Wait! Property prices to fall further!

Here's an indepth article about real estate prices in India, from rediff.

Few points from the article,
The recent housing boom was riding on the back of four broad factors -- rising incomes, job security, low property prices and interest rates, and tax benefits associated with buying a house.

A home loan is a person's show of confidence in his income earning capacity over the long term. As the demand for high-ticket loans falls, it also signifies a dip in the confidence in job security and future salary increments.

Says an industry analyst: "Major players in the premium segment have an operating margin of 50-55 per cent. On the contrary, in the mid-segment the margin is around 35 per cent."

"A minimum of 25 per cent correction can be expected. Correction in Tier-II and Tier-III cities will happen a little more. Even cities like Mumbai could see significant price correction," adds Mavani.

So, read on!

The Rupee

Here is an interesting statistic of Rupee, the common name of the currencies used in India, Pakistan, Nepal, Sri Lanka, Mauritius, Seychelles, Indonesia and Maldives (I’m ignoring the slight variations in names such as Indonesian Rupiah and Maldivian Rufiyaa as they are cognate words of Hindi Rupiya).

1584 million people (the total population of the above countries) use the currency Rupee for their daily transactions; buying day today stuff and all. This is 24% of the world’s population. That means every fourth person living in this world uses a rupee every day.

Country	Population
India	1140
Pakistan	165
Nepal	28
Sri Lanka	19
Mauritius	1
Seychelles	1
Indonesia	229
Maldives	1
Total	1584

*Data extracted from wikipedia

See how famous the Rupee is! And we thought the Rupee was one of those not so famous currencies in the world?

Related Articles
- New Symbol for Indian Rupee

WallStreet crumbles

- Lehman Brothers, files for bankruptcy.
- Bank of America to save Merrill Lynch from the same fate by buying it for $50 billion.
- AIG looking to raise capital; also to avoid the same fate.

Complete coverage by WSJ.

Related Articles
- US Sub-prime Crisis
- Sub-prime woes haunting the US
- Financial tidbits

Indian Industrial growth rate at 7.1%

The Industrial Production Index grew to 7.1% in the month of July far exceeding expectations set from 4 to 6%.

This is indeed great for the economy which has been performing badly for a few months now. As a result of the unexpected growth rate, the Industry demanded a rate cut in interest rates to enhance investments further.

More news here.

Indian Inflation at 12.1%

India's inflation rate dips to 12.1% for the year ended August 30 2008.

This is the third consecutive time that inflation has declined. But the same was 3.2% the same time last year.

The drop in fuel prices over the couple of months would soften inflation further. More news here.

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India (2009)
- Inflation rates of India (2008)
- Commodities and their weightages in WPI calculation of India, Part I

Financial Products Information

Information is of highest value in the world of finance, especially when we have an umpteen number of finance related products and services available at our finger tips and would want to choose one from those. The ubiquitous internet gives us all the information we need, but being so large also has certain side effects, as the information we seek in the internet would be as scattered as it can be. That is where having a single platform or website for accessing all the information we need helps. Money.co.uk is one such website, where information related to finance can be read.

The portal contains thousands of articles related to the finance area, which is arranged into various categories such as loans, credit cards, mortgages, savings and accounts, insurance, stock markets etc. It also tells us of various financial products and services available around. And the best part is one can do a comparative analysis of various products and services, for example to compare mortgages, and select the best out of the set that fits his or her need. And for those who do not want to buy anything, but just want to know of the latest news in the world of finance, there are separate sections dedicated for the latest finance news.

The credit card section of the site lists down the most popular credit cards available in the market. Also there are various comparison tables in the credit cards section, which are based on features of a credit card such as balance transfer, cash back and rewards, air miles etc. Each comparison table lists down providers of cards having the selected feature. The site also provides credit card quotes. The insurance area is detailed in the site using which we can select quality insurance policies having minimal cost. In both these cases, we can apply for the product right from the website.

The site is updated with latest contents (news, articles etc.) everyday and to keep us updated of new content, they have an RSS feed in the website. Readers can subscribe to this feed in their feed readers to get to know of new articles as soon as something is posted in the site. The site also has a weekly newsletter to which the readers can subscribe to just by entering their email ids. This would useful for those people who wants themselves to be updated with the latest happenings in the finance world but don’t have enough time to visit the site everyday.

A career in Finance through CFA

The Chartered Financial Analyst (CFA) is a globally recognized self study degree program for anyone aiming at investment related professions. It is conducted by the CFA Institute. Candidates who have completed the course are highly valued by the industry and are preferred for key positions in companies.

The CFA exam has three levels, I, II and III. One has to pass all the three levels and meet some other requirements (professional and ethical) to become a CFA charter holder. The exam for Level I takes place twice a year (in June and December) where as that for Level II and III happens only once in a year (in June only).

If one writes the Level I exam in December and continues through to Level II in June of the next year and Level III in June of the following year, without failing in any of the levels, the minimum time period in which the CFA levels can be completed is 1.5 years. The exam is of moderate difficulty and it requires quite a dedication from the candidate’s part to get through. However, there is no limit to the number of attempts one can make in any of the levels.

The fees for applying for the exam ranges from around 1000 US Dollars to 1400 US Dollars, depending on when you are registering, as there are discounts on early registrations. The study materials and one online sample exam are included in the registration fees.

One note of caution! This CFA designation given by the CFA Institute is not to be mistaken as the CFA in India given by ICFAI (which they got through some court litigation) that is not valued outside India like the former. In fact, due to the litigation, the CFA Institute is not conducting the CFA exam in India until the court gives a ruling in their favor.

So as of now people in India have to go outside the country, to nearby locations such as Srilanka, Nepal, Singapore etc. to take the exam. I hope the court understand the situation and allow the CFA Institute to conduct the CFA exam in India. But whatever it is, the CFA exam is something an aspiring financial analyst should definitely go for.

Good Reads
- Financial Rounds

Related Articles
- Financial Risk Manager (FRM) certification for a career in Risk Management
- Certified Financial Planner (CFP)
- Certified International Investment Analyst (CIIA)

Financial tidbits

As the world economy continues to remain blunt, in the US the subprime mortgage lending crisis is still not over despite statements from the renowned in the field stating it to be over. From this news,

Standard & Poor’s Leveraged Commentary and Data reported this week that the default rate — the percentage of leveraged loans in default — rose to a five-year high of 3.3 percent in August. At the end of last year, the rate was a tiny 0.24 percent, or about one of 400 loans.

Back in India, this news (India’s external debt jumps 30.4% to $221 Bn in FY08), though it appears appalling prima facie, might not be that bad because the increase is on account of increased borrowings by the corporate from outside and weakening of the dollar. In fact, the government’s debt in total external debt has decreased from 28.4% to 25.6%. Increased borrowings by the corporate, also called External Commercial Borrowings (ECB) could indicate an increase in investments done by Indian corporate inside India and abroad, which is actually good for the Indian Business.

Related Articles
- US Sub-prime Crisis
- Sub-prime woes haunting the US
- Is India growing; really?

What is a Core Banking System?

Core Banking System or Core Banking Solution is a term that we hear very often these days. For IT and Banking folks, this term doesn’t need any explanation but for those who want to know a bit, here’s a brief overview of what it means.

Previously a bank’s core operations such as keeping a ledger of various transactions, maintaining customer information, interest calculation of loans and deposits, adjustments to accounts on withdrawal and deposits of funds etc. were done manually. With the advent of ICT (Information & Communications Technology), efforts were done to automate various banking processes using software applications so as to make them simple, efficient, effortless and cost effective. Thus, the platform where ICT is used to perform the core operations of a bank, like those mentioned above, is known as Core Banking System.

