by Vinaya HS on March 12, 2010
in Finance
Up to now, interest on savings account balances were calculated on the minimum balance in the account during the period from the 10th day to the last day of each calendar month. With this archaic method (introduced way back in 1987), you’d lose out on earning interest each time you withdrew money on or after the 10th of the month — any fresh deposits you made wouldn’t count too.
Starting April 01, 2010, the Reserve Bank of India is bringing about a significant change in the way the interest on the balance in your savings account is calculated. According to this circular:
Interest on balances in savings bank accounts would now be calculated on a daily product basis with effect from April 1, 2010.
What this means is that the interest will now be calculated on the balance in your savings account at the end of each day. This, in my opinion, is a fair way and you as a savings account holder stand to gain financially — in terms of the interest paid for your balances.
Another step in the right direction. The Indian financial system is slowly but surely maturing. What do you think?
Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.
by Vinaya HS on March 10, 2010
in Finance
Do you want to know what the impact on your income tax payable will be when the new income tax rules come into effect? Do you want to know what the impact on your home loan tenure will be if you decide to prepay a certain amount? Do you want to know what the EMI on that personal loan you’ve been contemplating will be? Do you want to know what the penalty for preclosing your vehicle loan two years into the loan tenure will be? Do you want to understand how that seemingly interest-free offer on that shiny new LCD TV works?
In general, the impact of any financial decision or financial choice you make is best understood by running the numbers. Because, the truth always lies in the calculations.
What do you think?
by Vinaya HS on March 9, 2010
in Finance
It’s March and I’ve seen a good number of people blindly investing in a financial instrument (usually Unit Linked Investment Plans) at the very last minute for the sole reason that it saves them from paying a certain amount of income tax. What’s forgotten in the heat of the moment is the cash outflow that you need to bear in the years to come.
It might not be a problem today to pay Rs 50,000 as the premium amount, but will you be able to pay this premium each year for the next twenty to thirty years?
It’s therefore a good idea to stop for a moment and think about the cash outflow you’d need to bear in the years to come to continue this investment.
What do you think?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on March 2, 2010
in Finance
D, posed this question to me the other day — when should you close your mutual fund investments?
Simple.
Whenever it meets your expected goals/returns.
PS: If you hadn’t set a goal when you invested, either set one now or close your investment right now.
by Vinaya HS on February 23, 2010
in Finance
I’ve observed quite a significant number of people plan their finances around receiving the bonus component of their compensation. And when their employer doesn’t give the expected bonus — due to whatever reason ranging from the economy to performance — their financial plans are thrown out of gear.
If you look at the terms and conditions of your employment, the bonus component is usually listed as being “up to a certain figure.” And up to can mean anywhere from zero to that figure. A bonus is not promissory in nature.
It’s therefore a good idea to not rely on your expected bonus when making your financial plans. Or, you can do better. Make two plans — a best case plan with your expected bonus and a worst case plan without it. And expect the latter to be the reality.
What do you think?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on February 17, 2010
in Finance
D, had an interesting question to ask.
Suppose I’m unable to collect cash from the ATM cash dispenser within the stipulated time (usually 30 seconds). What happens to such a transaction? Is it automatically reversed? What happens if this situation occurs at a third-party ATM?
I couldn’t find an answer to this question. Have you faced such a situation before? What was your experience?
by Vinaya HS on February 16, 2010
in Finance
One of the suggestions that came up during an office discussion about the effects of the recent circular issued by the Central Board for Direct Taxes (CBDT) was:
Employees whose basic salary is greater than INR 6,500 per month can opt to receive an employee provident fund amount limited to 12% of INR 6,500 i.e. INR 780 per month. This would increase the take home pay for such employees.
Though this suggestions looks attractive at first sight, there are several drawbacks.
- You loose your employer’s matching contribution. If your basic salary is a significant amount, you stand to loose a significant amount of free money.
- You loose the income tax exemption benefits that you would have otherwise gained with a higher employee provident fund contribution. In other words, your take home pay doesn’t really increase as much as you expect it to.
- You loose the benefit of automatic savings — each month.
Unless you desperately need the few — if any — extra rupees each month, it’s always a bad idea to opt for a decrease in your EPF contributions in lieu of a [hypothetical] increase in your take home pay. And remember, the truth always lies in the calculations.
What do you think?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
1 year.
23,216 kilometers.
Nomadic.
The Swift ZXi — a marvel on four wheels.
by Vinaya HS on February 11, 2010
in Finance
There was a recent circular issued by the Central Board for Direct Taxes (CBDT) that reads:
The Finance Act, 2005 introduced a levy namely Fringe Benefit Tax (FBT) on the value of certain fringe benefits as contained in Chapter XII-H (sections 115W to 115WL) of Income-tax Act, 1961. By the Finance (No. 2) Act, 2009 a new section 115WM was inserted to abolish the FBT with effect from assessment year 2010-11. Consequently, benefits given to employees are taxed as perquisites in the hands of employees in terms of amendments to clause 2 of section 17 of Income-tax Act, 1961.
Note the highlighted words — benefits given to employees will now be taxed as perquisites in the hands of employees [in the current financial year]. This means you will now have to pay income tax on benefits such as vehicle fuel and maintenance, communication expenses, etc. — expense items for which you were so far not required to pay income tax since your employer was bearing the tax burden in the form of FBT.
