Goal or Liability? SIP or EMI?

Many people with reasonably well off parents and double incomes (however shaky one’s job is) think of themselves as rich. Well if not rich, upper middle class, but make rich choices. At times this can be funny, if it were not so serious. This actually comes from not understanding future uncertainties, return on investments, inflation, etc. – can we fix it?

Well here is an attempt.

Financial Planners use a word ‘net worth’ – this is the term that is used to express the gap between our Assets and Liabilities. It is always assumed that your net worth will be positive. If it is negative, of course it means you are bankrupt. Let us put a twist to this.

Let us look at the Balance sheet of a 35 year old man, earning Rs. 25 L a year and married to a woman aged 30 years, and earning 15 L a year. Both are well qualified and staying in a house for which they are paying an EMI. They have 2 children – one is a 7 month old toddler and the elder child is 4 years of age and about to join an International school. Their take home salary is Rs. 1.2L for Rahul and Rs. 85,000 for Aarti. Their EMI is Rs. 55,000 and takes away a chunk of their salary!

Now is the schooling / education dilemma. Rahul feels that the children should go to an International school near their house and this is likely to cost  “only” Rs 1.25L per annum. Aarti feels that Rs. 30,000 per month (eventually when the second child also goes to school) is not an affordable expense, but Rahul who just bought a second hand (6 month old) Audi A3, the school was a non negotiable.

When Aarti met me she felt that they were living beyond their means and it was not necessary. She gently reminded Rahul that the house was partly funded by his parents (or the EMI would have been higher!!). They do not pay any child care expenses because both the grandparents stay nearby and share the ‘looking after’ responsibility.

I suggested something dramatic. I said create a balance sheet. Create a Goal Sheet. Once you arrive at the Goals, put all that in the balance sheet as liabilities to be provided over the working life.

I said Mortgage is something that you owe Hdfc Ltd., Life insurance premium is something that you owe to your dependents. Goals (if you are serious about the goals and the direction of the goals) you need to treat it like a serious liability. To pretend that your current cash flows are good and using excel to extrapolate numbers is tempting and stupid. What if you are unemployed for say 5 months? What if your parent who is now not financially dependent becomes financially dependent on you after 10 years?

She was herself stunned when she saw the figures. Her Retirement fund required came to Rs. 26 crores. Her children’s education requirement came to Rs. 9 crores! He also needed to fund their vacations, cars, lifestyle etc. Aarti put all those requirements at a Rs. 10 crores.

I had to butt in and say ‘tjese are all the known things we still do not know about unknown things like parent’s illness’.

I asked Aarti to include children’s marriage, buying a second house, etc. I can assure you that I am not the most popular guy in the Rahul household!! However Rahul being a CA had very little mathematical argument against this approach.

Now the balance sheet looked like this

Liabilities: Goals Rs. 45 crores, Home Loan Rs. 40L , Car loan Rs. 13L. Assets side was just one house worth about Rs. 1.3 crores, and some ELSS worth about Rs. 5Lakhs.

I then worked out the EMI (if goals are liabilities, SIP is EMI, right?).

Now go to free fin cal and do your OWN exercise. Enough of Voyeurism. In your life it does not matter what Rahul and Aarti do.

What matters is what are your goals, and if you convert those goals to liabilities, are you solvent?

Do you have it in you to spend money on that extra car, extra vacation, etc.

 THINK BEFORE YOU ACT

source : subramoney

Where can you invest your Emergency fund?

But you said that emergency fund is not meant for investments. It is that liquid money which should be easily accessible and to be used only in case of emergency, asked Sunil one of my friend whom I had advised to save for emergency funding first before starting off with long term investments.

Yes this is true that Emergency fund is meant only for emergencies and it is one of the risk management tools which should always be among the first steps in financial planning. But with the advent of new products and also improvisation of some old ones and technological advancements, there’s no harm in parking your emergency fund or part of it in the products which serves the requirement of liquidity and helps earns some income also.

Below are few investment options which can be used to park emergency fund to get better returns than Bank savings account without compromising on liquidity part.

