Career Search

Monday, October 17, 2016

Your Interest Coverage Ratio



Interest rates keep changing and in a rising interest rate environment, your EMIs can well increase beyond comfort. In the period immediately before the global financial crisis in 2008, domestic interest rates were on an upward trajectory.


You might have more than one loan running-two car loans, a housing loan, a second housing loan for that flat you invested in, and also perhaps an EMI for the latest smart phone. Ideally, you should have the liquidity to cover these monthly payments for at least the next few months. Even though you may be getting a monthly salary, unforeseen eventualities could impact regular income.


This is where evaluating your interest coverage ratio - which defines how much cash you have versus your total interest payment-can help.


For companies this ratio is calculated by dividing the annual earnings before interest and taxes by the annual interest expense. You could evaluate your personal interest coverage by deciding how much liquidity you want to create.


We ask clients to add up expenses and monthly interest payouts. The amount of liquidity to be kept aside depends on the certainty of income. If someone has stable income, then two to three times of expenses can be kept in some liquid form. But where entrepreneurs who face seasonality of income, six months to a year of expenses might have to be kept aside.


Add your cash in the bank plus any liquid investments like short-term fixed deposits or liquid fund investments and divide this by your pre-defined monthly interest payouts . An appropriate ratio can't be predetermined; it will depend on your individual situation.








-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saver Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in India for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Religare Tax Plan

4. DSP BlackRock Tax Saver Fund

5. Franklin India TaxShield

6. ICICI Prudential Long Term Equity Fund

7. IDFC Tax Advantage (ELSS) Fund

8. Birla Sun Life Tax Relief 96

9. Reliance Tax Saver (ELSS) Fund

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

-----------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

 

No comments: