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Thursday Trivia ~ FD to MF (Wait and Read this first)

As we often see, that dreams do come true. Samar after years of hard work in engineering found a job with a multinational company. As the date of his first salary came near, Samar’s father sat down with him to offer some financial advice. His father had worked his entire life in a small private company, raised two children and in next 5 years his retirement was due. His golden words of advice were, ‘start investing your money into fixed deposits.’ Samar was thinking more in line with mutual funds. Words around the office were mutual funds provide higher returns than fixed deposits, they are tax efficient, plus can be withdrawn anytime if the relevant lock in period is over. Samar argued that his father is very conservative while he is more aggressive to take risks.

If sports can be used as a metaphor out here, then Samar’s father had grown up watching Sunil Gavaskar who batted slowly but surely. While, Samar had grown up watching Sachin Tendulkar who batted with more flamboyance and risk. Both have been legends in their time. In a way, even fixed deposits were a great option in a certain period of time and mutual funds also makes a lot of sense in a certain period of time.

During the argument, Samar noticed that his father has parked a substantial amount of his life’s earnings into fixed deposits. When a student of engineering background sees some numbers, he is quick to calculate. He could see, how much investment returns on a compounded basis his father lost by simply putting in fixed deposits. So now, there was a whole new argument to move that money into mutual fund as well. However, is the argument really valid?

First things first, most people think that mutual funds only invest in shares of companies. That’s why they are tremendously risky. It’s common to see that there are other forms of mutual funds too, like debt, gold and even real estate now. Hence, it becomes very important to know when money is being shifted from fixed deposits, it’s not necessary to have an exposure into equity. Other options are available too.

Asset allocation becomes the primary need. For that, goals need to be properly defined. If money is being saved and invested, it is working for you. There should be a pay off. If money is being invested without a future use then it will lose it’s value. Something like Public Provident Funds (PPF). Around 3/4ths of PPF are withdrawn not by the people who invested, but by their nominees after their death. Reason – Since money in PPF was invested just to save tax. Hence, putting a goal becomes the most important aspect before investing that money. If the goal is far into the future, then Samar’s argument of having a higher exposure to equity sounds valid. However, if the goal is in near term, say around 2-3 years then money can be kept into fixed deposits or some debt based mutual funds which will ensure stability until utilised.

While Samar was convincing his father of withdrawing money from fixed deposit, he said ‘interest rates are going down! That’s an enough reason.’ Off lately, we are being a party to such comments

from so called market experts. They often add an explanation which sounds music to a growth hungry country, ‘India is growing under the leadership of it’s current Prime Minister, interest rates are going down and investing in businesses is better than keeping that money in banks.’

Most of the times, people often end up trying to rationalise it, like whether it is right or wrong. Instead, focus should be to personalise, whether it makes sense for my money or not.

While looking at asset allocation, fixed deposits form a part of ‘Debt’ bracket. Since, they have received a cult like phenomena, often investors overlook debt based mutual funds. Since, mutual funds are always seen with risk plus growth, fixed deposits have always stole the limelight when the very first thought strikes to save money. Below mentioned are a few characteristics as to how Debt Mutual Funds can be considered as an alternative to fixed deposits.

Debt based Mutual Funds

  • Higher Returns: On average, debt mutual funds may have a potential to provide better return than fixed deposits.
  • Tax Efficient : Comparatively Debt Mutual Funds are tax efficient. They are not completely tax free but if sold after 3 years of investment they are subjected to taxation of long term capital gains. Indexation benefits are available in this scenario which are lined to inflation. Hence, the tax will be subjected to gains minus inflation resulting in lesser tax. If Sold within 3 years the gains are added to existing income and taxed at the marginal rate
  • No Tax Deducted at Source (TDS) : In case of fixed deposits, TDS is deducted on yearly basis whether interest is paid or accrued. This is not applicable in terms of debt mutual funds.
  • No Lock in period : In mutual funds, there is no lock in period as such. Exit loads apply on some schemes while some are even available without exit loads. However, in fixed deposits there is a definite lock in period which is to be engaged in while creating one.
  • Partial Withdrawal : In debt mutual funds, an investor can redeem units partially and use that money. While in the case of fixed deposits, an investor needs to redeem it fully. Partial withdrawal is not available.
  • Tax Outflow : When an investor chooses to have cumulative interest on fixed deposits, he still needs to pay tax on interest accrued. It looks like a better option in the long run but tax has to be paid for interest money which is not received currently. This puts additional tax burden and doesn’t make it an efficient investment decision. No such problems arise in case of debt mutual funds.

