You must be familiar with financial products that claim you just need to invest a sum for a certain period and then see it double at the end of the term. While it is easy to think you have earned a return of 50%, it is not so. This is because your money gets compounded each year at a certain percentage of return.

E.g. if you are investing 10,000 for 10 years and are getting back 30,000 at the end of the term, your effective rate is 11.61% compounded annually.

This concept is known as the time value of money.

It says that money available currently is more valuable than the equivalent sum later on because of its earning potential.

So the Rs 30,000 available with you presently is far more than Rs 30,000 available to you in the future.

Why is this important? Whenever you have money, you can either choose to spend it or invest it. If you opt to invest it, you should ensure you earn much more than its present value. This is why it is important to keep your investments for long-term. This will help you earn better returns.

Indian stocks are the most expensive now. The stocks are trading at 34% premium to the region according to Citi investment research. Indian stocks are trading at 17.6 times expected earnings compared to a Chinese stocks that trade at 12.7 times expected earnings.

Inflation is the real problem in India. Everything is expensive starting from food to real estate. Companies are not able to pass the higher expenses to the consumer; so their profit margin is shrinking.

It is almost impossible for the Indian stock market to keep going up especially with this kind of valuation. It’s the time to watch your stock holdings and make sure you diversify your investments.

Sometime back, international or global funds were a rage. Many investors were heavily seduced by these funds. This is because they could get international exposure at a nominal sum. They did not have to get RBI permission to invest abroad. They did not have to face the hassle of foreign currency conversion as the fund house took care of all these formalities.

However it was observed that these funds underperformed local mutual funds. In fact, in many instances, investors have seen the value of their investment eroding. Why is that? Why did these funds fail to deliver?

Well, here are some of the of the reasons while global funds failed to deliver.

• As global funds invest their corpus abroad, effect of economic crisis in the country in which they have invested, will end up eroding the value of the investment.
• Foreign currency exchange will affect the value of the investment. If the foreign currency is stronger than Indian rupee, the value of your investment will increase and vice versa.
• Taxation will differ from country to country. Taxes will affect the value of your investment. Besides you’ll end up paying taxes in India as well, since unlike normal mutual funds, these funds are taxable.

So what should you do? Well, as far as possible, avoid these funds. However if you choose to do so, just invest a small portion (not more than 5%) in such funds. But this should be done only after building up a robust portfolio of domestic funds. This will help you withstand the shocks in the international markets

Have your parents invested in Senior Citizen Savings Scheme (SCSS)? Are they planning to invest more in the scheme? Let us see how this scheme has fared and whether you should continue with it.

SCSS is a 5 year scheme, first introduced in 2004. It became very popular as it offered the highest assured return of 9%. You get paid interest each quarter, thus making it beneficial for senior citizens who have no other source of income.

Besides high returns and safety, you also enjoy tax benefit. Investments up to Rs 1 lakh are deductible under section 80C of the Income Tax Act.

But when it comes to renewal, you can only renew the scheme for maximum of 3 years. Also with the entry of direct tax code, there is no guarantee whether the tax benefit will continue.

Moreover these instruments are highly illiquid. It means you are stuck with the investment till the end of tenure. Now if you need cash on an urgent basis, you are stuck. Moreover SCSS is not transferable. So if you want to shift your investment from one bank or post office to another, you will not be able o do it.

Also for those senior citizens who have high investment corpus, SCSS will not offer high returns. In such instances, these investors are better off investing their funds in slightly riskier options like monthly income plans or balanced funds.

Rohit had taken a home loan from a bank for a period of 20 years. The rate of interest on the loan was 13%. When his friend told him that his bank was offering home loan at 11%, he decided to switch over to the new lender. This is called as refinancing the home loan.

Why refinance? For one, it reduces your EMIs. Lower EMIs means you save money. Also you have the option of changing from current high-interest floating rate to low-interest fixed rate. Lastly, your loan tenure will also decrease, thus enabling you to repay your loan faster.

How to refinance your home loan? Well, here are some steps that you need to follow to get your home loan refinanced.

• Check your present home loan: Find out how much you are paying for your current home loan. Check the charges levied by your home loan lender.
• Understand your need: Are you looking to refinance in order to save money? Do you want to speed up your repayment tenure?
• Select the suitable refinance lender: Compare the offerings of various lenders available at various online loan comparison websites. Check the interest rate, terms and conditions and charges and fees of different lenders. Also check out the customer service of selected lender.
• Give the lender an estimate of the value of your property: Show the lender estimated worth of your property and how it has increased over the time. The lender will take into account this value before approving your loan. You will also have to submit details of your income, expenses and other liabilities. This will help the lender decide the amount you are eligible for.
• Start the closure procedure with your current lender: Once your loan is approved, start the closure procedure with your current lender. Your new lender will process your loan after receipt of valid documents.

Every parent wants to give the best for his child. So they start saving for their child’s education. However there are many instruments available in the market that claim to offer best returns for your child’s future. These products are designed exclusively for children. Here are the products meant to give your child the bright future.

