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Launching our 3rd book “11 principles to achieve Financial Freedom” – By Nandish Desai

Posted on by Jagoinvestor

We are extremely delighted to share the news about the launch of our 3rd book – “11 principles to achieve financial freedom”, which is written by Nandish Desai and published by CNBC18. I consider this book as a masterpiece work by Nandish, which presents a totally new dimension to investors on how to think about financial freedom and how to step by step improve their mindset and thinking beyond the traditional thinking and ideologies when it comes to money.

When Nandish started writing the book, we brainstormed many times as we wanted to make sure the book becomes a gem of the lifetime. I read the book at every stage and re-read it 3-4 times after it was completed (as part of proof reading and to check things are fine) and every time I personally got so much learning and value out of it. I think every investor who will not read this book will loose some thing amazing in his life.

11 Principles to Achieve Financial Freedom - Personal Finance Book by Nandish Desai
Pre order Book

What is the Book all about – “Forward” from me

The best way to give you an idea about what this book is all about, I am putting the “Forward” section which is written by me specially for the book. It will clearly give you the understanding of what this book is all about.

Right now, what you are holding in your hands is not just a book, but years of effort and creation. Nandish and I started our career making financial plans and somewhere we started to realize that many investors’ financial life was changing after having a financial plan in their life. After a lot of research, we concluded that a financial plan was just one part of the process and other elements were required to live an awesome financial life. This book is about those elements that we have discovered over time.

We challenged the traditional financial planning process a few years ago and that is how our financial coaching program came into existence. This book is based on our financial coaching program that we have conducted with over 100 people spread across the globe.

With this book, we invite each investor to look beyond financial products and returns, and look at wealth creation as a game. Most investors make investments out of compulsion and out of need; the core message of this book is to see wealth creation as a project and will teach you how to fall in love with the process of wealth creation.
There are books that follow the trend and there are some books that set the trend. This book falls in the latter category; it is here to set the trend in the personal finance world.

Discovering who you are as an investor

Most investors are in search of solutions and answers; this book is not about getting answers, but about discovering who you are as an investor and gaining insights on how you can connect with your true wealth.
Nandish has written this book after working with hundreds of people. I am sure this book has the power to change your financial life; to some it will act as a wake up call, to some it will help them discover who they are as an investor, to some it will help them add different dimensions to their financial life.

While I was going through the initial draft of this book, I was convinced that this book would be a game changer not only for investors but also for financial planners. This book is simple and yet powerful and it will leave a deep impact on you as an investor.

There is a lot of hype around the words “personal finance” and “money” out in the world. While you are reading, this book will teach you to fall in love with the process of wealth creation.

Working with a Financial Coach

The narrator of this book is Sam, an IT professional based in Mumbai, who shares his experience of working with a financial coach. This book is not a story but it has conversations between Sam who is a lost, confused and directionless investor and his financial coach. They both meet and Sam participates in a program called the “90 Day Money Game.” The coach invites Sam to work with him for the next 90 days. The money game has 11 exciting levels that span the next 90 days.

Sam is a confused investor full of fear with a pessimistic view about his financial life before meeting his coach. But with each passing level, as his financial coach teaches Sam, his life starts changing as he implements the elements of living a great financial life and incorporates changes in his thinking and attitude towards various things. As Sam starts experiencing a big shift in his financial life, he starts to experience a new level of enthusiasm, positivity and motivation. With each passing level, Sam identifies why his financial life was a mess and how his whole life offers great possibilities.

The book teaches that an upgrade is always available in life. At the end of the 90 Day Money Game program, Sam is now a totally new Sam. He calls this his journey from Sam 1.0 to Sam 2.0.

If you also feel that you need direction, motivation and some exciting new ideas in your financial life and you want to move towards financial freedom, this book is for you. Nandish is an amazing financial coach in real life who has worked with hundreds of investors and changed their lives. Now it’s your turn!

11 levels inside the book

The book is beautifully written where the coach takes a person called Sam through 11 levels, each of which fuels a new thought inside the investor mind and opens up his thinking level in a totally new direction. Here are those 11 levels (chapter names), may be you get some idea about them by name of the chapters.


[table]

Level 1 Laying a strong foundation
Level 2 Creating new relationship with money
Level 3 Investigation begins
Level 4 The game changers
Level 5 Don’t set goals, set yourself
Level 6 Create system to create wealth
Level 7 Mastering game of financial freedom
Level 8 Active income vs. passive income
Level 9 How wealth is created
Level 10 How to increase your income
Level 11 Make each year your best financial year

[/table]

A small taste of the book content

Let me share with you 1-2 pages content from the book middle chapter, so that you can get a taste of the book

Personal finance is a level 3 promise

My coach said that 90 Day Money Game is all about making and keeping promises. Personal finance is not about gathering knowledge; it is a game of promises and actions.He taught me three levels of promises, which helped me immensely. Let me share what he taught me. He asked me to close my eyes and asked me three questions.

How good you are at keeping your professional promises?

I replied, “I am extremely good at keeping my professional promises.”

How good you are at keeping your personal promises? (With family and friends)

I replied, “I am not that great at keeping my personal promises. I keep them at times and break them at times.”

And how good you are with promises that you make with your own self?

I replied, “I am very bad in this area. I have a series of broken promises.” This question made me feel very guilty as I could see many such broken promises in my life.

He then asked me to open my eyes. He wrote on a white board


[table]

Level One  Professional promises  You keep them always
Level Two  Promises made to family members  You keep them at times
Level Three  Promises made with self  You break them all the time

[/table]

Professional promises: He said, “Sam you are good at keeping your professional promises, when a new task is assigned in your professional life, you really make sure that you give your best. Your colleagues see you as a committed person. You feel so proud when your company and its people see you as a committed person. You really do whatever it takes to fulfill your professional work commitments. At times you become a warrior, you work extra hours, take your work home but you make sure that the promises are kept.”

Promises made to family members: He asked me whether I had broken promises with my family members. My answer was “yes.” I could see that I have not taken my personal promises seriously the way I was with my professional promises. I could see the GAP between both levels.

Promises with self: This really came as a shock to me as he asked me how many broken promises I have with my own self. I could not even count them, as they were so many. I could see myself as a master killer when it comes to breaking promises with self. Every day I used to make a promise of waking up early and going for a morning jog but never went.

3 levels of promises

My coach said, “You are good with your professional commitments, you are ok with your family or personal commitments and you are the worst when it comes to making and keeping promises with self.”

Going for exercise every day and personal finance actions falls in third category where as an investor you need to make promises with yourself and then complete them. At a family get together or in any business conference no one will ever ask you whether you are consistent with your investments or not. No one will ever ask you whether you are paying your premiums or making your investments on time or not.

I got a very important lesson that quality of my financial life depends on how many promises I make and keep with myself.

He said, “Every time you have a broken promise, you are going away from your cheese.”

This was a big lesson for me, which I wrote in my wealth journal.

