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Health Insurance Inflation in India – Have you planned for next 30 yrs ?

Posted on by Jagoinvestor

Lets talk about Health Insurance Inflation today ! . When you decide upon buying a health insurance policy, one of the pertinent questions that crops in your mind is the coverage amount – how much health insurance to buy? One of our readers Saket made an interesting comment on health care inflation, and how a decent cover today might look so small in distant future and raised the issue of “renewal” of policies by companies.

The Health Insuranec companies, eargerly selling policies to younger age group (mostly), are actually giving them a false sense of security about their twilight years. No doubt, the current policy will be good for next 5 years, but not later than that because of the health insurance inflation. So this sense of security has a shelf life of max 5 years. After that my fate will lie in the hands of insurer-whether it finds my policy upgrade worthy or not. Considering a most conservative healthcare inflation rate of 15% , a humble 3L coverage requirement as on date for a 38 yr old would translate into a whopping Rs 130 Lakhs ‘Final Amount’ at the age of 65 , the calculation is fairly simple – 3,00,000*(1+.15)**27 =130 lacs

Health Care Inflation In India
Coming to the question, we can now clearly see that decision of taking health insurance in current moment depends on two points. which are

a) Health insurance is a super looooonnng term investment, which you would need most in your old age, beyond say 60 years of age.

b) It’s common knowledge that Hospital costs are increasingly rising, gradually becoming unaffordable, to the common man.

How much is enough to financially support your family’s healthcare needs, ensuring you have a peaceful retirement life. Let us take this up, step-by-step.

Costs of common surgeries & Hospital Costs In India

The cost of some major surgeries in hospitals across India has gone up in recent years. Going by these numbers, assuming only one surgery is required during a year, per member; a sum insured of Rs. 3-4 Lakhs should be good enough for the year 2012. Major supply deficit with respect to healthcare infrastructure – hospital beds, doctors and nurses, increase in cost of medical equipment’s, land has resulted in an increasing trend of health insurance inflation. Here are the 2012 costs for surgeries, compared with costs in 2007.

 

Sr. No Treatment 2012 Cost 2007 Cost Increase
1 Cataract 24,000 16,000 50%
2 Angiography 22,000 14,000 57%
3 Coronary Artery By pass Graft (CAGB) 2,35,000 1,65,000 42%
4 Appendectomy 42,000 28,000 50%
5 Heamorrhoidectomy (Piles) 35,000 21,000 60%
6 Cholecystectomy (Gall Bladder removal) 52,000 32,000 63%
7 TURP (Prostate Surgery) 62,000 37,000 68%
8 Angioplasty (PTCA) with 2 stents 2,45,000 1,55,000 58%

 

The costs of common surgeries have increased by 50-60% in 5 years! This means healthcare costs have increased by 9-10% year-on-year, since the last 5 years. We spoke to Sudhir Sarnobat, CEO at Medimanage. Here’s what he had to say

“The average annual health insurance inflation would be at 5%, if you look at 30 years duration. The hospitals do not increase their tariffs every year. Generally, they increase it by around 15-20% every 2-3 years. This would effectively come to 5% CAGR.” “India is currently having Supply Deficit when it comes to Hospital Beds. But we are seeing a good amount of capacity increase in beds in last 7-10 years which should continue to grow. On the other hand, our population is stabilizing. In 15 years, the equations should change & ease pressure on prices.

India is a developing economy and from credible reports, will continue to be on growth path for next 10 years. After that once the wealth distribution is even, we would see stabilization of inflation (world over that’s been the phenomenon, look at US Medical Inflation for last 5-7 years, it is 4%)” Sudhir added.

Some reports on Hospital infrastructure talk of a major crisis in the making in the Healthcare Industry, due to overflowing demand, coupled with very slow growth in the poor hospital bed to patient and doctor to patient ratio in India, primarily due to deprived participation from the Govt. A Tower Watson Report pegs healthcare inflation in India at 13% for the year 2012.

In my opinion, while costs are bound to rise due to the slow growth in the ratios, on a 30 year horizon they have to plateau somewhere. Looking at this, I suggest, let’s take the inflation year-on-year for the next 10 years at 12%, and then average 5% for the remaining 20 years.

Health Insurance Inflation and Future Costs

Factoring healthcare inflation on Rs. 4 Lakhs of costs expected today, in 10 years, @ 12% inflation, the sum insured requirement would increase to Rs. 12 Lakhs, per member. In 20 years @ 5% inflation, to Rs. 20 Lakhs, and in 30 years to 33 Lakhs. For calculation of floater coverage, take 50% ad hoc for every adult member and 10% for every child, and here’s the kind of cover you will need, for some of the family combinations.

Health Insurance Inflation for Family Floater Policies

So a family of 2 – Self and Spouse will need a cover of Rs. 50 Lakhs year-on-year every year, from the age of 60. This is a huge sum, and looks unaffordable to most of us. So, what does one do? A middle class guy would either have to “afford”, “plan” or “pray” be able to afford such astronomical expenses. Let’s see how we can plan to pay such healthcare expenses.

Solution to the problem

Look at the Present Value of Rs. 50 Lakhs at 10% inflation on 30 years, it calculates to just Rs. 3 Lakhs. So though the problem looks big, it definitely can be resolved by the power of financial planning. Here are the steps we recommend you to create a fool proof plan for your healthcare expenses.

a) Commit yourself to healthy living: Yes, it’s very awkward for a Health Insurance services company, asking you to commit to health, but then we believe that Healthy living is the best form of Health Insurance. Healthy living would of course mean Regular Exercise, Healthy nutrition and No ill-habits. Such lifestyle will simply help avoid huge hospitals bills. Read an excellent article on Health SIP by Nandish.

(b) Given point (a) is a way of life for you, you now need to create a Long term and Short term financial plan, for the unavoidable healthcare expenses, like hereditary ailments (Diabetes, Thyroid), age related (like knee replacement), or infectious diseases (like Malaria), or even diseases like Cancer (which still have many unknown causes. Perfectly healthy people have got cancer, in spite of no ill habits).

Note, if you cannot commit to point (a), your needs for long term and short term funds increases multi-fold, to cover healthcare expenses.

How do you create such fund?

Here’s what I recommend should be your step-by-step health insurance investment plan.

  • Buy Health Insurance, preferably one which covers you for lifetime, and provides a no claim bonus, for the sum insured of Rs. 5 Lakhs individual or Rs. 7-8 Lakhs Floater. If you are buying plans, with Restore options, then the sum insured could be lower at around Rs. 5 Lakhs.
  • Take a good top-up plan, which takes your cover to a floater of Rs. 10-15 Lakhs for the entire family.
  • Invest in a Rs. 5-10 Lakhs critical Illness plan, which covers maximum no. of ailments, especially for the earning members of the family. This will help you get lump sum payment for critical ailments, and compensate for any loss of earnings. You can also explore the option of a more comprehensive benefit plan with your health insurance advisor, with products like Tata AIG Wellsurance, Aegon Religare iHealth, which provide lump sum benefits for large no. of surgeries, in addition to the Critical Illness benefit.
  • Plan a Healthcare Contingency fund, for Rs. 15 Lakhs for individual, and Rs. 25 Lakhs for a family of 4, maturing at age 60. A contribution of Rs. 15000 per annum at 10% return will accumulate Rs. 25 Lakhs in 30 years.

So what’s the total investment for your healthcare financial plan?

Here is the approximate outgo you would incur.

 

Type of Plan Sum Insured Tenure Costs
Health Insurance Rs 5 lacs 30 yrs Premium Rs 6,000
Top up Plan 5 Deductible/15 SI 30 yrs Premium Rs 5,000
Critical Illness Plan Rs. 5 Lakhs/20 Illness 30 yrs Premium Rs 3,000
Healthcare Contingency Rs 25 lacs 30 yrs Investment Rs. 15000

The plan above is indicative and would have to be customized depending on some of the following factors

  • No. of members you want to cover
  • Their age
  • Their health condition
  • Family history of critical ailments like
  • The city where claims are expected
  • The type of hospitals, rooms you prefer.
  • Your lifestyle.

What do you think about health insurance inflation and your thoughts on renewal decision by the companies. Do you think creating your own health care corpus is a better idea rather than depending on health insurance policies?

8 things I learned by quitting my full time job

Posted on by Jagoinvestor

Haven’t we all faced this at one time or the other? The pain of staying in your job getting worse than the pain of leaving your job ? If the answer is yes, this article is for you.

I am writing this article after Sunil asked a related question on leaving a job and starting a business on his own in our questions and answers forum. He wanted to discuss few things before he can start a business by quitting his day job.

Hello Guys,

Looking at the market conditions in Indian IT Market, it is obvious that anything can happen at any given point of time… I have interest from starting to set up a business (small scale) and have a cushion to my career…. I need few ideas from learned people like you in starting up a business (with at least 3-4 lacs).

I would really appreciate your feedback and comments.

In this article, we will discuss a few things about leaving a regular job and starting on your own,  developing  business idea which you’ve had from long time.

Why this topic on a personal finance blog ?

Truly speaking, this is related to your financial life. A lot of people have extra ordinary aspirations and desires in life. They want to travel around the world, they want to own millions and want to have an ability to spend whatever amount they want on anything in life, but deep down they know, that it would not be easy to achieve everything they want from a regular 9-5 job.

A lot of people get into a job which they feel would be suitable for them, only to realize it later only after few years, that they have made such a big mistake in their life. But we have so much to accomplish , children education , their future, the desire and pressure to give them the best in life, parents , spouse , their dreams and their wants in life.

People who are not happy at their job, they just bury themselves under responsibilities and for entire life, keep on dragging in their current profession and job. However this not a story of everyone, a lot of people love their jobs and are really content and satisfied with what they are doing.

I had recently done a survey on how people are frustrated in their current work and some more information. Here are the full results. please go through it and look how do you fit in there.

 

What about those who are not satisfied in their jobs and career? I had earlier written that your financial life is directly related to your career . If you are not doing great in your career, it will impact your earnings, and hence directly impact your financial goals and the wealth you will generate in life.

So you need to decide if you want to move on and do something on your own as soon as possible, be it  for emotional satisfaction or more monitory satisfaction. Unless you are happy in your work, you cant focus on wealth creation.

My Story of leaving a job and starting on my own

Some people get shock of their life, when they hear that I was a software guy once in my life.

Let me share with you, how I was once a very good student in Computer Science and then became a dull/boring/worthless/unproductive software guy and finally took charge of my career and went on to change my domain to Personal Finance and even wrote a Personal Finance Book (Read 65+ amazing review on flipkart)

 

My Story

I was working in Yahoo at Bangalore in a nice software job, I was considered a good student at my post graduation days but only I know what I was really capable of (like you do) .

I was good at many things like Algorithms, data structures and problem solving skills, but really sucked at others;  Networks, Operating Systems and System related things. Somehow I managed to muddled through, but I still don’t understand them even today 🙂

Yahoo hired me (thanks to them) for the job which demanded exactly all those things out of me, which in my wildest dreams I never wanted to work on. I was devastated and saw my end in the first month of my job. But I had to continue the job, because of my financial commitments.

Each day the expectations in my job grew way beyond my performance, and it made sure my guilt and dissatisfaction increase at a compounded rate. I could see clearly that I am working for money only, I was not able to see myself anywhere in next 3-5 yrs, The frustration of going office without any motive and passion was really killing from inside. I was very sure and clear at that point of time, that my affair with software field has come to an end.

I had to take some extreme step.

How Jagoinvestor came into existence

I had always learned things in my life by teaching others. I was good at personal finance from start of my life and always believed it to be such a easy thing and wondered why people complicate it without any reason. This passion of personal finance and love for teaching gave birth to Jagoinvestor.

