Author: Jagoinvestor

I am Jagoinvestor Admin

Dont get fooled by High CTC offered by your employer

Posted on by Jagoinvestor

It was campus placement month, and although everyone declared that they wanted to do quality work once they were placed, they also harbored a secret desire to get placed at the highest salary. When we used to look at our pocket money and compare it with the salary “package” offered by companies, we used to feel we would sleep on bundles of notes.

The top students of my batch were placed at extremely high pay packages, and they were proud to have “cracked” it. However the average students and other not so lucky ones had to settle for lower pay packages.

The “Very Happy” and “Only Happy” students left for the next phase of their life. The bitter truth however, only emerged after a year or two – that the take home salary of most of the students was not that different from the rest. While the students who got high packages were obviously earning more than the others, the difference was only marginal.

The CTC (Cost To Company) numbers had fooled us!

CTC vs Take Home salary

What is CTC (Cost to Company)

What was happening was that the companies were exploiting our human craving for “Instant Gratification”. Job Seekers want big salary numbers – its’ a benchmark which they use to compare themselves with others. It feels nice to say, ”my package is 12 lakhs per annum”, even if you only get 58,000 per month in hand.

CTC or cost to company is what a company spends on you. If something is an “Expense” for a company because of you, its part of your CTC, as simple as that. So starting from the air conditioning you use at office, to the food you eat at office, everything can be part of CTC. Here is one how one of our readers Nandan feels

I fell for a similar trap while joining an IT MNC recently (from another which was equally good at inflating its VP compoment). It’s been only 3 months now since I joined this company and the worst part is that the take home I get now is almost same as that I was getting in my earlier company (though on paper the CTC is having 35% hike over the previous company CTC) – Link

5 tricks to increase CTC numbers and give wrong impression to employees

There are several ways companies can inflate the CTC Numbers and give you an impression that you are getting the best deal, only for you to realize later that the other job was better. Let me now show you some ways companies increase the CTC numbers.

Trick 1 – Including their EPF share inside the CTC itself

The first time I saw my salary slip, I was somewhat shocked to see that my employer was deducting the ‘employer’s share’ of EPF from my salary. I was wondering – “If it’s the employer’s share – why are they deducting it from my salary?” It was only later that I realized that this was merely a simple trick to inflate the CTC. They could have just reduced my CTC by an amount equal to employer share of EPF and could have paid it separately, but then my CTC would be lower– even though I would have been getting the same salary at the end of the day.

Trick 2 – Adding One time Bonus in CTC at the time of joining

When I joined my first job (and the last one), I was very pleased to hear my CTC; it was amongst the highest packages on campus. But then my salary in hand correlated poorly with the CTC figure. In my mind, I had divided my CTC by 12 on the day of placement and was on the top of world. Though what happened in reality was that I was supposed to get a one time joining bonus (that too after many months), and that figure was added to the final CTC – inflating the number substantially. It was only for first year, not a regular thing !

Trick 3 – Adding Stock Options in CTC

Another simple trick employers play is to add your Stock Options to your CTC. Stock Options again are not a regular payment source, however they do increase the CTC considerably. You can learn about stock options, RSU’s and ESPP here in this article.

Trick 4 – Adding Insurance Facilities, Food coupons, Transport Facilities to CTC

At the end of every month, we used to get food coupons from our company. We also had payments made by the company towards yearly life insurance and medical insurance. The thing is, you do not get these things as CASH, but instead as benefits. However, the company adds all these to your CTC figure, as it is paying for it.

Trick 5 – Putting Large chunk of variable component in CTC

Another famous trick played by companies (especially those in sectors that are performance based) is to add a considerable amount of variable component to the salary and keep the fixed part small. The CTC number is then provided based on an average performance assumption. For example if your CTC was Rupees 10 lakhs, it could happen that 4 lakhs of the CTC would be FIXED and the remaining 6 lakhs would be variable. The part of the variable component ultimately paid to you could go down or up depending on your performance or some parameter that supposedly would be under your control. It could be sales, the number of clients you bring in etc. etc.

Start-ups vs Giant MNC companies – Difference in Salary Structure

In my limited experience, pay packages offered by startups or smaller companies are more or less transparent, and artificial increases in CTC are limited. Dividing the CTC figure offered by them into a monthly number will get you very near to your take home salary – though it will obviously be lower. However, in the case of larger companies, the CTC number is inordinately inflated and your eventual take home salary might give you the feeling – “Seems like there is some mistake in the calculation”.

Joining other company for higher Salary ?

Just because you are getting a higher package in some other company, does not automatically mean that your take home salary will increase by the same margin. It may happen that your take home salary increases by very little, or in the worst case scenario, stays exactly where it was. What you should focus on, while moving to another job, is the additional increment in your take home component and not just the change in CTC.

In the image below you can see how a job with low CTC can lead to a higher take home salary – all because the package with the higher CTC was inflated by injecting various components.

High CTC vs take home salary

I hope from now on, you will focus more on the final take home and not be fooled by CTC numbers.

Any personal experiences?

Crisil Real Estate Star Ratings (Crest) – Something which can help Real estate Investors

Posted on by Jagoinvestor

Today I am going to share with you information about the CRISIL Real Estate Star Rating (CREST). It’s a product by CRISIL that rates a real estate project based on numerous parameters relevant to different entities such as investors and lenders. You can visit the CRISIL Rating page on its website

crisil-real estate rating and scale

Parameters checked by CRISIL for rating a Real estate Project ?

There are various things that determine the final quality of a project and how good or bad it is. The CRISIL Real Estate Star Rating looks into the parameters listed below and then assigns a rating to the real estate project.

