Jan 08, 2018 04:27 PM IST | MoneyControl.com
The following article is an initiative of BankBazaar.com and is intended to create awareness among the readers
Applying for a loan can be nerve-racking, with a number of formalities expected to be completed. Most of us think that our job is done once the loan is sanctioned, but this is not the case. The real story, in most cases, begins once the loan is disbursed, for this is when we encounter problems with the repayment.
So if you are someone who has recently applied for a loan, (be it a home loan, a personal loan, car loan, medical loan, or any other loan), you should consider these 5 rules to ensure that you get the most out of the money.
1. Never miss your EMI – Taking a loan is a huge financial responsibility. Banks sanction loans for a specific time period (the tenure), charging interest rates on the amount loaned. The borrowed money is expected to be repaid within the given time, with the entire sum and the interest component split into EMIs. Paying the EMI on a monthly basis is not merely a requisite with regards to the legalities, it also helps in building a good credit score.
A missed payment is reflected on the credit report, which could make it difficult to get a loan sanctioned in the future. Missing successive payments could result in lenders blacklisting one, which could ultimately lead to the borrower being labelled a defaulter.
A borrower should ensure that he/she has sufficient funds to repay the loan on time. In certain cases, banks can charge a fine for late payment, which can be a considerable sum in case of high loan amounts (for example a home loan).
2. Never use your savings to repay the loan – Most of us invest in certain saving schemes like PPF, fixed deposits, mutual funds, etc. These funds are ideally designed to help us during emergencies. Utilising them to repay a loan is an absolute NO-NO. Similarly, digging into your retirement fund to meet your EMI obligations should be avoided at all costs, for this can have a huge impact on your future, where you might find it hard to have a regular source of income.
3. Take an insurance cover for the loan amount – Certain loans can be of extremely high values. This is especially true in the case of home loans, where the loan amount is typically in excess of Rs.10 lakh. This can be a significant sum for most people, with it taking years to repay it. Given the unpredictability surrounding life, one should always take an insurance policy which covers the loan liability in case of the borrower’s death. A number of life insurance policies come with this option, wherein the outstanding loan amount (in case the insured passes away) is paid by the insurer. This can limit the financial strain on the family members of the borrower. One could also consider taking an insurance policy in case of other loans, if the repayment amount is significant.
4. Avoid taking additional loans while a current loan is active – Banks and NBFCs often come up with attractive offers to promote borrowing. A number of us can often give in to the lure of extra money, applying for additional loans even when we don’t need them. This should be avoided at all costs, for any additional loan increases the financial burden when it comes to repayment. Also, applying for multiple unsecured loans like personal loan or travel loan while already paying EMIs can come across as sketchy, in addition to having an impact on the credit score. Banks would be wary of offering loans in the future in such instances. If one truly is in the need of additional financial resources, he/she should first close an existing loan before taking a new one.
5. Make prepayments when you have extra money – There are a number of times when we come across additional income. Returns from investments, a bonus from the office, an increase in your salary, etc. can be used to prepay a loan. This can help one save money on the interest payable, in addition to offering peace of mind, knowing that one’s liability is reduced.
A loan, when used effectively can help us out during financial emergencies, but being frivolous once it is sanctioned could lead us towards additional turmoil.
Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future.
By: Sanjeev Sinha | Updated: November 27, 2017 2:25 PM | Financial Express
All of us have various financial goals in life. Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future. This is not the right approach towards creating wealth. Therefore, to ensure that you are financially secure and on the right track with your money, here are 5 important investments that you must make before you hit your 30-year milestone:
1. Investment towards tax saving
Considering that you are working and earning, it is important for you to assess your tax liability and take advantage of tax deductions available under Section 80C of the Income Tax Act. “By proper tax planning, you can not only reduce your tax liability but also save some more to invest towards your other goals. One of the best tax-saving instruments is Equity-Linked Savings Schemes (ELSS). It is a type of open-ended equity mutual fund wherein an investor can avail a deduction u/s 80C up to Rs 1.50 lakh for a financial year,” says Amar Pandit, CFA and Founder & Chief Happiness Officer at HapynessFactory.in.
2. Investment towards emergency corpus
There are various events like accidents, illnesses and other unforeseen events that we may encounter in our lives. These events should never occur, but if they do, one needs to be adequately prepared for the same. In critical cases, such events may hamper one’s ability to work and may even lead to a loss in earnings for a few months or years. Hence, “it is advisable to build a contingency corpus, which is equivalent to at least 5-6 months of living expenses. Further, your emergency fund should be safe and easily accessible (liquid in nature) at short notice, in case of an emergency. Hence, savings bank accounts and liquid mutual funds are two options for setting aside the emergency corpus. However, considering that liquid and ultra-short term mutual funds are more tax efficient in nature, it is advisable to park a major portion of your corpus in the same,” says Pandit.
3. Investment towards long-term goals
It is very important to save and invest towards your long-term goals such as marriage, buying a house, starting your own venture, retirement, and so on. You must start with determining how much each goal will need and the savings required to achieve the goal. Once the corpus is fixed, you can invest towards the goal regularly. As an investment strategy, start fixed monthly investments – SIPs (Systematic Investment Plan) in mutual funds. Always remember, the earlier you start investing towards your goals, the longer time your investments will have to grow and the more you will benefit from the power of compounding. Equity mutual funds which are growth oriented are a preferable investment option for long-term goals.
4. Investment towards short-term goals
There are many short-term goals that are recurring in nature, such annual vacation, buying a car or any asset in the near term and so on. For such goals, you are advised to park your funds in liquid or arbitrage mutual funds rather than a savings account. “Mutual funds are more tax efficient than savings accounts and also there are different funds for different time horizons. For example, for goals to be achieved within a year, you can opt for liquid or ultra-short term funds whereas for goals to be achieved post one year, you can opt for arbitrage funds,” advises Pandit.
5. Investment towards health and life cover
Life and health insurance typically are not supposed to be considered as investments. However, both are very important and must be considered as one of the priority money move to be made before turning 30. If you are earning and have a family dependent on you, you must assess and buy the right life insurance term cover for yourself. Further, with costs of health care and medical on the rise, any untoward illness without sufficient cover will have you dip into capital which is unnecessary. Hence, there cannot be any compromise on health insurance. Thankfully, there are various health covers available in the market today. You should opt for the right cover for yourself, depending on your needs and post considering all the options.
By Sunil Dhawan | ECONOMICTIMES.COM| Updated: Jan 04, 2017, 11.23 AM IST
The start of the new year may have something to cheer for the home loan borrowers. Several banks have significantly reduced the interest rates charged on these loans.
The State Bank of India (SBI) has lowered its home loan rate from 9.10 per cent to 8.60 per cent and ICICI Bank from 9.10 percent to 8.65 percent, HDFC at 8.7 per cent, with other banks set to follow suit. Effectively, home loan rate has come down by an average of about 0.4-0.5 per cent after these announcements.
Noticeably, SBI’s one-year MCLR is at 8 per cent which makes the spread on its home loan 0.6 per cent. So, even though the MCLR of banks have fallen, the actual home loans are not at MCLR. Still, the writing on the wall is clear – there is more room to cut home loan rates by the banks.
Borrowers on base rate should switch now
If not all then at least the old borrowers who have been servicing their EMI’s based on the erstwhile base rate system of lending, stand to benefit. Even though bank’s base rate hasn’t come down as much, they now have a stronger reason to switch to the current MCLR-based lending. With the recent interest rate cuts on loans by banks the differential between base rate at which old borrowers are servicing their loan and the current MCLR is widening.
For those who had taken loans after July 1, 2010, but before April 1, 2016, the loans are linked to the bank’s base rate. And for most of these borrowers, the home loan interest rate is around 10 per cent. After the recent rate cuts announced by banks, the average MCLR has fallen to about 8.75 percent or even lower. This differential of 1-1.25 percent in base rate and MCLR will help old borrowers to switch to MCLR and save on total interest outgo.
Why to switch now
The primary reason to switch from base rate to MCLR has to be the sluggishness seen in banks’ passing on the benefits of RBI rate cuts to borrowers. RBI’s repo rate cuts were not reflecting in the bank’s base rate but are a part of the factors that goes into calculating the bank’s MCLR so, the moment repo rate changed, MCLR was impacted.
Further, the MCLR takes into account the marginal cost of funds which includes the rate at which the bank raises deposits and other cost of borrowings. With banks flush with funds post demonetisation, the bank’s CASA deposits (current account-savings account) have swelled and have given the banks the leeway to go for such major rate cuts.
The base rate, on the other hand, has seen only marginal reduction since last 24 months. Post demonetisation, banks are expected to wait and see the impact once the restrictions on cash withdrawals are removed. If the funds don’t move out from the banking system in significant amounts, further rate cut is expected.
MCLR based borrowers
For the new home loan borrowers who have taken loan after April 1, 2016, there’s not much immediate benefit from the recent rate cuts. For most MCLR-linked home loan contracts, the banks reset the interest rate after 12 months for their home loan borrowers. So, if someone has taken home loan from a bank say in May, 2016, the next re-set date will be in May, 2017. Any revisions by RBI or banks will not impact their EMIs or the loan till the reset date
What’s MCLR mode of lending
A new method of bank lending called marginal cost of funds based lending rate (MCLR) was put in place for all loans, including home loans, given after April 1, 2016. Under the MCLR mode, the banks have to review and declare overnight, one month, three months, six months, one year, two years, three years rates each month.
In a falling interest rate scenario, quarterly or half-yearly could be a better option, provided the bank agrees. But when the interest rate cycle turns, the borrower will be at a disadvantage. After moving to the MCLR system, there is always the risk of any upward movement of interest rates before you reach the reset period. If the RBI raises repo rates, MCLR too, will move up.
Options for base rate borrowers
When the interest rate on your loan goes down banks, on their own, typically reduce the tenure automatically (instead of reducing EMI amount) and thereby, transfer the benefit of lower rate to the customers.
The base rate borrowers now have two options – switch to MCLR based lending with the same bank or else transfer i.e. get the loan refinanced from another bank on MCLR mode. One may also continue the loan on base rate, especially if the loan term is nearing the end.
The RBI has made it clear that banks should allow base rate borrowers to switch to MCLR. The existing loans can run till maturity or borrowers can switch to MCLR on mutually agreed terms.
Switching from base rate to MCLR within the same bank
It makes sense to switch if the difference between what you are paying and what the bank is offering now as MCLR is significant. And also in cases where the time for the home loan to finish is not near.
Switching loan from base rate to MCLR with another bank (refinancing)
If your bank is offering a high home loan interest rate (MCLR plus spread) then look for refinancing. Get the loan refinanced from a bank offering a lower interest rate. You may have to incur processing fees. However, banks are not allowed to charge foreclosure or full repayment charges. Other charges may include lawyer’s fees, mortgage charges, etc. Remember, the bank may ask you to buy a home loan insurance cover plan, which is not mandatory. Get the loan insured through a pure term insurance instead, in addition to any insurance that you already have.
Switching to MCLR in itself should help you save a substantial amount. In addition to switching the loan from base rate-linked to MCLR and thereby saving interest, prepare a systematic partial prepayment plan to further reduce the interest burden. It’s after all better to up your home-equity rather than making it a highly leveraged buy-out.
Santosh Agarwal – PolicyBazaar | Dec 08, 2016,12.35 IST | Source: Moneycontrol.com
Did your insurance agent discourage you from buying a term life insurance plan just because you will get no benefit unless you die? If you trust him blindly, you will only help him earn a better commission, by going over budget for a plan that may not cover you sufficiently. The agent was right when he said that a term plan offers the sum assured only if the policyholder dies during the policy tenure. But, what he may not have pointed out to you is:
1. Insurance plans that offer benefits on maturity are more expensive than term plans.
2. By opting for a TROP (Term with Return Of Premium) plan, you can get back all the premiums you paid, on the maturity of the policy.
3. By purchasing add-ons or riders, you can enhance the protection offered by your term plan.
Riders are purchased additionally with a basic life insurance plan for getting additional benefits. Term plans are the simplest and the most cost-effective life insurance plans. But a term plan alone may not be sufficient in certain cases. For instance, if you get severely injured in an accident, or get diagnosed with a life-threatening disease, a term plan will not help you bear the major expenses of your prolonged treatment. In such cases, the add-ons come in handy. When you buy a life insurance plan, the available riders may vary with the insurance provider and the policy.
Here, we will discuss the three most important add-ons that you must have with your basic term insurance plan.
1) Accidental disability rider
Accidents are unfortunate and unpredictable. An accident may leave you disabled for life. If you have dependents in your family, they will be in a crisis to manage their living and paying for your treatment simultaneously while you are not earning. Such unfortunate instances are covered by accidental disability rider. If you suffer from disability due to an accident, the rider will offer the sum assured by which your family will be able to maintain a livelihood and bear the cost of your treatments as well.
Cost estimates: If you are a 30-year-old, opting for a base cover of Rs. 1 crore over a 35-year time period, an accidental disability rider will cost you around Rs. 300 to Rs. 500 annually for a cover of Rs 10-30 lakh.
2) Critical illness rider
Today’s fast-pacing life is taking a toll on our health. Consequently, several life-threatening diseases are on the rise. The diseases like cancer, stroke, organ failure call for prolonged treatments that can be quite expensive. Critical illness riders ease off the burden of expensive medical treatments by offering a lump sum assured to the policyholder in case he is diagnosed with any of the medical conditions pre-specified under the plan. However, pre-existing medical conditions will not be covered by this rider.
Cost estimates: If you are a 30-year-old, opting for a base cover of Rs. 1 crore over a 35-year time period, a critical illness rider will cost you around Rs. 5,000 to Rs 10,000 annually for a cover of Rs 25-50 lakh.
3) Waiver of premium rider
When you buy a term plan, you get into a contract of paying on a regular basis for a certain period of time (unless it is a single pay plan). But what will happen if you are unable to work due to some unfortunate accident in your life? How are you going to pay for the rest of the policy term if you are left disabled by the accident and there is no other earning member in your family? The waiver of premium rider comes with the solution. In case you are unable to pay your premiums due to some disability or diseases leading to the loss of your job, all your future premiums will be waived off. You will no longer have to pay the premiums but your basic term plan will still continue till the date of maturity. Typically, this rider comes included as part of a term cover, however if that’s not the case, it’s recommended to opt for this must have rider.
Cost estimates: If you are a 30-year-old, opting for a base cover of Rs. 1 crore over a 35-year time period, the waiver of premium rider will cost you around Rs. 400 to Rs 600 annually.
