Swipe & Sign: Managing Multiple Credit Cards.

We all have childhood memories and however old we grow, they never fade (BTW, I have not grown that old). Just the other day, one of the memories came back to me related to situation that a good number of us would have encountered. As kids, the only piece of paper that frightens us is the “Report card.”
So, I will just give you the excerpt of a situation that happened a long time back:
My mother (also, my teacher then) was rebuking me for scoring below my potential (I always thought, what score should I get to justify my potential, phew!) even while the result was pretty good. And while this was happening, my dad steps in and says ” Give him a break, he has done a commendable job and presents me with a nice gift”. The consequence is that I am all cheered up and lively again.”
Sorry, if the introduction seemed a bit long but my intent is to drive home a point: Such appreciation and recognition boosts our ego and provides us with required satisfaction.

What your bank knows and does!

Now imagine this situation: You have a well-paying job and a good financial life but as always, it is not possible to understand if it is justified based on your potential and that bothers you. At that point, you get a mail from your bank saying that: “You are pre-approved for a Gold credit card with a credit limit of Rs 3 lacs.”
The first words that might come out of you could be “Wow, this is amazing.” So, your bank plays your dad and tells you. ” Hey, that is a commendable salary and you are definitely a high-earner. Therefore, we have a small gift for you : A gold credit card.”
I understand if someone might not agree with the premises of the given thesis but my point is this: Besides the convenience and other factors that make people love credit cards, the owning of a credit card is turning into a status quo these days.
Gold, Platinum or Titanium is the question that generally goes around while comparing credit cards instead of charges, rates or offers. An idea called “The Almond effect” comes into play while we apply as well as use the credit cards. Please, read this interesting analysis here.

The BIG difference between your Dad and your Bank.

Simply put, your dad offers you a gift in an attempt to cheer you up with no latent intent but with banks it is different. The primary motive behind that flowery mail is that you apply for the credit card and give the bank an opportunity to earn via interest and card charges.

Please note that I am in no way opposing the idea of having credit cards and not even demeaning the way banks convince you about the viability of cards (There are enough blogs on that).

Now, to Management of Cards.

The fact is that we like credit cards and while it offers several advantages, there are certain things you should know and follow in case you have multiple credit cards:

Well, The very first thing is to have a wallet with a good number of slots ( Haha, just kidding)

Actually, the first thing to do is learn about some of the terms that are related to credit cards. These are actually quite easy to understand and will ensure you that you are not stuck the next time you are researching on credit cards.

Interest rate: This is the price you pay to the credit card company for the privilege of borrowing their money. Now, if you are a lousy payer, then this interest rate may shoot up to double-digits and keep on accumulating. 

Trickery alert : Lately, credit card companies have come up with zero interest credit cards, which convinces people easily. However, most of the times, the zero interest rate is only valid for first few months after which the rates are as usual or even higher.

Grace period: Grace period is the time between the end of your billing cycle and the date your payment is due. The longer the grace period, the better. The Grace period is not applicable if you have any amount due on your credit card.

Note: Having a credit card is useful to build your credit score and a good credit score is highly valuable for any of the future purchases. The way you use your credit cards and repay the dues has an impact on your credit score.

Mug this up:

Multiple cards = Multiple bills = High probability of misplacing a bill or missing out on a payment. However, as I mentioned earlier, keeping multiple cards is absolutely fine if you can manage them well.

So here are some tips for that (I am sure they will help):

  1.  Dedicate certain cards for specific spending, so that you equally use the credit limit on all the cards.
  2.  Do pick the right credit card for each purchase so that allow you are able to accumulate rewards  points, cash back, or another types of incentives. Trust me, you will SAVE MONEY!
  3.  Do not retain unused credit cards. You may be paying an annual fee or charges without realizing it.
  4.  Use internet banking to pay the statements on multiple credit cards.
  5.  Set a monthly reminder on your calendar or mobile phones to make timely payments. 

Kudos, I am sure you can manage your cards well! As always, please offer your thoughts/opinions in the the comments section 🙂


A Lesson For Life : Do Not be a “Bewakoof”!