Learning – Personal finance is all about making and keeping promises

Want to join Action Revolution ?

For those who are promising themselves that they will take some actions in their financial life, we are coming up with an amazing action oriented program which we are calling as “Action Revolution”, launching on 1st May – Be on our email list to get the first chance to register for it. CLICK HERE

This book is 3rd one from jagoinvestor team . We have also published 2 other books . You can look at our books page to get all information about the 3 books.

Pay Rs 50,000 or buy this book

Nandish has worked with over 100+ coaching clients (we offer a program called financial coaching at Rs 50,000 at the moment). This is the best way to get exposed to what is it to work with a financial coach personally. So I would say, you should not even think for a moment and grab this book asap.

Getting Claim from Multiple health insurance policies – Rules and Process Explained !

Posted on by Jagoinvestor

One of our readers Yogesh asked on our Jagoinvestor forum, about the claim process in case of multiple health insurance policies. I then realized that this is one the biggest doubt in the mind of investors and it needs to be cleared. Another doubt which is there in many minds is what is the claim process and the documents required if one wants to claim from multiple health insurance companies.

Multiple Health Insurance Claims

In this article, I will explain you the rules regarding heath insurance claims from multiple companies and some important points, along with the claim procedure too!. Recently IRDA came up with IRDA (Health Insurance) Regulations 2013 and overall it has made the claim process more easy and customer friendly, which we will see in some time.

A lot of people can end up with multiple health insurance policies with them. It may happen that they have a health cover from employer, and side by side they have taken a separate health insurance plan (which is a good thing) . Also there might be a case that a person had a old health insurance plan taken years back and now he has taken extra cover through a different plan . Another case can be when a person has taken more than two health insurance plan so that parents are also covered and immediate family like spouse and kids are in another policy. So these are few reasons why a person can hold multiple health insurance plans.

Declaring your existing Health Insurance while buying a New Policy

Before we move forward, its extremely important to understand that when you take a new health insurance policy, you always have to declare your old health insurance policies which are currently in force. This would include all those policies for which you are paying the premiums yourself from your pocket. If you are not paying the premium from your pocket and if your employer is paying it, then you don’t need to declare it in the new policy. Note, there are certain Insurance Companies which do not demand such information. In such cases, you are not required to inform about this.

This is extremely important because if you do not disclose this fact, you are violating the terms and conditions of the health insurance contract and in case of investigation this could be termed as mis-representation. Now we will discuss the rules regarding claiming from multiple health insurance policies .

Claiming from multiple health insurance policies

A lot of things have changed few months back. So we will discuss both “before” and “after” rules, so that there is no confusion left.

Before the Regulations (Previous Rules) 

Before the regulations came into effect , there was something called as “Contribution Clause”, which said that a customer has to inform all the health insurance companies he is insured with and all the insurance companies will contribute the cover amount in the ratio of their sum assured (read how much health insurance is good enough). Obviously the assumption here is that the insurance companies are aware that you also have a cover with someone else , which you must have declared with them at the time of taking the policy .

For example , if earlier you had two health insurance plans with 3 lacs sum assured from company A and 1 lacs sum assured from Company B , and if you had a claim of Rs 2 lacs. Then you had to ideally inform both the insurance companies about the claim and they will settle your claims in the same ratio of the sum assured. So 1.5 lacs (75%) was to be paid by company A and 50,000 (25%) had to be paid by company B because of the “Contribution Clause” . Its a different matter than customer never told one insurance company about the cover with another companies and the company which got the claim request happily settled the full amount, even if it was not supposed to . This kind of rules earlier made sure that it was not in customer interest and lot of hassles was there if he had more than two policies. But after the regulations it has changed !

After the Regulations (Current Rules) 

Now after the regulations are into effect, the claim rules are very easy . Now the contribution clause will not be applicable if your claim amount is less than the sum assured of the insurer where you are claiming. However , if your claim amount is above the sum assured of the policy, then the insurance company will impose the contribution clause. You are free to choose which insurer to catch for your claim. So let us revisit the same example we took some time back.

  • 3 lacs sum assured by company A
  • 1 lacs sum assured by company B
  • Claim amount = Rs 2 lacs

Now with the new regulations , you are free to catch company A or company B to settle your claim, but now

If you go to Company A for settlement – Then your claim amount (2 lacs) is less than the sum insured (3 lacs) , so company A has to fully settle the full claim of 2 lacs and they cant tell you that the contribution clause will apply.

If you go to Company B for settlement – But, if you choose to go to company B for settlement , then your claim amount (2 lacs) is more than the sum insured with them (1 lacs) , so company B , has the right to apply the contribution clause and then they will only pay 50,000 to you (25% of their share , remember  they have only 1 lacs sum assured out of your total 4 lacs) and will ask you to claim the rest from company A .

Now imagine the different scenario where your claim amount is 4 lacs

In-case here in this same example, if your claim amount is 4 lacs, then your the contribution clause will apply because your claim amount is more than the sum insured of 3 lacs and 1 lacs both, so it does not matter which company you approach first, the contribution clause will come into effect .

Better to have a Large cover with single insurer

Which now explains why its advantageous to have a big enough cover from a single insurance company (like say 10 lacs sum assured from one company) , rather than having small covers from multiple insurance companies like (4 lacs , 4 lacs and 2 lacs from 3 companies) . You will face a lot of documentation issues if your claim amount is large because then the contribution clause will apply. ( Read 17 Most asked questions in Health Insurance)

I hope these examples has made it clear to you about the the rules for multiple health insurance policies claims . In-case you have more than 2 policies , still the same rules will apply.

What is the Claim Process in case of multiple health insurance policies?

Here there can be two cases – Reimbursement Claim or Cashless Claims , but for this article, we are looking at reimbursement claims procedure. Even in case of cashless claims , if its from more than one insurer, reimbursement is involved anyways, because – The final approval for any Cashless claim comes at the time of discharge. Hence, only one claim can be made through cashless. All the other would have to be made through the reimbursement mode. Now lets see what is the procedure involved in claim process.

In case of single claim

  • Intimate the health insurance company at the time of hospitalization
  • At the time of actual reimbursement, fill up the claim form
  • Attach all the bills, receipts, discharge documents, prescriptions, diagnostic tests, including films required by them in ORIGINAL
  • Keep tab on the claim status. The TPA or Insurance Co. could ask for additional documents for settlement of the claim. You need to provide such documents.
  • You will get the claim in  around 30-40 days depending on Insurance Co. to Insurance Co.

