Investment technique - Ladder strategy

My father advised me to stay away from risky investments like stocks and to make Fixed Deposits as sole investment way. But times have changed and stocks/mutual funds are the ‘in’ thing, but Fixed Deposits still remains one of the most important mechanism to lock your money.

Fixed Deposit provides you a method to lock you money for a specific period ensuring a fixed interest rate. The problem with FD is that your money is locked for the specific period and if you break it between tenure, banks impose a heavy penalty. Also a shorter term FD gets you lower interest than a higher tenure FD. I just took a look at the HDFC bank website for interest rates and realized that 1-2 years FD interest rate is very close to interest rates for 5 years or more FD, while significantly less interest rate for tenures less than a year.

This leads to a dilemma of choosing between liquidity and higher interest rates, when investing in Fixed Deposits.

FD laddering comes to rescue. The concept is very similar to rupee-cost averaging.  The idea is to stagger the FD maturity over a period to get higher interest rates as well as access to partial amount of your investment at regular intervals.

Let me explain using a simple example. Consider an example that you plan to have around Rs 50,000 over 5 years of period say for your children’s education or down-payment of your house. But you may also fear that locking such amount for longer duration may not be prudent due to emergency needs. So instead of saving the money in 5 years fixed deposits, the strategy should be :

 Invest 10,000 Rs in FD with tenure 1 Year

Invest 10,000 Rs in FD with tenure 2 Year

Invest 10,000 Rs in FD with tenure 3 Year

Invest 10,000 Rs in FD with tenure 4 Year

Invest 10,000 Rs in FD with tenure 5 Year

So essentially you staggered the investment across 5 years in different tenure. The advantage is that you get higher returns but also access to partial amount of your money at regular interval.

As the FD matures, you may decide to roll-over the FD into next 5 year FD.

In essence the advantages of laddering are

1) Lower holding period risk

2) Reduce interest rate fluctuations

3) Creates Liquidity

4) Provides regular income

5) Avoid pre-mature withdrawal penalty 

How to start investing in stocks?

Starting investments in stocks is not easy, especially with recent market crash, it would seem more like gambling than investment. It is well known that the greatest stock market myth is that stock investing is a form of gambling.

This can not be more untrue.

Photo courtsety J Kelley

If you want to start investing in stock market, there is a great trepidation, because it looks extremely complex. There are so many terminologies like P/E ratio, dividend yield, bull and bear market etc which imply lots of learning new things. But still you want to start quickly, because everyone seems to be making good money from stock market, except you. You do not want to be left behind right!!

So how do you start? The first thing to ensure is that you have the temperament (essentially patience and hard-work) for direct stock investing, since not everyone is cut out for it and if your are not made for it, then it is not necessarily a bad thing. You can invest in other avenues like mutual fund which can give you exposure to stock investment.

Okay, so you still want to directly invest in stocks! Great, so let us get started step-by-step on how to start investing in stock market.

Trader Vs Investor

I discussed about this in my earlier post comparing with the analogy of trader, with housing agents and investor, with end-user of a house. In short,

Trader: A trader will buy stock and sell it within a very short time to make quick profit. A day-trader tries to do this with-in a single day, while a swing trader tries to do it across several days predicting the “swing” of the stock market.

Investor: On the other hand an investor puts his money for buying a business rather than looking for short term profits. The short term for a investor typically ranges from 2-3 years with an eye on 5-10 years of investment. As Value investment guru, Warren Buffet says

Our favourite holding period is forever.

I assume that you chose to be an investor rather than a trader. So how to start investing in a stock for long term investment?

The first key principle to keep in mind is that you should equate investing in stocks to buying a house property. The stock investments need similar amount of hard work and patience that you would do for buying that near perfect house in a near perfect locality at a reasonable price with a reasonable expected growth of the price of the house. So when you invest in stocks, it takes hard-work and patience to find a near perfect stock at a reasonable discounted price with a reasonable expected growth of the price of the stock.

Step-by-Step guide to start investing in stock market

Step 1: Get yourself a demat account. The simplest way is to call up your bank, who would surely help you in getting you a demat account. You can also visit your bank website to get details. For example, ICICI bank provides the demat services.

Some more details:

Demat account can be thought of similar to your saving bank account but instead you can keep your stock shares into the demat account. There are only two depositories in India (NSDL and CDSL), but to make it easy for you, they have many depository participants (similar to bank branches) across India. Also most probably your bank will be one of them and hence visiting your bank is the simplest way to open a demat account.

With a saving bank account, you take the pain of deposit/withdrawal of your money, but with demat account you need a broker (who is member of the stock exchange) who can buy/sell shares on your behalf. Almost all banks who offer demat services would have mechanism of assigning brokers (most would open a brokerage account as well). When you visit a bank for demat account, they will by default also open a brokerage account for you with the bank so that you can buy/sell the stocks. Keep in mind that brokerage services are not free and every broker will charge you some amount for brokerage.

There are hundreds of companies/banks offering demat/brokerage services, and it is very difficult to choose the best. The choice is typically based on brokerage fees and how frequently you intend to transact in stocks. If you search Google, you will find lot of people comparing brokers in India, for example, check this link for one such site.

My recommendation: As a long term investor, the actual brokerage charges can be recovered over a period of time and hence you should choose your bank (where you have saving account) for the demat account, since they can link your bank account, demat account and brokerage account all in one. Once you learn more, you can change your broker.

Step 2: It is important that you find yourself a mentor, be it a friend, relative or even an online blogger whom you have read consistently for a long period. Tipguy is one such person. A mentor typically is a great resource who can act as a springboard for you to enter the chaotic world of investing.

Step 3: Learn through the help/demo, about placing orders from your stock broker. It is important to learn the various terminologies used while buying stocks before you start your investment journey. As an example, the long term investor is looking for “delivery based” option, which imply that the shares needs to be delivered to the demat account. Also whether you want to place a “market” order (implying using whatever market price of the stock at buying time) or a “limit” order (transaction happens only if the market price satisfies the given limit). Here is how ICICI order page looks like:

It will take some time to understand these various terminologies and you have to be patient and get help from your mentor to learn these things.

Step 4: Now that you are all set to start your journey, you need to find the right stock to buy. This step is the biggest step since it involves:

• Understanding your goals of investment
• Understanding and accepting the risks involved and potential gain
• Learning to short-list the types of business you want to invest
• Learning to analyze the business to find potential winners as per your goals and risk profile
• Putting your money into the near perfect business stock
• Reviewing and re-analyzing your investment over a period of time.
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The problem in executing Step 4 is at multiple levels including the chaotic environment created by millions of stock related websites, newspapers, magazines and the media channels. Some tips to execute Step 4 are listed below:

• Read, Read and Read the excellent investment books. For e.g. The Little Book (Rs 189 only), The Dhando Investor, The Intelligent Investor (Rs 509), The New Buffetology. Also read excellent blogs like Tipguy, Jago Investor, SubraMoney, Value Investor, InvestingValues.


