If one has set his eyes on a wonderful car but the size of his pocket restrains him to buy one, then opting for Car Finance is the best way out since they claim to be specialists in car finance, helping the customers to finance their cars in the most cost effective way.
The Car Finance Dealers help the customers in the following ways:
# Provision of retail automotive financing
# Provision of wholesale financing
# Provison of capital loans.
Car Finance cover both old and new cars.
The car finance services rendered by the different car finance dealers or brokers can be discussed as follows: Private Purchase Plan
1. Traditional Purchase Plan: In this scheme the buyer has to start with an initial deposit which has to be 10% and above.
2. Flexible Purchase Plan: Here the buyer can postpone the payment till the expiry of the contract. In this scheme the buyer agrees for the final payment taking into account the age, mileage and the use of the car.
3. Advantage Plan: Here the buyer has the option of not making the final payment and returning the car .
Business Purchase Plan
1. Traditional Finance Plan The buyer here has to pay for the cost of the car and the interest in fixed monthly installments.
2. Flexible Purchase Plan: Similar to the private flexible purchase plan , payment of a lump sum amount is allowed at the end of the contract.
3. Advantage Plan: The buyer can choose from 24 , 30 or 36 monthly payments.
Car Finance Companies
Get the top list of Car financ companies worldwide alongwith the benefits provided by those companies:
Car Refinance
Car refinance is considered to be an important form of financial activities these days. Find detailed on car refinance:
Car Finance Rate
Rates charged by the Car financing companies differ from one to another. Find the rates charged by the companies at the time of financing:
Car Finance Dealer
Car Finance dealers in many countries over the world provide special benefits. In US the Car Finance Dealers provide Platinum Program. Click to know the services provides by Car Finance Dealers in other countries:
Sunday 11 October 2009
Best Tips For Investors And Traders
Whether you are a Pakistani investors or else, take these tips to heart and you’ll have a solid foundation in Trading and Investing:
1. Save 10 Rupees from every 100 Rupees you earn. If you put away at least 10 percent of your income as part of a long-term savings plan, there is a good chance that you will have a financially secure future and be able to attain your financial goals.
2. Put 10 percent of every pay increase towards savings, particularly long-term savings such as a retirement plan. If you are employed and belong to a retirement fund, your contributions will increase automatically in proportion to your pay rises. This will help ensure that you stay well ahead of inflation.
3. Use the “Can I sleep?” judgment when making investments. An investment is too risky if you are going to lie awake at night worrying about it.
4. Diversify your investments. Never invest more than five percent of your assets in a narrow investment (for example, a specialist unit trust fund such as an emerging company one) or in an unregulated investment. Diversifying your investments will ensure you don’t lose everything if one investment bombs out. Many people who invested all their assets in major scams such as Masterbond lost everything, and the same thing can happen in the regulated market if you put all your money into one sector ... just consider how the information technology bubble burst in 2000.
5. Be extremely cautious if the returns promised on an investment exceed what is generally available. If they sound too good to be true, they probably are. It usually means the investment is too ambitious in its claims, too risky, or simply a scam.
6. Know the difference between effective and nominal interest rates. Normally, banks will quote you a nominal interest rate when lending you money, but a higher, effective interest rate when you invest money. The nominal interest rate is the simple rate. The effective rate is calculated by compounding the interest earned or charged.
7. Check whether the interest you are being paid is credited monthly, quarterly or annually. Say you invest R10 000 for 10 years. If you receive interest at 10 percent credited annually, you will get a total return of R25 937. If it is credited monthly, you will receive R27 070.
8. How do you decide whether you should invest directly in shares? Simple. If you haven’t got the time to learn about stock markets, to follow the progress of companies or to track your portfolio, rather invest in unit trust funds and/or life assurance endowment policies that have shares as their underlying investments.
9. If you do invest directly in shares, your two most important considerations should be ensuring that you have a properly diversified selection of shares across the stock market sectors to reduce risk, and regularly rebalancing your portfolio. When a share rises in price, you should consider selling some, but not all, of these shares, so that you make a profit, but your overall portfolio remains proportionally the same as it was when you started. By doing this, you’ll be able to reap further profits if the share price continues to rise.
10. If an investment product is too complicated to understand, avoid it. It does not mean you are stupid. It simply means that the product provider and/or financial adviser are trying to baffle you.
11. Always check the costs of any investment product. Some products are prohibitively expensive. You should be given a breakdown of the costs in three ways: as a percentage of your investment; as a fixed amount; and as the amount by which the costs will reduce your investment at maturity date. Be very careful if the costs are more than six percent at entry and more than two percent a year thereafter.
12. Always check how much commission is being paid to your financial adviser. Some financial products – particularly those offered by so-called linked investment product providers – come with particularly high costs and commissions. High commissions can be a perverse incentive for advisers to mis-sell.
13. A product offering a range of underlying investment product choices, such as a wide collection of unit trust funds, is often not in your best interests and may come at additional cost. Be very cautious if anyone recommends that you invest in a linked investment product with a wide selection of underlying investment choices. Remember that linked investment products come in many forms and are also offered by life assurance companies. The simpler and cheaper solution may be to invest in a properly diversified unit trust fund, such as an asset allocation fund that offers underlying investments in all the main asset classes, such as cash, bonds and shares.
14. Don’t be afraid to negotiate commissions/fees for financial advice. Most financial products allow you to do this. After all, it is your money.
15. If you have a choice, should you pay a fee or commission for financial advice? As a general rule, a fee is better for large amounts of money and a commission for smaller amounts.
16. If you are a true investor, you invest for the long term and you don’t panic when markets fall. If you want to invest for the short term, you should use a bank term deposit or a money market account rather than an investment in the equity markets.
17. It is time in the market and not timing the market that counts. Don’t try to time markets or sectors of markets. Few people have got rich from doing this and most have lost money. The best way to get rich is to take time to select an investment product that has properly diversified underlying investments, and then to stick with it for the long term. Most people make the fundamental error of buying into an investment when it is at the peak of its performance and then selling out when its value has dropped.
18. Always check that an investment product and/or company is registered with the Securities and Exchange Commission of Pakistan before investing. If it is not registered and things go wrong, you will have little recourse, so be extremely wary.
19. Charges on life assurance investments (endowments) are proportionally higher on lower amounts. Check the structure of costs in relation to premiums. You might find that paying just a few rand more every month costs you proportionally less. This will give you a better return.
20. Investing on a regular basis is a good strategy in volatile markets. If markets rise, your investment improves in value. If markets fall, you get more for your money, and you’ll benefit when markets go up again. This is known as rand-cost averaging.
21. If you are investing a large lump sum, put the money in a money market account to start with and phase it into pre-selected investments over a period of time. This is particularly important with equity markets: don’t invest all your money when prices are high and lose out later, when they come down.
22. Don’t be taken in by labels. Some investment products style themselves as fulfilling certain needs (for example, “a savings plan for your child”). Banks often offer need-branded products. Always check the underlying investment proposal. There might well be a more suitable generic product with a better-performing underlying investment, such as a life assurance managed portfolio or a unit trust asset allocation fund, which has a low-risk structure but the potential for much better returns.
23. Don’t become emotionally attached to shares. If a particular share bombs out for good reason, such as bad management or failure to adapt to new markets, get out. But if the share value is falling as part of a general sector downgrade, there is little reason to sell.
24. If you are trading shares for short-term gain, you are not an investor, you’re a gambler. Don’t be surprised when you make a loss.
25. Avoid investing in unlisted companies. These companies are not properly regulated and are the favourite vehicle of scam artists. If you decide to invest in an unlisted company, make sure you do your homework first and understand all the risks.
26. Never invest in anything where the underlying investments are shrouded in secrecy. Your money is likely to be secreted away too, never to be seen again. A good example was Jack Milne’s PSC Guaranteed Growth investment scam. Milne refused to divulge the underlying investments, claiming it would show his competitors how he was getting exceptional returns.
27. Being a contrary investor can make all the difference. As investment market guru Sir John Templeton says: “The time of maximum pessimism in the stock market is the time to buy; the time of maximum optimism is the time to sell.”
28. Never invest on an ad hoc basis. You should have an overall financial plan designed to meet all your financial needs, taking into account your investment goals and life assurance needs. Investing in something simply because someone (and that includes your neighbour or hairdresser) recommends it, is unlikely to help you achieve your financial targets.
29. When you are advised to invest in something, always do a bit of research of your own. Get a second opinion and use the internet.
30. Use comparatively safe investments – such as life assurance smoothed-bonus policies and unit trust prudential or flexible asset allocation funds – as core investments. They may not give you spectacular performance, but they will provide you with a measure of security.
31. Investing in a low-cost index fund may not give you top performance, but at least it will not give you bottom performance. Local and international research has repeatedly shown that very few active fund managers consistently out-perform the markets. With an index fund, you are likely to do better than the average fund manager – and at lower cost. Index investments come in many different forms, from unit trusts to exchange-traded funds, which are listed on stock exchanges. You need to understand them before you invest.
32. As a general rule, only invest when you have no debt. The tax-free return you receive from paying off debt is likely to be greater than any returns (which are likely to be taxed) you receive from an investment. There are exceptions, such as paying into a retirement fund while you have a home loan.
33. Be prepared to pay for good advice, as you would for any expertise. But make sure you deal with an adequately qualified adviser – preferably one who is a Certified Financial Planner accredited by the Financial Planning Institute. Good advice is worth its weight in gold. You would not go to a barber to have your teeth checked, so why go to someone for financial advice if that person is not properly qualified?
34. Always have an emergency cash fund. Ideally, the fund should be equal to three months’ income. This way you will not have to cash in investments at an inopportune time or take out a high-interest loan if you are suddenly landed with a major expense.
35. An investment in a unit trust fund that is always in the top 25 percent of performers, even if it has never come first, is preferable to one that has been ranked first once and languishes in the lower realms of the tables for the rest of the time. Check the consistency of performance tables published every three months in Personal Finance to help you find funds that perform well consistently.
36. If you are a member of a defined benefit or defined contribution retirement fund, or you contribute to a retirement annuity, you can deduct your contributions (limited to pre-determined levels) from your taxable income and defer tax until your retirement years. This way you get to earn investment returns on money that would otherwise have gone to the Receiver of Revenue.
37. Money paid into a retirement fund or retirement annuity is not counted as being part of your estate, so your creditors cannot claim this money if you go bankrupt. This is very useful if you are involved in a small business or you have provided personal security for a loan to a business.
38. At retirement you should consider exercising your option to take as cash up to one-third of your retirement savings from a defined benefit or defined contribution retirement fund or a retirement annuity. There are two reasons for doing this:
# In the case of retirement funds, you are entitled to either R120 000 or R4 500 a year multiplied by the number of years you belonged to the fund (whichever is the greater) as a tax-free amount. With retirement annuities, you are entitled to R4 500 multiplied by the number of years of membership, tax-free.
# The remaining amount will be taxed at your average rate of tax for the year of your retirement and the previous year, instead of at your higher marginal rate of taxation. Invest the tax-free amount where it will attract the lowest rate of tax and earn the best risk-adjusted returns.
39. The earlier you start a retirement annuity, the greater your tax-free benefit at retirement. This is because the tax-free portion is R4 500 multiplied by the number of years of membership of the fund. You should avoid having too many retirement annuity plans as you could undermine your ability to get the maximum tax-free allowance at retirement.
40. Mind the gap. Very few retirement funds provide enough money to ensure a financially secure retirement, particularly now that most companies are reducing or discontinuing medical scheme subsidies to retirees. This means you need to have other investments to top up your retirement fund savings. Make sure you check up on how you are managing to fill “the gap” by regularly having a financial needs analysis with a properly qualified financial adviser.
41. Start planning your retirement at least three to five years before the date on which you are due to retire, so that you understand all your options and are not rushed into any last-minute decisions.
42. Be careful when buying an annuity (pension) with (at least) two-thirds of your retirement fund savings, as you are required to do by law. Living annuities have been widely mis-sold because of their potential to earn higher profits for the companies selling them and higher commissions for advisers. With a living annuity, you take the investment risks; with a traditional guaranteed annuity, you don’t, the life assurer does.
43. If you are investing in a living annuity to buy a pension and you need to draw more than the minimum five percent of the annual value, you could be exposing yourself to the risk of not having sufficient money to provide you with a financially secure income until you die.
44. Most living annuity providers allow you to draw your pension from different parts of the underlying investments. This enables you to structure the annuity so you have an income-generating portion and a capital growth portion. You should use this facility to invest mainly in interest-generating investments for the income portion. This will significantly reduce the risk of undermining your capital.
