Ravi Vooda / Finance, Thougts, Movies, etc.....

CFA Level-1 for non finance guys

2013-01-25T08:52:00.004+05:30

I would like to share my experience on how I cleared my Level-1 CFA exam. I come from a non finance back ground. I have done my engineering in Electronics and working in IT for nearly 8 years. My interest towards finance and equities inspired me to take this course. I have given this exam in December 2012 and cleared the exam. Below are my results.

(Please not this is a very long post. I could not bring down the size any smaller)

I would like share my way of preparation for the exam and this is not the only way to do anyways. Remember level-1 CFA exam is more about discipline. You need to spend at least a hour or two daily for few months. At least that is the way I did!!

If you have noticed I have got 70+ in most of the subjects. No I am not saying it is easy. But disciplined commitment of quality study hours every day will do.

The way I prepared

Attended weekend classes at Pristine. I should say I owe a lot to them for the kind of quality staff they have provided. (may be a separate blog post needed for it LOL ). They even have webinars if you do not have time to go to weekend classes.
Studied from Schweser notes for 80% of the topics. It is a cut down version from the original CFA material.
Done all the questions at the end of each chapter in Schweser material.
Attempted the MOCK exam from CFA and did around 4 (morning and evening sets) practice exams from Schweser books. Remember attempting exam alone is not enough. Review them properly and also go through the concepts once more where you have gone wrong. Both the mock from CFA and also Schweser gives good explanations of the questions they have give.
I would rather say do not go without giving the mock exam from CFA and also at least 2 full papers. They really help you in tuning the exam. Reserve two weeks for practicing exams and revision alone. Even if you have not completed all topics, leave the rest and last two weeks (some say month) concentrate on revision and practice exams only!
Prepared notes for every chapter after completing the reading and doing the questions from both Schweser and CFA book. CFA material has some of the old examination questions (their website says!!). This really helps to revise very quickly. Because it is the notes you have prepared the way you wanted to have. Though you have summary at the end of each chapter, the notes you prepared has the points you need.
Completed questions for ethics and FSA from Schweser question bank.
Understand the formulae rather than mugging up them. It helps!
If you do good in FSA, Quants, Ethics and Fixed Income. Chances are that you will pass. (considering their weightages).
Do as many questions as you can!! If you still have time, after reading each subject, do all the questions from Schweser question bank. They really are exhaustive.
Do not leave any concept. At least know what it is. Nothing is unimportant.

Well if you go subject wise

For Ethics, only read from CFA and read it very carefully. It has a good weight (15%) in the exam and help you boost the score. CFA also considers your ethics score if you are 1-2% away from passing the exam (read their website for this). Rememer to go through each and every point of GIPS.

For both Ethics and GIPS be in a position to point out the violation (some might have multiple violations)
Undertand what is mandatory and what is recommendation.
Know why it is a violation and be ready to spot multiple violations.

For Quants, for engineering guys its a bit easy as 50% of the ones you might have already studies and the mathematics advantage we had will be a plus. For non finance guys it is not hard, but the feeling that you cannot do kills! Remember its not tough. Spend some time with it. You will understand
For Economics, considering the huge material it has and also weightage of 10%, I only preferred to cover the breadth of the subject rather than the depth of it. Luckily i got 70+ but I was expecting 50-70 range only. (Paper on that day matters at the end!! Is it not?)
For FSA, do not even think of leaving a single concept. See its weightage. Its huge 20%. After all its a finance exam right! Do stress upon difference between US GAAP and IFRS, Inventory methods, leases, statements and basics of accounting.
For Alternative Investments, It does not take much of your time and I felt it was the easiest and small one among all subjects. Hence this is scoring.
For Fixed Income, Many say it is difficult. Even I found it difficult. But with good time spent on it. You will get comfortable.
For Equity, I felt it was bit easy. It is more if theory and simple theory, but is the basic for the rest of the levels. I think only problems part were EPS, Diluted EPS and current price calculations using different models. Work on them.
For Corporate finance, it is more about calculation and smaller theory concepts. Hence this too is scoring if you spend time on understanding the concepts once.
Derivatives is a bit tricky. You need to read through very carefully and also attempt very carefully. You need to check if it is option and call/put. Else you will go with wrong answer and yes this will be in the option too!! Understand different types of SWAPs and put-call parity. Do enough problems
Portfolio management in this level, I felt it is small and crisp and scoring too! But as I heard this is the basic of rest of the two levels

You need to understand the MPS (minimum pass score). There is no rule that I you ace in specific subjects that you will pass. At the end if you have MPS you are in. (Ethics adjustment might play a role if you are on border). Go through the CFA website FAQ once.

Remember that CFA is no ordinary exam and you need to put in your quality effort and that too in a very disciplined way!! If possible I would advice you to go to classroom training. Not that you cannot study alone, but good circle helps and also keeps you motivated. At least it did to me. Do group studies if possible. I could only do for 1 or 2 days. But it helps you clear a lot of concepts easily and make you remember good also.

Before the exam day make sure you go through all the notes you have provided once. Relax and give the exam. Do not stay late night before the exam. The exam tests your stamina as it is a 6 hours exam (3+3 wit 2 hours break). Better take your food to exam as you might not get food. (considering the crowd, even though arrangements were made).

Remember CFA exam is not a golden ticket to finance job and this may not change your life. It might only help you giving a interview call ahead of the other person who did not have the same. But personally what I realized is you do got a very good circle in the domain and also people see you differently.

300hours.com is a good site related to the CFA exam. Visit it once. Hope you like it

All the best for those giving the exams!!

2012

2012-12-26T18:54:00.001+05:30

Supposed to be on end of the world, but unfortunately it did not happen! :) 2012 has been a real great year personally.

This year for the first time I have decided to design my finances through goal oriented approach and formulated some goals and accomplished 90% of them.

