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 :-)

Super Tips to increase your debt

Yep! you read the title correctly. So you want to live your life King Size, in a royal fashion with the meager amount of salary that you earn (peanuts huh..). Here are some of mind-blowing tips to spend you money faster than you can blink your eyes:

• Never read money saving posts or weblogs which may contaminate your mind towards efficiently managing your personal finance. These are evil!!
• Spend more than you earn. This is not the “common sense” approach, but who needs any sense, common or uncommon. And if you are struggling to meet your ends every month, then you are just about learning this art. Keep it up.
• Never pay your bills on time. Would a royal king in older times, bother himself engaging in such mundane tasks, like paying those insignificant telephone or electricity bills on time? It is for those mere mortals, who would setup email reminders or use those large desk/wall calendars with sufficient space to write notes and remind themselves of paying up these irritating bills, month after month, on time, thereby saving those tiny-miny amount on late fees. Such money-saving tips are a kill-joy for living life royally.
• Never worry about emergency fund. What is the use of the money lying idle when it should be running around with you in shopping malls. Some crack-pot websites urge people to keep six months of expenses as emergency funds Why should you worry about keeping such a huge amount, since you will never get hit with any emergency. Those nasty accidents, job-loss (Job loss insurance, OMG) or sudden illness happens only to others and not to you. So why bother about emergency funds?

• Never pay-off your credit card debt. You should keep a poster of John Biggins of the Flatbush National Bank of Brooklyn, New York and make him your GOD, since he invented credit cards. This is the greatest invention of man ever (forget fire, wheel etc). I bet that humans would still love credit cards even if it would have been invented during the stone age. Why credit cards are so addictive: 

• You do not need to think, how much your bank balance is, just think how much credit card balance exists on credit card. It makes it so easy to remember, even if you never done any math subject in your life.
• Also credit card companies are know to be generous enough to increase your credit card limit over the period of time sometimes without intimation. But isn’t it a pleasant surprise to suddenly find, during an impulse buying that your credit card just worked when you thought the limit has been crossed.
• You can have as many credit cards as you want with so many flavors and banks. Just look at in India and you have so many choices of type of cards.
• RBI has so many regulatory rules for credit card issuing banks that you are very safe. It has been seen on so many occasions that credit card companies flout these rules and also charge exorbitantly, but these are just small blemishes spread by the enemies of credit card industry.   Here is an example on how credit card companies make money.
• Buy on credit card and pay a meager amount monthly. This is called revolving credit and it is a revolution. Some people try to scare you with revolving credit maths, like this, but you can safely ignore such realities.

  Let us take a simple example. If you are spending Rs 30,000 every month and repaying half of it, you end up spending Rs 3.6 lakhs in 12 months. You pay back Rs 1.8 lakhs and owe the bank Rs 1.8 lakhs. But what the bank wants back is 40,000 rupees more than what you've spent...and keep this going for another year…this will become a runaway figure...On the same amount of Rs 30,000 spend, if you take it really easy and pay back only the minimum due, that is Rs 1500 a month, you will owe the bank Rs 2.3 lakhs. The bank will demand back, Rs 3.5 lakhs back from you and that’s Rs 1.2 lakhs more than what you've spent. Keep compounding this and you can fairly figure out where this could go.

• Credit card can get you cash from ATM if needed, what if they charge so much extra on cash withdrawals, think of the flexibility.
• Credit cards also offer rewards to customers (see here and here), although very few people diligently and consistently try to re-deem those reward points. But isn’t it so nice of credit card companies to offer rewards, which we do not redeem even when it can lead to significant saving, but that is just a small niggle. It is a supreme gesture from credit card companies.

• Impulse buying is the name of the game. We are talking about folks who are obviously above “roti-kapada-makan”, the basic necessities of life. So what good your money would be if you can not spend it when you feel like buying something. It is separate matter whether the thing you buy has any real value in your life but why worry about it? If you got it, flaunt it and if you haven’t got it, credit card will help you flaunting it. 

• Planning your money is insane. Why waste time and energy into something which is inherently unmanageable. If big companies like Satyam or Dubai World can not manage it, how would you? As you must have heard that “Money is the root of all evil”, they why keep the evil with you or try to manage the evil, get rid of it as fast as you can and you will be happy. So turn deaf when you heard words like tax-planning, investment, saving, retirement planning etc. You obviously want to turn religious during old age in post-retirement life  (to repent all your life’s sin) rather than having crores of evil roots with you.

So if you follow this advise, this is a sure-shot way to leading a luxurious life. The one lifetime you have, live it King Size.