Money invested in just one asset class, increases the risk of concentration (such a risk emerges when few investment instruments are used). Hence, a diversified asset allocation should be adopted based on the goals and risk profile of an investor.

Equity as an asset class, in it’s unique ways provides for participation in the long term success of a business. When businesses boom, jobs are created and country as a whole flourishes. It helps beat inflation too. The most respected investor in the world, Mr. Warren Buffet quotes participating in equity as ‘If a business does well, stock (shares) eventually follows.’

Coming back to our argument of “because interest rates are going down’, doesn’t make it a valid argument to invest into mutual funds. As a thumb rule, asset allocation must be taken into consideration along with goals and risk profile of an investor. Hence, an investor needs to sit with his advisor and clearly chalk out the end use of that investment. Accordingly, money should be allocated among different asset classes. At the end of the day, when money is working hard for us then we should also give it a great proper direction.

To sum it all up, personalise your investment and look into what works for you and what doesn’t. Once that is achieved, rationalising investment will give better fruits. The reverse way will yield sour grapes. Just think about it, if that fox had personalised his decision of grapes then he wouldn’t have gone for something which is beyond his jump. It’s just that fox tried to rationalise it thinking grapes would quench his hunger, he remained hungry and in the end said grapes are sour. Well, context of story is not really intended to those who had a sour experience in the capital markets. Just thinking.

Image courtesy :

– Jinay Savla

Thursday Trivia ~ Stop Procrastinating on Tax and Investment Planning

I can’t change the direction of the wind, but I can adjust my sails to always reach my destination. ~ Jimmy Dean

Tax planning since ages has been left to year end. It’s not an easy feeling to share part of earnings with government. Tax slabs start to get bigger and exemptions from tax start to feel smaller with an increase in salary income. Salaried class have always felt a certain sense of disadvantage to the system. Is it really a disadvantage or just lack of planning? Both sides of the coin can be intensely argued upon depending on the side one chooses to be.

There definitely is a psychological disadvantage to the salaried class, since they have always felt business class gets major tax benefits.

  • Ability to declare whatever income they want to (it’s the most important one),
  • Charge extra business expenses,
  • Use cash and not cheque (situation has changed since demagnetisation),
  • Family vacations can be shown as business tours and charged as business expense,
  • Depreciation on a car (when taken for business), and many more.

On the contrary, business class feels that salaried class is always at a certain advantage then them. Such as,

  • Predictable cash flow,
  • Planned vacations with friends and family,
  • Tax already deducted at source from salary, so no need to worry at the year end,
  • No stress of business market fluctuations, and many more.

In their own ways, both these classes are correct at their standpoint. In this trivia, we are addressing tax planning for salaried individuals. Since the very habit of leaving tax planning and investment planning to the very end has entered everyone’s bones, it makes far more sense to change this habit and start to plan from the very start. As the famous saying goes, precaution is always better than cure.

The salary structure may differ in various organisations. Various allowances and perquisites are offered depending on the sector and location of the organisation. Therefore, at the start of the year, take these following steps to ensure proper tax and investment planning.

Step 1 : Compute your in-hand income for the year

Usually, incase of salaried employees, tax computation is done by the company itself. Accordingly, tax is deducted at source (TDS) while crediting the salary into employee’s account. However, there maybe occasions where employee has different source of income other than salary. For example, if a person has rent income from a residential or commercial property, or interest received on fixed deposits, etc. In such cases, employees can either disclose this information to the company and accordingly the company deducted TDS from salary and credits the tax with government. Or employee independently takes care of tax on other part of his income.

In both cases, tax must be computed on the total income, not just salary income. This step will ensure cash flow for the year.