In line with the goals, I have surrendered my Jeevan Anand policy from LIC and ULIP from ShriramLife. LIC did give me a very good headache and they made me roamed around the office for more than 6 months. Probably a lesson for those who think that LIC is the most trusted one and they cannot be cheated. God bless them! Finally I have decided not to go for a life insurance at all since my networth should already cover it!

On top of my company converage, I have finally taken a medical insurance with the help of medimanage. Must admit their service is just awesome. Probably I should rephrase that I have taken wealth insurance.

Once done with the insurances, decided to close out waste expenditure. So closed out HDFC and ICICI demat accounts and shifted to sharekhan where I got better brokerage offer..

Then finally closed out my personal loan with HDFC. The charges are way too high!! especially the preclosure ones!! Next time I would not even attempt to contact HDFC for a loan. I personally found Bajaj Finserv personal loan to be the best one. No preclosure charges and part payment as well..!!

Started Retirement plan!! and included mutual funds as part of it apart from our PF. Just with the amounts saved above, I am able to build a good retirement plan. Lesson learnt for me is, if you watch out your wasteful expenditure carefully and stop them, you should build a very good corpus!! Thats the power of compounding!!

Started building an emergency fund.. but still not over.. This was the only financial goal pending from my side for this year. Should complete it at any cost by 2013!!

Completed building my equity portfolio (Though need to review on regular basis!!). Got good time to build decent portfolio in 15k-18K sensex range.. My second source of income Dividends have grown quite good this year and can now give me a months rent.. Nice to see the second generation reforms at the centre.

On the personal front have invested over 900 hours this year in education. This is probably the highest ever hours that I have spent on education since my childhood in a single year.!! :) Have given the Level-1 CFA exam this year. Should see how the result will be ... Keeping my fingers crossed!!

We were blessed with a baby boy this year and we named him Rithvik :)

Last but not the least, I should thank JagoInvestor and subramoney blogs on personal finance. I did learn a lot and lot from those two blogs and kept learning. These are one of the best personal finance blogs that I have come across.

And now finally its time to draft rules for 2013!! Wishing all the readers a very a happy new year 2013.

Which step have you reached today

2012-12-24T18:03:00.001+05:30

Image forwarded by a friend long back. Found the concept very inspiring, reminds us of unfinished tasks to complete as fast as possible and also motivates to start new task very soon!! I have a print of same on my table. Hope this helps you guys too

Cost of postponement of financial planning…..

2012-12-23T22:31:00.001+05:30

Cost of postponement of financial planning…..:
THIS IS AN ARTICLE …..
- By Gaurav Rajput, Director Marketing, Aviva Life Insurance
Warren Buffet famously shared, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” Indeed, what he said is true. In order to enjoy the benefits of a rich future, it is essential to start investing in the present, especially when it comes to your financial future. If you start investing early, you can build a significant corpus to lead a better life in future. Also, it will help you avoid the ‘additional costs’ that a delay can cause. Therefore, financial planners advice that people should start saving/investing as soon as they get their first paycheck.
Unfortunately, the young urban population, who has just started working and is beginning to enjoy the benefits of all those hard years of study, does not give much thought to planning for the future. Investment and savings seem like distant concerns, and not something that would affect their life immediately. What they don’t realize is that procrastination in formulating and implementing a proper financial plan can result in financial burden in the later stages of life.
Let’s take into consideration various factors that affect our lives today and analyze what the cost of postponement of financial planning would mean in each case:
Education: Keeping in mind the current inflation rates, it is estimated that an MBA that costs Rs. 400,000 today will cost Rs. 20,00,000 in 15 years time. How many parents will be financially ready to bear this cost when required for their child without dipping into retirement funds? According to Aviva Young Scholar Insights, a survey conducted across 12 cities in India, it was found that investment for a child’s education is the topmost priority for 72% of Indian parents. 81% of parents also admitted that they have no clue on how to go about meeting the cost of child’s future education. It then becomes even more important for young parents to start saving early so that the expense for their child’s education doesn’t become a burden later. Apart from saving in conventional methods like a savings bank account, parents can choose child insurance policies to protect their children’s future. Investment in child insurance policy ensures that the child’s education is unhindered, even in case the parents are no longer around. It not only creates a corpus keeping the rising cost of education in mind but also insures the life of the parent. There are also child plans from other investment options like mutual funds which aim at creating a corpus.
Retirement: Due to lack of a formal social security system in India, retirement is another top area of concern for 45% people in India. Majority of people think that their savings are enough to lead a comfortable life after retirement. However, with no regular source of income, rising inflation and the cost of unexpected critical illness, savings alone cannot meet all needs. To be financially secure, one needs to start planning early, and save as much as possible in the initial years. This is because in the early years, there is neither pressure to support a growing family, nor high medical expenses, hence saving is easy. There are plenty of investment options available in the market like pension and retirement plans by insurance companies and mutual fund schemes that can help people reach their estimated retirement corpus. A combination of different investment options in the portfolio can help one attain his/her retirement goals.
Health and stress related issues: According to World Health Organization (WHO) figures, over 50 million people in India are suffering from diabetes. India also ranks high on the list of countries where heart related issues are a major concern among citizens. With the majority of population under the age of 35, these are indeed worrying figures. Taking into considering the highly stressful lives being led by youngsters, it is imperative that one plans well in advance for any unforeseen event in the future. A term plan is a must in any financial portfolio as it helps reduce the stress of the later years where one would have assured their family a comfortable future, in case they are not around. Almost all private insurers in the country today have launched online term plans, which are easy to understand and invest in, given the simple nature of the products and cost benefits they offer. The buying procedure is virtually as simple as applying for a credit card. Most of these products also have the option of riders which helps you customize your policy based on your needs.
Considering the rising cost of medical expenses, one should also buy a health plan and a critical illness cover, for a complete health insurance portfolio especially for the earning member of the family. While the health plan will cover a certain portion of the hospitalization expenses, the critical illness plan will provide protection against critical illnesses, and will help tide over any additional expenses that may not be covered by the other policy.
Thus, judicious and proactive financial planning will make sure that you have enough resources with you in the future, to fulfill your child’s aspirations, take care of your family and retirement needs. Start planning without any further delay so that you can build a better future for yourself. Remember, while the key to successful planning for future is to start early, it is never too late to get started.

