e-Nagar

July 2, 2010

Do you need personal loans?

Filed under: education, Personal Finance — pegasus @ 5:40 PM

Note: This article is meant for people with a steady source of regular income and a salaried bank account. Also the person is able to save more than 20-30% of his salary.

The top five reasons why Indians take a personal loan are:

  1. Medical emergency,
  2. Travel,
  3. Wedding,
  4. Investment (esp. stock market and speculative property investments),
  5. Helping a relatives and family.

And debt consolidation: Some people also use it to refinance their Credit Card dues or loans from informal sources. But in that case, one would realize sooner if not later that it was an expensive decision.

Most personal loans have 3 clauses -

  1. A regular EMI for the entire duration of the loan 6-24 months
  2. Processing fee from 2-4%
  3. Restrictions on prepayment. I.e. one cannot prepay in the first 3-6 months and not more than 50% of the loan balance outstanding in one payment.

These Terms and conditions often don’t match with the optimal debt repayment schedule for the individual. Hence given a choice, I always discourage people from taking a personal loan.

Alternatives

1. Bank overdraft: This is the easiest and the cheapest option for short term credit. If you have a salaried account, then just ask your bank and they would be more than willing to give you a generous 1-2L line of credit which you can repay at ease. Charges like account opening charges, commitment fee (0.25-0.5% of the line of credit) may look like a lot, but due to flexibility in repayment, the overall interest expense is much lower.

2. Credit Card: If you search the archives of enagar, you will find reference to an older article which tells you how one can draw money equal to the credit limit (which is higher than the cash limit) for 50 days at a cost of 3% (paid upfront) and 1.8% for subsequent months.

July 1, 2010

How to prevent pre-payment penalty on home loans

Filed under: education, Personal Finance — pegasus @ 5:35 PM

Most home loans in India have a covenant that restricts the number of times a person can make a pre-payment (usually 4 times a year) and the minimum amount. Also some of the banks charge a prepayment penalty. However if you read the fine print, most banks are relatively more flexible when it comes to changing the EMI (Equated Monthly Installment) amount.

Using this loophole, one can minimize the pre-payment penalty/charges by calling the bank one month to increase the EMI and revert it back to the old levels next month. Chances are that you would be able to stretch a little and continue paying that higher EMI for a few extra months. Hence reducing your interest expenses.

When it comes to debt, don’t ignore any processing charges, penalties or fines. It might put you in a debt trap.
For example
A 1M (10Lakh) INR loan for 15 years period at 8.75% has an EMI of 9,800/-

If you prepay 1EMI (9,800 on the first day), it will save you from paying about 3.5 EMIs 15 years later which is a net saving on 24,500/- in interest expense alone.
Please note that this calculation assumes that you would continue to pay the same EMI even though now your loan outstanding is (10Lakhs – 9,800/-)

May 19, 2010

Blog Tips

Filed under: education — pegasus @ 2:58 PM

A friend of mine wanted to know the html code to open a hyperlink (website link) in a new page so that the reader does not have to navigate away from the page. So here you go, however certain pop-up blockers might block it.

<a title=”test” href=”http://enagar.com&#8221; target=”_blank”>My Blog</a>
My Blog

Also you might find this useful to add a small table with columns in your posts.

no. col1 col2 Remarks
1.

<table style=”font-size: 10pt; font-family: ‘Lucida Sans Unicode’; color: navy;” border=”1″ cellspacing=”0″ cellpadding=”1″ width=”700″>
<tbody>
<tr>
<th>no.</th>
<th>col1</th>
<th>col2</th>
<th>Remarks</th>
</tr>
<tr>
<td>1.</td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

October 18, 2009

Diwali night

Filed under: education — pegasus @ 5:22 AM

I am a big fan of diwali. This diwali I invited about a 100 persons from 12 different countries to celebrate diwali. However what really amazed me is that while I could throw such a lavish dinner and enjoy the festivities, my friends at IIM-L could not. They have to write an exam on the next day and what is worse is that this exam is on the morning of a Sunday.