  • Construction and legal track record
  • Organisation strength, systems & processes
  • Financial strength of developers (s)
  • Structural quality
  • Clarity of Title
  • Infrastructure & Integrated Facilities
  • Restrictive Covenants
  • Finishes
  • Encumbrances
  • After-Sales Services
  • Sale Agreement
  • Likelihood of Time and Cost Overruns
  • Development Agreement
  • Accounting Quality
  • Project Economics or Viability
  • Financial Flexibility
  • Innovation in Construction technology
  • Innovation in Building design
  • Innovation in Project funding

Rating Scale

CRISIL has an 8-point rating scale for the properties, beginning from “1 Star” and going up to “7 Stars”. The lowest rating is “Non Deliverable”. On CRISIL’s website, you can see the list of different cities and their associated CREST ratings. So if you want to buy a property in Bangalore (learn 20 terms in real estate here), you can check the CRISIL website to see if the property/ project you are interested in is mentioned. The project might have already gone through the rating process by CRISIL, and obtained a rating.

However, if a project has not been rated by CRISIL, it does not mean that the project is bad or is not worth investing in. It just means the builder has not applied for the CREST rating or CRISIL has not picked up that project yet. Given the number of projects coming up in different cities, and the total time it takes to scrutinize a project (close to 4-5 weeks), it is really not possible to rate all the projects in one go.

Different Projects in Cities

If I look at the CRISIL website, I can see many cities listed and numerous projects listed under each city. All you need to do, is to click on a city name and you will see the list. Here are some snapshots, which will give you a clearer idea

Different cities in CRISIL Real estate Rating

Mumbai CRISIL Rating

bangalore crisil rating

Pune crisil rating

How to use CRISIL Rating?

If you are lucky, the real estate project you selected is already rated by CRISIL, in which case you can see how many stars it has got. “7 stars” is the highest. So if the rating is either 7 star, 6 star or 5 star, I would say it’s a good rating overall. But you should re-look at projects with lower rating; especially a project rated as “2 Stars” or “3 Stars”.

However, CRISIL might not have rated the project yet, in which case you will be have to check the project and evaluate it on different parameters on your own – we have already discussed some of the parameters on this article.

Let us know if you were aware about CRISIL real estate star ratings (CREST) or not ?

The Threshold Point – a simple way to achieve your goals

Posted on by Jagoinvestor

There is so much you need to achieve in your financial life and you are stressed! Correct?

I have seen investors getting overwhelmed due to the pressure of financial goals in their financial life. You have one life – in which you have to cram multiple financial goals. A house, a car, a corpus for educating your children, a regular stream of money each year to pay for school fees, vacation funds, occasional large expenditures, funds for your retirement and several other items which are too numerous to even list here!. Out of these – some things you want immediately, and some you label as your long-term goals.

threshold point in financial life

However when you keep thinking about these goals and amount of money you need to accumulate in your financial life, you get worried, stressed and feel lost. You doubt if you will ever be able to achieve it and that demotivates you and then you just ignore handling your financial life and go with the flow! – leaving everything to fate! However that’s not the solution!

what’s the solution?

I can’t give a solution, but I can suggest you something which we practice a lot of times when we deal with our financial planning clients. Let me share with you that simple yet powerful concept which Nandish Desai came up with in our early years of handling clients. Years back – we noticed that a lot of clients financial life was so messy and confusing that it was unplannable! Also they were so overwhelmed that we could not do their planning the usual way. We needed to suggest them some plan of action which was lighter and which looked more achievable to them.

So to those clients, we asked to slow down (listen to this powerful 16 min audio on slowing down recorded by us personally) and ask them to forget about all their future goals. This is because many investors are not able to make a powerful play for their financial goals with empty pockets. To play for your financial goals powerfully you need to first cross or reach your THRESHOLD POINT. Yes! – That’s the concept I am going to unveil today. The concept of threshold point helps an investor to lighten his worries and to be more focused.

Now, what is this threshold point?

The threshold point is the milestone, which when reached in your financial life, gives you a strong sense of achievement. You feel like you have taken that first step and you are a winner in your own eyes. It’s not the final achievement, but a mini-battle that you have won. A threshold point could be generating some lakhs of rupees, having a loan free home, achieving an income level, getting debt free, or combination of these.

All your energy has to be focused on reaching that threshold point. Everything you do in your financial life has to be driven by just one motive in life, and that is reaching that threshold point. If you have to spend money on something, you have to ask first – “Will spending this money help me move towards my threshold point?”

threshold point

You need to get obsessed with your threshold point so much, that naturally you will achieve it much faster than you had planned. And when you reach your threshold point in some years – you then play a much bigger money game. The threshold point gives you a sense of some freedom, some relief and extra dose of energy.

Some Examples of threshold points

Example 1 – Ajay’s Story

My friend Ajay is unmarried and lives in Varanasi. He was anxious about his future prospects because he does not want to get into a regular job, because he is kind of moody person and leaves his job the moment he does not like it. This creates problems in his cash flows. While he wants to do lots of things such as buying a home, buying a 2nd home, saving enough to roam around the world etc., he told me he does not think it’s POSSIBLE to achieve all this. The truth is he was overwhelmed and could not think what he should do next ! .

I asked him to describe his ideal situation – one that would remove all this worry. A situation that would make him feel more at ease and help him plan his financial life ahead in a better fashion. He said that if he were to start receiving a regular income of Rs 10,000-12,000 per month without working – he would feel far more relaxed. That’s it. That was his Threshold point.

Threshold point – Generating Rs 10,000-12,000 per month income

This is something he now needs to focus on. We found out that if he could generate 20 lakhs in a few years, he could put it all in a Fixed Deposit and get an interest income which will act as the regular income. It would take few years, but once he would reach that point, he would be a winner in some sense. He has already saved quite a few lakhs, and is now on his way to reach his threshold point. He now travels by train, rather than by air, because that takes him closer to is threshold point. He does not spend more than what is required on clothing and saves every extra bit and puts it back in his bank account – all of which takes him closer to his threshold point.

Example 2 – Tarun and Reema from Pune

This couple (Names changed) approached us to avail our financial planning service. We looked at their financial data, their financial goals and their exact situation. They were worried about their future goals like retirement, educating their children etc. Their net worth was less than 3 lakhs and their goals were big-ticket goals.

