Cardless Cash Withdrawl

Many banks (recently ICICI) have started providing facility to do "card-less cash withdrawal" from ATMs. The idea is similar to fund transfer, except that instead of recipient's account number, you provide his/her mobile number. The bank will generate unique sender code and SMS the receiver code to recipient's mobile number. You call up the recipient and tell your sender code along with amount to withdraw. The recipient can use these codes to withdraw money from ATMs without any ATM card. 

The idea is good, but currently there are several issues

1) Not every ATM of the bank will allow card-less cash withdrawal. It seems banks need to upgrade ATM software to allow this facility. 

2) Inter-bank ATM withdrawal is not available. So you need to withdraw from the same bank ATM. 

3) Every transaction (successful or failed) will cost the sender a fee (Rs 25 for now)

4) There is a upper limit on the amount that can be transferred

5) It requires sender to register for both internet banking and mobile banking

6) Sender needs to register the recipient. I thought a simple mobile number entry should have been good enough.

This is not really a new thing world-wide. Several banks in other countries have some or the other variation of card-less cash withdrawal facility. 

What I would like to see is allowing a limitless self-withdrawal facility with just my mobile phone. Something like this

A card-less self-withdrawal will be really cool and highly useful, since then there is really no need for ATM card ever. 

A better option would be to use bio-metric identification, like this

Real Estate - A bad investment

Yesterday I met an old friend after a long time (lets call him 'S'). Some four years ago he purchased a flat in Bangalore Sarjapur area for around 70 lakhs. He mentioned that the price of his flat is touching 90-95 lakh now and he was happy with his investment making awesome returns. 

I was not sure, since I have always been wary of Real-Estate true returns. I wrote a post in Nov 2010 questioning the same. So in this case, I did a quick back-of-the-envelope calculation. 

Purchase price of flat = Rs 70 Lakh  year 2010

Down payment = Rs 15 Lakh

Loan Amount = Rs 55 Lakh for 20 years

As per the floating rate of interest, his EMI comes to around Rs 54500 (although due to floating nature, his tenure has changed, but let me not add it). 

Till now he has paid 

54,500 X 48 EMI = 26.16 lakhs + 15 lakh = 41.16 lakhs

Current quoted price = Rs 90 lakh (Assuming he sells at 95 Lakhs, but he wont get entire money, since buyer will deduct the stamp duty, registration charges etc, lets say 5 lakh is deducted). 

Outstanding loan amount = Rs 50.92 Lakh, So his balance earning = 30.08 lakh

This amounts to a loss of 11 lakhs. 

Even if you include the tax deduction he received on interest and principal payment, it will not be more than 2-3 lakhs, which still puts his investment in red. 

I have not even considered the opportunity cost of the investment money or the builder related issues causing delays and shoddy construction, which will compound this loss to much more. 

A real-estate investment on borrowed money is a really bad deal. 

Whats the solution? My solution is simple

1) Never believe the fact that real-estate prices will keep on increasing. 

2) Instead of buying a house now, invest the EMI amount in recurring deposit. For e.g. if you plan to take a loan of Rs 50 laks today, rather invest Rs 50000 per month in a RD

3) Wait for your RD to be give you more than 50% of your house cost. In this case, in 3-4 years you will have close to 25-30 lakhs

4) Search for a house in the same budget (believe me you will get it even after 4 years), but now you can actually pay half cost of the house by cash. 

5) Take loan for remaining amount (EMI 25K now) and keep saving the remaining 25K in RD

6) In another 3-4 years you will be able to fore-close your loan with the RD.

Let me apply the same to my friend S's investment

So instead of EMI, he puts it in RD, 54500 Rs * 48 = 26.16 lakhs + RD interest = 30 lakhs (post tax). 

Purchase price of flat = Rs 70 Lakh  year 2014 (he can still get a house around 70 lakhs in many good parts of Bangalore)

Down payment = Rs 15 Lakh + 30 Lakh = Rs 45 Lakh

Loan Amount = 25 Lakhs

His now EMI = Rs 24, 792 + he starts another RD of 29708 Rs per month. So in 4-5 years (by 2018) he would have cleared his home-loan. 

The bottom-line in this plan is that you pay very little interest to the bank and hence can make your real-estate investment profitable. 

ESPP and tax implications in India

Recently I got an email from my company (US listed company) about ESPP program, which allows employees to purchase the company shares at discounted price. I started inquiring about ESPP with fellow colleagues and to my surprise everyone gave a thumbs up, indicating a simple and easy way to make money. 

I have a habit of becoming suspicious whenever it sounds too good to be true. So I started digging further and here are some facts that I came up with. 

What is ESPP?

Conceptually, ESPP is like a deferred-SIP, where you allow small amount to be deducted every month from your salary, during the offer period. Once the period is over, company will use the accumulated money to buy company shares at discounted price and deposit in your brokerage account. 

Lets take a quick example, say you are employee of company XYZ Inc. The ESPP offer period is say 5 Nov 2014 to 5 May 2015. Lets say you applied for ESPP with a deduction amount of 5% (anywhere between 1 - 15%) every month starting November 2014. So on 5th May 2015, your company would have accumulated some money and it will purchase the shares of XYZ in your name. The discount given typically is 15% of lower stock price value of 5 Nov 2014 or 5 May 2015.  

Assume, on 5 Nov 2014 stock price = 5$ and on 5 May 2015 stock price = 7$, you will get the stocks at 15% less of 5$. 

Once the shares are deposited in your account, there are no restrictions and you can either hold them or sell them immediately. 

It looks like a great program on paper with a straight 15% benefit and if the stock goes further up, your earnings will be much higher. 

Where is the problem?

There are two problems associated with ESPP

1) Stock market risks

2) Tax and transaction charges

Let me explain, each one of them. 

Stock Market Risks

Investment in ESPP is similar to investment in stocks & that too of a foreign listed stock. Any investment in stocks is associated with risks, if a stock can go up then as quickly it can come down and wipe your capital. As with investing in Indian stock market, you need to understand the financials and long term growth of your company. How many employees go through the quarterly results or historical financial data of their company? So just being an employee does not mean that your company's stock price will keep growing. Also being employee does not mean you have enough information to understand the future growth story of the company. 

