Can Google Answer all your Questions ?

Recently Google Celebrated its 18th birthday and most of us realised that it existed long time before many of us started using it.

In fact, most of us have replaced the word “search” with “Google”. Now-a-days, We don’t say, “I searched for it on net”. Instead we say “I googled it”.

While I have a huge respect for Google as a company as well as its efficiency to help you research, off late I have realised that most of us need to use sanity and prudence while using google.

Difference between Data, Information, Knowledge and Wisdom

Lets first understand the pyramid of Data, Information, Knowledge and Wisdom.

wisdom-knowledge-information-data-pyramid15 wkid

The pictures also shows an example of how Data, information, Knowledge and Wisdom are different from each other and can be derived from one to another.

Now, as long as we use Google for data searching or information searching, it should be fine as we can convert this to knowledge and wisdom.

To those with higher degree of understanding, may also sparingly use it for knowledge. But if we start googling for wisdom, we will be doomed for disaster.

Wisdom, by definition, is the ability to take decision based on knowledge (which may be derived after a detailed study of information on data) but also requires human skills.

These days, we have interesting examples of Google searches.

Imagine someone searching on Google “How to commit suicide?”

Google might throw up all the ways to commit suicide, but is it going to ask you “Why do you want to commit suicide?” or console / motivate you for not committing suicide?

How does Google Search Work?

Google Search works on a basic principle of string matching. It looks for keywords put in the search bar and then matches them with the content of websites across the globe. While this is a commendable feature, at times it can misguide people if they don’t use their brains.

For example, someone types “Best Country in the world” , Google wouldn’t know which country is best in the world (nor it wants to know). All it does is, lists down all the webpages where this phrase “Best Country in the world” has appeared.

So someone looking to find an answer to this query may be either disappointed or misinformed. And this isn’t Google’s fault. It is our fault that we are not asking the right question.

How should you use Google?

As mentioned above, Google can be used for data or information searching. For example, you know that some Dr. Tukaram Jadhav (hypothetical character) is a good child specialist in Dadar. But you don’t have his contact number or address. Now you can go to Google and search for his name, so that it helps you in finding his contact details (Hopefully Dr. Jadhav has uploaded his details such that Google can find them). This data can be directly used.

In case you don’t know his name, and you are looking for a child specialist in Dadar, you can do a google search “Good Child Specialist in Dadar”. Now, don’t you think the results here will be less “ready to use” than the earlier?

Out of the few names thrown by Google, you will have to do additional analysis of the qualifications, experience, references etc of the names of doctors popped up. So this data needs to be used with additional level of offline intelligence.

I hope none of us would directly like to ask Google, “My Child is having fever. What to do?”

If someone is doing that, let me tell you, this can be a disaster. You would require a qualified professional who takes into account your child’s age, weight, height and several other things.

Some telecom companies have advertised internet to be the “Sea of Knowledge and Wisdom”. But its their own vested interest to make people buy data plans. Lets understand that internet is a “Sea of Data and Information” and we still need higher skills to be able to use this data and information to convert into knowledge and wisdom. (Not to forget, these data can also be incorrect at times. So one needs to be sure of the source. In case of error, you cant get away by saying, “I got it from Google”).

Can Google Personalise the “advice”?

The first mistake would be to expect that Google can advise you.

But as we have all types of people in this world, lets say someone actually tries to seek advice from Google. You ask it to show the ‘best’ route from point A to B. It will show you the shortest route based on data available (i.e. distance, traffic etc). However, does Google know that you are planning to take a 12 seater mini-bus from that route and the narrow road wont accommodate your mini-bus ?

Likewise there could be various cases, wherein a combination of online data and offline intelligence needs to be used rather than blindly trusting and following what Google advises.

Beware of “Google-enabled Professionals”

There are some people who have just “become” professionals by googling. While a professional also needs to keep himself updated through the internet, there needs to be strong foundation on which the knowledge updation can be done.

Imagine you going to a doctor who has just learnt everything just by googling or watching videos on the YouTube. Or flying with a pilot who hasn’t undergone any training; Rather he has just read on the internet “How to fly an aircraft?”

While the internet (or Google) is a great tool to connect with the world, let it not take away our sanity.

Key Takeaways :

  1. Understand the difference between Data, Information, Knowledge and Wisdom.
  2. Use Google for searching data and information only. Keep Knowledge and Wisdom queries for professionals.
  3. Verify Data and information thrown by Google. Check the source.
  4. Google just matches strings or phrases to provide links. There is no “intelligence” or “due diligence” done by Google on the validity.
  5. Google cant give you personalised advice. Offline intelligence would be needed.
  6. For critical and long term issues, deal with known, verified and qualified professionals ; And not with “Google-enabled Professionals”

We look forward to your valuable comments and feedback.

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The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP) is CEO with Nidhi Investments, Mumbai. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

 

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Let’s Learn to Co-exist!!

I remember an old incidence when I was staying in a hostel. On my day one, when I moved into my room, it was occupied by only one person in a 3-seater room. His stuff was lying all over the room.

When I started claiming my space, he became pretty uncomfortable. For once he thought I am causing trouble to him. But after some time, things became smooth. We had similar experience, when our 3rd roommate moved in. But having undergone a similar experience earlier, we handled it better this time and became good roommates and friends. We just had to accept the fact that there is enough space for all 3 of us.

Now, this is what pretty much happening around us. I will discuss a few examples below to make it clear.

First example is the burning issue between Auto drivers and Ola / Uber. If I were to analyse the Transport Infrastructure of Mumbai (I am currently sticking to Mumbai as this is where I practically see things happening), we would realise that all the Transport Infrastructure of Mumbai put together (Local Trains, Metro, Autos, Taxis, Private cars, BEST Buses etc.) still falls short to carry the entire load of Mumbai, especially in the peak hours. This means that there is a definite need for more infrastructures to support the commutation needs of Mumbaikars (and visitors).

