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From the Rat Race to Financial Freedom... A common man's journey
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Happiness Unlimited...How to be happy..always !!
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Dream On...Every setback is a little nudge from HIM to Dream On
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The Autobiography Of A Stock
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Manoj Arora    About Me
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Monday, December 30, 2013

Set your goals for 2014 and get going - Destiny awaits action !!

As 2013 comes to an end, it is the right time to look back at how great the year 2013 was. Many of us only look forward to new goals for the new year but fail to give a pat on our backs for the hard work and rewards that we did achieve in the year that is passing by.

Here is what i have found works out the best. List down some of your biggest accomplishments in the year going by ie 2013, and then list down what you plan to achieve in the coming year 2014. I am happy to share what i have prepared for myself. 

2014 goals gives me the ammunition to go after the coming year fully charged up, while 2013 accomplishments keep giving me the energy and keep up my faith in my own abilities.

Never take the guilt - even if 2013 has been a disaster, because that's gone. Collect all your lost threads, make fresh goals and get going with what lies in front of you.

Once you have prepared your goals for 2014, make sure that you document them or take a print, laminate it and put it on your alimrah, door or any other place from where you can see them at least 2-3 times a day. It will be best if this is placed in your bedroom, so that you see it first thing when you wake up, and last thing before you go to bed. This technique does wonders because whatever you think with your passion and emotions, starts to get manifested in reality sooner or later. Nature is responsible to get that done for you.

Set your goals, and get going - track them daily, weekly, monthly. This daily tracking will give you the happiness which is a part of the journey to achieve goals.
If you have failed to plan, you have planned for failure !!

I wish you all the best for a happy and prosperous 2014 !!
Your destiny awaits your action.


Manoj Arora
You are entitled to happiness unlimited !!

Set your goals for 2014 and get going - Destiny awaits action !!

As 2013 comes to an end, it is the right time to look back at how great the year 2013 was. Many of us only look forward to new goals for the new year but fail to give a pat on our backs for the hard work and rewards that we did achieve in the year that is passing by.

Here is what i have found works out the best. List down some of your biggest accomplishments in the year going by ie 2013, and then list down what you plan to achieve in the coming year 2014. I am happy to share what i have prepared for myself. 

2014 goals gives me the ammunition to go after the coming year fully charged up, while 2013 accomplishments keep giving me the energy and keep up my faith in my own abilities.

Never take the guilt - even if 2013 has been a disaster, because that's gone. Collect all your lost threads, make fresh goals and get going with what lies in front of you.

Once you have prepared your goals for 2014, make sure that you document them or take a print, laminate it and put it on your alimrah, door or any other place from where you can see them at least 2-3 times a day. It will be best if this is placed in your bedroom, so that you see it first thing when you wake up, and last thing before you go to bed. This technique does wonders because whatever you think with your passion and emotions, starts to get manifested in reality sooner or later. Nature is responsible to get that done for you.

Set your goals, and get going - track them daily, weekly, monthly. This daily tracking will give you the happiness which is a part of the journey to achieve goals.
If you have failed to plan, you have planned for failure !!

I wish you all the best for a happy and prosperous 2014 !!
Your destiny awaits your action.


Manoj Arora
Lead a Financially Free Life !!

Sunday, December 29, 2013

What are Thematic Funds

A thematic fund is a specialized mutual fund - one where the fund's objective is to deliver optimal returns by investing in stocks which qualify to belong within the particular theme that is considered. The theme could vary from multi-sector, international exposure, commodity exposure etc...read on...
Unlike a sector fund, theme funds have a broader spectrum to operate in. Theme based funds are often mistaken to be sector funds. Although one could draw some broad comparisons, the scope of a theme fund is typically wider. 

Though they have a broader spectrum when compared to sector funds, but their spectrum is limited when compared to Diversified equity mutual funds. Thematic funds by nature are more prone to risk and volatility. The performance of these funds is dependent on the performance of a particular set sector or a theme, unlike a diversified fund which moves in line with the broader markets. Thematic funds could have themes ranging from Multi-Sector, International / Multi - Economy, Commodity, particular style of investing etc. Thematic funds are suited for investors who are well versed with market trends and are hence in a better position to take thematic calls.

It may be tough to understand the objective / real 'theme' of the fund by merely looking at the fund name. It becomes pertinent to read the prospectus, the investment objective, the fund manager's background and his past performance in handling other funds. For a novice investor to assess the right theme could be a herculean task, hence for someone starting out to invest in mutual funds, it is best that they stick to diversified equity mutual funds. 