I was spending my 80% time at office towards Jagoinvestor (10% time went for lunch). Things moved at a really good speed and I was really passionate about what I was doing and loved it. I suddenly realized that this is my passion, this is something I am passionate about, this was something which was not making any money for me at that point of time, but I could have paid to do it myself.

This was something I woke for each day, Jagoinvestor was something I lived for, It was something which negated my stress and frustration as Software engineer. For next 1-2 yrs, It got bigger and bigger and I was known as an expert 🙂

I was a trusted person on personal finance which was not my field by education, but I was not even considered for something related to software field even though my education and career was based on that. I never cared.

Leaving Job

I and Nandish met in between and we could see how we both could take it to next level. By the end of 3.5 yrs at Yahoo, we were generating some money from Jagoinvestor, but it was not consistent. I knew it can never be consistent flow of money in business, at least in starting years.

I gathered my courage and the belief that we will succeed. I owe so much to Nandish who motivated me and coached me on this aspect, which helped in decision making of quitting my job.

It was not easy ! I had spent so much time and (little) effort in computer science, My parents had put lot of struggle and money on it, and after all I had spent 3 yrs on Computer Science, how could it go for a waste ? How could I leave a well paying job which everybody dreams of and become a blogger ? What will my relatives think , What will my own family think ? What will my future-in-law’s think (SE vs Blogger) .

There was pressure – but I was sure I was not a pressure cooker, I knew I could not risk my entire life. There was not a perfect moment to “quit my job” and I knew there will never be, on the last day of 2010, just few months before my marriage, I left my job and took the next bus to Pune from Bangalore to start the new year and new journey in life, without thinking much what’s ahead.

There were thoughts like “Am I making a right decision ?” , “Will it really be the way I am thinking?” etc , but I also knew deep down that, if I don’t do it now, it would never happen.

Now, after a year and a half  of leaving my job, I can say not even a single day have I remembered or missed my job (except the unlimited sweets and the rasam-rice), though I loved the company. Each day has been a wait to open my laptop and enjoy writing articles and help people in their queries. My Work life is now 100 times better than what it was before leaving the job.

That’s my short story 🙂

So whats next ?

You don’t always have to build  a multi-million dollar start up or create an empire! If you are not happy in your current job, then you just need to move to some other sector or start some business.

Nandish always says that people are so much attached to their current job that they believe that’s their destiny and life now. They don’t even get a thought that their purpose of life might be something else, if they are good at their current job, there might be something where you are awesome .

Just because you didn’t accidentally got into some profession or some company does not mean it owns you or your entire career. You can still move . If you were asked that you will never be able to work in the same sector/profession again because “god” has ordered it , what would be the next thing you will fit in ? What will interest you and you might want to give it a try (share with us)

 

 

8 things I learned by quitting my full time job

Based on my little experience and whatever I had learnt from others, here are some of the sharing for someone who is considering to leave a job and start on his own. These tips are not extra ordinary tips, they are more of a reminder to you rather than teaching something.

If you consider all these points in your planning, then the chances of getting successful would increase. Neither of the below points are perfect, nor it will be applicable to every one. These are just some observations from my side.

1. Start the background work now

Most of the people wait for the last moment till things get ugly and each day is a nightmare at job. If you are very clear that you want to head out on your own someday, start the background work right now in this moment.

Whatever you want to do, learn the game of that while you are in job, start understanding dynamics of the business you want to get into, now. The job to business transition is really a tough thing to do. It takes time, it takes effort, it takes dedication.

2. See if you can do something parallelly

It’s not always possible, but if there is any way you can run your business or start something on the side, it would really increase your confidence.

The chances of this happening is higher, if you can find a right business partner. For most of the people who work in big companies, the best thing could be to talk about it with few friends in the office group itself, who also share same kind of vision and passion. 

Here is a sharing from a jagoinvestor reader on how he worked with his colleague’s after office hours and successfully started his own company soon despite having a home loan and kids to feed

Me and my friend developers who have high passion on starting up a company, we both are married and both have kids of less than 1 yr. We worked after office hours to make the setup and finally we started our company this new year officially quitting.