A couple of days back, I was forcefully taken to a nearby theater by my friends to watch a Bollywood flick against my wishes. The movie called “Bewakoofiyan” as I had anticipated, failed to live up to my expectations. In retrospect however, I realized that I was not expecting a lot from the movie and in a way it did leave me with something quite valuable and worthwhile that I would like to share with my readers.

Assuming that not a lot of people might have watched the movie and even if did, they might have ignored a loud, clear and highly significant lesson that was embedded in those 120 minutes of drama.

However, before getting into the details of that lesson, I would like to mention a dialogue from the movie that really caught my attention:

Sonam Kapoor (aka Mayera) to Ayushman Khurana (aka Mohit):

“Tumhe pata kaise nahi chala ki tumhare saare paise khatam ho gaye”?

(Translation: How come you did not know that all your money got exhausted)

Yes, this article intends to spread awareness about how a good number of people land up in a financial crisis without any cognizance and regret their reckless spending attitude.

A crisis unfolds

While the glitz and glamour portrayed by the movie is a bit unrealistic, the aspect that one can lose his job out of the blue is completely realistic and possible (The famous IBM firing incident). As it happens in the movie, Mohit (the protagonist) suddenly loses his job and a few days later, goes bankrupt. The situations worsens to an unimaginable extent wherein he has to sell his newly bought car, move out of his high rent apartment and above all, break up with his girlfriend Mayera.

Well, sorry if this sounded like a movie review in the making but the intent is to give you a context of the story in the movie so that you can understand the premises of a financial crisis.

An event that can change your life!

There are innumerable blogs and sermons that condemn the excessive love of money to be root of big problems like insecurity, discontent etc. However, that philosophy is preposterous and it is beyond any doubt that money is required to live a fuller, better life and achieve happiness. Thus, losing a job or close-down of your business that stops the flow of money can be life threatening .

A loss of job does not necessarily mean that you could end up with little money in your bank accounts or cash box at home (if you still have one). Let me therefore enumerate certain reasons that lead to a vicious bankruptcy in the event of a sudden job loss [Any tips on how to deal with them are also mentioned  :)].

1. Leading the same lifestyle: People have a natural tendency to hide any news that embarrasses them in any which way and a job loss could deal a big blow to your ego. Additionally, a person continues to lead the same lifestyle in order to avoid any awkwardness in his/her social group including the family.

However, let me tell you that this is the worst possible way to deal with such an event. In fact, the first response should be discuss it with your family and few close friends (NO, that would not hurt your ego). Once your situation is clear to you and your family, you are automatically liberated from living a fake lifestyle. Thus, if you follow this route then you are assured of a couple of advantages:

a. The pressure of maintaining a similar lifestyle i.e the one that you used to live with a high paying job, is automatically alleviated. Hence, you can focus on finding a new source of income with the support of your friends and family.

b. You achieve flexibility, an attribute that stays with you for your life. Once you can train yourself to be adaptable to any lifestyle then you can deal with such situations with ease.

2. No fund for emergency: Remember, how I told you about “paying yourself first” in one of the last blog posts. Well, think about it: If you have a fund that can sustain you for at least 5-6 months your “no income source” period then, it simplifies your life to an unimaginable extent. So, if you haven’t already, then please read that blog and create your own emergency fund.

3. Consumerism: Today’s age is the age of marketers who have created and filled the heads of people with glamorous and shiny ideas. As such, people have become prone to consumerism i.e purchasing goods and services in ever-greater amounts. One of the age-old quotes from Warren Buffet is the most apt here:

“If you buy things that you don’t need, soon you will have to sell things that you need.”

There it is! So simple to understand and practice. However, most people fall prey to the clutches of consumerism and much like our hero Mohit in the movie, end up selling things that they need.

Do not be a “Bewakoof”

As I wrote earlier, my intent behind this article was to make you aware of the certain loopholes in the thinking process that can push you into a spiraling crisis. Do not make the mistake of putting up with a lifestyle that you cannot afford and be open about your status to your close ones because they will definitely understand.

Believe me, it is extremely difficult to deal with an uncertain and unfortunate event like losing a job or shutting down of your business. However, if you keep the above-mentioned points with you then it would become simple and easy.

Any thoughts/suggestions: Dirty the comments section 😉


Should you Pay Yourself First?

