Live Mint :Bloomberg TV : 19 Feb 14
To identify a pre-2005 note, you need to flip it over
The central bank’s notification on pre-2005 notes created a lot of flutter. Do you need to worry as well? Monika Halan, editor, Mint Money , and Vivek Law, editor, Bloomberg TV India , clear the air around the issue on the show Smart Money . Edited excerpts:
Vivek: The Reserve Bank of India (RBI) has decided to completely withdraw all the currency notes which were issued prior to 2005. So what does this mean for you? The day this happened, shopkeepers started examining notes. Things seemed to have calmed a bit, but this is only the lull before the storm because it kicks off from 1 April after which you need to actually be able to go and change it.
Monika: There is an interesting story. I was at FabIndia and at the cash out, I saw that they had this RBI advisory. Just out of curiosity I asked if they were getting some of these notes and it was like a floodgate opened. They said that the only notes that they were getting were pre-2005 notes and the volume of business had gone up. So they were perplexed that why is it suddenly that people were spending in cash and all of it was pre-2005 notes? This is what I said: the motivation of RBI was to suck out the counterfeit notes. A lot of them were the pre-2005 notes, so it was decided to withdraw those. To identify a pre-2005 note, you need to flip it over. Now either there will be a date at the bottom or no date. All the notes that do not carry a date are pre-2005 notes. They continue to be a legal tender. It is not as if they are de-monetized, except that after 1 July, you will not be able to transact with it. Till April, you can and after that one will have to take it to any bank and get a post-2005 currency note exchanged for no loss of value. So there is no panic at all. After 1 July, for more than 10 notes of Rs.500 or Rs.1,000, you will have to give an identity proof and a proof of your residence.
Vivek: Between 1 April and July, if I were to go to the bank and submit any amount of money, should I just get it exchanged or even then would there be Rs.50,000 limit or Permanent Account Number (PAN) limit kicking in?
Monika: You can get it exchanged but any amount above Rs.50,000 requires a PAN even now.
Vivek: But that is for deposit. Here it is just an exchange.
Monika: That is right. But any transaction over Rs.50,000 requires a PAN number even now. Imagine a person who has got Rs.10 crore in cash. She is not going to walk up to the bank with the cash in a suitcase to exchange it. So my sense is that there could be a little bit of rush to get the post-2005 currency notes. People who have had it in cash by means which are not legal will be in some way trying to get rid of those notes.
Vivek: Rohit, a viewer, wrote to us saying that he has his eyes on 2018. Is that a polite way of saying that he wants to retire and do something else in 2018?
Monika: Yes, but he is not in a job. He is already a consultant, he is an entrepreneur. So, he probably means starting something new rather than retiring and yet taking care of himself.
Vivek: What do you think of his money box?
Monika: We will de-construct it. I have some issues with his money box. It is a very confused one. Usually, in most money boxes, we see a confusion among products, but in yours there is a confusion of direction—of what you have created and what you want out of it. You are 36 years old and married. You have an 8-year-old daughter. Your parents and in-laws are financially independent. You are a consultant with irregular income flows and sometime you depend on the corpus, which is already created, for managing some of your current cash flows. Your wife is in a steady job. You have your own house, which at the moment does not give any rent, and you live in a rented house in Bangalore. You have a mix of assets. Most of them are throwing off current income, out of which you use some and redeploy the rest. Your two questions are—how much medical and life cover do you need and how can you create a box that will give Rs.2 lakh per month in 2018? That is the year you want to start a sea food restaurant, which will be the best in India. Let’s see how we can work towards it. You already have a family floater of Rs.4.5 lakh. Your wife has a Rs.2 lakh cover. I want you to increase your cover from Rs.4.5 lakh to Rs.10 lakh as a family floater. Now, when it comes to life, you have a policy ofRs.34 lakh, your wife has Rs.25 lakh and your daughter is ensured for Rs.23 lakh. Typically, we don’t want to insure the life of children, we want them to be protected in case something happens to us, the breadwinners. So depending on the policies that you have, you may look at surrendering them and seeing if there is some surrender value that you get. You need to look at your own cash flows, because I could not get clarity on what was coming out of your consultancy and what was coming out of your investments. So whatever is your annual current income from your work, and not your assets, you buy a multiplier of 10 times as your life cover. In fact, that is the life cover that your wife needs as well.
The box that you want to create, which gives off Rs.2 lakh of income every month, will need a corpus of Rs.3 crore. And I am thinking very conservatively about an 8% return. Your financial assets include a mix of mutual funds, gold, bonds and fixed deposit, which put together is just over Rs.1 crore. You needRs.25-30 lakh of investment every year to reach that corpus. I don’t see that money in your income flow right now. So this goal of a Rs.3 crore money box in four years is completely off the table. But we can target a Rs.2 lakh income.
Your wife earns, post-tax and post-deductions, about Rs.60,000-70,000. Your money box at 8% will throw off about Rs.75,000. Your expenses currently are only Rs.1 lakh per month. So, with a mix of your wife’s income and the money that you already have, you can get there. 
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