Comparison of Bank FD and Company FD

BANK FD   vs  COMPANY FD

Its a good time to invest in FD. The rates offered by banks are high. Now, they have even better news from companies. There are around 100 companies offering FD schemes currently, and most of them offer at least 1% to 4% more than bank FDs. A three-year FD from Mahindra Finance, for example, gives 10.5%, while one from Jaiprakash Associates offers 12.50%.

Compared with this, the State Bank of India and HDFC Bank offer 9.25% and 8.5%, respectively, for a three-year FD. You don't need to be an investment wizard to figure out that the rates offered by the companies are the best you can pocket and you should park some money in their FD schemes. But, don't commit the mistake of equating a company FD with a bank FD, say experts.

This is because bank deposits are covered by a guarantee from the Deposit Insurance and Credit Guarantee Corporation of India, which assures repayment of Rs 1 lakh in case of default by a bank, but there is no such guarantee for company deposits. The safety of the FD rests firmly on the financial position of the company. That is why you have to be extra careful while choosing and investing your money in a company FD. "When investing in company deposits, do not get lured by high interest rates. Check the past track record and financial position of a company before committing your money.

Do A Thorough Check: Before putting money in a company's FD, try to get a rough idea about the company and its activities. Go for companies which have an AAA or AA rating (for their deposit schemes).

If a company has a long history and is making consistent profits and paying dividends - HDFC and Mahindra Finance, for example, then your money in its schemes will be in safe hands. Both HDFC and Mahindra Finance have a sound past track record.

This, along with their strong financial performance and strong parentage, makes them a good bet in the company deposit space. If the financial performance of a company has been erratic, and the promoters are not well known, you should think twice before investing in its schemes.

Rates High? Check Why: Whenever you come across a company paying higher interest rates, try to find out why the rates are so high. Put simply, a company should have some reason to pay a higher interest than the prevailing market rate to depositors. Most often, you would find out that the company is paying a high rate because it is in some financial trouble and the higher rate is a way to compensate investors for taking the high risk of putting money in its scheme.

Illiquid And Taxable: If the money you have is for use in an emergency, then company FD may not be the best investment option. If you have a bank FD, then in an emergency, all you need to do is walk across to your bank with the FD receipt and you can get your money back with no difficulty. Sure, there may be some penalties for breaking the FD, but you get access to the funds to be used for the emergency. But, a company FD cannot be redeemed so easily.

Budget 2012 Impact

                                               
                               BUDGET 2012-2013 

For salaried class, this budget is rubbish. Completely disappointing.

Income Tax:
The slab has been increased from 1,80,000 to 2,00,000. So a gracious raise of 20,000. If you are in 10% bracket, then the saving is 2000 Rs/Year and if you are in 20% bracket would end up saving 4000 Rs/Year.
I am listing below tax slab and tax rates:

Old Rate

Slab in Lakhs	Rate%
0 to 1.8	0
1.8 to 5	10
5 to 8	20
Above 8	30

New Rate

Slab in Lakhs	Rate%
0 to 2	0
2 to 5	10
5 to 10	20
Above 10	30

Other Impact:

Prices of consumer electronics like LCD TV, LED TV, air-conditioners, refrigerators, washing machine and microwave ovens are going to go up by 2-4%. This is because of increase in exercise duty from 10% to 12% .
Accordingly, a 1.5 tonne 3-star split AC will now cost Rs 1,000 more, while a 240-litre 5-star frost-free refrigerator will cost Rs 800 more. A 6kg fully-automatic front-loading washing machine will cost Rs 1,200 more.
The other announcement - exemption of basic custom duty for LCD and LED TV panels, will have little impact since there was already nil custom duty for imports from Japan and Korea from where major companies like LG, Samsung, Panasonic and Videocon primarily source their TV panels.

TV makers indicated LCD and LED TV prices will also go up by 2-3%. As a result, a 32-inch LCD TV price will go up by Rs 800 while that of a 32-inch LED TV by around Rs 1,200.
Apart from the items listed above other areas impacted would be:

Air Travel
Eating Outside
Phone Bills

Salaried urban middle class is going to be in a big way affected.

NSC CERTIFICATE

NSC CERTIFICATE  or National Saving Certificate

Let me take some time out and share my knowledge and information on National Saving Certificate. I remember my dad investing in NSC during my growing up years. Of late white collar urban middle class seems to have lost interest in this investment tool, largely owing to extravagant marketing of Mutual funds [Equity, Non Equity] , Direct equity , Bank FD and other Debt options.

Investment limit

NSCs do not have a limit of how much one can invest. What's more, interest up to Rs 1 lakh is tax-free. You read that correctly. NSCs offer you the possibility of earning up to Rs 1 lakh fully tax-free.