Step 2 : Eligibility for Tax Deduction

Tax deduction helps in reducing taxable income (computed from above). Inadvertently, it decreases overall tax liability and helps save tax. Depending on the nature of tax deduction, it’s amount varies. It can either be claimed from the amount spent in tuition fees, medical expenses and charitable contributions. Or it can also be claimed by investing in various schemes such as life insurance plans, retirement savings scheme and national savings schemes, etc. to get tax deductions.

The most useful tax deductions which can be easily claimed are :

  1. For investment specified under Section 80C

A total tax deduction of Rs. 1.5 lakh per year can be obtained under this section. The amount being a combination of deductions available under section 80C, 80CCC and 80CCD (mentioned in point 2 below)

Some examples of the specified investments are :

  • Personal Provident Fund Account
  • Tax Saving Mutual Fund
  • Tax Saving Fixed Deposit
  • National Savings Certificate
  • Repayment of Principal on Housing Loan
  • Premium on Life Insurance Policy
  • Equity oriented Mutual Funds
  • Contribution to Employee Provident Fund
  1. For contribution to Pension Funds under Section 80CCC and 80CCD

80CCC – Deduction for contribution to Pension Funds (PF)

80CCD – Deduction for contribution to National Pension Scheme (NPS)

Financial year 2-15-16 onwards, an additional deduction of Rs. 50,000/- is allowed for investment in NPS Account. This additional deduction of Rs. 50,000 is over and above the deduction allowed to be claimed under Section 80C and Section 80CCC.

To sum it up, the cumulative total of these should not exceed Rs. 2,00,000.

  1. For Interest on Savings account under Section 80TTA

This section permits deductions to the tune of Rs 10,000 every year on the interest earned on money invested in bank savings accounts in the country. Such Interest Income is first added under head “Income from Other Sources” and then deduction from such income is allowed.

  1. For interest on home loan under section 24

If there is a statutory commitment of a home loan, the amount of tax deduction allowed is on the interest component of the loan. It should be noted that this deduction under Section 24 is for the Interest levied and not for the interest paid.

Please note that : the principal amount of Home Loan repaid is allowed as a deduction under Section 80C and the Interest levied is allowed as a deduction under Section 24.

  1. For payment of medical insurance premium and health check up under section 80D

Any payment made for medical insurance premium for self, spouse and dependent children, a deduction of Rs. 15,000 can be claimed under section 80D. In case, the payment is made by a senior citizen or anyone with dependent parents who are senior citizens, additional Rs. 20,000 can be claimed as deduction under this section.

To sum it up, following are three scenarios :

  1. For interest on education loan under section 80E

This deduction is only for the repayment of interest on education loan and not for the repayment of the principal amount of the education loan. The good part about this income tax deduction is that there is no maximum limit on the amount of deduction that can be claimed.

This Deduction is not only allowed for Education in India but also allowed for Education outside India as well.

  1. For rent under section 80 GG

If house rent is paid and a deduction from the same is not claimed under any other section, then it can be claimed under section 80GG. Incase, if an employee doesn’t receive house rent allowance (HRA) benefits under section 10(13A), then he/she is allowed for a deduction under this section.

Te Deduction allowed under Section 80GG for payment of rent shall be the least of the following:-

  • Rs. 5,000 per month
  • Rent paid (minus) 10% of the total income
  • 25% of the total income for the year.

Step 3 : Is there space still left for exhausting the tax deduction limit under section 80C

Often times, tax saving investments are done at the end of the year. Only to fulfil some pre-conditioned prophecy. It is common for salaried employees, at such times to go on tax saving hunt. Hence, there is not much thought inclined towards where that money should go. Most of the times, investments are done either in personal provident fund or some hot mutual fund amongst peer pressure. As a few years go by, there is an angst towards that investment incase it has not performed according to expectations or something else performed better.

Hence, it is advisable to fill any gap upto Rs. 1.5 lakhs at the beginning of the year. With a calmer mind, it becomes easy to identify different space of investments.

Step 4 : Investment Planning

After doing the above calculations, the next step is an obvious one ie. Investment Planning. Just deduct all the expected expenses for the year and the amount which remains can be comfortably allocated towards making long term investments.