Tax and transaction charges

Indian Income tax laws can also be spoiler here. The first tax that will hit you, is when the company has purchased the stock on your behalf. The 15% discount that you are so happy about, it will be called as perquisite and taxed as per your tax bracket. So being in highest tax bracket (30%), your 15% discount immediately reduces to ~10% straight away.

Also for most employee idea of entering into ESPP program is to sell on the day of vesting (immediately following purchase). So when you sell the shares, assuming you make some gains. This will be short-term capital gains.  There is also some brokerage charges taken by your broker (e-trade etc) which can also put a dent on your gains. 

Since the shares are not listed in India, short-term capital gains are taxed as per your income tax slab. If you held the shares for long-term, then long-term capital gains are taxed at 20% for foreign listed shared. 

I am not even considering the difference in Rs - $ conversion rate between the purchase date and sell date. It could potentially further dent your losses. 

Conclusion

To me, ESPP has too many variables to consider for investment.  I feel that ESPP for short term should be absolutely no-no, since it most probably will result in capital loss (unless your company share price jumped very high during the offer period). If you are very sure of your company's growth over a long period of time, then you may invest for long-term. 

As for me, I am skipping the ESPP altogether and looking to find some gem in the Indian stock market. 

Smart Tips for new parents

I recently read this wonderful article on Jagoinvestor, but having been gone through this experience, I have my own twists to these tips.

In summary, what they propose for new parents is:

1. Review your Life Cover
2. Add the child to Health Insurance
3. Start RD for school expenses
4. Update Nominations in various financial products
5. Register the birth certificate
6. Start Saving bank account for the newborn
7. Buy cloths and toys smartly
8. Don't invest in CHILD plans
9. Have a 24/7 reachable doctor
10. Make baby emergency kit

Here is my take on some of these tips

Review you life cover

Yes this is important point, but why wait till your baby is born. If you are first time parents, here is a warning. Once you baby is born, you would have seriously no time and energy to devote to anything other than "mis-managing" everything. I recommend that why not increase the life-cover during pregnancy itself. It will not only save you time later, but you can also plan your premium payments as per you convenience. 

Adding the child to Health Insurance

Another important point, but note that insurers want a birth certificate as a documentary proof for covering the new born. Hence the first thing you need is a birth certificate. I had posted my experience in getting a birth certificate in Bangalore.

Also it is better to check with your insurer if the newborn is covered from day one. Another important aspect is the coverage for vaccination. The vaccination cost with private doctors can range anywhere from 4-5K to 15K (at-least in Bangalore). 

Update Nominations in various financial products

To me this does not make sense. A nominee is just a custodian of the assets and does not have a rights over the assets. Also a minor nominee requires a guardian to sign on behalf of the nominee. So in the event of your death, the actual custodian of your assets will be the guardian on behalf of your baby until the child becomes adult. So why complicate the nominations, better to have either your spouse or parents as nominee. 

Start Saving bank account for the newborn

I do not think it is a good idea. The simple reason is because most banks which allow kid's account requires a minimum monthly balance, which blocks the money. The interest rates offered is below inflation resulting in loss of money. The alternative option that I recommend is to keep counting the money that the child received via gifts and at the end of year deposit the lump-sum amount either in PPF or a MF. This way the money received by the child goes for building a corpus for his/her future. 

Buy cloths and toys smartly

This is a personal choice, but in case you are not averse to using second-hand toys or baby stuff, then I recommend online portals like olx/quikr to find used items. Another interesting options is to rent the toys via rentoys website. I have not personally used it, but it sounds an interesting concept. 

Make baby emergency kit

There are two problems with having an emergency kit

- It needs to be checked from time to time to ensure that used items are refilled

- It needs regular checks for removing expired medicines 

My personal experience is that despite having the required discipline, we could not always maintain the emergency kit. There were always items missing from the kit. A better option is to have a near-by medical store deliver the medicines to your doorsteps in case of emergency. 

An additional tip for those who can maintain the kit is to have a spare kit in your vehicle for emergency purposes. 

Here are some additional tips

• Invest more in your health and fitness (more important after having kids).  
• Get a PAN card or Passport for your kid as an identity proof
• Create a WILL if you don't have
• Open a PPF in your kid's name and ensure regular investment (no need of a savings account)

Petrol Car Vs Diesel Car - Which one is economical?

Quick Post: 

I read an interesting CRISIL report (Sep 2014), which compares diesel vs petrol cars for regular consumers. The crux of the report says

Considering the way diesel and petrol prices are converging, the recovery period for a first-hand diesel car will be close to the higher end of the typical holding -- or ownership -- period of between four and six years if it is driven 10,000 kms per annum. 

An interesting read indeed!!

RBI 'tags' Loan Guarantor as Wilful Defaulter

RBI circulars are not typically "news worthy" items for common man, but it's new circular on Wilful Default created lot a flutter in the news. In the recent clarification to the master circular, RBI mentions

 In connection with the guarantors, banks have raised queries regarding inclusion of names of guarantors who are either individuals (not being directors of the company) or non-group corporates in the list of wilful defaulters. It is advised that in terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Therefore, when a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor. As such, where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case the said guarantor refuses to comply with the demand made by the creditor/banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter. It is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks/FIs may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees

The primary focus of this circular is definitely companies or individuals, who acts as guarantors for other companies, ensuring bank loans despite not having enough credit-worthiness. But it seems even the common borrower is going to suffer now.

What is a wilful defaulter?

In simple terms, if a person or company is unable to repay the loan it has taken, it is terms as wilful defaulter. An exhaustive definition can be read here[PDF]. Once a banking institution, tags someone as "Wilful Defaulter", the person or company will have zero credit-worthiness and will be unable to get money on credit, apart from the possibility of legal proceeding against them. 

This is what is happening with Vijay Mallya, although he has got some favorable judgement recently. 

How does this impact a common person?

Until this circular, no one really thought much before becoming guarantor for a friend or relative, while they were availing loans. A guarantor is thought only as a referral and expected to just ensure moral liability to the person taking the loan. The provision existed for banks to pursue the guarantor for recovering of loans, but only as a last resort.

With this new circular, the banks can 

• Tag the guarantor as a wilful defaulter thus reducing credit-worthiness of guarantor to be zero
• Start recovery process of the loan from the guarantor in parallel with the original debtor. 

