The Finance Blog

Gold Reserves and Demand

2010-10-23T23:58:00.002+05:30

As per World Gold Council statistics, the world official gold holdings as of September 2010 stands as follows.

#	Country	Gold Reserves (Tonnes)
1	USA	8,133.5
2	Germany	3,402.5
3	Italy	2,451.8
4	France	2,435.4
5	China	1,054.1
6	Switzerland	1,040.1
7	Japan	765.2
8	Russia	726.0
9	Netherlands	612.5
10	India	557.7

Please click here to read the entire report on world official gold holdings as of September 2010, released by the World Gold Council.

Please note that the report shows only the gold reserves owned by the governments of these countries and doesn't include the demand for gold jewellery from the people of these countries.

When it comes to the demand for gold for jewellery, India still remains the largest jewellery market in the world, accounting for more than 25% of global gold jewellery demand, which is followed by China. To give an indicative figure for the demand for gold for jewellery, in Q2 2010,

Global gold jewellery demand: 408.7 tonnes
Gold jewellery demand in India: 123.0 tonnes
Gold jewellery demand in China: 75.4 tonnes

Seems the yellow metal's dream run will continue for a long time.

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What is ISIN?

2010-06-15T08:04:00.002+05:30

ISIN or International Securities Identification Number is a 12 character alpha-numeric code that uniquely identifies a security, across the world. The securities include shares, bonds, warrants etc. For example, the ISIN of Bharti Airtel is INE397D01024.

ISIN constitutes of three parts. It starts with a two letter country code. In the case of Bharti Airtel the country code is IN (India). The country code is according to the ‘ISO 3166-1 alpha-2’ standard.

The country code is followed by a nine character alpha-numeric national security identification code assigned to a security by the governing bodies in each country. In the case of Bharti Airtel, the national security identification code is ‘E397D0102’. This is followed by a single character check digit, which will validate the ISIN code. The detail of how this validation is done is illustrated here.

In a time when security trading across countries has become rampant, having a unique identifier for a security greatly helps traders as well as brokers in various countries to unambiguously identify and trade a security.

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What went wrong with RBS?

2010-04-15T08:01:00.001+05:30

A nice and indepth article that came in The Economist, which describes what went wrong with RBS.

Inflation rates of India (2010)

2010-02-14T13:44:00.001+05:30

This post tracks inflation rates of India for the year 2010, like Inflation rates of India (2009) did for 2009 and Inflation rates of India (2008) did for 2008. Before that, a few facts about inflation rate calculation in India.

- Inflation in India is based on Wholesale Price Index
- A set of 435 commodities are used for the WPI based inflation calculation
- The base year for WPI calculation is 1993-94
- WPI is available at the end of every month, for a period of 1 year ended that day

Latest Inflation Rate
- 2010 Sep - 8.62% (via)
(for 12 months ended on the given month)

Previous Inflation Rates (for 12 months ended on given month)
- 2010 Aug - 8.51% (via)
- 2010 Jul - 9.97% (via)
- 2010 Jun - 10.55% (via)
- 2010 May - 10.16% (via)
- 2010 Apr - 9.59% (via)
- 2010 Mar - 9.90% (via)
- 2010 Feb - 9.89% (via)
- 2010 Jan - 8.56% (via)

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- Inflation rates of India (2009)
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20-20 rule in stock selection? Interesting!

2009-12-24T12:31:00.004+05:30

ET has this interesting article on stock selection in a bearish/bullish market. The idea it churns out is something like this.

When the markets are declining, people don’t buy stocks because they doubt that the stock prices would decline further, resulting in a loss or else they will wait to buy the stock at the lowest point. But the article argues that waiting to buy stocks at the lowest point may not be fruitful because, less and less people sell stocks as its price nears the lowest point.

On the other hand, when the markets are bullish, people don’t sell stocks because they doubt the stock prices would go higher or they wait for the stock prices to reach the highest point. And, here the article argues that at the highest point there would be less and less people willing to buy the stock and hence selling it at the highest price may not be possible.

Due to this phenomenon, the article suggests that in a bear market, buy stocks when the market goes down by 20%, rather than waiting for it to touch the lowest point and in a bull market, sell stocks when the markets goes up by 20% rather than waiting for it to touch the peak.

Interesting though!

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New system for inflation rates in India

2009-12-18T07:00:00.009+05:30

No, the government is not moving towards implementing CPI based inflation calculation, but from October onwards, instead of releasing weekly inflation figures, the full data on wholesale price index will be released only on a monthly basis.

As per the decision taken by the government, the weekly index figures will not be released for manufactured products, but will be limited to primary articles and fuels. Manufactured products have a weightage of 63.74851%, while primary articles and fuel have weightages 22.02525% and 14.22624% respectively in inflation calculation.

The government says that the practice of releasing weekly inflation rates is scrapped to curb "volatility" in the markets. But, is it a gradual shift towards adopting CPI, where CPI figures are generally released on a monthly basis?

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India moving closer to adopt GST

2009-12-16T08:20:00.002+05:30

The 13th Finance Commission (TFC) has endorsed its proposal for single goods and services tax (GST) and recommended a “revenue-neutral” rate of 12% – Livemint.

Of the 12%, 5% will go to the center and 7% to the states. From the state’s share, 2% will go to third tier of governments made up of panchayats and local bodies.

Currently different states charge different tax rates for the same goods and services and there’s an incentive for an individual to purchase goods from a state where tax rates are lower. The difference in tax rates sometimes lead to the smuggling of goods as well.

Once adopted, GST will enable uniform tax rates for similar goods and services across the country. It would economically unify the country, reduce the incidence of tax and ensure greater revenue through better compliance. Most of developed countries of the world use GST.

The union government had promised to adopt GST by 1st April 2010, but has been unable to get the states to agree to the schedule. Some states fear that they would lose their existing tax revenues if they adopt GST.

To take care of this apprehension, the commission recommends creating a ‘safety net’ (a compensation fund with a corpus of Rs. 30,000 crore) in five years by the center. Any state which suffers a revenue loss from implementing GST shall be compensated using the safety net.

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Online car insurance rates

2009-12-14T19:40:00.004+05:30

It is unavoidable to have insurance for our car when we own one. Car insurance not only covers the money required to do rework on a car after an accident, but it also covers the life of the passengers inside. Hence, driving without car insurance is a huge risk that a person is taking. And most of the times a car insurance is mandated by the laws of a nation. Then it becomes all the more important to have insurance for our car.

There are umpteen insurance companies that offer car insurance to the public. They offer various schemes with varying options. So much so that sometimes we have to do a thorough research before finalizing on a particular insurance company. That’s where websites that provide auto insurance reviews come to our rescue. They provide all the information one would need when he is going for car insurance.

The site allows us to compare car insurances offered by several companies so that we can make an informed decision before we purchase one. It also helps the users to evaluate insurance coverage and rates of various insurance policies and has good articles that can educate an interested person. Thus finding car insurance that is appropriate for one’s personal needs would be quite easy while using the site.

SEBI makes IPOs more transparent

2009-09-17T09:11:00.006+05:30

The Securities and Exchange Board of India, SEBI, issued a new investor protection guideline that prevents companies doing IPO from sharing information, which is not available for the outside world, with their IPO arrangers.

Previously, a company going for an IPO shared key financial information with the investment bank arranging the IPO; information which is available only to the bank and not to others. The investment bank would then prepare research reports which are based on this extra information. The reports are shared with institutional investors prior to the filing of the prospectus and are not available to retail or ordinary investors.

So, one could easily make out that the additional information would make IPO estimations by the investment bank dealing with the IPO more accurate and give institutional investors an unfair advantage against other investors. Given this situation, the tweak from SEBI which says,

“no selective or additional information or information extraneous to the offer document shall be made available by the issuer or any member of the issue management team/syndicate to any particular section of the investors or to any research analyst in any manner whatsoever including at road shows, presentations, in research or sales reports or at bidding centers”

shall provide a level playing ground for investors alike and would bridge problems associated with information asymmetry.

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Now Interest Rate Futures can be traded in National Stock Exchange

2009-09-15T18:44:00.001+05:30

After a gap of six years, the National Stock Exchange (NSE) of India re-launched trading in Interest Rate Futures. This will give the investor an opportunity to speculate and trade with these advanced financial instruments.

Interest Rate Futures allow institutions to hedge risk associated with interest rate fluctuations. They can reduce the risk associated with cash flows resulting from underlying assets such as home loans, long term fixed deposits etc.

However, in India, the underlying asset on which the interest rate future is based on is a 10 year notional coupon bearing government security. Have a look at this small series that came in ET, which talks about few things one has to consider before trading in interest rate futures.

Inflation rates of India (2009)

2009-08-09T09:00:00.011+05:30

This post tracks inflation rates of India for the year 2009, like Inflation rates of India (2008) did for 2008. Before that, a few facts about inflation rate calculation in India.

- Inflation in India is based on Wholesale Price Index
- A set of 435 commodities are used for the WPI based inflation calculation
- The base year for WPI calculation is 1993-94
- WPI is available at the end of every week (generally Saturday), for a period of 1 year ended that day
- It has a time lag of 2 weeks (WPI for the year ended two weeks back will be available this week)

Latest Inflation Rate
- 2009 Nov - 4.78% (via)
(for 12 months ended on the given month)

Previous Inflation Rates (for 12 months ended on given date/month)
- 2009 Oct - 1.34% (via)
- 2009 Oct 17 - 1.51% (via)
- 2009 Oct 10 - 1.21% (via)
- 2009 Oct 03 - 0.92% (via)
- 2009 Sep 26 - 0.70% (via)
- 2009 Sep 19 - 0.83% (via)
- 2009 Sep 12 - 0.37% (via)
- 2009 Sep 05 - 0.12% (via)
- 2009 Aug 29 - (-0.12)% (via)
- 2009 Aug 22 - (-0.21)% (via)
- 2009 Aug 15 - (-0.95)% (via)
- 2009 Aug 08 - (-1.53)% (via)
- 2009 Aug 01 - (-1.74)% (via)
- 2009 Jul 25 - (-1.58)% (via)
- 2009 Jul 18 - (-1.54)% (via)
- 2009 Jul 11 - (-1.17)% (via)
- 2009 Jul 04 - (-1.21)% (via)
- 2009 Jun 27 - (-1.55)% (via)
- 2009 Jun 20 - (-1.30)% (via)
- 2009 Jun 13 - (-1.14)% (via)
- 2009 Jun 06 - (-1.61)% (via)
- 2009 May 30 - 0.13% (via)
- 2009 May 23 - 0.48% (via)
- 2009 May 16 - 0.61% (via)
- 2009 May 09 - 0.61% (via)
- 2009 May 02 - 0.48% (via)
- 2009 Apr 25 - 0.75% (via)
- 2009 Apr 18 - 0.57% (via)
- 2009 Apr 11 - 0.26% (via)
- 2009 Apr 04 - 0.18% (via)
- 2009 Mar 28 - 0.26% (via)
- 2009 Mar 21 - 0.31% (via)
- 2009 Mar 14 - 0.27% (via)
- 2009 Mar 07 - 0.44% (via)
- 2009 Feb 28 - 2.43% (via)
- 2009 Feb 21 - 3.03% (via)
- 2009 Feb 14 - 3.36% (via)
- 2009 Feb 7 - 3.92% (via)
- 2009 Jan 31 - 4.39% (via)
- 2009 Jan 24 - 5.07% (via)
- 2009 Jan 17 - 5.64% (via)
- 2009 Jan 10 - 5.60% (via)
- 2009 Jan 3 - 5.24% (via)

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New Income Tax Slabs

2009-07-07T08:00:00.003+05:30

In the union budget for financial year 2009-10, the Finance Minister has announced new tax slabs.

General
Till 1,60,000 – 0%
1,60,001 – 3,00,000 – 10%
3,00,001 – 5,00,000 – 20%
Above 5,00,000 – 30%

Women
Till 1,90,000 – 0%
1,90,000 – 3,00,000 – 10%
Remaining tax rates are same as general

Senior Citizen
Till 2,40,000 – 0%
2,40,001 – 3,00,000 – 10%
Remaining tax rates are same as general

As you can see, compared to the last change, there is a 10,000 rupees increase in the first slab across all categories, while the remaining slabs remain unchanged. This would lead to a maximum savings of 1000 rupees for a tax payer whose income falls above Rs. 1,60,000. This may not be a significant saving for many.

However the interesting thing to note is that there is no 10% surcharge for incomes above 10 lakhs. This is a welcome move because I feel progressive taxation is counter productive to an aspiring population. Eventhough these tax sops would make holes in government's revenues, I guess the government is looking to increase the expendable surplus of the populace so as to boost up the economic downturn.

Indian Inflation turns negative

2009-06-18T17:19:00.002+05:30

For the first time since 1977, India's WPI Inflation rate fell to -1.61% for the week ended on June 6 2009!