The term “Pay yourself first” has become a buzz word in the personal finance domain and it is not tough to find the elite financial coaches and educators making use of this ammo as if it were to directly hit the bull’s eye.

However, since this has become a takiyakalam in the industry, I thought that it could very well be picked up and explained since, most of the people who are not from this domain, find it confusing and ineffective

Are you thinking it wrong?

Just to clear the air about a accepted notion, paying yourself first (PYF) is not as same as paying your electricity bills, phone bills, groceries etc. Yes, you are paying for these services and utilities because they are used by YOU but think about who you are paying  it to. All these payments can be categorized as

“Paying for yourself”: Thus, while you are footing the bill for yourself, but you are paying to the company that provides electricity to you, the supermarket that sells you grocery and so on. However, we are not talking about this concept. Rather, we are asking you to do this:

Pay yourself first and Pay for yourself later!!

The above mentioned line may seem a bit but believe me, it is not!

Why “Pay myself first”?

So, to continue with the above-mentioned premise, paying yourself first basically implies saving some amount from your income to create a pool of funds that could support you in later part of your life or in some crisis situation. Thus, the primary motive of this concept is to compel you to set aside a portion of your income and then pay out all your bills or other expenses.

Since you ask about the significance of this indispensable concept, let me start off with a few counter-questions. (They might be hurtful but be sure that they are also beneficial)

1. What if your boss suddenly comes to you and says “You are no longer required on the job”
2. What if a medical emergency strikes in the family and you are required to foot a huge bill?
3. What if a natural calamity washes away your business/house or other prized assets and you are still supposed to cater to your and family needs?

Scary, is it? Well, these situations are not preposterous and numerous examples show that in an instance, people have lost their financial freedom and might because of unforeseen situations.

As Sheldon says : “ No one thinks it will happen until it happens”.

Therefore, why wait for something to happen. The better way is to create a pool of funds from the very beginning so that your financial life is not threatened when you are in caught in such a situation. By paying yourself first, you can create a emergency/savings fund, which is extremely necessary in order to provide a cover when you need it the most.

I hope you are sold on the concept of “Paying yourself first” and if you are not, then look at the three questions above and try to answer them. If your answer is a “Umm, Aaahh” or any other hesitation sound, then its time that you believe in it.

How to go about paying myself first?

Some things are easier said than done and the funda of paying yourself first is one of that category. But, it does not mean that its too tough or complex and requires some hard work to accomplish. In fact, paying yourself first is quite easy if you can combine three things i.e Attitude, technology and discipline.

So, here are some tips/suggestions or whatever you wanna call it :

A. Open a new account and keep it separate: Since the objective is to save for yourself, it is best that you have a separate account for the same. It is preferable to keep the money in a savings account or a flexi FD account so as to ensure liquidity of funds.

B. Get a direct debit facility: Since it is really tough transferring the money from your salary account to a savings account ( Tough because we might be lazy :P), it is prudent to get a direct debit facility for the account. This will ensure that funds from your income get transferred automatically without any hassle.

C. Hotlist the debit card: Cut the fire and there shall be no smoke. I mean that if you hotlist or inactivate the debit card for this account, then there would not be a means to spend even if you might have the urge.

That’s it! Quite simple, isn’t it?

Just one last thing: The amount that you are planning to set aside is completely dependent on you i.e your lifestyle, expenses etc and you should decide it soon!!

As always, if you have any ideas/opinions, the comments section is all yours 🙂

Creating a Budget is Damn Easy!

Hoping that you are convinced with the significance of a budget as the first and foremost tip for pursuing a healthy financial lifestyle, this piece will guide you in creating your first budget! It is no use if we just read the articles/tips and erase it from out brains once the day is over.

The only solution to implementing a change for the better is to start doing the activities/tasks required to effect that change. Thus, let us help you out in creating a personal budget for yourself so that it becomes a habit.

Before jumping into the exercise of creating a budget, you can decide on a few things:

1. The time duration of the budget i.e weekly, monthly or yearly.
2. The purpose of the budget i.e to control expenses, to plan investments, or something else entirely.
3. The third is not a decision but a promise that you will be obedient to your budget (Pinkie swear promise!)

One of the most traditional ways to create a budget is using a notepad and a pen (though you can also used different colored pens to make it look fancy) on the last day of the previous month.

