education Personal Finance

Do you need personal loans?

Note: This article is meant for people with a steady source of regular income and a salaried bank account. Also the person is able to save more than 20-30% of his salary.
The top five reasons why Indians take a personal loan are:

  1. Medical emergency,
  2. Travel,
  3. Wedding,
  4. Investment (esp. stock market and speculative property investments),
  5. Helping a relatives and family.

And debt consolidation: Some people also use it to refinance their Credit Card dues or loans from informal sources. But in that case, one would realize sooner if not later that it was an expensive decision.
Most personal loans have 3 clauses –

  1. A regular EMI for the entire duration of the loan 6-24 months
  2. Processing fee from 2-4%
  3. Restrictions on prepayment. I.e. one cannot prepay in the first 3-6 months and not more than 50% of the loan balance outstanding in one payment.

These Terms and conditions often don’t match with the optimal debt repayment schedule for the individual. Hence given a choice, I always discourage people from taking a personal loan.
1. Bank overdraft: This is the easiest and the cheapest option for short term credit. If you have a salaried account, then just ask your bank and they would be more than willing to give you a generous 1-2L line of credit which you can repay at ease. Charges like account opening charges, commitment fee (0.25-0.5% of the line of credit) may look like a lot, but due to flexibility in repayment, the overall interest expense is much lower.
2. Credit Card: If you search the archives of enagar, you will find reference to an older article which tells you how one can draw money equal to the credit limit (which is higher than the cash limit) for 50 days at a cost of 3% (paid upfront) and 1.8% for subsequent months.
3. CrowdSourcing: Why do to an institution in the first place. Go online, dial a friend and fund yourself. P2P loans are cheaper, faster and simpler than most bank loans.

education Personal Finance

How to prevent pre-payment penalty on home loans

Most home loans in India have a covenant that restricts the number of times a person can make a pre-payment (usually 4 times a year) and the minimum amount. Also some of the banks charge a prepayment penalty. However if you read the fine print, most banks are relatively more flexible when it comes to changing the EMI (Equated Monthly Installment) amount.
Using this loophole, one can minimize the pre-payment penalty/charges by calling the bank one month to increase the EMI and revert it back to the old levels next month. Chances are that you would be able to stretch a little and continue paying that higher EMI for a few extra months. Hence reducing your interest expenses.
When it comes to debt, don’t ignore any processing charges, penalties or fines. It might put you in a debt trap.
For example
A 1M (10Lakh) INR loan for 15 years period at 8.75% has an EMI of 9,800/-
If you prepay 1EMI (9,800 on the first day), it will save you from paying about 3.5 EMIs 15 years later which is a net saving on 24,500/- in interest expense alone.
Please note that this calculation assumes that you would continue to pay the same EMI even though now your loan outstanding is (10Lakhs – 9,800/-)


Diwali night

I am a big fan of diwali. This diwali I invited about a 100 persons from 12 different countries to celebrate diwali. However what really amazed me is that while I could throw such a lavish dinner and enjoy the festivities, my friends at IIM-L could not. They have to write an exam on the next day and what is worse is that this exam is on the morning of a Sunday.

I agree when we sign up for a course at IIM, we practically write off all our vacations and free time. However keeping an exam on a Sunday morning is like being sadist. Who will teach our professors the meaning of “All work and no play makes Jack a dull boy”

education Investing

Personal Financial Planning

A friend asked me yesterday how one should plan his/her finances. At what stage in life where should the money go and how best to plan my taxes.

After spending a couple of hours listening to his idea, this is what we came up with:
1. Don’t confuse investments with tax planning. First decide in which financial instrument you want to park your money. This is because whether you want insurance, property, FD/bonds or mutual funds, there is always some tax saving instrument to help you.

2. At any given point of time have liquid assets to cover for 6 months of expenses. This could be parked in savings bank, or FDs or other financial instruments that can be prematurely encashed instantly without attracting much penalty. This cash often comes handy when you are between jobs, during emergencies esp. medical and when family/friends need you. I strongly advise that an individual should not dip into it and also refrain from any long term investments until this reserve has been created.

