This article was originally published in Postnoon on December 14, 2012. Co-author: Purvee Hetamsaria

http://postnoon.com/2012/12/14/deeper-pf-cut-will-help-in-long-term/94547

There was urgency in Abhi’s voice when he called to ask me if he could see me. I immediately agreed. He was in my office before I could get myself a cup of coffee from the Cafe. What is it Abhi?, I asked. “You look disturbed”.

Abhi: Yes. I am disturbed. And who wouldn’t be? My salary just went down because of the Government’s action.

Nicky: Really? What did the Government do now?

Abhi: The Employees Provident Fund Organisation (EPFO) of India has come out with a notification which says that now we will have to contribute towards the provident fund on the basis of allowances as well. This will reduce my take home salary.

Nicky: Ah that! You should be happy. Don’t think short term. Think long term. You are forced to save more.

Abhi: What do you mean?

Nicky: See, earlier, you and your employer, both contributed 12% each, on your Basic plus Dearness Allowance (DA) only, towards the EPF. Now, suppose your Basic plus DA is ₹4,000. The contribution will amount to ₹480 from you and ₹480 from your employer. There is no contribution on the allowances that you receive. If your allowances total up to ₹2,000, your take home salary will be ₹4,000 minus ₹480 plus ₹2,000. That is ₹5,520. And your total contribution to EPFO is ₹960.

Abhi: Yes, this is exactly what happens in my case right now.

Nicky: But with the new circular, contribution will need to be made on Basic plus DA plus Allowances. This means, your contribution will be on ₹6,000. Hence, the total contribution to the EPFO by your employer (₹720) and you (₹720) will be ₹1440. This way, you take home only ₹5,280 but you save ₹480 more and your total income goes up by ₹240, the extra contribution made by the employer! So you should be happy.

Abhi: Hmmm…you are right, but I am still not happy about the lower take home salary. You know that I recently got married and have bought a flat too, which comes with a fat EMI.

Nicky (laughing): True Abhi. But saving for your old age is important too. And many employees structure their salary to increase allowances and decrease PF contributions. This means that they are not saving enough. Also, because of higher contributions to the PF account, you will be able to claim a higher amount as section 80c deductions in income tax.

Abhi: But the limit for section 80c is ₹1 lakh right?

Nicky: Yes. So it will be beneficial to you only if you are not able to meet the ₹1 lakh through your life insurance and existing PF contributions.

Abhi: So overall, you are saying, the government may not have done such a bad thing! Well, I am not happy, but I do understand the government’s point of view now. I’ll have to think of rationing certain expenditures though!

[This is second in a series of articles on business analytics. You can read the first one about What is Analytics?]

So you want to work with an IBM, HP, Accenture, Genpact etc. in the latest field of ‘Analytics’ or ‘Data Science’ and you want to be absolutely sure if this is the career for you ? Check out these 5 questions that you should answer to make this decision .( If you have a YES for 3 out of these 5 questions and an OK for 2, then Analytics is a viable the career option for you .)

1. Do you believe that data should be the basis of all decisions? :- Take up Analytics only if your answer to this questions is an unequivocal YES . Analytics is the process of using and analysing large quantum of data (numbers, text, images etc.) to aggregate it , visualise / create dashboards  on it , check repetitive trends and create models on which decision scan be made . And only people who innately believe in the power of data will excel in this field. Incase some prediction / analysis is wrong , the attitude of a good analyst is that it is because the data was not appropriate for that analysis or the technique used was incorrect . He/ she will never doubt that a correct decision will be made if the relevant data and appropriate technique is used.
2. Do you like to constantly learn new stuff? Take up Analytics only if your answer to this questions is an unequivocal YES .Analytics is a new field . There is a constant increase in the avenues of data , currently w.r.t internet data , social networking information, mobile transaction data , near field communication devices . And there is a constant change in technology to store, process and analyse this data . Hadoop, Google updates etc. have become increasingly important. Cloud computing and data management is common now. Economic cycles have shortened and model building has become more frequent as older models get redundant. Eleven the humble excel has an Analysis Toolpak in Excel 2010 which has statistical functions. Be ready for change .
3. Do you like to interpret outcomes and then track it to see if your recommendations were right? :- Take up Analytics only if your answer to this questions is an unequivocal YES .A data analyst will work on a project . The implementation of the recommendations will generally be valid for a reasonably long period of time of perhaps a year or even 3-5 years. A good analyst should be interested to know how accurate has been his understanding of the outcomes and should want to track the performance periodically. HE/she should ideally also be the first person to be able to say when the analysis is not working and needs to be re-worked.
4. Are you ready to go back to a text book and brush up / pick up concepts of maths and statistics ? :- Take up Analytics only if your answer to this questions is an unequivocal YES . To accurately handle data and interpret results you will need to learn / brush up concepts of maths and statistics. It becomes very important to justify why you choose a particular path during analysis vs.  others. The business users do not accept your word blindly.
5. Do you like debating and logical thinking?:- Take up Analytics only if your answer to this questions is an unequivocal YES . As there is no one solution to all problems, an analyst has to choose the best way to handle the project / problem in hand. He has to be able to not only know the best way to analyse the data but also give the best way in the given time constraints and budget constraints. This sector generally has a very open culture where the analyst working on a project / problem will be required to give his inputs irrespective of his position in the hierarchy.

