How can I transfer money from PayPal to an Indian account?

PayPal is one of the fastest ways of transferring money from a US bank account to an Indian bank account. Although the exchange rate that you get is not as good as some of the other services, the speed is much better. You can get the money transferred within a week.

Here is what you need to do in order to use PayPal to transfer money to an Indian account.

  1. Add your American Bank Account to your PayPal account: Assuming you are going to transfer funds from an American bank to an Indian bank, the first thing is to add your US bank account to your PayPal account. This can be done by going to: My Account > Profile > Add / Edit Bank Account.
  2. Verify your Bank Account: After you add your bank account, PayPal transfers two small amounts to it. PayPal will then ask you to enter these two amounts in your PayPal account so that they can verify that the bank account belongs to you. PayPal will eventually withdraw the money that it credited to your account, so if you were planning on building a fortune using PayPal verification cents, forget about it.
  3. Add your Indian Bank Account: Next, you will have to add your Indian bank account where you will send the money. In order to do that you need to go to the same path again; My Account > Profile > Add / Edit Bank Account. Select India from the list of countries in the drop-down and enter your bank account details. PayPal needs you to enter the bank IFSC code which can be found on this RBI link.
  4. Add Funds and Withdraw Funds: Once you have the bank accounts set up, you can use the “Add Funds” and “Withdraw” links from “My Account” tab in order to first add money to your PayPal account and then remit it to India.

The initial set up can take some time because of the verification process, but once you are done, the transfer works fairly smoothly. Remember, the exchange rate that you get through PayPal is usually a little lower than what you get from other services, but the speed and security is top notch.

YouTube as your financial advisor

I have not heard the TV referred to, as the idiot box in a long time now. My guess is that it is because no one talks about TV that much, any longer, anyway.

Everyone is so busy with the Internet, the TV has stopped being as important as it was about a decade ago. Personally, I think it is a great thing that people spend less time on TV and more time on the Internet.

I have always believed that the Internet makes you a smarter person. The assumption here is that your curiosity drives you to research and find answers. Without curiosity, the Internet will be just like a colossal library; cheap membership and low footfalls.
Personally, I have really benefited from spending a lot more time on YouTube and a lot less time watching CNBC.  I feel that there are two key differences between watching financial news and analysis on TV versus watching the same thing on YouTube.

  1. You can’t ask your TV questions: When you hear someone saying bailing out GM is not a good idea on TV, you can’t turn around and ask that guy what will the pensioner’s do if they let GM go bankrupt? On the other hand, if you watch a video on YouTube which favors the GM bailout, it will have several comments which let you know why GM should not be bailed out with links to videos of economists and pundits with opposing views. You can keep asking more questions and soon enough you will find a pretty good idea of what both camps are saying. This is not so true on TV. Although TV shows also try and bring in both views, very often because of the ideology of the TV station itself, one side gets less coverage. The Internet does not have any biases and is much better in answering questions.
  2. Internet is not afraid to deliver bad news: The first time I ever saw Peter Schiff was on YouTube. This was much before any of his prophecies became true and I was really surprised that I had not seen him on TV before. One reason might be that Peter Schiff doesn’t make good TV. He is not like Larry Kudlow or Kramer who scream at the top of their voices and are generally very animated. Those are the guys who make good TV. Also, you don’t see a lot of financial advisers who are bearish in general and deliver bad news. Even if that bad news turns out accurate, TV is full of people who are generally upbeat and animated. People who deliver bad news generally do not fare well on TV (even if they are accurate).

I have subscribed to a lot of channels on YouTube and apart from the usual dose of annual reports and Economist’s articles, financial commentary on YouTube is my favorite new thing.

What about you? How do you get your financial news and advice? Is TV still the center of it all for you or have you switched to the Internet?

Where can I see my free credit report?

The best place to see your free credit report is . This is the legitimate website created by the three credit reporting companies – Experian, Equifax and TransUnion, that lets you access your credit report.

Here are some important facts about your free credit report.

