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How PPF fares as an investment option

Posted by Arun On 10:41 PM 0 comments

How PPF fares as an investment option


What is the difference between EPF and PPF?
 
 
Where Employees Provident Fund serves all salaried employees, the Public Provident Fund serves everyone - the employed, the unemployed and even children and housewives.
 
The access to the fund is also quite easy as any post office and some State Bank of India  branches can help you open the fund.
 
The purpose of a provident fund is to provide individuals some form of savings for their retirement years. Naturally, the EPF and PPF are for long-term savings.
 
 
What kind of income can one expect from PPF?
 
The return from the fund is in the form of interest paid.
 
The interest rate currently is 8% compounded annually.
 
The interest, however, is not paid out but is compounded till the maturity or withdrawal.
 
With the current levels of inflation real and stated, the returns from the PPF fund could be low.
 
This is a typical asset class mismatch.
 
 
Is there any capital appreciation?
 
Being a typical debt investment, there is no capital appreciation for the investment.
 
 
What is the risk involved in this investment?
 
 
There is hardly any risk for the capital or the returns from the PPF deposit.
 
The risk however, is with inflation which could possibly reduce the value of the returns in the long term and the other disadvantage is the long lock-in period of 15 years.
 
 
How about liquidity of the investment?
 
 
The PPF gives very little liquidity too.
 
The fund, as mentioned earlier, is for a minimum of 15 years.
 
This can be extended for a further period of five years, each indefinitely.
 
 
The liquidity is in the form of withdrawals that can be made from the fund from the seventh year onwards.
 
The withdrawal value is however limited to a maximum of 50% of the average of the last 3 years' fund values.
 
After the seventh year, one withdrawal can be made every year, based on the same condition.
 
 
What happens in the case of the death of the account holder?
 
 
In case of death of the account holder before the maturity of the account, the fund will be paid to the nominee/ legal heir.
 
 
How is PPF treated for tax?
 
 
This is where the PPF scores very high.
 
The PPF comes under the Exempt- Exempt- Exempt category currently.
 
This means that the amount invested gets tax benefits, the interest is not taxed and this applies for the final maturity amount as well.
 
 
The investment gets benefits under Section 80C of the IT Act.
 
The investment however is limited to a maximum of Rs 70,000 per year per person.
 
This limit includes the deposits made in the name of any dependent children.
 
 
Are there any other specific benefits that I need to know?
 
 
Some other unique benefits from the fund are:
 
* There is no wealth tax on the value of the fund.
 
* In case of insolvency the money in the fund will not be attached to the assets.
 
So only this investment is truly ours, come what may. (Except for education in a philosophical sense).
 
This feature can be very useful particularly for business people in high risk industries / businesses. The fund cannot help anyone if there is tax evasion though.
 
 
How does it score on convenience?
 
 
The fund scores high on convenience. As a savings tool, it is incomparable in terms of the flexibility of payment and quantum.
 
You can make up to 12 contributions per year.
 
Each contribution can be as low as Rs 100 subject to a minimum of only Rs 500 per year.
 
There has to be at least one contribution per year. In case no payment is done for a whole year, there is a charge of Rs 50 when the next investment is made.
 
The objective is to make savings as comfortable and convenient for the minimum possible investment.
 
 
A minor disadvantage is that the fund is yet to go online.
 
So we have to carry our passbook and also face a queue to make the payment every time.
To sum up
 
PPF is a typical savings tool but one has to invest for the long term.
 
This means that there is an asset class mismatch. But on the convenience side, the fund scores pretty high for the flexibility that it offers.
 
 
There are additional unique advantages in the form of wealth tax and insolvency benefits from the Public Provident Fund.
 
On the flip side, the long term (minimum 15 years) of the plan is a limitation.


 
 

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My First Cheque

Posted by Arun On 8:52 PM 0 comments
Low, but my first cheque :)

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More Satyams in a new Telengana?

Posted by Arun On 6:11 PM 0 comments

More Satyams in a new Telengana?
 
 
Carving small states (Jharkhand , Chattisgarh and Uttrakhand ) out of larger ones (Bihar, Madhya Pradesh, Uttar Pradesh ) has so far proved an economic success . Not only have the new states grown faster economically, even Bihar and Uttar Pradesh have experienced much faster growth after the separation, though not Madhya Pradesh.
 
This appears to strengthen the case for creating more small states such as Telengana.

Yet a short visit made to Andhra Pradesh showed dramatically that a separate Telengana could result in problems that other newly-created states have not experienced.
 
The biggest is a problem of land ownership, and this could conceivably create new Satyams. I
 
n Hyderabad, some, though by no means all, businessmen talk with trepidation.
 
The fears are highest among the Andhras, folk from the coastal districts, who fear they will be adversely affected and maybe even forced to flee by the local folk or mulkis.

One such businessman told me, "My driver, a local mulki, said to me, quite gently, that when I left Hyderabad after the separation of Telengana, could I please gift my car to him?" Another businessman trumped this with a better story. "My domestic servants", he said, "requested me to hand over my house to them as and when I leave!"
Is it really possible that a new Telengana will spark the mass exit of outsiders? No, says economist C H Hanumantha Rao.
 
 
There is some fear among coastal Andhras, but not among people from other parts of India. Obviously mulkis will get a much larger share of government jobs, but not of business. The real fear of businessmen is not of physically being expelled.
 
Rather, it is about land, in which businessmen have sunk enormous sums, and which they might now lose. Businessmen have a second, and more credible fear.
 
 
They say that the Maoists who were tamed by Y S Rajashekhara Reddy will make a comeback in the new Telengana, since a small state will not have the resources to tackle the Maoist menace.
 
That could affect business prospects and land values.

The big difference between a separate Telengana and other newly created states like Jharkhand, Chattisgarh and Uttrakhand relates to the state capital. In the three earlier cases, the state capital remained with the original state.
 
But Hyderabad, the capital of Andhra Pradesh, will go to Telengana.
 
This horrifies coastal Andhras who claim to have created 90% of Hyderabad's wealth.

A compromise could be to make Hyderabad and the surrounding Rangareddy district a Union territory housing the capitals of both Telengana and residual Andhra Pradesh.
 
 
This solution worked when Haryana was carved out of Punjab. However, politicians leading the movement are dying to lay their hands on the lucrative land of Hyderabad, and will never give up this golden goose from which they hope to get a thousand golden eggs.
 
 
Vast amounts of land around Hyderabad have been grabbed in questionable ways. In a new Telengana, many existing landowners — including major
industrialists — may lose enormous tracts of land worth thousands of crores. Illegal land grabbing has till now been very lucrative, but may become the kiss of death after Telengana's creation.
 
 
All Indians love land, but in Andhra Pradesh it is a veritable passion .
 
Coastal Andhras have engaged in an orgy of land speculation in the last decade. This passion for land ultimately caused the fall of Ramalinga Raju of Satyam:
 
He lost his company because of his forays into real estate, through Maytas and other channels.

Like many other Andhra businessmen, Raju borrowed enormous sums for buying land, and prospered as land prices went through the roof.
 
But then prices collapsed with the onset of the global recession, catching many speculators — including Raju — with their pants down. As India emerged out of the recession, land prices started recovering everywhere.
 
But with the announcement of a separate Telengana, real estate prices have fallen once again in Hyderabad and surrounding areas.

This has hit the state government's finances. It had hoped to raise Rs 12,000 crore through land sales, a figure that now looks impossible.
 
Far worse hit are thousands of land speculators, including a host of top businessmen. Nobody knows for sure who controls how much land in Hyderabad and Rangareddy districts, since much of the land is occupied illegally or through dubious means.
 
But the risk is clear: land debacles could create new Satyams.

The risk should not be exaggerated. Most businessmen who survived the Great Recession should be able to survive the separation of Telengana too.
 
But some may collapse. Many politician-speculators will suffer too, and so are among the strongest opponents of division. However, division is inevitable : it is only a matter of time.

Many mulkis resent what they see as the obscene prosperity of outsiders, especially coastal Andhras, who dominate not only land and business but also professional jobs and government employment .
 
 
In many states migration has occurred from poorer to richer areas, but in Andhra Pradesh farmers moved from the prosperous coastal areas into Telengana , a region that used to be part of princely Hyderabad under the Nizam, and was terrible backward in education, agriculture , roads and everything else.

The Andhras brought in improved farm practices, skills and capital. They helped develop Hyderabad and the rest of Telengana, which is no longer backward compared to the state as a whole. Public sector investment, especially in defence industries, brought in many new skills and services.
 
And more recently the IT companies came roaring in, many run by coastal Andhras.

But although the newcomers greatly improved and enrichened Telengana, they also aroused resentment and accusations of quasi-colonialism.
 
Being better educated, they dominated government jobs. Osmania Unversity's students are at the fore of the Telengana agitation because they hope to dominate government jobs in the new state.

However, there is no reason to think that more land and jobs for mulkis will mean the expulsion of coastal businessmen. The real risk lies elsewhere: in the continuing fall of land prices, leading possibly to new Satyams. 




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The Long Wait for 3G, But What is it Exactly?
 
