As a pre-retiree in your 50s, you may be facing some challenging financial choices and some of them may be the most important ones you make in your lifetime. Here we’re diving into some of the most common situations you may be looking at and providing retirement planning solutions.
If you’re late to the game in terms of saving, you can still make a huge difference in your overall portfolio thanks to the catch-up provision. This IRS rule lets anyone who is 50 and above to contribute an extra $6K to their 401(k) plan, where everyone else is capped at $18K for 2015. This higher limit can really help you grow your money.
Many people are dipping into their retirement accounts; 1 in 5 are taking loans from their 401(k)s. If you leave your job before you finish paying it back, you have to finish within a certain period of time or you are forced to take a distribution that not only raises your taxable income but is taxed more as well.
3 out of 4 people are claiming Social Security at 62, but this leaves a lot of money on the table, especially as people are living longer. Every year you delay filing, your benefit grows by 6.5-8%, depending on your age.
If you claim Social Security at 62 for a $750 monthly payout, over your lifetime your benefit will be worth $297K. Waiting until 70 and living to be 95, your benefit jumps up to $1,320 per month or $396,100 over the course of your lifetime.
There are other misconceptions about Social Security too when it comes to eligibility.
For example, it can serve as a resource for people younger than 62. If a 51-year-old couple has a 14-year-old son still living with them and his father were to pass away suddenly, his mother would be entitled to SS. Unfortunately, many people fail to claim their benefits because they’re unaware they’re eligible.
Long-term care insurance is worth the price. The average cost is $2,500 per year, but most of us will need LTC late in life and the optimal time to buy is in good health between 50 and 64.
Perhaps the most challenging financial situation pre-retirees in their 50s face is underestimating how expensive retirement really is. Figuring out how much you need to save and how to invest those savings to build financial security for the rest of your life is vitally important, and those who sit down and do the math end up saving a third more than those that don’t plan ahead.
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Planning for retirement is not an easy thing to do. There are a lot of unknown variables and a lot of decisions to be made. If you are interested in learning more about your options for retirement planning and you live in the Everett, WA area, then contact a local Everett retirement planner or local financial planner.`
When an error is committed in the books of accounts the same should be corrected to show true numbers in financial statements. If the error is immediately identified it may be fixed by striking out the wrong entry and replacing it with a correct one. However, if the error is identified at a later stage, the correction should be made by passing a suitable journal entry, such entries used to fix an accounting error are called rectification entries.
Nowadays with software packages if a journal entry has been posted to the ledger it usually requires rectification entry, however, if it is still at a preliminary stage of validation then it may be corrected without the need of an additional entry. Errors are required to be rectified before finalization of books of account.
Stated below are types of errors and their respective rectification entries illustrated with examples;
Rectification Entry for Errors of Omission
Omission made for the purchase of Machinery worth 50,000, the same can be rectified by passing a simple double-entry that can record debit and credit aspects of this transaction. The following entry shall be passed:
(Rectification of missing entry for purchase of machinery)
After the above rectification cash can be posted in the cash book and cash account. Office equipment can be entered into office equipment ledger account which means the error has now been corrected.
Purchase of goods from Mr Z aggregating to 10,000 erroneously entered in the ledger of Mr.B. To rectify this error, we will have to reverse Mr B’s account and have to credit Mr Z’s account with the amount of goods purchased.
Correct Entry which should have been passed
Wrong Entry
Rectification Entry
(Rectification of wrongly posted purchases to Mr B’s A/C)
Sale of Building for 10,00,000 entered into Sales Account.
A building is a fixed asset hence it should be entered in the building account. Therefore, we will have to rectify the sales account by debiting it and crediting the same amount to the building account.
Correct Entry which should have been passed
Wrong Entry
Rectification Entry
(Rectification of entry passed in Sales account by mistake for Sale of Building)
Rent income is overstated by 10,000 and salary expense is overstated by 10,000.
Since rent income has a credit balance and salary expense has a debit balance, the overstatement of rent income balance will offset the overstatement of the salary account balance. There will not be any effect on the trial balance. Rectification of the same shall be done by reducing Rent Income and Salary Expense.
(Being rectification of entry passed for reversal of Income over expense)
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At the end of an accounting period when the books of accounts are at finalization stage, some special journal entries are required to be passed. In accounting terms, these journal entries are termed as closing entries. The main purpose of these closing entries is to bring the temporary journal account balances to zero for the next accounting period, which keeps the accounts reconciled.
As similar to all other journal entries, closing entries are posted in the general ledger. Once all closing entries have been passed, only the permanent balance sheet and income statement accounts will have balances that are not zeroed. Most common examples of these closing entries can be seen in temporary accounts like:
Revenue account
Dividend account
Expense accounts viz., Wages, Office Expenses, Electricity, etc.
These accounts are be zeroed and their balance should be transferred to permanent accounts.
The permanent accounts in which balances are transferred depend upon the nature of business of the entity. For example, in the case of a company permanent accounts are retained earnings account, and in case of a firm or a sole proprietorship, owner’s capital account absorbs the balances of temporary accounts.
Closing Entry for Revenue Account
Total revenue of a firm at the end of an accounting period is transferred to the income summary account to ensure that the revenue account begins with zero balance in the following accounting period. The objective is to get the account balance to nil.
Closing Entry for Expense Account
Just like revenue, expense account is also closed at the end of an accounting period so that it can once again begin with nil balance. Below is the journal entry that will assist in this process:
Closing Entry for Income Summary
After closing both income and revenue accounts, the income summary account is also closed. All generated revenue of a period is transferred to retained earnings so that it is stored there for business use whenever needed.
Let’s say if a business generates revenue of 1,000 in a particular accounting period and incurs expenses worth 950 the amount transferred in retained earnings would be 1,000 – 950 = 50.
*In case if expenses are more than revenue and business confront losses then the above-mentioned journal entry would be reversed.
Closing Entry for Dividends (Capital Reduction)
This entry is required in case if a company pays dividends during an accounting period which results in a reduction of capital. Dividend (paid) account is then closed with the help of the below journal entry:
Closing entries help in the reconciliation of accounts which facilitates in controlling the overall financials of a firm.
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SIDBI – Small Industries Development Bank of India
Small Industries Development Bank of India (SIDBI) is a financial institution which is headquartered in Lucknow, India. It was established in 1990 on April the 2nd and is mainly responsible for promotion and development of micro, small and medium-scale enterprises (MSMEs). These small enterprises contribute about 45% to manufacturing output and about 40% to total exports, directly and indirectly. SIDBI started as a wholly owned subsidiary of Industrial Development Bank of India (IDBI) & is currently owned by 33 different institutions which are either controlled or owned by government of India. Its official website is www.sidbi.in
Since its inception SIDBI has grown from being just a refinancing agency which assisted banks and other local NBFCs indirectly to a lender which now provides loans and other forms of credit directly to MSMEs. It plays a vital role by helping these budding businesses to expand their operations.
SIDBI has created several different legal entities to actively perform associated activities:
CGTMSE – Credit Guarantee Fund Trust for Micro and Small Enterprises (www.cgtmse.in)
SIDBI Venture Capital Limited (www.sidbiventure.co.in)
SMERA – SME Rating Agency of India Ltd. (www.smera.in)
ISARC – India SME Asset Reconstruction Company Ltd. (www.isarc.in)
MUDRA – Micro Units Development & Refinance Agency Ltd. (www.mudra.org.in)
Products and Services of SIDBI
Few of the products and services that Small Industries Development Bank of India offers are:
Service Sector Assistance – The micro small and medium-scale enterprises which require Loan/Capital for growth can consider SIDBI, this includes service sector enterprises such as IT houses, health care, logistics, retail outlets, clinics etc. It also offers loan facilitation and syndication services to the service sector.
