[ramki067]

Enquired yesterday that PORD now provides 7.5% interest only!

[aargee]

Originally Posted by vasoo

For example, I buy 4 units/gms of gold in ETF every month.

Well Vasoo, here's a little logic that I was thinking, but couldn't put into practice completely.

Buy about 100 gms of gold every year, which would average to about 8.3 grams or a soverign per month. By end of 10 years, you'll be a proud owner of over 1KG Gold!!! Man!!! that's drooling, owning about a Kg of Gold!!! Trust me, its way too easier said than done

Originally Posted by ramki067

Enquired yesterday that PORD now provides 7.5% interest only!

I doubt; could you tell me the returns of Rs 10 invested per month for 5 years? Is the maturity value Rs 728.9 or is it lesser than that? It could be 7.75% & people in PO state its 8%.

[ramki067]

Originally Posted by aargee

I doubt; could you tell me the returns of Rs 10 invested per month for 5 years? Is the maturity value Rs 728.9 or is it lesser than that? It could be 7.75% & people in PO state its 8%.

Yes, couldn't enquire so exactly. But, they said its 7. something and not 8.5% as you had said somewhere in your earlier post.

One investment question though. My bro has started his job recently and hasn't invested in anything. So whats your opinions to do first and let me tell you that he is avid saver!

Also, i shall now come to my part of the story!

I'm married for an year now and first started investing around 3 years back(i'm in my earlier 30s now ) and did so only to save on tax! with an LIC Jeevan Anand for 19 years of 5K/month. Other than that i have purchased a site in city outskirts and i've started to pay EMI of 8k/month form this month for 7 years. Health insurance is done by my company and i haven't done anything to myself and have no plans of changing the company in near future years. What do you intelligent people suggest me? Have i done enough savings or is there anything other do i need to do now?


Thanks,
Ramki

[Jaguar]

Originally Posted by carboy

To add, if MFs will give a return of 15%, I wonder why banks try to make money by giving loans?

Assuming, I am a bank, I collect deposits from people & I now have a lot of money in my bank. I give out loans to individuals & companies at rates higher than I pay my depositers & make money. Why do I (a bank) need to do this? Why should just not take all the money I have as deposits & just put into MFs. I will get 15% returns on that & my profit will be far more than what I earn by giving out loans. I don't have headache of chasing defaults, hiring a lot of employees who do loan disbursement, creditworthiness analysis etc etc.

There is one more angle to it. I remember reading in a 'Rich Dad - Poor Dad' book, that if you deposit $100 in a bank, the bank can legally give a loan of some $700. So if the bank had loaned this money at 10% interest, it would earn $70 minus the $4 that it owes you for your $100. So, total profit of $66.
But, if it were to invest in MFs, it could only invest $100 and the effective gain would be only 15-4 = $11.
This is for US, but I suppose something similar would hold true for India as well.

[carboy]

Originally Posted by Jaguar

There is one more angle to it. I remember reading in a 'Rich Dad - Poor Dad' book, that if you deposit $100 in a bank, the bank can legally give a loan of some $700. So if the bank had loaned this money at 10% interest, it would earn $70 minus the $4 that it owes you for your $100. So, total profit of $66.
But, if it were to invest in MFs, it could only invest $100 and the effective gain would be only 15-4 = $11.
This is for US, but I suppose something similar would hold true for India as well.

This doesn't make any sense at all. Where does the remaining 600 come from?

[DCEite]

Originally Posted by ramki067

I'm married for an year now and first started investing around 3 years back(i'm in my earlier 30s now ) and did so only to save on tax! with an LIC Jeevan Anand for 19 years of 5K/month. Other than that i have purchased a site in city outskirts and i've started to pay EMI of 8k/month form this month for 7 years. Health insurance is done by my company and i haven't done anything to myself and have no plans of changing the company in near future years. What do you intelligent people suggest me? Have i done enough savings or is there anything other do i need to do now?

