India @ $ 2.1 trillion economy

India @ $ 2.1 trillion economy under new GDP measure
The growth of the Indian economy is projected to accelerate to 7.4% in the current fiscal compared with 6.9% last year based on a new way of calculating gross domestic product (GDP).
At this level it is estimated to be on par with China, currently the fastest growing economy in the world.
It is also the first time that the economy is projected to be bigger than $2 trillion; India’s GDP is estimated to be $2.1 trillion in 2014-15.
The latest data shows that while agriculture, mining and trade, hotels and public spending slowed in 2014-15 compared with the previous year, key sectors such as manufacturing, construction and financial sectors grew at a faster pace than a year ago.
Economists are particularly surprised at the higher sectoral numbers for the manufacturing and financial sector reported by the new series because this is not reflected in data on factory output and bank credit.
The manufacturing sector is expected to grow at 6.8% in 2014-15 from 5.3% a year ago.
$2 trillion economy
With nominal GDP projected at Rs.126.5 trillion for 2014-15 from Rs.113.4 trillion a year ago, the size of the economy is projected at $2.1 trillion at the current level of dollar exchange rate at Rs.61.7.
At the turn of the millennium, Indian GDP was about $481 billion and by 2007, it was measured at $1.2 trillion. That means it had grown two-and-a-half times in seven years. And effectively, in a span of 14 years the Indian economy has grown more than four times.
With the latest growth number of 7.4%, however, India is tied with China as the fastest growing major economy. The International Monetary Fund had projected India to outpace China’s growth rate in 2016—India is projected to grow at 6.5% compared with 6.3% for China. However, China’s economy, at $9.5 trillion, is valued at nearly five times that of India.
The number also doesn't mean much in terms of per capita income and India will remain a lower middle-income economy. Its economy will have to grow by at least four times and its population remain at the same level for it to become an upper middle-income economy.
According to World Bank calculations, an economy is categorized at lower middle income if its per capita income falls between $1,036 to $4,085 while upper middle income countries have per capita income between $4,086 and $12,615.

Lessons from John Templeton

These attitudes or mindsets are taken from John Templeton's timeless observations in Sixteen Rules for Investment Success published in 1993 but still very relevant today.

1) Have a learning attitude

An investor who has all the answers doesn’t even understand all the questions. A cocksure approach to investing will lead, probably sooner than later, to disappointment if not outright disaster. Even if we can identify an unchanging handful of investing principles, we cannot apply these rules to an unchanging universe of investments—or an unchanging economic and political environment. Everything is in a constant state of change, and the wise investor recognises that success is a process of continually seeking answers to new questions.

2) Learn from your mistakes

The only way to avoid mistakes is not to invest—which is the biggest mistake of all. So forgive yourself for your errors. Don’t become discouraged, and certainly don’t try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience. Determine exactly what went wrong and how you can avoid the same mistake in the future.

The investor who says, “This time is different,” when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.

The big difference between those who are successful and those who are not is that successful people learn from their mistakes and the mistakes of others.

3) Do your homework

Investigate before you invest. Study companies to learn what makes them successful. Remember, in most instances, you are buying either earnings or assets. In free-enterprise nations, earnings and assets together are major influences on the price of most stocks. If you expect a company to grow and prosper, you are buying future earnings. You expect that earnings will go up, and because most stocks are valued on future earnings, you can expect the stock price may rise also. If you expect a company to be acquired or dissolved at a premium over its market price, you may be buying assets.

Never invest solely on a tip. It is obvious, but you would be surprised how many investors, people who are well-educated and successful, do exactly this. Unfortunately, there is something psychologically compelling about a tip. Its very nature suggests inside information, a way to turn a fast profit.

Do your homework. If you cannot, hire experts to help you.

4) Have the right mindset

Do not be fearful and panic. For 100 years optimists have carried the day in  stocks. Even in the darkdays, many professional money managers—and many individual investors too—made money in stocks, especially those of smaller companies.

There will be corrections and crashes. But, over time, stocks do go up…and up…and up.

