Chins, Balance Sheets and a Tweeting Cabbie

Let me begin by answering the question that’s been on your mind the whole week – why do humans have chins? To mate, to chew and a few other theories on why humans have chins.

Next to something that really surprised me – Caterpillar is telling its workers in Canada that they will close down a factory and move to a lower cost location – and what’s that lower cost location? Why USA of course!

It seems that although the wage difference between the two countries is not much, due to higher productivity, pricier dollar, and cheaper fuel – US is a cheaper destination than Canada, and the article lists down many other companies that decided to move out of Canada.

Factories are not the only thing that get affected by exchange rates – this Financial Express article talks about NRIs getting increasingly interested in buying real estate in India due to the depreciating rupee.

Beyond BRICs writes about the capital requirement woes of SBI and how a cash strapped government isn’t able to capitalize SBI beyond the needs of a few quarters.

An incredible story of a Chicago taxi driver who uses Twitter to grow his business.

Flexo of Consumerism Commentary shares his personal balance sheet which gives a view of how he has fared in the last ten years, and what he has achieved in the last ten years is truly amazing.

Finally, some stunning pictures from Iran.

Enjoy your weekend!

Best Bank NRE Interest Rates

RBI liberalized the NRE interest rates last month, and allowed banks to set their own interest rates like they did for the savings bank account interest rates.

Prior to this, it made no sense to open a NRE account for the interest rate because you got a lot higher rate in the NRO account even after tax deduction.

But with this change, now you can get extremely high rates of interest in the NRE account and the interest in this account is tax free as well!

The recent rupee fall contributed to this move, and these are very good rates for NRIs who live in western countries with low interest rates and don’t have a lot of safe options to put their money at work.

I’ve made a list of the banks with the best NRE interest rates that I could spot along with the tenure, and if you see any banks missing from this list then please let me know and I’ll update this list.

Here are a couple of other posts that are related and might be useful as well – the first one explains the difference between a NRO and a NRE account and the second one talks about how you can open a NRE or NRO account while you are abroad.

Now here is the list.

S.No. Bank Tenure

Interest Rate

1 Karur Vysya Bank 1 year to 2 years

10.00%

2 City Union Bank 1 year and less than 3 years

10.00%

3 Tamil Nadu Mercantile Bank 1 year – less than 2 years

10.00%

4 Karnataka Bank 1 year to less than 2 years

9.75%

5 Dena Bank  1 year only

9.60%

6 State Bank of Travancore 1 year to less than 2 years

9.50%

7 South Indian Bank 1 year to 2 years

9.50%

8 Corporation Bank 1 year to less than 2 years

9.50%

9 IDBI Bank 1 year 1 day – 10 years

9.50%

10 J&K Bank 2 years to less than 5 years

9.50%

11 Federal Bank  1 year only

9.50%

12 Indian Bank 1 year to less than 3 years

9.50%

13 Andhra Bank 1 year

9.40%

14 Central Bank of India 1 year to less than 2 years

9.25%

15 Vijaya Bank 1 year to less than 2 years

9.25%

16 Bank of Baroda 1 year to less than 2 years

9.25%

17 ICICI Bank 390 / 590 / 990 days

9.25%

18 HDFC Bank 1 year 16 days

9.25%

19 SBI
1 year – 10 years

9.25%

How can RBI stop the rupee fall?

The rupee has fallen quite a bit in the past few months, and the question on a lot of people’s mind is how can RBI stop the rupee from falling more?

Before we get to what they can do to stop the rupee fall – let’s get one big thing out of the way. The RBI cannot stop the rupee decline by selling dollars and buying rupees snf manipulating the market.

At a little over $300 billion – India’s forex reserves just cover 95% of the country’s external debt and more importantly – the market for the Rupee is estimated to be $70 billion a day, and RBI simply doesn’t have enough firepower to manipulate this market by trading in it.

As Ajay Shah writes in his Rupee FAQs – if RBI tries to manipulate this market they will run out of dollars very quickly. He further details what else can go wrong, and I think anyone interested in this topic should definitely read his full post. Probably, the best proof that Ajay Shah is right is the fact that RBI hasn’t tried to meddle in the market so far.

So, if RBI can’t trade in the market – what else can they do?

Anything, that makes it easier to bring in USD into the country will help ease the stress on the exchange rate, and stop the rupee from falling.

The impact of one step will not be immediate, and it may not even be very big, but these small steps are what will help arrest the slide, and these small steps also happen to be the only practical thing to do right now.

The most recent example of such a step is to allow foreigners to all investing in Indian shares directly – they could earlier invest only through participatory notes, and this makes it easier for them to invest directly, and will help bring more dollars in the country.

