Saturday, December 27, 2008


The insurance is a product which ensures safety and security of persons. The importance of insurance is unparalleled in its effectiveness in time of distress. No other product can replace its worth in gold at any time. I have always recommended that the main wage earner of the house hold must insure himself to protect his dependents from the economic distress in case he ceases to exist suddenly. How much should be insured and when insurance should start? These two questions have been asked repeatedly by friends, relations and wage earners repeatedly now days. No fixed amount can be recommended for Life insurance. It would depend on the person who wants take a policy to protect his dependents. It is generally dependent on his income and on his capacity to spare money for a longer time. But taking thumb as a rule a person can take an insurance policy five time of his gross annual salary, if he can afford. For example if a persons gross annual income is Rs. 20,000/- then he should insure at least for Rs 1 lakh . Insurance is a great product for safety and security of the family. But it is not a product of investment.

Recently many insurance companies have introduced a new guaranteed return product. The insurance companies have tried to attract & lure investors from investment products as the equity market is in doll drum They have introduced guaranteed return product with insurance benefit, tax benefit and tax rebate facility under section 80 C of IT act. But the companies have not really spoken out the full truth on the rate of returns. The subscribers to such a policy should be educated fully by the insurance advisors about the implications of such product. It is a good product no doubt but those persons who want to take these policies must take an informed decision before subscribing these insurance product.

Insurers Compounded return (after tax) % Single premium
In Rs. Maturity benefit Benefit on death
Religare 7.20
50,000/- Rs. 1,00,211 2..5lakh
IDBI Forties 6.85 51,000 Rs. 1,00,000 2.57845
Aviva 7.00 1,00,000 Rs. 1,96,715 5, lakh, first year, less later years.

LIC Jeevan Astha 7.40 48, 975 Rs. 1,00,000 3lakh first year Rs 1 lakh later years

From the table above you can notice that the best return comes from Jeevan Astha. (Closing in January) The return is 7.40 %.( without tax) No doubt from the point of view of insurance product it is a good return. It is just above the present rate of inflation of 6.80% which is expected to come down further. Yet the PPF provides still better return of 8 %.( without tax) The guaranteed return in the insurance product doubles up only in 10 years. Only saving grace is the insurance benefit. But in this case also the real monetary benefit would be available during the first year only. On the later years benefit is equivalent to insured amount only. It would much more appropriate to take a Termed Insurance and subscribe to PPF for better guaranteed returns.

The LIC has advertised with great hype that Jeevan Astha policy would provide guaranteed return of10 %. But when you calculate, taking into account tax free elements, the return reduces to 7.40 %.This fact needs to be told to policy holder. How good is this guaranteed return policy as insurance product? These products are meant for shorter duration of five years and ten years so it is not very alluring unless some one dies either in accident or of sudden illness like heart attack or renal failure. The pre tax benefit is higher but after deduction of tax it comes down substantially as shown in the chart.

Among all the guaranteed Insurance product LIC’s Jeevan Astha could be a better product. But it would always be better to take either PPF with term insurance. However the best bet would be to subscribe to ELSS for it had given a return of 14.39%. even in worst period of last17 years. If you can face risk take ELSS. Other wise PPF with term insurance or subscribe to guaranteed product of Insurance. Choice is yours.



Everyone desires to have a dream house for the family to live happily always. Some manage to build house, some do buy outright. But a few may not be able to construct
A house in his prime time for non availability of funds. Till twenty years back it was not easy to arrange home finance. In the event a few bank agreed to finance, there were lots of formalities .The quantum of loan was not enough too. With the liberalization policy initiated by Dr. Man Mohan Singh and later continued by the subsequent Governments it became possible for young people to have their dream house early in their career.

