Home loans- Floating rate??

If you have taken a floating rate loan and are proud of your decision, you might want to re-think the decision. Fact is that the floating rate loan is just a fiddle that banks are playing to make money at your expense.

Your floating rate loan is not really floating. Don't believe us? Read on. . .

Banks and housing finance companies lavishly claim that a floating rate loan is a sure shot winner to get the benefit of a falling interest rate scenario. But going by the way banks are phrasing their home loan agreements, there appears to be little truth in that claim.

If you find that hard to believe, listen to what Pawan Singh, a professional from Bangalore has to say. Three years ago, Singh took a home loan to buy a flat, and opted for a floating rate. This was what his bank officials recommended.

"I was told that a floating rate of interest for the loan was a better option because of the falling interest rates," he says. Singh, who had seen interest rates in the market falling, assumed that his number of installments would also go down.

However, when he went to review the status of his loan last month, he discovered to his horror that the number of installments had actually gone up. "This sounded atrocious to me," he says.

A visit to the bank soon brought out the reason - a small but significant clause about 'spreads' that Singh missed when he took the loan. This clause, hidden in the fine print of the loan agreement, turned out to be the real killer.

Hidden clause on 'Spread'

Banks don't draw attention to this clause, but Moneycontrol
brings you the real story.

Spread is the difference between the PLR (prime lending rate) and the home loan interest rate. When you opt for a floating rate, you may be assuming that you will pay less when interest rates fall. But your floating rate is not really benchmarked to current home loan interest rates, it is linked to the "spread". And this spread does not always change every time interest rates fall.

Let's take the example of few leading banks. In the case of HDFC, the PLR came down from 11.5% in January 2002 to 9.75% in July 2003. It increased to 10.25% in November 2004. HDFC officials say that spreads during this period increased from 1% to around 3%.

So for someone who took a floating rate loan in July 2003 at a spread of 1% to PLR, his effective interest rate would have been 8.75%. But someone who took a loan say in July 2004, may have got a spread of 2% and hence paid only 7.75% interest.

Similar is the case with other banks. In case of State Bank of India, currently, the benchmark rate is 10.75% and the floating rate of interest is between 8% and 8.75%. The current spread is therefore between 2% and 2.25%. The spread in 2002 was 100 bps.

In case of ICICI Bank, the present Floating Reference Rate (FRR), which is the benchmark rate, is 8.75% and loans are offered at a spread of 75 bps. Earlier, the spread was 50 bps.

Coming back to Singh's case -- the spread was 75 bps and the PLR was 10.25% three years ago when he took the loan. The same bank today offers a spread of 2.25-3% on a PLR of 10.75%.

When Singh demanded an explanation from bank officials, they told him that as per the agreement, the floating rate is linked only to changes in PLR. Hence the bank was not liable to give the benefit of changes in the spread to its existing customers. So if the bank's PLR is 10.75% now, Singh will pay an interest of 10%, while a new customer will pay at 7-7.75%.

While most bankers say that the benefit of floating rate is passed on to all customers, what they don't tell you is that this benefit is passed on disproportionately. New customers get a bigger benefit than old customers because they have a bigger spread.

Standard Chartered says, "Our customers have always benefited in a downward interest rate regime. In fact we have always ensured that the best rates are offered to our existing customers besides offering various service discounts to customers based on their relationship with the bank."

But when Moneycontrol asked the bank how many times it had revised rates downwards for past customers, there was no direct answer.

ICICI Bank says, "Our FRR has been changed five times since April 2002. It has been reduced four times, and increased only once." But what is the extent of benefit for existing customers?

"Since the decrease has been four times, while FRR has increased only once, most of the customers have benefited by opting for floating rate loans," the bank said.
Most banks appeared to tell us the same story. To get an independent view, Moneycontrol spoke to Harsh Roongta, CEO of Apnaloan.com. Roongta confirmed that 'spread' was indeed the clause that was misleading.

He also explained, "Floating rates in India are not transparent. A benchmark rate must ideally be an external, market related rate, which is not in control of two parties to the contract. Ironically, however, in India, the benchmark is a PLR, which is a particular banks' internal rate. What should instead be widely used is an external rate."

So, what lending institutions announce as falling interest rates holds true only for new customers. For someone who has already entered a floating rate agreement with the institution, the interest rate will be linked only to the changes in PLR.