However, all these years, Road transport was “dominated” by the Auto drivers. They could choose where they want to go and where they don’t want to go (Although they are not legally allowed to refuse). So they assumed that this space totally belongs to them. All of a sudden, they got swept by these App-based taxi services. They thought that this is injustice as it is going to “Kill” their business.

Honestly speaking, we still have lot of Mumbaikars (including myself), who might choose an Auto rickshaw over an app-based taxi (provided it agrees to come). So, the Auto-rickshaws still have enough on their plate, in spite of some commuters getting served by app-based taxis. But this resistance to co-existence is costing them. The day they go on strike, the app-based taxis get even more business.

So the day they accept co-existence, they will understand, that there is enough business for every transport carrier. App-based taxis are just adding some convenience to the customer and not really “Killing” their business. Competition can just take away their arrogance, not food.

 

Another example is the hot story of Jio Launch. The day Jio was launched, the shares of the competitors tanked. I don’t know if people noticed, that even the shares of the company who owns Jio, also saw a downfall in price.

The wider perception was, now Jio would eat away all the market as it has come up with so many freebies, which competitors may not be able to offer.

Let’s understand this in light of co-existence. Be it Telecom industry, Airline industry or any other industry, there are times when lot of players perceive that this is the booming industry and they enter. After some time, the dust settles, the weak players either quit or are bought by stronger players and consolidation takes place. It is very unlikely that a single player has “all” the market share.

So my take on this is, people have started analysing if Jio could be a better choice for them. At the same time, the competitors are working out to come up with competitive plans so that they can at least retain their customers (if not expand). So not “Everyone” will move to Jio for sure.

Moreover, we have more than 1 billion mobile subscribers in India. The first question is, can Jio (or any telecom player) serve 1 Billion subscribers smoothly??

If your answer is no, then there is definitely a place for co-existence. The weakest players might quit or merge with stronger. And the stronger will prevail. Obviously they will have to come out with innovative strategies to show their strength. So we will be left with some strong players who can co-exist.

Towards Conclusion I want to share a picture with you. This picture is becoming popular in social media. This is a picture of a village called Ranbodi. The people in this village have accepted the co-existence of a tigress and thus, the Tigress also doesn’t harm them back. While this can be one of the very extreme examples, but it gives us some food for thought.

Coexistence.jpg

Human mind assumes supremacy over the territory around him. And when somebody else tries to share the territory, it becomes uncomfortable and starts resisting. We have to train our minds to learn this Principle of coexistence which can resolve many “issues” that are just in the mind.

While our mind is forcing us to make it “You OR Me”, let’s make it accept that it can be “You AND Me”.

Saurabh Profile PicWe look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP) is CEO with Nidhi Investments, Mumbai. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

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Are we ready for the price??

 

salon bangkok pricing.pngThere’s a very famous quote

“Everyone wants to go to heaven, but nobody wants to die”.

The underlying meaning of this quote is, we all want benefits, but we are not really prepared to pay the price.

 

Price doesn’t necessarily mean the monetary compensation. It basically means your part to be played to get the desired results. (If I have to say that in the words of The Geeta, we all want the “Phal” , but are we ready to do the “Karma”).

 

  • Most of us want to lose weight and have that toned body. But the price for the same is, get up early, exercise and have balanced diet. Are we ready for this price?

 

  • Most of us want our parents / spouses / kids to earn lot of money. But that would mean they would have lesser time to spend with us. Are we ready for this price?

 

  • Some of us want to score well in exams. But that would mean to give up some desires and spend some more time preparing. Are we ready for this price?

 

  • Some of us (those who run a business), want to have an efficient team who work so efficiently that there is very little left to do for the business owner. But that would require appropriate hiring, grooming and training of the team so that they become efficient. This would require the business owner to spend more time, money and energy on them. Are we ready for this price?

 

  • Most of us want to create wealth for retirement as well as to achieve other goals. But that would mean sacrificing some of the desires today, setting aside some amount regularly and investing it appropriately. If we lack the skills, we might be required to hire a professional who does this for us. Are we ready for this price?

 

  • Most of us want to upgrade our skills. But that would mean investing some time in reading, getting trained to upgrade our skills. It might not be too entertaining, but could benefit in long term. Are we ready for this price?

 

  • Most of us want to have good friends who are always there to help us. But that would mean we invest some time and energy in fostering good relationships and being there when our friends need us. Are we ready for this price?

 

In a nutshell, we can say that, most of us are looking for the benefits without being prepared to put in the efforts.  Remember, almost every facility / pleasure / achievement comes at a price. If we are really willing to avail the benefit, lets be ready to pay the price.

 

We look forward to your valuable comments and feedback.

 

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The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP) is CEO with Nidhi Investments, Mumbai. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

 

 

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BREXIT : How Does it impact my Investments ?

 

Sunil : Hey Aakash, did you hear the news about BREXIT ?

Aakash : What is BREXIT, Bro ?

Sunil : ‘Brexit’ stands for Britain Exit wherein the British voters chose to withdraw from the European Union (EU) in a historic poll on June 23, 2016.

Aakash : Ok. So how does it matter to us ?

Sunil : Ohh, you dont know ?? The Sensex tanked by almost 1000 points that day. Later it closed 600 points down.

Aakash : Wow !! Doesnt that look like an opportunity to invest ?

Sunil : You are always on a different tangent. What about the flipside of BREXIT ?

Aakash : Thats what I am asking. What is the flipside of BREXIT for us ?

Sunil : Well , am not too sure !! But if everyone is worried, there must be something bad in it for us.

Aakash : This is where we display our herd mentality. Rather than understanding a situation, we follow the crowd. Only to know that the reality was exactly the opposite.

Sunil : So what should we do now ?

