Get connected ::: BHARTI AIRTEL

Given its foray into new services and the overseas market, Bharti Airtel’s stock looks attractive at the current valuation


THE momentum in Bharti Airtel’s performance has remained intact during the second quarter of FY08. The topline and bottomline continued to grow at a robust rate. Further, despite a declining average revenue per user, operating profitability improved due to higher efficiency.

The company is expected to remain a major beneficiary of the telecom boom in the country given its thrust on capital expenditure to improve network capacity. Its acquisition of undersea cable service i2i is likely to boost the performance of its long distance carrier business. Further, plans to enter into the entertainment distribution segment through IPTV and DTH services would start contributing to revenue from the fourth quarter. At the current valuations, the stock looks attractive given the company’s future potential.


BUSINESS :::

Bharti Airtel has three business divisions: mobile services, broadband and telephone services, and enterprise services. Mobile services is the biggest business line for the company contributing around eight of every ten rupees of revenue. It has a presence in all the 23 telecom circles in India covering about two-thirds of the country’s population. With over 48.9 million subscribers, the company enjoys a 23.4% market share in the country’s mobile services market. Broadband and telephone services are offered in 94 cities as of end-June ’07. These include fixed line telephony, national and international long distance connectivity, and broadband internet access through DSL.

The enterprise services division caters to the data communication needs of large and small enterprises. The company is foraying into the entertainment distribution segment by launching IPTV (internet based TV) and direct to home (DTH) services by the end of the December ’07 quarter. It is also planning to launch its mobile network in Sri Lanka, which is likely to be functional by March ’08. Bharti is currently in the process of demerging its mobile tower business consisting of 50,000 towers. This is expected to improve operational efficiency of the parent company apart from unlocking shareholder value.


FINANCIALS:::

Bharti has been reporting very high growth in the topline and bottomline, boosted by the buoyancy in the mobile subscriber base and a conscious effort to improve operational efficiency. Its topline grew at a CAGR of 57% in the past three years, while the bottomline saw a CAGR of 103%. The company has been able to improve profitability (profits as a percentage of topline) despite decreasing average revenue per user per month (ARPU). Operating margin (EBITDA/total revenue) expanded to 42.8% in the Septemebr’07 quarter from 39.1% during the corresponding quarter of the previous year. Net margin increased from 21.4% to 25.5%. During the same period, ARPU dropped by 16% to Rs 366.


VALUATIONS:::

At the current price of Rs 919, the stock is trading at 30 times its trailing 12-month earnings. This is lower compared to its closest rival Reliance Communications (RCom), which is trading at a P/E of 34. Also, considering other valuation parameters such as EV/EBITDA and EV/ subscriber, the scrip of Bharti is selling cheaper than that of RCom . Bharti is expected to continue its robust performance given the sustained growth in mobile subscribers and increase in its reach in the carrier segment with the takeover of i2i. At the current level, the stock is trading at FY08E P/E of 24 and EV/EBITDA of 16. This excludes the valuation of its tower business, which is likely to be around $35 billion by the end of FY ’08 as per the going market rate.

The launch of new services and entry into overseas market will help the company to reduce its dependence on the domestic mobile market, which is likely to see further reduction in average revenue per user (ARPU) as operators reach out to rural areas. Bharti appears to be better positioned to tackle this situation than its peers. On a longer-term horizon, the stock looks attractive at the current valuation.


CHARTING COURSE

• Bharti Airtel is the largest mobile services provider in the country with a subscriber base of 4.8 crore
• Network presence in 4,876 census towns and 2.9 lakh non-census towns and villages covering 65% of the country's population
• Provides broadband telephone services to 20.75 lakh subscribers spread across 94 cities Offers data and voice carrier services using 55,574-km long optical transport network
• Nine out of every ten mobile subscribers of Bharti are prepaid clients
• Average revenue per user dropped by 6% from the previous quarter to Rs 366 during the September '07 quarter
• Average minutes of use per user per month declined by 2% to 469 minutes, while share of net additions reduced from 29.2% to 25.8% during the quarter ended

HAPPY INVESTING

Before You Buy Shares ::: Investing at right price

The markets are touching new heights. With every passing day, the index is rebounding with increased vigour. In this resilient and ecstatic bull run, the probability of an investor picking over-heated or over-valued stocks is quite high. Hence, it is crucial for investors to determine the current worth of the stock and how the market values it.