PS: This post was written in humorous jest, so if you seriously follow the advise, you would not have enough money even to sue me for wrong advise. So get real and serious about your money!!

Is peer pressure leading you to debt?

 

[ Source ]

Your friends and peers influence your life. Wikipedia explains that

Peer pressure refers to the influence exerted by a peer group in encouraging a person to change his or her attitudes, values, or behavior in order to conform to group norms.

Peer pressure often starts at very early stage in life and it never stops. The term “peer pressure” has come to connote a very negative thing (as the cartoon above indicates), but it can be a significant positive force also. (example1, example2)

There is no doubt that everyone needs a peer group to act share one’s emotions and feelings. But, the problem begins when one starts changing their behavior or act according to peer group, just to remain “fit” in the group. This is also a very common complaint from parents, when confronted with un-acceptable behavior from their children.

The most vivid memory that I have of dealing with peer pressure is during my college days. I come from a poor family and it can be easily seen from my cloths or my bi-cycle wherein my classmates used to come dressed up impressively or in their two-wheelers/four-wheelers. I felt extreme pressure to match up but never had the money, and so I could never “fit” or got accepted into the peer group.

I recently shifted to a new apartment (just few months back) and started interacting with my neighbors, and I realized that there are many folks who have a habit of “showing-off”, making them prone to financial debts. So their wives will sport an iPhone, spend Rs 2500 on window-shopping randomly every week, esp on apparels (and despite that they dress shabbily), keeping a full-time servant, chauffeur (without any real-need) or commuting daily by cabs (wouldn’t it be cheap to own a car) or spending evenings in lavish restaurants (I know for sure that these are not their company paid facilities).

The motivation for these actions is not any real need but peer pressure to fit in the group. If we are surrounded by people who are rich (or showing-off that they are rich), then we would also feel the need to upgrade our cars, cloths or throw lavish parties. The whole problem with why we succumb to peer pressure is because we feel the need for acceptance.

Peer pressure can lead to significant waste of money and it's not just ourselves who we have to worry about. If you have a partner or children you'll also suffer financially whenever they come under peer pressure. So at one end you may want to reduce your monthly expenses but on the other hand you may be forced to spend unnecessarily on useless things just to satiate your family’s emotional needs, so they be part of some crappy peer group.

It is extremely difficult to fight peer pressure, since it can come in from variety of ways:

• Keeping up with others in terms of buying big cars or expensive plasma TVs or mobiles
• Impressing your girl-friend/wife/in-laws in terms of expensive gifts to justify your love or caring not only to the concerned person but also to everyone in your peer group.
• One of the biggest pressure for newly married folks comes in the form of this question, “So where are you going to honeymoon?”. Most folks will burn-out their entire saving just to mention that they went to Singapore/Bangkok (crowded place) rather than an idyllic Kerala/Darjeeling.
• Buying bigger houses just because everyone in their peer group has bought a house. This is especially true in Bangalore, since most people coming here are in some kind of strange hurry to own a house. It is termed as “biggest investment of your life”, even if it turns out to be crappy decision. I totally oppose it.
• Sending their kids to expensive schools (I was aghast when I got to know that my neighbor’s one year kid goes to a school whose fees is 15 lakhs a year) or throwing a totally unnecessary lavish party as a show-off. How can a one year kid distinguish whether his birthday was celebrated in a high end restaurant or their own house? The consolation given by parents – I want to give my kid the best I can afford. Duh.

So how to handle peer pressure and how to stop yourself from bleeding financially? How to stop accumulating debt by resisting peer pressure? Here are some pointers

• Stop worrying about what “others think about me”. Others are probably busy thinking the same thing and don’t have time to think about you.
• Trust your own instincts rather than following the herd. If you are convinced about your choices and reasoning behind them, then stick to it. You can only decide what is best for you. You should have the confidence in what you believe and the boldness to stand for it.
• Recognize peer pressure. If you are trying to spend money on something, ask yourself critically, as to why you are buying it. If you really need it, then only go ahead with the purchase.
• Be absolutely clear about your monetary priorities and be honest discussing it with friends. Remember that everyone’s priorities will be different, so there is no “one fit for all” solutions in financial world.
• If some friends are just putting pressure despite your resistance, then ignore them and find new friends. A friend who does not care about your opinions is not worth friendship.

Remember that if you don’t want to get under any peer pressure influence, try not to put anyone (especially your friends) into it as well.

Satyam Crisis – What is there to learn?