Threshold point – To generate first 15 lakhs

First, we asked them to eliminate their future. Yes, our future is an illusion that human beings live in. A lot of investors are either worried about their future or they regret their past mistakes, but they are never fully in the present year. I told them, as an investor you can’t step into 2014 or 2012 – you are in 2013 and that is a reality. We then asked them to define their threshold point, an amount that would fill their pockets so that they would have the power to face big future goals. The amount they came up with was 15 lakhs.

We simply asked them to forget everything and focus completely on their threshold point number, which was 15 lakhs. We then helped them to re-structure their cash flow and helped them to devise ways by which they would reach their threshold point soon. Now in this situation they didn’t had multiple goals which scared them, all they had was a SINGLE Goal and that was to generate 15 lacs.

Example 3 – Ramanna’s Story

Ramanna was employed in a big I.T. company in Pune. His aim was to start his farm – as he loved nature and his dream was to run a big venture related to it. But that would only happen when he would have taken care of his expenses each month because starting something of your own is a big risk. Which meant he had to handle rent, bills to pay, monthly expenses to incur at home etc. etc. So he defined his threshold point and it was to own a home and also have sufficient savings to pay his regular bills.

Threshold point – A home and 60 lakhs corpus to get a regular inflated adjusted monthly income of Rs. 35,000 per month to start with

Prior to defining his threshold point, Ramanna was just a regular employee, but the moment he defined it, his mind started actively focusing on it. The song of “I want to achieve my threshold point” was playing constantly in his head!. He was aware that he wouldn’t reach his threshold point very soon, and it would take at-least 10 years to get there. But now he was more focused and targeted.

He was sure if he could travel to the U.S. and work abroad for a few years, reaching his target would be a cinch. From that day, he became a superman at his workplace. His commitment level at work increased because he expected to be moved to the U.S. office on the strength of his performance. He also explored other options to move abroad for a few years. Within the next 2-3 years, he saved money and also managed to get an offer to move to the U.S. office due to his exceptional performance at work. This was 2001.

However, his savings were at that point not sufficient to make a down payment on his house. Undeterred, he moved to US, worked for a year, saved obsessively, and returned to India just to make a down-payment and apply for substantial loan. He took the risk, because getting to the threshold point was his obsession by now. There was no other option, he wanted it any cost.

Over the next 8 years, he earned enough money, saved enough money, lived frugally, constantly worked towards his threshold point. He made sure to communicate about his future vision and goals to her better half when we was getting married. He made sure he didn’t do anything stupid which would open new streams of expenses in his life, which will make it difficult to stick to his plans of leaving the job and starting something of his own. So at the end of 10 yrs, he had 2 houses in Pune, one without any loan and the other with a small outstanding loan (thanks to dollars he earned and powerful savings).

He came back to Pune, sold one house (which fetched him more money) and kept it all into a Fixed Deposit with quarterly interest option and the other house was for self-consumption. He is now free of debt, has no rent to pay and his interest income takes care of his expenses.

He had arrived!

What is your Threshold Point ? Have you ever thought about it ?

If you are low on net worthh or you are a new investor, instead of setting huge financial goals, start to play for your threshold point. This will reduce your stress levels and will help you to enjoy the process of wealth creation. When we do financial planning for some of our clients, a lot of times we avoid giving a very long term plan to them, because we know the plan will sound unrealistic.

A plan has to be realistic for any investor to own it. Then we help them define their threshold point and help them plan for that. We tell them, go achieve that threshold point first and then think ahead. Don’t waste your time and energy in worrying about future for now. The same way, you need to think of your threshold point.

I want you to tell me in comments section about it. Write down and declare your threshold point and if possible your plan to get there! I am waiting to hear back.

How to use NEFT or RTGS facitlity even if you dont have Internet Banking

Posted on by Jagoinvestor

I have already written about NEFT and RTGS sometime back and how does it work exactly. However today, I want to share about using NEFT and RTGS transfer offline in bank branches. Even in today’s time, if some one has to send money from one account to another account, they use cheques and demand drafts. Even you can see a lot of people withdrawing cash and depositing it manually in other bank account. They are mostly people who had seen the banking era of 80’s and 90’s.

NEFT and RTGS transfer from Bank Branch

It might be your parents or uncles or anyone older !. And when you tell them they should have internet banking which has NEFT and RTGS facilities, they do not want to embrace it. But do you know that one can also use NEFT and RTGS facilities even offline by going physically to bank branches.

NEFT/RTGS are processes

NEFT and RTGS both of them are just a process/technology. Its just another fact that they are also provided as features in your internet banking account. If someone wants to transfer money from one account to another, one can always visit the branch in person and put a request to transfer money via NEFT or RTGS .

All you need is to fill up a NEFT/RTGS form (sample below) and all the details like Sender Account Details, Beneficiary Account details, amount to be transferred and IFSC code of the beneficiary branch. Then the Bank officer will punch these details on the system and the transfer will be initiated just like it happens online.

NEFT RTGS form

Incase you want to do a instant money transfer (not exactly instant, but can take 30 min to 1 hour) , you should be doing a RTGS transfer. One important point to remember here is that, if the amount is above Rs 2,00,000 , you would need to give a cheque leaf with the RTGS form, as part of the rules, but even if you don’t have cheque book with you at that moment – the bank generally arranges for a temporary cheque book in your name.

Recently I had to transfer some money from my wife account to my bank account and we asked for RTGS transfer, which was done promptly and the money was transferred in 10 min to my bank account.

The only pre-requisite for NEFT?RTGS transfer is that

  • Originating and destination bank branches should be part of the NEFT network
  • Beneficiary details such as beneficiary name, account number and account type, name and IFSC of the beneficiary bank branch should be available with the remitter

Charges for NEFT/RTGS at bank branch

RBI has not set any predefined charges, but banks are allowed to charge it as per their decision. Generally NEFT Transactions upto 1 lacs are not charges by many banks (like Central bank of India) , however some banks can charge for it. But for RTGS they generally charge anywhere from Rs 5 to Rs 50 depending on the amount. Higher the transfer amount, higher the charges.