There are tools that determine earnings the company is making, its future potential and how the market values the stock. These are the tools of fundamental analysis that concentrate on growth, earnings and market value. Here are a few parameters that help investors analyse stocks:

Earnings per share (EPS) --

This parameter helps investors to compare stocks on an even ground. EPS are the earnings returned on the initial investment amount. To compute earnings per share, the net earnings must be divided by the outstanding shares.

The formula is:

Net earnings
---------------------------- = EPS
Outstanding shares

EPS, in a nutshell, is the portion of a company's profits, allocated to each outstanding share of common stock.

PE ratio --

The price-to-earnings ratio (PE ratio) of a stock is a measure of the price paid for a share relative to the income or profit earned by the company per share. A higher P/E ratio means that investors are paying more for each unit of income. The reciprocal of the P/E ratio is known as the earnings yield.

The formula is:
Price per share
------------------------- = P / E ratio
Earning per share

Note: Price per share is the market price of a share. Earnings per share is the net income of the company for the most recent 12-month period, divided by number of shares outstanding. The P/E is a reflection of what the market is willing to pay for the company's earnings. The higher the P/E, the more the market is willing to pay for the company's earnings. A high P/E can be interpreted as an over-priced stock. It also indicates optimism and bright future for the market. A low P/E may indicate a negative sentiment in the market that can be missed. Some investors bet on these in anticipation that the market will discover its true value.

Price/sales ratio --

The price/sales ratio (PSR) is a company's stock price divided by its annual sales per share. The formula is: P/E x profit margin = P/S One major drawback with PSR is that this ratio contains no information about a company's debts. There are many companies making no profits and have incurred huge debts, still selling at a favorable PSR. It is difficult for an investor to distinguish between a bankrupt company and a bargain company's stock.

Book value --

The book value of a company is its shareholder's equity, that is, the company's assets minus its liabilities. An asset's initial book value is its actual cash value or its acquisition cost. Cash assets are recorded at actual cash value. Assets such as buildings, land and equipment are valued based on their acquisition cost, which includes the actual cash cost of the asset plus certain costs tied to its purchase.

PEG

This parameter is a metric used to evaluate the relative trade-off between the price of a stock, the earnings generated per share and the company's expected future growth.

Price / annual earnings
--------------------------------- = PEG
Annual growth

A lower ratio implies it is cheaper and a higher ratio means it is expensive. A PEG ratio that gets close to two or higher is classified as expensive. A PEG ratio of one represents a reasonable trade-off between cost as expressed by the P/E ratio and growth.

A PROBLEM CAN BE A POTENTIAL BUSINESS

It was well said by leading business author " Robert T. Kiyosaki" in his book "BEFORE YOU QUIT YOUR JOB" that most sucessful business models in the world rotate around two things.

1. It solve a problem
2. It fulfill a need

This was taken into consideration by Rahul Munjal, grandson of Brij Mohan Munjal ( founder of Hero Group ) and he started his own venture called "EASY BILLS". Here is an article on easy bills of Rahul Munjal.

"" Rahul Munjal had spoken to a number of his friends in the United States when he was studying there. One theme that kept recurring was about the problems they faced in day to day life in India. Munjal confided in FINANCIAL TIMES that this was the best way to zero in on a potential business model.

“Ask 10 people what their greatest problems in life are. If three of these problem are common to those 10 people you have three ready made business model in your hands,” laughs Munjal.

