FACT

New TER slabs to be implemented from April 1, 2019: SEBI - Cafemutual.com The market regulator has given four months’ time to fund houses to comply with the new TER slabs.

NPS is now a EEE product like EPF, PPF. Similarity ends there. Why I am saying that, I will explain in a moment. But first what EEE means? EEE stands for exempt - exempt - exempt i.e. you can claim for tax exemption at the time of investment; there is no tax to be paid when gain is accrued; and at maturity also no tax is to be paid.

But 2 pain points are still there in NPS which do not make it comparable with EPF and PPF. (Though NPS is anyway can never be comparable with EPF, PPF in the sense that return in NPS is market linked, whereas in the other two, return is guaranteed.)

These pain points are:

(1) Investment in NPS is illiquid. You cannot withdraw money from NPS before your age of 60 (even if you still want to withdraw, then with 80% of fund you have to buy annuity and rest 20% you can withdraw).

(2) Even at age 60 when you withdraw from NPS, only 60% of it you can withdraw tax-free, with rest 40% you compulsorily have to buy annuity (annuity income is again taxable).

This illiquidity and non-flexibility in utilising fund at maturity makes NPS non-attractive and non-recommendable.

(The above is my personal view)

IDFC Multi Cap Fund Update.

IDFC Multicap Fund is currently running a good balance of Large, Mid and Small cap allocation in the fund.

It has kept it's allocation aggressive keeping in mind the lower valuations of Mid and Small Cap.

It also tries to add new allocation in mid and Small Cap category which is available at very cheap valuations.

The Fund will always have good allocation in Large, Mid and Small Cap and try to take advantage of all market capitalizations.

IDFC Multicap Fund is currently managed by Kartik Mehta who was earlier managing Canara Robecco Emerging Equity Fund.

Please write to us on [email protected] on whatsapp on +919869086272 should you be interested in Investing

Nice article by Dr. Raghuram Rajan, RBI Governer
Inflation, Interest Rate and Raghuram Rajan's Dosa Economics:-

Interest rates are always a source of conflict. Borrowers demand low rates. Fixed Depositors desire high rates.

In such a scenario, what should RBI do?

This was beautifully explained by the RBI Governor Dr.Raghuram Rajan with the example of Dosas.

The basic premise of Dr. Rajan's argument is quite simple - one should NOT look at the interest rates in isolation. This will give the wrong picture.

Instead, to assess whether we are better off with high interest rates or low rates, we have to consider the "inflation" factor.

Let us look at Dr. Rajan's example of Dosas to understand this link between interest rate, inflation and our well-being.

Situation on Day 1
Bank balance - Rs.1,00,000
Price of Dosa - Rs.50
No. of dosas you can buy - 2,000

Situation after 1 year
(a) Case 1 (Interest - 10%, Inflation - 10%)
Interest earned - Rs.10,000
New Price of Dosa - Rs.55
No. of dosas you can buy with interest income - 182

(b) Case 2 (Interest - 8%, Inflation - 5.50%)
Interest earned - Rs.8,000
New Price of Dosa - Rs.52.75
No. of dosas you can buy with interest income - 152

Most people look at this picture, and declare themselves as worse off with lower rates. Due to reduced interest income, they can buy less number of dosas. Hence, they always cry and crib for the higher interest rates on their fixed deposits.

This, however, is a mistake:

They fail to account for the impact of inflation on the principal amount.

Is inflation 'rapidly' squeezing the purchasing power of your money?

Situation after 1 year (with principal included)
(a) Case 1 (Interest - 10%, Inflation - 10%)
Interest earned - Rs.10,000
Total savings - Rs.1,10,000
New Price of Dosa - Rs.55
No. of dosas you can buy with interest income - 182
No. of dosas you can buy with principal - 1818
Total number of dosas you can buy - 2000

(b) Case 2 (Interest - 8%, Inflation - 5.50%)
Interest earned - Rs.8,000
Total savings - Rs.1,08,000
New Price of Dosa - Rs.52.75
No. of dosas you can buy with interest income - 152
No. of dosas you can buy with principal - 1896
Total number of dosas you can buy - 2048

Clearly, the interest rate on your fixed deposits - in absolute terms - is not relevant at all for your good financial health.

Instead, the positive difference between interest rate and inflation, is far more critical number to focus your attention on.

In Case 1, the difference between interest rate and inflation is NIL. Whereas, in Case 2 the interest income is 2.50% more than the inflation.

This is the real earning:

Since in Case 1, the real earning is nil, you can buy the same number of dosas after one year.

Whereas in Case 2, where the real earning is 2.50%, you can buy 48 "more" dosas after one year (despite earning lower interest).

Learn: Inflation Demystified

Therefore, fixed depositors should not be fixated on the interest rates alone. They should appreciate that the real value of their principal is depleting day-by-day due to inflation.

As you can see, because of this inflation, your principal of Rs.1 lakh can buy you only 1818 or 1896 dosas after one year, as compared to 2000 on Day 1.

This erosion in the value of your principal is a serious threat. Therefore, it should form an integral part of all your financial planning. This would enable you to live comfortably, without significantly downgrading your standard of living.

Beware : Blind Faith In Fixed Deposits Is Destroying Wealth

In fact, I often get mails from my readers that they want to quickly become a crorepati, so that they can retire and live happily ever after.

And I send them a detailed calculation, as to how they would become beggars within 10-15 years. This seemingly huge amount of Rs.1 crore would surely and steadily shrink to ZERO.

Hence, it is imperative that you must consider the (negative) impact of inflation, in your retirement corpus calculations. If not, you will be in for some serious financial trouble, in the later years of your life.

This is precisely why the central banks world over target a moderate inflation. Since inflation hurts the aam aadmi the most, RBI too focuses all it efforts and endeavours on keeping the inflation low.

Solution: How To Earn Tax-Free Risk-Free Income

You have now been forewarned about the disastrous effect of the silent killer inflation. Therefore, you must ensure that your investments earn real positive income and not just high notional interest.

Should you pay for financial advice?

MoneyControl - MoneyControl - Fri Aug 28 03:30:00 UTC 2015
Suresh Sadagopan You don’t pay for air, water. Neither do you pay for financial advice! So goes t...

Should you pay for financial advice? We pay for all almost all services we avail of. It makes sense to pay for services as one can get the right advice which helps to achieve our financial goals...

A rediff article on How to invest without loosing money and create wealth

How to invest without losing money and create wealth Definition of wealth is different for each and every person, but for a common person wealth would mean Rs 1 crore | How to invest without losing money and create wealth

Most people earn more than a million dollars over their working life but very few people become millionaires," says Nancy Butler, a Certified Financial Planner™. "How they manage what goes through their fingers usually makes the difference."