Relocatioin Guide

I am relocating to Bangalore from Kolkata. Any relocation, be it international, within-country or within-city has its financial implications. Within the past five years, I have done four within-country and six within-city relocation. Relocation is a complicated thing, because it involves pulling out an already existing set-up and establishing it at a new location. It not only has a professional angle (getting new job, new responsiblities in profession) but it also involves emotional trauma. I still remmeber my first job and the city I lived in and there are so many memories attached to that city (I met my wife there and courted her for three years). And relocation also has a financial angle, because if not considered properly it can dent a big hole in your pocket.

Here is a guide on what to look out for while in the relocation phase:

SCHOOLS

• This would be biggest concern for people who have kids.
• Check out the schooling cycle (usually in India it is June - March)
• Admission process is extremely difficult in good schools, so apply early and check out for contacts (Money doesnt always rule here, but contacts does, always)
  
• You will have to spend for fees, uniforms (most schools have uniforms), transportation (if your house is far off),
• Children attend "nursery" from 3 years to 4 years, LKG (lower kindergarten) from 4 to 5 and UKG (upper kindergarten) from 5 to 6 years old. Nursery and LKG are what is called "pre-school" in the US, and UKG is plain old Kindergarten. At 6, everyone goes to first grade (some schools call it first standard).
  

NEGOTIATION WITH EMPLOYER

• Negotiate with your employer to provide you with relocation charges (preferrably not through reimbursement method but direct contact with the packers and movers. This prevents your hassel to negotiate with movers and packers and to pay upfront charges right now. For an within-country charges, the companies can charge as much as 70-80K INR depending on items you own. Car transportation is always extra.
• It is also important to cross-check if the company will offer you escorts and vehicles during the house-hunting period. Also in some cities, the rental deposits are very high (esp in Mumbai and Banglore where equivalent of 8-10 months of rental needs to be deposited with the landlord). This can be huge amount considering the rentals of even 15K-20 per month.
  
• Talk to your employer about taking care of re-registration of your vehicles (esp if you own car). Even a simple bike re-registration can set you back by 10-15K INR. The road-tax structure in many states is weired that you have to pay 5-10 years bulk, even if you intend to stay just for one year.
• Hopefully your employer should cover travel expenses not only for you, but your immediate dependents too. Sometimes the employer offer a "travel allowance" which is a straight taxable amount given to take care of any spending during your relocation.

SELECTING MOVERS and PACKERS

• If your employer does not provide the relocation service then ask for "quotes" from various companies. Within India Agarwal Packers and Movers is very famous. They are reasonable. But I had once bad experience with them. They brought my bike with the clutch handle broken and since I was busy unpacking things, it got unnoticed until I wanted to drive it.
  
• Make sure you provide them with as detailed list of items you own as possible. Dont forget to list "computer" without listing "computer table". They are separate items. Similar it goes for TV and Fridge.
• Usually they have conditions like follow, it is good to pay that extra 3%, since the risk is borne by the carrier.
  

The Carrier on their agent shall be exempted from any loss or damage through accident, pilferage, fire, rain, collision, any other road or river hazard, we therefore recommend that goods be insured under carrier’s risk (F.O.V). While carrier’s risk, no individual policy / receipt from insurance co. will be given. The F.O.V is 3% of the total value declared.

• It usually take one day to cover 300 KM (in India) for any normal transport. So you know how much time it will take for your goods to arrive. It is good to go with the company that provides an online tracking system.
• If you want the company to keep your items for more days after arrival (because you still have to find a house etc), then you will charged extra. The companies charge hugely like INR 12 for one box (your entire package might consist of something like 40-50 boxes). That is like INR 600 per day.
  

Big Decision : What to do with the house & car

• A big decision needs to be taken if you own a house (either on finance or outright purchase). You can either sell it, keep it vacant or rent it out.
  
• A house that you own (not on finance) if sold will attract a capital gains tax. But interestingly if the sale proceed is use to buy another house for residential purpose then there is no tax. If you have house on finance, then you need to find a buyer. Get the loan transferred. Otherwise you can pay back the remaining amount entirely to the bank (with some pre-payment penalty) and then sell it.
• If you want to keep the house vacant, then you still have to pay the maintainence bill. Also a vacant house is considered as put on rent for the income tax purpose and hence liable for tax. A vacant house also needs to looked-after with so many cases of forceful acquisition or a breeding ground for illegal activities.
• If you want to rent it out, make sure you give it someone you know or atleast you have someone in the city who can keep a regular check on the tenants (atleast initially). One advantage of a second house is that, unlike a self-occupied house, the entire amount paid as interest on a home loan, even if it is more than Rs 150,000, can be deducted from the pre-tax income. Also, the amount spent on repairing and maintaining the second house is allowed as deduction from the income. So, you will finally pay taxes on the net income from the second house, which is annual rent (higher of actual and notional) reduced by municipal taxes, standard deduction (30 per cent of annual rent net of municipal taxes) and interest on home loan.
• If you are transferring you vehicle, then re-registration is real pain, since you need to get a NOC (No-objection certificate) from the RTO of the current state before you leave. Once you have the NOC, you need to apply for re-registration in the new state within 90 days. The registration will typically take 3-4 months and you have to shell close to 15K-20K INR. If you have an old vehicle, its better to sell it and get a new one in new place.
  

Disconnecting the ties

• Disconnect gas cylinder. You need to submit your cylinder and regulator with the gas agency and to show them the original papers. They will provide you a transfer certificate, which you will need when you apply at your desitination. Sometimes getting a new connection is very difficult, so dont loose this paper.
• Disconnect Telephony services (with BSNL/MTNL it takes time). With private operators also its not easy, a lot of hassel to disconnect the connection. So possibly apply early. With mobile connections, you can go to the destination city and change it there. Make sure to collect deposits if any.
  
• Disconnect other utility services like cable TV, Milk, Newspaper/magazine subscription.
  
• Talk to your landlord and discuss the return of deposits. In India, getting back deposit money is still not easy, landlords creates lot of problems while returning back money (despite having lease agreements).
  
• It is better to close saving accounts (unless banks like private banks advocate transfer). With new employer you usually have to open new account. With so many relocations, I had close to 7 saving accounts. Now I have closed three. It will be better to inform the bank of new address before you leave so that you dont miss any valuable communication. This can be done on the last day of your stay.
• It is usually good idea to search for the contact details of the all the services you might need at your new house before you leave using the internet (if you have one and do it before you disconnect). The services might include water purifiers, inverters, white goods, satellite radios etc. It is good idea to donate any potted plants to a local park.
  

Documents, Jwellery, Cloths

• Make sure that you keep aside the important documents, jwellery and cloths that you will need before you things arrive in the new city. Keep the important documents handy like gas transfer voucher or new company's appointment letter, you certificates etc.

Mixing Sarsawati with Laxmi

I recently read an interesting piece of news. Mumbai University might be listed on BSE and a retail investor can trade stocks of university. Sounds unusal, yes it is indeed unusal. There has been a hot debate going on on the campus about the positives and negatives of it, but I think, discussing about it, dreaming about it is totally different than actually implementing it. First, implementing it will be a mammoth task given the government control over it and then there is a question of advantages of such a move. The proponents claim that they can garner huge amount of corpus by public listing and can use it to push the university to higher levels. I have strong doubts, though the idea is interseting. A university can never be modelled on the lines of profit making business. A company can grow fast and move fast, benefitting its shareholders, but not a unversity. The biggest fallout could be commercialization of the courses. The authorities, bounded by vision of increasing shareholder's profit, would be bound to keep the courses only which has higher demand. There are lot of other negatives I can see when the prime motive for the univesity is to increase the profits. The article truly sums up by saying "Why mix Saraswati with Lakshmi?" Why, indeed.

What to consider before buying Householder Insurance

When you talk to old people, they usually have lot to praise about joint families and their advantages, but young generation needs more freedom than a nagging family members telling them what is right and what is wrong at each point of their life. So here we have the concept of nuclear families (mostly DINKs) gaining more and more acceptance. Also with most people the birth city is different from the work-city, so this is an accepted fact by everyone. But with nuclear families comes their own problems and the biggest one is that, even though the assets are bought at higher pace (due to increased earnings), but so is the risk of loosing it all in either accidents or a house break. How can someone prevent it or at least take precaution (financial) about it?

The most usual and simple answer is to take an insurance against household property. This is called a householder's insurance policy. Even I am thinking of taking one despite the fact that I do not own a house yet. What a householder policy might cover (an example) ranges from burgalry to Workmen's compensation act.

But what should one keep in mind while taking such a policy? Here is a brief guideline on what to consider before buying it:

• If you are insuring against house damange to fire or earthquake, make sure you dont just insure for the house's current price. Why? A house price also contains the land price. If say your house get destroyed in a fire or flood, as per the insurance policy, only the price of house infrastructure will be repaid, the land stays there, it doesn get destroyed so they wont give back the entire money. If you insure just against the house price, you are under-insured.
• Building and FFF (furniture, fixtures and fittings), for instance, should be insured on a reinstatement basis because in the event of a loss, both would have to be replaced at today’s cost of construction or replacement.
  
• Dont insure your house on basis of cost, rather insure it against the money you would need to build it today.
• A similar argument goes for household goods, if you insure it against purchase price then after depreciation you wont get much back in a claim.
  
• When you insure your jwellery or household electronic items, describe them as accurately as possible, with serial numbers or photographs taken.
  
• Also think about taking a Workman compensation policy cover. This is to cover charges that might occur to domestic servants in case of accidents or damages while working at your house.
• Read the burglary cluse carefully, it is mentioned that the house should not be vacant for long periods (one month or more) for claim to be refunded.

ICICI hikes service charges

It is a bad news. With everyone seems to be eating up your income, this is another setback to the banking customers. Private banks like ICICI & UTI have decided to increase the charges for services like ATM cash withdrawl & if customers fail to maintain the quarterly balance (Rs 5000). This will be applicable from July 1. ICICI has also increased charges for PIN regeneration and ATM usage of non-partner banks. ICICI Bank customers, who fail to maintain QAB, will now be able to avail of only five free ATM transactions as against the earlier six and thereafter they would be charged Rs 50 per transaction instead of Rs 25 per transaction earlier. According to banks the move is made to penalise customers who do not maintain the necessary balance or issues unnecessary cheques (penalty increased for cheque bounce). Currently there is no fixed guidelines set by RBI for "how much banks can levy such charges?" and usually this is fixed by the competition in the market. With the increase in education cess (3%) and the service tax of 12%, the effective income tax any way has shot up. With small things like ATM transactions now attracting huge fees, customers now have to rethink befire using banking services everytime.

Home Loans Squeezed

In another news, the FM has directed state-run banks to go slow on personal and home loans higher than 20 lakhs. With the rising interest on home loans, it anyway has become extremely difficult for individuals to dream of owning a decent house. So this is definitely a big blow to everyone who wants to own a house. Considering that the home rates are skyrocketing in metro cities like Banglore, Hyderabad and Delhi, dreaming about your own few hundred square feet has become more difficult.

Although the step is taken to curb inflation and ease out industries which are overheating, but I think the limit of 20 lakhs is just a bit low to even filter out average buyer. So the only choice for an aspiring owner is to visit the nearest private bank, which now can muscle around with difficult terms and conditions (which anyway are too convoluted). It looks like bad news all around.

MCX ties up with IIMA

This is a piece of new I read in ET today, I still wonder, are the commodities market so much booming? At least the retail investor is very very far away from it. Here is the news

THE booming commodities market has now caught the fancy of the premier B-school Indian Institute of Management, Ahmedabad. The institute plans to set up a commodities chair in association with the Multi Commodity Exchange of India (MCX). With this, the institute will now increasingly conduct focused research on different commodities, including the demand supply, production and trading patterns.
“We want to encourage good market research on commodities, so we have tied up with IIMA to set up a research chair at the institute,” said Joseph Massey, deputy managing director, MCX.
It is also talking to a few other IIMs for possible collaborations. The commodities market is already catching the fancy of the management schools. The IIMA, which recently held an agri festival ‘Amaethon’, also held commodity trading games as a part of the event this year. Many students from the PGP-ABM (post graduate programme in agri business management) are increasingly opting for careers in the commodities market.
Booming economy, good returns and fast expanding network of commodity exchanges have given momentum to commodities trading market.
The total commodity futures trading volumes in the last financial year have increased to Rs 37 lakh crore from previous year’s Rs 21.55 lakh crore.

Buying First House, Cheers!

THE government is planning to seek long-term loans from multilateral finance institutions like ADB and World Bank to provide credit to Indian housing finance companies at competitive rates. This would enable housing finance companies to provide home loans to customers at a much lower rate. This facility is being considered to provide cheap loans to first time home buyers.

“We are considering a proposal to provide housing finance companies direct access to cheaper credit contracted by the Centre from multilateral institutions for building infrastructure. Though the proposal is at initial stages of discussion, the issue is being pursued seriously to provide relief to home loan segment,” an official of housing ministry told ET.

A proposal from the housing ministry to offer cheaper loans to first-time home buyers is under consideration of the finance ministry. Once approved, the Centre would work out details of loan agreements with multilateral institutions for this specific use, the official said.

The new mechanism is being considered to cool down the cost of finance for the housing sector. If it materialises, the step would come as a major relief to consumers who have seen a spurt in interest rates due to high inflation.

Home loan rates have moved up between 200 percentage points and 300 percentage points since the last one year. The current cost of fixed rate home loans varies between 12% and 14%. The rates under floating option is slightly lower than this. Under the new system, housing finance companies could access funds at a much lower rates of about 5-8%. This would enable them offer home loans at less than market rates even if a premium is charged on funds secured from multilateral agencies.

While the housing ministry is taking forward the proposal, a Planning Commission working group had earlier suggested the same to give a boost to the housing sector.