 

This is because NSC is the only small saving scheme wherein not only the initial deposit, but also the interest for the first five years, out of its term of six years, is eligible for a deduction under section 80C.

 

Interest and returns

NSC offers 8% interest compounded half-yearly. Due the compounding, the effective rate per annum works out to 8.16%. It is a cumulative scheme with a term of six years, meaning, though the interest accrues every year, it is paid to the investor together with the initial capital invested at the end of six years. For example, Rs 10,000 invested in NSC today will grow to Rs 16,010 at the end of six years.

Tax treatment

Let’s talk about the tax treatment of the interest paid out . Unlike PPF, where the full amount of interest is tax-free, NSC interest is taxable. However, as it is a cumulative scheme (eg interest is not paid to the investor but instead accumulates in the account), each year's interest for the first 5 years is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year's interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.

 

Illustration

Example: You invest Rs 1,00,000 in an NSC on April 1, 2010. Interest on this investment for each year is shown in the following table:

  

April 1, 2010 Initial investment 100,000
Mar 31, 2011 interest for Yr 1:   8,160
Mar 31, 2012 interest for Yr 2:   8,830
Mar 31, 2013 interest for Yr 3:   9,550
Mar 31, 2014 interest for Yr 4:   10,330
Mar 31, 2015 interest for Yr 5:   11,170
Mar 31, 2016 interest for Yr 6:   12,070
Total interest 60,110
Total value of investment:   1,60,110

Important detail:

From the above discussion, it is shown that both NSC and PPF interest is tax-free. However, the difference is that PPF interest is tax-free per se, whereas the NSC interest becomes tax-free on account of the deemed reinvestment under Sec 80C. Remember that Section 80C has a limit of Rs 1 lakh. Your NSC interest would only qualify for the deduction provided you have funds left in Sec 80C.

Comparion with Fixed Deposit:

NSC is a better investment than Fixed Deposit. Lets say the above 100 K was invested in a Fixed Deposit for 5 years. Ler ROI be 10%. Then in 6 years you would have earned 60000 unlike 60110 above. But your entire 60000 rupees can be taxed. In NSC only the last year’s interest of 12070 would be taxed.

Where and how to buy?

National Savings Certificates (NSC) are certificates issued by Department of post, Government of India and are available at most post offices in the country in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. NSCs can also be transferred from one person to another by paying a small fee. They can also be transferred from one post office to another.

See url’s:

http://www.bajajcapital.com/gss/nsc.html

http://www.investmentyogi.com/planning/national-savings-certificates-nsc.aspx

Plan for Your Retirement

Start Planning for retirement: 

For most of us retirement planning means PF and Gratuity paid from our salary. Frankly the word retirement brings to our mind only these two items. Its good that these two components of our salary gets added onto our retirement corpous month after month. The major question is : Would it be enough?

Lets say that our current expense per month is 15000.  Any idea how much it would be in 25 years. To sustain our lifestyle as it is today how much we would have to spend 25 years from today.

 

At 5% interest:

Years	Year-Start	Year-End
1	15000	15750
2	15750	16537.5
3	16537.50	17364.38
4	17364.38	18232.59
5	18232.59	19144.22
6	19144.22	20101.43
7	20101.43	21106.51
8	21106.51	22161.83
9	22161.83	23269.92
10	23269.92	24433.42
11	24433.42	25655.09
12	25655.09	26937.84
13	26937.84	28284.74
14	28284.74	29698.97
15	29698.97	31183.92
16	31183.92	32743.12
17	32743.12	34380.27
18	34380.27	36099.29
19	36099.29	37904.25
20	37904.25	39799.47
21	39799.47	41789.44
22	41789.44	43878.91
23	43878.91	46072.86
24	46072.86	48376.50
25	48376.50	50795.32

 

As you can see from the table listed above, at the end of 25 years to sustain today’s life style costing 15000 Rs per month, you would need 50795 Rs per month. I am taking here inflation of 5%.

 

 

Challenges:

i)                    Need to ensure that our investment and savings targeting our retirement years yields an income reflecting inflation.

ii)                   Medical Cost: This is a huge burden on old age. As we grow old medical expenses are only going to grow. So apart from taking care of income to provide decent life style, we also have to plan for medical emergencies.

The savings and investments planned to retirement years has to be kept separate from financial needs to buy house, children education, family vacation etc. To execute this plan for more than 2 decade calls for strict discipline.

Lets look at things positively. Imagine that you have shown enough financial discipline and saved a huge corpus for life after retirement. This would not only provide quality life for your and your partner in the evening of your life, but also enable you to leave substantial inheritance for posterity.