The question you are answer is not an easy one to answer. Infact, an impossible one for folks here.

You need to get your complete financial checked, including future goals (like children/children marriage/retirement/retirement pension/holidays etc.), present liabilities, etc., then only someone can give you a financial plan to go forward with, and to let you know whether you are saving enough are not.


But one thing is clear. Having a health plan from the employer alone is a BAD idea. The health cover remains only as long as you are employed. So god forbid, if you were to lose your job today, your health cover is gone with it too.

Get a family floater health plan. Should not cost more than 6-7k per year for 4-5 lac cover.

[huntrz]

Originally Posted by Jaguar

There is one more angle to it. I remember reading in a 'Rich Dad - Poor Dad' book, that if you deposit $100 in a bank, the bank can legally give a loan of some $700. So if the bank had loaned this money at 10% interest, it would earn $70 minus the $4 that it owes you for your $100. So, total profit of $66.
But, if it were to invest in MFs, it could only invest $100 and the effective gain would be only 15-4 = $11.
This is for US, but I suppose something similar would hold true for India as well.

Originally Posted by carboy

This doesn't make any sense at all. Where does the remaining 600 come from?

Well what Jaguar said is actually correct. This is what I can recall from my Economics class-

Lets say 3 guys A, B and C have their account with XYZ bank.

A has deposited Rs 100 in his account. B needs Rs 90 loan to buy land from C.
There is certain ratio given out by RBI(I guess Cash Reserve Ratio) acconding to which the bank has to maintain minimum of that much percentage of all the deposits it has and cannot loan it out. Lets say CRR is 10% then XYZ has Rs 90 (100- CRR% of Rs 100= 90) to be lent out as loan.
So XYZ lends Rs90 as loan to B. B pays it to C to buy his land.
C get Rs 90 and deposits it in his account in XYZ. So the bank again has Rs 90. Reducing the CRR again it can lend Rs 81(90 - CRR% of 90= 90-9=81) to another guy D who pays it to E to buy a Flat. E deposits Rs 81 in his account. Again the bank retains 8.1(10% of 81) and lends Rs 72.9(81-8.1) and so on.

So with Rs 100 of deposit the bank has actually made 90+81+.. in the market by means of lending.

Also if the deposit rate is 5% and lending rate is 10 percent the bank needs to pay Rs 5 to A and gets Rs 9+8.1 from B and C as interest on the loan.

[khoj]

Originally Posted by ramki067

One investment question though. My bro has started his job recently and hasn't invested in anything. So whats your opinions to do first and let me tell you that he is avid saver!

Also, i shall now come to my part of the story!

I'm married for an year now and first started investing around 3 years back(i'm in my earlier 30s now ) and did so only to save on tax! with an LIC Jeevan Anand for 19 years of 5K/month. Other than that i have purchased a site in city outskirts and i've started to pay EMI of 8k/month form this month for 7 years. Health insurance is done by my company and i haven't done anything to myself and have no plans of changing the company in near future years. What do you intelligent people suggest me? Have i done enough savings or is there anything other do i need to do now?


Thanks,
Ramki

Both of you need to open PPF accounts if not already done through your employers. Just walk into any public sector bank and do it, never mind what pros or cons people will list on Provident fund but open one and deposit the max allowed (70K at present) in the beginning of every financial year. Do this as long as you are earning and residing In India and let the magic of compounding work for your benefit.

[carboy]

Originally Posted by huntrz

Well what Jaguar said is actually correct. This is what I can recall from my Economics class-

Lets say 3 guys A, B and C have their account with XYZ bank.