45. If you use a living annuity to buy a pension, do not invest all the money in equities or equity unit trusts. At the absolute maximum, you should have no more than 75 percent invested in equities. The balance should be in more stable interest-earning investments.
46. Always pay the full amount owing on your credit card. If you do not, you will be charged a punishing rate of interest from the date of purchase. The so-called budget account on your credit card is a misnomer, as you pay a high rate of interest.
47. Use a credit card to get 55 days’ interest-free credit by buying at the start of the buy-and-pay cycle and repaying the debt in full by the due date. This option does not apply to cash withdrawals and petrol purchases, on which you pay punitive interest rates from the date of the transaction.
48. Don’t leave large amounts of money sitting in a low-interest bank savings or current account. Rather put the money into a money market account or into your mortgage bond.
49. Pay yourself first. Set up debit orders that channel money into investments as soon after pay day as possible so that you will not “miss” the money.
50. Never use debt on which you have to pay interest to buy products you consume. You are in effect making the items far more expensive, and will be able to save less and buy less in the long term.
51. Borrowing to buy reasonably priced property is a good thing because you can expect the property to improve in value.
52. You should not, as a rule, borrow to invest, particularly not in volatile markets, such as share markets. The exception is property that you intend to hold for at least five years and in which you live.
53. Keep a good credit record. It could save you thousands of rands, particularly when you want to borrow money for big-ticket items such as a home or a vehicle, because the better your credit record, the lower the interest rate you can expect to pay.
54. The best investment you can make is to repay debt. Interest rates in South Africa are high. By paying off debt, you get one of the best returns available, tax-free.
55. Borrow wisely. Expensive debt is a quick way to lose money. For example, borrowing against a credit card is far more expensive than borrowing against a home loan. The difference can be more than 10 percentage points.
56. If you have a problem meeting your debts, don’t try to hide away. Go and speak to your creditors, particularly your bank, to find a way out of your problem. Don’t use debt consolidators/administrators. They will charge you far more interest and make your problem worse.
57. Beware of plastic. Store cards and credit cards may be convenient, but they are also an easy way of running up debt.
58. Don’t fly now, pay later. It is very depressing to be still paying for a holiday (or any other luxury) five years later, when you want another.
59. If you take out life assurance or short-term insurance to cover debt or an asset financed with debt, always pay the premiums as they become due to avoid paying interest on the premiums as well.
60. Try to repay more on your home loan than the minimum. For example, on a home loan of R100 000 at a mortgage bond rate of 15 percent over 20 years, your normal repayments will be R1 316.79. Increase the repayments by R100 and you will reduce your repayment period to 14 years and five months, and you will save R88 224.93 in interest repayments.
61. Always negotiate your interest rates. Shop around. A one-percent difference can have a significant effect. On a R100 000 mortgage bond over 20 years at 15 percent, you will repay R316 029 in total. At 14 percent, you will repay R298 444 – a saving of R17 584.
62. When mortgage bond interest rates come down, keep your repayments at the same level. You will pay off your bond quicker and save yourself a whack in interest repayments. Repayments will also not be so difficult to contend with if interest rates rise again.
63. If you take out a home loan when interest rates are low, always ask yourself whether you will be able to afford the repayments if interest rates go up. If you are in doubt, take out a smaller loan.
64. Most mortgage bonds enable you to repay more than your set repayments and to borrow against what you have paid. This is useful not only to borrow money for other things at short notice, but also to use as a savings account. The effective interest you receive is much greater and there are no additional costs. Say, for instance, you need to put away money to pay school fees or provisional tax. “Save” the money in your mortgage bond until you need it, rather than in a low-interest bank savings account.
65. Get a pre-approval agreement on a mortgage bond before you start looking for a home. This will give you the advantage of being able to shop around for the best rate while you’re not under pressure and the buyer will be more willing to sell to you knowing that the money is available.
66. Always have a lawyer check a property deed of sale before you sign up. Also make a deed of sale subject to conditions such as a proper inspection being done, if you suspect building faults, and to raising a mortgage bond, if you need one.
67. A bank valuation of a property is not a guarantee that the building is structurally sound. If you suspect a problem, get a full structural survey before you enter any contractual agreement.
68. Don’t fall prey to what is called a mortgage bond-linked endowment. With these products, you are encouraged to take out a home loan, repay only the interest, and invest the amount that would have repaid the capital. The theory is that, at the end of the period, the investment should be worth more than the capital. With high interest rates and poor investment returns, these are high-risk products.
69. If you take out life assurance, always declare any health problem or habit or hobby that might affect your insurability. You may have to pay more in premiums, but at least your dependants will receive the money if and when a claim is made. If you lie, either by omission or commission, your dependants may be left with nothing. The life assurance company is legally entitled to repudiate any claim when incorrect information is provided, even if it is not associated with the cause of death or disability.
70. Never buy too much life assurance against death or disability. The purpose of life assurance is to ensure you and your dependants maintain a standard of living, not to enrich dependants in the future. Too much life assurance merely means you are paying out more in premiums and costs, and you have to accept a lower standard of living now.
71. Always avoid cashing in an investment (endowment/universal) policy before its maturity date. Cashing in is costly. Not only could you receive less money than you have paid into the investment, but if there is life assurance cover attached to the policy, you may not be able to replace the cover in the future, particularly if you are less healthy.
72. When taking out life assurance cover against dying or being disabled, always establish whether the premiums are guaranteed – and for how long. It is preferable to get a longer term guarantee on your premiums.
73. If you have no option but to surrender a life assurance investment policy, always see if you cannot get more than the surrender value offered by the life assurance company by trading the policy on the secondhand market.
74. Rather than surrendering a policy, consider other options, such as making it paid-up so you can stop paying premiums. You may also be able to take a loan against the policy, but check the interest rate; sometimes it is higher than it would be if you used the policy as security to get a bank loan.
75. If you are concerned about volatile markets, one of the best investment products you can get is a life assurance smoothed bonus policy that guarantees your capital and smooths out the market returns.
76. If you intend the benefits of a life assurance policy to go to someone in particular, have this on record with the life company by naming the person as the beneficiary of the policy. This has two advantages: You do not pay executor’s fees of up to 3.75 percent with VAT on the amount; and the beneficiary receives the money almost immediately, without it being tied up for months or even years while your estate is finalised. More often than not, your dependants will need the money immediately after your death.
77. If you can afford a hamburger and Coke every day, you can afford life assurance. Life assurance is essential for anyone who has dependants.
78. If you plan to stay single with no dependants, you do not need life assurance against dying, but you do need disability assurance in case you become ill or are injured in an accident.
79. It is not saving if you put money away at the start of the month but withdraw it before the end of the month. Life assurance investments are useful for people who find it difficult to save, because they commit you to a contract for at least five years and cost you dearly if you break the contract.
80. Do not take out a life assurance investment contract for more than 10 years. You don’t know how your financial position could change. At the end of the period you can always extend the contract, but if you have to cut it short, there are penalties involved that could see you getting back less money than you paid in. The main reason life assurance sales people attempt to get you to take out longer-term policies is because they receive more commission.
81. If you have dependants, life assurance is more important than investments. Investments take longer to accumulate to the level that may be required by your dependants, whereas life assurance benefits can immediately meet those needs if required.
82. As a general rule, you should keep your risk life assurance against death and disability separate from your investments, particularly if the risk assurance is for a long period. The main reason for this is that, if you land up in financial difficulties, you do not want to lose the risk cover because you have had to stop paying the investment portion. This strategy also gives you more flexibility with your investments.
83. Life assurance against dying or being disabled may only be required for short periods. For example, you may need cover to provide for the education of children for 10 years or until you have built up sufficient savings. You do not need a 20-year contract.
84. Consider joint life assurance if you have a partner. It is often cheaper. It comes with the options of paying when the first of the two dies, or when the last partner dies, or fully on the death of each partner. Obviously, the premium will be determined by the option you choose.
85. Be very wary of credit life assurance. Although it can be essential to ensure debts are paid when you die, it is also open to abuse. Often, when you finance, for example, a motor vehicle, you will be sold life assurance to cover the debt. But many sales people sell you assurance that runs for a longer term than the debt and credit life assurance has an investment element included. Commission, not your financial well-being, motivates sales people.
86. You need to do some estate planning, particularly if you are wealthy. Any amount above R1.5 million that is not left to your spouse is subject to estate duty at a rate of 20 percent, and any capital gain that is not exempt is subject to capital gains tax, as death is considered a capital gains event. (The first R50 000 is exempt when you die.) If you do not have readily available cash to cover these taxes, you need life assurance to ensure there will be no need for a fire sale of other assets.
87. Apart from when you have a home loan, you cannot be forced to take out short-term insurance with any particular company when you receive a loan on a fixed or moveable asset. You can be forced to take out insurance, but you can and should shop around for the cheapest premium.
88. You can reduce the amount you pay in short-term insurance by increasing the excess (the first portion of any claim, which you pay). A higher excess will mean lower premiums. However, you should keep the excess within affordable limits. Better still, build up savings equivalent to any excess you may be required to pay and earn interest on them.
89. When you change address, check whether your short-term insurance premiums could be reduced. Where you live can effect the level of your short-term insurance premiums.
90. Most short-term insurance policies have a number of exclusions. For example, on motor vehicle insurance, you are required to maintain the vehicle properly. For example, if your tyres are smooth, your claim will be rejected no matter what the cause of the accident. Be aware of the exclusions, so that you don’t have a claim refused unexpectedly.
91. Check the value of your motor vehicle. One racket perpetrated by insurance companies is to increase premiums annually, when they should be decreased to take account of the declining value of your vehicle. When you claim, you will only be paid the actual value, not the insured value.
92. When making a short-term insurance claim, first find out what effect the claim will have on your no- claim bonus. If the claim (after payment of the excess) is relatively small, it may be better not to claim and keep your no-claim bonus intact. A no-claim bonus can equal as much as a 60 percent reduction on premiums after five years.
93. Use the R10 000 exemption from capital gains tax. Every year you are entitled to claim an exemption of R10 000 against any capital gain. Say, for example, you want to cash in an investment with a capital gain of R20 000 in November. Instead, cash in half in November and half after March 1, the start of the new tax year.
94. Interest-bearing investments become far more attractive when you don’t have to pay tax. For the current tax year, the first R10 000 in interest income is tax exempt if you are under the age of 65, and R15 000 if you are over the age of 65.
95. If you are investing for an income and have exceeded your tax-free interest exemption, consider cashing in investment capital that you can offset against your R10 000 capital gains tax exemption.
96. Never make a tax decision first when investing. Consider the tax implication last. Many people make the tax decision first and reject what could have been a good investment.
97. If your spouse is on a lower marginal income tax rate than you, it is best to transfer interest-earning assets to him/her. Also, remember that each spouse is entitled to the tax-free amount of R10 000 under the age of 65 and R15 000 over the age of 65.
98. To qualify for the R1 million capital gains tax exemption on your primary residence, you actually have to live in that property. If you rent out the property for even part of the time, you will have to deduct the period proportionally from the exemption.
99. The benefits of a life assurance policy are not subject to income tax or capital gains tax in your hands. Tax is paid on your behalf by the life assurance company at rates of 30 percent on interest, net rental and foreign dividends, and an effective 7.5 percent on capital gains. So, if your marginal tax rate is greater than 30 percent, you are receiving a tax advantage by investing in a life assurance policy as opposed to a unit trust investment with similar underlying investments.
100. Assets can be transferred between spouses without attracting donations tax. So it can pay to transfer assets on which capital gains tax may become due, to take advantage of lower marginal tax rates and the R10 000 exemption. Remember, 25 percent of a capital gain (which is not exempt) is included as income for tax purposes. So, the lower your marginal rate, the lower your capital gains tax will be.
Some Other Great Tips!
# Themba Siyolo, the head of distribution at Sanlam: “No matter how much or how little money you have, start taking responsibility for what happens to it by drawing up a budget and taking control of your expenses and income. Then you can start planning for other things in your life such as your education, your family, your home, your car, your holidays, your retirement and so on. There is no excuse for delegating this responsibility or for allowing your money management to happen by default.”
# Gerrit Viljoen, the Financial Planning Institute/Personal Finance Financial Planner of 2003: “Don’t let greed and fear be the primary drivers of your financial decision-making process. And get out of debt as quickly as possible.”
