PPF vs POMIS

of late,PPF has been the most popular search term to land to this site . This is quite understandable considering this is the time when everyone scouts around for tax saving investments. Although the interest from PPF is 8% , the interest earned and paid from this account is also tax free. This makes PPF more attractive. Till the EEE policy on PPF remains, PPF would continue to draw money. (EEE- Exempt on investing, accrual and payout of interest).

With the stock markets lying low, tax saving MFs have gone a bit out of fashion.

POMIS ( Post office monthly income scheme) has also been included as an investment option. Lock in is 6 years and a effective yield of 8.9%. But interest earned and bonus (5%) given at the end of the term is taxable in the hands of investor.

PPF inspite of having a longer 15 year lock in term remains attractive beacuse of the tax free interest when compared to POMIS. So an investment decision for tax exemption in these schemes would also depend on the income tax bracket that the investor.

All said and done, If you are ready to lockin money for > 5 years anyway, my vote goes to SIP (Systematic investment plan) in ELSS ( Equity linked savings schemes in Mutual Fund)schemes as you would get a much higher return ( again tax free) as equities are supposed to outperform other asset classes in a longer investment horizon.

An interesting read

At the time of crisis everyone tends to get back to the basics. The following article on businessweek is a nice read and must read for all.

Top 20 do's and dont's of personal finance.

http://www.businessweek.com/investor/content/dec2008/pi20081217_317510.htm?chan=rss_topStories_ssi_5

Sensex Prediction

When I read the following article in 2005, I thought it was a complete bluff. As 18000 was a figure that was predicted for sensex in 2010. I had book marked this article and somehow lost it when my machine was formatted.

However, this article was fresh in my memory when sensex actually crossed 18k and 20k in 2007. I badly searched for the article I had read, but couldn't spot it. After a long fight ( may be my Internet searching skills are poor), I got the link back.

Here's the link

You may find it an interesting read!!! One of the rare things that happened..a prediction come true in the stock market!!! hope the author is not a professional analyst!.

US dollar - the way ahead

If you have been one among those like me wondering why Dollar is gaining strength in spite of all the crisis in the US, you may find the following article on msn interesting.

It talks about the strength gained by US dollar due to confidence lost in other asset classes and emerging markets during the crisis and the possibility of dollar weakening once the crisis starts seeing an end.

Future of US dollar exchange rates need to be kept in mind while you invest heavily in import/export oriented companies.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/no-crisis-for-the-US-dollar-yet.aspx?page=3

Income tax investment not an year end exercise

Starting December , the salaried class suddenly wakes up to the reality of taxes and realises investment need to be made to save tax. Looking for funds and making a hasty decision while investing is almost a second habit of most of the salaried class. Many tax saving products are bought without looking at options or weighing at the advantages of each of the option.

Mushrooming tax planning stalls at offices and malls try to sell whatever products they have and lot of people buy "investment plans" in a hurry without even understanding where their money goes. For example , a friend of mine invested in a Equity linked ULIP for saving tax . This friend is wary of equity but didn't realise where his money was being invested after charging 30% commission on his initial premium.

So options like NSC, PPF, FDs, ELSS , etc need to be considered at the beginning of the year. One should start investing regularly to save tax from April, May time frame. This helps in

1) Making wise decisions as you are in no hurry to submit proofs to your employer at the beginning of the year.

2) Makes investment a planned activity and helps avoid with huge burdening of investing at the year end.

3) Your money starts working for you a couple of months earlier as you start investing in the early part of the year.

If you have not taken any new year resolution, you can resolve to make planned investments for saving taxes from the next financial year...if you have not been doing this till now.

2000 vs 2008

Dot com bubble burst in 2000 and a recessionary trend was seen for almost a year. This was primarily excess growth expectation that was expected in IT that burst. In 2008 however the fundamentals of US economy is hurt. With so many financial institutions going bankrupt, house prices dropping and credit crunch deepening, the problem seems to be more fundamental.

The recovery time may be longer than expected this time as it will take time for us to reach the peak of crisis and then start evening out.

We had lot of small and mid size IT companies going bust in India in 2000. But the IT boom had lasted only for a couple of years then and it had'nt pumped much money in India. Now we have a IT major in a deep trouble state and lot of the future money consumed ( by way of loans) stands at stake.

All those employed would do better ..if they try to keep in cash a minimum of 3 months to 6 months expenses so that they can avoid any panic. Reduction of expenses and spending prudently even if it means switching down lifestyle a bit would help an individual enormously. ( Although this may not help the economy).

Seemingly tough time ahead after we had seen too much of optimism in the past couple of years .

Should we invest in stocks at all??

Many ask this question now," Should we invest in stocks at all"??. Exactly an year before we were in big euphoria....remember the Reliance power IPO for which 1000s of demat accounts were opened.

First was the sub prime crisis leading to global economic slow down, then the raising commodity prices ( which cooled down ultimately), latest to the story is the Satyam fiasco. So, should we restrain from the stock markets because of all these reasons. I would say "no". Ups and downs are a part of life . One off events do happen in all walks of life. We don't restrain from taking a road because it is prone to accidents. Similarly we cant avoid investing since one or two companies go bust. But we have to do it with precaution. By choosing to invest a right part of your portfolio in stocks and investing in a diversified and systematic fashion.

History repeats itself and if you look at history, the markets have overcome many such bad years. To overcome these bad patches one needs absolute patience. " Time and patience cures everything ( including your losses :-)). Definitely equity investment is a long term game and patience is key to any investor.

Money and happiness

"pleasures (such as beautiful scenery or an evening with friends) and comforts (such as a fancy car or the latest gizmo). You tire of comforts but never of pleasures"

If the correlation between money and happiness is an area of interest to you , you may find this article on livemint real interesting.

http://www.livemint.com/2009/01/01214511/The-economy-of-happiness.html

Money is definitely vital for those who are in need of basic necessities of life and beyond a point it's irrelevant for happiness. This is very nicely highlighted in the article.