In Core Banking System, software applications record transactions, maintain customer information, calculate interest on loans and deposits etc. The data, instead of huge ledgers, are stored in backend databases in digital form. Now, the same software can be installed in various branches of a bank and can be interconnected through the internet or telephone lines to form a core banking network of the bank. The advantage, a customer can operate on his account from any branch of the bank and if the bank owns Internet Banking or ATM facilities, then the customer can operate on his account from virtually anywhere.

Thus, Core Banking System has radically changed the way in which banks function. The greatest advantage of having a Core Bank System is that new features and functionalities can be easily added to the system that customers will have a whole lot of services that they can use. Electronic funds transfer between banks, online trading in the stock markets etc. are examples of this, which were unheard of in banks pre Core Banking System era.

India's GDP growth @ 7.9%

India's GDP grew by 7.9% in the first quarter of the fiscal year 2008-09. This is still a decent growth rate considering CRR hikes, high inflation rate and other economic deccelerators that affected the economy in the quarter.

Here are the key economic indicator figures:

Agriculture: 3%
Manufacturing: 5.6%
Construction: 11.4%
Electricity, Gas and Water: 2.6%

More news here.

India Poverty Data

India Poverty Data published by World Bank; updated 23 Apr 2007.

According to the report, 29 percent of the population of India are below the national poverty line.

via End Poverty in South Asia

Related Articles
- Is India growing; really?

Application Supported by Blocked Amount for IPOs

The Securities and Exchange Board of India (SEBI) has introduced Application Supported by Blocked Amount (ASBA); a supplementary process for applying IPOs. Previously, when investors apply for an IPO, they have to pay the entire money upfront to the registrar/banker and hence stand to lose returns on the money that is locked until the IPO is allocated. The new move will protect the money of investors and will also make the IPO issue process more efficient and less time consuming.

In the new process, banks will block the money in investors’ account when they bid for an IPO and the money is released on the basis of number of shares being allotted. The remaining money will be unlocked by the banks. As a result, the IPO process is expected to be completed within 15 days of the closing date of the issue.

Related Articles
- Money no longer gets locked in IPOs

What are the 30 Stocks of BSE SENSEX

The SENSEX gives an indicative figure of the trading happened in BSE, which is the chief stock market of India. A group of 30 stocks that represent various industries of the economy are used for the calculation of SENSEX.

The base year for SENSEX calculation is 1978-79 and the base value is 100. It is calculated using Free-float Market Capitalization methodology. The SENSEX value is calculated every 15 seconds when the trade is going on.

Here is the list of the 30 stocks that constitutes the BSE SENSEX.

Code	Name	Sector	Adj. Factor
500410	ACC Ltd.	Housing Related	0.60
500103	Bharat Heavy Electricals Ltd.	Capital Goods	0.35
532454	Bharti Airtel Ltd.	Telecom	0.35
532868	DLF Ltd.	Housing Related	0.15
500300	Grasim Industries Ltd.	Diversified	0.75
500010	HDFC	Finance	0.85
500180	HDFC Bank Ltd.	Finance	0.85
500440	Hindalco Industries Ltd.	Metal,Metal Products & Mining	0.70
500696	Hindustan Unilever Ltd.	FMCG	0.50
532174	ICICI Bank Ltd.	Finance	1.00
500209	Infosys Technologies Ltd.	Information Technology	0.85
500875	ITC Ltd.	FMCG	0.70
532532	Jaiprakash Associates Ltd.	Housing Related	0.60
500510	Larsen & Toubro Limited	Capital Goods	0.90
500520	Mahindra & Mahindra Ltd.	Transport Equipments	0.80
532500	Maruti Suzuki India Ltd.	Transport Equipments	0.50
532555	NTPC Ltd.	Power	0.15
500312	ONGC Ltd.	Oil & Gas	0.20
500359	Ranbaxy Laboratories Ltd.	Healthcare	0.70
532712	Reliance Communications Limited	Telecom	0.35
500325	Reliance Industries Ltd.	Oil & Gas	0.50
500390	Reliance Infrastructure Ltd.	Power	0.65
500376	Satyam Computer Services Ltd.	Information Technology	0.95
500112	State Bank of India	Finance	0.45
500900	Sterlite Industries (India) Ltd.	Metal,Metal Products & Mining	0.40
532540	Tata Consultancy Services Limited	Information Technology	0.25
500570	Tata Motors Ltd.	Transport Equipments	0.60
500400	Tata Power Company Ltd.	Power	0.70
500470	Tata Steel Ltd.	Metal,Metal Products & Mining	0.70
507685	Wipro Ltd.	Information Technology	0.20

The BSE Index Committee meets every quarter to revise SENSEX constituents. In case a stock is to be replaced by another one, the announcement is made six weeks in advance of the actual change.

Related Articles
- Online share trading websites of India
- Money no longer gets locked in IPOs

On filing Tax Returns

Livemint has this great article written by Sunil Dhawan on filing tax returns. It’s worth a read.

Related Articles
- How to file Income Tax returns online
- How to check whether your employer/financial institution have deposited your TDS?

WPI Inflation of India @ 11.89%

WPI Inflation rate of India continues its upward path and stands at 11.89% for the year ended 28 June 2008. It moved up by 0.26% from 11.63% in the previous week and 4.42% in the corresponding week a year ago.

Despite government's attempt to prevent price increase, inflation rate increased due to higher prices of fruits, vegetable, pulses, spices, and bajra.

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India (2009)
- Inflation rates of India (2008)
- Commodities and their weightages in WPI calculation of India, Part I
- Base year and number of commodities used for inflation calculation in India

How to file Income Tax returns online

Income Tax Department of India facilitates a tax payer to file his Income Tax returns online through their website. It is an easy process and following are the steps involved according to IT department website,

1. Select appropriate type of Return Form from the website (ITR-1/ITR-2/ITR-3/ITR-4)

2. Download and install Return Preparation Software for the selected Return Form

3. Fill return offline and generate XML file

4. Register and create a user id (PAN) and password at the website

5. Login and click on relevant form on left panel and select "Submit Return"

6. Browse to select XML file and click on "Upload" button

7. On successful upload acknowledgement details would be displayed. Click on "Print" to generate printout of acknowledgement/ITR-V Form

8. Incase the return is digitally signed; on generation of "Acknowledgement" the Return Filing process gets completed. You may take a printout of the Acknowledgement for your record

9. Incase the return is not digitally signed, on successful uploading of e-Return, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form. The tax payer has to fill-up the verification part and verify the same. A duly verified ITR-V form should be submitted with the local Income Tax Office within 15 days of filing electronically. This completes the Return filing process for non-digitally signed Returns

Here is the link to IT Department's eFiling website.

Related Articles
- How to check whether your employer/financial institution have deposited your TDS?

Effects of oil price increase on world trade/globalization

Oil is conquering new heights every day. With 145 dollars a barrel, it is the single largest commodity affecting world economy today. Does its effect confines to an increase in inflation across nations? No. Oil has a much larger impact, especially when it comes to international trade; in a globalized world.

One of the fundamental principles that propelled globalization was a world without boundaries; a world that was seamlessly linked. When we narrow this down, being seamless attributes to low international transportation costs which allowed nations to trade (buy and sell goods) with each other and still have a cost advantage.