• Learn to separate the wheat from the chaff. Learn to skip the various emotions generated by the media related to market crashes, specific company issues etc. It is important to be aware of the latest happenings but also important to not get carried away by it.


• For at-least two years, invest only that much amount which you are willing to loose entirely. Think of this money as a course fee you are giving for learning stock investing.


• Invest only in minor amount, never with big amount in single shot. Although most value investor talk about “big bets in small number of stocks”, to begin with you should invest “small bets in small number of stocks”. I recommend not investing more than Rs 10K for the first two years and not more than 4 stocks. In the meantime you should read, read more and understand and review your investments.


• As Warren Buffet says “Wide diversification is only required when investors do not understand what they are doing”, so keep in mind, not to invest in more than 4-5 stocks while you are still learning and as your confidence and understanding grows you can devise your own mechanism of investing and you may remove this restriction.


• Also learn not only to buy, but when to sell as well.


• Keep in mind that similar to buying a house, there is no need to time the market for buying stocks. It entirely depends on available cash with you, the goal you have in mind, your risk profile and available stock at appropriate price that you are willing to pay.


• Stock buying is a very subjective matter and depends on the requirements of the person buying, so never put your money just because someone else has done. It is much better to donate the money to a charity than buying stocks based on hot tips.

Infrastructure bonds: Some caveats

The budget this year was a low-key affair, at least from the political arena, it is just the petrol prices that is causing some stir. So apart from the tax slab changes, that brings more money into pockets of salaried employees, there is additional tax saving investment avenue that is proposed in this year’s budget i.e. infrastructure bonds.

What is announced?
The government has allowed a deduction of up to Rs 20,000 on investments in long-term infrastructure bonds. The deduction is in addition to the Rs 1 lakh allowed under Section 80C of the Income Tax Act.

What are infrastructure bonds?
These are bonds issued by government and the fund collected is utilized to bolster the infrastructure projects


What is the income tax section under which deduction can be claimed?
The investment of upto Rs 20,000 can be claimed under section 80CCF.

How much can I save?
Not much and here is the caveat, the maximum investment that can be claimed for deduction is Rs 20,000 and if you fall in the maximum tax bracket of 30%, then the maximum you can save is just Rs 6,180 in a year.

Is this a new great thing done by the Finance Minister?
Not really, the tax deduction for investment in infrastructure bonds was available till 2005 under section 88 (but within the limit of 1 Lakh), but 2005 budget scrapped individual investment limits and created section 80C where you can invest in any tax-saving avenue in any proportion. The only new thing here is that now, the investment in infrastructure bonds is in addition to the section 80C exemption.

Why it is added back with such a small limit?
Well, here is another caveat. The infrastructure bonds are a low-risk investment and hence does not yield very high returns (7-8%). So with stock market showing master-blaster performance, most people started investing in equity linked saving schemes and the investment dwindled in the infrastructure bonds. This step is probably to bring back the interest in these bonds.

What are the other caveats?
1) It is still not clear if the private companies will be allowed to issue these infrastructure bonds.
2) The budget mentions that only “long-term” investment in infrastructure bonds quality for tax-break, but fails to define the “long-term”
3) The interest earned from these bonds is not tax-free (the older section 80L, which provided such tax-free interest had already been scrapped earlier)
4) The interest earned from these bonds may not be anywhere spectacular, due to it being a less-risky investment.

What do you suggest?
So, it may not be prudent to invest Rs 20,000 for “long-term”, which provides you a return of mere 7-8% interest rate (with taxable interests) with providing just a meager tax-saving of Rs 6180 per year. I would suggest a wait and watch policy, till the clouds get cleared on this new announcement. Since anyway the investments will only qualify from next-year onwards.

Superman syndrome

I came across an interesting term called “Superman Syndrome”. [Picture Courtesy: frazer4eos] If you try to google the term, you will be surprised by the lack of single concrete definition. You may find many books with title containing this word, but not a single definition. But each definition essentially contains a similar idea which imply:

“the concept of a supernatural ability, desire, drive to outdo and to overcome.”

It is not a positive term but rather connotes a negative meaning implying the exhibitionist attitude of a person busy in showing off and satisfying other people’s desires eventually working so hard that the person looses important things in life.

 "Life is what happens while you are busy making other plans." --John Lennon

I looked back and realized that many times in the past I have done one of the following:

1) Insisted on paying entire bill for friends at coffee shops

2) Bought cloths just because others think they look good on me

3) Purchased those expensive high-end cellphones when I went with friends, just to show-off

4) Purchases lot of junk items just ahead of  guests coming, since this may impress them

These are all behaviors of “Superman Syndrome", which essentially made me do things that are not based on prudent and realistic decisions but an attempt to satisfy other people's expectations and desires. But I was still fortunate that I did not spent large amount of money on buying house or that expensive four-wheeler just because I can impress friends, but  many do.

If you have done any of these or are still doing it, then you need to be extra careful and really need to think about why you are spending money on satisfying what other's value?

I have heard of many people complaining about busy lives, late night conference calls, 24X7 email/phone connectivity and hard life with this new information age. The entire idea is that "control of you life will come from within you",  so getting out of superman syndrome is most important task you will do for yourself and your family.

Robert Kamm writes in his book "The Superman Syndrome: Why the Information Age Threatens Your Future and What You Can Do About It,"

"the Superman Syndrome is a dangerous workplace success formula that forces men and women to leap tall buildings and outrun speeding bullets -- at the expense of personal lives, families, children and even business productivity. This represents a major hypocrisy implicit in nearly every boardroom in America: The belief that we should be accountable to work but not to our families."

Whether you spend money or your personal time or energy to satisfy what other people value most is surely a suicidal tendency towards life. If you are trapped in superman syndrome, take some concrete steps and hard actions to come out:

Actions to save your precious time which can be spent with family

1) Keep in mind that you do not need to answer that every email 

2) 24X7 connectivity does not imply getting addicted to emails and social networking

3) Work in an "interrupt mode" rather than "polling mode" with information high-way.

4) Keep aside minimum non-negotiable 4-5 hours of quality time everyday with your family, friends and kids

5) Celebrate a "no-gadget" day every week or at-least every two weeks.

Actions to save your hard-earned money

1) Keep in mind that you do not need to pay the bill every time you go out with friends

2) Limit yourself to spending not more than say 1000 Rs for impressing others, rest all purchases should be your value based.