Theme based funds should not be a part of one's "core" portfolio, the exposure should be categorically limited to 10% - 12% and one should add themes which complement the existing portfolio.


Manoj Arora
Lead a Financially Free Life !!

Sunday, December 22, 2013

The Race of my life

Being a part of rat race through most of my life, it was an overwhelming, humbling and a soul satisfying experience to be a part of a different kind of race - the Airtel Delhi Half Marathon run on 15th Dec 2013 - the race of my life till now.

The trigger Around 18 months back, i made an attempt to run 2KM every day, for a week, and failed miserably. A few days later, i met one of my colleagues struggling with a sever back pain, came to know of one of my colleague's close relative dying of heart attack, and saw my body from head to toe.. in the mirror. However hard i may have tried to control my breath and justify that i am fit, i was unable to fool myself anymore.

The journey
Something had to happen. Something unnatural and uncomfortable had to give way to something that is more natural. And was born a desire to get fitter - as God made us.
Of course, the ambitions were not too high at that tine. I just wanted to make sure that i continue with my morning walks fairly regularly. From that point 18 months back till date, it has been an awesome journey. To be able to run 21.097 Km at a stretch and successfully completing a half marathon has given me joy as a bi-product but health and fitness as the main product.

The result
Today, I am fitter, faster, slimmer, lighter and more energetic than i ever was in my life. The fact that i am 40+ gets thrown out of the window because age has nothing to do with a burning desire. It has only to do with what you think. I sometimes feel that the age should be counted by the the maturity level of our thinking process rather than days and years - which seems such an unnatural and artificial mechanism created by a jealous mankind.

Life Principles that i learnt from the Marathon Race
Approx 2 hours and 40 min of the half marathon run taught me some key life principles. Some of these principles were new discoveries to me, while some were reiterated and proven once again, beyond any doubt. So, here is what i learnt:
  • Anything is possible. We only place constraints in our mind, no one else.
  • Age, time, people's opinion, current state, situations, weather, family etc etc has nothing to do with a burning desire in a person's mind. When the dream is big enough, facts do not count. There was a 61 year man running with me. He has been running for 20+ years. He finished just 12 min after me. There are hundreds of such examples in the run.
  • People are looking towards you to show them the way. Anyone (You) can be an inspiration.
  • A fit body can energize your mind and thoughts to an elevated level. 
  • Whenever you feel like giving up, look back and see how far you have already reached. This happens many time during the run of the marathon as well as our lives.
  • Taking an expert view always helps. There is no point re-inventing the wheel. Never shy away from asking for help.
  • Once you have taken a decision, don't go back till you finish it. Openly publicize your decision. Even if you try to go back on your decision, your peers, society, friends and relatives will keep reminding you.
  • Practice, Practice, Practice...there is no short cut to success. And when you are practicing something that you are passionate about, you will not feel the pain.
  • There is no right or wrong that has been prescribed by God. Do what you feel is right - applies equally to what we do in our lives. Right and Wrong are only subjective assessments.
  • Live yourself out fully. Do not constraint yourself because of people, situations or anything else. When you are happy, keeping others happy is not difficult.
  • The reward of a goal achieved (medal, certificate, satisfaction etc..), is not the actual reward.The true reward is the new person that we become in the process of achieving the goal. The dream, the desire, the perseverance, the strategy, the execution, the pain, the victory - all these make us a better person - better than what we were, when we started.
It is such an amazing experience - with cheering crowds, loud DJ music, men and women of all age running together and inspiring each other, through the best 21km of lush green Delhi. 
As i recover from cramps this week, looking forward to the next run - not because  i want to be ranked anywhere in these run - but because fitness is my right, and i shall not loose it, for anything else in this world. Fitness is one key element that adds happiness to our lives.


Manoj Arora
(Upcoming book : Happiness Unlimited)

Sunday, December 15, 2013

What is HUF - Hindu Undivided Family

As you become wealthy, you must get smarter about saving taxes. If you are married, having an HUF or a Hindu Undivided Family can be a real boon. It is a safe and easy way to save tax. Lets see what an HUF is, how to make use of it and who it helps you to save tax....READ ON..

What is an HUF?
An HUF, or a Hindu Undivided Family, is a separate tax entity in addition to individual persons who are members of such a family. If you are Hindu, Buddhist, Jain or Sikh, you can have an HUF as a separate tax entity. You can claim all tax benefits under Wealth Tax and Income Tax. An HUF is eligible for those exemptions that are available to a resident Indian who is not a senior citizen. It can own property and also have its own business.