The transportation costs were so much low so that there was an incentive to import goods from any corner of the world in spite of the distance it has to be shipped and sell it for less than what is available locally. On the other hand, it also allowed nations to export goods to other countries and sell it for less than the price out there, due to marginal transportation costs. Thus transportation costs had a major hand in the success of globalization.

The increase in oil price has disrupted this pillar of globalization. Transportation costs are increasing world wide due to fuel price increase and it might increase to such a extent that it may not become economically plausible for a country to buy or sell goods outside. The transportation costs may become the deciding factor of the final price of goods and hence would account for an obvious collapse of the cost advantage that nations enjoyed previously.

Thus the oil price increase has a strong impact on the global economy and to globalization. Let’s hope that economies world over would think over it and do something to put an end to growing oil prices.

Inspired by ‘The rebirth of distance’ – Niranjan Rajadhyaksha
Image courtesy: Getty Images

Related Articles
- How India contributes to global oil price increase?
- Petrol price vis-à-vis diesel and kerosene prices
- Effects of Oil price hike

Commodities and their weightages in WPI calculation of India, Part III

In case you are reading this post first, this is the third article of a four part series. Please go to the first part, second part and then read on.

From the first part,
India uses 435 commodities for its WPI based inflation calculation. On a broader level, the 435 commodities are grouped into,
1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

This post covers the second of the main groups, Fuel, Power, Light & Lubricants, which has a group weightage of 14.22624%. Fuel, Power, Light & Lubricants are further classified into various sub-groups as shown below.

Fuel, Power, Light & Lubricants

1. Coal Mining
2. Mineral Oils
3. Electricity

Following table shows the sub-groups and individual commodity weightages of the constituents of Fuel, Power, Light & Lubricants.

Group	Sub-Group	Commodity	Weightage	Sub-Group Weightage	Group Weightage
Fuel, Power, Light& Lubricants	Coal Mining	Coking Coal	0.24148	1.75291	14.22624
		Non-coking Coal	1.39670
		Coke	0.01115
		Lignite	0.10358
	Minerals Oil	LPG	1.83731	6.98963
		Petrol	0.88815
		Kerosene	0.68928
		Aviation Fuel	0.16953
		High Speed Diesel	2.02034
		Light Diesel	0.16015
		Naphtha	0.41885
		Bitumen	0.14900
		Furnace Oil	0.49335
		Lubricants	0.16367
	Electricity	Domestic Use	0.96026	5.4837
		Commercial Use	0.27690
		Agriculture	1.94557
		Industry	2.16918
		Railway	0.13179

In the next part, we will cover Manufactured Products, its sub classifications, individual commodities and their weightages. Do visit again.

Series
- Commodities and their weightages in WPI calculation of India, Part I
- Commodities and their weightages in WPI calculation of India, Part II
- Commodities and their weightages in WPI calculation of India, Part III

Resources
- Office of the Economic Adviser, Ministry of Commerce and Industry, Govt. of India

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Another ‘road not taken’ story

IIM grads opting out of placements to start their own venture are no great news these days. But when one destines to sell vegetables on the streets of Bihar, with a bigger dream of making Bihar the vegetable hub of India, it demands applause. Especially when the person is an IIM Ahmedabad topper!

Kaushalendra, popularly known as ‘MBA sabziwala’ among his customers, hails from a family of agricultural background. Currently he is on a well set path of achieving his dream, as he has tied up with over 250 vegetable growers in Nalanda and Patna districts of Bihar. He has also come up with a unique push-cart capable of carrying 200 kilos of vegetables, with an attached weighing machine and is ice cooled to keep vegetables fresh for 5 days, sold under the brand name ‘Samridhi’. Kaushalendra says it was his childhood dream to contribute to the development of rural Bihar.

More news here.

How to check whether your employer/financial institution have deposited your TDS?

Most of the new age companies deduct income tax before giving salary to the employees (Tax Deduction at Source or TDS). TDS is also done by banks and other financial institutions for returns on fixed deposits, short term gains on equities etc. How do you check whether the tax deducted from you through TDS have been paid to the exchequer by your company or the financial institution?

Tax Information Network (TIN) of Income Tax department, Government of India facilitates a PAN holder to view annual tax statement (Form 26AS) online.

It’s very straight forward involving few simple steps
1. You have to register your PAN number online
2. Get it verified by TIN
3. Start checking tax credit online

The verification can be done by either going to the nearest TIN-Facilitation Centre or asking them to visit your address. There is a small fee for the one time authorization. Rs 15 + service tax if the PAN holder visits the TIN-Facilitation Centre in person or Rs. 100 + service tax if the PAN holder opts for the TIN employee to visit him and do the verification.

This is the link to do it.

Best banks of India

The Financial Express has released their annual “India’s Best Banks Awards”, which is based on the performance of Indian banks on various parameters such as Strength and Soundness, Growth, Profitability, Efficiency/Productivity and Credit Quality.

The top two banks in the following categories:
Nationalised
• Indian Overseas Bank
• Indian Bank
• State Bank of Hyderabad

New private sector
• AXIS Bank
• HDFC Bank

Old private sector
• Karur Vysya Bank
• Federal Bank

Foreign banks
• Bank of America
• HSBC

Best performance on the following parameters:
Strength & Soundness
• Canara Bank

Growth
• Deutsche Bank AG

Profitability
• Standard Chartered Bank

Efficiency
• Bank of America

Credit Quality
• Yes Bank

Via and more details here.

Advantages of investing in Real-estate

Investing in real-estate, or more specifically, on a house or flat, is something that interests the salaried class very much. Though the scenario appears bleak due to the recent CRR and Repo rate hike by RBI (which could lead to an increase in home loan rates), buying a real-estate is something that is still worth pondering.

Real-estate has certain advantages that other investment options don’t have. Let’s have a look at few of those advantages and see why investing in real-estate is still a better option.

Advantages
1) Property prices, in general, don’t show a downward trend, especially if selected at a location where there is ample scope for development. In such cases, it becomes a safer investment.
2) The rate at which real-estate prices increase sometimes even beat the stock market.
3) Inflation generally doesn’t affect real-estate (house/flat) returns because the costs of construction materials increase every year (with inflation). As a result, the cost of buying a house/flat is always going to increase with time. Hence properties will most probably be available at a higher price tomorrow.
4) Investing in a ready to occupy house/flat could save the money that you spend on a rented house. Till selling the flat, you can live in the flat and save on the rent amount.
5) If you are taking a home loan for buying the house/flat, the EMI could be afforded with 1) the money you otherwise pay as rent and 2) the tax savings (hence increased take home salary) you get on home loans.

Tax Savings
When you take a home loan, there are two ways with which you could save tax.
1) The principal component of the EMI is eligible for a deduction of up to 100,000 under Section 80C of Income Tax Act 1961. This is the same section under which Provident Fund, Insurance Premiums etc. are claimed.
2) The interest component of EMI is exempted up to 150,000.
3) If both husband and wife are working, then both can claim these exemptions for the same property, provided they have taken a joint loan and divide the principal and interest component of EMI among each other.

Commodities and their weightages in WPI calculation of India, Part II

In case you are reading this post first, this is the second article of a four part series. Please go to the first part and then read on.

From the first part,
India uses 435 commodities for its WPI based inflation calculation. On a broader level, the 435 commodities are grouped into,
1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

This post covers the first of the main groups, Primary Articles, which has a group weightage of 22.02525%. Primary Articles are further classified in various sub-groups and sub-sub-groups as shown below.