Given that,
- this change is applicable for the Financial Year 2009 - 10, and
- there are hardly two months left in the Financial Year,
many of us might find ourselves in a situation where most of our salary would go towards paying this income tax deficit in the months of February, 2010 and March, 2010. That means you might potentially have negligible to no salary for the next couple of months.
This is where an emergency fund proves its worth. With an adequate emergency fund in place, you wouldn’t have to worry about such unforeseen situations. I am affected by this ruling — thankfully, I do have an emergency fund.
How about you? Are you affected by this ruling? If yes, how are you handling it?
by Vinaya HS on February 9, 2010
in Finance
Because the bank has the right to dip into your savings and settle your credit card dues. An extract from HDFC Bank’s Most Important Terms & Conditions for Credit Cards (version 1.23) reads:
Right of Lien
The bank, at any time and without notice, will have lien and right to set-off all monies belonging to the Cardmember and/or add-on Cardmember standing to their credit in any account/custody of the bank, if upon demand by the bank, the balance amount on the card account is not repaid within the prescribed time.
Could be a sticky issue especially when you have any disputed and unresolved credit card transactions. To play it safe, it’s a good idea to avail a credit card from a bank where you don’t keep your other savings.
What do you think? What has been your experience in this matter?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on February 6, 2010
in Finance
You might be wondering why your credit card dues simply keep spiraling out of control. The basic reason for this is that once you fall into the trap of not paying your outstanding dues in full, the bank levies all kinds of fees, interest, and finance charges and then tries to recover these before applying your payments towards settling actual transactions.
Credit card payments are first applied to all overdue amounts (the oldest due being credited first) in the following order:
- Fees and other Charges
- Interest
- Balance Transfer Amount Billed (if applicable)
- Cash Advances Billed
- Retail Transactions Billed
- Balance Transfer Amount Current (if applicable)
- Cash Advances Current
- Retail Transactions Current
No wonder then that your credit card dues simply do not end — it pushes you further and further into debt. And all it takes is one part payment (anything less than the total amount due) to set you on this downward spiral.
by Vinaya HS on February 5, 2010
in Finance
Here’s a detailed tutorial from the Reserve Bank of India (RBI) on how to identify genuine rupee-denominated currency notes.
My observations:
- It’s not possible for the common person to identify a counterfeit note on first glance. How often have you stopped to verify the genuineness of the currency in your hands?
- Banks themselves have started using ultraviolet (UV) lamps to detect counterfeit notes. It’s interesting to see the teller closely examine each note you handover (when you deposit cash), but not do the same with the notes handed back to you (when you withdraw cash).
- How good an idea is it to keep in each bank branch a public UV lamp that customers can use to identify the genuineness of their currency?
What do you think?
Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.
by Vinaya HS on February 4, 2010
in Finance
by Vinaya HS on January 29, 2010
in Finance
This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her posts always prove the opposite. In this post she explains why you really ought to be careful when you act as a reference for someone else’s financial dealings.
I learned this lesson the hard way. A colleague of mine wanted a personal loan and asked me if he could use my name and number as a reference. Having known him for a long time, I agreed. A few months later he quit the company, quit the city, and changed his mobile number. We lost contact.
And then started a slew of calls from the bank wanting to know his whereabouts. Since I had no idea, I said so but the calls didn’t stop. Even now, after more than two years, I get these calls when I am in the middle of a meeting, driving, or trying to put my baby to sleep. Each time a different person calls and I have to explain the situation all over again.
No amount of mails, scraps, and pokes have yielded any response from this colleague. I do not want to change my mobile number because of someone else’s wrong doing. Sigh! I guess I’ll just have to answer these calls until the bank marks this colleague as a defaulter and forgets him.
In this day and age, you really need to be careful about who you act as a reference for.
Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.
by Vinaya HS on January 5, 2010
in Finance
That depends on where you are right now into the tenure of your loan, but the general answer is “as early as possible into the tenure of the loan.”
EMIs for personal loans — or any loan in general — are structured such that the interest component of the EMI forms a significant portion of the EMI early into the tenure of the loan. For example: in the first EMI for a personal loan of INR 300,000 at 18% over 36-months, the interest component constitutes nearly 41.50% of the EMI amount! At the end of 12- and 24-months, the figures are 31% and 17.60% respectively.
For this loan, at the end of 12-months, you’ve already paid 52.40% of the total interest payable (if the loan were to be serviced over its full tenure). Since there’s a significant amount of the interest yet to be paid, it would make financial sense to pre-close the loan at this point (even after including the pre-closure penalty).
However, at the end of 24-months, you’ve already paid 86.90% of the total interest payable. It would therefore make little sense to close the loan at this point — you have no significant financial advantage in doing so.
Look at these factors when you’re thinking of pre-closing your personal loan and decide appropriately. You might find this Personal Loan EMI Calculator handy.
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on December 31, 2009
in Finance
Thought I’d end the year with this valuable quote from The Simple Dollar:
The real problem with any debt is the interest you have to pay. That interest is basically a huge price for impatience — one of our most dangerous human impulses.
That said, have a great year ahead with your personal finances.
Happy New Year.
