New #PF rule: You may have to re-look #Retirement saving plan

A recent circular about the manner in which the contribution to the Employees Provident Fund will be calculated will have far reaching impact on employees in the days to come. In a nutshell the manner of calculating the base for the application of the rate of deduction of provident fund contribution should include the basic salary, dearness allowance as well as allowances that are ordinarily, necessarily and uniformly paid to employees instead of the basic salary and dearness allowance that is used currently for the calculations. Here are some of the impacts that will be witnessed in the days to come.

 

Additional provident fund contribution:

 

One impact of the implementation of this change will be that the contribution to the Employees Provident Fund will increase on the part of both the employer and the employee. This will happen as the base for the calculation is larger than before due to the increase in the items that are considered as basic wages.  For the employee this will mean that a larger amount gets accumulated in the provident fund account each month which will mean a larger amount of earnings in the form of interest in the coming time period.  This will change the entire dynamics of the retirement planning calculations as this larger amount going towards this area will need adjustments in terms of savings and investments in other areas for the purpose of retirement planning.

 

Change in salary structure:

 

The amount spent by an employer on the employee is known as cost to company and when the change in the manner of provident fund contribution is considered if all other things remain as before then it will lead to a larger contribution from the employer. If the employer decides to absorb this rise then it will in effect be a salary hike for the individual to the extent of the extra amount contributed to the provident fund by the employer. However many employers might prefer to keep the cost to company figure constant by reducing the allowances to the extent that this compensates for the additional amount of contribution to the provident fund. This would lead to changes in the salary structure and in many cases even the manner in which the entire salary is provided.

 

Cash flow:

 

A major impact for the individual will be the cash flow changes that will be witnessed. A larger contribution to the provident fund from the employees side will mean that lesser amount of income will be available as take home salary.  This can put a severe dent in the management of the household budget because the individual will have to adjust their planning in such a way that the lower amount of income is taken into consideration for the various spends. If the employer decides to change the salary structure by reducing the allowances to keep the cost to company figure constant then the hit will be even harder as the income will fall and at the same time contribution will rise leading to a squeeze on the cash flow from both sides. Planning for a reduced take home salary in advance would be required to avoid a sudden shock later on.

 

Overall planning:

 

The overall planning with respect to investments and long term retirement needs will need to undergo a change for the employee. With a larger amount being compulsorily going towards retirement needs the individual might need to shift their overall planning focus to other areas. This could require allocation for other goals like education of children, buying a property, travel etc. There is also the question of the rate of return being earned by the investments and since the interest earned on provident fund is tax free it will be difficult for the investor to get similar rates on the debt side from other instruments. So the allocation towards provident fund would be earning a good rate of return and the remaining funds would need an appropriate asset allocation so that an overall balance in the portfolio is maintained for the employee.

SOURCE – MONEYCONTROL

Stock market heads for all-time high in 2013 in India?

Conditions for a new bull market are slowly getting satisfied. The yield curve has stopped flattening, liquidity is improving, valuations appear supportive and profit margin expansion is a growing possibility in the coming months, says Morgan Stanley Research.

Morgan Stanley has rolled out its market target to December2013 as 23,069. This implies that the market will be trading at 14.9 tines the FY14 estimated Sensex earnings in December 2013.

Morgan Stanley is expecting the Sensex earnings growth to be 10% and 19% in FY13 and FY14. Significantly, broad market earnings may have troughed or could trough in the current quarter. Revenue growth should slowly accelerate in the coming months. Margins could rise in the coming months with a favourable base effect driven by the relative movement in the current and fiscal deficit. Interest rates are already down YoY (year-on-year), and should stem the steep rise witnessed in interest costs in the previous 12 months. The risk to earnings is that the investment rate collapses, although recent signals suggest that the public sector is starting to spend money.

 The key risks are that commodity prices rise quickly, bringing inflation pressures to the fore, and global risk appetite wanes as global policy makers slip into another cycle of complacency. Mid-term polls are also a possibility, but it is not necessarily seen as a downside risk to stocks.

Morgan Stanley observes that the decisive policy action at home (reduction in subsidies and opening up of FDI) and, more crucially, concerted action by European and US central banks have reduced India’s tail risk linked to poor macro stability (twin deficit).

