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March 28, 2014

Warning: Don’t fall for “Sure-shot Investment Tips - Trial Package”

“We provide sure-shot stock market investment tips. Enjoy the free trial for 6 months. If you are satisfied, you can enrol for the premium investment tips package anytime”

Have you received an Email or SMS similar to the above? Also have you wonder, how could anyone provide sure-shot tips? If they know a sure-shot investment tip, why do they reveal it, instead of investing and making money for themselves?

Let me reveal you today their trade secret. The secret behind the scam: “Sure-shot Investment Tips” and why you should not fall prey for this.

  • The Scamsters Strategy!!!

Scamsters, usually, pose as online stock market advisers. They somehow collect 1 lac contact details to start with. Once these scamsters have 100000 retail investors’ email id or phone number, their scam activities will start.

  • And how it works!!!

The modus operandi is simple. They give tips. Say in a particular month they will predict the market will go up or go down. Accordingly, their 100000 clients will react and invest according to the tips. It so happens that there is a 50:50 probability that the market will behave according to the tip. Either it will go down or go up. Hence these scamsters will inform half of their clients (say 50000 clients) that the market will go up and the remaining half (another 50000 clients) will be informed that the market will go down.

  • Developing satisfied clients!!!

As the market will either go up or down, one group of 50000 clients are going to be benefitted.  The scamsters then will focus on the 50000 benefitted and satisfied clients and will give a tip for the next month. They will divide the remaining 50000 clients in two groups and to one group they will inform that the market is going up and to the remaining 25000 clients the market will go down. Again one group of 25000 clients will be benefitted from the tip.

  • Developing very satisfied clients!!!

The scamsters will then ignore the group who did not benefit but will now focus on the group 25000 clients who had benefitted. They will repeat the strategy by dividing them in two groups of 12500 each and give them two opposite tips for the next month. One group 12500 clients will be benefitted and the other 12500 will not. The scamsters will now focus on the benefitted group 12500.

They will further divide this group of 12500 satisfied clients in two groups of 6250 each and offer them two opposite tips. One group of 6250 will be further benefitted to which the scamsters will concentrate ignoring the other group.

  • Developing Devoted Clients!!!

They will again divide this group of very satisfied clients of 6250 in to two groups of 3125 each and repeat their strategy of giving two opposite tips for the next month. Again one group of 3125 will further benefit and become very satisfied clients.

The scamsters will divide these very satisfied 3125 clients in two groups and give them opposite tips. Out of the 3125 very satisfied clients, 1562 clients will be benefitted from this tip and will become devoted clients of the scamster.

  • Making Merry out of these Devoted Clients!!!

What has happened in this process is that there are now 1562 clients who have got 6 consecutive right tips from the scamsters and have made money in the process. They will be now greedier to earn more money. The scamsters are actually waiting for this opportunity. They will introduce the paid version of the so called “Sure-shot Investment Tips Package” to these 1562 devoted clients and sell the paid version to all of them for a lumpsum amount. These devoted clients will continue to stick with the scamster till they have lost considerable amount of money.

The scamsters will collect another 1 lac contacts and repeat the same scam again with the new contacts. Once their contact database is exhausted, they will create another investment tip website with a different brand name and start giving the trail package to the same database.

This is how the Sure-shot investment tips scams are devised and scamsters take advantage of the greed of the clients, who they have engineered to become devoted so that they can part with their money and these scamsters make hay!!!

Greediness and the desire to make quick money are actually the weakness on which these scams are built. Don’t fall prey for these traps. Remove those weaknesses and become stronger financially forever.

If you want to avoid these kind of financial and investment traps and be on the right financial tracks, then preparing an elaborate financial plan will be of great help. If you are serious about creating a financial plan for yourself, then you may want to check our financial planning process.

March 22, 2014

How does it affect you if you miss to file the income tax returns by the deadline?

