Investment School

Hidden savings of an employee

Writing a post after a loooong time.

Most of us often feel bad that we are not saving enough from our net take home salary. Yes, one should feel bad about it and need not be bogged down because of this for a simple reason - you can find opportunities to save always if you are little bit more disciplined.

But what is this hidden savings which i am talking about. Every employee in the organized sector saves 24% of the basic salary as Employee provident fund and EPF earns 8.5% annually. Following are the most likely hidden savings for an employee in organized sector.

1. Employee Provident Fund + Employee Pension Scheme = 24% of basic salary.
2. Super Annuation = 10-15% of basic salary ( varies between companies).
3. Gratuity = 4-5% of basic salary ( varies between companies)

All the above components can be redeemed when an employee quits an organization and moves to another one.

For a take home salary of 50k, one would save around 7-8k without knowingly and this is earning 8.5-9.5% interest which is not bad.

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How to calculate your super annuation balance in LIC?

I thought i could share some useful information on how to check your superannuation balance online in LIC if your employer maintains a super annuation fund in LIC. First let me give a brief description on Superannuation.

What is Superannuation?

Superannuation is a contribution made by your employer each year(usually it is 10-15% of your basic sal) on your behalf towards the group superannuation policy held by the employer.

Conditions of Superannuation account:

The amount that the employee gets is as under:

a) < 1 year of employment : NIL
b) >1 year but < 2 years : 50% of the contribution + interest earned
c) > 2 years but < 3 years : 75% of the contribution + interest earned
d) > 3 years : 100% of the contribution + interest earned

At the end of each financial year, LIC pays an interest on the contribution made by the employer in your account. The interest rate is around 9.25% and it is set by LIC annually.

Benefits of Superannuation:

Once the employee completes 3 years of service and works till his/her retirement, he/she can make use of superannuation balance as a form of pension. He/She can withdraw 1/3rd of the accumulated balance after retirement and the rest can be availed as monthly pension till end of life.

How to Check Superannuation balance online?

1. Go to

2. Register for a user id and password.

3. Login.

4. Click on 'Group Scheme Details' tab.

5. Click on 'member' radio button.

6. Get the group policy number for super annuation from your company's payroll department and enter '' in the policy number text box and click ok.

7. It will ask for LIC Id no and Date of Birth fields.

8. To get LIC Id no, call LIC branch with which your employer has a super annuation account and inform that you are calling from your company and provide your name to the LIC official. They will give your LIC ID No.

9. Since most companies had not furnished the date of birth details to LIC, enter '01/07/1960' / '07/01/1960' (forgot the order, try both n check) in the date of birth field.

10 .You will get the policy enrolled and you can click on the policy number to view the details. The details will contain the accumulated balance till the last financial year. It also shows contribution made by your employer i the current financial year.

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Cash is King

When you take a look at the newspapers in the morning, you see more news on "DECLINE" in almost all asset classes and if not declining , they are volatile otherwise. So where can we put your money (if at all you are left with some money after being battered with losses in markets)

In these troubled times, "Cash is King" the best way to survive this downfall is just to keep accumulating your savings bank account with loads and loads of cash as and when you get them.

Reasons for being in Cash

1. The first and foremost reason to be in cash is that you have control over your money. In current scenario markets are driven by all kinds of external dependencies and is more sensitive to global economic condition.

2.Capital Protection is a must in these troubled times and one should minimize the risk of losing his/her money.

Where to park my cash

1. The best and most safe instrument is fixed deposit. Most banks offer 10+% interest on 1 year deposit. This is the safe heaven.

2.Investors with more risk appetite can go for liquid funds,FMP and other short term debt mutual funds.

Reiterating once more, "Cash is King" is the film Name and You are the real hero if you have cash right now.

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Sensex Long Term Outlook

I would like to introduce to Investment School Readers, a very good technical analyst -Mrs. Lokeshwari .For those who read Hindu Business Line, this name should be very familiar. She the technical analyst and writes technical analysis columns every sunday and she is associated with Business Line for past several years. Those who are curious to know the various resistance and supports of benchmark indices can definitely spare some time and read through her sunday columns in Business Line.

In her recent column , she had given the long term outlook of Sensex and i would like to quote her technical calculations to our readers,

In our review in July, we had stated that, “The decline below 13700 brings the next long-term supports for the Sensex at 11,900 (50 per cent retracement of the up-move from 2001) and then 9703 (61.8 per cent retracement) in to focus. We stay with our long-term count that the current down-move is the fourth part of the long-term cycle that began in 1980. The fifth leg (upward) would then take the index beyond 25,000 again. Caveat - decline below 9,703 would need recasting of the counts.

The more difficult question is, how long would this down-trend last? As per Elliott Wave theory, corrections can extend from anywhere between 0.33 to 1.618 times the time consumed by the previous up-move.

The previous up-move lasted four years. That gives us the range between 16 to 77 months. Since the previous long-term correction from 1994 to 2003 was a long-drawn one, applying rules of alteration, the correction this time can be a sharp and swift one that ends in one to one- and- a- half years.”

In her column, she has indicated the next major support levels at 9700,8800 and ofcourse 6800. So as per technical counts , Sensex can go to 6800 given the current situations.

Note: The counts are revisited if some major changes happens in the global financial arena.