Aakash : Now you are asking the right question. When we have a investment plan, duly monitored by our advisor, we need not worry about these short term factors. Ultimately, we are concerned with whatever wealth we create, right ?

Sunil : So you mean to say, these global factors dont matter at all ?

Aakash : They do have some temporary impact due to sentiments. For example, after 9/11, there were many who thought that things are finished now and there will be no growth.

But our investments have grown more than 10 times from that time, because we kept investing.

Today, India is the fastest growing economy in the world, and thereby the favorite place for the world to invest. In a way, we can say that (to some extent) these turbulence should be seen as an opportunity than threats.

I am not saying that whether BREXIT will happen or not happen. I am also not saying that BREXIT wont affect the global economy.

All I am saying is, when it is outside the purview of our expertise and we have parked our investments with the expert, we should let the expert do his job and relax !!

Sunil : Thanks Aakash. I still dont understand too much of BREXIT. But now I know, how much I should be worried about it.

 

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP) is CEO with Nidhi Investments, Mumbai. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

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Roller coaster or an aircraft?

 

In A Roller Coaster, the starting point and ending point is the same.

In Aircraft, your starting point is a different city / country than your destination at end of the journey.

 

In A Roller Coaster, your purpose is to have fun in the ups and downs. You don’t aim to reach anywhere other than from where you started.

In an Aircraft, you are not too bothered about the journey. All that matters to you is to reach your destination (preferably in stipulated time).

 

If you sleep in a roller coaster, you miss the fun as the purpose is to enjoy the ups and downs.

In an aircraft, you can sleep, watch movies, listen to music, talk to your co-passenger. In short, do anything other than worrying about the ups and downs of the journey.

 

Now, lets look at this analogy vis-à-vis intraday trading and long term investing.

Intra-day trading is like a roller coaster ride. People don’t really reach anywhere but do it for a kick. They just keep watching the markets and get thrilled about the ups and downs.

 

Long term investing is like boarding an Aircraft. Someone will board an aircraft because he wants to reach a destination. For him, the ups and downs in the journey are immaterial as long as he reaches his destination. So he will start an investment and then not keep worrying about it. As long as a trained pilot (investment manager) is taking care of his flight (investments), he doesn’t bother about the ups and downs.

(Imagine a hyper passenger who keeps disturbing the pilot about how to drive or about the coming obstacles!! It may result in an unwarranted crash )

Its now upto us to decide. Whether we want to reach a destination (retirement) , or we want to ride for fun. Our investment choice and investment behaviour will depend on this decision.

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP) is CEO with Nidhi Investments, Mumbai. He may be contacted on saurabh@nidhiinvestments.com if you have any questions.

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(The views mentioned in the article are personal opinion of the author)

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5 Reasons why you drain your finances when you hit 60s

Retirement pic

“One should never get old!!” said Mr. Khanna in a disappointed voice. “Everything finishes by the time you reach 60. Its better if people have shorter lives.”

“Why are you saying like that Mr. Khanna?” asked Mr. Desai. “When you reach 60s, you can retire from work and enjoy life. Yes, if you have developed some diseases then that’s a different matter”

The four colleagues, Mr. Khanna, Mr. Desai, Mr. Mehta and Mr. Ghosh were sitting in their office canteen having evening tea. All were about to retire in the next 3 months.

Mr. Khanna continued: “By the grace of God, I don’t have any illnesses till date. But I was just speaking to our accounts department and learnt that after retirement I will be getting my PF of just Rs. 16 Lakhs. Now, when I put this in a bank FD at even 9.5%, I would get a monthly income of just Rs. 12,600 something. Now, how do I survive with such kind of low income?”

Mr. Ghosh: I have exactly similar problem. My PF is Rs. 17 Lakhs.

Mr. Mehta: But our PF amount should be close to Rs. 35 Lakhs, isn’t it ?

Mr. Khanna: Yes, but I took a loan against my PF few years back. This loan was taken to fund my daughter’s marriage. This resulted in reduced corpus for retirement.

Mr. Ghosh: So did I. I took a loan for my son’s education. Now I am left with a very small amount for retirement.

Mr. Desai: But you would have made some other investments, right?

Mr. Ghosh: I bought a few endowment policies for my retirement and for son’s education in 1989. I had taken a policy with sum assured of Rs. 2 Lakhs for my retirement and sum assured of Rs. 1 Lakh for my son’s higher education. In those days, 2 Lakhs was a big amount. However, this wasn’t sufficient for his higher education. His college fees itself was Rs. 20 Lakhs. Thus, I had to take loan against PF and against my endowment policy too.

My endowment policy will mature now and the maturity amount is almost Rs. 4.1 Lakhs (with accumulated “Bonus”). Out of this, Rs.3.8 Lakhs will be repaid towards the loan and I will get just Rs. 30,000 for my retirement.

Mr. Desai: What about you, Mr. Khanna?

Mr. Khanna: My story is even worse. I took 2 endowment policies for my retirement, one policy for daughter’s marriage and one money back plan. As per my capacity, I was paying a pretty high premium for all these 4 policies. Thus, didn’t have much scope to save anything else. Similar to Mr. Ghosh’s case, my retirement policies vanished in my daughter’s marriage. Policy for my daughter and my retirement policies put together fetched just Rs. 4 lakhs. Thus, I had to take a loan against my PF for her marriage.

I am just thankful to God, that the groom family didn’t ask for a dowry. Or else, I would still be under a heavy loan.

Mr. Mehta : Then how come you spent Rs. 21 Lakhs in your daughter’s wedding ??

Mr. Khanna : In our community, it is mandatory to have a grand wedding ceremony Mr. Desai. Every person who attended the wedding said that it was one of the best weddings. Doesn’t a father dream that he celebrates his daughter’s wedding in the best possible way?”

