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Thursday, July 31, 2008

e-Filing IT Returns - India

IT returns e-filing is now easy. Login to to file your returns.

e-Filing Process – At a glance

  1. Select appropriate type of Return Form

  2. Download Return Preparation Software for selected Return Form.

  3. Fill your return offline and generate a XML file.

  4. Register and create a user id/password

  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 acknowledgment details would be displayed. Click on "Print" to generate printout of acknowledgment/ITR-V Form.

  8. In case the return is digitally signed, on generation of "Acknowledgment" the Return Filing process gets completed. You may take a printout of the Acknowledgment for your record.

  9. In case 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 acknowledgment 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 withing 15 days of filing electronically. This completes the Return filing process for non-digitally signed Returns.

  10. For any assistance in filing the paper copy of the return please contact the Public Relations Officer of the local Income Tax Office
Other online e-filing sites are:

Wednesday, July 30, 2008

NRI Corner – Part I - Filing income tax returns

Have you filed your income tax return in India before July 31?
If anyone has earned an income of over Rs.100,000 in the last Indian financial year, he/she must file his tax return and pay whatever tax due at a uniform rate of 20 percent.

Indian income tax regulations have many special provisions for NRIs. If NRIs have to file their returns, they would be well advised to engage the services of a qualified accountant who knows the complex laws and regulations.

NRIs can also authorise the accountant to file his return on his behalf to make life simple. It is worth paying the professional fees as the accountants know the procedures and can also claim tax refund on his behalf, if needed, and deal with any tax matters that arise. The accountant can also appeal against any ruling by income tax department, if required.

In addition to an accountant, NRIs can appoint an 'agent' to deal with these matters. The persons who qualify as an 'agent' is listed in the income tax rules. Since these persons are not qualified accountants, it is advisable to obtain the services of a professional.

All NRIs do not know that their income tax liability does not depend on their nationality but on their residential status. If anyone spends less than 182 days in India during the financial year, he/she is a non-resident. This means that any income he earns outside India is not taxed in India. The return is for income received in India in the previous year.

Basically, he should know what makes up an NRI's 'income' as there are a great many exceptions for NRIs.

Any income from a business, property, an asset, fees for technical or professional services, direct services rendered in India, royalties, salaries paid by the Indian government to Indians for services provided outside India and dividends paid by an Indian company abroad are all taxable.

Some Interest payments are also included and listed. Any pension, no matter where paid, is taxable if the pensioner provided his services in India. Basically, an NRI's income consists of his salaries, income from his property, profits from his business(es), profession, capital gains and other listed 'sources'.

NRIs engaged in business in India with Indian partners come under 'a business connection'. This term covers different business activities such as a branch office, a local subsidiary to sell imported products, an agent for buying or selling, building a factory for exports and a financial association between a resident and a non-resident company.

NRIs do not have to pay tax on interest income on bonds or premium on redemption of bonds or securities, interest on Non Resident External Bank Accounts in foreign currencies, and Non Resident Non-Repatriable Rupee Deposit Accounts and interest on Savings Certificates issued before June 1, 2002. Many other forms of interest paid for different types of deposits are also listed for exemption.

The income tax return form involves self-assessment of taxable income. Thus the due tax must be paid before filing the return and a copy of the receipt must be enclosed with the return. The income tax forms are available free of cost at the major offices in the metros or through some commercial enterprises authorized to sell them for a small fee.

An NRI can also get an advance ruling about his income tax liability by filing an application with a fee of Rs.2,500. The ruling is then binding on both the NRI and the IT department. The applicant must be a Non-Resident in the previous year preceding the financial year in which the application is filed.

Income tax returns for NRIs are generally accepted on their face value and without scrutiny. The vast majority of NRI cases - over 95 percent - are accepted normally without calling for an examination of the books of accounts or supporting documents. Thus a NRI must be very careful in filling his tax return to avoid any tax evasion and avoidance.

While tax evasion is illegal, tax avoidance is not. Typically, it involves failing to report income, or improperly claiming deductions that are not allowed. Courts have ruled that taxpayers can plan their affairs to pay the minimum amount of tax possible and the taxpayer may use any legal means to do so. This can only be done with the maximum and correct amount of information about income tax laws and regulations and thus it is worth paying your accountant or tax lawyer for their professional services.

All complex income tax regulations cannot be presented in a single article but only the general guidelines. Considering all these better to engage a professional 'This way, it's much simpler!'

Time to file Tax Returns

The procedure and some deductions available while arriving at taxable income

The time to file income tax returns is coming nearer. July 31 is the last date to file IT returns for individuals. The return has to be filed for the previous year - 1.4.2007 to 31.3.2008. So the transactions should have taken place during that period only. Any subsequent transactions will be taken into account during the next year - 2008-09. It is time to compute your taxes and pay off any outstanding dues. This can be done before the date of filing of the returns. It is of utmost importance that one uses the correct form, as is applicable to him. In a radical change from the past, no document (including TDS certificate) should be attached to this form. Officials receiving the returns have been instructed to detach all documents enclosed with this form and return them to the assessee.

The forms can be submitted to the Income Tax Department through any of these methods:

• By furnishing the returns in a paper form
• By furnishing the returns electronically with a digital signature
• By transmitting the data in the returns electronically and thereafter submitting the verification of the returns on Form ITR-V. The assessee needs to print out two copies of Form ITR-V. Both copies should be verified by the assessee and submitted to the Income Tax Department. The receiving official will return one copy after affixing a stamp and seal
• By furnishing a bar-coded paper returns. The acknowledgement slip attached with this form should be filled out. The forms are not to be filled in duplicate. In order to avoid interest and penalty, assessees also need to compute interest liability for either non-payment of advance tax or late payment of instalments of advance tax. The interest rate is calculated at one percent per month on the specified tax amount. This interest can be paid along with the self assessment tax by the assessee.

Obligation to file return - Who should file returns:
Every individual and Hindu Undivided Family (HUF) has to furnish a returns of income if the total income, before allowing deductions under Chapter VI-A, exceeds the maximum amount which is not chargeable to income tax. The losses, if any, will not be allowed to be carried forward unless the returns has been filed on or before the due date.
It is to be noted that the total of the deductions allowable is limited to the amount of gross total income. Deductions are available under Chapter VI-A.

These are the deductions available to an individual and HUF, not carrying out any business or profession:

Section 80C:
Some of the major items for deduction under this section are amount paid or deposited towards life insurance, contribution to Provident Fund set up by the Government, recognised Provident Fund, contribution to an approved superannuation fund, and subscription to National Savings Certificate.

Also, certificates, tuition fees, payment/repayment for purchase or construction of a house and other investments are available for deduction. As provided in Section 80CCE, the aggregate amount of deduction under Section 80C, 80CCC and 80CCD will not exceed Rs 1 lakh.

Section 80CCC: Deduction of contributions to certain pension funds.

Section 80CCD: Deduction of contributions to pension scheme of Central Government.

Section 80D: Deduction of medical insurance premium.

Section 80DD: Deduction of maintenance including medical treatment of dependent.

Section 80DDB: Deduction of medical treatment etc.

Section 80E: Deduction of interest on loan taken for higher education.

Section 80G: Deduction of donations to certain funds, charitable institutions etc. Section 80GG: Deduction of rent paid.

Section 80GGC: Deduction of contributions given by any person to political parties.

Tuesday, July 29, 2008

Filing tax return - A step by step guide

It's that time of the year again. You knew all along that it would come, whether you ignored or waited for it. The pages of the calendar have turned and you can hear colleagues waking up to it.
And you know you can't run away from it any more. We are talking about 31 July, the day we are reminded of our bondage, the price we have to pay for many of the good things in our life.

This happens to be the last day for filing income tax returns for all salaried Indians, be they resident or non-resident. Of course, you must have done everything legally possible to maximise your freedom from this bondage called tax. But then, the law permits you only that much. The rest, as they say, is illegal.
You might also have wondered about the word return being used for an outgo. Maybe it's because governments always want citizens to see things from their point of view, perhaps for the larger good.
Filing of tax is compulsory for everyone whose gross total income - the income under the five heads (salary, business, capital gains, house property or other sources) before allowing for any deductions such as insurance premium - exceeds the basic exemption limit.

For financial year 2007-08 (assessment year 2008-09), this limit was Rs 145,000 for women below 65 years of age, Rs 195,000 for senior citizens (above age 65 years) and Rs 110,000 for any other individual. It is compulsory for every person exceeding these limits to file the return before the prescribed date, even if their employer has taken care of their tax liabilities by reducing their salaries by the necessary amounts before paying the rest to them. Paid this way, it is known as tax deducted at source or TDS.