Primary Articles

1. Food Articles
1. Food Grains (Cereals & Pulses)
1. Cereals
2. Pulses
2. Fruits & Vegetables
1. Vegetables
2. Fruits
3. Milk
4. Eggs, Meat & Fishes
5. Condiments & Spices
6. Other Food Articles
2. Non-Food Articles
1. Fibers
2. Oil Seeds
3. Other Non-Food Articles
3. Minerals
1. Metallic Minerals
2. Other Minerals

Following table shows the sub-group, sub-sub-group and individual commodity weightage of the constituents of Primary Articles.


In the next part, we will cover Fuel, Power, Light & Lubricants, its sub classifications, individual commodities and their weightages. Do visit again.

Series
- Commodities and their weightages in WPI calculation of India, Part I
- Commodities and their weightages in WPI calculation of India, Part II
- Commodities and their weightages in WPI calculation of India, Part III

Resources
- Office of the Economic Adviser, Ministry of Commerce and Industry, Govt. of India

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Online share trading websites of India

Ever since the dematerialization of shares happened in India, stock trading has shifted its base to the internet world. It made share trading a lot easier for people and more of them started buying and selling shares through various websites, which provided equity investors with facilities to do online trading. Online trading became so much popular so that today websites not only provide facilities to do share trading but also for Futures and Options trading, Commodities trading, Overseas trading, IPO application, Mutual Funds etc. and more.

Here is a non-comprehensive list of websites through which you can do online share trading in India, on BSE and NSE, the leading stock exchanges of India. The websites are neither arranged in any particular order nor are they ranked here. And all of them provide more or less the same set of services. There could be a difference in customer service though!

ICICI Direct
ICICI Direct is owned by ICICI bank. They have one of the highest brokerage fees in India but also have a plethora of stock research information and trading tips available with them.

Sharekhan
Sharekhan is an old hand broker with a lot of experience in Indian stock markets.

Reliance Money
Reliance Money is owned by Anil Dhirubhai Ambani Group.

5paisa
5paisa.com is an IndiaInfoline owned online equity trading portal.

Geojit
Geojit, as a company, is in operation since 1987. As on today, it is the only company in which a government entity (Kerala State Industrial Development Corporation) has a stake.

Indiabulls
Indiabulls is a leading Financial Services and Real Estate company of India. They have over 640 branches across India.

There are other online equity trading brokers as well; like Motilal Oswal, Kotak Securities, Angeltrade, SMC etc. I will update the list with their information in future.

How to increase your take home salary?

When cost of living skyrockets, smart ways to plan one’s pay packet to reduce his tax outgo and maximize his take home salary becomes relevant. Companies also realize the need to have a tax-friendly pay packet to help their employees get the better of their salary.

30 tax-smart ways to plan your pay packet could help you plan your compensation package and get the best out of it. According to the article that came on Rediff,

Saving a rupee in tax means you have a rupee more to save, spend or invest as you wish. So, when negotiating or reviewing your salary package, you should choose perks which are both useful for you and your family, and which are also tax-smart.

Have a look at the article.

Commodities and their weightages in WPI calculation of India, Part I

As on today, India uses a basket of 435 commodities and a base year of 1993-94 for its Wholesale Price Index (WPI) based inflation rate calculation. The 435 commodities used for finding WPI range from food items like rice, wheat to petroleum products to medicines and are given weightages depending upon their importance and impact on the economy. Discussions are going on to revise the number of commodities to 980 and base year to 2004-05.

The 435 commodities are divided to various groups and subgroups. Individual commodities, and as a result, groups and subgroups have weightages. On a broader level, the 435 commodities are grouped into,

1. Primary Articles
2. Fuel, Power, Light & Lubricants
3. Manufactured Products

Primary Articles consist of food grains, fruits and vegetables, milk, eggs, meats and fishes, condiments and spices, fibers, oil seeds and minerals. Fuel, Power, Light & Lubricants consist of coal and petroleum related products, lubricants, electricity etc. Manufactured Products consist of dairy products, atta, biscuits, edible oils, liquors, cloth, toothpaste, batteries, automobiles etc. The group weightages are 22.02525%, 14.22624% and 63.74851% for Primary Articles, Fuel, Power, Light & Lubricants and Manufactured Products respectively. The total adds up to 100.

There are three more parts to this article. In the first part, we will cover Primary Articles, its sub classifications, individual commodities and their weightages. Second part is for Fuel, Power, Light & Lubricants, its sub classifications, individual commodities and their weightages and third part deals with Manufactured Products, its sub classifications, individual commodities and their weightages.

Series
- Commodities and their weightages in WPI calculation of India, Part I
- Commodities and their weightages in WPI calculation of India, Part II
- Commodities and their weightages in WPI calculation of India, Part III

Resources
- Office of the Economic Adviser, Ministry of Commerce and Industry, Govt. of India

Related Articles
- How is WPI inflation rate calculated in India?
- Inflation rates of India
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Dealing with sudden wealth

What would you do if you get rich through a windfall? May be through sale of a property or receiving an inheritance or through an insurance settlement or getting lucky in a lottery draw!

This article that came in Times of India goes into the details of such a situation. According to them,

Most beneficiaries are not prepared for the consequences of sudden wealth. They are often clueless about how to deal with a large amount of money. Studies show that more than 35% of lottery winners declare bankruptcy in 10 years.

They key to face such a situation is, invest properly! Have a look at the article.

How India contributes to global oil price increase?

The price hike on petroleum products in India, barring kerosene, seems to have settled down comfortably into Indian minds. But, like I have written previously, the global crude oil price increase has not been completely transferred to a price hike in retail prices of petrol and diesel. Subsidies still rule Indian petroleum retailing!

The actual plunge is softened by the cushion made on the back of oil companies, central government and state governments. They suffer heavy losses through regulatory restrictions and tax cuts to make petrol available cheap for the common populace. As a consumer, one would feel great about the cushioning, but is it good for the global petroleum price? I would say no!

Economics says, whenever there is an increase in price of any commodity, its demand comes down forcing it to be sold at a lower price. That is, the increase in price is brought down by a decrease in consumption. Similarly, in an ideal case, when crude oil price increases, people start using it less making its demand go down, there by decreasing its price.

In India, since the government and companies suffer losses to maintain petrol/diesel prices low, people are not experiencing the actual effect of the price rise. As a result the demand for oil is not coming down (people are not reducing consumption) in the way it should have. For example, if petrol price was 10 rupees more than its current price, more people than now would resort to public transport than taking their own vehicle and the consumption would have come further down. In that case, India would have imported less oil, reducing global demand for oil and hence the price.

Along with the demand problem mentioned above, when you consider the fact that India is a fast growing and highly populated economy, you would know how much impact will it have on global crude oil demand and thus its price.

Reports say that oil products sales grew by 10.9 percent in India for the year ended February 2008, which is funded by an estimated oil subsidy of 200,000 Crore! China, which is a similar economy as India (fast growing and highly populated) had a 7.8 percent growth in oil consumption during the same period. And these two giants could easily contribute to the increase in crude oil prices as the demand supply conundrum is not allowed to happen ‘freely’ in these two countries.

Petrol price vis-à-vis diesel and kerosene prices

The price of crude oil has touched $132 a barrel. As 1 barrel is 159 litres, assuming a rupee/dollar exchange rate of 42, cost of crude oil (or petrol) per litre should have been around 35 rupees (plus manufacturing and transportation costs, profit). But petrol is sold at Rs. 56 per litre!

