Monthly Archives: September 2017

Thursday Trivia ~ Financial Thumb Rules to Remember (Part 1 / 3)

‘Millionaire! One more time I hear this word from your mouth and you will sleep on couch tonight.’ Malvika was really angry this time. Over the past few days, Rohan had become obsessed with becoming very rich. Not an unusual obsession for someone in their early 30s. However, what Rohan could really not figure out is ‘how to be a millionaire’. He was working in a multinational company with a salary package that was appropriate for his age and experience.

‘But I didn’t say anything. How did you know I was thinking about it?’ asked a perplexed Rohan. Malvika amazed at Rohan’s response said, ‘I’m your wife, I even know the facial expression when you don’t like the food I make.’ Rohan tried to laugh but decided it was not appropriate for the moment. ‘Have a look at this Thursday Trivia, it might help you to get an answer to your million dollar question.’ said Malvika with a smile. Rohan couldn’t believe what he had just heard.

‘Thank you so much my dearest!”, Rohan jumped out of his seat and hugged Malvika.

Like a curious child, Rohan browsed through the blog. He found various articles on personal finance and started taking notes. While his primary objective was to learn about certain thumb rules first.

100 minus Age Rule

This rule tells future millionaires how much of their portfolio should be in equities. Thought behind this rule is as the person gets older, his ability to take risk reduces and would not prefer a large swing in portfolio value with fluctuation in equity markets.

Rule : 100 less (Current Age)

Rohan is just 30 years old. He was happy that he could invest 70% of his portfolio in equities. Being young could mean, he would be able to take more risk and realise his dream faster.

“My favourite rule of thumb is (roughly) to hold a bond position equal to your age – 20 percent when you are 20, 70 percent when you’re 70, and so on – or maybe even your age minus 10 percent.” – Jack Bogle

Rule of 72

This particular thumb rule is used to estimate the number of years it would take to double an investment on expected rate of return.

Rule : Number of years to double = 72 divided by rate of return

Rohan quickly realised that current rate of fixed deposit is 6% on fresh investments. Hence, it would take 12 years. (72 / 6)

Rule of 114

This rule is used to estimate the number of years it would take to triple the investment on expected rate of return.

Rule : Number of years to triple = 114 divided by rate of return

Rohan was now thinking. If he invests the same money in debt mutual funds with 8% rate of return. It would take him approximately 14 years to triple his investment and 19 years if he invests in bank fixed deposits at 6% interest.

Rule of 144

This rule is used to estimate the number of years it would take to quadruple the investment on expected rate of return.

Rule : Number of years to quadruple = 144 divided by rate of return

Rohan got excited. He thought if he invests in equities expecting 12% rate of return, his investment would quadruple in 12 years (144 / 12) compared to debt mutual funds taking 18 years (144 / 8) and 24 years in bank fixed deposits.

36% Debt Rule

This rule states the maximum amount of loan / debt to be taken by a person including housing loan, vehicle loan, credit card loan, any other personal loan, etc. should not exceed 36% of his monthly income.

Rule : Equated Monthly Instalments = 36% of Gross monthly income

Rohan with a monthly salary of Rs. 1 lakhs quickly noted down that his total EMIs should not exceed Rs. 36 thousand.

Emergency Fund Rule

This rule states a specific amount to be set aside incase of any emergency such as loss of job, illness, business problems, etc. The amount is usually set aside in liquid assets such as savings account, short term fixed deposit or simply keeping enough cash at home.

Rule : 6 multiplied by Monthly Household Expenses

Upon listening to this rule, Rohan understood that he needs to keep Rs. 3 lakhs as Emergency Fund in his bank all the time as his monthly expenses are Rs. 50 thousand.

10% Saving Rule

This rule talks about minimum monthly savings a person must do as per his monthly income.

Rule : Minimum Monthly Savings = 10% multiplied by Gross Monthly Income

Rs. 10 thousand was not a big deal for Rohan to save. He had a big smile on his face while his mind was working at speed of light.

Malvika sat besides Rohan all the while noticing his changing emotions. It was as if Rohan had found a hidden treasure. However, she was aware that all these are merely rules and she would require assistance of a financial advisor to guide them along.

Dear Readers, we will continue to explore rest of the thumb rules with Rohan in our next Thursday Trivia. Till then, please do write in any particular financial thumb rule that you would like to learn about.

– Jinay Savla

Disclaimer : This particular series of Financial Thumb Rules is only meant for educational purposes. We do not in any ways recommend it, as the case may differ for investors per se.

