Prajna Capital - An Investment Guide

With rising input costs and falling margins, it has become imperative for the company to cut costs and has decided to cut its employee strength by 20% in order to reduce its wage bills. Rather than retrench employees and invite litigation (and the wrath of trade unions), the company has advanced a more humane approach by instituting a voluntary retirement scheme ( VRS ) that is open to all employees. Here are the few things I have asked him to consider while making his decision: 1) NOT A PERMANENT RETIREMENT Although called “retirement”, a VRS does not stop the person from taking up another employment as long as the employment is not with the same company or group. 2) TAX BENEFITS A VRS designed in accordance with Section 10(10C) of the Income-tax Act, 1961 allows the recipient to enjoy tax exemption on his compensation up to a maximum of Rs 5 lakh once in his lifetime. 3) OTHER TERMINAL BENEFITS A VRS ideally should be over and above other terminal payouts auch as Provident Fund, g...

IS INVESTING an art or a science — this has long been a topic for debate? For an investor, the argument only adds to the ever prevailing dilemma that one is faced with in the world of savings, investments and returns. Here’s a sample of typical questions that an investor could ask: what is the right way to save money? How much do I need to save? Where do I need to invest? Who can I turn to for investment advice? How do I ensure that I can get my money back when I need it? And if these are not complex enough, things get more complicated when one sees a boom in the stock markets or the property markets — every investor starts to “evaluate” his or her strategy and new doubts begin to appear about what they have been doing. As in every complex problem, the solution lies in the simplicity of the investing process. There is no “one” right way to create an investment strategy and every investor needs to follow the same simple rules for success. An investor needs to focus not on the shor...

For Indians in their 20s and 30s, the accumulation phase—when they earn and save—is of great import for retirement. And insurance products can help THIRTY years ago, a kilo of potatoes sold for less than a rupee in Bombay. Since then, not only has the city changed its name to Mumbai, it but nowhere will you find potatoes selling for less than Rs 10 a kilo. The price of onions has risen more than five times; beans sell for ten times what they cost in 1985. Local transport costs have increased more than 1,000%. Electricity costs almost four times what it did just ten years ago. Even water charges have doubled. Rising salaries help people cope with the increasing cost of living. But what happens when income from regular sources stops, and costs keep rising? A national survey of more than 63,000 households, equally divided between rural and urban areas, conducted by the National Council for Applied Economic Research ( NCAER ), found that only 4% of the people could survive on their...

Almost all the investment advice that is given out to retired people is wrong. In fact, not only is it wrong, it is downright dangerous. Instead of securing their financial future, it tends to push them towards poverty. The longer a retiree lives, the more severe are the ill effects of such advice. I know that's a very strong set of statements that I have started out with but if you bear with me for a few more minutes, I'll show you where the problem lies and why it is so serious. The central premise of almost all the post-retirement investment advice I've ever heard is that retirees' money should always be entirely in guaranteed fixed-income instruments like post office deposits, RBI deposits, bank FDs etc. It is said that retirees should not have any stocks-based investment because they can't tolerate any risk. The problem with such advice is that it completely ignores a big risk that retirees face, that of inflation. None of the fixed-return instruments provide r...

Here I have tried to lists out some investment options that are relatively safer in volatile market conditions The stock markets are on a downward trend from the beginning of this year. Volatility in the markets is also quite high. There are many factors that contribute to negative market sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, anticipated slowdown in the global economy etc. Foreign investors were investing heavily in emerging markets. They are now taking out money, especially from emerging markets. Large foreign investors are bearish on global growth and expect the global economy to deteriorate. They believe that in the era of a global slowdown, emerging markets will under-perform their global peers. Foreign institutional investors ( FII ) have taken out around $5 billion from the domestic markets so far this year. Since the stock markets are ...

Before you decide to hang up your shoes and chase your dreams, it’s important to do some financial planning so that you can enjoy the golden age to the fullest. THE definition of golden period in one’s work or professional life has now assumed a new meaning. Today, the ‘golden age’ is one when at the peak of your career, you decide to snap your ties with competitive work and spend time on what you always wanted to do. In terms of jargons, some prefer to call it — semi-retirement. Take the case of 42-year old Rajesh (Name Changed). He was doing well for himself as a marketing head in an MNC when he decided to take a break from the daily, hectic work schedule and started to learn pottery. Rajesh, who use to head a team of B-school graduates, is now enjoying his stint as a pottery teacher to young kids. But before you decide to hang up your shoes and follow your dreams, it’s important to do some planning so that you can enjoy the golden age to the fullest. FIRST THINGS FIRST Analysts bel...

It’s that time of the year when your salary is supposed to look fatter — after all, the financial year has ended. And the New Year brings cheer with pay hikes and lump sum performance bonus, if any. Pay off bad and ugly loan It’s better that you pay off your ‘bad and ugly loans’ with it. These could be your high interest-paying credit card bills, personal loans or car loan. Any loan that costs above 14% should be paid off. Never miss the wood for the trees and ensure that any investment is directed towards the ultimate financial goal, experts say. The idea is that you should see your money grow to meet your financial targets. Safe instruments If you want to use the money for medium-term needs, say 3-4 years, consider safe instruments like debt. This could be debt funds or even arbitrage funds. Arbitrage funds generate fixed income by taking advantage of price differentials between the cash and the futures market. Advise would be not to invest this bonus in aggressive instruments as thi...

MANY of us like to believe that we have a robust financial portfolio that would take care of our future. Interestingly, the plan would work only if funding the plan is regular. What happens if the funding suddenly stops? When it comes to investing in insurance, many of us mistreat it as a pure tax-saving tool. With the advent of ULIP and many innovative products in the market, thanks to privatisation of the industry, insurance is also being looked at as an ‘investment’ option that is expected to pay dividends/ returns, along with securing one’s future. Irrespective of our motivation to buy insurance, we often grope in the dark to determine the right approach for buying insurance products and assessing if we have an adequate insurance cover. NEED-BASED APPROACH Life insurance has moved from protecting life to protecting lifestyle . Today, there is a choice of innovative products that meet financial needs at each of one’s life stages — be it marriage when one assumes responsibility to pr...