Incase of multiple claims

  • Intimate all the health insurance company at the time of hospitalization
  • Now you first have to choose the company from which you will claim first.
  • Fill up the claim form
  • Attach all the bills and documents required by them in ORIGINAL
  • Take additional attested copies from Hospital for the no. of insurance companies you are likely to claim from.
  • Insurance company will issue you a statement saying that they have all the original proofs and documents and they have settled the claims
  • once the claim is settled by first company then you move to the next company, you need to get a claim settlement summary (which mentions about the claim made, deductions made, and claims settled etc.)  then you move to the next company
  • Fill up their claim form
  • Attach the claim settlement summary
  • Attach Attested copies.
  • Create a covering letter explaining that you have earlier claimed from Company X, and the details of documents enclosed.
  • If you still want to claim it from more companies , take the claim settlement document from 2nd company also.
  • Repeat the process with all companies from which you want to get the claim. You will get the claim in some days or weeks

How will the claim be paid

  • The first Insurance Company will apply deductions and limits as per the terms and conditions of the policy against the claim made and make the payment.
  • The second Insurance Company will also apply deductions and limits as per the terms and conditions of the policy against the claim made as if the claim is originally made to this Insurance Company, and arrive at the payable claim amount. Once this amount is arrived, it will deduct the amount already received from first insurance company.

Does Sequence of Claim matter in-case of multiple companies ?

My friend told me that the amount of claim you get back at times can be different depending on the sequence of claim. Mean if you settle your claim from company A first and then Company B , it might happen that you may get less money back compared to when you first approach company B and then company A .

But there is a catch here, this situation assumes that the insurance company does not apply the contribution clause, which actually happens in reality. Mahavir Chopra shares with me that in real life , the claim cases they handle, they have observed that companies do not bother to apply contribution clause even if it applies. So the companies in real life in maximum cases, the health insurance companies settle the claim or reject it as per the situation and condition.

Now coming to the main point which I wanted to tell you. Lets say that someone has two health insurance policies with him.

Policy 1 – 2 lacs sum assured (but with some limits and sub limits applied)
Policy 2 – 1 lacs sum assured with NO LIMITS or restrictions

And lets say that his hospital bill was 2,50,000 in total as explain in the chart below. So now he has two choices , Either claim from Policy 1 and then Policy 2 , or reverse that order and first claim from Policy 2 and then Policy 1 . In both the cases he will get back different amount. Lets see those.

Maximize your claim in health insurance from multiple health insurers

Learning – In case you have 2 policies , and there was a case where you have to claim from both of them, always claim first from the company which has LIMITS and restrictions, and later from the company which does not impose any limits, this will maximize your claim amount in total.

Important Note – In case where contribution clause is applied, even in that case the conclusion remains the same, the case 2 claim amount in that case is 1,14,000 (unlike 1,71,000 without contribution clause) . You can check out the workings yourself.

Some Good practices and points to remember

  • If you have a group cover from your employer, it would be a good idea to apply for the claim from them first, because the claim process is faster with group cover , the preexisting illnesses are also covered there in initial years and lastly, the number claims there is not going to impact your premiums .
  • Its always a good idea to have a single company cover of a higher amount, rather than having small covers from many policies, If you have small covers from different companies, it would be a good idea to consolidate your cover in a single policy or maximum 2 policies, not more
  • The same thing claim rules will apply in-case of Top up and Super Top up health insurance policies, because there you claim from more than 2 health insurance companies.

Conclusion

At the end, I would say that its always good to have a big enough cover for yourself so that you don’t have to deal with multiple health insurance companies. You can have the separate cover along with your employer cover if you want. So, How many health policies do you have currently ? I hope you are now clear about the claim procedure from multiples health insurance policies ?

Is filing FIR compulsory for issuing duplicate passbook in PSU Banks?

Posted on by Jagoinvestor

Ayush lost his SBI bank account passbook and faced some issues from SBI bank, which I thought should be shared with others . Here is what happened with him. Read it directly from him (through our jagoinvestor forum)

Hello everyone. I recently lost my SBI savings account passbook unfortunately somewhere in my home. When i approached the branch, they said i need to file an FIR in the nearest Police Station. They said without it they will not issue me a duplicate passbook. When i went to the Police Station, after making me wait for an hour, officers were asking me for a bribe to file an FIR. : ) They were also asking for my complete account and other personal details. I hesitated to disclose any personal details to anyone. I thought i should avoid having an argument with them. So i came back home without filing an FIR. Isn’t it too much to ask for, for just issuing a simple duplicate passbook?

I also have accounts with HDFC and ICICI Bank, one for expenses and the other one for savings and investments. In HDFC Bank, they issue the passbook on the same day in case of loss of passbook. You just have to give a written application to them and its done within few minutes. Now i am thinking of leaving the SBI account dormant after leaving the balance to zero. It is so much of a headache. : ) I only opened the savings account with SBI because they have the best network of ATMs in the country. Is filing FIR in Police Station compulsory for issuing a duplicate passbook?

Is FIR really required to claim the duplicate Passbook Copy ?

The answer is NO .

There is no requirement like that . As soon as I read Ayush question on our forum, I was very clear that SBI employees whom he contacted just didn’t wanted to work and wanted to have an easy day in office, so they misguided him by telling that he needs to have a policy FIR for this, which actually worked ! and Ayush was back to home frustrated, promising himself that enough is enough and he does not want to SBI bank account at all. I feel SBI needs to seriously work on its employees and train them on “Customer Handling” .

Procedure to get the duplicate passbook from bank

The process is as simple as anything . Pattu (very active on our forum) shares 

I have lost my SBI passbook twice and got it replaced. There is no such rule. These days they have our photo and signature stored in the computer. So if the account holder turns up and gives a request for new passbook they will have to comply.

Even Naveen shares his parents experience 

Let me share my exp with SBH , where both my parents have sb accounts. My father needs passbook entries because he is not comfortable with debit card transactions and not having much knowledge about internet etc… He kept both passbooks at some location and couldn’t recollect where they are. Later, i have been to SBH branch and paid a challan paying slip( below 50 I remember 3yrs back) for both the accounts and submitted receipts to clerk, where i have been told to come at 4 pm later on the same day with both my mom and dad passport size photos…

Passbooks are ready and photos are pasted and stamped with bank seal and submitted to me on the evening itself. I felt happy for the service bcos my parents cant travel long to do this by themselves..

Give them RTI shock !

I had explained earliar how you can use RTI against PSU banks to get any kind of information and that’s exactly I suggested him. I suspect that SBI guy who told him that was not in the mood to work that day and just wants to tell you things which will make sure his work decreases.  I would say go to the SBI bank branch and tell that officer that you filed a RTI and put his officer name and asked them that what this officer is telling me is really required or not and RTI reply said that – There is no requirement like that . Demand him to meet bank manager and confirm it.

Finally what happened ?

After we all helped this guy on forum, he went back to bank branch and applied all that we told him. This time it worked and here is what happened –

 I went again to the branch and this time the same lady officer who was persistent for filing an FIR said that it is not compulsory. I was amazed by her reply. I also felt angry that i have to make two trips to the bank for this. The lady officer said, i have to talk to the Branch Manager in this regard and if he agrees, she will issue me the duplicate passbook. So i waited for another 1 hour since the Branch Manager was not in his room. When he didn’t came for another 15 minutes, i left for home. So i have to make another trip to the bank. This time i will directly talk to the Branch Manager and if he doesn’t agrees i am done with the bank. I will leave the account dormant after leaving the balance to zero. So much for issuing a simple passbook. : )

What do you think about this incident ? Do you feel PSU banks exploit customers ? Any personal cases ?