The cost of a rider may vary from one insurance provider to another. Both expensive and low-cost riders are available and they also depend on the base sum assured. However, riders are, undoubtedly, the most important tools to strengthen your basic term insurance cover. Riders come in handy in certain eventualities in life. So, if you want comprehensive life coverage for you and your family, a term plan with the three riders mentioned above are worth considering.
By Sanjiv Singhal | Jun 20, 2016, 07.00 AM IST | Economic Times
Interact with a lot of young earners on a daily basis. These are men and women in the first 5-6 years of their working lives, with dreams and hopes that require money to achieve. Some of them are already saving, while others are not, but all are full of questions and want to know how to do it better. It doesn’t matter what job they have and how much they earn; there are mistakes that run through all their stories. Here are some of the most common ones:
“I bought a life insurance policy to save tax.”
The good thing about this confession is that the person understands he made a mistake. For most, it starts at the end of the year when they needed to submit their investment proof to the HR. They scramble around to figure out how and blindly buy an insurance policy (after all, insurance is a good thing to have, no?). Almost every other tax-saving option is better than life insurance. Tax-saving (ELSS) funds are the best option for young earners.
“I wasn’t sure where to invest, so I didn’t.”
When you don’t set aside money regularly, it sits in your bank account and often gets spent. This hurts in two ways. One, it doesn’t create wealth for you, which investing early does. Second, it forms unsustainable spending habits. Start by setting aside 5-10% of your salary every month in a debt fund or in a recurring deposit if you don’t know enough about mutual funds.
“I bought stocks to double my money because my friend did.”
This is a mistake often made due to lack of understanding about how stock investment works and a false sense of knowledge. Greed and stories of exceptional returns also spur one on. The best way to resist this is to check with friends and colleagues about how many actually earned such fantastic returns and how many lost money. Stock investing requires deep knowledge and time. As a young professional, you are better off committing this time to your job.
“I change jobs every year to increase my salary.”
This is not an investing mistake, but one of not investing in yourself. Sticking with a job gives you the opportunity to develop your skills in a specific area. It also gives you the time to learn softer skills – of working with people and managing them. This leads to better career prospects and more wealth.
“I forgot about my education loan.”
A lot of young earners are starting their financial lives with an education loan taken for an MBA or MTech. As they mostly work away from home, they may not get the communication from the bank, or choose to ignore it. The interest mounts up and they are left with a bigger repayment amount. Focus on education loan repayment in a disciplined manner. When you are done with the with the repayment, direct this amount to long-term investments. Avoiding these common mistakes is easy once you know about them. Spending time learning about the principles of money and investing is a good investment to begin with.
(The author is Founder & Head, Product Strategy at Scripbox)
BALAJI RAO | The Hindu
A term assurance provides financial stability in case of unforeseen events and ensures that EMIs are paid.
Rangan is 35 years old, married, has twins aged three years. His wife, Ragini, is a home-maker. She teaches music to a few young aspirants and earns a small amount of money every month that takes care of her personal expenses. But Rangan is the main earning member of the family. He works for an IT company, earns well, has a home loan which still has another 17 years of repayment (Rs.50 lakh more to be paid including principal and interest), has a car loan to be paid for another three years, and has to take care of his children’s education over the next 20 years.
Rangan is bit worried about unforeseen events such as accidents, illness, loss of job and premature death. He has a beautiful house on which he had spent quite a bit of his savings and also taken a hefty loan. He also wants to secure his family financially.
What could Rangan do that ensures his family is not into any financial mess if some unforeseen event occurs? The one solution for all these is insuring the risks adequately. There is a general confusion due to lack of financial education and awareness that insurance plans are purchased to meet life’s events, whereas the purpose of insurance is to protect against unforeseen events leading to financial risk. Financial goals and risks should not be mixed; it would be a bad marriage.
Segregate goals, risks
Rangan should segregate his financial goals and financial risks. His goals are to meet his children’s education expenses, their marriage, expenses upon retirement some 25 years from today, vacations, upgrading of house, upgrading of car, pre-closing his home loan, etc. His financial risks are losing his job, health scare leading to hospitalisation, and premature death that could risk his house (not being able to pay the EMIs).
While Rangan is investing in financial instruments such as debt and equity to meet his financial goals he has inadequate cover to meet his financial risks. He should split his risks in such a way that he manages them diligently with low investments. Let’s see how Rangan can do it.
He should buy three separate pure risk covers by way of term assurances. For the home loan outstanding, he should buy a term assurance which could cost him Rs.5,000 per annum (approx.) for a period of 17 years. In case of premature death the insurance company would pay his legal successor the sum assured which could be utilised to repay the home loan and retain the house.
For the children’s education he should buy another term assurance plan for Rs.1 crore for a period of 20 years which could cost him Rs.6,500 per annum (approx.). In case of his untimely death, the sum assured would be paid by the insurance company to cover the children’s education-related expenses.
For his life risk until retirement, he can choose another Rs.50 lakh to Rs.1 crore as sum assured under term assurance for 25 years which could cost him Rs.5,500 to Rs.6,500 per annum (approx.) that would take care of all other financial risks.
In case no untoward incident (such as his untimely death) happens, at the end of 17 years during the repayment of his home loan the premium payment will stop. Similarly, 20 years from today the premium payment for education too stops; only the overall risk-related premium payment would continue till he is 60 years old.
This is by far the best method of addressing financial risks. People make the mistake of buying traditional plans such as endowment, money back and whole-life policies which are highly expensive and impractical to cover the entire financial risks across different stages and requirements of life.
Rangan should also buy health insurance. Though he argues that his company has medically covered him and he will not need another insurance cover, this has no rationale because if he quits his job, his company-covered insurance would become invalid. Even if he works till his retirement, post-retirement his insurance cover would cease to exist. Hence, he should buy a health cover worth at least Rs.15 lakh which could cost him approx. Rs.15,000 per annum.
Source : http://goo.gl/xXVEqh
Don’t tinker with your long-term investment plan. But it is always better to make some critical changes, based on new tax laws and instruments
Sanjay Kumar Singh | April 3, 2016 Last Updated at 22:10 IST | Business Standard
The start of a new financial year is a good time to review your financial plan and take stock of where you stand in relation to your goals. If new goals have emerged, this is the time to make fresh investments for these. While having a steady approach is a virtue here, make some adjustments in the light of developments that have occurred over the past year.
Large-cap funds have fared worse than mid-cap and small-cap ones over the past one year (see table). Over this period at least, the conventional wisdom that large-cap funds tend to be more resilient than mid-cap and small-cap ones in a declining market was overturned. Nilesh Shah, managing director, Kotak Mahindra AMC, offers three reasons. “For the bulk of the previous year, FIIs were sellers of large-cap stocks, whereas domestic institutional investors (DIIs) were buyers of mid- and small-caps. Large-cap stocks are also more linked to global sectors like metal and oil, whereas mid- and small-caps are linked to domestic sectors. The latter has done better than the former, leading to stronger performance by mid- and small-cap stocks. Large-cap stocks’ earning growth decelerated or remained subdued throughout last year while mid- and small-caps delivered better growth,” he says.
Despite last year’s anomalous performance, investors should continue to have the bulk of their core portfolio, 70-75 per cent, in large-cap funds for stability, and only 20-25 per cent in mid-cap and small-cap funds. Large-caps could also fare better in the near future. Says Ashish Shankar, head of investment advisory, Motilal Oswal Private Wealth Management: “IT, pharma and private banks, whose earnings have been growing, will continue to do so. Public sector banks and commodity companies, whose earnings have been bleeding, will not bleed as much. Many might even turn profitable. FII flows turned positive this month and FIIs prefer large-caps. With the US Fed saying it won’t hike interest rates aggressively, global liquidity should improve. If FII flows continue to be stable, large-caps should do better.” Valuations of large-caps are also more attractive.
Among debt funds, the category average return of income funds and dynamic bond funds was lower than that of short-term, ultra short-term and liquid funds (see table). Explains Shah: “Last year, while Reserve Bank of India (RBI) cut policy rates, market yields didn’t soften as much. The yield curve became steeper. The short end of the curve came down more than the long end, which is why shorter-term bonds did better than longer-term gilts.”
Stick to funds that invest in high-quality debt paper, in view of the worsening credit environment. Shankar suggests investing in triple ‘A’ corporate bond funds. “Today, you can build a triple ‘A’ corporate bond portfolio with an expected return of 8.5 per cent. Many of these have expense ratios of 40-50 basis points, so you can expect annual return of around eight per cent. If bond yields come down, you could end up with returns of 8.5-9 per cent. If you redeem in April 2019, you will get three indexation benefits, lowering the tax incidence considerably.” Investors who have invested in dynamic bond funds should hold on to these. “A rate cut is expected in April. Yields will drop and there may be a rally in the bond market,” says Arvind Rao, Certified Financial Planner (CFP), Arvind Rao Associates.
CHANGES YOU NEED TO MAKE
- Fixed deposit rates from banks will be better than returns from the post office deposits in the new financial year
- Choose your tenure first and then, do a comparison of bank fixed deposit rates before making the final choice
- Invest in the yellow metal via gold bonds
- If your liabilities have increased, revise term cover upward
- Revise health cover every three-five years to deal with medical and lifestyle inflation
- Revise sum assured on home insurance if you have added to household assets
- Conservative investors should invest in PPF at the earliest
- Those who can take some risk should bet on ELSS funds via SIP
- Invest Rs 50,000 in NPS
Traditional fixed income
The recent cut in small savings has jolted conservative investors. The rates on these have been linked to the average 10-year bond yield for the past three months. These will be revised every quarter now, make them more volatile. “People who want to invest in debt and want sovereign security should continue to invest in Public Provident Fund (PPF). No other instrument gives a tax-free return of 8.1 per cent with government security,” says Rao.
As for time deposits, financial planner Arnav Pandya suggests, “From April, fixed deposits of banks will give better returns than those of the post office. Decide on your investment tenure, see which bank is offering the best rate for that tenure, and invest in its deposit.” Lock into current rates fast, as even banks are expected to cut their deposit rates.
Tax-free bonds are another good option. Nabard’s recent issue carried a coupon of 7.29 per cent for 10 years and 7.64 per cent for 15 years. Beside getting tax-free income, investors stand to get the benefit of capital appreciation if interest rates are cut.
“People who have some risk appetite may also look at debt mutual funds and fixed deposits of stable companies,” adds Rao.
The sharp run-up in gold prices over three months, owing to the rise in risk aversion globally, took most people by surprise. The sudden spurt emphasises the need to stay diversified and have a 10 per cent allocation to the yellow metal in your portfolio. However, instead of using gold Exchange-traded funds (ETFs), which carry an expense ratio of 0.75-1 per cent, invest via gold bonds, which offer an annual interest rate of 2.75 per cent. The Budget made gold bonds more attractive by exempting these from capital gains tax at redemption.
Start investing in tax-saving instruments from the beginning of the year. “Don’t leave tax planning for the end of the year, otherwise you may have to scramble for funds,” says financial planner Ankur Kapur of ankurkapur.in. For those with the money, Pandya suggests: “Invest the entire amount you need to in PPF before the April 5. That will take care of tax planning for the year and you will also earn interest on your investment.”
Investors with a higher risk appetite could start a Systematic Investment Plan (SIP) in an Equity Linked Savings Schemes (ELSS) fund, which can give higher returns. “If you invest early in the year via an SIP, you will reap the benefit of rupee cost averaging,” says Dinesh Rohira, founder and Chief Executive Officer, 5nance.com. Pankaj Mathpal, MD, Optima Money Managers suggests linking all tax-related investments to financial goals.
If you live in your parents’ house and pay rent to them to claim House Rent Allowance benefits, which is perfectly legal, get a rent agreement prepared.
With 40 per cent of the National Pension System (NPS) corpus having been made tax-free at withdrawal in this Budget (the entire corpus was taxed earlier), this has become more attractive. “Open an NPS account if you have not done so already and enjoy the additional tax deduction of Rs 50,000,” says Anil Rego, CEO & founder, Right Horizons. In view of the low returns from annuities, into which 60 per cent of the final corpus must be compulsorily invested, don’t invest more than Rs 50,000.
Tax deduction under Section 24 is available on the interest repaid on a home loan. “Buying a property to avail of the benefit is not advisable if the family has a primary residence,” says Rego.
While reviewing your financial plan, check if the term cover is adequate. A family’s insurance cover should be able to replace the breadwinner’s income stream. Financial planners take into account household expenses, goals like children’s education and marriage, and liabilities like home loans when deciding on a person’s insurance requirement. “If goals have changed or liabilities have increased, raise the amount of cover,” suggests Mathpal. Kapur says the premium rate is likely to be lower if you buy the term plan before your birthday.
Your health insurance cover might also need to be raised to take care of medical inflation. The same holds true for household insurance if you have reconstructed your house and the structure has become more expensive, or if you have added expensive assets. Rohira suggests buying add-on covers like accidental insurance and critical health insurance for comprehensive protection.
By Gargi Banerjee | May 21, 2015, 11.14 AM IST | Economic Times
Want to get over with buying an insurance policy at one go because you have some money lying idle? A single premium insurance policy is just the thing for you then. As compared to a traditional or a regular premium insurance policy where you pay insurance premiums at periodic intervals, this is a onetime payment solution for those who do not want to get into the hassle of periodic payments.
Once the premium payment has been made, you become the owner of a policy with a specific death benefit. It is literally a “fill it, shut it and forget it” kind of a policy, as you do not have to worry about paying any further payments or the lapse of your policy in case in forget to make any payments. All major insurers provide single premium life insurance policies for the benefit of their customers and you can use the help of a policy aggregator website to find out which one works best for you.
When should you buy a single premium policy?
Most people prefer to buy a single premium life insurance policy when they have a lump sum available with themselves. It may be a hefty tax fund, a cash gift from a relative an inheritance or some windfall gains in case of business owners. If you do not wish to spend this money right away and are wary of investing it in the markets, or you think there is some more insurance cover you could do with, you can certainly opt for a single premium life insurance policy.
Protect your wealth against taxation
A single premium life insurance policy provides you protection against the axe of taxes. You are given exemption of upto R 1.5 lakhs when you invest in a single premium life insurance policy. Further the sum assured is also tax free in the hands of the receiver. God forbid if something were to happen to you, your beneficiary would receive the money completely tax free. However do bear in mind, that on a single premium life insrance policy you will get the benfit of tax exemption only once, as you are investing in it for a single time only.
Forget about lapses
Since the policy is paid up in full upfront you never have to worry again about the policy getting lapsed in case you forget to pay the premium. It is valid till the entire term of the policy and renders the sum assured after the policy term comes to an end. Creates cash value.