Supporting Clean Energy – It has different programs to extend credit to support waste management, cleaner production and similar firms who are helping the planet to reduce the carbon footprint.
Receivable Finance Scheme – It is a scheme devised to mitigate the receivables issue that occurs from the suppliers who are supplying goods to MSMEs and it helps to improve liquidity.
Flexible assistance for Capital Expenditure -It provides assistance in scheduling the tenure of your repayment schedule if the investor is investing in fixed assets for example land or building.
Government Subsidy schemes – It assists in variety of schemes which are offered by the government to help MSMEs in adoption of modern technological processes & expansion of operations.
Top Benefits of SIDBI
Uniquely Designed Products to meet MSMEs needs.
Focused attention on Industrial and Service sector.
Attractive rates on financial products.
Focused managers to assist in entrepreneurial development.
Its wide presence across the country.
Provision of risk/growth capital.
Access to equity and venture financing.
Access to collateral free finance.
Focused attention on Industrial & Service Sector Funding.
The word “Sundry” is used for items which are irregular and insignificant to be listed individually. Sundry expenses are costs incurred during business operations that are not listed separately because they are usually small, rare, and do not relate to other general expenditures.
They are comparatively small, miscellaneous in nature & can not be classified under a specific day-to-day expense ledger.
They may also be referred to as “Miscellaneous Expenses”. They can be related to a particular area within a business such as sundry office expenses, sundry retail expenses, etc.
Examples of Sundry Expenses
As mentioned above these types of expenses do not usually have a separate ledger account however they can be grouped together and clubbed together as sundry expenses. There are no hard and fast rules for categorizing expenses as sundries but they should definitely not include any regular payments or capital expenses.
Examples may include expenses related to bank service charges (not regular), gifts & flowers, festival celebrations, donations, etc.
Sundry expenses are shown on the expenses side (left) of a profit and loss account (Income statement). Size, industry practice & nature of an expense plays an important role to determine whether it should be included in sundries or be given a separate ledger account.
Back in the days of manual bookkeeping, there was a greater need for such classifications since having a particular ledger account made for every little expense would not feasible. Now with ERPs and modern computer systems, the need to reclass dozens of small expenses as sundry expenses has been greatly reduced.
Sundry Expenses Vs General Expenses
Basis
Sundry Expenses
General Expenses
Definition
One-time or random expenses that cannot be classified under another expense category are called sundry expenses.
They are general, regular, day-to-day, and necessary expenses that are grouped under a general category.
Frequency
There is no fixed interval for sundry expenses. Either they are one-time or intermittent.
General expenses occur regularly.
Size
It is typical for such expenses to be small or to be made up of several small expenses.
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You need money for almost everything. To tackle emergencies, to fulfil wishes, to get a higher education, to buy any amenity for your home or to get the best treatment for a health condition, money is all you want. And in these situations, Personal Loan comes to our rescue.
Definition
A personal loan is “money borrowed” from an institution or a person to fulfil the personal requirements of a person for instance, for education, vacation, medical requirements, vehicle repair, etc. They are smaller loans and are of two types:
Secured Personal Loan
Unsecured Personal Loan
A secured personal loan is protected by collateral or an asset, for instance, a car or a house. Whereas, the unsecured personal loan does not require any kind of protection by any asset or collateral.
If you hold a good credit record, you can apply for a personal loan at any official lender, bank or building agency. As the personal loan is a smaller loan, the amount is also small. It may range from $500 to $10,000, i.e., any small amount based on your requirement, but if you want to borrow a large sum of money, you would have to apply for a secured personal loan.
Personal Loan Application
The procedure of applying for a personal loan is very easy. You need to apply for a loan at a bank or a lending agency. Nowadays, you can also apply online for a personal loan. You first need to fill an application then you may choose to talk to a representative who will explain you in detail, the loan options available for you. You will also be required to provide some personal information to the bank and your financial history and its current status. You also need to provide the proof of employment, the amount you need to borrow and the reason behind application of personal loan. Another important thing that you need to tell the bank is whether you have a co-signer or not.
Once you manage to get the personal loan, you can pay it back by paying an equal amount every month. The rate of interest and the loan fee may differ with different banks and lending agencies.
Advantages
It is the easiest type of loan available at your disposal.
You can directly apply for a loan in a bank without any need of an agent.
The processing time is very less.
This is the least troublesome loan. The paperwork is a minimum.
Disadvantages
You cannot apply for a personal loan unless you have a bank account.
You must qualify the criteria set by the bank to get the loan.
Good credit history is a must.
Example of some personal loan providers in the world are:
Moneylenders provide small personal loans for a short time period at high rates of interest. In other words, risks and repayments are high. There are many different types of moneylenders. Some give a small number of loans that are to be repaid over a number of days. Some offer a heavy sum of money with a high-interest rate. Others may offer credits on furniture or electrical goods.
Moneylenders don’t count for your good or bad credit history. They even lend money to the gamblers who often get into a debt circle. However many countries are governed by the Money Lenders Acts of particular states.
Repayment and Interest Rates
Moneylenders will collect money from you in cash by reaching your doorstep and you will have to bear their collection charge. If you cannot pay the collection charge, you need to repay (principal+interest) at the moneylender’s office. The moneylender should carry his identity card so that he has permission to call you for repayment, any day between Monday to Saturday from 10 am to 9 pm. If you are comfortable, they can also call you from 8 am to 10 pm, but you must give it in writing beforehand. Also, they don’t have the permission to contact you on Sundays or any of the bank holidays or Contact your family members without your agreement.
Moneylenders are more expensive when compared to a bank or credit institution. The APR is a minimum of 23% and higher in other cases. The total credit cost tells the extra amount or the interest to be paid on the amount you borrowed. Moneylenders cannot charge extra interest, except for the collection charge. So make sure that if you miss paying the repayment, the total amount to be paid should not go up.
Consequences of Non-Payment
If you miss repaying the loan amount, contact your moneylender as soon as possible. If you fall short of payments, the moneylender cannot charge any kind of penalty and cannot give you another loan to pay the first loan. If the matter is still not resolved between you and the moneylender, you can contact the Money Advice and Budgeting Service (MABS). They give free and independent advice to people in debt. They will give you various suggestions such as drawing of budget, finding your entitlements, try to work out new loan arrangements with your moneylender. It will help to fulfil your commitments.
A foreigner loan is a type of loan which can easily be accessed by someone who is not the citizen of the country from which he/she is acquiring the loan. Let us say if you need money to set up your business, buy some goods etc. however, you don’t have enough cash then there are some institutions which are specialized to give you financial help. You can avail that by applying for a foreigner loan to meet your needs. You just need to meet certain requirements to get your money.
Foreigner Loans Vs Other Loans
The key difference between a foreign loan and another type of loan is the interest rate and the duration of repayment it offers. The banks and other credit institutions generally offer short-term loans. But foreign loans can attract higher interest rates, as the foreigners don’t have to go for collateral securities. So this means that foreigner loan is a high-risk loan. The duration of this loan is shorter when compared with standard loans. The less you borrow, the shorter the duration of repayment. Before going for this loan, a proper detailed study must be done taking various lending institutes into account.