This is a significant power to the banks and definitely makes sense against defaulting companies, where the borrowing is several hundred crores. But for smaller borrowers who take personal loans or car loans, it is now going to be impossible to find a guarantor. 

Simple Tip : Get the EMI experience before buying that house

I am not really into buying a house (see here and here) and definitely not multiple of houses, especially via home-loan route. I have seen too many examples of people

1. Buying house and then forced to significantly cut-down their living standard
2. Getting cheated by even reputed builders (delayed projects, poor quality, document frauds etc )
3. Not really getting huge ROI (which is often the primary motive)

Yes, I know of many people, who don't enjoy life 'today' in the hope of a better 'tomorrow'. Some people take home-loans with EMI portion as high as 60-70% of their monthly inflow and then think millions of time, spending on smaller (but important) aspects of life like upgrading their car or buying new life insurance policy or a family vacation. We, Indians, are specifically tuned in "saving" mode from childhood. 

I was talking to a friend, who was very keen on buying a house in Bangalore. He was willing to take an EMI burden of close to 50% of his income. I believe that "experiencing the situation" usually helps in preparing for that tough time (think of mock interviews), so I suggested a simple method to him. I asked him to create a recurring deposit (tenure not less than a year) of exactly the max EMI he is willing to shell out.  Why a year he asked? I said, a full year will take you through all the planned and unplanned expenses that can occur like an illness in the family or a sudden trip to home-town or school fees for the kids. So he started an RD of 60K per month in his salary account. 

He came back only after two months and said its an eye-opener. As soon as his salary comes, close to 50% is gone from his account. So he has to manage the entire household expenses in the remaining amount. Six months later he prematurely cancelled the RD, but thankfully he realized that he is not yet ready to buy that house via home-loan. 

It is a simple trick but very effective to experience the burden of an EMI. As a side-effect you also get to create a good corpus once the RD matures. Try it and share your experience. 

Iron Man and Personal Finance

[This is a guest post]

What You Can Learn About Finance from the Ironman Movies
        Created in the 1960s, Iron Man was far from being a mainstream superhero when compared to characters like Batman, Superman, Captain America, Spider-man and the X-Men. In the late 2000s, however, when Marvel Comics had decided to launch a series of full length, live action movies featuring the superheroes that comprise the Avengers with Iron Man as it’s central character, the armored Avenger, and more importantly the man underneath, easily became the favourite superhero of almost every movie fan.

            Iron Man is the story of Tony Stark, genius, billionaire, and a professional weapons designer. After an encounter that led to a piece of shrapnel being embedded in his heart and being held captive by a terrorist organization, Stark realizes the evils of his profession and decides to create a weapon, an armour, that allows him to escape and make amends while also sustaining his life.

           The world of finance is filled with Tony Stark wannabes, aiming to one day roll down their favourite restaurant, flash their credit card and winning smile and just have life smile back. But in reality, we can’t be Tony Stark. However, there are things that we can learn from the brash character about finance:

Innovation Leads to Success

          From the start of the first movie, where Stark was shown pitching the “Jericho”, a weapon of mass destruction, to potential buyers, he pointed out the need for “having the bigger stick”. In the sequels, whenever Stark was in trouble, he opted to do what, to him, made perfect sense: upgrade his armour. That is a trait that we can adapt in our money making ventures. We should always be open to innovation because in this fast paced, constantly changing world of ours, the person with the latest information and the knowledge on how to use it usually comes out on top. Be in a state of constant upgrade, and your finances would show a positive result.

Technology is Our Friend

          In this day and age, there are still some people who prefer doing business the old fashioned way; opting not to use electronic communication. There are even a number of people who choose not to use credit cards. Tony Stark, in the three Iron Man movies, was shown not just to accept technology, but he made it a true part of himself in both the literal and the figurative sense. Because of this, he rarely fails in achieving his goals.

Invest in a Support Group

           Tony Stark, despite the brash way he carries himself, is actually successful mostly due to the help of his competent support staff. Even before he was in an actual team of superheroes, Stark worked with his best friend Jim Rhodes, his driver Happy Hogan and of course, his personal assistant Pepper Potts. Each and every one of those characters have helped keep stark grounded, focused, and in certain occasions, alive. When dealing with your finances, it would not hurt to have a support group of your own. Every needs friend who can give honest and reliable advice on credit card transactions and other financial matters. A financial adviser that would help you choose which investment is wise. No matter how much you trust your instincts, a group of people that you can rely on is always good. If Iron Man needs them, so do you.

         The Iron Man movies, as fun as they are, actually do teach invaluable lessons on how we handle ourselves financially. So, the next time you are on a Tony Stark kick, walk into a shop and swipe your credit card, knowing that you’ve applied what you learned, don’t be ashamed to say it. “I am Iron Man”.

About the author:

This article is prepared by Money Hero for Simplifying Money Matters. Money Hero is Hong Kong’s upcoming financial comparison website, which lets you compare a broad arrange of financial products - from credit cards, savings plans, to mobile plans.

Book Review - “Everything you wanted to know about investing”

You may have seen hundreds of books on personal finance, but very few can really cover the entire breadth of personal finance topics, that are useful to common investor. Here is a book by Shalini Amarnani, that attempts to do the same and which provides good coverage on all personal finance related topics. (You can buy this book at flipkart or amazon)

Buy at flipkart or amazon

In this book, Amarnani, starts with providing a new perspective to investing by encouraging the reader to explore their boundaries. This, I felt, is really an important but often ignored aspect of a personal finance book. The book is not going to make you rich quickly, but provides a definitive guide for financial success. Amarnani takes you through various financial instruments like equities, MFs, ULIPs, F&Os and provides a guiding line for making winning choices. 

There is an entire chapter devoted to tax planning. It definitely is a good read for young people joining their first company. It also has many nuggets for experienced folks. For example, here is a paragraph from the book

If you are planning to invest in property, it makes better sense to invest in a commercial property rather than a residential one. Not only does a commercial property earn better returns but also, you do not end up paying any wealth tax on it. Ownership of a commercial property enjoys the same eligibilities in tax deduction as that of residential properties.

Wealth tax typically targets unproductive, non-essential and idle assets, hence commercial property does not comes under its ambit. A very useful tip for the property hungry Indians.

Amarnani, has also covered the equity investment space very nicely, explaining the basic concepts involved in fundamental and technical analysis. This is a good introduction for a common investor. A small chapter on Futures & Options, in an easy to understand language, gives a quick introduction to these difficult investment instrument.