When each day, we work for money, in the long run it’s also important to have money work for us. Hence, planning for investments become a very important activity. Investing into mutual funds, shares of a company, corporate or government bonds, etc. ensures long term growth of money. However, treating these as mere short term game plan to make quick money can also backfire. To enjoy the long term benefits, it’s important to marry your investments and only utilise them when no other source is available. It will ensure, safety and long term wealth creation.

It’s a good idea to retire rich, isn’t it?

–  Jinay Savla

Thursday Trivia ~ But this time, they’re different!

Recently, Equity Markets are going up by the day. Sensex and Nifty, premier indexes of Indian stock market are showing no signs of slowing down. During such bullish times, new investors are always born. However, like always, ‘But this time, they’re different’ applies perfectly well. Not only euphoric investors are born who feel equity markets will never go down even if it corrects slightly, but also a new breed of cautious investors are born. Let’s call them, ‘cyclically cynical investors’. This new breed, believes in everything that they listen and read. They are well informed about market / company data and market cycles.

Cyclically cynical investors are looking into a possible great crash. They have all the reasons which are no better than views available on internet or television. Just that some words are different, new jargons are used and conviction seems to have reached it’s peak. Have a look at this logic, “after a tech bubble and bust in 2000, 2008 saw a global meltdown. Hence, going by the same logic, 2016 was anticipated for a crash, however, there maybe a delay of 1-2 years.” Does it not generate an immense conviction when someone talks like this?

Talking about macro economics is a new way of showing an authority. These cyclically cynical investors are the founders of endless debates and detailed conversations that take place over a cup of coffee or dinner. However, there is no reason provided which can be converted into action with a sense of conviction. In the end, for them it’s about trying to clone the big investors and getting rich quick. Because let’s face it, when such investors don’t understand what they are doing, then whatever the big fishes say on media is the gospel of truth. It’s no surprise that often times, such investors put the blame of market performance right from Prime Minister of India to the Governor of Reserve Bank of India. Since, normal investors are highly prone to confirmation bias, such information with reasons outside their control sound like music to their ears. Confirmation bias  is the tendency to search for, interpret, recall information in a way that confirms a person’s pre existing beliefs. Hence, when the general belief is that government is at fault for stock markets, then it’s easy to fall into confirmation bias due to cyclically cynical investors.

Coming to macro economics, let’s face the truth, it is intense. Which means, it is not as easy as it sounds. There are tonnes of devils hidden inside details of macro economic data. Macro economics as a thumb rule, can always be argued on both sides of the coin.

Let’s take a small example, if markets are in a bullish phase, for reasons attributed to macro factors such as foreign investors then a parallel set of arguments can be drawn. First reason can be, markets will continue to go up as foreign investors will pump in more money or domestic investors have pumped in household money through different instruments of investments. Second reason can be (contrarian view), markets will crash because foreign investors want to take their profits home or domestic investors seems to have lost faith in our country hence pulling their money out. This argument can be coupled with many new sets of argument too. For example, problems in their home country of foreign investors, currency risk, anticipated world war, etc. Such confirmatory claims are usually based on limited amount of information obtained. Truth is, most cynically cynical investors don’t travel to such countries, so for them it’s impossible to exactly know the nature of problem. They receive such data and reasoning which is fed by their friends. brokers or media whether on online, offline or television. Yet, it’s appears to be a form of convincing mechanism since it sounds being intelligent to talk about problems in someone else’s house. These days, it’s known as being ‘well informed’.

Let’s spot these cyclically cynical investors around us. When they come in contact with you, these are few points which they will speak to you about.

  1. There are no fundamentals in the stock market, so no point studying balance sheets of the company.
  2. Rakesh Jhunjhunwala, Motilal Oswal, etc. entered the market at the right time. If they enter now, then even they won’t be able to make so much money.
  3. Intra-day trading is far better than taking delivery of shares. 2-3% can be made doing such trades a day.
  4. Concept of money management should be left to big investors, we don’t have enough money to buy a new Mercedes also.
  5. Mutual funds are subject to market risks, it’s better to invest directly into equity.
  6. Liquid funds, debt funds don’t generate any money, buy shares that will double your money quickly.
  7. Union Budget will set the trend of the markets.
  8. Governor of Reserve Bank of India doesn’t understand his job fully, look how his policies are hampering the stock markets.