The tax payers, auditors and tax masters go extremely busy filing taxes and working on refunds in July. 31st July is the cut off for filing your returns which is set by the central board of direct taxes. Not only tax filing process has become easier to do it online and also the filing has become mandatory on or before July 31st. This year, we have got the time extended up to Aug 5th.

  1. Do I need to file my returns?
  2. What are the criteria to file the returns?
  3. Is it mandatory for all the taxpayers to file the returns in the same assessment year?
  4. What happens if I miss to file the returns on or before July 31st?

If you have such questions in mind, go ahead and read it further.

Who needs to file the returns?

For those whose taxable income exceeds Rs.2 lakhs in a financial year by way of income from salary, house property, capital gains and income from other sources needs to file the returns on or before July 31st every year.

For income from business or profession the last date of filing return is September 30th every year.

Is the return filing process cumbersome?

Not at all. The CBDT(central board of direct taxes) has made the tax filing process easier than before. It is mandatory to file returns through online for those whose taxable income exceeds Rs.5 lacs in year.

First you need to register your PAN in the incometaxindiaefiling.gov.in website. There are forms available like:

  • ITR 1-> for income from salary and income from other source,
  • ITR 2-> income from house property and capital gains,
  • ITR 4S-> Income from salary and professional income.

You need to choose the forms based on your income source and fill the same. After filling the same you need to upload it. You will receive an acknowledgement ITR V for the return filed through online.

Take a print out, sign and send it to the central processing center in Bangalore within 120 days from the date of filing. Your return will be considered as filed only after the receipt of the ITR V. There is no need to send the ITR V if you are having digital signature.

What happens if I do not file my returns on or before the deadline?

As per the section 234 in the Income tax act, there are various penalties and implications attached to delay in filing or non-filing of your returns.

Interest under section 234 A for delay in filing of return after 31st July

If you need to pay tax and filed return after 31st July then you have to pay interest of 1% for every month for the tax due for delay in filing of returns. For example, if you need to pay Rs.50,000 as tax for the financial year 2012-13. The company had deducted TDS of Rs.30,000 and you didn’t pay the remaining Rs. 20,000 within the due date 31st July 2013. You have decided to file your return in the month of October 2013. Then you have to pay interest of Rs.600 for the delay of return filing under section 234 A.

Interest under section 234 B for nonpayment of advance tax

Any tax payable has to be paid on or before 31st March of every year. If the tax liability exceeds Rs.10000 in a financial year and not paid the tax on or before 31st March then 1% interest will be charged for every month because of nonpayment of advance tax.

As per the above example the interest to be payable under sec 234 B is Rs.1400. This is in addition to the interest levied under sec 234 A.

Also there will be additional interest levied under sec 234 c for non-payment of advance tax within the specified deadline.

Discretionary Penalty:

If you have not filed returns even after one financial year from the assessment year, you need to pay the discretionary penalty of Rs. 5,000. Say for example, you have not filed the returns for the last assessment year, 2012-13, you can file it in the current assessment year 2013-14 without any penalty.

But if you are missing it this year too and filing it in the next assessment year, 2014-15, you need to pay the penalty of Rs. 5,000. In case of nonpayment of full or partial tax in the current or subsequent financial year, you will end up paying the penalty of Rs.5000+1% each month.

Capital loss to be carried forward:

In case of capital loss, it is mandatory to file it before July 31st of the assessment year. The capital losses are not allowed to carry forward if you file your return beyond the due date. However, in case of capital loss due to selling your property, land or a house, you are allowed to take it forward even if you are filing late.

Revised Filing:

It is very, very important to remember not to do any mistakes while filing tax returns. If so you need to do a revised filing. If you file your return through online then the necessary rectification should also be done through online only.

Delayed filing of your taxes will not affect getting refund, if any. However, not only avoiding penalties, filing your returns on time will save you in many situations. If you want to apply for a visa to any country like USA, Europe, UK and all, it is mandatory that you submit the documents related to income tax filing.