Thus, if Sheldon is making a budget for March, he should ideally do it on the 28th of February but if you are not as punctual as Sheldon, you can still create your budget a bit late!

A simplest budget should compulsorlily cover the following areas:

  • Estimated expenses for the upcoming month/week.
  • Estimated income
The expenses can again be broken down into recurring (those that occur every cycle) and one-time (for nce only)
And you are done with you first budget!! Congratulations.

Now, if you are feeling particularly adventurous and also feel that the paper and pen is an old timers thing, then we would suggest this:

The Google docs gallery has certain pre-loaded templates for your budgeting needs and while they are more comprehensive, it is also easy to store them. The following two are our recommendations and you can search them on the gallery.

Best-Personal-Budget-Planner A well done and comprehensive budget spreadsheet that includes frequency of expenditure, charts and many more things, by Lars Shirey.

Simple Budget Planner A compact budgeting spreadsheet that lets you budget expenses by percentage of annual and monthly income, by Google.

That is it. So march now to your desk or your laptop and make sure to create your first budget!

If you have any doubts/questions, the comments section is hungry 😉


Investment Spoofs: A tale of submission

Be honest and think about the times you have felt a bit of frustration over incessant number of emails from the finance department of your office asking you about Investment proofs. My personal experience has shown me instances where people have overlooked the mail just because it was from the finance department and contained the word Investment.

Also, much like our exam study and countless number of such tedious tasks (Don’t take it seriously!), we tend to postpone the submission of the proofs until the personnel from department are literally standing in front of us like the teachers in school an asking (though politely), “Did you do it yet?”

While we cannot really take over the task from you and neither can you outsource it to any third party for an inconsiderate wage, it only makes sense that you are not put-off by the thought of this submission. In my opinion, one of the ways to make you like or at least give you the courage of bearing with this exercise (Sorry, finance dept.) is to tell you about the significance of this recurring activity. Do not worry, its gonna be much shorter than a TV sitcom 😉

So, what is this investment proofs all about?

As you know that our Income Tax Act lays down the responsibility on employers to collect Tax from employees in form of TDS and deposit it with the Central Govt on a monthly basis so that the Govt has early funds. Thus, a company needs to compute your estimated income over a financial year (for example, 2014-15) and tax thereon and deduct it while paying out your salary.

A brief example: Say, Rahul’s total income after all deductions works out to be Rs 3 lacs for a particular year on which total tax payable will work out to be Rs 8240 then his employer i.e UPA corporation will deduct Rs 690 per month while paying his monthly salary (Tax deducted by number of months)

Apologies if the example is preposterous in terms of numbers but I hope you get the concept.

Such a provision exists because the Govt needs consistent funds over a year to carry out all of its plans. The earlier practice of paying tax to the Govt at the end of year delayed availability of funds and hence, the Govt came up with a provision to collect tax every month from salaried tax-payers.

Also, if you noticed correctly, I mentioned the term “income after all deductions” and here comes the funda of investments and proofs.

Okay, can you go on further?

Yes sure! Assuming that you would have heard about section 80C i.e a plethora of investments that could prevent the Government from taking your hard-earned money, it is important that your employer knows about these investments before computing your tax. Hence, a company asks for your investment proofs to ascertain the veracity of the investments you have made in that year.

Example: You or your dad (on your behalf) could have deposited say, Rs 20000 into a PPF account in the financial year. This amount is eligible for deduction u/s 80C and you would want to let the company know about it. So, just take a copy of your updated PPF passbook and submit it to your finance dept for calculation of accurate tax.

Please note that these investments need not necessarily fall under the umbrella of 80C as there are a good number of other avenues that can be used to save tax. (It will be discussed in the upcoming articles)

Thus, in a way, your company loves you and wants you to save your hard-earned money from the government. So please do not criticize the finance guys if they bug you for proofs of investment because they are only helping you. 

Remember this the next time!

What if I fail to submit the documents within specified time?

This is highly possible and you need NOT PANIC at all. If you fail to submit the proofs within given time then you can do this:

First off you could go to your wonderful finance dept and request if they could accommodate your late submission and accordingly process your tax.