Mr. Desai : Well, may be. But the question is, if that was your aspiration, why didn’t you plan for it properly? How can a grand wedding ceremony be a justified expense at the cost of your retirement?? Tomorrow the same people will attend some other wedding and say the same words. Then what ??

(Mr. Khanna had no answer to this)

Mr. Mehta: And, what about your money back policy? Why did you take that?

Mr. Khanna: That policy paid me “some” money every fifth year which I utilised for usual expenses like house repairs etc. I think it was a big mistake too.

Mr. Mehta : In that manner, I did one thing wise. But don’t know if the other thing went wrong.

Mr. Khanna : Let me guess, you didn’t  take a loan on PF.

Mr. Mehta : Actually I did. But good thing is, I didn’t blow off too much money in daughter’s marriage. I got her married in a very simple manner. But I took up a loan to buy a plot for my retirement. Someone told me that real estate is the best investment for retirement and so I did that.

Mr. Ghosh : You lucky man. So now why are you worried?

Mr. Mehta : Problem is, from last 12-14 months, some unauthorised slums have encroached the plot. Since the plot is somewhat in a far flung area, I was not able to visit it regularly. One fine day I came to know that the encroachment has happened. I have lodged a police complaint but nothing has happened till date. Even if I file a case in court, I don’t know how will I fund my retirement till the date of judgment (assuming that the judgment happens in my favour). I also have one ancestral property. But due to this slowdown in Real Estate market, I am not able to sell that as well.

Also, as I had these 2 properties, I didn’t buy any policies or did any other savings etc. I just lived life kingsize. Gave everything that my wife, kids asked for. I didn’t save anything separately for retirement, thinking that this plot will solely fund my retirement. I now realise that I should have planned much more seriously for my retirement.

 

Mr. Desai : So what you understand here is that, there are 5 primary reasons why we run out of money by the time we reach our sixties.

  1. Blowing money in children’s marriage: Although it’s a great day in a father’s life, it is no excuse to blow off unreasonable amount just to “oblige” the society. We are responsible for our retirements and we need to save for it. If at all a “grand wedding ceremony” is a necessary goal, plan for it separately in growth assets.
  2. Not availing educational loan for children’s higher education: Once we have funded children’s school and college education, we should let them get an educational loan. They can get a loan for education and have a lifetime to repay, but we can’t get a loan for retirement. Again, if at all, we want to fund our children’s higher education, we can’t dip into retirement money. It needs to be planned separately ever since the child is born.
  3. Investing in traditional products: Some of us save a part of the income but “invest” it in traditional products like endowment plans, money back plans etc. These traditional products fail to give good returns. In fact, we get negative inflation-adjusted returns from them. We need to invest in growth products which will give higher returns than inflation so that we can create a sustainable corpus for retirement.
  4. No Diversification: Some of us put all our life savings in one real estate project thinking that it will help us survive our retirement. However, something goes wrong with that project and we are left in limbo. We need to have a diversified portfolio so that we can minimise our risks and maximise our returns.
  5. Not Saving for retirement: Some of us believe in living life king size. No doubt we should enjoy our life and also fulfil needs of our family. When I say needs, I am putting “wants” and “demands” aside and will fulfill them very judiciously. This is because, when you run out of money while approaching sixties, each unnecessary expensive toy given to your kid will start pinching you.

It is our utmost responsibility to save and invest at least 15% of our income solely for our retirement.

There has been a trend of old age parents being deserted by their children as they cannot financially support them. But if we want to curb this problem, the first step is to start saving and investing for our retirement. So this is not only a social issue, but a case of lack of planning.

Tomorrow, when our children grow up, they will have enough liabilities including household expenses, home loans, children’s education, self-retirement etc. Let’s ensure that OUR lack of planning doesn’t mess up THEIR finances.

Last but not the least. Retire from Work, not from Life.

P.S : The above article is written by Prof. Saurabh Bajaj and was first published on https://blog.bankbazaar.com/5-reasons-why-you-drain-your-finances-when-you-hit-60s/

Author: Prof. Saurabh Bajaj is CEO with Nidhi Investments, Mumbai. He has been actively involved in writing for investor awareness since last 6 years. His articles have a readership from 64 countries across the globe. He may be reached at saurabh@nidhiinvestments.com for any queries.

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6 Infuriating Tax Queries Answered

We are all usually surrounded by lot of questions related to investments, taxation, finance etc. In this article, we have handpicked 6 questions which are important and applicable to most of us.

Tax-51

1. How are tax rebates calculated for payment and prepayment of a home loan?

Those who have availed a home loan usually have this typical problem in the initial years. The rebate under Section 80C is not available to the extent of amount repaid as principle repayment. Mr. Suresh (name changed) has started paying an EMI of Rs. 25,000 p.m. and thinks that his 80C is taken care because he is paying Rs. 3 Lakhs towards home loan. However, his principle repayment could be in the range of Rs. 30,000-40,000. Thus, balance 80C needs to be taken care.

Another example, out of the total 80C limit of Rs. 1.5 Lakhs, lets say your PF deduction already takes care of Rs. 48,000 and your insurance payments are around Rs. 30,000, then you are already good for Rs. 78,000 as far as tax saving is concerned. So from the rebate point of view, you may pay a lumpsum of Rs. 72,000 towards home loan prepayment. But if you are paying more than that you may not get tax benefits for the additional amount.

So, before you prepay your home loan, calculate whether the additional amount you intend to pay will fetch any tax benefits.

2. When do I need the help of a CA?

This query could be in everyone’s mind. A CA is someone perceived to be performing audits for corporates. However, there are CA firms who undertake tax consulting for individual tax payers too. Are his services necessary for individuals? Well, this depends from person to person. If you have decent knowledge about taxation matters and can take care of your ITR filing without requiring a second opinion, you can do without a CA.

However, those who are either less knowledgeable about taxation matters or less confident without a second opinion should avail the services of a CA for routine ITR filings and for other taxation queries.