When you make the payment of single premium on a policy you are creating an asset for yourself. In case you need to avail of a loan facility, this can come in handy and can be used as a collateral against your loan. Besides, the cash value of the investment you have made accumulates every year, without you having to invest year after year.
Thus as you can see, single premium life insurance policies, though usually not the preffered vehicle for securing one’s life, can certainly offer some benefits. But the largest factor you should keep in mind is the affordability part of it. So if you can think of sparing the lump sum and locking it away to take care of your insurance needs, go ahead and get yourself that single premium insurance policy.
HARSH ROONGTA | Tue, 29 Mar 2016-09:22am | dna
Shrinking interest rate margins have made several lenders to insert hidden charges to increase their margins by stealth.
The home loan industry has come a long way from the time when the only charges that you had to watch out for were the processing charges taken under various heads and pre-payment charges. Regulation has ensured that there are no pre-payment charges and competition has ensured that there is a greater degree of transparency around the processing fee, legal fee, valuation fee or technical charges. Competition has also ensured that there is hardly any difference in the interest rates charged by various home loan lenders. Unfortunately, the shrinking interest rate margins have made several lenders to insert hidden charges to increase this margin by stealth.
Here is a list of these charges:
Charge interest on the loan which is disbursed late – This is a common practice. The lender prepares a cheque, but it is not to be handed over till certain documents are received from the borrower and/or the seller. These documents normally may take a few days to a few weeks, and meanwhile, the interest meter is ticking for the borrower. This is not as small as it looks. On a loan of Rs 1 crore, the interest @9.50% works out to Rs 2,600 daily.
The cost of a 10-day delay in handing over the cheque (which is pretty common) means an additional cost of Rs 26,000 or 0.26% of the loan amount. You should negotiate with the lender that you will only pay interest from the day the cheque is actually handed over to the seller and not from the date mentioned on the cheque.
Advancing the EMI payment date – The EMI amount is calculated assuming that the payment will be made at the end of 30 days from the date of disbursement. If this EMI is paid earlier than 30 days, the cost becomes much higher than the stated cost. An example will illustrate this. If the disbursement is made on February 15, 2016, and the EMI is payable on the first of every month then typically you should pay interest equivalent to 15 days’ interest (from February 15, 2016, to March 1, 2016) and the EMI should start from April 1, 2016, only. However, most lenders will start off the EMI from March 1, 201, and still charge you for a full month’s interest. Again, the difference is not as small as it sounds. 15 days’ extra interest for a Rs 1 crore loan @9.50% works out to Rs 39,000 or 0.39% of the loan amount. Again, you can negotiate with the lender to make sure that this additional hidden interest is not charged to you. Unlike the first point which is easily understood, this point is technical and the lender can run loops through the borrower while explaining how the EMI is calculated.
Forcing borrowers to buy expensive insurance products – Lenders have tied up with life and general insurance companies to provide life, disability and property insurance to borrowers and they force you to take these policies. The lenders earn fat commissions on the sale of these insurance policies and even though officially not permitted, they force the borrowers to sign up for these policies. It is a good practise to have such type of insurance policies when you take a loan, but the problem is that the policies being hawked by the lenders are hugely overpriced, reflecting the captive base of borrowers and the fat commissions for the lender inbuilt in such policies. To avoid having to pay for these overpriced policies, you can negotiate with the lender that you will buy these policies on your own. In all probability, you will get the exact same policy from the same insurance provider as what the lender is pushing at a fraction of the cost that the lender will charge.
Forcing borrowers to take a credit card or some other add-on products – In most cases this is offered for free while not stating that it is free only for the first year and would have an annual fee every year after that. You can easily negotiate your way out of this one.
Whilst these are the “extra” charges that lenders take from borrowers, there is a charge that they are unfairly accused of taking. For example, in Maharashtra, you have to pay a stamp duty of 0.20% of the loan amount on the document creating the security in favour of the lender. It is obvious that this charge will be recovered from the borrower (it is also mentioned in the loan agreement as recoverable from the borrower), but I have heard many borrowers complain that this is a hidden charge sprung upon them. This document is in favour of the borrower as it is conclusive proof that documents have been handed over to the lender. This is extremely useful when the loan period ends because there have been increasing the number of cases where the lenders have misplaced the title deeds and claim that these were never deposited with them in the first place. A stamped and registered document will prevent the lender from making any such claims.
In this new age, the lenders depend on the borrowers lack of attention to slip in the extra charges. It makes eminent sense for the borrowers to take the help of professionals to help them navigate through this process. The fee payable to such professionals will be more than made up by the savings in these “extra” charges.
Source : http://goo.gl/ImwYEb
Babar Zaidi | TNN | Jan 11, 2016, 08.57 AM IST | Times of India
Do-it-yourself tax planning can be rewarding and challenging. Rewarding, because you can choose the tax-saving instrument that best suits your needs. Challenging, because if you make the wrong choice, you are stuck with an unsuitable investment for at least 3-5 years. This is where our annual ranking of best tax-saving options can prove helpful. It assesses all the investment options on seven key parameters—returns, safety, flexibility, liquidity, costs, transparency and taxability of income. Each parameter is given equal weightage and a composite score is worked out for the various tax-saving options.
While the ranking is based on a robust methodology, your choice should also take into account your requirements and financial goals. We consider the pros and cons of each option and tell you which instrument is best suited for taxpayers in different situations and lifestages. We hope it will help you make an informed choice. Happy investing!
ELSS funds top our ranking because of their tremendous potential, high liquidity and transparency. The ELSS category has given average returns of 17.8% in the past 3 years. The 3-year lock-in period is the shortest for any Section 80C option.
If you have already fulfilled KYC requirements, you can invest online. Even if you are a new investor, fund houses facilitate the investment by picking up documents from your house and guiding you through the KYC screening. ELSS funds are equity schemes and carry the same market risk as any other diversified fund. Last year was not good for equities, and even top-rated ELSS funds lost money. However, the funds are miles ahead of PPF in 3- and 5-year returns.
The SIP route is the best way to contain the risk of investing in equity funds. However, with just three months left for the financial year to end, at best, a taxpayer will manage 2-3 SIPs before 31 March. Since valuations are not stretched right now, one can put in a bigger amount.
Opt for the direct plan. Returns are higher because charges are lower.
The new online Ulips are ultra cheap, with some of them costing even less than direct mutual funds. They also offer greater flexibility. Unlike ELSS funds, where the investment cannot be touched for three years, Ulip investors can switch their corpus from equity to debt, and vice versa. What’s more, there is no tax implication of gains made from switching because insurance plans enjoy exemption under Section 10 (10d). Even so, only savvy investors who know how to use the switching facility should get in.
Opt for liquid or debt funds of the Ulip and gradually shift the money to the equity fund.
The last Budget made the NPS attractive as a tax-saving tool by offering an additional tax deduction of Rs 50,000. Also, pension fund managers have been allowed to invest in a larger basket of stocks.
Concerns remain about the cap on equity exposure. Besides, the taxability of the NPS on maturity is a sore point. At least 40% of the corpus must be put in an annuity. Right now, the income from annuities is taxed at the normal rate.
Opt for the auto choice where the equity exposure is linked to age and comes down as you grow older.
PPF AND VPF
It’s been almost four years since the PPF rate was linked to the benchmark bond yield. But bond yields have stayed buoyant and the PPF rate has not fallen. However, the government has indicated that it will review the interest rates on small savings schemes, including PPF and NSCs. If this is a worry, opt for the Voluntary Provident Fund. It offers that same interest rate and tax benefits as the EPF. There is no limit to how much you can invest in the VPF. The contribution gets deducted from the salary itself so the investor does not even feel it go.
Allocate 25% of your pay hike to VPF. You won’t notice the deduction.
SUKANYA SAMRIDDHI SCHEME
This scheme for the girl child is a great way to save tax. It is open only to girls below 10. If you have a daughter that old, the Sukanya Samriddhi Scheme is a better option than bank deposits, child plans and even the PPF account. Accounts can be opened in any post office or designated branches of PSU banks with a minimum Rs 1,000. The maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years. The account matures when the girl turns 21, though up to 50% of the corpus can be withdrawn after she turns 18.
Instead of PPF, put money in the Sukanya scheme and earn 50 bps more.
SENIOR CITIZENS’ SCHEME This is the best tax-saving instrument for retirees. At 9.3%, it offers the highest interest rate among all Post Office schemes. The tenure is 5 years, extendable by 3 years. Interest is paid quarterly on fixed dates. However, there is a Rs 15 lakh overall investment limit.
If you want ot invest more than Rs 15 lakh, gift the amount to your spouse and invest in her name.
BANK FDS AND NSCs
Though bank FDs and NSCs offer assured returns, the interest earned on the deposits is fully taxable. They are best suited to taxpayers in the 10% bracket or senior citizens who have exhausted the Rs 15 lakh limit in the Senior Citizens’ Saving Scheme.
Invest in FDs and NSCs if you don’t have time to assess the other options and the deadline is near.
Pension plans from insurance companies still have high charges which makes them poor investments. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing annuity rates are not very attractive. Pension plans launched by mutual funds have lower charges, but are MFs disguised as pension plans. Moreover, they are debtoriented plans so they are not eligible for tax benefits that equity plans enjoy.
Invest in plans from mutual funds. They offer greater flexibility than those from life insurers.
Traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the “triple benefits” of life insurance cover, longterm savings and tax benefits. Actually, these policies give very little cover. A premium of Rs 20,000 a year will get you a cover of roughly Rs 2 lakh. The returns are very poor, barely 6% if you opt for a 20-year plan. And the tax-free income is a sham. Going by the indexation rule, if the returns are below the inflation rate, the income should anyway be tax free. The problem is that once you sign up for these policies, they become millstones around your neck.
If you can’t afford to pay the premium, turn your insurance plan into a paid-up policy.
Here’s all that you should know about the employee deposit linked insurance scheme.
Written by Adhil Shetty | Published:Dec 11, 2015, 2:00 | Indian Express
Not many investors know that the retirement benefits administration body Employees’ Provident Fund Organisation (EPFO) offers an insurance scheme covering all employees working with organisations as part of the EPF.
Along with the Employee Provident Fund and the Employee Pension Scheme, the Employee Deposit Linked Insurance (EDLI) forms the troika of the social security schemes administered by the Employees Provident Fund Organisation.
Here’s all that you should know about the employee deposit linked insurance scheme.
What is Employee Deposit Linked Insurance?
Employee Deposit Linked Insurance is a term insurance plan offered by the EPFO. The scheme offers life coverage for all employees working with the organised sectors and enrolled in EPF. The scheme is administered by the Employees Provident Fund Organisation and is applicable to all companies who are part of the EPF.
The EDLI scheme works just like a group term insurance plan where if an employee dies during the service period, his family or nominee gets the sum assured up to a certain maximum limit as defined by the rules of the EDLI scheme.
Protection coverage under the EDLI scheme
Being a group term insurance plan, EDLI offers a 24-hour-protection to the employees as part of the scheme. This means the insured does not need to be at their workplace for the scheme to be valid or applicable. The scheme protects them 24×7 irrespective of whether they are at work or not.
The coverage and premium charges under the EDLI scheme are the same for every employee irrespective of any factor including age or gender.
Employees contribute 0.5 per cent of their monthly basic pay and dearness allowance (capped at a maximum of Rs 15,000) as premium for this, and the coverage is linked to the premium.
The family or nominee of the policyholder (employee) under the EDLI scheme will get benefits irrespective of the cause of death including illness, accident, or natural causes.
EDLI earlier had stipulated 12 months of service with the same employer as a mandatory condition for being protected under the insurance scheme. Now, there is no such minimum limit of service and employees are covered under the EDLI scheme as soon as they start working with a company.
Extent of claim available
As per the recently issued EPFO guidelines, the maximum claim amount is capped at 30 times of the last drawn salary of the policy holder. Along with the claim amount, EPFO also offers a bonus of Rs1.5 lakh for each claim.
So the maximum claim amount you can avail under the EDLI scheme is therefore calculated as 30 times Rs 15,000 plus the Rs 1.5 lakh bonus, which comes to Rs 6 lakh. The previous limit was Rs 3.6 lakh only.
How to file for a claim
Before you opt for a claim under the EDLI scheme, make sure that you have all the required documentation in place. You will need:
* Death certificate of the employee as issued by the local municipal corporation.
* Legal heir certification or succession certificate.
* If the employee was working with a company exempted under the EPF Scheme 1952, the employer will need to submit the PF details of last 12 months.
* Once you have all the documents in place, you will need to submit the EDLI claim form. The form is available at: http://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form5IF.pdf
You should also submit Form 20 and Form 10D / 10C to claim provident fund dues. Before submitting the claim form, you will need to get it attested by the employer.
Source : http://goo.gl/H6OSfl
By Sangita Mehta, ET Bureau | 13 May, 2015, 10.48AM IST | Economic Times
A bank’s facilities typically come loaded. For the unsuspecting customer, it could just be a question of filling out a fixed deposit form or being granted a home loan. But there are some entrapments the bank will slip in that you need to be aware of, says Sangita Mehta.
HOME LOAN: Double Trouble
Watch out: When you apply for a home loan, the bank will sell you property insurance — which covers damage to property — and mortgage protection term insurance, which covers the loan in the event of the borrower’s death
What you should know: The housing society may already have property insurance. You don’t have to opt for an insurer the bank has a tie-up with. Ensure the premium is not clubbed with the loan, in which case, you will have to pay interest
CREDIT CARD: Take it or Leave it
Watch out: Banks often sell credit cards with the promise that for the first year, they will not charge any fee and the customer can discontinue it from the second year. However, at the end of the second year, the card company sends an innocuous mail stating they will renew the card for a fee unless the customer explicitly rejects it.
