Category: Money

Money matters and finance related material.

Have You Been AmWaylaid?

This has been going on for a lot of days in Bangalore (and most other parts of the country). People, part of the Quixar/Amway family, would be around you in a mall, book store, super market or any heck place. It starts like this; they’d come up to you asking about something as general as an ATM around the place or may be a comment on the book you’re looking at.

The conversation begins with a hand shake, where do you work, what do you do (information gathering on whether you have enough money and enough will to earn more) and how long you’ve been around. Different people have different approaches, but the end goal is just one. To get you to a meeting with a lot of other potential candidates who can be sold Amway kits (or products) and made members out of. Those guys would then go about direct-selling among their friends/relations and strain their good will. Amway is generally seen as an untrustworthy brand in India, and these tactics to get people to start working for them makes it more so.

Another attempt to cook me in was that I got a call from a guy who claimed to have gotten my number from an old-time colleague. That guy talked me into it saying that they were going to open up a new e-business company and needed some technical help. “What kind of e-business?” I asked. “We’re doing a start up, so come over and have a look.” Turns out the e-business was yet another Amway shop with not a bit of technicality involved. Just another duped Sunday for me.

The last shot in my arm leaves me bleeding with this post. Mrs. Pande decides that she should get a personal consulting session from a skin specialist doctor who met her at the footsteps of yet another mall. The doctor turns in at our place, sweet talks all over. Skins get looked at, charts get drawn. And what have you! “Artistry has the best cleanser and toner that you should definitely try,” goes the doctor. Now that someone is inside our house, I can’t be rude – and for all the information that the so-called-Amway-doctor has been feeding us with for the last two hours wasn’t all that bad either. I figured it out quickly that she is yet another trapped direct seller in the Amgang and posed as a doctor to get started.

Finally buying off a few products from the Amdoctor, I tell my wife about the whole thing and clear out the clouds. She realizes the truth, but takes solace in the fact that a lot of information and a few bottles of cleansers/toners ain’t bad after all.

Damn.

Update (27 Sep ’08 12:44pm): Video – Amway/Quixtar Scam / Amway/Quixtar Scam (Part 2)

Shame On The Streets

Stop. Look. Get emotionally robbed. Go.

If you have ever stopped at a traffic signal (anywhere in India), you have witnessed an industry that has grown by leaps and bounds. Begging at traffic signals is increasing every day. Here are the facts:

  • They play with your emotions and earn money. Don’t be fooled by the old age or the new born babies. It’s all set up and none of it is ever genuine. An excellent movie on this was made in 2007.
  • You earn hard money – and you convert it into black money by giving out 5 Rupees a day.
  • You are not helping – but encouraging mafia to “cut more hands / chop off more legs” of kidnapped children and helpless men/women.
  • This is not personal – it’s a national shame that people beg on the streets.
  • A show on BBC (on everyday lives of Mumbai’s eunuchs) interviewed a eunuch begging on a traffic signal. When a man in a car offered work to the eunuch (that was on camera), the eunuch hurled some abuses (live on camera).
  • Most of the beggars out there are making money anywhere between Rs. 50 to Rs. 1000 a day.
  • India Today covered a story in the last week of January 2008 on begging. The numbers and facts there are not in the least shocking.
  • Update – Begging is an industry which has an annual turnover close to Rs. 180 crore in Mumbai alone. The article from India today has the data. Who’s the beggar?

You can help by discouraging people when they give out money to beggars. Even a single coin lost to them will promote begging. Begging is a combination of multiple evils – inflicted injuries, black and easy money, kidnappings, child stealing and child labour.

Credit Card – Why You Should Have One & Which One

Why? Here’s why:

  • You track your spendings – which has millions of benefits, tracking is a must
  • You get rewarded for each spend
  • You get an emergency pocket friend that everyone needs (for life & death moments)
  • You get a chance of credit rating – that you will require in future

The last point requires a bit of explanation. With CIBIL in place, all the credit activity of individuals is reported at a central location. In future, when you would need a loan for car, house etc., your credit score in CIBIL would help you in getting good interest rates etc. If you maintain a good credit history, you would be a preferred customer getting a good deal.

