Don’t take on too many liabilities at once

The Hindu :Suresh parthasarathy:23 June 2012

I am 29 years old and recently got married. My wife is a home maker. My monthly net salary is Rs 65,000 and I get Rs 6,000 by way of reimbursements. My monthly expenses including rent are about Rs 35,000. I am doing a part- time MBA programme for which I pay Rs 90,000 every three months. Six such instalments still have to be paid. My monthly surpluses are used up for this fee. For the shortfall I have taken an education loan of Rs 3.5 lakh. I have certain immediate goals to fulfil, where I need to contribute.

I need Rs 5 lakh for my sister’s marriage seven months from now. I am also thinking of purchasing a second hand car costing Rs 2 lakh. I wish to buy a ready-to-move apartment (after selling off the plot I have), costing about Rs 30 lakh. I wish to save on the rent I am currently paying. Is it feasible to reach these targets? Also, how much do I need to save for retirement? I have a residential plot valued at Rs 11 lakh and ELSS/mutual funds/shares of Rs 2.5 lakh.

My Employee’s Provident Fund balance is Rs 2.5 lakh and I am contributing Rs 3,000 with an equal contribution from my employer. The balance in Public Provident Fund is Rs 50,000. I have deposits of Rs 3 lakh earmarked for my sister’s marriage. I have an endowment policy for Rs 2 lakh with annual premium of Rs 14,000 and Rs 1 lakh policy in my mother’s name. Both the policies will mature in 2031. I have term insurance for Rs 12 lakh with annual premium of Rs 4,000.

Please suggest ways to reach my goals along with any change in asset allocation.

— Aashish

It is possible to meet one’s aspirations through proper prioritising and planning. The tenure of the goal often determines the priority they will receive. It is also the key to go for appropriate asset allocation.

That said, with limited surplus in hand don’t take on too many liabilities at the same time. Your five goals can be prioritised as education, sister’s marriage, retirement, car and buying a house, in that order.

It will take two years to feel the full impact of your education loan because you will currently pay only the interest amount. The principal repayment will kick-in after the course is over.

Do remember that education loans taken for part-time courses do not fit the section 80E deduction criteria. Only full-time courses are eligible for the tax benefit. To fulfil your sister’s marriage needs, you need to borrow as you have very little time to save up. If you take personal loan of Rs 2 lakh (for the marriage) at an interest of 15 per cent for 4 years, your monthly outgo will be Rs 5,560. Along with your education loan commitment, your monthly surplus will be nil. So just postpone the rest of the goals for another two years.

BUYING HOUSE

Your house rent allowance (HRA) benefits will not be equal to your EMI.

Although you have the facility to avail tax benefits for principal and interest, your net benefits of a loan over and above the HRA will be Rs 2,425 per month. For instance, for a 15-year loan at 10.5 per cent interest, your EMI will be Rs 22,108. It means you should have a monthly surplus of Rs 8,000 to buy a house. Hence, we recommend you not to go for a house with immediate occupation. Instead buy a flat that will be ready for occupation after two years. By doing this, once your education commitment is over, you can comfortably meet the EMI.

With cost escalation in key raw materials, many residential properties are not delivered on schedule. Hence, while opting for such a strategy, do check your builder’s track record.

OWNING A CAR

It’s a nice feeling to own a car, that too soon after marriage. But, it should not lead to any financial mess. When you buy a car you have two sets of monthly expenses you will need to bear. One is the regular repayment of the loan and the other is the running and maintenance cost of the car. For a loan of Rs 2 lakh, your outgo at 11.5 per cent for 48 months will be Rs 5,210. Given your currently state, this has to receive priority only after two years.

RETIREMENT

Since you got married recently, it may be difficult to arrive at a monthly household expense. However, assuming household expenses of Rs 20,000 a month, at retirement it is likely to be Rs 1, 24,000, assuming inflation at 7 per cent. To be able to manage this sum till you are 78, you should have built a corpus of Rs 2.69 crore at the time of your retirement. If your EPF annual contribution increases at 5 per cent and continues to earn 8.5 per cent return, your corpus at retirement, along with your current balance, will be Rs 96 lakh.