Problem is the moot word. Munjal went out to make money through his company Easybill by solving one of the most touchy problem in middle class India: queuing up to pay bills. “In India they don’t mind selling you stuff but they will kill you if you want to pay for those services,” he laughs. “After that they get surprized if people don’t pay their electricity bills and phone bills.”

After Easybill had its way, it was found that men took less leave to pay their bills and took more leave to take their children out to the park and their wives to the movies. It was also found that women who were housewifes now more often paid the family’s bills at the friendly neighbourhood grocer. This was a paradigm shift in the life of the average Indian middle class worker.

Rahul Munjal and his team can be credited to have transfromed a potential problem into a business opportunity. Men are happy too as their wives share more of the backroom jobs of running a family and they get to spend quality time with the kids. That’s fair isn’t it? “Every society has a stage of development,” says Munjal. “In the USA they complain they have to pay for electricity. They say that the federal US government should provide them with electricity free of cost. Here in India, people are ready to pay but they have no electricity for good parts of the day. This is the anomaly and business models should be planned keeping all these factors in mind,” says Munjal.

Right now, he has interesting anecdotes about different utility companies. For instance, a power utility in North India supposedly does not download the paid data from the interim server to the main server sometimes for six months. Another proof that companies in India are not interested in their customers paying them. “Previously, companies used to make it as difficult for their customers to pay them as it was to get their services in the first place,” says Munjal. Now this CEO has his sights set on increasing his company’s services’ footprint throughout India. At the same time, he is continously re-negotiating agreements with utility companies for the best deal.""

Making of a Will

AWill is a legal declaration of the intention of the testator, with respect to his property, which he wants effected after his death. Every person of sound mind, as long he is not a minor, can make a Will. A Will being a legal declaration, must be signed and attested, as required by law.

There must be some property which is being given to others after the death of the testator. It becomes enforceable only after the death of the testator. It gives absolutely no rights to the legatee (the person who inherits) until the death of the testator and has no effect during the lifetime of the testator.

The testator can change his Will, at any time prior to his death, in any manner he deems fit. A Will can be written in any language and no technical words need to be used in a Will. However, the words used should be clear and unambiguous so that the intention of the testator is reflected in his Will. A Will can be made at any time in the life of a person. There is no restriction of law as to how many times a Will can be made by a testator. However, only the last Will made before his death is enforceable.

The Will has to be executed by the testator, by signing or affixing his fingerprints on the Will. If a person is of unsound mind at the time of making a Will, such Will is not enforceable. A Will obtained by force, coercion or undue influence, is a void Will as it takes away the free agency of the person. A Will made under influence of intoxication or in such a state of body or mind, sufficient to take away free agency of a testator, is a void Will. If it is proved so, the Will becomes ineffective.

The Will needs to be attested by two or more witnesses, each of whom should have seen the testator signing the Will. The witnesses should sign in the presence of each other and in the presence of the testator. If a testator intends to make few changes in the Will, without changing the whole Will, he can do so by making a codicil to the Will. The codicil can be executed in a similar way as the Will. Both the will and the codicil can be altered or revoked at any time.

If, at any time, the testator wishes to withdraw the Will, he can do so. A Will also can be sealed and kept in safe custody. This will be released only to the testator himself or, after his death, to an authorised person who produces the death certificate. On the death of the testator, an executor of the Will or a heir of the deceased testator can apply for probate.

The Court will ask the other heirs of the deceased if they have any objections to the Will. If there are no objections, the Court will grant probate. A probate is a copy of a Will, certified by the Court. A probate is a conclusive evidence of the genuineness of a Will. In case any objections are raised by any of the heirs, a citation has to be served, calling upon them to consent. This has to be displayed prominently in the Court. Thereafter, if no objection is received, the probate will be granted.

It is only after this that the Will comes into effect. The registration of a Will is not compulsory. The Will can be registered with a subregistrar. A nominal fee needs to be paid. The testator must be personally present at the registrar's office along with witnesses. The registration of a document provides evidence that the parties had appeared before the registering officer and he had attested the document after ascertaining their identity.

