Debit Cards, Credit Convenience

This article was originally published in Postnoon on November 30, 2012

Laxmiamma was a happy soul. Instead of keeping her savings under the mattress, she had opened up a bank account and had started a recurring deposit on my insistence. The obligation of putting aside the money for the deposit every month, made her save more. Also, she had no choice when tempted to buy unnecessary food or household articles as there was no money lying around at home to do so. Now she had accumulated enough money to buy back her jewellery from the jeweller, which she had sold way back in 2002, when her husband died and she needed some money to tide over the bad times.

She invited me home to celebrate the liberation of her jewellery, over a cup of Irani chai and biscuits. While chit chatting with her about the weather, she told me that she needs to go to the bank to withdraw some cash the next day. I was surprised. In this day and age, who goes to the bank to withdraw cash, unless the amount is very large?

On being asked, she said, “then how else does one withdraw cash?”

Nicky: Haven’t you seen ATMs around?

Laxmiamma: I have heard about them, but I thought that those are not for people like us. I thought those are for the rich.

Nicky: Nonsense. It’s for everyone who has an account with the bank.

Laxmiamma: How? And what is an ATM? I have seen the large box like things around, but don’t know how that shells out cash!

Nicky: An ATM or an Automated Teller Machine is a machine which counts and gives out the amount of cash that you want, after ensuring that your bank account has the desired amount. Did you get a small card when you opened an account?

Laxmiamma: Yes I did. But I just kept it away safely.

Nicky: That is a Debit Card. The card carries a unique number, which is linked to your savings account. You can use this card to withdraw and deposit cash, transfer money to other accounts, pay your bills, look at your account balance and statement for the last few transactions, all through the ATM. You can even use this card at shops to pay. The money will be directly debited to your account, provided you have enough money in the account. So, you do not need to carry cash with you when you go shopping. But of course, you can’t use it when you shop at smaller establishments like kirana shops or vegetable carts.

Laxmiamma: Ah see, its of no use to me then! I don’t go to the malls like you.

Nicky: You miss the point. Apart from shopping, there are so many other uses of debit cards and ATM. You conveniently ignored that!

Laxmiamma (sheepishly): Uh…hmmm…I heard. I’ll use this card to withdraw cash from now on. But what about safety? Can anyone with my card withdraw money from my account?

Nicky: No. There will be a 4 digit password given to you from the bank. You need to key in that password for authenticating the transaction. Also, you can change this password if you want. Don’t share the password with anyone.

Laxmiamma: Ah…I forgot to tell you about this new recipe for karela burji…you might want to try it out!

Social Media: Turning Dissatisfied customers into Brand Evangelist

Social media has completely changed the internet from few closed web pages to an orchestra with large number of musicians playing in amplified voices. Social media is an important tool for businesses that allows them to connect, interact, engage and establish trust with the existing customer base plus the prospective clients. In the era of consumer driven marketing we may call word of mouth as the best form of marketing, but we should never lose sight of the fact it is also the worst form of marketing. Connecting and engaging with customers is a great way to present the humanitarian side of the organization and generating trust. But the devastation starts when something goes awry and negative responses starts flooding in. While some might consider it as devastation others might see it as a great opportunity to provide real feedback and resolution. While social media may provide spark to the complaint boxes, responding timely to the complaints can showcase company’s strong commitment towards customer satisfaction and excellence.

There are different ways organizations plan to respond to critical negative feedback, however using the right strategy at the right point of time can do wonders to the image of the organization. On a survey carried out in the hospitality industry it was found that out of the customers who posted a negative feedback; 33% turned around and posted a positive one after a response from the organization and 34 % deleted their original negative remarks.

An ignored customer always gives way to an ignored company. While many managers feel that Head in the Sand approach is the right way to tackle criticism, however neglecting negative feedback never resolves the issues rather poses an image that the organization is not concerned about its customers and their values.

Pressing a “DEL” on a customer feedback, might invoke a counter “Shift+DEL” from the customer towards the companies. Deleting a customer feedback might hide it but it only heightens the anger that the customer has against the organization. It is important for organizations to access what is to be deleted and what is to be not. While popular networking sites have wider reach and heavy traffic so nothing goes unseen; an ignorant attitude on such platforms might cause an exponential increase in the negative responses. Company should have always maintain a proper plan of action; responding to every piece of feedback on the internet might not be the best solution, so organizations would properly access what needs a reply and what can be ignored.


