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Inflation Indexed National Savings Securities Cumulative (IINSS-C)

All of us have probably woken up to similar ads in our daily newspapers:

Ever since  I woke up this morning I have been asked for my gyan on the matter at least a dozen times,so here it is:

You can find all the details of the scheme here:Link and before you ask:There are no tax incentives to invest in these bonds.

As for my take on whether these are a good investment?My answer is that the answer is in these words in the notification:

final combined CPI will be used as reference CPI with a lag of three months (i.e. final combined CPI for September 2013 would be reference CPI for all days of December 2013). In case of change in the base year, the base splicing method will be used.

So if the government/RBI chooses to be honest,it might be a good deal.But if the combining(averaging?) and change in base year is used as a means to reduce interest rates,i.e. financial repression,this product might be no better and probably worse than many PO small savings schemes with pre-declared interest rates for the tenure.

So,wait and watch before consigning larger sums of money in this product.


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Diwali Dhamaka


Yesterday the Union Cabinet approved a 10% increase over the existing rate of 80%, in dearness allowance and dearness relief, which will benefit about 50 lakh central government employees and 30 lakh pensioners .

The increase will be applicable from July 1, which means the central government employees and pensioners will get a good lump sum during the festival season-a real Diwali Dhamaka.

There will be additional . 900 crores every month in the hands of central government employees and pensioners.Maybe this should help pump-prime the economy!

The increase is in accordance with accepted formula based on the recommendations of the Sixth Central Pay Commission.Under the current rules, the government uses CPI-IW data for past 12 months to arrive at the biannual dearness increase, which is computed as a percentage of basic salary. It was increased to 80% from 72% in April 2013, effective January 1 this year. After Friday’s increase, the amount rises to 90% of basic pay. This is the first double digit dearness allowance increase in about three years. The retail inflation for industrial workers between July 2012 and June 2013 was used to compute the increase in DA.

Just see how much salaries have had to increase just to keep up with inflation.

Fallout Of The Collapse Of Lehman Brothers

Results of the collapse of Lehman Brothers

Buy The Product Not The Shares

wealthymattersInvest in their apartments, and you will get rich. But invest in their shares and you will be poorer. Unlike in other sectors, values of shares of listed real estate companies do not reflect the growing value of their products. Sample this: Investments made in shares of real estate companies like Delhi-based Unitech and DLF, Mumbai-based Indiabulls Real Estate or Bangalore-based Purvankara in 2008 would have crashed to half or to a fifth of their value by now whereas in the same period, returns from investments made in homes built by the same companies would have risen anywhere between 50% and 150% or more. If one had bought an apartment in any Gurgaon-based apartment building of DLF — India’s biggest builder — in 2008, the investment would have, by now, appreciated 60-175%. Had the same money been used to purchase DLF’s shares the same year, that investment would have eroded to just 20%. Investors of Unitech, Indiabulls and other real estate firms would have a similar story to tell. Read more of this post

The Difficulty Of Interpreting Inflation

wealthymatters“It is difficult, even for me, to interpret inflation.When I was young and I had a thick mop of hair, I paid Rs 25 for a haircut … now I have hardly any hair but pay Rs 150 for a haircut.I struggle to determine how much of that is inflation and how much is the premium I pay the barber for the privilege of cutting the Governor’s non-existent hair.”-Duvvuri Subbarao

Cut Your Losses Fast

And here’s why……..


What’s the chance that your losers will give the sort of chart busting returns to recoup your losses?In the mean time you are losing the chance to earn at least savings bank returns on your money.You don’t get to spend the sort of money your managers are losing you.Inflation is making the remaining less valuable.And you are losing out on money you could make by reinvesting in better avenues.

Its painful to lose money but more painful to stick with the losers.


Urjit Patel on Inflation


Here are some bon mots from our new Dy. Governor of the RBI:

“Assertions that imported inflation and external developments — like global excess liquidity — lie at the root of price developments in India ring hollow.”

“What is clear is that persistence of elevated inflation is agreeable to some policymakers.The authorities want to take credit for India’s growth performance but stay blameless on the price front — a case of heads I win, tails you lose!”

“This is an astonishing series of nihilistic statements — unassisted by evidence or even a hint of scientific thoroughness — from the central bank head pleading either hopelessness on account of India being a large and diverse federal entity, or, a form of muddled eclecticism.”

“The profligacy of the central government has its primary driver in populist spending policies initiated in early 2008 by the ruling coalition leading up to national elections in May 2009.”

“Three stimulus packages (including a reduction in indirect tax rates) starting in late 2008 to counter the global recessionary head winds only accentuated matters.”

“If gold prices stay elevated or increase going forward, and wealth effects emanating from this externally generated feature are quantitatively important, than monetary policy has that much more work to do to tame inflation.”

These are heartening words indeed for those of us concerned about the detrimental effects of our persistently high inflation even as growth prospects have muted.



How Well Would You Have Done if You Had All Your Savings In Gold?

wealthymatters.comToday financial planners and daily wage earners speak of ” investing” in gold.In fact,given the dream run of gold in the last decade,most people can’t see past gold.Never mind that between last Diwali and this one there was no substantial increase in the price of the metal and that there was a fall in price in between and then it struggled to rise for a while.

There is no denying that in the dark days after the stock crash of 2008 and the poor economy thereafter, gold provided good comfort for all of us who worried about our financial health.And the fact that gold price rose fantastically in uncertain times was the icing on the cake.

Also gold has helped us hedge against inflation.Here is the link to an older post.

Gold also does superbly well when the equity markets and debt markets are giving negative real returns.

So should you just have all your savings and investments in gold?Far from it!Aside from the wealth tax you might be forced to pay every year on an asset that will give no returns till it is sold, at which point it might attract capital gains tax,keeping your money in gold over the last three decades wouldn’t have given you stellar returns.Check out the chart here:Long Term Returns from Gold Vs SENSEX While gold keeps up with inflation,just buying and holding it for long is unlikely to make you rich any time soon.So be certain to enjoy the touch and feel and beauty of your gold.

Retirement Planning

wealthymatters.comAge is going to affect all of us differently.Some of us are going to live longer than others and in great good health.And each of us has a different idea of what would be a perfect lifestyle in our old age.Health permitting, there will always be the people who prefer to simply read or garden,others who would travel the world and the few who would pilot jets for fun.Knowing yourself and what you want and knowing your family and what they would prefer is the basis of retirement planning.

Next comes the question of when, if ever, you would like to retire.There are always the people who love what they do and  Buffett – like ‘skip to work’.The’d love to work as long as possible.However there are others who would dutifully eat their vegetables first and then treat retirement as well deserved dessert to be enjoyed at 25,35,40,45…….65 or any other age of their choice.Health and the economy however might force people to cut back irrespective of their wishes. Read more of this post


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