RBI Monetary Policy Review

Appropriate Decision on rate cut by RBI

Yesterday all market analysts, government, and economist was eagerly waiting for  monetary policy review by Reserve Bank of India (RBI).  In my personal opinion RBI governor has done fantastic job. I congratulate him for doing balancing act although it is very tough task in present context. The finance minister is not happy yesterday’s RBI monetary policy review and has decided to go alone on reform agenda.  At the second quarter review of the FY2013 monetary policy the RBI reduced the cash reserve ratio (CRR) by 25 basis points to 4.25% but kept the policy rates unchanged. Due to the uneasy inflation and uncertainty in the commodity prices driven by global liquidity the central bank continues to hold the policy rates. 

According to the RBI, the inflation rate could moderate towards the beginning of 2013 quarter and after that the policy rate may easy. RBI has also revised the GDP (Gross Domestic Product) and inflation target 5.8% and 7.5% respectively. The RBI had two choices here whether he choose growth or choose inflation. No doubt growth has also declined when we compare it with other countries. It is clear that RBI much concern about control the inflation and in other words say, RBI governor is fighting against inflation. I also believe that bringing down inflation is necessary for sustaining our medium-term growth.  Why is inflation remain uncomfortable during entire UPA government tenure.  After analysing this there are two main reasons come out. One if inflation is due to supply side problem and higher interest rate are not going to help it easy. The other reason is increasing spending power of the people. The people are more spending on food and change in consumption patterns. It is also the main reason for inflation. Whether supply is less or demand is high it is the crucial assessment.

Obviously it is the complex challenge of supporting growth and control inflation for RBI. The CRR cut is to make sure that there is comfortable liquidity to allow the credit to go into productive sectors and that liquidity is in deficit, but that deficit is small enough for transmission to take place. Managing inflation is as important as the growth. If we success to achieve low and stable inflation then consumers and investors can make informed decisions.  Fpr investor stable inflation will ensure their  medium term growth. It may be possibly because our currency exchange rate is depreciating and possibly because we have a higher fiscal deficit. So there are number of reasons our country is having high inflation in our growth model.

From government’s newly provided roadmap of reforms till 2017 the RBI has got some comfort on the fiscal figure. We expect the RBI will reduce the CRR rate by another 50 basis points and also cut the key policy rates by the same measure in the remaining part of the fiscal year. 

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Financial Planning at the time of Child’s Birth

Whenever we plan for our child, we want make the best full proof financial plan. Ultimately it is a investment plan linked to our emotions. As soon as hear the new born baby news, there are a lot of so called insurance agents, planner approach you for your loved baby’s future plan. Today, a lot of children link product available in the market. Often we tend easily to subscribe these plans without proper understanding the product and charges. No matter how many books you read or how many financial classes you take, when your little bundle of joy arrives, you are filled with happiness and a sense of fulfilment and at this step you take a decision with emotional wave. Today I am not going to talk about any particular child product or financial product for your child’s future. We will discuss today how well we prepare ourselves financially and learn some basic guidelines when expecting a baby.   

After knowing the news about that you are expecting baby ask yourself this question do you also prepare yourself financially? Many first time parents get so caught up in the emotional wave of having a baby that they often tend to overlook the financial aspect of this new responsibility.

Budget Analysis

Financial requirement do not start after the baby is born, but even before the baby arrival. There are many small things you need to take into consideration before and after the birth of your child. Keeping both the phases in mind will help you to create a more financially secure future for not only your child but also for your family.You need to re-organize your budget, as you will be spending on pre-natal care and on medical visits to the doctor. Know the areas where you can avoid or save and use those funds for the new expenses that will arise during pre born baby stage.

Professional Life

 Planning properly your professional life is also very important. You will be taking leave from work during and after the birth of your child. While many companies now offer paid maternity/paternity leaves, check as to how many leaves you can take and how it will affect your monthly salary. This will also help you to reorganize your budget and your expenses.

Rework on your insurance:

Keep in mind insured yourself with sufficient sum assured. Do not subscribe a policy on your child’s life. You don’t require policy on your child’s life. This is a very critical stage of financial planning. You need to be prepared with the appropriate insurance plans before, during and after the birth of your child. If you are already investing in insurance for your spouse, the expenses would be covered in the same plan, as it is not possible to take fresh insurance during pregnancy. For calculating right sum assured of insurance take a help of financial planner. A certified financial planner can help you to understand how this investment can help the mother and the child during various stages and how the cost can be covered with the right plan.