Documents Needed to Obtain a Foreigner Loan
To obtain the loan from a moneylender, you are required to submit the following documents:
1. Work permit 2. Personal Information 3. Identification Documents 4. Payslips
*Specific requirements vary among different lenders.
Miscellaneous Points & Examples
Some moneylenders will try to exploit a high-interest rates from you if they know how badly you need a loan or if you don’t have sufficient knowledge. So explore and know more and more moneylenders and find out a suitable deal.
If you don’t want to obtain a loan from any of these sources, you can go for private lenders. All they need is your credit history and creditworthiness. They have less strict policies.
So before you apply for any loan, make sure that you take a glimpse of your income. Also make sure to study different sources of obtaining loans and keeping in mind your creditworthiness and future prospects, choose the most effective and efficient option.
An example of a foreigner loan provider is Power credit money lender Singapore.
In India, a business organization can take many forms such as an LLP (Limited Liability Partnership), Private Limited Company, Public Company etc. On 7th January 2009 with the assent of the President the Limited Liability Partnership Act, 2008 came into effect. LLP has been a successful business vehicle since then as it combines the benefits of a partnership with that of a limited liability company, making it a lucrative option for start-ups. It keeps the personal wealth of partners safe and on the other hand, it helps leverage the benefits of a partnership.
In a Limited Liability Partnership, a partner is not bound by another partner’s acts; it can be due to negligence, misconduct etc. In other words, LLP can also be defined as a corporate entity that combines professional as well as entrepreneur behaviour to operate in an effective, efficient and flexible manner by providing the benefit of limited liability and larger financial resources.
Requirements and Benefits of an LLP
The formation of an LLP requires a minimum of 2 partners and at least one of them shall be an Indian resident. Each partner will only be liable to the extent of its capital in the business unless found to have acted with fraudulent intentions and deceiving purposes to cheat creditors.
It is a separate legal entity formed under the LLP Act 2008 therefore It shall now possess the power to sue and be sued. Also, both an individual and a body corporate may become a partner.
Duties, rights & shares of each partner are governed by an agreement among partners or between the LLP and partners subject to the act. Law gives the freedom to formulate the agreement per choice.
There is no minimum capital required to form an LLP, moreover, the creation of a limited liability partnership is inexpensive as compared to other forms of business.
When paralleled with regular partnership an LLP is a preferred choice of lenders hence making borrowing easier. Also, it has less stringent compliance and regulatory requirements making it easier for the business owners to focus on operations.
Disadvantages of an LLP in India
A Limited Liability Partnership is not allowed to go public this means that it can not be listed on the stock exchange and is not allowed to raise money from the general public.
Actions of any partner related to the LLP will have an impact on it and the entity will be legally held responsible for any liabilities thus created.
Winding up an LLP can be a tedious and expensive task.
You may Download/View a PDF of the complete LLP Act – 2008 here LLP_Act_2008_India
To get details on the steps to register an LLP go to the official MCA India Website.
REIT stands for Real Estate Investment Trust, it can be seen as a mutual fund that instead of investing in stocks invests in real estate. It is an organisation that deals in securities which may be sold like shares on major exchanges. REIT invests in real estate either directly or through mortgages by making a combined pool of money from investors which can range from small retail type to large accredited ones.
REIT own income-producing real estate which are in form of offices, apartment buildings, warehouses, hospitals, hotels, shopping malls etc. It benefits investors in several ways such as helping them attain regular income streams, long-term capital appreciation, diversify their investment portfolio, invest in real estate with relatively small capital etc. REIT’s prove to be strong income vehicles because they pay out almost 90% of their taxable income to the shareholders in form of dividends and shareholders pay taxes on those dividend. As Real Estate Investment Trust receive special considerations regarding tax, so high yields and liquid methods are offered to investors.
Types of Real Estate Investment Trusts
1. Equity REIT – In this type, investment is made in owning properties or a part of it thus generating their core income either by property rents or by selling their long-term properties. Equity REITs are tilted towards specializing in owning certain building types such as apartments, shopping malls, corporate offices, hotels etc. Few concentrate on owning & generating revenues from a single type of building while others diversify.
2. Mortgage REIT – In this type, revenue is generated from investing not directly in the property instead investing it in mortgage related to a real estate. Money is either lent directly to the owners of real estate in form of a mortgage or existing mortgage is acquired or a mortgage-backed security is purchased. This may be done for both residential & commercial properties. Prime source of money is earned in form of interest generated on mortgages.
3. Hybrid REIT – It is a combined outcome of equity REIT’s and mortgaged REIT’s. This investment is done carefully in both properties and mortgages thus getting benefits of both the dimensions.
REIT – Common Qualifications
Different countries have different internal criteria(s) to qualify a company as a Real Estate Investment Trust, below mentioned are few common points across various nations:
1. Invest about 75% of assets in the field of real estate.
2. About 75% of gross income should be generated from real property or interests from mortgages.
3. Pay approx 90% of its taxable income to shareholders as dividends every year.
4. Should be controlled and managed by Board of Directors or Trustees.
5. At least have 100 shareholders.
Benefits of a REIT
1. High Yields – For most people, main attraction of this scheme is the income earned which usually outperforms the broader market making this a lucrative option.
2. Easy Tax Procedure – Tax issues with REIT’s are more straight forward when compared to other schemes or partnerships. A form 1099-DIV is sent to shareholders which contain the breakdown of dividends. Each year dividends are allocated from capital gains and ordinary incomes. So it becomes easy to invest here.
3. Liquid Asset – Since REITs can be listed as stocks on major exchanges hence they are easy to buy and sell. This makes them liquid & hassle free.
4. Diversification – Research has shown adding REIT’s to any investment increases returns and diminishes risk as they have very little correlation with the stock exchange(s).
5. Leverage – Usually a small investor with less to moderate initial capital can not buy real estate easily, they may never be able to get the benefits of investing in high potential commercial real estate such as shopping malls, office spaces etc. Such investors can leverage their investment and get the benefits they otherwise may never be able to get.
As we know, final accounts are prepared at the end of an accounting period, by that time ledger balances also change due to day-to-day business transactions. Therefore, ledger balances are also required to be updated with relevant adjustments.
Examples of such transactions are depreciation, closing stock, accruals, deposits, etc. Adjustment entries relating to these transactions are passed and posted to respective ledger accounts to bring the ledger accounts to their appropriate balances.
Once all the necessary adjustments are absorbed a new second trial balance is prepared to ensure that it is still balanced. This new trial balance is called an adjusted trial balance. All ledger balances and their respective debit and credit balances are listed within this and are further used to prepare the financial statements of a company.
Example
Suppose Unreal Pvt. Ltd. runs a small business and its trial balance as on March 31, 2014, is as follows:
The following additional information is also to be incorporated into the above trial balance thereafter an adjusted trial balance is to be furnished.
The salary due to employees as on 31 March 2014 is 4,000
Rent includes a refundable deposit of 15,000
The following entries will be recorded in their respective ledger accounts
Adjusted Trial Balance
Hence the trial balance thus made is the one which includes all considerable adjustments and can be termed an adjusted trial balance.
Purpose of Adjusted TB
An adjusted trial balance is usually the last step in the accounting cycle because the financial statements are prepared after this. This adjusted trial balance is a report in which all the debit and credit balances are provided.
Preparing an adjusted trial balance can serve a variety of purposes, some of which are stated below,
The very first and main purpose is to show that the debit balances match the credit balances
Trial balance is used to prepare financial statements every year such as balance sheets, income statements, and cash flow statements.
