Make your money work for you.

A well known saying from Noel Whittaker " Life is full of uncertainties. Future investment earnings, interest and inflation rates are not known to anybody. However, one thing is for sure, that those who put as investment program in place will have a lot more money when they come to retire than those who never get around to it."

Most of the people think that investing money is a difficult and expensive process which is not. The problematic area is that we do not do it well. Let me point out some of the reasons that cause an investors to hesitate:-

• Market Timing - Market timing is the strategy of making buy or sell decisions of financial assets (Stocks) by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis. A lot of investors believe that there is a right time and wrong time to invest in stocks and that is possible for most of us to predict that time. Which is absolutely wrong way of investment because stock prices do not always move on the same logic. An expected event which happen day by day usually move the stock prices up or down. Which can not be predicted by charts. Best example : in late 90s when stock of IT companies boom what happened at that time when investors in the excitement, intentionally or not became the market timers. Timing in these scenario can be risky.
• Buying High and Selling low - It violates the most of fundamental element of investing still many investors practice it every day. This is the one main reasons of failing to time the market correctly, and it most often results investor to chase for hot stocks and as soon as those sectors or stocks start losing their ground they sell and go looking for another hot stock. Again  investor pick new stock with gains to invest in and investor is again confident that he is back on the fast track to riches which is not in actual. All the instruments they purchase have proven track records bit yield him a below average returns. he is from one of those investors who make emotional decisions, tries to time the market and lose his sight on his own long-term investment objective.

In all the over hassle investor forget about  rules of investment. Here are rules for investment success-

• Diversify - It is very important for an investor that he do not pull all his money in one sector. As the economy expands and slows, money has a tendency to flow back and forth equities and fixed income instruments. Inside these 2 markets lies a selection of sectors which also expand and slow with differing rates. Because of this timing of market get more absurd since you have to time the smaller sectors against the broader sectors. Solution to this problem is to diversify your portfolio. Diversification reduces the unsystematic risk which is company specific. However, the risk which is affect the economy cannot be reduced by it. It is a strategy of investing in a portfolio of securities so that the losses from one will be offset against gains in others.
• Ignore the hot stocks - If you buy this year's top-performing stock, be prepared to see at the bottom next year. The fancy academic expression for this is - reversion to the mean. Even their is the old saying that - What goes up must come down. So, better to chose stocks carefully.
• Invest regularly for cost average - Cost averaging is the systematic purchase of investment instrument over a time. By buying an equal amount each period, you should end up with a cost basis and is surest way to reduce the risk of investing. It is valuable in volatile markets where dramatic swings are experienced and no one is smart enough to anticipate all the moves, both up and down.
• Be a disciplined investor-  After you have chosen some stocks, stick with them. Don't be afraid to go against the tide, as often the unpopular groups tend to outperform in subsequent years. although market moves based on economy, it can also swing wildly based on psychological reasons such as political turmoil, rumors about interest rates or other world news. If the fundamentals of the economy matches your overall portfolio objectives then you should stay with that. 

Union Budget 2011-12 impact on a common man.

How much you will be benefited with this union budget?? there are positive and negative effects on a common man due to this union budget which I'll try to explain with the help this article.

• Base exemption limit increased - Budget 2011 proposed the increase in base exemption limit for individual from Rs. 160000 to Rs.180000. Which means a tax saving of Rs. 2000 for an individual

Income –tax rates in Budget 2011
Taxable Income	Tax rate
Upto Rs. 180000	Nil
Rs.180001 to Rs.500000	10%
Rs.500001 to Rs.800000	20%
Above 800001	30%