We made a huge savings to run for next whole year in the same life style and to pay home loans. If we have not taken home loan we would have jumped a little earlier, how ever I see it in a positive way, it keeps us pushing like a fire under belly, we have to do that little extra and that deadline of payments are always there and a huge sum I have taken two house loans including one in joint .

3. Create the buffer

One of the biggest deterrent for starting on your own is “what if things go wrong” kind of questions. This happens mostly if you are weak on your buffer amount. The buffer is nothing, but your emergency fund, in-case things don’t work out for initial few months or 1-2 yrs . It should pay for your basic expenses at-least, if not luxuries.

The larger a buffer you can create, the better it is and it will happen only if you start now at this moment, otherwise not. I would say a 3 yrs buffer is a good number, but most of the people are ok with 1 yr buffer too. If your current expenses are 40,000 per month, you would need 5 lacs per year (40,000 X 12) is what you need for 1 yr and 15 lacs as your 3 yrs buffer.

See how you can generate 5 lacs as first milestone and then 15 lacs. Note that your buffer is inversely proportional to your confidence and how ready you are for your new venture, and a direct function of how ready you are overall.

4. Double income will help

Software guys have this advantage like no one else, a lot of them are DINKS (double income no kids), husband and wife both are earning good money. This situation is ideal for those who want to give it a try. While one person can earn and make sure things are on track, the other person can give his/her shot on entrepreneurship.

If things go wrong, you still have something to fall back upon. I see this situation as “one is earning the money and the other is burning the money”, but at the end it’s more easy than a single earner case. So now if you are about to get married and want to leave a job and start on your own in next few years, you know you will have to give more preference to someone who is earning money. That’s a choice you need to make.

5. Get rid of liabilities

If you already have some kind of liability, like a home loan, it really becomes a pain to even think about leaving a job. You might have to postpone your decision, but don’t bury it . Yes, you have a liability, but once you complete that liability you will have your own home, & that would be a great support mentally. You know in the worst case you have something to fall back on.

Also another advantage would be that once you complete your home loan, you will have one expense less (rent) to pay in life and as you still have many years left to take the jump, its an ideal situation to plan. When you know there are many years in job, you can give your maximum time in planning, getting ready and if possible “increase” the size of your buffer!

6. Imagine the worst case and find ways to deal with it 

This is the biggest reason why most people do not budge from their jobs and keep dragging. The worst case scenario really scares them to death. In the book  How to stop worrying and Start living, the author Dale Carnegie says that one can reduce the worry by mentally accepting the whole worst case scenario, and really write it down and then see what will be his actions at that point of time.

Imagine you are a software guy. What is the worst case which can happen if you take a calculated risk of leaving the job and starting something on your own after lot of planning? 

This is what I can think of – You will blow all your buffer you have created, your venture will not work out and you will lose some months or years – what next?  Worst case, you will have to get back to a job. It will be tough, you will face difficulty to get back to the same level of salary. In worst case, you will start lower than what you earn today, but that’s what is the cost you will have to pay for the desire of starting on your own.

7.  Don’t quit the job !

Just because you are reading this article does not mean you start feeling that you also want to leave your job and start your own venture. No ! .. We are just talking about those, who are “dragging” , they are unsatisfied with their jobs and want to do something else in life.

Its perfectly fine if you are just in your job and move on with the same thing for life. A quite lot of people really excel at their work and earn really big bucks, its all about your love for the work and how far you can go with it, you can always move to next job, go abroad and earn more money.

So not quitting a job is also an option. You need to think about it, evaluate the pain and pleasure attached to both the options and choose what you want to do. There is nothing right or wrong decision, its only “your decision”.

8. Make it as a project

When we get on call – Me and Nandish sometimes talk about the concept of Dreams vs Project. You complete your office work because its a Project, you complete your college practicals and exams because it’s a project, and you also prepare and present a presentation at work because its kind of a “project.”

You fail at getting up early in morning and exercise because its a Dream, not a project, you are not able to save enough to pay down-payment of house as planned, because its a Dream, not a project.