An adjusted trial balance ensures that the financial statements for the year are accurate.
This trial balance is also useful in determining whether the adjusting entries at year-end are made correctly or not
This adjusted trial balance helps in supervising the company’s performance because it acts as a final version of the accounts and gives a better and clearer picture altogether.
Adjusted Trial Balance to Income Statement
Once the adjusted trial balance is prepared after adjusting all the required entries in it, the next step is to prepare the financial statements from this adjusted trial balance such as the balance sheet, income statement, and cash flow statement.
The very first financial statement prepared is the income statement. The company will start by looking into the adjusted trial balance and taking out all the revenue and expense accounts and putting the information in the income statement.
Let us see the following example,
After looking at the above trial balance we can easily recognize the items that will go into the income statement of an enterprise. After recognizing the revenues and expenses we will post them in the income statement.
The income statement will be made as follows,
This way the income statement will be prepared showing all the revenue and expenses of that particular accounting period taking from the adjusted trial balance and at last, showing the net profit which is the difference between all the revenues and expenses.
Unadjusted Trial Balance
An unadjusted trial balance is a raw form of trial balance where all the general balances of the ledger accounts are directly posted and no adjusting entries are made. When such type of trial balance is made, all the balances of ledger accounts without any adjustments are used in the preparation of financial statements.
This type of trial balance is issued by accounting software packages. It is often manually compiled. An unadjusted trial balance is only used in double-entry bookkeeping, where there is a credit to every debit and all the entries are balanced. If an entity is following a single-entry system, it is not possible to create a trial balance with equal debit and credit.
Adjusted vs Unadjusted Trial Balance
A small table showing the differences between the two.
Basis
Adjustedtrialbalance
Unadjustedtrialbalance
Meaning
An adjusted trial balance is one that is made after making all the necessary adjusting entries to the general balances of the ledger accounts.
An unadjusted trial balance is one that records the general balances of ledger accounts as it is without making any adjusting entries to them.
Adjusting entries
All the adjusting entries are recorded and only after that this type of trial balance is made.
No adjusting entries are recorded in this type of trial balance.
Additional account of net loss or net income
An adjusted trial balance shows an additional account of the net loss or net income of the firm.
Unadjusted trial balance on the other hand does not show any additional account for net loss or net income.
True and fair presentation
An adjusted trial balance shows the true and fair presentation of all the balances of the ledger accounts as all the required adjustments are made.
An unadjusted trial balance in comparison to an adjusted trial balance does not show a true and fair presentation of the accounts as no adjusting entries are made to this.
Type of bookkeeping
This type of trial balance can be used by both types of bookkeeping, that is, double-entry bookkeeping as well as single-entry systems.
This type of trial balance can only be used by double-entry bookkeeping systems. Firms maintaining accounts on single-entry systems cannot use this trial balance.
100 keyboards are sold for the invoice price of 300 each with payment terms 1/10, Net 30 days. Journal entry for a cash discount, in this case, will depend on the terms that the buyer will get 1% cash discount from total invoice price if the payment is made within the first 10 days of receipt of the invoice. (Assuming there is no trade discount)
Assuming that the buyer avails cash discount in the above example, we have provided an example of a journal entry for both discounts allowed and discount received.
The discount allowed by the supplier acts as the discount received for the buyer and vice-versa. In the above example, 300 will be the discount allowed by the supplier and the same amount will be the discount received by the buyer.
Example I – Journal entry for cash discount allowed
Cash A/C
29,700
Real A/C – Dr. What comes in
Discount Allowed A/C
300
Nominal A/C – Dr. All expenses and
To Debtor’s A/C
30,000
Personal A/C – Cr. the giver
Example II – Journal entry for cash discount received
Creditor’s A/C
30,000
Personal A/C – Dr. the receiver
To Cash A/C
29,700
Real A/C – Cr. what goes out
To Discount Received A/C
300
Nominal A/C – Cr. all gains
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Non-performing assets or NPA are the loans provided by the banks to retail or institutional clients which are no more performing up to the mark or a preset standard. These are basically loans turned bad. It is all form of credit which is extended by a bank or NBFC and is overdue for a specified period of time. To qualify as a Non-Performing Asset it needs to be delinquent for a minimum of 90 days. It is also known as “Non-performing loans”.
Term loans, overdraft/cash credits & all other loans and advances are qualified to be tagged under NPA
Banks would generally classify an asset as Non Performing only if the interest due and charged during a quarter is not serviced fully within 90 days from the end of a quarter.
Example of NPA
When a loan is provided to a client by the bank it is a financial instrument through which the bank will earn income (till the tenure of the loan) in form of “interest income”. This is then seen as an asset that will generate income and is shown on the asset side of a balance sheet, however, the interest income earned in every period will be shown on the income side of a Profit and Loss Account.
Once this asset becomes overdue for a minimum of 90 days or as otherwise specified it is considered non-performing and it discontinues generating any income for the bank, hence it now potentially acts as a liability for the bank.
There are several reasons for assets turning bad, a few of them are:
Economic Instability – A region’s economy could be hit by several reasons beginning from inflation to environmental issues. If the macroeconomy is in trouble chances are that loans all over will be affected.
Improper Risk Mitigation by Banks – This can also be categorized as low standard lending by banks and NBFCs where credit is extended to a client just on the base of speculation or any related reason.
Diversion of funds – Funds used for purposes other than stated in the loan documents are called diversion of funds, due to their ill-intent, it is difficult to recover money from these types of borrowers.
Bank Operating Style – Sometimes the way a bank operates also adds up to NPA such as reasons related to the credit policy, terms of credit etc.
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Blue Chip is a stock recognized for features such as stable earnings, high quality, less volatility and good returns. Thanks to Oliver Gingold of Dow Jones, In the early 1920s he termed such stocks as “blue chips” as he related them with the highest denomination in poker which was $25 back then for a blue coloured chip.
Such recognition helps a naive investor differentiate between “almost garbage” & a well-established firm. A regular investor with limited financial literacy can be awestruck by the number of options to invest while looking at all the listed stocks on an exchange. Let’s look at why blue-chip stocks are famous among investors.
1. Stable Earnings
If a business has stable earnings over a consistent period of time then it becomes reliable & earns the trust of investors which is considered a real good sign of a company which has its fundamentals right. If a stock has stable earnings it clearly means that the top management of the company is doing “something right” which has led them to stability. Stable earnings mean good returns for your portfolio & that remains the primary goal for all investments.
2. Dividend Payments
A solid trend which shows that the company pays dividends to its shareholders in a timely and consistent basis is a great morale booster for a stock owner simply because it acts as a cherry on the cake. It is income over and above your capital appreciation so, for example, a 20% dividend would mean an extra 20% income over and above your investment appreciation in a particular blue-chip company.
3. Strong Financials
Blue-chip companies have strong financials, for example, they are not hugely burdened by debt, their financial ratios are intact and are seen within prescribed limits, they have an efficient operating cycle etc. This leads to less volatility, minimal risk & very limited downside risk for the investor which ultimately helps them to mitigate risk keeping the entire investment profile in view.
4. Diversification
You might be someone who likes to take the risk; however, since blue-chip stocks are less risky they provide a great feature to help you reduce the entire risk profile so that even if you invest in more risky stocks which have a greater chance to fail blue chips can help you cover up some of your losses. These businesses usually have diversified business lines, demographics and multiple revenue channels which in turn help them reduce risk from operational failures.