Replan your Goals :

 Reassess your all future goals and make sure whether you are able or not to finance your goal. You may not be able to fulfill some of your goals and dreams. Instead of giving up on those, try to postpone the same, and invest a part of your resources for your child. Your certified financial planner can help you to move some of these resources and yet help you fulfill your goals. Make sure you should have an emergency fund also. This could be used for those unknown events that take you by surprise. It is best to ask a certified financial planner a proper method to go about starting a contingency plan, as they will make sure you do not use your current resources for the same. Make sure you build a plan for money nest for your child’s future’s need like education and marriage. While it is ideally a better option to create a separate plan for education and marriage, you can choose a financial plan that will allow you to invest as per your choice.


At last keep in mind your child is an extension of your life. You would only want what's best. So take the step to secure your child's life and bring your baby into a world of financial freedom.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Balance Mutual Fund

Balance Mutual Fund: Better investment avenue for beginner

Often first time investors are very much confused for investment in mutual fund. A lot of query came across to me that which mutual fund is good for investment. In this year union budget a new scheme also introduced by government called Rajiv Gandhi Equity Saving Scheme. Now it has also included ETF fund also.  While the details of the proposed scheme are still sketchy, it has caught the attention of non-equity investors. In my opinion there is also a good investment option available for new investor. For beginner, balanced mutual funds are safe option compared with pure equity fund. It is much safer and offer decent return in bad market condition also.

Balance mutual funds that invest both in fixed income instruments and equity to strike a balance between risk and return. In our country usually, such funds invest at least 65 per cent of the corpus in equity, while the rest of corpus is in debt. The allocation to equity and debt may vary across funds depending on the prevailing market condition. For instance, if the fund manager believes that the outlook for the equity markets is bright, he may allocate more resources to it. The onus is on the fund manager, not the investor, to decide on the optimum mix of assets. Balanced fund can provide you with the perfect portfolio diversification without having to invest in multiple funds.

As it do not invest all the money in equity, they are less risky and volatile than pure equity funds. This conservative approach helps balanced funds deliver steady returns to investors across each market scenario.  If you do not have much high risk appetite but still some risk want t o take then you should consider a balanced fund.

If your investment horizon is short to medium term or 3 to 5 year it is ideal investment vehicle to help you meet your critical financial goals and also offer the stable return without worrying about market risk. Investment   through Systematic Investment Plan (SIP) in these schemes will help you to safely build a sizeable corpus over 3-5 years and meet your financial targets in very smooth way. Investing in these funds also give you hassle free portfolio rebalancing automatically.

In the point of view of taxation, the balanced funds that invest at least 65 per cent in equity are treated at par with equity investments and attract no tax liability on capital gains if held for more than a year. The debt-oriented funds come under the debt fund category, where capital gains are taxable.  Therefore it makes sense for you to invest in balanced funds for 3-5 years towards a particular goal, if you are new to the equity market and still want to the benefit of market.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Bank Fix Deposit Rate

Declining Fixed deposits Rates – Which one best Nationalised banks or Private banks

Since last one month interest rate on fix deposit have been declining. Now the big question for investors where should they park their money ? These are those investor  for whom capital protection is top priority. Now the option whether they should go with Nationalised banks or Private banks.

 A lot of information about this question is available online and print media also. People often ask me also where they should invest for higher interest rates to lock their savings for one year or more. Over the last one month, long-term fixed deposits (FD) rates have been on a decline. The largest bank of the country State Bank Of India (SBI) has already reduced interest rates, which now stands at 8.5% p.a. for any FD term of one to ten year. The long-term FD rates of SBI are less competitive compared to many other nationalised banks, which still give 9.25%-9.35% p.a.
 

The bigger private sector banks like ICICI Bank, HDFC Bank and Axis Bank also moved quickly towards to reduce their rates. In general these banks often slightly more interest rate offer than SBI. The maximum rates with ICICI Bank and HDFC Bank are 8.75% p.a.; while Axis Bank offers 9% p.a. It means nationalised banks are still a better bet for higher interest rates when compared to big private banks as they are offering 9.25%-9.35%.
 

Smaller private bank like Kotak Mahindra Bank, YES Bank, Karur Vysya Bank and IndusInd bank lowered their rates to 9%-9.25% p.a. The cooperative bank like Saraswat Bank was offering 10% simple interest paid quarterly, which is now reduced to 9.25%. While locking at 10% is not possible today from well known banks, nationalised banks can get you 9.3% to 9.35% interest for a FD of one to two years tenure, which is a good option. Few cooperative banks are offering 9.75% to 10.25% on FDs today. But safety of your funds should have higher priority than 0.5% to 1% more interest. And these banks charge higher penalties for premature withdrawal and therefore liquidity of the FD before maturity can be a concern. Some bank’s fix deposit rate as given below:

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Max Bupa Health Assurance: Perfect Product for Senior Citizens

Very often we came across complain from senior citizens that there are not a single mediclaim product in market which renew their mediclaim policy throughout life time. Case-to-case renewal after 70 years is done at complete discretion of the insurer. They have often denied from a personal accident and critical illness policy when they really needed. Today I have read an article in Moneylife email and they have written about the product with an option of lifelong renewal. It is good product and I want to share it with all of you.

