Archive for October 14, 2010

Baby steps for accountability

Publication: Business Standard, Mumbai; Date: October 17, 2010

Allowing children to handle money from an early age helps inculcate financial discipline

The best way to teach kids about money is to let them handle it early on. That’s why pocket money can be a powerful way to teach kids the basic utility of money, savings, prudent spending, budgeting, record keeping and accountability.

Parents have different opinions on when to give children pocket money. Some say not before the age of 12-14. A few say they were not given pocket money till they went to college. On the other hand, some have been very generous with their kids, starting at the age of seven-eight; yet others give out more money than their kids require.

» Read more..

Don’t rush to prepay your housing loan: Amar Pandit

Publication: The Economic Times Mumbai; Date: Oct 14, 2010; Section: Personal Finance; Page: 14

RECENTLY, I met a very savvy businesswoman who had just received a windfall and she was in a tearing hurry to prepay her loan taken at a very attractive rate of interest. Her income is extremely high and EMIs were comfortable and technically there was no rush to prepay the loan. However, there was an emotional urge to pay off the loan. When I inquired further, I realised that she might require some funds in the next 18 months. I told her that she had already paid a lot of interest in the first two years and considering her financial need, she should really think whether it makes sense to prepay the loan.

She didn’t have a clear answer to it. I went on to demonstrate how her loan repayment is scheduled.

The interest paid per year is 5.36 lakh. That means at flat rate of interest it works out to be 5.36%. This is excluding the tax benefits that she would have received on the interest payments. In her case, the entire interest can be claimed as expense. This translates into a savings of 53.63 lakhx0.309 (tax rate) = 16.57 lakh. Hence, the actual interest payout post tax benefits will be 53.63 lakh – 16.57 lakh = 37.06 lakh. This means that 3.7 lakh will be the interest paid per year on a 1-crore loan and hence, the interest rate paid per year works out to be 3.7%. If she is able to pay more than 3.7% on this loan she should retain the loan.

Now, if one invests 1 crore for a period of 10 years, the number » Read more..