How to invest profitably in global markets

Wealth managers often recommend international funds and stocks for diversification.

However, most investors have been unwilling to take that risk. Now, things are beginning to change.

"Facebook's initial public offer created quite a buzz and there were many enquiries from high net worth individuals," says a wealth manager.

One of his HNI clients, who invested Rs 1 crore (Rs 10 million) in the US, has made huge profits by investing in a single stock, Apple Inc, in the past year. 

In this period, the stock has given 83 per cent. In the past six months alone, Apple has returned 67 per cent, after Steve Jobs' death in October 2011. Microsoft Corp has returned 22 per cent in the past year. Patient investors have got 67 per cent in the past three years from it and a mind-blowing 438 per cent from Apple.

Similarly, Google Inc has given 72 per cent in the past three years and 26 per cent in six months. Indians who invest in foreign equities mainly look at US-based companies. They do not look at other markets, as they don't know much about these and the economies.

Some of the stocks the client in question has invested are LinkedIn, Apple, Google, Microsoft, AIG, Starbucks and Colgate-Palmolive. Ask him why and the answer is, "He simply choses companies he has heard of". This is true in most cases.

Indian investors look for names they are familiar with and whose products they have used. Indians who've stayed abroad and worked there look at investing in shares of the companies they have worked for.

"They do not, however, go for companies such as Gillette and Coke, as the share prices of these companies are fully valued and the potential for upside is very limited," says Ashish Kehair, executive vice-president and head, private wealth and international business, ICICI Securities.

Also, they do not bottom-fish, that is, buy cheaper stocks. "Most have a bias for the home country. "Then, the process of investing abroad is operationally cumbersome.

"And, Indian broking firms do not have the research on companies listed abroad; therefore, investors do not get the kind of advice they require," says Prateek Pant, head- wealth solutions at RBS Private Banking. Largely, ultra HNIs invest in foreign equities for portfolio diversification.

The Reserve Bank of India allows individuals an annual foreign investment limit of $200,000 or Rs 1 crore ($1 =Rs 50). You need to approach a licenced foreign broker to invest in stocks abroad. You will also need a bank account in the foreign country for all transactions, as you would have to transfer funds from your domestic account to the foreign one, from where the money would be transferred to your online trading account.

To comply with the know-your-customer norms, you would have to give documents such as a PAN card, address proof and financial dossiers to establish your net income and so on. You may also have to provide $5,000 (Rs 2.5 lakh) as a minimum deposit while opening the trading account.

The account opening charges may vary from nil to around $20. Plus, there will be quarterly account maintenance and brokerage fees. This entire account(s) opening process can take up to a month. Any capital gains incurred through trading in foreign securities is taxable in India.

In case of short-term gains (held for less than a year), you are taxed at slab rates. For long-term capital gains, the rate would be 20 per cent with indexation.

Experts say the norms on indexation of capital gains on foreign securities are unclear. Still, financial planners discourage retail investors from entering this territory, as you need a lot of understanding to dabble in foreign markets. "We do see clients who have had a good run in Indian markets showing interest in foreign markets. "But, we make them understand that it can be very risky and the fund requirement is also higher," said a certified financial planner.

Just in time - Tax Saving Tips

Well we agree it’s a little late to do much about your pending bills but it seems everyone is looking for a quick run through of what can be done just in time before filing returns. However, start saving on your personal income tax bite during the year and make additional strategic moves as the year-end approaches.

 Here are some basic and helpful tips for saving on your taxes this year:

1. Keep all business-related receipts: Keep track of what the receipts are for, and save them in a safe place.

2. Claim deductions: Many people neglect to carefully look for, and claim, all the deductions to which they're entitled. By simply taking the standard deduction, you may miss out on other available deductions.

3. Take all applicable tax credits: For each child under the age of 17, there is a limited amount of credit. There are also various other credits, such as those available when you adopt a child or when you elect to claim a Lifetime Learning Credit.

4. Take a loss: If you’ve done well with your investments and are looking at significant capital gains, prior to year-end is the time to offset some of those gains by selling a losing venture.

5. Consider tax-free investments: Returns are not very high, but if you're looking for a safe, tax-friendly investment, consider tax-free government or municipal bonds, among other such investments. This type of investment is particularly good for a high-income individual.

6. Remember charitable donations: Make donations and you can lower your tax bite but just remember to get receipts.

7. Max out your retirement plan contributions: Of course, by doing so you're assuming that your personal income will be lower when you withdraw the money. While that may or may not be the case, it’s safe to say that if there are a number of years until you start taking distributions, the tax laws will likely change many times over between now and then, hopefully in your favor.

