investment calculators

Following-up on my previous post where I illustrated through a real-world example the way to calculate the maturity value and effective yield on a five-year tax saving fixed deposit (FD), I hacked-up a simple Android-application that helps you do the same in an instant wherever you are.

Download Icon
Click here to download the 5-Year Tax Saving FD Calculator Android-application. If you’re adventurous enough, it’s an unsigned .apk file that you can quickly install and run on your Android-phone (I’m still figuring out other mobile platforms). Let me know if you run into any trouble — it should run fine on most Android environments.

Here’s a quick screenshot of the application –

SimpliFi 5-Year Tax Saving FD #1

SimpliFi 5-Year Tax Saving FD #2

Here’s a quick usage manual –

  • Enter the Amount that you wish to invest in the Tax Saving FD of your choice.

  • Enter the Rate of Interest published by your Bank.

  • Click on the Calculate button. The Maturity Amount (of maximum interest to you) is auto-computed and shown.

  • Choose the Income-Tax bracket that you come under.

  • The Effective Annual Yield is auto-computed and shown.

Couple of real-world examples –

Here are two recent advertisements for 5-Year Tax Saving Fixed Deposits. In both cases, I believe that the Effective APY of 17.77% shown in the ad for a Rate of Interest equal to 9.25% is wrong. (unless I am missing something?) The results however do tally for a Rate of Interest equal to 9.75%.

SBI 5-Year Tax Saving FD

Canara_Bank_5-year_FD_0

Let me know if you found this application useful.

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I happened to see the below ad for a 5-Year Tax-Saving Fixed Deposit from Canara Bank. Whenever I see such calculations for a financial product, my first instinct is to try and figure these out by myself. Upon a first and casual glance, the ad seems to boldly project that everyone who invests would get the high yield projected (and there seems to be an error in the calculated yield as we’ll see below). But that’s not so. If you happen to be in the 10% or 20% income-tax bracket your effective yields are much lower.

Canara_Bank_5-year_FD_0

First, some basics. The ad does not specify the compounding interval but plugging-in a quarterly compounding interval tallies up the figures (see: maturity amount of original investment).

Canara_Bank_5-year_FD_1

Next, if you happen to be in the 30% income-tax bracket, the effective annual yield works out to a cool 17.98% (not 17.77% as depicted in the ad; I verified this through alternative formulae too).

Canara_Bank_5-year_FD_2

But if you happen to be in the 20% income-tax bracket, the effective annual yield drops to 14.75% (and conveniently not shown in the ad).

Canara_Bank_5-year_FD_3

And finally, if you happen to be in the 10% income-tax bracket, the effective annual yield drops to 11.98% (again conveniently not shown in the ad).

Canara_Bank_5-year_FD_4

A misguiding ad in my opinion but then most are. The elephant in the ad could have easily given way to two other columns of information! What do you think?

Moving on to the book giveaway,

popQuiz

Here’s a chance to win a great personal finance book that I’m currently reading and reviewing. It’s India-specific, very recently published, and very timely. I think you already know which book I’m talking about. Here’s how you can win this book: In the income-tax-slab specific tables above, what’s the formula for calculating the APR? That’s it. The first two correct entries win a copy each. I’ll announce the winner next Friday along with a detailed review of the book. And as always, I will need your email address.

Note:

Once you have the APR, the APY is easy to calculate. Use this formula or if you’re lazy simply install this application for your Android-phone. I’ll also publish the full spreadsheet once the winners are declared.

Update: Announcing the winners of this book giveaway — congratulations Raghu and Rakesh. You win a copy of the book “Jago Investor — Change Your Relationship With Money” each. I’ve emailed you separately for your mailing address. Thanks for participating.

And here’s my detailed review of “Jago Investor — Change Your Relationship With Money”.

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The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in PFC’s Tax Free Bond Issue along with the income tax angle. Nikhil’s analysis also contains a very interesting perspective on how you can plan for major financial goals through this investment route. A couple of weeks back, Nikhil had also put-up a detailed analysis of NHAI’s Tax Free Bond Issue.

Since I’ve already provided some background information to these tax free bond issues, this time we’ll go straight to the calculations and analysis which you can download from the link below:

Click here to download calculations and analysis for the PFC Tax Free Bond Issue (courtesy Nikhil Shah).

Please let me know if you have any questions by leaving a comment to this post. I will respond to your queries at the earliest.

Disclaimer:

All views and opinions are my own and have no relation whatsoever with any person or firm. The information provided is just for guidance. It may not be absolutely or technically correct. The information could easily be dated. Always check with Fund Company/Brokerage/Financial Advisor/other relevant institution for the correct information. Information provided on this Blog/Web Site is for informational purpose only. It is the reader’s responsibility to ascertain the facts, conditions and risk factors. All investments are subject to market risks. Read all scheme related documents carefully before investing. You are advised to consult your financial advisor before taking any investment decision. Read the prospectus before investing in these bonds.

