Monthly Archives: July 2008

05/07/2008
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Personal Finance

Public Provident Fund

I would say Public Provident Fund is one of the best Tax saving options that the Government provides for the citizens. The best part about PPF is that there is a deduction in income and also the interest that is earned also is tax free. Since this scheme is by the Government of India, I think it is relatively safer than any other financial investments.

The money that is invested is tax free under section 88, are eligible for 20% Tax Rebate. The maximum amount that can be invested is Rs.70,000. The returns on money invested is also pretty good. Government pays around 8% p.a. it is just a percent lesser than savings account. The best part is no tax on interest, effectively it is more than what we think that we are saving by investing in PPF. Good thing is that one can open a PPF account and invest from Rs.500 to Rs.70,000 and also the investments can be made in 12 installments in one year and the amount that is deposited need not be identical, that gives the best option. We can always invest the money whenever we have surplus. This is a great deal. The entire amount that is accumulated over in years is exempted from wealth tax.

Some negative points about PPF:
1. The investment term is very long – 15 years.
2. The interest rates varies over the period of time and you never know how much interest you might get. (Little uncertain)
3. Interest is calculated on lowest balance between 5th and last day of March.
4. Money is held and it can’t be liquidated easily.

I would strongly urge most of the individuals to have a PPF account and start depositing money in it.

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03/07/2008
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Personal Finance

Investment for Tax Benefit

I was wondering as to how to save tax and invest in Stock market. There are numerous options to save tax and was wondering why does government ever give tax breaks when they need money to run the nation effectively and efficiently. So there should be something fishy. I always believe that “There is nothing called FREE FOOD”.

So have you ever noticed or thought about in which government gives a tax break? Only for long term investments, home loans, mutual funds, Life Insurance and so on.. Why does Government gives tax break for such kind of things? I would prefer government giving me tax break on buying Stocks, personal loans, vehicle loans and so on.. but government does not even consider it. Why?? I think the government does not earn or get any money from us in any ways. If that is the case they don’t give the tax break. As simple as that.

Anyways, let us not ponder too much about that. How much ever think about it we can’t formalize a new tax rule. All that we can do is either pay tax or not pay tax. But being a responsible citizen I feel we should pay tax.

I feel Public Provident Fund (PPF) is a very good option for tax benefit. Everyone should have PPF because it is a good option with very less risk. Why I claim that very less risk is because you never know what might happen to the government and what might happen to the money you have provided them to take care of. But it is much safer in the government’s hands.

You can invest in other financial instruments also but I am not sure how much it is safe and what is sum assured. I will get into depth of these topics in the further topics.

See you around!!

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01/07/2008
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Personal Finance

Mutual Funds

Mutual Funds is an easy step for Stock Market freshers to enter. Since we don’t have enough knowledge regarding Stock Market, Shares and other financial instruments. This seems to be a very good option.

Mutual Funds are for those kind of people who are married and have certain financial responsibilities, who don’t wish to take the risky path of stocks. Compared to Stocks, Mutual Funds are safe bet. Mutual Funds are managed by a Manager or group of Managers depending on size of the Fund.

Why is it safe bet?
The day to-day volatility in stock market is taken care by the diversification present in the Mutual Funds. Hence we need not worry much about the fluctuations in the market. Even if it fluctuates there wont be much variance.

About Fund Managers!
They are keen on managing our money. If they are so sure of managing ours, why don’t they manage theirs and make huge loads of money (Ever wondered?!!). He makes a living by managing our money. He is paid around 2-3% of the Fund amount collected. This will be easily in tens of crores.. Why is he paid so much? Just to manage our money. But still he does not assure us of returns. Since it is difficult to predict the stock market. Fund manager does not even assure us of principal amount.

There is always a note stating the following : “Mutual Fund investment are subject to market risks, please read the offer documents carefully before investing”. I am sure none of us would even bother to read the offer documents or even attempt to do such a job, since it is not for us. Our Job is to just put to sign the documents wherever the mutual fund agent asks us and give him the cheques, thats it.

It is difficult to keep the first step towards a journey, once started I am sure we will move briskly. I don’t wish to run. Mutual Fund is a good start. Let someone else manage your money now. Later you start managing which is essentially yours.

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