The list can go on and on. For a novice investor, these reasons prove to be a confirmation of whatever little he has known about investing his hard earned money into stock markets. The truth of the matter is, stock markets provide a jazzy feeling to people. It is seen as machine which will churn out immense cash immediately. That’s why we see, novice investors rushing to buy into the market when it’s all time high and with a little crash they are the first ones to pull their money out. Resulting in massive disappointment while some of them swearing never to return.

As the title ‘But this time, they are different’ suggests that previously we saw a certain type of investors who wanted to make some quick money as some of their friends, relatives or some brokers had suggested. Stock markets were in an extremely bullish phase, nobody thought anything can go wrong from here, there were no contra opinions so on and so forth. But this time, it’s not the same. Cyclically cynical investors have taken the army of data, news and so called information as their weapons to induce everyone into believing that it’s easy to make that quick money.

In the recent years with the advent of social media, news reaches our computers, laptops and mobile phones in an instant. We are always connected to the external world. As a result too much of enough information being poured. Time to take rational investment decisions is always under a constant threat. There is always an external factor which wavers the minds of novice investors. It’s like, just when an investor finally decides to buy a mutual fund, a news flashes on his mobile phone which shows last week’s returns of a particular share in a company that just doubled in a few days. In such a world of instant gratification, slowing down has become extremely difficult. While bombarding of jargons in any topic seems to have become a new social status. It’s better to keep away and invest slowly and safely.

Image courtesy :

–  Jinay Savla

Thursday Trivia ~ Grocery Market or Stock Market?

Grocery markets are one of the most interesting to visit. A random walk enables so much wisdom about buying at right price, money management, quality assessment, quantity and the most important thing – negotiation. In India, we always look at groceries with a sense of suspicion. In fact, knowledge of various grocery markets is prevalent in every household. Lady of the house exactly knows various prices of various vegetables across many markets. Most of the times, we simply overlook this basic trait. At times, we also feel why to waste so much effort and energy into it. Let’s just buy it from some branded store and get over the hard work. Since,  lady of our house has done grocery shopping for over 10,000 hours in her life, it seems like a cake walk to her. Which also brings a conclusion that practice is the best method for excellence.

But how does this matter to our investment in stock markets?

Let’s look at it this way, when we buy a share in a public company, it is usually recommended by somebody. A simple call to broker or punching an order online seems to be the best way. Then it’s about tracking the movement of that share and recommending it to someone else. Let’s be honest, sometimes simply bragging about it. It feels smart and intelligent to buy something that goes up in value. But the very research about the company, it’s price, understanding of how much money should be allocated to that investment is hardly ever carried out and the most important mistake is buying after the price has gone up. Unfortunately, it feels as a very time consuming process. So we don’t do it. But it’s kind of okay to rely on a friend’s advice because his uncle works in a company which is in the building of any stock exchange. Suddenly, the value is not in the share, it’s in the person recommending it. So do we even question him before buying it? 99% of the time, we don’t.

Let’s think about this with a little peace of mind. Isn’t this crazy?

Investors who have made money are the ones who never relied on outside tip. They did their research, understood how much price they should pay for, negotiated by waiting for a long time so that they can buy with comfort, assessed the quality of the company deeply and took only so much quantity which would give them a good night’s sleep. Whenever price went up, such investors became extremely suspicious and cautious. Rather than sitting at a coffee table and bragging about it. At high prices, such investors look out for exits. Since, they understand the pulse. They usually roam around different markets to understand what’s happening. These days, it happens over a computer but even that dedication is extremely important.

Isn’t this exactly what lady of our house will do?

Lady of our house who is incharge of grocery market goes through exactly the same process what an able investor would do. If potato prices have come down, they will quickly buy them and store it for a longer period. If they are expensive, they will try and look for alternative. If not, then they will buy only that quantity which will give them comfort. Since, they know difference in price of various grocery markets, they quickly calculate if there will be a rise in price or not. They don’t even need to know the rates prevalent at Agriculture Produce Market Committee (AMPC). It’s kind of too macro economics for them. How many times, people think about macro economic factors. Recent one which is trending is current President of America is bad for India’s Information Technology sector. But lady of the house won’t worry about that, she will allocate her monthly expenditure accordingly.