There are also processes involved while getting loans from banks where you will be asked to submit the IT related documents. Not paying or filing returns on time may lead to rejection of visa or loans.

March 15, 2014

Four Less-Known Facts of Home Loans

Buying a house means making your dream come true where you spend hours and days looking for a suitable property, checking backgrounds and finally scouting for the best deal on a home loan (unless you have loads of money to pay for the house without taking a mortgage). 

Though most of us avail home loans, there are a few less-known facts about home loans which are worth knowing.

  • What are the available tax deductions for your under-constructed house?
  •  Do you still have tax benefits for the home loan, if you have taken it from your friend and not from Bank? 

Many of you might not be having answers to these questions. To be conscious that you are ignorant is a great step to knowledge. So let’s try and explore these new dimensions of home loans.

  • Tax Deductions for Under-Constructed houses

Do you know that you should have a certificate of ownership and possession of the house to claim tax under section 80c? Without complete and proper analysis, investors presume that they can claim for tax deductions of their houses which are under construction and they go ahead with the loans.

Assuming Mr. Gupta has bought a house on loan on 25th November 2009. He totally paid Rs. 5 lacs as interest in next 3 yrs.  He obtained possession on 19th Nov 2012. He can claim this Rs.5 lacs of interest, in equal installments in the next 5 yrs period, which is 1,00,000 per year in 2013 – 2017 . The total limit for this exemption for this interest will still be 1.5 lacs per year.

The above example explains the real scenario i.e. you cannot claim the interest amount but the deductions can be claimed later on in 5 equal installments for next 5 years from the end of the financial year of possession.

  • For Extension or Renovation of House

If you are taking a loan for extending or renovating your existing house, then you can only claim the interest amount under sec 24 and not the principal part under sec 80C.However, the limit in this case is only up to Rs 30,000 for owner-occupied properties. If it is a rented, leased or second home which is not a self-occupied property, then the tax deduction is not limited.

  • Selling a house serving home loan

If you sell your house within 5 yrs from the date of buying, then all the tax benefits which you have claimed under sec 80C will be added in your salary in the year of sale and termed as income.

For example, if you bought the flat in July 2011 and in next 3 yrs you have claimed 2 lac under sec 80C, and then this 2 lac will become your income in the financial year in which you sell the property and will be taxed accordingly. However interest component are not reversed.

  • Loan taken from Friends and Family

Under sec 24 , you can claim the interest on the loan up to 1.5 lacs per year.  You will be able to claim this even if you want to take it from your friends, parents or any other person. However, in order to be applicable for claiming the principal amount under sec 80c, you need to avail the financial lending from some Bank or financial institution only.

Knowledge is power. Knowing these less-known facts about home loans will help you take the more informed decision. Informed decisions lead you to better results. Better results lead to progress, productivity and prosperity.

March 13, 2014

8 Major Reasons why your Loan Application can be Rejected

A house, an MUV, your child’s education, a foreign holiday: you could have myriad reasons for applying for a bank loan. The bank generally considers and clears a loan based on your credit-worthiness. Among the factors contributing to a successful application would be your credit report which would be based on your income, employment record, age and value of holdings, prior loan repayment record.
Make sure you check the following points before applying for a loan:
Are you responsible enough to make the commitment?

You need to check your ability to repay by roughly estimating your monthly inflows and outflows, after allocating some funds for unforeseen emergencies

Credit Report from CIBIL

A good CIBIL score will speed up your loan application. A good track record of paying your credit card dues in time will get you a high CIBIL score.

Clear Funds for EMIs

Make sure your income either rises or remains steady for as long as you need to pay the EMIs for your loan.

When can your Loan application get rejected?
A few reasons which could lead to rejection of your application could be as follows:
Negative  track record :

If your credit card or previous loan repayments have a poor track record, your application can be rejected. Thus, a positive report from CIBIL would ensure quick and easy clearance of your application.

Unsteady Income and compulsive job hopping: 

If you have been juggling between jobs and do not have a good employment record, even if you have a high income at present, your application can be rejected.

