How much tax should I pay?

http://www.rediff.com/money/2005/sep/14tax.htm

http://www.rediff.com/getahead/2005/dec/29tax.htm

Happened to read these stuff in rediff.com. It talks about income-tax implications on various investments. It's worth reading.

The Perils of Java Schools

Joel Spolsky of joelonsoftware.com has written an article titled "The Perils of Java Schools". Joel blames on Java-only schools. Well, he has a valid point. Universities shouldn't discard other lanuages when they teach computer science. Infact, JVM itself is written in native code and the OS where the JVM runs is also written in native code. And there are other places where Java is not used. But I don't understand how Java prevents programmers to do recursive proramming. Joel should make a distinction between the implementation language and the programming technique. Agreed, Java doesn't have pointers. Java has its own reason not to have pointers. But then this has lead to more productivity among the programmers. Who would want to waste his time dealing with segfaults when implementing an enterprise software that changes frequently? Java is not just in enterprise software though. It's in small devices (courtesy: JME). It's used in gaming software. Schools shouldn't be meant as a place where inefficient students are weeded out. We already have a screening system where the student candidates are weeded out and we also have exams to rank the students. Java shouldn't be a reason to blame the inefficiencies on the part of students or the schools. It's the syllabus framed by the university and the tests conducted by the schools to be blamed. But then, shouldn't the companies have proper system to weed-out the inefficient candidates?

What is EET?

EET is Exempt-Exempt-Tax. This is a form of tax system used to tax the savings. There are 3 stages in savings - first you contribute a certain amount to your savings, next the benefits in the form of interest & bonus accrue to your savings and in the end, after the maturity period you withdraw your contribution & the benefits accrued. In short, we can call those stages as contribution, benefit accrual and withdrawal. In EET, contribtion and benefits accrued are exempt from tax, but withdrawals are taxed. So, what does this mean? The payment of income tax is basically delayed till the maturity of your savings.
Currently, we have EEE form of tax system in India for most forms of savings. But the Indian government is already studying the feasibility of EET system based on the proposal made in the 2005-06 budget. We should get to know shortly in the next 2 months what savings get into the ambit of EET.
Given the current performance of stock markets and its future potential, the move to EET system will force the investors to put their money into equities & equity-linked mutual funds and stay invested for atleast 1-year. This is because the dividends are not taxable and the withdrawal amount is also not taxable, if withdrawed after 1-year. Having said that, the investor should carefully select the stocks and the mutual funds so that he makes more money compared to the benefits accruable on the savings. But one should remember the fact that the amount invested in equity-related instruments is not tax-exempt in the contribution stage. So, this would become TEE form of tax system. :)

Airtel does it right

When the telecom players such as Tata Indicom and Reliance Infocom were shouting big about their pre-paid plans that are free for three years, Airtel has come out and announced "Well, people! Why have it free just for three years? I'll give it to you free for life". Now, the Sales & Marketing team at other companies should go back to their drawing room and work out their plans again. But Airtel's rivals can't do more on this front now. They could only play with some marketing gimmicks. When one provides a service that is free only for three years, why can't he provide the same free for lifetime (It's not completely free though). Not everyone who opts for this plan would stay in the same plan for his/her lifetime. Obviously, the customer would later move to a better plan with the same service provider provided the service is good. And this would benefit the service providers. So, the telecom players should infact consider these free plans as an entry point for the customer. Airtel has understood it well.

BJP silenced by its own members

Few days back, BJP members were all happy to get Natwar Singh removed from all his posts one after another (External Affairs Ministry, Cabinet Minister & Member of Congress Working Committee). Before they started intensifying their demands on the resignation of Sonia Gandhi, the news of the sting-operation by Cobrapost was out. BJP occupied the top slot having the most number of MPs caught taking bribe. BJP leaders couldn't speak out any further on Volcker report although MPs from other parties were also caught in the sting-operation. So now, the BJP party is pushed to the defensive mode!

This is not to mean that other parties are better. But the BJP leaders should look at their own Bangaru Laxman before making the issue out of Volcker report. And they should rather do more to provide constructive feedbacks to the discussions conducted in Parliament that are of national interest. Well, one could argue that these MPs are unfortunate because there are supposedly even more bigger crimes by the poiticians. But we have got a proof here in this case and these MPs should rather abdicate all their powers themselves. When everyone was expecting these MPs would be expelled without any protests, it was suprising to see some members from BJP & other parties have come out and said those MPs haven't committed a bigger crime to be expelled from the parliamentary houses! I don't know what do they think of the common man who voted them to power and watching all these activities.