 
 
 
To most of us in the technology circuit, the coming of 3G has been long awaited. We've been expecting it for over a year now and I'm sometimes tempted to believe its coming here is just a myth. The mystery seems to be why is it taking so long. For the average mobile user frustrated with the use of EDGE, which is fully capable of getting most of the job done but just isn't as fast as we hoped, 3G will be a godsend. Although most mobile phone users I spoke with, even those who have changed their handsets multiple times over the course of history, didn't really know what 3G actually meant.
Most understood it to be mean faster internet connectivity, a few thought that all it meant was you'd be able to make video calls to others like they show in the movies. Others simply thought I was referring to the iPhone Third Generation handset and not the technology. In the simplest of terms, what 3G means for the average user is speedier access to the internet and VOIP services. So what does 3G or Third Generation mean in a stricter sense of the term? Take a look at where it's come from.
The path to 3G
3G is the result of nearly a decade of development and evolution of the GSM standard. It brings with it a host of changes, including near broadband-like data speeds, video conferencing – and, with the increasing complexity of mobiles, support for new technologies such as GPS and streaming video.
Image Source: Anritsu
However, before it reached its current state, GSM had to undergo a rather painful growth. GSM was conceived in the early 80s as a common standard to be deployed across Europe. This required the cooperation of 13 countries and sharing of knowledge before the first network went live in 1991.
After that it went through a lean phase with adoption being slow, as there were a pressing number of issues such as excess traffic handling ability, lack of network security and cost of deployment. Another aspect was the fact that 1G networks were purely analog networks. Thanks to these, the towers for these networks had to be powerful and put out some strong signals for the (bulky!) handsets to receive them. The lack of mass adoption meant call rates were high.
2G brought with it some crucial changes which included increased traffic handling, improved call clarity by a liberal use of voice codecs, and reduced power requirements which allowed handsets to become smaller and consume less power. 2G also brought with it call encryption which made 'wireless sniffing' next to impossible. All this was made possible as networks were now fully digital.
The introduction of 2G networks was a catalyst for the explosion of the GSM phenomenon. The rapid pace of adoption saw the cost of equipment fall, and deployment costs going down rapidly. The most important fact of this particular generation was the emergence of text messaging, popularly known as SMS. It became the one 'killer' feature on whose popularity alone GSM saw some explosive growth.
This growth was not smooth, however. Around this time the Internet had exploded and proliferated as a mass medium. As mobile telephony began to get more popular (and in some countries even overtook fixed line telephony) as the main method of communication, the need for 'always-on' data connectivity was felt. This was made possible with the introduction of GPRS, a massive step up from the previous generation.
Thanks to GPRS, it became possible to be always connected via a WAP browser to the Internet and have anytime, anywhere access at usable speeds. To accommodate this, networks were enhanced to better support data connectivity. This generation also saw the evolution of the SMS standard into a multimedia-ready state (MMS). While MMS didn't have the same commercial success as SMS, it nevertheless came to define the 2.5G standard.
It is here that we see a curious fork in GSM evolution. UMTS was intended to be a direct upgrade for all 2.5G networks. However, due to the very high costs involved, a new form of data connectivity was offered to compensate and offer good standby service till 3G could be implemented. This service was called EDGE and was an evolution of the old GPRS format. It offered vastly superior speeds and far better connectivity for the newly emerging camera phone market and smartphones. This phase is now popularly referred to as 2.75G .
Image Source: Networkworld

This brings us to 3G. Technically it's a direct upgrade to EDGE networks, but it runs on a wholly different set of frequencies. It also employs a different underlying technology (WCDMA) and can make only part use of existing networks. Entirely new infrastructure has to be deployed for the successful roll out of 3G.
 
What 3G offers
From video phone calls to using the Internet to make calls (VoIP) to wide-area wireless voice telephony and broadband wireless data services, 3G offers it all. Just imagine being able to see on your phone screen someone you're in conversation with! (Of course, this may not always be in your best interests, should you be in the middle of something indiscreet, but nevertheless it is the next step in mobile technology.)

3G technology allows you do all of this and so much more. The technology also makes it a lot easier for mobile service providers to easily support a larger amount of voice as well as data users. To give you a clearer view, these are some of the services that 3G, as a whole, offers users:
  • Mobile TV (DVBH)
  • Video calling, video mail and video conferencing
  • GPS and car navigation
  • Digital catalog shopping
  • B2B applications
  • Remote medical diagnosis and education
  • Digital audio and video delivery

To avail of these services, your mobile device has to be 3G compatible. Of course, these days most are. Switching to a 3G way of life also requires a hefty investment from the service providers. Perhaps that's why we haven't seen it in India yet. But, as we mentioned, it won't be too long now.

What lies beyond
While India takes its first 'baby' steps towards 3G, the rest of the world has moved on. 3G already has an upgrade – 3.5G, which has brought streaming TV, the ability to stream video directly from your cellphone (similar to a webcam), and a whole lot of other amazing features. In India we've been waiting a really long time for the service to kick in and it seems like that wait is not yet over. So far BSNL and MTNL are the only two mobile service providers that are operating with 3G services. Unfortunately the 3G range is limited to very specific areas of a few cities that include Mumbai and Delhi.  Number portability is supposed to become a reality this month but the few reps of the various mobile service providers I spoke with seemed quite skeptical of its arrival before the first quarter of 2010.

 
 

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