The main reasons for such a difference are two.
1. Import duties/sales tax on crude oil/petrol by central and state governments
2. Petrol price is increased disproportionately for the cross subsidization of kerosene and diesel as the later two are common man’s fuels

Kerosene is used by millions of poor in India and a rise in kerosene price would affect them severely. Diesel is used in trucks and trains which do mass transportation of essential commodities. Since a huge hike in these two would affect the concerned and the common populace very badly, government usually refrains from increasing their prices, or if increased, less compared to that of petrol.

But there are few things that need to be considered. One, kerosene is widely used for adulterating petrol as there is a price difference between them. Two, most of the (luxury)cars nowadays have diesel variants to exploit the price difference meant for a different cause. But then the sheer number of Indian common man may justify government’s decision to continue subsidizing kerosene and diesel.

PS:
Did you know that petrol sells at Rs. 113.30 a litre in Turkey, while it is just Rs. 2.12 a litre in Venezuela?

After the recent surge in global oil prices, and a subsequent increase of petrol/diesel prices in India, Rediff has compiled this great article about world’s costliest and cheapest petrol.

CFDs: Contract for Difference

An agreement between buyer and seller of an asset saying that the seller will pay the buyer the difference between current value and end of contract time value of the asset, is called a Contract for Difference or CFD. Conversely, if the difference is negative then the buyer pays the seller. Thus, in a CFD, the seller makes money when the asset value decreases while the buyer makes money when the asset value increases, over the contract tenure.

CFDs allow investors to speculate on asset price movements and do trading without actually owning the asset. It is much similar to margin trading such as short selling and short covering. In CFDs the investors can have longer contract durations, which will allow them to take long term positions.

CFDs were first traded in UK where they had the benefit of being exempted from stamp duty. Soon investors realized its potential to trade on leverage on an asset than just obtaining tax exemption. And thus started the growth of CFDs world over! Today they are traded in most of the leading stock exchanges in the world.

Today we have lot of websites that deal with online stock trading, especially for the trading of CFDs, like One Financial. They provide a wide range of trading instruments and also an investor can trade with a large number of exchanges through their site. Being a website they also have the advantage of geographic independence (anyone can trade from anywhere).

Online CFD providers like One Financial make the task of CFD trading a lot easier for investors. They are one of the few sites where investors can open a demo CFD account to get themselves acquainted with the interface and processes involved in CFD trading. For all those newcomers in the field of CFD trading, they have a CFD for beginners section in their website.

CFDs are indeed an interesting investment opportunity for investors!

Effects of Oil price hike

The government has hiked petrol price by Rs. 5, diesel price by Rs. 3 and gas cylinder (14.2 Kg) price by Rs. 50 on the wake of global crude oil price increase while the price of kerosene remains unchanged. The move is also accompanied by several reductions in customs and excise duties related to oil.

Though the rise in oil prices will be a relief for oil marketing companies like BPCL, HPCL etc, their losses will not covered completely by the rise. All the measures (price hikes and duty cuts) will reduce their loss by Rs. 21,000 Crore (1 Crore = 10 Million)after a cost of Rs. 22,600 Crore to the government due to the reduction in income from duties. Still, there will be a gap of Rs. 29,000 Crore, which indicates that the rise is not enough and there could be another oil price increase in future.

The rise in oil prices will definitely add salt to the wounds already created by inflation surge. Since oil prices are directly or indirectly linked to food and other commodities used by the common populace, inflation is most likely to increase in the days to come. Strong correlation that the oil has with inflation!

So, will it lead to a decrease in the usage of petrol? Quite possible, as people who own vehicles would try not to use it more and would prefer alternative methods like car pooling, public transport etc. There is also a chance that the cost of public transport (transport buses, cabs, ricks etc.) may increase.

In all possibility, I feel, the middle and upper classes will manage to escape from the pinch, but it’s the lower class that is going to suffer, as usual!!

SEBI to introduce Currency Futures

The Market regulator SEBI has announced that it will introduce exchange traded currency futures in the next three months. The currency future is suggested to have a minimum price of $1,000, which would be introductory.

SEBI also pointed out that next they would be working on interest rate derivatives.

Currency futures and interest rate derivatives are financial instruments that are used to hedge financial risks. They are highly used in developed markets like the US. This is a clear sign of the Indian markets becoming more matured and advanced.

More news here!

Are you game for an early retirement?

Gone are the days on which people want to work till sixty for maintaining their earnings, promotions and stuff. Nowadays, may be due to high pressure jobs and stressful lives, people want to retire from their career and lead a peaceful life as early as possible.

This article from Economic Times would make some of you think of retiring early and plan your strategies accordingly. Now, what could be the first step for early retirement?

According to the article,

We spoke to financial experts, and also a few smart people who actually managed to retire early from their active careers, and asked them for tips on how to retire early. Everyone was unanimous about the first step - make sure retirement stays at the top of your priority list.

Well, which I feel is not incorrect; but how many of us have retirement planning as our top priority?

Outsourcing of transaction tax compliance

Over the years companies have found outsourcing of important business processes such as recruitment, payroll, finance, training, HR etc. as a strategic and effective alternative that saves time, money and resources. Outsourcing of taxation related processes in companies to third party vendors is the next big thing happening in the outsourcing arena.

Transaction tax compliance is a burdensome process for companies. To give you an example, in the United States alone, there are more than 13,000 tax jurisdictions and each year the tax laws change more than 1,000 times. This makes it extremely difficult for companies to track tax rates and manage tax payments to the government for various transactions done at various jursidictions having different tax laws. Thus, while making sales in a particular geography, a company (that is operating over multiple geographies) should know about the prevailing sales tax, use tax and tax laws of that geography so as to account it in the tax amount to be paid to the government.

Failing this (or variations happening in tax payments due to not accurately tracking sales tax and use tax rates), companies have to face penalties, audits and other legalities from the tax authorities. This shows how important it is to ensure transaction tax compliance by a company, eventhough the process is unwieldy. That's where taxation compliance outsourcing becomes important.

A good example of a firm that do outsourced transaction tax compliance is Sabrix, with it's Managed Tax Service (MTS) that offers tax compliance solutions to small business and mid-market companies (they also have a demo of the application at http://www.sabrix.com/smb/demo/).

Outsourcing tax compliance to firms like Sabrix has lot of advantages. It would eliminate the hassles (tracking tax rates of various geographies etc.) associated with tax compliance. The payments to tax authorities will be accurate and timely due to the expertise of the firm as it is dealing only with such things (core competency). Above all, there is a cost advantage to it. As a result companies can concentrate more on its core business. Few more reasons to outsource transaction tax compliance can be found here.

Increase in debt waiver for farmers

The government has hiked debt waiver for farmers to Rs. 71,680 Crore (1 Crore = 10 million).

As reported by rediff,

Under the modified scheme, all farmers, including big ones, in 237 identified districts will get a debt relief of 25 per cent of the outstanding amount or Rs 20,000, whichever is higher, Finance Minister P Chidambaram told reporters after a meeting of the Cabinet, which approved the guidelines.

In a time when farmer suicides are rampant, this move from the government would be a great relief for farmers who are in debt and whose hopes have come to an end.

Elderly Travel Insurance

Travel insurance is used to cover medical expenses, financial and other losses (due to theft, delayed departure etc.) incurred while one is traveling. Travel insurance is available for students, businessmen, tourists, adventurers and for that matter, even ordinary domestic and international travelers. While it is widely used in developed countries such as USA, UK etc., it’s becoming increasingly popular in countries like India.

Like any other insurance products, travel insurance products also are unfriendly to the senior citizens as most of the policies would either have strict age limits or higher premiums for the elderly. This comes as an irony when we have retirement plans, low cost airlines and holiday packages that enable more and more people to save and travel during old age.