Also, if you have a business which needs to be audited, then you would definitely require help of a CA.

3. What are the big tax breaks apart from 80C?

Apart from 80C, there are a few more tax breaks which might be worth taking a look at:

Section 80D: This section deals with premium paid towards health insurance. The limit has been enhanced from Rs. 15,000 to Rs. 25,000 and Rs. 30,000 p.a. for someone paying premium for senior citizen parents.

Section 80E: This section deals with the interest paid for educational loan. However, the loan has to be availed by the individual himself. For example, you cannot avail this benefit for payment of interest for loan availed by your children.

Section 80CCG: This section is mostly unknown to many because of its restrictions. This section allows you to invest up to Rs.50,000 in products eligible for RGESS (Rajiv Gandhi Equity Savings Scheme). When you invest Rs. 50,000 you get a deduction for Rs. 25,000 subject to fulfilment of 3 conditions:

1: Your annual income is less than Rs. 12 Lakhs

2: You have a demat account

3: You have not traded in equity markets before investing in RGESS.

Section 80DDB: This is towards the expenses made for a dependent’s treatment fo

r specified diseases. The maximum deduction available is Rs. 40,000 (and Rs. 60,000 if the patient is a senior citizen). If some amount of the expenses is reimbursed by medical insurance, it needs to be reduced.

Section 54EC: This is available if you have sold a property and have some capital gains. You can invest upto Rs. 50 Lakhs in one financial year to save tax on capital gains.

4. When I will be audited?

If you are a business person then you will be audited u/s 44AD if you meet any one of below conditions:

A] Your turnover for the FY is more than Rs. 1 crore

B] Your turnover is less than Rs. 1 crore but your profit is less than 8% of turnover.

If you are a professional (CA / Doctor / Lawyer) and your receipts are more than Rs. 25 Lakhs, then you will be audited.

5. When will I get previous years’ refund?

This is again a question that most people are worried about. Income tax department is in the process of streamlining the systems so that refunds are processed in not more than 120 days. However, there are few precautions that we need to take:

A] File your ITR on time. Delayed filing results in delayed refunds.

B] If you are not using digital signature, don’t forget to send the signed copy of ITR V within 120 days of filing.

C] Fill up your bank details with utmost care.

6. What’s the main difference between new ITR forms as compared to older ones?

  • Introduction of EVC (Electronic Verification Code) prevents sending hard copy ITRV
  • Super Senior citizen can file ITR in paper form
  • Detailed listing of all bank accounts held during the FY, details about your foreign travel, foreign assets, domestic assets etc. (ITR 2A for those having foreign assets).

P.S : The above article is written by Prof. Saurabh Bajaj and was first published on https://blog.bankbazaar.com/6-infuriating-tax-queries-answered/

Author: Prof. Saurabh Bajaj is CEO with Nidhi Investments, Mumbai. He has been actively involved in writing for investor awareness since last 5 years. His articles have a readership from 64 countries across the globe. He may be reached at saurabh@nidhiinvestments.com for any queries.

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The Little-known Secret of How Metros buy Insurance

Insurance sales start surging in January of every year and peaks in March. So, are more accidents happening during this period? More people getting hospitalized? Or, a sudden realization in the new year that one needs life cover?

It’s Option D – none of the above. The reason is painfully simple – tax saving! So, what’s driving this sudden rush to buy insurance – is there an inherent need or is it just the gift of gab of that persistent insurance agent whom you met the other day?

Insurance-policy

We have taken four case studies from the four Metros of India to understand what kind of insurance are people from these metros opting for and what’s their motive to go for a particular insurance product.

New Delhi: Last minute scramble

Mr. Abhishek Khurana, 34, is a Mechanical Engineer working with an automobile company. His family consists of his wife Ranjita, 32, homemaker, and a 3-year-old son.

When we spoke to him, Khurana had no idea about the exact life risk cover he had. A few airy calculations later, he revealed that he had some 21 traditional policies and he was paying around Rs. 50,000 premium p.a. towards them.

Most of his policies had been purchased during the December-to-March period every year, initially when his “family agent” would drop in to coax a policy or two out of him and later when he started receiving HR mails at work to submit tax-saving proof.

The above example shows that the motivation to buy life insurance was solely for tax saving. Lack of awareness and an attitude of postponing things until the last minute rendered him an under-insured person. According to his income, he should have had a life risk cover of at least Rs. 1 Crore, whereas his cover barely crossed Rs. 10 Lakhs.

Kolkata: Keep your enemies closer

Mr. Bimal Gupta, 36, is a Commerce graduate having his own garments business in Kolkata. His family consists of his wife, Ragini, 33 a homemaker and a 5 year old daughter.

His father Mr. Deenbandhu Gupta, has always invested in insurance policies. The same has been largely followed by all his elder brothers.

However, Gupta realised that insurance policies were a very low-yield investment and was not very keen on “investing” in insurance. He has taken a term cover for himself and one child plan for his daughter, investing his remaining money in PPF.

“Here in Kolkata, after the Saradha scam and few more similar stories, we have lost faith in private players,” says Gupta. He trusts only Government companies. His term plan and child plan are also from LIC. “I am aware that cheaper term plans are available, but I don’t trust private insurance companies. Thus, I have taken a lower cover so that I can afford the premium.”

Here, insurance was purchased for the right motive, but due to prevalent business climate, apprehensions and affordability issues, Gupta is under-insured.

Chennai: Love thy neighbor

Mr. Venugopal Iyer, 44, runs a small restaurant in Chennai. His wife, Saraswati, 41, is a part-time school teacher. They have a 13-year-old daughter and a 10-year-old son.