  1. The Credit Report is free but not the Credit Score: A lot of people assume that their credit score will come along with the credit report. That is not true. If you want to see your credit score then you will have to pay separately for that.
  2. Contents of the credit report: The credit report will contain information about your credit repayments, credit usage, availability of revolving credit, information about credit pulls and other information related to your credit.
  3. You are entitled to free credit reports from all three agencies: This is a slightly lesser known fact. You are entitled to a free credit report from all three reporting agencies – Experian, Equifax and TransUnion in a given year. So that means that you can either pull up all three credit reports at one go or space them out every four months or so. If you space them out, you will be able to keep an effective tab on your credit report throughout the year for free! If you order all of them at once, you have a great chance to compare and analyze them.
  4. You are entitled to a free credit report under some state laws: The following states have laws that make free credit reports available to consumers: Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey and Vermont.
  5. Don’t use a different website for your free credit report: For getting access to your credit report, you will need to part with your Social Security Number (SSN). You should never give out your SSN, unless you absolutely have to. When you do give it out, make sure it is to authentic websites. Since is sponsored by the three credit reporting agencies, it is the most authentic among all others. The other reason is hidden fee charged by others. Some websites will sign you up for monthly subscription under the fine print and then keep charging you a few bucks every month. Unless you read the fine print carefully and opt out of it, you will be surprised by a charge every month.

Keeping a tab of your credit report not only helps you in monitoring whether you are managing debt well, it also helps monitor against identity theft. So it is good practice to make use of your free annual credit report and stay on top of things.

What Is LIBOR?

LIBOR stands for London Inter Bank Offered Rate. It is a very important interest rate that is used to track the rate of short term lending between the participating banks in the London money market.

LIBOR is determined on the basis of the interest rate at which participating banks lend to each other for the very short term. It is determined every day at 11:00 AM London time and is set for as long as an year and as short as one day. It is important to note that LIBOR is the underlying rate for lending unsecured funds by one bank to another.

LIBOR is one of the most active interest rate in the money market and a lot of derivative products are priced based on LIBOR.

How does such a dull thing affect me?

When reading about LIBOR, the images of gray-haired bankers in dark suits comes to mind and it seems LIBOR is something which gets set in a distant world. It doesn’t seem like something that impacts our everyday life.

That is not entirely true. Ultimately LIBOR and the Fed rate are the base rates upon which all other interest rates depend. A low LIBOR means the APR on your credit card and your Adjustable Rate Mortgage (ARM) will also be low. A higher LIBOR means a higher credit card APR and ARM.

Credit Crunch and LIBOR

The LIBOR does not move much day to day, and any violent upwards move in the LIBOR means that banks are scared of lending to each other. They demand a higher rate of interest to lend to each other to compensate for the additional risk that they perceive.

Take a look at the chart below which shows the daily LIBOR rates from April of this year till October. The chart shows how LIBOR was stable for most of the year and then suddenly spiked up in the days of the credit crunch.

The chart clearly shows what happened during the credit crunch. Banks got so scared that they hiked up the rate, twice or thrice of what they were, overnight. So that basically translates into paying 15% APR on a credit card and then waking up to find that the APR has been hiked to 45%!

When Paulson and Bernanke talked about unclogging the financial arteries of the world, this is what they were talking about. By injecting liquidity and pumping funds into banks, they ensured that the banks start lending to each other again and the interest rates ease up.

Ultimately, LIBOR is more a measure of the base rate upon which all other rates get set and that is why it is one of the most tracked interest rates.

Will the dollar collapse in the next four years?

The dollar has risen rapidly in the past few weeks. In fact it has risen constantly in the wake of the global financial crisis. There are two major reasons for the climb of the dollar these past few weeks:

  1. Deleveraging: As banks and hedge-funds deleverage their positions around the globe, the demand for dollars go up. The hedge funds that bought assets in emerging economies, are selling these assets and demanding dollars for them. This creates a massive demand for the dollar and helps push the price of the dollar upwards.
  2. Flight to safety: The dollar continues to be the currency of choice for the entire world. It is still considered to be one of the safest investments that exist today. That is the reason why a lot of institutional investors and even governments bought into the US dollar and the US Government T – Bills. This flight of safety created a demand for the dollar.

These two factors alone, created such conditions that the price of the dollar kept rising steadily. A look at the five year chart of US Dollar vs Euro, shows how sudden the spike of the dollar has been.

Will this rise continue?

The main factors that have led to the rise of the dollar are short-term in nature and have nothing to do with the fundamental strength of the US Economy (the underlying economy of the dollar).

This means that when hedge funds have sufficiently deleveraged and the flight to safety has stopped, the rise of the dollar will also halt.

Will the dollar collapse?

The value of the dollar in real-terms is declining due to two factors.