Which One?

Let’s take the three most important features in a card (that experience taught me).

The most important feature on a Credit Card is how they reward you. In short, rewards should be given back in form of cash or other monetary means (store specific reward points also work, like I go shopping in a store and get a discount of Rs. 1200 for 1200 points on my card).

Next up is whether you can “decrease” your limit on the card. Personally, I would really like my card to have a lower limit, so that I can spend all of my limit without fear of overspending and next month pay off a bill that fits my pocket. That is the correct way to use a Credit Card. Spend only half as much you earn and pay off every bit of the bill next month, 3 days ahead of the due date.

The last feature is the availability and modes of payment (on how you pay their bills back) the card offers you. They should have enough ATMs, or a way to pick up cheques (without charging extra) or an online transfer ability. Some way to get the money across with minimum delay and hassle.

These 3 most important things point to two cards that I have researched thoroughly. One is an ABN Amro Card, which has two of these most important things. It has a Flexi Limit on it (which means you can reduce the limit) and it has a Cash Back card where you get cash back of a Rupee on every purchase of some Rs. X (=200 maybe).

What the ABN Amro card doesn’t have is the ease of payment. They have lesser ATMs and they offer a Master Card, so you have difficulty in paying off their bill using Visa transfers from other banks. Unless, of course, you have an ABN Amro bank account, which would make your Card payments really easy to manage.

The other card is the Citibank Card (Platinum), that again has two of the above benefits. First off, it has a really good reward system, you get back the rewards as real discounts (1 point = 1 rupee) in a lot of stores. The other benefit is that you get a great deal of payment modes – from the Citibank Account, Visa transfers (from ICICI), plenty of ATMs across cities, plenty of drop boxes here & there and a cheque pick up facility (although they charge you for that probably).

Citibank has one thing missing; that they don’t have any limit decrease facility. Again, you can work around the problem by getting an add-on card issued for a relative and get a limit defined on it (you can tell them to set the limit as X). Once again, it’s not flexible – you can’t increase/decrease it.

Saving Tax The Smart Way

You start your financial year (in April every year) by investing in some SIPs. In case your objective is to save tax, you start investing in a Tax Saving fund (refer Mutual Funds to know more). Is there a better way, a new way to do it? There sure is; consider what follows.

Instead of investing money into a tax saving fund (ELSS or whatever), let’s invest our money in some other great fund. We’re looking at doing a small time investment, so choose the fund that has been doing great in the last two years (smaller period shows the popularity of the fund in recent times, though not necessary). So let’s say, we have a top ranking fund called A Company Fund. We choose two other funds (in all 3 funds), B Company and C Company funds (note that all of these funds should be Open Ended). Now let’s break up a monthly investment of, say Rs. 10000 into 3, make a round figure of 3500 each and invest into SIP of these funds from April to December (for 9 months).

Come December, let’s switch in all the investments done in Company A Fund to a Company A Tax Saver fund, Company B fund to Company B Tax Saver and Company C Fund to Company C Tax Saver fund.

Here’s a point-by-point break-up of the same thing:

