation and Legal disputes: Properties have various legal aspects to check before it is selected for investment. Now a day’s property agents are deeply involved in most of the deals and they are unafraid to offer properties which are tangled in a legal problem. It is very difficult to find out the clear property in the current market.

-  Finance Risk: It is difficult for a normal buyer to purchase the property of completely own fund, so financial assistance from the bank or other institution is required. The property may not be considered by the bank for loan assistance depending on its policy; in that case buyer can face a difficult situation of arranging the fund.

-  Late Possession: The new flats and apartments offered by the builders are prone to possession risk. The builders take money in advance and delay the handover of the property on the due date. Such problems are very common and it is difficult to rule out such risk.

The above mentioned risks are very common and furthermore, the problem of transfer of title, hidden encumbrances, etc. deters the home buyers to take the traditional way of buying the property. The builders also charge a premium according to the location and choice demands of the property buyers, so the cost of property increases significantly along with the expectation. 

The solution to the difficulties in the traditional way of buying property lies in buying properties at auction.  A normal investor avoids the property through auction due to following reasons:

-         Lack of understanding.

-         Lack of information about auctions.

-         Due to problem with fund arrangement for auction.

-         Communication gap between stakeholders in auction.

Why to Buy an Auction Property

-         Chances of getting the property at a very reasonable and low price.

-         Auction properties are cheaper and the prices are 15 to 25% lower than the market value. The auctioning bank has an interest in recovering the loaned amount, so the price of such property is kept at a discount.

-         It is very safe and secure

-         The property is verified by banks for the legal aspects, documents, valuation and location of actual property, so there are minimal chances of fraud or any legal problem.

-         It is quite safe to rely on the credibility of the seller (Banks and Financial Institution).

-         The possession of Auctioned property is provided in less than three months time. The ownership is assigned within one month of completing the financial requirements.

-         The whole process of auction is very transparent and reliable, it is free from hidden terms and conditions

How to participate and purchase Auction Property

Step A - Read the paper notification for an Auction. Gather information required like Property address, size, Reserve price, Earnest Money Deposit (EMD), Date of inspection (DOI), Auction date, place and time, a collection point for tender form.

Step B – Collect the Tender form from the place mentioned in Auction notification

Step C – Prepare an EMD DD.

Step D- Deposit the DD along with complete tender document at designated places along with ID/Address proof (PAN, Voter ID, Bank Pass Book copy etc.).

Step E - The bidding process will commence

Step F - Participate with desired monetary bid if seems required

Step G – In case of winning bid; deposit 25% of the bid amount (including EMD) at the bank on the same day or else wait for the EMD DD to be returned.

Step H - After depositing 25% of bid money, arrange the balance amount in demand period and deposit it within time. Some bank offers loans facility for buying property at auction.

Step I – Auction Winner can now register the property in own name.

Conclusion

The idea of participating in an auction for buying a home may seem weird for many investors, but it is true that one can gain more in auction than the traditional way of buying the property. There are lots of auction consultants available in the market which helps the buyer to participate in the bidding process at nominal charges. It can further promote the buyer's interest in the auction property in the future.

Financial planning for the Self-employed!!

We encounter many people who think financial planning is only for salaried people & not of businessmen & self-employed professionals.  But nothing could be further to the truth than that. Financial planning is a must for everyone, including the self-employed.  Financial planning is not a one size fit all service, but rather the advice changes from person to person. We at Fpguru.com would like to share a few points, self-employed professionals & businessmen should keep in mind with regards to their personal finance.

Contingency fund is a must!

Though a contingency fund is a must for everyone, it is even more important for the self-employed as unlike salaried people they may not have a constant monthly inflow in the form of a salary. They may have a huge cash inflow whenever there is a major sale or deal cracked as in the case of real estate agents, chartered accountants, etc. Many professionals like photographers, software programmers, website designers, etc work on project basis & may receive their dues once project is over.

But sadly expenses don’t wait accordingly. Food, grocery, rent & all such essential expenses need to be paid regularly. EMI’s don’t wait a day also. So to take care of these, it is essential that you keep atleast 6 month’s expenses & EMI payments as reserve in liquid instruments to utilize in case of such contingencies.

Insurance to take care of the unexpected!

When we talk about insurance, we are not just talking about life insurance, but also general. If you have financial dependents, you may need life insurance. However as a self-employed it is general insurance which is mandatory. A mediclaim & critical illness policy is essential as falling ill does not only have medical cost attached to it for you, but also cost of business lost due to ill health!

A personal accident policy too is a must if your work involves a lot of travelling & physical strain. This works as income replacement insurance incase of temporary injury & a lumpsum payment incase of permanent disablement.

If you are a professional like doctor, engineer, accountant, stock broker, etc you may need to buy a professional indemnity to take care of any litigation against you related to allegation of negligent service. This is internationally the norm & soon will be very important in India too.

Insurance of your office, shop or warehouse is a must incase of loss due to theft, fire, etc.

Disguised Retirement!

Disguised retirement is what I call the retirement of businessmen & self employed. Usually they think retirement planning is not something they need. They say they will work till they can as they have no stipulated retirement age as salaried employees. That all is true but the fact is that they too face a form of retirement.

Many professionals, who are past their prime, go to office everyday but business is not the same. A man of 70 years will not have the same energy & enthusiasm to get more & more clients like a 30 year old. So though you are going to work, work is not paying the same as earlier.

Previously we had joint family systems taking care of the patriarch who was still head of the family & business. But now children have their own dreams & your business may not figure in those dreams.

The solution to this is to plan your retirement as if you are not going to have any income past a certain age. Your investments made should take care of your retirement.  That does not mean you won’t work, it just means now you will have funds to take care of you if your business is not paying you as well as when you were younger.

Investments !

Investments need to be made for achievement of goals as well as wealth creation. But whereas the SIP mode is the best method for most, many self-employed persons find it difficult to set aside a certain amount every month. This is especially true for professionals who get lumpsum payments few times a year.

In that case the best way to proceed is to commit a certain part of your lumpsum cash inflow to invest. So instead of you investing in a regular monthly SIP, you are investing quarterly, semi-annually, etc. It works same as a regular SIP. The important thing is you are investing!

Tax Planning is your trump card!

It is here where self-employed professionals have a certain edge over salaried employees. A salaried employee first pays tax on his income & then can spend the rest. A businessman can first spend from his income & then pay tax on what is left. This is something which can be used as well as abused by some people.

The  most important & ethical thing to do is ensure you show all expenses & income related to your business & draw your books of accounts. Self-employed professionals & sole proprietors come under slab rate category of Income tax act, so unlike a company or partnership which has to pay tax @30% of profits, you need to pay as per your slabs.

Sharing important financial information with your spouse!

Many businessmen do not find it important to inform their spouses about their various bank accounts, investment, important contacts, etc. This may due to various factors such as spouse also busy with his/her work, thinking that spouse being a housewife will not understand, etc. This is a very risky thing to do. In case of an unfortunate event, the spouse won’t know how to take things forward. Even finding investment details may prove difficult.

It is essential that you inform them about your work & financial details. Also it is essential to update nominations & make a will for smooth transition.