If that does not go through, you can always claim the deduction on these investments while filing your IT return with the department. For individuals, the last day for filing your IT returns is 31st July of the last financial year. Now, if you miss that deadline too then it is improbable that you could claim the deductions. However, if you want to avoid penalty on missing the IT return deadline, go through this article.

Well, that is pretty much it! 

I am guessing that there might be certain doubts regarding certain jargon used in the article and if that is the case, please feel free to mention it in the comments or mail

Also watch out this space for the next articles in the series:

See beyond 80C: Part I

Why so serious about elections?

In the past few days, I have come across various articles that have shed light on the hot topic of elections. However, this is not a post bragging about Mr Arvind Kejriwal or doing a word-by-word analysis of Mr Rajnath Singh Ji’s statement ( Did you see the ji? ). However, I would just like to borrow a line from one of our famous politicians that says:

Hum Kaun Hai Mediaji?

Well, we are people who would love to help you with finance and bring up issues that are a part of the subject. Recently, a good number of investors are trying to figure out one thing: It is election time, How should I invest? While, the concern is a significant one, it is important to be understood for that the stock markets are going to react extremely to the outcome of the national elections, whatever may be the result. The probability of an extreme reaction is high also because of the uncertainty that looms over the next government with both BJP and AAP having a strong backing.

So what to do now?

Building on the above-mentioned premise, let us look at a couple of outcomes and work out its impact on the markets. Before that however, one should understand that more than anything else, markets function on the basis of perspective of its participants. It is futile to accurately anticipate the fall or rise in the index level with respect to any event because the direction and quantum of market movement is largely a function of investor sentiment.

Since I am a firm believer of Warren Buffet’s analogies, my thoughts revolve around the principle of value investing as proposed by Benjamin Graham. However, leaving the ideal talks aside ( I am working on a series of posts on this one), let us try to understand the impact that upcoming elections might have.

Scenario one: If BJP comes to power and forms a NDA stable coalition then there are chances that the stock markets might rally because of the belief that BJP is business-friendly. I would not quantify the expected rally as it would not be logical to attach a number to volatility that will be sparked by investor sentiment. In such a case, investors who assume long positions now will stand to benefit.

Scenario two: With the Aam Aadmi party gaining power and declaring its candidates from various constituencies, a high probability is that of a hung assembly. If that happens,then one should prepare for a tumultuous ride on the bourse.

A hung assembly would be perceived with a negative sentiment by the foreign investors and quite like our time that is filled by non-Indian TV serials, a major chunk of the markets is sponsored by these foreign guys. Thus, you can expect a chaotic ride on the BSE/NSE.

Okay, but answer my question: what to do now?

Now let me tell you what i think. All the news channels and god-sent analysts cannot predict the exact outcome of the elections. Similarly, the stock market analysts would be inaccurate because they base their analyses on the predictions and exit poll numbers propounded by the media. As such, it is futile to listen to a thousands of analysts and surf through hundreds of reports ( Never forget, time is money)
In my opinion, if you are confused on your investment strategies then the best option is to put money into safe instruments like banking accounts, debt instruments etc.

However if God or someone from the mafia has told you about the outcome of the elections and you can blindly trust it then be my guest, and invest in stocks.

A query on the article?? You know where to put it!!

Watch out for my next article on Investment Spoofs: A tale of submission.

Say Hello to PPF

Well, I am pretty sure that while growing up, you would have heard of the term ‘PPF’ or its expanded version “Public Provident Fund” more than once and wondered about its significance. Let me tell you at the outset that this is a hugely important financial instrument and the best way I could make you aware about its importance is this: PPFs are like the alphabets A-Z of English and hence, without knowing it, we cannot progress in the World of personal finance.
Also, let me mention that if you are not quite interested in financial planning/knowledge, it is most apt that you just learn everything about this instrument as it is a must have for saving, tax benefits, safety and earning money.
Since most people would know something about PPFs (I am hoping), I have structured this article in form of Q&A which will allow you to completely skip reading about stuff you already know. So, let’s roll
       1.    What is PPF and why so much noise about it?
A.     PPF or “Public Provident Fund” is a long term debt scheme of Government of India (GOI) on which regular interest is paid.