  1. Low interest rates: The Fed has lowered the interest rates to as low as 1%. Low interest rates mean that cheap money is available in the economy. That means that price of “money” itself goes down and inflation sets in the economy. The current financial crisis has ensured that the interest rates remain artificially low for quite a while and therefore the real value of money will go down with that. This factor will push down the dollar in the days to come.
  2. Increased US Trade Deficit: The US runs a pretty big trade deficit that goes to finance its consumption. A trade deficit is a good thing for a growing economy if it helps it to install factories and other agents of production. However when it goes towards financing consumption, it can be disastrous. The US has not shown any sign of curbing down consumer spending and investing in assets. At about 10 trillion dollars the US National Debt is already quite a humongous figure. If spending does not go down in the years to come, the interest payment on this debt will gnaw at the economy and weaken it quite a bit.

These two factors make me feel that the value of US Dollar is going to go down substantially in the years to come when we compare it to the highs that it stands at, today.

The other side of the story is that most emerging and developed nations hold their forex reserves in US Dollars. Japan has over a trillion US Dollars, China about half a trillion and India, one quarter of a trillion. This is representative of the forex reserves of the whole world. Therefore it is in the interest of the world at large to prop up the dollar and any time the dollar takes a big beating, these economies will come to rescue it.

The emerging economies have also grown quickly based on export earnings and a loss of those earnings will mean large scale joblessness.

All these factors make the dollar collapse a little hard to imagine.

Will rate shopping for a car loan hit my credit score?

When car-shopping, it is natural for most people to visit several dealerships and check out different cars and ask for finance options.

Every time you ask for what kind of financing you can get, the dealership does a credit check on you and a credit inquiry is placed on your credit report.

Credit inquiries lower your credit score and every credit inquiry takes away about 5 or 6 points from your credit score.

The good news is that the FICO treats all credit inquiries for car loans or mortgages within a thirty day period as a single credit inquiry and not multiple ones. This means that in the thirty days prior to calculation of your credit score, all the credit inquiries are clubbed and treated as only one single credit inquiry.

This helps you in rate-shopping and shields you from getting a hit on your credit score from what seems to be multiple credit inquiries, when you are only seeking one loan.

Things to remember

  • This rule does not cover credit cards: If you have applied for multiple credit cards within a thirty day period, then all of those credit inquiries will be treated as separate ones and not clubbed as one.
  • Try and get the loan within a thirty day period: Plan out your decision in such a way that you can visit all dealerships and make a decision within a month. This will protect you from a protracted period of credit pulls.
  • Check with your bank or credit union first: If you have fair credit, there is a good chance that you will get better terms of finance from your bank or credit union. It is always a good idea to check with them first before turning to the dealer.

If you plan your purchase in advance and are able to do everything within a month, then rate-shopping and car-shopping will not impact your credit score much. However if your car-shopping does get prolonged then be ready for a few inquiries to show up on your credit report.

What is Chapter 11 Bankruptcy?

Under US laws, Chapter 11 Bankruptcy is filed by a corporation or an individual who wants to reorganize their business, but can’t pay their bills in the short run. This is usually filed by corporations and not so much by individuals.

When a business finds itself unable to pay off its debtors, but thinks that they can still reorganize and keep the business running, they file a Chapter 11 bankruptcy.

Key Facts

  • The business filing Chapter 11 bankruptcy gets a fair chance to reorganize the business and run it back to profitability.
  • Unlike Chapter 7 bankruptcy where the business is liquidated, in Chapter 11, an attempt is made to restore the financial health of the business.
  • Unlike Chapter 13 bankruptcy, there is no limit on the size of the debts, to go for Chapter 11.
  • The court protects the debtors against creditors and helps the debtors to restructure the business. In return, the creditors may get part-payment of their debts and ownership in the newly reorganized business.
  • Initially, the debtors will propose a plan for reorganizing which will be vetted by the courts. After the lapse of a certain time period, creditors may also propose a reorganization plan.
  • Quite often, businesses that go for Chapter 11 have more assets than liabilities, but do not have enough money to pay their bills. For example Circuit City had assets worth $3.4 billion and liabilities worth $2.32 billion. But, still they were forced to enter bankruptcy because they were facing a situation where they would not be able to pay their bills any longer.

Chapter 11 bankruptcy laws were instituted because it was thought that in some cases, a reorganized business will be worth much more than a liquidated one.

However the rate of success in Chapter 11 bankruptcy has been very low and only about 10% businesses emerge healthy out of Chapter 11.