Recently, I came across a site called Covermytravels that offers travel insurance for senior citizens at a very lower cost compared to other insurers. Elderly Travel Insurance gives travel insurance quotes with in seconds (which is completely online) and is very user friendly. They have single trip per year and multi trip per year policies and also have some optional benefits such as ‘Winter Sports Cover’ that could be added to the travel insurance. They also give assistance to customers over telephone who want clarifications before deciding on the travel insurance they require.

Overall, an outstanding option senior traveler could bang on and I hope sites like this would be a great relief for elder travelers.

Sub-prime woes haunting the US

While the US bleeds of sub-prime wounds, most of the mortgages taken through sub-prime borrowing are now facing foreclosure. People who have taken such loans to build/buy houses are vacating it subsequent to court verdicts.

The gravity of the situation comes out clearly in this news reported by the New York Times. Quoting them,

The problem of vacant homes is all the more striking when considered against predictions by economists that a couple of million more homes will enter foreclosure in the next two years, said Cheryl Lang, president of Integrated Mortgage Solutions, a company based in Houston that contracts with Mr. McCallister and Mr. Law on behalf of mortgage companies.

With the consequent economic decline leading to more and more layoffs/job cuts, I guess the situation in the US is going to spiral out in the days to come. Feel like the sub-prime crisis had much more in its store than expected!

Money no longer gets locked in IPOs

When investors apply for Initial Public Offering (IPO), they have to pay money upfront to the registrar/banker with whom the money gets locked for a few weeks, until the IPO price is decided and the shares are allocated. If the number of shares allocated is lesser than applied, the balance money is refunded to the investor. Since the money is locked for a few weeks, the investor loses interest amount he could earn otherwise on that money.

On the other side, bankers get floating interest on investor's money, for those few weeks. Well, to say the least, when money runs into Crores, however small the interest percentage is, the interest amount will be huge.

According to a SEBI statement, the money will now remain in the investor’s bank account till the allotment price and quantity is finalized. This would eliminate the refund process. This would also save money collecting and refunding time and thus will reduce the burden on registrars.
More news here.

At a macro level, the locking of money denies the markets to have the much needed liquidity (money in the hands of people that can be used for trading in stock markets), particularly when they are falling and need money to push it up. Thus, money locked in IPOs has a serious impact on stock markets.

An example is something that happened in January 2008, when investor money was locked in Reliance Power and Future IPOs. These IPOs were huge and have raked in most of the liquidity from stock markets. When markets fell during that time due to US recession fears and other reasons, investors didn’t have money with them to buy shares (when markets fall, share prices also fall due to which investors buy shares which in turn will pull the market up) and stop the market from falling further. Reason; their money was locked with Reliance and Future IPOs!

The move by the regulator may not solve the liquidity problem during IPO as SEBI is planning to have some arrangements with which money would be locked in the investor's bank account so that there won't be any lack of funds in the investor's account when the IPO allotment comes. But this will atleast give the investors interest income on their money.

Credit card and effective interest rate

Suppose you own a credit card that charges an interest rate of 3.1% per month for revolving credit. What would be the yearly interest rate you end up paying the bank that have issued you the credit card? Is it 3.1 x 12 = 37.2%? Well, no!

Let’s see why.
Consider that you have made a purchase of Rs. 50,000 in your credit card having 3.1% monthly interest and have paid only 20,000 on the due date. The bank will take forward the remaining amount (30,000) to the next month's bill with an interest charge of Rs. 930 (3.1% of 30,000), making the total amount due to be Rs. 30,930.

Now suppose once again you couldn’t pay the entire amount and you paid only 20,000 out of the total due amount of 30,930. The bank will charge an interest of 3.1% on the remaining 10,930 (not 10,000). Thus the bank charges interest on the previous interest amount also or simply, the interest charged is compounded! Due to compounding, the effective annual interest rate will be higher than 3.1% x 12.

The effective annual interest rate, when monthly interest rate is quoted can be found out using the following method.

Effective annual rate = (1 + i/m)^m – 1
where i is the nominal yearly interest rate (3.1% x 12 = 37.2%) and m is the total number of compounding periods in a year (12, since monthly).

Effective annual rate = (1 + 0.372/12)^12 – 1 and that comes out to be 44.25% instead of 37.2%!

Think about a lender who charges 44.25% for the money that you borrow from him. That’s exactly the reason why we should keep our credit card spending to the minimum with absolutely no revolving credit.

Base year and number of commodities used for inflation calculation in India

By this year end, the government will adopt a revised Wholesale Price Index (WPI), besides considering actual prices from next month.

Instead of the current 435 commodities, the revised WPI will have 980 commodities included in it, which will be rationalized by incorporating new items, removing unimportant items and amalgamating similar items.

The base year will also be revised to 2004-05 from the current base year of 1993-94. Thus the new WPI would give a more accurate figure for inflation. More news here.

So finally, the government is doing something on various debates happened over inflation calculation in India.

Related Articles
- How is WPI inflation rate calculated in India?
- Commodities and their weight-ages in WPI calculation of India
- Inflation rates of India (2009)
- Inflation rates of India (2008)
- The magic of Inflation

Poll Result: Will India attain double digit growth rate?

Will India attain double digit growth rate?

From rags to riches

A crorepati who lives in a hut!

The awe-inspiring story of a first generation entrepreneur! Sarath opens up his mind about the hardships he faced while making his company a success. I particularly liked the following statement he makes.

Quoting Sarath,
We talk about India shining and India growing, but we should ensure that people do not die of hunger. We can be a developed country but we should not leave the poor people behind. I am worried for them because I know what hunger is... Thoughts that are quite in line with the article by Pankaj Mishra about which I wrote in this post.

Sarath is a classmate of mine from IIMA's MBA programs. I hope that his story will be an inspiration for each and every one of us to start something similar and take India to one of the topmost countries in the world.

Effects of CRR hike on Inflation seen through money multiplying effect

The Reserve Bank of India, on 29th April 2008, increased the Cash Reserve Ratio (CRR) by 25 basis points (0.25%) to 8.25% as a policy measure to curb inflation in the country.

Cash Reserve Ratio sets the minimum reserve money banks must hold to deposits they own. A CRR of 8.25% means banks have to keep 8.25% of the total deposits they have with them as a cash reserve and shall not lend it to others or use it for any other purposes. In earlier periods this reserve was meant to protect depositor money in case a bank went bankrupt. But nowadays CRR is used as an effective tool in monetary policy to control interest rates and borrowing and is also used by developing countries like India and China to control inflation.

One of the main reasons of inflation is the money supply in the economy. When people have more money in their hands, they tend to pay more for goods and services (Supply vs. Demand) thereby increasing their prices. When CRR is increased, banks will have to keep more money as reserve restricting them to lend that much money into the economy. A CRR hike of 0.25% means Rs. 9000 Crore of extra money has to be kept as reserves, which means that that much money will be taken out from circulating in the economy and from being avaiable in the hands of people for spending. As a result people tend to pay less, making prices of goods and services (or inflation) come down.

This has more implications than what it appears prima facie. Money usually has a multiplier effect. Suppose a bank has Rs. 100 in deposits, with a CRR of 8.25%, it has to keep Rs. 8.25 with them and remaining Rs. 91.75 they can lend to borrowers. The borrower then gives the money to someone (through payment or lending) and the person who receives it (or if the person who receives it gives it to someone else and so on, then the last person who receives it) would deposit it in another bank. The second bank will keep 8.25% of the deposit of Rs. 91.75 and lend Rs. 84.18 to some other borrower. And the cycle continues.