Someone in the family has not paid up

If someone in the family has debts and a negative rating from CIBIL, your application is liable to be rejected as you share the same address as the defaulter.

No guarantee about the guarantor

A guarantor plays a very important role in your loan clearance process. If a guarantor has good credit worthiness, your application will be easily cleared.

No guarantee about the co-applicant

Just like the guarantor, the co-applicant plays a very important role in the clearance process. If the co-applicant has good credit worthiness, it will increase the probability of your loan sanction. On the other hand, if the co-applicant has got poor repayment history or poor credit worthiness, you loan application may be rejected.

A previous  loan application has been rejected :

If for any reason your loan application has been rejected previously, make sure you have rectified the errors before you file another fresh application. After all, no bank wants to lose its money and officers are accountable to higher authorities. Make sure all your records and ratings are clean before you make a fresh application.

Is your sister or friend a co-applicant?

Generally, banks do not encourage loan applications where brothers and sisters or friends are co-applicants. However, if parents are made co-applicants, chances of getting the loan approved are higher.

More loans and less Income:

If you already have taken more number of loans, your disposable income comes down considerably.  As this will reduce your loan repayment capacity, your loan application may get rejected.

Take the loan, pay up and go in for another one

While some banks used to levy a fine on pre-closure of loans, a majority of them have removed the clause from the loan terms. So, it might be worth liquidating your savings and reducing your loan amount at the earliest. The good part is once you have a good record of loan repayment, you can get approved for another loan from the same or another bank easily.

Apart from being credit card smart, if you want to be completely financially smart, then you need to begin with an end in mind. That is you should decide in the beginning itself, what are all the financial goals, you need to achieve at the end.

March 12, 2014

7 shabby situations when you shouldn’t use your credit card

“Life just seems to be getting simpler by the day,” remarked 22 year Swati, a software developer with a leading MNC. She was referring to the convenience provided by modern-day living aids like plastic money, online shopping, e-payments, deferred payments and the like.

“Really?” quipped her grand mom. “We never had any of those in our days, but we did manage to save some money out of whatever little your grandpa brought home.” After discussing the pros and cons of credit cards, Swati realized the trap she was getting into.

Typically, credit cards would temporarily boost her purchasing power, allowing her to give into temptations and spend the money that she did not as yet have in her account!! God Forbid, if she wasn’t able to pay in time, there would be the Damocles sword of accumulated charges and higher bills for delayed payments hanging over her head!

Together Granny and Swati laid down the rules for minimizing the use of credit cards.

  • Keep some cash in hand or pay 38% rate of interest!

It is better to have some cash in hand as withdrawals through credit card from an ATM are subject to interest at around 2.85% compound interest per month. The clock starts ticking from the day of withdrawal and effective annual rate of interest would amount to almost 38%.Besides, a transaction fee of 2.5 to 3% is levied on the amount withdrawn.

  • Swipe only when you are sure

Banks generally offer an interest-free period of 20-50 days to credit card holders. Try not to use your card, if you are not sure of repaying the amount within this period. Credit card defaults are not only charged a late payment fee but also attract an interest of up to 3% on the outstanding amount from the date of transaction.

The whole point of credit cards, the way they are rendered most profitable, is that we dig ourselves into debt and stay trapped there forever.

  • Avoid jumping your credit limit:

Avoid using your credit card if your expenditure is already close to your credit limit set by your bank. Some banks permit overshooting the original credit limit, at an additional charge on the overdrawn amount.

  • Discounts and Sales: Look the Other way

A batch of credit cards fattens a wallet before it thins the wallet.
If you are a compulsive shopaholic, try to leave your credit cards at home when you go for a first round of window shopping. Come back and thoroughly ransack your wardrobes and shoes to figure out what you really need to buy. Next time take your cards along and try to avoid the temptation to overspend.

  • Reward Points Might not really be rewarding

Spend only when you really need something, not for accumulating 1000 reward points on the first swipe of your credit card!

