December 2010 – OneMint

What OneMint has taught me

As you know I’m on vacation, and the time away has given me a good opportunity to reflect on the past year; especially on the things I’ve learned in the process of building OneMint, and I thought I’d share them with you because they’re useful lessons in all walks of life.

Talk is cheap

Building OneMint has taught me the true meaning of this phrase. It has made me realize how easy it is to criticize anything, and how tough it is to achieve the smallest of things.

These days I think a lot more before I criticize anyone, since I fully realize that the only thing coming in the way of OneMint’s growth is me, and if I’m so good at giving other people advice – why not use it to build my own blog. After all, nothing stops me from doing that right?

The flip side of this realization is that I’m far more impatient with others than I used to be. Recently when a friend suggested that a video we were watching on You Tube was really amateur I told him quite curtly to shut up, and start talking only when he’s made something half as good himself.

Obviously this isn’t going to go down well with everyone, but then to hell with the folks who will criticize anything on the drop of a hat, and never take any initiative on their own.

Be true to yourself

I set out on creating a blog that will attract smart people who realize that there are no shortcuts, no “tips” that can make them a million overnight, and I’ve been guided by the principle that I need to provide people with facts that will help them in making the final decision.

Unfortunately, for every person who is willing to work hard and take the trouble to understand their finances, and make smart decisions – there are a 100 others that want quick tips, and shortcuts.

I used to wonder if I should change direction and start giving out tips, and making decisions for people in a bid to increase readership, but I’d never be happy doing that.

I’m glad that I didn’t go that route because I’m happy doing what I do, and OneMint already clocks about 200,000 page-views in a month, which is a reasonable number for any blog.

These days, I have no hesitation in telling people that they won’t get any tips from me, and though I get several emails of this type, I don’t fall in to the temptation.

Giving out recommendations might increase the readership, but I know that it’s not the right thing for me or the person seeking out the advice, and I’m glad that I’m building readership while being true to my beliefs.

Every person is different, and deserves to be treated accordingly

I’m amazed at how many emails I get from people who demand information, and write as if they’re doing me a favor by requesting information. In fact, I just received an email from someone who sent me a list of 5 mutual funds and wants me to send their NAV to him. If there was a please or thank you in his message, I must have missed it. Some of the messages I get are truly ridiculous, and I’ve learned not to mind them, and simply tell them I don’t have the time to Google stuff on their behalf, or if the message is too bad then I just delete it.

On the other hand, there are people who are courteous, and go out of their way to reply to me even when I’m unable to help them. Needless to say – I give more attention to their comments, and emails, and I’m sure everyone else does that as well.

If you think a “Sent from my Blackberry” signature eliminates the need to insert an odd please or thank you in your message – do yourself a favor this coming new year, and talk to your mom to get your Ps and Qs in order.

Working on OneMint has been really great, and it’s been something that I’ve truly enjoyed every bit. The fact that I’ve learned so much has been an added bonus. I hope the blog continues to grow in the coming years, and everyone associated with it benefits as much as I do.

Read this before you get the iPhone 4 from US

The iPhone 4 is not yet available in India, and a few of you would be asking your relatives or friends to get an iPhone 4 from the US to use it in India.

Before you do that there are at least 4 things that you should know that might surprise you later. These are things that might make your iPhone 4 useless as a phone in India if you aren’t prepared for them.

1. Activate the iPhone 4 in US itself: If you get an iPhone 4 from eBay – it may not even be activated. This means that you can’t do anything at all with the phone. It just shows you a screen saying that it is not activated, and can only be used to make emergency calls. The phone is practically useless in this state, and the simplest way to activate this iPhone 4 is to insert an original AT&T iPhone 4 SIM card, and fire up iTunes. This will activate your iPhone 4, and let you past the first screen. Since it is a lot easier to find someone in the US with a iPhone 4 AT&T SIM card than it is to find one in India, you should ask whoever is bringing you the phone to at least get this done. There are other ways to activate the iPhone 4 called “hactivation” but they are much more complicated, and you would much rather get it activated than hactivated.

After this step you will be able to use it as an iPod
It will still not allow you to run third party apps.
It will still not work with other carriers such as Airtel.

2. Jailbreak your iPhone 4: After you’re past activating the iPhone 4 – you will need to jailbreak it. Jailbreaking does not mean that this phone can be used with any other carrier. It just means that you can run apps that are not approved by the iTunes store on your phone. This is also a pre – requisite to “unlocking” the phone which does allow it to work with other carriers. This has also been deemed legal earlier this year. It’s quite easy, and there is a simple hack byÂ “limera1n” that allows you to do it in a few minutes. You don’t need an original SIM for this.