5. Competitive Brand Advantage
Most of the blue-chip companies have a stronghold and their presence can be felt in daily lives of common people, for example, if you buy a can of sprite then you are adding up to the revenues of coca-cola if you buy ahead & shoulders shampoo you are adding up to the revenues of P&G. There are many such examples where it can be seen that blue chips get a competitive advantage due to their cost efficiency, franchise value, goodwill or distribution control.
These are the top 5 among various reasons to invest in blue-chip stocks.
CRE (Commercial Real Estate) is also called Commercial property, investment property or income property. It is mainly related to all real estate which is used for business purposes to generate income. Examples of such real estate include shopping malls, restaurants, business offices, hotels etc.
Commercial real estate includes any type of property or vacant piece of land which fetches or has the potential to fetch income. From a business point of view, commercial real estate is any kind of commercial space that can be leased (or at times bought) for the use of operating a business. A commercial real estate (CRE) is usually leased and the owner collects a monthly or yearly payment in lieu of its usage by the tenants.
It can be categorized into a different type of property such as if it is a mall then the property falls under retail type, here is a quick look on the top categories:
Retail
Leisure
Offices
Industrial
Healthcare
*Residential
Few of the top known real estate landlords of the world are CBRE Group, Knight Frank, GE capital real estate, AMB Property, Prologis, Simon Property Group, Agile Property, General Growth Properties, ING Clarion, LaSalle Investment Management, RREEF, DLF, EMAAR etc.
FDI stands for Foreign Direct Investment. When a company from a particular country invests in another company based in a different country in a way that it acquires some (generally 10% as per OECD) controlling stake is known as Foreign Direct Investment.
Like in the example info graphic shown below, Company A from India invests in Company B based in USA such an investment is termed as FDI (Foreign Direct Investment). The investment can happen in form of buying tangible assets, controlling stakes in ownership etc. FDI is not only a transfer of ownership as believed but it is also transfer of elements complementary to capital including technology, management and skills. FDI helps developing nations by filling in investment gaps which the domestic investors & the government can not fulfill on its own.
FDI (Foreign Direct Investment) is different from FPI (Foreign Portfolio Investment) which means holding of shares and other financial assets by foreign investors without any controlling, management or ownership rights over the company, FPI is a indirect investment whereas FDI is direct.
There are 2 primary ways to invest in FDI:
Cross border M&A (Mergers & Acquisitions) which means buying controlling stake in a foreign company (Brownfield Investment)
Extending company’s operations to foreign and begin building new factories & offices from scratch (Greenfield investment)
Importance & Types of Foreign Direct Investment
1. Increased FDI implies rise in economic development because of increased capital and increased tax returns for the host country.
2. New projects are channelized to hike development by FDI investment in host countries.
3. Tough competition leads to highest efficiency and productivity levels in host country.
4. FDI results in specialization of skills and creation of new jobs.
5. FDI also generates employment opportunities created by different entities, for local countries.
Top reasons to invest in foreign companies are:
Tap new markets
Skilled labor
Cut down costs
Other strategic profit making decisions
Type 1 – Horizontal FDI
If a company lets say a e-commerce company expands its business in another country however still does the same thing both at home and abroad it is knows as Horizontal FDI. So in this case the e-commerce company enters a new geographical territory but the operations remain exactly the same.
Type 2 -Vertical FDI
When a company lets say an e-commerce company either moves upwards or downwards related to its operational cycle adding value to its business cycle it is called vertical FDI. A good example of this will be the same e-commerce company (who already has established business in a foreign country) acquiring a controlling stake in a logistics company.
You can be an entrepreneur who is running a start-up, a home-based business or a small firm that is trying to make a mark. While playing the lead in this role of your life you are wholly responsible for your actions i.e. generating income, profits, paperwork, legal requirements, taxes etc. No matter what you do you can’t fully escape from paying taxes but you can definitely work towards reducing your tax bills. Don’t confuse Tax evasion with Tax avoidance, where the former is totally not suggestible the latter helps you to pay the least amount of tax legally. Just be very sure with your facts and ensure to never mess with the IRS.
Home Office Deduction
The cost of the workplace where you conduct your business either if you rent or acquire it, can be deducted as a home office expense. Your declarations are considered as final and considered true while filing taxes so it is always a good suggestion to be honest and always have supporting facts in case if you are examined. It is considered as a complex deduction, hence IRS gives 2 different ways to get this done, Standard Method and Simplified Method.
The tax deduction includes expenses such as interest on mortgage, insurance, utilities, repairs, depreciation and maintenance charges which are paid during the year. For example, if your workspace is 30% of your home, then 30% of your power bill for the year is tax-deductible. The standard method needs you to calculate your actual home office expenses whereas the simplified option lets you multiply an IRS-determined rate by your home office square footage.
Travel Expenses
An expense qualifies to be categorized under this head if it requires you to be away from the vicinity of your tax home, usually for longer than 1 workday & requires you to eat, rest and sleep to meet the demands of your work while travelling. Also, this type of travelling has to be business-related where you are expected to be involved in only business-related activities such as attempts to gather new customers, gain new skills, important conferences etc.
Travel expenses that can be covered are transportation, meals, telephone, baggage and shipping, cleaning, tips etc. You must keep complete and accurate records of your business dealings as it may be asked for proof. Tax expense which will be deducible includes the transportation cost to and from, tickets, lodging, meals. Full 100% travel expenses related to the business are deductible but in case of meals and entertainment deduction is limited up to 50% of the actual cost, if you keep the records. Or it can be calculated by 50% of the standard meal allowance. Whereas, on entertainment, the IRS has numerous restrictions. If your entertainment expenses qualify for the test, it is only 50% deductible. You must keep a record of all receipts relating to tour, entertainment and meals.
Click Here to see detailed deductions on Travel, Entertainment, Gift, and Car Expenses on IRS’s website.
Click on the Image to See More Credits and Deductions on the official IRSWebsite
Telephone & Internet Charges
These charges refer to calls made & the internet used for business purposes. The common idea is to only declare deduction of the consumption that happens related to business operations, so for example if 40% was used for the business then only 40% of total charges should be claimed for deduction.
You may or may not have a separate line for your business, in the latter case when you receive your telephone bill each month you can highlight the business calls and file it accordingly. Many people carry a cell phone, especially for business calls. They can claim the full bill as tax-deductible. It is highly advisable to NOT to include your personal usage.
Insurance Premium
There is no business without the owner so your personal health insurance can be used as a deductible under tax laws. Whatever the amount, you can use all of it except that it cannot exceed more than the net profits of your business. You may deduct premiums that you paid to provide coverage for your spouse, dependents and your children who were below 27 at year-end, even if they are not your dependents. It can’t be claimed if you pay a different type of insurance premium, either single or jointly, such as the one offered by your spouse’s medical plan.
Two important points must be kept in mind:
1. Employment of your spouse must be real.
2. Any kind of failure in meeting these requirements may result in a court situation.
Car Mileage
When your car is used for business purposes, those expenses are tax-deductible. Make proper records of such trips and do not mix it with personal trips. The deduction can be taken out using two methods:
1. Standard Mileage 2. Actual Expense Method
Standard Mileage: This method is the easiest because it requires record keeping and minimal calculation. Write down the dates and the miles you drove your vehicle for business purposes. At the end multiply your annual miles by standard mileage rate which is 57.5 cent per mile. The answer will be your tax-deductible amount.
