Category Archives: Finance Issues

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Financial Derivatives

Category : Finance Issues






‌Derivatives Contract:

It’s a contract or agreement for exchange of payments and whose value is derived from the value of its underlying assets.


Therefore,It is a financial Instrument which derives its value/price from the underlying assets.This underlying can be assets,index, or interest rates.
‌It can be used for various purposes including insuring against price fluctuations which is hedging.
‌Derivatives consists of Forward, Options, Futures and Swap.
Derivatives are of two types.

1). Privately traded Over The Counter Derivatives like swap and

2). Exchange traded Derivatives.




Types of Derivatives:

Forward,Futures,Options and Swap.


Forward Contract:
A forward contract is an agreement between two parties – a buyer and a seller to purchase or sell something at a later date at a price agreed upon today.A forward contract is non standardized contract and can be used for hedging or speculation.Forward contract is traded over the counter.

Futures Contract:

A Futures Contract is a standardized Forward contract and a legal agreement between to parties to buy or sell something at a predetermined price at a specified time in the future.Primarily the underlying assets are Commodity and financial instruments.

E.g. Metal,Oil,Gas,Stocks, Bonds,Shares,Currencies.


An option is a contract that offers the buyer a right but not an obligation to buy(call) or sell(put) a security or a financial instrument at an agreed strike price on a specified time based on the form of options.

A call option gives the right to buy the underlying assets but not an obligation.

Likewise a put option gives a right to sell the underlying assets.


A swap is a derivative contract through which two parties exchange financial instruments.Swaps involve cash flows based on notional principal amount that both parties agree to.It is traded over the counter only through banks.Basically swap takes place at a predetermined time as stipulated in the contract.Swap is of two types.One is Interest rate swap and the other one is Currency swap.

‌”Happy Reading”


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“Thumb Rule of Budgeting for personal Finance”

Category : Finance Issues , Home


“Thumb Rule of Budgeting for personal Finance”

Earlier we have discussed about the needs of Personal Finance in our daily lives.The necessity of having a sound personal finance plan in line with our financial goals.I am sharing the (Links for Needs of Financial Planning) links below.


Similarly, today  we are going to discuss about the most obvious and relevant topic of personal finance that is Budgeting.Every action plan is based on a proper budgeting plan and personal finance is also no different.A proper budget helps us in deciding and setting up our financial goals in realistic manner.I have already said that one’s financial goals should always remain in line with his or her earnings.Therefore, a sound budgeting plan always comes handy there.We must not forget that while making our budgets we should differentiate between our needs and greeds.


Thumb Rule of 50/30/20  :

Very often we get confused about what should be the exact expenses ratio be it household exp,be it loan EMIs,other repayments or savings in comparison with our earnings which is take home pay here.So that we can have a clear idea whether we are over spending or over borrowing.

Thumb Rule of 50:(From expenses point of view Maximum 50% of net take home pay after Tax)

*Our mandatory or unavoidable expenses should not exceed 50% of our take home pay after tax.

  • All household expenses—-Such as Utilities,food,entertainment ,education,fuel cost,payment for health policies and etc;
  • Home loan EMIs/House Rent;

Thumb Rule of 30:(From savings point of view Minimum 30% of net take home pay after Tax)

**We must have inculcate the habit of savings for investments towards our long term goals.

  • Such as children’s higher education,foreign tour planning with family,child’s marriage,corpus for retirement ,payment of Term life insurance premiums,and etc.Those who have just started their earning career and have not bought any house yet and planning for it  may consider this rule as 50% instead of 30%;
  • To meet the long term goals i.e. from 5 to 7 years and more with ease one must invest in equities at the outset.Depending upon one’s risk profile he must invest this amount in different Mutual funds of different categories such as Long term,Mid & Small cap and Small cap funds.Also with the help of financial advisors one can invest in stocks of their own risk profile.

***Thumb Rule of 20:(To meet short term i.e. from 2 to 3 years needs)

Usually, this rule may be followed for meeting up short term needs outright.

