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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
Author Mission    My Mission
Credentials & Awards   Awards & Credentials

Corporate & Family Gifts   Corporate & Family Gifts [NEW]

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Saturday, May 31, 2014

The limitless Powerhouse


After World War I, a man from the sizzling African Sahara deserts, by the name Afolabi, happened to visit France to meet his all time friend Jean-Pierre. As a courtesy, Afolabi was shown all the possible exciting places in France including Palace of Versailles, Mont Saint-Michel, and The Eiffel Tower. Though he enjoyed all these beautiful sites, nothing for him was more exciting than the faucet in the bathroom of his hotel... read on...

Sunday, May 25, 2014

Credit Cards Vs Debit Cards

On the journey towards financial freedom, i strictly recommended in my book (From the Rat Race to Financial Freedom) that Debit Card is the only way for a freedom seeker. Credit Card will always lead you to spend more, even if you manage to stay out of its debt trap. At the same time, many readers came back to me asking how do we have a win-win wherein we can en cash the benefits of both the credit cards and debit cards... Read on...

Credit Cards do have their advantages. But remember that all these advantages are incentives for you to get in the trap of more spending and worse, into a debt trap, wherein you are unable to pay the outstanding bill amount before the due date. The entire western economy is based on spending, and we can see how hollow this can ultimately turn out to be. 

But if you are truly a "mature" investor, and have demonstrated your maturity by tracking and controlling your spending over the last 5-6 years, then you can try your hand over a credit card. There are some distinct advantages that a credit card can give you. 

Having said that, there are two points of caution that you must adhere to, before continuing to use a Credit Card for more than 6 months:
1) Monitor your expenses and see if there is a spurt in expenses that you are seeing vis-a-vis your previous 6 months (when you were not using the Credit Card). General thumb rule is that any expense increase more than 10% within 6 months is a spurt. If you need help in tracking your expenses, you can log in to the Freedom Portal to download the expense tracking sheet.
2) If you feel uncomfortable or are unable to pay 100% of your credit card outstanding bill before the due date, this is a serious alarm to switch back to the debit card mode.

Distinct Advantages of Credit Cards
If you can manage to win over the above two scenarios and continue to monitor these scenarios for 6 months and more, here are the unique Credit Card benefits that you can avail of
    • Debit cards charge annual fees and issuance fees. Credit cards can prove to be cost effective in this space. These debit card charges may not be applicable if you are a privileged customer for a bank.
    • Debit card doesn't help in building credit score whereas credit card does. Establishing a higher credit score will not only help you bag softer interests and insurance rates, but also get you quicker loans and preferential treatment. Using a credit card wisely is the best way to build a good credit history. Read more about the Credit Score here.
    • You can impose a limit on your credit card, which is far lower than the sanctioned credit limit. This will help regulate spending and reduce liability in case of a fraud
    • Unlike in a debit card, you pay your credit card bill at the end of the billing cycle, so your money continues to earn interest in the bank for the additional days every month.
    • Aggressive card-users can earn more rewards on a credit card, like free air miles for frequent fliers and free stays for those having a co-branded hotel credit card.
    • Both credit and debit cards are protected against fraudulent use by the zero liability scheme. However, you still have to take steps to keep your cards safe and this is easier with a credit card. You can impose a limit on your credit card, which is far lower than the sanctioned credit limit. This will help regulate spending and reduce liability in case of a fraud. There is no such facility for a debit card. Also, with a credit card, you don't have to pay the disputed charges till the issue is resolved. In case of a debit card, while you may get your money back within 60 days, in the interim period, your reduced bank balance may cause other transactions to default, leading to substantial penalties.


Summary
If you have a credit card that does not incur an annual fee and you use it smartly (read, never revolve credit and pay bills before the due date), it works out cheaper than a debit card and can also help you build a good credit score.
However, if you want to keep your life simple, Debit Card is the way,


Wednesday, May 21, 2014

Cat and Dog Chase

Me and my elder daughter were walking back to our home from the park, after a very refreshing morning walk. And then we saw a cat and dog chase, with the cat winning to escape the claws of the furious dog, in the end. What made the cat escape from a disadvantageous position? And what does it teach us in our lives? Lets read on.