The basic rule of building wealth by investing in stocks will always be “Buy low, sell high.” Sometimes you won’t have sold when everyone else is buying, and you’ll be caught in a market crash. There you are, facing a 15% loss in a single day. Maybe more. Don’t rush to sell the next day. The time to sell is before the crash, not after. Instead, study your portfolio. If you didn’t own these stocks now, would you buy them after the market crash? Chances are you would. So the only reason to sell them now is to buy other, more attractive stocks. If you can’t find more attractive stocks, hold on to what you have.

5) Don’t be complacent

You must monitor your investments. Expect and react to change. No bull market is permanent. No bear market is permanent. And there are no stocks that you can buy and forget. The pace of change is too great.

Look at the 100 largest industrials on Fortune magazine’s list. In just seven years, 1983 through 1990, 30 dropped off the list. They merged with another giant company, or became too small for the top 100, or were acquired by a foreign company, or went private, or went out of business.

Remember, no investment is forever.

5 points to note about tax saving

The need for you to be actively engaged in your personal tax planning is of particular importance. By structuring a suitable mix of investments for your portfolio, you can pay less tax and ensure that you have the right investments to help you achieve your goals.

1) Have a holistic approach to tax planning

Good tax management can go a long way toward enhancing your return. But the decision needs to be made in conjunction with your overall portfolio and not in an ad-hoc fashion.

Most individuals rarely think about tax planning from an investment point of view. Hence one finds that they do not approach an investment with a perspective of whether or not it fits in with their overall portfolio. The approach is often just grabbing up investments that will give them the tax break, irrespective of whether or not it will help them reach their determined financial goals or fit into an overall investment strategy.

Tax planning investments are no different from conventional investments. Hence, it is imperative to obtain an in-depth understanding of all investment avenues available which offer tax benefits and choose suitable ones that will help save tax and achieve goals.

2) Don’t leave tax planning for the fag end of the financial year

Along a similar vein, one should not consider tax saving as once-in-a-year ritual to be repeated at the end of every financial year. Most procrastinate and wait until the last minute. The result is a portfolio full of insurance schemes and investment decisions made in a tizzy.

Most investors in a crazy dash to meet their Section 80C requirement will opt for unit linked insurance plans, or ULIPs, and endowment plans and often end up with products that do not suit their need.

Life insurance should never be bought with the intention of saving tax. Tax saving is just one of the benefits that come along with it. The main benefit is the provision of finances in the case of death of the policy holder.

Taxes can be saved with other tax-saving instruments such as equity linked saving schemes, tax-saving bonds and government bonds, post-office savings schemes and Public Provident Fund.

3) PPF and NSC are not similar

Another mistake individuals tend to make is to think of the Public Provident Fund, or PPF, and National Savings Certificate, or NSC, along the same lines. Granted, both offer tax saving benefits under Section 80C, both are backed by the government, and both offer assured returns, but they are very different in their structure.

On the point of liquidity, NSC scores simply because of the lower lock-in period. The NSC VIII Issue is for 5 years and the NSC IX Issue is for 10 years. PPF is much longer at 15 years and can even be extended by a block of 5 years on maturity.

On the return front, the rate for PPF is fixed by the Reserve Bank of India and is reset every financial year. It currently stands at 8.7% per annum. In the case of NSC, the rate of return is locked at the time of investment and during the tenure of the investment it remains insulated from any changes in rates. Currently the rate is 8.5% (NSC VIII) and 8.8% (NSC IX) per annum.

The return in both cases is compounded and handed over on maturity. In the case of PPF, it is compounded annually, but half-yearly where NSC is concerned. But the interest earned in the case of NSC is taxed, unlike PPF where it is completely exempt from tax.

4) Tax saving is more than fixed-return instruments

Individuals tend to look at the Senior Citizen Savings Scheme, or SCSS, 5-year deposits, NSC and PPF as the tax-saving investment avenues. But you can also invest in an equity linked savings scheme, or ELSS. These are diversified equity mutual funds that offer a tax benefit under Section 80C. They have the lowest lock-in period of just three years.

As on January 5, 2014, the ELSS category average delivered an annualised return of 27.55%. Do note, that was just the category average. Individual funds could have delivered even more. For instance, the chart topper was Reliance Tax Saver (Growth) with an annualised return of 40%.