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The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in NHAI’s Tax Free Bond Issue along with the income tax angle. Nikhil’s analysis also contains a very interesting perspective on how you can plan for major financial goals through this investment route. A couple of weeks back, Nikhil had also put-up a detailed analysis of L&T’s Infrastructure Bond issue.

The Central Board for Direct Taxes (CBDT) has allowed four firms to raise up to Rs 30,000 crore through the issue of Tax Free Bonds in FY 2011-2012. The National Highways Authority of India (NHAI; an autonomous authority of the Govt. of India under the Ministry of Road Transport and Highways (MoRTH) constituted on Jun 15, 1985) and the Indian Railway Finance Corporation (IRFC) have each been allowed to raise up to Rs 10,000 crore. The Housing and Urban Development Corporation (HUDCO) and Power Finance Corporation (PFC) are allowed to raise up to Rs 5,000 crore each. Tax free bonds means that the interest earned from these bonds is exempt from income tax and is therefore not considered while computing one’s total income.

The Rs 10,000 crore National Highways Authority of India bond offering which opened for subscription on December 28, 2011 offers a good opportunity for investors to lock-in funds at higher yields and earn tax-free interest income.

40% of the Rs 10,000 crore issue is earmarked for institutional investors while another 30% is earmarked for retail investors and high net worth individuals. The bonds will have differential coupon rates of 8.2% for 10-years and 8.3% for 15-years. The NHAI issue presents a good opportunity for investors to lock money in “AAA”-rated sovereign-like bonds at higher yields. Apart from high coupon rates and safety, these bonds will be very liquid because of the large float. Investors will easily be able to buy and sell these bonds on the exchange.

An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits which are currently giving about 9% pre-tax returns. Also, with interest rates expected to slide over the next few months, these bonds can generate higher returns by giving you an option to sell these bonds at a relatively higher coupon rate.

I’ve prepared detailed calculations and analysis which you can download from the link below:

Click here to download calculations and analysis for the NHAI Tax Free Bond Issue (courtesy Nikhil Shah).

There are six sheets containing the following information:

  • Sheet #1 shows Present Value to Future Value computations.

  • Sheet #2 shows computation of pre-tax yield for Individuals & HUF and also for Banks & Corporates.

  • Sheet #3 shows some useful calculations and tools.

  • Sheet #4 shows how much to invest to get desired amount.

  • Sheet #5 shows Child Education Expenses Planning via Tax Free Bonds

  • Sheet #6 shows Retirement Expenses Planning via Tax Free Bonds.

For additional information about this bond issue, please download the FAQ from the link below:

Click here to download FAQs for the NHAI Tax Free Bond Issue (courtesy Nikhil Shah).

Disclaimer [from Nikhil]:

All views and opinions are my own and have no relation whatsoever with any person or firm. The information provided is just for guidance. It may not be absolutely or technically correct. The information could easily be dated. Always check with Fund Company/Brokerage/Financial Advisor/other relevant institution for the correct information. Information provided on this Blog/Web Site is for informational purpose only. It is the reader’s responsibility to ascertain the facts, conditions and risk factors. All investments are subject to market risks. Read all scheme related documents carefully before investing. You are advised to consult your financial advisor before taking any investment decision. Read the prospectus before investing in these bonds.

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This article was originally published as exclusive content for my facebook subscribers and is now being republished to reach a wider audience. Subscribe to my facebook feed and be the first to read more such exclusive content.

At work, for employee-grades “Manager or higher,” we have the following options for having communication bills (official expenses incurred on cell phone, broadband expenses at home, and Skype-out credits) reimbursed:

  • Claim all communication bills within the “telephone allowance” component of the Flexible Benefit Plan (FBP). Usually capped at 2,000 per month or 24,000 per annum. Nothing is paid outside of salary and you get income-tax exemption for all claims.

OR

  • Claim all communication bills outside of salary (no official cap/limit is specified but your claims ought to be reasonable) and also receive the after-tax value of the “telephone allowance” component.

Depending upon your specific bill amounts, reimbursing these communication bills outside of salary might just put some extra cash in your hand. If it does, you definitely should take advantage of it. After all, why say no to free money?

Here’s a handy calculator to help you determine if and how much.

[Download the communication bills reimbursement calculator.]

And if you don’t know whether your employer provides this option, you definitely should go and ask anyone sitting in Finance and Accounts.

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The content for this post was provided by reader Ajay who proactively noticed a mistake in the interest credited into his Public Provident Fund (PPF) account, diligently followed-up the matter, and got it corrected. Each of us needs to keep a vigilant eye on our personal finances because no one cares about your money more than you do. Ajay’s experience is a timely reminder.

I checked the interest credited by the Post Office into my Public Provident Fund account for Financial Year 2009-2010 and found that it was less than what I had expected. The Post Office gave a weird reason for this discrepancy. They said that since I got my account transferred from one Post Office to another midway into the Financial Year, the computer calculated the interest for only half the year. They asked me to give them a written complaint and they corrected the mistake in about four weeks time.