Who all are included in the HUF?

The HUF includes those persons who, by birth, acquire an interest in some joint family property. It also includes all lineal descendents of these persons, and their wives, and children, both sons and daughters.

Who are the parties in an HUF?
An HUF includes the following parties:

The Karta is the oldest male family member. In the event of the death of the karta, his eldest son becomes the next karta, who will be followed by the next son in line if the eldest son does not want to be the karta. If there are no sons, the unmarried daughter can become the karta in the unfortunate event of the death of her father. If the karta passes away, the assessing income tax officer should be intimated of his death and the appointment of the new karta.

All the male members are called coparceners. This includes the sons, grandsons and great-grandsons of the karta, who holds the joint family property. These coparceners acquire an interest in the family property, by virtue of their birth. A coparcener has the right to demand that the family property gets divided, so that they can receive their share in the property, or in whatever assets the HUF holds. Following are the allowed coparceners:
- Holder of the property
- Sons and daughters
- Grandsons
- Great-grandsons
A daughter continues to be a coparcener even after her marriage, regardless of whether she is a member in her husband's HUF.

The female members of the family, this includes wives and daughters (married or unmarried) are called members. Members do not have coparcenery rights.

How does an HUF come into being?
An HUF automatically comes into being as soon as you get married. Hence an unmarried man cannot form an HUF and be his own HUFs karta, but he can still be a member or coparcener of his family's HUF. No formal action is required to form an HUF.

How does one infuse capital into the HUF?
In order to infuse capital into the HUF, you have to initiate the following steps:
a) Open a bank account in the name of the HUF (the bank will provide the format for the karta of the HUF to open the savings account)
b) Apply for a PAN Card for the HUF
c) Transfer assets / property to the HUF
Keep in mind clubbing provisions and tax on gifts to the HUF

Points to be kept in mind when creating capital for the HUF
When creating capital or infusing capital into the HUF, keep the following points in mind:
a) Do not transfer your own assets or funds into the HUF. Any income arising from this asset / money will be clubbed with your own income and you will be taxed on it.
b) If there is ancestral property and there is income earned on this property, this property can be property of the HUF and any income on this property can be classified as HUF income
c) If ancestral property or assets are sold, the money received on such a sale can be transferred to the HUF
d) Suppose there is no ancestral property, then one way of infusing capital into the HUF is by way of gifts. Gifts received by members of the HUF on occasions such as birthdays or marriage are exempt from tax up to a maximum value of to Rs. 50,00/-

Rules to be kept in mind when the HUF receives gifts?
There are certain gifting rules that should be kept in mind, these are as follows:
a) When a donor (giver of a gift) gives a gift in cash or in kind, it might be taxable in the hands of the donee, which in this case is the HUF
b) If the donor gifts movable or immovable property for less than its market value to the HUF, the HUF has to pay taxes on the deemed fair value of the gift.
c) Any gift received either in cash or in kind of a value more than Rs. 50,000 is taxed in the hands of the HUF as Income from Other Sources.

However there are some exceptions:
(i) Gifts from relatives of members of the HUF (who will be the donees) are exempt from this rule.
Relatives here includes the following:
- Spouse of the donee
- Spouses brother or sister
- Brother or sister of the donee
- Spouse of brother or sister of the donee
- Donee's parent's brother or sister, Donee's parent's brothers or sisters spouse
- Lineal ascendant or descendent of the donee or donee's spouse.

(ii) Gifts at the time of marriage are exempt from tax, whether from a friend, relative or colleague. Hence if a member of the HUF is getting married, the gift can be made to the HUF, and it will be exempt from tax in the hands of the HUF.

(iii) Movable or immovable property received through a Will by way of inheritance is exempt from tax.
Any income received by the HUF can be further invested into various investment avenues such as shares (through the HUFs demat account), mutual funds , fixed deposits, property and so on, and the profit or interest earned will be taxable in the hands of the HUF, as it is income of the HUF.