What you should know: The Reserve Bank of India has banned banks from giving such negative options. Customers should ideally use the credit card of a bank they do not have a savings bank with. In case of a dispute, banks often debit money from the borrower’s account
DEPOSITS: Auto Route
Watch out: When you’re opening a fixed deposit, watch out for ‘auto renewal’ in the fine print
What you should know: If you do not opt for auto renewal, the money is transferred to the savings account after maturity, where the bank offers about 4% interest as against 7-9% on FDs. You may forget to renew the deposit and the bank won’t remind you. When you tick that ‘auto renewal’ box, the bank cannot charge you a penalty on premature withdrawal of the deposit
ATM, CYBER FRAUD: Cry ‘Thief’
Watch out: If you find a fraudulent transaction in your account, immediately notify the bank
What you should know: If you are the unfortunate victim of an ATM or e-transaction fraud, watch out: the bank is liable to prove its innocence. If the bank is not notified, the maximum loss to you is `10,000 Postnotifi cation, the customer is not liable to bear any cost
LOCKER FACILITY: Keep your Freedom
Watch out: Banks put a price tag on a ‘scarce’ commodity like the bank locker
What you should know: Your bank may ask you to invest in fi xed deposits or mutual funds or even third party insurance, with the bank locker, even though they are not allowed to to do so by the RBI. You anyway need to pay an annual rental
PERSONAL LOANS: Don’t Rush to Pre-pay
Watch out: Banks have stiff conditions on prepayment of personal loans
What you should know: The RBI has mandated banks to not charge a penalty for pre-payment of a home loan if the interest is on a floating rate. But the rule does not apply for other personal loans. Some banks charge as much as 5-10% on pre-payment of loans. Some banks don’t even permit you to repay the loan for the fi rst six months or one year
PROCESSING FEES: No Free Lunches
Watch out for: For every home loan, auto loan and personal loan, banks charge a processing fee, which can be steep
What you should know: This fee is mostly at the discretion of the bank and can be as high as 1 percentage point, which itself will infl ate your outgo. If any bank says they have a lower rate, ensure the processing fee is also low.
Source : http://goo.gl/r0S6eK
By Ashal Jauhari | 14th April 2013 | AsanIdeasforWealth.com
In this article we are going to share SBI Maxgain Home Loan review with you. Now a days many home loan borrowers are opting a particular type of home loan from State Bank of India which is called Max Gain because it has many advantages compared to other kind of home loan scheme’s. In this SBI Max Gain home loan, an Overdraft (OD) account is assigned to the customer’s home loan & any amount parked by customer is treated as loan repayment for the purpose of interest calculation, for the days, the amount stays there in that OD account. As on date following banks are offering similar types of home loan to their customers SBI, IDBI, CITI, HSBC & Standard Chartered. Punjab National Bank can also be added in this list but it’s offering a combo of normal loan + Overdraft. In this article, we are going to discuss only SBI Max Gain as in OD linked home loan, the maximum business is with SBI & the most discussed topic on Jagoinvestor Forum is also related to SBI Max Gain Scheme
What is an Overdraft account?
Before we discuss Max Gain, first understand, what is an Over Draft Account? All of us are well aware of functioning of an ordinary saving bank (SB) account. Here account operates between zero to positive & positive to zero. As we deposit our money, it’s used by bank & we get interest on our money from bank. In case of an OD account, bank first ask for a security & then assign a credit limit on the basis of the market value of that security. This security may be Fixed Deposits, Insurance Policies, National Saving Certificates, Shares, Mutual Fund units, house/commercial property etc. Now when we are using this assigned credit limit, the amount is going from zero to negative zone & when we are repaying, it’s coming from negative to zero. As we are using bank’s money in this case, the interest ‘ll be paid by us to bank. That’s how an OD account works.
So what is the correlation between Max Gain home loan & Over Draft account?
For Max Gain borrowers, State bank of India opens an Over Draft account where the Credit limit as discussed above is equal to the loan value assigned to the borrower. Here underlying security is the home you have purchased or constructed from that loan amount. Now as & when you are parking any surplus amount into this OD account, the parked amount is treated as payment towards loan (effectively you are bringing down your loan liability from negative towards zero position) and thus the interest ‘ll be charged only on the difference amount i.e. total loan amount – parked surplus amount.
What is the primary benefit of SBI Max Gain Scheme?
Well the primary benefit of MG is to keep your liquidity intact & still bringing down your interest outgo. To understand it better, please imagine a situation you are running a home loan of 30L Rs. & now you do have 2L Rs. with you to prepay. In normal home loan, your 2L Rs. ‘ll be accepted by bank & adjusted towards home loan & your amount is gone forever so no liquidity for you of that 2L Rs. amount. On the other hand, if you are MG customer, simply park those 2L Rs. in your MG account & your interest outgo ‘ll be lower from that month itself till those 2L Rs. or a part of it is there as surplus in MG account.
What is Drawing Power ?
Drawing Power is nothing but your as on date actual outstanding loan amount. Before final disbursal or start of loan repayment, it’s your sanctioned loan amount. Once your EMI starts, it’s your as on date actual outstanding loan amount. Please check Image below, Drawing Power here is 1867053 Rs. as on date.
What is Available balance?
Before final disbursal, it’s the sum of undisbursed amount + parked surplus & post final disbursal, it’s your parked surplus amount which is available to withdraw. Please check Image below, Available Balance here is 1084177.72 Rs. as on date.
What is book balance?
It’s the adjusted loan amount arrived after deducting the Available Balance amount from Drawing Power. In your account statements it’s shown with a negative sign. Please check Image below, Book Balance here is – 782875.28 Rs. as on date.
Is there any extra interest for Max Gain?
No, the interest for home loan is same in SBI be it for normal home loan or for Max Gain.
I’m an existing SBI home loan customer. Can I convert my old term loan to Max Gain?
Yes, you can. Please contact your loan serving branch or RACPC for the required paperwork to be done. This may be an outdated info so please do check with your loan serving branch for current day rules on conversion.
I have taken the Max Gain for an Under Construction Property. Can I park surplus amount to save on interest outgo?
The answer is yes & no both. Yes you can park your surplus during under construction phase but do remember SBI is disbursing partially at this juncture & in case due to any emergency you want to liquidate your surplus, SBI ‘l not allow the same. so park only that much surplus, you feel you ‘ll not need even in an extreme emergency.
If I’m parking some money on monthly basis or in lump sum, will my loan term come down or EMI go down?
No. Neither your EMI ‘ll come down nor your loan term. The only saving is in terms of interest outgo. To understand it better, Let’s assume a test case of loan amount 30L Rs. @ 10% Rate of Interest for 20Y term. The normal EMI for these nos. ‘ll be 28951 Rs. The break up of your EMI for first month ‘ll be 25000 Rs. interest & 3951 Rs. for principal repayment.
Now if you do have 2L Rs. surplus in the very first month & prepay the same as below –
Case – 1 Normal home loan
Your 2L Rs. is gone & outstanding loan amount ‘ll come to 2796049 & interest outgo ‘ll still be 25000 Rs. but the no. of months ‘ll come down from original 240 to 198 months.
Case – 2 Max Gain home loan
Your 2L Rs. are parked in that OD account & the interest for the very first month ‘ll be calculated on 28L Rs. & thus it ‘ll be 23334 & thus there‘ll be an interest saving of 1667 Rs. which‘ll remain available in your OD account as surplus along with your parked surplus 2L Rs. so for next month, the parked surplus amount ‘ll be 201667 Rs.
Please do note in case 2 above, Your loan term is still 240 months but the saving of interest ‘ll keep on increasing on mly basis from the parked surplus & of course the liquidity of those 2L Rs. is there.
How can I calculate my saving in Max Gain?
To know your actual saving, first of all please demand a loan amortization schedule from your loan serving branch & now for each month compare the scheduled interest outgo as per your loan amount. schedule & the actual interest outgo.
What should I do to maximize the savings in Max Gain?
If you are paying your EMIs from SBI’s SB account, you can maximize your benefits. How? here it goes. Say 15th is the EMi date on which EMi amount is debited from your SB acct. Now in a normal home loan, people ‘ll keep at least 2-3 months’ EMI amount as buffer in SB account. but in case of Max Gain, you do not need to keep buffer in SB account. Keep this buffer amount also in your MG account along with your routine surplus amount. now use the power of net-banking of SBI for your own good & create a schedule transaction of your EMI amount 28951 Rs. (in the above example) to be transferred on 13th of every month from MG account to SB account. At a time you can schedule for next 12 months by using standard instruction. So it’s technology that’s helping you.
I can transfer to MG account from my existing net-banking enabled SB account but reverse is not happening. why?
The answer lies in the fact that Net-banking transaction rights on your MG account is not enabled yet by your loan serving branch. if final disbursal is done, you can apply for transaction rights. if only partial disbursement has been done, sorry, you can’t apply for transaction rights till final disbursal.
Is it mandatory to purchase property insurance & life insurance along with Max Gain?
Having property insurance as well as sufficient life insurance is compulsory but purchasing the same from SBI’s sister cos. like SBI General ins. & SBI Life Ins. is not at all mandatory. if you feel that policies are being cross sold to you to exploit your position (home loan seeker), please contact the AGM of your local RACPC where your loan application is under processing.
Is SBI charging higher processing fee for Max Gain?
No, as on date there is no differentiation in fee for term loan & Max Gain but SBi reserves the rights to charge different fee.
Can I claim section 80C principal repayment benefit for the surplus amount parked in Max Gain?
The answer is NO. Only the regular principal repaid by you from your EMI as part of your loan amortization schedule is available for tax benefit under section 80C. the parked surplus amount is liquid money & you can withdraw it any time, hence it’s not considered as actual repayment of loan & thus not eligible for tax benefit.
Can I avail cheque book & ATM card for my Max Gain account?
Yes, as & when you‘ll demand these, SBI ‘ll offer you the same. In case you are already holding an SBI SB acct. linked ATM card, you have the option to link your MG acct. also with this existing ATM card.
Can I enroll my MF SIPs in Max Gain?
Yes but do note, there should be a surplus balance i.e. available balance on the date of SIP, else your ECS or SI mandate ‘ll bounce.
Can i pay for my utility bills, credit card payments, online shopping from Max Gain?
Yes, you can do all this & more. In fact it’s in your best interest that you treat your MG account as your primary money parking account & route all your transactions through it so that money is lying there for maximum possible time & thus helping you to bring down your interest outgo.
I used my MG account ATM card to withdraw cash from other bank’s ATM & I was charged the money very first time in the month. Why?
The reason is, as per RBI’s circular 5 transactions on other banks’ ATM are free only for SB account & in this case, you forget the point that your MG account is not SB account. it’s an overdraft account.
For an imaginary situation, my loan amount is 30L Rs. & parked surplus amount is also 30L Rs. Does it mean, my loan is closed & I can claim my property papers from SBI?
No, your loan is not closed. Only interest outgo ‘ll become zero & EMi ‘ll remain continue as it is. Yes the interest part of your EMI ‘ll keep on accumulating in your MG account. If you want to close your loan at this point, you w’d have to inform SBI in written & now SBI ‘ll adjust your parked surplus amount towards the outstanding loan amount. you ‘ll lose the liquidity of your money but loan ‘ll be over & now you can get your property papers back.
How can I transfer my loan from other banks to SBI Max Gain?
For loan transfer, first of all contact your existing lender & ask for following things.
1. Loan Account statement from day one.
2. List of Documents, which were submitted by you at the time of availing original loan. In day to day language of bankers, it’s called LOD.
3. As on date outstanding loan balance with applicable interest, penalty & any other fee to close the loan.
Now contact, the nearest SBI Branch (if you do have an existing SB account with SBI, it’s advisable to contact there for ease of operation). Inform in that branch that you want to transfer your loan from existing bank to SBI Max Gain. fill the application form, submit the necessary papers & SBI’s RACPC ‘ll do the back ground job.
Once SBI is ready to accept the transfer, it ‘ll issue you a sanction letter of the loan amount & ‘ll ask you to go for loan related agreement documentation work with SBI. If you are not having property insurance, SBI may ask to purchase one. Same ‘ll be the case for your life insurance. Once legal documentation is over, the cheque of the loan balance ‘ll be issued directly into the name of the bank in question. After the amount is credited to your existing bank, within next 20-30 days, you ‘ll get the original documents submitted by you, from the existing bank. Now you w’d have to submit these documents to SBI. In some states like Gujarat, Maharashtra, Karnataka, SBI may ask to go for registration of mortgage deed on your property in the office where your property was originally registered in your name.
SBI Max Gain
Normal Home Loan
Liquidity of your part prepayments is there
No Liquidity. Money is gone for ever, once you prepay.
A bit complex to understand
Easy to understand
For people who can generate regular surplus amounts
For people who can only manage regular EMIs
Source : http://goo.gl/5q11YV
Seventy per cent of affluent population of the country, who hold investments other than cash, have put their money in life insurance, while 64 per cent among them have gone for fixed deposits, according to the DSP BlackRock India Investor Pulse Survey.
It is followed by their investments in other financial instruments like shares (46 per cent), equity mutual funds (33 per cent), fixed maturity plans (27 per cent), tax-free bonds (25 per cent) and so on, it said.
“Even though the larger current ownership is in insurance and fixed deposits, there is a growing awareness among the educated affluent category of investors in the country to move more money from cash and deposits to other form of investments like mutual fund and bond,” said DSP BlackRock Executive Vice President, Head (Sales) and Co-Head (Marketing), Ajit Menon, while unveiling the survey report here today.
People living in the country invest 25 per cent of their monthly take home pay, which is higher than the global average of 17 per cent, it said.
When it comes specifically to asset allocation, Indians are more likely to invest in property than the global average, it added.
Equities and bonds are also important asset classes accounting for 13 per cent and five per cent of the total value of saving and investment products, the survey said.
Majority of Indians (56 per cent) feel their economy is getting better, way ahead of the global average of 22 per cent. The huge margin of positivity extends to their financial future with 81 per cent of Indian respondents feeling positive as compared to 56 per cent globally, it added.
A large proportion of Indian respondents also feel that they are in control of their finances (75 per cent) as compared to the global average of 55 per cent, second only to China (84 per cent).
Source : http://goo.gl/kYW3BE
India Infoline News Service | Mumbai | December 26, 2014 19:16 IST | IndiaInfoline.com
The financial planners suggest the individuals to pick a term plan so as to cover the loan.
If you are finding the best way to save your home loan, then this article is for you. Here, we will discuss two options, term insurance policy, and home loan insurance.
One of the most important dreams in a person’s life is to buy his or her home. To fulfill a dream, an individual takes a home loan which puts the house on mortgage. The home remains with the lender till the time buyer doesn’t pay the complete loan amount. However, it is important to safeguard the property so that in the event of any accident the home remains with the family. The motive is achieved by a term insurance policy or home loan insurance.
The financial planners suggest the individuals to pick a term plan so as to cover the loan. However, there are other loan protection plans designed and offered by the insurance companies to take care of the outstanding home loans in the event of unforeseeable circumstances.
A loan insurance protection plan covers the balance amount to be paid in case of death of the borrower. The plan is specifically made for high-value mortgages. The premium rates are higher and depend on several factors including the loan amount, age of the borrower, the medical history of the borrower and the loan tenure.
The loan insurance cover acts as a surety to the lenders. The loan cover is bundled with the loan amount. The borrower can either pay the initial premium himself or he can get it funded from the lender. The options come with different tax implications. If the borrower pays the premium, he will be eligible for tax deduction under Section 10(10D) and Section 80C. However, if it is paid by the lender and is included in the loan amount, the borrower will not get any claim deduction.