In 2004 the interest rate, for a housing loan of Rs. Thirty lakh given for twenty years, was 7.75%.Slowly the rate kept on increasing and in 2008 once interest rate reached a high of 12.75% percent. It was almost impossible for the middle class people to take loan at this rate. For taking loan of thirty lakh for twenty years the returnable interest components stood at Rs. 68 lakh. When the loan was initially taken by the person in 2004 his interest component was Rs. 29 lakh only. This amount was reasonable for him to return over twenty years without any difficulties. As the interest kept on increasing it become impossible for him to meet both ends met. As a middle class salaried person his income did not increase leaps and bound in last four years. The inflation however kept on increasing from 3% to 12% there by bringing down the real income. He with his limited income needs to take care of his children’s education, marriage of daughter even if he agrees to forget about the luxuries of life. Some of the middle class persons were in his wits end. They were in tremendous tension, thinking as to how to manage the finance for the dream house,( when interest component became Rs 60 lakh) which their family so dearly cherished. Fortunately the month of December 2008 saw a relief in sight. The most of the nationalised bank reduced the housing loan to 10.50% (above Rs. twenty lakh) for twenty years. In case loan is required only for five years then rate is much lower (8.5%). With the reduction of rate it would be now possible for middle class to approach banks for fiancĂ© to build their own home. The home loan finance now is 9.25%( up to 20 lakh) & it may get further reduced in future. Interest can be frozon for five years.

Before taking a loan it should be assessed whether with available finance he would be able to pay instalments regularly. The EMI could be reduced if larger initial payment be made. So, person who wants to own a house must start saving from the beginning of his career. During youth a person has less responsibility. He can invest in diversified Mutual funds for five years. The amount would come handy to pay for initial payments. The building of house could be taken up only after ensuring flow of regular income. As far as practicable the loan, to be taken for the dream house, should be divided between both husband and wife (if she also earns), to avail income tax benefit by both. The total cost would come down. In case the family has also a working child the loan should be taken in the name of all three persons so that income tax benefits could be availed by all three of them. Before taking a loan consult your income tax advisor. He would be able to give you proper guidance on quantum of loan and income tax benefit. Another important point is to be noted that every time interest rate goes up by 0.25% percent points the repayment period gets longer and total payment gets multiplied.. Fortunately the interest rate is expected to go down further after some time. So when you opt for mode of interest payment do not opt for fixed rate now. In case interest rate go down to 7.75% or even 8% it would be prudent to opt for fixed rate. New home loan takers can wait for some more time for better bargain. There is a possibility to get home in lower price in the New Year for raw material cost like cement and steel are coming down further. The existing person who have entered contract already may request for discount as the cost of construction is coming down. Hope, the New Year would usher in a better deal for acquiring a dream house.

Friday, December 19, 2008


The change is the only constant thing in life. I have observed in last few years that our society of Northeast India have greatly changed their attitude towards investment. Now a day’s most young men and women have started talking of investment at the beginning of their career itself. A few mothers, now senior citizen, have also called me up to ask how their daughters can be made investment Savvy. One of my classmates asked can really any person from middle class be a multi - millionaire (crorepati). How much time would it take? She was not asking about business enterprise. She wanted to know if any salaried daughter ever can be a millionaire while pursuing the path of honesty and integrity .The person was a single mother and raised her daughter with great care and through lot of hardship. She is happy that her daughter grew up well and is occupying a decent position in a Multinational Company now.

My reply to the friends was that her daughter (for that matter any body) being a young person of 23 years and earning a decent salary is an obvious candidate to become a multi-millionaire before she turns 53 years. But trait of a prospective millionaire is patience, hard work and attitude towards saving and investment. She must be frugal in her habits and must not be spendthrift .These traits and habits are very rare in younger generation but not impossible. The mother was not very convinced and again asked how much money would she require if she start investing from 2008? It will depend on the money she can afford, was my reply.

If her mother, maternal uncles or paternal uncles donate her around Rs.75, 089/- at this time she can be crorepati in 35 years by investing in good Mutual fund. There are a few persons who kept on investing Rs5233/- per month in the account of their daughters from First September 1992 and found that at the end of fifteen years on 31st August 2007 she received a sum of Rs Fifty lakh on 15th years. If they could have spared double the amount the net realisation could have been a crore. But most important thing is not how to become a crorepoti but to develop the habit of saving and investment on a regular basis. How can that are achieved?