As P K Rath, GM, Marketing of LIC Housing Finance puts it, "If the bank has not reduced its PLR, the borrower's rate of interest will not be revised as his rate of interest is linked to PLR. The bank may offer fresh loans at rate of interest of 7-7.50%, which may be at substantial discount to PLR. But this will benefit new customers only."

Note: This article is of September 2006.It may have variations as of today.This is to have a basic idea.

Coutesy : Internet

Investing in stocks is NOT gambling

The word stock market evokes varied thoughts - risky, gamble, complex, need a lot of money, only for 'finance' people, scam, and what have you.

Only a few will say it's a way to build wealth over time. In India, a little over 6 per cent of a household's savings finds its way to the capital markets; the majority goes into low-risk, low-return instruments like fixed deposits.

That stock investment is risky, is true. But it's also true that equity outperforms all the other asset classes in the long run. However, poor understanding and misinformation about the markets has kept most investors away from it. A better understanding of market functioning would break a number of these myths.

Just like gambling. A major reason as to why investors in India, and abroad, do not opt for equity as an asset class is that they believe the stock market is for gamblers.

That's not true. Gambling is zero sum game, that is, gain for one is loss for the other. In gambling the result is dependent on the outcome of throwing a dice; only one participant will win. In equity markets, if five investors hold the shares of the same company, and if prices go up, all of them will gain.

Buying an equity share means buying ownership in the company. Share prices will reflect the company's performance and shareholders have a claim on the net profits. This means that a company creates value for shareholders. In gambling, no value is created. It's the same money to be won or lost.

Of course, investors lose money in the markets too. Share prices change with expectations from the company. If a stock is trading at Rs 100 and the markets feel that its earnings will go down in the future, share prices will reflect this and go down. If an investor, unaware of this fact, buys that stock at Rs 100, there is a chance of his losing money.

Apart from the individual stock risk, an investor also takes market risk, which is not specific to the company, while buying equity shares. For instance, if interest rates move up, companies' interest liability will increase, which will negatively impact profits. Therefore, investing in the stock markets means picking fundamentally-strong stocks at the right prices.

Price is extremely crucial in stock investment. Stock X can be a good investment at 10 times earnings, which is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. This means that the same stock at 30 times earnings may be risky, as the investor is paying more for each unit of income.

Stock investment needs time, patience and fund management skills, all of which is not gambling. There is an element of risk involved, but this can be minimized. Gambling doesn't have such an option.

Gains go back eventually. Every market correction makes people think that no one can make money in the markets because even if it goes up, it eventually comes down.

Look at these figures. The bellwether, the Bombay Stock Exchange, sensitive index moved from the base of 100 in 1979 to 20,000 in 2008 before correcting and reaching its current level. Simple calculation tells us that Rs 1,000 invested in 1979 will be worth Rs 160,000 today, which means a compounded annual growth of 19 per cent. If we look at individual stocks, Bharti Airtel has moved from Rs 40 in June 2003 to Rs 820 in June 2008, a gain of over 1,900 per cent. Similarly, Reliance Industries has moved up 1,000 per cent in the same period.

Gains can be lost for some time as price movements are never unidirectional. But, if you have picked up the shares of a company with sound fundamentals at the right price, there is very little chance that you will lose money in the long run. However, if you buy into a weak company or even a strong company at a high price, the gains will be restricted and chances of losing money will also be high.

It's an exclusive club. Many believe that the stock market is an exclusive club of brokers and big investors and that one need a lot of money to profit from investments in it. The stock market was out of the reach of lay investors till some time ago. But technology has changed the rules of the game. Now, with a demat account, investors can buy just one share. The cost of transaction has come down significantly from 5 per cent of the value to 0.5 per cent. The availability of information has also increased. Corporatization of brokerage firms has increased the coverage of research, which is now shared with investors. Moreover, there are professionals now who advise investors on buying and selling stocks.

You need to take extra risk to make money. No risk, no gain. But high risk does not necessarily translate into high gains. When the markets fell in January this year, retail investors suffered the most.

Investors with leveraged positions were forced to sell. Taking a leveraged position means buying stocks with borrowed money. If an investor has Rs 100 of his own in the markets and takes Rs 500 from the broker to invest, his total position will be Rs 600.