Actual Expense Method: For this, the percentage of business driving must be calculated for a full year along with operating charges such as gas, registration fees, repairs and insurance. Now let us say you spent $4000 as operating expenses and used your car for 10% business purposes, the result would be $400 as a deductible expense.
Don’t forget to keep track of your mileage. While you can’t deduct all of your mileage, you can deduct mileage that is work-related and outside of your normal commute, so you’ll want to keep track of that throughout the year says Troy Martin, a Utah CPA for Cook Martin Poulson, P.C.
Bonus – All in One Deduction
All contributions to Simplified Employee Pension – SEP -IRA, Savings Incentive Match Plan For Employees Of Small Employers – SIMPLE & Independent 401(K) are tax deductibles and help you reduce your taxable income. Why do we call them cherries on the cake is because they not only help you save tax but they also help you attain tax-deferred investment gains for later on. This year (2015) the contribution limit for Independent 401(k) has been increased to $53,000.
Small business owners’ tax deductions are quite complicated. But the above overview gives clear information about the aspects which will be helpful in a tax deduction. You may take the help of a professional in case if you don’t wish to get into all the related hassle. While we encourage you to avail all legal tax deductions for small business owners we would also like to remind you that illegal tax evasion can lead you to heavy penalties or jail time.
RBI stands for Reserve Bank of India & it is headquartered in Mumbai, Maharashtra. It is the Central Bank of India, controlling monetary values. It came into being on 1st April 1935. On 1st January 1949 RBI was nationalized. The share capital was divided into 100 shares owned by private shareholders, however now shares are held by the government. RBI’s central office was in Kolkata, Now it is in Mumbai from year 1937. It manages loans and its terms and controls the liquidity of funds in market. Reserve Bank of India is a member bank of ACU and topmost member of Alliance for Financial Inclusion (AFI).
Dr. B. R Ambedkar wrote about RBI in his book- The Problem of Rupee- Its origin and its Solution, in presence of Hilton Young Commission. The Foreign Exchange Management Act came into being in June 2000. RBI enforced nationalized banks with capital markets, developed economic growth in spite of barriers in late 1990′s .
Structure of RBI
Board of Directors (BOD) It is the central committee of central bank. Board of Directors are appointed for a term of 4 years. It consists of 4 Deputy Governors, 4 Directors from Ministry of Finance and 10 other Directors.
Governors Raghuram Rajan is the governor of RBI. The other 4 Deputy Governors include HR Khan, Dr Urjit Patel, R Gandhi and S S Mundra.
Supporting Cast RBI has four regional representatives; New Delhi in North, Chennai in South, Kolkata in East and Mumbai in West. Five members form the representation.
Branch and Office It has 4 zonal offices and around 19 offices in following states and cities: 1. Ahmedabad 2. Chandigarh 3. Bhopal 4. Delhi 5. Mumbai 6. Nagpur 7. Jammu 8. Kolkata 9. Patna 10. Lucknow 11. Srinagar 12. Simla
Functions of RBI
1. Manager, Regulator and Controller of Financial Market:
RBI is the supervisor of financial system as it maintains public faith in this system, provides transparency in its activities and protects the interest of investors.
2. Exchange control manager:
RBI facilitates internal and external trade and equates the balance of payment account. It also helps in the growth of foreign exchange market in India.
3. Issues Currency:
Reserve Bank of India issues and exchanges currency, both notes and coins as per the circumstances. It sells and purchases securities to maintain the price stability and liquidity of assets.
4. Banker’s Bank:
It serves as a bank to commercial banks where they can deposit money to balance the monetary structure of economy. By providing advances to commercial banks, it acts as lender of last resort.
Rates and Ratios
As per January 15, 2015 , the rates are:
1. Bank Rate – 8.75% 2. Repo Rate – 7.50% 3. Reverse Repo Rate – 6.75% 4. Cash Reserve Ratio – 4% 5. Statutory Liquidity Ratio – 21.50% 6. Base Rate – 10.00% to 10.25% 7. Savings Deposit Rate – 4% 8. Term Deposit Rate – 8.00% to 9.00%
On September 5th 2005 with assent of the president of India a new policy came into existence which worked towards providing livelihood security in rural areas of India. It started with the name “NREGA” which stood for National Rural Employment Guarantee Act and then an additional letter “M” was prefixed making it “MNREGA” Mahatma Gandhi National Rural Employment Guarantee Act. MNREGA is an employment scheme which provides social security by guaranteeing a minimum of 100 days paid work per year to all the families whose adult members opt for unskilled labor-intensive work.
History
After three years of observation, the government launched schemes like Jawahar Rozgaar Yojana, Food for Work Programme, Sampurna Grameen Rozgaar Yojna. These acts were predecessor to Mahatma Gandhi National Rural Employment Guarantee Act, which was a legal title. This act was firstly initiated in Maharashtra in 1970’s by Former Chief Minister of Maharashtra Vasant Rao Naik. NREGA act resulted in a boon for millions of farmer families. This act was accepted by Planning Commission and later on accepted nationwide. Such acts gave lessons to government regarding ‘Rural Manpower Programme’ ‘Crash Scheme for Rural Employment’ ‘Drought Prone Area Programme’ ‘Marginal Farmers and Agricultural Laborers Scheme’. Keeping the objectives of wage employment, production of valuable assets and food security still, the government focuses on implementing new schemes by seeking drawbacks of old ones. MNREGA is one of the outcomes of same.
Key Features
1. To provide job security to all adult members for at least 100 days in a financial year 2. To create permanent wealth such as roads, ponds, wells. 3. Employment is provided within a range of 5 kms from residence of applicants. 4. Minimum wages will be provided. 5. Applicants will be given unemployment allowances, if work is not provided within 15 days of application.
Highlights
1. By 1st April 2008, this act covered all districts of India. 2. ‘Stellar Example of Rural Development’ is what World Bank termed this act, as per World Development Report 2014. 3. This act is executed by Gram Panchayats. 4. Labor-intensive tasks are preferred. 5. Women empowerment, environment protection, boosting social equality are the areas covered under NREGA act. 6. The act safeguards the effective and efficient management and implementation of its policies. 7. The act also ensures a genuine, transparent regulation of its activities.
MNREGA has been criticized for making agriculture less profitable as landless laborers are lazy and they don’t want to work on farms as they can get money without doing anything through minimum money guarantee at NREGA work sites.
A thing, person, or quality which is useful or beneficial is termed an asset. In the financial world, assets are things tangible or intangible that hold an economic value and are held by businesses to extract future benefits. Their value is adjudged by the amount they can fetch in monetary terms & that number is further used in the appropriate column of a company’s balance sheet.
Examples of assets – Cash, machinery, stock, building, vehicles, receivables, copyrights, patents, logos, etc. They can be classified as Current, Fixed, Tangible, Intangible etc.
In Simple Terms – An asset is a piece of property that is valuable and useful. It is a thing that has economic value and can be utilized by businesses to generate income in the future. Its value is judged by how much money it can be sold for. A company’s balance sheet shows the value of an asset.
Example
A firm bought a new printer for official purposes priced at 1,00,000. The printer, in this case, is an asset to the business and the amount to be booked in the balance sheet will be 1,00,000. This is a tangible asset which is subject to depreciation, unlike an intangible asset which is amortized.
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NEFT stands for National Electronic Funds Transfer. It’s an electronic payment system of India facilitated by RBI (Reserve Bank of India), it helps people with one-to-one money transfers. People using this facility can transfer money electronically from any branch of bank to any other individual or organization within the country that has a bank account which has NEFT service enabled.
