Monday, December 31, 2001, Chandigarh, India

National Capital Region--Delhi



Y O U R  M O N E Y

A primer on housing loans
WO of your friends buy similar society houses; and both go in for the housing loans. At the end of it, both have the same loan amount, the same loan term, but a different monthly instalment? A common enough scenario — for if there is one thing that has got more mystery to it than a Sherlock Holmes, it surely is a housing loan.


Insurance, PPF good options
THANKS to his previous investment decisions, Mr Kuldeepak Rajan Sharma, an ex-Punwire employee, and new MD, Global Communication Services after the closing down of the company has now started his own business.


Public services need greater focus
F one were to string together some of the tragic events of the year gone by, a common thread that runs through all of them is the administration’s apathy to quality and safety in the delivery of public services.


Will 2002 be better than 2001
HE calendar year 2001 was certainly a bad year for stock market. On December 31, 2000 the Sensex was 3972.12 points. This year it closed at 3184.44 points. Thus it is lower by 788 points. One of the worst sufferers were the investors in UTI UGS-64.




  • House rent


A primer on housing loans
Simmi Sareen

TWO of your friends buy similar society houses; and both go in for the housing loans. At the end of it, both have the same loan amount, the same loan term, but a different monthly instalment? A common enough scenario — for if there is one thing that has got more mystery to it than a Sherlock Holmes, it surely is a housing loan. Floating rates, EMIs, hidden costs, and lots more demystified for you:

How much loan could you get?

In general, the lender will want you to come up with at least 15 per cent of the value of your new home for a down payment before he will give you a home loan. Within the above ceiling, the loan amount in the range of 2-3 times your annual income can be sanctioned. The value of loan increases with the duration of the loan. The lender will have some norms for deciding your upper limit of loan, like your take home salary after loan repayment should not be less than 40-50 per cent of your gross income, etc.

Lenders also take into account factors such as spending habits, existing debts, number of dependants and age of applicant and co-applicant in restricting the size of the amount. The loan sanctioned could be larger if the applicant is in a profession or company that ensures exponential rise in income during the loan term. In case of co-applicants, if both have an income, the loan amount would be factor in the combined income.

Where to go for a housing loan While housing finance companies such as the Housing Development and Finance Corporation (HDFC) have been the favorites since the nineties, private banks and foreign banks are now laying out the red carpet to woo the home-buyer. All this means is that the distinction between HFC and banks, private and public, is now blurring. Instead of a one-size-fits-all, the choice of who to go to will be determined individually and primarily by the size of the loan, how soon you want the loan and the kind of flexibility in repayment conditions that you are looking for.

Interest rates, other costs (processing fees, administration charges, prepayment premium) and speed of processing would be the most important criteria to look at. For example, professionals taking a large loan and anticipating substantial increase in income to repay their loan before term may find early repayment penalty discouraging.

There are also lenders who offer a choice between floating interest rates and step-up repayment. The first is the facility to avoid a fixed rate in anticipation of a drop in interest rates. In the second, there is the option to have a lower monthly payout at the beginning of the term and stepping up the amount in keeping with increase in income at fixed intervals. The other important consideration is how the interest on principal repayment is calculated — annually, monthly or daily.

The interest rate mosaic

Interest rate depends on the amount of loan you take and the time period of the loan. There are two kinds of loan possible: fixed rate loan and adjustable rate loan. In fixed rate loan, the interest paid on the loan remains constant through out the tenure of the loan. In adjustable rate loan, the interest rate may vary depending on the underlying benchmark.

What is the real interest rate you pay

The real rate of interest on the loan would be based on the specific terms of your borrowing. However, the thumb rule is that the greater the frequency of interest calculation the better it is for the borrower. The effective rate of interest would depend on the term and whether the interest is calculated daily, monthly or annually. If the principal were annually rested, the actual rate of interest would be higher than monthly or daily rests. With processing fees and other charges that the lender may apply, the actual rate of interest over the quoted rate may increase by more than 1 per cent. But because of the tax savings, the real cost of the housing loan would work actually out to lower than the rate of interest stated.

Other costs

Interest is not the only cost you pay for taking a housing loan. The housing financiers charge a certain percentage of the loan applied for (and not the loan sanctioned) as the processing fees. This charge varies with the lender and may also be a fixed amount irrespective of the amount applied for. An additional administration fees could be charged by certain lenders. And this is not all! Certain lenders charge commitment charges on the undrawn balance of the loan.

Many lenders will also insist on your getting an insurance on the house to safeguard their interests.

It pays to take a housing loan

If you have funds, you may want to buy the loan out of your own money. And even if you take a housing loan and get some money later, you may want to prepay the housing loan to save you on interest cost. But conventional wisdom does not always work in the case of housing loans as they carry certain tax advantages.

