Inflation Management

Inflation:

Its the big or the biggest devil eating in to our savings. Any plan to invest and save for future has to be planned keeping inflation in mind. At a very basic level inflation means increase in price. It could be on account of food , real estate, health or education. The cost to avail food, provisions, transport, property and education etc eventually go up due to inflation. To ensure that our purchasing power remains on par or even better than today, we have to overcome inflation factor.
The best investments that grow with inflation is equity , real estate and gold. I would rate them in the order:
Equity
Real Estate
Gold

Equity:
As long as you have bought your security at the right time and are willing to wait for decent time period, it should fetch excellent returns. Equity investment is always [100 - Your Age].
That is if your are 30 years of ager. Then you can maximum invest 70% in Equity.

Real Estate:
Real Estate represents two asset class investments. One is apartment and the other is land. Of the two, as an investment I am more comfortable with Land. The trouble with apartment is depreciation. Land on the other hand does not depreciate but only appreciate.
By the way if you are buying an apartment to stay it cannot be termed as an investment. Buying apartment for investment purpose is tricky as your income generation would then be purely from Rental resource. In case you wish to sell your apartment , then the rate fetched would be based on depreciation. Since I am here referring to long term investment here to beat inflation, people who trade on apartment do not qualify. That is people who buy apartment in the launch phase and sell later after completion.
Land on the other hand appreciates in the long term. The issue here is approvals and encroachments. You need to take care of these two issues.

Gold:
In 1992 cost of 1 gram gold was 300 Rs/Gram . After 20 years, today it is 2700 Rs/Gram. So the price has gone up by 8 times or 800%. The only problem here is the fact that the dramatic rise is a recent phenomena. In 2002 the price was close to 700 Rs/Gram. So from1992 to 2002 , Gold appreciated by 120%. From 2002 to 2012 it has appreciated by 285%.
The best practice here is to buy in a systematic manner. Do not buy everything in one go.

UnListed Stocks in India

What are unlisted stocks?
These stocks are offered by companies that are too small to qualify full listing.
Though some of these unlisted company's pose good returns its too risky to invest in them. Stocks listed in BSE or NSE is reviewed by SEBI and their operations are reasonably transparent.
Some web sites like 10paisa.com provides access these stocks. Many of them are penny stocks.
Some famous unlisted stocks are Madhukan Investment, South West Port, Tantia Concrete and Kotak Mahindra Prime Ltd.

Overall, I find it to be very risky business. None of the online trading websites are listing them either. You need to buy securities directly from these companies. Frankly with no autonomous government controlled body controlling these institutions its too risky to invest.

Buying Apartments in Bangalore

Real Estate Case Studies:

For last 3 years , I have have  experienced and heard of  illegal and maipulative ways of builders in bangalore. Felt it would be apt to list down all these informations. It gets easier to go through repository of  real estate observations and make decisions. Believe that’s what is called Informed Decision making.

Case 1: Small AP Builders:

These people are originally from Hyderbad. Have very little experience in handling projects start to end. A lot of projects in Ecity, BTM and JP Nagar are their products.

These chaps insist that you pay 100K upfront to be given the property documents.

Get ready to run after them for everything.

For a very small- small issues you have to run after them for months e.g. for getting the flooring done, for kitchen slab,doors, windows, electrical fittings, house painting.Remember these are the basic things that comes with your flat,they will have one or another excuse for not getting it done. They will even get angry on you if you go with complains/requests. Sub-standard materials would be used for contruction.

Within a year you will start facing problems like major cracks on walls , water coming from outside wall , dampness, window coming out, electricty problem, bathroom tiles problem,hollow tiles,broken tiles. They have a very standard answer to these problems 'Will do it next week'. They simple wait till completion of one year then they will disappear.

These builders have no previous history of completed projects. Then how come they have so much information on bank loans, approvals etc. They keep changing name of their company. Stay away from them.

Case 2: Some FAMOUS BUILDERS:

1)      Delivery Delays (Project delays are common. In some cases exact hand over date is delayed by a year or more

2)      Be ready to lose 25% of project cost...by the time they deliver, your net project cost would have gone up by 20-25%

3)      Careful with their agreement clauses

4)      Careful with their payment schedule...this has no relevance to their construction progress.