Deductions & exemptions available to the HUF
  • To start with, as the HUF is a separate entity in the eyes of the taxman, it is entitled to a basic exemption of Rs. 2,00,000, just like a Resident Indian (male). This means that any income earned in the year up to Rs. 2,00,000 is not taxable. All the tax slabs are the same as those for a resident Indian (male). 
  • Over and above this, the standard Section 80C deductions apply to the HUF as well. This means that the HUF can invest its income earned (either earned through salary, or business, or property, or investments) into any of the 80C avenues i.e. LIC premium paid (for life insurance of its members), NSC, ELSS, PPF (invested for its members) and so on. Section 80 CCF 
  • An HUF can also invest into long term infrastructure bonds and claim a deduction under Section 80 CCF Section 80 D.
  • If the HUF is paying for mediclaim premium for its members, it can avail a deduction up to Rs. 15,000 (Rs. 20,000 if the member is a senior citizen) under Section 80 D Section 80 DD 
  • An HUF can also claim a deduction up to Rs. 50,000 for medical expenses, rehabilitation or training expenses incurred for the maintenance of a disabled member of the HUF, under Section 80 DD. 
  • Capital Gains on House Property If any property that is held by the HUF is sold and there is capital gain, the HUF can save tax on these gains by reinvesting the proceeds into another property as per the standard rules (purchase a new property within 2 years, or construct a property within 3 years), and also has the option of investing the gains into NHAI or R EC bonds for the standard 3 year lock in period. 
  • Interest earned on these bonds is taxable in the hands of the HUF. If you are planning on buying a second house, it would be advisable to hold it in the name of the HUF, if possible.

Thought Process of HUF
Under the Mitakshara school, the thought followed is that the property does not belong to any one member, it vests in the HUF itself. Hence partition can be done within the karta's lifetime, and is not restricted to after the death of the karta. Here, the shares are not defined, they fluctuate with births and deaths of coparceners in the family. When a son is born, he automatically gets entitled to a share of the property.

Some more deductions / exemptions available to the HUF to save tax
a) If an HUF owns properties which are given out on rent, the standard deduction of 30% is applicable on rental income earned, for maintenance of the properties.
b) As the HUF is a separate tax entity in the eyes of the IT Act, it is entitled to exemption up to Rs. 30 lakhs from wealth tax.

Blending of assets in an HUF
Blending of assets or property is when a coparcener includes his own assets or property into the assets of the HUF. Blending implies that if partition of the HUF were to take place immediately after the blending, each member would be entitled to only a certain part of the blended asset. In this manner, blending is more beneficial than gifting. This is because after blending of assets, any income that is earned from the asset or property, less his own share, is clubbed in the hands of the donor, whereas in the case of gifting, the entire amount is clubbed.

Partitioning of the HUF
Partitioning is when the HUF status is severed, and the HUF no longer exists. This happens when assets are divided amongst the members of the HUF. There is no longer any joint ownership of these assets.
  • Partial partitioning is not allowed as per the IT act because this is against the very concept of an "undivided family" 
  • Full partitioning of the HUF is the only viable option. In full or total partition, all the members are no longer members of the HUF, and all the properties are no longer properties of the HUF. All assets and properties are dissolved and distributed and the HUF itself ceases to exist, once all its assets are distributed or its shares are taken. For recognition of a partition under tax laws, partition of immovable assets i.e. property is necessary to be done by The division must happen in such a manner that the members do not end up being co-owners of the asset. For example, suppose one of the assets of the HUF is a Bank FD. In this case, if all the members end up being joint holders in their own shares, of the FD, then technically this asset continues to be an asset of the HUF, hence any interested that accrues on this asset will continue to be taxable income of the HUF. To resolve this issue, a single member will have to claim ownership of the FD and will have to fairly compensate the other members for their share in the FD i.e. he will have to pay them the interest they would have earned, keeping appropriate taxation in mind.

A word of caution
Under Hindu Law, you can fully partition your HUF, but under IT Law, you have to take care not to be dissolving your bigger HUF simply to make a number of smaller HUFs to claim that much more tax deduction & exemption. If you do so, the law may frown upon you, and might take action against you as well. However, it is possible to form smaller HUFs within the bigger HUF. So, a son can be the karta in his own HUF, while being a coparcener in his father's HUF.

All female HUF
Yes, there can be a all female HUF. Suppose a married couple have only one child, a daughter. In case of the death of the father, the mother and daughter can continue the HUF. There have also been case laws stating that the unmarried daughter of a couple, where the father has passed away, can be the karta of the HUF, until she gets married, if she has no brother.

Transferring property by Will
If a person wants to transfer some property to a member of the HUF through a Will, this property can instead be transferred to the smaller HUF of the male member of that family. This will save a lot of tax that would otherwise have been paid.


Considering the fabulous tax advantages of having an HUF as a separate entity, it is advisable for every possible person to adopt this means of legally saving taxes. 


Manoj Arora
Lead a Financially Free Life !!

Sunday, December 08, 2013

DTAA - Double Taxation Avoidance Agreement for NRIs

To my NRI friends who earn money in more than one country, this post was long awaited. See how you can avoid double taxation. Read on...

