Invest Lesser For The Same Tax Benefit

Every year we reluctantly invest a part of our income in some or the other saving instruments only to save tax. Everyone wants a high return with high liquidity at the least possible risk. But most of the tax saving instruments are  illiquid and tend to give lesser return than the market

The instruments eligible for tax saving are -

1. Premium for Life Insurance or ULIP

2. Provident Fund (PF) contribution

3. Public Provident Fund (PPF) - only up to Rs. 70,000 in a year

4. Repayment of home loan principal

5. Equity Linked Savings Schemes (ELSS) of Mutual Fund Companies

6. Infrastructure Bonds

7. National Savings Certificates (NSC)

8. Tax Saving Fixed Deposits with Banks

9. Tuition Fees of children

Most of the above do not have liquidity and have a minimum lock in period of 3 years. Amongst all the schemes, ELSS enjoys a comparative advantage. Most of the ELSS schemes have two plans - growth and dividend. In growth there is no payment in between and the entire sum is  available only after the end of the lock in period which is generally 3 years. On the other hand in dividend plan, dividends are paid even during the lock in period. Investors can use this to get tax benefits for more amount by investing lesser amount. 

Lets take an example. Suppose there is a ELSS in the market  with NAV of Rs. 125 and is expected to payout a dividend of 20%, next month. So by investing Rs. 1 lac in this ELSS you get 800 units. When the company pays out dividend next  month you get back 800 x 20 = 16,000. So your actual investment is only 84,000(100,000 - 16,000) and you get tax benefits of 1 lac as per Section 80 C.

For investing minimum one needs to keep a track of the performance of the fund and get information on the timing and the amount of the next dividend. Based on these information one can take a sound decision as to when and where to invest to get back the maximum part of invested amount as dividends.

Oh De Nobili hats off to thee

  Denobili- My Alma mater (1992 - 2003)

This post is dedicated to all the nobilians all around the world.  I have been a dpsite, a bitian but being a nobilian is something which really makes me feel proud. Here is the school anthem of Denobili which I have sung innumerable times for 11 years. Every nobilian would remember this anthem.

Oh De Nobili hats off to thee;
To your colours true we shall ever be;
firm and strong united are we;
Rah, rah, rah. For DNS;
Rah, rah, rah, rah;
Rah, for De Nobili;
Hail, to the victors valiant,
Hail, to the conquering heroes,
Hail, Hail, De Nobili,
the leaders and the best;
Hail to the victors valiant,
Hail to the conquering heroes
Hail, Hail, De Nobili,
the champions and the best.

The feeling of nostalgia is creeping in and I find myself singing this song one more time at midnight , 7 years later in a room in Bangalore. Let me try to recall the names of all the class teachers from kg. I am sure all the 2003 ICSE  -Sec B pass outs will love it.

Kg B - Miss Mendonca
1   B - Mrs R. Thambe
2   B - Mrs M. Sen
3   B - Mrs M. Matthews
4   B - Mrs  Mousmi Mukherjee
5   B - Mr Ranjan Kumar
6   B - Mr Chandan Mukherjee ( My favourite)
7   B - Mr Mani
8   B - Mrs Jaineth
9   B - Mr Chandan Sarkar
10 B - Mr Chandan Sarkar

Amongst all the teachers, I will always remember Mr Chandan Mukherjee. He taught us maths and chemistry. He is a real genius. He was always there to guide and motivate me. I remember him giving me maths questions. I loved solving the questions given my him. Being the first one to solve questions given by him gave me a sense on achievement. I last met him in May of 2009 before living for Bangalore. Thank you sir for everything. You were the first one who taught me to compete. I never took anything seriously till class 6. I never studied, never took part in extra curricular activities.That one year in class 6 when he was our class teacher, changed my entire outlook. It all began with competing to solve the questions given by him and after that I have always tried to compete, success or failure being a different case. That one year changed me completely and suddenly I was amongst the toppers of the class. I was being appreciated for the first time. After that I have always wanted being appreciated.

My junior school life was all about cricket. Of my junior school I remember of only playing cricket and fighting. I remember the sand pit, the monkey ladder, the huge slope etc. I profoundly remember one of my fights with Yash, the dude. I don't remember the class,  it was either1 or 2. We were having a fight on the sand pit. A senior had come to resolve our fight. We both complained to him that the other one was the culprit. He made us fight again. He saw me overpower him and concluded that I was the culprit. I don't remember what punishment did he give. I did not like him then. I don't know why I remember the incident and now when I  think of it I  tend like that senior, that he applied so simple a logic to resolve the fight. I am not sure if Yash remembers that. :)

For now I will stop here.