Important market events that went by

1) Pepsico Inc overtook Coca-cola company in terms of market-cap after 112 years! First of all, it is interesting to know that these companies existed for more than 112 years. Pepsico was able to achieve this status because it started diversifying into other businesses much earlier than Coca-cola realised the potential of other businesses. Now, Pepsico is the market-leader in all the other businesses which it diversified. Kudos to the leaders at Pepsico!

2) ICICI Bank overtook State Bank of India (SBI) in terms of market-cap. This is mainly due to the recent issue of $1.8 billon worth of equity shares. This stock is still going gung-ho even after this major equity dilution because of FII interest. K.V.Kamath is definitley a great leader and now he has planned to foray into global & rural banking.

Now or Later?

An investor typically has this question, "Should I buy this stock now or later?". For this discussion, let us assume the investor has done enough analysis on the fundamentals of the company and its future business prospects. Based on the analysis, the investor expects a good appreciation in the stock price and the return-on-investment could beat other investment oppurtunities that the investor knows. If he decides to buy now, he thinks that current price is the best price. If he decides to buy later, he hopes to get a better price later. This question is usually asked when the investor couldn't figure out the direction of broad market in the short-term or he fears that the broad market could come down significantly in the short-term due to some events or he is unclear about few important things of the company although the broad picture of the company looks good. In this situation, let us assume the investor has invested ALL the allocated money in that stock NOW simply because he is gung-ho about its future prospects. But what if the stock price comes down significantly after few days? This would definitely worry the investor because he took the 'buy' decision when faced with the dilemma. As the investor didn't anticipate this event earlier, he also invested all the allocated money into that stock and he won't be able to use more money which is committed for other purposes. Although this event may not affect his expected return-on-investment, the investor has definitely missed a better oppurtunity. Now, let us assume the investor has decided to invest in that stock later because he thinks he could get a better entry price. But what if the stocks price goes up significantly after few days? Again, this would worry the investor because he missed a better entry price and he has not invested even a single penny in that stock. Even this decision will affect his return-on-investment.

So, what shoud the investor do given this situation? First of all, the investor should understand the stock market always fluctuates. When fluctuation is name of the game, it is very difficult to predict the best entry price. If he has invested all the allocated money in a stock and he is sure of its future prospects, it is better to sit tight rather than worry about stock market fluctuations. But the investor here was faced with the dilemma "Now or Later?" before he wanted to invest. Given this situation, the best way is to invest in small chunks than all at once. I mean one can start with small investment in that stock and based on how things evolve, he can consider increasing or decreasing the investments in that stock. How will this strategy benefit the investor?

• If the stock price goes down, he will still have the money to buy it at lesser price which can bring down the average purchase price. This will help improve the RoI.
• If he is not clear about few important things about the company, he can find out how things evolve over a period of time. If he finds something wrong in those few important aspects, he can stop investing more or he can delay further investment until things are sorted out. This will help limit the possible loss and the unused money can be invested in other investment avenues.
• If he is an active investor and he is constantly on the look-out for better oppurtunities, he could invest the unused part of the money allocated to the earlier mentioned stock in a different company which has even more better prospects. Here, I've assumed that the investor finds the better oppurtunity at a later point in time.

One can say the investor would have lost the oppurtunity if the stock price goes up after few days. But if you're faced with a dilemma and not clear of few things, why should you invest all your money in a single stock? Apart from capital appreciation, one should also think about capital protection. Even if the RoI is affected when the stock price goes up because you didn't choose to buy earlier, the investor actually gets the time to get rid of the dilemma. Even when one is not faced with a dilemma while investing, this strategy helps in manier occasions.

Read this good quote by Warren Buffet - Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

writely - The Web Word Processor

Check out this web-based tool. This shows how the world is moving to thin-client applications. I really like the colloborate feature and it also supports multiple formats such as Open Office, MS Word, PDF and others.

The other face of the evil that is Lashkar

Check out this link. A story about how an young person was recruited by PoK based militant outfit. This young person was infact exploited because of this financial crisis and his desire for adventure.