Max Bupa Health Assurance is a product with lifelong renewal, a demand that addresses the core need of senior citizens who were refused renewal of personal accident (PA) policy after age of 70, ostensibly due to increased possibility of accidents at an older age.
 

Critical illness is another product which excludes customers as early as 50 years; some policies run till age 60 years. Again, critical illness like first heart attack, stroke, paralysis, cancer is likely to strike more after age 60 years—the time when the product is unavailable for customers to cover their risk. Max Bupa Critical Illness cover is a reasonably priced product covering wide range of illnesses with lifelong renewal benefit.

Max Bupa Health Assurance offers a combination of three health covers—PA, Critical Illness and Hospital Cash, with an option to choose all or any of the three covers. The product can be bought between 18-65 years; PA and Hospital Cash are offered to children from age 2-21 years.  The premium for PA cover is same for ages 18-65 years. According to Sevantika Bhandari, Director-Marketing, “For customers above 65 years of age, the premium for PA cover will vary. We are offering PA, Critical Illness and Hospital Cash under Health Assurance with life-long renewal. In fact, we were the first in the industry to introduce the option of life-long renewal with the launch of our flagship product Heartbeat (Mediclaim) in 2010.”
 

Here are also the pros and cons:

Advantages – 
 • Reasonable premium at Rs780 for Rs5 lakh cover for ages 18-65 years. You can get PA policy in the range of Rs500 to Rs800 for same cover, but the Max Bupa product also covers child education benefit of 5% of the Sum Insured (SI) or Rs50,000 per child, whichever is lower and funeral expenses of Rs5,000 in case of accidental death
 

• Maximum entry age is 65 years. Life-long renewal is a welcome step, but it does come at a little price. 

Disadvantages – 
 • The product only covers accidental death, permanent total disability (PTD) and permanent partial disability (PPD). Temporary total disability (TTD) is a good optional feature available in many PA Product, but is missing in the Max Bupa offering. TTD usually pays 1% of the SI for 100 weeks in case of disability preventing one from going to work.
 

• The list specified for PPD is not comprehensive. It does not cover for loss of fingers, smell, taste, and so on. A general statement like “any other permanent partial disability—percentage as assessed by the doctor”, which is present in many PA products would have helped. 

Critical Illness is a good product considering the following pros and cons:
 

Advantages – 

 • Lifelong renewal
 • 20 critical illnesses like cancer, first heart attack, stroke, paralysis, major burns, coma,        kidney failure, open chest coronary artery bypass surgery, etc are covered
 • Floater option is available for two adults
 • Very reasonable premium at Rs752, Rs2436, Rs13465 for Rs3 lakh cover (age 27, 42 and 65 respectively)
 • Pre-existing coverage offered after four years of continuous coverage. Most critical illness products do not cover pre-existing diseases
 

Disadvantages – 
 • 90 days of waiting period and 30 days of survival period for the policy to pay. Some critical illness products in the market cover with zero survival period

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

RINL IPO Delay:  The Question on Government's Decision Ability

The govt has again differed the disinvestment process of state run RINL (Rashtriya Ispat Nigam Limited). The government has not given any reasons for postponing the IPO, but said it will proceed with its plans to sell shares in other companies. The govt has targeted Rs 30,000 crore through divestment programme. But it hasn’t sold any shares since April, when the fiscal year began. RINL IPO of 48,89,84,620 equity shares was the first public issue from the government in FY13. The government’s plan was to sell Rashtriya Ispat’s shares between Oct. 15 and Oct. 18 and list them on Nov. 1.

Senior government officials said Tuesday a panel of ministers had put off its meeting to finalize the price band for the IPO. They said this was probably due to a disagreement between bankers and the government on the pricing. The government doesn’t want to sell the shares below the company’s book value of 22.52 rupees a share. However, bankers have recommended that a lower price be set to ensure demand, the officials said.

If the cabinet could not agree and united in this importance decision share sale of RINL then how can one believe it will go ahead with reforms so called reforms agenda. It has given wrong signal about implementation of reform policies. The disinvestment is essential to fulfil its fiscal consolidation agenda. After the RINL delay, now even the diehard optimists would find it hard to believe that a government, which struggles to make its steel minister Beni Prasad Verma see economic reason, could make the BJP (Bharatiya Janata Party) or the BSP (Bahujan Samaj Party) to buy its argument on far more contentious issues, especially such as FDI in multi-brand retail.