In India, the registration of Wills is not compulsory even if it relates to immoveable property. The non-registration of a Will does not lead to any inference against the genuineness of a Will. Registration of the Will by the testator himself evidences the genuineness of the Will. Whether registered or not, a Will must be proved as duly and validly executed, as required by the Indian Succession Act. Once a Will is registered, it is placed in the safe custody of the registrar and therefore cannot be tampered with. No stamp duty is required to be paid for executing a Will or a codicil. A Will, therefore, need not be made on stamp paper.

Source:: Economic Times

Elements of a Power of Attorney ( POA )

The two different types of POA and what they mean

Power of Attorney (POA) aims at granting authority to a person to do certain acts on behalf of someone. It is given when a person authorises another person to do something on his behalf.

Under the Power of Attorney Act 1882, it includes any instrument empowering a specified person to act for and in the name of the person executing it. The person for whom such an act is done or is so represented is called principal. The person who is executing the POA is called principal or the executant. The person to whom power is granted is called GPA holder or beneficiary. Both the principal and agent should be competent to contract.

A POA creates special power of agency, which entitles the holder to use the principal's name in the transaction on his behalf. A POA can be either a general POA or a special POA. A general POA gives wide powers to the agent to do various acts on behalf of the principal as detailed in the deed and not confined to any specific act relating to a specific subject. On the other hand, a specific POA is given in respect of a single specified transaction like selling of a particular property. Once the particular act is completed, the POA naturally gets revoked or the powers of the holder get exhausted.

The attestation of a POA is not compulsory. However, in order to avoid any disputes, and to establish proof that it is genuine it is advisable to get the document attested by two witnesses.

Registration of this document is not compulsory. In case it is to be registered it should be presented at the sub-registrar's office that has jurisdiction over the immovable property, referred to in the document. In other cases, the document may be presented for registration either in the office of the sub-registrar in whose sub-district it was executed or in any other sub-registrar's office in the State as the executants desire. Notarising a POA is as good as registration. A court will presume that every document purporting to be a POA that has been executed before and authenticated by a notary public is properly executed and would be a conclusive proof. Each page of the document notarised should bear the official stamp of the notary disclosing his registration number and jurisdiction, and have his signature. Appropriate notary stamp has to be affixed.

Any POA executed outside India needs authentication. It has to be executed in the presence of certain designated officers. The persons empowered to authenticate the documents include notary public, any court, Indian consul or vice consul, and representative of the Central Government. Any POA executed outside India should be authenticated by the notary public of the foreign country, consul, vice consul or by a representative of the Central Government. Such documents need to be stamped within three months from the date of receipt in India, to be payable at the District Registrar's office.

Power of attorney attracts stamp duty which varies from State to State. Usually, if the power given was one coupled with interest, it cannot be withdrawn. In case an agent has an interest in the property that forms the subject matter of the agency created via the POA, the agency cannot be terminated to the prejudice of such an interest. Also, where an agency is created for valuable consideration and authority is given to effectuate a security, the authority cannot be revoked.

The POA is irrevocable if it creates an agency coupled with interest, unless there is an express stipulation to the contrary. Where the authority of an agent is given for the purpose of effectuating any security or of protecting any interest of the agent, it is irrevocable during the subsistence of such security. In other cases, it may be revoked by the principal at any time before the agent has acted on it.

Source:: Economic Times

60 ::: CHAKDE INDIA !!!

India is on the move : P.M. Manmohan Singh, on 15th August'07

Very rightly said by our honorable Prime Minister about the current situation of our country, We are on the move. Every coin has two sides and good and bad can never be alone but here let me count the good things because of which today we can say we are on the move.


1. Let me start be saluting the Youth of nation :::

Youth has always been the hope for future and a youth of today defines the tomorrow of a nation. The biggest asset for a country like India is its manpower. We have a capability to produce and serve at cheaper rates then many other countries of the world because we have skilled manpower and unskilled manpower that can work more effectively and efficiently - physically, mentally and financially.

