Financial Literacy.... my #1 commitment to Investors.

The last few days have been really action packed.

First, my views/comments were published (here) in one of Goa's upcoming newspaper's The Goan.

Then (on Tuesday) came a last minute call from the organiser's of  Funancial Quest, an initiative by the National Stock Exchange to create Financial Literacy among school and college teachers and (more importantly) students. This (opportunity) I grabbed with both hands and travelled to Panjim from Margao.

It is always a challenge to speak in front of a large gathering, but I feel its even more challenging to speak infront of teachers when you yourself have been a student once. थोड़ स दर्पण येत (you are under pressure).

Nevertheless, instead of presenting I simply interacted with them covering all the required content provided to me. All of them enjoyed the experience and were amazed when I told them(at the end of the conversation) that I had been called up to deliver at the last moment. The session was also attended by assistant vice president for National Stock Exchange Mr. Arup Mukherjee.

Academic qualifications are important and so is financial education. They're both important and schools are forgetting one of them.

Robert Kiyosaki

Literacy in India is improving by the day, no doubt about that, but what about Financial Literacy?

A recent survey shows that financial literacy in India is quite low(lower than even Bangladesh)!! This is quite alarming. Hence, I would like to re-dedicate myself towards creating awareness on Financial Literacy

This will always be my #1 commitment to Investors.

Why you need a Profit Profit Fund A/c

Between all this conversation and hoopla about mutual funds, I almost forgot the great and mighty profitable Public Provident Fund and opening a PPF A/c in India is a very good option for investors seeking long term risk free & tax efficient returns.

Why Its Profitable:

1. Investments into PPF are eligible for deductions under 80c of the IT act

2. Interest earned is EXEMPT from tax.

3. Maturity amount is also EXEMPT from tax.

Why Its Great:

1. A PPF A/c can act as a superb asset allocation tool, provided you use it effectively. Including it in your investment portfolio can take care of your debt side of the portfolio and bring in the much required stability.

2. PPF A/c can act as a pension fund, where you can withdraw the interest part(in a matured PPF A/c)yearly once and then utilize it for the full year. For example if a PPF account has 1 crore into it, and lets say the interest is 8% (just an example). You can withdraw 5 lacs out of the account and the remaining 95 lacs will continue to earn 8% interest.

3. Besides this, new investors especially those who have just started their careers can also begin their investment journey with a PPF account, its one one of the best products out there which depicts the power of compounding in the most efficient manner.

What else?

If you compare PPF with a traditional(boring) Bank Fixed Deposit then, PPF fares a lot better in the long run.

Other Helpful Tips:

A PPF account matures in 15 years. Though you are allowed to open only one PPF account, you can extend it after it matures. Accounts can be extended in blocks of five years indefinitely. Even if you don't have a large sum to invest in the PPF, don't forget to invest the minimum Rs 500 in a financial year. There's a small but troublesome penalty of Rs 50 levied if you fail to do so. Don't invest more than the Rs 1,00,000 a year. The excess amount, even if credited to your account by mistake, will not earn any interest.

A PPF account is something that every Indian investor should go for, no matter what contribution he/she begins with. It is a very effective and useful product to discipline our savings into future wealth

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Having a small house can save you a lot of money.....

Some time back on this December post of Friday Financials I had talked about how we own real estate as it has a strong emotional appeal and pride of ownership. In this post I would like to take it forward and share my perspective on this important decision we all make/will make in our Financial lives.

Frankly speaking I am not a big fan of the Kingfisher Villa or Mannat, not for the reason that I do not have a house like that but due to the(emotional) fact that I like simple things, like watching my kid's never ending creativity, observe my parents (and thank them) for their great value addition in my life and share thoughts and spend time with my wife. 

So, if you are shopping for a house, the size of the house makes a key component of your decision. ‘Living life king size’, ‘Living Large’ or ‘Living Bigger’ does not definitely mean living better, and ‘going smaller’ does not mean sacrificing.

WHY BUY A SMALL HOUSE/APARTMENT… 

A small house can save your money in many ways. Buying a small house is comparatively much cheaper than buying a large one. Besides this, there are a host of other financial perks attached to a small house/apartment.

1. Easy to build/purchase – The main expenditure in building a house is the land cost. A small house allows a person to have a smaller budget. A person can buy a small land near to city amenities and save lot on transportation and safety. If he is buying by way of a housing loan the outgo will be less in the form of interest payments.

2. Higher transaction time – It’s a global phenomenon that small property is sold in less time than the large one. This is because it is affordable and supply side of buyers is more. So in case of analyzing the relative liquidity, a small house is easy to sell and purchase.

3. Lower property taxes & property insurance cost – We generally fail to consider property taxes while purchasing large houses. Property tax is based on assessed property value and property value is based on price per square foot/meter. It is comparatively lower for small houses. Similarly the insurance cost for a small house is also low. Although insurance depends on a lot of other factors, but area is one of the major considerations.

4. Lower cost of maintenance - Small houses are easier and economical to maintain. For example, there would be savings in the material used and time in painting/whitewashing the house (due to less space) than a large house. Similarly replacing the floor tiles would definitely cost less in a small house. Further, there would be savings in purchasing cleansing materials as there is less space to clean. Also, there may not be requirement of domestic help or will require less aid to clear the mess of the house, thus saving on the monthly budget.

5. Less documentation - To build small houses, some of the building related permits are not required. This depends on state policy on housing. These include setbacks, side walls, parking space, height of building and story levels. But for a small house the documentation and required approvals will be less. Thus you can save valuable time and money required for seeking these building permits.

6. Lower utility bills - There would be great downsizing in electricity bills, water bills, etc. in case of small houses. Even the installation cost will be less as you will require a kw/h connection. Few rooms would mean less lighting and cooling cost, thus overall saving on the energy front(also environment friendly). 

7. Lower ongoing medical cost- There are various reasons to prove that small homes may be healthier than large homes. Firstly, since small houses are cheaper than large ones, it reduces the financial stress on the house buyer. A person need not take huge loans and the stress to pay them off for buying small house. Secondly, it is easier to clean small houses. A clean house can avoid major diseases which are spread because of unhealthy surroundings like contaminated water, dusty spaces etc.

8. Save money on frivolous living- A small house has less storage space, hence you would purchase only those items that you actually require. You will not be interested in buying unnecessary plastics and wood. In fact you will be tempted to sell off things that you don’t require to keep the space free. Smaller spaces help in generating creative ideas to maximize utility of every square inch of the house. 

Thus the advantages of a small house over a large house are pretty obvious and inspiring to those who believe in economical and simple living without much stress. Warren buffet advocates that “affordability” should not mean “expenditure”. It means that, even though you can afford, you should not pay more for what is not required. 

He has practiced what he has preached and has been living in the same house he used to live when he started his career.

Ninad Kamat

CERTIFIED FINANCIAL PLANNER^CM

www.letsmakeaplan.in

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Image source: phanlop88 at FreeDigitalPhotos.net

Data Source: the financial literates.

Learning About Long-Term Thinking from Farmers

This week I have decided to take a break from writing.

Instead I will guide you to this link where Carl Richards of BehaviourGAP shares his view on long term thinking. I found it amazing and hope you do too!!

See you next week....