Do check your answers to the questions above . If you have a YES for 3 out of these 5 questions and an OK for 2, then Analytics is a viable the career option for you . Welcome to the world of Analytics !!

[Hi this is Shubhashini. I hope this has provided you some clarity on Analytics. Please feel free to contact me for any query or discussion at subhashinitripathi@yahoo.com , 9731107798.]

In my next articles I will cover:-

• How to get into Analytics
• Analytics as a career option for women
• The career paths in Analytics
• Salaries in Analytics

A large number of students / young professionals ask me this.

Especially when they see the articles from Mckinsey stating Analytics is the next big thing in business and that there is a substantial shortage of manpower. (www.mckinsey.com/~/…/McKinsey/…/MGI_big_data_full_report.ash )

Or when Harvard Business School takes out an article saying ,” Data Scientist: The Sexiest Job of the 21st Century” (http://hbr.org/2012/10/data-scientist-the-sexiest-job-of-the-21st-century/ar/1)

Analytics is simply the use of numbers to decide on business problems / situations.Thus, in a world where there are huge ERP systems, Internet information, Mobile apps etc.  there is a large volume of data that is created and stored by an organisation . The old way of work was – if you need to make a decision, call the person who has experience in that area and take his advice. Was it the best way? Perhaps not, because human beings develop biases basis the atmosphere / situations / education they have been subject to. Also, it has been found that though a human being can effectively judge the effect of one factor on an outcome, he /she finds it difficult when the number of factors are many and the data is huge. Better decisions are made with the use of statistical techniques which allow us to work on the data and come to a conclusion.

The next question often is – So what is the type of ‘use of numbers’ that we are talking about? Will I have to sit and do maths again?

The last decade has seen the advent of SaaS (Software as a service) in all walks of Information gathering and manipulation . Thus, Analytics systems now are button driven systems which do the calculations and throw up the results . An Analyst or Data Scientist has to look at these results and conclude / make recommendations for the business to implement. For example, an ICICI bank wants to sell loans in the market. It has data of all customers who have taken loans from it over the last 20 years . The portfolio is of , say , 1 crore loans . It now wants to understand which customers should it give a pre-approved loan offer.

The simplest answer may be – all the customers who paid up on time every time in the earlier loans. Let us call this set of customers Segment A .But on analysis you may find that customers who defaulted but paid up after default actually made more money for the bank because they paid Interest + Late payment charges. Let us call this set Segment B .

Hence, you can now say that you want to send out the offer to Customer A + B.

However, within Segment B there was a set of customers who you had to send Collections teams to their house to collect the money. So they paid Interest + Late payment charges- Collection cost . This set is Segment C.

So you may then decide to target Customers A+B –C.

You could do this exercise using Decision Tree software which cut your data into segments for you.

The last question that we will tackle in this article is – What does the work day of an Analytics professional look like ?

