Reader Stories: Mr. Chari’s Approach to Managing Money

by Manshu on June 28, 2012

in Opinion

One of the things that I find most incredible and interesting about blogging is how different people use OneMint, and I’m always keen to hear if someone has anything to say about how they have used the site.

I find that listening to these stories is the best motivation to continue writing, and the range of readers and the way they use OneMint truly amazes me.

Mr. Chari is one such reader who I exchanged emails  a couple of weeks ago, and he shared his approach to manage money, and how he has benefited from the site.

He graciously gave me far more credit than I deserve as is evident by most of his ideas that I never wrote about,  and looking at his detailed emails, I thought they will make a good post as there are some very good takeaways here.

Thank you Mr. Chari for your time, and here are some of his thoughts that he shared with me (edited).

1. I had to invest my father’s money which was quite an amount in tax free bonds, but after your article comparing tax free bond returns to SBI fixed deposit, I found putting the money in cumulative fixed deposits proved to be more profitable he being a senior citizen. As for me who is in 30% bracket, I invested in tax free bonds.
2. Your blog on infrastructure bonds also proved useful in choosing the AMC for investment.

3. I also invest in gold ETFs as well as the scheme by Tanishq where you can invest for 2 years monthly with any fixed amount and book your gold. You can choose any day of the month whereby I track gold rates and book on the day it has fallen.
4. I advise my office to deduct an average sum of income tax monthly. I know that at the end of the year it will fall short because we are given DA every six months being a government employee. So I opened a recurring deposit account of 10,000 per month for one year in bank. I get the interest plus the capital so I save quite an amount. The interest takes care of balance income tax and the principal is partly invested and partly spend for festivals.
5. I also regularly invest in 5 equity, 1 hybrid and 2 debt funds irrespective of the market fluctuations for the last 8 years. I am on a handsome profit.

Whenever DA goes up I try to take one additional SIP in the existing scheme only. I do not get chance to make any additional investment because I am already booked and have no surpluses except for some emergencies. But I do stick to what I have and all of them are deducted through ECS from my bank for long periods so nothing for me to worry.  In 2008 and 2009 I have seen my funds have gone negative to the extent of 66% but I still stuck to my investments due to which I am well off now. I stopped tracking them but invested through SIP’s thinking I am getting more number of units and whenever market goes up it will benefit me. It is a game of patience, that’s all.

6. Till one and a half years ago I was very jittery when investing in direct equity. I have tried retaining good stocks for quite a long time but it is still in a loss. I am more comfortable with MF’s so religiously invest in it. May be I need to develop more confidence at 59.

7. The last is the same as in your recent article on unnecessary purchases. I reward my children and my wife for not doing so. So the reward is proving to be cheaper than the unnecessary purchases. For the kind of salary I get the savings are around 48%.savings being slightly higher because of frugal living and low needs in a small place as Raipur. I know I am not perfect but even at this late stage I am taking up whichever is beneficial. I don’t know how you would react to such small things. These small things are definitely helping my colleagues and students in their life which I believe is more richer.

I felt that these were some great ideas and once again, I’m really thankful to Mr. Chari for sharing his thoughts. I’m really keen to hear comments on this one, so please post any thoughts that you may have!

 

{ 9 comments… read them below or add one }

Arun June 28, 2012 at 12:26 pm

Dear
Its a simple way of being satisfied, I found longer but safe way for journey towards financial security.

Please keep the spirit going.
Your

Reply

austere June 28, 2012 at 5:57 pm

When does he retire? How has he planned for this– dividend payout to cover costs, direct dividend to cover costs?
What about health insurance?
What about lump sum commitments– education, marriage of children?

Very neat planning but I dont like what inflation and taxes does to FD returns…

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M.S. CHARI June 29, 2012 at 12:30 pm

