MANAGEMENT LESSON

-       Once upon a time, a very strong woodcutter asked for a job with a timber merchant, and he got it.
-       The pay was really good and so were the work conditions.
-       For that reason, the woodcutter was determined to do his best.
-       His boss gave him an axe and showed him the area where he was supposed to work.
-       The first day, the woodcutter brought 21 trees.

-       “Congratulations,” the boss said. “Go on that way!”
-       Very motivated by the boss’ words, the woodcutter tried harder the next day but he only could bring 17 trees.
-       The third day he tried even harder, but he only could bring 10 trees.
-       Day after day he was bringing less and less trees.

-       “I must be losing my strength”, the woodcutter thought.
-       He went to the boss and apologized, saying that he could not understand what was going on.
-       “When was the last time you sharpened your axe?” the boss asked.
-       The woodcutter replied : “Sharpen? I had no time to sharpen my axe.
-       I have been very busy trying to cut trees.

"JUST HARD WORK IS NOT ENOUGH TO ACHIEVE SUCCESS,

WORK SMART AND WITH THE RIGHT ATTITUDE TO ACHIEVE SUCCESS IN LIFE".

L&T Mutual Fund to now manage Rs. 12,800 crore for 9.5 lakh investors.

L & T Mutual Fund’s AUM jumps from Rs 3,842 crore in September 2012 to Rs12,800 crore. The AMC will be catering to around 9.5 lakh investors from 200 cities and towns.

“The decision to acquire Fidelity’s mutual fund business in India was made with an aim to become the best value provider of investment solutions across asset classes. With this acquisition, our fund suite spans the whole range of investment opportunities – equity, fixed income, hybrid, domestic and international funds – and moves us closer to becoming one of the country’s leading and admired asset management companies.We now have a high quality business that combines best-in-class practices, a strong domestic brand, market knowledge and a proven performance track record,” said Y.M.Deosthalee, Chairman & Managing Director, L&T Finance Holdings.

The fund house will now be offering 25 funds, amongst which few popular funds are L&T Tax Advantage Fund, L&T Equity Fund, L&T India Large Cap Fund, L&T Triple Ace Bond Fund, L&T India Special Situations Fund and the L&T Global Real Assets Fund, which feeds into Fidelity’s Luxembourg-based SICAV – Fidelity Funds Global Real Asset Securities Fund.  

“The comprehensive fund range, proven track record, geographical reach, our commitment to distributor training and investor education, and the support of our investors provides an opportunity to take the All New L&T Mutual Fund to the next level. We have significantly enhanced our capabilities in all areas including equity and debt fund management, operations and customer service,” said Ashu Suyash, CEO, L&T Mutual Fund.

What is CRR, SLR, Repo Rate and Reverse Repo Rate?

Reserve Bank of India plays an important role in controlling the interest rates in the banking system, by adjusting the liquidity in the system.

How RBI control the interest rates in India? If you want to understand the above, we should understand certain commonly used terms by RBI.

These are CRR, SLR, Repo Rate and Reverse Repo Rate.

What is Cash Reserve Ratio (CRR)

Each bank has to keep a certain percentage of its total deposits with RBI as cash reserves. It is called Cash Reserve Ratio (CRR). On 30^th October.2012, RBI reduced the CRR by 25 basis points to 4.25%. If the bank is having a deposit of 100/-, it has to keep Rs.4.25 as cash reserve with RBI and it can use only the balance 95.75 for lending or investments.

What is the role of CRR in the banking system

RBI uses CRR as a means to control the money supply in the system. When the money supply is on the higher side, RBI will increase the CRR to reduce the supply and vice versa.

What is Statutory Liquidity Ratio (SLR)

Every bank has to maintain at the close of every day a certain percentage of its total liabilities (Deposits) in cash, gold or government approved securities. This is called SLR. At present, the SLR is 23%.

What is the role of SLR in the banking system

Its role is more or less similar to CRR and controls the money circulation the banking system. If RBI wants to suck, excess liquidity from the system, it will increase the SLR. Banks will be forced to keep the higher percentage as liquid assets and its power to lend will come down.

What is Repo Rate

When banks require short term money, RBI will lend member banks against securities held by them. RBI will charge interest on these loans and this rate of interest is called Repo Rate. At present, Repo Rate is 8%.

What is the importance of Repo Rate in the economy

When RBI wants to decrease the lending activities in the country, it will increase the Repo Rate. Once the Repo Rate is increased, the cost of funds to banks from RBI will increase and it will in turn increase the lending rates to customers. This will reduce the lending transactions. But if the RBI feels the need of more lending activities, it will decrease the Repo Rate and reduce the cost of funding. This will translate into lower rates on loans and lending will pick up.

What is Reverse Repo Rate

If banks have excess amount with them, they can park the surplus money with RBI and earn interest on this. The interest on such amount is called Reverse Repo Rate. At present the Reverse Repo Rate is 7%.

RBI will increase the reverse Repo rate, if it wants to reduce liquidity in the system. Banks will be tempted to park money with RBI rather than lending, if this rate is high. At present Reverse Repo Rate is kept 100 basis points below Repo Rate.