Direct Plan of Mutual Funds – Everything you wanted to learn about it !

Posted on by Jagoinvestor

A lot of buzz is going around “Direct Plan” when it comes to Mutual funds. A lot of investors still don’t understand the full impact of Direct Option and if they should invest in the same old way or with this new option. In this article – we are going to unearth all the aspects of Direct and Normal Option of investing in mutual funds.

Direct Plan in Mutual Funds

Direct Plan in Mutual Funds – What does it mean ?

SEBI few months back announced that all the AMC’s should come out with two options for each and every mutual funds scheme they have, One will be normal one (which you have been looking till date) , And Then the other option will be DIRECT PLAN, which will have a lower expense ratio compared to the Normal Option . This is because when you invest in mutual funds direct plan, there is no intermediary involved in between and a lot of costs which are associated goes away . That’s the reason direct plan will have less expense ration. So If I have to explain in one line. Direct option of mutual funds will have no agent in between , you will be directly investing with AMC . However with the NORMAL Option, you will be investing through an agent which can be any individual or a online broker.

A mutual fund scheme will have to affix “-DIRECT” word in their scheme name. So for example now there following options for investments if you want to invest in HDFC Top 200 mutual funds.

  • HDFC top 200 Growth Option
  • HDFC Top 200 Growth Option – DIRECT
  • HDFC top 200 Dividend Option
  • HDFC Top 200 Dividend Option – DIRECT

Its a big worry for those agents who are not adding any value through their advice and have HNI/big clients.

And guess what already Direct Plans are HIT among investors and a lot of investors and big corporate investors (who invest in DEBT mutual funds) have seems to have shifted to mutual funds direct plans. This is proved by the fact that in the first month of Jan – 2013 alone, 56% of the total incremental flow of 60,732 crores in mutual funds was through direct option, which is around Rs 33,830 crore, which means that out of total Rs 100 , which was invested in mutual funds, Rs 56 came in through Direct Plan and only Rs 44 came in through Standard plan, but the majority of that would be in Debt fund, but anyways – the point if that Direct Plans are already popular and investors have started taking the advantage.

Is Direct Option Superior in Terms of Returns ?

Now lets look at the returns from Direct Plans vs Standard Plans and lets see some aspects related to it.

Expense Ratio of Direct Plans vs Standard Plans

Expense ratio of a mutual fund has a deep impact on the final returns over long term. A small decrease in expense ratio can increase your long term returns by a very good margin, provided every thing else is same. Direct option of mutual funds are going to have a good enough difference when it comes to expense ratio. If you talk about equity funds, the direct plans will have anywhere from 0.40% to 0.75% less expense ratio compared to a standard plan . For example – If I have talk about HDFC Top 200 mutual fund , the standard plan has an expense ratio of 1.78% per year . Where as the Direct Plan expense ratio is only 1.19% , which is a 0.59% difference and whopping 33.15% less than standard plan , Means that you will save 33% costs when you migrate to Direct Plan of HDFC Top 200 as an example . Note that all the numbers I just quoted are as of 28th Mar 2013, and change in future. I checked few equity funds from HDFC Mutual funds and DSP Black Rock and found that that the ‘Direct’ option have lesser Expense ratio compared to their Standard Plans . Here is a snapshot for 5 funds.

 

Difference between Expense Ratio

expense ratio difference between standard and direct mutual fund

Difference in NAV ?

The Direct Plans took effect from Jan 1,2013 . Means that on Jan 1,2013 the NAV must be same for Direct and Standard Plan and from there, the NAV must be different for both plans. And As Direct Plan expense ratio is going to be lower, the NAV for direct plan should also be lower and the gap should widen too. To just make sure that its happening in reality. I picked up the same HDFC Top 200 and listed down the NAV for both standard as well as Direct Plan from Jan 1,2013 to Mar 26th 2013 and checked out the difference between them and I was correct . The NAV gap was growing and Nav in direct option was 0.13% higher than the standard plan NAV , thats just 3 months of difference and if you extrapolate in future, the difference might be as good as 0.5%-1.00% difference in a year. Thats a big enough amount, 0.5% on Rs 10 lacs portfolio means Rs 5,000 . Isn’t that a good ! . And if you look into very long term in your financial life , the difference will be very high, which we will see now

NAV difference between Direct Plan in mutual funds vs Standard plans

Impact on Wealth ?

Considering the same example of HDFC Top 200 and their expenses ratio of 1.72% (standard plan) and 1.29% (Direct Plan) , What happens to your wealth after 10,20,30 yrs if you consider these two options ? Will the corpus you will accumulate at the end will be huge ? Even if we assume a conservative returns of 10% on equity in long term, the difference in corpus at the end is huge because of sizable difference in the expense ratio. Below I have provided the corpus of two options and the difference between them over 10 yrs, 20 yrs and 30 yrs.

Direct Plan Mutual Funds Corpus Impact

Note that these numbers and difference might look big to you, but you will not realize the difference to be very big in a short term like few months of every 2-3 yrs. Also you might argue that one might not invest for such a long term, but we are only highlighting the impact of such costs and its impact in long run.

So, Now I hope you must be clear about the Impact of mutual funds direct plan on your wealth.

Who should invest in Direct Options

Now coming to the important question – Who should Invest in Direct option of mutual funds ? A lot of people might feel that direct plan is for each and every investor , but thats not right way of looking at it . Only those investors should go with the direct plan of mutual funds who are

  • Capable of choosing right mutual funds for themselves
  • Who are ready to review their portfolios all by themselves without anyone help
  • Those who can point to bad performing mutual funds and remove from their portfolio
  • Who are ready to invest with each AMC seperately

I guess a lot of people will fall into this category and would be ready to go the direct route for the kind of benefit they get out of it. However lets see who should not choose Direct Plan

Who should not Choose Direct Plan?

You must be wondering who should not invest in direct plan ? A lot of investors have very very good advisers , who have good capability to advice and record keeping abilities. The value of their timely advice is so much that it over weights the advantage of direct plan. So if you feel that you have an adviser who helps you pick good funds and helps you in removing bad funds over time and because of him you are able to get extra 2-3% returns on your portfolio, its worth paying commissions he deserves . Also It might happen that you are a busy person who wants a third party to handle your portfolio and inform you on time to time basis about your portfolio and whats going on where , you might want to consider not moving to direct plan.

So at the end , its about the question – “Is there any value in sticking with your adviser , platform or financial planner?” and if its adding enough value to your financial life , and do they deserve the commissions they get out of your portfolio with them. Its a question you need to ask yourself . Do not rush to convert your mutual funds into Direct plan .. Take some time to think over it and look at the long term effects of it.

How to invest in Direct Plan of mutual funds ?