2.     Can I open a PPF account?
A.     If you are a resident of India then you can open a PPF account and the best thing is that you can be salaried, self-employed or any other category.

3.    Who offers the facility of opening a PPF account?
A.    The post office and some authorized nationalized banks like SBI, IDBI, BOB etc. offer the facility of opening PPF accounts. The best bid is to find out whether your bank is an authorized party and act accordingly.

4.   All this is cool, but how much do I need to pay for this PPF thing?
A.   Since things are now seeming cool, let me tell you the kind of money you need to invest in order to keep your PPF running.
        Rs 100: To start your PPF account.
        Rs 500: Minimum deposit amount every year.
        Rs 1, 00,000: Maximum deposit amount allowed in a year
       Also, if you fail to invest the minimum amount in a year, a penalty is levied along with arrear of deposit i.e Rs 500. This can be easily found out before putting in money.

5.   Okay, but do I earn any interest on my invested money?
A.   Definitely, Yes. The interest rate on PPF is announced by RBI for a financial year in March. The interest rate for 2013-14 is 8.7% compounded annually. The said interest is calculated on the minimum balance between 5th and last day of the month.
Tip: To maximize your earning, deposit money between 1stand 5th of the month.

6.   The interest amount is tempting but I want to know the period for which a PPF scheme runs because my money will be blocked for all that time?
A.   The period for which any investment scheme runs is a big concern for people as their money stays blocked for all that time. As for a PPF scheme, the tenure is 15 years. There is no need to panic because there are options like pre-mature withdrawal and taking loans against your PPF account in case you have a need for urgent money.
Alternatively, you can also extend your PPF account after a period of 15 years with or without subscription in a block of five years. The details of extension can be queried if you want to avail the facility.

7.   So what about pre-mature withdrawal?
A.   As I mentioned, investors have an option to withdraw money from their PPF account but this option can be exercised only after the expiry of 5th year from the date of first investment to your PPF account. Additionally, the amount that can be withdrawn is lower of:
      a. 50% of balance at the end of fourth year.
      b. 50% of balance at the end of immediately preceding year.
    And, it might be a bit off-putting but only one withdrawal is allowed in one financial year.

 8.   And, what were you saying about loans against PPF account?
 A.   Yes, you heard it correctly. However, there are some terms and conditions (Always there, aren’t they) that need to be fulfilled for availing the said loans.
·         Loans can be taken from third year onwards till sixth year
·         Maximum amount that can be taken as loan is 25% of the balance at the end of 2nd immediately preceding year.
·         These withdrawals have to be repaid within 24 months.
·         The interest rate charged on loan is 2% more than interest rate on PPF account.
·         A second loan can be taken if you are within the 3rd year – 6th year bracket and first loan is fully paid.
      I agree that such T&C can freak out anyone but you need to take a loan only if you are in dire need of money in the first 5 years. Once 5th year expires, you can withdraw money.

9.   Wait, I have an important question. Why should I not invest in a tax-saving FD because the tax benefits are similar in both cases?
A.   Well, first off, it is not correct that the tax benefits are similar for tax-saving FD and PPF. While, the principal component i.e the investment made is non-taxable in both cases, the interest received on principal is taxable in case of a tax-saving FD and not in PPF.
       However, the maturity period of a tax-saving FD is 5 years while for a PPF, it is 15 years. It is better to do a comparative study before picking one out of them based on your financial goals, after-tax interest etc.
       This particular article gives very good insight with regards to a comparative study of these two options.

10.   The benefits of a PPF account cannot be ignored. I guess, I will open more than one account?
A.    Sorry, but you can only open one PPF account in your name. Also, GOI has disallowed HUFs from opening a PPF account.
Well, these ten questions would answer most of your queries relating to PPF investment and interest income. However, if there are any doubts related to any aspect of PPFs, you can post them in the comments section below.
Watch out my next article on: Direct Investing Vs Mutual Funds
Use this calculator if you want to calculate PPF interest income based on your estimated investment.


A Broker Not to Break Your Dreams!

We all have big aspirations and a lot of us dream of becoming investors like Warren Buffet (I am assuming this because I am one of such) so as to create magic portfolios that generate unbelievable returns. However, this particular article ain’t about investing tips and tricks because I am sure you will find unimaginable number on books about how to think and invest like Warren Buffet. Now, if you want to nurture a good investment legacy, you need to put money in the stock markets and before you do that, you need a good stock broker!