Having said that, keep in mind that these are equity funds which means, the return is far from guaranteed. So pick a good fund that has shown consistent performance and stick with it over the long haul. Don’t be in a tearing hurry to sell your fund units on completion of three years. Exit from the fund when the market is rallying so you walk away with a profit. If this means hanging on for a few more years, do so.

5) Take into account the entire package

Tax saving is more than just investments and goes beyond Section 80C.

If you have made a donation to a charity that offers a tax deduction, avail of it. If you are paying premium on a medical insurance policy for yourself and dependents, be sure to claim the deduction.

Also, if you are servicing a home loan or an education loan, you are eligible for income tax deductions. Under Section 80C, you can even show the expenses of your child’s education to avail of a deduction.

When deciding how much to invest to max your deduction under Section 80C, take into account children’s tuition fees, principal repayment on home loan, contribution to employees provident fund, or EPF, and any life insurance premium you are paying.

Money tips for young professionals

Just made the transition from being a student to an employee? While it is great to be earning, you also need to be responsible with your money. Here are some simple ways to get a head start.

1) Go easy on credit card debt

If you are determined to get your finances in order, the best place to start is by getting rid of credit card debt. It starts off as a convenience, more of a stop-gap arrangement. You pay just the bare minimum amount and walk scot free. But as you well know, or will soon learn, there is no free lunch.

When you use your card, you pay for an item with money that is not yours. So basically you enjoy life on borrowed money. This instant gratification can put you on a slippery slope. Let’s say you could not pay the last bill. You put up the cash for the minimum payment and revolve the balance. The bank says they will charge you interest at just 2.25% per month. What they fail to tell you is that it works out to an obscene 27% p.a. The longer you take to repay it, the more it eats into your disposable income, the more it hinders your savings potential, and the more money the bank makes.

If you have started revolving credit, it means that you could not afford to clear your monthly bill. And, it will not be just the debt that you are servicing. Every single purchase you make on that card will result in the interest rate being levied. The only way out is to stop using your card till your debt is cleared.

2) Get medically insured

Everyone should get themselves a medical insurance policy. Numerous illnesses and accidents are pretty much age agnostic. Should you unfortunately succumb to it or be a victim, your savings could disintegrate rapidly.

Almost certainly, your employer would offer you a medical insurance cover. That is still no reason to bypass getting medically insured on your own. What if you quit your job or get handed the pink slip? That will leave you vulnerable between jobs. Or, you may decide to become a consultant where medical insurance is not part of the package or even move out on your own.

Get insured. The younger you are, the lesser your premium so you won’t even feel the pinch. Existing illnesses are excluded from the cover, so being young with no pre-existing ailments gives you a complete coverage. The greater the number of years that go by without you making a claim, the greater your claim bonus.

Not to mention the tax benefit. You can claim deduction from total income under Section 80D of the Income Tax Act, 1961, against premium paid towards the policy.

3) Start saving

If you have recently joined the workforce, you will probably enjoy the new spending power. But with money also comes responsibility. Though you may want to spend it all, it is the best time to take control of your own financial future.

Set aside a fixed percentage of your salary. Stick to it. Ensure that you save at least 10% of your income every single month. Over time, it will accumulate substantially.

Let’s say you invest Rs 1 lakh to withdraw when you are 70. While invested, it earns a rate of 12% p.a. By delaying your investment by just a few years, you pay a heavy cost. If you are 30 years old when you make the investment, you will be sitting on Rs 1.18 crore by the time you are 70. Wait for just 5 years, which really does not seem long when you take decades into account, and that money will be worth just Rs 65.30 lakh when you get to 70.

The point is, start saving NOW.

4) Start investing

Saving and investing are two very different efforts. Saving is when you do not spend a part of your income but set it aside for future use. Investing is putting that money to work. You cannot create wealth only by saving. You have to invest the savings wisely to create wealth.

Equity offers great potential to convert your savings into wealth. And you can start with very small amounts too. Cut down on your spending by just Rs 1,000/month and invest that amount in an equity mutual fund. Within the next 10 years, you would be patting yourself on the back.