The only thing you need to do is when you fill up the mutual funds investment form, there is an option called as “Direct Plan” there, all you need to do is put a tick mark there, If its ticked marked, then your investments will be into the DIRECT plan . Even if the agent/distributor puts his ARN code (the unique code which identifies a mutual fund agent) , he will not get any commissions from your investments. Also in some of the forms , that separate tick-mark option might not be available, in which case you have to mention the word “DIRECT” in the ARN column . Note that if you forget to mention that you want it to be under DIRECT plan and also the agent code is missing, by default the investment is going to be under mutual funds direct plan .

You can fill up this form directly with the AMC by going to their Office , or you can also use CAMS/Karvy for making investments , who are back-office partners for a lot of AMC’s . If you invest through CAMS/Karvy , still the investments will be into Direct plan, just make sure you do not leave the DIRECT unticked.

How to Change your Existing Mutual funds to Direct option?

Your existing investments in mutual funds will NOT switch to direct plans automatically, no matter you did it with an agent or directly with AMC (Read which AMC is better then other) . It will has the same expense ratio as of old funds.

To convert your existing holding from a standard to a direct plan, you need to submit a switch request. All you need to do is contact your AMC and ask for Switch reuest form . Which is a written request telling them that you want your existing mutual funds to be now converted into DIRECT plan . Once they get this request , they will process it , they will intimate you once its done . Your agent will not like you for this 🙂 .

Will my existing SIP’s be considered under Direct plan by Default? ?

All the SIP’s which were made through an agent/distributor will still be under the standard plan , you will have to manually request the switch to Direct Plan . But if you had any SIP which was done directly with AMC (without involving Agent Code) , in that case your SIP’s  done after Jan 1, 2013 will automatically be considered under DIRECT plan , but all the old SIP’s which were done before Jan 1,2013 will still be there under Standard Plan and the higher expense ratio will apply there.

Can you convert your existing Tax Saving Mutual Funds (ELSS) under Direct Plan ?

If your tax saving mutual funds are still in lock in period , then you CANNOT convert them right now, only when the lock in period is over, you will be able to convert them into Direct Plan.

Will there be Exit Load applied when I move to Direct plan ?

Yes and NO !

If your existing mutual funds investments is through an agent/distributor , then there will be exit load at the time of switching them into a Direct version of mutual funds, but if your existing investments are through AMC directly, then there will not be any Exit Load while switching to Direct plan.

Important Points

  • There is no DIRECT option in ETF’s and closed ended mutual funds
  • There will be no difference between the portfolio’s of Direct Plan and Standard Plan . Every thing will be same except that the Direct plan will have a lower expense ration. Thats all !

Finally Are you going to invest into the Direct Plan of Mutual funds or going to continue with your old investments through an agent or distributor ? Please share your thoughts and inputs about it. What do you think about the Direct Plan of Mutual funds ?

RSU, ESPP and ESOP – Understanding Meaning and Taxation

Posted on by Jagoinvestor

Most of the people who join their first job,  get benefits like RSU, ESOP and ESPP as part of their CTC package (infact this is how employers show a high CTC while recruiting).However most of the employees do not understand these things in the beginning. Over the next few months, they start getting some knowledge about these benefits as employee.

A lot of people confuse these 3 things with each other and often do not have a full understanding of what they mean and how they work and what are the tax implications when they exercise their benefits.We will now take each one of these and understand them.

employee benefits RSU ESOP ESPP India

In this articles lets understand all these 3 things – RSU , ESOP and ESPP in detail.

1. RSU (Restricted Stock Units)ESOP

RSU or Restricted Stocks units are very simple to understand. The Company gives company Stock to an employee without any conditions, however there is a vesting period involved. Vesting Period is the tenure for which you will have to wait, before you can claim those shares. So if a company gives you 100 RSU vesting in 2 yrs. That simply means that after 2 yrs, you will get 100 stocks of the company. It will be all yours and you are free to keep them or sell them after that. RSU’s are also a great way to reward the employees, like in 2012 WIPRO awarded 4.5 million RSU’s to its 1200 employees (mostly top management).

RSU’s are a great way to make sure that the employee stays with the employer for long term. Imagine a company, who gives 1000 RSU’s vesting in 4 yrs. An employee will thinking many times before changing his job, because if he leaves the job and moves to another company, then he will loose those RSU’s, which might be worth a lot of money depending on the stock price. I had myself got RSUs from Yahoo, when I joined them, but due to their declining stock price over so many years, RSUs were not a great motivator for me. It was just a bonus amount for myself.

RSU can also be given in phased manner sometimes, like 25% RSU each year. So if company is giving 100 RSU’s with condition of 25% RSU vesting each year, then 25 shares will vest in first year, then another 25% in 2nd year and like this, only after 4th year, an employee will be able to get all 100 stocks.

Its worth noting that if you leave a job, a lot of companies require you to sell your RSU’s in next few months. for example next 3 months.

2. ESOP (Employee Stock Options)

Employee Stock Options or ESOP are generally given by most of the big companies in India, especially IT companies which are listed outside India. ESOPs are nothing but “OPTIONS”, which are also in stock market in India (remember Future & Options?)

Let me tell you what Stock Options are in general. If a person has a Stock Option, he actually has a right to BUY a stock in future at a pre-decided price agreed at the time of giving those stock options. So in future whatever is the market price does not matter, you always have an option to buy it at the price which was agreed upon. In this case if market price of the stock is above the pre-decided price, then you can just exercise your options of buying the stock and instantly you will be in profit. If however, the current market price is less than the pre-decided price, then you choose not to exercise the stock option at all and nothing happens.

Let me give you an example. Let’s say that an employee joins a company on 1st Jan 2013. His company gives him 500 ESOPs with vesting period of 3 yrs and at the vesting price of Rs 200. What this means is that his vesting date is 1st Jan 2016 (after 3 yrs) , On that date, he has a OPTION to buy 500 stocks of the company at Rs 200 if he wishes. Now lets say on 1st Jan 2016 …

Case 1 – The stock price is Rs 800

In this case, the employee can exercise his option and he can get 500 stocks at only Rs 200 . At this moment, the employee will make a clean profit of Rs 600 each shares and a cool Rs 3,00,000 . Note that he does not have to pay anything here, when he exercises his option, he will automatically get his profit without putting anything from his pocket. It makes sense to exercise his option in this case, because vesting price is less than market price.

Case 2 – The stock price is Rs 130

In this case, it does not make any sense to exercise, because you will be in loss, because the price you have to pay is less than market price, so you let this option go.

Note : In case of stock options, you can never make any loss, it will always be some profit only.

3. ESPP (Employee Share Purchase Plan)

ESPP or Employee Share Purchase Plan is a benefit given by employer to its employees to purchase the stock of the company at a discounted price. In an ESPP plan, an employee has to contribute a part of this salary in ESPP plan each month. An employee can choose how much of his salary he wants to contribute by himself. It can range from 1% to 15% of his salary. All the money which he contributes gets accumulated for few months and then in one go, stocks are purchased for him at some discounted price. On what price the discount will be given depends on your company EPSS plan. However in general its the minimum of the prices in the start of the EPSS plan and at the end of the ESPP plan. Let me give you an example.