Emergency fund Investment options


1. Sweep in bank Fixed deposits:

Keeping emergency fund only in savings account may provide you with enough liquidity but here you will have to compromise with the returns. Generally it is advised to keep minimum of 3-6 months of household expenses as emergency fund, which may be increased depending on the economic, personal and Job scenario.

Now in many families this amount range above Rs 1 lakh and in some it goes as high as 5-6 lakh. With Savings bank rate @4% and fixed deposits @8%, money in savings account gives around 50% less returns than bank fixed deposits

To fill up this gap, you should ask your bank if they offer sweep in fixed deposits. Sweep in deposits are fixed deposits which are linked to savings bank. In this investment option any amount over and above a specific limit (depending on bank) goes into a fixed deposit. And when you withdraw out of it, last FD made got broken first so you don’t lose more on interest side.

This investment option will let you keep money in savings bank a/c without losing on FD interest rates. It is a saving bank account only with linked fixed deposits.

2. Bank Fixed deposits with Overdraft account:

Sweep in deposits are though I believe offered by many banks but not all banks. So if yours is the one which does not offer this facility, then don’t lose heart as there’s another Investment options too.

You may use Loan against fixed deposit through overdraft account.

In this facility bank will open one overdraft account for 75-80% of the fixed deposit amount. You will be charged with 1.5-2% higher than fixed deposit rate, but only if you use this amount and for the tenure you use it. This option has 2 benefits – one it maintains the liquidity which is required for emergency needs and other is that you need not to break the FD in case of your short term needs.

As fixed deposit rates comes in slabs, so if you invest in 1 year FD and breaks the FD before completion of tenure then you will be paid with the rate of actual invested tenure. Say for example you make FD of 100000 for 1 year @8%, and FD rate for 6 months is 6%. Now if you break your FD of 1 year in 6 months, then you will be paid 6% and not 8% and that too for half year i.e. the actual invested tenure.

Now using this overdraft option, you can stay put in the FD till the completion of tenure and use the overdraft funds for your short term need

Do note that this facility is beneficial only if you replenish the overdraft account as soon as possible from your next salary or any other source. But if you see that replenishment is not possible then rather than using Overdraft account, just break the fixed deposit. Also to make the best use of this facility you should be net savey so you can transfer money from OD a/c and back. Offline process may be too cumbersome.

I personally use overdraft facility to maintain business emergency funding. It’s been 2 years and I’ve faced emergency only once for which I had ample liquidity through OD a/c which i replenished in next 2 months.

So why to keep money in saving or current account?

3. Liquid Mutual funds

Liquid mutual funds are also one of the good investment options to park emergency fund. But operationally it may prove to be a bit of troublesome, as it requires 24 working hours’ time to redeem the funds lying in investment account. This may sometimes be a very long time especially when we talk of emergencies.

To answer this trouble, Reliance Mutual fund has come up with an innovation of “Any time Money card” which is a debit card issued along with ( If applied for) Reliance Mutual fund investments. With this card investor can withdraw up to 50% of the balance or Rs 50000 whichever is less, lying in the investment scheme. Investor may also swipe the card at any point of sales terminal for shopping or fuel purchase or any payment which is to be made through debit card with maximum limit of Rs 1 lakh or 50% of investment amount whichever is less.

So investing in liquid funds with any time card in hand can be one of the good options to park emergency fund. But do keep in mind that this will give you partial liquidity and you may need to wait for some more time to get the 100% withdrawal amount.

I use this facility at personal level too. For family expenses as per the budget,i transfer a specific amount every month into my Reliance liquid fund account and operate through debit card as and when required. I also use this to park the part of personal emergency fund.

Conclusion:

Emergency fund is meant for emergencies and should be readily available with you. You cannot compromise on liquidity and thus it may not be wise to invest the emergency funding in any long term instrument just to get more returns.

But still if there can be some arrangements or products which can be used which helps in maintaining the liquidity along with has potential to generate better returns, then one should definitely try those.