Let’s find a freaking good stock broker!

Well, that is what this piece is about: hunting for a good stock broker and what to look for while selecting one. However, before deep diving into understanding the mechanism behind selection of a stock broker, we have to compulsorily decide about our style of investing. As most of the people know that there are two types of guys in the stock market: traders and investors

For new and young guys, I believe that they should adopt a buy and hold investor approach rather than the trader style of investing because trading in stocks requires experience, lots of experience.

So, now the tricky part i.e selecting a broker. There are two kinds of stock brokers that exist in the system that are: full service and discount guys (Read more about them here). The concept of discount brokerage is picking up fast in India with participation of companies like Zerodha, RKSV and others. For novice investors, it is suggested that they opt for discount brokers because of a couple of reasons.

Firstly, it is cheaper than full service brokers and hence, falls within budget. Additionally, it works on DIY approach because an investor does not get assistance or advice on stocks, which allows for greater learning during the initial years. Well, it might sound as a surprise but you have completed the first and the most crucial step to selection of a good stock broker.

The bullet points 😉

Now, once you are settled on the type of broker you want to go for, your next move should be to make a list of 3-4 brokers (not more than 4) after checking for the following:

Reputation: It is highly important that you check the credibility of chosen brokers. This can be done by visiting websites that compare/review the brokers, including the SEBI floated website. In my opinion, the best way to ascertain credibility is to find a person (a relative, friend, acquaintance or any other) and ask every detail from him/her.

Ease of communication: It is always better to select a stock broker who is in proximity; so as to have better communication (applies to romantic relationships as well).

Services offered: As I mentioned, novice investors should preferably go for discount brokers and as such, can ignore this point. However, if you are going for a full-service broker then it is prudent to keep this point in head.

That’s it! Now, just one last step and that is checking for cost efficiency (damn important). Most of the stock brokers have now come up with a brokerage calculator (a couple of links have been given in the end) to allow the investors to simulate a trade and compare the brokerage. If the said facility is not available, then it is mandatory to inquire about the brokerage from a customer representative.

I hope you are not yawning by now because the article is over. Yayy!

The links for brokerage calculators of Zerodha and RKSV:

P.S: If you have any questions then please post it in the comments section and I will try my best to answer it 🙂

Financial literacy: Is it required?

I just picked up this course on Coursera about economics of money and banking and one of the statements made by the instructing professor caught my attention. He said, “Learning about finance basically implies that you can translate any article from the Financial Times to simple English and explain it to your room-mate”. Well, there is no need to contemplate the extent of understanding required to achieve this objective because, we do not really require it!

However, that being said, the importance of knowing about financial system including banking, taxation, government policies, national budget etc cannot be ignored. The simple reason that it’s important is because somewhere, it affects you. Additionally, I presume that any soul would be interested in taking the pain of learning about something when it affects them some way or other

At this point, I am reminded of a highly credible point made by Bruce Wayne in the movie Batman Begins, that is all-pervasive: 

“People need dramatic examples to shake them out of apathy”

Something similar happened when people realized the significance of financial literacy after the sub-prime crisis in 2008 that shocked the entire World. Investors in many countries were doomed to know of these events and found themselves amidst complex mortgages, the risks of which they did not fully comprehend.  As per reports, the lesser financially literate people were the big victims of colossal foreclosure notices.

There, you see the need of financial education! Though this might sound made-up but I have actually met people paying almost 10K extra in taxes that could have been easily dodged. What a waste of money!

I would not stretch this piece any further because I believe you have understood the gigantic significance of learning about personal finance.

To sum it up, let me borrow (yes, again) a few lines from an article in the Economist:

“EVERYBODY wants it. Nobody understands it. Money is the great taboo. People just won’t talk about it. And that is what leads you to sub-prime. Take the greed and the financial misrepresentation out of it, and the root of this crisis is massive levels of financial illiteracy.”

Now, if you have grown a bit of yearning to start learning (I am happily assuming that you might have been somewhat inspired by this article) then this is a good resource:

The Blessed remark: Any claim made above is not fallacious. It is backed by genuine data.