Sunday, December 01, 2013

Smart Ways to Save Taxes and avoid Clubbing of Income

A penny saved is a dollar earned. This is how important saving a few extra rupees can be in your life. One of the prudent ways to save money is to be smart about avoiding taxes.
With the right professional guidance, you can legitimately avoid paying tax on the income earned on your investments. On popular demand, this post describes some smart ways to avoid taxes and hence increase your investible income.

1. Use indexation to nullify tax
High inflation has been a curse for investors in the past few years, but for some, it has been a boon. Tax rules allow investors to adjust the cost of an asset to inflation during the holding period. The taxpayer has the option to pay a 10% flat tax on the long-term capital gains or pay 20% after indexation. Though the rate is higher, the high inflation has made indexation the better option in the past few years.
The taxpayers who have availed of this inflation indexation benefit have been able to reduce their tax to nil. In fact, if you invested in a debt fund or a debt-oriented scheme three years ago and earned annualised returns of 10%, your tax liability would be close to zero.
Not all investments are eligible for the indexation benefit. Only certain capital assets, including debt funds, FMPs, debt-oriented hybrid funds and gold ETFs, make the cut. Stocks, equity funds and equity oriented hybrid schemes don't get this benefit as long-term gains from these are already tax-free. Bank deposits and bonds are also out. The interest on bank deposits is fully taxable at the normal rates.

2. Use Double Indexation to your benefit
This is another smart way to utilise the benefits provided in the tax laws. Under this strategy, you earn through your investments for one year and you get double indexation benefit (inflation indexation for 2 years). 

3. Invest through a non-working spouse
A homemaker's work is never finished. From sending kids to school to shopping and managing the household, her day is fully packed. Now, add one more task to this long list—investing to earn tax-free money.
This is not as simple as it appears. If you gift money to your wife, there is no gift tax implication. However, if this money is invested by your spouse, the taxman will club the earning with your income for the year. The clubbing provision under Section 60 is meant to check tax evasion.
If you are taxed on the income, is there any point in investing in your wife's name? Yes, there is. The clubbing happens only at the first level of income.
If this money is reinvested and earns an income, the income will be treated as your wife's, not yours. The income from the reinvested income does not attract the clubbing provision. Read more about income clubbing here.
Here's how you can make this rule work for you. Gift money to your spouse (gifting is tax free) and then get her to invest in any of the several tax-free investment options, like Public Provident Fund (PPF). The earning will be clubbed with your income, but since investment options like PPF are tax-free, it won't push up your tax liability. Your wife can then reinvest that money, and this time, the income will not be clubbed, and will be considered as her income. If it is her income, it is likely to come in tax free bracket or at least a lower tax bracket than yours.
There's another way to escape clubbing. Instead of gifting, give her a loan to buy property. Rental income from the property will be treated as her income as long as she pays you a nominal interest on the loan.

4.  Avail of minor child exemption
If a parent invests in a minor child's name, the income is clubbed with that of the parent who earns more. In some cases, a minor child may have a personal income, such as a cash prize in a competition or payments for commercials and events. However, this is rare and mostly it's the parent who invests on behalf of the child. There is a small Rs 1,500 exemption per child per year for the income earned by such investments.
When you make investments in your child's name, the income earned from these investments will be clubbed with your income. However, if you have invested anywhere in your minor child's name and this investment generates an income, you can claim that up to Rs 1500 income that is earned through minor child is tax free. Post that, the income is clubbed with yours as per your tax bracket.
This is available for up to two children.
For example, you can invest up to Rs 15,000 in a long term FD which gives an annual return of 10%, and be exempt from tax. Remember that if the interest is on a compounding basis, the interest amount will grow over the years, resulting in an increase in tax liability.
You can avail of this for a maximum of two children. This means, you can safely invest Rs 15,000 in a fixed deposit in your child's name. If you have two children, that's Rs 30,000 earning tax-free income every year. Opt for the annual payout option because the cumulative option will push up the earning beyond the tax-free limit in a couple of years as the compounding effect comes into play.