The author has also covered all the debt instruments like FD, Bonds or PF in a simplistic manner including useful tables for a comparative study. Did you knew that there are four kinds of provident funds? Amarnani provides a really nice table on the tax implications of various PF schemes.

The section “consolidating” provides a quick summary of all financial instruments related to loan and insurance, which is extremely useful for an average investor. The concluding chapter is also crisp and pragmatic, with a very interesting table called “life stage analysis”. It provides a quick investment strategy, across various life stages, that you go through.

One of the key learning come from the last page of the book,

Everyone lives his/her life differently and hence investment decisions are highly personal and unique. Four basic rules that apply to everyone

• Keep emergency cash
• Invest in equity
• Schedule annual review of your investments
• Align investments with tax structure

How true these wise words are!! 

My Personal take on the book

While I enjoyed the book and it is really an excellent read for anyone trying to de-mystify the personal finance world, but be aware that this is not a book that will give you tips on where to invest. It just shows you the various instruments available and their pros/cons, but what really will help you depends on your own personal situation. One key financial instrument, that I found missing is the NPS pension scheme. NPS is a low-cost equity based pension scheme existing today. I recommend that you keep a copy of this book as a ready-reference whenever you are scouting for a financial instruments be it equity or debt based. Overall a very good book for young folks!!

About the Author

Shalini Amarnani is contributor to various financial websites and blogs like http://investmentsbook.wordpress.com/ and a highly sought-after speaker.

Knowing how to manage money is one of the most beneficial life skills for people at every age. She is committed to simplifying money matters and increasing financial literacy both for the present and the future.  Utilizing a clear and straight-forward approach, she provides advice for integrated, holistic financial life planning and investment management.

Shalini holds a masters degree in Financial Management and has several years of experience starting from 1994. She lives in the financial heart of India, Mumbai with her husband and a son.

Shalini can be reached on shaliniamarnani @ gmail . com

You can buy the book at flipkart or amazon

3 Reasons to Go Cashless and Start Using Your Credit Card

Do you feel the temptation to go cashless and start swiping your credit cards, but in the back of your mind, you’re also apprehensive that it might backfire? Credit card debt is not an easy problem to resolve, and maybe you don’t want to ever start down that road.

How about making your credit card use a learning experience? There are more advantages to going cashless than just ease and convenience, you know.

Build Your Credit History

One big reason to go cashless is because the proper use of credit cards help build a stellar credit history. Credit cards are basically on-the-go personal loans, you see. When you use a credit card, you’re borrowing from your bank or provider. If you can consistently pay them back without issue – no late payments, never prolonging repayments, etc – then you’ll quickly build your credit history into a gleaming polish.

With better credit history comes improved credit score, and that leads to better interest rates and repayment arrangements for future financial needs.

Learn to Macro and Micro-Manage

When people say they’re afraid to use their credit cards, what they’re really saying is they’re afraid they won’t be able to properly manage their finances when they have that piece of plastic in their hand. It’s a given that when you only swipe cards to pay for your stuff you lose an important facet of spending: you don’t see your money actually leave your pockets.

It’s like losing the speedometer of your car. Sure, you can tell if you’re going too fast, but if you need to keep your car at a certain speed, how can you tell without a speedometer? It isn’t easy to tell how much you’re exactly spending when all it takes is a swipe and a signature or PIN.

That’s exactly why using a credit card can teach you not only to macro-manage your finances, but also micro-manage each expenditure. You’ll have to be on top of every receipt and start counting all the decimals; after all that, it’s not that bad —after all, you end up learning how to really control your financial management.

Take Tactical Advantage of Promos and Special Offers

When I say “tactical” here, I mean in terms of advantageous spending. Let’s take a quick example to be more concrete: Let’s say you were out buying groceries, but you don’t have enough cash budget to complete your shopping. Then, you notice a promo at the store that says if you pay using your credit card, you can get a certain discount, plus you won’t pay interests for a full year. Now, let’s also say that if you avail of the promos, you can pay off the resulting bill within a year.

The obvious choice then would be to use your credit card to extend your cash budget, because:

1. You get a discount

2. You can pay the balance before interest kicks in, making the credit card use effectively free of charge 

That’s what I mean by “tactical.”

All of these reasons bolster one another too. When you get good at leveraging your credit cards for promos and special offers, you become good at micro-managing, and you start to build your credit score through better financial management. 

 So what do you think? Maybe it’s high time to go cashless.

This guest post is written by CompareHero.my, the most comprehensive financial comparison service in Malaysia. Compare credit cards, broadband plan, and others at a competitive price.

Four Reasons to Invest in Gold for Retirement

[This is a guest post from Sharon Freeman. The article has not been modified except for some formatting changes to suit this blog.]

For people nearing retirement, investments may begin to take an even greater significance compared to other time of life. If you’re planning to rely on your investments as your income in your retirement, it’s a good idea to closely evaluate your investment strategy. Your retirement could be a good time to move a greater portion of your portfolio into more risk-averse areas. Many financial advisors would suggest that investing in precious metals is a sensible option for people nearing retirement age.

Physical gold has historically outperformed almost all other investment opportunities over the medium to long-term. Let’s look at some reasons why it is a good idea to include gold investments in your portfolio.

Reason No. 1 - Gold is a stabiliser

Gold helps to stabilise your investment portfolio. In the event that the value of the dollar or currency falls, the price of gold usually increases. Gold itself actually never changes in value but reflects the value of the currency in which it is quoted. This generally means that a drop in the value of the dollar inversely affects the price of gold. 

Reason No. 2 -  Control

Physical gold can be controlled by the investor themselves. Therefore, it  never disappears like money, which has been mistakenly invested in schemes like pyramid schemes.

Reason No. 3 -  A Hedge

Gold has historically been a good hedge against inflation. Again, this happens because its price tends to rise when the cost of living increases. So,  when the value of other investments falls like stocks and bonds, gold can be relied upon. Its value has remained constant over time in terms of the real goods and services it can buy. As well, gold doesn’t rely on a borrower’s promise to pay — as in the case of a bond. This offers some protection from the risk of default.

