Taking the rupee all the way

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If you’re in a creative business, you should be constantly accumulating references and material,” says Jaisingh Rathore, 30. “I’d really like a plasma screen for the new studio or maybe a projection system would be cool.”

He was similarly seduced by a bike last year which now transports him at 85 kmph on the ten-minute journey from his house to the studio. Then there’s the MP3 player the size of a matchbox, which runs off his phone’s battery.

“While I am drawing, I can watch eight films in a row,” explains Rathore, to justify his state-of-the-art Panasonic DVD player and his ever-increasing collection of more than 90 DVDs. While he loves his new Sony Ericsson MPG phone – his third this year – which he can plug into a digital camera, he is less enthusiastic about his PDA, which has remained in a drawer. He found it redundant, largely because he already stores numbers on his phone.

Now Thakore should really do his homework and not allow himself to be swayed by huge feature lists when he won’t need or use most of them. He should concentrate on getting deals for cash. Bargaining between shops is standard, and he should be able to get at least a 20 per cent discount on a product.

And there’s no room for snobbishness – the larger supermarkets stock good DVD players, even if they are not the main brands. A good plasma screen costing around Rs 3 lakh really only has a five-year lifespan, especially if it’s on all the time. Thakore could get a fantastic cathode-ray tube TV costing around Rs 1 lakh with Sony surround-sound and still have change left over.

Not to mention a thrifty buyer will wait until the technology has come through all the hype – like the MP3 hard-drive and the Apple iPod – and has really proved its worth.

This advice holds true for all things money, and not merely an expert advice for a technophile. The point? Invest well (consult your accounts manager if you work in a company, or portfolio managers at advisory services like Karvy), borrow wisely and spend smartly (bargain hunt at every conceivable place).

We’ve all grown used to living with the threat of redundancy, failing pensions and mortgage rip-offs. But the no-frills economy has had one positive effect. It’s put prudence back on the map. Conspicuous consumption has been replaced by cheap chic, and canny shoppers now expect their rupee to go further. Which is why we are now all saving our souls.

Devika Rani’s mantra is to spend smart and live rich. The economy is not in great shape. On both sides of the Vindhyas, people are watching their savings dissolve. And ostentatious spending – unless you are Vijay Mallya planning to invite your pals to a Rs 3 crore birthday party – is off the agenda. Even if you have the money, it’s really not something you boast about. Nothing gives Rani greater satisfaction than being complimented on an item of clothing she bought for a few rupees from a roadside shop. And it’s not about being cheap – it’s not about clipping coupons. It’s about being a smart consumer. If you bought a sofa for Rs 1 lakh, you wouldn’t be able to take a vacation. It’s about getting more for your money – a high aesthetic level with a low price point.

So even if Rani is obsessed with living stylishly, she is a little too bright to be kidded into thinking something is good because it has a high price tag or a designer label attached.

In other words, you need to have a nose for a bargain and stick to your budget (that is, if you are budgeting it in the first place). The trend is for no-brand, no-hype, value-for-money goods that are also well-designed, is perennially on any shopper’s wish list (and this applies to good food as well and no-frills economy airlines).

Call it a strange kind of inverted snobbery about being in the know about brands that deliver good design at affordable prices. Not to mention that we are still as consumerist as we ever were. We just don’t want it to be rammed down our throats so much. We like to think that we are a bit more canny about what we buy.

The funda is more about not buying into the mainstream lifestyle. It is about not buying into anything at all. The upshot? Style has nothing to do with budget.

And now there is something vaguely obscene – and not a little dumb – about spending hundreds of rupees on a designer handbag that everybody thinks is a fake from your local street market anyway. The word ‘luxury’ has become so overused it has become completely meaningless. For the intelligent consumer it simply means over-priced and over-hyped. The new trend towards thrifty shopping is as much about being ahead of the curve as it is about saving money. The cheaper holiday destination might be the one the rest of the planet hasn’t quite discovered yet.

The whole idea of thrift has become more an attitude than just a way of budgeting. Despite gloom and doom on the stock market, we’re still spending. We’re simply taking a bit more care about what we spend our money on. Just don’t believe it when your friend tells you her new sunglasses was a bargain from Rayban. Chances are, it came from Arihant Plaza or Burma Bazaar or at any of the shops on the many bylanes off Commercial Street or Brigade Road.