Not all bank branches of the country are part of NEFT funds transfer network. The branches which are NEFT-enabled, only those can become a part of this network. The consolidated list of bank branches which are a part of NEFT, can be found by clicking here. You can select the appropriate option on this link.
Limits, Charges & Operating Hours of NEFT
Limits
The amounts carry no restrictions. But the cash based transactions are limited up to a maximum amount of INR 50,000/ Per Transaction for cash based payments.
Charges
There are no charges to receive money, however to send money following charges are applicable,
0-10,000
INR 2.50 + Service Tax
10,000 – 1,00,000
INR 5.00 + Service Tax
1,00,000 – 2,00,000
INR 15.00 + Service Tax
2,00,000 Above
INR 25.00 + Service Tax
*In some cases it may not attract any charges example salary accounts, specially designed accounts, No frills etc.
Operating hours
Weekdays (Mon-Fri)- 8 a.m to 7 p.m (twelve settlements) Weekends (Saturday)- 8 a.m to 1 p.m
Who all can transact through NEFT?
Any individual, association or firm having accounts with banks can transfer money through NEFT. Even people who don’t own an account (walk-in-customers) can deposit money in NEFT enabled banks, adhering to instructions. Such customers are required to supply full information regarding their address, telephone number, supplement accounts and much more.
Only the individuals, firms or associations which hold accounts with any branch of bank can receive payments under NEFT system. So it becomes mandatory for the beneficiary to hold an account with the NEFT enabled bank.
There are no geographical restrictions on the banks. The transactions can be carried out from anywhere to everywhere within the country.
Working of the NEFT system
The operating of this system can be understood in following steps:
Step 1: An individual or the association desiring to transfer funds through NEFT, need to execute/complete the application form consisting details of beneficiary such as name, address, bank branch, account number and the money to be deposited. The form is available at the commencing bank branch. Even ATM offers this facility for some banks.
STEP 2: A message is prepared and sent to the NEFT Service Center (also known as pooling center) by the commencing bank.
STEP 3: That message is dispatched by pooling center to the NEFT Clearing Center, which is managed by National Clearing Cell, Reserve Bank of India, Mumbai.
STEP 4: The funds are sorted by Clearing Center as per the bank branches from commencing banks to destination banks. And after that those messages are delivered by the pooling centers of the destined banks.
STEP 5: The messages are received from the Clearing Center to the destination banks and they approve the request against the beneficiary customers.
For more detailed information on NEFT you can visit www.rbi.org.in
A stock exchange or a stock market acts as a service provider, it is one stop shop for traders to buy or sell financial instruments such as shares, bonds etc. A stock exchange can be approached for both issue and redemption of Publicly listed shares. To be able to trade on a stock exchange you’ll need to have a trading account. SEBI (Securities Exchange Board of India) is the governing body in India that acts as a regulator of capital markets under a resolution of the Indian Government.
Leading Stock Exchanges of India are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange)
WHAT IS BSE?
Bombay Stock Exchange is the expansion of term BSE. It is an ancient stock exchange of Asia, incorporated in 1875 and it is headquartered in Maharashtra (Mumbai), India. Bombay Stock Exchange is the 10th largest stock exchange in market capitalization. Around 5400 companies are listed on BSE as of 2015. Not many know that BSE started under a banyan tree with the total money used back then were INR 7.
Key Features of BSE
CEO/MD – AshishKumar Chauhan
Market Capitalization – USD $1.7 Trillion
Currency Traded – INR
Name of Indexes – BSE Sensex, BSE Mid Cap, BSE Small Cap, BSE 500
ISO Certified – Yes, first one to get this certification
Timings
09:00 to 09:15 – Pre-open trading session
09:30 to 15:30 – General trading session
17:05 to 17:15 – Position transfer session
17:05 to 17:55 – Closing session
17:07 – Option Exercise session
OBJECTIVES OF BSE
From more than 130 years, BSE is providing an effective and efficient capitalization platform. It provides a transparent electronic screen based market for trading in different securities, instruments, funds and bonds, be it small or medium enterprises. It also serves as host of secondary services for investors like risk management, market facilities, education. These services, processes safeguard the investor’s interest, develop Indian Capital Market along with innovation and competition. It also provides various depository services. Also BSE acts as a regulator, which provides surveillance mechanisms through which all the speculations, irregularities and manipulations can be detected.
WHAT IS NSE?
National Stock Exchange is the expansion of term NSE. It is the top exchange in India by number of trades in equity shares and number three in the world. It is situated in Mumbai and was established in November 1992 as Taxation Company. It was accepted as stock exchange in April 1993 under the Securities Act 1956, with P.V. Narasimha Rao being the Prime Minister of India and Manmohan Singh being the Finance Minister. NSE has around 1600 listings as of 2015.
Key Features of NSE
CEO/MD – Chitra Ramkrishna
Market Capitalization – USD $1.65 Trillion
Currency Traded – INR
Name of Indexes – CNX Nifty, CNX Nifty Junior, CNX 500
Location – Bandra, Mumbai
Timings
09:00 to 09:08 – Pre-open trading session
09:15 to 15:30 – General trading session
OBJECTIVES OF NSE
The key objective of National Securities Exchange is to provide a transparent trading system for all kinds of securities worldwide. It also protects the interest of investors. It achieved its objectives in quite short span of time. Many new terms have come into being to give a variety of options to investors.
Whether you’re applying for a consumer loan, home loan, credit card, auto loan or just interested in having a look at your CIBIL report, your credit score will play a vital role in the process. CIBIL can be elaborated as Credit Information Bureau India Limited and it keeps all records of your loans, credit cards and other forms of considerable credit. How would you get your CIBIL credit score?
Step-by-Step Guide
You need to start by filling out a form on CIBIL’s website, you can Click Here for the form. This form required you to fill in personal details including demographics, ID Proof, Address Proof etc.
CIBIL TransUnion Score (CIR – Credit Information Report will be included), this in entirety will cost you INR 470, After filling the form as per the previous step you will be required to make a payment through either CC/DC/Cash Card or Net Banking.
Now you will be authenticated to ensure and identify that your request is valid and the correct person is requesting it.
If authenticated successfully you will get immediate access to your credit score and CIR online.
or
If authentication fails, you will get be given a set of instructions to complete and after that you will receive your credit score and CIR by express courier.
Can You Get Your CIBIL Score for Free?
No! you as an individual can never get your credit score for free, banks might get it and they will usually not share the scores with you. If you are being denied of credit cards, loans etc. recently it is a good sign that your CIBIL score has been hit hard & needs fixing. One distant possibility is a free credit score being offered with some financial or a similar product as a promotional offer. INR 470 is the cost you’ll need to incur as of 2015.
What are Bad & Good Credit Scores?
Scores would range somewhere between 300 and 900, you can say that is how CIBIL TransUnion judges you on your repayments. You can refer to the below list to understand more about what your credit score spells for you.
Heard about Public Provident Fund (PPF), but don’t know much about it? For details, have a look at the explanation.
WHAT IS PPF?
Much known as Public Provident fund, PPF a savings instrument introduced by the ministry of finance in India which also helps in tax savings. In 2015 this scheme is more than 45 years old and is still among the top financial instruments used for tax planning. PPF is a success not only because it provides decent returns on investment but the money invested also gives tax benefits. The returns are usually higher than what the Fixed Deposits offer. It is a Long Term Debt Instrument of Indian Government. Post Offices as well as some Banks gain the authority to access PPF accounts.