An Obituary to common sense!

2012-12-19T16:56:00.001+05:30

An Obituary to common sense!:
no clue whom to thank …for this lovely forward that i got….
From an internet forward:
An Obituary printed in the London Times – Interesting and sadly rather true.
Today we mourn the passing of a beloved old friend, Common Sense, who has been with us for many years. No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red tape. He will be remembered as having cultivated such valuable lessons as:
- Knowing when to come in out of the rain;
- Why the early bird gets the worm;
- Life isn’t always fair;
- and maybe it was my fault.
Common Sense lived by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge).
His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.
Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children.
It declined even further when schools were required to get parental consent to administer sun lotion or an aspirin to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.
Common Sense lost the will to live as the churches became businesses; and criminals received better treatment than their victims.
Common Sense took a beating when you couldn’t defend yourself from a burglar in your own home and the burglar could sue you for assault.
Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.
Common Sense was preceded in death, by his parents, Truth and Trust, by his wife,Discretion, by his daughter, Responsibility, and by his son, Reason.
He is survived by his 4 stepbrothers;
I Know My Rights
I Want It Now
Someone Else Is To Blame
I’m A Victim
Not many attended his funeral because so few realized he was gone. If you still remember him, pass this on. If not, join the majority and do nothing

Points to note in Inventory for level-1 CFA exam

2012-12-10T21:55:00.003+05:30

Differences between FIFO and LIFO

	LIFO	FIFO
Tax	Low	High
COGS	High	Low
Net profit	Low	High
Cash Flow	High	Low
Gross profit	Low	High
Ending Inventory	High	Low
Current Ratio (CA/CL)	Low	High
Working Capital (CA-CL)	Low	High
Inventory turnover	High	Low

Method	Assumption	COGS has	Ending Inventory has
FIFO	First purchased, First sold	First purchased	Most recent purchases
LIFO	Last purchased, first sold	Last purchased	Earliest purchased
Weighted average	Mix of purchase	Average cost	Average cost of all items

US GAAP allows LIFO and FIFO
IFRS only allows FIFO
Periodic vs Perpetual: In periodic, inventory and COGS are determined at end of accounting period. In perpetual, they are updated continuously.
For FIFO results do not vary whether perpetual or periodic
To know the exact cost, we use the specific indentation method since it best matches the physical flow of inventory
While using FIFO, value of goods at current cost can be know using Balance sheet inventory
While using LIFO, value of goods at current cost can be know using Income sheet COGS]
When converting from LIFO to FIFO,

Inventory = FIFO + LIFO reserve
COGS -> subtract change in LIFO reserve

Please note there might be mistakes. Do validate once again while reading. Please comment just in case to add anything or when any mistake found. I will change/add the same.

Differences between IFRS and GAAP

2012-12-10T18:39:00.000+05:30

Below is some info I have prepared during preparation for level-1 CFA exam.
IFRS and GAAP differences are through out the FSA and for me it was difficult to remember, hence prepared this notes. Hope it helps you too.

Make sure you are thorough with the differences before you step into the exam hall. For sure it helps!