The easiest way for an investor to obtain low risk and high returns is to pay off your credit card bill and all other consumer credit. And experts say that this will give you returns above 16 per cent without any risk. Most people make the mistake of carefully working on their investments, trying hard to obtain high rates of return, while ignoring the high cost of their own loans. If your credit card company charges you 2 per cent per month, your best investment opportunity is to repay the credit card outstanding; this gets you 2 per cent per month without risk.

But retail investors shouldn’t keep money in the bank (though banks are considered the best choice for risk-averse people). Even for people with a very limited appetite for risk, banks are no good. Money in savings accounts earns 4 per cent; longer term deposits earn from 6 per cent to 8 per cent. Instead of lending money to banks, investors should lend their money to companies, say experts. Corporate bonds easily earn returns above 11 per cent. The gain in returns is quite large. And experts believe that the risk of default (where a bond fails to pay back interest and capital can be dramatically reduced by diversification. An investor who spreads his Rs 1 lakh across 10 corporate bonds is greatly reducing his exposure to any one of them. Diversifying across 6 bonds is even better.

And for people with greater tolerance for risk, experts say equities are the best investment strategy – they pay higher returns over long periods of time. And the ‘risk’ here means the month-to-month fluctuations of returns. When you buy bonds, you get around 1 per cent returns each month; it does not vary much from one month to the next. Equity investments have a high variability; returns could be +7 per cent in one month and –7 per cent the next. However, for people who are willing to tolerate this ride, the rates of return over long time periods are extremely appealing; around 15 per cent per year.

Know what money means to you; make your money last; borrow wisely; don’t spend money you don’t have, and have your own personal budget plan. And you don’t have to be a rocket scientist or a genius to put a personal budget plan in place. Because what it essentially means is to plan how your money is managed so that you still have money at the end of the month. And remember, what is one rupee today will be 0.72 paise five years from now, according to the union finance ministry. Make the most of it. And what money can do now is get you to strike better bargains, draw up too-good-to-miss-out retirement plans, cut down on overheads (downgrading and outsourcing, if it’s companies and prudent living conditions, if it’s families). But what it can’t do is protect you from inflation (which currently stands at around 4.8 and expected to go up to 5.5 five years from now).

Borrow wisely. Loans can be serious debt traps if they are taken out for the wrong reasons. Know how much interest you are paying on the loan so that you understand the total amount you have to repay. And remember, the fact that a certain bank or financial institution is lending you money at the lowest rate of interest in the market doesn’t really mean, the lowest financial burden on you. Look for hidden costs (processing costs and other costs go up to 1 per cent of the amount loaned) and you will realise that a bank offering loans at 10.50 per cent interest is better than a bank offering at 9.75 per cent.

Always base your decision on the net amount payable to the bank and not on the interest charged on you. And this means, get all the information you can about loan repayments: when repayment begins, and how loan repayments work. Make informed choices when applying for and taking out loans. And then again, there is room for bargaining. If the bank charges a floating interest of 8.75 per cent, you could bring it down to 8.25 per cent (depends on the amount loaned and your power to haggle) and also ask for insurance cover at no extra charge.
Don’t spend money you don’t have. People often find themselves in financial trouble because it is so easy to get and use credit. We want instant gratification, so we use the ‘buy now & pay later’ option. If you resist the instant gratification, (seeing things and wanting to buy them immediately), you will prevent yourself from getting into a spiral of credit debt.
Be thrifty with your money. Spend on things you really need and can afford rather than on luxurious wants you can’t afford.

And if you do have money on you and you are attacked by malcontents, remember people are more likely to respond if you scream ‘FIRE’ rather than help.
And if you are yet to come under the tax net, remember son, these are your tax-free years. Make the most of them.

Postal savings banks have always been known for safety. With 100 per cent tax-exemption schemes and higher interest rates on deposits than banks, the schemes gather almost Rs 200,000 crore a year in deposits
Municipal bonds offer lower risk and saves on taxes. Municipal bonds are loans that are taken out by governmental bodies under the federal level. States and cities regularly issue these bonds to fund the construction of local roads and buildings. Investors buy municipal bonds because they’re considered a relatively safe investment, most pay interest annually and, unlike corporate bonds, that interest is free of federal tax and, sometimes, state and local taxes. The bonds’ tax-free interest is especially attractive to investors who are in higher tax brackets

(Published in City Reporter, 2003)