Ref: 0909-033A of 5th September, 2009

In earlier part 5, you saw how Zero could build your massive wealth. In this part, you will see
many practical application of this wonderful instrument. Before I start, let us have a quiz – what is
the figure before “1” and what is the figure after “9”? It is ZERO. The whole life oscillates between
these two extremes.

Zero could plan your savings, your future, your Children’s education, their wedding, build
property, houses, renovate homes, give start up capital for your adult children, handle unforeseen
medical expenses, give you investment capital and finally, divide the wealth within the family
during your life time. It also secures your retirement age. Combined with Recurring Deposit
accounts, Zero could act as engine with double horse power without even knowing about it.

1. BUILD UP YOUR MASSIVE SAVINGS:

While Zero involves a lump sum investment, Recurring Deposit permits small installment
savings drop by drop. It is said that “an Ocean is built with the collection of millions of tiny
drops” I have shown you in Part – 5 how you can secure large and consistent cash flow by
deferring maturities year by year. You never have to extend hand before anyone for help. I
would avoid the repetition here.

2. FINANCING FUTURE EDUCATION OF YOUR CHILDREN

Supposing you have two children aged 10 & 8. You are in mid 30s, the best age to have rising
income. It usually lasts for 10 to 15 years minimum. The Age 36 is the threshold for almost
every one. Now, the higher education years last 3 to 4 years. Following is the plan: (you use
combination of Zeros and Recurring Deposits)

a. Invest in Zeros like South African Rand bonds maturing in 2017 to 2027. Do not bother
about the maturity date as far as 2017 to 2032 – you can sell these bonds at any time.
When you are buying today, some one is selling you also. They are investment grade.
Say you bought bonds for the year 2017, 2022, 2027 and 2032 investing just 11% to
18% of Face Value. You can buy in multiples of 5000. However, good lot to buy is
250,000 Face value, preferably 500,000 ZAR Face Value.
b. Say you bought the highlighted bonds as under. You will be investing from US$ 3685
per 250K Face Value as under:

• Bond Bought : ESKOM 0 32/ER maturing 31/12/2032

 • Price: 11.50 (including expenses. The rate will be lower if you buy in 1 Million lot)
• Investment Amount: 250,000 @ 11.50 = ZAR 28,750 = US$ 3,685 (@R7.80/$)
• = Rs 180,200 based on Rs 48.90/$
• The yield may be around 11% or so (I have not actually worked out). Thus, after 10
years, that is, in 2019, the bond may be quoted at R24.15 or about. If 10 years rate
on ZAR falls, the bonds may be quoted higher
• When they mature on 2032, when your children are of the age 33 or 31, they will get
R250,000 or US$ 32,051 (today rate R7.80/$). I take the view that ZAR will
appreciate, but we are ignoring currency potential or risk.

c. In India, one can buy NABARD 10 years Zeros having Face Value Rs 20,000 which was
issued at Rs 8500 in 2007. It may be trading higher to compensate for 2 years build in
interest rate of 9% (that is about 18% higher than Rs 8500 theoretically,. One has to see
the actual price on BSE)

Say, you bought 20 bonds having Face Value Rs 400,000, you will get this maturity
value, when your Children are 18 years old and wish to go for Engineering or medicine.

3. FOR WEDDING PURPOSE:

One can buy bonds specially earmarked for special family occasions like wedding.
Depending on your needs, you may increase or reduce the size of the bonds. One may also
open Recurring Deposit account of Rs 3000 per month for 10 years in lieu of Zeros.
4. FOR BUSINESS PURPOSES AS SECURITY FOR LOANS
You can buy bonds say, 50 bonds of NABARD bonds having Face Value Rs 10 Lakhs and
Investment Value (Rs 4.8 Lakhs). The bond value increases every year by at least 9% to 10%,
and if the rates go down, the value may rise by additional 10% to 15%. Instead of giving Rs 10
Lakhs flat deposit as security, you may give the above security at reduced amount of Rs
480,000. On the paper it appears that the bank has security of Rs 10 Lakhs. Your cash outlay is
reduced.

5. BUYING PROPERTY FOR CHILDREN AT LATER AGE

One can reserve the savings especially for Children to buy property after 10 years, (or 20 years
for SA Rand Bonds) when they are grown up and have married.

6. DIVISION OF FAMILY ASSETS WHILE YOU ARE ALIVE

When your family grows with 3 to 4 children, it is possible that dispute may set in especially
when they are married, have their own children and wish to separate. When you have only one
major property asset, you have to sell it to distribute the wealth.

Say, you have Rs 18 Lakhs to spare for 3 children now. Divide into Rs 6 Lakhs lot for each Child
A,B and C. Invest into SA Rand Bonds of DBSA (Development Bank of South Africa). A bond
having Face Value ZAR 500,000 will cost you ZAR 90,000 (500k@18%) or USD 11,538 or Rs
564,200 today.

When the A B and C are 18 years older than now, the bonds will mature for payment of ZAR
500,000 or US$ 64,100 @ R7.80/$ or Rs 31.3 Lakhs per child. Yes, Exchange rate will play
more important role for increased or reduced return. However, I take the view that ZAR will
appreciate from 7.80/$ to 4.30/$ due to progress in South Africa, perceived and consistent
weakness in US$ and higher gold, and commodity prices which may enhance the appeal of
South Africa. Thus, your children will get anywhere between Rs 25 Lakhs (if exchange rates go
against you) to Rs 56 Lakhs per child.

The family wealth could be easily divided without selling core property in which you are living.
Your retirement days will be safer even if your children do not take care of you. This is better
than even Life policy where you do not see benefits during your lifetime.

In short, every thing can be planned with Zero Coupon Bonds and Recurring Deposits.
Depending on where you live, you will have option in same or different currencies. The basic
rules are as under:
• Select only Government guaranteed bonds. No corporate bonds for long term.
• Select the long time frame.
• Select the weakest currency having potential for rise (example, SA Rand, Aussie Dollar,
Canadian Dollar, Indian Rupees and above all Brazil Real. The giant oil find will catapult
Brazil into top sphere.)
• Select the currency that has higher interest rates locked in, such as SA Rand, Brazil Real
and Indian Rupee where yield is almost 10%. In other words, you are locking in yield of
10% for 15 to 30 years or more with potential rise in exchange rate in your favor.
• Prepare a note on this bond and keep it with the statement or physical bond certificate
to inform your heirs how to handle this instrument, where to sell and how. (When I sold
DDB of IDBI and SIDBI, I personally prepared the note for managing this investment in
future and asked my customer to retain it with their bonds, so that future generation
will know how to handle this investment.
I will be away for about 10 days and will return on 16 Sept, 2009. Until then I will not be able
to reply to your comments if any. Please bear with me.

Anil Selarka (Kalidas)

Hong Kong, 5th Sept. 2009 (Ref: 0909-033A)

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