What is the steel ministry's problem with going ahead with the RINL IPO? The Steel minister, Mr Beni Prasad Verma is not willing to sell the stock below its book value of Rs. 22.52 a share, while investment bankers say the stock won’t fetch more than Rs. 15 a share. Verma and his officials argue that RINL is a `navratna’ company and should therefore  fetch at least Rs. 21 a share. RINL may be a `navratna’ for the government and the steel ministry, but there are many companies far better than it globally are trading just at valuations below their book value. Arcelor Mittal, the world’s biggest steel-maker, is trading at a price to book ratio of 0.42. South Korea’s Posco is at a price-to-book of 0.72. The government’s own SAIL is valued at a price to book value of 0.88, while Tata Steel is at 0.93. Why any investor pay valuations higher than what some of the best companies in the market are available for investment?

The RINL episode is a stark reminder of the fact that this government is being pulled in different directions and that the leadership is still unable to put its foot down on what it believes is in the good of the nation. Prime minister and his team have managed to spread some positive talk in the market and change the narrative somewhat. But if the rest of the government remains the way it has been since 2004, trouble will get enlarge and it could first come in the form of a sovereign rating downgrade.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Important points You should know about your PPF Account

PPF (Public Provident Fund) Account is very suitable option for those investors who want tax free return and safe investment option. Some points should be keep in mind when you open PPF account. Often a lot of queries come to me about PPF. So here I am sharing some points about PPF .

Opening a PPF Account :

Any Indian citizen can open PPF account except NRI. You can open PPF account in any nearest State Bank of India branch, or a branch of any of State Bank’s subsidiaries. You can also open an account in select nationalized banks, and the post office or selected ICICI Bank branches also. The required formalities are Fill  the form, attach a photograph, give your PAN Number. After opening PPF account you will also receive a pass book for recording all your PPF transactions.

At any point in your life, you are allowed to have only one PPF account in your name. You can also have an account in the name of a minor child of whom you are the parent / guardian. However that will be the child’s account, you will simply be the guardian. You can never have a joint account. If at any time it is seen that you have more than one account in your own name, the second account will be deactivated, and only your principal amount will be returned to you.

Loan Facility

You can avail a loan from your PPF fund in case of need. The first loan can be taken in the third year of opening the account. For example if the account is opened during the year 2009-10, the first loan can be taken during the year 2011-2012. The loan amount will be restricted to 25% of the balance including interest for the year 2009-08 in the account as on 31/3/2010. The loan must be repaid in a maximum of 36 EMIs. After settling first loan you can also avail second loan.

Withdrawal Facility

You can make one withdrawal per year starting from your seventh year. The first withdrawal can be done after the expiry of 5 full financial years from the end of the year in which your initial subscription was made. This means that from the day you open your account, you will need to complete 6 full financial years before you can make any withdrawal. Thereafter, you can make one withdrawal per year.

The amount of withdrawal will be limited to 50% of the balance at credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower. For example: if you opened your PPF account on April 1st, 2006, you can make your first withdrawal after April 1st 2012, and the amount of withdrawal will be limited to 50% of the balance as 31st March, 2008, or the balance on 31st March 2012, whichever is lower.

Options at the time of maturity

There are three options available at the time of after 15 year maturity period.
Either you can withdraw your maturity amount, or you can extend your account by a 5 year block, as many times as you want and make fresh contributions, or you can extend the account without making any further contributions, and continue to earn 8% interest on it every year. The maturity amount is exempt from tax.
.If you choose to extend your account and continue making fresh contributions, you can extend it for a block of 5 years at a time, as many times as you want, you can also make withdrawals from the account, up to 60% of the account balance that was there at the beginning of the extended period. Just remember, if you choose to extend your account, submit the necessary documentation for extension before one year passes from the maturity date.

If you choose to extend your account without making any fresh contributions, you can do so. In this case, any amount can be withdrawn without any restrictions, you can only withdraw once per year. The balance will continue to earn interest till it is withdrawn.

If you have any other query about PPF and investment related feel free to contact me.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Recurring Deposits Calculation

Most of us very often open a recurring deposit with bank. But one thing I have observed that the calculation on recurring deposit in the mind of most account holder are not clear. There are many query about the interest calculation method of recurring deposit account. The people often in confusion why is the difference between their calculation and bank calculation. That difference is due to the fact that while they were compounding interest monthly, banks usually compound interest quarterly and that’s why they were getting a different answer.