5)      Careful with their sales promises...knowingly or unknowingly they may be cheating you (my personal experience) and management does not care about those promises.

          Agreement Terms
          They are mostly one-sided.

They also charge hefty Advocate fee from customers. This basically means you are   paying the advocate fee to have the agreements designed for the benefit of the "Other Party". Considering that all the agreements use the same format - Advocate fee is really wonderful profit margin !
Be cautious of delay clauses: What happens if the project is delayed ? Developers may also have a clause to pay penalty on delay. But look at these clauses carefully to see when they are not applicable and argue with them to change suitably.
Be cautious of Payment Schedule : Clarify what it means in terms of actual completion. Most probably, you will pay all the money at least 1 yr in advance, though they claim otherwise !!!
Ask them questions on sharing of financial loss. e.g. if they delay the project by 1-2 years, govt may increase taxes & levies. If the increase is substantial, then you will lose a lot.

Normal areas of contention:

Uninterrupted Power Supply:

Check and see what they mean by this.

They claim uninterrupted power supply, while actually you get only 50W of back up power per apt and that also only in a pre-designated point. In most cases only the Lift can avail the power backup.

Amenities:

Its only a conceptual offering on their broacher, and it is not legally binding. Verify with the builder.

Club house charges:

They charge initial amount + monthly maintenance + usage charges, so overall it turns out to be quit expensive

Construction Quality:

Extremely bad tiling work - cracked tiles, not leveled properly, not filled properly (they crack later), diff shades of tiles used in same room

Be careful with bath fittings. These chaps promise something and install some other things.

Water Supply:

Check whether they have bore well and also depth of it. Also get to know where is the storage tank and its size. If the aparatment is more than 8 storied then pressure regulators is a must.

NEW INCOME TAX SLAB

BREAKING NEWS:  New proposal to increase tax slab has been communicated by Finance Ministry. The proposal is listed below:

0 - 3 lakhs = 0%
3 to 10 lakhs = 10%
10 to 20 lakhs = 20% and
> 20 lakhs = 30%

Old Slab:

0 – 1.8 lakhs = 0%

1.8 to 5.0 Lakhs = 10%

5.0 to 8.0 Lakhs = 20%

> 8.0 Lakhs = 30%

Most of the TV channels and newspapers have already reported this information. Lets hope and pray that it gets tabled in parliament and passed.

OUTCOME: SAVINGS AS A RESULT

As soon as the news reached my ears, I reached for my calculator to find what’s going to be the gain for me. Need to say it’s a nice gain. I have created a table to explain this impact better.

The Annual salary taken here is just “Take Home Per Month” * 12.  I consider “Take Home Per Month” to be drawn after deducting PF, HRA, 80 C investments etc.

Old Tax Structure:

Annual Income	300000	600000	900000	1200000	2400000
1.8 to 5 slab	12000	32000	32000	32000	32000
5 to 8 slab	0	20000	60000	60000	60000
above 8 slab	0	0	30000	120000	480000
TOTAL	12000	52000	122000	212000	572000

New Tax Structure:

Annual Income	300000	600000	900000	1200000	2400000
3.0 to 10 slab	0	30000	60000	70000	70000
10 to 20 slab	0	0	0	6000	200000
above 20 slab	0	0	0	0	120000
TOTAL	0	30000	60000	76000	390000

Comparison between Old and New Tax Slabs:

Annual Income	OLD SLAB Tax to be Paid	NEW SLAB Tax to Be Paid	Amount Saved
300000	12000	0	12000
600000	52000	30000	22000
900000	122000	60000	62000
1200000	212000	76000	136000
2400000	572000	390000	182000

Note:

The new tax slab as of now remains just a proposal. It needs to be tabled and passed. I am quite optimistic that if not this financial year, at least next financial year the proposal would be passed.

With our GDP winding down, government would be compelled to take measures to increase spending.

BSE Sensex Touches 18K

Hurrah! BSE Sensex has touched 18K again after Aug 2 2011. So after a gap of nearly 6 and half months. 2012 started with sensex at  15454 . By the end of January 2012  market was at 17193. So the market has gone up by 11% in 1 month. From Jan 1 2012 to Feb 14 2012 market has gone up by 16.5%. In 45 days market has rallied by 2500 points. The bearish movement has been very rapid.