Let’s say you invest Rs 1,000/month over 10 years in a systematic investment plan, or SIP, that returns 12% p.a. You would have invested Rs 1.20 lakh over 10 years and your corpus would be worth Rs 2.30 lakh within a decade.

Now let’s say you go one step further and increase the SIP amount every year by a very affordable Rs 500. You would have ended up investing Rs 3.90 lakh and your corpus would be worth Rs 6.36 lakh over the same time frame.

5) Be sensible with your tax planning

Tax planning is more than Section 80C. It is more than fixed income instruments such as the Public Provident Fund, or PPF, and the National Savings Certificate, or NSC.

Good tax management can go a long way toward enhancing your return. But the decision needs to be made in conjunction with your overall portfolio and not in an ad-hoc fashion.

Most individuals rarely think about tax planning from an investment point of view. Hence one finds that they do not approach an investment with a perspective of whether or not it fits in with their overall portfolio. The approach is often just grabbing up investments that will give them the tax break, irrespective of whether or not it will help them reach their determined financial goals or fit into an overall investment strategy.

Tax planning investments are no different from conventional investments. Hence, it is imperative to obtain an in-depth understanding of all investment avenues available which offer tax benefits and choose suitable ones that will help save tax and achieve goals.

Age factor of Investing

The early 20s is a good time to begin small and inculcate the habit of investing regularly in MFs through SIPs. As you gain confidence, you can move to direct equities. If in your 20s or 30s, you can afford to take aggressive bets and invest in mid-caps, provided

the companies are market leaders and have a sound management in place. From your 30s up to the early 40s, you can allocate about 70 per cent of your portfolio to equities. This is the period when one’s income generating ability is at its peak and so, one should invest aggressively. It is better to stick to a non-aggressive portfolio once you touch 50: Beyond 50, your equity investment should be largely through MFs and/or confined to largecaps. Once you cross 60, the bulk of your investment should be in debt and monthly income generating schemes.

However, some experts feel it is important to allocate some portion of one’s portfolio to equity even after retirement. Even someone who is 60 might have another 15 to 25 years to live. These investors can invest up to 20 per cent of their portfolio into equity

MFs to get higher returns.

Control the Mind; Control the Money

How to handle Volatility ?
To keep volatility at bay, study the average market returns and history, the importance of asset diversification, and how to manage the expected anxieties that accompany market declines.

Be Proactive, Not Reactive

Set the stage early to cope with the inevitable market drops.
 Understand that market volatility is expected any time and occurs periodically along with changes in the business cycle, global occurrences, and national economic events.

Set Up the Portfolio to Minimize Volatility

The knowledge of how each asset class has performed in the past is an important tool when setting up the initial portfolio. The proper setup helps to deal with market volatility over the long term. One of the most common mistakes investors make is not thinking holistically about their portfolio.

In other words, think of the big picture, not how each specific holding or account is performing.

When stock funds are soaring, a diversified portfolio won’t go up as much, but conversely, neither will it fall as low during a market correction.

Control the Mind; Control the Money

All the preparation won’t help if the investor panics at the first sign of market volatility. An advisor needs to be prepared for those phone calls after a big market drop to talk the client off the figurative ledge.

Many investors want to sell, after a big market decline and get out of the market altogether. The advisor must be prepared for some hand holding and refresher education.

Research studies show that investors' portfolios typically perform worse than the overall market due to mental money mistakes. If the investor jumps out of the market at the first sign of a decline, then he or she is selling at the bottom. The flip side of this behavior is when an investor gets swept up in market euphoria and buys back in as stocks trend toward their highs. This counterproductive trading activity causes the investor to buy at the highs and sells at the lows. The advisor's job is to make sure this doesn’t happen by being available for hand holding and education.

Trading too often yields sub par investment returns. Not only does buying and selling at inopportune times create lower returns, so does excessive trading which increases commissions and reduces profits.

Volatility Equals Opportunities

An often overlooked benefit of market volatility is the opportunity to invest additional funds during market dips. By keeping some cash on the sidelines, when the inevitable market decline occurs, you can invest money at bargain prices. Similar to buying on sale.

The Bottom Line

 Remain in touch with your advisors during market ups and downs and tread with a combination of education and support.