Financial planning makes loan repayment comfortable

Buying a home is a major financial commitment for an individual. Usually, a homebuyer stretches financially to purchase a house, and in most cases, borrows the funds from a bank.

These loans are large amounts and in the light of the volatility in interest rates, it is advisable to spend a good amount of time on financial planning in order to avoid a debt trap in the future. The interest rates have been quite volatile since the last 10 years. There have already been a couple of cycles of soft and hard interest rates.

There are three types of home loan schemes - fixed rate scheme, floating rate scheme and mixed rate scheme (also called teaser rate scheme). Under the fixed rate scheme, the interest charged on the loan amount remains fixed for the entire loan tenure.

However, these days most banks have stopped offering the fixed interest rate scheme. A few banks offer a fixed rate at significantly higher than the prevailing rates and that too the agreement has a clause of variability based on time or under certain conditions.

In a floating rate scheme, the interest rate varies with time based on the market conditions. In the teaser rate scheme, the bank offers an attractive fixed interest rate for the initial few years and links the loan to a floating rate thereafter. There are many variants of such schemes available. They suit the needs of different borrowers. Therefore, it is very important to analyze such schemes based on your financial condition before getting into a particular scheme.

Usually, a home loan is a long-term financial commitment as the tenure goes for more than 10 years in most cases. Therefore, it is important to think about various personal milestones and plan for regular monthly outflows before taking a loan.

Regular payments of EMI is very important and an essential part of a home loan. The payment history of an individual goes a long way in deciding future loan disbursements. Therefore, it is important to keep in mind that one should be regular and prompt in paying EMIs. It is advisable to discuss with your bank in case of any difficulties in paying the EMIs and work out a solution. You can look at prepayment, part prepayment or foreclosure of the loan to reduce or stop the EMI dues.

Source :ET

Word of the Day: Stocks

Explanation: A stock is simply a paper document or a certificate that shows, you own a small part or percentage of a particular company. These stocks are bought and sold through stock exchanges such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE).

The BSE and the NSE are the two main stock exchanges in India and most of the stock trading activity in the country happens through these two exchanges. Any company can raise capital by issuing stocks in the public domain. For a company to be able to issue stocks, they must be a publicly listed company, registered with any recognized stock exchange, besides other listing requirements.

A Man whose work speaks for itself!

Mr. Swapnil Pawar, (Head – HNI services) at Karvy Private Wealth was mentioned in the Business India Magazine under the prestigious column ‘Frontrunners’. Here’s a short introduction of a man whose work speaks for itself.

With a graduate degree in Aerospace Engineering from IIT Bombay and an MBA from IIM Ahmedabad, Swapnil Pawar’s work experience includes, the Boston Consulting Group, where he advised clients across the financial services, banking, engineering and technology sectors on business strategy and execution. Later, an entrepreneurial streak saw him co-found PARK Financial Advisors, a wealth management venture, which was later acquired by KARVY group.

Currently Swapnil holds the post of head, HNI services for Karvy Private Wealth. This includes developing teams in leading cities of India and setting up a robust and scalable process of providing central support to wealth advisor. He oversees the products platform and leads the definition of investment strategy of the company. In his free time he pursues subjects like macroeconomics, science fiction and cosmology.

Source: Business India Magazine

Popular Move by the US Treasury - Broke Back Mountain for the Indian IT!

The US Senate has raised a Bill which proposes to double the H1, L1 Visa Fees. It is been estimated by Nasscom that the move to hike visa fees will raise costs for Indian IT firms. The cost estimate is based on the assumption that the increase in fees is $4,500 (on top of the existing fee of $2,500 for H1 visas) and the fact that India uses approximately 50,000 H1 and L1 visas a year.

This move would significantly impact the India IT industry when there’s actually a need for the markets to open and make companies more competitive from a global perspective. One of the key impacts on this could also be on the stock market prices of the leading IT companies.

Source: Times of India
Photo : topnews.in

Word of the Day – Hedge

Explanation: Hedge or hedging simply means making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

Example: An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.

Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).

Word of the Day : Sensex

Full form: Sensitive Index

What does it mean basically: It is a value weighted index of the performance of 30 most actively traded stocks in the Bombay Stock Exchange (BSE).

Why is it so important: It is known as the pulse of the Indian stock market. The 30 companies included in the index comprise of around 50% of the market capitalisation at BSE (Bombay Stock Exchange). The companies included in the Sensex reflect the current market conditions.