From the investment options suggested above in if one use “sweep in” Fds then the whole of emergency fund can be parked there, but if one wants to go with any of the other 2 options the one should not invest the complete emergency fund but a part of it …say 60% of total.

source : goodmoneying

How to get physical shares transferred and converted into demat

Some people are holding shares not transferred in their name and don’t know how to go about the transfer. Here is the procedure 

Corrected: As per Companies(Share Capital & Debentures) Rules, 2014, form 7B has been replaced with form SH-4

UPDATE: Updated to include additional information provided by NSDL's Rajesh Doshi on demat and bank names that provide franking facility

Several people are still left with shares in physical format. If these are transferred in their name, they can continue to hold them and get them dematerialised anytime they want to. What about those who are holding shares not yet transferred in their names? One cannot sell these shares in physical forms through stock exchanges, unless it is dematerialized. Several readers of Moneylife, said they wanted to transfer physical shares jointly held. But they don’t know the way out.

Asking National Securities Depository Ltd (NSDL) is of no help. You will get a standard reply like this: "Shareholders can dematerialise physical shares in their own name. As such, transfers of physical shares are outside the purview of depository system. There is also no trading in physical shares on the stock exchanges and hence they can only be transferred in private deals. The recommended course of action for investors holding physical shares is to dematerialise them. Transfer of demat shares is also exempt from stamp duty."

Here is the procedure to transfer shares in physical form...

1. Send the share certificates along with the Share Transfer Deed (Form SH-4 available with stock exchange and brokers) duly filled in, executed and affixed with appropriate share transfer stamps (available with authorised stamp vendors) at 0.25% of the market value (of the scrip) on the date of execution of the transfer deed. Self certified copy of the PAN Card of the transferee(s) needs to be submitted along with the instrument(s) of transfer and Stamp duty has to be affixed.

Since 1 July 2002, Maharashtra government has banned sale and use of share transfer stamps and mandated franking for such deeds. This facility was available at Bank of India branch in BSE building. However, since December 2014, this facility has been closed. Franking now happens at Town Hall General Stamp office only or other central offices of collectorate of stamp fees within Maharashtra State, through online registration or without online registration. The process can be found at https://gras.mahakosh.gov.in.


a. For paying the stamp duty without registration, you can use your online bank account. Here are the steps involved in the process...

I. Select Pay without registration
II. Select Department as Inspector General of registration
III. In payment type, select Non Judicial Stamps
IV. Select the appropriate location in District
V. In office name, select General Stamp Office Mumbai
VI. In Scheme Name, select 'Purchase of franking code SOS Mumbai only'
VII. Select year as 2014 - 2015
VIII. In Article Code, select One time Adhoc
IX. Fill in the Amount
X. Give Payee details
XI. Select e-payment/Bank
XII. Fill in image text
XIII. Click on Submit
XIV. Print GRN MTR6 Challan

Take this printout with your share transfer form to the office to get your stamp fee franked on your transfer form.

i. If you do not have an online account, then

I. Print the GRN MTR6 Challan
II. Fill in your details and make the payment at your concerned bank's branch where they accept payment for general stamp office with pay in slip etc.
III. Take the Form and the paid amount along with your transfer for franking.

In both cases, you will have to carry a letter addressed to the Additional Collector (Stamps) in following format...

From:
_________
_________
_________

To
The Additional Collector Stamps
General Stamp Office Fort
Mumbai 23

Sub:- To Affix Special Adhesive Stamps on Share transfer form

Respected Sir,

With reference to the above mentioned subject, I have to state that I have paid stamp duty of Rs.________________ as per MTR Challan No 6 (GRN No. __________________________)

I hereby request you kind selves to kindly affix the requisite stamp duty on the same.




Yours Faithfully

(Note: For Shares, stamp duty @ 0.25% of the market value or the consideration amount (whichever is higher) should be affixed on the instrument of transfer.)

One can submit the letter, form and receipt to the General Stamp Office between a specific time period. The franked documents can be collected between a specific period the next day.