SEBI mandates Rs. per share dividend declaration

2009-04-23T11:47:00.000+05:30

In a good move, the Securities and Exchange Board of India, SEBI, has asked listed companies to declare dividends on a per share basis rather than on a percentage basis. For example, a company having shares of face value Rs. 10, and declaring a dividend of Rs. 5, will have to say that it has declared a dividend of Rs. 5 per share and not a dividend of 50%.

This is meant to bring more clarity to an average investor who sometimes gets caught up in the jugglery of percentages and values when companies declare dividends. Thus, it will bring uniformity in the declaration of dividends by listed companies.

The move will clear the confusion among share holders whether the dividend declared was a percentage of the face value or the market price. It also becomes relevant when companies reduce the face value of shares over a period of time, which some investors might not be able to track.

Also, the calculation of actual returns in terms of Rupees becomes much easier, when the dividend information is available on a per share basis. Share holders will just have to multiply the number of shares they own by the dividend per share amount that the company declares. And for the mathematically inclined, they can just go ahead and calculate the dividend percentage if they want.

The change will be with immediate effect. More news here.

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The Stock Markets may be on Recovery

2009-04-19T11:42:00.003+05:30

The Indian Stock Markets have performed promisingly well in the last few weeks. Though the performance wasn’t an all-round one comprising many different stocks, few of them upped the ante of the markets and had set the mood.

While it can’t be said with certainty that the economic slowdown and the stock markets are on a recovery path, there are few factors which may make it happen.

1. The economic stimulus packages issued and to be issued by countries world-wide would have created confidence in investor minds that the markets may not go down further if they put their money in.

2. Monetary policies (reduction in CRR, prime lending rates etc.) by governments that result in more money in the hands of people there by increasing their spending and investments (or, increasing liquidity in the economy), improving the economic situation.

Meanwhile, here’s a list of 10 stocks, compiled by Economic Times, which rose by more than 100% in the current market recovery.

India’s new Bimetallic 10 Rupee Coin

2009-04-17T20:23:00.002+05:30

I might be a little late on this news, but here’s the picture of the new (and first ever) bimetallic coin of Rupees 10 denomination issued by the government of India. The outer ring of the coin is made up of Aluminum and Bronze alloy while the inner section is made up of Nickel and Copper alloy.

There are two themes for the coin.
1) Unity in Diversity and
2) Connectivity and Information Technology.

The coin in the picture has the first theme, Unity in Diversity.

What makes Swiss Bank Accounts safe and secure?

2009-04-15T18:42:00.000+05:30

Recently, discussions about Swiss Bank Accounts came into prominence in Indian media further to the revelation that Indian nationals have a whopping 1456 billion US dollars in Swiss Bank accounts. This means Indians have more money in Swiss Bank Accounts than the rest of the world combined. Leaving aside this story, let’s concentrate on Swiss Bank Accounts and what makes them safe and secure.

In many novels and films, we have seen intriguing stories associated with Swiss Bank Accounts, like in Bourne Identity, Da Vinci Code etc. Even though most of these actually don’t happen in a Swiss Bank Account, lots of people consider Switzerland to be a place where they can keep their money safe and secure. There are a few factors that make it so.

The Banking Act of 1934 was passed in Switzerland to prevent Swiss Banks from divulging depositor information to other countries during world war period, with which those countries tried to confiscate the assets owned by the customers of Swiss Banks, especially the Jews, in the name of “the good of state”. But then the Act stayed on and provided enough privacy to depositors of Swiss Bank Accounts.

Switzerland is a very stable country and it maintains a policy of neutrality with other countries. It maintained neutrality in both World Wars, is not a member of the European Union and was not even a member of the United Nations until 2002. That’s why many of the world organizations have their headquarters in Switzerland. Thus the country doesn’t have a need to succumb to pressures from international treaties and obligations. All these make its economy robust and the banking system highly stable.

Also, Switzerland is a tax haven for depositors of other countries. For nonresident depositors of Switzerland there are no taxes if they don’t reside in EU or don’t invest in Swiss companies, making it a promising place to put their money in.

Good Reads
- How Swiss Bank Accounts Work?

What is SWIFT?

2009-04-07T13:09:00.000+05:30

Being an NRI (Non Residential Indian), once in a while I sent money to India. Unlike before, nowadays it all happens online and is quite easy. Within the comforts of my home, I just need to login to my internet banking account, do some clicks and money will reach my bank account in India in a couple of days. My bank makes it possible through SWIFT!

SWIFT or the Society for Worldwide Interbank Financial Telecommunication is a worldwide network for financial messages through which its members (i.e. financial institutions such as banks) can exchange messages related to money transfer for their customers. The messages are sent securely and reliably to the target member financial institution of SWIFT.

By the way, SWIFT is just a messaging service and it doesn’t facilitate actual cash transfer between banks. For doing that, the banks that exchange authorization message for money transfer shall have an external banking relation between them and normally they settle the actual cash transfer in parallel.

But the point is, once the authorization for the release of funds are sent through SWIFT, the target bank can release the money to the end user’s account and the bank is assured of the money from the sending bank. Sometimes, the target bank will have a branch in the sending bank’s country or vice versa and they may settle it within the purview of a single country.

Thus, the end user will receive the money without needing to know the hassles of exchange rate conversion and various other formalities, which happen in parallel between the banks. Also, the user will receive money, irrespective of the time taken for all these.

Over 8,700 banking organizations, securities institutions and corporate customers in more than 209 countries use SWIFT for transferring financial messages, making it the most widely used network for international financial messaging. Each financial institution registered with SWIFT is identified by a bank identifier code popularly known as the ‘SWIFT Code’.

Through SWIFT, transfer of funds to various countries can be completely automated; where the core-banking solution of the bank can directly communicate with SWIFT to do the transfer. This makes the process of money transfer more efficient, secure and with lower cost. Thus, SWIFT makes the process of transferring funds across the globe a lot easier.

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New Symbol for Indian Rupee

2009-04-03T19:17:00.001+05:30

The Government of India has invited the public to suggest a symbol for the Indian Rupee. Just as the Dollar is universally denoted by $‚ the government thinks that the Rupee should also have its own unique symbol that captures a sense of India’s history and culture.

ToI has put up a list of symbols for Rupee on their website and would present the top voted ones before the government. They also have an option through which people can suggest a different symbol.

You could also vote for one of those symbols or can also send in your suggestions. Personally, I prefer ‘ru’ written in Sanskrit/Hindi without a bar on top. Long time our currency had a symbol of its own.

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Certified Financial Planner (CFP)

2009-04-01T15:46:00.002+05:30

The Certified Financial Planner (CFP) designation is a certification for financial planners granted by the Certified Financial Planner Board of Standards in the United States and several other organizations affiliated to Financial Planning Standards Board (FPSB), the international owner of the CFP designation outside of the US. The CFP designation helps a person to advance his career as a financial planner.

In order to gain the CFP designation, the candidate must meet certain requirements in the areas of Education, Examination, Experience and Ethics (known as "the four Es").

Education: To complete a set of financial planning courses. Other than completing courses in financial planning, applicants for the CFP certification must also have a bachelor's degree (or higher), or its equivalent, in any discipline, from an accredited college or university in order to obtain CFP certification.

Examination: The CFP exam is held three times a year, and is conducted over a day and half through three sessions having a total duration of 10 hours. The fee for CFP is USD 595 and there is an extra site fee if the exam is conducted outside US.

Experience: There is a three years full time or equivalent part time related experience required for the candidate. The details of experience requirements can be found here.

Ethics: The candidate has to agree to be bound by CFP Board's Code of Ethics and Practice Standards.

Once you have successfully met the requirements and completed the initial certification process, you will need to meet ongoing education and disclosure requirements to maintain the CFP certification.

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L, V and U Recessions

2009-03-28T07:15:00.003+05:30

These are the types of recessions according to economists worldwide; i.e. L-shaped, V-shaped and U-shaped ones.

L-shape recession is a recession that goes down and then stays there for a long period of time without a recovery. It could last for 20 years like it happened in Japan. A V-shape recession goes down pretty fast and recovers in very less time. A U-shape recession goes down slowly and then stays there for a few years before recovering slowly. It could last anywhere from 2-10 years, like in the 70s in US where it lasted for 8 years.

Most of the times, it is the economic policy adopted by a government before recession, which determines what type of recession it is; where wrongly calibrated economic policies leading to L-shape recessions, the worst of all.

Now, EMIs can be covered on Job Loss

2009-03-27T19:56:00.007+05:30

The global economic downturn has created uncertainty in employment in India as well. In such a situation, what if one has a couple of EMIs to pay, say home loan and auto loan, when the retrenchment strikes?

Like it exists in other developed countries, ICICI Lombard has introduced in India, a cover that will pay three equated monthly installments (EMIs) on any individual loan when the policy holder faces job loss. Considering the severity of the economic situation, ICICI Lombard is even reviewing the possibility of increasing the three month EMI cover.

The job loss cover is sold as an add-on cover with the company’s critical illness policy. However, one thing to be noted is that the policy does not cover retrenchment due to underperformance, voluntary resignation or early retirement. But then, it’s a great product that came at a crucial time.

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Indian Inflation Rate @ 0.44%

2009-03-19T20:54:00.005+05:30

India’s WPI inflation rate fell to an recent low of 0.44% for the year ended March 7, 2009. What is more comforting is the fall in prices of food articles, which greatly eluded the public in the previous declines.

Quoting ToI, the higher base effect along with low demand in the economy is expected to keep inflation in negative territory for 5 to 6 months. This, if happened, will make us witness deflation after a very long time.

One thing that I noticed in WPI is the fall in jet fuel prices by 8%. With this it’s high time that the flight operators reduce their fuel surcharge which currently stands at more than 2000 rupees. And, I guess it would require an intervention from the government to reduce the fuel surcharge amount, which masquerades as ‘taxes’ to the government in flight booking receipts.

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How do banks make money through credit cards?

2009-03-16T10:06:00.001+05:30

Credit cards are ubiquitous substitutes for cash. Ever wondered in how many different ways banks make money through credit cards issued by them?

1. Commission: When we use our credit card at a shop, the shop keeper gets paid by the bank who issued that credit card. But the bank reduces a certain percent (generally 2%) from the transaction amount before paying the money to the shopkeeper. That’s why some shopkeepers give discounts when you use cash instead of credit card for payment, especially on high value purchases such as gold.

2. Interest Charges: Interest charges are levied by the bank from its credit card owner for the revolving credit they maintain. This interest is one of the highest, and in India it can be up to 49%. According to the Reserve Bank of India, the outstanding credit on all the credit cards issued in India stands at Rs. 29,359 Crore at the end of December 2008. This amount, coupled with the high interest rate will give you an idea how much money the banks get from interest charges.

3. Fines & Penalties: Various fines such as late payment fee, check bounce penalty etc. are levied by the bank on its credit card customers. These amounts are also huge (more than 500 bucks).

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Inflation dips further

2009-03-13T18:57:00.001+05:30

India's WPI based inflation rate fell to a 7 year low of 2.43 percent for the year ended on 28 Feb 2009. However, this fall in inflation for the sixth straight week was largely because of the fall in prices of manufactured items like metals, machinery and textiles. Food items are still 8% costlier than what it used to be one year ago.

The inflation rate is expected to fall further. It is likely to reduce below 1% mark next week and closer to zero by end of March. Thus, the new financial year 2009-10 is likely to begin with negative inflation.

Experts say that, the negative inflation that would come is due a steep surge in commodity and fuel prices in the corresponding months last year, which they call high base effect. Once this high base effect wanes in later months of 2009, inflation may enter into a positive territory.

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How does Short Term Capital Gain/Loss work?

2009-03-10T07:52:00.001+05:30

I found this interesting snippet circulated through email by ICICIDirect, which describes in simple anecdotes how Short Term Capital Gain/Loss works in India. I am posting it straight away, without any modifications.

1. Mr. Sharma purchased some securities on May 7, 2008 at a total cost of Rs. 100,000. On July 3, 2008, he sold these securities for Rs. 130,000. Here the Short Term Capital Gain, STCG (gain arising from sale of securities which is less than 12 months old) was Rs. 30,000 (a) and STCG tax (15% as per current laws) for this gain calculated to Rs. 4,500.

2. But Mr. Sharma had also purchased securities worth Rs. 90,000 on June 12, 2008 and had sold them at Rs. 40,000 on February 10, 2009. Hence there is a Short Term Capital Loss (loss arising from sale of securities which is less than 12 months old) and equal to Rs. 50,000 (b).

3. Now as per the tax laws, Mr. Sharma’s Short Term Capital Gain (a) is offset by Short Term Capital Loss (b). Hence there is no Short Term Capital Gains tax payable by Mr. Sharma for the financial year 2008-09. Also, he carried forward Rs. 20,000 loss for offsetting any Short Term Capital Gains he makes in the next 8 years.