Filing of the form
There are two income tax return forms, ITR-1 and ITR-2, for salaried individuals. Your sources of income (they will fall under one or more of the five sources mentioned earlier) will decide your form. You will have to submit the filled form to the tax authorities and get an acknowledgement from them.

Use ITR-1 to file your tax return if your income is from salary, pension or interest. In case of any capital gains, income or loss from house property and income from any other source, you will have to use ITR-2. You can go to to download these forms.
You will find ITR-1 relatively simple to fill up. A prerequisite for the exercise is Form 16, the certificate that comes from the employer showing the TDS from the income chargeable under the head salary. ITR-1 is almost a replica of Form 16. All you have to do is pick the numbers from Form 16 and put them in the ITR form.

Apart from salary income, there is an important component of income that many taxpayers ignore while filing their returns. It is the interest income earned from the funds lying in savings accounts in banks. Disclosing that, however small it may be, is mandatory.
You just have to add the total interest credited to your bank account in the last financial year. Scrutinise your income tax return to ensure that no taxable income is undisclosed. After you file your return, the tax authorities will hand you an acknowledgment. That's it, you are through with the filing of returns.

You will need to fill up ITR-2 if you, as a salaried individual, have made any capital gains. This form is filled in the same way as ITR-1. In addition, you will have to fill in income, if any, from house property and other sources.

How to file
The actual filing of return can be done either by using the traditional paper form or electronically, over the Internet. The second, known as e-filing, is fast catching up. The digital method is compulsory for companies, but optional for salaried individuals still. However, it may well become compulsory for individuals with a certain level of income in times to come. So, it may not be a bad idea to familiarise yourself with this process.

Before you start filing the return, check if you would be getting a refund from the IT Department or have to pay tax. In case of the latter, even before starting the filing process, you should first get hold of Form 280, fill it up and deposit it any bank along with the tax payable in cash or cheque. You can also pay tax through Internet banking. In both cases, you will get a receipt number which has to be quoted in the ITR form.

1) Doing it offline
There are two options - you may either
- Submit the ITR form at the nearest income tax office after filling it up yourself, or
- You may get a chartered accountant or a tax return preparer to do it for you.
Try to visit the ITO well before the last date for filing return as crowds increase as 31 July draws near.
You may also take help from the public relations officer of the ITO to fill the form. No documents or investment proofs need to be attached with the form, but remember to bring photocopies or originals with you to the ITO. These will come in handy if you are asked to authenticate the maths.

The fee of a CA would depend on your income slab and the number of income sources. Typically, it would range from Rs 300 to Rs 2,000, depending on the complexities involved. One good thing about filing through a CA is that it would bring down the margin of error to nil. Also, depending on the acumen of the CA, which often gets reflected in the quality of his practice, he would suggest some tax saving ways to you for the future.

2) Doing it online
E-filing is done through sites authorised by the IT Department to file taxes on your behalf. To e-file, you will have to input the details of Form 16 in the software of the website, which would automatically generate an electronic return in XML format.

This format helps in sharing of structured data across different information systems. A PDF file of the relevant ITR form is also created along with the XML format. You can download this ITR form, submit it at the ITO and get an acknowledgement.

Save the XML file to your desktop and then upload it on - the IT Department site. Some sites also have provision for online payment of tax. Use of a digital signature will render the e-filing process complete without involving paperwork and visits to the ITO.

In case DS is used, the acknowledgement will be emailed to you. If you upload the file on the tax department's site without the DS, the acknowledgement, called ITR-V, emailed to you will have to be submitted at an ITO within 15 days of downloading it. A DS can be acquired from any of the agencies authorised by the government for the job, including the private and government websites meant for filing tax returns.

E-filing is not just convenient and saves time, it can also be done from anywhere. What is especially important is that the online method reduces or even eliminates the interface between the tax assessee and tax officials.

Online sites
Among the major sites offering e-filing facilities are Taxspanner, Taxsmile and Taxshax. You can either take printouts of the relevant ITRs from these three sites and physically submit them or upload your XML file on the IT Department's site.

Taxspanner, uploads the taxpayer's file directly and emails ITR-V to him.
Taxsmile, you can submit the forms at any of its offices spread over the country. They will then forward it to the ITO.
All the three sites are secure and easy to navigate. The major difference among them is on two counts - the number of income sources covered and the process. Get clarity on the cost and features offered. The minimum cost package would normally be only for salary income. The advanced version might be required if you have income from other sources.

The tax sites also differ in the way they ask for information and allow you to input figures. Taxshax gets most of the figures filled up in a single page.
Taxspanner has a step-by-step guide and takes one piece of information on one page. Taxsmile gives both these options.

Use of DS raises the cost of e-filing. The amount of this increase varies across tax sites. A DS can be obtained from Taxsmile for Rs 500. Apart from this, you will have to pay for the basic package. Your DS comes with a validity period, after which it has to be renewed.
A DS from Taxspanner, for example, is valid for two years. This site offers a deal in which you can file returns for three years at a cost of Rs 250 a year. To get your DS from a tax site, download the relevant form from it, attach the required documents, such as your identity and address proofs, and courier them to the address concerned. The entire process of acquiring a DS may take around 15 days.

A tax return can also be filed from the government site - - meant for it. Your PAN will work as the username for registering at this site.

Should you go online?
Internet accessibility is growing, but it is still out of reach for many of the 40 million taxpayers. For those who have access to it and want to save time, the digital signature way looks ideal - you will be able to file the return in a few minutes from the comfort of your home or office. E-filing without the DS is almost the same as filing returns offline.
Tax laws can often seem like a cross between a Rubik's cube and Mutthiah Muralitharan's spin bowling. The three private tax sites get around this by making themselves friendly to taxpayers and not making filing of return dependent on an intricate understanding of the workings of tax laws. They empower with information and knowledge while taking the taxpayer step-by step through the entire process of tax filing. The details of the return filed get saved in the database of these sites and can be accessed anytime in the future.

If you have any specific doubts concerning the filing process, email the tax site to clear them. Getting clarity is important as some sites do not include things like income from business or profession, losses of earlier years brought forward or clubbed income. If tax is due, check if you can pay it through the site.

Stick to the deadline
Whether you are going offline or online, make sure your are on the right side of 31 July. If tax is due and return is not filed till 31 March of the following year, a penalty of Rs 5,000 is levied. Penalty may also have to be paid in the form of interest. Check out the answers on the next few pages to some frequently asked questions to get on top of tax returns. And then go ahead and file with a smile.

Monday, July 28, 2008

ICICI Leadership Academy - Part III


Take very deliberate, calculated decisions:

Why did the directors take a very calculated decision—and a very risky one at that—to send Sanjoy Chatterjee, then all of 34, to head its subsidiary in UK? "We wanted some of the top performers to be internationalized. In the same way, Rajiv Sabharwal was given early exposure to rural—again, a very deliberate decision,” says Mr Ramkumar.

Train people to take the heat:

Dealing with stress and pressure are part of life at ICICI. The high performance culture starts at the board meetings itself, where executive directors are grilled by the entire board. And for most newcomers, this can be an unnerving experience. ICICI has now started simulated training for potential board members which gives them a real sense of an actual setting.

Don't worry about going wrong on the calls you take:

In judgement calls, the risk of going wrong cannot be eliminated. In case a person fails, there is no witch-hunting. It's treated as a part of the training cost. Multiple cycles are given to the guy before I jump to the conclusion whether to persist with him. The cut-loss call is also taken aggressively.

Perspective building is key:

At the highest level, more than building skills, the focus is to expanding perspective. At ICICI, Harvard and McKinsey will conduct a new program for senior leaders. With the help of films and case studies, participants get a more holistic understanding of the social, political and economic situation in Africa, Latin America and China—key geographies that will prove crucial in the bank's international foray.

The buck stops here, literally:

Having an elaborate process for leadership development sounds impressive, but how do you tie in accountability for results? If the bank is forced to hire frequently from outside for its senior leadership roles, it is seen as a signal that the process isn't working. And that's not good news for Mr Ramkumar, who has 50% weightage for leadership development in computing his annual bonus. The stakes are high for Mr Kamath and Ms Kochar too, who have a 25% weightage.

ICICI Leadership Academy - Part II

ICICI bank’s leadership in the industry is exemplary. But nothing to compare its ability to spot, groom and deploy leaders in-house.