# Giselle Gould, the executive director of the Institute of Retirement Funds: “Buy your home to give yourself and your family security. Then pay off your bond as soon as possible to save yourself interest payments.”
# Lionel Karp, independent financial adviser and host of Financially speaking on Radio 702/567 Cape Talk: “Always think of your finances in terms of your needs, not your wants. Most acquisitions – cars, houses, boats and so on – are wants, not needs. Financial planning is just the opposite. If you look at it in terms of what you need, you will make far more informed decisions. Wants relate to your heart, while financial planning should come from your head.”
# Wilma Mokupo, the head of pensions at the Financial Services Board: “If you are a retirement fund member: ensure you read and understand your retirement fund rules; make sure that you receive regular benefit statements outlining all your benefits; and monitor the performance of your own board of trustees. The regulator depends on members and other stakeholders to report wrongdoing.”
# Selwyn Feldman, the president of the Financial Planning Institute: “My favourite pieces of financial advice are: Preserve your retirement fund payouts when you change jobs, and increase monthly payments to eliminate debts as quickly as possible.”
# Di Turpin, the executive vice-chairperson of the Association of Collective Investments: “The best investing tip I was ever given was to arrange a regular debit order effective on the day my first salary went into my bank account. It has created a habit that I am not even aware of half the time. This habit of investing regularly each month as a matter of course, regardless of financial pressures, has created a tidy little nest egg for the future already. As I made sure that the debit order coincided with the day my salary went into my account, there was always money for the investment. I also became used to operating without the money and adapted my lifestyle accordingly. You would be amazed how, if the money is there, one can always find a use for it!”
1. Save 10 Rupees from every 100 Rupees you earn. If you put away at least 10 percent of your income as part of a long-term savings plan, there is a good chance that you will have a financially secure future and be able to attain your financial goals.
2. Put 10 percent of every pay increase towards savings, particularly long-term savings such as a retirement plan. If you are employed and belong to a retirement fund, your contributions will increase automatically in proportion to your pay rises. This will help ensure that you stay well ahead of inflation.
3. Use the “Can I sleep?” judgment when making investments. An investment is too risky if you are going to lie awake at night worrying about it.
4. Diversify your investments. Never invest more than five percent of your assets in a narrow investment (for example, a specialist unit trust fund such as an emerging company one) or in an unregulated investment. Diversifying your investments will ensure you don’t lose everything if one investment bombs out. Many people who invested all their assets in major scams such as Masterbond lost everything, and the same thing can happen in the regulated market if you put all your money into one sector ... just consider how the information technology bubble burst in 2000.
5. Be extremely cautious if the returns promised on an investment exceed what is generally available. If they sound too good to be true, they probably are. It usually means the investment is too ambitious in its claims, too risky, or simply a scam.
6. Know the difference between effective and nominal interest rates. Normally, banks will quote you a nominal interest rate when lending you money, but a higher, effective interest rate when you invest money. The nominal interest rate is the simple rate. The effective rate is calculated by compounding the interest earned or charged.
7. Check whether the interest you are being paid is credited monthly, quarterly or annually. Say you invest R10 000 for 10 years. If you receive interest at 10 percent credited annually, you will get a total return of R25 937. If it is credited monthly, you will receive R27 070.
8. How do you decide whether you should invest directly in shares? Simple. If you haven’t got the time to learn about stock markets, to follow the progress of companies or to track your portfolio, rather invest in unit trust funds and/or life assurance endowment policies that have shares as their underlying investments.
9. If you do invest directly in shares, your two most important considerations should be ensuring that you have a properly diversified selection of shares across the stock market sectors to reduce risk, and regularly rebalancing your portfolio. When a share rises in price, you should consider selling some, but not all, of these shares, so that you make a profit, but your overall portfolio remains proportionally the same as it was when you started. By doing this, you’ll be able to reap further profits if the share price continues to rise.
10. If an investment product is too complicated to understand, avoid it. It does not mean you are stupid. It simply means that the product provider and/or financial adviser are trying to baffle you.
11. Always check the costs of any investment product. Some products are prohibitively expensive. You should be given a breakdown of the costs in three ways: as a percentage of your investment; as a fixed amount; and as the amount by which the costs will reduce your investment at maturity date. Be very careful if the costs are more than six percent at entry and more than two percent a year thereafter.
12. Always check how much commission is being paid to your financial adviser. Some financial products – particularly those offered by so-called linked investment product providers – come with particularly high costs and commissions. High commissions can be a perverse incentive for advisers to mis-sell.
13. A product offering a range of underlying investment product choices, such as a wide collection of unit trust funds, is often not in your best interests and may come at additional cost. Be very cautious if anyone recommends that you invest in a linked investment product with a wide selection of underlying investment choices. Remember that linked investment products come in many forms and are also offered by life assurance companies. The simpler and cheaper solution may be to invest in a properly diversified unit trust fund, such as an asset allocation fund that offers underlying investments in all the main asset classes, such as cash, bonds and shares.
14. Don’t be afraid to negotiate commissions/fees for financial advice. Most financial products allow you to do this. After all, it is your money.
15. If you have a choice, should you pay a fee or commission for financial advice? As a general rule, a fee is better for large amounts of money and a commission for smaller amounts.
16. If you are a true investor, you invest for the long term and you don’t panic when markets fall. If you want to invest for the short term, you should use a bank term deposit or a money market account rather than an investment in the equity markets.
17. It is time in the market and not timing the market that counts. Don’t try to time markets or sectors of markets. Few people have got rich from doing this and most have lost money. The best way to get rich is to take time to select an investment product that has properly diversified underlying investments, and then to stick with it for the long term. Most people make the fundamental error of buying into an investment when it is at the peak of its performance and then selling out when its value has dropped.
18. Always check that an investment product and/or company is registered with the Securities and Exchange Commission of Pakistan before investing. If it is not registered and things go wrong, you will have little recourse, so be extremely wary.
19. Charges on life assurance investments (endowments) are proportionally higher on lower amounts. Check the structure of costs in relation to premiums. You might find that paying just a few rand more every month costs you proportionally less. This will give you a better return.
20. Investing on a regular basis is a good strategy in volatile markets. If markets rise, your investment improves in value. If markets fall, you get more for your money, and you’ll benefit when markets go up again. This is known as rand-cost averaging.
21. If you are investing a large lump sum, put the money in a money market account to start with and phase it into pre-selected investments over a period of time. This is particularly important with equity markets: don’t invest all your money when prices are high and lose out later, when they come down.
22. Don’t be taken in by labels. Some investment products style themselves as fulfilling certain needs (for example, “a savings plan for your child”). Banks often offer need-branded products. Always check the underlying investment proposal. There might well be a more suitable generic product with a better-performing underlying investment, such as a life assurance managed portfolio or a unit trust asset allocation fund, which has a low-risk structure but the potential for much better returns.
23. Don’t become emotionally attached to shares. If a particular share bombs out for good reason, such as bad management or failure to adapt to new markets, get out. But if the share value is falling as part of a general sector downgrade, there is little reason to sell.
24. If you are trading shares for short-term gain, you are not an investor, you’re a gambler. Don’t be surprised when you make a loss.
25. Avoid investing in unlisted companies. These companies are not properly regulated and are the favourite vehicle of scam artists. If you decide to invest in an unlisted company, make sure you do your homework first and understand all the risks.
26. Never invest in anything where the underlying investments are shrouded in secrecy. Your money is likely to be secreted away too, never to be seen again. A good example was Jack Milne’s PSC Guaranteed Growth investment scam. Milne refused to divulge the underlying investments, claiming it would show his competitors how he was getting exceptional returns.
27. Being a contrary investor can make all the difference. As investment market guru Sir John Templeton says: “The time of maximum pessimism in the stock market is the time to buy; the time of maximum optimism is the time to sell.”
28. Never invest on an ad hoc basis. You should have an overall financial plan designed to meet all your financial needs, taking into account your investment goals and life assurance needs. Investing in something simply because someone (and that includes your neighbour or hairdresser) recommends it, is unlikely to help you achieve your financial targets.
29. When you are advised to invest in something, always do a bit of research of your own. Get a second opinion and use the internet.
30. Use comparatively safe investments – such as life assurance smoothed-bonus policies and unit trust prudential or flexible asset allocation funds – as core investments. They may not give you spectacular performance, but they will provide you with a measure of security.
31. Investing in a low-cost index fund may not give you top performance, but at least it will not give you bottom performance. Local and international research has repeatedly shown that very few active fund managers consistently out-perform the markets. With an index fund, you are likely to do better than the average fund manager – and at lower cost. Index investments come in many different forms, from unit trusts to exchange-traded funds, which are listed on stock exchanges. You need to understand them before you invest.
32. As a general rule, only invest when you have no debt. The tax-free return you receive from paying off debt is likely to be greater than any returns (which are likely to be taxed) you receive from an investment. There are exceptions, such as paying into a retirement fund while you have a home loan.
33. Be prepared to pay for good advice, as you would for any expertise. But make sure you deal with an adequately qualified adviser – preferably one who is a Certified Financial Planner accredited by the Financial Planning Institute. Good advice is worth its weight in gold. You would not go to a barber to have your teeth checked, so why go to someone for financial advice if that person is not properly qualified?
34. Always have an emergency cash fund. Ideally, the fund should be equal to three months’ income. This way you will not have to cash in investments at an inopportune time or take out a high-interest loan if you are suddenly landed with a major expense.
35. An investment in a unit trust fund that is always in the top 25 percent of performers, even if it has never come first, is preferable to one that has been ranked first once and languishes in the lower realms of the tables for the rest of the time. Check the consistency of performance tables published every three months in Personal Finance to help you find funds that perform well consistently.
36. If you are a member of a defined benefit or defined contribution retirement fund, or you contribute to a retirement annuity, you can deduct your contributions (limited to pre-determined levels) from your taxable income and defer tax until your retirement years. This way you get to earn investment returns on money that would otherwise have gone to the Receiver of Revenue.
37. Money paid into a retirement fund or retirement annuity is not counted as being part of your estate, so your creditors cannot claim this money if you go bankrupt. This is very useful if you are involved in a small business or you have provided personal security for a loan to a business.
38. At retirement you should consider exercising your option to take as cash up to one-third of your retirement savings from a defined benefit or defined contribution retirement fund or a retirement annuity. There are two reasons for doing this:
# In the case of retirement funds, you are entitled to either R120 000 or R4 500 a year multiplied by the number of years you belonged to the fund (whichever is the greater) as a tax-free amount. With retirement annuities, you are entitled to R4 500 multiplied by the number of years of membership, tax-free.
# The remaining amount will be taxed at your average rate of tax for the year of your retirement and the previous year, instead of at your higher marginal rate of taxation. Invest the tax-free amount where it will attract the lowest rate of tax and earn the best risk-adjusted returns.
39. The earlier you start a retirement annuity, the greater your tax-free benefit at retirement. This is because the tax-free portion is R4 500 multiplied by the number of years of membership of the fund. You should avoid having too many retirement annuity plans as you could undermine your ability to get the maximum tax-free allowance at retirement.
40. Mind the gap. Very few retirement funds provide enough money to ensure a financially secure retirement, particularly now that most companies are reducing or discontinuing medical scheme subsidies to retirees. This means you need to have other investments to top up your retirement fund savings. Make sure you check up on how you are managing to fill “the gap” by regularly having a financial needs analysis with a properly qualified financial adviser.
41. Start planning your retirement at least three to five years before the date on which you are due to retire, so that you understand all your options and are not rushed into any last-minute decisions.
42. Be careful when buying an annuity (pension) with (at least) two-thirds of your retirement fund savings, as you are required to do by law. Living annuities have been widely mis-sold because of their potential to earn higher profits for the companies selling them and higher commissions for advisers. With a living annuity, you take the investment risks; with a traditional guaranteed annuity, you don’t, the life assurer does.
43. If you are investing in a living annuity to buy a pension and you need to draw more than the minimum five percent of the annual value, you could be exposing yourself to the risk of not having sufficient money to provide you with a financially secure income until you die.
44. Most living annuity providers allow you to draw your pension from different parts of the underlying investments. This enables you to structure the annuity so you have an income-generating portion and a capital growth portion. You should use this facility to invest mainly in interest-generating investments for the income portion. This will significantly reduce the risk of undermining your capital.
45. If you use a living annuity to buy a pension, do not invest all the money in equities or equity unit trusts. At the absolute maximum, you should have no more than 75 percent invested in equities. The balance should be in more stable interest-earning investments.