3. Work towards reducing your loans. If you have a education loan which costs you more than the Bank Fixed deposit (even after accounting for the tax break it provides) then it is advisable to retire it before doing any financial planning.

4. I would recommend you to keep your personal finances separate from that of the parents. However, what good of is all the money if it is not there for those who need it, when they need it. If your parents/family needs money or has taken a high cost debt, work towards retiring that.

5. After taking care of all these, I would recommend you to read this amazing book “Rich Dad, Poor Dad”. This simple book gives a remarkably different insight about how one should classify various assets and investment options.

Now some serious stuff……. 🙂
6. FDs are a good place to park the money. You can be sure that your money is safe and will be there when you need it. However the returns this generates is hardly sufficient and inflation eats into it. Hence One should invest in the Stock Market linked instruments (Shares, Mutual Funds, ULIPs etc.) Early on when your savings are small and risk appetite sufficient, then one should park upto 50% of the money these instruments.
However it is also advisable to reduce it as you age. The best way I found is to put an artificial cap of 3 years of Salary on your Market portfolio. 3 years of salary is large enough that it will be a substantial part of your investment. Yet at 15% p.a. expected returns, it won’t be able to generate half of what you earn from 8-10 hours of labor. Hence the market performance will not be a major distraction from work.

7. Now comes property/home: Some people who want to take less risk want to buy a property immediately after graduating. However I would recommend you to push off this decision by a couple of years. The reason for this is that even if land prices don’t fall, it often involves taking a EMI on floating rate. With EMI payments exceeding 50% of the salary, the financial flexibility one has to cope up with unexpected events is severely limited. Once you have sufficient savings and/or a working spouse, then investing in property is advised.

8. Insurance: It is one of the most mis-sold financial instrument. An insurance is neither an investment avenue, nor a tax saving instrument. It is taken to enable a person to take care of the unexpected. The best times in life to buy a life insurance are:
a. When you take a long term loan (for property/education etc.)
b. Marriage (esp. to a non working home-maker)
c. Planning for Kids
Also whenever possible, please buy Term Insurance (huge insurance cover for a small premium) and medical insurance.

So to summarize we have covered liquid assets, market linked portfolio, property and insurance. Last is tax.

9. Most tax savings happen under 80c. If you buy an insurance, its contributes under this segment.
If you plan to go for bonds: then NSC, Infrastructure bonds, PPF are few of the avenues
If you want to invest in market then ELSS (Equity Linked Savings Scheme)
If you want to invest in property then Home Loans give you tax shields.
Hence you should first look into what lock in period you are looking for and what risk/return profile you fall into and then select the tax saving instrument accordingly.

I hope this really long and boring post helps. How different is your investment philosophy?

education News Thoughts

Study Loan Subsidy

Yesterday GoI came up with a foolhardy 4000 CR (1 billion USD) scheme of subsidizing the interest on the study loans for all Indian students.

GoI has been recently collecting educational cess on all the taxes and financial transactions. This was a welcome move, because in a country where half a billion souls have never attended schools/colleges now the Human Resources Ministry has almost infinite funds to educate the masses. Or this is what I had thought.

All the tolls collected via cess went directly to the center. While Primary education was funded by state government and panchayat/local administration (Madhya Pradesh) So in reality, although a huge war-chest was build, the spending on education hardly increased over the past 3 years.

Another problem faced by the HRD ministry was that budget was to be presented in a few months. Traditionally, any department that does not spend the funds it had been sanctioned in the previous budget is penalized in three ways:
1)It has to answer why it had not been able to plan and execute efficiently
2)The funds are taken away from it
3)In the next year, the department will get lesser funds.

I have a feeling that this scheme is nothing more than a plot to squander away our taxes.