  • Let’s say, you have a tax investment objective of Rs. 50000 from Mutual Funds (assuming rest of you investments are done elsewhere).
  • April: Start SIP of 1800 in Company A Fund (a top ranking fund from Company A) for next 9 months (till Dec)
  • April: Start SIP of 1800 in Company B Fund … for next 9 months (till Dec)
  • April: Start SIP of 1800 in Company C Fund … for next 9 months …
  • May: SIP for Companies A, B and C Funds for 1800 each (total 5400 this month).
  • June-November: SIPs repeat until December.
  • December: Your last SIPs of 1800 each get deducted in Company A, B and C funds.
    • Investments in each of Co. A = 16,200 + Co. B = 16,200 + Co. C = 16,200
    • Total investment till December: 5400 x 9 = 48,600
  • Now, you switch in your individual investments from Co. A, B and C to Tax Saver Funds (of the same companies) including the profits you got.
  • Let’s imagine if…
    • ..Co. A performed with a profit of 20% – you get back Co. A Tax Saver funds worth 19,440
    • ..Co. B performed with a profit of 15% – you get back Co. B Tax Saver funds worth 18,630
    • ..Co. C performed with a loss of 10% – you get back Co. C Tax Saver funds worth 14,580
    • Your total tax investment for this year would be: 19,440 + 18,630 + 14,580 = 52,650
    • Magic right? You exceeded the tax investment objective you had set even after investing a lesser amount.
  • Now you have to pay back some capital gains: Co. A = 648 + Co. B = 486 Co. C = 324 = 810
  • Just pay back some tax of ~ 800 (capital gains tax calculated with 20%, a good tax return preparer can bring it down further).
  • Including the capital tax gains you paid back, the money you paid for the whole thing was: 48,600 + 810 = 49,410
  • And your investment was done for: 52,650 – you saved an investment of 3240.

Those figures don’t impress you, do they? Then, what else is the advantage of doing things this way?

  • Your tax savings are done all at once in January.
    • This means, after three years, you can draw the whole amount out all at once. When you do an SIP on tax saving, you have to wait month by month for withdrawal.
  • The profits you get out of the earlier investments act as a buffer and take care of any market fluctuations at the time of your Tax Investments.
  • Also, although you pay tax (10% or 20%) on these profits, you actually get the one lac limit benefit on the same money too.
    • Thus you achieve your one lakh goal by investing a lower amount of money through the year.

No really, there should be some disadvantages too? God save you…

  • …if the capital tax gains are increased (from 10% or 20%).
  • …if you run into losses in all the top 3 funds you chose from Co. A, B and C.
  • …if the Tax-Saver funds for the three companies A, B and C somehow stop accepting fresh investments.

But all of the above are circumstances beyond control. And that is where you step in with the word – risk.

So go ahead, and at your risk, try investing in the way above (repeating: try all this at your risk).

Balance Transfer – HSBC

If you have an HSBC Credit Card, and you are going to do a balance transfer (BT) from another card to your HSBC card – think twice. It’s been a whole new world of rules that opened up for me when I ventured there.

Suppose you have Rs. 5000 pending on another card (say Citibank), and you want to pay this amount from your HSBC card, here is what you would do:

  • Make sure that your HSBC card is clean and you don’t have to pay them anything, prior to making this BT request.
  • Go ahead with calling them up and re-ensuring there is nothing to pay there. Give them your Citi card number and the amount (5000).
  • Take care to not use your HSBC card anywhere until the end of 3 or 6 months (whatever tenure you selected).
  • As soon as you get the draft – deposit it with Citibank.

Here’s what’s in store for you now. You see these charges on your next month’s statement of your HSBC card:


19NOV 19NOV BALANCE TRANSFER BTW 5000.00
TRF FRM CITI BANK CC # XXXX XXXX XXXX XXXX
20NOV 20NOV BT Processing fees IN 249.00
20NOV 20NOV Service Tax + [email protected] IN 30.83

Seems fair enough? Well, they did tell you that there would be a BT fees (for a transfer for 3 months). Now here’s what they did not tell you (in your next statement):


OPENING BALANCE          5279.83
03JAN 01JAN Your Name VisaMoneyTXFR IN 300.00CR
12JAN 12JAN FINANCE CHARGE 16.74
12JAN 12JAN "SERVICE TAX+CESS"@12.36% 2.06

Wow, there is a finance charge of Rs.16.74 (~17) and another Rs. 2 STT! HSBC had charged you a Processing Fee in the previous month’s statement (look at the first snippet above). Now, here are the rules from HSBC:

  • Any payments you make (minimum due) would go towards completing the BT amount first.
  • As the Processing Fee was charged after the BT was given out, it’s considered as a shopping on your card.
  • Until you repay the whole 5000, there would be finance charges on that Rs. 249+30.83 @36% compounded p.a., every month.
  • As the system counts any payments only towards the BT, these finance charges will attract interest next month too.
  • So, here’s the total money you’d shell out for your 90 day BT:

    (249+30.83) + (16.74+2) + (17.48+2) = 318.05

Considering the BT amount to be 5000, this money wasn’t much. But if you did any larger transaction – you’ll be paying much more money.