To all the alumni in Banglore, join the Bangalore alumni chapter of Denobili. Here is the link
Bangalore Alumni Chapter 

 
These are few of the links related to Denobili -
School Website
Monkey Ladder - The online playground for nobilians

Denobili On FB

- Manish

Game Theory

Sometime back when I was reading a book on economics, I came across the term "Game Theory". This term has always fascinated me and always reminds me of the movie 'The Beautiful Mind'. I have always wanted to know what this theory  is but never had the patience to go into the depth.

This theory was first put forward by Cournet in 1837. After that many others have put it forward, most important ones being Von Neumann and John Nash. It is a branch of applied mathematics which is used to examine strategic behaviour of a human being, in which his decision to make a choice depends on what the other one chooses.

In any game all the players try to maximise their gain by choosing a particular course of action, and each players gain depends on what course of action other players have taken. In any game one person's gain leads to other person's loss and it is assumed that each player is rational enough to calculate all the moves of the opponent. Under this situation, all the players stick to a particular strategy and this profile of strategies is said to be in equilibrium. The profile of strategies is said to be in equilibrium when no player can gain more by switching to some other strategy unilaterally.

Prisoner's Dilemma example
Two suspects in a crime are put into separate cells. If they both confess, each will be sentenced to three years. If only one of them confesses, he will be set free and used as a witness against the other, who will receive a sentence of ten years. If neither confesses, they will both convicted and will have to spend just a year in prison. Now, each prisoner has two options, either to betray the other one by confessing, or remain silent. Neither of them, however, knows for sure what the other one would do. In this case both will want to take the best decision but their decision depends on what the other one does.

The solution for both of them is to take the best course of action, given the action taken by the other one. So both the prisoners decide to confess. If first prisoner remains silent, best option for the second one is to confess and go free. If first one confesses, best option for the second one is to confess and get three years of imprisonment instead of ten. Same is the case for the first prisoner. So they both confess.

A example from Economics
This game theory has wide spread application in economics. One such example is its application in a Oligopolistic market. In a oligopoly there are small number of sellers and there is interdependence among the competitor. In this decision made by one firm affects the demand, price and profit of other firms. Auto industry is one such example. In any market the price of a good is inversely proportional to the quantity supplied. So in a oligopoly the firms can decide amongst themselves to produce restricted amount of good to earn greater profit. By doing this the firms can create the situation of a monopoly market. Such a agreement is called a collusion in which firms decide not compete, particularly price competition. But such a situation is rarely seen because the producers are in a dilemma similar to the prisoners in the above example. They are not sure whether the other producers will stick to the clause or will cheat. If one of the producer cheats, it will increase his profit but will decrease the overall economic profit of the industry. So this will decrease the profit of the producer which honours the agreement. On the other hand if the other one honours the agreement, its better for the producer to cheat to maximise his profit. So in any case the producer is better off cheating. So in a oligopoly these agreements rarely last. So in oligopoly all the firms try to produce try to maximise their profit by producing to the point where price equals marginal cost. This results in price and output approaching that of a perfectly competitive market. So it is very difficult to create a monopoly in a oligopolistic market.

All About Inflation

We all have heard of the word inflation. Matter of fact is that these days we find this word all around us. Recently we had an all India bandh by the opposition parties to protest against inflation, mainly against the rising prices of the fuel. So what exactly is inflation?

What is it?
In simple terms inflation is the increase in the price of a commodities and services. Pani puri which we used to get 4 pieces for Re 1 few years back, now costs Rs 10 for 6 pieces. It is a phenomenon by which cost of goods and services go up as time passes. In polished language, inflation is the decrease in purchasing power of a monetary unit.

The term deflation is just the opposite of inflation. We call the phenomena of decrease in prices as time passes as deflation. Deflation is a situation rarely seen in growing economy. Every year we find the things getting dearer.

How is it Calculated?
Most country's central banks try to sustain an inflation rate of 2-3% which is the ideal scenario. Excessive inflation and deflation both are detrimental to a nation's economy. Forecasting inflation is very difficult and it is determined using various indices. The two main indices used for it are -

• Wholesale Price Index(WPI) - It is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India prices of around 500 commodities is tracked through WPI. India uses this WPI to calculate inflation.

• Consumer price index(CPI) - It a measure estimating the average price of consumer goods and services purchased by households. As this measures the prices paid by the consumer this index gives a more realistic idea of the inflation. Most of the developed countries today use this index to calculate inflation.
  

What leads to inflation?