46. Always pay the full amount owing on your credit card. If you do not, you will be charged a punishing rate of interest from the date of purchase. The so-called budget account on your credit card is a misnomer, as you pay a high rate of interest.
47. Use a credit card to get 55 days’ interest-free credit by buying at the start of the buy-and-pay cycle and repaying the debt in full by the due date. This option does not apply to cash withdrawals and petrol purchases, on which you pay punitive interest rates from the date of the transaction.
48. Don’t leave large amounts of money sitting in a low-interest bank savings or current account. Rather put the money into a money market account or into your mortgage bond.
49. Pay yourself first. Set up debit orders that channel money into investments as soon after pay day as possible so that you will not “miss” the money.
50. Never use debt on which you have to pay interest to buy products you consume. You are in effect making the items far more expensive, and will be able to save less and buy less in the long term.
51. Borrowing to buy reasonably priced property is a good thing because you can expect the property to improve in value.
52. You should not, as a rule, borrow to invest, particularly not in volatile markets, such as share markets. The exception is property that you intend to hold for at least five years and in which you live.
53. Keep a good credit record. It could save you thousands of rands, particularly when you want to borrow money for big-ticket items such as a home or a vehicle, because the better your credit record, the lower the interest rate you can expect to pay.
54. The best investment you can make is to repay debt. Interest rates in South Africa are high. By paying off debt, you get one of the best returns available, tax-free.
55. Borrow wisely. Expensive debt is a quick way to lose money. For example, borrowing against a credit card is far more expensive than borrowing against a home loan. The difference can be more than 10 percentage points.
56. If you have a problem meeting your debts, don’t try to hide away. Go and speak to your creditors, particularly your bank, to find a way out of your problem. Don’t use debt consolidators/administrators. They will charge you far more interest and make your problem worse.
57. Beware of plastic. Store cards and credit cards may be convenient, but they are also an easy way of running up debt.
58. Don’t fly now, pay later. It is very depressing to be still paying for a holiday (or any other luxury) five years later, when you want another.
59. If you take out life assurance or short-term insurance to cover debt or an asset financed with debt, always pay the premiums as they become due to avoid paying interest on the premiums as well.
60. Try to repay more on your home loan than the minimum. For example, on a home loan of R100 000 at a mortgage bond rate of 15 percent over 20 years, your normal repayments will be R1 316.79. Increase the repayments by R100 and you will reduce your repayment period to 14 years and five months, and you will save R88 224.93 in interest repayments.
61. Always negotiate your interest rates. Shop around. A one-percent difference can have a significant effect. On a R100 000 mortgage bond over 20 years at 15 percent, you will repay R316 029 in total. At 14 percent, you will repay R298 444 – a saving of R17 584.
62. When mortgage bond interest rates come down, keep your repayments at the same level. You will pay off your bond quicker and save yourself a whack in interest repayments. Repayments will also not be so difficult to contend with if interest rates rise again.
63. If you take out a home loan when interest rates are low, always ask yourself whether you will be able to afford the repayments if interest rates go up. If you are in doubt, take out a smaller loan.
64. Most mortgage bonds enable you to repay more than your set repayments and to borrow against what you have paid. This is useful not only to borrow money for other things at short notice, but also to use as a savings account. The effective interest you receive is much greater and there are no additional costs. Say, for instance, you need to put away money to pay school fees or provisional tax. “Save” the money in your mortgage bond until you need it, rather than in a low-interest bank savings account.
65. Get a pre-approval agreement on a mortgage bond before you start looking for a home. This will give you the advantage of being able to shop around for the best rate while you’re not under pressure and the buyer will be more willing to sell to you knowing that the money is available.
66. Always have a lawyer check a property deed of sale before you sign up. Also make a deed of sale subject to conditions such as a proper inspection being done, if you suspect building faults, and to raising a mortgage bond, if you need one.
67. A bank valuation of a property is not a guarantee that the building is structurally sound. If you suspect a problem, get a full structural survey before you enter any contractual agreement.
68. Don’t fall prey to what is called a mortgage bond-linked endowment. With these products, you are encouraged to take out a home loan, repay only the interest, and invest the amount that would have repaid the capital. The theory is that, at the end of the period, the investment should be worth more than the capital. With high interest rates and poor investment returns, these are high-risk products.
69. If you take out life assurance, always declare any health problem or habit or hobby that might affect your insurability. You may have to pay more in premiums, but at least your dependants will receive the money if and when a claim is made. If you lie, either by omission or commission, your dependants may be left with nothing. The life assurance company is legally entitled to repudiate any claim when incorrect information is provided, even if it is not associated with the cause of death or disability.
70. Never buy too much life assurance against death or disability. The purpose of life assurance is to ensure you and your dependants maintain a standard of living, not to enrich dependants in the future. Too much life assurance merely means you are paying out more in premiums and costs, and you have to accept a lower standard of living now.
71. Always avoid cashing in an investment (endowment/universal) policy before its maturity date. Cashing in is costly. Not only could you receive less money than you have paid into the investment, but if there is life assurance cover attached to the policy, you may not be able to replace the cover in the future, particularly if you are less healthy.
72. When taking out life assurance cover against dying or being disabled, always establish whether the premiums are guaranteed – and for how long. It is preferable to get a longer term guarantee on your premiums.
73. If you have no option but to surrender a life assurance investment policy, always see if you cannot get more than the surrender value offered by the life assurance company by trading the policy on the secondhand market.
74. Rather than surrendering a policy, consider other options, such as making it paid-up so you can stop paying premiums. You may also be able to take a loan against the policy, but check the interest rate; sometimes it is higher than it would be if you used the policy as security to get a bank loan.
75. If you are concerned about volatile markets, one of the best investment products you can get is a life assurance smoothed bonus policy that guarantees your capital and smooths out the market returns.
76. If you intend the benefits of a life assurance policy to go to someone in particular, have this on record with the life company by naming the person as the beneficiary of the policy. This has two advantages: You do not pay executor’s fees of up to 3.75 percent with VAT on the amount; and the beneficiary receives the money almost immediately, without it being tied up for months or even years while your estate is finalised. More often than not, your dependants will need the money immediately after your death.
77. If you can afford a hamburger and Coke every day, you can afford life assurance. Life assurance is essential for anyone who has dependants.
78. If you plan to stay single with no dependants, you do not need life assurance against dying, but you do need disability assurance in case you become ill or are injured in an accident.
79. It is not saving if you put money away at the start of the month but withdraw it before the end of the month. Life assurance investments are useful for people who find it difficult to save, because they commit you to a contract for at least five years and cost you dearly if you break the contract.
80. Do not take out a life assurance investment contract for more than 10 years. You don’t know how your financial position could change. At the end of the period you can always extend the contract, but if you have to cut it short, there are penalties involved that could see you getting back less money than you paid in. The main reason life assurance sales people attempt to get you to take out longer-term policies is because they receive more commission.
81. If you have dependants, life assurance is more important than investments. Investments take longer to accumulate to the level that may be required by your dependants, whereas life assurance benefits can immediately meet those needs if required.
82. As a general rule, you should keep your risk life assurance against death and disability separate from your investments, particularly if the risk assurance is for a long period. The main reason for this is that, if you land up in financial difficulties, you do not want to lose the risk cover because you have had to stop paying the investment portion. This strategy also gives you more flexibility with your investments.
83. Life assurance against dying or being disabled may only be required for short periods. For example, you may need cover to provide for the education of children for 10 years or until you have built up sufficient savings. You do not need a 20-year contract.
84. Consider joint life assurance if you have a partner. It is often cheaper. It comes with the options of paying when the first of the two dies, or when the last partner dies, or fully on the death of each partner. Obviously, the premium will be determined by the option you choose.
85. Be very wary of credit life assurance. Although it can be essential to ensure debts are paid when you die, it is also open to abuse. Often, when you finance, for example, a motor vehicle, you will be sold life assurance to cover the debt. But many sales people sell you assurance that runs for a longer term than the debt and credit life assurance has an investment element included. Commission, not your financial well-being, motivates sales people.
86. You need to do some estate planning, particularly if you are wealthy. Any amount above R1.5 million that is not left to your spouse is subject to estate duty at a rate of 20 percent, and any capital gain that is not exempt is subject to capital gains tax, as death is considered a capital gains event. (The first R50 000 is exempt when you die.) If you do not have readily available cash to cover these taxes, you need life assurance to ensure there will be no need for a fire sale of other assets.
87. Apart from when you have a home loan, you cannot be forced to take out short-term insurance with any particular company when you receive a loan on a fixed or moveable asset. You can be forced to take out insurance, but you can and should shop around for the cheapest premium.
88. You can reduce the amount you pay in short-term insurance by increasing the excess (the first portion of any claim, which you pay). A higher excess will mean lower premiums. However, you should keep the excess within affordable limits. Better still, build up savings equivalent to any excess you may be required to pay and earn interest on them.
89. When you change address, check whether your short-term insurance premiums could be reduced. Where you live can effect the level of your short-term insurance premiums.
90. Most short-term insurance policies have a number of exclusions. For example, on motor vehicle insurance, you are required to maintain the vehicle properly. For example, if your tyres are smooth, your claim will be rejected no matter what the cause of the accident. Be aware of the exclusions, so that you don’t have a claim refused unexpectedly.
91. Check the value of your motor vehicle. One racket perpetrated by insurance companies is to increase premiums annually, when they should be decreased to take account of the declining value of your vehicle. When you claim, you will only be paid the actual value, not the insured value.
92. When making a short-term insurance claim, first find out what effect the claim will have on your no- claim bonus. If the claim (after payment of the excess) is relatively small, it may be better not to claim and keep your no-claim bonus intact. A no-claim bonus can equal as much as a 60 percent reduction on premiums after five years.
93. Use the R10 000 exemption from capital gains tax. Every year you are entitled to claim an exemption of R10 000 against any capital gain. Say, for example, you want to cash in an investment with a capital gain of R20 000 in November. Instead, cash in half in November and half after March 1, the start of the new tax year.
94. Interest-bearing investments become far more attractive when you don’t have to pay tax. For the current tax year, the first R10 000 in interest income is tax exempt if you are under the age of 65, and R15 000 if you are over the age of 65.
95. If you are investing for an income and have exceeded your tax-free interest exemption, consider cashing in investment capital that you can offset against your R10 000 capital gains tax exemption.
96. Never make a tax decision first when investing. Consider the tax implication last. Many people make the tax decision first and reject what could have been a good investment.
97. If your spouse is on a lower marginal income tax rate than you, it is best to transfer interest-earning assets to him/her. Also, remember that each spouse is entitled to the tax-free amount of R10 000 under the age of 65 and R15 000 over the age of 65.
98. To qualify for the R1 million capital gains tax exemption on your primary residence, you actually have to live in that property. If you rent out the property for even part of the time, you will have to deduct the period proportionally from the exemption.
99. The benefits of a life assurance policy are not subject to income tax or capital gains tax in your hands. Tax is paid on your behalf by the life assurance company at rates of 30 percent on interest, net rental and foreign dividends, and an effective 7.5 percent on capital gains. So, if your marginal tax rate is greater than 30 percent, you are receiving a tax advantage by investing in a life assurance policy as opposed to a unit trust investment with similar underlying investments.
100. Assets can be transferred between spouses without attracting donations tax. So it can pay to transfer assets on which capital gains tax may become due, to take advantage of lower marginal tax rates and the R10 000 exemption. Remember, 25 percent of a capital gain (which is not exempt) is included as income for tax purposes. So, the lower your marginal rate, the lower your capital gains tax will be.
Some Other Great Tips!
# Themba Siyolo, the head of distribution at Sanlam: “No matter how much or how little money you have, start taking responsibility for what happens to it by drawing up a budget and taking control of your expenses and income. Then you can start planning for other things in your life such as your education, your family, your home, your car, your holidays, your retirement and so on. There is no excuse for delegating this responsibility or for allowing your money management to happen by default.”
# Gerrit Viljoen, the Financial Planning Institute/Personal Finance Financial Planner of 2003: “Don’t let greed and fear be the primary drivers of your financial decision-making process. And get out of debt as quickly as possible.”
# Giselle Gould, the executive director of the Institute of Retirement Funds: “Buy your home to give yourself and your family security. Then pay off your bond as soon as possible to save yourself interest payments.”
# Lionel Karp, independent financial adviser and host of Financially speaking on Radio 702/567 Cape Talk: “Always think of your finances in terms of your needs, not your wants. Most acquisitions – cars, houses, boats and so on – are wants, not needs. Financial planning is just the opposite. If you look at it in terms of what you need, you will make far more informed decisions. Wants relate to your heart, while financial planning should come from your head.”