Thursday Trivia ~ Fake Notes, Are you detecting them?

‘What! How can you say this note is fake?’ shouted an angry customer at a bank. ‘We have done nothing wrong, don’t you guys get it. Every penny is so important for us and you think we deal in fake currency?’, the customer was trying to catch a breath.

‘We are extremely sorry madam, but we will have to impound this Rs. 2,000 note. Do you remember who gave you this note?’ replied the bank executive.

‘How can you expect me to know that. I deal with so many people everyday, right from my household expenses to office expenses. I had some savings left, so wanted to deposit with the bank. But now it feels like I have done something wrong.’ cried the customer while others looked at her with compassion.

Upon hearing this, calmly bank executive took the note and stamped it – ‘counterfeit note’. Now it cannot be used as a legal tender.

‘You can’t catch the big guys who loot thousands of crores of rupees. Just because we are small, you will punish us.’ customer could not take it anymore and stormed out of the bank.

Wouldn’t we also behave in a similar emotion if such an event took place in our life? A question we must ponder upon. Hence, this trivia is dedicated to detect the authenticity of those new Rs. 500 and Rs. 2,000 notes in your wallet.

The notes are freshly printed during the phase of demonetisation. Hence, it doesn’t cross our brains to look at it with a different intent. But the truth is far from what we know.

The government in July 2017 had informed the parliament that fake currency having a face-value of over Rs 11.23 crore was detected in 29 states post demonetisation. Also, Reserve Bank of India (RBI) in its latest annual report said that during 2016-17, 762,072 pieces of counterfeit notes were detected in the banking system, of which 95.7 percent were found by commercial banks. This was 20.4 percent higher than what was detected in the previous year.

Do you still think, there is no chance of a fake note in your wallet?

Let’s first look at RBI Guidelines regarding fake currency.

Bank Counter

Usually, while we deposit our cash with bank they check for authenticity of those notes. If at that point, it is established that a particular note or series of notes are fake, then the amount will not be credited to the customer’s account. Also, the note will not be returned. Infact, the bank will be penalised, if it returns the very note back to their customer. RBI takes this very seriously, otherwise it will be a complete failure on their part to curb fake currency from the system. This results in a total loss for the customer.

After impounding, bank has to issue an acknowledgement of the transaction which has to be signed by the cashier and the customer who submitted that very note. Even if the customer refuses to sign, the receipt must be issued.

The note will then be stamped as ‘counterfeit note’ and will be recorded in bank registers. These fake notes are then sent to police for further investigation. Also, please note that if the customer holds more than 5 fake notes, then the bank has to file a FIR for investigation.

ATMs

RBI has instructed banks to maintain adequate safeguards and checks before loading notes into ATM machine. Failure to do so, will be considered an attempt to circulate fake notes by the banks.

Yet, if you are out of luck and get a fake note from the ATM machine then unfortunately can’t be much done. Surprisingly, no existing guidelines from RBI are in place for the customer to claim new notes in return to the fake notes received from ATM. However, you can try a few things. Hold that particular fake note in the face of CCTV camera and see to it that serial number of the note gets properly captured, register the complaint with the station guard. Simultaneously, raise a complaint with bank, RBI and police. If during the investigation, it is established about the nature of note being fake then you will stand a fair chance to receive compensation.

It’s important to be vigilant all the time, as the exchange of fake notes can hurt our time and wallet both simultaneously. A way to avoid all this hassle is to educate yourself of the security features of the notes.

Rs. 2,000 notes

  • RBI has introduced newly designed bank notes as a part of it’s Mahatma Gandhi (New) Series.
  • It has motif of Mangalyaan on the reverse.
  • Base colour of the note is Magenta.
  • Size of the new note is 66 mm x 166 mm

For complete safety features of the note, please click here. (link embedded)

Rs. 500 notes

  • RBI has introduced newly designed bank notes as a part of it’s Mahatma Gandhi (New) Series.
  • These notes are different in colour, size, theme, location of security features and design elements from it’s predecessor.
  • It has an image of Red Fort on the reverse.
  • Base colour is stone grey.
  • Size of the new note is 66 mm x 150 mm

For complete safety features of the note, please click here. (link embedded)

Rs. 200 notes

  • RBI has introduced newly designed bank notes as a part of it’s Mahatma Gandhi (New) Series.
  • Motif of Sanchi Stupa on the reverse.
  • Size of the new note is 66 mm x 146 mm

For complete safety features of the note, please click here. (link embedded)

Rs. 50 notes

  • RBI has introduced newly designed bank notes as a part of it’s Mahatma Gandhi (New) Series.
  • Motif of Hampi with Chariot on the reverse.
  • Size of the new note is 66 mm x 135 mm

For complete safety features of the note, please click here. (link embedded)

Disclaimer :

Please note, that we don’t intend to blame the government or any other authorities. The intention of the article for our reader is to be safe and secure.