  • Use Money cards or Travelers Cheques while travelling abroad

It is always safer and wiser to carry TCs or Money cards for which you have paid in the local currency. Transactions through international credit card are billed at the rate of exchange prevailing on the date of purchase and additionally attract a charge of 3% on the amount.
ATM withdrawals through international credit cards are levied with huge transaction fees and service charges.

As a thumb rule, try to restrict your spends through credit card to 40% of the credit limit.                  
  • Is your online transaction secure?

Cross check the genuineness and safety of the website when using your credit card for online transactions. Sites with “VeriSign” and the web address https are secure as compared to the web address of http. It is easy for hackers to decrypt passwords and credit card information, so avoid using new or unknown sites for online transactions.

So, be judicious not only in your expenditure, but especially so in your expenditure through credit cards. Remember that it is not only the amount that appears when you swipe, but also an added compound interest that you might finally end up paying if you are not able to afford the expenditure at that point of time.

Use your credit cards judiciously; otherwise you will lose your credit worthiness.

March 11, 2014

7 Effective ways to Save on your Car Insurance Premium

Amidst  the ever increasing fuel rates which is making  driving a car an expensive proposition , If I say that I can give you magic mantras which will reduce the annual budget of your car or I can make driving your car cheaper than earlier ,  Will you believe me? I am sure you won’t or even if you accept it will be half-hearted just to find out what actually I am talking about.

I am talking about your car insurance premium which holds a major portion in your annual car budget. If you are able to reduce an insurer’s perception of your risk, you will get the benefit of reduced price. However, there are many factors you either can’t change or can’t change easily … age, gender, driving history and living place .Yet there are things which can be controlled to reduce the claim amount.

Think about bigger profits - Many insurance companies pay discounts up to 50% on the hefty premiums as no-claim bonus. So, pay for minor damages yourself. Avoid making small claims as this will affect your bonus. If you don’t claim on an insurance policy then you are entitle for an annual discount which amounts a substantial difference to the overall cost.

Go for a higher deductible - A deductible is the amount of a covered loss you agree to pay before the benefits of your policy are applied. In many cases, a higher deductible could mean a lower premium, but would also mean paying more out-of-pocket in the event of a loss. If you are a safe driver or you don't drive your 2nd car too often, then the probability of damage or accident is also low, then you can opt for higher voluntary deductible

Choose the right policy - There is certain riders in the policies which you are never going to make use of, so there is no point in paying for it. Save money by getting the right policy for you. Instead of blindly opting for various add-on covers choose them carefully according to your priority and their relevance to your requirements.

Theft Device will get you a discount - Accidental damages and theft add a bulk to insurance costs. If you leave your car in a garage or driveway it means theft and accidental damage is less likely, resulting in a 3% - 7% drop in insurance costs. Purchasing a vehicle with a theft deterrent system or having one installed will most often get you a discount.

Be a loyal customer - Loyalty can be rewarded when it comes to sticking with your auto insurance company. Find out the loyalty bonuses or offers which your existing insurer is offering. Your long association with a particular insurance company will help you in fetching a cheaper policy. Having multiple insurance policies with the same company will also get you a hefty discount.

Drive like an angel - Believe it or not, your driving record is one of the top factors that insurance companies look at. Whether you’ve been in an accident or received a major traffic violation within the last few years can have a huge impact on your premium. If you drive less miles you will be entitled for a lower premium by the insurance companies. 

Timely payment - Ensure that you pay your premiums timely and get the policy renewed before the due date. Any delay could lead to losing your no-claim bonuses/discounts and can also lead to lapse of the policy.

Although there are factors which are beyond your control when we talk about car insurance premium, the good news is that we have discussed those factors which are absolutely in our control and can minimize the amount of premium drastically.

March 7, 2014

5 Shocking Psychology Traps which could ruin your investments

Psychology plays a part in whatever decision we make, including investment in stocks. Sometime our built in psychology is helpful and many a times it is not. When psychology is not helpful we call them psychology traps. Investment in stocks is also guided by few psychology traps which influences us in making bad investment choices and lose money.

Since on most occasion we are not aware of our psychological built up which guides us in taking bad investment decisions, chances are we keep on repeating such mistakes. If we are aware of them the probability of bad investment decisions reduces considerably. Let us look at some of these common psychological traps in which we unknowingly (most of the time) get entrapped.

Psychological Trap No.1: Becoming a Blind Fan

As people love to be in there comfort zone, they get attached to some of their choices of companies in which they have invested. In 1990s, UTI was the biggest mutual fund in India and its products were a rage.  One of its products, ‘Master Share’, when listed, rose to unprecedented levels and many investors made money. Many investors have become the blind fans of the brand UTI.

UTI then came with their next product, ‘Master Gain’, people who were moored into UTI threw caution to the wind, forgetting it is a mutual fund product, invested in droves. When listed, it opened below par and remained so for long. All those investors who were hooked to UTI lost money. Today, UTIMF is one of the ‘also ran’ mutual funds companies.

To avoid this trap, an investor should be flexible and be aware that s/he is not getting attached to stocks/companies and keep on watching its performance dispassionately and know when to withdraw or reduce exposure.

Psychological Trap No.2: Falling in Love with Junk Stocks

Usually people fall in love with their investment decisions and cling to shares, whose market value has declined and immediate chances of recovery are remote, but will not take decisions either to withdraw or reduce their exposures.

They hold on to this belief that their past decisions of these investments were infallible, and the stocks will turn around. Most investors have such shares in their portfolio, which they keep on clinging to despite making losses with no chances of recovery in foreseeable future.
Remedy from this trap lies in taking a detached view while reviewing the portfolio, basing decisions on market reality and avoiding the ego trip.

Psychological Trap No.3: Seeking only for confirmation from Others

Many investors while deciding on a stock, consult fellow investors, and accept such views which approve their own choice and reject the contrary views. Such selective approval often lead to bad decisions, but the investor holds on to it as his/her choice has been confirmed by other investors.

Avoiding such traps will be possible if the investor while seeking approval from other fellow investors should be rationally looking into the background of these investors. Alternately, the investors may take into consideration both supportive and opposing views and then make the decision to invest or not.

Psychological Trap No.4: Copying Mindset

On occasions investors take investment decisions, based on performance of relatively successful investors, mostly within the friend circle. They try to follow the investment decisions of such successful investors. When such decisions go wrong they fail to understand why it happened. The reason is simple. People make investment decisions based on their own psychological makeup, investment goals and family/social obligations, which will vary from person to person. No two investors are similar on these counts.

One should, therefore, avoid investment decisions, which are made by blindly following successful investors.

Psychological Trap No.5: Swelled Head

Often people who are qualified in Finance (MBA-Finance and PhD in Finance) have a strong superiority complex (swelled head) about themselves as to their understanding about investment and feel their investment decisions will never go wrong.

The classic example is of Long Term Capital Management Company (LTCM) which went bust in late 1990s, which was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.

What do we learn from the above?

Human psychology is complex, and it may sometime lead in committing repeated mistakes. It is in the heat of the moment, or when subject to stress or temptation, an investor may fall into one of the above psychological mind traps. The wrong perceptions, self-delusion, frantically trying to avoid realizing losses, desperately seeking the comfort of other victims, shutting out reality and more can all may cost you dearly.

If we are aware of the nature and impact of these common traps and always try to be honest and realistic about ourselves we will be successful in avoiding these traps. Whenever, we seek advice it should be from competent and knowledgeable people of integrity who will bring us back to reality before it is too late.

To make all the successful investment principles and techniques work in your favour, you may test-drive our services by opting for 30 MINUTES COMPLEMENTARY CONSULTATION OFFER.  To register for this ‘Free consultation’ please click here and put something like ‘Free Consultation’ in the subject.