After this step you will be able to use it as an iPod
You will also be able to run third party apps.
It will still not work with other carriers such as Airtel.

3. Unlocking your iPhone 4: The next thing you need to do is get your phone “unlocked” which will allow it to work with other carriers like AT&T, Hutch etc.

The key thing to keep in mind is that so far there is no unlock available for iPhone 4 running on iOS 4.1 or 4.2 with a Baseband of 2.10.4 or higher.

To be honest, I don’t know what the Baseband actually means, but before you buy the iPhone 4 – ensure that it is a lower Baseband so that it can be unlocked.

If you have an iPhone 4 with a 2.10.4 Baseband then you will not be able to unlock it right – away. Sooner or later a method will appear to unlock them and at that time you will be able to unlock it, and use it with other carriers, but you will have to wait till that time.

I’ve read a few posts on lowering the Baseband, but those methods don’t look very promising, and seem to be complicated as well. If you’ve not already bought the iPhone 4, then try getting one with a Baseband lower than 2.10.4.

For others – you can unlock the phone with various techniques listed online, and you will be just one step away from using it with your carrier.

After this step you will be able to use it as an iPod
You will also be able to run third party apps.
It will work with other carriers such as Airtel.

There is just one more thing you to do to actually use it though.

4. Cut your SIM to size: The iPhone 4 uses what’s called a micro sim, and is much smaller than your regular SIM. The two share the same technology, and there are quite a few instruction videos online that show you how to cut up a regular SIM to fit in an iPhone 4 and make it work.

iPhone 4 is quite a cool device, and hopefully will start selling in India soon, but if you are getting it from someone in the US – keep all these points in mind. Ideally (at least for you) if the person getting the phone can do all these things for you (except perhaps cutting up the SIM) that will work out the best, as doing these things in the US is always a little simpler than it is to do them in India.

Traveling for the rest of the year

A small post to let you know that I will be traveling and on vacation for the rest of the year, so posting will be light, and will probably be around 2 or 3 posts in a week.

I won’t be able to respond to comments or emails as frequently either, but will continue moderating comments so that new comments do get posted on the site.

Responding to emails will be especially difficult as they build up fairly quickly, so please leave a comment instead of an email wherever possible.

Enjoy the rest of your week, and the rest of your year as well!

Post Office Monthly Income Scheme

Couple of weeks ago, I wrote about Monthly Income Plans or MIPs, and this week I’m going to write about a similar monthly income scheme from the Indian post office called the Post Office Monthly Income scheme.

This is a fixed income scheme which provides you a guaranteed return on your investment, and is meant for people who are looking for a monthly source of income without taking any risk at all.

Where the mutual fund MIP invests a part of its assets in equity, and even gold in some cases – and may sometimes even get you a higher than 10% return (with commensurate risk of course) this scheme has a fixed rate of return and is meant for people looking for an ultra safe investment.

Here are some features of this scheme.

Post Office MIS Interest Rate

This is a scheme from the Indian postal service that earns you an interest of 8% per annum, and generates a monthly income for you.

So if you invest Rs. 100,000 in it – your annual interest at 8% will be Rs. 8,000, and you will get Rs. 666.67 monthly.

Post Office MIS Tenure

The maturity period of the scheme is 6 years, at the end of which you will get your money back. You cannot redeem your money within a year, but you can redeem it after that upon paying a penalty.

Here is how that works.

Less than 1 year: MIS can’t be encashed.

1 – 3 years: You are penalized 2% of deposit.

After 3 years: You are penalized 1% of your deposit.

5% Bonus

If you retain your Post Office MIS till maturity (6 years) – at the end of the time period you will be given a 5% bonus on your deposit.

Minimum and Maximum Investment

The minimum sum you can invest is Rs. 1,500, and you can go up to Rs. 450,000 in case of a single account, and Rs. 900,000 in case of a joint account.

Tax on Post Office MIS

There is no TDS on the Post Office MIS, but the interest income is taxable in your hands. The interest income from post office MIS used to be tax free under section 80L, but that section has been withdrawn from April 1 2005.

Interest can be automatically credited to your bank

At the time of opening the scheme you can give in your bank account details, and interest will be automatically credited to your bank every month.

Transfer from one post office to another

There is a provision that allows you to transfer your money from one post office to another. So, if you opened your account in one post office, and moved to another place you can fill up a transfer form with them, and move your scheme to another post office.

Conclusion

This scheme is meant for people who are looking for an ultra safe investment and a regular source of monthly income on top of it. A lot of retired people will fall under this category, and if you fall under that category then you need to evaluate other options like the Senior Citizens Savings Scheme before you invest in this scheme. I”ll cover that scheme in the days to come, and if you have any questions about this particular scheme or any other observations please leave a comment.