Chapter 11 is also considered to be one of the more flexible bankruptcy laws. However it is quite a complex law as well and therefore not many individuals go for it.

China’s 586 billion dollar stimulus plan

Countries all over the world are facing the brunt of the current financial crisis. Everyone is taking measures that suit their economic environment the best. China has also announced a stimulus package to keep its economy going.

The key thing about this plan is that at $586 billion it is as almost as big as the American bailout plan, but primarily focuses on infrastructure development within the country.  The major similarity in the American and Chinese plan is that both try and create an environment  for expansion of consumer credit.

  1. Remove the credit ceilings of commercial banks: There is a certain limit beyond which commercial banks cannot lend in China. The current plan will abolish that ceiling and allow banks to invest more freely in predefined investment areas.
  2. Investment in Infrastructure: The stimulus plan will focus on spending money on ten key areas. These have been identified as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from disasters.

Apart from the stimulus plan itself China plans to reform its Value Added Tax (VAT) laws and bring in cost efficiencies to its manufacturers.

Focus on consumption

Much of China’s growth in the the last few decades has come from a sustained focus on exports and investment in factories and industries. In the wake of the financial crisis thousands of factories have closed down in China and many businesses have gone bankrupt.

In this context, China’s focus on consumption and building up its rural infrastructure shows the direction Chinese think the global economy is taking.

They are no longer relying on American and European consumption to fuel export oriented economic growth, but are planning to stimulate internal consumption to fuel future growth. While exports have grown annually at rates as high as 20%, this year the rate of growth is expected to be in the vicinity of 0%.

What it means for the west?

China is going to go the same path the more developed economies have followed since the end of World War – II. Initial thrust through exports (whether arms or cars), then stimulate the economy through massive spending on internal infrastructure and top it up with major expansion in consumer credit.

The economic cycle has changed for both China and the West. While China promotes massive investment in infrastructure and consumer demand the West has to do just the opposite. While China reaps the benefit of years of trade surpluses, the west needs to balance its budgets and control costs in order to let the financial and real economy stabilize. The thrust for the more developed economies need to be spending on capital goods and innovation and not so much on consumer credit.

What is a first mortgage and a second mortgage?

A mortgage acts as a security to the lender against default. This means that if you take a loan and mortgage your house, then in case of default, the lender can sell your house and get their money back.

A first mortgage means that in the case of default, the lender will have first right to the proceeds of the sale.

A second mortgage means that in case of default, the lender will get repaid after the lender of the first mortgage has been paid off.

Since the security for the lender of the second mortgage is lesser than the first mortgage, the terms of a second mortgage are generally not as attractive as the terms of the first mortgage.

The amount of loan you can get on a second mortgage depends on the equity that you have in your home. Thus it depends on the current market price of your home and the amount of mortgage that you have already paid. A higher market price and equity will translate into better terms for you.

What is the difference between an ETF and an Index fund?

The Big Difference

The main difference between an Exchange Traded Fund (ETF) and an Index fund is that an ETF can be traded on a stock exchange like a stock. You can buy or sell it at your will, and even short it.

As opposed to this, an Index fund cannot be bought from a stock exchange and has to be directly purchased from the mutual fund sponsor. You will not be able to trade it as freely as an ETF.

The Costs

Apart from this one difference listed above, there are no concrete differences between an Index Fund and an ETF tracking the same index as far as the retail investor is concerned.

An ETF may have lower costs (like no entry or exit loads) than an index fund, but you pay a bid-ask spread every time you buy an ETF which is non-existent in an Index fund. So, it can’t be said that one is cheaper than the other.

As far as comparison in returns is concerned, it is not a fair comparison to match one against the other so you can’t really say which one is better.

Warren Buffet’s view

According to this news article Warren Buffet tends to favor low cost Index Funds over ETFs. His rationale is very interesting. He says that ETFs present a temptation for retail investors to buy and sell very frequently and incur trading costs.

Index funds have no such temptations and will turn out to be cheaper and more profitable in the long run. According to Buffet, “I have nothing against ETFs, but I really think an index fund that just charges a few basis points for management is pretty hard to beat. You put it away, you have nobody encouraging you to trade it next week or next month … your broker isn’t going to be on you.”


If you were thinking of buying an ETF or an Index fund, then in all probability, you do have a sector that you want to buy in or you may just want to but the S&P 500. In such a scenario, it is best to look at various schemes and find out the one with the lowest cost.