My personal blog of tips on better financial state: 2012

If the total interest earned on all your fixed deposits in a bank is greater than Rs. 10,000 in a financial year, you are liable for TDS and the banks will deduct the income tax at source. The tax liability for the purpose of TDS is determined at the branch level. Even if a fixed deposit is in the name of a minor it will attract TDS and in this case the credit for TDS can be claimed by a person managing the minor's income. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year.

The rate at which TDS is deducted varies according to the category of account holders.

TDS rates for a fixed deposit held by resident individual and HUF

If the fixed deposit holder is a resident individual and HUF, for a payment of up to 10 lacs, TDS will be deducted at a rate of 10% in addition to it there is an education cess of 3% which takes the total deduction to 10.3%.

For a fixed deposit of resident individual or HUF with payments equal to 10 lacs or more the TDS rate is 10%, in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 11.3%

Advanced PPF calculator

http://www.investmentkit.com/government/advanced-ppf-calculator.shtml

5K per month from 2009 onwards at 8% interest rate

After 15 yrs : 17 lakhs
After 20yrs : 29 lakhs
After 25 yrs: 48 lakhs

Potential PPF growth rate from 2012 for 70K per year

http://www.personalfn.com/tools-and-resources/financial-calculators/ppf-calculator.aspx

Saturday, January 28, 2012

Tax Exemption

http://www.jagoinvestor.com/2009/01/tax-exemption-details-for-2009.html

Mission 10 Crore

Plan B
http://www.jagoinvestor.com/calculators/html/SIP-Future-Value-Calculator.html

SIP for 10 yrs and then let it grow for 18 yrs

Monthly Investment : 50000
Payment Tenure : 10 yrs
Return (Payment Tenure) : 12%
Investment Tenure (total Tenure) : 26 yrs
Return (Investment Tenure) : 12%

Total Corpus : 71216501 i.e 7 crore

Payment Corpus : 11616954

Total amount Paid : 6000000

Mission 10 Crore

Plan A

SIP until retirement

Monthly Investment : 40000
Return Expected per year (%) : 12
Duration (Years) : 26 yrs

Final Value : 86044482 i.e 8.5 crore

Retirement needs - Mission 10 Crore

http://www.jagoinvestor.com/calculators/html/Retirement-Calculator.html

Current age : 32 yrs
Retirement age : 58 yrs
Life span : 78 yrs

Monthly Income Required (Current Value) : 50000
Years left for Retirement(Years) : 26 yrs
Inflation Expected upto retirement(%) : 9
% Increase in Investments/year : 0
Return Expected(%) from Investments before retirement : 12
Total Retirement years : 20 yrs
Inflation Expected during retirement(%) : 6%
Return Expected(%) from Investments during retirement : 9

Retirement Report
------------------

Monthly Expenses During Retirement : 469958
Corpus Required for Retirement : 80409417
________________________________________

Investment Required per Month
44573 ( with 0% increase in investments/year)
44573 (with no increase in investments/year)
________________________________________

Note =>

- Investments to be done till retirement
- Retirement income to increase with Inflation

Some tips while taking Term Insurance

http://www.jagoinvestor.com/2008/11/we-will-today-discuss-some-of-best.html

Why should we avoid endowment policies?

http://www.jagoinvestor.com/2008/10/why-endowment-policy-are-never-best_08.html

Important Calculators

http://www.jagoinvestor.com/2008/09/3-most-important-formulas-you-should.html

1. Compound Interest

This formula is often used to calculate the returns some investment has given . The main concept in compound interest is that interest gets accumulated with the total principal amount and that interest again earns interest over the years. Which makes it very powerful .

Formula : A = P * (1+r/t)^(nt)

Where

P = principal amount (initial investment)
r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number of years
A = amount after time t

Example 1 :

Investment = Rs 10,000
return = 9%
investment period = 8 years

Total amount = 10000(1+.09)^8 = 19925.63

Example 2 :

Sensex returned 17.3% return over 29yrs since its inception in 1979 . What would be worth of Rs 10,000 invested that time .

A = 10,000 * (1+.173)^29 = 1022450.64 (10 lacs)

You can see that a small amount has actually grown to 100 times .

Compound interest Calculator : http://math.about.com/library/blcompoundinterest.htm

2. CAGR

This tool is very important because it helps in comparing two differnt returns from two investments , you can calculate how much an investment has returned per year on compounded basis , Its just the opposite of Compound interest

Formula : CAGR = (A/P)^1/n – 1

where:

A = Final amount
P = amount invested
n = Number of years

CAGR can be a great tool to compare two different investments and there returns .

Example :

A. 10,000 invested in a XYZ mutual fund for 2 yrs became 20,000
B. 50,000 invested in GOLD for 7 years became 4,00,000

Which investment has given more returns ?
Here the main doubt is that how to calculate which one is better .. the amount , tenure is different . So in this case we calculate and see CAGR , one with more CAGR will be good .