One-man show

LISTEN to Mr Kamath as he recounts his original formula. “This entrepreneur was told you that have the support system of ICICI. You have a limited amount of capital. We will give you one good person whom you can pick. The rest of the team you will have to build and this is your business case. Detail your business case, build your team, tell me how you will execute, start executing, report to the board on that basis. Thereafter, move it to a management by-objective type of scenario—where objectives are very clearly set, keep meeting those performance targets. Keep ramping up these targets, if necessary, maybe course correcting the strategy as you go on.”
The model was successful. “It allowed the young business heads to evolve into leaders because they took the entire stress of building those businesses and getting them into shape. In that process they evolved into leaders. They had the cloud cover or the organizational support system. But the hard work had to be done by them,” says Mr Kamath.

So what did he look for in a person? “I tried to assess 3 or 4 qualities in a person. First, what is the level of raw intellect? What are the person's strengths and weakness? I never look for a person with no weakness. It is utopian. Thereafter, is the person open to acknowledge that his strengths and weakness must evolve? Plenty of leaders do not acknowledge their weaknesses. That is fine with me as long as they work at a subconscious level on those weaknesses. The next was a step into unknown territory—whether the person would build an entrepreneurial business. That had to do with a person's ability to take challenges and react under pressure. How you approached work and delivered gave an inkling of the person. We did not have anything to go by on pure entrepreneurial yardsticks. I still don't have answers on how to find an entrepreneur.”

Mr Kamath also instituted a star system for the top 5% of the bank's talent. They were treated preferentially while giving away bonuses. This made some strive to be stars and others who believed they can't make the cut simply leave. The pipeline was cleansed of low-rated employees clogging the system.

Dealing With Size

THE new process-driven system displaces none of Mr Kamath's precepts. It is not a computer generated list of leaders. Human judgement prevails. The new leaders are allowed to fail, to an extent. Every leader has two or sometimes three backstops. There is always someone to take the place. Performance targets are still sacrosanct.

But now, the company does the vetting rather than just Mr Kamath. First, among the 15,000-odd managers across the group, about 2,000 are empanelled as leadership talent. To be considered as talent, a manager would have to be a top performer. “The assumption is that unless you are a performer, you won't have credibility as a leader,” said Mr Ramkumar.

A thorough 360-degree appraisal is done for these people, which is then shared with each individual. The HR department then converts it into a data sheet and also writes a one-page profile of the person.

This is where the new talent assessment system takes over. It covers all those empanelled as talent—from joint managing director Chanda Kochar to the lowest rung manager. All of them go through the same rigorous process. Ms Kochar's assessment is done by the board of directors. For the rest, the HR department constitutes seven to nine member skip-level talent panels drawn from across the organization. So in effect, a senior GM can assess a deputy general manager (DGM), but not a general manager. Only people who are assessed as leadership talent can be part of the panel. "Our belief is that it takes a leadership talent to cite a leadership talent," says Mr Ramkumar. Decisions have to be arrived at by consensus. In effect, the panel is a leaderless group. An HR person tables the name of the person, and also presents the data. At least two people in the panel should have known the person, other than his direct boss. “Our belief is that if you are a talent, you can't be somebody who is hidden somewhere.”

These people are then asked to list out their experience of the person. Armed with data, the panel takes the call on the role that a potential leader can play. Is he good enough to be a regional head or head of a national business? If it is the pack of 25 odd people at the top level, the panel has to figure out just how many would make it to the board.

Then the question of time frame. If the panel decides that an assistant general manager is likely to make it to the national head's role in the next one to two years, he is classified as ‘A’ category talent. If he is likely to make the cut in 3 to 4 years, he is classified as a ‘B’ category talent and ‘C’ category, if it is within 5-6 years. This forms the basis for making appointments when national-level roles arise. Last year, about 400 managers in ICICI Bank were empanelled as category A talent—and they enjoyed the first strike at a new role.

The national head for home finance role is expected to come up for grabs soon. The directors will take a call on whom to pick based on a shortlist provided from the A-listers. The directors will use the 360-degree appraisals data which provides data on how the organization perceives the individual combined with the profile and comments from the talent panel on the person's domain knowledge.

So is the system foolproof? “Mistakes do happen. As long as it is 10-15% of cases, it is fine. What we promise is that errors are possible, but biases are not,” said Mr Ramkumar. It is this elaborate process that Chatterjee went through before landing the UK job. Today, at 39 years, after a successful stint in UK, he is managing both the corporate and international business for the bank; Chatterjee is responsible for nearly 90% of the bank's profits. Yet, he didn't need to catch just Mr Kamath's eye to become a leader, because the entire senior management of the bank was tracking him any way.

Saturday, July 26, 2008

ICICI Leadership Academy - Part I

ICICI bank’s leadership in the industry is exemplary. But nothing to compare its ability to spot, groom and deploy leaders in-house.

IT SEEMED like a random move then. In 2002, Sanjoy Chatterjee, 33, an almost unknown face to the outside world, was assigned to head ICICI Bank's UK subsidiary. Asking a young and relative inexperienced executive to lead the bank's UK operations may have looked risky and reckless to many at that time. But late last year, when the bank rejigged its top brass, the plot began to fall in place. Chatterjee got elevated to lead its critical international business and corporate banking divisions. His elevation hints at two things: the bank's phenomenal talent screening process and its courage to bet on young and bright executives much ahead in their careers.

Chief executive officer K V Kamath, 59, knows that that's the only way ICICI Bank will be able to maintain its edge and growth going forward. The average age of Indians will fall to 28 in the next 10 years, he says. In the meantime, ICICI Bank's appetite for leaders and managers will grow voraciously. “We have to ask ourselves: who should lead a group whose average age is 28?” Kamath asks. “Will be it a 58-year old, a 48-year old or a 38-year old? I believe it should definitely be towards 28. Whether it is 38 or 48 is debatable, but it cannot definitely be 58.”

Kamath's poser may sound provocative. CEOs across India Inc. are looking to nurture leaders to take their companies to tomorrow's youthful market. Every HR head polled for workplace surveys lists leadership development as a major challenge. But the trouble is that many programmes they have in place to spot talent aren't working. There is an urgent need to find a well-oiled machine that delivers tailor-made leaders in needed numbers.

There's one place they could surely look for some clues: inside ICICI Bank, where a strong system has been put in place to find answers to the question. And oddly enough, it is designed to reduce dependence on the one man who enjoys the enviable reputation of spotting and grooming more leaders than any other CEO in India Inc.

Right from 1996, when he took over as the bank's head, Mr Kamath has created an incredible breeding ground that spawned leaders. Many like Shikha Sharma, Ananda Mukherji, Nachiket Mor, Chanda Kochar, Madhabi Puri Buch, Vishakha Mule and Bhargav Dasgupta have blazed their way to individual glory. They have moved from one assignment to another, taken up different leadership roles and served the bank with distinction. “Mr Kamath has an amazing ability to pick a leader and identify potential way beyond what the people believed in. Less than 20-25% of us had any clue where we were headed in our careers," says Kalpana Morparia, the bank's joint managing director who worked closely with Kamath for more than two decades.

Another institution would have let this go on as far as possible. But shortly after the long-awaited reverse merger between ICICI and ICICI Bank in 2000, Ms Morparia and group HR head K Ramkumar decided to do some plain-speaking with their boss. The bank should make the transition from depending on Kamath's personal genius to working off a formal system, they argued. Their logic was sound: from a 1,000 member organization, the bank was rapidly moving to a scale—with a 7,000-strong team—where it was well-high impossible for Mr Kamath to personally know every senior leader.

Initially, there was no buy-in. They then appealed to his heart and head. They put forward a list of names for Mr Kamath to evaluate for a particular assignment. “How well do you know them, sir?” they asked him. Mr Kamath knew a few on the list—but drew a blank on the rest. Next came the emotional pitch: “What would happen when you step down as CEO? We aren't suggesting taking away your veto and judgment, but when we are a 50,000 strong organization, you can't do it all yourself? You simply won't know who is where. Besides, wouldn't it make more sense to pass on the secret of what it took to select and nurture talent to other leaders at ICICI, while you were still around?" That last bit seemed to cut ice. Mr Kamath thought hard about his legacy—and finally agreed.

Since then, the shift from a CEO-centric model to an institutionalized process of leadership development has already evolved through six annual cycles. Mr Ramkumar, who modified the model for the bank based on his experience in mature organizations like HLL (now HUL) and ICI, worked hard with the top team—especially Kamath, Morparia and the ICICI Bank board led by chairman N Vaghul—to create a system that has consistently thrown up the 12-odd people that the bank needs to take up critical leadership roles across the ICICI group every year.

But in making the transition, there was one critical thing that Mr. Ramkumar and his team did right: they didn't throw the baby out with the bathwater. So, ICICI continued to visit the best B-schools and hire the best CAs, just as they had done since 1996. They also persisted with the entrepreneurial model that Mr Kamath had consciously adopted. Each of the sub businesses—be it ICICI Ventures, ICICI Home Finance, et al—were handed over to an entrepreneur, who was rated as core talent.

Friday, July 25, 2008

Income Tax Returns Filling

Scurrying for papers yet again to file your income-tax returns? Here are lists the necessary steps to make the process hassle-free

NEVER ask a man his wage and a woman her age is an adage often quoted but not one that your taxman upholds. Yet again, it’s that time of the year when you are required to disclose the details of your income and file income-tax returns. To make this pocket-pinching process a non-taxing job, we list down six steps which you can follow to sail through.

This year, the income-tax department has made revisions with regard to tax slabs and exemptions. The income slabs for different categories have been revised this year, so verify if you need to pay tax at all. You are not required to file tax returns if you are a man whose earnings were less than Rs 1.1 lakh in 2007-08. On the other hand, in case of a woman, an income of less than Rs 1.45 lakh during the previous financial year is exempt from filing tax returns. Similarly, senior citizens whose income was below Rs 1.95 lakh in 2007-08 is also free from this obligation.

Once you’ve ascertained that you have to pay tax, you need to choose from the forms titled ITR 1 to ITR8. ITR 1, ITR 2 and ITR 4 are the forms most commonly used by an individual and an HUF.

ITR 1 - ITR 1 is the form that you must pick up if your income is from salary, pension or interest income.

  • ITR 2 - ITR 2 caters to individuals who have an income apart from salary (from property or capital gains) but not from a business or profession.
  • ITR 3 - An individual who is a partner in a partnership firm is supposed to fill up ITR 3.
  • ITR 4 - An individual who makes an income from his business or profession, including investments in the stock market, should fill ITR 4.
To fill your form with ease, you must get your documents together with necessary details. This includes documents such as:
  • Form 16 (which is given by the employer and includes details about yearly income) and
  • Form 16(A) with details of tax deducted at source on income other than the salary.

In addition, chartered accountants advise that you should have a copy of the returns filed the previous year, bank statements with details of accounts operated not only by you but also by your spouse (provided she does not have an income of her own) and children who are minors.

Besides, you need to have your savings statements and an interest statement that reflects how much was your interest income in the previous year. Remember, these documents are for your reference while filing tax returns and none of these documents needs to be attached with the form.


You are also obliged to make disclosures in the following cases: If you have invested more than Rs 2 lakh in mutual funds, withdrawn over Rs 10 lakh in cash from your savings account or if you have purchased bonds worth more than Rs 5 lakh. You also need to furnish details of your immovable property if they exceed Rs 30 lakh, to disclose the acquisition of shares beyond Rs 1 lakh and an aggregate payment of Rs 2 lakh or more via a credit card.


To avail of the legal deductions, financial planners advise that you should acquaint yourself with the terms of section 80 of the Income-tax Act 1961. Tax breaks are available on both incomes and payments. For instance, you are eligible for a deduction for the premium paid towards your life insurance policy, or if you have contributed to funds such as the provident fund set up by the government, or for that matter, deployed funds in the pension scheme set up by the Central government or a superannuation fund. The deduction on medical insurance premium and on medical treatment are beneficial for the elderly. There is, however, an upper limit to the deductions possible.


For your own benefit, the form should be filled accurately, if possible without any overwriting. You should re-check details, particularly where you quote your Permanent Account Number (PAN) and Transaction Authentic Number (TAN). The forms can be filled and submitted on paper at the income-tax office or at specified post offices or digitally (it is, however, mandatory to have a digital signature) or as a combination of both, in which case there are more procedures for verification involved.

You should try to follow, as much as possible, the calculation methods which are described in the form itself. Also, remember to get an acknowledgement slip in every case. The final date for filing tax returns is July 31. If you don’t want to file the returns on your own, you can hire the services of a government-trained tax return preparer or a chartered accountant. If you delay filing your tax returns beyond July 31, an interest of 1% per month will be charged.

Wednesday, July 23, 2008

Gold - Glitter to investments

Is Gold A Golden Investment?

There is considerable action in the other non-financial fund category, namely, gold. There are two kinds of gold-related funds in India. One is the so-called gold ETFs, which act as proxies for holding gold in physical form. Fund companies that run gold ETFs invest all of the investors' money in gold. Thus, the money invested in such funds makes profits or losses exactly in line with the price of gold, after charging around 1 per cent per annum as expenses.

In the year or so since the first gold ETF was launched these funds' number has grown to five with few more in the pipeline. For a niche fund type, they've proven reasonably popular and hold assets of Rs 550 crore. However, when one compares these funds to the amount of gold that is traded in the commodity markets, this is a pittance. However, it's the other kind of gold fund that is having a more interesting time. These are funds that invest in the stocks of gold mining, refining and marketing companies abroad.

Currently, there's only one fund of this kind-DSP Merrill Lynch's World Gold Fund but another one from AIG is on offer right now and there's at least one from Tata Mutual Fund that is in the regulatory approval stage.

While gold prices have always had their ups and downs over the years and housewives in many Asian cultures have always liked to have their personal hoard of gold as hedge against bad times, it has been a long time since anyone has considered it as an alternatives to investments like stocks. This appears to have changed. Gold has had an amazing run over the last seven years, earning returns of about 300 per cent. Still, this can't disguise the fact that over the long term, gold hasn't been a great investment.

Even at the current prices, gold on international prices has gained at an average 4 per cent per year over the last hundred years. Adjusted for inflation, this is a mere 0.6 per cent a year. Does investing in gold or gold mining funds make sense now? According to those who are pitching for gold, we are in an unusual time when a combination of factors will probably make gold appreciate. Demand may stay and the supply will not really expand. After all, this is one of the scarcest materials on Earth. The total amount of gold ever mined in the world can fit into a box that is 64 feet by 64 feet by 64 feet.

What does all this mean? Looking beyond the merits of gold as an investment, the actual issue is the chasing of past performance that we all tend to do. Gold may do well or it may do badly. But the way to make money in gold in was to have realized back in 2001 that gold was at a historic low and then to have started buying it gradually.

To suddenly become a gold investor when the price has already run up more sharply than it has for a generation is folly indeed. Gold may have given returns of 40 per cent over two years, but the last time it did such a thing was perhaps in the mid to late 1970s. Do you really want to take a call on whether such a thing is sustainable? Whether it's gold or it's stocks or funds, what has already happened is generally not a great guide to what's going to happen. Gold won't be an exception to this rule. Gold as a small holding-perhaps five per cent of one's financial assets is fine, but it can't be anyone's main investment.

The sensex dipped 20% in 3 months but gold ETFs have given over 25% returns. It’s time to look at gold for safe investments

WITH THE stock markets on a downhill trek, a wave of panic has gripped the retail investors. In these uncertain times, you may have also found yourself struggling, and sometimes worried, on how to get the right portfolio mix and avoid the bear’s claws. The same stands true for many, who ran out of his wits after his year-long investments eroded in a matter of few seconds. If analysts are to be believed, in such turbulent phases, you can always look up to gold as an investment option not only as insurance against the choppy markets but for better returns as well.


With an expected slower US growth momentum, Fed rate easing, a weakening dollar, rising oil prices and heightened geopolitical concerns, gold prices appear to be firmly supported in the months ahead. Strong investor demand coupled with strong jewellery demand from Asia and the Middle East is also likely to push the prices. In the present context, gold is expected to provide better capital appreciation, provided it is bought at a right price. It is also a good hedge against inflation

Strong fundamentals put aside, gold has also given a return of 18% in the first two months of 2008. Today, it is the most recession-proof asset and is actually playing the role of insurance in the investor’s portfolio.


Analysts feel that in the present market conditions gold is expected to provide better capital appreciation. While the sensex has fallen more than 20% in the last three months, gold Exchange Traded Funds (ETFs) have given returns of over 25%. “If you’re looking for gold as an investment then it is better to invest through ETFs instead of holding gold physically.

It has a triple advantage:

1) Gold held via ETF would be treated as a long-term asset in one year whereas you’ll have to hold the physical gold for three years to classify it as long-term.
2) There is no wealth tax attached and if you hold it in demat form

3) There are no issues about its purity.


If you’re bullish about gold and other precious metals, it can be an interesting move to buy a mutual fund scheme which in turn invests in the shares of mining companies of gold, silver and platinum.
If you invest through an ETF, it is kept for three years and the amount of gold backing remains the same (it does not grow). However, in those three years, a gold mining company could have increased in the share price, could have given dividends and achieved higher valuation (share price) on account of corporate actions (like mergers, acquisitions).

Investing in a gold fund would benefit more as with the increase in gold prices, the profits of gold mining companies increase manifold on account of operating leverage. Launched in 2007 in India, DSP ML Gold Fund has given a return of over 60% in last six months.


According to analysts, though gold is expected to provide very good returns this year, it would also come with higher volatility. So before you plan to invest in ETFs or gold funds, it is pertinent that you should get an outlook of dollar and crude price behavior, physical demand for gold in the global market and performance of equity markets. The entry time is very important while investing in gold. One should consider the seasonal pattern such as wedding seasons. Analysts caution that if you don’t understand the dynamics of the commodity markets, avoid buying through futures because when the price goes against your position (price falls after you have bought) then you have to give the difference (known as marked-to-market) immediately to the broker.

Today, all major investors have 3-15% of their portfolio in gold, and as of now it looks like an opportune time to bet on the precious metal. And exercising a bit of caution will only add glitter to your investments.

Monday, July 21, 2008

Portfolio - Deep Value Stocks

Often under-rated and out of radar, deep value stocks can do wonders to your equity portfolio.

THEY are believed to carry hidden treasure on Dalal Street. While investors call them the low-lying unpolished gems of the stock market, brokers say there are big bucks to be made if you can identify these stocks early. No prizes for guessing this, we are talking about deep value stocks which can do wonders to one’s portfolio when market re-assesses them.

According to analysts, a deep value stock can be defined as something which is low priced in relation to the margin of safety the stock provides, to limit losses when a mistake is made. Lets get some insight into how to identify these stocks, what should be your ideal portfolio allocation and reasons behind their low valuations in the market.


They are like any other stock traded on the exchange, but there is no hypothetical understanding of them. A section of traders on the Bombay Stock Exchange even call these stocks as ‘sleeping giants’.

There are two ways in which you can identify a deep value stock.

First, what Benjamin Graham recommends for the defensive investors in his 1949 classic — that the stock price should not be more than 15 times its average earnings per share over the past three years and the overall PE of the portfolio should not be more than 13. Or

Second, the stock should be trading below its 10-year median PE. The other things to be kept in mind is to stick with companies that have a long history of consistent profit growth and steady dividend payouts and the fact that not every cheap stock would turn out to be a bargain. He believes that PSU banks like Oriental Bank of Commerce, which is trading at a PE of 5.6 with book value of Rs 240 for FY09, is a perfect example of a deep value stock. “In a growing economy like India, banks should do well as the GDP expands,” he reasons.

These stocks generally remain neglected by the stock markets. The best (or you may call it worst) part is that people know it’s a great story but still they don’t want to touch it. If one saw the real estate boom in India five years back and bought into Unitech, his portfolio returns would have multiplied phenomenally.

As far as portfolio allocations are concerned, analysts feel that an investor could invest 80% in growth stocks and 20% in value stocks (after keeping some cash balance or investments in fixed income instruments). In case of a pure deep value investor, that typically 80% the investment of investible funds should be in these stocks and 20% of the funds should be kept aside for fixed income instruments or cash balance. “However, a hybrid investor should follow a strategy in between the two. The basic principle followed is the Pareto’s principle — the 80/20 rule.


Though opinions differ on an ideal investment horizon, most analysts agree that it should not be less than a year and which could extend up to three to five years to reap big dividends. The first thing an investor needs to do is to ask himself whether he is a speculator or an investor. “If he is a speculator, then there is no chance for him to stay in these stocks. If he is an investor, a time period of three to five years is what makes sense. However, if the stock does not give the required return even after holding for three years, there is something more than one ‘s own understanding about the stock. In such a scenario, you could sell the stock and move to something else. However, if there are compelling reasons, you could continue holding the stock.

On why these stocks have ridiculously low valuations the market sometimes tends to overlook an industry. And usually these stocks are not popular with brokers. Apart from that, analysts explain that there could be reasons such as high transaction impact costs (small caps can have transaction impact costs as high as 30-50% ) and fear of uncertain events or adverse macro environment conditions such as rise in oil and interest rates, government policies, etc. You must also understand that fear always resides in the near term. And that’s why there is lower visibility of the future even though the broad picture remains intact in these cases.


Here are some deep value stocks which experts feel have great potential

ONGC - The stock is in a sector which is very strategic in nature, has a history of good profitability and dividends and trading at ridiculous valuations.

MAHINDRA & MAHINDRA AND MARUTI - The industry is in a growth phase in India as opposed to a saturation phase in the western world — trading at a PE of around 10 for FY09

LIC HOUSING FINANCE - A company growing at 25-30% available at a PE of 7x for FY09 and EPS of Rs 55. Book value of the company in FY09 would be Rs 260 and ROE would be 20% (Assuming no dilution)

BIRLA CORPORATION AND INDIA CEMENTS - Trading at single digit price multiples for FY09. Overall infrastructure spending is close to $500bn in the 12th five year plan and that we are nowhere close to capacities that exist in China

HDIL - It is trading at a considerable discount. The infrastructure sector has strong revenue visibility, and growth opportunity in the target markets with possible value unlocking opportunity.

SBI - The stock is trading at single digit multiple for FY10E. Apart from holding largest land bank holdings, it has an x-factor too — human resource valuation

Friday, July 18, 2008

Financial Planning: Life Begins After 50

If you fall under this category, go for a conservative asset mix & adequate cover while securing your finances

IN TODAY’S world, it’s a Herculean task to fulfill all your family responsibilities. It takes all your savings and emotions to make sure that your kids find their feet in today’s highly competitive world. And when these fledglings finally spread their wings and move on, you find yourself emotionally and sometimes monetarily drained. Take the case of 51-year-old K D Sharma. Within a few months of their daughter’s wedding, their son also decided to move out. The couple suddenly realized that now they are financially strained. Their life-long savings been utilized for securing the future of their kids and it appeared that they have to start afresh. So, if you are also undergoing through the same pangs, here are some tips that can help you chart out a new chapter after you’re done with all your responsibilities.


Insurance advisors suggest protection against early death, disability and medical coverage as important insurance covers an empty nester must have. Normally being on the other side of 50’s, the insurance premium for such insurers is very high. Some unit linked insurance policies offered by private sector insurance companies provide both medical and life insurance coverage, which empty nesters could look to take cover under.

Since being on their own, empty nesters have significant amount of extra time and cash to pursue long cherished interests and hobbies or some new activities. So while pursuing these interests, it is advisable that they should fine tune the financial plans to accommodate the new lifestyle. The biggest mistake people make after the kids leave the house is not reviewing the insurance policies. What they forget is that it’s one of the key times to look at insurance and plan accordingly.

A whole-life ULIP will be the ideal cover for such category of people. Choose a product with lesser premium paying commitment of maximum 5-10 years and coverage for whole life with asset allocation of 50% in Debt and 50% in Equity. You can also use these policies for tax-free retirement planning since such a product gives you the flexibility of liquidity every year. Pension products are another category which insurance advisors feel that empty nesters can look at. They also advise a second look at your health insurance. It is important that you should have enough coverage as it may become difficult to take larger cover after certain age.


Considering that most empty nesters belong to 50+ age category, financial planners recommend a conservative asset allocation, which could comprise of up to 30% allocation to equities. While current income generating securities such as small savings schemes, fixed maturity plans, and long term bank fixed deposits can form 50% of the asset mix. The remaining investment (20%) should be made in fixed income securities with low maturity such as short-term income funds, liquid funds and short-term bank fixed deposits with an objective of maintaining liquidity for contingencies. The main priority for empty nesters is to preserve existing wealth and plan for retirement. Hence such a mix would generate growth with added stability apart from current income.

However, analysts caution that it may not be appropriate to implement the same asset allocation across investors as conditions differ significantly across empty nesters. For the uninitiated, asset allocation for any investor is determined based on the investor’s age, socio-economic background, lifestyle, risk appetite, liquidity requirements and finally the investment horizon.

On the equity market investments, financial planners believe that the exposure should be restricted to a complementary blend of three to five quality diversified equity funds with low risk. And they should avoid the temptation of sector/thematic funds or/and a direct exposure to equities by purchasing individual securities. The investor should view equity exposure as a long-term asset class in the portfolio and hence a systematic investment plan could be the ideal strategy for investing in equities.

Financial planners also advise such families to set aside at least three months household expenses as contingency fund, which ideally should be risk-free and can be easily liquidated. It is pertinent to calculate amount needed to meet living expenses for remaining life, amount needed for charity or passing on to the family members. You should not wait till the end for such decisions.


  • A conservative asset allocation, comprising up to 30% equities, is recommended

  • Current income generating securities such as small savings schemes, fixed maturity plans and long-term bank fixed deposits can be 50% of the asset mix

  • Around 20% can be put in fixed income securities with low maturity such as short term income funds, liquid funds and short term bank fixed deposits

  • Around 20% can be put in fixed income securities with low maturity such as short term income funds, liquid funds and short term bank fixed deposits

Wednesday, July 16, 2008

Tax Saving Mutual Funds (ELSS) - Things to know before investing

Equity Linked Saving Schemes (ELSS) or tax saving mutual fund schemes as they are otherwise known as, are a popular tax saving investment. The major reason for this popularity has been the introduction of Section 80C of the Income Tax Act, from April 1, 2005. This section allows the investor to invest up to Rs 1 lakh in various investment products and get a tax deduction for the same. The list of investment products also includes ELSS. Earlier, till March 31, 2005, investment in these tax saving schemes only allowed for a tax deduction of up to Rs 10,000 under Section 88.

However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment.

  1. Section 80 C spoils you for choice: As has been mentioned above, ELSS is not the only investment avenue that comes under Section 80C. Other investments such as Life Insurance, Public Provident Fund (PPF), National Savings Certificates (NSCs), Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS) etc also offer a similar tax benefit. Then there are mandatory payments such as your PF, tuition fees of children and even housing loan repayments that are covered under Sec. 80C. Let us say an individual contributes Rs 40,000 to the PPF every year and Rs 30,000 is his provident fund deduction. So for him it makes sense to invest only the remaining Rs 30,000 [Rs 1 lakh – (Rs 40,000 + Rs 30,000) = Rs 30,000] for tax deduction under Sec. 80C. This is primarily because if he invests more than Rs 30,000, he will cross the overall level of Rs 1 lakh and the deduction is limited to Rs 1 lakh.

  2. Lock-in of three years: Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years. Hence an ELSS investment cannot be withdrawn for a period of three years from the date of investment. This lock-in is like a double-edged sword. On the one hand, it fosters long-term investment, which is very essential while investing in equity. And on the other, if you find yourself in a situation where you require funds in an emergency, you will have to resort to other means / investments --- the ELSS fund will be closed to you for three years. Withdrawals are just not allowed, not even with a penalty.

  3. Tax saving schemes carry the risk of investing in equity: ELSS funds are promoted as good investments as they enable the fund manager to take long-term calls on account of the enforced three year lock-in. In other words, the fund manager doesn’t have to worry about keeping funds liquid to cater to daily redemptions that can happen in normal open ended schemes. However, it has to be kept in mind that ELSS funds for all practical purposes are similar to normal diversified equity mutual fund schemes. The funds in these schemes are invested in the stock market. Hence the returns these schemes generate depend on the kind of stocks the fund manager invests in and the overall state of the market. So if an investor invests in a tax saving scheme, and three years down the line, when the lock-in ends and the markets are not doing well, his total returns will take a beating. Yes, this has not happened in the past as the Indian market is in a lateral bull phase (barring the occasional hiccups). However, the potential of capital loss is very much there and it has to be considered. So investors need to consider their risk taking ability in terms of age and responsibility before deciding on investing in ELSS.

The bottom line?

Whether ELSS or any other investment, do not invest because the investment offers a tax benefit. Ask yourself whether you would have invested in the particular instrument per se --- the tax benefit should be the incidental icing on the cake. This will ensure that all your investments will be as per your risk profile and goal oriented and not only on for the temporary purpose of saving tax.

Monday, July 14, 2008

12 principles of speculation strategies in stocks

Enumerated below are twelve major principles and sixteen minor ones with brief comments on each of them:

First Major Axiom: On Risk
“Worry is not a sickness but sign of health. If you are not worried, you are not risking enough.”

Adventure is what makes life worth living. Every occupation has its aches and pains. The rich have to worry about their wealth. But, if there is a choice between remaining poor and worry-free, the selection is obvious. It is better to be wealthy and worried than to be worry-free and poor.

Minor Axiom I: “Always play for Meaningful Stakes.”
If you invest Rs. 1000 and your investment doubles, you have only Rs. 2000 and are still poor! So if you want to be rich, you must increase your stakes.

Minor Axiom II: “Resist the allure of diversification”.
, diversification negates the earlier principle of playing for meaningful stakes.
Secondly, it may keep you where you began so that your gains on few will cancel out the losses on the other few.
Thirdly, it entails keeping track of many more items leading to confusion and occasional panic.

Second Major Axiom: On Greed
“Always take your profit too soon.”

Lay investors having made the investment tend to stay too long on it out of greed for higher profits. But, one must conquer this weakness and book profits soon. If one is less greedy for more profits one will take in more. Don't stretch your luck. In effect, it suggests, SELL sooner than later.

Minor Axiom III: "Decide in advance what gain you want from the venture, and when you get it, get out. Decide where the finish line is before you start the race".
This is self explanatory and hence needs no comment.

Third Major Axiom: On Hope
“When the ship starts to sink, don't pray, jump”
This axiom is about what to do when things go wrong. Learn how to accept a loss. One should accept small losses to protect oneself from big ones. When the market starts falling, sell, take your money and run!

Minor Axiom IV: "Accept small losses cheerfully as a fact of life."
Expect to experience several smaller losses while awaiting a large gain.

Fourth Major Axiom: On Forecasts
"Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly."

The story of a monkey throwing darts on the stock exchange page of a newspaper, to select the companies to buy, and coming out a winner is too well known to be recited. Recent news from London, further proves the truth, when an untrained chemist's stock selections, in a widely publicized contest open to all and sundry, registered higher appreciation over several full time highly qualified fund managers' well researched selections. Human events cannot be predicted by any method by anyone and, hence, don't trust anybody's predictions.

Fifth Major Axiom: On Patterns
"Chaos is not dangerous until it begins to look orderly."
The truth is that the world of money is a world of patternless disorder and utter chaos. This axiom is a commentary on Technical Analysis - a branch of investment strategies based on charts and patterns. The fact is, no formula that ignores own intuition's dominant role can ever be trusted.

Minor Axiom V: "Beware the Historian's Trap".
This is based on the age old but entirely unwarranted belief that history repeats itself.

Minor Axiom VI: "Beware the Chartist's Illusion".
Life is never a straight line. Let us not be hypnotised by a line on a chart.

Minor Axiom VII: "Beware the Co-relation and Causality Delusions."
Don't be taken in by coincidences in the market.

Minor Axiom VIII: "Beware the Gambler's Fallacy."
There is a gambling theory which suggests that one should put small stakes initially and test their luck, and if these turn out well one should go for big stakes on the dice table. But this is not correct. It only shows that winning streaks happen. But nothing is orderly about it. You can't know how long it will last or when it will strike.

Sixth Major Axiom: On Mobility
"A putting down roots. They impede motion".

You may feel socially comforting to have roots. But in financial life, roots can cost a lot of money. Have a flexible approach while investing. This axiom implies a state of mind.

Minor Axiom IX: "Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia."
Do not develop emotional attachment to your investment. You should feel free to sell when desired.

Minor Axiom X: "Never hesitate to abandon a venture if something more attractive comes into view."
Never get attached to things, but only to people. Otherwise it hits your mobility. Never get rooted in an investment. You should remain footloose, ready to jump away from trouble or into a profitable opportunity as and when circumstances demand.

Seventh Major Axiom: On Intuition
'A hunch can be trusted if it can be explained.'
A good hunch is something that you know but you don't know how to recognise it. When a hunch hits you, try to locate some data in your mind for any familiarity. Then only should you act on it.

Minor Axiom XI: 'Never confuse a hunch with a hope'.
Be highly skeptical. Examine every hunch with extra care.