	IFRS	GAAP
Board	IASB	FASB
Discontinued operations	Shown after continuing operations. Not separated from operations	Shown as extraordinary net of tax
Investment Property	Recognized@amortized value	Not defined
Intangible assets	Reported @cost or revaluation model	Only cost model
R&D	Only development capitalized	Both not capitalized
Opinion on internal controls during Audit	N/A	Compulsory to comment on Internal controls
Required financial statements	P&L, CF, B/S, Stmt of Equity, Explanatory note of policies
Asset	Resource for which economic benefit to flow	Probable flow of economic benefit
Other comprehensive income	Combined with P&L statement or can be separately reported	Can be shown in statement of shareholders equity or as in IFRS
Revenue Recognition	For Goods - Risk & Reward transferred - No control on goods - Revenue can be measured - Cost can be measured - Flow of economic benefit For Services - Amount of revenue can be measured - Flow of economic benefit - Stage of completion measured - Cost incurred and cost of completion can be measured	Should be both earned and realizable
% completion revenue recognition (Long term contracts) (Aggressive method)	Reliable: %complete (% complete method) Unreliable: Revenue of %completion can be recognized but not profits. Losses: Immediate	Reliable: %complete (% complete method) Unreliable: After completion of contract only (Completed contact method) Losses: Immediate
Revenue recognition for installment sales (Used when future cash flows cannot be reasonably estimated)	Present Value recognized. Other amount recognized as profit Certain: Recognized@timeofsale Reasonably certain: installment method used. Profit= (cash collected)(total expected profit% of sales) Highly uncertain:* Cost recovery method used. Profit recognized only when cash collected exceeds cost incurred	Certain: Recognized@timeofsale Reasonably certain: installment method used. Profit= (cash collected)(total expected profit% of sales) Highly uncertain:* Cost recovery method used. Profit recognized only when cash collected exceeds cost incurred
Revenue recognition for barter sales	Revenue must be based on fair value of revenue from similar non barter transactions with unrelated parties	Can be recognized at fair value if historically received cash for such goods else use carrying value of assets surrendered
Inventory method	FIFO	FIFO and LIFO
Inventory	Reported at low(cost,NRV) NRV=SellingCost-CompletionCost-DisposableCost	Reported at low(cost,Market) Market=Replacement Cost NRV-Net Profit Marging <= Market<=NRV
Inventory	As a exception to above both IFRS and GAAP allow inventories of producers and dealers of agricultural and forest products, agricultural produce after harvest and minerals and mineral products to be carried out at NRV even if it is greater than cost.
Inventory	Writing Inventory up allowed (but to written down value only)	Not allowed
Interest & Dividends Paid/Received	Can be in CFO or CFF Taxes reported as CFO except for the ones reported for CFF/CFI	CFO only
Cash Flow statement	Direct & Indirect permitted by both. Direct preferred by both but firms prefer Indirect
LONG LIVED ASSETS
Interest For long lived assets	Can be capitalized and depreciated along with asset. Here interest cost added to asset
Income earned on borrowed amount	Cannot be capitalized	No restriction
Software	Expensed until feasibility established. After that only if can be capitalized. This is same for s/w generated internally or for others	Internally: Can be capitalized Others: Expensed until feasibility established. After that only if can be capitalized.
Component depreciation	Compulsory (Should be separately depreciated by type)	Optional
Asset revaluation	Allowed as long as active market exists	Does not allow
Impairment of PPE and Intangible assets	Impaired only if carrying value less than Recoverable amount. Recoverable Amount= MAX(FairValue-SellingCost, Value in use) Loss recognized to b/s Tested for annual impairment. Can be written back to the amount of written down and additional profit recognized as “revaluation surplus” If it is bought at cheaper value, then revaluation should not be shown and should only be reflected in equity. Revaluation shown only if written down.	Tested for impairment only if events and circumstances indicate that firm may not be able to recover carrying value through future use. Impaired by 2 steps Recoverability test: Impaired if Carrying Value > Discounted CF’s Loss measurement Loss written to b/s Recovery not allowed Asset is written down to fair value in B/S and loss to the i/c sheet. Loss= CV- Fair Value
Investment property	If firm owns property for collection of rental or earning capital appreciation, it is treated as investment property. Can use cost model or fair value model. But must use same model for all such properties and model disclosure should be there. Gain should be recognized only if loss is already recognized	Does not differentiate between long lived asset and investment property Cost model generally used.
END OF LONG LIVED ASSETS
	Gain or Loss from Available for debt securities that result from exchange rate fluctuations are recorded on income statement	Not recorded
Deferred tax and Liabilities	Classified as non concurrent	Classified as concurrent/non concurrent based on classification of underlying asset or liability
If DTA/DTL is occurred in past and but criteria of economic benefit is not met	Existing DTA/DTL related to item is reversed	Valuation allowance is established.
Goodwill	DTA/DTL is not recognized for goodwill arising out of a business combination	DTA/DTL is not recognized
INITIAL Recognition of asset or liability	Provides exemption if Transaction not a business combination AND Affects neither accounting profit or taxable profit	Not exempted
Tax losses and Tax credits	DTA/DTL is created	DTA/DTL is created
Bond Issuance costs	Initial bond liability reduced by amount of issuance costs (thereby increasing effective interest rate). In effect issuance costs are treated as unamortized discount	Capitalized as an asset and allocated to income statement as an expense over term of bond
	When bonds are redeemed prior to maturity, Nothing should be done as already capitalized (included in book value of bond liability)	When bonds are redeemed prior to maturity, any remaining unamortized bonds issuance costs must be written off and gain/loss should be declared
	Bond issuance costs are netted against bond proceeds and reported on CF statements as CFF
	Debt is reported at fair value. Gains and Losses when market yields change are reported in income statement
Finance lease (Lessee perspective)	- Title to leased asset transferred to lessee at the end of lease - Lessee can purchase leased asset for price that is significantly lower than fair value of asset at some future date - Lease covers major term of assets economic life - PV(Lease payments)=fair value of leased asset - Leased asset is so specialized that only lessee can use without significant modification	- Title to leased asset transferred to lessee at the end of lease - Lease period is for 75% of asset life time - PV(Lease payments)= more than 90% of fair value
Finance lease (Lessor perspective)	Same as above	Same as above + Collection need to be certain.
Distinction b/w Sales type and Direct finance lease	IFRS makes no distinction	If PV>CV , sales lease If PV=CV, direct finance lease.
Distinction b/w Sales type and Direct finance lease	Both in o/p and finance lease firms should disclose payments for the next 5 years seperately and cumulative amount of the next 5 years after that.
Funded status of Defined benefit plan	Firms remove unrecognized actuarial gains and losses and unrecognized prior service costs from funded costs. Economic reality may not be painted accurately.	Funded status to be reported on B/S. Overfunded reported as Asset and Underfunded as Liability
Funded status of Defined benefit plan	Firms disclose components of benefit obligation, plan assets and pension expense separately. Also they disclose the assumptions used to calculate
To change inventory accounting method from FIFO to LIFO	Demonstrate the benefit	Explain why you are changing

Remember in exam that the default standard to follow is IFRS when nothing is mentioned.

Please note this notes might contain some mistakes. Request you to please validate once while going through the points. You cannot afford to do silly mistakes in FSA given its weightage in the exam.

Please do comment if to add/modify any content and I will do the same. Also note that I might have missed out some differences.

You might want to read Differences between Operating and Finance lease

Differences between Operating lease and Finance lease

2012-12-10T17:48:00.002+05:30

Below is some info I have prepared while preparing for Level-1 CFA exam. Hope it helps you.