BigBazar Bangalore Vegetable Prices

BigBazar Bangalore Jayanagar 9 Block Vegetable Rate on 10/Mar/2012

My post last week focussed on Jayanagar 9 Block vegetable vendor rates. This week on saturday morning I landed up in BigBazar to purchase vegetable. The rates are listed below:

Tomato : 25 Rs/Kg
Carrot : 20 Rs/Kg
Green Chilli : 31 Rs/Kg
Palak Leaves : 3.50 Rs/Pack
Ladies Fingerv: 40 Rs/Kg
Coconut : 12.50 Rs
Corainder : 2.50 Rs/Pack
Potato : 12.50 Rs/Kg
Cabbage : 17 Rs/Kg
Capcicum : 40 Rs/Kg

Jaynagar 9 Block Vegetable Vendor Price:

Tomato : 30
Potato : 20
Onion : 20
Ladies Finger: 60
Capsicum : 60
Lemon : 5 Rs
Cabbage : 30 Rs/Kg
Mehthi Leaves: 1 bunch for 10 Rs
Palak Leaves : 1 bunch for 7 Rs
Brinjal : 30

Note:
As you can see vegetable vendor rates are much higher than BigBazar rates. There is any where between 20% to 100% difference in rates. Its much cheaper in BigBazar.
One issue normally people have with Vegetable and Fruits outlet like BigBazar , Reliance , SPAR etc is the quality of items. They are right about it. In SPAR quality sucks. Reliance is mixed bag. BigBazar was also like Reliance. This time around, I found almost 70% vegetables sold in Bigbazar to be on par with road side vegetable vendors.

Quality Observation of vegetables sold in bigbazar on saturday 10/mar/2012:
Tomato : Good
Potato : Good
Ladies Finger : Good
Capsicum: Good
Carrot : Above Average
Cabbage : Good
Palak Leaves : Good
Brinjal : Good
Onion : Pathetic
Methi Leaves : Average

Onion being a weekly chief requirement, I have no choice but to buy it from road side vegetable vendors.

I have arrived at the decision to purchase at least 60% to 70% vegetables from Bigbazar and the rest from vegetable vendors. This way I get to save almost 30% more money.

NRI and Bangalore Real Estate

Recently my friends staying in USA started pressing me to find out real estate rates in bangalore and mysore. I was quite surprised by this sudden barrage of interest to buy property. Subsequently, I understood that this sudden excitement was due to weakening  rupee value.

Yes! Its a very good time for NRI's to invest not just in bangalore , but also in other parts of India. In bangalore it is a fantastic time to buy as rates have been flat for almost 14 months now.
Lets look at it from NRI perspective:
Last March 1 US dollar was costing close to 45 Rupees. Today after 1 year the exchange rate for a US dollar is around 50 Rupees approximately. So close to 11% fall. Advantage of buying now:
i)  You are getting properties at almost 11% discount
ii)  Rates in bangalore have been flat for almost 1 year.
iii) They can book profit once rupee strengthens.
iv) They can book profit as rates in bangalore starts to move up

Some broker are making nice profits while booking a deal for NRI's of late.

Any one wanting to buy property in bangalore need to decide whether its for investment purpose or not. If the transaction is used for investment. Then they have two choices : Land and Flats.

Land : The rates here only appreciates. The risk is with buyer not in bangalore it becomes very tricky. Buyer would not be able to keep an eye on his site.

Apartment : As we all know  apartment rate depreciates  at -2% every year from market rate. So if the plan is to buy and hold for a few years. Then it is unwise.
If the plan is to invest in launch phase and sell once construction is complete, its fine. You stand to gain.

The one issue NRI buyers would face is if rupee is going to further fall, then it offers more discount for them. Its a bit like buying equities. In a falling market to determine the bottom level is quite difficult.

Most of the queries which I got from my NRI friends was related to buying land. So they wanted to know about gated community , BBMP approvals, BIAPPA approvals , Plot dimension and location.
A lot of enquiries were regarding plots beyond Ecity. That's largely because of the way these plots are being marketed. I am personally not too positive about this area with rumors of ground water pollution due to BIOCON.

Also visit the site : http://articles.timesofindia.indiatimes.com/2011-12-23/other-news/30550600_1_commercial-property-office-space-nris

Vegetable Price in Bangalore as on 4/Mar/2012

I just felt it would be nice to share vegetable prices. The primary motive is it would let us know how prices rise and fall in different seasons, plus get a hold on food inflation. The vegetable prices listed are 4/Mar/2012 rate in Jayanagar 9 Block Market.
Per Kg Rate in Indian Rupees

Tomato : 30
Potato : 20
Onion : 20
Ladies Finger: 60
Capsicum : 60
Lemon : 5 Rs each [I Bought 5 for 20 Rs]
Mehthi Leaves: 1 bunch for 10 [I bought 2 for 15]
Brinjal : 30