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Fiscal Fitness

Pound and penny foolish

  I am a natural spender
  I earn bags of money so I can afford to live it up
  Savings mean putting away a stack of money
  I cannot enjoy life if I save
  I am twenty-five, savings are for oldies
  I can invest in Wipro shares any time and make three times the money
  It's too late to save now

nflated salaries doled by India Incorporated fuelled among techies fantasies of life in the fast lane epitomised by designer clothes, flashy cars, outrageously expensive accessories, exotic holidays, flashy gizmos and lavish lifestyles. These twenty-something techies on the block sloshed on a heady cocktail of youth and affluence are now awakening to a terrible hangover of a weakening economy, a battered tech sector, salary cuts and layoffs. The giddy roller coaster dream has turned into a nightmare for techies deluded into believing that IT was all about money, honey and the joy ride would never cease. Reckless spenders of the boom time are now on the brink, with non-existent savings and the axe hanging like Damocles' sword over their heads. The prospects of imminent joblessness may have arrested the exuberant bingeing, but techies, awakening to the necessity of fiscal fitness, have a long way to go before they can cut through the expense slab and build financial muscle.

The innumerable permutations and combinations to a fiscal fitness program such as differences in income can upset any quick-fix mantra as it precisely sweeps these very differences under the carpet. A broad survey of the IT industry undertaken by the Assure team reveals techies are largely spread over three income groups: First, techies with one and two year experience earn annual salaries between Rs. 2.5 lakh and Rs. 4 lakh; second, techies with two and four years experience earn salaries between Rs. 4 and Rs. 6 lakh; three techies with five and seven years experience earn salaries between Rs. 6 and Rs. 8 lakh and four techies with eight and more years of experience earn salaries above Rs. 8 lakh. These broad disparities notwithstanding, most financial experts were unanimous that certain investment schemes were beneficial to all income groups. The first three winners were LIC, PPF and the NSC and here's why!

Buy It Now: LIC Policy: Long written off by youth as a stodgy scheme meant for old fuddy duddies, the LIC notched most points from financial wizards. K R Prasad, a Chartered Accountant reasons: "Buy it simply because its essential and it's a good investment." To begin with he advises a minimum cover of Rs 1 lakh for techies earning a salary between Rs 2.5 and Rs 4 lakh. The premium can be spread over easy installments over a number of years, ensuring you can have your cake and eat it too. The icing: policyholders save 20 per cent of their payments and can even use the policy amount as collateral against a loan later.

Post Office goes glam: The post office may lack the glam image of the equities market or mutual funds but its innovative investment schemes outstrip the hype and hoopla encompassing new age financial institutions. The ubiquitous institution in every locality offers risk free investment to savvy, high-tech investors. The minimum amount of investment in PPF per year is Rs. 100 and the maximum amount one can deposit is Rs. 60,000, making it a perfect fit for all pockets. Attractive features such as flexibility to deposit the amount at any point of time in the financial year, an annual compounded interest of 9.5 per cent; tax rebates up to 20 per cent and tax exemption on returns are reasons enough to sing all the way to the post office.

Compare this with a time deposit in a bank. Many private banks do offer interest rates between 10 and 10.5 per cent on deposits, placed with them, for periods ranging from 1 to 2 years. But any interest earned in excess of Rs.10, 000 per annum is subject to a tax deduction by the bank at the rate of 10 per cent from the interest amount. The scheme does have drawbacks. Partial withdrawal can be made after seven years, but for binge spenders it arrests the impulse to splurge.

Fiscally battered techies can opt for another risk free six-year scheme - The National Savings Certificate. Available in lots ranging from Rs. 100, Rs. 500, Rs. 1,000 Rs. 5,000 and Rs. 10,000, techies have a range of options to choose from. The principal amount doubles at the end of six years. Other benefits include 9.5 per cent, compounded half-yearly payable only on maturity, tax rebate up to 20 per cent and no tax on maturity. The post office schemes combined with PPF can actually lead to the pot of gold at the end of the rainbow, which the tech sector promised.

Money on the roof: Apart from these three basic schemes advised for all income groups by financial experts, techies need to supplement investments as they climb up the salary chain. For techies with three and five year's experience, another safe option could be the housing loan. The loan can be a great way to save money, as one gets a roof over one's head at the end of the period with a twenty per cent tax rebate to top it all. Banks like Citi Bank and HDFC offer loans for purchase of land, apartments and houses. Shop for the best buys and analyses the interest schemes before signing the fine print.

High income higher risks: As one moves from the Rs. 2.5 to Rs 4 lakh annual bracket to the Rs 4 and Rs 6 lakh slab, a new set of viable investment options become available, provided one has been saving all along. It is at this stage that techies can think of high risk high return schemes such as mutual funds. The market mantra is simple: risk is directly proportionate to investment. Depending on your personality type you could chose between equity funds: funds that invest only in the stock market; debt-based funds: funds that invest only in debt instruments and balanced funds: ideal vehicle for investors who want to spread the risk net. Although on paper balanced funds offers high returns and low risk, this is not really the case. A large number of mutual funds have concentrated holdings in one company, which increases the risk factor. Before zeroing down on the right mutual fund, techies must sift fact from fiction.

For techies bullish about the equities market, our advise: delay investing large amounts till you enter the second income group and have already bought safe fiscal instruments. And the tips are: spread the portfolio basket; buy shares of industries whose products will never die (for instance toothpaste) rather than industries high on hype and low on substance. If you possess the flair, identify an upcoming sector, which you can milch within a year or two.

Investment in these various instruments and schemes can be upped as one climbs the salary ladder. As stated earlier, a universal fitness program is a virtual impossibility. But a diversified basket spread over basic instruments like LIC, PPF and NSC could see techies triupmhing over market's diktats to the industry.

 

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