5. Exemptions with investment for Adult Child
After a person turns 18, he is treated as a separate individual for tax purposes. This means his earnings are no longer clubbed with his parent's income and he enjoys the same exemptions and deductions as any other adult taxpayer. Read more in Clubbing of Income.
The rule is that if an individual turns 18 anytime during a financial year (even on 31 March), he gets the benefit for the entire year. Even those with children aged 16-17 years can use this strategy. Just invest in a 500-700 day FMP.
By the time the scheme matures, the child would have turned 18 and the income will be his own. A child over 18 also raises your investment limit in the PPF. You can separately invest up to Rs 1 lakh a year in his PPF account. In case of minors, contributions are clubbed with that of the parent and the combined total cannot exceed the annual limit of Rs 1 lakh. This helps build a capital base for the child for future use.
Gifting money to an adult child and investing in his name is tax-efficient but won't be a great idea if the child is financially irresponsible.

6. Parents can help too
Your parents can also help you avoid the tax net. If any or both of your parents do not have a high income, while you are in the highest 30% tax slab, you can invest in their name to earn tax free income. Every adult enjoys a basic tax exemption of Rs 2 lakh a year. For senior citizens (above 60 years), the basic exemption is higher at Rs 2.4 lakh a year. Unlike the investments made in the name of a spouse or a minor child, there is no clubbing of income in the case of parents. So, a person above 60 can potentially earn Rs 2.5 lakh per year without any tax implication. If he invests in tax saving schemes under Section 80 C, the income can be as much as Rs 3.5 lakh a year. In the highest tax bracket, this saves you more than Rs 1 lakh in a year. It gets even better if you rope in a grandparent who is above 80. Very senior citizens have a basic exemption limit of Rs 5 lakh. The grey population has a wide range of investment options.

Other tax saving options:
There are a host of allowances specified in the Income Tax Act, which is allowed by an employer as a deduction from the income of the employee.

  • The first is a hostel allowance of Rs 300 per month per child, up to a maximum of 2 children. However, these expenses need to be incurred in India.
  • The next is an education allowance, wherein Rs 100 per month per child up to a maximum of two children is exempted from income. Here also, the expenses need to be incurred in India.
  • Medical expenses incurred for dependent children are allowed as a deduction up to Rs 15000 per year on furnishing of medical bills.
  • Expenses on treatment of disabilities and certain ailments is exempted from tax. The Income Tax Act allows the parent to claim a deduction from his income, an amount incurred towards treatment of specific disabilities and illnesses of his child under two sections. Sec 80DD of the Act states that expenses incurred towards medical treatment of dependent children suffering from a disability are eligible for deduction. The limit of deduction under this section is Rs 50,000 for a normal disability (impairment of atleast 40%) and Rs. 1 lakh for severe disability (impairment of 80% or above). Sec 80DDB of the Act allows expenses incurred towards treatment of specified illnesses for children to be deducted from income, upto Rs 40,000.
  • Payment of tuition fees. Tuition fees paid by the parent to fund his child's education in any school, university, college or any other education institution within India can be deducted under Sec 80C, upto Rs 1 lakh in a year. The amount of deduction is restricted to two dependent children and should pertain only to actual tuition fees paid. However, both husband and wife have a separate limit of two children. So each parent can claim for two children each.
  • Interest on education loan. The cost of education for your child is a huge outflow, and needs to be well planned. Most of you may opt to take a loan to fund your child's higher studies. While this results in a repayment burden, you can gain partially, as the interest portion on education loan is fully tax deductible under Section 80E of the Income Tax Act. This loan can be taken by the borrower, parent or spouse of the student from a recognized financial institution. The loan must be taken for a full-time course, which can either be a graduate course in engineering, medicine or management or post graduate course in engineering, medicine, management, applied sciences or pure sciences including mathematics and statistics.

So, get smart, save taxes, and invest the saved money to earn more money for yourself.


Manoj Arora
Lead a Financially Free Life !!

Saturday, November 23, 2013

Method of Accounting on FD interest : On accrual or on receipt ?

Every penny earned as interest on your Fixed or Recurring Deposit is taxable. Most banks will pay quarterly interest on your Fixed Deposits. This interest will keep compounding. An interesting situation arises when you get into a multi year Fixed Deposit. In such cases, you really should understand what are the options to pay taxes - should you pay the interest accrued in every financial year OR should you wait for the FD to mature. The choice is yours. This post tries to explain the two methods of accounting – mercantile(accrual) and cash.

Saturday, November 16, 2013

Fixed Deposits Vs Recurring Deposits

Fixed Deposits and Recurring Deposits are two most commonly leveraged debt based investments used by 90% of the investors in India and abroad. Off late, many of my followers have asked me various questions pertaining to the benefits of investing in either of them and what they should choose and why. So, this post is for all of them.