3) Promise yourself to take that shopping list before going out for shopping and sticking to it.

4) Find other activities with friends that leads to least buying (e.g. jogging in park, going to library etc)

5) If your friends expect you to buy things for you, get new friends

6) Share "Superman Syndrome" and its effects with friends and family, spread the word and awareness

You will get, what you genuinely want. It is never too late or too early to ask for good life.

Why can’t we handle Personal Finance properly?

I came across this post from Ranjan asking “why can’t we handle Personal Finance properly”? The reasons he mentioned sounded very superficial to me; they are just shallow in my opinion (with all due respect to Ranjan).

As per my understanding, “Personal Finance” implies detailed analysis of financial flow of an individual at various point in time. Please carefully note that Personal Finance is not synonymous to having knowledge about stocks quotes, mutual funds, insurance or pension policies.

The single biggest reason why we can not handle personal finance properly, is because from childhood we are never taught to think about money in that fashion, making us believe that it is a materialistic entity that is just a means to satisfies our immediate material needs. 

How many people remember their first lesson in personal finance or handling money given to them during childhood? I remember, the first time I was given money (it was 10 paisa), which I could independently spend, I rushed to the near-by kirana store to buy that juicy candy bar. When was the last time your parents tutored you on personal finance and importance of setting financial goals? (I am not talking about parent pestering for buying property etc). Also whatever limited parental advise that most youngsters receive regarding personal finance is based on their personal experience at burning their hands with specific financial tools.

In India, at the least, I’ve never heard about creating personal financial goals from my parents and I have not met anyone whose parents told them about it. In effect, people start accumulating their debts and then the financial situation blows out of proportion. I guess, they themselves never heard about it from their parents and did not find it important enough to be delivered to their off springs.

The biggest confusion among most people regarding financial planning stems from the fact that:

• They fail to understand their financial dreams
• They fail to prioritize and reach their dream financial goals
• They fail to learn and make the strategies either individually or using some professional advisor to achieve their goals.
• They lack the persistence to transform their dream goals into reality by executing and re-aligning their strategies.

And this confusion is carried over from them to their next generations and generations. Unless people realize that managing personal finance involve setting goals, creating strategies to achieve those goals and sticking to it, Personal Finance will remain an arcane and unmanageable subject.

Legal Guide For Indian Bloggers

I came across an astonishingly detailed guide for US bloggers on the legal issues that a blogger can face due to various acts. It clearly mentions that the guide is exclusively for US bloggers since there is strong constitutional protection for speech. I tried to search a similar guide for India and failed to find anything useful. With the advent of social networking, blogs have become an extremely viral media, so apart from the financial risks of social networking, there are definitely legal issues for any public dissemination of information including blogging.

(Picture courtesy Over the Top of NY)

India has been typically laggard with respect to cyber laws, not only in implementation but unambiguously defining it as well. One of the biggest reason I would assume would be that law makers themselves may not be able to keep pace with the fast changing technology. The first indian IT law was introduced in 2000 called the IT Act 2000 [Summary Slides from IIT-M - PDF]. This act was further modified in 2008 The Information Technology Act 2008.

The pertinent question is “Why blogging cause legal issues?”. The problem is the extremely viral nature of blogging, since it has now become more ubiquitous with millions of people getting influenced by what they read on blogs.

I would provide you a real world analogy. Let us say you bought a product from Company X, unfortunately it turned out to be a junk and useless product with not keeping up to the promise that was given before you purchased. You go to the customer care or their office and nothing happens, no-body listens to your complaints. But instead of “chalta-hai” attitude you decided to tell it to few of your close friends and let them be warned about it. It is still fine with the company, but now imagine you called up a public meeting and started talking about your rough experience with the product. Initially there might be just few of your friends but slowly hundreds and thousands of folks joined your meeting and started getting warned about the junk product and the pathetic customer service from Company X. That is illegal, you just de-famed the Company X.

This is exactly what happens when you blog. You are disseminating information for public consumption which can have significant influence on people either in their behavior or opinions about something. The first indian blogging controversy happened for exactly same reason.

It is so difficult to read through the mumbo-jumbo of legal laws, as Mark Twain rightly said

Only one thing is impossible for God: To find any sense in any law on the planet.

So how do bloggers (just about anyone with internet connection can become a blogger) keep themselves safe from the legal wrangle? Here are some simple DO’s and DON’Ts that will help any blogger to avoid cyber law (typically applicable to Indian bloggers):

• When in doubt about any post violating any legal law, just don’t publish it. It is better to be safe than to be sorry.


• Do not write “hate messages” against popular personalities especially political people, you might get caught by police like Nitin Sajja from Hyderabad or Rahul Krishnakumar Vaid from Gurgaon.


• Do not write “derogatory remarks” against organizations which Ajith D learned the hard way. A similar tamasha was done by Shiv Sena for anti-Shivaji Community on orkut (TOI 1, TOI 2, Rediff 1, Rediff 2, NDTV, Financial Express). Some of the interesting articles that criticize these are by Amit Verma and Sevanti.

The ultimate expression of a government’s lust for power lies in a term coined by Orwell in 1984: thoughtcrime. Thoughtcrimes are thoughts that have been criminalized, and if the technology to detect emotions existed, It is not unlikely that the Indian government would ban hatred. Or, at least, hatred of things that it deems should not be hated.

• Do not write negative comments about any religious personality, deity or organization.


• Do not criticize any company’s products or services. You may not like the product or services but publicly criticizing it for spreading the word is not the right way. If you absolutely have to do it like a review of a book or movie or mobile phone, please put a disclaimer mentioning these are your own personal thoughts with no legal liability on you. Defamation is extremely complicated subject in the books of law, and so is proving your innocense.


• Do not post pornographic material including anything slightly sexually explicit (especially pictures or videos). It may be just a fun video or fun pictures for you, but it can hurt someone’s sentiments and hence an absolute NO NO.


• Do not publish any confidential information from within your company. I would suggest do not post anything related to what you do within your company (unless you own the company and want to promote it through blog). Any information on what you are currently working on or what are the future releases or any inside information say company want to layoff people or planning to acquire any organization, absolutely everything is confidential. This information is typically governed by trade secrets which are complicated.


• Do not plagiarize. If you copy paste the text from another website or you copy that beautiful picture or video without the consent from the original author and publishing it without providing the link to original source, then you are plagiarizing. One of the biggest and innocuous way of plagiarizing is to search that image you need from Google Images or Flickr and put it in your post without bothering about copywrite issues. You should only use legal pictures from flickr or any other website for your blog posts. Also it is illegal to edit the pictures or videos (removing watermarks or just any editing action like cropping) that you downloaded without permissions and then publishing it. Note that small actions can lead to copywrite violations.


