@Leisure - Vol-19 | srei
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@Leisure - Vol-19


Just 50 rupees a day…

“What can you buy in 50 rupees?” I asked Kavita. “A chocolate probably; 5 cutting chai at a road side tea stall; or a 2 km ride in an auto. Nothing that significant. 50 rupees has no value these days!” exclaimed Kavita. So can you keep aside 50 rupees every day? “Definitely!” she said. “Great. Keep 50 rupees aside every day, starting today and you can attain financial freedom,” I told her.

Most people in the 22-34 age bracket are living from one pay check to the next. Our friend Kavita is a part of the same demographic; rarely having any money left at the end of the month (and no savings!).

Kavita's Monthly Cash Flow  
Income Rs.30,000/-
- House Rent Rs.10,000/-
- Groceries Rs.1,700/-
- Shopping Rs.5,800/-
- Partying, movies and eating out Rs.10,000/-
- Beauty Salon Rs.1,000/-
- Utility Bills Rs.3,500/-
- Travel once a month Rs.10,000/-
Total Rs.40,000/-

“Beginning of every month, I plan to spend less and save some cash,” says Kavita. “But it’s the same story every month and I have to rely on credit cards to bail me out.”

I asked her to document her monthly cash flow:  Kavita is clearly living beyond her means. And to make matters worse she pays only the “minimum amount due” for her credit card each cycle, hence, building a mountain of credit-card debt at a brisk pace. There is no dearth of Kavita's around and most people end up this way because they don’t have a financial plan.

Here is the tip on how Kavita (and you) can manage the moolah better. Yes, you got it right – the Rupees 50 a day tip to begin with. Now Rs. 50 * 30 days = Rs 1,500 a month, and wow! Rs 18,000 in a year! Now to begin with, this amount can be invested in fixed income products like bonds, non-convertible debentures (NCDs) etc. which are safe. In NCDs, average rates over the last few years have been 10-11%. Most of these were secured NCDs. The tenure of NCDs can be anywhere between 2-20 years.

Hearing this, Kavita was delighted at the idea of having some money out of just Rs 50 a day. The power of compounding is a huge wealth booster; use it in your favour. Not against you (outstanding credit card dues, for instance). Once you get into the habit of saving regularly, this Rs 50 a day can be increased to Rs 50,000 in 30 months! Who needs creditors when one has sufficient savings? Start taking baby steps towards securing your financial status. Actually all it takes is making a few smart changes and you will have money in the bank while still having a life!


Time for softer
interest rate regime in India

The macroeconomic indicators and the under-performance of the Indian economy point to a fall in interest rates in the medium term. Here’s a look at the implications of a fall in interest rates on different sectors of the Indian economy.

India has been in a high interest rate regime for a few years now. These high rates were in response to the elevated levels of inflation that India experienced for a few years till 2014. While high interest rates did help in controlling inflation, it had an adverse impact on the overall economic activity in the country. Businesses, consumers, infrastructure projects, etc. found the high borrowing cost to be an impediment.

But inflation has seen a declining trend in the recent past with the wholesale price index (WPI) now clocking negative numbers for ten consecutive months. Even the consumer price index (CPI) has recorded benign observations in the recent months. Such a situation, combined with the weakness in the economy, points towards a slide in Indian interest rates. RBI has already cut rates recently by 50bps to 6.75% and more seem to be in the offing.

Impacts of reduction in interest rates

What does the fall in Indian interest rates mean to the various segments of our economy? Well, generally speaking, lower interest rates are good for economic activity as it reduces cost of funds. Here is how the major segments of our economy will benefit from lower rates:

  • Businesses will find it more affordable to borrow, especially for new projects. Investment activity will gather momentum and have a rub-off effect on the rest of the related sectors like capital goods, financing, steel, cement etc. Corporate profits too will increase due to lower interest pay-outs.
  • Funding for infrastructure will become easier. Infrastructure is a capital intensive sector and the prevailing high rates have made many projects unviable. Easy availability of affordable finance will be a huge driver of this important sector.
  • Increase in retail consumption. Lower rates will not only encourage borrowing by consumers, but the savings generated through lower EMI will spur consumption, which will be favourable for business growth.