Thus a person needs to pay STCG tax only for the difference between Short Term Capital Gain and Short Term Capital Loss if the difference is positive; no tax if the difference is zero or negative. Moreover, if the difference is negative, he can even carry forward and offset the loss to gains in the next 8 years, until the loss is completely used off to offset those gains.

Thanks to ICICIDirect.com

RBI cuts repo and reverse repo rates

2009-03-04T08:05:00.000+05:30

The Reserve Bank of India lowered its Repo Rate and Reverse Repo Rate by 50 basis points to 5% and 3.5% respectively, with immediate effect. The Repo Rate is the rate at which RBI lends money to banks and the Reverse Repo Rate is the rate at which banks park funds with RBI.

This move will help RBI to maintain enough money in the economy as it will allow banks to reduce their interest rates on various loans, thereby making credit available easily to the population, at lower interest rates.

The inflation rate, which is already low, would come down further with the rate cut. Meanwhile, the central bank has asked banks to monitor their loans and assets quality as concerns grow over non-performing assets in the banking system.

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Top 10 financial centers of Asia

2009-03-03T10:37:00.001+05:30

According to the six-monthly Global Financial Centers Index (GFCI) compiled by Z/Yen Group, the top 10 financial centers of Asia are,

1. Singapore
2. Hong Kong
3. Tokyo
4. Shanghai
5. Taipei
6. Kuala Lumpur
7. Mumbai
8. Bangkok
9. Beijing
10. Seoul

More details here.

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The Great Depression

2009-03-02T05:30:00.000+05:30

The Great Depression of the 1930s is the economic slow down that everyone often compares with other economic slumps.

ET has compiled this pictorial ride of The Great Depression. Have a look!

How is EMI calculated?

2009-02-28T06:22:00.003+05:30

The Equated Monthly Installment (EMI) of a loan is calculated according to the following formula.

EMI =
(P x i) (1+i)ⁿ
(1+i)ⁿ - 1

Where,
P is the loan amount
i is the monthly interest rate (i.e. the yearly interest rate divided by 12)
n is the loan tenure in months

For example, if you have a Personal Loan of 5 Lakhs (500,000) for an yearly interest rate of 13% and a tenure of 5 years, then,

P = 500,000
i = (13/100)/12 = 0.010833
n = 5 x 12 = 60

EMI =
(500,000 x 0.010833) (1+0.010833)⁶⁰
(1+0.010833)⁶⁰ – 1
= 11376.54

Thus the EMI of the loan is Rs. 11,377

Credit Card Dues

2009-02-27T19:55:00.001+05:30

With the interest rate on credit cards increased to 49%, paying credit card dues on time has become more important than ever.

This article that came on rediff explains the need of paying credit card dues on time. It's worth a read.

Is Average Quarterly Balance Fine ripping us off?

2009-02-26T08:46:00.007+05:30

In India, most of the private sector banks charge a hefty fine on their customers for not maintaining the required Average Quarterly Balance (AQB) amount in their savings accounts. When the AQB itself is quite high at 10,000 rupees for most of the private banks, the fine comes to more than 800 rupees (including surcharge) and is not a small amount by any means.

To have a comparison with other countries, in Singapore, the amount banks generally charge for not maintaining the monthly average balance is 2 Singapore Dollars, which comes to around 65 Indian Rupees. And that means the AQB fine banks charge in India is 12 times that of in Singapore!!

With the AQB amount made double that of what it was previously, the probability of a person defaulting on it also increases. And when the fine is levied on a huge number of customers, it results in tremendous income for the banks, probably what they are eying at.

I guess it’s high time that the Reserve Bank of India intervenes and put an end to this day time robbery, like it put a cap on ATM withdrawal fee a year back.

In the mean time, what we can do is,
1. Have less number of savings accounts as possible with private banks
2. Move your savings accounts to nationalized banks, that have lower AQB and charge less default fee

Meanwhile, this link shows how the average quarterly balance is calculated by banks.

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Investing in times of recession

2009-02-25T12:11:00.001+05:30

One of the reasons why the stock markets are taking time to comeback is the lack of ‘investible’ money in the hands of people. Most of the money is tied up in various investment options such as shares, mutual funds etc. and are not in a position to be liquefied through their sale and reinvested.

Adding to this, people are losing their jobs due the retrenchments that are happening these days, which significantly affect their income. But for those who have money, there is not a better time to invest. The markets are low, shares are trading low.

But then, there is one entity that seems to have enough money to invest in the times of recession; Life Insurance Corporation of India (LIC). The firm had increased its stakes in ICICI Bank, IOB, GAIL etc.

This might be due to the job insecurity that the people feel, which makes them insure themselves and their assets through insurance companies making the companies have enough money to invest. And not to forget the cash reserves they have.

India’s GDP growth slipped to 5.3% in the third quarter

2009-02-24T17:39:00.000+05:30

India’s GDP growth slipped to 5.3% in the third quarter (October ~ December 2008) of the financial year.

There were speculations that India would beat China in the third quarter where the latter initially clocked 6.8% GDP growth in the same time period. With that not happened, the message that could have been sent to the investor community that India being the fastest growing big economy didn’t materialize.

Government cuts excise duty and service tax

2009-02-23T16:42:00.005+05:30

The Government of India has reduced excise duty and service tax by 2 percent in its Interim Budget. The general excise duty has been reduced from 10 percent to 8 percent while service tax has been slashed from 12 percent to 10 percent.

The service tax cut will have a profound impact, both on people as well as on government, as it is levied on almost all services that we exercise in our day today lives, right from eating out in a restaurant, to watching a movie, to the charges on services given by various institutions such as banks, etc. For the government, the implications will be of Rs. 28000 crore.

"The measures will lead to revenue loss of Rs 13,000 crore in service tax, Rs 8,500 crore in excise duty and Rs 6,600 crore in customs duty" says Central Board of Excise and Customs Chairman P C Jha.

Even though tax cuts are inevitable in a recession hit economy, I wonder how much we can have of these as the government’s revenues are taking huge blows while giving away these. With the UPA government in the brink of completing its term, the next government is definitely going to bear the brunt of these.

The cut will be effective from midnight of Tuesday, 24th February 2009.

How to protect yourself from credit card theft or loss?

2009-02-22T08:04:00.008+05:30

Credit card/debit card theft or loss may happen to anyone, anywhere, any time. To its worst case, consider a situation where a theft or loss of your wallet happens when you have traveled along with your family to a foreign city and all that you have with you is a little cash for your daily expenses! And that the wallet contains your credit/debit cards, travel documents, travel tickets etc.

The stolen or lost card could end up in mischievous hands and we have been hearing stories of what all happen afterwards. Generous swipings, exorbitant buyings and what not! And the loss of travel documents and tickets would be another nightmare. So is there a service to tackle this? To protect us from the trauma associated with a card loss?

Card Protection is a new service offered in India, which helps credit card customers from the ordeal associated with credit card or debit card loss or theft. In collaboration with CPP Assistance Services, banks such as Kotak Mahindra, Citibank, Standard Chartered, HSBC etc. are offering card protection service for theft and loss for their customers who opt for the service for a nominal fee. A customer can register all his cards, not just the bank's ones, for the service.

All financial and non-financial cards (credit, debit, loyalty cards etc.), fraud protection insurance, emergency hotel and travel assistance, emergency cash assistance etc. are covered under this service. A person who had lost his wallet will just have to call the helpdesk of CPP and they will do the rest; like contacting all the respective banks to block his cards, arranging for the money etc. I guess it’s a good service one can opt for especially the ones who are constantly on the move.

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Certified International Investment Analyst (CIIA)

2009-02-21T07:00:00.003+05:30

The Certified International Investment Analyst (CIIA) is a designation offered by the Association of Certified International Investment Analysts (ACIIA) to financial professionals. It is a globally recognized advanced professional qualification for individuals working in the finance and investment industry.

To be awarded the CIIA, candidates must pass two levels of common knowledge exams and a national/regional exam, and have 3 years of experience working in the domain of financial analysis, portfolio management, and/or investment in general.

The common knowledge exams are divided into two levels - the Foundation Level and Final Level. The essential skills and knowledge required for professionals working in investment markets common in all countries are examined in these levels. The exams are conducted in more than 10 languages and take place in every March and September.

The national/regional exam is set by individual national/regional societies and examines the knowledge of specific markets. The legal, regulation, taxation, local market practices and the cultural environment of the financial market of study are covered in this level. This is something unique to CIIA as it tests the candidate’s knowledge at the local level as well.

Since the certification requires 3 years of working experience in Financial Analysis, it may not be an option for an aspiring candidate to enter into a career in Financial Analysis, which, in general, is possible through the CFA exam. However, it is highly valued across the world, especially in the European region and is often described as the ‘the European Version of CFA’.

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What is Interactive Financial eXchange (IFX) Standard?

2009-02-20T14:02:00.004+05:30

The advent of Information Technology (IT) has helped the Financial Services Industry in more number of ways than we can ever imagine of. From the very fact that it helps me write this post related to finance, read by those unknown readers of The Finance Blog, belonging to geographies far across the world, to the valuation of companies that results in multi billion dollar deals; IT had unarguably made its stronghold in the Finance world!

Various IT applications catering to the same domain/sub-domains of Finance are made/being made. For example, there are umpteen number of applications that can handle the tasks of a bank alone (core-banking applications); Profile, FlexCube, Finnacle, Hogan, Temenos, Tieto Enator, to name a few. Since each of these applications are made by different owner companies, each of them follow their own standards for maintaining bank data (eg. name, a/c no, principal, interest rate etc.) in its databases. For example, some applications store date in DD/MM/YYYY format while others store it in MM/DD/YYYY format (as followed in UK and US respectively). This could lead to certain problems.

Consider a case in which two banks, a US and a non-US bank, are merging to form one single bank. After the merger, the customer base or transaction data of the two banks might need to be combined together. Quite obviously, if the two banks’ applications follow different data standards, then the merger would be difficult and may not even be possible at all.

Some times, the same bank may purchase applications from various vendors to create a combined IT environment to service the bank’s needs. I.e., the core-banking application may be from vendor A, the loan servicing application may be from vendor B and the portfolio management application may be from vendor C, so on and so forth.

The above situations point out the need for having some sort of a standard for storing financial data in applications meant for Banking and Financial Services industries. The Interactive Financial eXchange or IFX does just that. To put it simply, a financial application that follows the IFX standard is interoperable with any other financial application that uses the same standard and can be easily made to work in concert.

According to its promoters, IFX is an open, interoperable standard for financial data exchange that is designed to meet the business requirements of the global financial services industry.

Thus, IFX is a data standard that sets the norms for the usage of financial data in the global financial services industry. With the world economy growing towards one without barriers, IFX would probably set the tone in financial data handling, making the process a tad easier.

Further reading
- IFX Framework
- IFX Standard

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Tax

2009-02-19T15:49:00.001+05:30

The Internal Revenue Service (IRS), which is the tax collecting authority in the United States, demands that 30 percent of the winning amount on casinos and other gambling establishments by international visitors shall be withheld by these establishments. This amount will have to be submitted as tax to the government.

But residents of certain countries outside the US are eligible to get a refund of tax on such casino winnings as a result of a few tax treaties that have been made with these countries by the US government. Casino tax rebate is an agency who is experienced in this.

They can help an international visitor on US tax recovery and provide assistance for getting a refund from the federal gambling winnings tax withheld by the particular establishment. I guess this would be a service particularly greatly useful for those international visitors planning spend some time in the US casinos.

The Rising Gold

2009-02-18T13:16:00.002+05:30

The markets seem to hold a Midas’ touch these days. Don’t get me wrong as I am not talking about the volatile stock markets, but about all those markets/financial products associated with the effervescent precious metal, Gold!

The yellow metal, which is an obsession for Indian’s, costs more than 15,000 rupees a 10 gram block. This is close to 100% more than what it was worth a year and a half back. This rise in Gold prices is reflecting in various financial instruments associated with it.

Gold backed Exchange Traded Funds (ETF) are rising sharply in the last few days (9% in 7 days). So is the case with Gold Futures, which according to ET, is on a record breaking spree.

This story of glory seems to continue for some more time as the Gold demand in India is in tact as it increased by a whopping 84% during October ~ December 2008. Also, investing in Gold would be a reliable alternative for many an investor, as the global economic crisis and it’s after effects continue to loom large over Indian markets. These would be the reasons why experts say that despite the rise, one can still invest in gold.

Highest paid CEOs in India

2009-02-17T18:50:00.002+05:30

The global economic crisis is holding strong and CEOs across the world are taking pay cuts (forced, or by their own free will) as a means to cut costs. Back in India, how the CEOs are dealing with the situation? Are they following the path of their western counterparts?