– Jinay Savla

Thursday Trivia ~ Save Tax upto Rs. 3 lakhs – New Provision on Taxation of Gratuity

Section 10(10) of the Income Tax Act, defines Gratuity as a payment made to an employee either at the time of retirement or leaving from job. However, it is given to an employee once he/she has completed 5 years of continuous service. It is considered to be a monetary reward for being in service with the company. Simply, it proves to be a retirement benefit to the employees.

The Payment of Gratuity Act was enacted in 1972. Earlier tax free limit on receipt of gratuity was Rs. 10 lakhs which the Central Government has now increased to Rs. 20 lakhs for private sector employees in an amended bill – the Payment of Gratuity (Amendment) Bill, 2017.

The amendment will be applicable from 1st January, 2016 in line with the norms set for Government employees. Basic exemption limit for Central Civil Services (Pension) Rules, at par with central government employees, which is Rs. 20 lakh.  Before implementation of the 7th Central Pay Commission, the ceiling was Rs.10 lakh.

Revised Rules for Gratuity Taxation as per Section 10(10) of Income Tax Act 

Gratuity paid to Government sector employees is exempt from Tax.

Impact of Tax Benefit

Employees covered under the Payment of Gratuity Act, 1972.

Mr. Ashish has worked for his organisation for more than 20 years now. He has received Rs. 16 lakhs as a gratuity payment.  His last drawn basic salary was Rs. 1.25 lakhs. How much of gratuity should be exempted?

As per the act, least of the following with be exempted.

  1. Rs. 10,00,000
  2. Actual Gratuity Received – Rs. 16,00,000
  3. Last drawn salary*15/26*Number of years of service – (1,25,000 x 15/26 x 20) = Rs. 14,42,308/-

Hence, Rs. 10 lakhs will be subject to exemption and Mr. Ashish would have to pay his tax on balance Rs. 6 lakhs.

As per the new rules proposed in Payment of Gratuity (Amendment) Bill, 2017, least of the following will be exempted.

  1. Rs. 20,00,000
  2. Actual Gratuity Received – Rs. 16,00,000
  3. Last drawn salary*15/26*Number of years of service – (1,25,000 x 15/26 x 20) = Rs. 14,42,308/-

As per the new amendment, Rs. 14,42,308/- lower of the above three will be subject to exemption. Taxable amount deducted from actual gratuity received Rs. 16 lakhs would be Rs. 1,57,692.

For employees not covered by the Payment of Gratuity Act, 1972.

Taking cue from the similar example, let’s calculate if Mr. Ashish’s organisation is not covered under the Act, least of the following will be exempted.

  1. Rs. 10,00,000
  2. Actual Gratuity Received – Rs. 16,00,000
  3. Average Salary * (1/2*Number of years of service) – Rs. 12,50,00/-

Hence, Rs. 10 lakhs will be subject to exemption and Mr. Ashish would have to pay his tax on balance Rs. 6 lakhs.

As per the new rules proposed in Payment of Gratuity (Amendment) Bill, 2017, least of the following will be exempted.

  1. Rs. 20,00,000
  2. Actual Gratuity Received – Rs. 16,00,000
  3. Average Salary * (1/2*Number of years of service) – Rs. 12,50,00/-

As per the new amendment, Rs. 12.5 lakhs will be exempt from tax. Taxable amount will be (Rs. 16 lakhs less Rs. 12.5 lakhs) = Rs. 3.5 lakhs.

– Jinay Savla

Thursday Trivia ~ A Review on different Mobile Budgeting Apps

‘How does change happen?’ asked a curious student. Teacher smiled and replied, ‘Two ways. Slowly at first then Suddenly!’

In last week’s Thursday Trivia, we presented a wave of change in recording household and personal budgets. An activity, which we have been used to traditional single entry book keeping method. Over the years, double entry book keeping system has gone through remarkable technological innovation. There are very good softwares for such a system of book keeping. Because of it’s extensive commercial use, it was disrupted before our traditional single entry book keeping budgeting method for households.