If government wants to do something for an “All Inclusive Growth”, then open a thousand primary schools, open vocational and technical schools. The higher education is already very subsidized (a engineering graduate’s first year salary would be more than adequate to cover for his entire educational expenses).

Also if you look at the fine print, it covers only the undergraduate/post graduate study loan taken from Nationalized Banks. Now if Government wants to help the poor but deserving students, then isn’t providing a scholarship/full tuition waiver a better way to help them. After all its general knowledge that students work harder and perform better when they get study grants, for these students need to display good academic achievements for continuance of the grants.

In short there is nothing new or significant in the scheme.


education News

Do Big Alma Maters Matter?

This article in CNN describes some of the statistics about the correlation between good schools and colleges and entrepreneurship. It also tries to do some explanation

When it comes to success in the technology arena, entrepreneurs’ choice of schools isn’t nearly as important as what they study, and for how long.

That’s the down-to-earth conclusion of a report released in June by the Kauffman Foundation. Founding a tech company doesn’t require an elite university degree, whether it’s in the U.S. or anywhere else.

The study bases its findings on interviews with 144 Indian, Chinese, and Taiwanese immigrant company founders culled from surveys of 1,572 companies in 11 tech centers across the country.

“It doesn’t matter which university you get your degree at,” said Vivek Wadhwa, the study’s lead author. “What matters is the level and the field of education.”

The survey found that more than half of foreign-born entrepreneurs came to the U.S. solely for an education. Close to 40% came for work. Fewer than 2% came with the express purpose of starting a company.

Immigrant founders of U.S. tech and engineering companies are highly educated in what educators call the STEM subjects — science, technology, engineering and mathematics.

That was expected, says Wadhwa, a former entrepreneur who is Executive in Residence at Duke University’s Pratt School of Engineering.

Almost all immigrant founders in the study — 96% — had bachelor’s degrees. Forty-seven percent had master’s degrees, and close to 27% had doctorates.

Of those degrees, 75% were in STEM areas. Engineering accounted for 44% of the degrees.

Over half of the immigrant founders — 53% — earned their highest degrees from U.S. universities. But no top-tier university in the U.S. or abroad got particular credit for producing tech entrepreneurs.

That was a surprise, Wadhwa says. It’s good news for less prestigious schools and the students who attend them.

“From the U.S. perspective, M.I.T and Stanford didn’t have any advantage in developing successful entrepreneurs over some small university in the Midwest,” said Wadhwa.

The situation is similar in India, where tech success is practically synonymous with the subcontinent’s seven famed India Institutes of Technology. But the research shows that the IITs graduated only 15% of the Indian tech company founders.

“IITs aren’t what we feared,” Wadhwa said.

Institutions ranked below the IITs are exulting at the news, which got wide coverage in the Indian press, he says. Researchers at Duke and the University of California, Berkeley, conducted the study.

It follows a January report showing over a quarter of U.S. tech and engineering companies started between 1995 and 2005 had at least one foreign-born founder.

That a top-tier university education isn’t necessary for success shouldn’t be surprising, says Arthur Schwartz, deputy executive director of the 50,000-member National Society of Professional Engineers.

“It is absolutely the kind of education that the individual receives rather than the institution that provides it,” he said.

Education in certain fields are often a tried-and-true path to success, Schwartz says.

“Historically science, technology, engineering and mathematics have been social levelers for getting ahead for all groups,” he said.

Those looking at the tech professions from the outside in also agree that a particular university pedigree isn’t everything.

“There are certain critical thinking and higher order skills that can’t be transmitted via education,” said Forrester Research (NASDAQ:FORR) analyst Sam Bright. “So where you go to school is not the be-all and end-all.”

Whether study findings will affect investors who fund entrepreneurs is the bigger question, he says.

“The real test of this report is how open-minded angels or venture capitalists will be to expanding their filter beyond the brand of a particular school,” Bright said.

It also addresses what’s sometimes forgotten in the immigration debate, says Raman Unnikrishnan, dean of the College of Engineering and Computer Science at California State University, Fullerton.

“The discussion tends to focus on the negative aspects of immigration,” Unnikrishnan said. “Often immigrants are evaluated in terms of employment rather than entrepreneurship.”

But foreign-born entrepreneurs make a significant contribution to the U.S. economy, he points out.

“Immigrant-founded firms have created wealth and employment opportunities for all Americans,” Unnikrishnan said. “When political heat comes to bear, people forget that aspect of immigration.”

There are culture-specific reasons why foreign-born entrepreneurs are successful in the U.S., according to Unnikrishnan.

If the Indian tech and engineering graduates noted in the study had remained in India, they could not have taken the same entrepreneurial paths, he says.

“The U.S. allows failure,” Unnikrishnan said. “Older cultures like India do not.

“That is a profoundly important contribution that the U.S. education system and culture imparts to these bright foreign graduates who come here as immigrants.”

education News

90,000 schools without blackboards

Everytime I pay a tax, I also pay a huge educational cess…. this sum was promised to be used in spreading education to the country’s 1/3 of the population which cannot read or write.
But here is the ground reality

Since the situation has not improved since 2004-2005 and has only worsen since then…. Where did my money go?
Don’t tell me it went in creating new IITs, IIMs, or AIIMS with the sole purpose is to create an army of professionals who would pay taxes and help US Government reduce its Social Security deficit. Because… we have not created a new one either in the past couple of decades.

education Thoughts

Ban On Sexual Education

I believe that everybody is a kid… and kids have curiosity. Now when your kids asks an awkward question, you can
1) Say NOOOO, talking about such things are banned… you will know all this when you grow up. (if you have handled kids then you will know what it usually leads to)
2) Or Tell him the truth, and while you are doing it: Tell him what a responsible and moral behavior is and what are the consequences.

If you opt for the first, How can your kid know the:
1) What is right and what is wrong.. what is socially accepted moral behavior.
2) What are the medical consequences of error. (STD, AIDS)
3) How it can impact your future? (pregnancy, early marriage, being forced to undertake responsibilities you are not prepared for etc.)
4) What is safe what is not?
5) You need to reinforce in the kids that they have a right to say NO, and not succumb to peer-pressure.
6) What qualifies as sexual harassment by a pedophilic relative?

In the USA, obesity is a tell-tale sign of poverty, but in India its the large number of offsprings… often more than they can take care of. The parents are not able to invest in the child’s future and hence condemning them to perpetual poverty.
1/3 of the Indian population cannot even read and write…. How do you think you can increase awareness in their kids?
In a society where a female is often reduced to a Cooking Machine and a Sex Toy, How do you plan to tell her her rights?
How can you tell a couple that
1) “Agreed that a child is a God’s gift, but a dozen of them is a curse”
2) What are the benefits of a planned pregnancy?

Well Even College educated kids are no better:
I know a newly married couple (husband an engineer, wife a Post Graduate student) who conceived within 2 months of their arranged marriage. Now someone tell me how does she plan to attend school while she is carrying? Unfortunately I cannot blame the couple for not thinking through properly… “after all ignorance is a bliss.”

I have a confession to make: I do not know even even the names of the STD. So if I ever catch one, I am 100% sure it will be too late before it is diagnosed.

Many countries in Africa lost an entire generation due to AIDS… Is Indian Government also preparing a similar stage for population control?

education Thoughts

Higher education

I am a firm believer of German model of education. It might have its demerit, but I truly respect its spirit.
The German law says that every citizen has a right to pursue both primary as well as higher education at the institute of his/her choice. As long as he fulfills the required prerequisites, then no educational institute can bar him to select any course/degree he wants.

I also admire the US educational system.
Anybody can open a university. There are cases when the universities were opened just as a memorial of their dear departed son. This mechanism ensures limitless supply of seats and colleges actively compete to enroll the best talent. The courses need to be modified each year (no this years question paper is not a rehash of the previous 5 years question paper) so that they attract prospective students.