Rediff has compiled this list of the highest paid CEOs in India. Have a look!

Highlights of India's Interim Budget

2009-02-16T20:29:00.008+05:30

Here are the key points of Pranab Mukherjee's interim budget.

> Economy grew at 9% for 3rd straight year
> Per capita income grew 7.4% during UPA regime
> Farm growth at 3.7% in last 4 years
> Foreign trade at 35.5% of GDP during 2007-08
> Agriculture growth outlook for 2009 looks encouraging
> Growth rate of exports down to 17.1% in 9 months
> India second fastest growing economy in the world
> Outlook for 2009 encouraging if rainfall normal
> Record FDI of $32.4 billion in 2008-09
> Govt may consider additional fiscal measures in budget
> Need to accelerate pace of policy reforms
> Govt to expand employment generation schemes
> Planned allocation for agriculture up by 300% between 2004-09
> MSP for paddy increased to Rs 900 per quintal in 08-09
> Farmers' debt waiver of Rs 65300 crore till now
> Outlay for higher education rose 900% in 11th 5-year-plan
> State-run PSU profits up 72% to Rs 91,000 crore in 08-09
> 55 loss-making PSUs against 73 when UPA took over
> Have taken steps to deepen, widen securities market
> Revenue deficit seen at 4.4% vs 1% earlier
> Fiscal deficit at 6% of GDP vs 2.5% in the Budget Estimate
> Infrastructure spending to be 9% of GDP by 2014
Courtesy: NDTV

The full text of Pranab Mukherjee's budget speech is available here.

How to best manage your credit card?

2009-02-15T16:17:00.002+05:30

Credit cards are very useful and handy if used wisely and if not used wisely, it can give so much of a head ache. So the knack is to use the credit card cleverly.

This article that came in rediff is worth a read as it explains how to best manage your credit card. Have a look.

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Legal help for taxation issues

2009-02-13T09:00:00.000+05:30

Generally, people tend to see taxation as a meager formality and presume that it is something that is mostly unnoticed by the tax authorities. Due to this, sometimes they end up defaulting on filing tax returns and not taking seriously those initial legal notices from the tax authorities, especially in cases where they are outside the country for a long period for some assignments abroad or for various other reasons. But when the taxmen knock at the doors for a tax returns default, or when a directive comes from the court to appear before a judge, more often than not, they run in to panic.

Thus, taxation, with its intricacies and umpteen formalities, may sometimes turn out of control and result in a life fearful of the tax department (Internal Revenue Service, IRS, in the United States) and the legal proceedings that might follow after that. That is when the professional help from a tax help attorney comes to the rescue of the people who face the legal proceedings. With their proven expertise in the field of taxation and also in dealing with similar cases for a long period of time, they can assist a person to overcome the dilemma of being under the IRS scanner.

Tax Solutions offered by the tax help attorney may vary depending up on the exact situation a person is in. Some issues would be associated with the non-filing of tax returns where as other issues may vary from unpaid payroll taxes, wage or bank levy, audits, asset seizure etc. They maintain a huge collection informational taxation related articles and also have a blog on tax laws through which one gets to read the latest on the area of taxation. Thus, tax help attorney would be able to offer a major helping hand for people in distress due to tax legalities.

Avoid owning multiple savings bank accounts

2009-02-12T09:36:00.003+05:30

A large number of people own savings accounts in several banks. Some are inherited from their previous jobs while some are opened to avoid tax deduction at source on fixed deposits. As the minimum average quarterly balance required to maintain these savings accounts increases in private sector banks, owing multiple savings accounts become a costly affair.

An increasing number of banks have hiked the average quarterly balance (AQB) in metros to Rs. 10,000; while most of them have the minimum AQB amount as Rs. 5000 in smaller cities. Thus, a lot of customer’s money is blocked to keep their savings accounts alive. For example, consider the case of a person having 5 savings accounts of AQB Rs. 10,000 each!

Secondly, having too many savings accounts and the need to maintain minimum AQB in each one of them pose the danger of not being able to meet the minimum AQB in one or two accounts, which leads to penalty charges. This is usually a huge amount in private sector banks (ICICI Bank charges Rs. 750 + Service Charge) as a penalty for not maintaining minimum AQB.

But above all, earning a paltry interest rate of 3.5% for your money in savings account, when you can earn a much higher interest of around 10% in Fixed Deposits, would not be a great idea. That is, if you have less number of savings accounts, less would be the money needed for maintaining minimum AQB in those and more would be the money available for Fixed Deposits.

“If you notice that your savings account balance is over Rs 50,000, normally you would think of transferring some money to a fixed deposit. But if there is Rs 20,000 in multiple accounts, the thought many not cross your mind”, says a financial advisor, which is very true. So it’s better to own as less savings accounts as possible.

Govt. gives Rs. 3800 crore to 3 banks to raise capital adequacy

2009-02-11T18:16:00.002+05:30

The Government of India has announced a Rs. 3800 crore (Rs. 38 billion) fund infusion into state run banks, UCO Bank, Central Bank of India and Vijaya Bank to increase their capital adequacy.

Under the recapitalization package, Central Bank of India will get Rs 1,400 crore, while UCO Bank and Vijaya Bank will get Rs 1,200 crore each, said home minister P. Chidambaram. He added that the infusion will be done in two steps, where the first will be in the current fiscal year and remaining in financial year 2009~10. The amount will form a part of Tier I Capital and adding the infusion will increase the government holding in the three state-run banks.

In the first stage, UCO Bank will get Rs 450 crore, while Central Bank of India and Vijaya Bank will get Rs 700 and Rs 500 crore, respectively. This will help the banks to raise their capital adequacy over 12%, much above the Basel II norms of 9%.

Lessons from the sub-prime crisis

2009-02-10T15:52:00.001+05:30

On Tuesday, the US senate passed the $819 billion economic stimulus bill, the second of the rescue package for the drowning US economy. Other governments have also come up with/are coming up with such measures to counter the financial crisis.

Even while issuing such packages, neither the US senate nor the other governments across the world can say with certainty that the financial crisis will be harnessed with these. Such is the size of the crisis and one might wonder how can we ensure that a crisis like this won’t happen again? What are the lessons learnt from the financial crisis?

In the case of sub-prime securities, risks were often under-estimated due in part to product complexity and over-reliance on quantitative analysis, including by rating agencies. Thus early detection and cure, which would have reduced the spill over effects of the crisis, didn’t happen in this case. Financial institutions were trying to cover up their losses till the last moment. The failed ones got uprooted in no time.

A major factor that contributed to the crisis is the use of standard risk assessment models used by risk management professionals by which they underestimated the systematic nature of risks. To put it in simple words, if everyone uses the same techniques, every one will be affected by the same issue. Independent assessment of risks using custom developed models would be one of the key lessons to be learnt from the crisis.

Derived from, Financial Risk Management: Lessons from the Current Crisis ... So Far

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Financial Risk Manager (FRM) certification for a career in Risk Management

2009-02-09T15:41:00.009+05:30

The Financial Risk Manager (FRM) is a certification in Financial Risk Management conducted by the Global Association of Risk Professionals (GARP). The certification allows a person interested in financial risk management to gain the required knowledge to be successful in the field. It is also a niche certification highly valued by financial institutions operating in risk management worldwide.

To be conferred the FRM designation, a candidate not only have to pass the exam, but should also have an active membership in GARP and a minimum of two years of experience in the area of financial risk management or another related field including, but not limited to, trading, portfolio management, academic or industry research, economics, auditing, risk consulting, and/or risk technology.

The FRM exam is conducted every November (only once in a year) and the registration usually starts from March of that year. The registration can be done online. The registration fees range between USD 550 and USD 950, depending upon whether one registers early or late.

The FRM Examination is a 5 hour comprehensive examination consisting of approximately 140 multiple-choice questions. The examination is split into two sections; each is 2.5 hours in length with a lunch break in between. The exam is given in booklet form. The exam is conducted at designated test sites across the world.

Compared to Chartered Financial Analyst (CFA), the FRM is a niche exam exclusively for Risk Management Professionals. So, those who are aspiring for a Risk Management profession shall prefer FRM to CFA.

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India could soon beat China in GDP growth rate

2009-02-08T14:41:00.003+05:30

The current global economic decline and a sharp fall in an export dependant China’s GDP growth rate could make India the fastest growing among large economies, at least for a quarter. China’s GDP growth rate was 6.8% during October ~ December 2008 quarter, well with in India’s reach.

ToI says,

If India achieves a better growth rate than China even for one quarter, the message will go across to the world and help India in wooing foreign capital, waiting to chase growth stories.

The Indian economists are hopeful because of the fact that China’s export constitutes 37% of its economy against 13% in the case of India; which would make India suffer less. India had achieved 7.9% and 7.6% growth in April ~ June and July ~ September quarters, according to provisional numbers and it is expected that the softening of interest rates will stimulate demand and ensure a faster growth rate than China for the quarter October ~ December 2008.

More news here.

Can we compare credit cards?

2009-02-07T14:00:00.001+05:30

When it comes to credit cards, one should be choosing it very wisely as there are umpteen numbers of credit cards on offer by various financial institutions, having more varied number of features. Low interest credit card, one with highest rewards scheme, longer zero interest period, so on and so forth.

When the choices and features of credit cards are high, sites allowing you to compare credit cards available in the market become extremely useful. They allow a prospective credit card owner to find out the one card that suits his needs or an existing credit card owner to find out and keep the one best serving his requirements.

Sites like this will help its users to take an informed decision while going for credit cards. Whether to go for a card with the lowest interest rates or the lowest cost on balance transfer or the highest rewards; the decision can be easily made with help of such sites.

Finacial Control

2009-02-06T16:02:00.001+05:30

Even though the plastic money has lot of advantages, credit cards are one of the dreaded financial instruments as far as consumers are concerned, due to the sheer amount of money he/she has to pay in terms of interest for revolving credit and other charges. So, no doubt, this shall be the first of the liabilities a person has to repay.

Considering the ongoing economic down turn, apart from reducing credit card spends, there are a few other things that one may follow to lead a safer ‘financial’ life. This includes maintaining and emergency fund, having a strictly followed budget etc.

This article from rediff explains about various things that you may consider for yourselves to lead a financially safe live in the economic decline. Worth a read!

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HDFC Bank MD Aditya Puri is CNN-IBN Indian of the Year 2008 (Business)

2009-02-05T06:19:00.004+05:30

HDFC Bank Managing Director Aditya Puri is the CNN-IBN Indian of the Year 2008 (Business category). Given in six categories - Politics, Sports, Business, Entertainment, Public Service, and Global Indian - these awards “recognize, celebrate and honour Indians who have contributed to our country and in turn have strengthened our society and contributed to building Brand India in 2008”, says the official CNN-IBN website.

”This year's awards are even more significant as they personify the undying spirit of a billion free Indian minds, in the wake of terror, natural disaster and economic challenges," the website adds.

Each category had six nominees. Mssrs Ratan Tata, Baba Kalyani, C.B.Bhave (SEBI), S.Ramadorai (TCS) and Uday Kotak (Kotak Group) were the other nominees in the Business category.

Mr. Puri won, as CNN IBN puts it, for “steering HDFC Bank well in a tough time, ensuring growth without taking risks and leveraging his customer-base well.”

The winners in the other five categories are Nitish Kumar (Politics), Abhinav Bindra (Sports), Aamir Khan (Entertainment), G. Madhavan Nair & Team Chandrayaan (Public Service) and A.R. Rahman (Global Indian).

In December 2008, leading financial daily Business Standard declared Mr.Puri as Banker of the Year (2008) for successfully leading his bank in tough times.

Interest rate on credit cards to increase to 49%

2009-02-04T10:29:00.004+05:30

Banks can now charge an annual interest rate of up to 49% from credit card customers for late payment (revolving credit). Earlier it was capped at 30% by a consumer court order, which the Supreme Court has put on stay on pleas from banks such as HSBC, Standard Chartered, Citibank, American Express etc.

Citibank, in its petition, says,

The facility of credit cards is availed of without any interest for a certain stipulated period and it is only after the expiry of that period that interest is levied on a credit card account for non-payment or late payment of dues. It is also relevant to note that credit card transactions de-facto constitute unsecured credit availed of.

But the question is, how much return (or interest rate charged) would a bank want for unsecured credit through credit cards? Also, the so called ‘stipulated period’ varies with respect to one's date of purchase and payment due date, and can be as less as one day as well.

Banks would have ‘n’ reasons to justify this, but people, bit cautious on your credit card spending from now!

More details here.

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Balance Sheet, Cash Flow Statement and Saving Tax

2009-02-03T13:37:00.003+05:30

The balance sheet is one of the key financial statements of a company and is of particular interest to an existing or prospective shareholder of the company. Here’s an article from Rediff, which explains how to read a balance sheet.