One of the significant quote from Benjaman Graham’s Intelligent Investor is that “Every stock has a company behind it!!”. The biggest proponent of value investing, Graham intends to change the way investors look at stocks. The primary aspect of Graham philosophy is to invest only in companies that you know.

This implies that “Assessing Management” is one of the primary aspect of study before investing in the company. An investor need to  evaluate the credibility of the management. While it is important to establish the credibility of management based on what they have delivered in past, but most of the time an investor gets influenced by the image created by the media of its CEOs or promoters. So while “Reliance” is good and the image of Ambani Brothers may be excellent, it is important to look at, what the management delivered for each of the Reliance companies.

This fact is highlighted by the recent Satyam fiasco. Satyam planned to buy two real estate firms Maytas Infra and Mytas properties with 1.6 billion $. The chairman of Satyam, B. Ramalinga Raju justfied the buy saying

Stating that it is part of its plan to de-risk the core IT business in times of recession, Mr B. Ramalinga Raju, Chairman of Satyam, said the combined entity would help face the challenging environment and uncertainty in the market.

This raised suspicion among investors not only in terms of buyout giving significant benefits to the promoter family but also in terms of valuation of Maytas, causing Satyam to drop the acquisition plans.

Byrraju Ramaling Raju has been a well-known and renowned name in the field of Information Technology, receiving lot of awards. Just seaching for B. Ramalinga Raju gives you enough information about the person and the media report will cause you to believe that the person have impeccable credibility. In fact Satyam received “ Golden Peacock Global Award for Excellence in Corporate Governance” 

The honor is especially relevant given that corporate governance best practices are considered key benchmarks by stakeholders who evaluate corporations. In fact, their importance is magnified in difficult economic environments.

If we just look at the stock price of Mytas Infra and Satyam on 16th Dec,

16th December	226.55 (Satyam)	481.00 (Mytas Infra)
19th December	162.00 (Satyam)	246.00 (Mytas Infra)

The dates are important since 16th Dec evening, the news was officially announced of a Satyam buyout of Mytas. This can be significant if we see that stock prices of most of the infrastructure and software companies are going down. This essentially gives a feeling of insider trading!!

The biggest learning for a value investor is that

Do not just bank on the big names in the industry, but to assess the management, go into the details of how much the management has delivered in the past years.

Some interesting reads on this:

• Financial Express 1 
• Financial Express 2
• Mint Editorial
• Motely Fool
• Hindu Business Line

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 …

Active Vs Passive Investing

There is a very interesting discussion happening on Prem's blog. The moot point is that how much difference in returns one can make between passively investing (not your main livelihood) and actively investing. So if the difference is really huge, does it make sense to switch to active investment leaving your other income streams.

As per my thinking, all the number talk doesn't make sense unless you define "active investment". Do you consider job of a mutual fund manager an active investment? I would say no since he is getting a salary for making all the investment decisions and he is not directly affected by those decisions (of course his reputation will get a toss but he still will get the salary at the month end).

The moot question here is where it is good doing something as a part-time business or full-time business. A full-time business will require

a) Capital
b) Love for the business (termed as passion)
c) Risk-taking ability.

So the ups & downs of business will apply even to "active investing", and there will always be a learning curve. Nothing comes free (as in free beer).

Mutual Fund Offer Document

"Mutual fund investments are subject to market risks, please read the offer document carefully before investing"

How many times you have heard this or read this in all mutual fund advertisements? Well due to SEBI regulation every mutual fund will flash this warning. I personally think that mutual fund advertisements require a person who can talk at a speed of zillion words per minute before they recruit the guy to read the above statement.

Does anyone really read the offer document? SEBI mandates that as a customer you should read the offer document carefully.

What is an Offer document?

It is a prospectus that details the investment objectives and strategies of a particular fund or group of funds, as well as the finer points of the fund's past performance, managers and financial information. But since it is such a huge document, people rarely read it in entirety.

Key Information Memorandum

So to overcome this distributors usually come up with a KIM. It is shorter than an offer document and provides precious details about the mutual fund. So when you get a KIM, what you should look for as an investor:

Investment Objective

Investment objective will tell you the fund's goal and rationale. This must align with your personal goal and risk profile. For example, you might be looking at a fund which will at the least protect your capital, so reading the investment objective will tell whether a particular fund ensures that.

Asset Allocation

What this essentially gives is the percentage of your funds invested in equity or debts.

Minimum Investment

What is the minimum investment a fund requires. You might be looking at a SIP of Rs100 per month but that might not be available with the particular fund.