Friday, May 16, 2014

Meet another freedom seeker : Mr. Rajesh Arora


Last time, we met a Project Manager from IBM India, Gurgaon : Mr. Mukesh Chopra who is on the journey towards financial freedom now. The response to these posts has been overwhelming. You can read more about his journey and experience till now by clicking here.

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 Mr. Rajesh Arora, a Consulting Manager at Accenture, USA.


We have tried to mentor him to build a financial freedom plan of his life. This monthly track-able plan, once executed, has the potential to bring him out of the rat race and allow him to chase the true dreams of his lives. This plan can make him experience "true freedom" in life.

And as we all know "Freedom can buy you what money cannot !!"
 
So, lets meet Rajesh to know who he is, what his dreams and goals are, why is he chasing financial freedom, and how has been his experience since he has set himself on this journey to financial freedom. So, here we go, lets meet with our next freedom seeker : Mr. Rajesh Arora.


Rajesh is passionate about chasing the things that he truly loves to do in life. He wants to be absolutely free from any kind of financial worries.
 
Life need not be an either-or. Rajesh has started this journey while being in a corporate job. He has kick started his journey towards financial freedom with a target of Mar 2018 to be free from rat race and start living the life of his dreams.
 
We will be together monitoring his journey and tuning her portfolio during the course of this journey, so that his journey stays on track. Our regular mentoring with Rajesh would include maximizing his returns from his existing investments, tuning his portfolio, tuning the plan depending on how life shapes up for him and his family.
 
We wish him all the best for his life and wish that he can go on to chase his true dreams and calling in life.
 
Rajesh is just one among all of you. He is no different, except the fact that he took a step to connect with us, was open to accept advise, and then worked on that advise. He took the first step. He came out of his comfort zone and he will surely be rewarded for the same.
 
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? 
Do you think life is much more than just earning money?
Do you know how much money you need to get financially free? 
Do you exactly know how much time you need to accumulate that kind of corpus which can fund your and your family's expenses for the rest of your life? 
Do you know 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 us at help@ratrace2freedom.com and we will be happy to share our experiences with you, so that we can work together and plan your future better.

There are no charges, no constraints ... only freedom !!
 

Cheers

Manoj Arora
Freedom can buy you....what money cannot !!

Sunday, May 11, 2014

10 most common Mutual Fund Myths

Mutual Funds are just the right solution for investors ready to take reasonable risk and do not have time to analyse and dissect organisation data. Each one of us will probably touch Mutual Funds at some point of our financial investment cycle. Here are the 10 most common myths surrounding Mutual Funds that you must be aware of .. read on...

Myth 1. Mutual Fund investments are only for those who want to invest in Stock Markets

Fact 1. MF investments are investment vehicles which are not confined to stock markets alone. MFs also invest in money market and debt market instruments like Corporate Deposits, Treasury Bonds, Govt Securities etc. The prime benefit of MFs is a professionally managed portfolio against payment of fund management charges.

Myth 2. One should time MF investments

Fact 2. Investors are advised not to time the MF investments, just like they don't need to time the stock markets. Rather, they should spend time in the market. Instead of timing the market, investors are advised to use SIP (Systematic Investment Plans), STPs (Systematic Transfer Plans) and SWPs (Systematic Withdrawal Plans) to maximise their yields on Mutual Fund returns

Myth 3. Performance of Mutual Funds is directly related to Stock Market performance

Fact 3. An equity MF scheme typically invests in 30-40 stocks across various sectors and industries, depending on the purpose of the fund. Fund managers always strive to beat the benchmark index to attract more investments in their fund. Also, they have the flexibility to move the funds to debt and cash and vice versa to prevent losses or enhance gains for their funds.

Myth 4. Debts Funds are also impacted by equity market movement

Fact 4. Debt funds generally do not invest in equity and are rarely impacted by stock market movements. Instead, they invest in money market and debt instruments like treasury bills, Government securities, Corporate Bonds, Debentures, etc which provide relatively low risk low reward returns.