In this way money available with a bank will in turn be available for various other banks for lending, due to the multiplier effect of money described above. Hence money taken away from the banking system through CRR hike will have a much higher effect, as the percolation will cause multiple increase in the overall cash reserve.

Thus higher reserve requirement results in reduced money creation in the economy and is accentuated by the multiplying effect of money. Hence increasing CRR is a highly effective method to reduce money supply in the economy; there by reducing inflation.

Personal Loans and debt traps

I get marketing calls from various banks each day which informs me that due to my good credit history with the bank I become eligible for a preapproved Personal Loan for my disposal and is available at the nod of my head. Already bearing the burden of a Personal Loan, I know for sure that it’s the last thing I shall go for and I reply them that I am not interested.

Personal Loans are collateral free loans given out by banks. It’s an unsecured loan and hence banks charge exorbitant interest rates for it. Since the money borrowed using Personal Loans is less compared to other loans, the EMIs appear lesser (else banks will make the tenure higher and make it appear less) and hence people generally don’t think much about the total money they pay to the bank through EMIs over the tenure. There are few things one should know about Personal Loan and these are also the reasons why Personal Loan shall be the last thing one shall resort to while in need of cash.

1. The interest rates banks charge is typically in the range of 20%! Just think about a Gold Loan where the interest rate is around 7%

2. Most Personal Loans come with an initial processing fee of around 2%. Consider a Personal Loan of 1 Lakh, where the processing fee itself will take 2000 bucks off you

3. Banks charge a pre-payment penalty when the Personal Loan is closed before its tenure, which again take money out of you

Thus, despite having a very high interest rate, even more money is extorted by Personal Loans making it one of the costliest of all the loans and thus a debt trap. Hence go for Personal Loans only if there are no other options in front of you.

Of Micro SIPs

For mutual funds having a Systematic Investment Plan (SIP) option, the SIP amount came down to as low as Rs. 500 per month but there were a lot of people out there for whom it was still unaffordable; people who are engaged in daily wage jobs, small businesses etc. and wanted to benefit from the higher returns of equity market.

From April 2007, few fund houses have allowed people to invest in SIPs with money as low as Rs. 50 per month. This could benefit about 330 million paid workers of India who didn’t have access to such investment schemes earlier.

But there are certain things that could affect the popularity of micro SIPs. PAN card being made mandatory for mutual fund investments by SEBI, distributors not pushing micro SIP due to lower commissions involved, longer SIP terms of around 60 months are few of them. But looking at the revenues that micro SIPs could rake in for Asset Management Companies due to its scale, let’s hope that this shall become a success, increasing the savings power of the average Indian and also making our equities market much bigger and stronger than they are now.

How is WPI inflation rate calculated in India?

With inflation rate surging to new heights, the term is more in the news than ever in India. While leaving aside the debate on whether India should adopt CPI (Consumer Price Index) based inflation calculation rather than the current WPI (Wholesale Price Index) based one, let’s find in detail how inflation rate is calculated in India; which is the WPI based inflation rate.

What is inflation?
Inflation rate of a country is the rate at which prices of goods and services increase in its economy. It is an indication of the rise in the general level of prices over time. Since it’s practically impossible to find out the average change in prices of all the goods and services traded in an economy (which would give comprehensive inflation rate) due to the sheer number of goods and services present, a sample set or a basket of goods and services is used to get an indicative figure of the change in prices, which we call the inflation rate.

Mathematically, inflation or inflation rate is calculated as the percentage rate of change of a certain price index. The price indices widely used for this are Consumer Price Index (adopted by countries such as USA, UK, Japan and China) and Wholesale Price Index (adopted by countries such as India). Thus inflation rate, generally, is derived from CPI or WPI. Both methods have advantages and disadvantages. Since India uses WPI method for inflation calculation, let’s go in to the details of WPI based inflation calculation.

How is WPI (Wholesale Price Index) calculated?
In this method, a set of 435 commodities and their price changes are used for the calculation. The selected commodities are supposed to represent various strata of the economy and are supposed to give a comprehensive WPI value for the economy.

WPI is calculated on a base year and WPI for the base year is assumed to be 100. To show the calculation, let’s assume the base year to be 1970. The data of wholesale prices of all the 435 commodities in the base year and the time for which WPI is to be calculated is gathered.

Let's calculate WPI for the year 1980 for a particular commodity, say wheat. Assume that the price of a kilogram of wheat in 1970 = Rs 5.75 and in 1980 = Rs 6.10

The WPI of wheat for the year 1980 is,
(Price of Wheat in 1980 – Price of Wheat in 1970)/ Price of Wheat in 1970 x 100

i.e. (6.10 – 5.75)/5.75 x 100 = 6.09

Since WPI for the base year is assumed as 100, WPI for 1980 will become 100 + 6.09 = 106.09.

In this way individual WPI values for the remaining 434 commodities are calculated and then the weighted average of individual WPI figures are found out to arrive at the overall Wholesale Price Index. Commodities are given weight-age depending upon its influence in the economy.

How is inflation rate calculated?
If we have the WPI values of two time zones, say, beginning and end of year, the inflation rate for the year will be,

(WPI of end of year – WPI of beginning of year)/WPI of beginning of year x 100

For example, WPI on Jan 1st 1980 is 106.09 and WPI of Jan 1st 1981 is 109.72 then inflation rate for the year 1981 is,

(109.72 – 106.09)/106.09 x 100 = 3.42% and we say the inflation rate for the year 1981 is 3.42%.

Since WPI figures are available every week, inflation for a particular week (which usually means inflation for a period of one year ended on the given week) is calculated based on the above method using WPI of the given week and WPI of the week one year before. This is how we get weekly inflation rates in India.

Characteristics of WPI
Following are the few characteristics of Wholesale Price Index

WPI uses a sample set of 435 commodities for inflation calculation

The price from wholesale market is taken for the calculation

WPI is available for every week

It has a time lag of two weeks, which means WPI of the week two weeks back will be available now

There are certain arguments in the open saying that the government shall adopt Consumer Price Index (CPI) method for inflation calculation, which gives a more correct picture. More of that in another post...

Related Articles
- Commodities and their weight-ages in WPI calculation of India
- Inflation rates of India (2009)
- Inflation rates of India (2008)
- Base year and number of commodities used for inflation calculation in India
- The magic of Inflation

Is India growing; really?

Recently I read this article by Pankaj Mishra in The New York Times. Though written way back in 2006, with its inferences, the article leaves behind a lot of questions for the reader regarding where exactly the Indian economy stands; questions those are relevant even today.

Quoting from the article,
Recent accounts of the alleged rise of India barely mention the fact that the country's $728 per capita gross domestic product is just slightly higher than that of sub-Saharan Africa and that, as the 2005 United Nations Human Development Report puts it, even if it sustains its current high growth rates, India will not catch up with high-income countries until 2106.

Nor is India rising very fast on the report's Human Development index, where it ranks 127, just two rungs above Myanmar and more than 70 below Cuba and Mexico. Despite a recent reduction in poverty levels, nearly 380 million Indians still live on less than a dollar a day.

Malnutrition affects half of all children in India, and there is little sign that they are being helped by the country's market reforms, which have focused on creating private wealth rather than expanding access to health care and education. Despite the country's growing economy, 2.5 million Indian children die annually, accounting for one out of every five child deaths worldwide; and facilities for primary education have collapsed in large parts of the country (the official literacy rate of 61 percent includes many who can barely write their names). In the countryside, where 70 percent of India's population lives, the government has reported that about 100,000 farmers committed suicide between 1993 and 2003. [Courtesy: Pankaj Mishra, The New York Times]

I wish the economic growth of India not just confines to a small section of the society or creating private wealth but shall also comprise of the lower strata to ensure a ‘complete growth’. But above all, I wish the India growth story doesn’t blindfold the real situation of India, succinctly put across by the article. Do read it!