The other such move was to liberalize the NRE interest rates, and allow banks to set their own NRE rates. As soon as they did that – some banks increased the rates from as low as 3.8% to 9.5%! Since the interest income from this account is tax free for NRIs – this is a great incentive to open NRE accounts and deposit money in these accounts.

If they allow FDI in multi brand retail – that will also get companies to invest money in India and bring in some dollars in the country and that will ultimately help the exchange rate as well.

If you see these measures – none of them will bring down the high dollar rate overnight or even in a few weeks – even if foreign investors can invest directly in India they aren’t exactly queuing up to do that right now, and even if NRIs can open these accounts, it takes about 3 – 4 weeks to open an account and even then it’s a question mark on how much money they will actually transfer?

If there were quick and easy solutions, they would’ve been already implemented, but like all other things – the way to have a stronger rupee is to make fundamental improvements in the system that attracts foreign inflows, and boosts exports, and things like these can only be done over the long term with sustained efforts.

This post is from the Suggest a Topic page.

 

Reader insights on financial planning for a baby

There were some great comments on yesterday’s post on financial planning for your baby, and the one that Indian Thoughts left had a lot of insights and since these are costs she has incurred recently, they’re very close to what you can expect in a similar situation.

There were plenty of things to learn from her comment, but the thing that struck me most was that a lot of these things don’t sink in or we don’t plan for them because it just doesn’t feel all that important or that big a deal.

I experienced that primarily because a lot of the things she wrote were things that I had read in articles earlier, but frankly, they didn’t quite feel that important until I read it in her comment, and realized that there is a reason why people keep mentioning these things again and again – because they are real!

For example – IT talks about eating healthier which costs more, and this is something I had read earlier, but it didn’t sink in as to how big of a difference that would make. Same thing with baby vaccinations, and the advice about controlling your urge to buy any and everything when it comes to your baby. I read these things several times earlier, but they never really sunk in.

It was a great comment, and she edited it slightly and posted it as a blog post on her own blog – I would highly recommend that you read it even if you’re not expecting a baby in the immediate future, it might just be something that lingers in your mind and helps you a few years down the road.

Read Cost of bringing baby on this earth

Financial planning for your baby

Neha Sharma left a comment about what factors you should keep in mind while expecting a baby, and I was a bit disappointed to see that there is hardly any good information on this important topic online.

The best article I found was by Hemant on your child’s future plan and I must say that if you are interested in this topic and are pressed for time you should much rather read that article instead of spending more time here.

If you have time to read two posts then here are my thoughts on the financial planning aspects of expecting a baby. I have penned down my thoughts, but I am also unclear about a lot of these aspects, so those of you who have gone through this stage, please share your experience in comments or email and let everyone benefit from them.

Financial Plan NOT Financial Product

The most important thing that I would want to emphasize is that you should distinguish between making a financial plan for your baby and buying a financial product for your baby. A financial plan is not the same as a financial product, and if anything, the insurance products that are meant to be children plans have relatively high costs and may not turn out to be the best vehicles as far as investing for your kids is concerned. So, much better to have a plan and then execute that by buying term insurance, good mutual funds and debt products.

Elements of the Plan

1. Having a baby and the first year costs

Neha’s first question was when you should start planning financially for a baby, and while the earlier the better, as far as I’m concerned the most practical time to start planning is when you think about starting a family.

I would like to have a sense of what the doctor’s visits, hospitalization etc. costs and what are the big costs that you incur one year from having the baby. Those are the things that you have to face in the very near future, and you want to deal with those things and take care of them first.

These costs will depend on where you live, how much of this is covered by your health insurance, and asking friends and colleagues about these is probably a good start. I’m sure a lot of you have way more experience and insight on this than I do so please do leave a comment about this.

I think having a ballpark of this expense and saving up for this for about 12 or 18 months is a good start. I think the best vehicle for this is a recurring deposit. You know that you need the bulk of this money at a particular date, it has to be a very safe instrument, and it’s not likely to be a lot, so you can probably stash away a little every month from your salary in a recurring deposit without feeling too much of a pinch, and in the end meet this expense easily.

2. Accounting for increased expenditure

It’s only natural that you spend more now that you have an additional member in the family, so the question is how do you account for that – reduced savings, increased income or a change in lifestyle?

From what people tell me it’s a mix of a changed lifestyle and reduced savings – if you have a one year old you don’t go out to movies as much as you used to earlier, but now you have to buy six plane tickets instead of four – so that makes a big difference.

I’m not sure how one takes care of this, but you have to somehow mentally prepare for these changes in the time to come.

3. School Admission Fees

Starting school and sometimes even playschool is an expense that goes over a lakh these days! So, this is one medium term expense (3 – 5 years based on when you start to plan) that you have to take care of and it is big enough to merit attention right away.