Myth 5. Mutual Fund investments cannot be pledged as security

Fact 5. MF securities can be pledged as a security to financiers such as banks and financial institutions to borrow money. 

Myth 6. Tax on MF investments are the same as in stocks

Fact 6. Returns on MF investments are considered as Capital Gains and taxed as short term (less than 1 year) or long term (1 year or more). Long term Capital Gains on equity MFs is nil and for debt mutual funds is 10% (without indexation) or 20% (with indexation). Short Term Capital Gains tax on equity MFs is 15% and for debt mutual funds is taxed as per your tax slab.

Myth 7. Bank FDs are better and safer than Debt Funds

Fact 7. People having low risk appetite feel that it is better to go for FDs as these are considered safe. Debt funds carry no more risk than Fixed Deposits, though they have some charges associated with them. However, Debt Funds have emerged as a good investment avenue for risk averse investors as they are very tax efficient and provide handsome post tax returns.

Myth 8. Buying a top rated MF scheme ensures better returns

Fact 8. Mutual Funds ratings are based on their past performance and gives the investor an idea of the consistency of the MF returns. They are more a reflection of the skill and expertise of the fund manager(s) than the fund itself. But this does not guarantee anything for the future. The Fund manager can go wrong anytime or he may move away from the fund he was managing till date. 

Myth 9. To diversify across equity and debt, one needs to buy different funds

Fact 9. There is no need to invest separately for debt and equity. One may invest in balanced mutual fund schemes. A balanced mutual fund invests in both equity and debt funds. So the equity-debt could be split 60:40 or 50:50 or other ratios, thus providing you the required flexibility in a single fund.

Myth 10. It is difficult to track your investments

Fact 10. The fund house is obligated to send an allotment confirmation to the units holder by email and SMS within 5 business days of the investment. If one has invested in multiple fund houses, then the solution is to get the Consolidated Accounts Statement (CAS). CAS statements are sent once a month if there have been transactions during the month and at least once in 6 months even if there has been no new transactions.

Happy investing !!

Wednesday, May 07, 2014

If you dont use it, you lose it !!

Whether it is an old vehicle, an unused machine or even a body that does not undergo routine exercise regime - the law remains the same. If we don't use it, we tend to lose it. No rocket science, but can we use this concept to lose some of my old stubborn habits like anger, addiction etc. ? Sounds interesting now? Read on...

Sunday, May 04, 2014

What is Securities Transaction Tax (STT)

Did you know that with every mutual fund or stock transaction, a TDS is being deducted by the government (by the name of Securities Transaction Tax or STT) and you may just be missing on asking for the refund. Let us understand more about STT.

What is STT?
Securities Transaction Tax (STT) is a tax levied on the sale and purchase of securities on stock exchanges in India. 

Why STT?
The thought behind introducing this tax was to ensure that profits arising from transactions in securities are taxed at source and evasion of tax is minimized. This also means that your stock broker or mutual fund house will pass this amount to the taxman. Apart from that, STT is believed to reduce the inflow of speculative money in the equity market.

Since when is it effective?
This tax was introduced in the Union budget of 2004 and was made effective from 1 October 2004.

What are the current STT rates?
The rate is set by the government and depends on the type of security and whether the transaction is a purchase or a sale. 
  • For purchase of delivery-based equity shares, 0.1% STT is charged on the turnover (total number of shares multiplied by the per share price). 
  • For sale of these shares, 0.1% is charged on the turnover.  
  • For equity intraday trades, there is no STT on buying, but on sale you pay 0.025% on the turnover. 
  • On equity futures transactions the STT applicable is at the time of selling at a rate of .01% of turnover. 
  • On selling options you have to pay STT of .017% of the premium and on buying options you pay 0.125% settlement price at the time of exercise. 
  • For equity Mutual Funds, you will now pay 0.001% on redemption.
How do you pay STT?
Typically, STT is included in the price of the security at the time of transaction. This means, if you are buying a Mutual Fund unit or a share of a company, STT will be included in the purchase price itself and the cost will increase by the amount of the tax. Similarly, at the time of sale, STT is deducted at source by the broker or the asset management company (for MFs).