So next time, if you meet someone who wants to transfer money by going to branch, tell them the option for NEFT and RTGS transfer via their bank branch.

10 things to check before buying a home or Property in India

Posted on by Jagoinvestor

Buying a property is a one time decision for many. Its a moment when you are excited, stressed and many a times in hurry!. You look at some properties and one of those properties give you that feeling of “that’s my dream home”. You get attached to something special about the property and every other aspect looks fine to you. On top of it, you feel you want to block the property as soon as you can and get into the process of arranging for booking money, down-payment and finalizing home loan.

parameters to investigate before buying property in india

But, its not the time to rush, but slow down. You should step back for some time and calm down yourself because its a decision which will impact your overall family, life and finances. And you should not be regretting it later.

Just like a detective investigates a case and goes deep down analyzing a situation and then comes up with a conclusion, you should also do some important investigations before you finally take decision of buying a property. So we have come up with 10 things you should look at and think hard about them. These 10 points can also become a comparison tool for you to compare two or more properties, which we will look at in the end, but before that lets see what are those 10 parameters you should investigate before buying a property

10 things to check before buying a home or Property in India

1. Goodwill of the Builder and overall Brand
Before you buy a Property, its important to have a look at the builder profile and his overall history. How many projects he has already delivered, How much delay was there, Go to te website of builder company and check old projects and ongoing projects. Search on internet with the previous project name and you should be able to find some important information about it. See what people are talking about the builder and property.

2. Connectivity to your Work Place

An important parameter to look at before buying a property is the distance between your workplace and the property. Its something you have to deal with everyday. A property which is 3 km away from your workplace is very different from the property which is 12 km from your workplace. Long Distance might mean inflated fuel cost, time lost in travelling and getting frustrated and burning out each and every day for many years to come.

3. Connectivity to Schools, Hospitals, Transport, Markets etc

You should check how far are schools, colleges, hospitals, markets , shopping places and bus/train stations from the property. It should not happen that to save the money on property, but then spent on travelling your kids every day to school. The access to other important places is also very important.

4. Resale Potential in Future

When we buy a property, we are attached to it thinking that we are going to live there for next few decades, but no one known when you would be packing your bags again to move to some different location because of various reasons. At that time, if you realize that the property was suitable for you, but not to someone else, its going to be very bad situation. So you also have to think about the “resale” potential of property you buy. Will the property appeal to someone else ? Think about it again. For example, you might be looking at the property which has common parking, but what about future at the time of selling , every one you talk to wants a dedicated covered parking ?

Also, Most of the people who are buying under-construction properties are very far from core city. So its an important point to check about the future development around the area. Find out whats the future development plan for Roads ,Flyover, proposed malls, and other things which might come up in next 4-6 yrs. If the place is not yet properly connected to main city, there might be future plans for it.

5. Rental Potential

A lot of times, people give their property on rent and move to some other location. At that time, if you realise that the property is not that attractive from rental point of view, you will regret your decision. I am not saying this is going to be a deciding factor in your decision, but still just keep it in mind and have a look at property from this view point only. If property is near colleges or centrally located, or close to commercial places, you will never find issues finding people to rent your property.

6. Air & Lighting

Air and Lighting is something which will determine your living experience on daily basis. The flat you live in should have good enough lighting (natural light) and proper air. Also you should check how the air flows from various angles. In my current flat, the way wind flows is amazing. So when you look at property, check if some other buildings are blocking the air and lighting or not. Which side the terrace or balcony faces and the view outside.

7. Amenities Offered

You should also check what kind of amenities are offered along with property. Things like club house, parking, lift, power backup, swimming pool, gym are some of the amenities. Now you might be a simple person who wants minimal things, but if you want to make sure the property has very good resale potential, you might want to look at these things. After all, all these things will matter to you or people connected to you and if not anyone, may be the next buyer from you will look at all this.

8. Construction Quality

When you go to look at properties, check the construction quality. What we mean by it is check the walls, their overall look and feel, how is the finishing done, Does it look premium or the paints look like as if it will come out very soon. Check the wiring, fitting, tiles quality etc etc. If its a under-construction project, the only option you have is to search on internet about the builder and its past project experiences and what previus buyers are saying about it . Just put builder name or any previous project name along with “+ construction quality” words on google and you will be able to get some ideas – like this project in chennai

9. Road Conditions Around Property

I saw one property which was a little inside the main road. The road was not straight , but was in zigzag fashion and was not that wide. It was a inside road and not the main road, so there was no future potential of getting better road. Travelling each day with same road will frustrate you in long run, but might not be on daily basis. Also its not that safe in night. So when you look at any property, check the overall roads conditions atleast upto 500 meters from the project.

10. Locality and Kind of people living around

You should also check the overall locality and who all are living around. Are you comfortable there, will your family be ok ? Will it be safe in night ? will you wife/mother be able to go on a walk for an hour in-case they wish to ? These are some questions you need to answer before buying the property.

Compare two or more properties based on these 10 parameters

If you look at these parameters, it can be a great benchmark points to compare two or more properties and come at the conclusion of which one to prefer over another. So I have created a simple excel based tool, which has these 10 parameters and you can choose up-to 4 properties and compare them on these parameters. It will give you a ranking based on your comparison and tell you which property scores over another. the tool will also point out which is the best option to explore as you keep running the tool. Below is a simple demo of the tool, you can download it for FREE.

DOWNLOAD THE EXCEL – CLICK HERE

Let me know if you loved this article and will it help you for finalizing your property search and also help you compare two or more real estate properties.

How my 5 answers to this lady was like Financial Planning for her !