Reason No. 4 -  Reduction in Production

There has been a reduction in the production of gold since 2000. A decrease in production generally means an increase in price. The price of gold is determined by demand and supply. Since the demand for gold has grown for jewellery, investments, and some industrial uses, there has not been much of an increase in supply and leads to an increase in its value. Another factor in increasing its value is time. It takes many years for gold to be transformed from the state it’s found in mines into bullion bars or coins. Bars and coins contain more concentrated gold and it also induces higher value, which will be likely to be maintained for some time yet. 

Quite simply, gold (and many other precious metals) is an investment unlike many others.  It is hidden underground. It has to undergo extremely difficult and time consuming process. Mining gold and other precious metals from their sources plus the processes involved would mean that there won’t be an oversupply anytime soon.  As an investment, gold would be a good addition. All portfolios should have some diversity in them and gold can provide a great ‘balancing’ investment for almost any investor.  Gold should be an important part of a diversified investment portfolio. Although its price can be volatile in the short term, its long-term benefits like a hedge against inflation and as an asset that does well is clear.

Sharon Freeman is an Australian freelance writer who writes professionally about investment trends and information for companies like www.ausmint.com 

Mutual Fund SIP – plan or plunder

SIP or Systematic Investment Plan has long been touted as a silver bullet for retail investors, especially for those who want to start investing in equities. This investment vehicle is promoted by all the mutual fund houses, distributors and financial planners. It has been marketed as the safest mechanism of equity investment that will outperform the markets and creates wealth over a long term. It is really hard (even for Google) to find articles that talk about problems or disadvantages of SIP.

Almost all the marketing around SIP indicates the following advantages:

Rupee Cost Averaging: The basic idea to make money is to buy at lower level. SIP allows you to buy more units when markets are less, thus reducing your average cost of buying units. But it is never mentioned that this method will work only in specific market conditions where the markets are in median range, then markets goes downwards and ultimately moves up. The intermediate downturns will cause SIP to buy more units and when the markets finally moves up, it gives better returns due to lower average cost of buying. The other market conditions are not favourable for SIP investment and some conditions are even detrimental as well.

Disciplined Investing: The basic idea is that a investor is 'forced' to invest regularly since the SIP amount is automatically debited from the saving account. But I believe that disciplined investment is really a habit rather than an advantage of any investment vehicle. It just forces an automatic deduction of SIP amount from your bank account, which is also true of other simple investments like recurring deposits.

The only one who gets benefit out of MF SIP is the mutual fund house and their distributors, since they get a regular committed revenue stream without spending any time or effort. SIP is just an investment vehicle to put your money into the underlying assets (which could be equities, bonds or gold etc.). So common sense tells us that if the underlying asset is doing badly, there is no way SIP is going to make money. The last 5 years (2007-2012) has not been particularly good for equities and hence it is no surprise that investments made into this asset class (be it via SIP or lump sum) are not doing very well.

It is a myth that SIP can give positive returns during any market condition. SIP will only perform when the timing (start/stop of SIP) and duration is right, as it is true with the underlying asset. A quick chart of SIP Vs. Lump sum investment might provide some insight:

Market State	Systematic Investment Plan	Lump Sum Investment
Rising Markets	As the market rises, your average cost will keep on increasing.	Your investment made is at the lowest price and hence the gain is superior	Lump Sum Wins
Falling Markets	As the market is going down, even if your average cost of purchase is reducing, but so is your final NAV and you are losing money	Your investment is at the highest price and hence the you will suffer losses	You lose in both cases
Markets with intermediate downtrends but ultimately rising	The intermediate downtrends will cause SIP to buy more units and hence reduce average cost of buying. The ultimate NAV will be higher giving handsome gain.	The investment will not use the intermediate downtrends, so any gains will be marginal	SIP Wins
Markets with intermediate uptrends but ultimately falling	The intermediate uptrends will cause SIP to buy less units and hence increase average cost of buying. The ultimate NAV may be higher but gains are less due to rising average cost.	The investment will not be impacted by intermediate uptrends	Lump Sum wins by a slight margin since it did not get affected by higher cost during uptrends

So the returns of a SIP will definitely depend on the

· Timing - Start and Stop of the SIP

· Duration – The duration for which the SIP was operational

As far as the disciplined investment goes, it is useful to note that there are other investment vehicles which can be combined with lump sum equity investments to ensure some discipline. As an example, instead of a SIP, an investor can choose to open a recurring deposit for six months and invest the lump sum received directly into mutual fund at the end of six months. It is also beneficial in terms of cost overheads, here is the comparison:

Case 1:	Case2:	Comments
SIP investment in Mutual Fund of Rs 2000 for six months	Recurring Deposit of Rs 2000 for six months + lump sum investment in same MF after six months
(Rs 30 + Rs 3.71) X 12 = 74.52 Rs commission to mutual fund house (ICICI Direct charges)	(Rs 33.71 - Interest earned on RD @ 6.5% pre-tax) (ICICI Bank Interest**)	So the cost of Mutual Fund SIP is higher due to recurring nature of commission. Also which of the option will give higher returns will depend on timing of the investment.

**Another point to keep in mind is the pre-mature withdrawal penalty on RD (0.5% in ICICI) compared to exit load (1-3% before one year).

So SIP is not a magic wand which can give you positive returns irrespective of market conditions. It is rather a “Systematic Investor Plunder” and benefits the MFs and distributors most of the time. The only sip that will give you pleasure is sipping your tea!

How to Help Yourself Save for the Rainy Days

This is a guest post by Robert McCafferty promoted by Guest Post U. The content and ideas belong to the author and post is only edited for visual aspects

Saving money today is not something that is a luxury. When life throws that little curve ball our way it usually costs money. If you don’t have that rainy day fund available you can risk incurring a lot of debt. Emergency funds are necessary to have as a fall back. They are the cushion you need financially if you get sick and can’t work or if you or your spouse loses a job. It’s a fund for car repairs or an emergency flight out of town. 

You don’t have to make a lot of money to save money. Don’t give up on an emergency fund and if you don’t have one, you need to start one now. There are a lot of ways you can save up some cash and put it somewhere it can grow. 

Below are some great ways to save for those rainy days. 

Long Distance 

If you make long distance phone calls now and again then you should probably drop the long distant carrier and use the minutes on your cell phone or get a prepaid phone card. Long distance phone calls can be very expensive and the carriers of long distance calls can be draining you of money. 