	Lessee perspective	Lessor perspective
Expense	Expense over life time is same both.
Reporting	Operating Lease: Rent expense recognized in income statement. CFO affected	Operating Lease: Lease payment recognized as Rental income. Asset is kept on B/S and depreciated over its life.
Reporting	Financial Lease: B/S effected. Over the term leased asset is depreciated. Payment split into interest (Goes into CFO) and principal (Goes into CFF) Interest may go into CFF also if IFRS	Financial Lease: Treated as either sales type lease or direct financing lease Sales type(PV>CV) Treated as if asset is sold and loan is provided to buyer with same amount. Asset removed in beginning from B/S and lease receivable is created equal to the PV. Gross profit is recognized between PV and CV Direct financing(PV=CV): No gross profit recognized. Implies lessor simply financing asset. Here it implies as if lessor has bought asset from a third party. Asset removed in beginning from B/S and lease receivable is created equal to the same amount. For both types, Principal is treated as CFI and interest portion as CFO

	Finance Lease	Operating lease
Assets	Higher	Lower
Liabilities	Higher	Lower
Net income(in early years)	Lower	Higher
Net income(later years)	Higher	Lower
Total Net income	Same	Same
EBIT(o/p income)	Higher	Lower
CFO	Higher (because depreciation not considered in CFO).because only interest payments come here	Lower
CFF	Lower	Higher
Total Cash Flow	Same	Same.
CR (CA/CL)	Lower	Higher
Working capital (CA-CL)	Lower	Higher
Asset turnover (NI/TA)	Lower	Higher
Return on assets	Lower	Higher
D/E	Higher	Lower
D/A	Higher	Lower

Both in o/p and finance lease firms should disclose payments for the next 5 years seperately and cumulative amount of the next 5 years after that.

In exam, check for these where you might make mistakes

1. Check whether the payment is in beginning or the end of period while calculating leases. (This is same for TVM problems too). You do not need to discount the first payment if it is in the beginning of the period.
2. Check the duration to determine if the lease is operating or finance lease
3. In lease or bonds, we assume that we receive the interest rate on the amount issued at market rate. Hence it is the netter of interest rate we receive and the coupon amount we pay

Please cross check for any mistakes as some might have crept in!! Please comment if you have found any mistakes and I will correct the same.

You might want to read Differences between IFRS and GAAP

Common mistakes while buying inusrance

2012-09-24T19:18:00.001+05:30

Whats the value of your insurance policy if you do any of the following mistakes?

Buying insurance for tax savings without proper planning.
Buying inadequate insurance cover or Buying more than required.
Mixing insurance with investment, thereby purchasing endowment and ULIPs instead of taking term insurance.
Not disclosing already existing policy details while taking a new insurance when you already have one
Disclosing incorrect personal details which include medical history of self and family
Not reading the policy document thoroughly and leaving it to fill it by your agent.
Taking insurance on person on whom the family does not depend. (rather who does not earn)
Keeping the nominee as Kids/father/mother when your wife depends on you.
Even after carefully taking insurance, not telling your nominee which insurance you have taken, where you have safely kept it and how to claim that insurance
Not renewing it on time
Paying the insurance premium even after retirement (or) nobody depends on your income anymore
Buying Insurance even if you do not need one. Yes you do not need insurance if your Assets are more than your liabilites and can conver your dependents until they become independent
Just comparing rates while comparing policies instead of comparing features
Buying through agent instead of buying it online. (Online is cheper!! it saves agent comission)
Increasing or Decreasing cover value as per need
NOT understanding your policy. You can always return back your policy with in specified days from the day you have received your policy
Throwing away policy after the expiration date. On some kinds of policies, covered claims may arise long after the expiration date.
Buying too many policies

Have you made any of them? Please share your experiences.

How to close ICICI demat account

2012-07-01T20:23:00.003+05:30

I have finally decided to close down the ICICI demat account in lieu of high brokerage charges despite its good interface and features.

Here is the procedure

Keep in hand these documents before you close.

DP ID
DP account number
Trading account number

Before closing the account, you need to transfer all shares to any other account or convert the shares into physical form. You can find the procedure to transfer shares here.
You need to close both demat and trading account separately to complete the procedure. The headache here is both accounts are closed at two different places
You need to close the trading account at any ICICI direct branch. After visiting the branch ask for trading account closure form and fill in the trading account number and submit the form. It should be closed in 10 working days.
You need to close the demat account at any ICICI bank branch that offers demat services. After visiting the branch ask for demat account closure form and fill in the DP ID and DP account number and submit the form. It should be closed in 10 working days.
After few days of submission, try logging into your ICICI demat account and it should give an error.
Please Note, if yours is a 3 in 1 account, your account will no longer be a zero balance account and you need to maintain the minimum balance that ICICI demands or you need to cough up heavy fines. My suggestion is to close the bank account if you think you do not use it anymore and open a account with any public sector bank.

How to transfer shares from ICICI demat to another

2012-07-01T19:56:00.000+05:30

There are two ways in which you can transfer shares from your ICICI direct demat account to another account.

e-Instructions:

You can use this facility only if you have a account with ICICI bank. This service is free of cost. :) The advantage that you get with this procedure is that, the chances of transfer to unknown account is eliminated.

Here is the procedure,

You need to visit any ICICI bank branch that offers demat services. I did at Kukatpally branch in Hyderabad.
You need to ask for the e-instructions slip and fill and submit the same
The details will be added to your account in 10 working days. Mine got added in 2 days only.
Note that you can add a maximum of 5 accounts only. To remove any account also, you need to do it at the branch itself by submitting another e-instructions form.
You need to carry the below details

Demat account number DP ID and Account number
The accounts DP ID and account numbers to which you have to transfer the shares
Original ID proof. You need to submit a copy of it as well.
Your bank Customer ID
Demat registered e-mail id and phone number

Once the account has been added to your bank account you can transfer your shares. You can check this by clicking on the demat section on your bank account. Then click on the e-instructions link that is present on the left side menu. After that you should be able to see the newly added account number
Click the Off-Market transfer, then click "GO". You will redirected to a new page where you should enter the ISIN, number of shares, date of which the transfer should occur, type of transfer (gift, internal transfer...), then click submit and confirm the same.
The transfer should be done on the same day with less than 30 minutes of submission, if it is a working day for BSE/NSE and is submitted before 6pm else it will be done on the next working day.
The charges for internal transfer is free otherwise it should cost you around 0.04% of the amount. Visit here for any other charges

Via Delivery Instruction Slip :

Fill in the delivery instruction slip that you have received when opening the demat account, else you can request one at the branch itself.
Fill in the appropriate source and destination DP ID and account numbers and submit them at any ICICI branch offering demat services.