Payments towards principal on housing loans qualify for a rebate under section 88 of the Income-Tax Act subject to an overall ceiling of Rs 20,000. Interest payment on loans is deductible from taxable income upto Rs 1,50,000 per year if you have taken a loan and built your house between April 2001-March 2003 (for loans taken before April 2000 or for loans taken for extension/renovation of house already owned by you, the limit on interest deduction would continue to be Rs. 30,000; the limit is Rs. 1,00,000 for loans taken during 2000-2001).

Bank of Punjab

Bank of Punjab having a host of retail products has now lowered the rates for home loans making it more affordable. The loans are offered to resident and Non-Resident Indians, for construction and purchase of new dwellings, extension, purchase of house/flat through resale or allotment or purchase of land and construction thereof.

The effective rate cut in terms of equivalent annual rest (charged by most housing finance companies) works out higher since Bank of Punjab follows the daily reducing — quarterly compounding method of calculation of interest. The reduced EMI per lakh works out to Rs 1214 for a period of 15 years and Rs 1090 for 25 years which is the maximum term. The equivalent rate of interest works out to 11.85 per cent and 12.36 per cent respectively on annual rest basis.



Insurance, PPF good options

THANKS to his previous investment decisions, Mr Kuldeepak Rajan Sharma, an ex-Punwire employee, and new MD, Global Communication Services after the closing down of the company has now started his own business. Safety has always been the top priority, and right from the time he began his career, he planned his investments fully keeping into considerations the likely liabilities for the long term. Never put your money into an area, the safety of which you are not sure of, advices this management post-graduate having an experience of more than 24 years in service and business.

Initial Investments
I started my career in a private concern in 1976, two years after which I joined Semi Conductors Limited as a senior commercial executive. Tax-saving was my priority then, with of course the safety factor in consideration. I bought money back policies of the LIC and also invested in various schemes of the Unit Trust of India (UTI) including the US-64.

I always invested keeping in view the future liabilities. At that time only I had put my money in areas like child growth scheme. Wherever I invested, I thoroughly read about it and also sought the expert advice of my friends. It was in mid 80s when I opened a Public Provident Fund (PPF) account, which I believe is a must for all and I am continuing it even today. After Punwire crisis around two years back, it were those investment decision that have helped me tremendously.

In around 1987 I got interested in equities and I bought shares of Federal bank, Reliance Petro, Tata Steel and several others. I invest a very limited amount in shares and never keep them for more than a month or so. That I do, because I have my own business and as a result I cannot keep a regular track of the share market. Investment in this area requires thorough knowledge and time, failing which one exposes himself to extremely high risk danger.

Financial performance of a company, trend for the last six months and market word about the company — all of these matter a lot. One should never commit the mistake of going by any one of these only. Also, investment should not be done in a single sector as many people did with IT, it should always be spread.

Currently I am putting around 5 per cent of my savings in the share market.

Mutual funds
Debt-based MFs are the area where I put almost 35 per cent of my savings. I started investing in this sector a year back and am having debt-based funds of ICICI Prudential, Kothari ITI Pioneer, IDBI Income Fund.

Debt based funds are very safe to invest and offer good returns. I go in for the ones which offer shorter lockin period, higher returns and high liquidity. Even a person who is unable to keep a regular tab of the share market, can invest in MFs after knowing about the company.

Tax saving, good returns, safety, facility of loans and above all risk coverage are major benefits of insurance. Even the new private companies that have come up I feel will do well in future and are offering good policies with riders. One must buy a medical policy and should not be under insured. While till date, I have mostly taken money-back policies of the LIC, now I am planning to take a policy from some private company as well.

So far as banks are concerned, I find them safe but very unattractive when it comes to returns. I am not putting much money in the banks as I think interest rates are going to come down even further.

Where to invest
One should start planning his investments right from the beginning, keeping in mind his long term targets and liabilities. Insurance policy, a PPF account are the first things one should put money into when one starts his career. These investments develop habit of savings and can be started in with a small amount as well.

(As told to Shveta Pathak - TNS)



by Pushpa Girimaji

Public services need greater focus

IF one were to string together some of the tragic events of the year gone by, a common thread that runs through all of them is the administration’s apathy to quality and safety in the delivery of public services. And the most important lesson that needs to be learnt is the urgent need to pay heed to safety measures.

Take the earthquake that shook Gujarat on January 26, leaving in its wake a trail of death and devastation. It was very obvious that the magnitude of the calamity would have been far less if only the administration had stringently enforced quality and safety norms for buildings. The fact that parts of Gujarat came under “very high” to “moderate” tremor risk in the seismic zoning map of India was known. Yet, no efforts were made to ensure the safety of buildings in case of an earthquake. In fact, if one looked at the way many of the high-rise dwelling units in Ahmedabad crumbled, forget earthquake resistant designs, even minimum quality standards were not followed by builders. Nor were they enforced by the administration.