Rajesh R Doshi, Senior Executive Director of NSDL said, "My understanding is that any bank, which offers franking facility for legal documents can also provide the same for transfer deeds.  We use services of Kapol Cooperative Bank branches at Kalbadevi and Fort for franking of legal documents. We have inquired with them and they have confirmed that they would provide services of franking transfer deeds for physical share transfer. Investors can approach them. There are other banks such as Punjab and Maharashtra Co-operative (PMC) Bank and Citizen Co-operative Bank who also provide facility for franking legal document however we have not used their facility. Investors may inquire with them as well."

Here is the checklist for getting your deed franked

Covering letter to the Additional Collector Stamps. Two copies, one to submit and second for receipt of the office and collection next day.
MTR 6 Challan with the GRN No if you have done e payment
Share transfer form
Every share transfer form that has to be franked requires the above process.

After getting the deed franked, the investor can send the share certificates (physical shares) and the share transfer deed (in form SH-4) duly filled in and signed to the company or registrar.  It takes about 10 to 21 days to process the transfer.

The statutory time limit fixed for completing a transfer is one month under the Listing Agreement and two months under the Companies Act, 1956.


How to convert shares into demat form?
Dematerialisation (demat in short form) signifies conversion of a share certificate from its present physical form to electronic form for the same number of holding. Demat is optional and an investor can still hold shares in physical form. However, she has to demat the shares if she wishes to sell the same through the stock exchanges. Similarly, if an investor purchases shares, she will get delivery of the shares in demat form.

There are two depositories, NSDL and Central Depository Services Ltd (CDSL), which hold securities of an investor in electronic form, through depository participants (DPs). DPs provide the link between an investor and company through the Depository.

Mr Doshi from NSDL said, physical shares can be dematerialized in the demat account in the name(s) of share holders holding physical shares. In case, shares are held jointly in physical form by investors, then the same can be dematerialized by opening a demat account in joint names.

"However," he said, "as I understand,  investors prefer to make use of existing demat account held in single name by first transferring physical shares held in joint name into single name. Transferring physical shares requires payment of transfer fees through franking of transfer deed documents, a service investors used to avail from BOI Shareholding. Since BOI Shareholding has now stopped this service, investors can use franking facility provided by some banks."

Here is how you can convert your physical shares into demat...

• Open a Beneficiary Account with a DP registered with SEBI and with any one of the depositories, NSDL or CDSL.
• Submit the dematerialization request form (DRF) (in triplicate) to your DP duly filled in and signed by all the shareholders, along with share certificate(s) and necessary documents. Ensure that the names and order of names as per certificate(s) matches with the names and order of the names as per the DP account.
• Obtain an acknowledgement from the DP.
• On receipt of DRF, the DP will generate a dematerialization request number (DRN), which is electronically transmitted to the Company or STA through the concerned Depository.
• Simultaneously, the DP will send the physical certificate(s) with the original DRF to the Company or STA for verification and confirmation.
• The Company or STA, on receipt of DRF and share certificate(s) will process the request. If the DRF is found to be in order, i.e. verified signature and certificate(s), then it will electronically confirm the request.
• The DP on receipt of such confirmation, will credit the account with the shares dematerialized.
• The DP will hold the shares in the dematerialised form thereafter on the shareholders behalf and she will become beneficial owner of these dematerialised shares.

Important points to note
1) Validity of the executed instrument of transfer:
for shares: - 60 days from the date of execution.
for debentures: - for an indefinite period
2) SEBI has notified vide its Circular No. MRD/DoP/Cir-05/2009 dated 20 May 2009 that it is mandatory for all transactions in the securities market including transfer of shares in physical form of listed Companies to be accompanied with copies of PAN card/s of all the transferees. Therefore attach self-certified copies of PAN card/s of all the transferees along with the instrument of transfer
3) Keep photocopies of certificates, instrument(s) of transfer and other documents sent by post. In case of a loss in transit, they come handy.
4) Always include your complete address along with pin code while filling in the instrument of transfer/opening an account with a depository participant.
5) Do not send share certificates / DRF documents to the Company / Registrars directly.


source : moneylife

Why its important to invest money for future

Today’s article is going to be very very basic. It’s one of the lessons which we should teach our kids when are growing up. The question is “Why Invest money at all?”