Mr. Iyer is extremely busy in his business and has no time to look at his books of accounts. His only motive to buy insurance was to oblige Saraswati’s friend, Anuradha, who had started an insurance agency as a “pass-time” activity. Today, Iyer is sitting on around 12 policies in his name, 10 policies in wife’s name, 2 policies each in his daughter’s and son’s names. He has no clue what policies he has bought. Nor does he expect any of these policies to secure his future or cover his life risk. Whenever Anuradha is not able to meet her targets, she drops into Iyer’s place and wangles a couple of policies from him.

Another quirk about Iyer is that he is mighty apprehensive about paying taxes and thus files ITR only to the extent of having nil tax liability.

This has also prevented him from availing a sufficient life risk cover for himself. He earns around Rs. 10-15 Lakhs a year, but due to under-reporting of income, he is not eligible to buy a life risk cover of Rs. 1 Crore. Although he knows what a term plan is, he is yet to agree that the trade-off is worth it.

So, here, the motive to buy insurance is to oblige or to “maintain relations”. He doesn’t have enough life risk cover, defeating the basic purpose of life insurance.

Mumbai: Bank on the banker

Last, but not the least, lets see what typically happens in Mumbai, the financial capital of the country. Mr. Yogesh Deshpande, 47, is a highly accomplished professor serving in a leading engineering college in Mumbai. His wife, Sulochana, 42, is a homemaker and occasionally takes hobby classes. They have two sons – elder son Namit who is 21 years old and younger son Rajat who is 18 years old.

Deshpande only believes in investing in bank FDs and places complete faith in his banker.

On more instances than one, he visited his bank to open an FD only to have his banker successfully sell him a ULIP. The banker’s pitch was simple: “this (ULIP) is ‘almost’ like an FD but with higher returns, plus insurance, plus tax saving.” Only after receiving his policy document did Deshpande realize to his horror that almost 30-40% of his investment had been wiped off under various heads of “charges”.

After realising his mistake, he decided not to buy any more policies from his banker. But when his wife wanted to avail locker facility, the banker said that only “limited” lockers were available, and that he would give the lockers only to those who bought an endowment plan from him. The Deshpande couple knew that they were being given a raw deal, yet went ahead so that they could get a locker.

In this case, the purpose of buying insurance was an unwillingness to resist selling pressure from a service provider.

In the above examples, what’s intriguing is, insurance was neither pitched nor perceived as a product to cover risk. It was either to save tax or to maintain relations or to make an “investment”. Even in cases where the investor was willing to buy insurance for all the right reasons, monetary constraints sometimes reined him in.

Key takeaways from these case studies:

  1. Life insurance is to cover your life risk. Thus, ideally it should be 10-12 times your annual income at a minimum.
  2. Term plan is the best cover you should buy for life risk. This way you get sufficient cover at a low premium.
  3. Tax saving is an additional incentive provided to encourage you to cover your life risk and to secure your dependents. Even if your tax saving is done, do not skip term plan.
  4. Private insurers are also well regulated by IRDAI. Thus, you need not restrict your term plan choices just to PSU insurers. Private insurers with good claim settlement ratio could be a good choice.
  5. Insurance agents’ “targets” are their headache and not yours. Do not stake your future (and your dependents’) just to oblige your agent. Buy it from him only when you genuinely need it.
  6. Similarly, your banker cannot “force” you to buy a policy to give you a locker or a loan. Although this practice is prevalent, please be informed that this is illegal and unethical. You have every right to lodge a complaint against this behaviour.

Know your rights. And know your responsibilities. Above all, know that you need life insurance to provide life cover, not to save taxes or oblige someone.

P.S : The above article is written by Prof. Saurabh Bajaj and was first published on http://blog.bankbazaar.com/the-little-known-secret-of-how-metros-buy-insurance/

Author: Prof. Saurabh Bajaj is CEO with Nidhi Investments, Mumbai. He has been actively involved in writing for investor awareness since last 5 years. His articles have a readership from 64 countries across the globe.

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The Hare Could Win Here !!

This is the story of 2 friends viz Amar and Rakesh. Both were from middle-income family backgrounds. Both joined same company at the same salary level of around Rs. 23,000 p.m.

We all have heard the story of a hare and tortoise wherein the hare was fast in the beginning and when he saw tortoise coming slowly behind him, he decided to have a nap. Meanwhile tortoise continued to move, surpassed the hare and won the race.

the-hare-and-the-tortoise-001

Here the story began somewhat similar. Amar, at the age of 21, started saving Rs. 5,000 p.m. (around 21% of his income) and invested in a diversified equity fund. He thought that once he gets married, then the savings might drop and might further drop when he decides to have kids.

Rakesh, on the other hand, thought that 21 is too early to even think about saving and investing. He decided to enjoy life as it comes.

At the age of 27, both of them got married. By this time, their income had become Rs. 50,000 p.m. Due to increase in income, Amar still continued his habit of investing Rs. 5,000 p.m. However, Rakesh still thought that he should be splurging money.

At the age of 30, both of them were blessed with a child each. Due to increased expenses, now Amar started to feel that may be he wont be able to save and invest much.

Rakesh’s wife was worried about Rakesh’s carefree attitude. She forced him to cut-down on some expenses and save at least Rs. 5,000 p.m. Rakesh agreed and at the age of 31, he started investing Rs. 5,000 p.m. for his retirement. For saving this amount, Rakesh and his family had to compromise a lot on their lifestyle.

So now we have a situation, wherein the hare (Amar) travelled a few miles (invested for few years) and slept (stopped investing).

Whereas the tortoise (Rakesh) has started to travel late but he didn’t stop after starting.

Lets fast forward and come to their finish line (retirement day). Now, both are 60 years old and want to retire.

You would have easily calculated that Amar’s total investment was Rs. 6 Lakhs whereas Rakesh’s total investment was Rs. 18 Lakhs.

Now, any guesses what would be their retirement amounts ?? Ok, this could be a tough one.