• Do not publish any data, numbers, figures, charts that you do not own. Always reference to original source from where you found the data. If you do not have the original source, stop and do not publish it.



• Do not share private information about anyone you know without his/her permission. So you went with your girl friend on that famous beach and posted those pictures without asking her, think again. You just gave your friends contact details or wrote that caustic remark providing private details of the person you hate, beware you are surely violating privacy laws. I would advise not to even post edited pictures of film celebrities.



• But if fate decides to screw you, it can not be avoided similar to when it caught Lakshamana Kailash and what he got is 50 days with 200 under-trials at Yerawada Jail, finally ending with a “sorry” from Police and Airtel.

Read some more interesting posts like “Bloggers and Defamation” and “Restricting Freedom with Excuses of Responsibility” on this issue. Here is an interesting video on this subject.

Please note that this list is not exhaustive (and definitely not legally scanned and is not a substitute for legal advise) in nature but just the common sense approach to avoid any legal issues. Just to be on safe side, here is the disclaimer, that this list does not guarantee avoidance of law-suite due to material published by you, so I would not be liable for any damages :-)

How to reduce your monthly expense?

I recently got a stealthy email from my a very good buddy. The content of the email was crisp asking me for some 15,000 Rs, he was short this month and needed to pay-back someone. I helped him out, but it got me thinking why he got himself into such a situation. He is earning decently (I would imagine around 20 Lakh PA), do not have any family responsibilities (all his sisters are married off) and just has one kid.

As per me, this is definitely not a good sign when you have to borrow from your friends. I am not against borrowing money, after all  friends are for helping you out, but it should be for a genuine reason.

Why so many educated people fail to manage their personal finance?

The single underlying principle for managing money is

Make your expenses lesser than your income

Is this so difficult to understand, that to save money, your expenses should be less than what your earn.  Yet, I find so many people struggling to maintain this equation, eventually letting themselves buried into debt.

So how exactly we should implement this in our daily life? How to spend less and save more? How to reduce expenses? The answer lies in getting into “good financial habits”. If you are single, you need to develop these into yourself, if you are married you need to share these thoughts with your spouse and inculcate these within both the partners. It is more difficult with kids, if you have any, but once these become part of your family, it will go a long way in helping your children in their lifetime.

Here are some great techniques to reduce your expenses:

• Start on 1st day of the month and every night note down all the money you spent that day. You can do it as a combined list of family (preferable) or you can do it separately for each family member. I assure you that this is extremely painful to start with since it wont bring any immediate relief but do it diligently without fail. Note down every detail of what you spent through cash, credit card, online purchase or any other mechanism. Also note down the channel you are paying through. You can use some software on your desktop or mobile to keep track of you expenses or use just a plain paper

                  You can also use application like this for iPhone

• Once you have this list (the hard-work has to give you some benefit) ready, then it is the time to walk through it and arrange the items in following categories
  • Must-Haves like rent, electricity bills, food bills
  • Emergency Purchases like medicines,
  • Casual/Impulsive Purchases like clothing, mobile phones, books, eating out etc
  • Social purchases like gifts
  • Useless purchases
• Then, go through these monthly bills or recurring expenses and see if there is something that you really need. For example do you really need to buy these costly books every month or you could just subscribe to a near-by library in your locality. I have actually reduced these expenses in my budget (I am a voracious reader). I used to buy books/novels worth more than 20K per year, this is exorbitant (not only in terms of buying but also in terms to keeping them, I spend more when I have to relocate since these books make those so many extra cartons). So I joined one of the local libraries and I have reduced by expenses to mere 1K per year along with gaining immense variety of books. There are hundreds of such expenses that you can cut-down without sacrificing your living standards or the returns in terms of value that you are getting.
• Some of the expenses can be saved just by tweaking your daily habits. You would be amazed that simple habits like switching off lights, fans or chargers can provide significant savings. We did that by switching off chargers or TV switch (not just switching off from the remote, but actual switch). These have given me a saving of as much as 100 Rs per month on my electricity bills (i.e. 1200 Rs per year). It may sound like too much pain for saving such miniscule amount, but think of it as serving to the society, doing this in the larger interest of the country. You can install CFLs instead of those big bright tube-lights or don’t run those geysers only when needed and not for long period. These are non-renewable energy and such saving by millions of people can be simply huge.
• One of most effective tip that I use consistently is to store my all credit cards in least accessible places like in the locker or a suitcase which is stashed away. The idea is not to keep credit cards at places where you can quickly pick up before going to a shopping mall. I also have a credit card with a credit limit of not more than 10K, this helps me to gain the real advantage of credit card (use it to so that you don’t need to keep the cash with you and useful during emergencies). So why keep those other credit cards with huge credit limits? Well they would be useful when I want to travel or for making those big purchases so that I can convert them into equated monthly installments with a small fee or to get those discounts at specific services (e.g. I get one ticket free when I buy two movie tickets on a ICICI platinum cards in PVR cinemas).
• Never buy on impulse, one of most crucial principle for money saving. The entire idea of those glitzy shopping malls and front displays is to attract the consumer and make him buy impulsively. Some people justify that impulsive buying is good sometime since you can get good bargains. I absolutely dis-agree, impulsive buying can never be good. What is the definition of impulsive buying:

An impulse purchase or impulse buy is an unplanned or otherwise spontaneous purchase. This can metamorphise into a serious disease.

• So if the purchase was not planned, it means the consumer actually do not need it and hence even if the product is free, it is a bad bargain. So it brings to another point is that when-ever you go on shopping make a list of items that you intend to buy and just stick to it. No additional purchases should be made even when it is so much necessary (it will automatically inculcate better habit of planning ahead more carefully for the next trip)
• I recently got invited to a birthday bash of a 1 year kid from my neighborhood. I was totally amused that how a 1 year kid would know at-all the difference between a small @ home birthday party vis-a-vis a lavish party in a fancy restaurant. It was an absolute useless expenditure and it was coming from the urge to show-off (I have loads of money or I care for my child etc etc) rather than a genuine focus on the child. I would rather invite only kids with their mothers in a small party at home, since seeing so many kids playing around will probably be more entertaining for the kid.
• Un-clutter your house, because clutter saps energy and money. Christopher Lowell says “Clutter is dandruff on the shoulders of your room”, so don’t give excuses for not de-cluttering your life. You need to get rid of “can’t-get-rid-of-that-because-it’s-valuable” gene, it is so harmful. check out this 9 Tips for Decluttering (Zen Habits)
• It is important to give up those harmful habits like cigarettes, alcohol or drugs. These not only save money in short-term, it also saves money in long-term by improving your health and reducing medical bills over the years. Invest that in a gym or personal improvement programs.