February saw another tragedy, which was purely man-made. Four persons died and 14 others received severe injuries when an amusement ride ‘giant rainbow swing’ capsized, hurling those seated on it from a height of over 50 feet or so. The joy ride had been installed at the prestigious Arts and Crafts Mela at Surajkund, Haryana. It is really beyond comprehension that the authorities could permit such a ride at the mela without proper quality and safety checks. In fact the swing did not even have proper seat restraints to hold the passengers to their seat and prevent their fall.

Be it air, road or rail, safety is the most crucial part of any transportation network. Any compromise on safety could lead to a major disaster, but the Railway don’t seem to learn any lessons from their past mistakes. On June 22, over 50 passengers died and 200 suffered injuries when several bogies of the Mangalore-Chennai Mail in which they were travelling plunged into the Kadalundy river.

Whether the cause was the collapse of the 139-year-old Kadalundy bridge, which was well past its useful life, or the systemic neglect of rail safety, the accident was yet another reminder of the administration’s apathy to consumer safety. Following the accident, the Water Resources Ministry alerted all state governments on the need for a ‘super check’ on all old and distressed dams in the country for quick structural assessment and immediate remedial action. It also reminded the states of the guidelines issued by the Central Water Commission for regular safety inspection of all dams in the states. This was in July and I would not be surprised if the guidelines are already forgotten.

Be it accidents involving CNG buses in Delhi, blinding of five persons who underwent cataract operation at an eye camp in the Chhindwara District Hospital in Madhya Pradesh or the infant deaths at the King George’s Medical College Hospital in Lucknow, adequate attention to quality and safety could well have averted these tragedies.

But the most shocking example of the administration’s callous disregard for safety norms came in the month of November, when 14 children died and 953 suffered adverse effects following administration of vitamin A under the immunization programme in Assam. Announcing a high level committee of experts to go into the issue, Union Health Minister C.P. Thakur told the Rajya Sabha on November 21 that one possible cause could be over-dosage of vitamin A and the resultant toxicity. Since the dosage is age dependent, a very high degree of training and field supervision are required in the administration of this vitamin, he said. Then why were these precautions not taken?

The purpose of recollecting these painful events at the end of the year is to learn lessons from them and prevent their recurrence. True, natural calamities cannot be prevented, but their adverse effects can certainly by minimized with proper planning and their stringent implementation. And as far as man-made disasters and accidents are concerned, one way of preventing their recurrence is by swift prosecution of those responsible for them. Today, after every major tragedy, the government promptly institutes an inquiry and then no one is any wiser as to the action taken on those reports. Are government functionaries responsible for such negligence identified and proceeded against? It should become mandatory for inquiry committees to submit their reports within a fortnight and the government to make public the action taken on them within the next 15 days. It is only such swift action that can restore public confidence in the government’s ability to make amends for its mistakes and take suitable corrective action.

I would also one again press for an independent consumer safety commission to oversee and enforce stringent safety norms in the delivery of public service.


by J.C. Anand

Will 2002 be better than 2001

THE calendar year 2001 was certainly a bad year for stock market. On December 31, 2000 the Sensex was 3972.12 points. This year it closed at 3184.44 points. Thus it is lower by 788 points. One of the worst sufferers were the investors in UTI UGS-64. In this column I have repeatedly been indicating and advising the readers to withdraw their money from UGS-64 before the book closing. Naturally, those who ignored the warning, are the losers.

It was a bad year also for the global economy. With deep economic recession in USA, Japan and many of the European countries, comparatively the economies in India and China have suffered less but the investors as well as traders, nonetheless have suffered heavy losses.

Would the calendar year 2002 be any better than 2001? International Monetary Fund, in its special interim issue of its World Economic Outlook has warned that “there is a significant possibility of worse outcome” in the world’s economy next year. It had earlier stated that economic recovery might come in the second half of the year. But now it states that it may be deeper and longer and might overflow into the next year (i.e. 2002).

In our country the situation has been had enough. The overall industrial growth has moved up by were 2.2 per cent - though there is some indication that in November the six infrastructural industries have registered the combined growth of 3.4 per cent. The National Council for Applied Economic research has in its quarterly reports estimated the GDP growth at 4.8 per cent and has lowered its earlier estimates of 5.5 per cent growth. Exports are expected to grow at mere 0.64 per cent. Even agricultural production has not been higher than 3.8 per cent. The government has also scaled down export target to 3 per cent from 12 per cent.

The CII in a recent survey of the Indian industry, on the basis of responses from its members, describes the situation as grim. A large number of its members do not have any plan for fresh investments. A majority of them expect lower profits and larger inventories. Even a large number of FIIs have quit India. While the total number of FIIs registered with SEBI stood at 556 on January 1, 2001; at present the number of FIIs stands at 482, registering the exit of 74 FIIs.