Impact of this move with example :-

Individual other than Women, Senior Citizen and Very Senior Citizen
AY 2010-11 Below 65 Years				AY  2011-12 Below 60 Years
Taxable Income assumed 1000000				Taxable Income assumed 1000000
Slabs	Rates*	Liability		Slabs	Rates*	Liability
0- 160000	Nil	Nil		0- 180000	Nil	Nil
160001 - 500000	10.03%	35020		180001 - 500000	10.03%	32960
500001- 800000	20.06%	61800		500001- 800000	20.06%	61800
Above 800000	30.09%	61800		Above 800000	30.09%	61800
Total tax liability		158620		Total tax liability		156560

*rates are adjusted for education cess

Here, a male individual whose net income is Rs.1000000. As per current tax laws his income tax liability will be Rs 158560 for FY 2010-11, while in the FY 2011-12, once the new exemption limit applies, his tax liability will work out to Rs 156560 i.e saving of Rs 2060. For women, the exemption limit is at the same Rs 190000.

• Senior Citizen - The base exemption was increased to Rs 250000 (from Rs 240000 at present), While the qualifying age for senior citizens was reduced from 65 years to 60 years.

• New Category 'Very Senior Citizen' -  There is a new category of senior citizen called “Very Senior Citizen” in this budget. Any one above 80 years of age will be under this category and they will not be taxed up to the income Rs 500000. While this looks a nice move, but I wonder how many 80 years old will have their personal income more than Rs 500000 in our country to avail this benefit.

• Extension to Infra Bonds for one more year - Government has retained the additional income tax deduction of Rs 20000 under Section 80CCF. Which means that in 2011 – 2012 also you can invest in Infrastructure bonds and save some tax.

• No Tax Return filing if income less than Rs 500000 - From years small tax payers who were having salary less than 5lacs had to go with the cumbersome process of filing tax returns, but now small tax payers who are having income less than Rs 500000 will not have to file their tax returns  if their TDS is cut by employer. But, if someone has additional income from other sources like dividends, capital gains, income from house property etc. In that case they will have to file a tax return themself or need to notify their employer in advance about these additional source of income so that their employer can take these things in consideration and deduct extra TDS.

• Insurance policies to get expensive excluding Term Insurance - Service tax on insurance policies which have investment component means ULIP's, Endownment plans, Money Back plans and return of premium term insurance plan will have a higher service tax on the premiums.  Earlier there was a 1% service tax but now it has been raised by 0.5% i.e 1.5%. Which means that if an individual insurance premium is Rs. 50000 in ULIP, then service tax was Rs 500 earlier but now its going to be Rs 750.

• Hotels, Restaurant, Air-travel and Medical become expensive - Expensive Air-travel, hotels, restaurant and medical become more expensive now due to some changes in budget which are: Hotel Accommodation - in excess of declared tariff of Rs 1000 per ay with an abatement of 50%, so that the effective burden is only 5% of the  amount charged. Restaurant - Service provided by air-conditioned restaurants that have license to serve liquor, by giving an abatement of 70%, so that the effective burden will be 3% of total bill amount. Air-travel- Service tax on domestic air travel levied at Rs 50, while Rs 250 on international journeys by economy class. Also it has been proposed to tax travel by higher classes on domestic sector at the standard rate of 10%, thus brining it on par with journeys by higher classes on international air travel. Hospitals - with 25 or more beds that have the facility of central air-conditioning and which are providing high-end treatment, however after providing an abatement of 50% the actual burden is kept at 5% of the value of service. 
  

• Daily Items get expensive - Excise duty of 1% levied on 130 items which includes day-to-day itmes like tea, coffee , ketchups, mobile phones and other lind of food mixes even ready to eat package foods.

• DTC will be finalized for enacting and will be proposed with effect from 1st April 2012. 

• New Pension Scheme - 'Swavalamban' where the minimum contribution is Rs 1000 and a maximum contribution of Rs 12000 per annum during the FY 2010-11, the Government has proposed to relax the age of exit from 60 years to 50 years, or the minimum tenure for 20years, whichever is later.  Government has also proposed to extend the benefit of government contribution from 3 to 5 years for all subscribers of 'Swavalamban' who enroll during 2010-11 and 2011-12.