Past Performance Data

Although every mutual fund house will keep the warning "PastPerformance is not an indicator of future returns" but that is usually not true. A fund's past performance is a key factor in deciding how a fund will perform. I personally think that everyone should stay away from NFO, since they dont have any past performance.

Every investors must read the historical performance of the fund, and he should be looking at both the long and short-term performance. A fund's performance over a period of time should match with their own investment goals. They must compare the fund performance against that of the benchmark chosen by the fund.

Entry and Exit Loads

This is another most important information, since heavy entry and exit load will eat up into your investment growth. There are also other charges like switching charges or recurring charges or management fees. Over a period of time they can be considerable amount, so be aware of them.

Hope all investors be more aware of the pitfalls of this fantastic investment scheme.

How to identify copy paste from your blog

Prem is doing a good job of identifying the best indian financial blogger and I was thinking about his post about why he is rejecting some blogs while nominating. He mentioned about some blog being copy-pasted blogs. I usually dont have much objection if someone copying from my blog (even if they dont quote the original source), but some people object strongly. If you are one of them and want to find who copy-pasted from your blog, then check out CopyScape. A good way to find who copied from your blog (or from where you copied the post!!). A copy paste is good if you can add some additional info or value to it.

Investment Books

I just came across the SeekingAlpha's Must-Read Investment Books, by David Jackson. The recommendations include a huge (its really huge) number of books ranging from the topics like "Money Manager's Experiences" to "Value Investing" to "Long-term investment strategies" to "Technical Analysis" (close to 45 books).

Does it really helps to read books and invest? I personally think no book can provide you the "real" experience of investing until you burn your fingers in the market. Then I found Rohit providing some insight into the book "You can be a stock market genius, by Joel Greenbaltt". He also recommends some other books.

Reading such books can provide you with some understanding of the markets and its past history, but no book can be tailor made to specific type of investors. This is because the investment goals are entirely different for different people and so is the risk-taking ability.

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.

Happy New Year !!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Survival Guide on how to manage financial documents?

As the number of your service years grows and with marriage and other family responsiblities, everyone faces the problem of properly managing various documents (mainly financial) since these keep on growing. Noone is sure of when one will need which document. I am also slowly facing the same situation, the documents are piling up and I don't have a full-proof method for storing them.

So what are the requirements for managing documents:

a) An effective classification method
b) A fire/flood/theft proof method
c) Easy to access when needed
d) Easy to add/subtract documents when needed

I was trying to find some methods people use and came across The Noguchi Filing System or Neat Receipts or using softwares like Quicken, M$ Money or some people use the traditional shoe-box method.

The biggest problem with me is that I am never sure of which doument to keep until which time, while led me to keep everything forever. This leads to huge pile-up of documents which becomes really really un-manageable.

I have not came across any Indian government guidelines on how long to keep financial documents, similar to what US-government (IRS) suggests.

A few guidelines can be useful though

• Keep all the tax-related records for atleast ten years.
• Keep quarterly retirement/savings plan statements until you receive an annual
• statement. If the numbers match, shred the quarterlies and keep the annual summaries permanently.
• Keep the important bank records for atleast five years; shred unimportant documents immediately.
• Keep brokerage statements until you sell the securities.
• Most of the time you can shred bills once you get a cancelled check. Keep bills for big items permanently. Keep the bills if it involves a warranty period.
• Keep credit card receipts till it matches with your statements, then keep the statements for five years.
• PaySlips should be kept until you receive your Form-16 at year end.
• Keep house records permanently.

Remember: If possible, shred all financial documents when you get rid of them.

This is just a vauge guideline and individual discretion is solicited.

Tax Guide For First Timers

I remember the day, some few years back when I got a mail from my employer about submission of income tax-proofs. It got me into tizzy since that was the first time I had come under this process. A fresh graduate on landing a good job had never thought that goverment will play spoil-sport to him at the end of financial year.

With India shining, employement is rising and so is the entry level income. This is typically true of IT, ITeS industry where income level are sufficiently high for fresh graduates to seriously considering income-tax investments.

A first timer (I am only taking about service class first timers) should keep following things in mind:

1) Income tax calculation is NOT rocket science. A careful thought and study can easily unravel the mystry.
2) Do not make any un-informed decisions while saving for income-tax.
3) Usually employers deduct a portion of your income towards the tax every month. This is a good thing since this makes sure that you are not loaded with the entire income-tax at the end of year.
4) If your employer does not deduct any income-tax (which is extremely unlikely) then he is not showing you as a regular employee of the company on its payroll. Just confirm it.
5) Income tax rules change every year, so you should be aware of the latest rules for current financial year.