# Wilma Mokupo, the head of pensions at the Financial Services Board: “If you are a retirement fund member: ensure you read and understand your retirement fund rules; make sure that you receive regular benefit statements outlining all your benefits; and monitor the performance of your own board of trustees. The regulator depends on members and other stakeholders to report wrongdoing.”
# Selwyn Feldman, the president of the Financial Planning Institute: “My favourite pieces of financial advice are: Preserve your retirement fund payouts when you change jobs, and increase monthly payments to eliminate debts as quickly as possible.”
# Di Turpin, the executive vice-chairperson of the Association of Collective Investments: “The best investing tip I was ever given was to arrange a regular debit order effective on the day my first salary went into my bank account. It has created a habit that I am not even aware of half the time. This habit of investing regularly each month as a matter of course, regardless of financial pressures, has created a tidy little nest egg for the future already. As I made sure that the debit order coincided with the day my salary went into my account, there was always money for the investment. I also became used to operating without the money and adapted my lifestyle accordingly. You would be amazed how, if the money is there, one can always find a use for it!”
USA Insurance Industry
Auto Insurance in US follows the points as given below.
Liability coverage insures you against the cost of injury and damage you cause to another in an automobile accident. It is made up of two policies like bodily injury liability and property damage liability. Auto liability insurance is required in virtually every state. Auto insurance regulations vary greatly from state to state depending upon the place of living, purchasing types and coverage.
Bodily Injury Coverage is the part of liability coverage that insures you against the injury you cause to others in an auto accident. It consists of two figures. One limits the cost of injury coverage per person injured, and the second limits the total dollar amount of injury coverage (for everyone injured.) This is a very important policy.
Property damage coverage is the part of liability coverage that insures you against the cost of damage to another's property caused by you in an automobile accident. Here "Property" includes other cars, houses, fences, telephone poles, etc.
Medical payment coverage pays the medical bills of the covered driver, family members, and passengers when injured in an accident, regardless of who was at fault. This coverage is required in some states, but not in others
Personal Injury Protection (PIP) is similar to medical payments coverage, only it usually covers a broader range of events, including medical bills, lost wages, loss of services, etc.
Uninsured Motorist Coverage policy covers the cost of injury or damage caused by another driver who is not insured. It covers the policy holder, authorized drivers, and any passengers. It usually consists of separate limits for bodily injury and property damage. This policy is required in some states.
Collision Coverage policy helps to pay for repairs or fair market replacement cost if your car is damaged in an accident caused by you or an authorized driver. This policy is always optional.
Comprehensive Coverage policy covers the cost of repairs to or replacement of your vehicle should it be stolen, vandalized, struck in a hit-and-run, or damaged by an "act of God." Covered events vary from policy to policy but usually include fire, flood, and falling objects. This policy is always optional.
Travel Insurance In USA
Medical care is excellent in most parts of the US, but it can be very expensive and even astronomical for cases of critical illness. Many travelers purchase supplementary international medical insurance or travel insurance to avoid the staggering costs that might result from serious sickness or injury on trips.
Travel insurance takes the shape of following types.Many people are familiar with flight accident insurance, which pays a large sum of money if you are killed or seriously injured in an air accident. This type of insurance policy normally does not cover any medical expenses resulting from illness or other types of accidents while traveling.
Travel agencies frequently offer travel protection plans or trip cancellation insurance. These usually cover the cost of travel expenses should you be forced to cancel your vacation due to accident, illness or certain other causes. They often cover travel assistance services, protection for lost or damaged baggage and limited medical coverage. There may or may not be a deductible or co-pay for covered medical expenses.
Permanent Coverage: Unlike employer-provided health insurance that terminates when the person change jobs, the person and members of the family can keep the individual or family policy for as long as the person choose to pay the premium.
Sickness Protection: In many states, individual or family health insurance policies generally cannot be cancelled or premiums substantially increased because of illness or claims history. This is why is it important for you to get health insurance coverage, now, before you or a family member develop an expensive medical condition.
Financial Protection: Unforeseen health expenses are the single largest reason U.S. families file bankruptcy. More than 1 million each year face such types of problems. Everyone should have health insurance to avoid having a medical problem become a financial catastrophe.
Accidents: Even healthy people can be involved in an accident, or contract an illness.
Saving Money : For healthy individuals or families, policies are typically less expensive than participating in a group plan from your employer.
Spouse/Dependents: Even if you receive free health insurance at work, it may be less expensive to get your dependents their own policy rather than let them participate in the group plan from your employer.
New Tax Advantages: Self-employed individuals are now allowed to deduct 100% of the premium for individual/family health insurance from their taxable income.
Recent Study On Health Insurance
A recent study states that for the first time the dollar impact on private health insurance premiums when doctors and hospitals provide health care to uninsured people. In 2005, premium costs for family health insurance coverage provided by private employers will include an extra $922 in premiums due to the cost of care for the uninsured.Premiums for individual coverage will cost an extra $341.
Nearly 48 million Americans will be uninsured for the entire year in 2005. What happens when some of these 48 million Americans get sick? Research has shown that the uninsured often put off getting care for health problems or forgo care altogether. When the symptoms can no longer be ignored, the uninsured do see doctors and go to hospitals. Without insurance to pay the tab, the uninsured struggle to pay as much as they can. More than one-third (35 percent) of the total cost of health care services provided to people without health insurance is paid out-of-pocket by the uninsured themselves.
Source: economywatch.com
Real Estate Investment Property
Real Estate Investment Property follows a business cycle like any investment business-it has its peaks and troughs. But as real estate investment property is defined as investment in properties, which even can be commercial in nature, real estate can make a fortune for many individuals giving them the license to permanently walk away from their jobs. Commercial property may include apartments and multi family units, offices, hotels, malls, retail stores, businesses and industrial property. Commercial properties are acquired for realizing both capital gains and rental income.
Property investment can lead to diversification of ones investment portfolio, as real estate investments can be profitable for many giving them financial freedom in the long run. The real property can be put to its best use if it produces the highest value for land, as if vacant. But as many real estate investment property analysts point out, it can go horribly wrong if not undertaken in a careful manner. Thus it is always advisable to conduct a thorough research before arriving at a decision.
At present, terms such as “foreclosure investing” and “no money down real estate investing” have become associated with real estate property investment. While foreclosure investing means buying properties from owners who are in a financial distress, thus giving the opportunity to buy cheap, no money down real estate investing is an attractive service offered by many real estate agencies which helps people to invest in real estate without any credit checks and employment verifications.
Real estate investment can be profitable if one takes note of the following:
* Maximizing return
* Minimizing risk
* Comparing investments
* Saving time, and,
* Optimizing the deal structure
In short, people investing in real estate should be able to study the market tend of rising and falling real estate prices and then arrive at a decision. This service is also offered by many real estate investing agencies who will provide investment analyses software and real estate software cash flow tool that will help the investors make the right decisions about real estate investment decisions. The return on investment on real estate should be considered when deciding to invest in real estate.
Return on investment can be calculated on past or current investment or on the estimated return on future investment. It does not indicate the period for which the investment is being made. Rate of Return, or Return on Investment is essentially the future stream of income or a cash flow from an invested capital. This capital might be investing in real estate property or company shares and debentures.
The future stream of income or cash flow might arise from interest, dividends or capital gains. A capital gain occurs when the market value of an investment rises or falls. It does not however, include the returns accrued on the investment.
Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale. Notable, in this context is the gains reaped by real estate speculators who trade in real estate futures (by buying and selling purchase options).
As per the commercial real investment property boom in many areas of the world, it has been ascribed to improvement of the economy and growth of business ventures in the country. But it should be noted that investment in commercial properties yield more returns and cash flow than investments in residential properties. It is seen as lucrative as investments in stocks and bonds. Real Estate Investment Trust (REIT) can be a good option for people not in the position to invest a lot on real estate but willing to own pieces of property.
Various online real estate investment property sites have also emerged in the last decade as fallout of the surge in realty business.
Source: economywatch.com
Property investment can lead to diversification of ones investment portfolio, as real estate investments can be profitable for many giving them financial freedom in the long run. The real property can be put to its best use if it produces the highest value for land, as if vacant. But as many real estate investment property analysts point out, it can go horribly wrong if not undertaken in a careful manner. Thus it is always advisable to conduct a thorough research before arriving at a decision.
At present, terms such as “foreclosure investing” and “no money down real estate investing” have become associated with real estate property investment. While foreclosure investing means buying properties from owners who are in a financial distress, thus giving the opportunity to buy cheap, no money down real estate investing is an attractive service offered by many real estate agencies which helps people to invest in real estate without any credit checks and employment verifications.
Real estate investment can be profitable if one takes note of the following:
* Maximizing return
* Minimizing risk
* Comparing investments
* Saving time, and,
* Optimizing the deal structure
In short, people investing in real estate should be able to study the market tend of rising and falling real estate prices and then arrive at a decision. This service is also offered by many real estate investing agencies who will provide investment analyses software and real estate software cash flow tool that will help the investors make the right decisions about real estate investment decisions. The return on investment on real estate should be considered when deciding to invest in real estate.
Return on investment can be calculated on past or current investment or on the estimated return on future investment. It does not indicate the period for which the investment is being made. Rate of Return, or Return on Investment is essentially the future stream of income or a cash flow from an invested capital. This capital might be investing in real estate property or company shares and debentures.
The future stream of income or cash flow might arise from interest, dividends or capital gains. A capital gain occurs when the market value of an investment rises or falls. It does not however, include the returns accrued on the investment.
Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale. Notable, in this context is the gains reaped by real estate speculators who trade in real estate futures (by buying and selling purchase options).
As per the commercial real investment property boom in many areas of the world, it has been ascribed to improvement of the economy and growth of business ventures in the country. But it should be noted that investment in commercial properties yield more returns and cash flow than investments in residential properties. It is seen as lucrative as investments in stocks and bonds. Real Estate Investment Trust (REIT) can be a good option for people not in the position to invest a lot on real estate but willing to own pieces of property.
Various online real estate investment property sites have also emerged in the last decade as fallout of the surge in realty business.
Source: economywatch.com
Pakistan Oil and Gas Industry
Pakistan oil and gas industry is going through a process of transition as IT is experiencing a new wave of privatization. Government of Pakistan has announced its intention of privatizing 37% of its 75% stake in Qadirpur gas field and also transferring management responsibility to private companies. Aware of rich oil and gas reserves, oil and gas industry of Pakistan is putting in steady efforts to make best utilization of resources and build a strong production base.
Petroleum Policy of oil and gas industry in Pakistan is designed with a focus on promoting private sector investment in oil and gas sector. Instance of gas and condensate discovery by Oil and Gas Development Company Limited (OGDCL) in Exploratory Pakhro Well No. 01 is a major achievement of this sector. Austria's OMV is credited with discovery of gas in Taijal 1 exploration well. OMV has also pointed out medium-term growth potential in Pakistan's reserves.
Reports of oil and gas industry of Pakistan reveals this country’s current average daily oil production is about 3,800 net barrels and natural gas of 73 net million cubic feet. Despite such huge potential, Petroleum Ministry of Pakistan reported high trade deficit due to major gap between import and export value. Oil import of Pakistan is expected to reach $6.5 billion in 2009 and government aims at formulating policies to reduce import dependence and promote self-reliance by triggering exploitation.
BP, one of world's largest energy companies entered Pakistan oil and gas industry by acquiring all of Oxy's remaining reserve in Pakistan of approximately 68 billion cubic feet of natural gas and 3 million barrels of oil. Iran has also consented to sign gas supply deal with Pakistan oil and gas industry and it will work to construct proposed Iran-Pakistan-India gas pipeline although India has not expressed its decision on this regard.
POGEE or Pakistan Oil, Gas & Energy Exhibition & Conference to be held between 18th and 21st May, 2009 will discuss several imperative issues concerning oil and gas industry at Pakistan including increasing demand for products and services in this sector. This is an important event for Pakistan oil and gas industry as leaders of this sector get a decent scope of displaying latest technology pertaining to energy industry. Focal point of this conference will be to highlight contemporary developments in Pakistan’s oil and gas sector
Petroleum Policy of oil and gas industry in Pakistan is designed with a focus on promoting private sector investment in oil and gas sector. Instance of gas and condensate discovery by Oil and Gas Development Company Limited (OGDCL) in Exploratory Pakhro Well No. 01 is a major achievement of this sector. Austria's OMV is credited with discovery of gas in Taijal 1 exploration well. OMV has also pointed out medium-term growth potential in Pakistan's reserves.