Suppose your company offers a ESPP plan twice a year which you can opt for, one window opens is Jan-June (where you can join in Jan only) and other is July to Dec (You can join in July only). So you will have to tell the company how much you want to contribute each month before hand. If you choose it to be 10% , then 10% of your salary will be cut for ESPP plan and you will get the rest in your hand.

Now suppose a person chooses Jan-June window and he is contributing 10,000 a month for this, then in next 6 months, he will accumulate Rs 60,000 for ESPP, and now at the end of the Plan he will be able to get the shares.

What will be the share price considered for him ? 

Let’s say that the stock price in the start of the plan (Jan month) was Rs 100 and the stock price at the end of the plan (June) was Rs 120. Then the stock price considered for him will be minimum of 100 and 120 , which is Rs 100 and on this he will get 15% additional discount and his final price would be Rs 85 only.

Note that this example is assuming that minimum of two is taken , your company EPSS might just consider the “starting price” or “ending price” .. So please look at your company EPSS plan in detail.

When to choose ESPP plan ?

ESPP is a great way to get the stock price at discount, but one should anyways take care of few things. If company’s future prospects look great in future, then one should buy the stocks anyway, so ESPP becomes a great deal where you sure shot get 15% discount. However if company’s prospects look bad in future, then you have to figure out if it’d make any sense to go for ESPP plan or  make a better use of your money elsewhere.

Below is a video from Salesforce which explains their ESPP plan, watch it to get a feel of how EPSS works ?

 

Taxation on RSU, ESOPs and ESPP

The taxation for RSU, ESOP’s and ESPP is governed by same rules, as all of them have to deal with stocks which a employee acquires and the taxation is pretty simple to understand. There are just two rules.

Tax to be paid in India

When you sell the your RSU/ESOP/ESPP (after vesting period is over) and get back the money, its your responsibility to pay the tax on the amount in India. How much tax is to be paid by you, depends on the nature of the gains. If you sell the shares before 1 year of acquiring the shares, then the gains are called Short Term Capital Gains (STCG) and if you sell the shares after 1 year, then the gains will logically be Long Term Capital Gains.

If stocks are listed in indian stock exchanges, then you have just have to pay 15% tax on Short Term Capital Gains and no tax on long term capital gains. However if stocks are not listed on indian stock exchanges, but some foreign country, then you will have to add the short term capital gains tax in your income and pay tax as per your slab rate, and 20% with indexation on the long term capital gains, which is the case when STT is not paid when the transaction is done.

Below is the simple table which will explain things to you

[table]

Listed/Gain-Type Short Term Capital Gain (Less than 1 yr) Long Term Capital Gain (More than 1 yr)
Stocks Listed on Indian Stock Exchange 15% Tax on Profits No Tax
Stocks NOT  Listed on Indian Stock Exchange Profits will be treated as your Income and taxed as per your Slab 20% with Indexation

[/table]

Incase Stocks are listed on Foreign Stock Exchange

In these cases, it might happen that when you sell your RSU, ESOP’s or ESPP, the tax is directly cut by the trading portal like etrade (in US) and you only get reduced number of units (after tax). After that when you take the money back in India, you might have to pay the tax on the income again if the double tax treaty is not available with that country.

I hope, you got a lot of clarity about RSU (Restricted Stock Units), ESOPs (Employee Stock Options) , ESPP (Employee Share Purchase Plan). These are some of the benefits employees get and understanding them is very critical for them. Please share if you have any of these benefits and if you had any confusion around them?

Do not close your Loans – If you want to improve your credit score!

Posted on by Jagoinvestor

Do you have a loan and want to close it as soon as possible? I know the answer is YES! . Everybody wants to get rid of debt and want to enjoy a debt free life. But, what if I give you a good enough reason to not close your loan and keep paying your EMI on time? And if I suggest you do that even if you have a lot of spare cash which you can use for paying of the loan. Lets see …

Improve your Credit Score - Do not close Loan

There are many people who are paying their previous loans, but when they apply for some new loan, its getting rejected because they have some bad credit record in past either due to settlement of some debt or because they have a bad payment record. This creates a very frustrating atmosphere, where you want to do something which you instantly make you a “good” customer. A big myth people have is that just because they have a loan going on, they are having a bad credit score, and because of this myth, they want to close off their existing loan.

However this is not true! Let’s see an incident which happened with Nagarajan

I was holding two home loans since 2000. I am a well paid professional drawing good salary, however due to frequent transfers my Post dated cheques were not replenished resulting in non-payment for over 6 months, Also due to some signature error a few times, cheque bounces happened, but they were repaid and corrected .

I dont posses any credit card. only debit cards were used regularly for any financial transactions. 6 months back a personal loan enquiry got rejected due to very bad credit score ( 450 only). so immediately I wound up all the loans ( 4 months ago). now I am loan free and no credit card holder. how long will it take to recover my credit scores ?

You would see how Nagarajan closed his loan thinking that his loan eligibility would increase because his credit score will improve. However what he did was totally wrong and the right thing was to just continue paying his existing loan. Lets see why.

Paying EMI regularly is a Opportunity to show your repayment capability

If you look a little deeper, you’d realize that your existing EMI payment is one of the only ways you can showcase your repayment capability. When you make EMI payment on time, this information is updated to credit bureau (CIBIL etc) by your existing lender and if done on a regular basis, it affects your credit score in positive way and also improves your credit report . Your Days Past Due (DPD) section in CIBIL report also gets positive because your recent information for last 36 months is there in the credit report.

So now I hope you are clear about the importance of paying your EMI on time on regular basis. Its one of the only ways you can build your repayment record and improve your credit score. Do you have a credit card or some kind of loan? If yes, then it might make sense to keep paying their dues on time just for making sure that you build your repayment history!

Can you share some thing related to this from your financial life ?

Mistake in your Medical report while taking Term Plan – Real Life Experience

Posted on by Jagoinvestor

What happens when your hospital goofs up and your term plan premium goes up because of that mistake? When you take a term plan, the insurance company either asks you to take up medical test in some hospital or a doctor comes to your home and does the checkup. Things mostly go well and at times some kind of health issue comes up, and you say

“Ahh … you say, I didn’t know there was this issue, Thank God! a medical test was done.”

Then the insurance company increases the premium because there was some issue in your medical report. You pay the increased premium, feeling secure now that things are black and white. But, what if the medical report was wrong because of some mistake the hospital made? What if there was a TYPING Error? Yes! It happens and we have a real life experience today.

wrong medical report term insurance plan

Nitin shared his experience on our Question and Answer forum while buying his term plan from HDFC and Aviva. Below are his experiences

Experience while buying HDFC Click2Protect

After some analysis I found below 2 plans suitable for my term insurance needs: [list style=”check”]

  • HDFC Click2Protect
  • AVIVA i-Life

After considering some factors, I had chosen HDFC Click2Protect and applied for it. My medical test has been performed in 4-5 days. Few days later I got notification from HDFC that my proposal is postponed because of ‘elevated level in my blood sugar’. It was a shocking news for me because I am a healthy person and never had any problem (touch wood). I called hospital people (where my medical check-up was conducted) and after request they informed me that my sugar level count is 173 (normally it should be between 70-100). I still not believed that and went for medical check-up again by myself and found sugar level count is 72(which is normal).

Then I decided to go for AVIVA i-life plan and applied for the policy. Fortunately/Unfortunately, my medical examination was scheduled at same hospital, where it was conducted before for HDFC. This time I carried my medical report (which I had done by myself) and asked hospital about the reason for differences in both reports. According to their report my count was 173 & according to my report count was 75. They checked again and found that it was a TYPING MISTAKE, actual count was 73 but they wrote it 173 by mistake.

Now, because of this mistake HDFC postponed my application & also my insurance records gets affected. Hospital GM apologies for the mistake and sent clarification note to HDFC about the mistake. Currently, my AVIVA application is under processing.

Lesson Learnt & Message DON’t trust on any medical report if it looks surprised for you. Please double check it with multiple doctors or Hospital if you think it is not correct and challenge it.

After this incident, he went for Aviva Term plan and the same kind of issue happened this time also. Below is the experience.

Experience while buying Aviva Term Plan

My medical examination for AVIVA ilife plan happened in same hospital (where I had for HDFC C2P plan). After few days, I got information from AVIVA that they have raised my premium by 50% because of ‘Increased liver enzymes’ in my body and waiting for the balance payment to issue a policy. It’s again a shocking news for me, since I didn’t expect it this time. But the good thing is that AVIVA has shared my medical report with me. I checked with 2-3 doctors about my report and according to them this increase in liver enzymes is possible for those people who drink alcohol or having fever in last 1 months.

But for my case, I don’t take alcohol nor having any fever in last months, so doctor suspect that this time also report may be not correct. So again, I went for a medical test (only for Liver part this time) by myself and found that my liver report is NORMAL (as expected). I informed AVIVA about the same and also shared my Normal medical report. After 2-3 days, finally got mail today that they have issued my policy without any extra premium. Hmmmmm……buying a online term insurance looks like winning a war for me.

Important Points Regarding Medical Tests

  • Make sure you do minimum 12 hours of Fast before the medical tests
  • After doing the medical tests, check if you can get the medical test copies or at least the results
  • For any point you are concerned about, better take a second opinion from another clinic
  • If possible, go for medical tests once again at your own cost to double check if you suspect anything

Did you double check your medical reports which you did for your term plan or health insurance plan? If not, its time to just have a second look and check if you are fine with it.

Simple vs Complex Financial Products – Which are more powerful ?

Posted on by Jagoinvestor

I was talking to one of my distant relatives and told him this – “When you want to increase sales of a financial product, make it complex, and if you want sales to boost a bit more, increase the complexity a bit more!”. Because the moment a financial product is “complex”, investors perceive them to be more valuable and worth investing. When a product is simple, it does not look powerful to them. Let me break this myth to you today.

If you look at any financial product, it will either be simple product or a complex product. Let’s see what they are

Simple vs Complex Financial Products

1. Simple Products

Simple Products are those which are very very focused, with one intention and true to focus, they are easy to understand. Some examples are Fixed Deposits, Term Insurance, Mutual Funds, Health Insurance, Motor Insurance, Recurring Deposits, Govt Bonds etc.

2. Complex Products 

Complex products on the other hand are those kind of financial products, which are built by combining two or more Simple products functionalities. Some of the examples are ULIPs, Endowment or Money-back plans, Fixed Maturity Plans, Child Plans , ULHP (unit linked health plans) etc. You will see that its much easier to sell complex products because they offer more than one feature and people feel that they are such an excellent products with some magic, but the truth is that they just have features of more than one Simple product.

For example if you take a ULIP, its just offers the functionality of term insurance and mutual funds. You can get life cover and also enjoy market linked investments, & just like that a endowment plan or money-back plan also offers the functionality of a term plan and a bond.

Simple Products are Powerful

If you have been a regular reader of this blog from some years, you would have realized by now that simple is powerful and that holds true for financial products also. All you need are simple things like a term plan, a health insurance policy, a SIP in mutual funds and an emergency fund and you are pretty much have completed your financial planning. You don’t need much more than these simple products. In my 1st book – “16 personal finance principles every investor should know” , I have stressed upon several simple concepts, which will how you how easy is the game of personal finance.

Complex Products have high CHARGES

I am not commenting on the usefulness of complex products, because they can also offer a great way of investing your money, but the one thing that’s really clear is that a complex product can charge higher fees just because someone has taken the pain of creating those complex products. Now because customers feel they are special, they will also be ready to pay high fees … and that’s exactly what happens. When you perceive something as powerful (complex seems to be powerful to many), you will be more ready to pay higher fees.

Do not look beyond Simple Products

For a common investor, I would say that most of the times Simple products are enough. When they come across a financial product, they should see how simple it is and what core functionality it provides. If it tries to do a lot of things and you are lost in its features, its probably a time to say NO to it and move on.

A lot of people have created more wealth by wrongly investing in Simple products that those who correctly invested in complex products. A simple law of Design is that “simple is powerful” and it’s true for most everywhere, including personal finance.that this article does not mean to say that all the complex products are bad and are not worth looking, we are just talking about a general principle!

What do you think about this simple principle and do you also observe the same thing?

CIBIL marketplace – Get Customised loan offers based your credit score

Posted on by Jagoinvestor

CIBIL has introduced a new facility called “Cibil Marketplace“, which will act like a portal where a person can get customized loan and credit card offers based on his cibil score. Right now, what happens is – when a person applies for some kind of loan or a credit card, the lending institution checks his credit report and credit score and based on their internal criteria and rules, reject or accept the application and move to the next step .

cibil marketplace enter data

How does CIBIL marketplace work?

With CIBIL marketplace, the whole process is reversed. Here, you can find out which lending institutions are ready to give you different kind of loans, interest rates and other conditions based on your credit score. So a lot of lenders will participate in the cibil marketplace and will give their criteria and checklist, like what kind of customer they would like to offer loans. For example – A lender can say that they are ready to give Car loan @13% interest rate to a person having cibil score between 700-800 and @12% if cibil score is more than 800 . Thats one example .

Another lender can say that he is ready to give home loan to people who have credit score below 700 score, but on a condition that he should be working in a software job, however the interest rate would be as high as 15% – this is just an example of how it might look like. So this is how all the lenders will give their own criteria and when you enter the market place, after the filtering you will be shown only those lenders and loan offers which are exactly for your profile. So if you want to increase the number of loan offers, you need to improve your cibil score for that.