Some terminology which will be helpful for first timers:

Calender Year: January to December

Financial Year: April to March (currently income tax follows this cycle)

Income Tax: An amount of your income that goes to governement (what it does with that money is open to debate)

Tax Liability: The amount of tax you are liable to pay to government.

PAN : Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department. It is mandatory to quote PAN on return of income, all correspondence with any income tax authority.

Salaried Individual: You (this only includes your income)

Form-16: A form provided by your employer after all tax-calculation. This is the form that needs to be submitted to the goverment. It essentially tells what amoung of income you got and what amount of tax the employer cut and if there is any pending tax-liability.

Provident Fund: A fund set aside by government where an employer has to put certain portion of your income into it. Usually a same amount is put by employer on your behalf. So if 2000 INR is cut from your income and put into PF, then another 2000 INR is put by employer in your name into the PF. All the money in the fund belongs to you but only when you retire. So essentially government is making sure that even if act carelessely throughout your life without saving a single penny, you will have some amount of money in your PF account post retirement.If an employer makes you sign a declaration that you do not want a PF, do not sign it. Ask your employer that you need the PF.

Exemption: A tax-exemption implies that certain part of your income can be exempted based on certain criterion or if you spend your income on certain things (e.g. charity), you wont have to pay tax on the money you spent.

Deduction: If you put your money into some schemes or for some specific purposes, then you get a deduction

The main difference between 'exemption' and 'deduction' is that exemption is taken out before your gross taxable income is calculated, while deduction is reduce from gross taxable income to get the net taxable income.

Gross Taxable Income : This essentially is the amount you earned in this financial year.

Net Taxable Income: This essentially is the amount of your gross earnings that will be subjected to tax.


Income tax calculation is very easy, the confusion occurs because different people have different needs and different cases.

The indian income tax follows a progressive tax structure. The laws are made by Finance Ministry and modifications are made usually every year. The current tax-slabs are as follows:

Few important things to remmeber

a) There are various sections of Income Tax Act, few of which are important to know before you plan your income-tax saving.

b) The idea of providing income-tax deductions by the government is to increase the saving habits of an individual.

c) Investing for income-tax saving should not be confused with your other financial goals.

When you join a company, it usually asks you to fill "investment declaration". This is nothing but a declaration from you about how much investing/expenses you will be doing throughtout the financial year which can be accounted for tax-deductions or tax-exemptions. This declaration is just an estimate and has nothing to do with your final tax-investments. But it is usually best to be as close as possible to your actual investments. This is because all throughout the year your tax-deduction at source by the employer is done on this basis.

Around the timeframe of Dec-Jan, your employer will ask for actual proofs of investments for tax-calculation. This is the time-frame which is important, since in the coming Feb-March your income tax will be cut based on what proofs you submit. So if you fail to proivde any proof in this timeframe, your employer will cut taxes based on the fact that you have not done any investment (implying higher tax cut). In such a case, if you do invest in Feb-March, which is still in the current financial year, you will not benefit since the tax will already be cut. Although you will get your money back from IT department but that is a long-drawn process.

Then around March-June, your employer will give you a Form-16, which you need to submit to IT department. Once the Form-16 has reached you, your employer's responsiblity is over and now its time for you to submit it. If you loose it or are unable to submit, you will face penalty.

Some important sections under the current Income Tax Act for year April 2006- March2007 are as follows:

(Pic taken from the excel sheet by http://www.ynithya.com/taxcalc)

The most important for you would be :

a) HRA exemption: Your salary would have a component called HRA or House Rent Allowance. If you stay in a rented house, then you can avail this exemption. The formula is quite complicated

HRA Exemption = minimum of { 40% (50% in metro) of Basic+DA OR
HRA OR
rent paid - 10% of Basic +DA}

In most cities, the house owner refuses to give any receipt of the rent, then most people make fake receipts. Try to avoid such situations as far as possible.

b) Higher Education Loan Interest Payment Sec 80E : If you have taken education loan for higher studies, the EMI you pay consist of paying back prinicpal and interest. The amount of interest you paid in this financial year can be used as deduction under this section. Beware that just the interest repayment and not prinicpal repayment can be deducted.

c) Section 80C deduction : To increase saving from individuals, govt has decided to have a upper limit of 1 lakh INR investment under this section to be deducted from gross taxable income. Every scheme under this section (see list above) has pros and cons, so choose wisely. The following table will help you guide which investment has tax-benefit. The major change that has been introduced is that the interest/dividend generated from some schemes have become taxable making such schemes less attractive.