Reports of oil and gas industry of Pakistan reveals this country’s current average daily oil production is about 3,800 net barrels and natural gas of 73 net million cubic feet. Despite such huge potential, Petroleum Ministry of Pakistan reported high trade deficit due to major gap between import and export value. Oil import of Pakistan is expected to reach $6.5 billion in 2009 and government aims at formulating policies to reduce import dependence and promote self-reliance by triggering exploitation.
BP, one of world's largest energy companies entered Pakistan oil and gas industry by acquiring all of Oxy's remaining reserve in Pakistan of approximately 68 billion cubic feet of natural gas and 3 million barrels of oil. Iran has also consented to sign gas supply deal with Pakistan oil and gas industry and it will work to construct proposed Iran-Pakistan-India gas pipeline although India has not expressed its decision on this regard.
POGEE or Pakistan Oil, Gas & Energy Exhibition & Conference to be held between 18th and 21st May, 2009 will discuss several imperative issues concerning oil and gas industry at Pakistan including increasing demand for products and services in this sector. This is an important event for Pakistan oil and gas industry as leaders of this sector get a decent scope of displaying latest technology pertaining to energy industry. Focal point of this conference will be to highlight contemporary developments in Pakistan’s oil and gas sector
BP, Eni Among Winners of 41 Pakistan Oil, Gas Blocks
Pakistan awarded 41 licenses to companies including BP Plc, Eni SpA and Pakistan Petroleum Ltd. to search for oil and gas, in a bid to attract investment in the country’s energy industry.
“The successful bidders will be issued licenses within 15 days,” G.A. Sabri, special secretary at the Islamabad-based Petroleum Ministry, said in a phone interview today. The companies bid yesterday for 41 blocks out of 53 offered by the government, he said.
Pakistan Petroleum, the nation’s biggest gas producer, won 13 licenses, the most, while Oil & Gas Development Co., Pakistan’s largest explorer, got six, he said. Pakistan Oilfield Ltd. was awarded two licenses, while BP and Eni won two and one, respectively, among others.
Pakistan is targeting to attract $15 billion in investment to develop its oil and gas industry over the next five years, Asim Hussain, former adviser to the prime minister on the oil industry, said in July. Pakistan is betting on oil and gas production to bolster growth as the government battles extremist violence and its worst economic crisis in a decade.
The bid of the Pakistan Peoples Party-led coalition government to revive the economy has been hurt by Taliban militancy in the country’s northwest region that has killed thousands of people.
“The licenses will bring $175 million in initial investment,” Sabri said. The 12 blocks that failed to draw bids are “potentially high-risk areas” in Baluchistan, Sindh and Punjab provinces, he said, without elaborating.
Offshore Exploration
BP, Eni and Oil & Gas Development have licenses to explore off Pakistan’s coast, Sabri said. The country has yet to find oil and gas offshore.
Pakistan wants to boost domestic fuel production to reduce its oil import bill and meet energy demand, which is growing 5 percent annually. Gas production of 4.1 billion cubic feet a day meets about 60 percent of demand. Pakistan imports more than 80 percent of the oil that it uses.
Saturday 10 October 2009
STOCK MARKET AT A GLANCE
The KSE registered volatile price behaviour throughout the trading week, and ended 2.93 % lower wow to close at 1569.39 as against its starting level of 1616.74.
Additional strength on the very first day, pushing the Index to 1650, culminated into profit taking at the highs. A technical correction resulted, as a reading of 70% was recorded on the RSI scale which is basically a signal that a correction is about to ensue.
Failure to hold at psychological support of 1600 on the third day turned into heavy selling in the absence of any directional information on the political and economic front.
However, the World Call scrip bagged the top five slot as its price jumped a positive 27.22% to close at 22.20, riding on the back of investor confidence in the newly found company's earnings power induced by the government's increased interest in boosting IT in Pakistan.
Choppy price behaviour was noticed in PSO which after registering an initial strength of 186.30, closed at 173.90. Speculators began assimilating the stock over the last two weeks and after pushing it past 180, offloaded the scrip to take profit.
Major breakout levels are technically always tested. In this week, the Index eased further to test the levels of 1550 on Friday. The level of 1550 is extremely critical and it if holds, then a positive outcome may be expected. We maintain major support at 1450 and resistance at 1650.
Sector Analysis
Oil and gas Sector
We have seen many changes occurring in the oil and gas sector in the previous month. Most of these changes are associated with the privatization of the Public Sector Enterprises operating in this sector. Here we will analyze issues relating to those separately.
The first advertisement for the invitation of Financial Advisor of PSO (Pakistan State Oil) was made in September 1999, but with the change in government in October everything was put on hold. Now, the Privatization Commission has again been able to place the privatization agenda back on track. PSO's name has not appeared on the new privatization list, our guess is that the government wants to privatize the smaller entities before they privatize PSO.
Currently, the government is planning to divest the non-core business interests in the Public Sector Energy Companies. The entities initially on the agenda are the LPG units of PSO, SNGPL (Sui Northern Gas Pipeline Company) and SSGC (Sui Southern Gas Company). The government has deregulated the prices of LPG prior to their final bidding. We believe that the privatization of LPG will set the precedent for further privatization, and that most of the oil and gas sector will be deregulated prior to privatization..
The oil and gas sector too large and complex to be deregulated in one go, it is therefore being deregulated in a step by step manner. Prior to privatization, the government plans to deregulate the sector first. It is the government belief that the deregulated environment will improve the profit margins of the sector, enabling the government to get better proceeds from privatization. The first POL product to be deregulated was lubricant in early 1990's, after a lapse of 7 years furnace oil was deregulated, and now the government has announced that it plans to deregulate the diesel in December. We believe that the deregulation will be completed within 2 to 3 years, and privatization will be completed within 5 years.
The unique factor about this deregulation is the focus towards the downstream sector, previously deregulation of the oil and gas sectors was focused on upstream activities. The petroleum policies of 1994, 1995 and 1997 were focused on giving incentives to the upstream sector. Yes, these incentives did have a positive response, many international oil prospecting and exploration companies started to come to Pakistan in a big way, such as Shell, Mobil and Texaco, consequently increasing the country's reserves.
Now the deregulation is focused on the downstream (Distribution and Marketing) sector, which had been left out of the deregulation picture for too long. Many companies are now seeing greater potential in the downstream segment compared to the upstream (Exploration and Refining) segment. For example, Shell International has decided to divest its upstream business interests and focus on its downstream business. For this purpose it has increased its share in Shell Pakistan from 51% to 58% and at the same time it plans to purchase 26% stake in the Karachi PARCO 800km pipeline project, which is worth USD800mn. Earlier on the Oil Marketing Companies saw limited opportunities in the downstream business, this was the key reason why the OMC's were not keen on capital expenditure.
So far, the interest generated by the privatization of has been phenomenal. There were 9 parties who were pre-qualified for the final bidding for a stake in the privatization in the SNGPL LPG business. The government has the right idea that foreign investors are interested in the oil and gas sector companies, they present companies with simple business models, are easy to manage and evaluate.
With furnace oil deregulated, within a period of one month we have seen considerable price fluctuations, initially the price climbed to Rs11,368/tonnes, and now have decreased to Rs9,778/ tonnes. PSO claims that it has not increased its margins and it will not take unfair advantage of its market position. PSO has reduced the price on furnace oil by 15% whereas Shell and Caltex have reduced it by 4% and 5% respectively. It seems that PSO deliberately plans to keep its margins low toward off competition. We believe that in the long run this policy will not be sustainable because the competition is going to depend upon efficiency. Shell and Caltex both have the advantage of having a much more efficient management structure. Comparing Shell and PSO in terms of marginal efficiency we find that Shell enjoys massive management premiums, even discounting larger network size.
With the expected deregulation of diesel in December, it appears that the government is pushing for a much quicker deregulation than what the market had expected. Certain aspects have come to light with the deregulation of Furnace oil, firstly the margins have increased considerably, secondly with the removal of freight pool the prices in northern areas are higher in comparison to the southern region, and also that the prices for the retail consumers have gone up. Even though Furnace oil is now being charged a lower amount of Development Surcharge tariff than previously and a sales tax of 15% has been imposed. Furnace oil is mainly consumed by industries and they can adjust the sales tax element against their output. But with the deregulation of other products, the consumers will not take the price hike caused by deregulation so favourably.
Professional accountant and the technological environment
Thirty years back when I was sent on my first audit assignment as a junior articled clerk, the job incharge asked me to cast and cross cast 15 pages of a sixteen column cash book. I hesitatingly asked him if he could teach me how to use the "machine" that he had on his table and was used for calculations. He very politely told me to "use your head, it will do you good," and refused the use of machine.
Today a child grows with a calculator if not a computer and the articled clerk / student demands that he be allowed the use of the computers in the office.
Change must take place and will take place. The only thing constant in life is change. We must adapt to the changing times and we must recognise the oncoming changes much in advance and prepare ourselves for the new requirements and use of methodologies. However, human nature being what it is, change is always resisted and more so in regions which pride themselves in ancient civilizations and culture and a history of introducing learning and knowledge to the world.
The biggest change in the last decade and half has been the introduction of Information Technology in our daily working and learning lives. More change is inevitable. The question is, have we, the Professional Accountants, responded to the change in an adequate manner and what measures have we taken to adapt our work methodologies, our learning process and our vision of the role we are likely to play in the next millennium which is expected to be the age of computer technology.
Paragraph 1, 3 and 4 of the Introduction to IEGII (Information Technology in the Accounting Curriculum) released by IFAC state as follows:
"Professional accountants, in addition to extensively using various types of information technologies often play important managerial, advisory and evaluative roles in connection with the adoption and use of various information technologies by organizations of all types and sizes.
----- Society expects that professional accountants who accept an engagement or occupation have the required level of knowledge and can apply it to practical problems. The accounting profession as a whole has the obligation to ensure that candidates for membership possess the required breadth and depth of knowledge and skill and the credibility of the accountancy profession depends on its success in fulfilling this obligation. In addition, the accountancy profession has an obligation to ensure that, after qualifying, members keep abreast of relevant developments through continuing professional education.
The body of knowledge and skill required of professional accountants includes a variety of important areas. "IT is one of the core competencies of professional accountants and requires special attention due to its explosive growth and its rapid rate of change."
In my opinion, these three paragraphs sum up what is required of the Professional Accountant to acquire the knowledge', skill and expertise to maintain its utility in the world of business and finance.
Past and future
One of my colleagues on the IFAC IT Committee, Mr. Serge Yablonsky, from France, likens the Professional Accountant to a candle maker and asks the question "Are Professional Accountants the candlemakers' of the next century."
When there was no electricity the candlemakers' business was prospering. But with the advent of electricity the candlemakers' business took a nose dive. Everyone wanted electricity and there was lesser and lesser demand for candies. If the Professional Accountant is not prepared to bring about and accept changes in his traditional role, he is likely to meet the same fate as the candlemaker.
Traditionally, two of the most important activities required to be performed by Accountants was Book-keeping and Accounting leading to the preparation of financial statements and statutory audit of annual accounts. These roles, because of rapid advancement of IT, have been affected of.
•Disinter mediation / Internet / EDI
•Event / Activity based Accounting
•Automation
The statutory Audit is being criticised on account of:
•The annual accounts being of historic interest and often belatedly available.
•The accounts being defined by the professional accountant and not the decision maker
•The annual accounts containing financial information only.
The prospective investor, the stakeholder and the shareholder desire:
•Relevant information
•Prospective data with follow-up and analysis
•Non-financial information relating to
•Comparison with competitors
•Quality of management and operational human resources.
•Research and Development being undertaken
•Quality of production
•Quality of customers
•Information regarding efforts to protect the environment
•information regarding credit worthiness
•service, including design of communication and information systems, guarantee of original, reliable information (assurance) and out-sourcing of administrative tasks, resulting in cost effectiveness and quality, of the business, while taking new needs of the business into account.
•An Audit which stresses on quality and relevance of information, provides prospective information and is carried out on a timely basis.
The Professional Accountant therefore has to reorganize himself, his education and skills to meet the requirements. Perhaps, the scope, the services, the process and methods employed the tools used and the human resources deployed by the Professional Accountant all require to be upgraded to meet the emerging challenges. Competition for the Professional Accountant exists today from many quarters and the possibility of meeting the same fate as the Candlemaker can turn into a reality. The competition comes from software and IT companies, Banks and foreign colleagues.
