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Monday, 26 June 2017

A Small Story : Draw your own morals and lessons


I received a what’s app message today. It has a small story. It reads as

Ramasamy completed B.tech and joined a MNC during Campus Recruitment. CTC 4 lakhs. His Relatives & Family friends wished him success. Ramasamy`s face glowed like Petramax light. He thought to himself " From today onwards every day will be happy."

Madasamy, Ramasamy`s neighbor failed BA. All his relatives & family friends blamed him. In Hyderabad every one is a B.tech but Madasamy was not even BA! Madasamy received suggestions to eke out a living by selling Idly, Dosa…. Pan ...or sell Milk… His Father was much embarrassed.

Now what to do…?

Madasamy asked his mother ₹ 2 lakhs and borrowed ₹2 lakhs from an uncle, bought buffaloes and started Milk Business.

Ramasamy used his credit card to purchase a motorcycle , commuting each day to office. Madasamy on TVS with Milk Cans also started to sell. Ramasamy proudly said Hi" to Madasamy. Madasamy with embarrassed look muttered Hi . & each attended to their respective duties.

6 months passed .....
Ramasamy re-paid 20% of the motorcycle purchase money.He still had to repay ₹80K. Madasamy cleared ₹1 lakh out of his ₹2lakh borrowed money. When Both met Ramasamy gave a small smile ,thinking of his debt of 80K. Madasamy also smiled reminiscing about his remaining loan of ₹ 1 lakh.

1 year passed by....
Ramasamy had high hopes on a salary hike. Suddenly due to recession company mailer informed all employees of no hike. half liter of milk increased in price to ₹14/-from ₹10/-.This profited Madasamy by 30% and helped him pay the remaining₹ 1 lakh loan amount. By now, with difficulty Ramasamy cleared his Bike loan and took a personal loan of ₹2 lakhs @ 16% interest. Ramasamy bought furniture, LCD, LapTop with loan money. Every One applauded Ramasamy as he had purchased these accessories in just 2 years time.Now Madasamy with his business profits bought 12 more buffaloes. His income doubled.

Again both met. Ramasamy gave feeble smile thinking about his Persoal loan. Madasamy gave a big smile since he was debt free. After 2 more Years Ramasamy got a 10% salary hike. He then bought a Maruti Wagon R car through a Car Loan. Mean time Madasamy bought 2 acres land for his 3 dozen buffaloes. Milk Prices increased by 30% again. Now Madasamy was earning 200% more than Ramasamy. Madasamy owned one Auto to sell Milk.

Once more both faced met. With Loans and accruing Interest Ramasamy was unable to smile. g Madasamy smiled merrily driving his own Auto.

2 more years passed......
Ramasamy applied for ₹40 lakhs home loan and bought an apartment. Madasamy`s buffaloes numbered 126. Madasamy bought 2 apartments. Ramasamy got 10 more percent salary hike. Milk price crossed ₹ 40per liter now. Total income of Madasamy was 500 times that of Ramasamy.

Madasamy owned 1 Skoda and 1 Innova Car. Both met again Ramasamy grimaced struggling to clear ₹40 lakh loan.

Madasamy smiled ear to ear since he owned a medium sized Milk Factory with more than 170 buffaloes and 25 workers.
That night Ramasamy was in deep frustration. Because after 5 years Madasamy owned ₹4 crores , had a monthly income of 5 lakhs & provided jobs to 25 workers. Ramasamy`s salary is 7 lakhs p a with ₹40 lakhs debt & unbearable job dissatisfaction This was the Balance Sheet.

Facts: In 2008 Milk was ₹10/- litre. Now ₹40/- litre. Gold ₹12500/- 10 grams, Now ₹30000/-. In the last 5 years salary hikes for corporate professionals was just 30%. All commodity prices increased by 300%. Still most Indian parents think corporate is the only worthwhile profession for their wards.

Here i don't mean that leave the engineering and corporate job and sell milk :)

I just want to say just come out from the job mind set. If you get a job in MNC you must have a brilliant mind, no doubt. The doing the job and depending on monthly pay cheque will not help us in long run. It will not help us to get financial freedom. Be an entrepreneur, start something which lead you to financial independence. The main problem with out education system which forced to live in the job mind set. We feel more secure while doing job and if something goes wrong with the company or industry we looked at all the debt piled up till date. Jobs are not the way to return back to the society. It will only increase the rat race.!!

Looking for 80C(Tax saving) investments... Wait & rethink

First quarter of this FY is almost passed. If you are still not started then please see the historic return of all tax savings investment options..

INVESTMENT
LOCKIN PERIOD
PRE-TAX RETURNS
TAX APPLICABLE
ELSS
3 Years
16-23%
No Tax
5 Year Bank FD
5 Years
7.10%
Interest Is Taxable
PPF
15 Years
8.10%
No Tax
NSC
5-10 Years
7.90%
Interest Is Taxable
Life Insurance
5 Years
0-7%
No Tax

Till now you must know that what i want to to say? Yes Tax saving mutual fund (ELSS) is the best among the options we have. ELSS funds have given the best returns out of all the tax saving instruments under 80 C like PF, FDs, ULIPs, Post office deposits, KVP etc. This fund has a lock-in for 3 years which is the least in the list.

Don't wait for year end to to start investment for 80C. Start as early as possible. we lost 1/4th of current financial year. Start monthly investment.

Best ELSS Mutual funds are..

 RANK
FUND
3 YR RETURN
5 YR RETURN
1
Axis Long Term Equity Growth
18.10%
24.20%
2
Birla Sun Life Tax Relief 96 Growth
19.40%
22.70%
3
IDFC Tax Advantage (ELSS) Fund - Regular Plan - Growth
18.10%
22.20%
4
DSP BlackRock Tax Saver Fund Growth
17.60%
22.00%
5
L&T Tax Advantage Fund Growth
17.20%
19.60%

Disclosure : I have investments in Axis Long Term Equity Growth and DSP BlackRock Tax Saver Fund Growth.



Term life insurance & should you buy it

Today I want to start my conversation with a quote by Michael J. Fox "Family is not an important thing, it's everything." 

We earn to fulfill the need of our family.  Do you ever think I we are not around how our family manage to fulfill their need? We are not around that does not means our responsibilities towards our family over. For this situation a there is a financial product called insurance plan. I mean insurance is not new thing in the world.  We saw our parents to buy Endowment policies. I personally feel that endowment policy is good for the Agents not for the policy holder. It is a total trap. So what is the better option? The answer is Term Plan.

Term Plan is a type of life insurance, provides coverage for a certain period of time or years. If the insured dies over the policy tenure a death benefit (or sum assured) is paid out. It is a very low cost product and specifically designed to secure your family needs in case of death or uncertainty. If policy holder survives for that term then there is no maturity benefit. Yes no benefit. 

You may say if we are not getting any sum after a term paying premiums every year, why should we invest in? My dear friends this is this is the insurance plan not the investment. We are paying premiums for the bad times and to be financially independent if we are no around. If we compare with endowment policies then it costs less than 5% for the same cover. We can have rest 95% in our hand which can earn better than our traditional policy.

Then main benefits are as follows…







Term insurance is suitable for a person with low income but requiring a large cover to protect his family's financial future in case of his demise. As per golden rule we must have 10 times of our annual income as cover. For example if your annual income is 2lakhs then you must have 20lakhs  as an cover. We should also increase it if our income increases.
Limitations of term insurance
  • The premium for term insurance increases with age.
  • Term insurance is not for wealth creation or any other goal as education of child or retirement etc.
  • No maturity value.
  • No surrender values.
  • No loans are available under term policies.  

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