Advantage in lagging behind

Many ask me how one can grab a multi-bagger stock. There are many ways. But there is one neat way of doing it and it is relatively easy. Everyone knows that India lags behind many countries in terms of how we do business. And we all know that US, some of the European countries and Japan are well developed nations (I write here only about the business aspect). This is where the investor has the advantage. The well developed nations had good communication infrastructure even before 2000 when India was in the early stages of adopting latest communication technologies and the foreign companies involved in this business had multi-billion dollar market capitalization. We had our Bharti Televentures that owns Airtel brand listed in Indian Stock Market in the year of 2002 at a price of 45 and it's price went down even to 35 levels. Now it is trading at 350+ levels. So in a span of 3 1/2 years, the stock of Bharti Televentures has become a 10 bagger. How did this happen? The logic is simple. India was less penetrated market for mobile telephony and there was a huge scope for development. And Bharti Televentures was the only private company listed in the stock exchanges and they had good management. Well, it is easy to say now they had good management and a great vision. But the investor has to do the research only in this aspect - the quality of the management and the quality of the major shareholders. Once the investor is convinced of the company's management and its major shareholders, then he can put his money into that company's shares and forget about it till the communication market is nearing the stage of maturity. As everyone watches the market, in the next few years, Bharti Televentures would become 20 bagger for those who invested in this stock in 2002.

Bharti Televentures is not the only company to illustrate this point. Pantaloon Retail is another and it is even more a success in terms of capital appreciation. This company was trading at around 20 in the year of 2001. In the bull run that we saw recently, this touched 2000 levels and now it is trading at 1700+ levels. As one can understand, it is almost a 100 bagger. So what does Pantaloon Retail do? They are into organised retailing of food, clothings, consumer durables and many such things. And we have the good example of Walmart and other big retailing companies in well developed nations to find out the potential of this industry.

Now, I think one can agree there is an advantage in lagging behind. :) BTW, it is not the investors who are lagging behind. Rather, it is the nation or some part of the economy lagging behind and the potential that is left unexplored. One can also correct the mistakes that the leaders made earlier. Having said that, I would also agree there is a great advantage being the first-mover.

Well, the point is made. But what are the sectors that have huge potential in the future here in India?
1. Supply Chain Management [Food Processing is one among that. But there are also other processes that will get organised]. The companies that are directly involved in this business aren't the only ones who will be benefitted. There are also associated industries that will benefit a lot. If supply chain management has to be successful, the infrastructure for transport and communication should be well developed. I think one can understand the related industries that would be involved here. I would write more about some of those industries later.
2. Organised House Rentals by corporates. One can also think of organised house brokers as an industry. Well, broker is a generic word. One can image the effect of all those brokers getting organised based on their industry.
3. Organised Car Rentals
4. Organised film industry where the films would be produced by corporates

I've just given some examples. There can be many one can think of and each would have their own potential.

Business Thoughts - 1

Assume that you have a Chettinad style restaurant and your hotel is into specialty sea-food of authentic Karaikudi Chettinad style. You are also doing well in this business and you have sufficient funds to expand/acquire other restaurants. Now you come to know from your friend in Mangalore that a well-run specialty sea food restaurant of authentic Mangalorean style is up for sale. The owners of this Mangalore hotel wants to get out this business due to some family issues.

Now, let me ask you these questions.
1. Would you acquire the Mangalore hotel which is also into specialty sea food?
2. If you acquire, what would be your strategy to expand? Assume that you have sufficient funds to run 5 more branches after acquiring this restaurant.
3. What kind of cities you select to expand?
4. What would be your branding stategy?

Let me also know the reasons for each of your decisions. Please write your thoughts in the comments below.

Surprisingly SBI!

Recently, we are seeing ads claiming SBI has the largest ATMs in India. It's not a surprise at all for SBI the largest bank in India for many decades. It's a no-brainer. Infact, I can use my ATM in many ATMs maintained by other banks. So, why should this matter at all to SBI or the customer? I'm not sure if SBI or the ad agency think that SBI is facing identiy crisis. The ads should rather focus on the differentiating factors of SBI that can please the customer.

BTW, I think the ATM service could be taken away from the banks and maintained & expanded by different players in the service industry. But then I believe the ATMs are cost-cutting tools for banks rather than revenue generating tools. Possibly one can find a way to use the ATMs as a revenue generating tool and take it away from banks.

What businesses do I want to own?

If one asks me "what kind of businesses do you want to own?", I would list the following:
1. Software that automates investment decisions and trading decisions in stock market. This system would have great intelligence built into it.
2. Stud-farm
3. Specialty sea-food restaurant. If possible, I would like to have a chain of this type of restaurants.
4. Vineyard and a winery

:) Well, there are other ideas that I've in my mind. But I would tell these things first. I'll try my best to get into these businesses and run it successfully.