I do not expect the Calendar year 2002 any better than the year 2001. If the Monsoon rains are normal, there may be some indication of industrial recovery in the next half of the year, 2002.

I have been receiving many enquiries from investors in UGS-64. Now that UTI has allowed repurchase of units upto 5000 units and has ensured repurchase prices of Rs 10 per unit or at the NAV whichever is higher, the investors should make use of this opportunity to opt out. Those who are having larger number of units in their portfolio should wait and mark time during the next 2 or 3 years its NAV unit. There is a little possibility of its improvement unless the market revives in a big way.

Should the investors enter the market for long term investments? There is a little doubt in my mind that there will be no war and the market should improve. Those investors who can invest now and wait for appreciation during the next two to three years, may enter the market and invest in Multi-national Pharma companies like Glaxo, Novartis, Aventis and even Astra, Zeneca.



by R.N. Lakhotia

Q: I am a college teacher in a Government aided privately managed college in Punjab. I am a victim of a serious disease (cancer) and am spending huge sum on my treatment which may turn out to be equal to a year’s salary even during this year. Am I eligible for any income tax rebate on account of this against actual hospital/medicines bills?

— P.M. Sodhi, Budhlada

Ans: As per section 80DDs you are eligible to claim a tax deduction of Rs 40,000 from your total income in respect of expenditure incurred by you for medical treatment of specified diseases or ailments as is prescribed in rule 11DD(1). Cancer has been prescribed in the above rule as a specified disease eligible for tax deduction. Please do not forget to submit a certificate in the prescribed Form No. 101 from any Doctor who is registered with the Indian Medical Association with a post graduate qualification.

Q: I have taken retirement and have received good amount which I have distributed in my two major children and my wife in equal ration and they have deposited it in banks. I have come to know that the interest income of my wife will be clubbed with my income whereas that of children will be their income (Tax free upto 59000/-) i.e. Basic slab 50000/- + 9000/- under 80L. If I receive nominal interest say of Rupees 5000/- P.A. from my wife by showing above said amount as loan to her then advise that even then my wife’s income of interest from said amount will be clubbed in my income.

2. If I have taken a loan against my fixed Deposit and am paying interest on that loan then advise if I can deduct it from my total interest income on my deposit so as to make it as Net interest income and avail benefit under 80-L.

— Subhash Kumar, Ropar

Ans: The income arising from gift by you to your wife will be added to your income. If you are charging reasonable rate of interest from your wife for the loan advanced to her, then the question of clubbing will not arise. Interest payment on loan against fixed deposit will be deducted from the gross interest income from fixed deposit and only the net amount of interest will qualify for deduction U/S 80L.

House rent

Q: In your column in Tribune dated 20.8.2001, you had stated that deduction in respect of rent paid is 25 per cent of the income subject to maximum of Rs 2000/- per months.

Please clarify that this deduction is available in Ambala or not and whether deduction is — 25 per cent of income


rent paid - 10 per cent of income


2000/- per month

Whichever is less is allowed as deduction or not.

— Sunder Lal, Ambala Cantt

Ans: Yes, it is true that even in Ambala you can avail deduction in respect of house rent paid by you in terms of section 80GG of the Income-tax Act, 1961. The calculation as made by you is perfectly correct.


Inflation rises
New Delhi, December 30
Soaring prices for tea, maize, condiments and spices, copra, ghee, coconut oil, suji (rawa) and cement pushed up the inflation by 0.06 per cent to 2.27 per cent for the latest reported week. PTI

Andhra Bank
Chandigarh, December 30
Mr B. Vasanthan, CMD, Andhra Bank, today inaugurated Patiala branch of Andhra Bank at 9, Bhupindra Road — the 5th branch of the bank in Punjab. A. Muralidhar, Zonal Manager, New Delhi Zone of the bank was also present at the function. As on 30.9.2001, the bank has a net work of 1031 branches, 108 extension counters and 45 cluster branches spread over 19 states and 2 Union Territories. TNS

Canara Bank
Chandigarh, December 30
Canara Bank's Executive Director N. Kantha Kumar organised a meeting with all the existing and potential corporate customers of the region. While reviewing the performance of the bank in this region comprising of Punjab, Haryana, Himachal Pradesh, and J&K, he laid special emphasis on retail lending. The bank has opened several retail counters in major cities of the region viz. Jammu, Amritsar, Jalandhar, Ludhiana and Patiala. He said the bank is celebrating retail utsav during December 2001 and January 2002. During these months, special incentives in the form of interest concessions are being offered to the public. Mr Kantha also informed about bank's IT plans. The bank will open two ATMs in the city soon. TNS

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