At every step in your life, while dealing with money, keep in mind that “Expenses have to be lower than what you earn”, and even after so many efforts in reducing your expenses you are hitting the debt, then it is time to look for earning more. That would be of-course another post.

Stock Market FAQs

• What is a share?

Shares/Stocks are document which allows the holder to own a part of the company. This is an important definition, holding/buying a stock is just not holding a piece of paper (or in electronic form) but it is like owning a part of the company.

• Why companies sell shares?

Any company is initially owned by a single promoter or joint promoters with unlimited liability. The term unlimited liability implies that if the company goes bankrupt, the promoters are totally liable. Sometimes the company is owned by group of people (promoters & non-promoters) with limited liability.  The term limited liability implies that the owner’s liability is limited to their contribution to the initial capital.

When business expands, the owners decide to raise money. There are many ways to raise money, one of which is to approach the common public allowing them to own some part of the company for the money they will provide.

• What is the difference between debt and equity?

Debt: Similar to normal public borrowing from banks (loans). When companies issue debt instruments, they want to borrow money from specific investors or in general public. This is different from equity which is borrowing money by selling a part of the company ownership

 

Debt	Equity
No company ownership	Part of company owned by holders
Company legally bound to pay interest (similar to loans)	Company may or may not pay dividends (not called interest since it is not decided/declared)
High preference over Equity owners	Least priority

• What are primary and secondary markets?

Primary Market: The public buys the issue directly from company e.g. IPO (Initial Public Offering)

Secondary Market: The public (investor) buys the shares from other investors e.g. normal share trading (on NSE/BSE)

• What is Fixed priced Issue and Book Built Issue?

When a company decides to go public, it wants to float the IPO. This is essentially the first time the company shares will be sold and part of ownership given away to raise funds. So what should be the basis to decide the price of the initial offering?

Fixed priced Issue: The company decides the initial price of the share (taking the help from experts) and it is mandatory for the company to disclose in the IPO documents about the various factors that are being taken to fix the particular price. The price is fixed.

Book Built priced Issue: The company uses the free market to determine the initial price offering based on the supply and demand of the proposed shares. In essence, asking the public (taking bids) to decide what is the price they are willing to pay for the share.

• What is Face Value, Price Band and Cut-off Price?

Face Value: It is the value of the share printed on the share certificate. It is normally Rs 10. The importance of the face value is only for the company, in terms of the accounting entries. The actual value or price of the share is usually higher than the face value (the difference is called the premium).

Premium = Market Value – Face Value

The money generated by selling the shares of the companies are not entered in the same place in the accounting books of the company. For e.g. if the Face Value = Rs 10, Premium = Rs 90, hence the actual price that the company received for one share is Rs 100 (Rs 10 + Rs 90). If the company floated say 1 Lakh shares, then it actually received Rs 100 Lakh by selling those shares. In accounting books however, it will write :

Equity Increase (by selling shares) = Rs 10 Lakh

Reserves & Surpluses = Rs 90 Lakh

There are obviously benefits of doing this. Face value is also called Book Value and more information can be obtained from the wiki page.

In a Book Built Issue, the promoters/owners of the company decide a price range within which the bidding can happen. This is called price band. The final issue price decided by owners after the book-built process is called cut-off price.

• What is Red-Herrings Prospectus?

It is a preliminary registration statement that must be filed with the Securities and Exchange Commission or provincial securities commission. It describes the issue (IPO) and the prospects of the company.

Value Investing

I was talking to few of my office-mates and realized that out of the team of forty, just ten had exposures to equity (shocking??) and only three-four have demat account and actively trade in stocks. It is not the effect of the recent meltdown, but despite the euphoria that existed just few months before about Indian stock market, lot of people still are stuck with traditional investment/saving plans.

I guess the real reason is the fear of loosing money. I usually do not blog about stocks, since I do not believe in giving recommendations of buy or sell. But for a normal investor, it makes sense to involve stocks as a part of his investments, but it is also important to make it part of long-term strategy rather than thinking short-term.

When I talked to few people, I realize that people want to invest in stocks because:

1. I want to get quick returns (with few months, I can double the money etc)
2. My friends are investing and so I should too
3. I has some lump-sum money, some relatives/friends suggested to invest in stocks.

Most of the retail investors have wrong expectations from the stock market, especially after hearing of friends, relatives earning big bucks from stocks.

It is important to understand that “Nothing is free in life” including returns from stock-market. The people who have earned those handsome amount, have either burned their fingers earlier or have spent lots of time on understanding markets and investing in smaller amounts.

Nobody got instant money from stock market without hard work.

Investing in stocks requires a disciplined approach. One such approach is what is called Value Investing. In simple terms:

Buy stocks which are priced below it’s intrinsic value.

The approach to finding “intrinsic value” is by determining the fundamentals of the company. It is a balanced approach involving analysis of data involving the company. There are lot of books available on the topic (e.g. this book), but “The Intelligent Investor” by Benjamin Graham is considered as the bible of value investing (you can get an e-copy on ensips here, but may be illegal). There are lot of excellent forums for beginners or experts on investing in Indian Stock Markets like Traderji or Equity Desk (an excellent post by Basant on Equity Desk).  I am currently reading the book and may do a review sometime later.

Terrorism Insurance

Mumbai was attacked by terrorists like never before and it is being considered as the biggest terror attacks on Mumbai.

 

No one has yet estimated the amount of damage suffered by the Taj and Oberoi Hotels. I saw the picture of Harbour Bar at the Taj Hotel in the Times Of India, it left me speechless, here it is :

                   

Any terrorist attack can cause significant damage to the property. Insurers typically have a risk analysis for any events before they provide cover for it, but I do not think there was any risk analysis ever done for terrorist attacks. The same applied to the 9/11 attack on US. The insurance companies in US post 9/11 stopped giving insurance against terrorist activities.

After September 11, 2001, many businesses were no longer able to purchase insurance protecting against property losses that might occur in future terrorist attacks.Addressing this problem, Congress enacted the Terrorism Risk Insurance Act of 20021 (TRIA) to create a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders. The act  requires insurers to offer terrorism insurance to their commercial policyholders, preserves state regulation of this type of insurance, and directs the Secretary of the Treasury to administer a program for sharing terrorism losses. The three-year program that TRIA created backs up commercial property and casualty insurance, covering up to $100 billion each year after set insurer deductibles. The government pays 90% of insured losses over the deductible, with the insurer paying 10%.