Highest youth population in the world and we are among the youngest nations of the world. Our youth is enthusiastic, intelligent, capable, dependable, hardworking and has a stamina to fight against any thing ::: Protest against OBC quota in higher education, by Honorable Minister Arjun Singh is an example of unity and power of Indian youth. There are other cases where Young Professionals starting NGOs and other charity programs for their countrymen.

There are some odds, something shameful by Indian Youth like killing of a Professor in a university of Ujjain, who protested against university elections. Such incidents always raise a finger about future of our youth but I still believe that with good mentors and support our youth can make dream 2020 true.

2. Second Fastest growing economy in the world :::

The economy of India is the third largest in the world as measured by purchasing power parity (PPP). When measured in USD exchange-rate terms, it is the twelfth largest in the world, with a GDP of US $1.0 trillion (2007).India is the second fastest growing major economy in the world, with a GDP growth rate of 9.4% for the fiscal year 2006–2007

In 1999, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035 it is expected to reach as 3rd largest economy of the world behind US and China.

Indian companies like TATA Steel, Aditya Birla Group, Mahindra and Mahindra, Bajaj are going global and making all time big international deals. Software biggies like TCS, Infosys, Wipro serving the world. We have fastest growing retail market, cellular market, automobile market, our purchasing power is increasing.

3. Indian Educational Institutes :::

Today we have some renowned Institutes like

Indian Institutes of Managements

Indian Institutes of Technology

National Institutes of Technology

National Institutes of Design

All India Institute of Medical Sciences

Shri Ram College of Commerce

National Law School

St Stephens College

National Institutes of Fashion Technology

List is very long and our Institutes not only producing professionals for India but professionals from these institutes are making a mark worldwide.



Bollywood making a global presence, Individuals like Ratan Tata, Sachin Tendulkar, A.P.J. Kalam, Lalu Prashad Yadav, Shashi Tharur bringing glory to the nation. We are on the move in all the fields and at the end I will only say

CHAKDE INDIA

Choosing the best of MUTUAL FUNDS

One day, a close friend called me up from Bangalore and asked me " Yaar tax bahut kat raha hai koi tareeka bata jisse tax save ho jaye, koi achcha sa Mutual Fund wagarah.........", i gave him my fundas and satisfied him.

But after that I realised that most of the people like my friend invest in Mutual Funds with primary objective of Tax saving and not the Capital appreciation and in order to fulfill that objective we go for any MF without any deep analysis and giving it a thought. I have seen so many people buying a particular MF just because agent of that MF was easily reachable. Although primary objective of MFs should be Capital appreciation not the tax saving and in order to fulfill that a little research and knowledge is required.

I was going through performance of various MFs in recent times and i found that few of them have outstanding performance. Like SBI magnum, LIC, ICICI Prudential, UTI etc .... most of them outperformed the market in recent times and huge variety of funds are available to pick. Most of companies invest this money in various sectors like Telecom, Auto, Software, Construction, Banking etc in Stock markets and performance of these funds largely depends on performance of those sectors in Stocks but as these funds are handled and closely monitored by experts in the field so risk chances are less. There are above 1000 of MFs are available today and choosing one is tedious job. Here is a little exercise which can ease your job :-

• First of all you should carefully decide your financial objectives. How much returns you are expecting and how much risk you are willing to take ? Are you looking only for tax benefits ?
• Match each goal with appropriate MF category and diversify your investments. For example you should plan your investments with respect to growth, balanced or secured MFs.
• Look for diversification of investments and building a portfolio of 3 - 4 MFs.
• Keep an eye on your investments, have patience and review the performance of your MF portfolio.
• You should also keep the tax aspect in mind.
• And do the research in MFs.

Read the offer document carefully and ask your agent about entry and exit load. Few MFs have entry load as high as 20 % and as low as 2.5 % and exit load also varies from 0 % to 10 %. These are hidden costs which agents rarely disclose to customers.