Remedy

  • Call up Customer Care and ask them to reverse these charges.

    This weird system is not mentioned any where in their Terms (as of date) and also they can’t fool customers with small figures.

  • If the officer refuses to budge, tell them to transfer call to someone senior.
  • If it doesn’t help, drop a comment here and let’s make sure they mend their system.
  • Mutual Funds – Saving Tax

    Mutual funds explained with some comment on how to save tax.

    • ELSS = Tax Saver (Saving) Mutual Funds (Schemes)
    • You can invest upto one lakh in any ELSS scheme.
      • You should check if you really need to invest one lakh, because in all probability, your employer is already deducting PF from your salary.
      • In that case, your investments should be: 1 Lakh – (monthly PF deduction x 12)
      • PF = Provident Fund = Govt’s way of making people save from their salary.
    • This investment gets locked for 3 years (lock in period = 3 years).
      • That means that if you invest Rs. 3000 today, you will get it back only after three years from today.
      • That also means that if your are doing an SIP of Rs. 3000 every month, the three years are counted for every 3000 from the month they were invested.
      • SIP= Systematic Investment Plan = Fund’s way of saying “please invest in us regularly at a definite interval”.
    • Lock in period of 3 years is good, why?
      • …because that ensures that people can’t take out money for at least next 3 years.
      • … and that makes it easy for the funds to make more money for you.
      • … also this is better than locking your money away for 5 or 7 years (in other schemes – don’t worry about them if you don’t know).
    • Which fund to choose?
      • Choose a fund (search now: http://search.yahoo.com/search?p=elss+funds) that has:
        • a decent asset size and
        • and good two years performance (look at the rate of return in the last two years)
      • Frankly, every fund company has two or three Tax funds (or may be just one)
      • It’s better to keep your folios tight and invest in a Tax fund of the company where you already have funds
        • Reason: tax funds generally are better than any other tax saver investment, so you should really not worry about choosing, too much.
    • Which option to choose?
      • Choose growth option. Don’t choose dividend re-investment. That’s because you really don’t want any more money to get locked again for three years.
        • So if you choose dividend re-investment, and the fund declares a dividend of Rs. 500 at the 29th month after your investment, that Rs. 500 per unit will get locked for three more years.
        • In effect, you will get back the re-invested money after another 36 months (in case the Govt. keeps lock-in as 3 years).
        • So, you get back the dividend money after 29+36 months of your original investment.
      • Options: Growth – this means that you won’t get any dividends, but your fund’s NAV will increase intrinsically with dividend declarations.
      • Options: Dividend Payout – this means that a dividend declaration will give you back cash in your account. Some times this makes sense.
      • Options: Dividend Re-investment – Any declaration will buy you new funds for whatever money you might have got paid. Stay clear of this one.
      • NAV: Net Asset Value – Fund’s way of saying “my one unit will cost you this (NAV) much.”
    • The best way to invest is using an SIP.
      • During April, calculate what your PF amount is (assuming your appraisal and stuff is over).
      • Multiply that by 12 and then deduct it from one lakh. There you go, you have an investment figure – X.
      • Divide X by 12, and decrease another figure Y from this new Z = X / 12.
        • This Y depends on your age. Y is directly proportional to [Your Age – 28].
        • Y is the money you should invest in a fixed return investment (like Fixed Deposit, National Saving Certificates or Public Provident Fund).
        • Y is totally your call, but should be quite less than Z.
      • Your total fixed return investment becomes Y x 12, and ELSS investment is (Z – Y) x 12.
      • Your SIP should be for an amount of (Z – Y), starting in April.