A similar thing might happen with insurance companies in India, with so many terrorist attacks happening frequently. So before buying any insurance, it needs to be ensure that the policy covers damages due to terrorist activities. This is more true for the businesses. So few months back, TOI reported increase in adding terrorism insurance by people in India. It is a sensible move and should be done by everyone.

Surviving Layoffs - Financially

We are certainly looking at a global slowdown in economy. With it comes the layoffs. I was discussing with one of my wife’s friend who is in retail industry on “Why during a recession the axe first falls on junior employees?”. If the economy is real bad, then only the senior management (upper layer) is targeted. Economically, it makes sense (if we are talking about purely cost-cutting) to reduce the management layers than the one at the last rung in the ladder. How many believe that removing upper layers will break the hierarchy and lower levels would be difficult to manage? May be, the answer depends, on which level you are currently working !! But, laying off at lower layers gives an impression of cost-cutting, spreading cheers among the shareholders.

Another thing which I hate, when company goes through rough patches, is the lack of clarity among employees, which comes from the top. Usually, no one is clear what will happen! Instead if the company openly communicates the state of the company to its employees and then does a pay cut (instead of firing), it will make more sense.

The fact is that no-one can escape the layoff/pink-slip in today’s uncertain times and hence it is prudent to prepare for it. One of the most important aspect of lay-off is the sudden loss of income (apart from the frustration and loss of self-esteem).

Here are some tips that might help you survive (or even blossom) during these tough times:

1) Severance Package: Some companies have a fixed policy of how much severance package is given out to laid off employees. For example, my company provide the gross income for (one + number of years of you service)  months. So I just completed two years, and hence if I get the pink-slip, I will get (one + two) = three months of gross salary. It is important that you find out what policy your company has, since sometimes the package can be negotiable. This means, if you get more, you can survive more months without job.

2) Reduce Debts : Yes, it looks like a common sense. If the income is gone, the expenditure has to go down. But the point here is that if you are still employed and the markets are uncertain, why wait till you get to hear you last day in company. Why not start reducing your liabilities?

• Credit cards : One of the biggest enemy of a slowdown economy. If you notice carefully, some of the credit card companies have themselves started charging more from customers to battle the slowing economy. So pay off as soon as you can. Also just remove all those credit cards from your and your spouse’s wallet and dump it inside the locker.
• Car loans : If you have that big car, the status symbol, which you brought when the economy was booming and you were the king, it is time to think it as a liability, a burden. Think carefully, can you switch to a lower car (Diwali times calls for a good deal while switching cars), else can you save enough to pay-off the loan, do it (even if you have to incur the pre-payment charges) .
• Home Loans : You can not do anything about this, except that in really worst situation, you can
  • Sell it, (but these times are not good for selling either)
  • Rent it out (you can shift to some other rented apartment with a lower rent). Desperate times needs desperate measures.
• Children education/marriage : Unless you are on the verge of marrying your child or sending him for higher education, you just have to find some source of income to handle the expenses.

3) Reduce Home expenses: If you already out of job or you feel that it might happen, try to reduce your daily expenses. No longer dinning out or take home calls or those late-night parties or expensive cuisines. Reduce the expense of travel, booze, visit to multiplexes and stick to only essentials. It might look like an overkill if you are still having your job, but reducing these expenses gets you into the habit (which you have lost over the period of time) and also it causes the saving of that money.

4)  Emergency Funds : If you have created the emergency funds like liquid cash(FDs) and jewellery, try to utilize them at the very last moment.  Break that FD or sell that gold jewellery only after you have cut down your expenses to bare minimum. If you don’t have such a fund, start thinking of creating it. The essential is a) three-six months of household expenses in liquid cash (Fixed Deposit is better) b)

 

                                                         To be continued …

Saving Money from 10 Free Softwares

I recently bought a black HP Pavillion desktop for around 30K INR. It came with a “Starter edition” of Microsoft Vista, and lot of pre-installed HP Junk. It is natural being a techie to start surfing for free software for replacing some of the junk that come with Windows and to save money from buying those expensive softwares. Here is a list of softwares that I daily use, some to increase my productivity, some to replace pre-installed softwares and some to save money instead of buying those expensive softwares :

1) K-Meleon Browser : No doubt Internet Explorer is junk and can be harmful in terms of unauthorized scripts or pop ups. So most people recommend Firefox. I love it, but with FF3, is extremely bloated and eats up huge amount of my RAM. I tries Opera and Safari but didn’t like anything. Then I found K-Meleon, which is based on Gecko layout engine. It comes with few useful extensions too. It is fast and have some unique features too. A simple example is switching proxies with one-click. I use different proxies for my home and office, and using K-Meleon, I can switch between them in just one click. Very useful for me. 

2) CClearner : A pretty neat system optimization software. It removes unused files from your system - allowing Windows to run faster and freeing up valuable hard disk space. I have used it without any side effects and it helps me keep Windows stable.

3) Launchy : Launchy is a free windows utility designed to help you forget about your start menu, the icons on your desktop, and even your file manager. A very handy tool, just press Alt-Space and it pops up, type whatever application you want to open say “word” or “vim”, it even shows various options. No need to go through “Start –> Programs” etc. Very productive and time saving and best mouse-free.

4) GNU Image Manipulation : GIMP is a free image manipulation software. It is extremely rich in features and can be very handy for amateurs as well as professionals for imagine retouching or any manipulations of image. It can be used for fun as well as for business purposes. Lot of people feel that it is very clumsy to use, but once you get hang of it, you will love it. You can do extreme makeover using GIMP, as the following example illustrates :

It surely is a replacement for Adobe Photoshop.

5) VLC Media Player : It can replace the default Media Player on Windows and is very versatile. It can almost play everything. It can play various audio and video formats (MPEG-1, MPEG-2, MPEG-4, DivX, mp3, ogg) as well as DVDs, VCDs, and various streaming protocols.

6) Outlook Attachment Remover : If you are stuck with Outlook as I am (although ThunderBird is considered as it’s replacement, for me it botches some of my emails), this free outlook attachment remover is extremely handy, especially if you get lot of attachments in your emails. This became very helpful for my office system too, since it extracts emails from outlook and keeps it in a pre-specified folder and still keeps the link intact in the email. Very very handy.

7) AVG Antivirus : Instead of spending money for Norton/Symantec Antivirus, the same kind of protection can be obtained by installing the free anti-virus software AVG. It provides a really good protection and doen’t consume huge amount of your resources. With Norton, I always had problems that the system runs slower. AVG is super cool and it keeps updating the virus definitions.

8) Office : The worst part of Windows, is that it comes with lot of unnecessary pre-installed products like IE, but it does not come pre-installed with Microsoft Office. You need to pay extra money to get the Office installed. This is where OpenOffice comes into picture. It is as close replacement to MS Office as it can be.