Post demonetisation, a wave of being cashless has erupted in India. Going cashless has it’s own economic benefits. But we all know, how difficult it then becomes to keep a record of our expenses. This was the major concern of most people post demonetisation.

Last week, few of our readers asked us to recommend a good mobile budgeting app. Since, we do not engage in recommending one particular app, we decided to ourselves use a few apps and write about it’s advantages as well as disadvantages. However, let’s not look at each one individually but let’s look at what we require our mobile app to do and work it forward from there.

Linking multiple Bank Accounts

A question that was raised by one of our reader was does these apps link our bank accounts? Is it safe? Won’t cyber security hack into it? Isn’t the whole system subject to a great danger?

Bank account numbers are not linked through online banking. Suppose, you swipe a card for a dinner at your favourite restaurant. A message will come on your phone, which mentions the amount debited, account number, date, time and in brackets even your current balance in the account is mentioned. Apps such as ET Money, Walnut, Money View request your permission and collect the information for the same.

However, it was disappointing to see apps such as Qykly, vMoneyTracker and Coin Keeper which are highly rates did not perform this basic function and requires the user to input these details manually. This not only creates a disinterest to use the app but defeats the whole purpose of providing ease to the user.

Statement of Expenses

In Apps such as ET Money, Walnut and Money View the bank accounts are linked, so every time the user swipes his card, these apps appear on your screen and ask you to allocate various heads under which that expense should be put. It’s an easy 5 second job for the user.

However, cash expenses has to be put in manually under different heads. At first it might take some time, but after a while it just becomes a matter of seconds to record the same. Cultivating that habit would be very important. In simply 3 clicks, a cash transaction can be recorded. If this is not ease, then what else is?

In apps that do not link your bank account, an entry has to be manually fed into. This just gets boring after a while and chances of expenses getting unrecorded are high.

User interface to view expenses is much better in Walnut and Money View than most other Apps. Since, every app gives a gamified view of expenses, Money View is found to be very clean while Walnut is just one step behind it. Rest others have a lot of information on those pages which might not be of relevance such as ‘Share’ function in ET Money on platforms such as Facebook, WhatsApp and Twitter. It doesn’t make sense as to why a person would disclose their monthly expenses on social media platforms. WhatsApp still kind of makes sense as to share it the statement as a report format, but then a simple screenshot is available on the phone to do it.

Hence, the common sense behind building such an interface is also compromised.

Set Budget and Reminder of Bills due

This is a plain vanilla function which is available in every App. All you have to do is just set your budget amount. However, budget cycle remains the same ie. starting from first of the month to ending on last date of the month. A reminder of bills along with their due dates is no more a requirement. Utility companies such as, electricity, telephone send their customers reminder messages well in advance. This setting is useful when there is a payment gateway through the app which automatically makes the payment. However, as of now the function is not available while your mobile wallets perform this function.

Again going back to the first point, if your bank accounts are linked then this function will make sense to you. Otherwise, manually feeding every expense will not serve the purpose.

Option to Invest

Only ET Money App allows to make investments while the rest of the apps don’t have this function. At the first mention, this seems like a tempting function. However, ‘investments are subject to market risks!’ speaks our mind. While budgeting for monthly expense, having an option to make investments sounds like a good deal. But having too many things in one app takes the flavour away.

The App allows making temporary investment in liquid funds, gold funds to selecting a mutual fund and starting a systematic investment plan with the same. The question is would you trust your money being invested by an App or by a human being who assures to take care of your hard earned wealth? It depends from person to person, however exploring the app would not be a bad idea.

User Interface on Spending Summary

ET NOW                                     MONEY VIEW

Summary

To summarise, Walnut and Mone y View stands out distinctly with a cleaner user interface that makes it easy to record a transaction. However, Walnut is not available for iOS users till now. In the start, it may prove to be a trouble to watch our expenses being recorded on a mobile phone but in time it sort of becomes a habit.

User interface and experience in these apps will improve over time as this vertical has not been explored for personal finance as yet. Once enough people start using it, these Apss will look a lot different from what they are now.

– Jinay Savla

Disclaimer :

Currently, we have limited our review to only ‘free’ versions of these Apps. There maybe a case where “Premium’ version which provides a different experience. Incase, you have in past or are currently using a budgeting App, then please do share your experience in the comment section below.

Also, if you have a specific query on any function of the App which we have not covered here, then please feel free to write it below. We will be more than happy to help.