Cash 

Always try to use cash when paying for clothes, food, and other items. Try to not use your credit cards at all. Most people don’t end up paying off credit cards monthly and paying for some food that you ate four months ago leaves a bad taste in the mouth. Cash makes you much more aware of what you’re spending and people tend to spend less this way. 

Cell Phone Plan 

Look at your cell phone calling plan and think about changing your plan if you have added features that are costing you too much. If you use your cell phone for mostly personal calls, you probably could get rid of call waiting, surfing the internet, video, caller ID and other added features. You can save a pretty good bit of money by cutting out added features and lowering your cell phone plan if you are going over your minutes or being charged for things you can change. 

Health Plan 

If you are married and you and your spouse both work, comparing health care plans and going with the lower cost policy may save you lots of money. Compare the out of pocket expenses and what you pay for the benefits monthly. If one employer is cheaper and you’re not with that employer, switch up. 

Library

People spend about $400 a year on renting movies, about $500 on buying books and about $250 buying music CDs per year. Think about how much you can save if you get free books from the library. Most libraries also have movies and CDs that you can borrow as well. It’s a great way to reduce costs and be entertained free!

Saving for a rainy day really can come in handy when you don’t think it will. Having that spare few hundred dollars by cutting back on some small things can mean a big difference to you one day. Use some of the tips above and begin a small savings that can grow day by day. Be ready for your rainy day!

Robert McCafferty writes about parenting, family travel & finding affordable boat insurance quotes.

Top 5 Reasons Why Every Parent Needs To Save

This is a guest post by Taryn Beckham promoted by Guest Post U. The content and ideas belong to the author and post is only edited for visual aspects

Children are a blessing, but what they are certainly not blessing is your bank account. Should you find yourself in a bit of a financial pinch, it can be considerably worse when you have children that are in dire need of specific things. This makes saving your money in the better financial times all that more important. 

Preparation

You cannot always account for everything that you need to spend money on, especially when it comes to having a child. It seems that all the time something new is requiring financial output from you. Whether its new shoes or lunch money, whether it would be new outfits or car insurance. It really just depends on the age of the children and what is going on in your life. Without savings, it can be hard to prepare for all of these inevitable needs. 

Rainy Day

The rainy day fund is something you should also have in the back of your mind. Considering the fact that we've determined children can be financially straining at times, it would be ill advised not to start putting money back in the event that something rather costly comes up. For example, something could happen to the family vehicle that needs to be immediately taken care of. 

Time Off

Whether it is for the birth of your first child, later children that come after the first, or just something that could pull you away from work, it is important to be prepared for the possibility of needing time off. Time away from work is time that is often unpaid. So apart from vacation days that are accrued in some cases, time apart from your job is nothing good financially. However, being able to utilize a bit of your savings until you are ready to head back to the workforce can prove invaluable. 

College

As commercials and better logic of the current financial climate would suggest, it is never too early to start thinking about college for your children. Savings are a great way to start putting aside your money for the day that they decide to leave the nest to pursue higher education and better paying job opportunities. While this can be costly, even with some financial aid from the school's resources, it doesn't have to be if you start saving earlier. 

A Great Example

Taking savings seriously is not something that a lot of families seem to exemplify these days. However, saving can be habitual and influential to your children. If they can model this behavior in their own lives, you can set a precedent of smarter financial decisions and money management for their futures. 

These are several of the reasons why parents should seriously consider saving. While it is just a smarter financial option, allowing yourself to be prepared for what might be coming, it is also a great example for your children and their future. Making these changes in your life right now could help you out of devastating financial hardships that could be on the horizon, and can potentially secure enrollment in a college or university once they have completed high school.

Taryn Beckham writes about finance, parenting & criminal background checks.

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Why You Shouldn’t ‘Invest’ in Life Insurance

A must read article by Deepak Shenoy!! Some snippets

Insurance products are incredibly complex, despite their heavy regulation. Financial products are typically of two types —high-risk, where the returns cannot be predicted in any reasonable manner, and low-risk, where the return is either guaranteed or specified (the risk is in whether the seller will go bust). Equity is a high-risk proposition, while fixed deposit and other debt options are the second. Insurance products provide a mix-and-match,

 

Most people give up before they reach the "real return" calculation — which is why insurers can easily stuff charges into such policies, knowing that if someone is silly enough to invest with a 5% real return, he won't even know that they can take a significant chunk of money as commissions.

Bangalore Birth Certificate

After a week of applying for birth certificate, I finally got it. Here is a snapshot of my baby’s birth certificate

  I really imagined that getting the certificate would be simple task of giving the receipt and getting the signed copy from the ground floor counter at BBMP (Majestic). But it was not so simple!!

It took me close to two hours and following steps to finally get the certificate:

1) At the ground floor, gave my receipt, the person checked into one of the folder, could not find the certificate and asked me to go to second floor.

2) On the second floor, (this is where i submitted my application earlier), the certificate printout were being delivered in separate queue. It was not an organized queue though.

3) Finally after a wait for an hour or so, got the printouts. Interestingly the lady at the counter  asked me the name of the baby (which I had already filled in the form while applying). She said you can fill out any name that you desire!!

4) Once I had the printout, I went to the first floor, stood in another queue and got the signature of the BBMP authority

5) Finally, I reached ground floor with the signed copy and got the BBMP seal stamped on my certificate.

The best part of my experience was that I did not pay bribe at any single desk and the process was totally smooth. Kudos to BBMP!! The only last hiccup was to physically go there and collect the certificate, so an online process [& certificate couriered] would have been awesome!!

Unfortunately I could not find the link (Google, BangaloreOne website did not helped) where I could have applied online for a digital certified copy of birth certificate. I saw one person standing ahead of me got the digital certified copy printed on the second floor [no sign/seal required of-course].

If anyone knows how to apply for digital certified copy of birth certificate, please share.

Birth Certificate in Bangalore

I was recently blessed with a baby in Manipal Hospital Bangalore. It is now more than a month after home-coming and as a first time parents we are going through the highs and lows of nurturing a baby. It is not easy to manage the chaotic life immediately after the birth and hence now with some breather, I thought of going after the birth certificate from BBMP.

It was a real surprise that not much information is available online about getting a birth certificate, expect this post from Amit, that is more than five years old. The post was very useful (including some comments) but few things have changed and I wanted to share that information with everyone.