Consumption v/s Investments – That’s not a perfect match !!

It is easy to deviate from the topic of both markets and make an argument that grocery is used for consumption whereas shares are used for investments. Well, in the long run, with money made in shares, are eventually going to be used for something. It would be a foolish decision to keep our gains from investment forever in the shares of that company. Just that waiting period of grocery is shorter since it’s a perishable item while shares being a non-eatable item, tends to have a higher waiting period. As time and again we have seen, higher the waiting period, higher is the irrationality.

All that is fine. But what about that ‘branded store philosophy?’

D-Mart is the hot shot name of this year. Earlier it was Big Bazaar. It became so fascinating to see that so much was available at one place. There was no worry about quality, price or negotiation. It seemed as if one had simply outsourced everything to them and picked up whatever was available. Suddenly, grocery shopping became so easy. Everyone was moved by the venture of Mr. RK Damani and Mr. Kishore Biyani. Word of mouth publicity was about how much they care about their customers, their integrity, hard work and darkest days are still discussed at tea time in many places.

However, when it comes to investing, what comes to mind is ‘returns’. Often times, no background check of a tip seller, an investment advisor or that very same uncle who works in the building of a stock exchange is done. There is no question about their character, morality or integrity. Seems like, it’s kind of okay to compromise all that just to make some quick money. Just think about, what question would you ask your investment advisor to ascertain his abilities. For that, you may refer to our previous Trivia – The Oracle Question of Portfolio Management.

Doesn’t it sound a little irrational to take our hard earned money so lightly? Just to invest something for an instant gain rather than actually solving some future problem. If not, then let’s revisit the simple fundamental of stock markets which co-relates with grocery markets – buy when it’s cheap and not expensive. How to know whether it’s cheap or not? Just do some in-depth research or some hard work.

It will be a better option to sit down with lady of the house and learn these important tricks of buying better groceries oops investments.

– Jinay Savla

Thursday Trivia – Demonetization understanding the impact


Evening of November 8, 2016 marked another bold move by our Government and Reserve Bank of India (RBI).  While everyone were recovering from their long and tiring day, Prime Minister Narendra Modi gave a mild shock by simply removing currency notes of ₹ 500/- and ₹ 1000/- effective midnight.  It was a strike of armageddon because only 4 hours were left to exchange them for other currency notes.  Long queues were spotted majorly at ATM branches, jewellery shops and petrol pumps.  Why petrol pumps, since everyone wanted to simply spend any extra notes which they had.  Every social media page was filled with songs of praises of our Prime Minister.  It sounded as if he delivered a trio of Satyam Shivam Sundaram, by tackling the issue of black money, corruption and terrorism.  Once again, everyone was as happy as the day we woke up to find Indian army had committed surgical strikes. Also, for some time attention of elections held in United States of America was diverted to currency demonetisation.


This is not a one way street, Government will re-introduce the currencies of ₹ 500/- and ₹ 2,000/- in 2017. While ₹ 1,000/- rupee note will be kissed a good bye mostly forever.


Is it really the first time, RBI has attempted a currency demonetisation? Well certainly not. There were 2 times when a similar action was taken.


  1. In January 1946, currency notes of ₹ 1,000/- and ₹ 10,000/- were withdrawn under the leadership of British India.
  2. Second time, it was under the leadership of then Prime Minister Morarji Desai, currency notes of ₹ 1,000/-, ₹ 5,000/- and ₹ 10,000/- were withdrawn on January 16, 1978.


One may argue, that such an exercise has already been done twice in history and still India had a massive parallel economy of black money.  How is this one so different?  Will this also be a failed attempt or third time is a charm? Only time can give that answer, right now we can just try and rationalise the impact of this decision.


In the previous 2 attempts, usually the unaccounted wealth was considered to be had with super rich. They would not really keep such money with them and spend it or stash it away in their foreign bank accounts.  This time, the unaccounted wealth can be freely measured everywhere as most people do not pay proper taxes pinching a whole into those who pay them. Especially the salaried class, has the most impact because their taxes are deducted even before the cash is deposited in their banks. With prices going up of bare minimum necessities, they feel the burn.