Our 5 Lucky Winners

It is time to announce the lucky winners of first ever giveaway here on OneMint!

When I started the give-away I thought I’d give – away 3 books, but due to the awesome response of OneMint readers I’ve increased the limit to 5!

Another reason is that some of you only left comments on Facebook, and not on the post itself, but since you did follow the spirit of the give-away I wanted to include your names as well. However, doing so would reduce the chances of people who followed the rules, so to make it fair I increased the number of books.

Here are the names of the 5 winners:

J Jaikumar
Sham
R K Tripathi
MS
Manickkam

I will be sending them emails individually as well, so please respond to my emails with your address, and I will arrange for shipping of the books.

To select the winner I used the Random Number generator, and asked it to pop up five random numbers which corresponded to the entries.

I am grateful to all of you for participating, and I’m in discussion with a few other people to get them to sponsor more such contests, so you can expect more give aways in the future as well.

Thanks everyone, congratulations to the winners, and there will surely be a next time for the rest of you!

MOIL IPO Allotment Status (Update)

Update: I apologize for the error in this post where I opine that almost everyone has been allotted 1 lot; I spoke to a few people yesterday, and drew my conclusion from those conversations.

However, as is evident from your comments many of you didn’t get any shares. I am sorry about the error, and realize that I should have waited to get information from more people before publishing.

The MOIL IPO Allotment has been done today, and I think that everyone has been allotted 1 lot of 17 shares regardless of the quantity they applied for.

I say this based on the amount of money debited from the bank account. If you have applied for the MOIL IPO then please check your bank account, and I think it is quite likely that you seeÂ Rs. 6,056.25 debited from your bank account.

This means that you got 17 shares at the unit price of Rs. 356.25 (after 5% discount on Rs. 375).

Please leave a comment about the number of shares you applied for, and the money debited from your account, as that helps guess the ratio for future issues.

It is only apt that I highlight a comment made by Loney here earlier who accurately described what to expect in such cases where the over-subscription is reasonably high.

I think you should not have withdrawn the application. You should have applied for the minimum lot of 17 shares. Because, Karvy and NSE which will finalize the allotment has this particular habit of allotting shares even to people who bid for the minimum lot at the expense of people who apply for the maximum lot size within the limit. Therefore there was a probability that you were alloted 17 shares even if you subscribe for just one lot.

Thanks Loney!

Section 80CCF Infrastructure Bonds FAQ

I’ve fielded a lot of questions on the Section 80CCF Infrastructure bonds, and while I’ve written individual posts on the infrastructure bonds that have so far come out under this section, there is nothing on this section itself, so I’m going to address some common questions aboutÂ Section 80CCF with this post.

It goes without saying that all these questions have popped up in the comments section at one time or the other (well, not the first one).

Is 80CCF a new Space Shuttle?

I wish it were, but it’s not even remotely as cool as that. In fact, it’s just a new section that allows Non Banking Financial Companies (NBFCs) to issue infrastructure bonds, and investors who invest money in these bonds can get an additional tax benefit.

What is the additional tax benefit under 80CCF?

All of you know that you can reduce your taxable income by investing in certain instruments like tax saving fixed deposits, or tax saving mutual funds, but the limit on the deduction from your taxable income is Rs. 100,000.

So, if you invest Rs. 150,000 in tax saving mutual funds – the tax benefit will be capped at Rs. 100,000.

Section 80CCF allows you to invest an additional Rs. 20,000 in infrastructure bonds, and have that reduced from your taxable income in addition to the Rs. 100,000 deduction you get from the other instruments.

Will I get the tax benefit every year, or just one year?

You will get the tax benefit only in the first year, which means that if you buy bonds worth Rs. 20,000 in this year – Rs. 20,000 will be deducted from your taxable income while calculating tax this year

There is no tax benefit from next year onwards.

I haveÂ a tax liability of Rs. 12,000 – will that become zero if I buy bonds worth Rs. 12,000?

No, that’s not how they work. Buying the bonds will not lead to a reduction in the tax paid by reducing that amount from your tax burden.

The benefit comes from reducing your taxable salary by the amount of your investment, so that the final tax burden is reduced.

Is there TDS on the interest?

For bonds that are issued only in electronic format there is no TDS, however that doesn’t mean that there is no tax on them.

Is the interest from these bonds tax free?

While there may be no TDS on the interest on these bonds, they are taxable, and the interest will be added to your income, and it will be taxable.

Do I need a Demat Account to invest in these infrastructure bonds?