In the hospital you are going through so much of panic, stress, sometimes mental defeat that any formalities seem like a huge burden. Unfortunately I had no-one except my wife (who was obviously more stressed than me) during this crucial period. The first mistake that I made was to not provide the baby name for hospital certificate. We had all the time in the world during the pregnancy to decide on one name of boy and one name of girl. This would have been really useful later on as you will see. If the name of baby is not provided then in such a case the hospital will issue a birth certificate with “Baby of [Mother Name]”.

The second mistake that I made is not to visit the BBMP office within one month of birth. The hospital, based on the form submitted by you, forwards all the details of the birth to the BBMP office. The good part is that now-a-days all of this is online so in most cases the data reaches the BBMP office within couple of days. It is important to ensure that all details are correct in the hospital records and the certificate you receive from hospital.

When I received the birth certificate from Manipal Hospital (Ground floor behind the inquiry counter they have medical records office), I was given a map of the BBMP office in Kasturi Nagar. This was the same office which was earlier in Domlur and is now shifted to Kasturi Nagar. The map was pretty accurate and I reached the office at 11 AM. I had already downloaded the application for birth certificate form and filled the same. The interesting point to note is that this form has no option to provide the baby’s name. When I reached the Kasturi Nagar BBMP office, first floor (which was pretty small with just three desks) the person told me that I have to go to the Majestic office because it is more than a  month of the birth.

But instead of directly going to Majestic office, I asked few people and got to know that the BBMP office in Mayo Hall is good enough. When I reached the Mayo Hall office, the counters are on the ground floor itself. I could have got the certificate there itself, but for the fact that the hospital records did not had the baby name. So the person at Mayo Hall told me that they can give a birth certificate without the name of the baby. The name can be added later, but since I did not wanted to visit again, I decided to go to the Majestic BBMP office.

There are two BBMP offices in Majestic (near Upar-pet Police Station). The one adjacent shopping complex to the police station has the office that I finally reached. In the office at the ground floor, you can get the form (in case you did not download) and an additional form to enter the baby name in the birth certificate. I filled up both the forms and reached second floor and submitted the form. I paid Rs 140 and got a receipt for the payment. It will take a week for the certificate to be ready, which I need to go and collect from the ground floor. Some points to note:

• As per the lady at the counter, you need to apply for minimum three copies and maximum five copies of the certificate. 
• I did not had to go through any additional process (like going to court etc) even after one month. I think same applies for application within one year of birth.
• One person in front of my queue faced the issue that his details were not available with BBMP, so may need to cross-check with hospital.
• There is no need of going to a middle-man for birth certificate, since the process is simple, except the need to visit the BBMP office.

I was really impressed with the straightforward process of getting the birth certificate and the forms are also very simple. Interestingly, BBMP is in the process of enabling online application of birth certificate and issuing a digital certified copy to the applicant. Although it is not yet started but it is a great initiative. Another effective method is to allow the BangaloreOne centres to issue birth certificates.

You can read this document to know why birth certificate is required and important. The key points on why birth certificate is required are (from document):

• A birth certificate is needed to obtain a passport, a marriage or a driver’s license. It may be required to open a bank account, to apply for and secure formal employment and to inherit property
• A birth certificate may also be needed obtain family allowances, ration card, insurance, and a pension.
• A birth certificate proving identity and age is the gateway to democratic participation in civil society, enabling a person not only to vote in electoral
  processes, but to contest for Public office.
• A streamlined birth registration system, with a unique identifier for each child can pave the way for a sophisticated citizen’s multi-purpose identity card.

I will upload a sample copy once I receive the birth certificate for my daughter. Share your experiences in the comments!!

Update: I got the certificate.
Update2: As requested by anonymous comment, here is the map location of Upparpet Police Station
View Upparpet Police Station in a larger map

13 Awesome Personal Finance Blogs

Personal Finance is no longer an esoteric topic that is confined only to “experts”. This can be seen by the ever increasing number of Indian bloggers in this very important space. Some of the bloggers have a mass-following due their awesome content, and others (like me) are trying to learn from these amazing folks. Here is a review cum list of some India based blogs in personal finance space [Alphabetic Order]:

• http://capitalmind.in/

Mr. Deepak Shenoy mostly writes on trades in Indian markets but sometime publishes gem of posts on personal finance. He is founder of the company MarketVision which offers consulting and training services in finance and technology. His blog might be intimidating for a novice at first, since the posts contains lot of facts, figures and charts. His blogging frequency is amazing (sometimes as high as 4-5 posts in a day). The blog template is simple and easy to navigate with good placement of advertisements. Some of his interesting posts are:

Pay Pre-EMI or Full EMI?

Can you afford to loose job? 

Shenoy’s Investment Funda

• http://www.gettingmoneywise.com/

Mr. Ankit Agarwal writes topics focussed on providing money saving tips and frugal living ways. The ideas posted are good but I think that the blog has too many advertisements (including one before the post) which distracts the reader from the content. The blog also has some toolbar popping up at the top and bottom which is irritating. Also the language is slightly preachy and hence difficult to follow. Some of his interesting posts are:

Advantages & Disadvantages of Internet Banking                                                                                                

 Money Saving Tips for everyone

•  http://www.happymentor.com/blog.html

Mr. Srinivas Raghavan is the CEO of HappyMentor.com and is a CA by profession. The company provides training and consultancy services in the field of financial planning and organizational development. The blog layout is good and easy to navigate. The interesting aspect is the uploaded videos on the site, in which he talks about various aspects of financial life. In the videos he comes out as a happy person sharing his vast knowledge with the world. He also brings philosophical angle to the process of getting rich. But unfortunately he does not seem to update the blog very frequently. Some of his interesting posts are :

Self-occupied house not an asset                                       

Utilize tax planning to be rich                                           

Fall in love with Passive Income

• http://www.knowledgehub.co.in/

Mr. Anshul Dixit aims to spread awareness among people by presenting facts and concepts about many areas, one of which is personal finance. The website name is interesting and the layout is like a collage of various articles written on the blog. I found the front page crowded but surprisingly easy to navigate. Unfortunately 2/3rd of the space for any blog post is taken by side columns and advertisements which makes it difficult to focus on the real content. The writing is simple and informative and he provides simplified explanation of various concepts. The website also provides services like providing articles for other blogs or information for campus placements. Some of his interesting posts are:

Meaning of numbers of Credit Card                                                     

How is Sensex calculated?