8. Double-check your work: Errors in tax preparation and on tax returns account for millions of dollars that taxpayers could save very year. Remember to double-check everything.

Source: http://www.allbusiness.com

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Are you an over spender? Here's how you can save!

Do numbers make your head spin?  Were you a math hater in school? Or perhaps you are just too laid back to worry about planning and wisely remark...take each day as it comes, the rest will take care of itself. Actually that might be the truth, things happen seldom according to plan. However if you believe in the power of self-reliance, then you would probably sit up and take notice.

Planning your budget has nothing to do with conforming to set patterns. It merely makes you aware of your financial situation and helps you create a contingency fund to tap into, when in need. Now how would you assess that and how do you start preparing to put into money consistently into this contingency fund?

Fixed expenses vs. Flexible expenses

Step A: If you are someone used to hard cash and don't like the idea of  a credit or debit card, then you just need to calculate a week's regular expenses and multiply that into four, to get your monthly outflow. If you are someone who likes detail (that would be even better) then allocate expenses under different categories like food, transport to work, shopping, entertainment, etc. and you can further divide the categories into groceries, eating out, etc. The detailed break up will help you pin point exactly where you are overspending and take a conscious step to curb those expenses. You should divide these expenses under two broad categories namely Fixed Expenses and Flexible expenses.

Spending Forecast Plan

Step B: Chalk out a 'Spending forecast' plan. Evaluate what are the things you need to buy in all the five main areas: household, transport, food, entertainment, other needs; and set aside monies for that. Other needs may include emotional expenses like that snazzy electric guitar you always wanted to buy to cultivate an entertaining hobby, or a wardrobe upgrade, a professional course you were planning, etc.

Contingency Fund – I

Step C: Evaluate a scenario where you may  be out of a job, then you need to figure out how much you spend each month and then set aside that money x 6 months as something to fall back on, when fate hands you a raw deal like a lay off. This way you ensure that you can be self reliant and be prepared for unforeseen emergencies.

Contingency Fund - II

Step D: Set aside some money apart from a medical insurance for any sudden, short term medical expenses you are likely to incur. Keep this cash very accessible and yet be disciplined enough not to dip into it.

Once you have identified the fund boxes: Spending forecast, contingency fund for job loss and medical expenses, be dedicated and generate your money flow into these funds consistently. This could be once a quarter but it would be more manageable if its once a month. Before this final step of dividing the savings, you need to save every month! If you are like most of us, who notice the funds have run dry just a few days before the pay check is due to arrive, relax!

There is a way around it.

Create another account, which perhaps gives you a good return interest rate on your savings and enable an auto transfer of a percentage of your funds (which takes care of Steps C and D) based on your calculations, on a suitable date of every month to this alternate account. Keep this parked cash out of your reach and from here invest it in suitable financial instruments, which can be liquidated when the need arises or simply keep it here and let it accumulate interest.

Source: Rediff Business

5 Easy Ways to Save Money on Credit Cards

Plastic Money is the latest buzz word in town; everyone was their share of Plastic Currency. Credit Cards, Debit cards are a cool factor with the growing urban population and before they start earning and saving a few for the rainy days they are already under Credit Card Debts!

Too many consumers sign up select a credit card offer by looking only at the credit limit and don’t give a second thought to whether they are getting the most out of their cards.

Here are the top five things we suggest you look for when selecting a credit card:

1. Look Out for Two-Cycle Billing

A little known trick many credit card companies practice is something referred to as two-cycle billing. With the standard one cycle billing, the interest you pay is based on your average balance for the month. Not so with two-cycle billing, where the interest you pay is based on your average balance for this month and the previous month. This makes it more difficult to get out of credit card debt because you’re working towards paying off your card.

The interest you pay makes up a higher percentage of your balance because the calculation includes the higher balance you had the month before. Whether the issuer practices two-cycle billing is not something you will find in any of the promotions so it’s important to look for this in the terms and conditions before signing up.

2. Use That Price Protection Plan

Many credit cards offer added perks like road side assistance and extended warranties that rarely get used. One of these common perks is something referred to as price protection. With this the credit card issuers effectively offer you a 30, 60 or 90 day price match guarantee on anything you purchase with your credit card. This comes in handy with purchases like electronics that are known to have significant price drops within a short period of time. Find a card with this perk and use it!