A lot of investors are not very serious when it comes to save enough money and invest it properly so that it grows well. A lot of investors are quite consumed in their life and don’t deal with this conversation fully. Only after years of working they realise that they have done a very bad job when it comes to investing their money.

Why you should invest money at all ?

There is a simple conversation which I think everyone should go through once. I call it as X+Y theory. Its very simple.

X is the number of years when they will go to work and bring back money to pay their bills and acquire all they want to enjoy (movies, clothes, eating out, travel, food, fees). This is mostly ACTIVE income and money will come only when you work.

Y is the number of years, which we will spend without earning. We will still need food, clothes, travel, eating out and various other things, but the problem is we will not be working in those years, either by choice or mostly because we are unable to. Now where will the money come in that phase? The money has to come from somewhere?Right?

So you mainly invest so that you create enough wealth which can last your Y years. I know I am making retirement planning very jazzy at this moment, But NO, this is just going one level deeper and answering the basic question of “Why should I invest at all?”

Note that when we are in X yrs phase, we are not too much concerned about the Y yrs, because the X yrs phase itself has many issues. Kids , House, job, health, parents, relationships and many issues which keeps us occupied enough and only when we approach the Y phase, we are bit scared and tensed, but then it gets too late.

3 basic level reasons you should invest your money?

Below I will talk of primary level issues why one should invest their money to grow in future. And when I say grow your money, I am not talking about saving it in bank account, I mean talking about really letting it grow beyond inflation.

1. Because of Inflation 

The most basic reason to invest your money is to protect it from Inflation. Your money will decrease after many years in its purchasing power. A Rs 100 note will not be able to buy the same thing in future, what it can buy today. So you need to invest money properly so that you are able to at least buy the same quantity tomorrow or preferably a larger quantity.

2. Financial Independence

This is exactly what I was talking above. I am sure everyone want to work, but not becoming money slave’s. If you do not invest your money, you will never be able to create a corpus of money you can rely on, and will never be able to get free from your work. If you want to make sure your reason to go to job should be “because I love my job” and not “I need to pay my bills, I am helpless”, then start building that corpus as soon as possible.

And I am not talking about cutting down your desires and entertainment. Do all that, but also start creating that corpus. Keep a balance.

3. Reach your life goals

If you earn Rs 100 per month, and you need Rs 50 for some purpose suddenly you can surely handle is somehow. But what if you need Rs 5000, but you earn only Rs 100? In that case, you need to make sure you have accumulated that amount before hand, slowly and steadily.

We all know some of our financial responsibilities will be coming up in distant future and they would need a big amount. Things like house down payment, children college education, marriage and many other things like that. If you do not invest, how will you fund those goals? It’s as simple as that.

You are sum of your experiences in life

A lot of youngsters have seen their parents struggle for money and their mindset is already set in a way that they understand the importance of saving properly and growing their money. However a big number of people have had a bad relationship with money. They live pay check to pay check, splurge beyond the limit and are careless enough when it comes to money.

A lot of people might say that they are just stupid to act like that and are highly careless and irresponsible. But I think its just a matter of lack of financial literacy or their way of looking at life is different. Everyone is raised differently in their lives and we all have difference experiences. We become what we experience at some level. If you save enough or do not save enough, at the end its just has an outcome which you need to be aware about. That’s all.

How to teach this lesson to your kids (and some adults)?

The simplest way to teach this lesson to small children is to tell them the Ant and Grasshopper story. It’s one of the most simple and powerful stories.

MORAL : It is best to prepare for the days of necessity.

Invest early and with discipline

To get the maximum benefit, make sure you start your investments as early as possible. Even if it’s small in the start, that’s ok. At least you will prepare yourself to invest bigger amount in future if you at least invest small amounts in the start. You will build some wealth (even though its small) and build your mindset to invest regularly.

SOURCE : jagoinvestor