Posted on by Jagoinvestor

One of our readers Sonadhi wanted to hire a financial planner, but first wanted to get clarity about her financial situation and some solutions on her financial life problem at our questions and answers forum. She posted her query and I answered her in detail. I gave her a detailed answer which you cant call “Financial Planning” , but I can say that my reply must be sufficient for her to move ahead and get a lot of clarity. Just wanted to give show you her question and my answer, because I am sure a lot of people will get some idea of what needs to be done in some situations.

financial planning example

Sonadhi question –

My baby girl is about to complete her three years.My target is min.25 alcs at her age of maturity i.e.at the age of 20 years. I am not sure on how to invest for her.Confused to go for Rd/FD or PPF.Also interested in Mutual funds,but no knowledge.Think for LIC plans for children but they have very high premiums with less benefits.Confused between what is difference between ELSS & SIP. Not able to have the financial planner at this stage.Also paying heavy EMIs. Who can guide me.

My answer to her

Lets quickly do your financial planning in few points. Based on your information till now here is what you need to do

Step 1 –  First step is to restructure your finances, Restructuring is required because cash flow is important to be planned,. Unless your cash-flow is planned properly , things will be tough . So first ask why you are paying that 5,000 per month in LIC , how old it is ? What benefits are you getting out of it . The way I see is , You are taking lot of pressure each month for a bad outcome at the end, its not going to give you returns of more than 5-6% at the end, so better make the policy paid up . This way you will release 5,000 per month .

Step  2 – Your RD of 5,000 is fine , let it go so that at one side , some money is secured. The 5,000 which is release out of LIC should be redirected to 2 good mutual funds through SIP . You said you do not understand Mutual funds, and hence not able to act . Trust me , Mutual funds are mainly for those who do not understand stocks and markets that well , there is nothing to understand there much , More than knowledge you need “discipline” here . All you need to do is start a SIP of Rs 2,500 per month in 2 funds . like HDFC prudence , DSPBR top 100 , HDFC Equity etc . Any of two will do .

Step 3 –  Better take a Term plan first for a good amount , like 50 lacs or 1 crore . Premiums will be a lot smaller compared to what you pay in LIC right now and it will be a yearly commitment which you can do .

Step 4 –  I think over next 6 months , you should also create your emergency fund, because right now your EMI is 21,000 , but because of movement in interest rates, it might go up and down , so you should factor in for that !

Step 5 –  Wealth will get created over a long term , short term focus should not be too much on what is performing in which manner , more than returns , right now just focus on your discipline and how you can increase your investments overtime .

I hope you got some good answers and value out of this thread .

Let us know if you feel more relaxed and did it serve you ?

Manish

I am sure the question and the answer must have given some hints and insights on what needs to be done in a particular situation. Can you improve on some of my suggestion ?

 

Everything you should know about Breaking your Fixed Deposits before Maturity

Posted on by Jagoinvestor

Today let me share the procedure and some points regarding the premature breaking of your fixed deposits. We have seen, that due to the ease of creating fixed deposits online, more and more investors create them if they are not able to find the right purpose of their surplus money and then in case of emergencies, they have to break their fixed deposits prematurely.

are you thinking of breaking you fixed deposits before maturity? here is the procedure

Procedure for Breaking Fixed Deposit Before Maturity

Now the procedure for breaking the fixed deposit is fairly simple and much faster. However, the whole procedure can vary across PSU banks and Private banks. The procedure can also vary if you take into consideration online vs. offline

When you create a Fixed Deposit or Recurring Deposit, the bank sends you Deposit Certificate or receipt after some days of opening it (In case of many PSU banks, you need to collect it manually by going to branch). This is just a receipt or a proof of deposit. Now you can carry this deposit certificate to branch and ask the bank official to break your FD, they should be able to process your request.

However in case you do not have the deposit receipt or have lost it somewhere, you don’t have to worry much, in that case, you will have to give them a letter or fill up a premature FD breaking form available at the bank branch, read further to know about it. Read about Requirement of Fixed Deposit on Opening Lockers here

Online Procedure of Breaking Fixed/Recurring Deposits

A lot of banks allow you to open create fixed deposits online from your net banking account.  I have seen that most of the private banks allow you to break your fixed deposits online itself, all you need to do is go to “service request” section of your net banking and you will see a section where you can break the fixed deposit before maturity.

In ICICI, when you go to “service requests” section, on the right-hand side you can see “Fixed/Recurring Deposits related”, you can go to that section and choose “Premature Closure of Deposits” and then choose the FD/RD number and cancel it.

Your request will be processed in the next working day and you will get the money in your account. Check the screenshot below which shows you that.

Breaking Fixed Deposit before maturity Online

Offline Procedure of Breaking Fixed/Recurring Deposits  by visiting the Branch

A lot of PSU banks do not allow breaking your Fixed deposits or Recurring Deposits online. You will have to visit the branch itself and manually break it. Here is what you need to do

  • Step 1 – Write an Application mentioning you want to break your FD/RD, mention the Deposit Number and account number where it should get credited. At times, you have to fill the premature FD Breaking form available at the bank itself. In almost all the cases, the fixed deposit is broken instantly, the bank official must be able to do it with a click of the button.
  • Step 2 – Attach an ID proof (PAN etc). Private Banks have the Xerox machines inside the bank itself, so you just need to carry the original id proof and they will help you with the photocopy.

Below is a sample letter stating wish to break the fixed deposit or recurring deposit prematurely.
Breaking Fixed Deposit or Recurring Deposit Letter

Do I need to pay fine on Breaking Fixed Deposits before maturity?

When you break fixed deposits prematurely before maturity, you will not get the same interest rate offered originally. You will get the interest rate which is applicable for the tenure you actually ran the FD for. For example, suppose you opened the FD for 1 yr originally, and the interest rate offered was 9 %.

Now if you closed the FD in let’s say 3 months, and if the interest rate for 3 months FD was 7%, then you will get only 7% interest for the period of your fixed deposit. Also in several cases, there might be penalty charges which are nothing but another reduction in your interest rates.

Like the bank, rules can say that if your FD was opened for 1 yr, and if you break it before maturity, you will get 1% less interest than offered. Many a time, there is no penalty for short-term fixed deposits.

Best practices before you create Fixed Deposits!