Some sources from where you can get knowledge of various mutual funds and thier current performance:

www.licindia.com
www.sbimf.com
www.iciciprulife.com
www.utimf.com
www.moneycontrol.com


For any queries, regarding your investments mail me at - ankurchahal@gmail.com

Sachin vs SENSEX

It was a ODI match between India and Australia at Sharjah, India was in trouble and also weather was against but one man was there and India won the match, same thing happened after two days ,,,,again match was against Australia and it was final of Sharjah cup ...again it was one man show and India won the cup. The man was non other then God of Indian Cricket -- Sachin Ramesh Tendulkar

It was hot summer in India in July 1990 when SENSEX first time touched 1000 mark, it took around two years to make it to 2000 mark and 16 years to reach 10,000 in Feb'06 but just 1 and half year to reach 15000 in July'07.

Indian economy and sports changed a lot in last 15 years. We had several big deals on international level, be it TATA or BIRLA, our software companies went abroad, we had largest two wheeler manufacturing company and fastest growing Telecom sector in the world. We had world champion in Chess Mr. Anand, we reached to wimbledon III round( thanks to Sania Mirza ), and final of ICC Cricket world cup( thanks to Saurav Ganguly and the team ).

But in sports it was Sachin Tendulkar who redefined the rules of Cricket and in economy it was SENSEX who changed the way west looks east. Both moved the nation in last 15 years, and Indian economy and cricket both seen there Golden days in this era.

Today when both are at all time high, 15000 and going strong critics are shocked. Those who ruled out both, those who declared that game is over, now they are seeing both getting strong and mature day by day. Both gave some nice moments to Indians. Sometimes both made us sad and sometimes happy but it was the way they chaged India that matters more then anything else.

Today, being a big fan of Sachin and SENSEX i hope that both will give some more reasons for Indians to smile and some more reasons for others to feel "East or west, India is the best"

Cheers to both !!!

Mutual funds or stocks?

Some investors swear by picking stocks themselves and making big money. Some others feel their money is better managed by mutual fund houses. When an investor buys a stock, he owns a piece of the company along with thousands of others like him. On the other hand, when an investor purchases units of a fund, he owns a chunk of diversified securities and bonds. Is investing directly in stocks better or owning mutual fund units? It varies from investor to investor. Let us see why.

Investment amount

If you have a small amount money set aside for investment purposes, it is better to settle with mutual funds. This is because when you own fewer stocks adequate diversification is not possible. You'll be carrying unnecessary risks on your small stock selection for no additional returns. Mutual funds take care of diversification and mitigating risks.

Time and expertise

Some people have the expertise and time to research. They understand their risk appetite and know which stocks work best for them. For others, mutual funds mean sheer convenience. They leave the job of fund selection to the fund manager on whose expertise, they repose complete faith. The task of timing, placing a buy or sell, tracking transaction and market research is left to the fund managers.

Diversification

Individual investors cannot fully diversify as their investment ability is limited. Further, they need to put in effort daily on research and management. Fund houses are flush with cash and explore the numerous investment avenues to achieve ample diversification.

Small companies

Large fund houses cannot afford to put bulk of their money in small companies that hold lot of promise. It is an undeniable fact the large companies usually give lower returns as their performance has already peaked. However, small and mid-size companies have greater scope of giving better returns as they still have a huge potential to do better. As an individual investor, you can buy stocks of small companies and take risk that you can digest. A fund house may be unwilling to expose a considerable chunk of their portfolio to small companies.

Expenses

Mutual funds come with their own set of fees as entry and exit loads. You'll further be charged if you seek to make changes to your fund options. However, as a smart individual investor who invests with a long-term goal, you can save on transaction expenses and taxes.