Right now the CIBIL marketplace is started with only Credit Cards. But very soon, you will see Home loans, Auto Loans, Personal Loans and even Business Loans on the portal. Just wait for some time or the next update from CIBIL on this.

How to Apply for Loan with CIBIL marketplace ?

Step 1 : You need to first visit Cibil Marketplace website. When you go there you need to fill in two information.

Step 2 : You need to enter your Control Number (which is 9 digit number that is mentioned at the top right of the CIBIL report) and your latest Credit Score, which should be maximum 2 months old. That means, if you had applied for a credit score long back (more than 2 months back) , you will not be able to use that data to enter CIBIL marketplace. You will first have to apply for a latest cibil score (You can get your cibil score online) and only then you will be able to enter the marketplace. One reason for this is that, cibil score and report keeps getting changed each month when banks update the customers information with CIBIL. So ideally if you know control number and cibil score of some other person, you can enter the cibil marketplace with that information and see all the data . Therefore make sure you dont share this data with anyone whom you dont rely.

cibil marketplace enter data

Step 3 : The next step is to go inside the marketplace. You can see different kind of loans section and how many lenders are ready to lend you in each section. For example you can see that only 1 lender is interested to lend in this example and that’s “credit card” section . As of now, only credit cards are offered as this is new facility. But in future you can see more lenders in different sections. All you need to do here is click on the kind of loan you want.

cibil marketplace enter data

Step 4 : After you choose the section, you can see the list of all the lenders individually with some information like Tentative Credit Limit offer, interest rate, fees, charges and other information. You can click on “Apply” button and instantly a small box will appear where you can apply for the loan there itself. Now this will be a kind of pre-approved loan because this is customized to your cibil score, but the next step will be the documentation check, which is part of the check in general . For those who would like to learn more about CIBIL and Credit Score etc, there is a detailed 40 min video course on our Wealth Club.

cibil marketplace enter data

So these are the 4 steps you need to do to take the benefit of CIBIL marketplace.

Few Important Points related to Cibil MarketPlace

  • You can choose only one offer in each category
  • While purchasing your CIBIL TransUnion Score (and CIR), please make sure you fill up your income details accurately. As this will ensure the offers that are displayed in your Market Place are the ones you are eligible for. Any incorrect income detail will mean incorrect offer eligibility and can be rejected by the lender at the time of verification.
  • It also depends how many lenders choose to participate in CIBIL marketplace. There might be lenders who choose not to.
  • Once you have selected an offer then the respective lender will get in touch with you. Please ensure the details entered by you in the CIBIL TransUnion Score (including CIR) purchase form is accurate. This will enable the lender to respond to you at the earliest. You can also provide alternate contact details while selecting and confirming the offer in the CIBIL Market Place.

Who will benefit with Cibil Marketplace ?

CIBIL marketplace is an innovative platform and will also be helpful to those people who have low cibil score and a bad credit report , but still want to go for some kind of loan, even if it means on certain terms and conditions. It may be the case that they might pay a little more interest, but that would be better than not getting loan at all. This platform might also be the first step in providing incentive to those customers who have excellent cibil score. They might get loads of loan offers from lenders with lower interest rates compared to normal customer. Only the time will tell how this platform will evolve.

Let us know what do think about CIBIL marketplace and is it useful for you ?

Envelope budgeting system – A simple way to control your expenses

Posted on by Jagoinvestor

Some months back, when we were working with a Mumbai based client of ours, we noticed that one of his expenses of “Eating Out” was extremely huge. Their explanation was they were never able to control the number of times they went out. So we thought how about limiting the amount spent somehow ?

Envelope budgeting system

Today I am going to share Let me share with you all a simple and effective budgeting system which has been in use for centuries – worldwide! . It’s called the “Envelope Budgeting system”.

The common problem across families is that they keep spending money on various things from a single card or pool of money. The basic idea here, with this system is to label your different expenses, categorize them if you will,  and keep an envelope with money dedicated to that category, in it.

When you need to spend on a category, voilà, you take the CASH for its respective envelope and spend. Let me give an example. Suppose your expenses are as below.

[table]

RENT Rs 10,000
GROCERY Rs 6,000
VEG+MILK Rs 3,000
BILLS Rs 3,000
MAID-SALARY Rs 2,000
MISC Rs 1,000
Total Rs 25,000

[/table]


envelope budgeting system

5 Simple points regarding Envelope Budgeting System

1. Once it’s gone, it’s gone

When you take some money out of an envelope, and spend it, it’s gone! You will be left with some remaining amount for that particular month. Now all you have to spend that month is the leftover. So spend it wisely.

If you still want only spend more than what the envelope contains, you just break the system. Better stop following it then. It’s not for you :)

2. Don’t transfer between envelopes

Just because you have some money left in some category, does not mean you can spend it on another category. This system is all about controlling your expenses in individual categories. Whatever is left in some envelope should go to your investments. It’s like a bonus leftover.

3. If you fail to follow, invest 10x the amount as penalty

It’s human to fall off the wagon. At times you will deviate from the plan and spend more money other than you allocated. In this case, you should penalize yourself for breaking the rule, by investing 10x the extra amount into some investments. For example, you have Rs 3,000 allocated to “Eating Out”  you spend Rs 5,000 in a month. Then you are using an extra Rs 2,000. You should penalize yourself by investing Rs 20,000 (10 times) in some thing to offset this crime. This will be a good spin on just desserts!.

4. Emergency expenses, but settle later

Ideally your expenses should be planned and the money should come from the envelope, but you will have to spend sometimes on your credit/debit card (read various credit card cashback offers), which is fine at times, but make sure you settle things back when you are back at home.

5. Guilt-free shopping

The thing I like about the envelope budgeting system is the “guilt free spending.” Once you have allocated the money to different categories, then you can spend up to the limit, without thinking much. That’s the best part.

TIP : Libin informed me in comments section that there is an Android app called Easy Envelope Budget Aid (EEBA) for this envelope system ! ..

Real life examples of its Effectiveness

Harpreet shares –

I feel so proud to say that I follow this system.

Yes, many times I feel bound but I know what I have got by following this system. Be it getting rid of a loan (worth Rs.2 lacs), renovation of my home (worth Rs.2.5 lacs), be it car (Alto), money for Jewelry (worth Rs.1.5 lakhs), 40 k cash as gift to near & dear ones in a span of 6 years. Right now I am saving for my daughter’s school admission.

I agree that I never spent for grocery, maid salary & rent being in a joint family but still I wonder that I was able to achieve these targets when my present salary is just around 26k and when I started following this system 5 years back, it was much less.

I started this as I had no choice, but believe me I am now addicted to this system.

It’s not for everyone

A lot of people use this envelope system and are pretty successful in following it for months and years. However many people start this, but fail somewhere in middle and are not able to continue. Its all about how serious you are about controlling your expenses and being disciplined. Do you think this Envelope system will work in your case ?