To meet the short fall you should start investing Rs 9,200 two years from now for the next 300 months and it should earn 12 per cent return. Considering your age and since you are already exposed to equity investments we suggest you to invest 60:30:10 in equity, debt and gold. Debt includes your EPF contribution.

Banks going slow in granting education loans

BL: Hydrabad:Nagasridar:30 June 2012

There is considerable delay in processing and sanctioning of educational loans by banks, according to feedback received by Indian Banks’ Association. The delay affects students from the rural areas more than their urban counterparts, reveals the feedback, which was obtained by the apex banking association through six interactive sessions with over 150 reputed educational institutions.

NO AWARENESS

Even for loans up to Rs 4 lakh, banks insist on collateral and there were cases of rejection of applications on this account.

There were some complaints that banks were charging monthly compounded interest on education loans and were insisting on insurance cover, which is not mandatory.

According to the IBA, some of the representatives from the institutions have pointed out that frontline staff in banks lack awareness about loan schemes.

Banks were not using any common criteria. For instance, while some banks consider giving loans to students wishing to pursue a one-year post-graduate course in hospitality, some take the stand that such courses are outside the scheme.

There were cases where banks stopped loan disbursements in subsequent years when the student failed in one or two subjects but were still attending college.

LOAN RECOVERY

The progress reports might not be ready when students have to pay fees for the new year/term and refusal by the bank to release instalments would cause inconvenience to students and educational institutions, the report states.

To improve the situation, institutions express willingness to assist in loan recovery to the extent possible by helping trace students and to share their academic progress with banks.

“Some even offered online access to academic records. And some colleges were willing to sign MoUs with banks,” the IBA said.

The feedback also shows that the system of fixing uniform EMIs throughout the loan recovery period was not always appropriate.

Flexibility might be brought in by progressively stepping up instalments, starting with a relatively smaller amounts.

Kalam was ready to make Sonia PM

A file photo of the former President, A.P.J. Abdul Kalam, handing over the letter of 
appointment to Prime Minister Manmohan Singh as Congress president Sonia Gandhi 
looks on. Photo: Rashtrapati Bhavan


The Hindu:Newdelhi:Vidya Subrahmaniam:30 June 2012

President Abdul Kalam raised no objection to Sonia Gandhi becoming Prime Minister in 2004. Instead, he had been prepared to swear her in despite intense pressure from various parties and politicians, as that was the only “Constitutionally tenable” option available to him if the Congress chief had staked her claim.

Mr. Kalam says this in his forthcoming memoirTurning points, Tu thus lifting the veil on an episode that has been wildly speculated upon, with right-wing sections till today convinced that he had dissuaded the Italian-born Ms. Gandhi from considering the prime ministership. In the book, the former President reveals that his office had readied a letter inviting Ms. Gandhi to form the government as Prime Minister but that she surprised him by nominating Manmohan Singh in her place: “This was definitely a surprise to me and the Rashtrapati Bhavan Secretariat had to rework the letter appointing Dr. Manmohan Singh as the Prime Minister.”

The former President says he was inundated with “emails and letters from individuals, organisations and parties” asking him not to accept Ms. Gandhi’s prime ministerial claim, all of which he passed on to “various agencies in the government for their information without making any remarks.” Visiting political leaders added to the pressure. But these demands were “constitutionally untenable”, and if Ms. Gandhi “had made any claim for herself, I would have had no option but to appoint her.”

In the same chapter, Mr. Kalam discloses that he wrote out his resignation in the wake of the Supreme Court judgment holding unconstitutional the May 23, 2005 midnight dissolution of the Bihar Assembly. He says he dropped the move after the Prime Minister pleaded with him not to resign as the resulting furore might lead to the fall of the government. The President was away in Moscow when Dr. Singh called him twice and conveyed the Union Cabinet’s decision to dissolve the Assembly based on reports from the State Governor. Mr. Kalam writes that he quizzed the Prime Minister on the urgency to dissolve an Assembly that had been in suspended animation for six months but nonetheless signed the midnight proclamation because he was convinced the government had made up its mind. However, despite his explicit request, he felt the government did not properly present the President’s action in court, leading to adverse judicial remarks on the Cabinet, which is “mine and I have to take the responsibility.”