A vanilla term insurance is a better alternative than a mortgage insurance policy. The term plans are cheaper and also provide high cover to the borrower.
The insurance provided by the loan cover will gradually reduce as the loan gets repaid. However, the insurance cover stays constant in a term plan. It will cover the outstanding home loan and will also meet the other financial requirements of the borrower’s family in case of unfortunate death.
The loan insurance is of little significance once borrower has prepaid loan. It is the same case when the sum assured declines with the time. It is the reason term plan should be considered over loan insurance.
Also, loan cover insurance is associated with a single premium option which implies that if the borrower prepays the loan amount, there will be no impact on insurance cover or premium. There will be other portability issues if borrowers want the loan to be refinanced by another lender.
In case borrower wants to increase the loan tenure due to hike in interest rates, the cover may not be sufficient to fully cover his home loan. Considering all the factors, it is clear that a term loan is better than home loan insurance.
By: CreditVidya | December 26, 2014 9:24 pm | Financial Express
It is one thing to get a home loan and a different ball game to repay the loan, the tenure of which may run over a decade. With such long period of commitments, it is bound to put a person in an insecure mode as anything can happen to the loan holder. To ease yourself of the worries, it is important to take an insurance to protect your life to cover this loan burden in case of any casualty. That way your family inherits your home and not your loan burden.
Buying a house is a big deal today simply because of the high expenses one has to incur while buying. It can be overwhelming in many cases, because you will have to literally pull out all your savings to get it. These days a lot of funding burden has been reduced thanks to the home loans. The lenders also offer you an insurance policy to cover your home loan in case something happens to your life. You have the choice to choose any insurance policy from any company and can say no the bundled offer which in most cases will be from a group company and might come to you at a higher premium.
When UR Simha, a Pune-based techie bought his house, he took a loan from HDFC. He also bought an insurance policy that was offered at the time of signing the loan documents. What he did not realize was that the insurance tenure was for five years and where as his loan was for 20 years.
“I did not even think of securing my life until they offered this insurance. It came at the last minute, so I did not think twice. I bought it anyways. Later, I got to know the details and features of competing insurance products were much better. I wish I had done some study before I paid the premium,” he said.
So what are the terms and conditions you should look for in such policies? Following are a list of features available:
Cover: Ensure that the term covers the entire loan value. Some of them cover applicant and the co-applicant. Choose what suits you the best.
Tenure: It always makes sense to buy a term insurance that covers entire life span of the loan
Premium: Enquire with all the insurance providers. Do not fall for the marketing gimmick of your lender who is trying to cross-sell a product.
You might find a competitor offering you similar terms for lesser amount.
Unemployment benefits: Some of these insurance policies also offer certain benefits in case of a job loss. They pay your EMI if you have been retrenched in your company. But please note that this is for a few months only and you have to provide a proof of being asked to leave along with the reason. So, if you have a job, which is prone to downsizing, it is a good idea to consider this kind of a policy.
Critical care benefits: Some policies also cover your home loan if you end up being in an accident and are bed ridden for life. In such cases the loan outstanding will be waived off. The premium might be a little higher but the benefits are proportional.
Covering the house: Most policies also cover your house and some of them give you additional benefit of covering the contents in your house. But the cover is subject to certain terms and conditions. So make sure you know what you are paying for.
Source : http://goo.gl/OKzYch
By Neha Pandey Deoras | Jan 12, 2015, 06.40AM IST |Times of India
ET Wealth graded the eight most common tax-saving investments on the basis of returns, safety, liquidity, flexibility, taxability of income and cost of investment. Here’s a look at these eight instruments.
The hike in the deduction limit under Section 80C means that a taxpayer can reduce his tax by up to Rs 15,000. But the higher limit may not be of much use if you don’t know which tax-saving option suits you best. ET Wealth graded the eight most common tax-saving investments on the basis of returns, safety, liquidity, flexibility, taxability of income and cost of investment. Here’s a look at these eight instruments.
There are compelling reasons why ELSS funds should be part of the equity allocation in a taxpayer’s investment portfolio in 2015. Returns in past three years 27.34%. They may be low on safety but they score full points on all other parameters. The returns are high, the income is tax free, the investor is free to alter the time and amount of investment, the lock-in of 3 years is the shortest among all tax saving investments and the cost is only 2-2.5% a year. The liquidity is even higher if you opt for the dividend option and the cost is even lower if you go for the direct plans of these funds.
Smart tip: Invest in the dividend option which acts as a profit-booking mechanism and also gives you liquidity. Dividends are tax-free.
For a lot of people, Ulip is still a four letter word. However, investors need to wake up to the new reality.
An ordinary Ulip is still a costly proposition for the buyer. But the online avatar of these marketlinked insurance plans is a low-cost option far removed from what was missold to investors a few years ago. The Click2Invest plan from HDFC Life, for instance, charges only 1.35% a year for fund management. Ulips can be used as a rebalancing tool by the savvy investor. He can switch from equity to debt and vice versa, without any tax implication. Buy a Ulip only if you can pay the premiums for the full term. Also, take a plan for at least 15 years. A short-term plan may not be able to recover the high charges levied in the initial years.
Smart tip: Don’t invest in the equity fund at one go.
Invest in a liquid fund and then shift small amounts to equity fund.
Budget 2014 also hiked the annual investment limit in the PPF. Returns 8.7%. Risk averse investors can now sock away more in the ultra-safe for 2014-15 scheme. The PPF scores high on safety, taxability and costs, but returns are not so attractive and liquidity is not very high. The scheme will give 8.7% this year but don’t count on this in the following years. The interest rate on small savings schemes such as the PPF is linked to the government bond yield and is likely to come down in the coming years.
Smart tip: Open a PPF account in a bank that allows online access. It will reduce the effort.
SR CITIZENS’ SAVING SCHEME
The Senior Citizens’ Saving Scheme (SCSS) is an ideal tax saving option for senior citizens above 60. Returns 9.2%. The money is safe and for 2014-15 returns and liquidity are reasonably good. However, the interest income received from the scheme is fully taxable.The interest rate is linked to the government bond yield. It is 1 percentage point higher than the 5-year government bond yield. Unlike in case of the PPF, the interest rate will remain unchanged till the investment matures.
Smart tip: Stagger your investments in the Senior Citizens’ Saving Scheme across 2-3 financial years to avail of the tax benefits.
The New Pension Scheme (NPS) is yet to become a popular choice because of the complex procedures involved in opening an account. Returns 8-11% in past five years. But investors who managed to cross that chasm have found it rewarding. NPS funds have not done badly in the past five years. The returns from the E class funds are in line with those of the Nifty, while corporate bond funds and gilt funds have given close to double-digit returns. But financial planners believe that the 50% cap on equity investments is too conservative. The other sore points is the lack of liquidity and taxability of the income. The annuity income will also be fully taxable.
Smart tip: Start a Tier II account to benefit from the low-cost structure of the NPS.
BANK FDS, NSCS
Bank FDs and NSCs score high on safety, flexibility and costs but the tax treatment of income drags down the overall score. Returns 8.5-9.1% for 2015. The interest rates are a tad higher than what the PPF offers but the income is fully taxable at the slab rate applicable to the individual. They suit taxpayers in the 10% bracket (taxable income of less than `5 lakh a year). The big advantage is that these are widely available. Just walk into any bank branch and invest in its tax saving fixed deposit.
Smart tip: Build a ladder by investing every year.After the fourth year, just reinvest the maturity amounts in fresh deposits.
Pension plans from insurance companies remain costly investments that are best avoided. Returns in past three years 8-18%. Instead, it may be a better idea to go for retirement funds from mutual funds. They give the same tax benefits but don’t force the investor to annuitise the corpus on maturity. He is also free to remain invested beyond the age of 60. Till now, all the pension plans were debt-oriented balanced schemes.Last week, Reliance Mutual Fund launched its Reliance Retirement Fund, an equity-oriented fund.However, ELSS schemes and Ulips can be used for the same purpose.
Smart tip: Wait for the launch of retirement funds and assess their performance before investing.
Traditional insurance plans are the worst way to save tax. Returns 5.5-6%. They require a multi-year commitment and give very poor returns. The insurance for 20 year regulator has introduced some plans customer-friendly changes but these plans still don’t qualify as good investments. The only good thing is that the income is tax free. But then, so is the income from the PPF and tax free bonds. Another positive feature is that you can easily get a loan against such policies, which gives some liquidity to the policyholder.
Smart tip: If you have a high-cost insurance plan, turn it into a paid-up policy to ease the premium burden.
Source : http://goo.gl/lAQFGL
Rajiv Raj | Dec 9, 2014, 04.49 PM | Business Insider
Earning your first salary is undiluted pleasure. It is all too easy to get soaked in its headiness and go a bit haywire in your expenses. However, this is a curial period of your life to build it financially. Decisions made in these initial years will affect your financial status throughout the life.
So if you are young and have just started earning, here is some important money advice that will serve you well for life.
1. Start with a small fixed saving every month
When we first start earning, money always seems short. We are perpetually overdrawing from a credit card or waiting for the next salary to come in. Even so, it is essential to start saving early. Even a small amount grows fast if invested early, much faster than a larger amount invested a few years later. The power of compounding helps money grow in multiples over a longer period of time. To ensure that there is a compulsory saving, invest in an instrument like Systematic Investment Plan (SIP) or a recurring deposit, and instruct your bank to directly debit your account at the beginning of the month.
2. Start building your Cibil credit score
Your borrowing and repayments is what builds up your credit score. Borrowing could be spending on a credit card or taking an EMI loan for a car or even a home loan. Importantly, the loans need to be repaid on time to build a positive credit score. Also avoid spending more than 30% of your credit limits. Maxing out on the credit cards will bring down your credit score. At this stage of life, building a good Cibil credit score is of paramount importance as you will soon be in the market for the all important home loan, and a good Cibil credit score can make all the difference.
3. Buy insurance
For most Indians, insurance is a source of investment. Insurance,however should be used only to cover risk. Buy a term policy that is easy on the pocket and serves the purpose of giving you risk cover. The remaining amount must be invested in other areas.
4. Take advantage of the benefits offered by your company
Many company offer reimbursements for health-related expenses. They also help you to structure your salary in the most tax-effective manner. Some companies may also offer group life insurance and medical insurance, where the rates work out to be much cheaper. Become friends with the people in human resources and take advantage of what the company has to offer its employees.
5. Pay attention to taxes
The government of India gives its citizen excellent opportunities to save tax along with encouraging investments. You can get exception under sector 80 C upto Rs 1.5 lakh in taxes every year by simply investing in your Provident Fund account or paying your life insurance premium etc. Also do file your tax returns on time to avoid the heavy penalties.
6. Make a career plan
It is essential to make a career continuity plan. You may have joined a firm as a graduate, but to move ahead an advanced degree is needed. A rough plan must be chalked out. For instance, you might want to study for an MBA degree in 2 years time. So you need to plan out the source of finance to pursue the course along with living expenses for that period. An education loan can be taken, but to avail that loan you must have a good Cibil credit score. It is a full circle which comes back to prudent spending and investments.
About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.
Source : http://goo.gl/zQYyVU
By Sanjeev Sinha | ECONOMICTIMES.COM | 31 Dec, 2014, 01.51PM IST
Every asset has an economic value, but after its life-time, the asset needs to be replaced with a substitute. However, there can be an unfortunate event like an accident which may destroy the asset (including human) early or make it incapable of generating any income. For reducing the financial effect of such adverse situations, insurance comes into the picture. So, the simple rule is: all those things, which will cause you economic loss to replace or reinstate, should be insured.
“But practically it’s not possible because if you try to insure everything under the sun, you will be left with no money for your living expenses & financial goals. One should, therefore, consider two things before taking any insurance – the probability of an event & its financial impact on your life,” says Hemant Beniwal, Director, Ark Primary Advisors Pvt Ltd (a Sebi-registered investment adviser).
It can be simply understood by this grid:
Six insurance policies you should avoid buying
A: High Probability, High Financial Impact – type should be covered without any second thought – e.g. health insurance & motor insurance.
B: Low Probability, High Financial Impact – type can have a significant financial impact. So should be considered after looking at personal situations & assets; e.g. term insurance, accidental insurance & critical care insurance.
C: High Probability, Low Financial Impact – In this case risk should be retained or transferred to insurance companies; e.g. extended warranties.
D: Low Probability, Low Financial Impact – Such insurance can be outrightly ignored, like credit card insurance.
Sometimes the probability of an event may depend on your job profile or individual situation. Take the case of IT professionals, for instance. They sit in front of their computers or laptops for most part of the day. The prolonged sitting leads to problems such as back pain. This means they have a greater risk of physical health problems and so they will be more concerned about them. Now consider a manufacturing company. The probability of an accident taking place there is high. So, accidental insurance may be essential for the people working there.
Still there are some insurance policies which people don’t need in normal circumstances. Here we take a look at some of them:
Insurance for Investment Purpose: Insurance is an investment is a myth which companies or agents have played around with to maximize their earnings. Since we are used to looking at receiving a return on every penny we spend in our lifetime, agents or companies push expensive products with return maximization strategies. This leads us to buy the wrong product every time.
Therefore, “you should never mix insurance and investments. This is also applicable on investment products which offer insurance benefits. Like some mutual funds offer the benefit of health & life insurance, if you invest in their schemes. These offers should be ignored as they always come with some hidden T&C of exit loads & expenses. Also, ignore health insurance policies which have investment components and go for plain vanilla health insurance products instead,” explains Beniwal.
Life Insurance for Children: All parents want to ensure their child’s future. And to do this, some want to buy a child policy which can meet their child’s financial requirements. But buying a policy on child’s name is not the right solution as the objective of insurance is to support your dependents financially when you are no more. Hence, the insurance has to be in your name rather than that of your child.
Also, “child plans — be it ULIPs or traditional ones — are highly costly and can fall short of inflation-adjusted corpus at the time of need for education or marriage. Even coverage may fall short of requirement, taking into consideration the high cost of primary education, leave aside higher education,” says Subhabrata Ghosh, Certified Financial Planner and Member of The Financial Planners’ Guild India.
Excess Accidental Insurance: Accidental insurance is a must have insurance, but in India there are some limitations in the product. The biggest flaw is that in most of the cases accidental death is the base policy, which is already covered in the term insurance. So if someone already has sufficient life cover through a term plan, this insurance is not required. A lot of people also opt for accidental death benefit rider in case of traditional insurance policies. They should check their total life coverage before taking any decision. In international markets, dismemberment policy can be bought with accidental death benefit, which is not the case in India.