Social media represents a real and legitimate customer, one that has raised real concerns based on hardcore realities. The platforms of service might have changed but customer service stills remains as the core nucleus of marketing may it are over a telephone, over a desk or a social media website. Always remember customer is always right- no matter how wrong he is! Be sure to empathise, apologise and offer a resolution.

Apology and a solution; “I apologise for the inconvenience and we will make sure to correct the things immediately. Brands sometimes forget that handling complaints over the internet is more or less similar to handling complaints from an individual over the desk. This approach helps turn a dissatisfied customer into a brand evangelist. An individual who buys a company’s product, connects with the organization on the social networking front is surely the one loyal to the brand. A loyal customer would always want the organization to respect the customer’s needs and emotions. Effective grievance handling procedures provide great word of mouth publicity for the organization presenting its humanitarian side and customer value.

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Tax implications of buying versus renting

This article was originally published in Postnoon on November 23, 2012

Nicky: Oh hello Abhi! When did you come?

Abhi complained: I have been waiting for you since the past half an hour.

Nicky: You should have called before coming. I would have told you that I would be in a meeting. Anyways, tell me how is your new house? I am sorry, I could not come for the house warming ceremony.

Abhi: The house is good, comfortable. Actually I am here to discuss the tax implications of buying the house.

Nicky: What about it?

Abhi: Till last year, I was claiming Housing Rent Allowance (HRA) deduction under section 10(13A) of the income tax act. Am I still eligible to claim those?

Nicky: How can you? Since you are living in your own house, you are not paying any rent. So you cannot claim HRA as a deduction. It is treated as an income for you. But you can claim deductions for your Equated Monthly Installments (EMIs) on your home loan.

Abhi: How?

Nicky: The EMI is divided into the principal component and the interest component. The bank must have sent a statement to you with this break up. Or they will send it to you, if they haven’t done it yet. The principal component of up to Rs1 Lakh can be claimed under section 80c and the interest component of up to Rs1.5 Lakhs can be claimed under section 24b of the income tax act.

Abhi: But isn’t section 80c the same section where we claim our life insurance premium and provident fund (EPF) contributions?

Nicky: Yes, you are right. Hence the benefit of claiming the principal under section 80c is limited. In the initial years of the EMI payment, the principal component is very small. In the later years, when the principal component is larger, assuming that your salary goes up with time, the entire 80c limit may be reached with EPF contributions and insurance premiums alone.

The interest deductions do help in saving significant amounts of tax though. If you fall under the 30% tax bracket and pay more than Rs1.5 lakhs as interest, you end up saving Rs45,000 in taxes.

Abhi: So even if I am not able to claim the HRA, a home loan still helps me reduce my tax burden.

Nicky: Absolutely. Infact you did a very good job of buying a house in Hyderabad. A recent research done by has shown that Hyderabad is one of the most affordable places to buy a house for a professional.

Abhi: Oh really? I am glad I made the right decision.

Will Social Media give birth to the next Warren Buffet?

This article was first Published in Hindu BusinessLine on 25th November, 2012. Co-author: Khemchand H. Sakaldeepi

While taking a hard look at the evolution of human civilisation one cannot help but notice how the financial markets indicate our evolution more than anything else.

To quote Prof. Niall Ferguson of Harvard University, in his book “The Ascent of Money”, “financial history is the essential back-story behind all history”.

It is a well know fact that every bull – bear run is largely correlated with something major happening in the world.

The invention of electricity, use of small motors that power home and kitchen appliances, the advent of television and computers, etc. have all impacted how financial markets behave. These events have changed how the world is connected and does business, for good. Today the biggest driver in the way we connect and do business is social media.

Any student or practitioner of finance would have come across the term “Efficient Market Hypothesis (EMH)”. It essentially says that the stock market is “informationally efficient”, that is, the current prices reflect all the available information. Flow of information is one of the most important ingredients in making the markets efficient.

While EMH is one of the most profound theories in the history of finance, of late, it is also the most disproved.

The recent global financial crisis has further raised questions about the rationality of the EMH. Warren Buffet argues that the preponderance of value investors among the world’s best money managers rebuts the claim of EMH proponents.

Similarly, former Federal Reserve Chairman, Paul Volcker said that it’s “clear that among the causes of the recent financial crisis was an unjustified faith in rational expectations [and] market efficiencies”.