By adjusting CRR, SLR, Repo Rate and Reverse Repo Rate, RBI will ensure that the banking system is working fine.  It will adjust these factors to promote an orderly growth of the economy by controlling interest rates and liquidity in the system.

Top 20 banking terms you should know

1. National Electronic Funds Transfer (NEFT)

Transfer of funds initiated by electronic means such as an electronic terminal, telephone, computer, or ATM. The NEFT facilitates the process of fund transfer within the same bank or inter-bank transfers. The minimum amount that can be transferred is as low as Rs 100.

2. Linked Account

Any account linked to another account in the same bank where funds can be transferred electronically between accounts and carry out other specified services as well.

3. Travellers' Cheque

Cheques issued by a bank and function as cash but are protected against loss or theft when travelling.

4. Base Rate

It is the minimum rate a bank charges its most credit worthy customer. The bank cannot lend below this rate (with an exception to banks employees, loans to bank's depositors against their own deposits, albeit with the subvention of the central bank).

For a retail customer, the Base Rate will cover all loans from auto, personal to home loans effective from July 1, 2010.

5. Balance Transfer

Balance transfer is an option included under credit card payments and is useful for persons holding more than one card. On availing this facility, the cardholder can transfer the balance amount outstanding on card one to card two and vice versa, if he/she is not able to make full payment that is due on a particular card.

In any case, the payment due date is only delayed but the payment has to be made at the scheduled time as stated in card two. Balance transfer facility is useful in reducing the interest outgo (on card one) and extending the payment due date on the original card.

6. Banking Ombudsman

Banking Ombudsman is an unbiased forum formed to resolve complaints registered by bank customers with respect to the services provided by banks. The RBI introduced this scheme under Section 35A of Banking Regulation Act, 1949. In case one has not been satisfactorily serviced by their bank, they should first register a complaint with the bank customer service department.

If they are not happy with the bank's response, then they can approach the banking ombudsman for an unbiased resolution.

7. Cashback

The term 'cashback' is used with reference to credit cards. Cashback means giving back some portion of money (spent by the cardholder through the credit card) to the cardholder himself. The cashback is made in terms of points earned; for example, the bank may say one point will be earned for every Rs 100 spent by the cardholder and at the end of the year, the money worth of the points earned (say Rs 1 for 1 point) will be credited back into the cardholder's account.

8. Credit History

Credit history is an account of an individual's past borrowings by way of loans, credit cards and all other debt that needs to be repaid/has been repaid. Credit history in India is currently being provided by CIBIL (Credit Information Bureau of India Limited) and contains records of an individual's open and past accounts of loans and credit cards.

Through the CIBIL report, the bank (lender) can know if the individual (borrower) had made any late payments or defaults. You can get your own credit history report from CIBIL for a nominal fee.

9. Collateral

A borrower needs to provide some kind of security to the bank in case of high ticket loans (except home loans where the property is the security). Such security is called 'collateral'.

In case the borrower fails to repay the loan, the bank has the authority to attach the collateral to the loan and claim its dues.

10. Documentation/Processing Fee

Bank requires certain documents from the borrower to look into his creditworthiness and charges a fee for the same. These charges are known as documentation charges.

Processing Fee is charged by the bank upon sanctioning of loan to the borrower.

11. Dormant/Inactive Account

If an individual has not made any transactions in his/her account (except for interest payments credited by the bank) for more than two years, the savings/current account is declared as dormant/inactive.

12. Fixed Rate

Fixed rate is the interest rate that remains constant for the full term of the loan.

13. Floating Rate

An interest rate that is referenced to a market rate and is revised as per the change in the interest rates in the economy. When interest rates in the economy rise, floating rates rise and vice versa.

14. MICR Code

MICR stands for Magnetic Ink Character Recognition. MICR Code comprises 9 digits given at the bottom (right side) of the cheque number. It is a unique code and varies between each bank branch.

MICR Code is required for cheque clearance. MICR Code is different from the IFSC code, which is also mentioned on a cheque.

15. No-frills Account

This account is a basic savings account provided by banks to make banking simpler and more accessible for all customers. In a no-frills account, you do not have to maintain minimum balance and enjoy basic banking facilities such as electronic funds transfer (EFT), netbanking, free cheque book issuance.

16. Electronic Clearing Service (ECS)

It is a service provided by the banks to facilitate direct debit from your bank account towards an investment account (such as a mutual fund SIP) and/or paying regular loan EMIs.

One can give a standing instruction (SI) to the bank to transfer the specified amount every month for a specified period. Alternatively, you can direct a one-time transfer of funds through NEFT/RTGS (explained next).

17. Processing Fee

Bank levies processing fee in order to process the loan application of the borrower. This fee is a small percentage (example: 2.5 per cent) of the loan amount sanctioned and is usually waived off during festival time to attract more borrowers.

18. RTGS

The RTGS or Real Time Gross Settlement System facilitates fund transfer within same bank or inter-bank transfers, but unlike NEFT, RTGS ensures the fund transfer fast and smooth in 'real-time' for a nominal fee.