Best Personal Loan - Bajaj Finserv

2012-06-03T22:07:00.004+05:30

If you have ever asked any bank about personal loan, you will be in shock at the end after all charges were heard. It has huge penalty charges, minimum of 12 months of EMI payment and no part payment of the principal. Though the option is diminishing interest, it is still way too huge.

The best option I have found so far is Bajaj Finserv Personal Loan. It is disappointing that all the loan comparing websites do not even displays this optiion.

Bajaj Finserv Lending Personal Loans comes with the following unique Features:
• Nil foreclosure charges (At least one EMI should be paid)
• Part Prepayment facility You can prepay up to 6 times in a calendar year at any interval with the minimum amount per prepay transaction being not less than 3 EMI’s and there is no limit on the maximum amount.
• Prompt Repayment Benefit - Bajaj Finance offers an exclusive benefit to the customers who pay all their EMI’s on time. Subject to timely clearance and no delays of all EMI’s for total tenor. BFL would refund 1% of the annualized interest amount paid. The same will be paid every 12 months of the total tenor

Remember, while the option is tempting, this is beneficial only if you can prepay the loan earlier. The interest rate is 1-2 percent higher (I believe due to its features) than other loan available in market

Link to the company site: http://www.bajajfinservlending.in/Pages/Personal-Loan.aspx

Bajaj Finserv personal loan review

How to close HDFC Personal Loan

2012-06-03T21:54:00.000+05:30

Here is the procedure

Prerequisite to close personal loan from HDFC is to complete 12 months EMI for salaried and 6 months EMI for self employed.
Call up your HDFC bank customer care and ask in which branch you need to close the loan. Loan is not closed at all branches. Usually it is closed in head office of that city. For myself I have closed it at Begumpet branch, Hyderabad.
Things to carry before going to bank

Xerox copy of ID proof
Amount can be paid in form of Cash/ Cheque
Loan account number

Fill up the form given at the branch and handover the cheque
Remember you might need to pay penalty if there are any preclosure charges. For personal loans as of now it is 4% of the remaining principal for HDFC. As per RBI new norms (not passed as of now), penalty charges should be waived. The closure
Once you have handovered the cheque, they will give an acknowledgement form. Keep that copy safely until you have received the loan closing agreement. This will be mailed to you by the bank to your registered address.
Remember, if the duration between closing date and EMI date is very near (not sure of exact number of days), the EMI will still be deducted. However it will be refunded back in 10 working days.
Update: The EMI deducted which is refunded back will be paid with interest (same interest as your personal loan)

However my experience with loan says that one should always refrain from opting for a personal loan as the interest charges are too high. There are other options available which are discussed here

However if you still are in need of a personal loan again. Consider Bajaj finserv personal loan. It is the best personal till date. Do read its features here. I bet none of the personal loans available in market today can beat its features!!

How to close HDFC Demat account

2012-05-23T13:41:00.000+05:30

Finally I have decided to close down my HDFC demat account. I have taken it since it was given to me as a free option until one year. However I have decided not to trade or invest using HDFC due to its high charges.

Before you start with the procedure, make sure your demat account does not have any securities. You can either transfer them to your new account by filling up the form and submitting at the branch or just sell the securties. You cannot close your account with securities in them.

Here is the procedure

Gather the below required info before you go to the office

Trading account number
Demat account number
Bank account number and customer id (If it is linked to your HDFC bank account)
ID proof

Locate a branch near you that closes demat accounts. Be aware that not all branches have the facility to close your demat account. While opening account they walk in to your door step. But while closing you have too!!!. Contact the customer care in your city and ask them the bank location near to your place where demat account can be closed. ( I closed it in the Chandanagar branch in Hyderabad)
The first time, you need to close your demat account. They will provide the form. You need to provide the above details and a copy of attested ID proof. Fill up the form and handover. Your demat account will be closed in 7-10 working days. You also need to fill in why you are closing the account, just as a feedback. Mine was high charges and not so user friendly interface.
One your demat account is closed, you need to again walk in to the branch and again fill up the application form to close the trading account. You will again need the above details in point-1 and keep them handy. Your account will be closed in 7-10 working days and will also be delinked from your bank account.
If you have paid the amount for the year and even if still months are pending, you will not get back the prorated amount bank.

How to know it is done?

Well , try logging in with your details into the site, it should not allow you. (or)
Login into your HDFC bank online site, click the demat tab. Nothing will be shown. This confirms it is done!!

For me the process was easy, except that I need to walk in to the bank twice which I am not happy about.

How to surrender ULIP with Shriram Life insurance

2012-05-22T15:56:00.001+05:30

You should have probably come to know by this time that ULIP's just dont satisfy the definition of investment nor insurance rather it just makes these companies rich. Well thats a different story you can get access on internet.

I hold a ULIP for plan Maximus with Shriram Life and finally decided to close down the insurance. Here are the steps what I should go through.

Make sure you have these documents in hand before you go to the office.

Original policy document. Take a xerox of it and keep it with you for your reference since you need to handover the orinal.
If your signature has changed from the time you have taken the policy, take a notary with the new signature
Have your bank and personal details - Account Number, Branch Name, Your new address
An ID proof just in case they ask you to verify.

Locate any shriram office nearby your place. Any place where they open new chits or process loans will also have ULIP closing section.
Ask them that you want to close your policy. They will give you two forms to close the policy.

One for closing the ULIP
The details to which the cheque needs to be delivered.