Lets make it simpler. Any guesses, whose retirement amount would be more ?? Remember Rakesh invested 3 times amount than that of Amar. So the natural choice would be Rakesh, right ?? Also, in the hare and tortoise story, the tortoise won. So here Rakesh is the tortoise. So might have won, right ?

If you guessed Rakesh, you are wrong. The correct answer is Amar.

Surprised ??

Lets look at their retirement amounts.

Amar accumulated a retirement amount of Rs . 3.53 Crores whereas Rakesh Could accumulate Rs. 1.62 Crores only. No doubt, even Rakesh was able to multiply his investments almost 9 times. But he could not match Amar who multiplied his investment 58 times.

But Rakesh invested more whereas Amar invested less. So what made him more wealthy ?

It was the magic of power of compounding during the additional time that Amar’s investments got. So if we were to draw analogy with the hare and tortoise story, the hare slept but his investments didn’t. Or we can say, that the hare slept after boarding on to a chauffer driven car. So while he slept, his journey continued.

Whereas Rakesh couldn’t compensate for not investing in initial years, even by investing 3 times amount.

Any Guesses, if Amar continued his investments from the age of 21 to the age of 60, what would be his retirement wealth be?? It would be Rs. 5.15 Crores. Doesn’t sound like too much, right ?? The point is his 68% retirement wealth was created from his investments in the first 10 years.

Lets say they had a 3rd friend Brijesh.  Brijesh started investing at the age of 41 and invests Rs. 10,000 p.m. What would be his retirement wealth? It would merely be 96 Lakhs.

Learnings:

The above story has a few learnings for all of us, especially the youngsters.

  1. The first 10 years of your career are the most important years to plan your retirement. If you observe, first 10 years of Amar could not be matched by the 30 years of Rakesh and 20 years of double investments of Brijesh. In fact, even if you add the retirement wealth of Rakesh and Brijesh, it will still be less than that of Amar. (Rs. 1.62 Cr + 96 Lakh < Rs. 3.53 Cr)
  1. Consumer goods companies will try to provoke you to spend more, to buy expensive gadgets on EMI. But you need to think, is it worth sacrificing for 30 years of your family life because you were unorganised for first 10 years ??
  1. Developed Countries like US had a culture of spending first and working later to repay the credit card bills. They also offered to take care of their retired population. But today, they are realising their mistake. Even they are encouraging their people to save and invest for their future.
  1. We Indians always have this culture of saving for the rainy day. Especially, when you are single, you don’t have too many mandatory expenses. This is the time you should look at saving at least 25-30% of your salary. Once you get married, the savings can drop to 10%. At times, that becomes difficult too.
  1. After having kids, your expenses shoot up. Thus, savings become even difficult. Then you might have to take tough decisions whether to buy new clothes for yourself or for the kid? Whether to change your car or pay the tuition fees of the kid?
  1. If you are at Amar’s stage, start saving and investing immediately. The additional time you have will give you a super-smooth journey to retirement. Don’t wait to become Rakesh.
  1. If you are at Rakesh’s stage, you are little late. But nevertheless, start early before you become Brijesh. You just have the right amount of time to plan your retirement.
  1. If you are at Brijesh’s stage, you are substantially late. You not only need to start urgently, but also need to shell out a larger amount for investment so that your retirement doesn’t suffer.
  1. If you have surpassed Brijesh’s stage as well, there’s very little you could do about it. But whatever you can do, its still worth doing. Also, there is a chance that your next generation is in Amar’s stage now. So at least become the guiding light for him.

We look forward to your valuable comments and feedback. Please feel free to contact us on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

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Time-Time ki Baat Hai – Part 3

“Look Who’s here !! Mr. Desai, Good to see you.” said Mr. Suren Mehta, a retired banker. He was sitting with few other friends, Mr. Ajit Khanna and Mr. Rajat Ghosh, in a park as their daily routine in retirement days. He suddenly saw Mr. Srikant Desai, a retired professional coming towards them, when he said this.

Retired Citizens in Park

“Good to see you all too.” said Mr. Desai.

“Let me introduce you all to my friend, Shrikant Desai. He is the happiest retired person I have ever met. He exercises, spends time with his grandchildren, goes on vacation with family and enjoys his retirement to the fullest.” Said Mr. Mehta to Mr. Khanna and Mr. Ghosh.

“You’re a lucky Man” said Mr. Khanna. “I have 2 daughters. I took loan against my PF and LIC policies and got them married in a grand fashion. Now, I am left with meagre amount to fund my retirement. I wish, I had a son who could fund my retirement.”

“Not Really” said Mr. Ghosh. “I have 2 sons. But none of them gives me enough money to enjoy life like Mr. Desai. And the annuity I earn from my policies, is hardly enough to survive. I can’t even dream of such luxuries. Retired life looks like a curse now.”

“I disagree with both of you” smiled Mr. Desai. “Your retirement planning doesn’t (rather shouldn’t) depend on whether or not you have son or daughter. It all depends on how well you have planned for your retirement.”

“We had all planned for our retirements. All of us had few policies and post office certificates for our retirement”. Said Mr. Mehta. “Additionally, we had our PF amount with us. All put together we had some Rs. 10-15 lakhs for our retirement.”

“There you are. You had only invested in traditional debt instruments which could not grow your wealth in line with inflation. As a result, you had a smaller kitty for your retirement. This amount might have appeared big during your young age. But today you realise that it is small.

To make things worse, Mr. Khanna dipped into his retirement corpus to get his daughters married in a grand fashion.” Said Mr. Desai.

“But in our community, it is mandatory to have a grand wedding ceremony Mr. Desai. Also, doesn’t a father aspire that he celebrates his daughter’s wedding in the best possible way?” asked Mr. Khanna.

“Well, may be. But the question is, if that was your aspiration, why didn’t you plan for it separately? How can a grand wedding ceremony be a justified expense at the cost of your retirement??” asked Mr. Desai.