So, what is required:
Future
Because of the rapid use of the Internet, the consequent growth of Electronic Commerce, the international usage of Credit and other bank cards and the growth of International distribution companies, the Professional accountant has to be more aware and open to the International regulations and would be required to organise himself into international networks for client follow up: This may require small and medium sized firms to merge into larger organisations with international affiliations.
The manner and style of reporting will have to change to become management accounting rather than statutory or tax oriented and be in the language of the decision maker. The Professional Accountant will be required to provide relevant financial information in a style and form which can help rapid decision making. The stakeholder, the prospective Customer and client are all interested in non-financial information and data and what the business thinks it will be doing in the coming period (s). The Professional Accountant must be prepared to report on these matters.
The Professional Accountant may be asked upon to design integrated Management Information systems and Communication systems that are integrated with MIS.
The Audit will inevitably change in emphasis from purely financial to information system and process audits. The Auditor would have to go beyond the financial and historical information, hitherto stressed upon to comment on the quality and relevance of the information being provided.
The Professional Accountant will in the new environment be required to provide assurances in respect of the reliability not only of the information but also how the same is being collected, maintained and processed. The professional Accountant may have to offer services in respect of many outsourced administrative tasks. The decision making being left to the decision makers.
There may be a school of thought which may not subscribe to the idea of a changed scenario and role. It may be contended that taxation services will continue to be required. Indeed they will be, but the emphasis would change from return filing to tax planning. Technology advancement now enables the tax assesee to file his tax return electronically and by telephone subject of course to the laws being simple and straightforward. The requirement of statutory audits may continue but with a greater number of Companies being listed, even larger numbers wanting to invest therein, and the rapidly changing economic, fiscal and business scene, the need for receiving reliable financial information on a quarterly, monthly basis, on-line, is going to arise. Will this information be unaudited or audited? Who is going to provide the assurance in respect of the financial information? Who is going to assure that the systems employed to collect record process reproduce and analyse the financial information are reliable and trustworthy?
Electronic Commerce whether business to business or business to cconsumer brings with it a host of issues and problems for the Professional Accountant to attend to. The problems relate to accounting, auditing and taxation. Will the E-Com software provide the necessary audit trail? Will there be an on-line audit of each transaction? How will completeness of the accounting records be ensured? How will the tax authorities be assured that all direct and indirect taxes have been paid? These and a host of other issues emerge which will require the professional Accountant's attention and most definitely a change in the scope, skill and expertise to provide the necessary services to its clientele.
The Internet assurance services in themselves open up a new avenue for provision of services. Competition is already emerging in this area. A multinational banking Consortium "IDENTRUS" has been formed by 11 of the leading International Bankers to provide security assurances for business to business commerce over the Internet.
AICPA (American Institute of Certified Public Accountants) have developed a Web seal of trust for providing Web assurance services by its members. The right of use the seal has also been sold to the Australian, English and Canadian Institutes. The effort was under- taken to secure for the professional accountant a new avenue of business and to remain a major player in the field of providing assurance services.
What do we do?
The SAFA regions' priorities, in the Technological environment, in my opinion, should be.
i) to recognise IT as a core subject alongside auditing, taxation and company law.
ii) to take suitable steps within their existing entrance level syllabi and examination structures to ensure that the student of accountancy is not only equipped with the general IT education requirements but is adequately trained to become a user of IT
iii) to design and introduce curricula and examination at the professional level to meet the requirements of IEG 11 in respect of developing the accountant as manager of information systems, designer of business systems and evaluator of information systems.
iv) to take effective steps to upgrade the knowledge and skills of the qualified Accountants in respect of IT by offering post qualification diplomas in IT through association with other recognised specialist international bodies.
v) to undertake efforts to develop a regional Web seal and allied facilities for usage by the Accountancy bodies in the member states.
vi) to undertake research in the area of E-com particularly taxation and based thereupon issue statements to highlight the issue and offer practical solutions.
vii) to deliberate on and evolve a plan for delivery of education through use of internet within and between the SAFA member bodies for providing education to students and members of the professional bodies.
Investment opportunities in Pakistan
Pakistan offered best investment opportunities both in forex trading and its 3 emerging stock markets operating under most regulated and protective atmosphere promising a good return to the investors.
This was the consensus of the speakers at a Seminar on "Investment opportunities in Pakistan" arranged by Harvest Group of Pakistan in Lahore on Saturday. Harvest Smartrend Securities (Pvt) Limited is a partnership between the Harvest Group of Pakistan and Smartrend International Limited of Hong Kong. Smartrend International Limited is a brokerage arm of Smartrend International Holdings Ltd, a BVI company with an authorized capital of US $ 10 million. The group maintains a wide range of operations in the field of providing financial services, including U.S. securities, forex and commodities trading to investors in the United States and the Asia-Pacific Region. Harvest Smartrend Securities Pvt Ltd. was registered as a corporate member of the Lahore Stock Exchange on October 3, 1999.
The 3 speakers associated with the Harvest Group explained in details to a large gathering of investors and stock dealers, economists and researchers the vast investment opportunities Pakistan offered to both domestic investors and the foreign investors and what important role Harvest was playing as a local brokerage house of international standard in harnessing these potentials by providing expert professional advise and research oriented guidance to its clients to ensure reasonable profits on their protected and safe investments. Harvest provided facilities to both the investors of the stock market as well as forex trading which has recently picked up in Pakistan. The seminar ended with the concluding remarks of Mohammad Gulraze Mir, Chairman and ECO of Harvest Topworld International (Pakistan).
The speakers pointed out that in recent years, emerging stock markets in developing countries have become an important and widely accepted investment tool. Characterized by ever-growing turnover and high potential returns these markets are known to have tremendous growth potentials. In fact, during the past decade, these markets have experienced considerable growth.
Emerging market
Pakistan being among the developing economies of the world has the benefit of holding the status of emerging markets i.e. The stock markets in Pakistan are classified as emerging stock markets. It is because of these wide range of advantages that Harvest Smartrend Securities (Pvt) Ltd. (HSS), a corporate member of Lahore Stock Exchange, offers investors an opportunity to capitalize on such markets.
Introducing the Harvest Group senior Marketing Manager, Mr. Kamran K. Megee said that the group had an international chain which comprised of the following companies, Harvest Topworth International, Harvest Smartrend Securities Pvt. Ltd, First Harvest (Texas) Inc., Harvestrade International Inc., Harvest Global Network Inc., Global Harvest Corp.
Harvest Smartland Securities Pvt Ltd (HSS) and Harvest Topworth (HTW) International are securities and forex brokerage arms of the Harvest operating in Pakistan. HTW is in fact the pioneer of forex brokerage in Pakistan with a largest set up with Hi-tech communication and information system. Speaking on securities in Pakistan. Ms. Humaira Jamil Research analyst said that investment in stock market of Pakistan was today much safer because of the various measures taken by the Securities and Exchange Corporation (SECP) which has assumed the role of real protector of investors. She recommended investment in Pakistan because of its emerging markets, enhanced and improved performance of capital markets during the past few years.
Mr. Akbar Hussain spoke on forex trading which according to him had tremendous potential. He disclosed that trading volume of forex was many time more than investment in share markets. The daily turnover of forex trading which was going on round the clock was about 2 trillion US dollars. The concept was comparatively new in Pakistan but was fast developing. He claimed that HTW of his group was developing forex trading in Pakistan on the most modern lines backed by Hi-tech communication and information system compiled by highly qualified and professional team of researchers.
Mr. Mir, in his concluding remarks explained the importance of forex trading in the growing capital market of Pakistan. He said Harvest Topworth International provides professional and efficient Spot Currency trading facilities and customized investment portfolios to sophisticated investors in Pakistan. In association with the Topworth Group and a worldwide network of investment companies, Harvest Topworth puts the largest global investment market within reach of the Pakistan investment community. Harvest Topworth International, work as a large professional team to serve the best interests of the investors. This is a continuous operation from 5:00 a.m. Monday morning Pakistani time when the Tokyo market opens, to 1:00 a.m. Saturday when the New York market closes. This is basically to protect the interests of the investors from the movement of the currency rates in the Forex Market in and outside the country.
Thursday 3 September 2009
knowing your bonds by reading the yield curve
Yield curves depict how a bond’s yield is related to its maturity. Yield curves based on the US Treasury are published daily in major financial newspapers. Yields on shorter-term bonds, such as 1-month, 3-month, and 6-month Treasuries, are depicted on the left side of the curve. Yields for longer-term bonds, up to the 30-year bellwether Treasury, are on the right side of the curve.
Typically, higher yields are available on longer maturities. This is because investors expect to be compensated for giving up their capital for longer periods of time. On a yield curve, this translates into an upward-sloping line. A “flat” yield curve has only a small spread between the yields available on the shortest and longest securities. As a practical example of a flat yield curve, if the 1-month Treasury yielded 5.00% when the 30-year Treasury was yielding 5.80%, the spread would be just 0.80%, or 80 basis points. Conversely, if the 30-year Treasury was yielding 6.50%, the spread would be 1.50% and the yield curve would be considered “steep”. During times of steep yield curves, investors demand a significantly higher yield on their long-term securities.
Sometimes, however, higher yields are actually available on shorter maturities. This results in a downward-sloping or “inverted” yield curve. Usually inverted yield curves happen when investors believe that interest rates are about to decline. And since interest rates usually decline during recessions, an inverted yield curve can sometimes predict tough economic times ahead. However, the inverted yield curve tends to be somewhat pessimistic: it has predicted nine out of five recessions.
Historically the yield curve has moved all over the place. There have been periods of long bonds yielding much more than short bonds (steep yield curves), to long bonds yielding just a little more than short bonds (flat yield curves), to long bonds actually yielding less than short bonds (inverted yield curves.)
Say you’ve looked at the yield curve and determined that it is upward-sloping; that is, longer-term bonds are yielding more than short-term bonds. Why would you ever buy a lower-yielding short or intermediate-term security under these conditions? The answer is that long-term securities present both greater risks and greater rewards. The primary risk for long-term bond investors is interest rate risk. If interest rates increase, the price of long-term bonds will decline more than the price of short-term bonds will decline. If you need to reclaim your capital before the bond matures, you will need to sell it into the market at a loss. This is a large and misunderstood risk for bond investors, and it is one that the yield curve can help you mitigate.
Shorter-term securities are less susceptible to interest rate risk, but they offer a lower yield. There is no perfect solution; only a tradeoff between security and maximum potential return. The yield curve captures this trade-off clearly, on a daily basis. For example, if 90% of the yield on a 30-year bond is available on a 10-year bond, you will probably be best served by buying the 10-year bond. The yield curve tells you that you will not be adequately compensated for the additional risk inherent in the long-term bond.
On the other hand, what if you are looking at an inverted yield curve? Why would you buy a longer-term, lower-yielding security rather than a less risky, higher-yielding security? The answer is simple: you will lock in returns for longer. During the 1980’s, interest rates rose to unprecedented highs. Investors who locked in the high yields for long periods of time made a lot more money than those who were forced to reinvest their money at lower interest rates just a year or two later.
In summary, a yield curve shows you how a bond’s yield is related to its maturity. A careful look at the yield curve can help you determine if you are being adequately compensated for the risk you are assuming with your bond portfolio, and thereby increase the security and return of your entire portfolio.
Typically, higher yields are available on longer maturities. This is because investors expect to be compensated for giving up their capital for longer periods of time. On a yield curve, this translates into an upward-sloping line. A “flat” yield curve has only a small spread between the yields available on the shortest and longest securities. As a practical example of a flat yield curve, if the 1-month Treasury yielded 5.00% when the 30-year Treasury was yielding 5.80%, the spread would be just 0.80%, or 80 basis points. Conversely, if the 30-year Treasury was yielding 6.50%, the spread would be 1.50% and the yield curve would be considered “steep”. During times of steep yield curves, investors demand a significantly higher yield on their long-term securities.
Sometimes, however, higher yields are actually available on shorter maturities. This results in a downward-sloping or “inverted” yield curve. Usually inverted yield curves happen when investors believe that interest rates are about to decline. And since interest rates usually decline during recessions, an inverted yield curve can sometimes predict tough economic times ahead. However, the inverted yield curve tends to be somewhat pessimistic: it has predicted nine out of five recessions.
Historically the yield curve has moved all over the place. There have been periods of long bonds yielding much more than short bonds (steep yield curves), to long bonds yielding just a little more than short bonds (flat yield curves), to long bonds actually yielding less than short bonds (inverted yield curves.)
