Visa and MasterCard Killer–Rupay

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TOI reports that India will soon have it’s own payment processing firm called Rupay competing with Visa and Mastercard payment processing firms.

After almost two years of planning, the National Payments Corporation has at last finalised the proposed unique India Card which once commercially launched would be an domestic alternative to the global real-time payment processing firms like Visa andMasterCard.

"We have finalised name of the proposed card as Rupay at our board meeting here today. We have also finalised the logo for the same," a senior official of the RBI-set up National Payments Corporation of India (NPCI), told PTI this evening. The official sought not to be named.

NPCI is an umbrella institution for all the retail payment systems in India. I could not find any information about Rupay on the NPCI website, but given the statistics of the transactions that it handles is pretty impressive. It also gives a list of Payment systems worldwide, which is interesting to know.

The advantages of Rupay should be really good especially in lowering the transaction charges for using debit/credit card at merchant sites. As of now, all the banks which issue credit or debit cards to the end-user for transactions at various merchants in India or abroad has to tie up with Visa or Mastercard. The transaction is routed through the infrastructure owned by Visa/Mastercard not situated within the country. This implies substantial cost to the banks as well as merchants which are passed on to the end customer. Rupay will eliminate majority of this cost.

The interchange cost for transaction settlement paid by Indian banks to Visa/Mastercard is close to Rs 500 crore in one year and most of these transactions are purely domestic transactions. Rupay would reduce this cost substantially and can still connect to the Visa/Mastercard for international transactions.

The plan is great, but it needs solid execution, since any Rupay based system has to develop the necessary infrastructure to handle the millions of transactions that happen in India. Also security is a big concern and Rupay need to scale up quickly to the level of Visa/Mastercard to ensure transactions in secure manner with less chances of fraud. In case of Visa/Mastercard they push the security solutions based on their standard up-gradation worldwide. So Rupay system need to match that as be as agile in upgrading to latest security infrastructure as happens globally. It is also a challenge to incentivise the already existing merchants to sign up for the Rupay system. Ofcourse cost advantage will help but security will be the key. NCPI has loads of work to do on that front.

The NCPI is also working on utilizing the Aadhaar developed by UIDAI (headed by Nandan Nilekani) and will be developing a proof of concepts through a MicroATM. This is interesting since it brings the lowest strata of society into high-technology banking transactions.

Guest Post – Stock Market Investment Post Retirement

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This is a guest post from  Mr. Ramalingam K.

Most Retirees feel great getting a bulk sum as provident fund and gratuity, and wish they knew a magician, who could spin their money 2 to 3 times in just 5 years, in addition to ensuring a regular return for their day to day expenses. It is true we all want it to keep up with the inflation rate in the market. I know of no such magicians, and it is practically not possible to multiply your money 2 to 3 times in just 5 years. But I definitely know of smart investment planning and investment advisors that could help you to beat inflation.

A step by step look at your considerations to come out with smart calculated investment decisions:

  • Post-retirement, you know that you would no longer earn a regular income and would have to stay on your savings, provident fund, gratuity, and other benefits that have been given to you. You would definitely want more good returns on your investments, but your appetite for risk is low, for you would not want to lose your precious savings. So you would prefer to shift your portfolio of investment from risky ones to safer ones like fixed deposits in banks and good rated companies.
  • However your need for more income, capital gains to keep up with inflation, and rates of interest on fixed deposits decreasing each year may make you puzzled about coping up with the increased financial needs. You, as a senior citizen are lucky to be getting additional interest, however taxes leave you with not much more. However you are not prepared to subject your savings to the volatile bullish and bearish trends of the share market of over-confidence and pessimism.
  • You retire at 60, considering 5% is the rate of inflation annually, with life span as 85, and spending Rs.20000 per month, you would require a retirement corpus of Rs.42,00,000 if the return rate was 8%, while you would require Rs.47,00,000 if the return rate was only 7%.  I am sure you would invest smart, reducing your retirement corpus by 10.5% by just investing for 1% more return.
  • It is true that stocks and shares gave an annual compounded return of 17 to 18% in the last 15 years, with long term stocks giving a compounded returns of about 15 to 18% annually. However you have not appetite for risky and volatile investments, and may want to play safe with low or moderate risk to capital and in not putting all your eggs in one basket or to divide your risk.
  • After your retirement you would do best to follow the advice of financial experts and invest no more than 10 to 20% of your retirement corpus in shares and stocks. A novice to the share market, or lack of time, inclination or shrewdness may not prove right to deal in the share market, and most financial advisors advice senior citizens to invest in mutual funds. These companies have experienced fund managers and researchers with in-depth knowledge of various industries and valuation principles and also offer diversified investment options in shares in companies, debt instruments and government securities.
  • The choice of retirees should be to invest in big cap funds, funds investing in huge paid-up capital companies, while mid cap funds suit those who do not mind medium risk-taking. However small cap funds, invested mostly in start-up companies are to be avoided, being highly volatile in nature.
  • Time plays a vital role in investment in mutual funds, and a good investment advisor would advice you appropriately. The best option for senior citizens would be to first invest a lump sum in a debt based funds that promise good, safe and regular return. This could be followed up by a systematic investment/transfer plan of investing or transferring through ECS regularly a fixed amount for units of a mutual fund. This definitely proves beneficial to take advantage of the volatility of the market, as buying different number of units each month helps to spread the risk also.

A Final Thought:
However your smart calculated investment choice of mutual funds requires evaluating every 3 to 6 months. This would help switching between mutual funds at the right time. My last but most important advice again especially to senior citizens is never go in for stock trading in a big way without proper knowledge and inclination and lose due to volatility of stock and share market.

(The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at

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How to deal with two or more Form-16s?

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People do not leave organizations but they leave their managers.
This is a oft quoted reason for most people, who leave one job and join another. In a growing economy like India, the opportunities are galore causing the  employees to leave the jobs very frequently. It is very common to plan/think about new work, new peers or managers, new location and higher salary when a person switches a job, but rarely the income tax implications are thought about!!
When you leave a job and join another, it is a good idea to plan, for the income tax implications and to deal with two or more Form-16 that you will receive for filing the IT return.
The Form 16 is certificate under section 203 of the Income-tax Act, 1961 for tax deducted at source from income chargeable under the head “Salaries”. The Form-16 (or Form 16AA for consultants) is required by the the Income Tax authorities to verify and calculate your income tax liabilities.
It is mandatory for all companies as per IT-Act section 203 to provide for Form-16 to all employees on the payroll, although in some cases there have been lapses by employers in providing it on time to the employee.
What happens when you switch the job in the financial year(April – March)?
Assume that a person worked in a company A from starting of financial year (April) till say September of that year and then moves to another company B. In such a scenario, company A will provide a Form-16 as well the company B will also provide a separate Form-16 to the employee. The person has to use both the Form-16 for filing the IT return.
What is the issue in having multiple Form-16?
The problem is that some people fail to provide the previous employer income to their current employer. So in our example, if the employee joining company B, did not provide the income earning during his tenure at company A, he would have to shell out money while filing the IT return.
Most people do not understand this calculation and thinks that they have been robbed due to excessive tax deduction. The reality is that they earned more money in the year and have paid less taxes.
Let us take a practical example. This is how the income tax can bite you when you least expect it during the IT return filing:
The problem is that since the person did not declared his earlier income from Company A to Company B, both the organizations considered the six months income as the full financial year income and deducted the tax based on this partial salary. The person is also happy since he is getting more in-hand money due to less tax burden. The reality will be hit when the calculation is done based on both the Form-16 to determine the entire financial year income. When that happens (sometime in month of June), the person has to shell out a good chunk of tax and pay it in lump sum to the tax authorities. Hence it is extremely important to declare the earlier income to your current employer since it will ensure that you don’t get the shock while filing IT returns.
If a person is not able to receive the Form-16 from his previous employer, he/she should ensure that Form 12B is submitted to the current employer to account for the entire financial year income to avoid paying tax in lump-sum. When the previous employment income is declared, it will be adjusted in the per month tax deduction leaving you with zero liability during IT-filing.