• Demand is greater than Supply - When demand is more than supply, there are more people chasing the limited amount of product, so the person who is capable of paying more, gets the product by paying more. To control these, governments sometimes put caps on the prices of goods. This scenario might lead to black markets where goods are illegally sold at a price higher than the cap. Sometimes this situation is created by the suppliers in a monopoly so that they get more return for their goods. The inflation in prices of oil and fuel is one such example. The Middle East countries have been supplying the fuel in controlled amount so that the demand always exceeds supply which leads to inflation in prices of these every year.

• Unchecked growth of economy- This point is similar to the above one, but it happens when the economy is expanding at rapid pace. As economy expands, more money is circulated in the market. People need more money to buy more products. This leads to increase in selling by the producers which in turn leads to increase in wages which creates more money. As demand continues to increase, the producers tend to increase the prices, which eventually leads to inflation.

• Excessive supply of money - Sometimes economy gets very dull and people do not spend. In such situation the government tries to revive the economy by increasing the money supply. More money leads to decrease in its value, lowering its purchasing power.

How does it affect us?
Inflation has more of a macroeconomic effect. In the short run it tends to affect every individual but in the longer run it tends to even out with the increase in wages and profits. We need to keep this in mind when we plan for our future savings and retirement plans because it might happen that the same amount of money would hold no value then, say 25 years from now. In the longer run the effect is felt more at the higher level, on the entire economy. Due to inflation the purchasing power of a currency decreases which in turn leads to fall in its value in the international market.

How to curb it?
Its important for a economy to grow, and if there is growth inflation is bound to be there. So the ideal scenario that any economy would want is low levels of inflation. The most important tool used by most central banks is base interest rate. Supply of money plays an important role in determining overall inflation. Supply of money can be regulated by the base interest rate. If inflation is high, interest rates are increased which leads to less borrowing and more savings which results in lesser supply of money in the market which in turn keeps the prices in check. If the economy is dull and inflation rates are low, interest rates are decreased to stimulate the supply of money thus reviving the economy.

My first....

Today I was reading a mail from a friend which read "Dr. Abdul Kalam's letter to every Indian". In this mail he talks about the same old stuff which we have heard 100's of times, that why do we Indians keep on complaining about problems with India.

The article is beautifully written and it would spur up anyone who would read it, but as usual that is very short lived. In the article Dr. Kalam asks a question that "Why is Indian media so negative?". Why do we only read about death, sickness, terrorism, crime? When I reflect over it, I find it to be true.

How powerful is media? Media is the most powerful tool of communication. With power comes responsibility, so it has a constructive role to play for the society. It has the power to influence the lives of ordinary people in every way.. be it judiciary, be it political, be it criminal or be it simple citizens fighting for inflation. Today if I reflect over the things that are happening in the country, which of course I get it from the media, I only find negative things. No doubt media has played a vital role in fighting social issues like poverty, violence, corruption, bribery, suppression of human rights, discrimination, crime, killing in the name of honor, etc. But with so much negativity fed to us every morning, we find ourselves always criticizing everything around us.

The political scenario in the country seems to be worst. Every state in India seems to be fighting with some issue or the other. The unrest and curfew in Kashmir, the Telanaga issue in A.P. and the much hyped Jagmohan Reddy's yatra, rise in maoist terror in Chattisgarh, Bengal and Orrisa seem to be the biggest issues as of now. Every state seems to be plagued by something or the other.
The corrupt governments of Uttar Pradesh and Jharkhand have taken them to abysmal levels. Maharashtra is plagued with the Thackerys with their recent ultimatum to the FM channels that they should air marathi songs within a week.

Every morning we read about problems of our country. There is so much negativity all around that we see only problems. India is a great nation. We have so many success stories. There are millions of such achievements but we and the media seem only obsessed in the bad news and failures and disasters.

As mentioned in the article by Dr. Kalam, the very next day after the bombardment on Israel by the Hamas, the front page of a Israeli newspaper had the picture of a Jewish gentleman who in five years had transformed his desert into an orchid and a granary. That was a picture of hope. That was a picture that simply said "Life is beautiful".

The entire nation is served with so much negativity everyday that in every discussion we end up criticizing our country. We say we are proud to be Indians. Why? We have no answer. We Indians have a craving for anything that is imported. Its time that media stands up to take up the responsibility. Responsibility to give every Indian hope in times of darkness. Responsibility to make every child so proud of his nation so that every child grows up with a sense of service to our motherland. Its time that media and we as people realise and take up our responsibilities. The only thing that I feel unifies the entire country and makes us proud is Sachin Tendulkar. There are so many success stories, there are so many achievements. Media should talk about them so that every Indian, every morning when he holds the newspaper in his hand says "I am proud to be an Indian".