Eligibility
A person needs to be ROI (Resident of India)
Non Resident Indians (NRI’s) cannot advance money in Public Provident Fund.
Minors are eligible to open an account by their legal guardian.
PPF account can not be opened under the name of HUF (Hindu Undivided Family)
Documents Required
Pan Card copy
Form A (Opening Form)
Passport size photo
Any residential proof
Investment Amounts
The minimum and maximum limit every year for investing in public provident fund is INR 500 & 1.5 lakhs respectively, deposits may be made in monthly installments (max 12/year) or in one go. Any deposits above the specified amounts will not fetch any interest income. Failure to deposit 500 INR would make you liable for a penalty.
Interest Rates and Other Benefits
RBI declares the Interest Rate every year in March. For 2014-2015 this is 8.70%, which was exactly the same as previous year.
It is advisable to invest money in this account before 5th of each month to gain maximum returns, as the interest is calculated on the least balance from 5th to the last of month. Therefore, it is desirable to deposit additional sum before time to earn additional benefits.
Also the entire sum of 1.5 lakhs can be advanced before 5th April to earn interest on the entire amount for the whole year.
Duration, Loans & Transfers
From the day a PPF account starts, it’s accessible till 15 years. After 15 years, the tenure ends. On the expiry date, the money can be withdrawn. Also, the account holder can opt for extension of account up to a maximum of 5 years with adherence to certain terms and conditions.
Loans are available to individuals from third financial year itself. All such loans are to be reimbursed within months. disbursed amount can not be more than 25% of balance at the end of 2nd immediately preceding year. If you have paid the first loan successfully and you are between 3rd and the 6th year you may be available for a 2nd loan.
The accounts of individuals can be easily transferred to Post Offices or other Bank Branches free of charge.
Benefits Regarding Tax
Such benefits come under SEC 80(c) of IT ACT. The amount deposited in PPF account, is divided into two parts.
PRINCIPAL AMOUNT which is the total sum which you invested
INTEREST AMOUNT which is the benefit you will get on the above investment
Tax benefit includes benefits on both the amounts, up to a maximum of INR 1,50,000
ON PRINCIPAL AMOUNT
This amount can be reduced from the actual Income Tax amount of that year. The sum so arrived is liable for tax payment. It can also be reduced from Wealth Tax.
ON INTEREST AMOUNT
The return, in form of interest is tax-free. No tax formality is incurred on the interest amount.
Policies Governing PPF
Only one account is accessible by an individual. Except in case of minor, if second account of a person is disclosed, the principal amount will be handed over back to him but the interest thereupon will be cancelled.
A PPF account is not a joint account. A nominee can be selected, who will be benefited after the death of account holder.
In case, no nominee has been appointed, the benefits will be given to the legal heir’s of the deceased account holder.
PPF Disclaimer
By default, the PPF account will be deactivated, if no investment is made in the whole year.
A penalty of 50 INR is to be borne by the account holder for again activating the account along with 500 INR for the inactive year.
The deceased account cannot be continued by the nominees.
The identity of legal heirs or nominees is just in case the balance in deceased account exceeds 1.5 lakhs.
PPF Vs Some other Schemes
Tax Savings Fixed Deposit
PPF and Tax Savings Fixed Deposit both are deductible incomes.
But the tenure of Tax Savings Fixed Deposit is 5 years, which is less when compared to PPF.
Even the benefit earned on Tax Savings Fixed Deposit is taxable which is the reverse of PPF.
National Savings certificate
Both schemes include deposits made in Post Office or Bank Branches.
NSC is a scheme which involves deposit only once whereas PPF requires deposit every year.
The tenure of NSC is 5-10 years whereas that of PPF is 15 years.
You need funds to start a new venture? or Require money for education of your children? or Maybe you’re looking out for a new credit card or loan to buy a new car/house? Whatever the requirement, you will need to choose between Secured or Unsecured debt. Each type has its own positives and negatives. So it’s better to be aware about them by going through our cover story.
WHAT ARE SECURED LOANS?
Secured loans are those loans which are backed by some or the other kind of property or assets. The word secured depicts that these type of loan are protected by some collateral. In case if a borrower fails to pay the loan the creditor can legally auction or sell the collateral to recover the original amount disbursed. Assets such as home, automobile, stocks, gold etc. can be used as collateral. The title of the pledged article will be held by the loan provider (creditor) until it is repaid in full along with the interest. A secured loan is generally less costly for the debtors and more peace-of-mind oriented for the creditors.
Examples of Secured Loans
Home Loans
Construction Loans
Gold Loans
Car Loans
Boat Loans
PROS AND CONS OF SECURED LOANS
PROS
Secured loans are available for larger amounts as compared to personal loans.
Less paper work and easy to qualify if one has suitable collateral against the loan.
The time period of loan repayment is also higher as compared to other type of loans.
Such loans offer lower interest rates as they are secured against your property.
CONS
Failure to repay the loan would result in losing your property.
Few secured loans have varying interest rates that could make your repayment amount higher.
Secured loans bear risk factor because they need expensive collateral security.
You may incur high penalty fees on the repayment of loan.
WHAT ARE UNSECURED LOANS?
Unsecured loans are totally opposite to secured loans, they are disbursed without a collateral in place. Such loans are accessible to anyone & you need not have a suitable asset to be pledged as a collateral. Taking unsecured loan implies that the borrower can repay through his financial resources itself. Unsecured loans are usually more costlier than secured loans due to no security in place and more prone to end up as a total loss to the creditor. If you fail to pay an unsecured loan, the lender can drag you to court and damage your credit worthiness as well.
A borrower is judged by 5 C’s before a secured loan is provided:
Character
Capacity
Collateral
Capital
Conditions
Examples of Unsecured Loans
Credit Cards
Education Loans
Personal Loans
Renovation Loans
PROS AND CONS OF UNSECURED LOANS
PROS
Such loans are quite cheap as compared to Secured ones.
They give number of options to choose the repayment mode.
You will not lose any of your assets.
All you need is a document and signature and you can avail this loan
CONS
As no property is mortgaged, the lenders charge higher interest rates even for a short-term.
You can get only a limited sum of money from lenders as they give more money on secured loans because there the financial risk is secured.
Since the loan amounts are not large, the repayment periods are also short as compared to repayment period of secured loans.
One may get trapped into the debt cycle due to continuous non-payment of loan amounts
WHICH ONE IS BETTER?
The truth, there is NO right answer to this question. What, When, Which & How to opt for which type of loan, totally depends on your need of taking the loan. Both are a good option if they fit in to your requirements perfectly. Generally secured loans are good from creditor’s point of view as there is a collateral to cover up the losses, whereas an unsecured loan is good from a applicant’s point of view as he/she would have no tangible asset to lose in case of a default.
The key is to think in the right direction before applying for the loan. Auto, education, personal, consumer etc. all these type of loans are designed specifically for the purpose stated in their respective name(s). Be willing to pay more & quicker in case if you don’t wish to collateralize your loan. So the preference solely depends on your requirement.
Once you are clear about the type of loan you require, you must approach different lenders to see what interest rates they offer. Don’t forget to compare the rate of interests being offered by different banks and NBFCs before you finalize your lender. Try to browse through some websites to check their respective USPs & repayment plans. Cross check and apply for a loan with the lender which suits best, according to your requirements.