A good way to plan for this is look for a mix of fixed income instruments – I think a mix of high yielding company fixed deposits, cumulative bonds and bank fixed deposits are a good way to build this portfolio.

The good thing about this is you have plenty of options these days, and most of them with very good yields so you can invest in a new fixed income product every three or four months, and keep building on this corpus – if you have 3 years to plan, then that’s 12 quarters, and plenty of time and option to save and invest.

4. Life Insurance

Now that you have added responsibility, you need to re-evaluate if you have enough life cover. A term insurance is the best way to do this, and it’s inexpensive enough that you don’t have to blow a hole through your pocket. Think about this, and the sooner you get the better it is.

Conclusion

I think this is a good place to stop, get some feedback and hear out some real life experiences from the readers here – I’m looking forward to the comments on this one more eagerly than the other posts because I am certain people who have gone through this have a lot more to add from their experience, and I’d like to do a follow up post with those insights.

Srei 80CCF Infrastructure Bonds Issue

The latest company to come up with a 80CCF infrastructure bond issue is Srei Infrastructure Finance Ltd. and their issue opened on 31st December 2011 and will close on January 31 2012.

They have four options to choose from and the bond issue has got a rating of CARE AA from CARE which indicates a high degree of safety.

The main difference in the terms of this bond issue is that the buyback period is 5 years for all 4 options. So, you have two options with a term of 10 years, and then two more with a term of 15 years, but then all of them have an option to exercise buyback at the end of 5 years.

If you look at the REC infrastructure bond issue – you will see that the rate of interest is similar but the 15 year bond issue has a buyback period of 7 years instead of 5. (In the REC issue 10 year bond had 8.95% and 15 year had 9.15%)

Now, the bonds with a 10 year term have a rate of interest of 8.90% and the bonds with a 15 year term have a rate of interest of 9.15% but if you have the option to exercise buyback for all of them at the end of 5 years – then why choose the 10 year option at all?

For someone interested in this bond issue, I think it makes sense to prefer the 15 year series over the 10 year one, take advantage of the extra rate of interest and then exercise buyback at the end of 5 years. The only issue with this is I wasn’t able to find out how exactly the buyback works.

Srei Infrastructure has said in the prospectus that you have to notify them them about the buyback between six and nine months prior to the buyback date but how does one keep a track of these dates?

Do they send out a letter asking you for your preference or what other method does one follow? If they don’t send out a letter then it’s quite likely that a lot of people simply fail to keep track of when to send them the mail about the buyback.

If anyone can offer more clarity on this then please do leave a comment.

Here are some of the other important terms of the Srei infrastructure bonds.

Series

1

2

3

4

Face Value

Rs. 1,000

Rs. 1,000

Rs. 1,000

Rs. 1,000

Interest Payment

Annual

Cumulative

Annual

Cumulative

Interest Rate

8.90%

8.90% compounded annually

9.15%

9.15% compounded annually

Tenor

10 years

10 years

15 years

15 years

Buyback option

5 years

5 years

5 years

5 years

Buyback amount

Rs. 1,000

Rs. 1,531.58

Rs. 1,000

Rs. 1,549.24

Buyback intimation period

The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date

The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date

The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date

The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date

This is not a government company which is a question that inevitably comes up in comments, and this post has the list of all other infrastructure bonds that are currently open.

What does India import?

After the post on what India exports – I got a few emails on the import composition and here is a post on what India imports. This composition will probably not surprise many as most of the imports are oil and gold which have been written about quite extensively over the past few months.

The data for this comes from the Department of Commerce website, which has a great tool that can help you slice and dice this data in many different ways.

I took a list of the top 50 commodities that were imported in the April to September 2011 time period, but the chart is restricted to just the top 10 commodities because that’s the bulk of it and is a lot more readable.

Here is a chart that shows the break – up of the top 10 commodities that India imported in the April – September 2011 time period.

What does India Import?
What does India Import?

Here is the complete list of the top fifty imports.