Via [TOI]

SIP only in month end

I was reading an article in ET about how it is beneficial to go for choosing dates in SIP at the fag end of the month. The idea is that historical data reveals that NAV is always lower during the month end. So if your SIP is timed such that you buy units at the end of the month, you will get the units at lower NAVs compared to other days. The suggestion is to time the buying of units between 23rd to 2nd of next month. This has been corroborated by the following data and the saving can be as high as 3.5%.

I find this advice a bit counter-intutive. If you closely look the % saving is continuously reducing from year 2000 and there is as such no clearcut pattern. Also a retail investor chooses SIP primarily to enforce a disciplined saving. The risk-takers usually don't go SIP route and also those who have lump-sum amount to invest. SIP is particularly popular amongst the salaried people. Now if someone choose the SIP investment date at the fag end, it would most likely be a time when the salaries have been splurged away with all the purchases and expenses. This might lead to another problem of cheque bounce or direct-debt insufficient cash situation. The best time is to make it as soon as your salaries come, this way the money is already gone into saving.

Excel Based Mutual Fund Portfolio Tracker

Here is an excellent tool from Purna Chandra. He explains how to create an excel sheet based mutual fund portfolio tracker. He has generously allowed the excel sheet to be downloaded. Just remember that everytime you open the workbook, go to "NAVs" sheet and refresh the data. [Select anywhere in the table, right click and say Refresh Data].

Happy New Year !!

Welcome to the new year !! I am not talking about the calender year, but the financial year. An average person does not care much about it and why should he? He has already gone through the mind-boggling exercise of arranging income-tax papers and investments etc and now is a time to take a sigh of relief. In India most of us follow the "college habit approach" to investments. I remember during the college days we use to study for the exam only when it looks fast approaching.

Most of us adopt a similar approach while putting their money for investments. And the worst part is that almost everyone looks at investment as a tax-saving avenue. I would expect that if government withdraws tax-advantage out of investment schemes, no-one will want to put their money. This is sad because the goal of personal finance is to optimally use the money you earn during your working life and having a security against all mis-haps in your life. The goal should not only be to save the tax but to iron out the financial ups and downs in one's life.

April is a significant month financially. This is the time when an individual is either flush with year-end arrears credits/claims/reimbursements or in deep financial trouble due to heavy cuts on account of large end-of-year income tax payout.

So here is a short guide to mangae "April Blues" :

1) Start Early : It is easier said than done. As I was writing this I realised that I have to fill a tax-declaration for financial year 07-08 to my employer. Now this can be a good starting point. Take some time out of your busy life and spend on quality discussion with your spouse/family members on how you want to manage you finances this year. There are some investments you are "stuck" with like that insurance policy you took just to fill up the Sec80C quota last year. Think carefully on what you need and what you can manage this year.

2) Identify investments for tax-saving purpose and those for purely investment purpose. Look at the various sections. Here are some major sections for tax-saving

Section 10 & 17 : HRA Exemption, Medical Exemption, LTA Exemption etc
Section 80D : Medical Premiums
Section 80E : Higher Education Loans
Section 80C : LIC, NSC, PPF, Housing Loan, MFs etc etc (an upper limit exists)

Some sections would exist where you already have invested and have a committments like LIC premium or MF SIP route.

3) Make sure you understand the changes in the income-tax sections as announced in the budget. You can either talk to a financial consultant or check out internet for the new laws. For example, the section 80E for higher education loan has been changed which allow you to get higher educaation loan exemption benefit even when the loan is taken by your children or spouse.

4) Once you have the list of you out-goes for tax-saving purpose (which are almost mandatory), think of the inflows thoughout the year and the possible expenditure. Expenditure are of two types : Planned & Unplanned(which can be further divided as Unplanned Necessity and Unplanned Luxury). For example, if you are planning to take a abroad trip or you want to buy a car then plan for it now. These are planned expenditure. You can even put money into short-term investment options to offset any inflation or any excess in the estimated price. When you spend on impulse buying like you went to a mall and instantly liked a new mobile phone, you just go ahead and use that plastic money (a.k.a credit card), that is an unplanned luxury expenditure. Make sure you put brakes on such unplanned expenditure by having an upper limit on it and sticking to it.

I put brakes on such an unplanned luxury expenditure by following rules:
a) Spend all luxury expenses through credit-card
b) Fix an upper limit of maximum one-month salary
c) If we are about to reach that limit, then stow away all credit cards/debit cards into a locker at home. If you dont have the card handy, you cannt be impuslive in buying. Sometimes its inconvinient but thats the price I pay for splurging on other times :-)

You should also reserve some cash for contingencies like accidents or illness. That would be Unplanned Necessity.

5) Once you have chalked out your in-flows and out-flows, then you can easily know how much extra money you have. Some part of this now can be put into long-term options specifically tailored for investment purpose and not for tax-saving.

It looks like a lot of headache to plan, but once you do it, you will rest in peace (of mind that is)!!