The fees are high, but the univs offer generous scholarships, TA and RAs to ensure that deserving candidates are not able to afford it. Scholarship is not seen as a grant, but as an investment by the college. It is to attract the brightest minds that can potentially turn into brand ambassadors for the University and also enhance the learning and experience of the whole batch.

However Indians have come up with a unique higher education system:
A license raj crippled with the curse of Eklavya Syndrome.
more on education system on

We have returned to the same old Gurukul system where by limiting the access to education, the higher castes can maintain its stature. We have created a small rank of elite colleges who are respected by the society not because of the knowledge it imparts, but because of the rigorous selection process.

good education is not picking up the brightest handful of the students wasting their 4 years and then boasting about their success. Its should be like a book… anybody who has time to go through it is eligible.

I see education as an enabler who prepares the youth to take up challenges and drive the development of the nation. However we end up subsidizing the education of a bunch of pomp ass IIT/IIM graduates who have huge egos and the only mission in life is to migrate to USA never to come back.

When you talk about education, people talk about reservation. I say, open 50 more colleges so that nobody who aspires to be educated is denied of it. Nobody talks about reservation in govt run primary schools.. why? simply because there are more seats than the people aspiring to take them.
For the country’s GDP to grow at 10%, the supply of educated professional workforce should increase by at least 15%. If you say that there should be a World Class university in each district of this country: I would say…. For a population of a billion and the world’s largest source of youth this is too little.
However the reality is:
1) In last 40 years we created only one IIT (Guhathi). And at least in this decade there are no plans of having a new campus.
2) We create 20 new NIT by renaming existing RECs. A new IIT by renaming University of Roorkee. Somebody tell me how does this eyewash matter?

However I am also against government allocating a bulk of the money I pay through Educational cess to subsidize Colleges rather than educate the 30% illiterate citizens we have. Opening private operators in high school education, medical care has definitely increased the cost of these services.
But I am ok with it. After all my government has limited funds and these private players have ensured that there is quality in the system. Indian Higher education on the other hand is rotten because private players are so much restricted.

So the only solution we have is to open up Private Universities. Allow FDI in education. And I thank Arjun Singh for giving his approval.

education Thoughts

Education System

I have always tried to write about deficiencies in our education system
choice and passion
pre-british education system

But now i feel that it should be entirely scrapped and rebuilt. That is the only way we can modernize it and align it with the requirements of the present day India.
Firstly, policy makers are Babu’s who have never stepped outside their office. Hence they do not know what the world is. They just think of churning out more clones of themselves as the way to educate India. They always talk about opening a 100 more IIM, IIT etc. But is it what India needs?
1) IIT typically cost government 600 million each year to maintain and yet 90% of the students either move abroad or join IT industry (and hence unlearn what was taught to them)
2) A typical IIM graduate is like an IAS for the private sector. He thinks the world owes them a living. They will not work in traditional industries, sales or marketing jobs or production jobs which MBA is all about. Instead they will always long to migrate or look for a number crunching desk job at an I-bank on wall street. I can never understand in what world is tracking stock Indices requires an MBA skills.

Vocational studies. Unfortunately we are so much engrossed in churning out bots for Call centers and IT/ITES industry that we forget to have a cadre of skilled labor. In India getting a simple crane operator is almost an impossible job. You need to pay him 15k + overtime still you will be lucky to get an applicant.

The Policy Makers Babu do not see their kids attending so they never concentrate on them. Unless a company has its own training program, it is almost impossible to get a experienced factory worker. Probably that is the reason why manufacturing sector is lagging.

I was looking at an ITI syllabus.
All cast iron furnaces have been closed 30 years ago. yet a large part of the curriculum deals with it Why?
Composites/ plastics/ handling CNC and automatic machines is never even mentioned.

IT/Software will not fuel the growth for long. For a country to have a perpetual growth all areas need to be focussed.
Open up a 100 more schools to train factory workers and machine operators….. and not a call center operators.