9) PDF Creator : It is a very handy tool, if you frequently write documents and want to share it with everyone. PDF obviously looks better than word documents. Just install the PDF creator and “print” any document to convert it to PDF. Simple!!

10) GNU Cash : If you want to have a software for managing your personal finance or a small business, then don’t go spending those $$ for buying any software. GNU Cash is extremely good and it is free. It uses a double-entry system, which might be confusing at first, but the tutorials are very nice. It will take you just few minutes to install and start going. It will take some time to look into specific features your need, but almost all that is needed is present. I will be doing a full review of the product later in some other post.

Loan Calculator

If you have taken a loan and have been paying EMIs, then at some point, you definitely must have wondered about how much loan amount you have paid back (including principal amount and interest). Also sometimes we might want to know what is the percentage of principal and interest a particular EMI is paying back. This information is needed either just out of curiosity or sometimes for tax calculations. It is always difficult to get this information from banks (how much friendly the bank is) on a periodic basis.

I was in the similar situation regarding my education loan (from UBI) and wondering how can I quickly find it out myself. I just found an excel sheet on the internet (don't remember the original source, if you know please let me know), which can be quickly used to find the entire loan tenure EMIs. It is an extremely handy tool. You can download the excel sheet from here.

You just need to enter the "Loan Amount", "Interest Rate", "Loan Period" and "Starting Date"

How to buy apartment in Bangalore - II

Here are some of the terminologies which everyone wanting to own an apartment should be aware of:

• Booking Amount : You see a project and if you like it, just to ensure that your claim gets higher priority you need to pay some money as booking amount to the builder (it runs typically in few thousands to lakh). You get some time to think over the option and to process the loan formalities. You can even cancel the booking getting back your money (minus some administrative charges which can be as high as 50%)

• Deviation : Actual building usually does not fit exactly as per the plan set initially. There is some deviation from the approved plan, which is allowed. Checking whether the deviation is beyond that value is helpful. The deviation can be horizontal or vertical. Different rules apply to each. Usually a 5% deviation is allowed.

• Registration : It is the process of getting the flat in your name after the construction. It is similar to registration of marriages or child birth. There is a good amount of money to be given to the government (and it differs across states).

• VAT + Service Tax : Although there is a talk of service tax being waved for home buyers, but it has still not been effective. These are the government taxes to be paid.

• Super Build Area : A builder usually not only charges you for the area you are going to live, but also charges for common areas like stairs or lifts. This area is charged for all flat buyers and is probably the single most earning point for the builder.

• Carpet Area : This is the actual area which you can use for living. Usually 85-90% of super built up area is carpet area.

• Built up Area : This is the area which is carpet area + area covered by walls etc.

• Cost per square feet : The SFT cost is always about super-built up area. It is misleading in the sense that you are paying the same amount not only for the area you will be using all the time (built up area) but also of the common area (like lift) which you would use very frequently.

• Floor Area Ration (FAR/FSI) : FSI is the ratio of total floor area of a building to the total plot area. This essentially implies out of total plot area, how much is used for construction. A smaller the value, implies large open areas.

• BDA : Bangalore Development Authority, govt body that authorises the construction of buildings in Bangalore. Official WebSite

• BMRDA : Bangalore Metropolitan Region Development Authority, this body approves plots beyond bangalore city limits. Official Website
  

• Pre-Launch Offers : A builder puts advertisements even before he gets the BDA approval (assuming it will be approved either by legal or illegal means). This pre-launch offer is to attract the buyers early enough. The best buy is always during pre-launch offers.

• Home Loan : Taking financial help from banks/financial institutions. Usually 85% of the total cost is approved for loan and the remaining 15% needs to be provided by the buyer. A trick used by builder to get you more than 85% loan is to show the bank a cost higher than what he sells you, so that you get 85% of higher projected value, ensuring you get more than 85% of the actual cost.


• Pre-EMI : EMI is the monthly outgo against any loan that you take. In housing loans, there is a concept of pre-EMI, where the actual EMI starts only after possession, but the builder has already taken money from bank (on your behalf) for construction. Since banks have already given (disbursed) the money, they want a simple interest to be charged till the time you start actual EMI. This is called pre-EMI. It is just an interest payment and it does not reduce your outstanding loan. This is total waste of your money. Sometimes builders are willing to share the pre-EMI on your behalf.

• Floating Interest Rate : The interest rate on the home loans. This is a compounded interest applied annually. It is called floating since the rate at any time depend on the prime lending rate (which in turn depends on so many economic parameters). So the interest rate can go up and down causing variation in the monthly installment to be paid to the bank. It is a huge blow during the rising interest rates. You can opt for fixed interest rate but they are usually higher than floating interest rates.

• Pre-Closure : If you have surplus money, you can close the loan earlier than the stipulated tenure. But banks usually charge some penalty for pre-closure.

• Approval Papers from builders : Parent deed, joint development deed, BDA approval, sanctioned plan, occupancy certificate, commencement certificate, registration of land, khata, tax paid receipts, clearance certificates from govt bodies like Electricity Board, Water and Sewage Board etc etc. These are typically the papers a builder should possess to avoid any legal hassels during the construction and to the buyers afterwards

• Possession Date : The actual date when you become a proud owner of a house

• Grace Period : A buffer of time after Possession date which accommodates any delay on either side.

• Premiums : Some builders, or rather all of them, ask for a premium for corner units or upper floors. In other cities, lower level floors cost more than the higher ones but in Bangalore it’s the other way around. This premium rate is typically 20/- to 50/- per sqft per floor.

How to buy apartment in Bangalore - I

When I came to Bangalore, the first thing that struck me is that everyone is (and literally everyone) is buying either a plot/flat or independent house etc. When you see so many people surrounding you looking out for 'investment opportunities' in housing/real-estate, somehow you are bound to get influenced. I was also caught into this 'rat-race'. The emotion that controls this rampant buying is the same emotion of human beings that plays a crucial role in stock-markets i.e. greed. I have heard so many stories of people buying flats at 15 lakhs few years back and the same flat now said to be costing more than 70 lakhs. The biggest mistake people do while buying a house is "not researching enough". I got into the same trap, but thankfully got out of it just loosing 10 K Rs (cancellation of booking amount).


In these series of posts, I will try to put my experience of "trying" to buy a flat in south bangalore. These tips typically apply for people buying their first house. Some of the general tips/gyaan would be useful for buying across the entire country.

• Fix your budget before seeing any property and stick to it at any cost (very difficult).

• Never think of buying the first house as investment. It should only be considered if you want to live in it.