I then searched on the Internet but did not find a PPF calculator that handled multiple deposits in a year and with different deposit amounts. After some research, I found that the Post Office uses the Interest Bearing Balance (IBB) method to calculate the interest.

There are some simple rules that we need to keep in mind when calculating the interest for PPF accounts:

  • Interest is calculated based on the Interest Bearing Balance method.

  • You have to deposit the amount on or before the 5th of a month.


Note: I have not done any withdrawals or taken loans on my PPF account. I am not sure how that gets calculated. For this example let’s just have deposits only and no withdrawals/loans.

The Interest Bearing Balance method is something that we learned in school and since we don’t apply it much for any manual calculations in day-to-day life this just remained in the textbooks!

The method is quite simple:

  • Find out the highest balance between the 1st and the 5th of a month. This will be the Interest Bearing Balance for that month.

  • Do the same for all the months in the year and add them up. Let’s call this result as Total IBB.

  • Use the formula Interest = Total IBB x 1/12 x Rate/100 where Rate is 8 (at present; may change in future).

That’s pretty much there is to it. I was working on a spreadsheet for this calculation, but put in the back seat due to other priorities.

Thanks Ajay for the valuable information. Let me see if I can cook-up a calculator.

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Tweets on 2009-01-22

by Vinaya HS on January 22, 2009

in Finance

I’ve been working on improving a few Excel-based calculators that I have previously published. Specifically, I have improved the following calculators:

Let me know how I can further improve these calculators. What other calculators do you wish to see? I’ve received many requests for a Home Loan EMI calculator; I will shortly publish one. You can also download a Personal Loan EMI calculator [instructions for usage].

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If you haven’t already started on a long-term savings strategy, you could begin on one this April with a Public Provident Fund (PPF) subscription. I believe that the PPF was started by the Government of India in lieu of social security. (I doubt if a Government can ever provide social security to a billion plus people.)

Your money in the PPF account is perfectly safe, earns 8% (at the moment), qualifies for Section 80C of the Income Tax Act, and at the moment is EEE (Exempt Exempt Exempt – the money you invest, the interest earned, and the final withdrawable amount are all tax exempt). You can invest a low of 500 rupees and a high of 70,000 rupees a year (over a maximum of twelve installments per year). You are also allowed to withdraw money or take a loan; there’s a weird formula to compute the same, but I advise against doing so ever.

At the end of 15 years, you can either extend your subscription in blocks of 5 years or else close the account and reap the benefits. The PPF is a great way to set aside money for say your child’s higher education. You can open a PPF account at State Bank of India (SBI) or any of its subsidiaries or at the local post office. An individual is allowed to have only one PPF account.

Click here to download a PPF calculator.

The calculator above can be used for quick reference. The only input you need to enter (in cell B3 — highlighted in yellow) is the amount you are ready to put into your PPF account each month. The calculator gives you an idea of the maturity amount that you can expect over a 25-year period.

Let me know if you find this to be useful. If you already have a PPF account, what goals did you have in mind when starting one?

Update: September 25, 2008

Below is a continually updated list of PPF-related queries which are answered in leading financial magazines such as Outlook Money and Money Today.

From Money Today, September 18, 2008 — Page 30

Q: My wife wants to open a Public Provident Fund (PPF) account in her name and another in the name of our minor daughter. I do not have a PPF account. Who will be eligible for the deduction for the money deposited in our daughter’s PPF account — my wife or I?

A: One can open a PPF account in one’s own name or in the name of a minor as a guardian. However, you can have only one PPF account in your name. If you have two PPF accounts, one will be closed and you will be refunded only the principal, not the interest. Also, two adults cannot open a joint account, though an account-holder is free to appoint nominees. Since your wife is planning to open an account in her name, your daughter’s account will have to be under your guardianship. Therefore, you will be eligible to claim a deduction for contribution to that account. Your wife can claim a deduction for the contribution she makes to her own account. A PPF account can be opened even if you have an Employees’ Provident Fund account with your employer.

From Outlook Money, October 08, 2008 — Page 24

Q: I have a PPF account with SBI. I extended it for five years after the account’s first 15 years got over in 2006. The bank says that since I have withdrawn 60% of the balance as was in 2006, which is the maximum amount permitted to be withdrawn from an extended account, no withdrawal will be possible for the next two years. What are the rules regarding withdrawals from an extended PPF account?

A: Assuming that you have made new deposits during the extended period, the rules regarding withdrawals in an extended PPF account stipulate that only one partial withdrawal is allowed each year subject to the condition that the total of thw withdrawals during the 5-year extended period shall not exceed 60% of the balance as on the start of that period. The bank’s refusal is in accordance with this rule.

Q: As with various payments, is it possible to have standing instructions for transfer of funds from a savings account to a PPF account? If yes, then how can this be done?

A: Yes. It is possible to give standing instructions to the bank to transfer excess amount from your savings bank account to a PPF account, provided the two are with the same bank. You also need to keep track of the amount being transferred as PPF contributions in one financial year cannot exceed Rs 70,000.

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