Every bond issuer has different terms, and it depends on what their terms of issue are, but the IFCI issue is open only for Demat account holders, while the IDFC and L&T issues were available to people who wanted to subscribe via physical form as well.

Will these 80CCF bonds be listed on a stock exchange?

Yes, the bonds will be listed on a stock exchange, however they come with a lock in period, and you can’t sell them before the lock in period. For example, the IDFC bond had a lock in period of 5 years, so you can’t sell these bonds within 5 years, but once they list you will be able to sell them.

I missed the existing issues, will there be new infrastructure bond issues?

Yes, there are going to be more 80CCF infrastructure bond issues in the future, and if you missed the earlier ones, there is still a chance to get these bonds.

What tax proof will I get if I applied for the infrastructure bond in dematerialized form?

You will get allotment advice in the mail that you can use for tax proof, and if you haven’t received the proof then some people have been advised that they can use the copy of their Demat holdings to show that you own the bonds.

Can NRIs invest in Section 80CCF bonds?

The bonds that have been issued so far haven’t allowed investments from NRIs, and I think there might be some clause which limits NRIs from investing in these bonds.

Since I need a Demat account to buy these bonds, will I need a broker to exercise the buyback option?

You won’t need a stock broker to exercise the buyback option. In the case of IFCI you can write to them and ask them to exercise the buyback, and in the case of IDFC and L&T they can exercise it by buying it back from you and crediting your bank account, so you don’t need a broker.

You will need a broker if you decide to sell it on the exchange though.

When will I receive the physical allotment advice letter, and when will I start seeing them in my Demat account?

This is a question that has been tormenting a lot of people because the companies issuing these bonds don’t bother to communicate when the bonds will be allotted or when they will send the allotment advice letter.

No one can say for sure if the company doesn’t communicate this, but I’ve seen that the past couple of issues have taken about 3 – 4 weeks from closing of the issue to credit the bonds, and then an addition 2 or 3 weeks for the letter to arrive.

How are the yields for these bonds calculated?

This question is a bit more involved, and I have done full posts on how yields for tax saving bonds are calculated, as well as the limitations of the method used to calculate them and you can go through these posts to understand this better.

How can I keep track of these 80CCF infrastructure bond issues?

I have created this post with the calendar of 80CCF bond issues, and you can check that periodically to see if there are any new issues. This will also be widely reported in news articles, so it’s quite likely that you come across them in your daily reading.

Any other questions?

I’ve tried to cover all questions that I see pop up frequently, but if you have any other questions feel free to leave a comment, and I will try to answer them.

Have you entered the free book give-away yet?

Before I start the post let me say that you are simply amazing!

Now, let me explain why.

I started the first ever book give-away here last Friday, and it was a little different from most give-aways because it was totally based on good faith, and you didn’t have to prove anything to me at all.

The prize is a free copy of One Up on Wall Street, and here are some details from my earlier post.

As you know OneMint has a Facebook page which has got 107 people liking it as of now. Iâ€™d like to grow this number, and to enter this give â€“ away you have to do the following:

Think of someone who will benefit from OneMint, and ask them to like the page, then leave a comment here telling me that you have done so.

So, you just have to recommend OneMint to someone on Facebook, and it didn’t matter if that person actually liked the page or not, and you certainly didn’t have to prove to me that you did anything of this sort – just a comment was enough.

I don’t know when I thought up this idea, and when I discussed this with friends (mostly left brain types – sorry guys) they said I’ve got to stop thinking like Pollyana, and that such a thing would never work.

I was told that I would either get a lot more comments than I get likes, or I would hardly get any comments at all. I had given up on the thought but I had a feeling that it will work, and with a nudge from my wife (who apparently is a right brain type) I started the contest.

The result so far has amazed, and delighted me, and before I started the contest it never occurred to me that there would be more Likes than comments!

In a nutshell it means that you did a lot more than I asked for, and are extremely sincere in your gesture. The numbers show this, and of course one look at the comment section also shows it.

In fact some comments explicitly state that you have done this earlier, or that you have forwarded the site to friends, and now it’s for them to consider, and I’m just delighted to see people do this.

The positive, honest and sincere response is quite fantastic, and I’m having a great week as a result of it.

I just wanted to post my sincere appreciation for all your kind words, and at the same time if some of you didn’t know about this contest then check my earlier post since you still have time till Saturday.

Poll Results: How much money do you save?

In the last poll I asked you much money you save, and I am actually quite surprised with the results. A large majority of you save more than 20% of your salary, which is actually pretty good.