  • Such as—- local vacations,purchase of electrical appliances of needs,setting up emergency funds for loss of job usually for 4 to 6 months expenses,downpayment for  buying a car, emergency medical needs and etc.
  • To meet these sort of goals one may consider Bank FDs,Liquid Mutual Funds,Balanced Equity Mutual Funds,Debt Mutual Funds and lastly Savings Accounts.



I would conclude here by quoting one great saying of American Finance Guru Warren Buffet. He said that ” If we purchase anything that we don’t need today,there may come a day when we have to sell the things we need today”.

“Happy Reading”



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Needs of “Financial Planning”

Category : Finance Issues , Home


Studies have shown that people are more comfortable and confident when they manage their finances as per clear financial plan. Financial planning is not about your wealth or investments, it’s about your financial goals in life, how can you achieve it, regular monitoring your walk towards your goals.

Financial Planning helps in knowing:

  •   What are my life goals,
  • How much money I need to achieve my goal,
  •    Can I achieve my goals?
  •   Which goals I need to postpone?
  •    What’s the best possible solution to generate the money,
  •    Am I progressing in right direction and is there any need for corrective action

Some of the benefits of having  financial planning are:

 Clear Financial Goals : First step of financial planning is knowing one’s financial goals and estimating the future amount of Goal. With detailed cash flow analysis, one get to know the goals which one should prioritize, goals which should be dropped as income and assets don’t support it, goals which should be reduced due to less amount available for them. Clarity of overall goals gives confidence to a person and one can work on other important things of passion, rather than always thinking about the requirements.

 Right investment option: One gets right investment portfolio as per individual’s risk profile. There are multiple investment options available, but each one is not suitable for everybody. With proper risk profiling and goal planning, one get to know the right investment product, so that all goals are achieved comfortably, without taking unnecessary risk.

Risk Management:  Investing as per individual risk’s profile helps in managing overall risk. With risk management, one comes to know, what risk should be taken while investing. This helps avoiding taking unnecessary risk.Further with adequate insurance plan, all  risks are properly planned. All these steps help in controlling risk and achievement of goals.

Regular review: Review and rebalancing is an important step of financial planning. In case there is a change in the market, one get to know immediately at the time of reviews and can take action accordingly.

Further, in case there is a change in individual’s needs and requirement, one can rebalance the portfolio.

Optimum returns from investments:  Knowing and taking right risks while investing, gives highest possible returns on the investment. Example-If a person is planning for retirement, he should put more money in equity based instruments rather than fixed deposits, as equity often gives superior returns in long term.

Live Stress Free Life:  One comes in stress when either we take unnecessary risks or we are not able to achieve our important goal, but when one knows the clear priorities of life and how to achieve them, one can live stress free life.

Happy Reading


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Consolidate private loan


Does it really make sense to get debt free always?

One big issue many of us face today is whether to pay off our debts or make new investments. Off course,this is a part of loan consolidation.This is really very tricky thing.Does it really make sense to get debt free always?Is it worth to repay existing debts with the use of surplus cash and not using the money in the existing profitable portfolios.Sometimes, debts also can fetch us many benefits in financial perspective. Also, conservative individual may differ with this.


This primarily happens when we have some surplus cash and contemplating to pay off some debts or make some new investments.This is becoming a real dilemma in current market scenario.In this situations, we should not take any emotional decisions rather than a logical one.One should not bear in mind that by paying off his debts he is free from all his liabilities.This is absolutely a wrong idea.Rather , he should look at it from finance parlance i.e. Opportunity cost.

In simple words, one must think that if he is paying a finance charges of 10% for all his debts and his investments are earning him 12% ,why he would contemplate to pay off all his debts.The principle is when the Expected Return is greater than Finance Charges by more than 2% (E.R>=F.C) we should not pay our debts and rather we should park in the extra money to new investments or the existing ones.

However, if an individual is going through this phase of paying debts vs making new investments with surplus cash, he ought to take that decision after going through the following factors.