Dated: 27/12/2011
Values in US$ Millions
(P) Provisional

Rank Commodity Apr-Sep  2010 Apr-Sep  2011(P) %Growth %Share
1 PETROLEUM, CRUDE & PRODUCTS 49,829.17 73,733.58 47.97 31.50
2 GOLD 17,459.40 28,639.85 64.04 12.23
3 ELECTRONIC GOODS 13,391.06 16,868.93 25.97 7.21
4 MACHRY EXCPT ELEC & ELECTRONIC 11,411.93 14,873.98 30.34 6.35
5 PERLS PRCUS SEMIPRCS STONES 14,920.60 14,010.02 -6.10 5.98
6 COAL,COKE & BRIQUITTES ETC. 5,871.44 8,634.54 47.06 3.69
7 ORGANIC CHEMICALS 5,660.97 6,716.15 18.64 2.87
8 METALIFERS ORES & METAL SCRAP 4,458.45 6,413.72 43.86 2.74
9 IRON & STEEL 5,197.44 5,136.70 -1.17 2.19
10 OTHER COMMODITIES 4,685.87 5,031.11 7.37 2.15
11 VEGETABLE OILS FIXED (EDIBLE) 3,085.47 4,826.36 56.42 2.06
12 TRANSPORT EQUIPMENTS 4,862.28 4,235.21 -12.90 1.81
13 PROJECT GOODS 3,005.92 3,896.30 29.62 1.66
14 ARTFCL RESNS,PLSTC MATRLS,ETC. 3,507.80 3,558.64 1.45 1.52
15 FERTILEZERS MANUFACTURED 4,024.62 3,268.97 -18.78 1.40
16 NON-FERROUS METALS 2,028.56 2,705.08 33.35 1.16
17 SILVER 667.02 2,622.86 293.22 1.12
18 INORGANIC CHEMICALS 1,897.49 2,588.69 36.43 1.11
19 PROFSNL INST,ETC EXCPT ELCTRNC 2,192.54 2,569.60 17.20 1.10
20 ELEC MACHRY EXCPT ELECTRONIC 1,814.25 2,348.85 29.47 1.00
21 CHEMICAL MATRL & PRODCTS 1,515.47 1,916.44 26.46 0.82
22 MANUFACTURES OF METALS 1,437.06 1,903.68 32.47 0.81
23 MACHINE TOOLS 986.03 1,504.69 52.60 0.64
24 MEDICINAL & PHRMACUTICL PRODTS 1,244.54 1,361.15 9.37 0.58
25 WOOD AND WOOD PRODUCTS 840.84 1,192.52 41.83 0.51
26 NON-METLC MNRL MNFS EXCL PERLS 751.36 998.43 32.88 0.43
27 COMP.SOFTWARE IN PHYSICAL FORM 403.71 951.03 135.57 0.41
28 OTH TXT YRN,FABS,MADEUP ARTL 730.12 927.89 27.09 0.40
29 SYNTHC & RECLMD RUBBER 530.80 888.56 67.40 0.38
30 PULSES 826.43 810.55 -1.92 0.35
31 PAPER BOARD & MANUFACTURES 623.58 793.71 27.28 0.34
32 CASHEW NUTS 349.24 763.75 118.69 0.33
33 DYENG,TANNG,COLRNG MATRLS 595.27 742.78 24.78 0.32
34 PULP AND WASTE PAPER 569.45 658.88 15.71 0.28
35 FERTILIZERS,CRUDE 356.83 610.66 71.13 0.26
36 M-MADE FMNT/SPUN YRN(INC.WAS) 418.71 518.01 23.72 0.22
37 NEWSPRINT 385.96 488.68 26.61 0.21
38 PRIMRY STEL,PIG IRON BASD ITMS 291.98 427.53 46.42 0.18
39 NATURAL RUBBER 379.66 426.30 12.29 0.18
40 FRUITS & NUTS EXCL CASHEW NUTS 313.82 415.13 32.28 0.18
41 PRNTD BOOKS,NWSPAPRS,JRNLS ETC 294.76 396.70 34.58 0.17
42 OTHER CRUDE MINERALS 224.68 292.45 30.17 0.12
43 LEATHER 210.37 240.68 14.41 0.10
44 SPICES 158.08 238.81 51.07 0.10
45 SULPHR & UNROSTD IRON PYRTS 107.46 235.91 119.52 0.10
46 WOOL, RAW 167.35 219.66 31.26 0.09
47 ESSENTIAL OIL & COSMETIC PREPN 178.25 214.03 20.07 0.09
48 SYNTHETIC & REGENERATED FIBRES 98.09 163.24 66.43 0.07
49 READYMADE G-MENTS(WOVN&KNIT) 92.52 144.23 55.90 0.06
50 COTTON YARN & FABRICS 134.92 140.04 3.80 0.06
Total 176,360.06 234,094.36 32.74 100.00

About one year ago I did a post on the countries from where India and US import their oil and that might be of interest to you as well.

Happy New Year 2012!

Anil Kumar Kapila who is a regular commenter here for a long time now left a lovely comment in yesterday’s post with some do’s and don’t’s for the new year and I took seven of my favorite ones to share them for this new year post.

I’ve experienced all of these emotions myself at one point or the other and I thought it’s a good idea to take some time to go over them and remember when you last experienced such a feeling yourself, and in hindsight – wouldn’t you have much rather not yielded to the temptation or avoided it altogether.

Here’s what he wrote.

With these great thoughts, here’s wishing everyone a very happy new year, may 2012 bring you great wealth and prosperity!

And thanks to Anil Kumar Kapila for sharing these with us!