Risk

The element of risk in investing directly in stocks is very high. What if the company whose stock you hold suddenly goes bankrupt? You'll have to bear the full brunt of this. On the contrary, since a fund house invests in many companies, the event of some company going bankrupt has minimal impact on the unit holders. Hence, the risk is lower. For those who do not want to relinquish control of their investment decisions and have time and expertise, investing directly in stocks may be advisable. For the rest, who want to benefit from the convenience, management and ample diversification, mutual funds may be the solution.

Source: Economic Times

When to start saving for future

" I dont understand why people advice youngsters to save money for future. I never saved a single penny till i was 40. Instead of saving its better to invest in yourself, learning new skills, sharpening your tools, developing your hobbies etc."
............................................ HENRY FORD

" You should start saving as early as possible. At early age when you dont have responsibility of family you can save easily and can save more. Younger generation should understand value of money and they should buy assets in life not the liabilities"
.................................. ROBERT T. KIYOSAKI
( Author of "Rich dad poor Dad", the New york bestseller)

Great people from history have exactly contradictory views. In fact its a subjective topic that "when to start saving for future".

But here i will go with Mr. Ford. Its true that we should always keep on investing in our selves. Its very necessary that we should do some value addition to our personality year after year to survive in today's competitive environment.

Now looking from the point of view of Mr. Kiyosaki. Work hard and party harder, Har Pal yahaan ji bhar jiyo....Jo hai sama ...KAL HO NA HO.... and younger generation follow this. I am not against this philosophy of life also but saving does not mean that you are compromising on your life comfort, it is simply delaying the consumption of money. In future when you will get married, have family, your expenditure will go up suddenly but your pay cheque may not. Also in case of emergency you may need some money urgently.

Finally i will go with Mr. Kiyosaki. Now here i will show the benefit of early investing with simple case study.

Case 1 : Prem Ranjan, 23 , an Engineer earns a decent amount of money and he has a good knowledge of investing. Being from a middle class family he decided that he will save 5,000 Rupees from now onwards through out his life.

Case 2 : One of my office friend Sakshi Mehrotra,23, an Engineer Believes in " kal ho naa ho" philosophy and she had not planned anything about saving yet. She told me once that she will think about saving around 5 years down the line.

Now Prem started saving at 23. When he will retire at 60 after saving 5000 per month for 37 years, amount he will have is

Calculating for PPF savings which gives annual returns of 8.5 %.

A = .......P ( (1 + r)^t - 1)
..............________
......................r
where
r = rate of interest = 8.5 %
t= time of investment = 37 years
P= amount deposited per month = 60,000
A= final amount

A = 1,37,36,293

Now, if Sakshi will start saving at 28, 5000 per month then she will save for 32 years. When she will retire at 60 amount she will have, again calculating for same conditions

t= time of investment = 32 years

A= 88,98,820

Now difference between their savings at the time of retirement is

= 48,37472 ( Forty Eight Lacks Thirty Seven Thousand )

Ohhhhhhhh....................

Its shocking figure. Delaying your savings by 5 years can hurt you by more then 48 lacks. Here we should also appreciate the fact that to get those 48 lacks extra bucks we invested only 3 lacks in those first 5 years.

These figures could have been more surprising if saving amount is changed to 10,000 from 5000 per month. The difference at 60 years of age .............aaah

Sakshi will be poorer by around 1 crore rupees than Prem at retirement.

Just 5 years .................

So your 3 lacks saved as Early as 5 years can be as high as 48 lacks and your 6 lacks ....around a Crore.

Thats the power of early investing. Choice is yours ..........

Here it is to be noted that i have taken minimum interest rate and also calculated compounded annually to make calculations simple. Figure can be higher as normally interest on savings is calculated quarterly or half yearly. In that case interest rate could be around 8.75 %.

*Interest is calculated compounded yearly.
For any further enquiry, feedback, suggestion please contact me any time. Your feedback and suggestions will help in future improvements.

How to save tax : Investing Benefit

The new financial year is here and its time to put your finances in order. Though you have 12 months to worry about income tax, you will be better off if you take up tax planning right away.