There are many  recurring deposit calculators also available online but there were hardly any explanations So, after searching a lot of explanation about the interest calculation of recurring deposit I have got very simple and good explanation about the RD interest calculation with example.

When you create a RD for Rs. 20,000 for 2 years, what you’re doing is depositing Rs. 20,000 with the bank every month for 24 months, and the bank pays you interest on Rs. 20,000 for 2 years compounding it quarterly, then for the next Rs. 20,000 it pays you interest for 23 months, and so on and so forth.

Banks usually compound interest quarterly, so the first thing is to look at the formula for compound interest. That formula is as follows:

A formula for calculating annual compound interest is

Where,

A = final amount

P = principal amount

r = annual nominal interest rate (as a decimal, not in percentage)

n = number of times the interest is compounded per year

t = number of years

In your recurring deposit, you use this formula to calculate the final amount with each installment, and at the end of the installments, you add them all up to get the final amount.

Think of RD Installments and Series of Principal Payments

Let’s take a simple example to understand this – suppose you start a recurring deposit for Rs. 47,000 per month for 2 years at 8.25% compounded quarterly. If you were to see this number as a standalone fixed deposit that you set up every month for 24 months, you could come up with a table like here. Before you get to the table, here is a brief explanation on the columns.

Month: First column is simply the Month.

Principal (P): Second column is P or principal investment which is going to be the same for 24 months,

Rate of Interest (r): r is going to 8.25% divided by 100.

1+r/n: In our case, n is 4 since the interest is compounded quarterly, and 1+r/n is rate divided by compounding periods.

Months Remaining: This is simply how far away from 2 years you are because that’s how much time your money will grow for.

Months expressed in year: I’ve created a column for Months expressed in a year since that makes it easy to do the calculation in Excel.

nt: 4 multiplied by how many months are remaining as expressed in year.

(1+r/n)^nt: Rate of interest raised by the compounding factor.

Amount (A): Finally, this is the amount you if you plug in the numbers in a row in the compound interest formula.

So, Rs. 47000 compounded quarterly for 2 years at 8.25% will yield Rs. 55,338.51 after two years. The last row contains the grand total which is what the RD will yield at the end of the time period.

Month	P	r	1+r/n	Months remaining	Months expressed in year ( No. of Months/ 12)	nt	(1+r/n)^nt	A
1	47000	0.0825	1.020625	24	2	8.00	1.18	55338.51
2	47000	0.0825	1.020625	23	1.916666667	7.67	1.17	54963.21
3	47000	0.0825	1.020625	22	1.833333333	7.33	1.16	54590.45
4	47000	0.0825	1.020625	21	1.75	7.00	1.15	54220.22
5	47000	0.0825	1.020625	20	1.666666667	6.67	1.15	53852.50
6	47000	0.0825	1.020625	19	1.583333333	6.33	1.14	53487.27
7	47000	0.0825	1.020625	18	1.5	6.00	1.13	53124.53
8	47000	0.0825	1.020625	17	1.416666667	5.67	1.12	52764.24
9	47000	0.0825	1.020625	16	1.333333333	5.33	1.12	52406.39
10	47000	0.0825	1.020625	15	1.25	5.00	1.11	52050.97
11	47000	0.0825	1.020625	14	1.166666667	4.67	1.10	51697.97
12	47000	0.0825	1.020625	13	1.083333333	4.33	1.09	51347.35
13	47000	0.0825	1.020625	12	1	4.00	1.09	50999.12
14	47000	0.0825	1.020625	11	0.916666667	3.67	1.08	50653.24
15	47000	0.0825	1.020625	10	0.833333333	3.33	1.07	50309.72
16	47000	0.0825	1.020625	9	0.75	3.00	1.06	49968.52
17	47000	0.0825	1.020625	8	0.666666667	2.67	1.06	49629.63
18	47000	0.0825	1.020625	7	0.583333333	2.33	1.05	49293.05
19	47000	0.0825	1.020625	6	0.5	2.00	1.04	48958.74
20	47000	0.0825	1.020625	5	0.416666667	1.67	1.03	48626.71
21	47000	0.0825	1.020625	4	0.333333333	1.33	1.03	48296.92
22	47000	0.0825	1.020625	3	0.25	1.00	1.02	47969.38
23	47000	0.0825	1.020625	2	0.166666667	0.67	1.01	47644.05
24	47000	0.0825	1.020625	1	0.083333333	0.33	1.01	47320.93
							Final Amount	12,29,514

If you have any questions or have links to better ways to explain this then please leave a comment!

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com