The present interest rate status

  • RBI has cut the repo rate fourth time this year from 7.75% to 6.75%. Though many sections of the Indian economy wanted aggressive rate cuts, RBI was cautious for reasons like inflation, concerns over deficient monsoons and the impending rate hike by the Federal reserve of the USA. Now that inflation is under control and monsoon has been near normal, RBI should be more comfortable with further rate cuts.
  •  Indian interest rates are currently among the highest amongst the major economies of the world. Most of the developed economies like the US, Europe and Japan have near zero interest rates compared to the 6.75% in the Indian context. Even China has reduced its rates perceptibly in the recent past. The following table gives a glimpse of the present interest rates globally:
    Economy Rate %
    US 0.25%
    Europe 0.05%
    Japan 0.10%
    China 4.60%
    India 6.75%

    Source: Global Rates

Benefits of lower interest rate to SREI

SREI, as a major financier of infrastructure projects, is set to benefit from the sliding interest rates. Here’s how:

  • New projects will become available for funding thereby offering an opportunity to SREI to enhance its funding portfolio. More demand for funds means more business for SREI.
  • Better viability of projects would lead to lower lending risk and hence better quality asset portfolio and higher profitability.

How is your NCD investment money used?

Non-Convertible Debentures or NCDs are fixed income instruments having a fixed tenure and coupon/interest rate. As the name suggests, you cannot convert them into equity shares like convertible debentures.

These instruments are generally issued by a company as a means of raising capital. It is often used as an alternative to raising capital through issue of shares. This capital is used to enhance the business or expand the operations of the business.

Bond duration means the number of years it takes to recover the cost of investing in a bond; this takes into account the current value of the all interest and principal payments receivable in the future. We express the duration of a bond as number of years from the date of purchase.

To enhance their liquidity, NCDs are listed on stock exchanges where they can be bought and sold.


Like any other instrument, NCDs have risks associated with them. The main risks with NCDs include credit risks and interest rate risks. While credit risk is the risk that the company might default on its payments, interest rate risk is the risk that the price of the NCD might change in relation to changes in interest rate. This is precisely the reason why NCDs offer higher returns.


Generally, NCDs give you better returns than traditional fixed income products such as bank Fixed Deposits (FD) and Government bonds. Most of the NCDs issued offer both the interest payout and the cumulative options and you can choose one of them based on your financial needs. Under interest payouts, many NCDs offer monthly, quarterly, half yearly or annual payouts. Another advantage is that there is no Tax Deducted at Source (TDS) for NCDs.


NCDs are suited for most kinds of investors be it a young investor looking to build a portfolio or a middle aged investor scouting for higher returns or a senior citizen requiring regular income. However, NCDs must be chosen after careful due diligence. Ratings of NCDs act as a guide wherein NCDs with higher ratings are believed to be safer than NCDs with low ratings. Ratings usually range between D and AAA, with D indicating default and AAA indicating the highest safety. Also, secured NCDs are secured against the assets of the firm while unsecured NCDs aren’t. This means that in case the issuing company is not able to pay its debts, the assets of the firm can be liquidated to pay secured NCD holders.

You can purchase debentures when companies come out with public issues for the same or you can buy them in the secondary market after they get listed on stock exchanges.


Buddy Jokes


1. Ramesh retired after 40 years of hard work, Rs 50 lakh which he had gained through skills, dedication, diligence, devotion, efficiency, And the death of his uncle who left him Rs 49,99,900.

2. One night, an economist was looking for something by a light pole. A policeman passing saw him and asked him is had had lost something there.
Economist: Yes Sir, I lost my keys over in the lane.
Policeman: But why are you looking by the light pole.
Economist: It's a lot easier to look over here.

3. Grandpa to his grandson: “So Jay, What did you learn in school today?”
Jay: “Not exactly sure Grandpa, but my teacher was going on and on about something called ethics. I still don’t know what she was talking about!”
Grandpa: “Ah, ethics is very important indeed. Well, let’s say the cashier gives me back too much change, ethics would be whether I keep the change for myself, or if I give it back to Grandma!”

4. What do you call a trial balance that doesn't balance? A late night.


Buddy Quiz

Fill in the blanks

1. In __________ , average rates over the last few years have been 11-12%.

2. The power of ____________ is a huge wealth booster.

3. While high interest rates did help in controlling __________, it had an adverse impact on the overall economic activity in the country.

4. Indian interest rates are currently among the __________ amongst the major economies of the world.

5. Ratings of NCDs act as a guide wherein NCDs with higher ratings are believed to be ________ than NCDs with low ratings.

Answers: 1. NCDs; 2. Compounding; 3. Inflation; 4. Highest; 5. Safer.