Scope of STT
According to the Securities Contracts (Regulation) Act, 1956, STT would be applicable on following securities.
  • Shares, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
  • Derivatives
  • Units or any other instrument issued by any collective investment scheme to the investors in such schemes
  • Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  • Government securities of equity nature
  • Rights or interest in securities
  • Equity-oriented mutual funds
  • STT is not applicable for any off-market transaction.
So the next time, your broker or asset management company sends you your transaction bill or statement, remember that the extra bit you are paying over and above your transaction is nothing but the tax that has been levied. Whether it is purchase and sale of shares or mutual fund units, STT will stay and cannot be avoided. 

Can you claim refund of STT?
At the end of the year, you can ask your broker to give you a certificate of the STT that you have paid through the year. You can use this amount to deduct from your short term capital gains and get a tax credit for the same.

Thursday, May 01, 2014

My new specs

It was not until i attended an eye checking camp at my office, did i realize that age and time will set the right perspective in life, more often than you think. It was one of those days. I, along with my colleague, went through the eye check up procedure, and i never knew that it would ultimately result in one of life's most important learning...read on..

We were standing in the queue. We filled up the registration form and sat in front of a computerized machine, trying to look inside the lens, as directed by the physician. Well, this did remind me of those beautiful childhood days when we used to watch small songs and movie clips by peeping inside a magical box for a small amount of money. All kids in our locality waited for this magical box to arrive on 4 wheels and we would peep  in with an excitement as if the actors and singers were right inside the box.


Well, times have changed. YouTube and internet have changed the rules of the game. So, while peeping inside this computerized machine, we could not locate any song, music or a movie, but there was just a picture to be stared at. However, the excitement was no less. We continued to peep inside with the same childish excitement. However, after a few buzzes and clicks, we were asked to keep our second eye, and the same process was repeated for the 2nd eye. It was over and out, quite fast. The machine then vomited a printed report.

We looked at our individual reports, and also that of others - the same way we used to look at each other's marks in school. The results were not as perfect. Or maybe, i was under the impression that age may never catch up with me.

The next round of tests was the physical eye examination and a reading test. I realized that it was difficult to read small alphabets with one of the eyes, and the moment a lens was put in front of that eye, everything looked so different. With the lens, it was so crystal clear and easy to read, as if the first monsoon rain had just washed off all the dirt from the air. The doctor advised me for detailed tests since i was probably heading towards a number in one of my eyes.

The detailed tests followed after a week, and finally i got a number. I did not delay the specs preparation, and got them done within 24 hours. So, here i was, with the new specs in my hand, and a view to a new beautiful world, which i never thought existed earlier. I was now seeing everything much more clearly. I mean, for those who wear specs for the first time, they know that it is a revelation on what we were missing till now. The things that we thought were hazy, were actually not. The things that we saw blurred, were actually not. The lack of clarity on the computer screen, was actually not there. Everything got fixed with one fix - and the fix was in my own view.

And then i realized, how beautifully this applies to our lives. This person is not good, that person plays politics, he does not know how to talk properly, she cannot do anything on time..etc etc....we keep seeing these blurred, hazy and faulty vision of the world, till we get the problem fixed inside us. Yes, the problem is in our eyes, the issue is in how we are looking at each person or each situation, and not actually with the person. We ought to look inside, and fix the root of the problem. Self mastery, Self correction and self discipline is what is going to change our view of the world outside. The world outside was always beautiful, and will always remain so. It is just that a layer of haziness has engulfed our eyes with time. It is up to us to get this fixed...the earlier the better.

Beauty lies in the eyes of the beholder, and if your eyes have got blurred with time, please go ahead, take ownership and get a new specs of awareness to see a clear, beautiful and magical world. 



Read more about who you are and what are your traits as a soul
Chapter 5.2 ~ Understanding the Soul - Happiness Unlimited (the book) - Launching June 2014.


Cheers


Manoj Arora
You are entitled to happiness unlimited !!