In fact there are many investors who scout for opportunities (read: inefficiencies) with the changing business environment and capitalise on information advantage.

Traders at Wall Street are known to use Flash Trading – which allows certain market participants to see incoming orders to buy or sell securities very slightly earlier than the general market participants, typically 30 milliseconds, in exchange for a fee.

Lately, some of the major financial institutions are latching onto the fact there might be something to the information that is available in social networks such as Facebook, Twitter, Blogging sites, etc.

For instance, a research done by Bollen et. al. (2011), published in the Journal of Computational Science, looked at around ten million Tweets posted between March and December of 2008 to see if the micro blogs could be used to predict the market.

The authors sorted the Tweets into different indices – calm, alert, sure, vital, kind and happy – and compared them to the market. The researchers found that the calmness index can predict with 87 per cent accuracy whether the Dow Jones Industrial Average goes up or down for a time horizon between two and six days.

Certain proprietary terminals have, over the past few years, kept various traders informed with live new feeds. They, however, have not come close to creating a way to instantaneously monitor the pulse of the world and observe the stream of human consciousness. The news regarding the death of Osama Bin Laden first entered the public sphere through a tweet and a tool called DataMinr was able to spot this with just 19 tweets on the subject.

The company then issued a signal to their clients, alerting them to this important piece of information. It would have been over 20 minutes before that story appeared on traditional news sites.

Access to a data stream that can beat traditional media sources by over 20 minutes requires no explanation as to its value for traders and investors. Speed matters.

It will just be an understatement to say that there will be an increasing relation between social media and finance. Traders and fund managers are relying on social signs and sentiment analysis to base their decisions on.

There is no doubt that technologies are improving and challenging the finance and banking industry. In the language of Analytics, the more data you have the better your decisions are and better is your competitive advantage. And social media can do just that.

So the point to note here is that in this era of Social Networks, it has become essential for any budding investor to be able to analyse the social data if she/he wants to “get the pulse of the market”.

Plan your retirement

This article was originally published in Postnoon on November 16, 2012

Why should we plan for our retirement?, asked an indignant Mr. Mukherjee. “Professor, you don’t understand our Indian culture and values. My son will take care of me when my wife and I grow old. We are giving him the best possible education, so that when he starts earning, I can retire in peace. He is a good son. And, I too save some money every month. My wife runs the household very efficiently”.

Prof. Nicky: I agree Mr. Mukherjee. I am not denying that your son is a good son and your wife is very efficient. All I am saying is that, why do you want to depend on your son in your old age? What if he gets a job in another city or another country? Are you willing to move with him? Do you want to leave all your friends and family behind, so that your son can take care of you?

Mukherjee: Not at all. I will not leave Hyderabad. I have lived here all my life. But my son will not take a job anywhere else. He will take up a job in Hyderabad only.

Prof. Nicky: How can you be so sure? He may get transferred, he may get a better opportunity somewhere else. Would you want him to sacrifice all the opportunities for you?

Mukherjee: No I would not like that. But even if he lives somewhere else, he can still send money for us.

Prof. Nicky: Yes he can. But what if he finds it difficult? He will have his own family to fend for. Everything is so expensive now a days. Maintaining two different households may be difficult for him. Since you are already saving some money every month, all that I am asking you to do is invest it in a way which will help you lead a better life during your retirement.

Mukherjee: But even the money that I am putting aside every month, in a recurring deposit, will be available to me when I retire. What is the difference between saving and retirement planning?

Prof. Nicky: Finally you have asked a relevant question. Saving is good. It gives you returns close to the prevailing interest rates, whether you put your money in fixed deposits or recurring deposit. You save what you have left after all your monthly expenses.

On the other hand, retirement planning determines how much you must invest every month, so that you don’t have to change your lifestyle much after your retire. The planning includes planning your investments in different asset classes like mutual funds, insurance, equities, real estate etc., so that you achieve your financial goals.

Mukherjee: But who will do it for me? Will you do it?

Prof. Nicky: No, I will not do it. There are certified financial planners, who will do the planning for you for a fee. You only need to ensure that you find a good financial planner who is qualified and experienced.

Mukherjee: There seems to be merit in what you are saying. Let me think about it!