First Gen American noted that the result for this poll is probably going to be skewed because it is posted on a personal finance blog, and it’s only natural that people reading such blogs are relatively smarter about their money, when compared with the rest of the population.

That’s obviously true, and the only thing that makes it a little more representative of the general internet population is that a lot of search engine visitors also take the poll, and they are not necessarily subscribers. But in all honesty – yes – the results are a little skewed because someone reading a blog about money, and investments is obviously a lot more concerned about their finances than other folks.

Anyway – if you’re saving less than 15% of your annual salary then know that a lot of people are doing a lot better than you in this department, and if you’ve never thought about your spending habits, then this is a good time to sit back, and take stock of how you can save, invest and build wealth. A penny saved is a penny earned after all.

Let’s look at the results in a little more detail now.

About 11% of the respondents said that they don’t save anything, and the only silver lining there is that this percentage is small, and I guess the only reasonable thing for them would be to start saving, however little possible, and develop the habit.

When I think of this section, my thoughts invariably go to a few of my younger cousins, who have just started earning, and saving money or investing is the last thing on their mind. It’s probably good for them to have fun for a year or two, but eventually they will have to face the realities of life, and start taking more responsibility for their money. I hope they think about it sooner rather than later.

If you are reading – Just get started!

Next, let’s take a look at some of the themes that emerged out of the comments section.

Structure your savings and investments

Hema said that she observed that a lot of other people think about their savings and investments in a very structured manner, and they have started to do that as well.

And yes, a lot of people do give a lot of thought to how much they save, what their investments should be like, and I see this almost everyday in the kind of emails I get. People are concerned about the mutual funds they buy, about the ETFs they hold, and insurance they would like to buy.

I’ve quite honestly not seen anyone think about money in a very structured manner in my close family, so for a large part of my life I felt that the whole world was like that, but thankfully I was exposed to people who thought about money a little more seriously, and that has been a really good experience for me.

Structure and thought in savings is essential to get you started, and then to help you make better decisions, so the sooner you take a more holistic approach to your money, the better it is.

Enjoy what you already own

Before I get to this excellent point that Indian Thoughts brought up, let me tell you that I’ve been following her blog for about a year now, and if you want to see structure you can see it there.

She has these goals that she has set at the beginning of the year, and at the end of every month she does a post describing how well she did on the goals. You can check out the post for November 2010 to see for yourself what I mean.

I have her on my reader just for the inspiration that I get from her discipline, and I really admire her for that.

To her point – I feel that personally I’ve spent money many times just to kill time or overcome boredom, and that’s the worst way to use your money. For her, it has been enjoying what she already owns, and I’m trying to build this solar cell charger that keeps me occupied in my free time. I have made very little progress in developing it, but the point is that it keeps my mind from wandering to other wasteful activities, and even if I ultimately fail at building this solar cell phone charger I would have learned a few things I didn’t know before, and hopefully not wasted time on buying junk to keep myself occupied.

If you’re the kind of person who sometimes shops just to kill time, then you might want to think about this point a little more.

Pay yourself first

Patrick spoke about paying yourself first, and this is a common theme that you come across many personal finance blogs. The idea is that you set up your bank account in such a way that it automatically transfers a certain sum every month from one account to another, and forces you to save.

If you’ve tried to save, but not found much luck with it then you can try this automatic way and see if it works for you. I have neither positive nor negative feelings about this, but I know that it surely works for some people, so you should definitely try it out if you’re having trouble getting into the saving habit.

Conclusion

I don’t write about the thrift or the savings aspect of personal finance as much as some other bloggers do mainly because it is somewhat boring when compared to looking at yields, or discussing IPOs and ETFs etc. but I do realize that being thrifty, and having a good control on your spending is really important too, so for suggesting this topic and bringing my attention back to it – a big thank you to Raja, and of course a big thanks to all of our commenters for their thoughts too!

Email Question: Tax Proof for Demat Infrastructure Bonds

What tax proof can I use If I invested electronically through a Demat account in the infrastructure bond?

I got an email about this yesterday, and there have been several comments on it as well. People are interested in knowing what they can use as tax proof when they apply for the infrastructure bonds in the dematerialized form since there is no clear communication on this.

Here is my response, which is really drawn from the knowledge of our commenters like Loney, Ajay, Briney among others:

There is a fair bit of confusion on this as some people have actually received IDFC Allotment Advice letters that can be used for tax proof.

I’m not sure why others have not received it – but it could be a matter of time when you receive it too, or your address is incorrect so you might want to check that. If you get that, then you can obviously use that.

If not, then some brokerages have advised that you can use the NSDL Holding Report from your account as proof of investment, so in the absence of anything else you’ll have to use that.

Edit: Reworded slightly