  • If you already have few commitments in near future, avoid creating long-term Fixed deposits, create short-term FD’s
  • Instead of creating one large FD (example 5 lacs FD), better create 2-3 FD of small amounts like 2 lacs + 2 lacs + 1 lacs. This way if you need a partial amount (let’s say 3 lacs or 2 lacs or 1 lac), you will be able to break the FD’s partially. It won’t affect the full amount
  • You can take a loan against Fixed Deposit or overdraft against your FD.

Some Important points to know

  • There is various kind of fixed deposits products, at times there are fixed deposits which also allow you to withdraw the FD money instantly through Debit Card itself, like for example Kotak bank Flexi-Deposit.
  • Also, if your fixed deposit is under Sweep In Account, then you should be able to withdraw the money instantly without manually breaking it, read more about the sweep in accounts here.
  • For some banks fixed deposits (private banks mostly), the some FD’s get broken if you issue a NEFT/RTGS transfer to some bank account. Like if you have a 2 lac FD in Kotak Bank (Flexi deposit) and if you transfer Rs 2 lacs in another account through NEFT/RTGS/IMPS, then the transfer happens and the FD is broken.
  • In the case of companies with a current account, company seal will be required along with signatures of partners.
  • In worst cases, your Fixed deposit breakage might require some approval from the main branch, but it should not take more than 2-3 days in worst to worst cases.

Share your personal experience about breaking the Fixed Deposit in the comments section if any!

4 FAQ’s about Investors Bootcamp Answered – which might be stopping you from joining !

Posted on by Jagoinvestor

Its only 5 days left for our investors bootcamp and we got some interesting questions from some our readers regarding Investor’s Boot camp that we are starting from 12th August. It is possible that you might be having same questions in your mind and so we thought of compiling questions for all. The concept of investors boot camp is new and it is perfectly fine if you have doubts or queries.

4 FAQ’s about Investors Bootcamp (Only 5 days LEFT)

Question 1 – I am a procrastinator by nature. If only I wasn’t a procrastinator, I know I could be a STAR Investor. I’m on jagoinvestor  from many months and I also follow other blogs on personal finance, I know I should be buying adequate life cover and health cover and be more goal driven but I am failing at taking actions. Can this boot camp be of help to me as an investor. I trust you guys fully and paying 4k is not an issue for me.

Answer:  “This boot camp is designed for procrastinator and for those investors who are struggling to take actions in their financial life. As a boot camp participant we will assign you simple actions every week and you will be reporting directly to us and we wont tolerate any kind of casualness from any participants. We are going to be extremely demanding and direct with all participants and will make sure you get strong on the action part. This boot camp is an opportunity for you and so don’t miss it.”

______________________________________________________________________

Question 2 – I am kind of person who will do a lot of research and always find myself in “Crossroad situation”. I am always confused as I have more than one option in front of me. I want to get out of my research mode and want to take many actions. Will this group be of help to me. Please send me details

Answer: The problem you are facing is faced by many investors. Investors are getting drunk on information on the name of investor education which is dangerous from wealth creation point of view. As boot camp participant we won’t dwell into intense intelligent discussions. We won’t over load you with more information. We will simply ask you to do X every week and you will complete X actions in your financial life. Let’s make things simple and do what is required to live a good financial life

______________________________________________________________________

Question 3 – I am very new as an investor and I have no personal finance knowledge. I have bought one of your books but still have not completed reading it. I am into job from last 1 year and want to start investing. Can this boot camp help me?

Answer: This boot camp has to be seen as a strong starting point. It does not matter whether you are new or an experienced investor. The content of each week will be generic and something that will be useful to all kind of investors. We will provide you with a structure and an environment where you will start to think and act in your financial life. We will help you to plant right seeds in your financial life that will be of help to you. We look forward to serve you.

______________________________________________________________________

Question 4 – I am still not clear how a boot camp can happen on a facebook group. I mean how will you guys help so many people in taking actions. The group will have people from different backgrounds and age level. I want to join and I know when you guys come-up with something it will be high on value but can you throw some light on how will you manage this boot camp. Thanks in advance

Answer: This is a very good question. The beauty of this structure is it’s simplicity. Anyone from any location can be a part of this boot camp. We have chosen facebook as most of the people have facebook account. This is new and first of it’s kind bootcamp but we will make sure that participants will create immense value. Every Monday we will upload one action sheet (Excel based) and will post weekly actions for all group members and on Saturday people will report their results.

The actions and material provided will make action taking extremely simple. We do not intend to create great investors in this boot camp but we want make better investors. Investors who are busy and want and extra helping hand in their financial life. In past we have done such groups for advisors community and we know the dynamics of how to help people move forward as a group

______________________________________________________________________

Even after reading these questions you have any further doubts or questions feel free to write us. We will be more than happy to answer your queries. And if you are clear this boot camp will be of help you click here and complete your registration. We invite all the readers to be a part of this Investor’s Boot camp

Are you getting fooled and paying extra money on your restaurant Bills ?

Posted on by Jagoinvestor

Do you know that you might have lost thousands of rupees in paying extra money on restaurants bills over last few years, just because you do not understand what does service charge, service tax and VAT actually means and how are they calculated. Most of the times customers take it for granted assuming that hotel must charged it in right manner and as per rules laid down. Lets learn about these 3 concepts today so that next time you pay a hotel or restaurant bill, you exactly know what you are paying for and raise your voice if something is wrong.

When the Bill Arrives

Just before the bill arrives, I have this habit of running “guessing competition”. Whoever is with me, I ask him/her – “Guess, what would be the bill amount be around ? Give the range , whoever is close wins !” .

Almost all the time I am very close to the actual amount, but then I am not close to the final amount to pay, because I always forget to consider various tax and charges applicable, which always inflates the bill by 20-30% . Imagine you eat worth Rs 1,000 and pay Rs 1,260 finally ! . You know that feeling :).

So if you look at your bills when you eat at hotels and restaurants, you will see 3 kind of charges namely “service charge” , “service tax” and “VAT” . Lets decode them one by one and see what exactly they are

Service Tax and VAT on Restaurant Food bills

1. Service Charge

Service Charge is a charge levied by restaurant for the service provided to customers. This is generally 5%-10% of the bill and restaurant owner is free to charge whatever amount he/she wants as service charge. Its up-to you to decide if you want to eat there or not. The service charge has to be displayed in Menu, only then it can appear in the final bill. If you do not see it on Menu, it means it was not communicated to you and you cant not be charged service charge.