Now, if the markets fall by 10 per cent, the value of his total investment will be reduced to Rs 540. Since he has to return Rs 500 to his broker, he will be left with Rs 40, a loss of 60 per cent on his investment.

At times, several investors choose to expose themselves to very high risk. Investors should not leverage in equity markets or get carried away with a particular sector or stock.

The portfolio should be well-diversified and have a mix of sectors. Stocks from the FMCG and pharma sectors provide a cushion during downturns because of their defensive nature and earnings visibility.

Quick returns. Investors entering the equity markets with a very short-term horizon to make quick money are exposed to very high risk, as the markets are volatile in the short run and can move either way. These investors generally invest when the bull market is peaking. A rising market attracts money which would not have come to it otherwise.

Confidence among investors goes up and they start believing that the markets cannot fall. Rising confidence starts bringing short-term money into the markets as investors suffer from the illusion of control. And when the cycle reverses, investors with the short-term horizon and money suffer the most.

Stock markets are not the place to make quick money. Ideally, you should invest money that you would not need in the next three years in the markets.

Let me know ur thoughts and opinions.
-- Naresh

Courtesy : Internet Sources.

List of websites to watch movies online

All the links are free to watch.

1) http://broadband.bigflix.com/bigflicks/faces/jsp/index.jsp
2) http://www.bharatmovies.com/
3) http://requestacinema.blogspot.com/
4) http://www.muft.tv/
5) http://www.mytelugublog.com/
6) http://www.saradaga.com/
7) http://www.kalyansuman.com/
8) http://telugustation.blogspot.com/
9) http://www.infomaza.com/
10) http://www.sidereel.com/
11) http://idesitv.com/
12) http://www.bollyclips.com/
13) http://www.xomba.com/

What is Repo Rate ?

Repo Rate:

Whenever banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow money from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.

Tax Saving in India

Tax Tax Tax... One word by which people are scared..bcoz it brings down ur net income.

There are many products in the market, which provides Tax exemption when invested.

But which one to choose ? -- This is a big confusion.

In this blog i will discuss on the following :

1) ULIP
2) ELSS
3) Insurance

Let us discuss one by one:

1) Insurance :

Many of us know that if we invest in Insurance products, we get tax exemption.It is very important to be covered with an insurance policy. I personally advise that any insurance policy taken, should be done when u r young (ideally less than 25 years).

While taking an insurance cover , u should clearly have in mind whether u r choosing Insurance as an avenue for Investment or just for the purpose of Insurance.

Because Insurance and Investment cannot go together.They should be handled seperately.

Personal Opinion : Term Plan has to be taken for higher insurance coverage.

2) ULIP (Unit Linked Insurance Plan) :

These type provides both Insurance and Investment. ULIP's are more or less like Mutual Funds with Insurance coverage. Since they provide Insurance a considerable part of the money invested, will go towards premium and the rest will be invested in the market as normal Mutual Fund. During the initial years there will be huge maintenance/fund charges which will be charged to you.

At the end of the day this choice is not right if u r looking for Investment. As said above Insurance and Investment cannot go together.

3) ELSS (Equity Linked Savings Scheme) :

ELSS works as normal mutual fund but u will have Tax exemption.

All the three avenues as mentioned above are eligible for Tax Exemption under section 80 C ( Max Limit of Investment can be 1 lakh, including Provident Fund(PF) )

All these discussions happen when we look for Tax saving products. Usually we approach to a financial advisor (broker/agent) and blindly follow (some people mite reasearch) what ever he says.

Many of us have a lot of confusion whether to go for ULIP or ELSS for Tax Saving.....

My choice is for ELSS.,

Correct me if i am wrong or if u guys have more information on the same.

Happy Investing... :-)

Thanks,
Naresh

North Carolina Driver License Exam Brain Dumps

Hi Friends,

This is the link for North Carolina Driver license exam dump. It has almost all the questions which appear in the written test.

http://www.jaytomlin.com/NCDMV/2006/09/study_guide.html

Don't forget to read comments part of this link. It also has probable questions. Let me share you my personal experience.While attempting the test for first time, i have prepared PDF from the DMV website. You know i could not make it during first attempt. Then one of my colleague shared the link above. Second time i have passed the exam with 24 questions right.I was happy and thought to share with you, so that you guys can make it in first attempt...

All the best guys...!!!

Bye
Naresh