For now, let’s consider the impact of this decision :


  1. Corruption and Black Money : The impact on black money usage maybe little because those who deal in it will eventually move to ₹ 2,000/- currency notes. A lot of unaccounted money also lies in real estate, gold and other physical commodities. But a fear of government tracking it such unaccounted wealth is far more important as income tax department will easily track these deals once the payments are through.
  2. Counterfeiting : The impact on counterfeit notes will be massive. As dealers with existing counterfeit notes would be stuck.  They will not be able to take it bank and change it, so they will have to eventually burn their money incurring huge losses. Terrorism which is funded through such notes will have a huge impact as they will have to build a new technology that would print new currency notes.
  3. Cashless Society : In the long run, this move will prove a very significant ground for going cashless. I am sure, many people who are already living on a cashless life and transacting their money through internet were the happiest. This will ensure complete accountability in the system and we will get our hard earned money’s worth.
  4. Inflation : When there is a lot of unaccounted wealth in an economy, there is a price rise because people who hoard such money can pay for their luxuries and in turn raising the price of necessities. This creates a massive impact on those who account their wealth and pay taxes on time. Prices continue to rise of mere necessities as everyone wants their homes to run. When such unaccounted wealth is brought into the system, government can spend enough money to cool down the prices. This in turn will reduce inflation too.
  5. Banking for all : Under Jan Dhan Yojana, a lot of new bank accounts were opened. Now, these new accounts would be used to deposit old notes and banks will issue them fresh notes with the same. This means, Indians will start taking their steps towards understanding the banking system. It will eventually help the Government in framing better structures for the whole country.
  6. Inconvenience : As the window of opportunity to convert existing ₹ 500/- and ₹1,000/- rupee notes to ₹ Rs. 100/- and below was only 4 hours and banks were closed the following day. This caused a little inconvenience for those who had not anticipated such an unprecedented move. This caused a little shift in planning their expenses, but everyone knew that such a move is beneficial for them in future years.
  7. Increase in loans and advances to SME sector : One of the reasons why ex-RBI Governor Dr. Raghuram Rajan was not lowering interest rates was low deposits in banks and in exchange higher stressed loans. There was a wide criticism that because the interest rates were so high, businesses could not afford taking loans. This will change as we will see good amount of deposits which will provide a cushion for banks to give more loans. In turn, more Small and Medium Enterprises will get funding to expand their production capacities. Goods produced and sold in India will attract cheaper selling prices than goods produced outside India.


As more money will start to get accounted for, India will see it’s own form of deleveraging which other developed countries such as United States of America, Europe and China are struggling to do in last 5-6 years.


Let’s now simply look at our to-do list in the next few days to arrange our finances.

  • First of all, don’t panic and don’t worry.
  • There is a limit for exchanging your currency. Upto ₹ 2000/- per day (from 18th November) with a valid ID proof (Aadhar card, PAN card or Passport).
  • The above limit will be reviewed by RBI on a regular basis.
  • Withdrawals from ATM are limited to ₹ 2,500/- per day per card until further review.
  • Cash withdrawal from a bank account, over the counter is restricted to ₹ 24,000/- per week.
  • No-restriction on the use of non-cash method of operating the account such as cheques, demand drafts, credit / debit cards, mobile wallets and electronic fund transfer mechanism.
  • To avoid any inconvenience in emergency situations till November 24, 2016, old currency notes are accepted at :
    Government Hospitals and Pharmacies in the Hospitals
    Railway Ticketing counters
    Ticketing counters of Public Sector undertaking buses
    Milk booths
    Cremation / burial grounds
    Petrol / Diesel / Gas stations
    Airport ticketing counters and Forex counters upto a limit


There are enough options available for exchanging old currencies.  So it would be better not to worry and just work with our Government to help them bring this change.  It has been generally seen that, most people over-estimate the impact of change in the short run and under-estimate the impact in the long run.  So let’s not entertain endless discussions on this subject because it will not solve any purpose.


Image courtesy : PMO India