Experts had predicted at the start of this year  that the market would be range bound between 14K and 18K. We are already at 18K. Now of course experts are re aligning their predictions upward and expect the market to touch 19K. Lets all wait with our fingers crossed.

Constructing a House in Bangalore

Hi friends I guess most of us have compared the option of either constructing a house or buying a ready made apartment. Recently one of my colleague constructed a house in Bangalore and was kind enough to share details with me. I realized that its quite quite painful to accurately estimate the costs.

Contractors predominantly provide cost on the basis of material requirement [material quote] or Area based quote. Area Based quotation is listed on flat per square feet rate. Primarily it is given as ROE (rough order of estimate).

But for material based quotation one provides estimated rates on quantity of material and estimated total quantity to be used.  I learnt  from my colleague that using material based quotation we can more accurately  access the costs involved.  Once we get to know from the contractor the quantity and quality of materials required for the construction, we  can analyze  the market price  for the same. Thus as long as we are aware of the market prevailing price we can keep tab on the overall cost. 

With the prevailing rates, for a 1400 sq ft house costs can start from 19 lakh onwards and go upwards with type of material chosen for staircase, fittings, flooring and interior. It was primarily ground floor + 1 room and attached bathroom in 1st floor. That is 1200 sq ft in ground floor and 200 in 1st floor. 

Let me share with you the breakup :

Borewell, wiring and motor	120000
Foundation (House, compound and car park)	200000
Ground floor, staircase	250000
Water tank, parapet, compound	70000
Vitrified tiles + Ceramic tiles	160000
Bathroom Hardware fittings	40000
Tub, sink etc	70000
Electric wiring	160000
Plumbing work	120000
Miscellaneous costs, approvals	300000
Interior (carpenter and material)	300000
Approvals	120000
TOTAL	1910000

By the way the house was constructed in uttarahalli.  
The major problems that you might face is pilferage of resource and work delay. It took my friend nearly 12 months to complete every thing. At the very end discovered that plumbing had some issue and it took about a month to fix.

Bangalore Water Challenge Part 2

This post is in  continuation of my earlier post related to bangalore water situation. I happened to come across some new and valuable informations and felt it should be shared.

Bangalore Water Source

Source	Established During	Potential MLD [Million Litres a Day]	Present Withdrawl MLD [Million Litres a day]
Hesarghatta	1896	36	6
T.G.Hally	1933	148	36
Cauvery(100Kms from the City)
Stage-1	1974	135	135
Stage-2	1982	135	135
Stage-3	1993	270	270
Stage-4	2002	270	270
Total		994	852

Source: http://www.bwssb.org , http://www.rainwaterharvesting.org

At present bangalore city population is around 90 lakhs or 9 million. If we take an average consumption of 150 litres per person. Then 1350 million litres required per day. So a short fall of  498 MLD per day.
Apart from domestic consumption you also have non domestic consumption like industrial usage, garden watering etc. Lets say these usage come up to 12% of domestic consumption. In which case overall water requirement per day would close to 1500 MLD.
Table below lists the situation in terms of demand , supply and shortage

Consumption	Per Day
Domestic	1350 Million Litres
Non Domestic	150 Million Litres
Total Demand	1500 Million Litres
Per Day Supply	852 Million Litres
Shortage %	43%

BWSSB is planning to increase Cauvery Stage-4 supply to 500 MLD is coming years. Even if that were to happen the situation wouldn't greatly change. If BWSSB uses the total potential MLD of 994 + additional 230 MLD from Cauvery stage-4, supply would be 1224 MLD. Still a short fall of 276 Million litres per day.

Considering that the MAX supply possible from BWSSB in the next couple of years is only 1224 MLD, an increase in population would only increase the shortage further.

A very serious situation is unfolding in the city. In about 5 years time whooping 40% of the population living in the suburbs wouldn't receive  cavery water. Once the bore well water dries up, you are at the mercy of private tanker water supply. God Bless! everyone in bangalore.