• Don't think of "tax-benefits" while buying your first house. It only comes into picture when you are buying a house in a city of non-residence. Otherwise the tax-benefits of home loans will be compensated by no HRA benefits.

• I have heard this a lot "Always go for big builders, since that assures less pain", this is a myth. Buying a house is a lot of pain and efforts, it does not matters much whether the builder is big or small. All builders are crooks and are out their to make money
  

• Getting a good house is more luck than anything else. You got to be lucky to get a house without much hassel

• Big brand names do not necessarily mean higher resale value. What matters more is the location and the construction quality.

• Flats do appreciate in value but only up to a certain point. Say the original price is 2000/- per sqft at the time of booking. It might go to 2500/- by the time the construction is over and you register it (2 years). From that point on, the appreciation slows down a bit because it is now a second-hand flat. It might go to 3000/- (5-10 years) if the location is good but that’s generally the limit. After that the wear and tear on the flat bring the value down.

• Also the stories of astronomical price increase is in realty a myth. Imagine a 2BHK flat in say Bannerghatta Road (near IIM) costing 15 lakhs in 2002 (five years before) is now costing 70 lakhs (as per the market rate in the same apartment complex). But is that a real re-sale value of the flat? Do you think there would be any takers of the flat for 70 Lakhs when the same type of flat (in terms of quality/space etc) would cost me around say 30-35 lakhs near the same locality (Meenakshi Temple)? Since the real-estate market is on the upwards, a new buyer would always look at the new projects rather than buying a second hand flat. If the market goes down, then the projected cost of 70 Lakhs would also come down steeply.

• Always go for home-loans from reputed financial institution (even if you are capable of), since that ensures a cross check of documentations obtained by builders. For example, I booked the Ittina Mahavir project in electronic complex, HDFC refuses to give loan to any of the Ittina properties. When we enquired further, we got to know that there are lot of BDA notices against illegal activities from Ittina.

• Read all the documents before signing (even signing the booking form). It is easier said than done, since the marketing department of the builder will ensure that you get engrossed in the sugary talk so much that you believe anything he/she says and sign without reading.

• Go through agreement copy atleast 5 times with your family lawyer it’s almost 25 to 30 points and usually its mostly one sided.

• Make sure that following things have been put into agreement
• Builder will not demand for any other payments other than whatever has been specifically disclosed to the buyer in writing.
• Clear possession date in writing
• To avail housing loan from a bank or a financial institution of buyer choice. Usually they force you to get a loan from private banks

• Go and talk to the last completed project of the builder and talk to the owners.

• You may not be Vaastu believer, but purchase a flat which is vaastu compliance just to ensure its re-sale value.

There are so many things to keep in mind while buying a flat that you need to burn your fingers to actually understand everything. The most important point to keep in mind is not to get awed by the glossy advertisements from the builders (usually there is always some hidden constraints). Also don't ever think that if you dont book a flat now, you will miss the opportunity later. When I wanted to buy a flat in electronic complex, I talked to a friend, who has booked a flat at 2400 per SFT some nine-ten months back. So when I got an offer of 2350 per SFT, I booked it immediately thinking that this is the best buy I could ever get. Now few months down the line, I am seeing offers of 2100 per SFT also. If you do your research properly(which implies a lot of pain), you can get a good bargain even in the most "real-estate saturated pockets" of the city.

How to become Wealthy?

One of the best articles (by Clayton Cramer) I have ever came across. Go ahead read it and learn !!

Preparation for packers and movers

I wrote a relocation guide mentioning some of the tips about moving from one city to another. This gap in blogging frequency is because of this relocation. I finally moved to Bangalore.

Bangalore Vs Kolkata

The biggest difference I find is the weather, it is a huge relief. Although traffic is said to be the nemesis of Bangalore, I still find it better than Kolkata, but the worst part is poor public transport. The auto-rikshaws are few and the drivers bluntly will reject (based on some weired logic) when you tell him about your destination. In kolkata at least you can get yellow-taxi (Ambassador painted yellow) to any destination (although costlier).

Agarwal Movers and Packers Sucks

In the comment section of my relocation guide someone warned me not to use the Agarwal Packers and Movers, but since the relocation is being done by my wife's office, which appointed them as the company for moving employees, I had no choice. I guess only one word can describe my experience, "pathetic". I simply could not believe that a famous company like this could do such a shoddy job.

My pathetic experience

Here is few points of my experience with them

• From morning 8:00 they finished at night 9:00 despite the fact that I do not had any major things to pack (no sofa, not much furniture, no car)
• They got just three persons, one of whom was doing both the paper work as well as packing
• I shouted at them three times since they were not packing in correct manner. A glass item needs to be provided proper cushion with paper and cloths and this basic thing they didnt knew.
  
• After doing half the packing they just went to some other near-by location without informing me. I was very pissed off by this.
  
• There were mistakes in the paperwork, which I did not expected in a professional movers and packers.
  
• When they said everything is packed, I searched in the house and found many things lying around. So I had to force him to create another carton pushing the remaining things in there. This was the worst experience anyone can ever get.
  
• After such a shoddy job, they still expected me to pay an "unofficial tip".
  

NEVER EMPLOY THIS COMPANY FOR YOUR RELOCATION IF YOU WANT TO REMAIN SANE.

I am now just waiting for my goods to reach me safely without anything missing.

Here is a short guide on what to look when packers and movers are at your house:

• Make sure you have separated the items you want to take with you like documents, jwellery and cloths
• Ask the company to send atleast four or five people. Not less not more
• Keep watch while the packers do their job. Instruct them when you think they are not doing the job properly. Keep asking them questions about how they are packing certain stuffs like almirah or fridge.
• Make sure they put plastic around vaulable goods like TV, Fridge, Sofa etc
• Instruct them not to pack what you want to leave. In my case they even packed my garbage box containing the garbage. I had to unpack that box and remove the garbage.
• Keep enough water and food for yourself during the packing. You will need it.

Micro-SIPs

I think this is enough for relocation, on a different note, ICICI and Reliance have introduced micro-SIPs for as low as Rs 50 per month. I am not sure how much beneficial this is for customers. This is aimed at people who cannt afford the previous lowest of Rs 500 or Rs 1000. Imagine the income group which cannt afford even Rs 500 per month, and how much value for them even a sum of Rs 50 would be? I would expect them to be a totally risk-averse category. Can a mutual fund house be able to tell them that their hard-earned money would be at the mercy of stock markets and the returns (even the original) is no longer guaranteed. I am really skeptical about the returns of micro-SIPs vis-a-vis other risk-free avenues. I can visualize that with plethora of micro-SIPs coming, lot of investors will be robbed of their precious money without much gains. It will be a boon to the mutual fund houses rather than those investors.

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.