Service Charge at Barbeque NationActually service charges are to be distributed among waiters and staff and its kind of compulsory “tip” to be paid. So if there is service charge on the bill, you are not suppose to tip officially to any one. So don’t feel awkward not paying the tip, because you have already paid it in form of service charge, however most of the hotels and restaurants never tell you this explicitly. However one of the exceptions I know is restaurant called “Barbeque Nation”, I could clearly see it was written in their menu that “We will levy 4% service charge on the final bill, and you are not suppose to tip any one (strictly prohibited), because service charge will be shared among the staff” . The ethics quality was as high as their food quality 🙂

So if your food bill is Rs 1,000 and service charge is 10% , then your final bill will be Rs 1,100 .

2. Service Tax

The important thing, you should be aware about is how service tax is calculated! . Do you know that, Service tax is only applicable on 40% of the bill amount, not the total amount. As the service tax is around 12.36% at the moment, the final tax you need to pay is only 4.944% (12.5% X 40%) on the bill (inclusive of service charge).

The next important thing you should know is that, only AC restaurant can charge service tax. If there is no AC in restaurant (fully or partially) , they cant charge service tax at all. This service tax goes to Govt of India. The service tax is payable on the bill amount + service charge. So if Bill amount is Rs 1,000 , and service charge was Rs 100 (10%), then your sub total would be Rs 1,100 . And your service tax will be computed on Rs 1,100 (not Rs 1,000).  4.944% of Rs 1,100 will be Rs 54.38 and your total bill after service tax would be Rs 1154.38 . A lot of unprofessional and small restaurants are found to charge service tax on the full bill and most of the customer pay because they have no idea what is wrong and what is right. Here is official Note on service tax

Note – On 3rd Nov 2012 , Bar Council by mistake interpreted that service tax is to be paid only on service charge, and it starting circulating over facebook and emails. But note that it was a mistake and later clarified that service tax is to be charged on 40% of the bill amount also. So dont fall for wrong information . Even some one posted it on our jagoinvestor forum and I myself believed it to be true !, but later decided to investigate it.

3. VAT – Value Added Tax

VAT is Value added Tax collected by State Govt. VAT is only applicable to the food items which are prepared inside the restaurant, because they “added some value” and then hand it over to you. So make sure you do not pay it on packaged items which are not prepared by Restaurant like Packaged food items, water bottles etc. A lot of times you eat at restaurant and also take a lot of packaged items, in which case VAT should be applicable not on final bill, but only sub total of the food items you consumed.

VAT Charges vary from state to state, but generally lie in the range of 10% – 15% . Like in Maharashtra its 12.5% , and in Karnataka its 14.5% . VAT is to be charged only on the main bill + service charges. It CANT be charged on the amount after service tax. So in the same example we looked about, the final bill after service charge was Rs 1,100 , so VAT at 12.5% will be Rs 137.5. Now total bill amount would be

  • Food Bill – Rs 1,000
  • Service Charge – Rs 100
  • Service tax (4.944% of 1,100) – Rs 54.38
  • VAT (12.5% of 1,100) – Rs 137.5
  • Total – Rs 1,291

29% higher Bills compared to Cost

You can see how various charges and tax can increase your final bills by 25-30% . So next time you pay your bills, just make sure your check, if all the taxes and charges are computed properly and as per rules.

Any personal experiences ?

20 terms which will Super Charge your Real Estate knowledge !

Posted on by Jagoinvestor

The biggest tool an investor has is knowledge on his side. But when it comes to real estate, we can see a lot of investors do not pay a lot of attention to smaller details which can create big problems for them. Today I want to hand over to you a real estate terminologies toolkit, which will explain various things to you in most simple and shortest way. When you go out to buy your home next, you will not need anyone on your side to have conversation with the builder and you will give him the feeling that you know more than him. It should help in someway.

Real Estate Terms and Termninologies

18 terms which will super charge your Real Estate knowledge

Here are those 18 terms and terminologies.

1. Carpet Area – When you buy a flat, you actually area on which you can lay carpet is called as “carpet area”. Note that builders advertise the property based on other parameters, but as a buyer this is what you are going to actually use for next many decades. Higher the Carpet area, better space you get.

2. Built up area – Built up area is the area which covers Carpet Area and the Walls and doors . A good 15-20% of space goes into walls and doors and your super built up area is generally 20% higher than carpet area. Ideally the rate quoted by builders is based on “built up area”.

3. Super Built up Area – A lot of times you will come across a term “Super Build Up area” , which is nothing but built up area along with all the space common to all the residents of society like Corridors, staircases, parking area etc . So Super Built up area is higher than Built up area. A lot of builders also use “super built up area” to advertise the projects which gives an artificial picture of property. Never rely on that

4. Sub-Registrar Office – For Registrations of Properties, there is an official department called “sub registrar office” , you can visit it to get your properties registered and also obtain any legal documents related to properties and land. If any officer tells you to “pay for Chai Pani” there, tell him you are filing a RTI and putting his name in the application for the “request” he made to you and ideally he behave properly with you. Note that you can get sub registrar office address online. Example – for Delhi its here

5. Capital Gains – When you sell a property after 3 yrs, the amount of profit you make is called “Capital Gains” . Tax will be applied on this Capital gains after applying Indexation. Also you can avoid paying this tax if divert the profits part in another property or another way of saving tax on that amount is investing in NHAI or REC bonds.

6. Encumbrance Certificate –  Encumbrance Certificate is an evidence of free title or ownership of property. This document clearly tells you if there is any legal or monitory dues on property. So if you are going to take a home loan against a flat, bank will need Encumbrance Certificate to be sure that there is no other loan going on for the same property. You can get the Encumbrance Certificate from the Sub-Registrar Office (where registration of properties take place). You can ask for upto 30 yrs of data (if available) . It takes around 15-20 days at times to get it after you have put a request to get encumbrance certificate . Read more about Emcumbrance certificate here

7. Title Deed – A title deed is a legal document used to prove ownership of a piece of property. So if you are buying property from Mr. Manish Chauhan, make sure you check the title deed. Title deed is something which you can get from Registry office of the concerned jurisdiction. Title deed is something which one must always obtain and check if you are buying an old property, because at times land and property is owned by some one old and children claim that its in their name just to speed up the process, but at times it gets ugly later. Important Tip – Never rely on Xerox Copies of the Title Deed, get it examined in original because sometimes the seller might have taken a loan and given in the original deed to lender (and does not tell you about this) .

8. Stamp Duty – Real Estate Stamp Duty is the tax collected by Govt . The stamp duty payable differs from one state to another. In some states its 3-4% and some has it at 8% also. The Stamp duty is payable on Agreement Value. So a lot of times buyers and sellers do the property agreement at lesser value and involve black money in the transaction. Its important to factor in stamp duty cost as per of your home purchase plan, because its quite a huge amount . For a Rs 50 lacs property, it can be in range of Rs 2-3 lacs. Important point is that women in many states have to pay lesser stamp duty compared to men.  For instance, in Delhi, a women need to pay a stamp duty of 4% compared with 6% for men. Thats 2% saving and for a 50 lacs house, its a saving of Rs 1 lacs” .

9. Franking Charges – When you go for home loan, there is a small charge called as “franking charges” paid you buyer to Bank . Franking (incase of real estate transaction) is actually the activity to stamping a document which proves that the Stamp duty has been paid to govt. Its an official seal kind of thing which is to be done in sub-registrar office for a small fees (Few Hundreds), this is done by the bank and they collect those charges from buyer.

10. Registration Charges – Just like you pay Stamp Duty, you also pay Registration Charges when you register the property in your name and the charges again depends from state to state . In Maharashtra, the registration charges are 1% of property or Rs 30,000
whichever is lower.

11. Gift Deed  – Generally you “sell” the property in exchange of money. But when you have to transfer the property rights to some one without taking the money like what happens in families, then you should to pass it on as GIFT and a Gift Deed should be prepared to document the process. Note that Stamp duty is to be paid even if the property is transferred through Gift Deed. Learn more about income tax on gifts here

12. Power of Attorney – A lot of times you will find that someone is trying to sell you land or a flat, based on power of attorney, which is a legal way of transferring your rights to someone else. But Supreme court has now banned all the real estate transactions based on power of attorney. So next time someone tells you that the owner of land is outside India and hence assigned him power to sell the flat, do not get fooled, only deal with someone with clear title deed.

13. Sale Deed – A sale deed is one of the most important legal documents in a purchase or sale of a property. Once its signed by the seller and buyer only then the sale is assumed to happen legally. The registration of property and stamp duty payable is based on sale deed only. A sale deed will also contain property details , measurements and other important details.

14. Service Tax and VAT – Service tax needs to be paid only for under construction properties untill complition certificate has been obtained by builder. Because till the flat is under construction, its regarded as “service”, so service tax is applicable (3.09% at the moment). But once the construction is over and complition certificate has been obtained by Builder, then the property like “goods” , where the service tax is not applicable. In the To be Paid for Under Construction Flats. VAT again is applicable for under construction properties, but only in those states where state govt has asked for VAT. Not all states have VAT applicable.

15. Conveyance Deed – Conveyence Deed is a legal document which a builder executes in order to transfer the land title to Housing socities formed. This is generally done once all the flats are sold in a project. This step is extremelly important because if this is not done, the title of land still remains with Builder and incase in future something happens, there is unnecessary legal battles. So make sure that once the society is formed, the conveyance deed is executed.

16. Completion Certificate – Once the project is completed, the local authority visits the site and inspects the construction and various things and awards completion certificate to Builder. so Completion Certificate is kind of certificate from local authority, that now the work is complete. This is the moment a builder can officially declare about the project completion. There still can be few last minute things which might need to be addressed.
17. Possession certificate – Possession letter is issued by the Builder which is actually the official permission to take possession of property. Generally its given to those who booked property during under construction. If its a ready to move in flat, the sale deed is enough and will work just like possession certificate. Note that a builder can give possession certificate only after he has obtained completion certificate.

18. Ready Reckoner Rates or Guidelines Value – For each area, there is a official govt defined rates for property which acts like the  base price. The minimum registration and stamp duty charges has to be on those guidelines value. Builders generally charge premium over these guideline values . Read more here

19. FSI (Floor Space Index) – It is the ratio specified by local authority (generally municipal corporation or urban development authority) which governs how much area one can build over a specific plot of land. i. e. if FSI for an area is 2 and you have a 1000 sq ft plot, you can build (2 X 1000) 2000 sq ft building over it. Generally, common areas like staircase, lift, passage leading to the flat door, service ducts outside toilets and kitchens, etc. are not considered in this 2000 sq ft FSI area, which means, you can construct these areas over and above the permitted FSI area. At macro level, this magic ratio called FSI determines how much construction will come up in a city.

20 – OC (Occupancy Certificate) – Well, generally CCs (Completion Certificates) are issued by municipal corporation in stages. i. e. a 25 floors high building may be issued CC for every 5 floors depending on its design. However, building is considered to be ready-for-occupation after builder has not only completed the construction but has also made it habitable by bringing in all services like electricity, water supply, drainage connection and fire fighting facilities. The corporation, after receiving NOCs from all concerned dept. will issue OC. Ideally, builder should / can issue Possession Letter only after receiving the OC. In reality though, several (not few) buildings have OC even after years of completion and being occupied. Buildings not having OC have higher outgo towards water bill, electricity charges and property tax.

Thanks Mehul for adding last 2 points as contribution

Please add more terms

If you are aware about some other thing which you have come across or feel can be added here, please add it in comments section.

Also let us know if you feel like a “pro” now in real estate terminologies or not ?