Eighth Major Axiom: On Religion and The Occulture
'It is unlikely that god's plan for the universe includes making you rich'.
You can't only pray that you should be made rich. You will have to work at becoming rich. Mere prayers will not suffice.

Minor Axiom XII: 'If Astrology worked, all astrologers would be rich.'
This is self explanatory. Don't trust predictions.

Minor Axiom XIII: 'As superstition need not be exorcised, it can be enjoyed provided it is kept in its place.'
In your day-to-day financial matters, act rationally. But, when buying a lottery ticket, give it a full play to amuse yourself.

Ninth Major Axiom: On Optimism and Pessimism
'Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.'
In poker and a lot of other speculative worlds, things are never as bad as they seem - most of the times they are WORSE. Confidence comes not from expecting the best but from knowing how you will handle the worst. Optimism can be treacherous because it makes you feel good.

Tenth Major Axiom: On Consensus
'Disregard the majority opinion. It is probably wrong'.

It is likely that the Truth has been found out by a few rather than by many.

Minor Axiom XIV: 'Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.'
This is the best way to get a good stock cheaply.

Eleventh Major Axiom: On Stubbornness
'If it doesn't pay off the first time, forget it'.
If at first you don't succeed, try and try again and you will succeed in the end. This is good advice for spiders and kings but not for ordinary persons with regard to financial matters. Every trial is a costly error.

Minor Axiom XV: 'Never try to save a bad investment by averaging down.'
If the price of the stock goes down after your purchase don't buy more to bring down' the average cost of your total holding. Investigate why the price went down rather than put good money in a bad bargain.

Twelfth Major Axiom: On Planning
'Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans, or other people's seriously.'
This is self explanatory and hence needs no comment.

Minor Axiom XVI: 'Shun long-term investments.'
If possible try to a long-term investments.

The author noticed that the Swiss group never took a long-term view of their stock purchases. They always sold out as soon as their targeted profit was achieved.

Friday, July 11, 2008

Banking And ATM Tips

AUTOMATIC teller machines (ATMs) have revolutionized the personal banking industry, providing unprecedented ease and convenience. But they have also created new opportunities for thieves and fraudsters. Here are some tips to keep you and your money secure while conducting all types of banking transactions.

• Never walk away from the teller’s window or an ATM with cash still in hand. If you are going to count your money, do so at the window or the ATM. Then take the time to put your money into your wallet and to put your wallet into an inside pocket or pouch before leaving.

• Be aware of your surroundings while making transactions at an ATM. If you feel uneasy, end the transaction as quickly as possible and leave the area.

• Look around before entering a secure ATM centre. Never hold the door open for someone else entering an ATM booth. You could be letting in a possible offender.

• If someone follows you into an ATM centre and you feel uncomfortable, leave right away.

• Fill out deposit slips before beginning your transaction and not in plain view. Complete your transaction quickly.

• Use your body as a shield when making a transaction at the bank-teller counter or the ATM.

• Keep your personal identification number (PIN) private.

• Never affix the PIN to your card. Never keep your card and a copy of the PIN together in the same wallet.

• Take all receipts with you when you leave the ATM. You don’t want to let a potential criminal know how much money you have withdrawn or how much you have in the bank.

• Avoid large cash withdrawals.

E-Mail Banking

SIGN-UP for Bank’s E-mail Banking service and get your account statement e-mailed to you as regularly as you want - daily / weekly / fortnightly / monthly. As a current account holder, you can get e-mail statements sent to as many as five e-mail IDs in any desired format. You may also sign-up for e-mail alerts, and get daily end-of-day account balances, debit/credit above Rs crossing certain level and inward/outward cheque return.

Wednesday, July 9, 2008

Mutual Funds: Another Load Relief

In a breather to all mutual funds investors, the Securities and Exchange Board of India (SEBI) has asked fund house 'not to charge' entry and exit load on bonus units and units allotted on reinvestment of dividend, with effect from April 1, 2008. The new rule follows the recommendations of the Association of Mutual Funds in India's Working Group on Standardization of Key Operational Areas.

An entry load is charged when an investor enters a mutual fund scheme. For redemptions made thereafter, investors are charged an exit load by the fund house. In the case of the dividend reinvestment option, the investor is assigned units for dividend that is re-invested in the scheme.

At times, the fund manager converts earnings from the scheme into units and distributes them as bonus units to the investors. These bonus units are then charged entry load and exit load.

The logical argument made against charging such loads is that it is investor's money that has contributed to the earnings and that investors are not entering the scheme afresh, so charging an entry load does not make any sense.

Tuesday, July 8, 2008

Debt Investment Planning - Avenues for the risk-averse

Some investment avenues for those who don’t want to take the risks associated with stock markets

When the stock markets go the downside way, investments in fixed deposits (FDs) become attractive again. FDs remained a dormant investment avenue for the past few years, mainly because of the fact that the interest rates were low, and these investments are unsecured. So, the government's saving schemes, especially the post office saving scheme, had an edge over FDs.

Fixed deposits attractive again

However, some recent changes have again brought FDs into the limelight. The contributing factors include the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. The second major factor has been the gradual increase in the interest rates on FDs.

These deposits have been brought on par with small savings schemes. Investments in term deposits for those planning to take a tax deduction will have a lock-in period of five years. The government notification says that no term deposit can be encashed before five years from the date of investment. The ceiling on investments is Rs 1 lakh. The interest earned on these deposits will attract tax either on an accrual basis or on receipt basis. If the deposit is made with a joint holder, the tax benefit will be available only to the first holder.

Investors can now claim benefits under Section 80C of the Income Tax Act, by putting their money in FDs. Investors can include the option of fixed deposits to complete their investments under Section 80C. There is a five-year lock-in period for investors from the date of deposit, during which, investors can't withdraw their money. The liquidity of the instrument will be further affected as investors cannot pledge the term deposit as collateral to secure a loan or some other asset.

NSCs serve as collateral too

In case of investments in NSCs the returns is eight percent. The tenure is six years. You can pledge the NSCs as a collateral for a loan. The accrued interest is considered as a further investment and hence, it is also eligible for Section 80C benefits. The investments are totally secured in nature. They constitute a medium term investment avenue. In the case of NSCs, the income generated in the form of accrued interest is taxable each year.

PPF a long-term avenue

On the other hand, an investment in the Public Provident Fund (PPF) is meant for long-term investors. The investment is totally secure. The interest is exempt from tax. The deposits are exempt form wealth tax. The rate of return here is not fixed for the entire duration of the investment, but is announced regularly.

The interest rate is varied by the government at periodic intervals. The interest rates could change in the middle of the investment period. Further, the investment is for a fixed period of 15 years. PPF is suitable for investors with a long-term investment horizon. The funds get locked for a long period of time.

Tax Angle

The tax aspect needs to be factored in. The interest income from fixed deposits is fully taxable, without the benefit of any deduction in the hands of the receiver. This means that for all those who come under the highest tax bracket, the applicable rate will be 30 percent, plus cess.

Investors will be attracted to invest in fixed deposits only if the interest rates are high enough. Investments in FDs would have to still compete with these other prevailing investment avenues available to the investor. The investors would have to consider the interest rates, returns, lock in period, liquidity and safety before taking an investment decision.

Friday, July 4, 2008

Protect your assets against Catastrophes - Planning is key

A few days ago, I received an interesting email from someone who finds himself worrying about the effect of catastrophic events on his investments. The writer says that the basic theme of my investing advice is always to invest gradually over the long-term. What worries him is the possibility of catastrophic events like a global depression or a war that suddenly wipes out carefully accumulated wealth. He'd like to know what one can do to protect one's nest egg against such disasters.

This worry is justified. There have been few parts of the world that have not gone through the twentieth century without a major economic-political-social dislocation. We can't just assume that our lives will pass without anything like that happening. In fact the world seems especially ripe for a wide-ranging catastrophe. From nuclear terrorism to peak oil to disastrous climate-change, you can pick a favorite one from a choice of catastrophes. By the way, that phrase, 'A Choice of Catastrophes', is the title of an interesting book that Isaac Asimov wrote on a somewhat related topic.

Is there a way to guard once financial well-being through such events? The classic way of guarding against adverse circumstances is something that any investor should be doing anyway, which is diversification coupled with a sensible asset allocation. The basic idea of diversification is always that every kind of investment doesn't do badly simultaneously. One should spread one's investment across different Kinds of Assets (stocks, fixed income, gold, real estate, bank deposits etc) as well as different industries and different parts of the world. Closely coupled with this are the ideas of booking profits and reallocating investments between different investments.