Similar to balance sheet, cash flow statement is another key financial statement of a company and is a mandatory part of the company’s financial reports since 1987. It tells an investor how the company’s operations are running, where the money is coming from and how it is spent. This article describes what is a cash flow statement?

Two months from now, the financial year will come to and end and then starts the proceedings for filing tax returns. So, various ways for saving tax should be done in these two months. This ToI article, explains 10 smart ways to lower your tax bill.

Rise in NRI remittances to India

2009-02-02T09:55:00.000+05:30

Despite economic recession, Indians working abroad had sent a record $40 billion as remittances to India in just 9 months of calendar year 2008. As the last quarter is a festival period, the total remittances for the year may even exceed $50 billion. This would be way ahead of World Bank’s prediction of $30 billion for India in 2008.

In 2007, with $27 billion as remittances, India was placed as the number one recipient of inward remittances globally by World Bank, with China in close second ($25.7 billion). And the story would be no different this year as well.

Inward remittances (unlike FII) are considered ‘sticky’ as this money is sent to India primarily for savings and family spending, and hence would remain in the economy. Thus it plays a major part in boosting the economy, in particular, during the ongoing recession. Hence, as a policy measure, government is also promoting NRI remittances through higher interest rates on NRI deposits. This could offset the FII outflow to some extent and thus could reduce the dependence of the economy on FII money.

Even though the recession is progressing, remittances had not/may not fall due to the following reasons.

1. The fear of job loss forces people to save more, especially in the safer Indian financial markets
2. Rise in rupee dollar exchange rate would fetch more rupee than ever when transferred to India
3. Rise in interest rates of FCNR and NRE deposits

More details here.

Related Articles
- Online money transfer to India for NRIs

Online money transfer to India for NRIs

2009-02-01T11:36:00.006+05:30

With the advent of SWIFT and other international inter-bank money transfer networks, the importance of other retail value transfer systems such as Western Union etc. have probably come down. As with the case of any internet based systems, online money transfer systems also offer convenience, speed, traceability etc. to its customers. Also, it allows remittances to be done within the comforts of home.

Following is a non-comprehensive list of varoius Indian banks offering online money transfer to India.

AxisRemit – This is a service offered by Axis Bank.

Money2India – This service is offered by ICICI Bank.

QuickRemit – This service is offered by HDFC Bank.

Citi Online Remit - This service is offered by Citi Bank.

Remit2India - This service is offered by Times Money

Most of these banks charge a nominal service fee and allow money to be transferred to any bank in India, not just the bank doing the transfer.

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Educational Loans

2009-01-31T09:48:00.003+05:30

The global economic recession and subsequent job loses allow for a good time (I’m not sure I should be saying as curtly, but it depends on how you look at it) to advance on one’s career by upgrading their educational skills by joining a good institution for higher studies. In such a situation, the expenses are well met through student loans; if you don’t have enough savings.

Private student loans are handy for the knowledge seeker in the sense, they generally have no collateral requirements, have an interest rate that’s fairly manageable and may need to be paid back once the applicant secures an employment (or may be six months from the time of course completion, as the case may be) once he/she has completed his/her studies.

College loans have always been a helping hand for the aspirers of knowledge. Most of the times, the availability of the loan depends very much on the institution in which one has secured an admission. It also allows students to not depend on their parent’s worth for pursuing higher education.

No proof required for LTA & Conveyance allowance claims

2009-01-30T16:42:00.005+05:30

In a landmark ruling, the Supreme Court has said that employers are not under any statutory obligation to collect supporting evidence and furnish it to tax authorities while assessing Conveyance and Leave Travel Allowance (LTA) of their employees. Currently, claims without supporting bills are taxed.

The verdict came as a result of a plea from companies including L&T and ITI.

Quoting Times of India,

In its defense, the revenue department had argued that assessee companies were under statutory obligation under Income Tax Act, 1961, and relevant rules, to collect documentary proof to show that their employee(s) had actually utilized the amount paid towards the leave travel concession and conveyance allowance.

Rejecting the plea, the court in its order said: “The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).”

So, until the tax authorities come up with a circular/amendment to clear this out (which I guess they might), claim all your LTA and Conveyance allowances without showing any bills.

More details here.

India’s Per Capita Income grew by 12.7% in 2007-2008

2009-01-29T20:15:00.000+05:30

According to Central Statistical Organization (CSO), the per capita income of India has increased to Rs. 33,283 in 2007-08; a healthy growth of 12.7%. The per capita income has been growing above 10% since 2003-04, rising almost 60%.

This is the result of the impressive economic growth rate recorded by India during this time period and is supposedly the indication of an overall improvement in the living standards of people.

I’m not sure how representative a figure this is, in a country that has 4 out of the top 10 richest people in the world, a fair amount of income inequality and a third of the population still living below the poverty line.

More details here.

Inflation rates of India (2008)

2009-01-10T08:56:00.004+05:30

This post tracks inflation rates of India for the year 2008. Before that, a few facts about inflation rate calculation in India.

- Inflation in India is based on Wholesale Price Index
- A set of 435 commodities are used for the WPI based inflation calculation
- The base year for WPI calculation is 1993-94
- WPI is available at the end of every week (generally Saturday), for a period of 1 year ended that day
- It has a time lag of 2 weeks (WPI for the year ended two weeks back will be available this week)

Inflation Graph

Inflation Rates (for 12 months ended on given date)

- 2008 Dec 27 - 5.91% (via)
- 2008 Dec 20 - 6.38% (via)
- 2008 Dec 13 - 6.61% (via)
- 2008 Dec 6 - 6.84% (via)
- 2008 Nov 29 - 8.0% (via)
- 2008 Nov 22 - 8.40% (via)
- 2008 Nov 15 - 8.56% (via)
- 2008 Nov 8 - 8.90% (via)
- 2008 Nov 1 - 8.98% (via)
- 2008 Oct 25 - 10.72% (via)
- 2008 Oct 18 - 10.68% (via)
- 2008 Oct 11 - 11.35% (via)
- 2008 Oct 4 - 11.44% (via)
- 2008 Sep 27 - 11.98% (via)
- 2008 Sep 20 - 11.99% (via)
- 2008 Sep 13 - 12.23% (via)
- 2008 Sep 6 - 12.09% (via)
- 2008 Aug 30 - 12.1% (via)
- 2008 Aug 23 - 12.34% (via)
- 2008 Aug 16 - 12.40% (via)
- 2008 Aug 09 - 12.63% (via)
- 2008 Aug 02 - 12.44% (via)
- 2008 Jul 26 - 12.01% (via)
- 2008 Jul 19 - 11.98% (via)
- 2008 Jul 12 - 11.89% (via)
- 2008 Jul 05 - 11.91% (via)
- 2008 Jun 28 - 11.89% (via)
- 2008 Jun 21 - 11.63% (via)
- 2008 Jun 14 - 11.42% (via)
- 2008 Jun 07 - 11.05% (via)
- 2008 May 31 - 8.75% (via)
- 2008 May 24 – 8.24% (via)
- 2008 May 17 – 8.1% (via)
- 2008 May 10 – 7.82% (via)
- 2008 May 03 – 7.83% (via)
- 2008 Apr 26 – 7.61% (via)
- 2008 Apr 19 – 7.57% (via)
- 2008 Apr 12 – 7.33% (via)
- 2008 Apr 05 – 7.14% (via)
- 2008 Mar 29 - 7.41% (via)
- 2008 Mar 22 - 7.0% (via)
- 2008 Mar 15 - 6.68% (via)
- 2008 Mar 08 - 5.92% (via)
- 2008 Mar 01 - 5.11% (via)
- 2008 Feb 23 - 5.02% (via)
- 2008 Feb 16 - 4.89% (via)
- 2008 Feb 09 - 4.35% (via)
- 2008 Feb 02 - 4.07% (via)
- 2008 Jan 26 - 4.11% (via)
- 2008 Jan 19 - 3.93 (via)
- 2008 Jan 12 - 3.83% (via)
- 2008 Jan 05 - 3.79% (via)

Addendum
Reuters maintain this graph on WPI, India.

Related Articles
- Inflation rates of India (2009)
- How is WPI inflation rate calculated in India?
- Commodities and their weight-ages in WPI calculation of India
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Originally posted on Tuesday, June 24, 2008

Wait! Property prices to fall further!

2009-01-01T10:33:00.002+05:30

Here's an indepth article about real estate prices in India, from rediff.

Few points from the article,
The recent housing boom was riding on the back of four broad factors -- rising incomes, job security, low property prices and interest rates, and tax benefits associated with buying a house.

A home loan is a person's show of confidence in his income earning capacity over the long term. As the demand for high-ticket loans falls, it also signifies a dip in the confidence in job security and future salary increments.

Says an industry analyst: "Major players in the premium segment have an operating margin of 50-55 per cent. On the contrary, in the mid-segment the margin is around 35 per cent."

"A minimum of 25 per cent correction can be expected. Correction in Tier-II and Tier-III cities will happen a little more. Even cities like Mumbai could see significant price correction," adds Mavani.

So, read on!

The Rupee

2008-10-31T17:10:00.004+05:30

Here is an interesting statistic of Rupee, the common name of the currencies used in India, Pakistan, Nepal, Sri Lanka, Mauritius, Seychelles, Indonesia and Maldives (I’m ignoring the slight variations in names such as Indonesian Rupiah and Maldivian Rufiyaa as they are cognate words of Hindi Rupiya).

1584 million people (the total population of the above countries) use the currency Rupee for their daily transactions; buying day today stuff and all. This is 24% of the world’s population. That means every fourth person living in this world uses a rupee every day.

Country	Population
India	1140
Pakistan	165
Nepal	28
Sri Lanka	19
Mauritius	1
Seychelles	1
Indonesia	229
Maldives	1
Total	1584

*Data extracted from wikipedia

See how famous the Rupee is! And we thought the Rupee was one of those not so famous currencies in the world?

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WallStreet crumbles

2008-09-15T21:44:00.005+05:30

- Lehman Brothers, files for bankruptcy.
- Bank of America to save Merrill Lynch from the same fate by buying it for $50 billion.
- AIG looking to raise capital; also to avoid the same fate.

Complete coverage by WSJ.

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Indian Industrial growth rate at 7.1%

2008-09-13T09:10:00.004+05:30

The Industrial Production Index grew to 7.1% in the month of July far exceeding expectations set from 4 to 6%.

This is indeed great for the economy which has been performing badly for a few months now. As a result of the unexpected growth rate, the Industry demanded a rate cut in interest rates to enhance investments further.

More news here.

Indian Inflation at 12.1%

2008-09-11T10:36:00.003+05:30

India's inflation rate dips to 12.1% for the year ended August 30 2008.

This is the third consecutive time that inflation has declined. But the same was 3.2% the same time last year.

The drop in fuel prices over the couple of months would soften inflation further. More news here.

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- Inflation rates of India (2009)
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Financial Products Information

2008-09-09T16:33:00.003+05:30

Information is of highest value in the world of finance, especially when we have an umpteen number of finance related products and services available at our finger tips and would want to choose one from those. The ubiquitous internet gives us all the information we need, but being so large also has certain side effects, as the information we seek in the internet would be as scattered as it can be. That is where having a single platform or website for accessing all the information we need helps. Money.co.uk is one such website, where information related to finance can be read.

The portal contains thousands of articles related to the finance area, which is arranged into various categories such as loans, credit cards, mortgages, savings and accounts, insurance, stock markets etc. It also tells us of various financial products and services available around. And the best part is one can do a comparative analysis of various products and services, for example to compare mortgages, and select the best out of the set that fits his or her need. And for those who do not want to buy anything, but just want to know of the latest news in the world of finance, there are separate sections dedicated for the latest finance news.

The credit card section of the site lists down the most popular credit cards available in the market. Also there are various comparison tables in the credit cards section, which are based on features of a credit card such as balance transfer, cash back and rewards, air miles etc. Each comparison table lists down providers of cards having the selected feature. The site also provides credit card quotes. The insurance area is detailed in the site using which we can select quality insurance policies having minimal cost. In both these cases, we can apply for the product right from the website.

The site is updated with latest contents (news, articles etc.) everyday and to keep us updated of new content, they have an RSS feed in the website. Readers can subscribe to this feed in their feed readers to get to know of new articles as soon as something is posted in the site. The site also has a weekly newsletter to which the readers can subscribe to just by entering their email ids. This would useful for those people who wants themselves to be updated with the latest happenings in the finance world but don’t have enough time to visit the site everyday.

A career in Finance through CFA

2008-09-07T08:05:00.005+05:30

The Chartered Financial Analyst (CFA) is a globally recognized self study degree program for anyone aiming at investment related professions. It is conducted by the CFA Institute. Candidates who have completed the course are highly valued by the industry and are preferred for key positions in companies.

