digital thoughts

The Reserve Bank of India will launch an IndiaPay credit card – an Indian version of the China UnionPay card – by the end of next year.

“Inspired by the success of the China UnionPay card, we will be launching a similar one in our country to promote the use of plastic money among Indians. The credit card will be especially designed for the common people with low interest rates and risk reduction facilities,” RBI executive director R.B. Barman told reporters. Barman said the National Payment Council of India is working on the registration process of the card. The NPCI authorities would decide on the type of the card – whether it would be a smart card or something else. “If all our plans and government procedures gel well then we can hope to release this card in the market by the end of 2009,” he added.

The China UnionPay card was introduced in 2002. The card gives access to over 85,000 ATM counters of 14 major and other minor banks across the world. Besides, the card can function as regular MasterCard or Visa credit cards abroad.

I wish that Indian government use this opportunity to promote the use of PAN numbers. RBI should require all IndiaPay credit card applicants to have PAN number. If many more Indians start obtaining PAN number, that would act as Indian version of American social security number. Widespread use of PAN number will indirectly help us to fight corruption and tax evasion.

Investing can be a tricky adventure. Goals must be established, strategies must be adhered to and you must understand the role each fund plays within your overall portfolio. Mistakes can be costly, so navigating the pitfalls is crucial. Following are the common mistakes investors make and a few suggestions on how you can avoid them.

Always set clear goals

Any strategy should include a specific financial goal and a timeline to reach that goal. You should define what the money will be used for – Retirement, College Tuition, Vacation Home- and plan accordingly. And, although we all wish risk was not a factor, it is inevitable. You must have a clear understanding of how much short-term volatility you are willing to stomach in order to achieve the long-term goals you established.

Always Diversify

Diversification is an essential building block of any strong portfolio. How you diversify your portfolio should be directly tied to your risk tolerance, time horizon and financial goals. For example, if you are an aggressive investor, you might choose to invest in a portfolio that contains a roughly even distribution among large-cap, small-cap and international equities, but does not include bonds.

If you are more conservative, you might have a significant portion of your money invested in bond funds. However, holding too much of one asset type can be dangerous when that type falls out of favor, so investors should consider spreading their assets around.

Do not time the market

Bad news should not always be a catalyst for selling, just as good news should not prompt buying decisions. Avoid jumping and stay true to your long-term objectives. You also should avoid reacting to rumors, blogs and internet message boards and instead rely on sound judgment to help you make these critical decisions.

Recent market events all over the world will tell you that no one can time the market. Even the big guys lose when they try to time the market.

Investing consistently

Your investment strategy won’t be effective unless you act on it. By investing consistently over time, you can build your accounts faster and distribute the financial impact on your budget throughout the year. A solid investing plan will also help you maintain portfolio balance and stay the course over the long term.

Try to identify core and specialized holdings

You should identify and understand the role each fund plays within your overall portfolio. Core holdings are long-term investments that seek to outperform the market over an extended period of time. Your core funds should be complemented by specialized holdings, which tend to be more volatile, but have more potential to deliver upside returns.

In the end, you should know which investments seek which objective, with the hope that together they will produce the returns you need over the long run.

Follow these tips to guard yourself from the unauthorized use of your account and personal information.

» If you get monthly bank account statements, review it thoroughly and report any suspicious activity to your bank.
» Report lost or stolen checks, credit or debit cards immediately.
» Never provide personal information over the phone or online unless you have initiated the call and know with whom you are speaking.
» Do not preprint your driver’s license or Social Security number (if you live in USA) on cheques.
» Safeguard credit and debit cards. Memorize personal identification numbers (PIN) and refrain from writing PINs, Social Security numbers or credit card numbers where they could be found.
» Store cancelled checks, new checks and bank account statements in a safe place.
» Tear up or shred any pre-approved credit offers to which you do not respond.
» Review your credit report at least once every year. Make sure all information is up to date and accurate, and have information relating to fraudulent transactions deleted. This is applicable only if you live in countries that have credit bureaus.
» Buy a shredder and shred all unwanted financial reports and statements.
» Change your password every two months for your online banking and brokerage accounts.

It is said that it would take approx. Rs. 1 crore for someone to be willing to give up TV for the rest of their lives.  Guess what? If you decided to give up TV and invested the money you saved, you would get that Rs. 1 crore – and probably much more.   Having a TV comes with a variety of costs including monthly cable bill.  Here are a few areas where your TV could drain your finances:

• Cost of your TV: TVs can cost from tens of thousands to lakhs of rupees for large plasma flat screen TVs.    Multiply it by several times as most people own more than one TV during their lifetime
• Cable: Most peopel subscribe to a cable or satellite package that will cost them hundreds of rupeers a month.
• Movies: In addition to cable, most people watch movies on their TV which means purchasing or renting DVDs.
• DVD Player: To watch good DVD movies, mot people will most likely need a decent DVD player.  It will cost at least a few thousand rupees.  The DVD players would get usually get replaced once every few years as technologies change and better quality players and recorders are created.
• Games: If you or your family members are into video games, a good gaming system can cost at least ten thousand rupees, which will also get replaced a few times during your life time.  Games either rented or bought also add to the cost.
• Electricity: Electricity costs can be a minimum of Rs. 100 and possibly much more.
• Impromptu Purchase: A huge hidden cost of TV that people never consider are all the commercials they watch. The commercials are there to get you to buy products — and they are effective.  An average person is said to spend tens of thousands of rupees extra due to TV commercials that they wouldn’t have spent if they didn’t watch TV.
• Opportunity Costs: Another cost often overlooked when considering the price of watching TV is the opportunities forfeited when you choose viewing over something else. You could start a business, take on a part-time job or take care of your house chores so you don’t have to pay someone else to do it.