Asset reallocation means that as the riskier (and hopefully higher return) investments make money, one should keep booking profits in them and putting the money into safer investments so that one never gets over-exposed to excessive risk. Asset reallocation is essentially about maintaining diversification. An example would be someone who keeps 70 per cent of his money in stocks and 30 per cent in bank FDs. Whenever, stocks are earning more and their 70 per cent share rises, the investor shifts some money into the FDs to restore the percentage.

Can such a simple method actually protect against catastrophes. I think it can protect against most catastrophes. Of course, the word 'protect' here is relative. If the world economy goes into a deep depression, then your investments are going to fall in value. With proper diversification, they'll fall less, hopefully a lot less than they would have otherwise. If you've invested gradually into well-chosen investments, then hopefully you would have gained enough already and the fall would only reduce your returns rather than eat into your capital.

However, there are no guarantees. The only way to be perfectly insulated from an investment crash is to not invest. If you want to participate in the rewards of an investment, you must participate in its risks also. That is a given. I don't think there's any investment strategy that's going to help you against the severest catastrophes. I mean holding 'safe' investments like RBI bonds, bank FDs and cash funds may not be of too much real help if the Pakistanis nuke Mumbai and Delhi. However, I think less severe catastrophes can be guarded against by following the same simple strategies that you should be following anyway.

Tuesday, July 1, 2008

Fail proof Investing Principles Warren Buffet bets on

Simplicity - Warren Buffet

Warren Buffet, who has donated billion to charity. Here are some very interesting aspects of his life:

1. He bought his first share at age 11 and he now regrets that he started too late!

2. He bought a small farm at age 14 with savings from delivering newspapers.

3. He still lives in the same small 3-bedroom house in mid-town Omaha , that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.

4. He drives his own car everywhere and does not have a driver or security people around him.

5. He never travels by private jet, although he owns the world's largest private jet company.

6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO's only two rules.

Rule number 1: do not lose any of your share holder's money.

Rule number 2: Do not forget rule number 1.

7. He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch Television.

8. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.

9. Warren Buffet does not carry a cell phone, nor has a computer on his desk.

His advice to young people: Stay away from credit cards and invest in yourself and Remember:

A. Money doesn't create man but it is the man who created money.

B. Live your life as simple as you are.

C. Don't do what others say, just listen to them, but do what makes you feel good.

D. Don't go on brand name; just wear those things in which you feel comfortable.

E. Don't waste your money on unnecessary things; just spend on things that you really need.

F. After all it's your life, then why give others the chance to rule your life."

Important quotes of Warren Buffet:

1) Rule No 1: Never lose moneyRule No 2: Never forget rule No 1.

2) It is easier to stay out of trouble than it is to get out of trouble.

3) The market like the lord ,helps those help themselves. But unlike the lord, the market does not forgive those who know not what they do.

4) Don't try to jump over seven-foot bars; look around for one-foot bars that can step over.

5) The chains of habit are too light to be felt until they are too heavy to be broken.

6) It is not necessary to do extraordinary things to get extraordinary results.

7) Look at stocks as small pieces of a business.

8) Invest in a business that even a fool can run, because somebody a fool will.

9) With investment you make, You should have the courage and the conviction to place at least 10% of your net worth in that stock.

10) If a business does well, the stock eventually follows.

11) The reaction of weak management to weak operations is often weak accounting.

12) In a difficult business, no sooner is one problem solved than another surfaces-never is there just one cockroach in the kitchen.

13) You don't have to make money the same way you lost it.

14) With enough insider information and a million dollars, you can go broke in a year.
15) If principles become dated, they are no longer principles.

16) If calculus or algebra were required to be a great investor, I would have to go back to delivering newspapers.

17) It is only the tide goes out that you learn who has been swimming naked.

18) If you hit a hole in one on every hole, you would not play golf for very long.

19) Never ask a barber if you need a haircut.

20) Forecasts usually tells us more of the forecaster than of the forecasts.

21) There seems to be some perverse human characteristic that likes to make easy things difficult.

22) Diversification is a protection against ignorance.

23) Brokers make money on activity, You make your money on inactivity.

24) You only have to do a few things right in your life so long as you don't do too many things wrong.

25) If you let yourself be undisciplined on the small things, you will probably be undisciplined on the large things as well.

26) When proper temperament joins up with the proper intellectual framework, then you get rational behavior.

27) The fact that people are full of greed or folly is predictable. The sequence is unpredictable.

28) Be fearful when others are greedy and be greedy only when others are fearful.

29) The most important thing to do when you are in a hole is to stop digging.

30) If at first you do succeed, quit trying.

31) Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.

32) Risk comes from not knowing what you are doing.

33) If you can't make mistakes, you can't make decisions.

34) Investment must be rational, If you don't understand it, don't do it.

35) In the business world, the rear view mirror is always clearer than the windshield.

36) For some reason people take their cues from price action rather than from values. Price is what you pay. Value is what you get.

37) At the beginning, prices are driven by fundamentals and at some point, speculation drives them. It is the old story: what the wise man does in the beginning the fool does in the end.

38) A pin lies in wait for a bubble and when the two eventually meet, a new wave of investors learn some very old lessons.

39) I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 5 years.

40) What we learn from history is that people don't learn from history.

41) Look at stock market fluctuations as your friend rather than your enemy-profit from folly rather than participate in it.

42) Uncertainty actually is the friend of the buyer of long-term values.

43) No matter how great the talent or effort, some things just take time: You can't produce a baby in a month by getting nine women pregnant.

44) If the past history was all there was to the game, the richest people would be librarians.

45) I would be a bum on the street with a tin cup, if the markets were efficient.

Here are some of the thumb rules that legendary investor and worlds richest man follows to create and grow his wealth. He simply follows Keep It Simple Stupid (KISS) Principles.

1. Choose Simplicity over Complexity
When investing, keep it simple. Do what’s easy and obvious.

If you don’t understand a business, don’t buy it.

2. Make Your Own Investment Decisions
Don’t listen to the brokers, the analysts, or the pundits. Figure it out for yourself.

Become a value investor. It’s proven to be a very rewarding technique over the long term.

3. Maintain Proper Temperament
Let other people overreact to the market.

To succeed in the market, you need only ordinary intelligence. But in addition, you need the kind of temperament to help you ride out the storms and stick to your long-term plans. If you can stay cool while those around you are panicking, you can surely prevail.

4. Be Patient
Think 10 years, rather than 10 minutes.

Don’t dwell on the price of stocks. Instead, study the underlying business, its earnings capacity and its future. If the question is, “How long will you wait?” – “If we’re in the right place, we’ll wait indefinitely” says Buffet.

5. Buy Business, Not Stocks
Once you get into the right business, you can let everyone else worry about the stock market.

Business performance is the key to picking stocks. Study the long-term track record of any company that is on your buy list. Buffet looks for following five main things before investing in a company.

(i) Business he can understand
(ii) Companies with favorable long-term prospects
(iii) Business operated by honest and competent people
(iv) Businesses priced very attractively
(v) Business with free cash flow

Don’t think about “stock in the short term.” Think about “business in the long term”.

6. Look for a Company that is a Franchise
Some businesses are “franchises”. Franchise generates free cash flows.

7. Buy Low-Tech, Not High-Tech
Successful investing is rarely a gee-whiz activity. It’s less often about rockets and lasers and more often about bricks, carpets, paint, shaving blades and insulation.

Do not be tempted by get-rich-quick deals involving relatively complex companies (e.g., high-tech companies). They are the most unpredictable in the long run. Look for the absence of change. Look for the business whose only change in the future will be doing more business, e.g Gillette Blades.

8. Concentrate Your Stock Investments
A the “Noah’s Ark” style of investing – that is, a little of this, a little of that. Better to have a smaller number of investments with more of your money in each.

Portfolio concentration – the opposite of diversification – also has the power to focus the mind. If you’re putting your eggs in only a few baskets, you’re far less likely to make investments on impulse or emotion.

9. Practice Inactivity, Not Hyperactivity

There are times when doing nothing is a sign of investing brilliance.

Be a decade’s trader, not a day trader.

10. Don’t Look at the Ticker

Tickers are all about prices. Investing is about a lot more than prices. It is about value. It is about wealth.

Abstain from looking at share prices every day. Study the playing field and not the scoreboard. Know the value of something rather than the price of everything.

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