A has deposited Rs 100 in his account. B needs Rs 90 loan to buy land from C.
There is certain ratio given out by RBI(I guess Cash Reserve Ratio) acconding to which the bank has to maintain minimum of that much percentage of all the deposits it has and cannot loan it out. Lets say CRR is 10% then XYZ has Rs 90 (100- CRR% of Rs 100= 90) to be lent out as loan.
So XYZ lends Rs90 as loan to B. B pays it to C to buy his land.
C get Rs 90 and deposits it in his account in XYZ. So the bank again has Rs 90. Reducing the CRR again it can lend Rs 81(90 - CRR% of 90= 90-9=81) to another guy D who pays it to E to buy a Flat. E deposits Rs 81 in his account. Again the bank retains 8.1(10% of 81) and lends Rs 72.9(81-8.1) and so on.

So with Rs 100 of deposit the bank has actually made 90+81+.. in the market by means of lending.

Also if the deposit rate is 5% and lending rate is 10 percent the bank needs to pay Rs 5 to A and gets Rs 9+8.1 from B and C as interest on the loan.

The bank needs to pay interest to C & E as well.
Also, there is no guarantee C & E will deposit their money in the same bank. Quite frankly, this is a meaningless example.

I can also give such examples.
- A deposits Rs. 100 in the Bank
- Bank invests Rs. 100 in a MF.
- Some other person sells Rs. 100 worth of MF at the same time.
- They also invest Rs. 100 in the same bank & the bank buys MF again
& this goes on.

[vivekiny2k]

Originally Posted by huntrz

Well what Jaguar said is actually correct. This is what I can recall from my Economics class-

Lets say 3 guys A, B and C have their account with XYZ bank.

A has deposited Rs 100 in his account. B needs Rs 90 loan to buy land from C.
There is certain ratio given out by RBI(I guess Cash Reserve Ratio) acconding to which the bank has to maintain minimum of that much percentage of all the deposits it has and cannot loan it out. Lets say CRR is 10% then XYZ has Rs 90 (100- CRR% of Rs 100= 90) to be lent out as loan.
So XYZ lends Rs90 as loan to B. B pays it to C to buy his land.
C get Rs 90 and deposits it in his account in XYZ. So the bank again has Rs 90. Reducing the CRR again it can lend Rs 81(90 - CRR% of 90= 90-9=81) to another guy D who pays it to E to buy a Flat. E deposits Rs 81 in his account. Again the bank retains 8.1(10% of 81) and lends Rs 72.9(81-8.1) and so on.

So with Rs 100 of deposit the bank has actually made 90+81+.. in the market by means of lending.

Also if the deposit rate is 5% and lending rate is 10 percent the bank needs to pay Rs 5 to A and gets Rs 9+8.1 from B and C as interest on the loan.

you are forgetting that the lending is increasing not with just the 100 Rs, but the lands too. if these assets (lands) were not there, it will be impossible to carry on this transactions. In other words, the Rs 90+81+.... is loaned out of "Rs 100 + all the lands combined". At this time, bank virtually owns the lands thru the loans. How it works in real world? see below.

Banks will not just give cash to anybody, without a proof of where it's going to be invested, like land. And this eliminates the need of "virtually" in the previous paragraph. It's more of accounting/legal measures to avoid such convoluted misuse. You can build an economic question on this scenario though.

The bank needs to pay interest to C & E as well.
Also, there is no guarantee C & E will deposit their money in the same bank. Quite frankly, this is a meaningless example.

we can discuss an economic question with assumptions. Let's assume there is only one bank in the system.

I can also give such examples.
- A deposits Rs. 100 in the Bank
- Bank invests Rs. 100 in a MF.
- Some other person sells Rs. 100 worth of MF at the same time.
- They also invest Rs. 100 in the same bank & the bank buys MF again
& this goes on.

Let's stop at this point. Remember, in the beginning A had 100 Rs, and another person had MFs worth Rs 100. There really were 200 Rs in the economy which have been invested in MF thru the bank now. If you are including next person, be sure to add his initial worth of MF in the total economy to start with.

ok, I went further down to read.

