"LED "on a personal loan

Names have been changed to protect identities.

Rajesh works for a software company . He has been paying EMIs for his personal loan ( >5 lakhs). The personal loans were availed during the last two years for various purposes like closing down a credit card loan, to meet some personal expenses and to "invest" in a piece of land ( which is a few 100 kms close to the metro where he lives :)).

Realizing that 16% pa being paid was too much, he decided to close the personal loan as fast as possible. Then Govind ( close friend) approached him with an offer. Govind's employer was offering him to buy an LED  TV worth 72 K for 42 K ( @30K discount!!) as a part of tie up with the TV brand. Govind offered to give the TV to Rajesh for 50K( 8 K profit for him).

Rajesh found the offer irresistible, he thought it was a golden offer to GAIN 22k. He went ahead and purchased the TV through Govind. Was happy to have got such a bargain deal!!!. Source of 50K- Another personal loan:-)

Rajesh also switched from a local cable operator to a branded HD DTH provider increasing his monthly cable outflow from Rs 75 to Rs 300.

 I am simply surprised by Rajesh's financial behavior. When I ask him about this, " Hey man, we should learn how to enjoy life".

What do you think??

REC Tax free bonds "vs" REC

REC has come up with tax free bonds ( issue open until later part this month). 
~
8.26% for 10-year maturity, 8.71% for 15-year maturity and 8.62% for 20-year maturity.


The interest rates look very attractive for investors (esp. if you are in high income bracket,as the interest from the bonds are tax free).

Pros:-

1. High post dividend tax yield is attractive.

2. Can form a good part of your debt portfolio( but make sure your portfolio doesn't already have too much long-term debt in it before you add more.)

3.The issue is rated AAA by rating agencies Crisil, CARE and ICRA

4. Good for those who are looking for regular income vis-a vis compounded growth

Cons:-

1. If you are looking for compounded growth, you have to re-invest interest with great caution  Else, interest can be spent and the face value that you get back at maturity can be a very small amount ( considering inflation). Imagine the value of 1 lakh today vs 10 years later :-)

2.These are very long-term bonds and liquidity can be  limited.

Personally, I think that someone who trusts REC for more than 10 years would be "well off" investing in "REC" shares directly,considering the current market price-  which is below the book value. Dividend yield at current price is 4.5% -tax free :-). 

Disclosure: - I have exposure both to REC shares ( since 2008) and have subscribed to previous issues of REC tax free bonds.

Investors are advised to evaluate on their own before investing.

CMP- Current Market Price -04-Sep-2013

Get rid of your burden

Mr. X is in his early forties. He works for an engineering company and has a gross salary of more than a lakh  per month. He bought an house some 3 years  back and is paying 70% of his net monthly salary as EMI. 

Whenever there is a bonus or some extra income, he  passionately gets some classical teak wood furniture for his house. Mr. X has been  dreaming of owning a car for almost two years now and unfortunately not been able to buy one because his salary hasn't grown as much in the same proportion that  he expected it to grow. (2002-2007 salary growth in India was phenomenal for most of the salaried class ).

The net salary is just enough to meet the day to day expenses and pay school fees for his only child.

He avoids travel to his native, any entertainment ,etc just because he cannot afford them. His personal loan for one lakh was recently rejected by a bank stating that he was already over leveraged .

Mr. X has no funds for any contingency expenses and his investments are  almost nil ( except for the house which he claims has increased in value). 

His EMI at the current interest rate would end 10 years from now. Whenever a colleague at the office buys a gadget or travels abroad for vacation, this person fumes.

This is a classical case of  forced poverty. If  EMI is such a big burden , one should be ready to sell the property and start "living life". Overburdening EMI can kill the essence of our life. So, please think thrice  before you commit to an EMI. When you  are caught, be ready to switch down your lifestyle and come out of  debt.

Don't be sentimental , get rid of  your burden and live peacefully.