• http://www.investmoneybetter.com/

The blogger goes by the name JigVishu, a software engineer by profession but writes about personal finance. The blog layout is simple with very few advertisement and very navigation friendly. The content is good but the blogging frequency is very less. The blogger has a nice way of explaining concepts using tables and examples, which makes it readable. Some of the interesting posts are:

ULIP Fundamentals                                                                   

EPF Contribution                                                  

Tax Saving Infrastructure Bonds

• http://investmoneyinindia.com/

This blog has multiple writers Mr. Tushar Mathur, Ms. Malvika Sampat and Mr. Ziaulla Namani. The blog layout is decent but some of the advertisements (e.g. at the top) are very distracting. The layout has very small fonts. The latest news and other columns on the right does not seem relevant at all. Also despite multiple writers the blogging frequency is very less. Another distraction is the number of tags attached to any post, which are greater than 10 in most cases. The advertisement image at each post is irritating. The content is very diverse and good but the writing style is slightly preachy with less examples making it difficult to read the blog. Some interesting posts are:

7 Insurance Myths Debunked                                                                                                                           

Layman’s guide to reverse mortgage

• http://www.investinternals.com/

Mr. Sherin Dev blogs for http://www.moneywithmoney.net/ as well. The blog layout is really good with some awesome blog content. The frequency of writing is also amazing with more than an average one post per day in 2011. The unique aspect with this blog is the number of guest writers that have written blog posts on it, providing a varied content with diverse thought process.  But I feel that the disadvantage of having so many guest bloggers is that you won’t see a single person’s though process. The articles are written in a simple and easy to understand language. Interestingly Sherin makes his blog “Un-Copyright” status. Another interesting aspect is that most of the blog revenue goes to charity, although I could not see any yearly/monthly statistics on how much goes to charity. Some interesting articles are:

The Entrepreneurial Fad                                               

Investing Life Cycle to wealth                                                       

Money Lessons to kids 

• http://www.jagoinvestor.com/

Mr. Manish Chauhan and his team is behind this most successful blog on personal finance. Manish has now launched some personal finance services as well. The blog name itself is unique and attractive. The blog layout is decent but the front page top image “Warren Buffet Vs Sensex” is really distracting. The pop-up survey that comes up is very irritating as well. But the USP is the quality of content which makes this site simply the best. The articles are in-depth and aims at solving real consumer problems. The impressive aspect is the detail that are put by Manish and his team in each blog article. A simple article such as opening a PPF account comes out with clarity. Another great aspect is the immediate response to any comment or email sent to Manish. Recently Manish launched the personal finance forum, that I believe it is first in India (lot of forums related to stocks and investing but not specific to personal finance). Also despite so much popularity of the blog, the number of advertisements is very minimal. The blog is also enriched by the amount of comments and discussion seen on the posts and forums.

• http://www.pankajbatra.com/

Mr. Pankaj Batra is a software professional and the blog is a personal account of his hobbies. He recently modified his blog layout and this one seems easy on the eye with advertisements blending smoothly in the background. He writes with decent frequency and the quality of his blog posts are good. His site has lot of download material which is great. Some of his interesting articles are:

Direct Tax Code                                                                                                                                    

Is it just your insurance company’s fault?

• http://www.personalmoney.in/

Ms. Shweta Mishra, Mr. Manish Mishra and Mr. Madhur Batra are the authors of this blog. The layout and the name of the blog comes out as very professional. But the content of the blog seems very similar to so many others on the internet and there seems to be a lack of many good quality posts. Although some of the posts are really detailed in nature. Advertisements inside the posts are distracting. The language is easy to follow but the frequency of blogging is not very high given the number of writers. Some of the interesting articles are:

Choose the best childern’s insurance plan                                                                                                                 

Demystifying LTA exemption

• http://ranjanvarma.com/

Mr. Ranjan Verma is also the author of personalfinance201 and developer of a personal finance desktop application called RupeeManager. He has more than a decade of experience in LIC and now he is the founder of RupeeManager. His blog layout is superb and especially the image icon that he has created for his blog is awesome. He also runs RupeeCamp which is a structured program for learning about personal finance. I have been following his blog for very long time and I love it. The way he writes the posts with simplicity and conciseness makes a reader compel to interact/comment on the post. He writes on many other topics including current news. Some of his interesting posts are:

Investing in low-risk mutual funds                                  

How to maximize your income?                             

Top 10 personal finance resource in India

• http://www.smartsingh.com/

Mr. Adheesh Sharma (CFA) is currently pursuing his MBA from Insead. The awesome part of his blog is the funky sardar icon. The blog is filled with many cartoons to explain the concept or show-case some conversation. The layout is very attractive and compels readers to navigate and look around the blog for various articles. The frequency of blogging has been reduced now probably due to his MBA, and he has acknowledged this in his post. The content quality is awesome due to the fact that Adheesh spends a lot of time in simplifying his posts and writing creatively. As an example, check out this post on “Disciplined Saving’ where he indicates that “The money you spend on buying a car today, could fund your child’s way to Harvard”. He very smartly puts his point across with lot of details and conviction in the posts. The blog is very impressive and contains lot of gems. A must read!!

• http://www.vinayahs.com/

Vinaya HS is a product manager by profession and writes on personal finance based on his own experience. The unique aspect of his blog is the give-away he does. He sometimes raises some contest or asks readers to put comments and then gives away some book or coupons to the winner. He shares tips on Tuesdays (calls Tip Tuesdays) and has written articles for techdirt.com. Another interesting aspect is the post he does based on reader questions. He is a big fan of ERE and provides a monthly update on his ERE plan with a nice graph. Some of his posts are thought provoking. Few interesting posts are:

Fallacy of traditional retirement calculation                                       

Withdrawing EPF                               

How to calculate EMI of your home loan

 

Did I miss any other interesting blog? Please share in comments!!

Note: I have intentionally avoided blogs which are either corporate blogs or blogs specific to only stock investments. Although this implies skipping some of the best blogs like valueinvestor, TipBlog or  FundooProfessor. But I wanted to focus on blogs which provides a generic thought process on personal finance for individuals rather than specific investment areas like stocks or mutual funds. This review is my personal opinion and if anyone feels offended, please drop me an email. Appropriate action will be taken.