Wedding Insurance & Flight Insurance: Both of these fall under the low probability but high impact category. Flight insurance can be clearly ignored as that will be covered under life insurance. Wedding insurance is a new category in general insurance, which covers loss due to wedding cancellation, damage of property, personal accident & public liability.
“Accidental & property damage is already covered under any comprehensive accidental insurance and householder insurance policy. So a separate cover is usually not needed for it. It’s wedding cancellation & public liability, however, which can have a significant financial impact. But in India people are more accommodating in case of cancellation of an event in comparison to the western world. Add to it the list of exclusion in such policies, and wedding insurance is still not in a priority list,” informs Beniwal.
Credit Card Insurance: How many times you lost your credit card? Even if once, what’s the first thing that you did? In fact, you asked to block your card and the card company issued a new card. So rather than taking insurance for loss of credit card, make sure it’s not lost or rather keep lesser-limit cards in your wallet.
There is another issue too. Whenever you get your credit card from a bank or financial institution, they usually start pitching a lot of insurance policies which are marketed as ‘especially available for our card holders’ – health insurance and accidental insurance are the most common. In most of the cases, either these policies are expensive or come with a lot of limitations. Moreover, insurance in these policies may not be transferred if you don’t want to continue with your card company. So, why to get stuck with such policies?
Source : http://goo.gl/kRbVOn
Rajiv Raj | Nov 11, 2014, 03.02 PM | Business Insider
Money management is a tricky task. Some of us loathe it, while others love it. Whatever it is, nobody can ignore it, because it is a very important skill that all of us should acquire. If only it was as simple as learning alphabets in schools? That said; it is not rocket science as well. Unlike popular belief it is not even time-consuming. I even know of a friend who jokes constantly, “I can make money, but for life of mine, I cannot manage it.”
So, for the benefit for all those who feel that they cannot manage their funds well, we decided to put together a list of eight money management moves that can be made in 15 minutes or less. Unbelievable? Read on to find out:
1) Pull out CIBIL score: A credit score and a report from the Credit Information Bureau of India Ltd (CIBIL), India’s leading credit rating agency, is a record of a person’s credit history, his payments and outstanding dues. Lenders pull out your CIBIL report and score before approving you a loan. To get a loan at an attractive interest rate you need a score of 750+ (ranges between 300-900). Check your score at least once a year, to make sure there aren’t any errors or discrepancies even though you have been paying on time.
2) Start an RD: A recurring deposit (RD) account can be easily linked to your savings account. Banks can take a request for an RD on phone and you can start saving as low as Rs 1,000 a month. Instead of spending money in paying interest on those products, which are available under easily available equitable monthly installment schemes, save up through RD, earn an interest and buy it.
3) Update your nominees: You have been putting away money to save for your wife, children or any other family member. If something were to happen to you tomorrow, are you sure all your loved ones get exactly what you intended for them? It is always a good idea to name your nominees in every kind of saving instruments; be it an insurance policy or a simple savings bank account.
4) Make a will: We love to believe that our children will not fight over property after we are gone. But the reality is different. It is important for us to create a will as we reach 35 years of age. I know of friends who started writing a will as soon as they had their children. The advantage of a will is that after we are gone, our near and dear ones know what exactly they get from what we have earned and saved. It also prevents any kind of misunderstanding among our children and results in easy distribution of our wealth. Ensure you make provision for your spouse as well. Once written, it is open to any kind of amendments you want.
5) Update account passwords: It might seem like a mundane task, but an important one. This helps in keeping your money safe and protected from phishing and fraudulent activities.
6) Plan your pension: Earlier our parents, most of them worked in government agencies. These jobs were not only safe, but also promised pension after they retired. Since most of us are working in private sector these days, can you think of a regular income after you retire? Hence, it is important for us all to have a financial plan in place to fund our expenses during our later years.
7) Scan important documents: Your form 16s, house registration papers, insurance policies, savings instruments documents, fixed deposit (FD) certificates, vehicle ownership papers and all other such documents have to be safe. Scan and keep a soft copy handy and keep the originals locked in a bank locker. There are many phone apps available for download that can help you scan these documents.
8) Identify saving goals: Yes, it can be overwhelming to save when half your salary goes in paying up mortgages, but that should not stop you from saving. You should always target to build a corpus continuously. For all you know, some day you decide to buy another house and you may not have to run from pillar to post for funding the down payment.
About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.
Source : http://goo.gl/2GPyWr
TNN | Oct 20, 2014, 07.08AM IST
You are a diligent saver, a careful investor and a meticulous planner. Yet, you have not been able to build wealth even as everyone around you seems to be wallowing in money. What’s stopping you from getting rich? If you really want to get to the root of the problem, you need to assess where you are going wrong in your investments. It could be the lure of penny stocks or the tantalising potential of the futures and options segment. Small investors often lose their shirts (and nearly everything else) when they enter these high-risk arenas.
But mistakes can happen even if you play ultra safe. If a fixed deposit offers 9%, the posttax returns for someone in the 30% tax bracket will be barely 6.3%. That’s not too bad until you factor in 8% inflation. So even though the investor does not feel it, his money is losing value. here are a few common hurdles that prevent investors from getting rich.
Trapped by value and price in stocks
Buy low and sell high is the ultimate winning strategy in the stock market. But some investors take this literally and buy very low-priced stocks. Since the market cap is low, these penny stocks are easily manipulated by operators who lure unsuspecting investors and dump worthless shares on them. They first create a buzz around a stock, indulge in circular trading to push up the price, and then nudge investors to buy at high prices. A penny stock is never a good investment, because you are buying it only in the hope of ‘finding a bigger fool’ who will buy it at a higher price. If a share is priced low, it is because the market does not see value. Study the fundamentals of the company. That will give you enough reasons to avoid the junk shares.
Buying overvalued stocks
One can go wrong even with the blue chips. Small investors often get carried away by the market euphoria ignoring the ‘value’ of the stock. A good stock at a very high price is not a good investment. This overvaluation can happen even at the broader market levels. We studied the Sensex PE and its returns over the past 20 years and found that when the market was overvalued, the one-year average returns were very poor (see graphic). Pay attention to valuation when you buy a stock. Even if the company is growing very fast, avoid investing in it if the stock—or the market—is overvalued.
Falling into value traps
Buying a stock just because the price has fallen 50% from its peak is not always a good proposition. You may end up in a value trap. Investors who go hunting for bargains in the initial phase of a bear market also get into the value trap. They compare the current price and PE multiples with the earlier peak and start buying because the stock is available ‘at a discount’.
However, the price may continue to fall and losses could mount. Most all-time peaks are scaled during extreme euphoria in the market and, therefore, do not represent the real value of that stock. Similarly, it is not fair to judge the current valuation of a stock by comparing it with its all-time high valuations. Instead, compare the current valuation with average valuations for the past 5-10 years.
Buying risky futures & options
Be greedy when they are fearful is what stock gurus advise. But some investors are greedier than they can afford to be. They get into the high-risk arena of futures and options (F&O) even though they don’t have the financial muscle or the acumen. The F&O segment allows an individual to buy up to five times the margin kept with the brokers. This means that with a margin of Rs 50,000, one can take a position in shares worth Rs 2.5 lakh. But while your gains can be five times greater, so can your losses. Whether it is the F&O market or the cash segment, don’t bite off more than you can chew.
F&Os are meant for hedging and retail investors should get in there only for hedging their existing portfolio. They can get into the speculative part later, but only after learning enough about the F&O market and the risks involved.
Overinvesting in safe options
Most investment portfolios are skewed in favour of debt. Investors want stable returns, even if they are low. But this ‘safety first’ attitude can hamper long-term goals because the returns from debt instruments lag inflation.
Even investors who are careful about their asset allocation can get it wrong. Very few salaried professionals take into account their Provident Fund (PF) when drawing up an asset allocation plan. The 12% of their basic pay that flows into the PF every month and a matching contribution from their employer is actually enough to take care of the debt portion of their portfolio. The rest of their investible surplus can flow into equities and other lucrative investment classes.
Not exploring other options
Bank deposits and Post Office schemes are the favourite investment options when it comes to debt. But these are not very tax efficient. The entire income from fixed deposits is taxable at the normal rate. For a person in the 30% tax bracket, the post-tax returns from a fixed deposit that offers 9% is actually 6.3%. Given the prevailing inflation rate, the investor is actually losing money. Factor in the post-tax yield when evaluating an instrument. Go for tax-free options like PPF or tax-free bonds. For salaried taxpayers, the Voluntary Provident Fund is a tax-free haven with no limits on investment.
Though the recent budget has reduced the tax advantage for debt mutual funds, FMPs still score better than FDs if the tenure is more than three years.
Choose consistency over great returns
Investing in the stock markets can be tricky. Even when you invest through a mutual fund, the timing of your entry into the market has a huge bearing on the return. Suppose you receive Rs 2 lakh as bonus from your employer, the stock markets are on an upswing, and you decide to park the entire sum in a high-performance equity fund. Subsequently, some bad news emerges that brings down the market by 40% over just a few weeks. Your fund also takes a hit, leaving you poorer by Rs 80,000. Here, the choice of fund was not at fault, nor was your decision to invest in the stock market. You should stagger your investment over a period of time. This way, you take a hit only on the initial investments. As the market begins to revive, you can invest the remaining sum. This will yield a healthy return on the overall investment once the market regains its previous level. SIPs, therefore, are a better option than a lump-sum investment.
Ignoring fund expenses
People may drive a hard bargain when buying fruits and vegetables but ignore the expense ratios of their mutual fund investments. The expense ratio of equity funds typically ranges between 2.5% and 3%. Over the long term, even a small difference in cost can make a considerable difference to your returns (see graphic). Check the fund expenses before you invest. There are enough good quality funds with low expense ratios. Another option is to buy direct plans that charge a lower expense ratio.
Life cover is not an investment
Chosen well, a life insurance policy can protect the financial future of the entire family. But, if bought for the wrong reasons, the same policy can become a drain on resources and prevent the policyholder from meeting crucial financial goals. These wrong reasons include tax savings under Section 80C, investment for retirement and gifts for children. Traditional plans are the biggest culprits, combining low life cover with poor returns. The life cover offered is 10-20 times the annual premium while the returns are at best 6-7% (see graphic). Yet, life insurance is a favoured investment option because investors see triple benefits: tax savings, long-term savings and life insurance. Since the premiums of endowment policies and money-back plans are very high, buyers are not able to take a very high cover. For instance, a life cover of Rs 1 crore for 30 years would cost a 30-year-old roughly Rs 20,000 a month if he buys a traditional insurance plan. But, if he buys a term plan, the same cover would cost him about Rs 1,000 a month. Traditional insurance plans suit ultra-highnet worth investors who are looking for tax-free income under Section 10(10d). Small investors should not combine insurance and investment.
Instead, a combination of a term plan and Public Provident Fund works better than an insurance policy. If you have a higher risk appetite, you could invest the savings on the premium in mutual funds which have the potential to give higher returns—though they carry some level of risk.
Source : http://goo.gl/tOB17m
By Bindisha Sarang | 03 Nov, 2014 , 11.16AM IST | Times Of India
If you are suffering monetary losses due to laziness and ignorance, have an ECS arrangement in place or set up phone reminders, says Bindisha Sarang.
1.Missing your insurance premium date
How you lose: Irrespective of the reason for missing the payment date for your insurance premium, you stand to lose a lot of money. Insurers usually give a 15-30 day grace period, but if you miss even this, your policy can lapse. Depending on the time lapsed, you have to pay the premium, along with the revival charges, to retain the policy after the grace period is over.
What’s your loss? The revival charge varies among different insurers. Typically, it is a flat fee of around Rs 500 or an interest on the outstanding premium, which is usually around 0.75% per month. The revival charges also depend on the type of policy.
2.Forgetting your credit card payment
How you lose: Among financial products, there’s nothing as easy to use and as complicated to understand as a credit card. If you miss a credit card payment, you stand to suffer losses in three ways. You will be slapped with a late payment fee; you will have to pay interest on the out standing sum, and you will have to pay more for any purchases that you make in the next billing cycle.
What’s your loss? Usually, the late payment fee ranges between Rs 300 and Rs 700, depending on the payment due.The interest charged is 2-3% on the outstanding bill. You will have to pay an extra 2-3% for the purchases made in the next billing cycle. Your credit score will also suffer.
3.Ignorance about depositing advance tax
How you lose: Advance tax is required to be paid in three instalments. At least 30% of the tax by 15 September, 60% of the tax by 15 December, and the remaining by 15 March. If you fail to pay advance tax, you will have to pay interest on the defaulted amount.
What’s your loss? Penalty is 1% simple interest per month on the defaulted sum for three months. The penalty is the same (1%) if you missed the 15 December deadline. If you miss the final date of payment, you will have to pay 1% simple interest on the defaulted amount for every month until the tax is fully paid.
4.Delay in paying utility bills
How you lose: A family of four easily pays 6-8 utility bills a month, which includes mobile bills, electricity bills, Internet charges, among others. If you manage to miss these, you have to shell out the late payment fee.
What’s your loss? Miss a couple of utility bill payments a month and you could be spending Rs 300-500 on late payment charges.
5.Forgetting the loan EMI payment
How you lose: This is again a doubleedged sword. If you miss home or car loan instalment, not only are you slapped with a penalty, but your credit score also suffers.
What’s your loss? A late payment fee for a missed EMI on a personal loan with HDFC Bank is 24% per annum on the outstanding sum from the date of default. A late payment charge for a missed EMI on a home loan with ICICI Bank is in the range of Rs 5005,000.
Source : http://goo.gl/vMBmwv
IANS | Oct 19, 2014, 10.09AM IST | Times of India
Under section 194D, life insurance companies have to deduct a two-percent tax at source on aggregate payouts exceeding Rs 1,00,000 during a financial year under life policies.
CHENNAI: In a quiet move, the impact of which is being felt only now, the statute books have been amended to deduct tax at source on some insurance payouts, which could particularly affect people above 45 and those with single-premium policies.
This, by way of a new section — 194DA — in the Income Tax Act, 1961, that took effect Oct 1, and surprised many policy-holders who got to know of it after they received a communique from their insurance companies.
Many more are still unaware.
“Section 194D envisages deduction of tax at source on the life insurance policy payouts which are not exempt under Section 10(10D),” Vibha Padalkar, executive director and chief financial officer of HDFC Standard Life Insurance, told IANS.
Under section 194D, life insurance companies have to deduct a two-percent tax at source on aggregate payouts exceeding Rs 1,00,000 during a financial year under life policies. In case where PAN card details are not available, the deduction shall be 20 percent.
