PPF interest rate increase. Ponzi Alert! Like Social Security? (Part IV)

I started off this series of posts, in response to the change in rules governing the PPF scheme.  The interest rate for the next financial year has been raised to 8.6% from the current 8% for the PPF scheme.  I believe any defined benefit scheme that promises returns well in excess of market rates is no different from a Ponzi Scheme.  This is because no scheme can maintain a pre-defined level of returns which are not linked in any way to market returns.  Just because the scheme is backed by a government does not make it viable!  The government backing may ensure safety today, but in the long run the scheme cannot maintain itself.  We are already seeing this in the US with social security benefits.  The social security scheme in the US is also in some sense a defined benefits scheme, wherein you are guaranteed to get a certain payout when you retire that is linked to your prior years income and investment into the Social Security Scheme.  However, the payout from social security is not necessarily linked to market returns.  Hence, the scheme is under tremendous pressure to fulfil its obligations to payout to the millions of Americans from the baby boomer generation, as they retire. 

PPF interest rate increase. Ponzi Alert! Like Social Security? (Part III)

The Public Provident Fund Scheme, or PPF is arguably the most popular savings scheme currently available for small investors in India.  Literally millions of Indians, participate in this government backed scheme with the full confidence that their money is safe, and will grow over the years.  There are several detailed articles that you can find on the web, describing the benefits of the scheme, how to invest in it, and the rules and fine print for deposits and withdrawals.  You will also find every financial planner, first checking if you have a PPF account, and if not, encouraging you to open one, not just for yourself, but also for your spouse and minor children.  It is almost automatic today, for every earning adult (and in fact their minor children as well) to have a PPF account with money being stashed away dutifully every year, just like our parents did before us. 

PPF interest rate increase. Ponzi Alert! Like Social Security? (Part II)

Here is a picture of Charles Ponzi, carrying a gold handled cane and a diamond stickpin from August 1920 in New England, USA.  In my earlier post, I had shared with you the story of Mr. Charles Ponzi, who started as a small time con artist, and grew to become one of the most notorious, and certainly the earliest large scale swindler of all time. 

By the late 1920's, Charles was living the big life, with his business scheme seemingly unstoppable as more and more investors poured in their money to participate in his highly profitable business activities.  However, the banking authorities were beginning to get suspicious about this time, about the nature of his business, particularly since he seemed to spend very little time managing his business, and almost all of his energy talking about it and advertising it in the local newspapers. 

PPF interest rate increase. Ponzi Alert! Like Social Security? (Part I)

Charles Ponzi was born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi on the 3rd of March, 1882 in Lugo, Italy.  He grew up in Italy and came over to the US in 1903.  He started off by doing odd jobs, including working as a dishwasher in a restaurant and later waiting tables.  He then went to Montreal, Canada and worked in a bank for a while as a teller.  Here he got his first taste of handling other peoples money, until the bank failed and the bank promoter ran away to Mexico.  Penniless, Charles was soon driven to frustration, and he forged a cheque, was promptly arrested, and ended up spending a few years in prison.  It was here in prison, that he met his role model, Charles Morse, a wealthy wall street businessman with a penchant for swindling his clients. 

Wait a minute, you might ask!  What does this biography about Mr. Ponzi, have to do with the PPF rate increase in India?  And where does the Social Security angle come in to play?  Well read on my dear friend, and soon all will be clear. 

LBYM : Dining out, A Luxury? In India !!

If there is one thing that I like to splurge on, it is food.  Both my wife and I like to sample different cuisines, and between us we have a wide range of foods that we enjoy dining on.  However, one constant source of disagreement that comes up at home is regarding how often we get to eat out.  I think we don't eat out often enough, while my wife feels that eating out is too expensive and she'd rather experiment with home cooking to expand her already wide portfolio of tasty recipes.  I usually disagree, and feel that it is too much effort to slave away in the kitchen day in and day out, and eating out twice or even thrice a week is completely justified.  Given that my wife works as well, I think it is only fair that we reduce as much work at home, while spending on something that we both enjoy, i.e. dining out.  Something happened this Friday though, that has made me re-think my stance on how often we should be going out to fancy lunches and dinners.

How much home loan can I get? (Part II)

In the Part I of this post, I had described a seemingly well set couple; Gaurav and Sneha, planning to buy their first home.  They had taken all the right steps in budgeting their home loan eligibility and are ready to take the plunge into home ownership.  Their financial planner approves of this step, and has given them the go ahead.  However from an early retirement aspirants perspective, they are making a huge mistake, that will potentially ruin any chances they might have of exiting the financial rat race early.  Where did they go wrong?  Isn't owning your own house a good financial milestone?

How much home loan can I get? (Part I)

Buying a home in India, or for that matter anywhere in the world, is a big decision for most people.  It is most likely the single biggest purchase you will ever make in your lifetime.  Gone are the days when one used to save for a lifetime, before finally being able to afford a small home towards the end of your career.  Today India is growing by leaps and bounds, and the average home buying age in India is dropping every year.  The Associated Chambers of Commerce and Industry of India (ASSOCHAM) estimates that the average age for home buyers in the 1980s was 55-58 years in India.  In stark contrast, since 2000, the average age for first time home buyers for personal use has dropped to 30-38.  Many first time buyers are either just married, or many times choose to buy a home even before marriage.

Inflation in India

Inflation is a much maligned but sometimes poorly understood phenomenon that has the most significant impact on any personal finance plan.  Particularly in a emerging country like India, inflation can be so rampant as to be the fundamental parameter that influences all investing decisions.  Inflation is usually defined as a rise in the general level of prices of goods and services in an economy over a period of time.  In the words of noted economist Sam Ewing, it is the reason why you pay $15 for the $10 haircut that you used to get for $5 when you had hair. 

Generational Finance NOT Personal Finance

Just do a google search for Personal Finance, and you will see tons of websites, blogs, articles, marketing pitches etc, all doling out advice on personal finance and how to go about achieving the various goals, investment decisions, savings rates etc associated with it.  It is amazing how much information and guidance gets dished out and consumed relating to this topic.  I guess, Personal Finance gets down to the core of who we are, what we do, and how we do it, and touches every aspect of our lives, which is why it is so hotly discussed, debated, talked about, and basically flogged to death on every financial TV channel, news media, or personal finance blog that you come across.

India Early Retirement and Formula F1 Racing

Formula F1 Racing debuts in India for the very first time today, at the 875 acre Buddh International Circuit.  The high octane world of car racing is as alien to me as bob-sledding is to Jamaicans (obscure reference to the movie Cool Runnings)  It takes some patience and extreme passion to enjoy watching several futuristic looking cars, that all look pretty much the same to me, hurtling around an odd shaped track of 5.14Km (about 2.34Miles) over 60 times.  The fastest drivers can complete one circuit in as little as 1.5mins, setting an average speed of over 200Kmph.  Still there is a lot of interest in this fast growing sport in India, and we expect the popularity of car racing to grow exponentially in coming years.