• Children’s plans from insurance companies: Many insurance companies offer children’s plans. These are the combination of insurance and investment. While they resemble normal ULIPs, the charges are higher here as these products are specialized products offering guaranteed returns. The insurance cover is more, and even if you are not around your child will remain protected. You can also withdraw money from the policy periodically to meet your child’s educational needs..
• Children’s plans from mutual funds: Similar to insurance companies, mutual funds also offer children’s plans. These are more of debt funds with higher charges than traditional mutual funds.

Now when you choose a typical child’s plan, you will get lower returns than a conventional investment instruments. So what should you do?

Start investing in couple of good equity mutual funds as soon as your child is born. Take a term policy that will offer you high insurance at low premiums. This will ensure you can build a healthy corpus for your child by the time he turns 18.

With effect from 1^st July 2010, base rate system has set in. Base rate has replaced old system of benchmark prime lending rate (BPLR). The problem with BPLR was that banks lent money to large corporates at rates lower than BPLR. This meant large corporates got money cheaply, while others had to pay interest at rates over BPLR. RBI has introduced base rate with the aim of introducing transparency in the lending system.

So how will you as a home loan borrower be affected? It is likely the home loans will go up. This is because banks won’t be permitted to lend below base rate. Now home loans are very competitive and banks have been lowering their interest rates to attract more customers. Now all that is slated to stop. So you will end up having to pay more.

There are many instances in our lives when we may experience sudden cash crunch. It could be due to sudden illness, job loss, death of the main earning member in the family. In such a situation, it is very easy for us to opt for a personal loan in order to tide over our crisis.

Why personal loan? This is because personal loan is easily available. There is no need to submit excess documentation as well as collateral. In certain cases, you can get the loan within 2 minutes on the telephone. Moreover unlike other loans, you are free to use the money for any purpose. You don’t have to declare your purpose to the bank.

But is it right for you? You need to ask this question because as the personal loan does not need any collateral, it becomes an unsecured loan. Any unsecured loan carries high rate of interest than a secured loan like car or home loan. This means EMIs in this case will be higher. You should be comfortable repaying the EMI, failing which you wil be labeled as a defaulter.

So what should do? If you are not able to pay the high EMIs, you can consider other options. Do you have an FD with a bank? If yes, then you can take a loan against FD, as its rate is slightly higher than the rate of FD. If you have shares, you can avail of loan against shares. Nowadays many banks also offer gold loans against your gold jewelry.

Why go for these loans? Simple, they are cheaper. Interest on any secured loan is cheaper than an unsecured loan. This will lower your EMIs and thus save you money.

Media reports keep on harping about market volatility. This makes prospective investors scared about entering the markets. They shun stocks as they fear that they may end up losing their money. As a result they lose out on golden opportunity to make money in the stocks.

But every investor must realize that volatility is an inherent part of stock markets. Instead of shunning volatility, it is very important to make volatility your friend. Here is how.

Focus on your long term goal: It is very easy to be affected by the daily market movements. It can make you sell your holding or stop your investments. However this is going to affect your goal achievement. Instead if you keep your eyes on your long-term goal, you will get better returns. Remember “Your time in the market is more important than timing the market” is the key to successful investing. Just take care to review your portfolio periodically.

Overcome your fears: It is easy to get scared when the market crashes. But remember what goes up comes down and vice versa. Markets work in cycles and while your stocks may lose value in the short-term, they will recover their lost ground over a period of time. Also when the market crashes, find out if the crash is due to change in fundamentals or due to some event that is not related to your stocks’ fundamentals.

Diversification: The secret to protecting your investments is diversification. Spread your investments amongst stocks of different sectors, capitalizations as well as amongst asset classes like bank deposits, gilts, gold, real estate and stocks.

Invest in quality stocks: Stocks with strong fundamentals tend to recover faster than those with weak fundamentals. So it is better to invest in such stocks with a long-term perspective ( at least 4-5 years). In fact you can look at any market crash as an opportunity to buy such stocks at cheap prices.

In short, don’t let market volatility scare you. It is the nature of the stocks to be volatile. Use it smartly to benefit from it by using the tips mentioned above.

In today’s world, everyone needs additional source of income to meet rising costs. While your salary will pay majority of your expenses, having additional income does help.

Now you must be wondering how to earn extra income. Well, then here are some good tips to earn additional income

• Interest: Do you have an FD with a company or bank? Or you may be holding a recurring deposit with bank or post office.  Then you can opt for receipt of interest, which you can use as extra income.
• Dividends: If you hold shares or mutual fund units and have opted for dividend option, this can be your source of income.
• Rent: Renting out your home or car can fetch you rent, which can be a source of additional income.
• Residual income: Are you an insurance agent or in networking marketing? The commissions you earn will become your residual income. Even if you are not working, you can continue to get income.
• Selling on ebay: Ebay lets people sell items and earn revenue. This can be done either as a part-time or full-time business.
• Part-time work: Do you love preparing food items or handicrafts? If so, you can sell them and earn a good income. You can also take tuitions as a source of your part-time income.

Besides this, any lottery winnings, inheritance, etc will also contribute to your monthly income.