Fill in these 2 forms and handover the original policy document. Your cheque should reach home in 10 working days

Problems you might face while/after surrendering the policy:

The cheque will by default go to your policy address. However if you have changed your location you need to specify them clearly that you want to collect the same in new address. However I faced a problem here. They did not deliver to the new address nor to the original address. They have got the cheque to the branch to which I have surrendered the application. I came to know about this only after I personally walked in to that office since I have not received the cheque even after 10 days.
Branch internet connections are not good and you might face problem for getting your final quote of your policy. However this should not matter while surrendering the policy.
They initially said to me that the branch where I took policy is facing financial problems and money coming back might be a problem. Well this is total nonsense.
Carefully go through your policy document for how much value you will get after surrender. This will depend on policy type and number of years of premium paid.

If you want to know your policy quote register your policy online at shriramlife.com. Or you can email directly to customercare@shriramlife.in . They responded good to all my queries promptly. The helpline number on their website never worked for me.

8 things a woman should know about money!

2012-03-08T20:34:00.001+05:30

8 things a woman should know about money!:
What a topic to write on…on Women’s day! Right? Hell, no.
I just choose this title because I think many women will search for this line – and hey I have your attention, do I not?
Well here is a list. Believe me..if I had said what MEN should know about money, the list would be the same…
1. Learn about money. The basics of money include – why you should have a savings bank account, a term insurance, a health insurance, and some kind of a retirement pathway.
2. Do not depend on your father, husband and son to look after your money. If Chanda Kochchar can run Icici Bank, Shikha Sharma ran Icici Prudential Life Insurance successfully and now runs Axis bank, Ashu Suyash can run Fidelity Mutual fund, Swati Kulkarni can manage funds at UTI, Naina Lal Kidwai can run HSBC, Renu Karnad can be on the Board of Hdfc Ltd., Uma Shashikant teaches money and wealth to all of India’s mutual fund agents and bank relationship managers, stop hiding behind ‘Money management is a man’s job’. In fact as I was enumerating this, I was wondering, where are the men??
3. Taking off on point no. 2 please remember that at some stage of life you could be alone – never married, divorced, widowed, …etc. Also it is possible that your dad did a good job of handling your money, but your husband may be a guy who knows nothing. You cannot suddenly look like Alice in Wonderland – well you should not, right?
4. If you let the man in your life handle money, make sure you know what he is doing. Trusting your husband is fine – but a woman’s instinct helps many a time.
5. 99% of husbands I know love their families, so they will not cheat their wives. However those husbands who want to opt out of the marriage will make money moves in advance. I know of women who have no clue what hit them when confronted with a husband who wants to walk out. Do not get conned.
6. Some men may have taken life insurance policies with their mother /brother / father as a nominee when they were single. It may sound morbid, but hell no – the nomination in the pf, ppf, nsc, bank, life insurance, mutual funds…..has to be the WIFE, not anybody else.
7. Assuming you have a fantastic husband who knows all about money – remember at some time you may need to know how to handle it. At least know what he has, why he has bought them, where to find the documents, ….maintaining an investment / ‘what your spouse should know’ book helps (I have such a book, am willing to publish it if a bank, mutual fund or a life insurance company is willing to sponsor it – free nahi doonga, effort has gone into it).
8. Involve your family – your parents could be a financial mess and your kids may be learning wrong things about money. Kids should know what is legitimate to ask and what is not. Parents should know that old age care (from age 80 to 92) is expensive (bloody expensive if I may add). An old age home which takes care of bedridden patients charges about 25000 per person per month. Kids should know it can cost US $ 75000 for a year in a good US business school …if you know, share. If you do not know, read subramoney.com
9. Do not fight or quarrel about money with your spouse in the presence of the kids – they get all wrong ideas about MONEY.
10. Do tell kids ‘Money is NOT the root cause of all evil’. Learn to value things – and tell them people, experiences, things, money – is the correct order. So a vacation with a family is far more enjoyable than an asset BOUGHT from the market…

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The investing world loses a legend..

2012-02-22T12:11:00.000+05:30

Legendary investor Walter Schloss, one of the Superinvestors of Graham-and-Doddsville passed away due to leukemia on 19/02/2012. He was 95 years young.

R.I.P. Walter Schloss (28/08/1916 - 19/02/2012)

My Financial goals for 2012

2012-02-06T14:49:00.000+05:30

Here are my goals...

Surrender my Shriram Life insurance, which is a ULIP
Surrender my LIC endowment plan, Jeevan Anand.
Take a decent medical insurance to cover my family. Realized very lately that companies insurance is just not enough.
Close my personal loan much ahead. Already paid 1 year of interest. Do not want to waste anymore of junk interest
Slowly book profits for the investments in equities made in 2011 and some in 2012 and make them free of cost.
Invest in the tax saving mutual funds (HDFC Tax saver-G, my favourite of all times) before market runs up. Dollar is at 50+ levels, what else can be a good time.
Invest in quality health and education.
Build an emergency fund of 6 months gross salary. I never maintained this. Time to start this NOW!!!
Spend good time with family and more important to spend time for myself
This year atleast want my dividend to meet the annual purchase of Vegetables at home.
Change nominees for my accounts appropriately.
Close my HDFC Demat account.
Close my ICICI Demat account and before that transfer all securities to my active trading account
Last but not the least, to evaluate whether to take a term insurance or not.

Switching banks without changing a/c number soon

2012-01-02T17:06:00.000+05:30

After portability in mobile and health insurance finally we get chance to maintain account number even after switching with bank accounts. Definitely a great move. Sometime later we might see things like NSDL and CSDL for banks as well where banks are just a broker themselves??

Switching banks without changing a/c number soon: The idea is to save customers the inconvenience of opening and closing bank accounts or keeping multiple accounts if they have to shift to a new location or find their bank's services unsatisfactory.

RBI Sells dollar??

2011-12-15T20:15:00.000+05:30

The article says that RBI is selling dollar to rescue rupee. But, it looks like it has sold rupee, because it is reaching its threshold. Well there might be some more increase to 55/57 levels.