Nicky: Whatever…

Gold on my mind

This article was originally published in Postnoon on November 9, 2012

Diwali is round the corner and the retailers are trying everything from discounts to promotions to free gifts, to lure the customers into buying. Gold has a special place in the hearts of the Indian customers. Buying gold on ‘Dhanteras’ is considered auspicious and is a part of our culture. But, apart from heart, the mind also has a role to play in buying gold. Historically, gold is seen as a hedge against inflation and less risky than the other asset classes.

In recent times, gold is also being seen as The Performer! In the past 10 years, gold has given a return of approximately 18% per annum, and close to 25% per annum over the last five year period, on a compounded basis. That is much higher than the returns on the other popular classes of investments, be it equities, debt or mutual funds. So buying gold not just gratifies the heart, but also the mind.

To tap on this opportunity, Gold Exchange Traded Funds (ETFs) was introduced on the Indian stock exchanges in 2007. Since then, it has become a very popular product with the current Assets Under Management (AUM) in Gold ETFs being more than Rs10,000 crores.

Buying gold for investment purposes, in its physical forms, comes with associated costs like making charges (jewellery), storage and insurance costs (jewellery, coins, bars) or risks of theft. These are reduced to zero in the case of gold ETFs, while giving returns that are very close to the returns of the physical asset, as each unit of the ETF is equivalent to 1 gram of 99.5% pure Gold. There are transaction costs but they are very small.

The attractiveness of the fund is also due to the fact that they are tax efficient. They are not subject to sales tax, value added tax, securities transactions tax or the wealth tax, which the physical gold is subject to. The ETFs can also be exchanged for 99.5% pure Gold when needed, in multiples of 1 kg. The prices at which the transactions take place are transparent and real time, just like stocks on the stock exchange.

Both NSE and BSE have announced that they will hold special trading sessions for gold ETFs alone on Sunday, Dhanteras, November 11th, from 11.00am to 3.30pm. BSE has also announced to waive off any transaction costs as well on that day. So this Diwali, make a new beginning, by investing in Gold ETFs. Even if it is only for 1gm of Gold. It’s just a better way of investing in gold.

Here’s wishing all the readers a very happy and prosperous Diwali!

Disclaimer: The author is not associated with any fund house or the exchanges offering Gold ETFs. The author has not yet invested in Gold through ETFs but plans to do it this Diwali.

Sebi to the Rescue

This article was originally published in Postnoon on November 2, 2012

Srikanth was clearly in a bad mood, when I met him outside my office. He was pacing up and down the corridor with a scowl and fists clenched. On seeing me, he smiled faintly. I led him into my office and asked, “what happened? Did you lose a lot of money in the stock market?”, for Srikanth was an active investor!

Srikanth: Yes I did. But I would not feel so bad if I had made a wrong call and invested in the wrong stock. I am feeling bad and I am upset because I lost money due to my broker’s mistake.

Nicky: Really? How? What happened?

Srikanth: I had placed a sell order for my holdings in a company, through my broker. But the shares were not sold on the same day. In fact they were sold two days later. In those two days, the stock price went down by about 6% and I ended up losing close to Rs20,000/-.

Nicky: Did you ask the broker for a clarification?

Srikanth (annoyed at the question): Of course I did. They said that there were some technical issues.

Nicky: Do you have a record or any documentation relating to when you placed the order?

Srikanth: You are not really helping me by asking these obvious questions. But, to answer you, of course I do. The records will be available in the ‘order history’ of my account.

Nicky: I am asking you these questions because I have a solution for you. Why don’t you complain to the Securities Exchange Board of India (SEBI)? SEBI has a cell dedicated for Investor Assistance and Education (OIAE), which also handles investor grievances. But before you go to them, you must file a complaint with the stock exchange against the broker. If the exchange’s response is not satisfactory to you, then you can go to SEBI.

Srikanth: Why should I unnecessarily get into litigation? My money is not going to come back.

Nicky: Well, it might! The stock exchange might pay you from their investor protection fund, or they might instruct the broker to pay you the amount of loss incurred by you. In case the exchange is not able to settle the case and you lodge a complaint with SEBI, then SEBI might get the exchange or the broker to pay to you.

Srikanth (finally getting what I was talking about): But how do I lodge my complain?

Nicky: Now you are asking obvious questions…Complain by writing to them through post, mail, hand deliver your written complaint or talk to them on their toll free number. All these details are available on the SEBI website.

Srikanth: Thank you professor. Yet again, your inputs were very helpful.