For the record, Section 10(10D) of the Income Tax Act exempts any sum received under an insurance policy that is paid from April 1, 2012, if the premium for any of the years during the currency of the policy is within 10 percent of the actual sum assured.
For policies taken between April 1, 2003, to March 31, 2012, the condition was that the premium shall not exceed 20 percent of the actual capital sum assured. The clauses were not applicable if the amount received was on account of the death of an insured.
“The actual capital sum assured excludes the value of any premium agreed to be returned, as also benefit by way of bonus or otherwise that is over and above the policy amount,” said C.L. Baradhwaj, senior vice president, Bharti Axa Life Insurance told IANS.
While life insurers try to ensure that the premium amount is compliant with the Income Tax Act at the product-design stage itself, there are some set of policyholders who could be affected by the new provisions, Baradhwaj said.
“All single-premium policies would be the immediate casualty, as the premia paid in one instalment would generally exceed 10 percent of the sum assured,” he said.
He said it is possible that people could be paying premia higher than the 10-20 percent limit set by the new provisions on account of their personal health, as also many other reasons. In such cases, too, the TDS liability could arise.
“It is important to note that a person aged, say, 50 years, pays a higher premium for the same sum assured when compared to a person who is 35 years old. Higher the age, higher risk and higher the premium,” Baradhwaj added.
Industry officials also maintain that life insurance companies have been asked to make a TDS deduction under policies that are deviant of Section 10(10D), since some people were not reporting the same in their tax returns.
According to Baradhwaj, if the condition of 10-20 percent is not satisfied, all benefits payable — pertaining to the maturity, survival, or surrender — under a life insurance policy, excluding the death benefits, shall be liable for TDS.
“Policy loan is not a benefit. It’s a repayable obligation. Hence it is not taxable.”
A marketing official of the state-run Life Insurance Corporation of India told IANS that policyholders in rural and small towns would be severely affected by the new provisions, as they might not have PAN cards.
At the same time conflicting views are being expressed on pension polices. According to one view, pension policies are outside the newly introduced section 194DA of the Income Tax Act as they are outside the scope of Section 10(10D).
The argument: Pension policies do not have any death benefit like ULIP Pension Policies, or have only miniscule death benefits like in the current regime pension schemes, so they do not qualify as a pure life insurance policy.
But a Supreme Court advocate and expert in insurance and company laws, D. Varadarajan, differs, raising a fundamental question: “How do life insurance companies sell pension policies if they are not treated as life insurance policies?”
“The regulator’s licence allows insurance companies to only deal with the life insurance business. Hence it will be incongruous with the Insurance Act to keep pension policies outside the ambit of life insurance policy,” Varadarajan told IANS.
He said pension policy is also a life insurance policy, as it covers the risk of living longer, as opposed to the conventional life insurance policies which cover the risk of dying early.
Meanwhile, industry officials agree that life insurers have to communicate with their policyholders about the impact of the new section of the Income Tax Act.
“It’s also important to create awareness among the sales force on the need to tell their customers on the need for proper disclosures to the authorities so that insurance firms can avoid unnecessary policy cancellation requests later,” Baradhwaj said.
“Software systems also need upgrade to ensure compliance with the new requirements.”
Source : http://goo.gl/SutmNB
Creditvidya.com | Updated On: October 05, 2014 18:31 (IST) | NDTV Profit
In Hindu tradition, the Dussehra festival that calls for big celebrations is regarded as the time to take a fresh perspective of life and marks the beginning of new things. If you look closely, the festival also offers some precious financial lessons you can implement. So, how about looking at your finances in a whole new way this year?
Dussehra or Vijayadashami – the festival that marks the victory of good over evil in Hindu mythology – is celebrated with much pomp and fervor in India by burning large effigies of Ravana. The festival also brings with itself a few important lessons you can implement to your financial plans to have a better grip on your finances and plan for a better future.
Here are four financial planning lessons you can learn from Dussehra:
1. Cast away your bad debt
Dussehra, as we mentioned earlier, is the time when good conquers evil. So if you have too much of credit card debt and are perilously close to reaching your credit limit, focus all your energies towards the repayment of this kind of debt. This is a debt of the worst sort and can be the real enemy of a financial plan. Not only is it a high cost debt, as you pay a steep rate of interest on it, it will also impact your credit score negatively over the longer term.
2. Live with financial self-discipline
Lord Rama is believed to have lived a life of ‘Dharma’, meaning one has to be upright and responsible in life. The same principles should be made applicable to your finances as well. If you are an important earning member of your family, you must apply financial discipline in a manner that you take care of your family’s needs not just at present but provide for the future as well.
This means you need to save wisely. Just like Lord Rama did not deter in living a life of frugality when it was required of him, you must also learn to live in less than what you earn in order to save enough for your future needs like childrens’ education, health-related and other emergencies, and most importantly, a comfortable and stress-free retirement for yourself.
3. Protect your finances
Dussehra is a time when the Hindu faith is renewed in the divine promise that whenever there is evil prevailing on Earth, a saviour will be born to protect humanity. You too should take a cue from this message and learn to protect your finances. You should have enough life, health and asset-related insurance. People often get so caught up with growing their portfolio that they keep insurance at a minimum. On the contrary, it should be the other way around. You should first assess the insurance needs of your family and then invest in the surplus in other instruments to maximise your gains.
4. ‘It’s time for new beginnings’
Dussehra also signifies doing away with the old and getting a new lease of life. Apply this principle to your finances as well. If you do not have a proper financial plan chalked out according to your short-term and long-term financial goals, there isn’t a better time to begin.
Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Narendra Nathan | Oct 6, 2014, 07.04AM IST | Times of India
Recently launched Ulips have very low charges. Find out why you should buy these insurance-cum-investment plans now
They were once the most bought financial product. Then Ulips became the most reviled investment, forcing a string of reformatory measures. Now these investment-cum-insurance plans have changed once again to become a low-cost investment option. In fact, some of the Ulips introduced in recent months are cheaper than the direct plans of mutual funds.
We won’t be surprised if this evokes an angry response from readers. Ulip became a four-letter word due to the high charges levied by insurance companies and rampant mis-selling by distributors. In some cases, the charges were as high as 80% of the first year’s premium. Distributors lured gullible investors by not revealing the high charges and showcasing only the returns offered by the market-linked product.
The Insurance Regulatory and Development Authority (Irda) clamped down in 2010, capping the annualised charges of Ulips at 2.25% for the first 10 years of holding. The charges were fixed at this rate because it was the average cost charged by competing products such as mutual funds. With no incentive left for distributors, Ulip sales plunged.
In recent months, insurance companies have sweetened the deal for investors by reducing the charges even further. The Bajaj Allianz Future Gain plan does not levy premium allocation charges if the annual investment is Rs 2 lakh and above. The Edelweiss Tokio Wealth Accumulation Plan doesn’t have policy administration charges. Some Ulips, such as Aviva i-Growth and ICICI Prudential Elite Life II, don’t have lower charges but compensate long-term investors with ‘loyalty additions’.
But the Click2Invest plan from HDFC Life is a game changer. The only charge it levies is an annual fund management fee of 1.35% of the corpus value. There is also a mortality charge but that is for the life cover offered to the policyholder. The low charges make the Click2invest plan cheaper than even the direct plan of a diversified equity fund. For instance, the direct plan of the largest equity scheme, HDFC Equity Fund, charges an expense ratio of 1.5% per year.
Some readers may pooh-pooh the idea of saving a sliver on costs. After all, a 0.15% saving on costs makes a difference of only `150 on an investment of Rs 1 lakh. While this may seem small, the difference in the cost can balloon into substantial savings in the long term.
Shed your aversion to Ulips
This transformation of Ulips from a costly bundled product to a low-cost option has led to a change of heart among financial planners as well. For long, they have advised clients to keep insurance and investment separate. Says S Sridharan, head of financial planning, FundsIndia. com. “Low-cost products like this will be suitable for investors who want to combine insurance with investments,” he adds.
He’s not alone. With more low-cost Ulips on the anvil (at least two companies are awaiting Irda’s approval for their low-cost Ulips), many financial planners are changing their tune. “The Click2Invest plan from HDFC Life is a good product. We are recommending it to our clients,” says Jaya Nagarmat from Investor Shoppe. Tanvir Alam, founder & CEO of Fincart goes a step further. “This Ulip will give the mutual fund industry a run for its money,” he says.
Indeed, it is time to get rid of the historical aversion to Ulips and look at them through the prism of lower charges. This will not be easy because a lot of investors have been scarred by their experience with Ulips. Many have lost ously, the mortality charges are higher when it comes to such plans.
Though Ulips offer a cover to policyholders, the benefit may be a drag for those who are interested purely in investment. The low-cost Ulips are, therefore, Type I plans that will pay either the fund value or the sum assured. Here’s how it will work. Suppose a person buys a Ulip with a Rs 1 lakh premium for 20 years. The plan will give him a cover of Rs 10 lakh (10 times the annual premium), but the insurance company will charge mortality premium for only Rs 9 lakh since the total risk for the company is Rs 9 lakh. With every annual payment of the premium, the risk of the company will come down, reducing the mortality charge. When the fund value of the Ulip exceeds the sum assured, the plan will stop deducting mortality charges and the entire premium will go into investment.
Another way to reduce the impact of mortality charges is to buy the policy in the name of your spouse or child. Income from investments made in the name of a spouse or a child are subject to clubbing provisions, but since the maturity proceeds from Ulips are tax-free, you don’t have to worry about that. You can also go for single premium Ulips, with an insurance cover of only 1.25 times the premium. However, the maturity proceeds of such a plan will not be covered under Section 10 (10D) and will be taxable in your hand.
money due to the doublespeak of distributors and the failure (or unwillingness) of insurance companies to redress their grievances. Policyholders lost money even though the markets were shooting up. Buyers didn’t realise that even though their funds went up by 15-20% in a year, they were suffering losses because only 40-50% of their money was actually invested in the first 2-3 years. “The new Ulips are facing the baggage of old Ulips,” says Yashish Dahiya, CEO and co-founder Policybazaar.com.
The tax advantage
While the low charges of new Ulips make them attractive, the main advantage is the seamless and tax-efficient transfer from debt to equity, and vice versa. This switching may be for varied reasons, including rebalancing the portfolio or even timing the markets by savvy investors.
“Though retail investors may not have the bandwidth to switch on the basis of market views, people who are aware can make use of this facility very effectively,” says Alam. It is important to note that Ulip is not just about equities. Smart investors can also move within debt, shifting to long duration funds when interest rates are expected to go down and moving to short-term funds when rates are on the rise. If mutual fund investors do this, they will have to pay tax on the short-term and long-term capital gains made on the fund. Since Ulips are insurance plans, the gains and maturity proceeds are tax-free under Section 10(10d).
However, the sum assured must be at least 10 times the annual premium for this tax benefit. This year’s budget has changed tax rules for debt funds. The minimum holding period has been increased from one year to three years. Debt fund investors will have to pay higher tax if they rebalance by shifting out of debt within three years of investing. However, there will be no tax in case of Ulips. Investors should note that insurance companies allow only a limited number of free switches. While some Ulips allow unlimited free switches, others permit only 4-12 free switches in a year. There is a Rs 100-250 charge for every switch beyond the free limit. Like banks, insurance companies also charge you less if you do the transaction online. For example, HDFC Click2invest charges Rs 250 per additional switch if done offline and only Rs 25 if the same is executed online.
Decoding the charges
The charge structure of Ulips is not as straightforward as that of mutual funds. There is a premium allocation charge, a policy administration charge and a fund management charge. There is also the mortality charge for the life cover offered by the plan. The 2010 Irda guidelines say that the combined charge cannot be more than 2.25% a year in the first 10 years. They have also capped the fund management fee at 1.35% per annum, though many Ulips are charging less than that on their short-term debt schemes.
The mortality charge differs across Ulips. Some plans offer either the sum assured or the fund value on death. These are Type I Ulips and their mortality charges go down as the fund value goes up. The Type II Ulips offer both, the fund value as well as the sum assured. Obviously, the mortality charges are higher when it comes to such plans.
Though Ulips offer a cover to policyholders, the benefit may be a drag for those who are interested purely in investment. The low-cost Ulips are, therefore, Type I plans that will pay either the fund value or the sum assured. Here’s how it will work. Suppose a person buys a Ulip with a Rs 1 lakh premium for 20 years. The plan will give him a cover of Rs 10 lakh (10 times the annual premium), but the insurance company will charge mortality premium for only Rs 9 lakh since the total risk for the company is Rs 9 lakh. With every annual payment of the premium, the risk of the company will come down, reducing the mortality charge. When the fund value of the Ulip exceeds the sum assured, the plan will stop deducting mortality charges and the entire premium will go into investment.
Another way to reduce the impact of mortality charges is to buy the policy in the name of your spouse or child. Income from investments made in the name of a spouse or a child are subject to clubbing provisions, but since the maturity proceeds from Ulips are tax-free, you don’t have to worry about that. You can also go for single premium Ulips, with an insurance cover of only 1.25 times the premium. However, the maturity proceeds of such a plan will not be covered under Section 10 (10D) and will be taxable in your hand.
Before you buy a Ulip take this short test to know if you should buy such a plan
You already have adequate life cover
You typically need an insurance cover of 5-6 times your annual income. This entire insurance need may not come from a Ulip, so buy a term cover before you consider buying a Ulip.
You understand that Ulips are market-linked products
Like mutual funds, Ulips also invest in the markets. Be prepared for the market risk that the investment will be exposed to. Not only equity funds but even debt funds can decline in value.
You know that exiting in 5-6 years will not yield desired results
Ulips were mis-sold as investments you can exit within three years. The lock-in period has been extended to 5 years but to get the best out of the Ulip, you need to hold it for at least 12-15 years.
You know how to use the switching facility
The switching facility of a Ulip is a key feature that differentiates it from a mutual fund. You can shift money from debt to equity, and vice versa, depending on your reading of the market.
You can afford to pay the premium for the entire term
As mentioned earlier, it is important to continue investing in a Ulip through the term of the plan. Buy a policy that you can continue for the full term without impinging on other financial goals.
You know the tax rules relating to the plan
If the life cover is not 10 times the annual premium, you won’t get any tax deduction and the corpus will also be taxable on maturity. Also, the deduction under Sec 80C is capped at Rs 1.5 lakh.
Source : http://goo.gl/98lXbk
Priya Nair | Mumbai June 11, 2014 Last Updated at 15:04 IST | Business Standard
This will ensure that even if you take top-up loan you don’t need to take additional insurance
If you have an existing home loan and are in need for funds, an easy way to raise money is to opt for a top-up loan. Since it is a secured loan and you are already servicing it, your bank or housing finance company will not refuse you a top-up loan. But what if the lender insists that you take a loan protection insurance? Should you take it for the entire outstanding amount? Or only for the additional loan amount? Or should you take one at all?