This can be achieved by explaining the magic of cumulative effect to children. Take them to a bank early in life and show how a bank or post office operates. Give them a piggy bank and ask them to collect and save one rupee coin whenever government Mint issues it. Let the entire monetary gift, received by them every year from their relations, be deposited in PPF account. Explain to them what PPF is.( LIC’s single premium policy, Jeevan Astha, is excellent for children& elders where return is 10% without tax for 10 years, with tax rebate under 80C. It is open till January only! No other plan provide such higher return with safety)
Show them how they can build up a fortune through the magic of cumulative effect. A small amount collected and saved regularly can make our children a millionaire. The fact can be noted from the example given here under. Take the children to ATM. Show them how these are operated. The children would be excited. Some of the modern schools have stated teaching at the primary level, how to plan marketing, how to budget and how to save money. These are fundamentals of life. Parents can take initiative and can coach boys and girls to save money and ask them to buy a book on general knowledge rather than buying an expensive garments, shoes and cell phones as they grow up.
Returns In 10 years In 15 years In 20 years
9% 5168 per month 2643 per month 1498 per month Rupees
12% 4348 per month 2002 per month 1011 per month Rupees
15% 3634 Pr month 1496 per month 668 per month Rupees

The above table clearly shows that assuming a return of 9%, a monthly investment of Rs. 1498/-for 20years can give an investor a return of Rs. One million. The 9% interest is available in Housing companies, and in many other corporate houses and also in banks. In case the person wants to invest in Mutual fund as low as Rs 668/- P.M. also can given him a million in 20 years. If a person can afford Rs 3634/- per month to save he can be a millionaire with in 10 years time. To become a millionaire is not very difficult as it is made out to be. The required qualities are the patience, hard work and formation of habit to spend less and save more for brighter future.


Friday, December 12, 2008


“What is the best saving instrument for us now”, asked a worried senior citizen to his friend.

“I am worried myself. How do I advice you? Replied his friend. Both the friends decided to visit one of their chartered accountant friends for his advice. All three friends sat together over an evening cup of tea in the chamber of their friend, Mr. Hazarika, who was also a specialist in tax and investment matter.

Mr. Hazarika advised them after seventy years senior citizens need not invest in equity unless the risk taking capacity is very high. The volatility of share market is unpredictable. So persons dependent on income out of investment should not invest in equity or equity related instrument generally. Both the friends asked him then what should senior citizen like them do?

Mr. Hazarika said that all the invest able funds available should be distributed to fixed and fluctuating income instrument like Bank fixed deposit, Debt instruments like debt fund, gilt fund , liquid fund and equity based arbitrage fund, depending on the tax paying factors. Both the friends become awe struck and conceded that they had not heard much about the arbitrage fund, gilt fund and debt funds. Only vaguely they were aware of Bond fund of Reserve Bank of India which is no longer exist. Mr. Hazarika advised his friends that the senior citizen must learn more and more on investment avenues now a days. The inflation cuts away more than thirty percent of income. This must be protected. What is to be done now?

Mr. Hazarika asked whether both of them are tax paying citizens or not. Both replied in affirmative. In that event it would be appropriate for you to divide your investment into two segments. First invest at least sixty eight percent of your invest able amount in Fixed deposit in Banks and balance in tax saving instruments.

“Why sixty eight percent? Why not sixty or fifty percent? Asked one of his friends.
“Because you are sixty eight years old. You are still capable of taking some risk we are deciding on the premises that no more equity exposure from seventieth years only.”

“Oh! We understood your reasoning now”!
“But it is not necessary that you have to invest in equity at all! If you are still risk averse
You can keep all your money in Debt instruments from now onward. But that would give you limited return of 10% to 12% percent in total...

Both the friends unanimously replied that they could subscribe to equity at least 10% of the invest able income for they needed to beat the inflation.
Hazarika advised them that in that case they can keep 5% of their investment in balanced fund.
Which Balanced fund to be subscribed?
“Go to and you can subscribe to any five star or four star funds. You can consult also. But my preference is value research. It is independent, honest and valuable advisory”, said Hazarika.

Since Seventy three percent of you invest able fund had been taken care of now balanced twenty seven percent should be deployed. Out of this twenty seven percent if you have existing PPF account you can keep 7% percent there subject to a maximum of Rs 70,000. And the balance twenty percent you can invest in IDFC long term Bond fund or in ICICI gilt Fund. These are not taxable and giving return of 13% to 20% percent at present. Alternatively you can keep the amount in Arbitrage fund with no tax and with return of around 8% to 11% all the time. You must know during present world’s financial crisis when equity tumbled down to -50% only funds which withstood the turmoil were Bond fund, gilt fund and arbitrage fund. The return of Bond and gilt fund may go down if interest rates stop going down or if it comes up. But Arbitrage funds hold it own irrespective of melt down. You can have faith on this fund. It is all weather friend of senior citizen with no tax impact.