 Accordingly, the research agency has gone underweight on consumer staples and has raised energy and materials stocks to overweight. Also, it has taken industrials to neutral. It has trimmed technology by 100 basis points. Consequently, the average sector position has expanded, and it is seen as an emerging strategy, as the average correlations of stocks to the market appear to be falling and no longer merits extreme focus on stock picking

MoneyLife

 

 

 

Worst Ways to Make Money

 

1. Day Trading

Let’s face it. We all start day-dreaming at the very mention of investing and float into a fantasy world where we are as rich as Warren Buffet. As day-trading is perhaps the shortest time duration to get returns on an invested amount, newbie investors might be tempted to jump right into it. But beware – you will earn way lesser from day trading than investing for about a year. Not only does this job rob you of peace of mind and sleep but also does not guarantee a positive return on your investment at the end of the day.

2. Flipping Real Estate

Let’s understand flipping real estate before delving further into it. Real estate flipping is when you buy at a lesser price and sell at a higher one or buy a house, repair it and then resell it. Real estate is among the very green and fertile areas of investment but this particular mode of action is not. Real estate flipping is a profitable option only when you will be able to charge a bit more for the house, indicating profits. However, if the prices of houses are sliding anyway, you won’t be able to get a good bargain, even if you’ve spent a fortune on it.

3. Trading Foreign Currency

Trading and investing is a turbulent world anyway and trading foreign currencies is an additional bad option. Trading has more of cons than pros, especially if you are a new investor. If you are unaware of the nitty-gritty’s of investing, you are bound to fall hard. Trading foreign currencies can be a great investment option but only if you are loaded with money and have experience. If you are new to this, you will be playing against experienced big shots, who might even play dirty. Moreover, this is one area which is abundant in frauds and scams.

4. Online Surveys

With the advent of the internet revolution has come one hidden nuisance – online surveys. To some, online surveys are great ways to collect primary genuine data, while to some – it is a clever way of collecting private information and misusing it. Whatever may b e the case, participating in online surveys is not a very profitable idea. Apart from sheer monotony of the job, such portals do not pay great money too. If you were thinking of asking for a raise to do this job, remember that someone out there will do it at a lesser money than you.

5. High-yield Investment Opportunities

If you’ve ever thought of a clever idea to make honest money, there are millions out there who have deceptive ways of earning way more money. Enticing people with high-yield investment schemes is just another scheme to cheat people. We have encountered one or more of such ponzi schemes in our lives and have seen the ugly consequences. Apart from its illegal status, such investment opportunities are nothing more than a pain for the common man. There are plenty more ways to make easy money without having to resort to illegal means. So, Google a few such ones.

6. Online Gaming

All the guys out there would find this job to be more than rewarding – playing online games all day long and getting paid for it that too. But if you fall in this category, then it’s time to come out of it. You might be the gaming champion in your guys’ circle but never forget that there will always be a teen who is quicker and better than you. The online gaming industry is witnessing a huge growth spurt and there are more than willing candidates who will play their favourite online games at low pays. So, make up your mind and play online games for fun and not money.

7. Blogging

Surprise surprise. Contrary to popular belief, blogging does not help you earn oodles of money. This phenomenon has been hyped too much and blown out of proportion to a large extent. Blogging will help you earn money to an extent but not make you rich overnight. Regular blogs earn money by putting up likable content and gaining audience popularity. But this takes time and does not pay well either. Professional blogs, on the other hand hire experts to write for them and get tons of money from advertising. So, if blogging is your passion and not pay, then continue with it.

8. Gambling

Gambling has been the bane of our society since the beginning of time. As people have been gambling with more than just money, gambling with money seems to have become a part of human culture. Apart from an obvious horrid habit, gambling is considered an easy way of making big money. Unless you are not a victim of rigged dices and plain bad luck, you just might make a small fortune. But chances are that you will lose more money than earn it. So, choice is yours – crack the ‘Teen Patti’ mathematics code or get super concentration like Mahowny.

9. Paid Medical Testing

Man rules when it comes to testing on living beings, including its own kind. Science and testing has tempted man to go beyond the ordinary for ages, even if it means sacrificing a few lives in the process. Paid medical testing is not like the other contenders on this list. It is utterly legal and pays quite handsomely but there is one very big catch in it. It requires you to sign an obligatory contract which actually allows medical professional to test experimental drugs on you. It even makes you nod hesitatingly to bear all associated side-effects of the new drugs. Death too is mentioned among them, apart from seizures and vomiting. So, pick your experimenters wisely.