The CFA exam has three levels, I, II and III. One has to pass all the three levels and meet some other requirements (professional and ethical) to become a CFA charter holder. The exam for Level I takes place twice a year (in June and December) where as that for Level II and III happens only once in a year (in June only).

If one writes the Level I exam in December and continues through to Level II in June of the next year and Level III in June of the following year, without failing in any of the levels, the minimum time period in which the CFA levels can be completed is 1.5 years. The exam is of moderate difficulty and it requires quite a dedication from the candidate’s part to get through. However, there is no limit to the number of attempts one can make in any of the levels.

The fees for applying for the exam ranges from around 1000 US Dollars to 1400 US Dollars, depending on when you are registering, as there are discounts on early registrations. The study materials and one online sample exam are included in the registration fees.

One note of caution! This CFA designation given by the CFA Institute is not to be mistaken as the CFA in India given by ICFAI (which they got through some court litigation) that is not valued outside India like the former. In fact, due to the litigation, the CFA Institute is not conducting the CFA exam in India until the court gives a ruling in their favor.

So as of now people in India have to go outside the country, to nearby locations such as Srilanka, Nepal, Singapore etc. to take the exam. I hope the court understand the situation and allow the CFA Institute to conduct the CFA exam in India. But whatever it is, the CFA exam is something an aspiring financial analyst should definitely go for.

Good Reads
- Financial Rounds

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Financial tidbits

2008-09-05T11:17:00.003+05:30

As the world economy continues to remain blunt, in the US the subprime mortgage lending crisis is still not over despite statements from the renowned in the field stating it to be over. From this news,

Standard & Poor’s Leveraged Commentary and Data reported this week that the default rate — the percentage of leveraged loans in default — rose to a five-year high of 3.3 percent in August. At the end of last year, the rate was a tiny 0.24 percent, or about one of 400 loans.

Back in India, this news (India’s external debt jumps 30.4% to $221 Bn in FY08), though it appears appalling prima facie, might not be that bad because the increase is on account of increased borrowings by the corporate from outside and weakening of the dollar. In fact, the government’s debt in total external debt has decreased from 28.4% to 25.6%. Increased borrowings by the corporate, also called External Commercial Borrowings (ECB) could indicate an increase in investments done by Indian corporate inside India and abroad, which is actually good for the Indian Business.

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What is a Core Banking System?

2008-09-03T15:51:00.001+05:30

Core Banking System or Core Banking Solution is a term that we hear very often these days. For IT and Banking folks, this term doesn’t need any explanation but for those who want to know a bit, here’s a brief overview of what it means.

Previously a bank’s core operations such as keeping a ledger of various transactions, maintaining customer information, interest calculation of loans and deposits, adjustments to accounts on withdrawal and deposits of funds etc. were done manually. With the advent of ICT (Information & Communications Technology), efforts were done to automate various banking processes using software applications so as to make them simple, efficient, effortless and cost effective. Thus, the platform where ICT is used to perform the core operations of a bank, like those mentioned above, is known as Core Banking System.

In Core Banking System, software applications record transactions, maintain customer information, calculate interest on loans and deposits etc. The data, instead of huge ledgers, are stored in backend databases in digital form. Now, the same software can be installed in various branches of a bank and can be interconnected through the internet or telephone lines to form a core banking network of the bank. The advantage, a customer can operate on his account from any branch of the bank and if the bank owns Internet Banking or ATM facilities, then the customer can operate on his account from virtually anywhere.

Thus, Core Banking System has radically changed the way in which banks function. The greatest advantage of having a Core Bank System is that new features and functionalities can be easily added to the system that customers will have a whole lot of services that they can use. Electronic funds transfer between banks, online trading in the stock markets etc. are examples of this, which were unheard of in banks pre Core Banking System era.

India's GDP growth @ 7.9%

2008-08-29T16:58:00.003+05:30

India's GDP grew by 7.9% in the first quarter of the fiscal year 2008-09. This is still a decent growth rate considering CRR hikes, high inflation rate and other economic deccelerators that affected the economy in the quarter.

Here are the key economic indicator figures:

Agriculture: 3%
Manufacturing: 5.6%
Construction: 11.4%
Electricity, Gas and Water: 2.6%

More news here.

India Poverty Data

2008-08-19T11:38:00.002+05:30

India Poverty Data published by World Bank; updated 23 Apr 2007.

According to the report, 29 percent of the population of India are below the national poverty line.

via End Poverty in South Asia

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Application Supported by Blocked Amount for IPOs

2008-07-31T10:06:00.002+05:30

The Securities and Exchange Board of India (SEBI) has introduced Application Supported by Blocked Amount (ASBA); a supplementary process for applying IPOs. Previously, when investors apply for an IPO, they have to pay the entire money upfront to the registrar/banker and hence stand to lose returns on the money that is locked until the IPO is allocated. The new move will protect the money of investors and will also make the IPO issue process more efficient and less time consuming.

In the new process, banks will block the money in investors’ account when they bid for an IPO and the money is released on the basis of number of shares being allotted. The remaining money will be unlocked by the banks. As a result, the IPO process is expected to be completed within 15 days of the closing date of the issue.

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What are the 30 Stocks of BSE SENSEX

2008-07-28T11:42:00.002+05:30

The SENSEX gives an indicative figure of the trading happened in BSE, which is the chief stock market of India. A group of 30 stocks that represent various industries of the economy are used for the calculation of SENSEX.

The base year for SENSEX calculation is 1978-79 and the base value is 100. It is calculated using Free-float Market Capitalization methodology. The SENSEX value is calculated every 15 seconds when the trade is going on.

Here is the list of the 30 stocks that constitutes the BSE SENSEX.

Code	Name	Sector	Adj. Factor
500410	ACC Ltd.	Housing Related	0.60
500103	Bharat Heavy Electricals Ltd.	Capital Goods	0.35
532454	Bharti Airtel Ltd.	Telecom	0.35
532868	DLF Ltd.	Housing Related	0.15
500300	Grasim Industries Ltd.	Diversified	0.75
500010	HDFC	Finance	0.85
500180	HDFC Bank Ltd.	Finance	0.85
500440	Hindalco Industries Ltd.	Metal,Metal Products & Mining	0.70
500696	Hindustan Unilever Ltd.	FMCG	0.50
532174	ICICI Bank Ltd.	Finance	1.00
500209	Infosys Technologies Ltd.	Information Technology	0.85
500875	ITC Ltd.	FMCG	0.70
532532	Jaiprakash Associates Ltd.	Housing Related	0.60
500510	Larsen & Toubro Limited	Capital Goods	0.90
500520	Mahindra & Mahindra Ltd.	Transport Equipments	0.80
532500	Maruti Suzuki India Ltd.	Transport Equipments	0.50
532555	NTPC Ltd.	Power	0.15
500312	ONGC Ltd.	Oil & Gas	0.20
500359	Ranbaxy Laboratories Ltd.	Healthcare	0.70
532712	Reliance Communications Limited	Telecom	0.35
500325	Reliance Industries Ltd.	Oil & Gas	0.50
500390	Reliance Infrastructure Ltd.	Power	0.65
500376	Satyam Computer Services Ltd.	Information Technology	0.95
500112	State Bank of India	Finance	0.45
500900	Sterlite Industries (India) Ltd.	Metal,Metal Products & Mining	0.40
532540	Tata Consultancy Services Limited	Information Technology	0.25
500570	Tata Motors Ltd.	Transport Equipments	0.60
500400	Tata Power Company Ltd.	Power	0.70
500470	Tata Steel Ltd.	Metal,Metal Products & Mining	0.70
507685	Wipro Ltd.	Information Technology	0.20

The BSE Index Committee meets every quarter to revise SENSEX constituents. In case a stock is to be replaced by another one, the announcement is made six weeks in advance of the actual change.

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On filing Tax Returns

2008-07-24T10:33:00.002+05:30

Livemint has this great article written by Sunil Dhawan on filing tax returns. It’s worth a read.

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WPI Inflation of India @ 11.89%

2008-07-11T13:28:00.004+05:30

WPI Inflation rate of India continues its upward path and stands at 11.89% for the year ended 28 June 2008. It moved up by 0.26% from 11.63% in the previous week and 4.42% in the corresponding week a year ago.

Despite government's attempt to prevent price increase, inflation rate increased due to higher prices of fruits, vegetable, pulses, spices, and bajra.

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- How is WPI inflation rate calculated in India?
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How to file Income Tax returns online

2008-07-07T08:51:00.001+05:30

Income Tax Department of India facilitates a tax payer to file his Income Tax returns online through their website. It is an easy process and following are the steps involved according to IT department website,

1. Select appropriate type of Return Form from the website (ITR-1/ITR-2/ITR-3/ITR-4)

2. Download and install Return Preparation Software for the selected Return Form

3. Fill return offline and generate XML file

4. Register and create a user id (PAN) and password at the website

5. Login and click on relevant form on left panel and select "Submit Return"

6. Browse to select XML file and click on "Upload" button

7. On successful upload acknowledgement details would be displayed. Click on "Print" to generate printout of acknowledgement/ITR-V Form

8. Incase the return is digitally signed; on generation of "Acknowledgement" the Return Filing process gets completed. You may take a printout of the Acknowledgement for your record

9. Incase the return is not digitally signed, on successful uploading of e-Return, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form. The tax payer has to fill-up the verification part and verify the same. A duly verified ITR-V form should be submitted with the local Income Tax Office within 15 days of filing electronically. This completes the Return filing process for non-digitally signed Returns

Here is the link to IT Department's eFiling website.

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Effects of oil price increase on world trade/globalization

2008-07-03T10:35:00.004+05:30

Oil is conquering new heights every day. With 145 dollars a barrel, it is the single largest commodity affecting world economy today. Does its effect confines to an increase in inflation across nations? No. Oil has a much larger impact, especially when it comes to international trade; in a globalized world.

One of the fundamental principles that propelled globalization was a world without boundaries; a world that was seamlessly linked. When we narrow this down, being seamless attributes to low international transportation costs which allowed nations to trade (buy and sell goods) with each other and still have a cost advantage.

The transportation costs were so much low so that there was an incentive to import goods from any corner of the world in spite of the distance it has to be shipped and sell it for less than what is available locally. On the other hand, it also allowed nations to export goods to other countries and sell it for less than the price out there, due to marginal transportation costs. Thus transportation costs had a major hand in the success of globalization.

The increase in oil price has disrupted this pillar of globalization. Transportation costs are increasing world wide due to fuel price increase and it might increase to such a extent that it may not become economically plausible for a country to buy or sell goods outside. The transportation costs may become the deciding factor of the final price of goods and hence would account for an obvious collapse of the cost advantage that nations enjoyed previously.

Thus the oil price increase has a strong impact on the global economy and to globalization. Let’s hope that economies world over would think over it and do something to put an end to growing oil prices.

Inspired by ‘The rebirth of distance’ – Niranjan Rajadhyaksha
Image courtesy: Getty Images

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Commodities and their weightages in WPI calculation of India, Part III

2008-07-02T12:44:00.008+05:30

In case you are reading this post first, this is the third article of a four part series. Please go to the first part, second part and then read on.

From the first part,
India uses 435 commodities for its WPI based inflation calculation. On a broader level, the 435 commodities are grouped into,
1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

This post covers the second of the main groups, Fuel, Power, Light & Lubricants, which has a group weightage of 14.22624%. Fuel, Power, Light & Lubricants are further classified into various sub-groups as shown below.

Fuel, Power, Light & Lubricants

1. Coal Mining
2. Mineral Oils
3. Electricity

Following table shows the sub-groups and individual commodity weightages of the constituents of Fuel, Power, Light & Lubricants.

Group	Sub-Group	Commodity	Weightage	Sub-Group Weightage	Group Weightage
Fuel, Power, Light& Lubricants	Coal Mining	Coking Coal	0.24148	1.75291	14.22624
		Non-coking Coal	1.39670
		Coke	0.01115
		Lignite	0.10358
	Minerals Oil	LPG	1.83731	6.98963
		Petrol	0.88815
		Kerosene	0.68928
		Aviation Fuel	0.16953
		High Speed Diesel	2.02034
		Light Diesel	0.16015
		Naphtha	0.41885
		Bitumen	0.14900
		Furnace Oil	0.49335
		Lubricants	0.16367
	Electricity	Domestic Use	0.96026	5.4837
		Commercial Use	0.27690
		Agriculture	1.94557
		Industry	2.16918
		Railway	0.13179

In the next part, we will cover Manufactured Products, its sub classifications, individual commodities and their weightages. Do visit again.