It looks that a big part of our income is going in pockets of ITD ( Income Tax Department) of Indian government. For people having income beyond 3 lacks its more then 30 %. Oops .........its too much buddy.....

So question arises how to save tax as much as you can.

Here i will show you by a simple case study the benefits of investing and its direct effect on your income tax.

Case 1: One of my close friend Mukesh , working with leading automobile company of country got 3.5 lacks as salary during financial year 2006 -- 07. Because of lack of awareness and having little interest in financial issues, he did not save a single penny to save tax.
After a year his tax calculation were like this

Total earnings............................= 3,50,000
Tax exemptions..........................= 1,00,000

Taxable income..........................= 2,50,000

Tax calculations

0 -- 1,00,000..............................= Nil
1,00,000 -- 1,50,000...................= 5,000 ( @ 10 % )
1,50,000 -- 2,50,000...................= 20,000 ( @ 20 % )
2,50,000 -- 3,50,000...................= 30,000 ( @ 30 % )

Total tax.....................................= 55,000
Education cess...........................= 1100 ( @ 2 % )

Tax paid...........................= 56,100

Income after paying tax....= 2,93,900


Case 2 : Ram, a graduate from MNNIT, allahabad joined a MNC in Bangalore with a annual salary of 3.5 lakhs. He has a decent knowledge of finance and also very keen to learn about various investing and tax saving policies. Although he played safe at the end of financial year and got fixed deposit of 1,00,000 rupees for 5 yrs with return of 9 % ( effectively 9.4 %, compounded quarterly).
After a year his tax calculations were like this

Total earnings.........................= 3,50,000
Tax exemptions......................= 1,00,000
Savings ................................. = 1,00,000

Taxable income..................... = 1,50,000

Tax calculations

0 -- 1,00,000.......................... = Nil
1,00,000 -- 2,00,000.............. = 0 ( exemption )
2,00,000 -- 2,50,000............. = 5,000 ( @ 10 % )
2,50,000 -- 3,50,000............. = 20,000 ( @ 20 % )

Total tax .............................. = 25,000
Education cess .............................. = 500 ( @ 2 % )

Tax paid ......................... = 25,500

Returns on savings * ...... = 1,00,000 @ 9 % ( compound interest )
After 1 year ..................... = 1,09,308

Income after paying tax ................ = 3,33,808


Comparing above two cases

Mukesh's Balance after 1 year......= 2,93,900
Ram's Balance after 1 year ...........= 3,33,808

Difference in balance ..........= 39,908

Tax saved by Ram = 30,600

Now if Ram would have not saved 1,0,000 then this 1 lack would have bee
= 1,00,000 - 30,600
= 69,400

So effectively Ram invested 69,400 and he got 1,09,308 after a year. Return on his investment is around 58 % which looks shocking and unbelievable. Also this return is possible when he invested in safest policy i.e. fixed deposits.

Now let me show you some more shocking pictures

1. If Ram would have invested in Mutual funds, with most of them having returns on an average of 20 % and higher, his investment would have been 1,20,000 and return on investment is around 73 %.
2. Acting some more intelligently if after doing some study Ram would have invested in better mutual funds, few have returns as high as 40 %, his investment would have been 1,40,000 and return on investment is around 102 %.
3. If after taking some risk Ram would have invested in Share market which gave a return of 47 % in same financial year, his investment would have been 1,47,000 and return on investment around 112 %

All these figures looks shocking and acts as eye openers, our intelligent and well aware decisions related to financial issues can help us a lot in appreciating our capital in best possible way.

So friends, here i showed you one of the biggest benefits of investing. Still choice is yours................................................ Happy Investing

* To make tax calculation simple few things are eliminated here. For any queries you can always contact me and give your suggestions and feedback.

Note : All figures are in Rupees ( Indian currency ).

For further knowledge about income tax calculations and various exemptions you can visit http://incometaxindia.gov.in/ , the official website of ITD, Indian Government.

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Always buy assets in your life not liabilties