Sunday, November 10, 2013

Welcome to online EPFO : Balance, Transfer, Claim, e-Passbook

I have experienced, as many of you would have, the painful months / years it used to take to move our EPF (Employee Provident Fund) account balance from one company to other, while keeping our fingers crossed during this long journey of money transfer. The complex forms, unsure claim settlement, a balance statement which was delayed by at least 2 years - all these are things of the past !! 
Welcome to the all new, fast, reliable, dynamic online EPFO.

What is EPFO?
The Employees' Provident Fund Organisation, abbreviated to EPFO, is a statutory body of the Government of India under the Ministry of Labour and Employment. It administers a compulsory contributory Provident Fund Scheme, Pension Scheme and an Insurance Scheme. It is one of the largest social security organisations in the India in terms of the number of covered beneficiaries and the volume of financial transactions undertaken


Online Transfer
If you are worried about transferring your Employee Provident Fund (EPF) account after a job change, the implementation of online transfer of EPF accounts has come as a relief. Earlier, it used to take one to two years for the EPF account transfer to take place (filling and submitting Form 13). But with the start of the online transfer system, the entire process should happen within three days time.
In the online transfer system, PF subscribers need to visit the website www.epfindia.com and click on ‘Online Transfer Claim Portal’ (OTCP) and follow the process. For this, it is important that the digital signatures of these employers are registered with EPFO to verify claim papers online. The EPFO had started registering digital signatures of companies from July this year.

Check your account balance
Gone are the days when we used to wait for the annual account statement slip from EPFO to find out the current balance in our own PF account.
For this, click on "Know Your EPF Balance" on the website www.epfindia.com and follow the steps (enter the PF Office, and your PF Account Number) and get the latest balance details on your mobile number.

Check your Claim Status
If you have applied for a PF claim, gone are the hassles of visiting the PF Office to find out the status of your refund. Everything is now available online. For this, click on "Know Your Claim Status" on the website www.epfindia.com and follow the steps as listed on the portal (select State, PF Office, PF Account Number) and get to know the real time status of your EPF claim.

Download your ePassbook
E-Passbook is the employee Provident Fund status book (PDF). Employee can check own PF status. For this, you need to register as a member of the Member Portal. 

Who can register?
Any member of the EPFO (if you have a EPFO Account through your company) can register for the member portal. Details of PF Account are not required at the time of registration.
Other important aspects of an online EPFO registration:

  • Only a registered member can download his / her passbook
  • Any chosen document such as PAN, Passport No. etc will be considered the username and the mobile number will be the password.
  • Facility to edit the mobile number is provided on the portal

Manoj Arora
Lead a Financially Free Life !!

Thursday, November 07, 2013

Meet our 2nd Freedom Seeker : Ms. Rita Cooper, Dubai, UAE

Last time, we met a CA from Bangalore, India who is on the journey towards financial freedom now - Mr. Sailesh Damani, The response to that post was overwhelming.

In continuation with our effort to interlock you with some common men and women who have been seeking financial freedom, today, it is a chance to meet a Marketing Director from Dubai, UAE : Ms Rita Cooper.

I have tried to mentor her to build a financial freedom plan of her life. This monthly track-able plan, once executed, has the potential to bring her out of the rat race and allow her to chase the true dreams of her lives. This plan can make her experience "freedom" in life.
And as we all know " Freedom can buy you, what money cannot !!"

So, lets meet her to know who she is, what her dreams and goals are, why is she chasing financial freedom, and above all, how has been her experience since she has set herself on this journey to financial freedom. So, here we go, lets meet with the 2nd freedom seeker : Ms. Rita Cooper.

Rita is passionate about spending time with her loved ones, helping the less fortunate, and quit her corporate rat race.
She wants to focus on living a healthy and happy life.
With Rita already following some of the best practices on personal finance already in her life, it just took a series of one-one calls to identify her assets, liabilities and cash flow.
She has now started on her journey towards financial freedom with a target of Feb 2015 to be free from rat race and start living the life of her dreams.

We will be together monitoring her journey and tuning her plan during the course of this journey, so that we stay on track and maximize the returns from her existing investments.

I wish her all the best for her life and wish that she can go on to chase her dreams.

Rita is just one among all of you. She is no different, except the fact that she took a step to connect with me, was open to accept advise, and then worked on that advise. She took the first step. She came out of her comfort zone.

Do you think it is wise to have a financial plan in place for your life, instead of randomly doing investments with no target in mind? 
How much money you need to get financially free? 
How much time you need to accumulate that kind of corpus which can fund you for the rest of your life? 
How can you maximise your returns on your net worth?

