Numismatists can still hold Old Currency Notes

[Bimat]

Looks like a typo I did not clarify enough. 10% year on year.

OK. I did quick calculation to see how beneficial this activity is. Let us assume that you have an (old) ₹500 note today which is worth ₹1000 (a conservative guess IMO) in 2016. Let's assume a constant inflation rate of 5% over next 20 years and 10% return on YoY basis (so effective return is 5%). After 20 years (in 2037), you will get ~ ₹2800 for the same note, or 180% return (inflation adjusted) over 20 years. At 6% inflation rate, your return is 127% over 20 years. I know this is very basic calculation and involves lots of assumptions, but at least you get an idea.

Aditya

[dheer]

OK. I did quick calculation to see how beneficial this activity is. Let us assume that you have an (old) ₹500 note today which is worth ₹1000 (a conservative guess IMO) in 2016. Let's assume a constant inflation rate of 5% over next 20 years and 10% return on YoY basis (so effective return is 6%). After 20 years (in 2037), you will get ~ ₹2800 for the same note, or 180% return (inflation adjusted) over 20 years. At 6% inflation rate, your return is 127% over 20 years. I know this is very basic calculation and involves lots of assumptions, but at least you get an idea.

Aditya

That is true for lot of investments, including bank Fixed Deposits that are today at 7% with taxes around 5%. So essentially zero return.

And in numismatic hobby, the price rise is not linear ... it's more in steps ... and at times sharp crash.

[malj1]

... and at times sharp crash.

When a large hoard comes onto the market. It happened to me when the UK Ministry of defence sold a huge holding of Military banknotes in the 1980s

[Bimat]

I do not understand why do they have problem with someone (not necessarily a collector) holding old notes. It causes no damage to economy, it's just a worthless paper after the deadline so they should just leave it. Making it a punishable offence makes no sense IMO...

This report in Scroll somewhat answers my question...

Aditya

[Figleaf]

20 yrs is a long time of course but thats where i am planning to retire
If the value doesnt increase with inflation then there is no point in collecting them.

@ Srinath: you are quite right to take your pension seriously, but 20 years is a short time to take action. The most important thing you ought to do now is to make an estimate of how much money you need for your pension. First, find out from the net what the actuarial life expectancy is for someone of your age and gender. Second, estimate what you would like your pension income to be in terms of today's INR when you are retired. Third, estimate how long you will have a salary income (20 years?). From there, you should either hire a financial advisor or be handy with excel and financial calculations.

In case you are handy with excel and financial calculations: your pension is a regular series of payments that you want discounted with an estimated average annual rate of inflation. This will yield a pension capital needed on retirement. Make the discount rate a variable you can play with it. From your pension capital, you deduct a) capital you already have, b) acquired pension rights and c) pension rights and capital to be acquired in the next 20 years, adding the same discount rate, but now going forward. What remains is the pension capital shortfall. Express this as the annual average return you need to make on your capital to cover the pension capital shortfall. If this return is around 4% or lower, you are home free. Don't cash in notes from your collection as long as you enjoy them and don't count them in your pension capital.

Between 4 an 6%, you have to choose between doing nothing and doing something. If the required return on capital is 6% or higher you need to do something: increase your capital (sell notes), acquire more pension rights (note: the higher interest rates are, the cheaper it is to buy pension rights or the less rights you build up), work longer (the most effective strategy) or require less pension income. Don't increase risk on your capital. At your age, you should have a minimum of 40% low-volatility investments (that excludes numismatic material.) If you are close to retirement and you have bad investment luck you will have a real problem.

Once you have a coherent and realistic financial plan for your retirement, follow progress each quarter and take corrective action when necessary. In particular, diminish the risk in your portfolio each year, aiming for 60-70% of low-volatility investments when you retire. Tell your children and grandchildren to follow your example, but at an earlier age.

Peter

[dheer]

Source TOI

Up to Rs 50,000 fine for holding old notes after December 30

NEW DELHI: The Union Cabinet cleared an ordinance on Wednesday on demonetisation of old Rs 500 and Rs 1,000 notes, making their possession, transfer and distribution a punishable offence after December 30.
There will be specified fines ranging from Rs 5,000 to Rs 50,000 for continued possession of the demonetised notes. The fine will be a multiple of the number of notes found in possession beyond the permissible limit — 10 for souvenirs and 25 for the purpose of numismatics.
The penalties have been set out to prevent exploitative distribution of old money as wages and payments to the poor. While seen as a measure for extreme situations, the government feels making possession of the currency an offence is necessary to prevent two types of notes of the same denomination (Rs 500) being in circulation at the same time. The ordinance has a provision to allow certain categories of people to deposit the old notes at RBI branches till March 31.
The ordinance, which has been sent to the President for assent before it is notified, has a provision for certain categories of people to deposit the old currency with specified branches of the RBI till March 31, 2017 with explanatory notes. The condition has been added to the earlier provision on depositing notes till March 31.
Sources said RBI was expected to issue a notification delineating categories of individuals who would be allowed to deposit old notes with its branches after December 31.
The government had on November 8 demonetised these notes but allowed people to deposit them in banks till December 30. A set of FAQs issued by the finance ministry on Wednesday clarified that any citizen who is outside the country "may authorise in writing enabling another person in India to deposit the notes into a bank account. The person so authorised has to come to the bank branch with the specified bank notes, the authority letter and a valid identity proof".
Any payment towards tax, surcharge, penalty and deposit under the Pradhan Mantri Garib KalyanYojana (PMGKY) can be made in old bank notes of Rs 500 and Rs 1,000 only up to December 30, the finance ministry said. The PMGKY, which commenced on December 17, is open for declarations up to March 31.
Any bank note issued by the RBI is guaranteed by the central government, thus demonetisation has to be followed by relevant changes in the rule.
The issuance of ordinance had become mandatory as the deadline of depositing the banned currency notes in banks comes to an end on December 30.
Section 26 of the RBI Act provides that every bank note shall be legal tender unless the central government by notification in the Gazette declares that with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender.