A) CAGR = 41.42 %
B) CAGR = 34.59 %

So , investment in A is better than B.
Which

CAGR calculator : http://www.moneychimp.com/calculator/discount_rate_calculator.htm

3. Annuity

This formula is very very important one , in our daily life we come across many situation where we do a fixed payment at the fixed interval , and we want to calculate the returns , but we dont know how to do it .. Example can be

- Monthly payments in Mutual funds through SIP
- Yearly payment in a PPF .

Or any investment at a fixed inteval over some years. In that case we calculate the Final value using formula called Annuity .

Formula : A = P * [{(1+i)^n - 1 }/i] * (1+i) (if payment are being made at the start)
(it will be P * [{(1+i)^n - 1 }/i] if payments are made at the end of the year)

Where :

A = final amount
P = installment each time
n = total number of installments
i = interest rate for that tenure (example if yearly return is 24% , but payments are made monthly then i = 24/12 = 2%)

Example 1 :

Robert invests 10,000 each month in a mutual fund for 10 years and the annual return was 18% , what will be his final corpus ?

Here as payments are monthly , total payment will be 10 * 12 = 120

so n = 120 and i = 1.5 % (18/12)

A = 10,000 * [{(1+ .015)^120 - 1}/.015 ] * (1+ .015) => 40,39.241 (40 lacs)

Example 2 :

Vikas is planning his retirement , and planning to invest 5,000 per month in a Mutual fund for 20 yrs where he expects a return of 15% , then take out all the amount after 20 yrs and then put it in a FD for 15 yrs which gives him 9.5% return .

Here , we there are two parts
A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time payment , here we will apply compound interest)

A )
n = 240 and i = 1.25% (as the payment are monthly)

His money after 20 years = [5,000 * (1 + .0125)^240 - 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)

Now he invests this money into a FD for 15 yrs at 9.5% .

B) Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)

So his final corpus will be 2.95 crores .

Calculator : http://www.moneychimp.com/calculator/annuity_calculator.htm

Some Investing Equations

Early Start , Small Investment = Late Start , More Investment

Term Insurance + Mutual Fund Investing > Money back insurance plans

Small investment * High Patience > Big investment * Low Patience (For stock market)

Risk of Loss = Investment / Patience

Probability of your investments to Grow = Knowledge + Patience + Tenure

Filing tax in 30 minutes

http://www.jagoinvestor.com/2009/12/last-moment-tax-planing-in-30-minutes.html

Friday, January 27, 2012

How to open PPF account?

http://www.jagoinvestor.com/2010/02/how-to-open-a-ppf-account-at-sbi-bank.html

Why is it better to open a PPF even if you do not use it now

http://www.jagoinvestor.com/2009/08/why-to-open-ppf-account-even-if-you.html

How many Mutual Funds you should have ?

http://www.jagoinvestor.com/2010/02/how-many-mutual-funds-you-should-have.html

How to calculate Future Value of your monthly Investments

http://www.jagoinvestor.com/2010/05/how-to-calculate-future-value-of-your-monthly-investments.html

Common calculators

http://www.jagoinvestor.com/calculator

What is Real Return and How Inflation eats your money

http://www.jagoinvestor.com/2010/08/what-is-real-return-and-how-inflation-eats-your-money.html

Tax Deductions from Infrastructure Bonds under 80C

http://www.jagoinvestor.com/2010/08/tax-deductions-from-instrastructure-bonds-under-80c.html

ICICI iProtect review

http://www.jagoinvestor.com/2010/08/review-of-iprotect-term-plan-from-icici-prudential.html

Nagrik Suraksha Insurance

http://www.jagoinvestor.com/2010/09/two-awesome-and-hidden-health-insurance-products.html

Nagrik Suraksha Insurance

This is a master piece product from Oriental Insurance Company. Nagrik Suraksha is also a combination of personal accident coverage and medical insurance. This policy not only provides personal accident insurance, but also hospitalisation expenses on account of accident which other insurance companies fail to provide. In this policy, 80% of your coverage amount is for personal accident, and the remaining 20% is for hospitalisation on account of accident.

Example

Suppose you take insurance coverage amounting to Rs 1 lakh. Out of Rs 1 lakh, Rs 80, 000 is for personal accident and the remaining Rs 20,000 is for hospitalisation on account of accident. The premium to be paid for coverage amount of Rs 1 lakh is only Rs 90 for the entire year. If you buy insurance coverage amounting to Rs 4 lakh, you can get personal accident coverage worth Rs 3.2 lakh and hospitalisation expenses worth Rs 80,000 by just paying Rs 360 for the entire year.