Say you’ve looked at the yield curve and determined that it is upward-sloping; that is, longer-term bonds are yielding more than short-term bonds. Why would you ever buy a lower-yielding short or intermediate-term security under these conditions? The answer is that long-term securities present both greater risks and greater rewards. The primary risk for long-term bond investors is interest rate risk. If interest rates increase, the price of long-term bonds will decline more than the price of short-term bonds will decline. If you need to reclaim your capital before the bond matures, you will need to sell it into the market at a loss. This is a large and misunderstood risk for bond investors, and it is one that the yield curve can help you mitigate.
Shorter-term securities are less susceptible to interest rate risk, but they offer a lower yield. There is no perfect solution; only a tradeoff between security and maximum potential return. The yield curve captures this trade-off clearly, on a daily basis. For example, if 90% of the yield on a 30-year bond is available on a 10-year bond, you will probably be best served by buying the 10-year bond. The yield curve tells you that you will not be adequately compensated for the additional risk inherent in the long-term bond.
On the other hand, what if you are looking at an inverted yield curve? Why would you buy a longer-term, lower-yielding security rather than a less risky, higher-yielding security? The answer is simple: you will lock in returns for longer. During the 1980’s, interest rates rose to unprecedented highs. Investors who locked in the high yields for long periods of time made a lot more money than those who were forced to reinvest their money at lower interest rates just a year or two later.
In summary, a yield curve shows you how a bond’s yield is related to its maturity. A careful look at the yield curve can help you determine if you are being adequately compensated for the risk you are assuming with your bond portfolio, and thereby increase the security and return of your entire portfolio.
tax-free municipal bonds
After a tumultuous ride in the stock market, you begin to think about other types of investments; ones that offer a bit more stability. For this you are willing to trade a relative reduction in potential capital gains for a possible safer return. Perhaps you could invest in a vehicle that could provide you with a modest income, free from taxation. Would it be an appropriate investment for you? Does such an investment exist? It does and it’s literally right outside your door – municipal bonds and municipal bond funds.
Debt securities issued by a state or local government or governmental entity are referred to as municipal bonds. The money raised by these securities is used to build roads, schools, as well as other public projects such as stadiums and parks. When you purchase a municipal bond, you are essentially lending your state or municipality the value of the bond and, in return, they pay you interest. If you are a resident of the state issuing the bond, there is a good chance the interest will be free from all taxes; federal, state and local. The reason you wouldn’t have to pay federal taxes is due to the separation of powers, where the federal government can’t tax state issues, just as states cannot tax federal issues. Since you are lending the money to your state or municipality, those entities usually waive the taxes. Check with a tax professional to find out the specifics of the bonds that you are interested in since there are some instances where taxes can be levied. As a general rule, most residents of the state from whom they purchased the bond enjoy the triple tax-free status of these investments.
Because of the tax-free status of these bonds, they usually trade at a reduced rate of interest to corporate issues. In order to determine whether the interest you will receive from a municipal bond is in keeping with your desired net return, or yield, there is a simple equation to assist you. When comparing your net return from municipal bonds to corporate bonds, you must compute what is known as the ‘tax-equivalent yield’. Take your tax-free yield divided by 1- (your federal tax rate) = tax equivalent yield. As an example, say you are considering two different bonds for purchase; one, a taxable corporate bond, the other a tax-free municipal bond. The taxable corporate bond has a 5% interest rate, the tax-free municipal bond offers a 4.5% interest rate. Let’s assume you are in the 25% tax bracket. To calculate what the taxable equivalent of the tax-free municipal bond yield would be, divide the tax-free rate by 1 minus your tax bracket: 4.5% divided by 1-.25 (which equals .75) = 4.5 divided by .75 = 6%. The tax-free municipal bond’s tax equivalent yield of 6% is higher than the taxable investment's 5% interest rate. In other words, a taxable investment would have to pay you 6% interest in order to equal the interest you would receive from a municipal bond issue that pays 4.5% interest.
Municipal bonds come in three basic forms. First is the general obligation bond, which is backed by the full faith and credit, in the form of the municipality’s taxing power, of the issuing agency. Second is the revenue bond, which is backed by the revenue generated from a specific project, authority, or agency. These bonds are not backed by the full faith and credit of the agency and are only as good as the specific projects they support. Third is the industrial development bond, or IDB, which is issued to support the purchase or construction of industrial facilities that will be leased to private businesses. The leasing fees are used to pay the interest and principal to the bondholders.
There are two ways to invest in municipal bonds. You can buy them from a broker who will likely advise you that they come in $5,000 par values and require a $25,000 minimum investment, or you can purchase them through a mutual fund. Most mutual funds require a minimum investment of $1,000 - $2,000, making them much more affordable to your average investor.
To determine which bonds are considered of a higher quality than others, Moodys and Standard & Poors have created a rating system to assist investors. The highest rated bonds, usually with their principal and interest insured by an outside private concern such as MBIAC, are given a quality rating of AAA. On the opposite side of the spectrum, the lowest rating a bond can receive is C, and is considered an extremely poor prospect. These low-rated issues should be considered only by those investors with a high level of risk tolerance, and should be avoided by conservative investors altogether.
Municipal bonds and municipal bond funds can be a great means of creating a tax-free income, particularly for those with a large tax burden. For those who purchase municipal bonds in the form of a mutual fund, the tax-free interest can be re-invested to purchase additional shares, thereby increasing the principal and, subsequently, future interest. These issues make a solid addition to a well-diversified investment plan, and represent the more conservative side of a balanced portfolio.
Debt securities issued by a state or local government or governmental entity are referred to as municipal bonds. The money raised by these securities is used to build roads, schools, as well as other public projects such as stadiums and parks. When you purchase a municipal bond, you are essentially lending your state or municipality the value of the bond and, in return, they pay you interest. If you are a resident of the state issuing the bond, there is a good chance the interest will be free from all taxes; federal, state and local. The reason you wouldn’t have to pay federal taxes is due to the separation of powers, where the federal government can’t tax state issues, just as states cannot tax federal issues. Since you are lending the money to your state or municipality, those entities usually waive the taxes. Check with a tax professional to find out the specifics of the bonds that you are interested in since there are some instances where taxes can be levied. As a general rule, most residents of the state from whom they purchased the bond enjoy the triple tax-free status of these investments.
Because of the tax-free status of these bonds, they usually trade at a reduced rate of interest to corporate issues. In order to determine whether the interest you will receive from a municipal bond is in keeping with your desired net return, or yield, there is a simple equation to assist you. When comparing your net return from municipal bonds to corporate bonds, you must compute what is known as the ‘tax-equivalent yield’. Take your tax-free yield divided by 1- (your federal tax rate) = tax equivalent yield. As an example, say you are considering two different bonds for purchase; one, a taxable corporate bond, the other a tax-free municipal bond. The taxable corporate bond has a 5% interest rate, the tax-free municipal bond offers a 4.5% interest rate. Let’s assume you are in the 25% tax bracket. To calculate what the taxable equivalent of the tax-free municipal bond yield would be, divide the tax-free rate by 1 minus your tax bracket: 4.5% divided by 1-.25 (which equals .75) = 4.5 divided by .75 = 6%. The tax-free municipal bond’s tax equivalent yield of 6% is higher than the taxable investment's 5% interest rate. In other words, a taxable investment would have to pay you 6% interest in order to equal the interest you would receive from a municipal bond issue that pays 4.5% interest.
Municipal bonds come in three basic forms. First is the general obligation bond, which is backed by the full faith and credit, in the form of the municipality’s taxing power, of the issuing agency. Second is the revenue bond, which is backed by the revenue generated from a specific project, authority, or agency. These bonds are not backed by the full faith and credit of the agency and are only as good as the specific projects they support. Third is the industrial development bond, or IDB, which is issued to support the purchase or construction of industrial facilities that will be leased to private businesses. The leasing fees are used to pay the interest and principal to the bondholders.
There are two ways to invest in municipal bonds. You can buy them from a broker who will likely advise you that they come in $5,000 par values and require a $25,000 minimum investment, or you can purchase them through a mutual fund. Most mutual funds require a minimum investment of $1,000 - $2,000, making them much more affordable to your average investor.
To determine which bonds are considered of a higher quality than others, Moodys and Standard & Poors have created a rating system to assist investors. The highest rated bonds, usually with their principal and interest insured by an outside private concern such as MBIAC, are given a quality rating of AAA. On the opposite side of the spectrum, the lowest rating a bond can receive is C, and is considered an extremely poor prospect. These low-rated issues should be considered only by those investors with a high level of risk tolerance, and should be avoided by conservative investors altogether.
Municipal bonds and municipal bond funds can be a great means of creating a tax-free income, particularly for those with a large tax burden. For those who purchase municipal bonds in the form of a mutual fund, the tax-free interest can be re-invested to purchase additional shares, thereby increasing the principal and, subsequently, future interest. These issues make a solid addition to a well-diversified investment plan, and represent the more conservative side of a balanced portfolio.
Government and corporate bonds
Most people know about the basics of investing in the stock market but many people are puzzled as to what bonds are. In one word a bond is a loan. The loans can be form the federal government, a federal agency, municipality, or corporation. When you purchase bonds you are lending your money to whomever you buy the bonds from. In return for lending them your money you are paid a fixed rate of interest over a set period of time. When the bond matures the investor’s money is usually returned with the earned interest included. Bonds are like stocks because they are both traded. Therefore you can buy the bonds after they are originally issued while at the same time you can sell bonds before they mature. Bond prices are subject to volatility in relation to market conditions.
When a person is issued a bond they are basically promised to get their money back. Bondholders are paid before anyone else, even stockholders and creditors if the company runs into hard times or goes bankrupt. Bonds give you a stream of income based on their rate of return. Bonds are usually much less volatile then stocks are. Bonds also can provide a tax break because municipal and government bonds are sometimes exempt from state and federal taxes.
The main disadvantage to bonds is that they generally have lower returns than stocks and mutual funds. Bonds are like stocks because their prices are sensitive to interest rates as well. Bonds also carry with them some heavy terminology, which can be confusing and hard to understand.
Type of Bonds:
Government Bonds
The U.S. Department of Treasury and other federal agencies issue treasuries and federal agency bonds. Treasuries are basically risk free because the U.S. government backs them. They are issued to help finance all of the costs involved in operating the government. Municipal Bonds – State and local governments to help pay for schools, streets, highways, hospitals, bridges, airports, and other public works issue municipal bonds. You usually don’t have to pay federal taxes on the interest earned from municipal bonds.
Corporate Bonds
Corporate bonds are issued by businesses to help pay for business expenses. There are a ton of different corporate bonds available all with their own interest rates, maturities, and credit ratings. Corporate bonds are generally higher risk bonds in comparison to municipal and government bonds. They also have a higher rate of return than municipal and government bonds. However you do have to pay taxes on the interest earned from corporate bonds. Municipal bonds are issued by more than 50,000 state and local governments and their agencies to fund projects such as schools, streets, highways, hospitals, bridges, and airports.
When a person is issued a bond they are basically promised to get their money back. Bondholders are paid before anyone else, even stockholders and creditors if the company runs into hard times or goes bankrupt. Bonds give you a stream of income based on their rate of return. Bonds are usually much less volatile then stocks are. Bonds also can provide a tax break because municipal and government bonds are sometimes exempt from state and federal taxes.
The main disadvantage to bonds is that they generally have lower returns than stocks and mutual funds. Bonds are like stocks because their prices are sensitive to interest rates as well. Bonds also carry with them some heavy terminology, which can be confusing and hard to understand.
Type of Bonds:
Government Bonds
The U.S. Department of Treasury and other federal agencies issue treasuries and federal agency bonds. Treasuries are basically risk free because the U.S. government backs them. They are issued to help finance all of the costs involved in operating the government. Municipal Bonds – State and local governments to help pay for schools, streets, highways, hospitals, bridges, airports, and other public works issue municipal bonds. You usually don’t have to pay federal taxes on the interest earned from municipal bonds.
Corporate Bonds
Corporate bonds are issued by businesses to help pay for business expenses. There are a ton of different corporate bonds available all with their own interest rates, maturities, and credit ratings. Corporate bonds are generally higher risk bonds in comparison to municipal and government bonds. They also have a higher rate of return than municipal and government bonds. However you do have to pay taxes on the interest earned from corporate bonds. Municipal bonds are issued by more than 50,000 state and local governments and their agencies to fund projects such as schools, streets, highways, hospitals, bridges, and airports.
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