[dheer]

There will be specified fines ranging from Rs 5,000 to Rs 50,000 for continued possession of the demonetised notes. The fine will be a multiple of the number of notes found in possession beyond the permissible limit — 10 for souvenirs and 25 for the purpose of numismatics.

The Quantity specified is slightly low ... if one were to do inset/governor/year wise between Rs 500 and Rs 1000, this comes to around 115. If you count your wife, kids and parents [or siblings] then among 6 members 150 notes sounds fine 
So I am all sorted 

People  who do prefix or fancy numbers will be in trouble. Not that Govt will chase them down ... but if caught in unrelated case, this provision will also get slapped ... 

[malj1]

25 for each value allows you 50 notes according to that.

Get busy making more kids? 

[Bimat]

And how are they going to make sure that any individual is holding old banknotes within specified limits? Raid each and every house?

Aditya

[srinath]

@ Srinath: you are quite right to take your pension seriously, but 20 years is a short time to take action. The most important thing you ought to do now is to make an estimate of how much money you need for your pension. First, find out from the net what the actuarial life expectancy is for someone of your age and gender. Second, estimate what you would like your pension income to be in terms of today's INR when you are retired. Third, estimate how long you will have a salary income (20 years?). From there, you should either hire a financial advisor or be handy with excel and financial calculations.

In case you are handy with excel and financial calculations: your pension is a regular series of payments that you want discounted with an estimated average annual rate of inflation. This will yield a pension capital needed on retirement. Make the discount rate a variable you can play with it. From your pension capital, you deduct a) capital you already have, b) acquired pension rights and c) pension rights and capital to be acquired in the next 20 years, adding the same discount rate, but now going forward. What remains is the pension capital shortfall. Express this as the annual average return you need to make on your capital to cover the pension capital shortfall. If this return is around 4% or lower, you are home free. Don't cash in notes from your collection as long as you enjoy them and don't count them in your pension capital.

Between 4 an 6%, you have to choose between doing nothing and doing something. If the required return on capital is 6% or higher you need to do something: increase your capital (sell notes), acquire more pension rights (note: the higher interest rates are, the cheaper it is to buy pension rights or the less rights you build up), work longer (the most effective strategy) or require less pension income. Don't increase risk on your capital. At your age, you should have a minimum of 40% low-volatility investments (that excludes numismatic material.) If you are close to retirement and you have bad investment luck you will have a real problem.

Once you have a coherent and realistic financial plan for your retirement, follow progress each quarter and take corrective action when necessary. In particular, diminish the risk in your portfolio each year, aiming for 60-70% of low-volatility investments when you retire. Tell your children and grandchildren to follow your example, but at an earlier age.

Peter

Thanks Peter for all the wise advice , i have started my financial planning last year but i think that i need to revisit my plan and make changes to it as and when required. however my numismatic and notaphilly collection is out of a hobby which i wouldn't give up unless there are factors impacting my financial position in future.

[srinath]

25 for each value allows you 50 notes according to that.

Get busy making more kids? 

[dheer]

25 for each value allows you 50 notes according to that.

Get busy making more kids? 

Now that you have given the idea, there will be tons of ultra rich who will adopt a whole orphanage .  There by escaping punishment 

[Bimat]

I am now told that some senior collectors are now planning to write to PMO/FM to reconsider the limit of 25 notes for numismatists. Many of them are record holders and possess hundreds of notes (or even in thousands which is quite possible, if you consider errors, fancy numbers, inset letters etc varieties). They want this limit to be removed altogether only for collectors. Will update as I have more information.

Aditya

[dheer]

They want this limit to be removed altogether only for collectors.
Aditya

Not sure if the limit is removed only for collectors, what would be the guideline. It would be very difficult to enforce such a rule on corrupt. Every hoarder can claim to be collector. There is no standard definition of fancy notes.

[Bimat]

Not sure if the limit is removed only for collectors, what would be the guideline. It would be very difficult to enforce such a rule on corrupt. Every hoarder can claim to be collector. There is no standard definition of fancy notes.

That's true, but the concern raised by collectors is also valid. I personally know many banknote collectors who have hundreds of old notes in their collection and their collection is well known. They will unnecessarily feel the heat of the rule. I don't even deny possibility of blackmailing by police/other concerned officials!

Aditya