So what does this all add up to? Say you’re 25 years old and you initially spend for your TV, DVD player and gaming system after getting your first job. Add in costs for monthly cable, electricity, renting movies and buying games. Add in extra you spend due to the influence of commercials if you are the average person, and you are costing yourself thousands of rupees a month watching TV.

If you instead invested this money and received a return of 8% compounded annually over 45 years until you’re 70 years old, you would have more than Rs 1. crore in your account.

While it’s probably unrealistic that you will give up your TV entirely, the above numbers should make you consider how much money your TV-watching habits are costing you. Even some small changes could have a huge benefit on your overall finances.

There are some more sites such as Buxfer.com and BillMonk.com, help college roommates, friends and family members keep running tallies of shared expenses.

Another notable site is NetworthIQ.com. User’s information is kept private until they chose to create a public profile in the site.

NetworthIQ lets users create profiles based on their actual net worth. They can then compare themselves with others by age, income or occupation, link to other users, and track their progress on a blog.

Most of these sites allow members to create discussion groups with other users about specific financial topics. The sites let members create a consolidated view of their financial accounts and use text-messaging technology to get quick balance updates from their mobile phones.

Related Link: Managing Your Money

It used to be that people shied away from disclosing their financial details. Asking someone’s salary is still a taboo, but some people are willing to disclose not only their salary but almost everything about their financial health.

Now, amid the rising popularity of social-networking services such as Facebook and MySpace, a crop of new personal-finance Web sites is letting users post their private personal-finance details and share advice with each other on tracking their spending and making better investment decisions.

Some of the sites, such as Wesabe.com and Geezeo.com, include many of the same features offered by popular software programs such as Intuit Inc.’s Quicken and Microsoft’s Money, such as the ability to track spending in different categories and from different sources in one place. But they also allow users to get feedback from peers that is tailored to their specific circumstances. Some allow users to rate the quality of other members’ tips or provide feedback on various products or services they’ve used.

It’s almost like Digg and Quicken combined! Both Wesabe and Geezeo are good sites. They help you to keep track of your spending and to get suggestions from other users. Only problem is that these sites track spending in US dollars.

If you know of any site that does the same thing but tracks spending in rupees, let us know.

We will take look at some more similar sites tomorrow.

International rating agency Standard and Poor’s on Tuesday upgraded India’s sovereign rating from speculative to investment grade. This comes 15 years after the agency downgraded the country in 1991. The agency said the country’s outlook is stable. 

S&P upgraded India’s rating from BB+/B to BBB-/A-3.

“The upgrade on India’s rating to investment grade reflects the country’s strong economic prospects and external balance sheet and its deep capital market, which supports a weak, but improving, fiscal position,” S&P said in a statement yesterday.

According to analysts, the revision in sovereign rating could result in higher allocation of funds for investments in India by international institutional investors. This will also help Indian corporates to raise funds at better rates overseas, though sovereign rating has not been a constraint for several large Indian companies. Infosys, Wipro, Satyam, Reliance and others have raised billions of dollars in European and American markets irrespective of S&P rating on India.

India’s strong institutions have also provided for relative stability in policy, politics, and business environments against volatility usually associated with lower income levels. Forex reserves, now at $178 billion, are more than 16 times of India’s short-term debt and five times of gross financing requirements, provide a buffer from changes in external and domestic investor confidence. These strengths are likely to continue, despite the current account deficits, on the expectation of strong capital inflows.

What is in it for us? Lot of foreign investors are already excited about investments in India. However, there are investors who don’t want to invest in India because of junk rating by S&P. Now, it is changed by S&P upgrade. It will open the gates more widely for the foreign investors who were hesitating to invest in India. It will also help Indian companies to borrow overseas at cheaper interest rates.

Manmohan Singh and P. Chidambaram announced yesterday that 5% of pension funds of Government employees will be invested in stocks. That’s the good news for the stock market.

Many countries allow Government pension funds to invest in stock markets. Some countries even allow those funds to invest in derivatives and all other exotic instruments. India is slowly opening up pension fund investments. As anyone could expect, communist states already started protesting this move by finance ministry.

5% of pension funds may help the market to move upwards. FIIs still have lot of influence in our market. Many people don’t accept it, they just live in an illusion. Investment from pension funds (when it really happens) will help the market move higher, as if Indian stock market is not hot enough.

As usual our government is preparing to pass the bill on this subject. As per their normal practice, they gave a weird name to this bill – Pension Fund Regulatory and Development Authority (PFRDA). If this bill is passed in parliament, you can expect more money flow into the stock market. Pension funds are expected to have the total assets of Rs. 1,00,000 crore by 2009-10 FY. That means that Rs. 5,000 crore more money would flow into the market in that financial year.