As of 26th Feb, 2010, the lists of the companies included in the Sensex with respect to weightages are as follows:

- Reliance Industries – Oil and Gas
- Infosys – IT
- ICICI Bank – Finance
- Larsen and Toubro – Capital Goods
- HDFC – Finance
- HDFC Bank – Finance
- ITC Ltd – FMCG
- State Bank of India – Finance
- ONGC – Oil and Gas
- Tata Consultancy and Services – IT
- BHEL – Capital Goods
- Bharti Airtel – Telecom
- Tata Steel – Metal, Metal Products and Mining
- Sterlite Industries – Metal, Metal Products and Mining
- Hindustan Lever Ltd. – FMCG
- NIIT Technologies – IT
- NTPC - Power
- NIIT – IT
- Hindalco – Metals, Metal Products and Mining
- Mahindra & Mahindra Limited - Transport Equipments
- Maruti Suzuki – Transport Equipments
- Tata Motors - Transport Equipments
- Tata Power – Power
- Wipro – IT
- Grasim Industries – Diversified
- Hero Honda Motors Ltd. - Transport Equipments
- Jaiprakash Associates - Housing Related
- Reliance Infrastructure – Power
- Sun Pharmaceutical Industries - Healthcare
- DLF Universal Limited - Housing Related
- Reliance Communications – Telecom
- ACC - Housing Related

Source: BSE

RBI unveils norms for credit default swaps for corp bonds!

Shrugging off the worries raised by credit derivatives in the global financial crisis, the Reserve Bank of India (RBI) has announced the draft report on credit default swaps (CDS) stipulating that CDS should be allowed only for corporate bonds as “reference obligation” with strict entry norms for players — both market makers and users. During the 2008-09 financial crisis, the global CDS market was a big concern to regulators due to the lack of transparency in the trillion dollar market and the related systemic risk.

“While the reference entities are required to be rated, no minimum rating is stipulated. The participants in CDS market may be categorised as — Market-makers who are permitted to both buy and sell protection and users who are not permitted to sell protection but are permitted only to hedge the underlying risk by buying protection,” the report prepared by an Internal Group of the RBI said.

Source :Indian Express

Word of the Day:Arbitrage

Explanation: The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

For example:
Shares of ABC Ltd. May be quoted at Rs.100 in the cash market, whereas it may be quoted at Rs.103 in the futures market. This deviation gives rise to an arbitrage opportunity, which traders tend to capitalize upon.

Wealth of the Nations: Adam Smith

It has been 234 years since a Scottish economist and rebel of his times, Adam Smith first published his master piece, the now iconic “Wealth of Nations”, the simple language and the mastery of a complicated subject has never been so relevant.

The backdrop for the treatise was the dawn of the industrial revolution. The book is often considered by the experts to have laid the basic groundwork for the Modern Economic Theory.
Revisiting the book, one cannot quote one of the main themes of the book, the now famous, ‘Invisible Hand’, a concept that naturally guides a society through self interest.

This book, when published in 1776 not only influenced economists and authors, but governments and organisations. Even stalwarts like Karl Marx and Sir Isaac Newton quoted and got inspired from the ‘Wealth of Nations’.


The book consists of the following parts:

• Book I: Of the Causes of Improvement...
• Book II: Of the Nature, Accumulation, and Employment of Stock
• Book III: Of the different Progress of Opulence in different Nations
• Book IV: Of Systems of political Economy
• Book V: Of the Revenue of the Sovereign or Commonwealth

We’d strongly suggest a revisit to the book; it sure would surprise you as ever.

Team Karvy Private Wealth

Understanding the RBI moves!

The reserve bank of India plays an important role in adjusting interest rates in the economy in order to monitor inflation. Inflation is nothing but the general increase in the level of prices in the economy.

As you might have observed, prices in general — from vegetables to petrol — have been on the rise in the recent months. So, in order to control inflation the RBI announced an increase in the repo and the reverse repo rates. This will help in reining in inflation by curbing demand.

What is Repo rate?As explained earlier Repo rate is basically the rate of interest at which RBI Lends money to Banks (Commercial Banks).

Why is it important?: When the repo rate increases, it becomes costlier for the banks to get loans from RBI, which thus leads to banks having lesser liquidity(money in the bank) to lend, which further leads to a general shortage in the liquidity (money in circulation) in the market. Repo rate generally is an instrument of choice for RBI to control the liquidity in the market.

Will my borrowing cost rise due to the rate hike? : In the medium term, for instance 3 to 6 months, your borrowing costs are likely to go up for all kinds of loans such as home, auto and personal loans. This is because the rise in the repo rate will be passed on to the end customer over a period of time.

However, some banks or lenders were running special schemes on teaser home rates whereby the rate of interest was fixed for the first two years and changes for the third year. If you have already availed of these schemes, then your rate will not change.

If you are applying for a fresh loan, you will have to apply for the loan before these teaser loan deals expire if you want these low rates. In any case, after these deals expire, banks are free to revise their rates.

How will the rate hike affect the base rate? : The base rate regime for interest rates came into affect on July 1. These (base rates) are internal benchmark rates that each bank must use to price its loan rates for loans offered to all clients.

Source: ET