Series
- Commodities and their weightages in WPI calculation of India, Part I
- Commodities and their weightages in WPI calculation of India, Part II
- Commodities and their weightages in WPI calculation of India, Part III

Resources
- Office of the Economic Adviser, Ministry of Commerce and Industry, Govt. of India

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- How is WPI inflation rate calculated in India?
- Inflation rates of India
- Base year and number of commodities used for inflation calculation in India
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Another ‘road not taken’ story

2008-07-01T09:39:00.000+05:30

IIM grads opting out of placements to start their own venture are no great news these days. But when one destines to sell vegetables on the streets of Bihar, with a bigger dream of making Bihar the vegetable hub of India, it demands applause. Especially when the person is an IIM Ahmedabad topper!

Kaushalendra, popularly known as ‘MBA sabziwala’ among his customers, hails from a family of agricultural background. Currently he is on a well set path of achieving his dream, as he has tied up with over 250 vegetable growers in Nalanda and Patna districts of Bihar. He has also come up with a unique push-cart capable of carrying 200 kilos of vegetables, with an attached weighing machine and is ice cooled to keep vegetables fresh for 5 days, sold under the brand name ‘Samridhi’. Kaushalendra says it was his childhood dream to contribute to the development of rural Bihar.

More news here.

How to check whether your employer/financial institution have deposited your TDS?

2008-06-30T16:36:00.001+05:30

Most of the new age companies deduct income tax before giving salary to the employees (Tax Deduction at Source or TDS). TDS is also done by banks and other financial institutions for returns on fixed deposits, short term gains on equities etc. How do you check whether the tax deducted from you through TDS have been paid to the exchequer by your company or the financial institution?

Tax Information Network (TIN) of Income Tax department, Government of India facilitates a PAN holder to view annual tax statement (Form 26AS) online.

It’s very straight forward involving few simple steps
1. You have to register your PAN number online
2. Get it verified by TIN
3. Start checking tax credit online

The verification can be done by either going to the nearest TIN-Facilitation Centre or asking them to visit your address. There is a small fee for the one time authorization. Rs 15 + service tax if the PAN holder visits the TIN-Facilitation Centre in person or Rs. 100 + service tax if the PAN holder opts for the TIN employee to visit him and do the verification.

This is the link to do it.

Best banks of India

2008-06-29T11:40:00.000+05:30

The Financial Express has released their annual “India’s Best Banks Awards”, which is based on the performance of Indian banks on various parameters such as Strength and Soundness, Growth, Profitability, Efficiency/Productivity and Credit Quality.

The top two banks in the following categories:
Nationalised
• Indian Overseas Bank
• Indian Bank
• State Bank of Hyderabad

New private sector
• AXIS Bank
• HDFC Bank

Old private sector
• Karur Vysya Bank
• Federal Bank

Foreign banks
• Bank of America
• HSBC

Best performance on the following parameters:
Strength & Soundness
• Canara Bank

Growth
• Deutsche Bank AG

Profitability
• Standard Chartered Bank

Efficiency
• Bank of America

Credit Quality
• Yes Bank

Via and more details here.

Advantages of investing in Real-estate

2008-06-27T15:12:00.006+05:30

Investing in real-estate, or more specifically, on a house or flat, is something that interests the salaried class very much. Though the scenario appears bleak due to the recent CRR and Repo rate hike by RBI (which could lead to an increase in home loan rates), buying a real-estate is something that is still worth pondering.

Real-estate has certain advantages that other investment options don’t have. Let’s have a look at few of those advantages and see why investing in real-estate is still a better option.

Advantages
1) Property prices, in general, don’t show a downward trend, especially if selected at a location where there is ample scope for development. In such cases, it becomes a safer investment.
2) The rate at which real-estate prices increase sometimes even beat the stock market.
3) Inflation generally doesn’t affect real-estate (house/flat) returns because the costs of construction materials increase every year (with inflation). As a result, the cost of buying a house/flat is always going to increase with time. Hence properties will most probably be available at a higher price tomorrow.
4) Investing in a ready to occupy house/flat could save the money that you spend on a rented house. Till selling the flat, you can live in the flat and save on the rent amount.
5) If you are taking a home loan for buying the house/flat, the EMI could be afforded with 1) the money you otherwise pay as rent and 2) the tax savings (hence increased take home salary) you get on home loans.

Tax Savings
When you take a home loan, there are two ways with which you could save tax.
1) The principal component of the EMI is eligible for a deduction of up to 100,000 under Section 80C of Income Tax Act 1961. This is the same section under which Provident Fund, Insurance Premiums etc. are claimed.
2) The interest component of EMI is exempted up to 150,000.
3) If both husband and wife are working, then both can claim these exemptions for the same property, provided they have taken a joint loan and divide the principal and interest component of EMI among each other.

Commodities and their weightages in WPI calculation of India, Part II

2008-06-26T12:26:00.019+05:30

In case you are reading this post first, this is the second article of a four part series. Please go to the first part and then read on.

From the first part,
India uses 435 commodities for its WPI based inflation calculation. On a broader level, the 435 commodities are grouped into,
1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

This post covers the first of the main groups, Primary Articles, which has a group weightage of 22.02525%. Primary Articles are further classified in various sub-groups and sub-sub-groups as shown below.

Primary Articles

Food Articles

Food Grains (Cereals & Pulses)

Cereals
Pulses

Fruits & Vegetables

Vegetables
Fruits

Milk
Eggs, Meat & Fishes
Condiments & Spices
Other Food Articles

Non-Food Articles

Fibers
Oil Seeds
Other Non-Food Articles

Minerals

Metallic Minerals
Other Minerals

Following table shows the sub-group, sub-sub-group and individual commodity weightage of the constituents of Primary Articles.

In the next part, we will cover Fuel, Power, Light & Lubricants, its sub classifications, individual commodities and their weightages. Do visit again.

Series
- Commodities and their weightages in WPI calculation of India, Part I
- Commodities and their weightages in WPI calculation of India, Part II
- Commodities and their weightages in WPI calculation of India, Part III

Resources
- Office of the Economic Adviser, Ministry of Commerce and Industry, Govt. of India

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Online share trading websites of India

2008-06-25T11:31:00.004+05:30

Ever since the dematerialization of shares happened in India, stock trading has shifted its base to the internet world. It made share trading a lot easier for people and more of them started buying and selling shares through various websites, which provided equity investors with facilities to do online trading. Online trading became so much popular so that today websites not only provide facilities to do share trading but also for Futures and Options trading, Commodities trading, Overseas trading, IPO application, Mutual Funds etc. and more.

Here is a non-comprehensive list of websites through which you can do online share trading in India, on BSE and NSE, the leading stock exchanges of India. The websites are neither arranged in any particular order nor are they ranked here. And all of them provide more or less the same set of services. There could be a difference in customer service though!

ICICI Direct
ICICI Direct is owned by ICICI bank. They have one of the highest brokerage fees in India but also have a plethora of stock research information and trading tips available with them.

Sharekhan
Sharekhan is an old hand broker with a lot of experience in Indian stock markets.

Reliance Money
Reliance Money is owned by Anil Dhirubhai Ambani Group.

5paisa
5paisa.com is an IndiaInfoline owned online equity trading portal.

Geojit
Geojit, as a company, is in operation since 1987. As on today, it is the only company in which a government entity (Kerala State Industrial Development Corporation) has a stake.

Indiabulls
Indiabulls is a leading Financial Services and Real Estate company of India. They have over 640 branches across India.

There are other online equity trading brokers as well; like Motilal Oswal, Kotak Securities, Angeltrade, SMC etc. I will update the list with their information in future.

How to increase your take home salary?

2008-06-23T15:51:00.003+05:30

When cost of living skyrockets, smart ways to plan one’s pay packet to reduce his tax outgo and maximize his take home salary becomes relevant. Companies also realize the need to have a tax-friendly pay packet to help their employees get the better of their salary.

30 tax-smart ways to plan your pay packet could help you plan your compensation package and get the best out of it. According to the article that came on Rediff,

Saving a rupee in tax means you have a rupee more to save, spend or invest as you wish. So, when negotiating or reviewing your salary package, you should choose perks which are both useful for you and your family, and which are also tax-smart.

Have a look at the article.

Commodities and their weightages in WPI calculation of India, Part I

2008-06-21T10:32:00.023+05:30

As on today, India uses a basket of 435 commodities and a base year of 1993-94 for its Wholesale Price Index (WPI) based inflation rate calculation. The 435 commodities used for finding WPI range from food items like rice, wheat to petroleum products to medicines and are given weightages depending upon their importance and impact on the economy. Discussions are going on to revise the number of commodities to 980 and base year to 2004-05.

The 435 commodities are divided to various groups and subgroups. Individual commodities, and as a result, groups and subgroups have weightages. On a broader level, the 435 commodities are grouped into,

1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

Primary Articles consist of food grains, fruits and vegetables, milk, eggs, meats and fishes, condiments and spices, fibers, oil seeds and minerals. Fuel, Power, Light & Lubricants consist of coal and petroleum related products, lubricants, electricity etc. Manufactured Products consist of dairy products, atta, biscuits, edible oils, liquors, cloth, toothpaste, batteries, automobiles etc. The group weightages are 22.02525%, 14.22624% and 63.74851% for Primary Articles, Fuel, Power, Light & Lubricants and Manufactured Products respectively. The total adds up to 100.

There are three more parts to this article. In the first part, we will cover Primary Articles, its sub classifications, individual commodities and their weightages. Second part is for Fuel, Power, Light & Lubricants, its sub classifications, individual commodities and their weightages and third part deals with Manufactured Products, its sub classifications, individual commodities and their weightages.

Series
- Commodities and their weightages in WPI calculation of India, Part I
- Commodities and their weightages in WPI calculation of India, Part II
- Commodities and their weightages in WPI calculation of India, Part III

Resources
- Office of the Economic Adviser, Ministry of Commerce and Industry, Govt. of India

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Dealing with sudden wealth

2008-06-17T17:12:00.002+05:30

What would you do if you get rich through a windfall? May be through sale of a property or receiving an inheritance or through an insurance settlement or getting lucky in a lottery draw!

This article that came in Times of India goes into the details of such a situation. According to them,

Most beneficiaries are not prepared for the consequences of sudden wealth. They are often clueless about how to deal with a large amount of money. Studies show that more than 35% of lottery winners declare bankruptcy in 10 years.

They key to face such a situation is, invest properly! Have a look at the article.

How India contributes to global oil price increase?

2008-06-11T14:03:00.011+05:30

The price hike on petroleum products in India, barring kerosene, seems to have settled down comfortably into Indian minds. But, like I have written previously, the global crude oil price increase has not been completely transferred to a price hike in retail prices of petrol and diesel. Subsidies still rule Indian petroleum retailing!

The actual plunge is softened by the cushion made on the back of oil companies, central government and state governments. They suffer heavy losses through regulatory restrictions and tax cuts to make petrol available cheap for the common populace. As a consumer, one would feel great about the cushioning, but is it good for the global petroleum price? I would say no!

Economics says, whenever there is an increase in price of any commodity, its demand comes down forcing it to be sold at a lower price. That is, the increase in price is brought down by a decrease in consumption. Similarly, in an ideal case, when crude oil price increases, people start using it less making its demand go down, there by decreasing its price.

In India, since the government and companies suffer losses to maintain petrol/diesel prices low, people are not experiencing the actual effect of the price rise. As a result the demand for oil is not coming down (people are not reducing consumption) in the way it should have. For example, if petrol price was 10 rupees more than its current price, more people than now would resort to public transport than taking their own vehicle and the consumption would have come further down. In that case, India would have imported less oil, reducing global demand for oil and hence the price.

Along with the demand problem mentioned above, when you consider the fact that India is a fast growing and highly populated economy, you would know how much impact will it have on global crude oil demand and thus its price.

Reports say that oil products sales grew by 10.9 percent in India for the year ended February 2008, which is funded by an estimated oil subsidy of 200,000 Crore! China, which is a similar economy as India (fast growing and highly populated) had a 7.8 percent growth in oil consumption during the same period. And these two giants could easily contribute to the increase in crude oil prices as the demand supply conundrum is not allowed to happen ‘freely’ in these two countries.

Petrol price vis-à-vis diesel and kerosene prices

2008-06-06T00:15:00.000+05:30

The price of crude oil has touched $132 a barrel. As 1 barrel is 159 litres, assuming a rupee/dollar exchange rate of 42, cost of crude oil (or petrol) per litre should have been around 35 rupees (plus manufacturing and transportation costs, profit). But petrol is sold at Rs. 56 per litre!

The main reasons for such a difference are two.
1. Import duties/sales tax on crude oil/petrol by central and state governments
2. Petrol price is increased disproportionately for the cross subsidization of kerosene and diesel as the later two are common man’s fuels

Kerosene is used by millions of poor in India and a rise in kerosene price would affect them severely. Diesel is used in trucks and trains which do mass transportation of essential commodities. Since a huge hike in these two would affect the concerned and the common populace very badly, government usually refrains from increasing their prices, or if increased, less compared to that of petrol.