Dear
I can understand your hunger when you fired so many questions in a single breath. Let me enlighten you how this story emerged. The article by Manshu on the Financial illiteracy of the Indians quite some time back is true as I was myself was illiterate till eight years back without much savings depending on some LIC endowment policies, Gratuity and pension on retirement. Some eight years back I chanced to hit upon the Business channels where they explained how money can be created through mutual funds. I then understood that I really missed the bus for creation of wealth as I was already 52-53 years then. But I wondered that no time is bad to start investment so my first MF was for Rs. 1000. Meanwhile I learned many more things pertaining to the market and financial planning.
With time I adjusted my budget and increased the Sips in MFs. I being a govt. employee our salaries were revised as per 6th pay commission and a lot of disposable income was diverted towards investment. That amount was a hefty one. Now to answer your query’s
point wise: 1. I am 59 years and my retirement is at 65 years, so a good 6 years service is there.
2.I have a health insurance of three lakhs along with a separate family floater.
3. Afer retirement I shall get Gratuity and regular monthly pension which I believe should suffice. Further some of the investments will have gone into the post office senior citizens scheme which will be additional.
4. As for my commitments the education of my children is over and they are in service. This was met through salary and education loan. Now the marriage part remains which I will have to dwell into the GPF or the investments I am making.
5. Your question on inflation and taxes to the FD returns is interesting. The FDs which were invested are of my father and mother. Both of them are above 80s so they get a lot of deductions on income and don’t pay any taxes. As for me I have also started diverting the investments on my wife’s name to save taxes. My wife is a home maker and pays no tax. As for the inflation and returns on FDs I am not sure if I am making a loss. The interest rates are high and inflation also high, but I think I am protecting the capital without loss.
I had written to Manshu on how one could benefit from his articles for which he was inquisitive and this story has emerged. I had also requested him to write on investment ideas once in a while which would benefit all.
I don’t know whether any better investment ideas are there over what I am following.
chari,m.s.

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bemoneyaware June 29, 2012 at 5:39 pm

Very useful story. Reminds of “slow and steady wins the race..” And “jab jago tab savera”.

I was just wondering regarding your investments in name of your wife. Quoting from your reply
As for me I have also started diverting the investments on my wife’s name to save taxes. My wife is a home maker and pays no tax.

My explanation is as follows:

Let take example of Mr Aryan Sharma. He gift’s some of his money to his wife, Anjali, who is not earning anything otherwise. Anjali invests that money in a fixed deposit and earns interest. Logic being that since his wife doesn’t have any income, interest earned on such money would be below taxable limit and therefore, she won’t have to pay any tax on such an income. In a scenario like this, interest earned from the fixed deposit will be taxed in the hands of Aryan and not Anjali. So there is no tax saving for Aryan.

People think if they transfer their money or assets to family members then they would be able to avoid the tax. To counteract such practices of Tax Avoidance necessary provisions have been incoroprated in the Section 60 to 64 of the Income Tax Act. In technical terms it is called as Clubbing of Income. .

Sir I have a request please verify with your tax consultant or CA regarding it and update us too.

Reply

M.S. CHARI June 30, 2012 at 11:32 am

Dear bemoneyaware,
I agree with you that clubbing of income will take effect if I gift the sum to my wife. One of my CA friend had advised me not to gift the money rather I should give her an interest free loan so that she can generate her own money and return the sum back to me in due course of time. I am following my friends advise. If you still feel this may not be correct I shall revisit him again for clarification. Please do not take my statement on face value specially the word diverting the investment. Any advise from your end is invited.
chari,m.s.

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austere June 30, 2012 at 11:51 am

Thanks Mr Chari.
Wish you all the best.
Of course, your children will have the advantage of compounding…if they do SIPs/ equity…
At least in fruits/vegetables I am seeing clear 20% inflation when I go to buy sabzi. Also the way pulse prices skyrocketed this year– moong dal for instance– was not good at all. Your pension will cover living costs, so that would be fine.

If you are in a metro, 3 lacs health cover may not be enough– just a thought.

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bemoneyaware July 1, 2012 at 4:03 am

Thanks a lot for clarification.
CAs often advise giving interest free loan. At times I have heard:
The opinion of Assessing Officer will play a crucial role. He may tax the benefits received by your wife, in your hand, by invoking the clubbing provisions.

But now for clarification is coming up.
Income-tax Appellate Tribunal (ITAT), Ahmedabad went on to hold that in a simple case of interest-free loans and advances given by a taxpayer to his relatives, Sec. 60 is not applicable since it is not a case of transfer of income without transfer of asset.
The cases that Tribunal considered was ‘ITO v/s Nalinbhai M. Shah 93 TTJ 107 (Ahd.)’ wherein it has clearly held that “a taxpayer is entitled to use his capital as per his desire.”
Ref: MukeshPatel : Interest free loan

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Indian Thoughts June 29, 2012 at 12:19 pm

nice one. hope to see more such stories here.

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Manshu July 1, 2012 at 8:25 pm

I’m still waiting to see your story 🙂

Reply

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