There is one more angle to it. I remember reading in a 'Rich Dad - Poor Dad' book, that if you deposit $100 in a bank, the bank can legally give a loan of some $700. So if the bank had loaned this money at 10% interest, it would earn $70 minus the $4 that it owes you for your $100. So, total profit of $66.
But, if it were to invest in MFs, it could only invest $100 and the effective gain would be only 15-4 = $11.
This is for US, but I suppose something similar would hold true for India as well.

This doesn't make any sense at all. Where does the remaining 600 come from?

exactly, if bank had an extra 600 in it's liquid reserves to loan you, it could as well invest 700$ in the MF. wanna calculate the total gain?

[aargee]

Originally Posted by ramki067

But, they said its 7. something and not 8.5% as you had said somewhere in your earlier post.

@Ramki - Pls show me the post in this thread where I've said 8.5%, I've searched all the 19 odd pages & could only come 5 matching search for 8.5 posted by Vivek, MX6, Lalvaz & finally you on this page.

Originally Posted by ramki067

So whats your opinions to do first and let me tell you that he is avid saver!

Save adequate, but be more of a good investor

Originally Posted by ramki067

Have i done enough savings or is there anything other do i need to do now?

Like Dceite says, its extremely difficult to say; if everyone knows an answer to this, we wouldn't be needing this thread at all. I'm sure the experts here agrees with me.

There's one more thing you can do, start investing, if you think you've saved well.

Originally Posted by Jaguar

There is one more angle to it. I remember reading in a 'Rich Dad - Poor Dad' book

Its a good book & very good eye opener series, but following most of it would leave you to picking rags or in riches. Anyway, point being that, most of the stuff don't apply even now in US. Have you played their Cashflow 2 game? Most of the stuff covered in the book is presented in game, you'll understand the funda much better.

But IMO, that's from the Bank's perspective & we're discussing on improving our financial segment. We don't need to worry much over that.

[ghodlur]

Originally Posted by kalpeshc

What you are doing is prepaying 1L every 6 months (example) and what I am doing is to NOT prepay but keep 1L accumulated in the account. So after 3 year, you've reduced your principal by 6L and are NOT paying any interest on it. At the same time I've accumulated 6L and I too am not paying any interest on it. But I have an advantage of withdrawing that 6L if I need the same right?

@Kalpeshc,

You are right, you will accumulate the amount over 3 yrs and it can be withdrawn any time. But once you withdraw the amount withdrawn will be added to the loan amount and interest calculated accordingly. In my case since the principal amount is reduced by 6L, the interest outgo in EMI will be lets say around 30% and principal would be 70% and in addition the no of years are reduced substantially.
The interest saved over 3 years will be my liquid fund to be used in case of emergency.
You are right in your place too.

[carboy]

Originally Posted by vivekiny2k

Let's stop at this point. Remember, in the beginning A had 100 Rs, and another person had MFs worth Rs 100. There really were 200 Rs in the economy which have been invested in MF thru the bank now. If you are including next person, be sure to add his initial worth of MF in the total economy to start with.

Yes. My example was totally meaningless - I was trying to produce a meaningless example. The same is the case with the example I was countering. Someone in the original example had some land which he sold & that was what brought the extra money into the economy.

[carboy]

Originally Posted by ramki067

I'm married for an year now and first started investing around 3 years back(i'm in my earlier 30s now ) and did so only to save on tax! with an LIC Jeevan Anand for 19 years of 5K/month.

My personal opinion is that one shouldn't mix investment & insurance.
Investment should be kept separate from Insurance.
i.e. if you need insurance buy a term life policy rather than a whole life or endowment policy - your premiums will be much cheaper.

[aargee]

Originally Posted by carboy

My personal opinion is that one shouldn't mix investment & insurance.

Yep; a very valid point

Originally Posted by carboy

i.e. if you need insurance buy a term life policy rather than a whole life or endowment policy - your premiums will be much cheaper.

I strongly vouch for it; endowments are the way to go when it comes to insurance. They serve the purpose & are cheaper & they should be considered on longer terms.