But there are few things that need to be considered. One, kerosene is widely used for adulterating petrol as there is a price difference between them. Two, most of the (luxury)cars nowadays have diesel variants to exploit the price difference meant for a different cause. But then the sheer number of Indian common man may justify government’s decision to continue subsidizing kerosene and diesel.

PS:
Did you know that petrol sells at Rs. 113.30 a litre in Turkey, while it is just Rs. 2.12 a litre in Venezuela?

After the recent surge in global oil prices, and a subsequent increase of petrol/diesel prices in India, Rediff has compiled this great article about world’s costliest and cheapest petrol.

CFDs: Contract for Difference

2008-06-05T13:46:00.013+05:30

An agreement between buyer and seller of an asset saying that the seller will pay the buyer the difference between current value and end of contract time value of the asset, is called a Contract for Difference or CFD. Conversely, if the difference is negative then the buyer pays the seller. Thus, in a CFD, the seller makes money when the asset value decreases while the buyer makes money when the asset value increases, over the contract tenure.

CFDs allow investors to speculate on asset price movements and do trading without actually owning the asset. It is much similar to margin trading such as short selling and short covering. In CFDs the investors can have longer contract durations, which will allow them to take long term positions.

CFDs were first traded in UK where they had the benefit of being exempted from stamp duty. Soon investors realized its potential to trade on leverage on an asset than just obtaining tax exemption. And thus started the growth of CFDs world over! Today they are traded in most of the leading stock exchanges in the world.

Today we have lot of websites that deal with online stock trading, especially for the trading of CFDs, like One Financial. They provide a wide range of trading instruments and also an investor can trade with a large number of exchanges through their site. Being a website they also have the advantage of geographic independence (anyone can trade from anywhere).

Online CFD providers like One Financial make the task of CFD trading a lot easier for investors. They are one of the few sites where investors can open a demo CFD account to get themselves acquainted with the interface and processes involved in CFD trading. For all those newcomers in the field of CFD trading, they have a CFD for beginners section in their website.

CFDs are indeed an interesting investment opportunity for investors!

Effects of Oil price hike

2008-06-04T16:44:00.006+05:30

The government has hiked petrol price by Rs. 5, diesel price by Rs. 3 and gas cylinder (14.2 Kg) price by Rs. 50 on the wake of global crude oil price increase while the price of kerosene remains unchanged. The move is also accompanied by several reductions in customs and excise duties related to oil.

Though the rise in oil prices will be a relief for oil marketing companies like BPCL, HPCL etc, their losses will not covered completely by the rise. All the measures (price hikes and duty cuts) will reduce their loss by Rs. 21,000 Crore (1 Crore = 10 Million)after a cost of Rs. 22,600 Crore to the government due to the reduction in income from duties. Still, there will be a gap of Rs. 29,000 Crore, which indicates that the rise is not enough and there could be another oil price increase in future.

The rise in oil prices will definitely add salt to the wounds already created by inflation surge. Since oil prices are directly or indirectly linked to food and other commodities used by the common populace, inflation is most likely to increase in the days to come. Strong correlation that the oil has with inflation!

So, will it lead to a decrease in the usage of petrol? Quite possible, as people who own vehicles would try not to use it more and would prefer alternative methods like car pooling, public transport etc. There is also a chance that the cost of public transport (transport buses, cabs, ricks etc.) may increase.

In all possibility, I feel, the middle and upper classes will manage to escape from the pinch, but it’s the lower class that is going to suffer, as usual!!

SEBI to introduce Currency Futures

2008-06-02T16:28:00.001+05:30

The Market regulator SEBI has announced that it will introduce exchange traded currency futures in the next three months. The currency future is suggested to have a minimum price of $1,000, which would be introductory.

SEBI also pointed out that next they would be working on interest rate derivatives.

Currency futures and interest rate derivatives are financial instruments that are used to hedge financial risks. They are highly used in developed markets like the US. This is a clear sign of the Indian markets becoming more matured and advanced.

More news here!

Are you game for an early retirement?

2008-06-01T08:57:00.006+05:30

Gone are the days on which people want to work till sixty for maintaining their earnings, promotions and stuff. Nowadays, may be due to high pressure jobs and stressful lives, people want to retire from their career and lead a peaceful life as early as possible.

This article from Economic Times would make some of you think of retiring early and plan your strategies accordingly. Now, what could be the first step for early retirement?

According to the article,

We spoke to financial experts, and also a few smart people who actually managed to retire early from their active careers, and asked them for tips on how to retire early. Everyone was unanimous about the first step - make sure retirement stays at the top of your priority list.

Well, which I feel is not incorrect; but how many of us have retirement planning as our top priority?

Outsourcing of transaction tax compliance

2008-05-29T23:50:00.007+05:30

Over the years companies have found outsourcing of important business processes such as recruitment, payroll, finance, training, HR etc. as a strategic and effective alternative that saves time, money and resources. Outsourcing of taxation related processes in companies to third party vendors is the next big thing happening in the outsourcing arena.

Transaction tax compliance is a burdensome process for companies. To give you an example, in the United States alone, there are more than 13,000 tax jurisdictions and each year the tax laws change more than 1,000 times. This makes it extremely difficult for companies to track tax rates and manage tax payments to the government for various transactions done at various jursidictions having different tax laws. Thus, while making sales in a particular geography, a company (that is operating over multiple geographies) should know about the prevailing sales tax, use tax and tax laws of that geography so as to account it in the tax amount to be paid to the government.

Failing this (or variations happening in tax payments due to not accurately tracking sales tax and use tax rates), companies have to face penalties, audits and other legalities from the tax authorities. This shows how important it is to ensure transaction tax compliance by a company, eventhough the process is unwieldy. That's where taxation compliance outsourcing becomes important.

A good example of a firm that do outsourced transaction tax compliance is Sabrix, with it's Managed Tax Service (MTS) that offers tax compliance solutions to small business and mid-market companies (they also have a demo of the application at http://www.sabrix.com/smb/demo/).

Outsourcing tax compliance to firms like Sabrix has lot of advantages. It would eliminate the hassles (tracking tax rates of various geographies etc.) associated with tax compliance. The payments to tax authorities will be accurate and timely due to the expertise of the firm as it is dealing only with such things (core competency). Above all, there is a cost advantage to it. As a result companies can concentrate more on its core business. Few more reasons to outsource transaction tax compliance can be found here.

Increase in debt waiver for farmers

2008-05-27T00:01:00.000+05:30

The government has hiked debt waiver for farmers to Rs. 71,680 Crore (1 Crore = 10 million).

As reported by rediff,

Under the modified scheme, all farmers, including big ones, in 237 identified districts will get a debt relief of 25 per cent of the outstanding amount or Rs 20,000, whichever is higher, Finance Minister P Chidambaram told reporters after a meeting of the Cabinet, which approved the guidelines.

In a time when farmer suicides are rampant, this move from the government would be a great relief for farmers who are in debt and whose hopes have come to an end.

Elderly Travel Insurance

2008-05-26T08:21:00.002+05:30

Travel insurance is used to cover medical expenses, financial and other losses (due to theft, delayed departure etc.) incurred while one is traveling. Travel insurance is available for students, businessmen, tourists, adventurers and for that matter, even ordinary domestic and international travelers. While it is widely used in developed countries such as USA, UK etc., it’s becoming increasingly popular in countries like India.

Like any other insurance products, travel insurance products also are unfriendly to the senior citizens as most of the policies would either have strict age limits or higher premiums for the elderly. This comes as an irony when we have retirement plans, low cost airlines and holiday packages that enable more and more people to save and travel during old age.

Recently, I came across a site called Covermytravels that offers travel insurance for senior citizens at a very lower cost compared to other insurers. Elderly Travel Insurance gives travel insurance quotes with in seconds (which is completely online) and is very user friendly. They have single trip per year and multi trip per year policies and also have some optional benefits such as ‘Winter Sports Cover’ that could be added to the travel insurance. They also give assistance to customers over telephone who want clarifications before deciding on the travel insurance they require.

Overall, an outstanding option senior traveler could bang on and I hope sites like this would be a great relief for elder travelers.

Sub-prime woes haunting the US

2008-05-22T10:37:00.002+05:30

While the US bleeds of sub-prime wounds, most of the mortgages taken through sub-prime borrowing are now facing foreclosure. People who have taken such loans to build/buy houses are vacating it subsequent to court verdicts.

The gravity of the situation comes out clearly in this news reported by the New York Times. Quoting them,

The problem of vacant homes is all the more striking when considered against predictions by economists that a couple of million more homes will enter foreclosure in the next two years, said Cheryl Lang, president of Integrated Mortgage Solutions, a company based in Houston that contracts with Mr. McCallister and Mr. Law on behalf of mortgage companies.

With the consequent economic decline leading to more and more layoffs/job cuts, I guess the situation in the US is going to spiral out in the days to come. Feel like the sub-prime crisis had much more in its store than expected!

Money no longer gets locked in IPOs

2008-05-13T17:09:00.010+05:30

When investors apply for Initial Public Offering (IPO), they have to pay money upfront to the registrar/banker with whom the money gets locked for a few weeks, until the IPO price is decided and the shares are allocated. If the number of shares allocated is lesser than applied, the balance money is refunded to the investor. Since the money is locked for a few weeks, the investor loses interest amount he could earn otherwise on that money.

On the other side, bankers get floating interest on investor's money, for those few weeks. Well, to say the least, when money runs into Crores, however small the interest percentage is, the interest amount will be huge.

According to a SEBI statement, the money will now remain in the investor’s bank account till the allotment price and quantity is finalized. This would eliminate the refund process. This would also save money collecting and refunding time and thus will reduce the burden on registrars.
More news here.

At a macro level, the locking of money denies the markets to have the much needed liquidity (money in the hands of people that can be used for trading in stock markets), particularly when they are falling and need money to push it up. Thus, money locked in IPOs has a serious impact on stock markets.

An example is something that happened in January 2008, when investor money was locked in Reliance Power and Future IPOs. These IPOs were huge and have raked in most of the liquidity from stock markets. When markets fell during that time due to US recession fears and other reasons, investors didn’t have money with them to buy shares (when markets fall, share prices also fall due to which investors buy shares which in turn will pull the market up) and stop the market from falling further. Reason; their money was locked with Reliance and Future IPOs!

The move by the regulator may not solve the liquidity problem during IPO as SEBI is planning to have some arrangements with which money would be locked in the investor's bank account so that there won't be any lack of funds in the investor's account when the IPO allotment comes. But this will atleast give the investors interest income on their money.

Credit card and effective interest rate

2008-05-07T11:18:00.008+05:30

Suppose you own a credit card that charges an interest rate of 3.1% per month for revolving credit. What would be the yearly interest rate you end up paying the bank that have issued you the credit card? Is it 3.1 x 12 = 37.2%? Well, no!

Let’s see why.
Consider that you have made a purchase of Rs. 50,000 in your credit card having 3.1% monthly interest and have paid only 20,000 on the due date. The bank will take forward the remaining amount (30,000) to the next month's bill with an interest charge of Rs. 930 (3.1% of 30,000), making the total amount due to be Rs. 30,930.

Now suppose once again you couldn’t pay the entire amount and you paid only 20,000 out of the total due amount of 30,930. The bank will charge an interest of 3.1% on the remaining 10,930 (not 10,000). Thus the bank charges interest on the previous interest amount also or simply, the interest charged is compounded! Due to compounding, the effective annual interest rate will be higher than 3.1% x 12.

The effective annual interest rate, when monthly interest rate is quoted can be found out using the following method.

Effective annual rate = (1 + i/m)^m – 1
where i is the nominal yearly interest rate (3.1% x 12 = 37.2%) and m is the total number of compounding periods in a year (12, since monthly).

Effective annual rate = (1 + 0.372/12)^12 – 1 and that comes out to be 44.25% instead of 37.2%!

Think about a lender who charges 44.25% for the money that you borrow from him. That’s exactly the reason why we should keep our credit card spending to the minimum with absolutely no revolving credit.

Base year and number of commodities used for inflation calculation in India

2008-05-05T09:37:00.003+05:30

By this year end, the government will adopt a revised Wholesale Price Index (WPI), besides considering actual prices from next month.

Instead of the current 435 commodities, the revised WPI will have 980 commodities included in it, which will be rationalized by incorporating new items, removing unimportant items and amalgamating similar items.

The base year will also be revised to 2004-05 from the current base year of 1993-94. Thus the new WPI would give a more accurate figure for inflation. More news here.

So finally, the government is doing something on various debates happened over inflation calculation in India.

Related Articles
- How is WPI inflation rate calculated in India?
- Commodities and their weight-ages in WPI calculation of India
- Inflation rates of India (2009)
- Inflation rates of India (2008)
- The magic of Inflation