Thursday, December 4, 2008


The recession has brought in unemployment . The ripple effect of the melt down has reached the shore of realty sectors, investment banking sectors and later it took under its spell all export oriented industries. The slow down in bank, retail and automobile industries have greatly affected IT and IT related industries. Many industries have laid off workers and executives. unemployment inUSA has touched 5,00,000 person in November against economist's predication of 2,00,000. It is understood that Mr. Obama hopes to launch a stimulus program that helps drive the agenda of his presidency: improving the nation's power grid in ways that reduce carbon emissions and cut energy costs, shoring up roads, bridges and tunnels, and computerizing medical records so that doctors have up-to-date information on patients.

The financial institutions of India have stood their ground as banks were not involved in sub prime situation. For enduring support of RBI and Government of India liquidity position of Indian banks have stabilized to a great extent. But unemployment situation have worsened as the recession has set in. Again Repo rate needs to be brought down to ensure growth & employment.

The recession in Steel, Graphite and Aluminum, affected graphite electrode industries, Calcined Petroleum Coke industries, Electrode carbon paste industries even Refineries. All the four refineries of Assam producing best petroleum coke of the world are carrying higher inventories. There are no takers of RPC. The IOC is bound to bring down price to generate demand. In Assam, unlike other states, none of the industries have laid off workers till now. But only time will dictate how long industries will be able to sustain the pressure. Rural employment could be generated, by State, promoting small industries and starting farming through private & public joint enterprise. It would create large employment.

The recession has created highly educated unemployment in India. Some of the companies like Syntel and Wipro have postponed the appointment of engineers. Engineering graduates of 2008 are only expected to join in the third quarter of 2009. Wipro has even reduced the salary from 2.75 lakh a year to 1.30.lack a year. Though salary has since been reinstated but the condition of working in a BPO first has become mandatory for 18th months before getting a hardcore technologists job. . With such offer engineers are feeling nervous. Under the circumstances what new students are going do?

Hitherto, the recession had affected world for a maximum period of eighteen months. But this time employment creation will be effected at least for three years. The new boys passing out higher secondary may think of Power Engineering. The graduate courses are available in Jadavpur University and IITs have post graduate level. Graduate engineers can take MTech. Course now .Within three years infrastructure areas would develop so power sector & civil engineering would get a new lease of life. This is the time for “Core Engineering” courses (Mechanical, civil, and electrical) rather than IT sectors. However IT would comeback in great demand after four years.

More than the organized sector, workers at the unorganized sector are getting affected. There are lots of workers working in diamond polishing & other small scale industries. Workers in handicraft segment, hospitality and tourism industries are greatly affected. In organized sector the most effected area are BPO, IT & automobile. No new job creations are envisaged in aviations, steel and cements too.

What is to be done now? Those persons who have lost jobs may try to utilise the time by developing new skills. They can take up course for SAP, join MBA or Chartered Financial Analyst course. These are new areas with ample opportunities. The course in animation, power engineering, and environmental engineering and bio technologies may be thought of. Fresh graduates can take up some assignments in well known companies even in low salary, waiting for better assignments, where skill can be learnt. HCL, Vodafone and Idea may take engineers in Assam. Public sectors jobs offer decent opportunity for advancement now. Graduates from Arts, science and commerce can prepare for jobs in banks, insurance and civil service.

The enhancement of productivity would be the watch words for workers. Gone are the days when workers could ignore the productivity and revolt. (Dunlop offered monthly compensation of Rs2000/- P.M to all workmen for temporary period to avoid recession. CITU Trade unions agreed but workers disagreed resulting in suspension of work.) The workers may avoid lay off and forced leave concept by discussing with employers for increased work load & cost reduction methods temporarily. Steel and aviation industries have accepted temporary pay cut and are surviving. Industry may be able to avoid lay off for sometime with better productivity. The recession may engulf all of us. We need to fend for ourselves with patience by developing new skills and government by developing new areas like private farming.