Top 10 companies of India

Rediff.com has compiled a list of the top 10 companies of India, based on FY 2007 sales revenues. Not surprisingly, the list is dominated by oil companies.

According to them, the top 10 companies are,

1. Indian Oil Corporation – Rs 201,493.85 Crore*
2. Reliance Industries^ – Rs 111,264.23 Crore
3. Bharat Petroleum Corporation – Rs 97,189.37 Crore
4. Hindustan Petroleum Corporation – Rs 93,912.34 Crore
5. Oil and Natural Gas Corporation – Rs 75,529.12 Crore
6. Steel Authority of India Limited – Rs 34,390.93 Crore
7. National Thermal Power Corporation – Rs 33,875.70 Crore
8. Tata Motors – Rs 31,999.47 Crore
9. Tata Steel – Rs 25,117.78 Crore
10. Sterilite Industries – Rs 24,376.83 Crore

*1 Crore is equal to 10 million
^Reliance Industries doesn’t include all the reliance group of companies

Term insurance to become cheaper

Wait for some time, if you have decided to buy a term insurance. The Insurance Regulatory and Development Authority (IRDA) is looking at ways to promote term insurance as they feel the general attitude among the public to deem insurance as a savings opportunity should change.

In India, life insurance is generally seen as an investment option rather than a cover for life. As a result we have insurance products like endowment policies, money back policies, ULIP etc from various insurance companies. Previously, I had talked about how inefficient an endowment policy is, where one pays huge premiums for small sum-assured to get a return that’s way less compared to what he/she would get from other investments made for the same period.

The main reason for the inclination towards savings oriented insurance policies was the lack of other investment options till a few decades back and to a lesser extent, the lack of awareness people had on the alternatives. But now we have quite a few efficient investment opportunities such as mutual funds, realty, commodities, equities etc. that can give a person much higher returns. And hence the affinity towards endowment and money back policies, ULIPs etc. shall come to an end; which triggered the IRDA move.

IRDA has identified two ways to popularize term insurance, one by incentivizing the insurance company and two, by incentivizing the insurance agent (Agents usually push ULIPs and endowment plans as they provide higher commissions). IRDA would reduce the solvency margin for the insurance company so that the reserves need to be maintained by the insurance company would come down. Thus, the amount to be allocated by the insurance company for writing a term insurance would reduce by 60%, making it cheaper than before.

Seven things you should know about LTA (Leave Travel Allowance)

LTA can be availed twice in a block of 4 years. The block is defined by the government. The current block is 2006 – 2009 and is based on calendar year

Only the travel costs (air, rail or public transport, dependent on the employer) can be exempted under LTA

If LTA is not claimed in a particular block of 4 years, ‘one’ can be claimed in the ‘first year’ of the next block of 4 years

LTA is valid only for travel within India

Two LTA claims cant be made in the same year for travels made in the same year

If your spouse also has LTA, then both of you can claim two LTAs each in a block of 4 years. So that each year you can have one LTA claim

LTA can be claimed for travel done by self, spouse, children, parents and siblings dependent on self. Only thing is self (person who is claiming LTA) has to be present in the travel

RBI recommends free ATM usage

Most of the banks charge a considerable amount to its customers when they use ATM facilities of a different bank to do transactions on their accounts. I myself have paid amounts to the tune of Rs. 61.80 (Usage Fee: Rs. 55.00, Service Tax: Rs. 6.60, Education Cess: Rs. 0.20) for such usages I have made. Part of this usage fee is paid to the bank whose ATM is been used. Considering the costs involved, I always felt that this is an obscene amount.

The irony is even if one withdraws Rs. 100, he has to pay Rs. 61.80 as usage charge. I wonder why the banks are not charging the usage charge as a percentage of the money being withdrawn, while they charge based on percentage for various other services. For example, processing fee for a service such as Balance Transfer on credit card is a percentage of the amount being transferred. The bank would say that despite the quantity of money being withdrawn from an ATM, the service is used anyway, which involves the same set of procedures and that’s why it’s a fixed charge. But here, my question is, how is it different for the processing fee on balance transfer? Isn’t the service being used and the efforts involved are same for various balance transfer amounts? But then one doesn't need to think too much to understand why the banks charge in percentage for services involving higher amounts!

Thus, reading the minds of millions of bank users of India, the RBI has directed the banks to allow free access to ATMs by April 2009. By March 2008 banks that are charging more than Rs. 20 for using a different banks' ATM will have to bring down the charge to Rs. 20. Also, balance enquiry has to be made available free of cost across all ATMs. In order to bring in transparency to the banking system, RBI has also urged the banks to inform their customers before hand, the amount they shall pay for withdrawing money from a different bank's ATM, which would discourage the customers from using a different bank's ATM.

The RBI has also pointed out that in other countries such as UK, Germany and France, customers can access all ATMs in the country, other than the ones managed by non-banks, free of charge. With this move, the Indian banking system is set for a revolution and importantly more customer focussed, it seems.

New Tax Slabs

In the union budget for financial year 2008-09, the Finance Minister has announced the new tax slabs.

General
Till 1,50,000 – 0%
1,50,000 – 3,00,000 – 10%
3,00,000 – 5,00,000 – 20%
Above 5,00,000 – 30%

Women
Till 1,80,000 – 0%
1,80,000 – 3,00,000 – 10%
Remaining tax rates are same as general

Senior Citizen
Till 2,25,000 – 0%
2,25,000 – 3,00,000 – 10%
Remaining tax rates are same as general

This would be a welcome relief to crores of tax payers in the country who are caught under inflation woes.

Why Mutual Funds Entry Load scrapping by SEBI is justified

Starting January 4 2008, mutual fund investors wouldn’t need to pay the existing entry load of 2.25% while investing in a fund directly through the fund house’s website or through its own customer desk. This is applicable to further investments in existing portfolios, schemes and to new schemes launched henceforth; basically, for any new investment made on existing or new mutual fund schemes.

Initially, when mutual funds were sold through brokers, the entry load was used to pay commission to the brokers. When fund houses started selling their funds online and directly through their channels, the role of a broker ceased to exist. Still, the fund houses were charging entry load, which was questionable.

For an amount of Rs. 100000 (one Lakh) invested in a mutual fund, the entry load took Rs. 2250 away from the investment amount. Considering a one time investment of Rs 100000 made on a mutual fund having a yearly return of 30% for an investment period of 15 years, Rs. 2250 alone could get a potential return of Rs. 115168 (more than one Lakh), which the investor stand to lose.

The set motive of mutual funds was to allow small investors with small chunks of money to invest and get the benefit of scale from the stock market. But if you look at the entry load, it’s waived for investments greater than Rs. 5 Crore in most cases, thoroughly favoring large investors, which is contrary to its purpose. The irony is investors who are able to invest more than 5 Crore would normally be companies, who take the benefit of mutual funds, that are primarily meant for small investors. Also, normally companies won’t invest for longer time periods as compared to small investors. Thus, the entry load of a mutual fund was a deterrent factor for small investments.

The process behind this move from SEBI started in August 2007. And now, when it comes to effect on the start of the year, it has become nothing less than a great new year gift to the small investors.