The minimum transfer amount is higher than NEFT (usually Rs 2 lakh and above).

19. IFSC

IFSC code is useful in bank fund transfers and cheque clearance. It is an 11 character code assigned by RBI to identify every bank branch uniquely. The first part is the first 4 alphabet characters representing the bank. Next character is 0 (zero) and is reserved for future use. The last 6 characters is the branch code.

20. KYC

KYC or Know Your Customer norms are imposed by RBI on banks and other financial institutions to ensure that the correct identity of the banks' customers is established and to ensure that banks deal only in legitimate banking operations and not in money laundering or frauds.

Rule of 72

31st October is celebrated as World Savings Day but what a coincidence Halloween is also celebrated on the same day. (tragedy is we know about Halloween but….) Let’s learn some basic rules that you can practically apply in your day-to-day life.

The ‘Rule of 72′ is a simple way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to double itself.

For example, the rule of 72 states that Rs 1 invested at 10% would take 7.2 years (72/10 = 7.2) to turn into Rs 2. In reality, a 10% investment will take 7.3 years to double (1.10^7.3 = 2). When dealing with low rates of return, the Rule of 72 is fairly accurate. Albert Einstein said compounding is eighth wonder of this world & “rule of 72″ eight wonder. Below chart compares the number of years it takes an investment to double at certain rate.

Every Penny Counts

Let’s try to practically apply this rule. Let’s assume that as today is World Savings Day – you added Rs 1000 to your retirement kitty. (assuming you are 29)

WOW! So if someone save Rs 1000 today for his retirement – it will become Rs 32000 in 30 years or Rs 64000 in 36 years.(@ 12%) Just imagine if this amount is Rs 10000 this month (if you don’t splurge in the festive season) or Rs 1 Lakh this year (bought a small car or vacation or may be combination of many small things).

There is also a reverse usage of rule of 72 – where you divide 72 by number of years & you will get the rate at which money will double in this period. Similarly there are 114 (triple) or 144 (quadruple).

Hemant Beniwal

Amazing Benefits of Bananas

How is interest on saving bank account is calculated ?

A lot of people do not know interest is calculated on their savings bank account.In this article I will explain all the aspects of interest on a savings bank account. Earlier all the banks had the same interest on their saving bank accounts, which was 4% , so a person had no choice in terms of interest rate, you would have got the same return with any bank. But, RBI has recently de-regulated interest on saving bank account and now banks can decide the interest they want to pay on saving bank. This has had a positive impact for customers, because now due to competition, banks like Kotak Bank and Yes Bank have started offering higher interest rates like 6% or 7% and using that parameter to attract lot of customers.

How is interest on saving bank is Calculated ?

Coming to the main question, the procedure to calculate saving bank interest, we will first see how it was done earlier and then we will see how its done now.
Old Method
Earlier, Banks used to pay 3.5% interest on the minimum balance between 10th and last day of the month. This was not a very customer friendly method because if you kept Rs 5,00,000 in your saving account for the whole month and on 26th, & let’s say you take out 4,90,000. You would have got interest only on Rs 10,000 @3.5% , which is just Rs 28.
New Method
Now a new method is used to calculate the interest on saving bank account which is very fair.  From April 1, 2010 , as per the RBI circular on new guidelines on saving bank interest calculation; this is the rule for interest calculation.
“The interest has to be calculated on daily basis for the closing day balance” – It’s that simple. So let’s say the interest rate is 4% , then you will get interest @4% on daily basis for your closing balance and it will get accumulated , but it will be paid back to your account only after 3 or 6 months. While RBI wants all the banks to pay the interest every quarter, each bank has its own criteria , like ICICI Bank pays it twice a year right now in Sept and March.
So now, if you see the same example we discussed above, with the new method of interest calculation, the interest will be 4% on 5 lacs (Rs 1,369) for 25 days (from start of month to 25th) and on 10,000 for next 5 days (Rs 5) (26th – 30th) . So the interest would be total Rs 1,374 . In the old method it was just Rs 28 . Can you see the gigantic difference?

High Interest on Saving bank from some banks

You must have seen some banks are now offering 6-7% of interest rate and they have dual interest rates, like 5.5% below 1 lac and 6% above 6% (in case of Kotak Bank) , which means that you will be getting 5.5% on the amount below 1 lac and only on the difference amount above 1 lac, you will get 6% interest . So if you have a balance of Rs 1,50,000 in your bank (lets say kotak bank) , you will get 5.5% on 1,00,000 and 6% on 50,000 .

You should be more interested in interest below 1 lac

If you see the average amount kept in saving bank account , it should not cross 1 lac for most of the people . While there are people who park their money in saving bank account for some time, but it does not happening with most people. So if some bank is giving higher interest for amounts above 1 lac, that’s a secondary benefit for you, not the basis of selection of bank. Because if you are anyways ready to keep a balance of more than 1 lac, why not just create a short term deposit online,which can be broken anyways or just activate your sweep in account option, so that an amount above a target amount automatically gets converted to FD and earn more money.
Do you now understand how interest on saving bank account is calculated? Will it help you manage your bank money in a better way?

Jagoinvestor