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Should you buy real estate now?

Recently i read an article in Economic Times(not a opinion or sensex target kind of articles which is usually a trade mark of ET). This article was all about stats. The article was about the advance tax paid by the real estate companies.

What is Advance tax?

Advance tax is a tax paid by individuals who earn in addition to monthly income and corporates. These are paid in three installments,

1. Sep 15 - upto 30% of advance tax should be paid
2. Dec 15 - upto 60% of advance tax should be paid
3. March 15 - upto 100% of advance tax should be paid.

Take the following example:

Gross total income: Rs 160,500
Salary (Rs 100,000), income from house property (Rs 48,000), income from other sources (Rs 12,500)

Deductions: Rs 14,500
Section 80D (Rs 2,500), section 80L (Rs 12,000)

Net income: Rs 146,000

Total tax: Rs 15,970
Tax on net income (Rs 20,020) - section 88 rebate (Rs 5,500) + 10 per cent surcharge (Rs 1,452)

Net balance: Rs 10,000
Total tax (Rs 15,970) - TDS (Rs 5,972)

Taking the above example, Rs 3,000 by September 15; Rs 3,000 (60 per cent of Rs 10,000 - Rs 3,000) by December 15 and the balance Rs 4,000 by March 15.

So coming back to the article which i read, the following are the advance tax paid by some of the leading real estate companies and it gives useful insights on where the real estate market is heading towards.

1.DLF - NIL Vs 37 Crores paid on Sep 15 2007

2.Omaxe - NIL Vs 37.5 Crores paid on Sep 15 2007

3.HDIL - NIL Vs 30 Crores paid on Sep 15 2007

4.Unitech - 50 Crores Vs 100 Crores paid on Sep 15 2007

5.Ansal Properties - 5 Crores Vs 10 Crores paid on Sep 15 2007

What does this signify?

Real estate companies has paid NIL to fewer crores of advance tax because they expect far lesser revenue than the last year.

Why lower revenue expected?

Simple logical conclusion - They have sold lesser properties and many properties across the nation have no takers because of high interest rate and high cost of the property.

What can we expect out of lower revenue?

Builders build apartments by taking loan from banks at a much higher interest rate. At one point of time when there are no takers for the property, they will be forced to reduce the price of the property or even sell the properties at throw away prices like what is happening in US currently.

So real esate prices are in for a correction next to equities and think twice before you buy a property at this juncture.

Note : This is my personal assesment of the situation. You should take your decision after applying your thoughts and calculations.

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What is Balance Sheet?

As a continuation of Fundamental Analysis Series, let us learn about balance sheets of a company and how to interpret it and how to utilize a balance sheet of a company.

What is Balance Sheet?

Balance sheet of a company indicates how healthy is a company with respect to financial factors. It lists the assets and liabilities of a company and you should remember that assets and liabilities are not same as revenue and earnings. Broadly balance sheet has the following components

1. Assets
2. Liabilities
3. Equity


There are two types of assets

Current Assets:

It includes assets that be converted into cash in a financial year.It includes ready cash,inventories and receivables. A company with high cash holding in its balance sheet is a good bet compared to a company with debt or less cash. Inventories are nothing but goods which are yet to be sold to consumers and receivables are bills which are pending payment to the company.

Non Current Assets:

These are assets which are not very liquid and can not be converted to cash quickly. These include Land,machinery etc.


These are again classified into two types.

Current Liabilities:

These are debt which needs to be repaid within the current financial year.

Non-current Liabilities:

These are long term debt in the form of bank debt or bonds borrowed.

Equity or Shareholder's equity:

Shareholder's equity is nothing but

Equity = Total Assets - Total Liabilities

Paid Capital:

Amount of money the company collected during its IPO(Initial Public Offer).

Retained Earnings:

It is the amount of earnings that the company has reinvested in the business rather than paying it back as dividend to the share holders.

So these are the important components of a balance sheet though there may be few other. So as an investor one can derive very useful insight about the company financial health from its balance sheet and make a good decision on his investment.

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How to calculate HRA for Tax Exemption?

Most of us pay more tax by neglecting to know about House Rent Allowance(HRA) component in our payslip.

What is HRA?

HRA is house rent allowance offered by employers to all its employees. HRA is exempted from taxable income and hence reduces the tax paid by an employee.

How HRA is calculated?

The HRA calculated by the employer is the minimum of the following three amount.

1. Actual HRA given by the employer as mentioned in the payslip.
2. Acutal rent paid by employee minus(-) 10% of his/her basic salary
3. 50% of basic salary in metro cities(delhi,mumbai,chennai,calcutta) or 40% of basic salary in other cities.

Lets take an example.

Ram lives in a house in bangalore and pays a rent of 7,000. The HRA offered by his employee is 6000/month and his basic salary is 20,000/month. Let us calculate the three amount stated above

1. HRA offered = 6,000
2. Rent - 10% of basic = 7,000 - 10% of 20,000 = 5,000
3. 40% of basic salary = 40% of 20,000 = 8,000

Hence minimum of the three , 5,000 is taken as HRA and 12*5,000 = 60,000 is exempted from tax for the current financial year.

Note : You have to pay monthly rent receipts to your employer and you can not have short routes in stating wrong rents paid by you.

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