Get Rich by staying in a rented house !

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I was reading Ranjan’s post and it got me thinking again about the real returns of real estate and the arguments against owning a house. I have been not in favour of buying a house and my opinion is still the same.
The problem with real-estate investment is that there are multitude of factors like notional gains, emotional trauma, significant risk exposure and various hidden costs that clouds the real picture, causing the confusion about returns. One of the points that I liked from Ranjan’s post is
If you calculate the IRR for an investment in property, you also need to factor in the maintenance costs and the rent you receive. Often a 3 times increase turns out to be a 6% return on investments.
This is significant to note since most of the times, the friends and family that boast of exceptional earnings on investing in real-estate, is just notional.

In the current scenario, I feel that real-estate is definitely not a good investment and a person can become more rich if he stays in a rented house.
  • A person buys a house depending upon the level of his income. A person earning higher amount tends to buy a higher priced house and vice versa. Hence there is some correlation between the increase in income levels and the increase in house prices. This also implies that house prices are definitely not going to increase all the time, since incomes are not going to increase all the time. But there are various reasons that house prices can go down even when demand is high. Also there are articles which provide an indication that real-estate prices can drop. If we look at rental prices, they have not gone up proportional to the house prices and hence owning a house is getting costlier every year but not renting the house.
  • When one considers the ratio of EMI/Rent for a similar house, it is very clear that  the minimum ration could be still 4:1 while in some cases it could be as high as 100:1 depending on the location and the built up of the house. This implies that EMIs are always significantly higher than rents. If the remaining amount (EMI-rent) that is saved on EMI (by renting the house) is put into conservative bonds/stocks/gold, they can give significant returns compared to owning the house. So renting could make you richer if the surplus amount is invested in other asset classes which have given better returns than real estate over long period.
  • When renting a house a low maintenance charges needs to be given to the house owner apart from rent, but when you own a house, a person’s outgo is not only EMI but other expenses like taxes, insurance, maintenance etc and if this can also be invested in other asset class, wealth can be grown many fold over longer durations.
  • When the interest rates rises or real estate prices come down, the EMI seldom comes down (it rather increases) but rents will definitely come down. If you own a house, the outgo remains high in all real-estate cycles. Also the EMI pinches the most since majority of the portion is towards the payment of interest component of home loan, whereas a person living on rent can again invest the additional surplus if the rent decreases.
  • A home loan increases the risk appetite of a person tremendously and hence restricts the person to pursue options to increase his income. I know of many friends who could not move to another city, take up another job or start their business simply because of the home-loan EMI. But a person living in rented house can simply move to a better job in another city or move to a smaller rented house before starting a business.
  • If a person buys a house, the choice of house/neighbourhood will depend on his income level, but when a person rents a house, at a much lower outgo, he/she can stay in a much better house with better quality of life. This is especially true in metro locations where better locality commands a huge price of house but the rents are still affordable. For example, in Bangalore if your EMI is around 20K per month [house ~ 25L], the only house you could buy is in a lower-middle class locality (or far away places from city), whereas with a rent of 20K you can take up a house in the really posh locality. 
  • There are other factors which are never accounted like emotional trauma in purchasing a house (most of the builders are not keeping their promises). The house possession is being delayed, the quality of construction is not up to the mark and in certain cases their is a straight cheating by builders who simply run-away taking the money. A person on rent simply changes the house if he/she doesn't like the current place.
Although government is doing its bit by planning to have a real-estate regulator but I do not think that it can change the real-estate landscape significantly in coming years. It is important to invest in real-estate as a means to diversifying your risk but don’t follow the herd. It is very important to set out priorities and understand your risk appetite. It is a myth that if you don’t buy today, you will miss out on the game and hence don’t fall for it. Only buy when you really need it and buy only, what you can afford without compromising your lifestyle or other priorities in life. I have not invested in real-estate and do not intend to do in next ten years.
Read out this interesting blog post by Manish as well.