I agree when we sign up for a course at IIM, we practically write off all our vacations and free time. However keeping an exam on a Sunday morning is like being sadist. Who will teach our professors the meaning of “All work and no play makes Jack a dull boy”

April 16, 2009

Personal Financial Planning

Filed under: education, Investing — Tags: , , , , , — pegasus @ 12:59 PM

A friend asked me yesterday how one should plan his/her finances. At what stage in life where should the money go and how best to plan my taxes.

After spending a couple of hours listening to his idea, this is what we came up with:
1. Don’t confuse investments with tax planning. First decide in which financial instrument you want to park your money. This is because whether you want insurance, property, FD/bonds or mutual funds, there is always some tax saving instrument to help you.

2. At any given point of time have liquid assets to cover for 6 months of expenses. This could be parked in savings bank, or FDs or other financial instruments that can be prematurely encashed instantly without attracting much penalty. This cash often comes handy when you are between jobs, during emergencies esp. medical and when family/friends need you. I strongly advise that an individual should not dip into it and also refrain from any long term investments until this reserve has been created.

3. Work towards reducing your loans. If you have a education loan which costs you more than the Bank Fixed deposit (even after accounting for the tax break it provides) then it is advisable to retire it before doing any financial planning.

4. I would recommend you to keep your personal finances separate from that of the parents. However, what good of is all the money if it is not there for those who need it, when they need it. If your parents/family needs money or has taken a high cost debt, work towards retiring that.

5. After taking care of all these, I would recommend you to read this amazing book “Rich Dad, Poor Dad”. This simple book gives a remarkably different insight about how one should classify various assets and investment options.

Now some serious stuff……. :)
6. FDs are a good place to park the money. You can be sure that your money is safe and will be there when you need it. However the returns this generates is hardly sufficient and inflation eats into it. Hence One should invest in the Stock Market linked instruments (Shares, Mutual Funds, ULIPs etc.) Early on when your savings are small and risk appetite sufficient, then one should park upto 50% of the money these instruments.
However it is also advisable to reduce it as you age. The best way I found is to put an artificial cap of 3 years of Salary on your Market portfolio. 3 years of salary is large enough that it will be a substantial part of your investment. Yet at 15% p.a. expected returns, it won’t be able to generate half of what you earn from 8-10 hours of labor. Hence the market performance will not be a major distraction from work.

7. Now comes property/home: Some people who want to take less risk want to buy a property immediately after graduating. However I would recommend you to push off this decision by a couple of years. The reason for this is that even if land prices don’t fall, it often involves taking a EMI on floating rate. With EMI payments exceeding 50% of the salary, the financial flexibility one has to cope up with unexpected events is severely limited. Once you have sufficient savings and/or a working spouse, then investing in property is advised.

8. Insurance: It is one of the most mis-sold financial instrument. An insurance is neither an investment avenue, nor a tax saving instrument. It is taken to enable a person to take care of the unexpected. The best times in life to buy a life insurance are:
a. When you take a long term loan (for property/education etc.)
b. Marriage (esp. to a non working home-maker)
c. Planning for Kids
Also whenever possible, please buy Term Insurance (huge insurance cover for a small premium) and medical insurance.

So to summarize we have covered liquid assets, market linked portfolio, property and insurance. Last is tax.

9. Most tax savings happen under 80c. If you buy an insurance, its contributes under this segment.
If you plan to go for bonds: then NSC, Infrastructure bonds, PPF are few of the avenues
If you want to invest in market then ELSS (Equity Linked Savings Scheme)
If you want to invest in property then Home Loans give you tax shields.
Hence you should first look into what lock in period you are looking for and what risk/return profile you fall into and then select the tax saving instrument accordingly.

I hope this really long and boring post helps. How different is your investment philosophy?

January 30, 2008

So How difficult is it to create a hit Song

Filed under: Cartoons, education, Humor, Links, music — Sandip Chaudhuri @ 8:51 AM

Scott Adams believes that he has an answer, or at least one of the answers.

Dilbert Blog is one of the most if not the most interactive blogs on the net.

The song writing started out by Adams asking the blog readers to write catchy phrases which almost mean something.

Write a Song

A band weeded the response from the readers and based a song with them.

The Hit Song You Wrote

And now we have a video:-
(more…)

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