A typical work day may look like the following :-

• He will walk into the office and be told about the problem that the business needs his inputs on
• He will determine which is the best way to solve the problem
• He will then gather the relevant data from the large datasets stored in the server
• Next, he will import the data into the analytics system
• He will run the technique thru the software (SAS, SPSS, XLSTAT etc.)
• The software will produce the relevant output
• He will study the output and prepare a report with his recommendations
• This will be discussed with the business

The companies which recruit large teams in Analytics include TCS, Accenture (Mumbai), McKinsey Knowledge Centre (Gurgaon) , Genpact (Bangalore and Gurgaon) , Novartis (Hyderabad) ,  Dell (Bangalore), Capital One (Bangalore ), Capgemini (Mumbai) etc. It is expected that there will be a shortage of Analytics resources in the world (and India) in the next decade.

You can read the next article in this series Is Analytics the right career choice for you?

[Hi this is Shubhashini. I hope this has provided you some clarity on Analytics. Please feel free to contact me for any query or discussion at subhashinitripathi@yahoo.com , 9731107798.]

Next, I will cover,

• How to get into Analytics
• Analytics as a career option for women

This article was originally published in Postnoon on December 7, 2012

http://postnoon.com/2012/12/07/for-investors-or-govt/92810

“So Life Insurance Corporation (LIC) of India is launching a new Unit Linked Insurance Plan (ULIP)?” asked Srikanth.

“Yes. So the newspapers and news channels have reported”, I replied.

Srikanth: I remember, ULIPs were really popular a couple of years back. Everyone was talking about it, investing in it. Then suddenly, they disappeared from the investments arena. Why? What happened?

Me: Well, as the regulations stood way back in 2010, the costs to the investors were huge in the case of ULIPs. The distributors and agents got large selling commissions, as high as 40% of the first year premium, and hence many of them pushed the product, mis-informed and mis-sold it to the investors.

Srikanth: Wow…isn’t that wrong?

Me: It is. Hence the investors protested, once they realized that they had a product which was a sure way to lose money. Following the protests and a legal battle with the capital markets’ regulator, SEBI, the Insurance Regulatory and Development Authority (IRDA), brought in new regulations regarding the costs and losses in the event an investor fails to pay subsequent premium installments. After this, ULIPs did not remain as lucrative for the agents as they were earlier. Hence they stopped pushing it to the investors. And the sheen faded.

Srikanth: Legal battle with SEBI?

Me: Yeah, SEBI claimed that ULIPs were Mutual Funds being sold as Insurance and hence they should have jurisdiction over ULIPs. Anyways, the result was a set of new regulations, which brought down the charges for the investors and increased the minimum lock-in period of ULIPS from three years to five years.

Earlier, most of the insurers charged higher during the initial years of the plan. But now, the charges have to be distributed evenly over all the years of the lock-in period. IRDA also mandated a minimum mortality cover and a minimum guaranteed return. The charges are capped between 2.25% to 4%.

Srikanth: That’s good for the investors. But not for the insurers and the distributors.

Me: That’s the reason the share of ULIPs has only gone downhill since 2010. LIC is now coming out with a ULIP product after almost two years. And even that may not be with the investors’ in mind. As Vivek Kaul points out in his article on www.firstpost.com, it could just be a ploy to help the government raise money through divestment. Since the investor’s may not be willing to pick up stocks in PSUs, LIC will bail out the government by picking up stake in those companies.

Srikanth: But why launch a ULIP product for it?

Me: That’s because the premiums collected through traditional plans cannot be invested in the Equity markets completely. There is a cap of 15% on equity exposure for the traditional plans, according to the Insurance Act. However, in the case of ULIPs, the entire premium can be invested in equities.

Srikanth: Ah, so basically LIC may be hoodwinking the investors, in order to help the government.

Me: Hmmm…I did not think in that direction earlier. But after reading Vive Kaul’s article, I feel that may be the real story! Ultimately, the investors must do their homework before making any investment decision!

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

http://postnoon.com/2012/11/30/debit-cards-credit-convenience/91262

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 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.

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

http://postnoon.com/2012/11/23/tax-implications-of-buying-versus-renting/89643

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 www.arthayantra.com 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.

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

http://www.thehindubusinessline.com/features/investment-world/market-watch/will-social-media-give-birth-to-the-next-warren-buffet/article4130565.ece

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”.

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

http://postnoon.com/2012/11/16/plan-your-retirement/88192

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…