V N Kulkarni, counsellor with debt counselling centre Abhay, says that taking a loan protection insurance is voluntary and nobody can force the borrower to take insurance. However, it is in the interest of the borrower to take insurance. “If, for instance, the borrower meets with an accident and dies then the family could be saddled with a huge liability. So, an insurance to cover the loan is useful,” he says.
Gaurav Gupta, CEO of My Loan Care, an online loan advisory platform, also says that there is no such requirement that loan has to be taken with insurance. While the big banks or housing finance companies may not insist on such insurance, the smaller ones may do in order to protect their margins.
“Small banks and NBFCs may offer rates similar to the big players, but they may bundle additional products like insurance along with the loan to cover their higher cost of funds,” he says.
Many lenders may insist that you take a credit protection plan. Some companies offer an option of a decreasing term cover over the tenure of the policy. This is because the sum assured is linked to the loan outstanding and as the loan gets repaid the sum assured also decreases. But in this case if you take a top-up loan the lender may insist that you take another insurance policy to make up for the gap. To avoid this it is advisable to take a pure term plan, where the sum assured remains the same.
In fact, if you have an existing term insurance policy, then there is no need to take additional insurance, points out Kulkarni.
“You have to ensure that the insurance covers the entire liability. Banks put in insurance as a condition to sanction loans because they want recovery to be smooth. They want to avoid getting into Sarfaesi and selling the property. It is easier to recover the dues if there is insurance,” he says.
Lenders usually insist on a loan protection insurance for home loan since they are long-term and big ticket size loans. In case of personal loans, usually banks don’t insist on insurance since the amounts are smaller, typically Rs 50,000-3 lakh.
But if you take a second personal loan (which is more common than a top-up), then the lender may insist on increasing the insurance cover, says Gupta.
Source : http://goo.gl/SgKpQL
Aparna Ramalingam, TNN | Jun 3, 2014, 02.06AM IST | Times of India
CHENNAI: A recent survey on home loan in South India has revealed that 47% of the respondents have expressed delay of more than seven days for availing the loan from the bank. Moreover, 80% of the respondents have expressed that banks or home finance companies were asking for information in a piecemeal manner; after the loan application was submitted. The survey was conducted across the four southern states and across metro, urban, semi urban and rural areas by CONCERT (Consumers Association of India) under a grant from the Department of Consumer Affairs, Government of India.
Among other things, the parameters compared were processing charges, penal interest for delay in payment of installments and foreclosure charges for early closure of loan account. The banks and housing finance companies were clubbed into four categories; public sector banks, private sector banks, old generation private sector banks and housing finance companies.
Not only that. Of the 2,316 survey respondents, 609 (27%) said the bank or home finance company insisted on a opening of a deposit account and other investment products, 524 (23%) respondents said these institutions insisted on opening of a deposit account and investment in a life insurance scheme.
Also, 860 complaints related to public sector and private banks put together in terms of loan sanction but delay in disbursement. Around 555 complaints related to public and private sector banks together in terms of interest rate increase but no communication.
On their part, banks maintain retail lending is a priority for them. “Our turnaround time for retail loans is less than seven days. We have dedicated retail process centres across all major metros,” C VR Rajendran, chairman and managing director, Andhra Bank said.
Some officials state that the reason for customer complaints when it comes to loan sanction but not disbursal is outsourcing of the same by some institutions. “The problem is when aspects like valuation of property are outsourced to other agency. This results in delay in loan disbursal. In our case, everything is done in house,” Rajesh Makkar, president, DHFL said.
Some officials from home finance companies are of the view that home loan is one of the many product avenues for banks and sometimes there may be slippages in service on that account. “For public sector banks, home loan is one of their many businesses but for us that is the only business so we go into every detail from sanction to confirmation letter and interest rate revision,” a senior official from a home finance company said who did not wish to be identified.
“Even though our interest rates on home loans are currently 10-15 basis points higher than those offered by some large nationalized banks, our efficiency and experience stands as our differentiator. After all, home loan is a fairly long product (15 to 20 years),” said another official from a home finance company., when apprised about the findings of the CONCERT survey.
Source : http://goo.gl/gAocpI
You can now store all your policies electronically under a single electronic insurance account
Deepti Bhaskaran | First Published: Mon, Sep 16 2013. 04 53 PM IST | Live Mint
Finance minister P. Chidambaram on Monday launched the insurance repository system (IRS) of the Insurance Regulatory and Development Authority, or Irda.
With this, you will now enjoy the comfort of storing all your policies electronically under a single electronic insurance account or e-Insurance account, just like you hold your stock certificates and mutual fund units online in dematerialized form.
Irda has registered five companies so far to act as insurance repositories—NSDL Database Management Ltd, Central Insurance Repository Ltd, SHCIL Projects Ltd, Karvy Insurance Repository Ltd and CAMS Repository Services Ltd. These companies, will be linked to all insurance companies, will maintain data of policies electronically for insurers and will open e-Insurance accounts for policyholders.
To store all your policies online, you will have to create an e-Insurance account with a repository free of cost either directly or through an insurer.
While creating an account, you have to provide relevant information such as address and identity proofs. “An added benefit of having an e-Insurance account would be that insurers will not insist on KYC (know your customer) every time you buy insurance. They will be able to get your KYC details from us. Plus, if you change, say, your address, you just need to register that change with us and we will update that for all your policies,” says Viiveck Verma, executive director, Karvy Insurance Repository.
Karvy closed its insurance broking business to become a repository as soliciting and servicing policies at the same time is considered as conflict of interest.
Once you have an e-Insurance account, you will have an account number, username and password. When you buy a policy, you need to quote your e-Insurance account number and request for dematerialization when you fill up the proposal form. This also applies when purchasing insurance online. You can also dematerialize existing policies by sending a request to your insurer or the repository.
The biggest benefit of holding all your policies electronically is that there’s no risk of losing physical documents. Besides, it’s easier for nominees to track insurance details.
The account will allow you to hold all insurance policies—life, health, car and others—at one place. You can’t open multiple accounts. Initially, you will be able to dematerialize only life insurance policies.
“Life insurance is long term, so the need to dematerialize them is more. Non-life policies, on the other hand, are one-year policies, also holding all non-life policies electronically may not be feasible. For instance, you will need to have physical documents of your car insurance policy to show the traffic police. The timeline on non-life policies is yet to be announced,” says K.G. Krishnamoorthy Rao, managing director and chief executive of Future Generali India Insurance Co. Ltd.
You can also pay premium or send service requests such as switching investment funds in an equities-linked insurance plan with your e-Insurance account.
To be sure, storing policy details online is different from buying a policy online. Even when you buy a policy online, you get a policy in a physical form. But, with your e-Insurance account, you will be able to hold this policy bond electronically online.
Can you demat right now?
Although you can open an e-Insurance account right away, dematerializing policies will take some more time.
“There is still some work to be done. Backend integration of systems need to be complete and insurance repositories have to go online themselves. So far one-two out of five are online. Also, customer awareness is minimal in this area. All this will take some time,” says Yateesh Srivastava, chief operating officer, Aegon Religare Life Insurance Co. Ltd, which is in talks with repository firms.
“An individual can open an e-Insurance account with us right away, but he will be able to hold policies electronically only once we have a tie-up with the insurance company. Only tie-ups are not enough—their systems have to be ready too. While tie-ups are expected to take place over the next few weeks, systems may take some months to get ready,” says Karvy’s Verma.
The way is thus marked for the industry to move to the digital space. For you, this means great comfort. For insurers, it means saving on costs.
Source : http://goo.gl/VKLjuR
By BankBazaar | 13 Sep, 2013, 12.32PM IST27 comments | Economic Times
Although the process of building wealth is not complex, it is difficult to implement, simply because of the discipline it requires.
Building wealth is a topic often spoken about by many, but followed by very few. The reason for this is that wealth creation involves time and a lot of effort. Although the process of building wealth is not complex, it is difficult to implement, simply because of the discipline it requires.
Here are a few simple steps which will help you build your wealth:
The Earlier, the Better:
It is often said that the earlier one starts investing, the better it is to grow your money. As with anything else in life, investing also benefits with an early start. The principle of compound interest works magic on building money.
When you begin your career it is understandable that the initial salary will be low. However, even small amounts of savings in good investments will help in slowly and steadily building your wealth.
For example, let us look at the case of Raj and Shyam. Raj who is 25 years old needs to invest Rs. 1,500 per month for the next 35 years to build a corpus of Rs. 57.4 lakhs at the return rate of 10% pa. Now Shyam who is 30 years old will need to invest close to Rs. 2525 per month at the same return to accumulate the same corpus after 30 years, assuming both retire when they are 60 years old. A difference of 5 years in investing results in a difference in savings needs of over Rs. 1000 per month over the entire tenure of investment. Hence remember to understand the power of compounding and start your investment plan early in life.
Another mantra to build your wealth is regularity and discipline in investing. Often, a break in investing plans disrupts your goals and hampers the growth of money. The best way to make sure you are not irregular in saving is by starting Systematic Investment Plans in good quality mutual funds.
Try and automate this so that you do not forget your monthly investments. Also, if at any point, you happen to miss investing in a particular month, make it up for this in the subsequent month by investing double the amount. You must also look at upping your investment amount gradually, as your income increases.
Long Term Investing:
Often, people complain that despite being regular in investing, they do not see a growth in wealth. This is because they withdraw the money invested frequently, not giving it a chance to grow. Remember that the longer you leave money invested in a good investment option, the higher it will grow due to the compounding effect.
Having said that, remember to regularly review your investments to assess its performance. If you find a particular investment giving you very poor returns, you must immediately withdraw your money from such an investment and invest in better performing assets. Also remember to track your investments regularly and modify your asset allocation pattern depending on your age and risk profile.
Keep Yourself Updated:
Another important thing to be remembered is make sure you have the required knowledge in an investment class before investing in it. For example, Priya had heard a lot about derivatives and how investing in derivative instruments gives handsome returns. However, she did not have any knowledge about this. Nevertheless, she blindly went ahead and invested a sizeable amount of her savings in various derivative instruments.
The global recession saw a crash in stock markets, and as a result she lost almost all of her investment. Hence you must always have knowledge of both the pros and cons of any investment, and must invest in learning and upgrading your skills for the same. However, remember to always do your research before investing and not blindly follow the advice of anyone else.
Understanding the Ratios:
Track all your income and expenses regularly to understand your cash flow positions. If you are left with a surplus cash flow month after month, it means you should start investing more in order to grow your wealth. On the other hand, a constant deficit in your cash flows spells trouble and it means you must watch out for your expenses or look at ways of boosting your income.
Insurance is an often neglected aspect of building wealth. Although it does not result in direct building of wealth, it helps in times of emergency by providing the necessary risk cover. These simple steps will help you grow your money steadily and systematically. Building wealth requires a dedicated effort from your end, as there is no short cut to achieving wealth.
Source : http://goo.gl/lxLpyq
InvestmentYogi.com | Updated On: August 19, 2013 13:36 (IST)| NDTV Profit
Do you have an insurance policy that you think is not needed anymore? Or do you have a policy that your agent convinced you to buy, and now feel is not suited to your need?
We often find investors taking an insurance policy at the end of the financial year just to save more tax. The result is that of course you do save some tax, however, you may also end up with a policy that you actually may not need. But this does not mean you need to be stuck with the policy through its entire course. Almost all insurance policies (with the exception of a term plan) have some sort of exit option that could be exercised, although they come at a cost. So when and how do you exit such life insurance policies that you do not need anymore?
Exiting in the initial phase of the policy
The free look period: The earliest exit option provided by insurance companies (and mandated by IRDA) is the free look period. The free look period entitles every policy holder 15-days from the receipt of the policy to rethink over the purchase. So in case you feel you have been sold wrongly, or are not happy with the policy you could return it to the insurance company and request for a premium return. The insurance company returns the premium amount after deducting charges towards medical tests, stamp duty and service charges. These charges would not be refunded.
Letting the policy lapse: If you have missed the free look period, the easiest way to exit a policy during the initial years is to let the policy lapse. In fact, there is no other way, but to let the policy lapse, as insurance companies do not provide any exit option in the first three policy years. Stop paying your premiums and your policy lapses. Do remember, you would not receive anything if the policy lapses and all your premiums would be lost. Term plans do not have any exit option beyond the free look period. Hence, it is best to let it lapse.
Exiting after three years
Insurance companies offer the following exit options after the policy has completed three policy years.
Surrendering the policy: Policy surrender is a voluntary termination of the insurance policy, before its maturity. When you surrender an insurance policy, the insurer pays you a lump sum amount known as the cash value or surrender value. From the regular premiums that you pay, a part goes towards investments and the remaining goes towards the life cover. This invested portion accumulates as the cash value during the course of the policy, and is paid out on surrender of the policy (net of all charges). Cash value accumulates as long as the policy exists. In the early years of the policy, this value remains pretty low. It increases as the policy moves closer to maturity. Insurance companies offer a guaranteed surrender value of around 30 per cent of the total premiums paid subsequent to the first year.
Letting the policy become paid up: Instead of completely exiting a policy, you could also opt to make your traditional endowment plans paid up. In a paid-up policy, you could discontinue paying your premiums. The policy does not go void but continues at a reduced sum assured. This reduced sum assured is known as the paid-up value. All additional benefits, future bonuses and dividends attached to the policy would be lost in such a policy. Any bonuses accrued in the first three years however would be paid on maturity. For example: You have an insurance policy with a sum assured of Rs. 10,00,000 for 10 years and you have already completed paying premiums for the first 3 years. The paid up value would be calculated as below.
Timing the market: If you are exiting your unit linked plan, your units would be redeemed at the prevailing NAV on the date of redemption. Check to see the market sentiments and behavior before exiting. Giving up a market linked plan, when the markets are low is not advisable
When you should hold on to the policy
Insurance policies especially unit linked plans, prove to be more rewarding as the years pass on, as by then insurers would have already recovered the expenses on the policy. As the policy matures, the benefits in store are huge. So if you are towards the maturity of your policy with around 3-5 years remaining, it is wise to hold on.
If you plan to exit an insurance policy and wish to reinvest the proceeds in an alternative investment, make sure your new option would not only earn you superior returns but also has the potential to recover the losses that you have incurred in exiting the insurance policy.
Also, do not exit a life insurance policy, if you do not have any other life insurance. Your life should be covered at all times.
InvestmentYogi.com is a leading personal finance portal.
Disclaimer: All information in this article has been provided by InvestmentYogi.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
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