3. Are Rewards Cards Really Rewarding?

Earning airline miles or cash back may sound like a great deal, but the reality can be quite different. Although many cards offer great deals like 5% cash back, this is often an intro offer and ultimately you’ll only get the same 1% cash back or equivalent rewards that most cards offer. If it causes you to spend more on you’re credit card it’s immediately not worth it.

However there is another factor many don’t consider. The interest rate on these credit cards in generally about 5-7% higher than their non-rewards equivalent. Unless you are certain that you will never carry a balance on the card, a rewards card is probably not worthwhile.

4. Transfer Your Balance

You may have heard when taking out a 30 year mortgage that the first 15 years of payments will only knock about 15% off the principal borrowed. The other 85% is paid in the final 15 years. This is because in the beginning nearly all of your payment is going towards interest and only a small sliver goes to paying down the principal. As you get it paid off it creates a snowball effect, which results in larger portions of the payment being applied towards the principal each month. The same is true for paying off credit card debt.

If you are serious about paying off your credit card debt a balance transfer credit card is one of the best options available. In general you should go with the balance transfer card that offers the longest 0% intro   period. The long term rate is less important in this case.

The reason is the 12-15 months you have of paying 0% interest allows you to get a major jump on paying off the principal, creating the snowball effect. If you still have a balance at the end of the intro period you can look at refinancing again. Either way you’re going to come out ahead.

5. Shop Around

Would you sign up for any mortgage or car loan offer you receive in the mail because it said you were pre-approved? Then why would you sign up for a credit card this way? Choosing a credit card is a major financial decision. Rates and terms of credit cards vary greatly and you should always shop around before choosing a card. It doesn’t take long and there are dozens of websites that offer easy side by side comparisons.

Source : Rediff Money and Multiple

Some money management tips for your child

All  parents want to provide the best of everything to their kids and will do everything possible to ensure that their every wish is fulfilled. But parents will definitely not want their kids to be spoilt brats with disregard for their hard-earned money! If you’re wondering how you can provide your kids the best possible money management lessons, which will eventually help them in adulthood, read on.

The basics

The basic step in teaching kids to save and manage money on their own is by giving them an allowance. Very young kids can be introduced to the concept of saving through a piggy-bank. You can, by way of stories and real life examples, explain how daddy and mommy earn, spend, and save money.

 To save or to spend

 We all learn from our mistakes and know that experience is the best teacher. So let your kids learn from their spending mistakes too. Make them accountable for their spending and be firm on the allowance terms – no advances or extra allowances!

The ‘want’ list

 Your kids’ endless ‘want’ lists are excellent teaching tools. Show them how to prioritize their ‘wants’ on the basis of ‘necessity’ and ‘luxury’. Teaching kids how to compare prices and choose the best economical product will help them spend wisely.

Debt and interest

 When your kids borrow from you, make it clear that you have ‘loaned’ the amount and expect to be paid back from their next allowance. Kids learn quickly this way – when they feel the pinch! Similarly, applaud them when they save regularly or resist temptations. 

Source: ET

Why you must take a joint home loan

Buying a home is a milestone goal in most people's lives and the earlier they achieve this goal, the more peaceful they feel. In current conditions building or buying a home without a loan is a difficult task especially if you are in your mid-twenties and early thirties.

True earlier generations waited for nearly a lifetime to save money for this goal, but this is not the case with the current generation, and with rising real estate prices this does not seem a sensible option as well. Nowadays, everyone wants to achieve goals early so that they can enjoy the fruits of their labour, when they are brimming with youth.

The younger you are when you take the loan the better it is, as you will be able to pay it off in the next 20-odd years, and will be able to own a home before you are well into your retirement.If taking a loan early is an advantage, taking a joint home loan is a double advantage. Why? Listed below are the reasons.

a. The most significant advantage of a joint home loan is the increase in your loan eligibility. Incomes of the individuals taking a joint home loan are combined to determine the eligibility and it results in a higher loan amount.

b. Tax rebates are yet another advantage - as each of the individuals taking a joint home loan is eligible for individual tax benefits under Section 80 C currently for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid for each individual.

c. The number of people who can avail a joint home loan can be anywhere between four and six, depending on their individual credit profiles.

d. There is however one condition when banks lend money to joint home loan applicants, which is, all co-owners of the property should also be co-applicants, but the reverse need not be true.

Joint home loans are very much possible, but they do have their restrictions in terms of whom you can pair with for availing the loan.

Source : Rediff Business