The move might also a signal that we are the beginning of end of the current fall which i think may last for further 2-3 months. We might see turn around signals starting Jan/Feb end. Hopefully by that time, I will be completing building my portfolio and be in 0% cash and start booking profits from mid 2012 :)

Lets see how it unfolds.

Why premiums for online term plans are so cheap ?

2011-12-06T15:29:00.001+05:30

Next time while you plan your insurance, better buy it online. They are considerably cheap when bought online.

Here is an article which tells you why.

Why premiums for online term plans are so cheap ?:

Denmark Introduces ‘Fat Tax’ on Foods High in Saturated Fat

2011-10-14T06:00:00.000+05:30

Finally some country has taken steps to control the fat intake a citizen takes.... The tax is the first of its type in the world.

http://abcnews.go.com/blogs/health/2011/10/02/denmark-introduces-fat-tax-on-foods-high-in-saturated-fat/

Like they say "people are what they eat". People become fat beacause of their poor food choices and not able to control what they eat.

Hope some day in India, these type of taxes are also there. More than tax, there should also be an indication of the fat percentage and the tax attached to the products. Otherwise people might forget it in the long run.

Our goverment is a slave of food processing industry. Increase such type of products is like helping the pharma industry to get better and better.

Like they take milk, convert into cheese, people turn fat, get diseases, visit doctor and fuel the pharma industry.

ICICI banking wrong date display

2010-10-31T21:23:00.002+05:30

Noticed a strange thing while doing few banking transactions in ICICI bank. The transactions shows date as 1st-Nov-2010 when the date itself is 31st-Oct-2010 .
Click on the image to enlarge

Wish they rectify such kind of mistakes. Such things scare customers. Thank god only date changed not the balance

I really want to learn….!

2010-09-17T14:43:00.000+05:30

I really want to learn….!: "

Most business people pay lip service to education and training. If you are a business man and know your business well you still need to learn about money. You need to be updated about HR. What about logistics? – really the works.

Ask a group of business people if they’d be willing to attend a seminar on learning business finance and personal finance at least half of the people in the room say yes. Give them a specific date and time, and only a handful will actually sign up! And surely I have found that it is not about price.

I have done finance seminars priced from Rs. 30000 per person per day down to ZERO – and found the response pretty similar!

It used to surprise me when I heard that 50% of all businesses fail in their first three years. Now that I teach finance – personal and business, I am surprised that the rate is so low! Many people have no clue as to why they are earning, what will they do with money, how to save / invest or ….! Many business men have very poor grip on marginal costing, budgeting, opportunity costs, break even, pricing, – too much of it is “intutive” – and that hurts.

Most successful professionals embrace a “culture of learning.” This is especially true during difficult financial times.

Personal and professional self-development is a journey which has to be enjoyed —not a destination which can be reached. The most amazing learning person I have met is Jagadguru Shankaracharya of Kanchi. When a journalist asked him “how can you call yourself a Jagadguru when all you do is lead a small bunch of people in South India, he said “You interpret Jagad(world) guru(teacher) differently from me. You think I am the guru of the world, my interpretation is “the Jagad(world) is my guru”.

Benjamin Franklin once said, “If a man empties his purse into his head, no one can take it from him. An investment in knowledge always pays the highest return.”

With that in mind, here’s an action item for this week. Look at your financials (e.g. cheque book, credit card statements) for the last year. Have you spent anything on some type of on-going business education? Worse still is all your financials well organized.

If you aren’t “emptying some of your purse into your head,” take a few minutes to think about what you want to learn to help you build your business—and sign up for something this week! Don’t put it off any longer.

If you want to earn more, you need to learn more!There are a few lines which are very powerful:

Finance is changing, are you learning?

If you think financial literacy is expensive, try financial ignorance!

We make smart people, richer!

I train millionaires and millionaires in training!

Oh, and reading these articles from time to time won’t hurt either.

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He Picked a Chair for "Him".

2010-08-21T17:23:00.000+05:30

He Picked a Chair for "Him".: "

A man's daughter had asked the local priest to come and pray with her father. When the priest arrived, he found the man lying in bed with his head propped up on two pillows and an empty chair beside his bed. The priest assumed that the old fellow had been informed of his visit. 'I guess you were expecting me,' he said.

'No, who are you?'

'I'm the new priest ,' the priest replied. 'When I saw the empty chair, I figured you knew I was going to show up.'

'Oh yeah, the chair,' said the bedridden man. 'Would you mind closing the door?'

Puzzled, the priest shut the door.

'I've never told anyone this, not even my daughter,' said the man. 'But all of my life I have never known how to pray. At the common worshipping place I used to hear the priest talk about prayer, but it always went right over my head..'
'I abandoned any attempt at prayer,' the old man continued, 'until one day about four years ago my best friend said to me, 'Joe, prayer is just a simple matter of having a conversation with God. Here's what I suggest. Sit down on a chair, place an empty chair in front of you, and in faith see God on the chair. It's not spooky because he promised, 'I'll be with you always.' Then just speak to him and listen in the same way you're doing with me right now.'
'So, I tried it and I've liked it so much that I do it a couple of hours every day. I'm careful, though. If my daughter saw me talking to an empty chair, she'd either have a nervous breakdown or send me off to the funny farm.'
The priest was deeply moved by the story and encouraged the old guy to continue on the journey. Then he prayed with him, and returned.
Two nights later the daughter called to tell the priest that her daddy had died that afternoon.
'Did he seem to die in peace?' he asked.

'Yes, when I left the house around two o'clock, he called me over to his bedside, told me one of his corny jokes, and kissed me on the cheek. When I got back from the store an hour later, I found him dead. But there was something strange, In fact, beyond strange--kinda weird. Apparently, just before Daddy died, he leaned over and rested his head on a chair beside the bed.'

Source:Unknown.