“I think you are right Mr. Desai.” Said Mr. Mehta. “So according to you what is the right thing to be done ? Rather what’s the secret you followed that today you are so relaxed?”

“Let me Guess. Your Son financially supports you pretty well.” Said Mr. Khanna.

“Let me also Guess. You had inherited huge wealth from your father”. Said Mr. Ghosh.

“Both of you are incorrect.” Said Mr. Desai. “I inherited nothing but a small house to live from my father. Also, me and my son are financially independent. We live together and morally support each other, but neither he seeks financial support from me neither do I seek financial support from him. I think this is one reason that makes me feel proud of him and proud of myself.

I had decided to start planning for my retirement at an early age of 25. Also, I realised that only debt instruments cannot create wealth for me. Thus, I chose the way of equity which created good wealth for me. I started saving small amounts starting from Rs. 500 p.m. gradually growing to Rs. 1,000 p.m. then Rs. 2,000 p.m. and so on as my income grew.

Last year, I retired with a wealth of more than Rs. 2 Crores which I invested in Tax Free Bonds and now earning around Rs. 16-17 Lakhs p.a. as tax free interest. And I still have some Rs. 40-50 Lakhs in diversified equity funds so that I continue to beat inflation hereafter.”

“That’s great Man. What a farsightedness !! But you know what?? Equities aren’t everybody’s cup of tea. It requires lot of research to find the right stocks.” Said Mr. Mehta.

“You are right. So if you can’t find so much time to research for equities, you can choose the route of Mutual Funds. And if even researching Mutual Funds is also difficult for you, go for a fees based financial advisor.” Said Mr. Desai.

“But I always thought equities are risky.” Said Mr. Khanna.

“Equities are volatile in the short term. But in the long term, they are the true wealth creators. Also, let us analyse the risk of not investing in equities. Look at all your equity-less portfolios. Isn’t that a bigger risk that your retirement wealth is far below required as you couldn’t beat inflation?” said Mr. Desai.

“But aren’t sons supposed to fund our retirement? We do so much for them. I still remember, I gave them everything they asked for, even if it was stretching my budget. At times, I ignored my parents’ requirements to fulfil my sons’ wishes. But today, all they care about, is their children. We don’t exist for them.” Said Mr. Ghosh in an agitated voice.

“Here come the double standards. You say that when you ignored your parents to fulfil your sons’ wishes, you were right. But if your sons ignore you to fulfil their children’s wishes, they are wrong. Why so? Also, you said, that you stretched your budget to fulfil their demands. Now ask this question to yourself, whether it was a need or desire that your children demanded? If it was a need, then its ok. But if it was a desire, and you gave up your retirement planning to fulfil it, then the only person to be blamed is you, not them.” Said Mr. Desai.

“That ways I am kinda lucky” said Mr. Mehta. My Son gives me some money every month for my expenses. Also, he fulfils the demands of his children. So I would say, he is an ideal son and ideal father.”

“I would agree only if you tell me, that after all this, he is still able to save and invest for his retirement.” Said Mr. Desai.

“Well, I am afraid, not.” Said Mr. Mehta. “These days expenses are so high that after doing all this, he is hardly left with any money.”

“In that case, I would suggest you to become his mentor and tell him to start saving some money. In fact, don’t take me wrong, but your son is facing this problem because of your lack of planning. If you had planned your retirement well, the money he is giving you could have been invested towards his retirement.” Said Mr. Desai.

“So what should I do now?” asked Mr. Mehta.

“Please tell your son to prepare a budget for his monthly expenses and try to curtail those which are unnecessary. This money needs to be necessarily invested towards his retirement so that he doesn’t have to financially depend on his son. Today, my son Niraj is not only handling the household expenses very well, but is also saving and investing around 20-25% of his income towards his retirement. This way he is not only securing his own retirement but is also taking off the responsibility from his Son. In a way, he is helping his son by planning his own retirement.” Said Mr. Desai.

“Isn’t it our culture that our best retirement planning is to invest in our children?” asked Mr. Ghosh.

“That’s only half the truth” smiled Mr. Desai. “The fact is, we Indians have a culture to save for our future. In your young age, future is 2 things i.e. your children’s working life and your retirement. Now, when you give good education to your children, you are done for their future. But for your retirement, you still need to save and invest. In fact, Western Countries had a culture of not saving for retirement. There, the government had enough resources to take care of the retired. But you will be surprised to know, that the trend is changing there too, now. They have started saving for their retirement. So even ‘culturally’ we should be saving and funding our own retirements.” Said Mr. Desai.

“You have opened our eyes today” said Mr. Ghosh, Mr. Mehta and Mr. Khanna to Mr. Desai.

“Thanks for the compliments. A few last words which I would like to share with you:

  1. There has been a trend of old age parents being deserted by their children as they cannot financially support them. But if we want to curb this problem, the first step is to start saving and investing for your retirement. So this is not only a social issue, but a case of lack of planning.
  1. Tomorrow, when your children grow up, they will have enough liabilities including household expenses, home loans, children’s education, self-retirement etc. Make sure that YOUR lack of planning doesn’t mess up their finances. In fact, if you say that you care for your children, show this care by doing retirement planning for yourself.
  1. Blowing up money in daughter’s marriage is an extremely bad idea, especially when you have dip into your retirement money. Rather, help her find a good match and provide your blessings. If you have saved some amount for her, give it to her than blowing it up. That would provide some financial security to her. (Please don’t confuse this with dowry.)
  1. Your investments have to necessarily take care of inflation. If your money grows slower than inflation, your retirement planning is on the verge of collapsing.
  1. Times have changed and they will always keep changing. So keep an open mind to keep up with the times.
  1. Last but not the least. Retire from Work, not from Life.”

We look forward to your valuable comments and feedback. Please feel free to contact us on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

Retirement

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