  • Tenure:

    For long tenure loan like housing loan,if the tenure of any housing loan is say 20 years and one is paying a home loan interest of 10% and his existing earning from equities are say 12-15%, he should continue with this loan and the surplus money should be invested in equities so that the new investment would help him to pay off his loan either in  part or full after 8-10 years. Thus, the principle should be when ever the debt tenure is more than 3-5 years and if the existing investment is earning more than what you are paying for your debts, you should not pay off your debts.

  •  Cost of loans:

    The cost of loans i.e. interest payment for debts against the existing earnings should also be considered as one of the decisive factors.If the interest rate for any short time debt say for 1 year is 12% and in that case this debt should be paid off since the earning more than 12% from existing equity investments portfolio for a short time of 1 year may not be  guaranteed and from fixed instrument portfolio this earning of 12% is not possible any more;

  • Tax Benefits:

    There are certain loans which offer tax benefits to the customers viz;House building loan, business purpose loan. In that case an individual can avail the tax benefit for paying EMIs on HBL. Also , in case of business loan one can get tax advantage due to loan interest being charged to P&L A/C. Thus, in these  type of loans one should continue with the existing debts and should not be paid it off with the surplus money.


Last but not the least, everyone should keep one thing in mind that finance experts suggest that total loan repayment outgo in one month should not exceed more than 40-50% of the monthly income.Only following this kind of strong principle we may sustain with existing debts for a longer period and enjoy the aforementioned benefits .Debts are not always bad for one’s financial health.

Also, this principle may differ from person to person depending upon their financial health and existing wealth scenarios.

Disclaimer: This is completely our personal opinion.Finance-Gyan may not be held responsible for any of its posting.Readers’ discretion is solicited.

                              ”   Happy Reading”


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EPFO Recent benefits for its subscribers

Category : Finance Issues


The retirement corpus regulator EPFO (Employees’ Provident Fund Organisation) has recently  taken a lots of initiatives  to do away with the age old norms of EPF withdrawal and other introductory benefits.Really, this body putting in lots of efforts to bring in various changes so that the benefits can be passed on to its 4 crores subscribers. EPFO  has fixed the interest rate for F.Y 2016-17 as 8.65% which has already been approved by the Finance Ministry.Therefore, the corpus accumulated as on 31.03.2017 will fetch the subscribers a handsome return of 8.65% as compared to other fixed instruments products available in the market right now.

Some of the initiatives  recently taken by EPFO are mentioned below.

  • EPFO has recently declared a onetime loyalty  -cum -life benefits  up to ₹50,000/- at the time of retirement for its subscribers who have contributed to this fund for a minimum period of 20 years.Also, this benefit would be extended in case of any permanent disability to any subscriber who did not contribute more than 20 years;
  • The retirement fund body has amended scheme by introducing  a new paragraph 68-BD to the  Employees’ Provident Fund Schemee’ 1952.                                                 EPFO has recently allowed its subscribers to withdraw  up to 90% of accumulated corpus of own contributions from one’s EPF account to make downpayments for  purchase or construction of dwelling house or flats or for acquisition of sites. Though this withdrawal has got some conditions.The subscriber must be a member of co operative or housing society with at least 10 members.Such a member must have contributed to its EPF account for a period of not less than 3 years.This facility would be extended to a subscriber only once in its lifetime.Also the monthly EPF contribution can be used for payment of loan EMIs to Government,housing agency,primary lending agency and also banks;
  • The subscribers of EPFO can now withdraw funds from their EPF account for medical treatments and also for purchase of equipment for handicap without medical certificates.Earlier a member was required to submit  lots of certificates and complex forms for seeking advance for medical exigencies.Now, advance can be sought by a member only submitting a composite forms along with a self declaration;
  • One of the biggest achievements that the EPFO can  boast of is settling down PF claims through mobile phones.This is going to be reality very soon. The fund house is developing  a mobile application named UMANG which will receive withdrawal application online and every settlement process is going to be online.However, the final date for its roll out has not been announced yet;

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