If you have any of the above questions pondering in your mind, or you have any genuine financial query, or you have strong dreams on which you are yet to start working, do write to me at help@ratrace2freedom.com and i will be happy to share my experience with you, so that we can work together and plan your future better.


Manoj Arora
Lead a Financially Free Life !!

Saturday, November 02, 2013

What are REIT (Real Estate Investment Trusts)

REITs (Real Estate investment Trusts) first originated in the United States. REITs were created in order to give all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate in the same way they typically invest in other asset classes – through the purchase and sale of liquid securities. See whats happening in India on the REIT front now a days, and this can potentially change the way we manage our wealth portfolios today.

Securities and Exchange Board of India (Sebi) issued a consultation paper on draft Real Estate Investment Trusts (REITs) Regulations, 2013. Once it has received feedback from the public, the regulator will come out with the final regulations on REITs. Thus, it appears that after a long wait REITs may finally start operating in India soon.

What is a REIT?
A REIT is a pooled investment entity, just like a mutual fund. After registering with Sebi, REITs will launch initial offers that investors will subscribe to. While mutual funds invest their corpus in equity, debt and money markets, REITs will invest primarily in real estate, and that too mostly in completed, revenue-generating real estate. The rental received from these properties will be distributed among investors as dividend.

Advantages of REITs
  • Lower entry barrier: Real estate is a big ticket investment. With the advent of REITs, investors will be able to gain exposure to real estate with a smaller amount. Minimum unit size is expected to be Rs 1 lakh and minimum subscription size of Rs 2 lakh. Thus, deep-pocketed investors will be able to take exposure to real estate via REITs, thereby diversifying their portfolios beyond the asset classes available currently (equity, debt, money market, and commodities). In the future, the investment limit could be lowered further to include all kinds of retail investors. 
  • Lower risk: Since REITs will invest primarily in built-up property, the investor will not have to bear development risk, as happens when you invest in under-construction properties.
  • Greater transparency: REITs will provide an above-board source of funding to the realty sector, which currently depends heavily on black money. Limiting the use of black money will go a long way towards making the sector more transparent and consumer friendly.
  • Easy liquidity: As envisaged by Sebi, the units issued by REITs will be listed on stock exchanges. Whenever an investor wants to exit, he will be able to sell his units on the exchange. Today, liquidity is one of the biggest inhibitors to real estate investment.
  • Diversification: The minimum asset size that a REIT will be required to have is Rs 1,000 crore. Having such a large corpus will allow REITs to diversify across locations and types of real estate, such as offices, warehouses, and shopping malls. Such diversification will reduce risk. It is impossible for an individual investor to achieve diversification in his small portfolio.
  • Professional management: As with most mutual funds, REITs too will have managers who will manage the realty portfolio and try to earn higher returns for investors.
  • Asset allocation strategy: At present, it is impossible for retail investors to apply the asset allocation strategy to real estate. The essence of asset allocation is that you invest in a variety of asset classes. Such diversification lowers risk and ensures that some part of your portfolio does well under all market conditions.

The risks
As with any other investments, investing in real estate entails a few risks too. 
  • Real Estate is a cyclical asset. Just like equities, real estate markets also see bull and bear phases. These cycles tend to be longer and deeper than in the case of equities. Another risk is that real estate is an illiquid asset. Since the ticket size is large, it is not easy to sell and exit your investments even in good times.
  • During a slowdown, when you are more likely to need money, buyers become even more scarce. Both these risks will exist even when you invest via a REIT. To some extent, by listing on the exchanges, REITs may lessen the liquidity risk associated with real estate but they will not fully eliminate it. In difficult times, you may have to sell your units at a steep discount.

Who should invest?
REITs are well suited for investors with the following characterstics:
  • Investors seeking a regular income from their portfolio. 
  • The investor should not be already overweight on real estate. 
  • According to Sebi's consultation paper, REITs will declare NAV twice a year. Investors will have to take into account their liquidity needs before investing in them. Those who already have high exposure to illiquid assets (PPF, insurance policies, physical real estate) should not take a heavy exposure to REITs as well.

The right allocation
Once REITs become a reality, how much should you allocate to it? Depending on yourrisk appetite, 30-50% of your total allocation must go to growth assets, which include both equities and real estate, could be to REITs. 
Thus, if you are, say, 30 years old, it is expected that you should have 70% of your portfolio allocated to growth assets. In that case, REITs could occupy around 20-35% of your portfolio (or roughly half of your growth assets)


Manoj Arora
Lead a Financially Free Life !!