In much the same way, most people do not achieve the transition of leaving the job and starting their venture because its a dream, not a project. If you want to understand more about the difference between Dream vs Project, listen to this 12 min’s audio

Idea’s for starting a new venture

A big challenge in leaving the job and starting on your own is “what will be the next venture?” It leaves an open question in many minds and people are not able to take the decision. We can all collectively share some idea’s on what kind of small or big business can be done with small and big capital .

You must have one good idea to share , Please share it will all and I will publish the list of all idea’s on this same article once they start floating.

Real Life Sharing’s about how they feel at current job ?

Experience 1

Following the herd culture ,i.e, after 12th doing engineering and then software job irrespective of one’s branch and now life looks like to be more of a mechanical where everyday you do mundane things and on top of it some crap , foolish and utterly junk lowly intellectual managers govern your appraisal and hike.

I want to get rid of this junk industry where human emotions get dissolved in thin air and people are moving towards making themselves machine oriented trying to achieve efficiency of typical machine with elusive numbers.

Experience 2

I am working with a pvt limited Bank.Though the Bank is employee friendly and has a great future but I feel my vertical is very boring and stagnant.My supervisors are very rude and insult me in front of everyone.My job has no challenge and stagnant.Though my knowledge is better than other colleagues but I am given job of a doc executive.

With no knowledge involve in it.I wanna go 2 other dept.but my supervisors are not allowing me for that.It makes me helpless.My productivity is getting decreases but I ve not lost hope may be in future I ll get a better work related 2 my knowledge.

Experience 3

Not much to share. Not just enjoying my job. Its not satisfying. Its not what I wanted to do in my life. i’m a bank Manager now, but don’t really feel so, being in one of the largest pvt sector banks. There is a lot of gap between what is written in offer letter and what is being offered us to do daily in office.

The number of hours we give to office, is just too much. Usually more than 11 hours a day, all through the year. What I and most of the colleagues believe that, if we give this much dedication and passion to some venture of our own, then we can reach pinnacle of success on our own.

Why should we give so much to another company? Will it give us a justified share of its profit if we give so much to the company. NEVER.

Experience 4

Basically, i am a drummer and interested in the Music domain. By chance or by mistake i have come to this bloody Software Industry, which is full of diplomacy and politics, which is never suited to my type! So planning to be back with my musical nature and rocking mode.

Experience 5

I am a post graduate degree holder in Mechanical Engineering (Research) from IIT Madras . I was chosen by one of the biggest software companies from campus for my employment. I am being employed in the IT outsourcing division. Company recruits were bragging at the time of placement.

I am doing some type of maintenance and enhancement work of some client’s mainframe software which up to a certain extent is challenging due to the analytical and logical skills involved. My current job does not leverage my scientific and mathematical knowledge acquired during my studies and that feeling keeps me dissatisfied in my current job.

I did not take a honest and serious effort in moving out from the situation as I got very much comfortable with the current position and also due to other family commitments. A 2-3 year onsite work opportunity is looming and I am hoping of saving a corpus and proceed for a career change.

Can you relate to the above cases ? Is your story very much on same lines ?

How did you find this article ? Do you think it was valuable for you ? Are you in that situation where you want to leave the job and start something on your own ? Share your experience or views with all of us .

6 changes in mutual funds done by SEBI recently – Good or bad ?

Posted on by Jagoinvestor

Recently, SEBI has made some of the biggest changes in mutual fund regulations to revive the mutual fund industry.  Some of the measures which are made are said to be helping AMCs and distributors more than investors. We will look at 6 major changes done in the meeting and the full detailed circular will come in few days.

Mutual Funds changes by SEBI

1. Higher expense Ratio allowed

Do you know that close to 45% of mutual funds money comes just from Mumbai? Around 87% of AUM in mutual funds comes from top 15 cities in India, which means that only a minuscule 13% of the mutual funds money belongs to small cities in India. Penetration in other parts of country is very, very small and not encouraging. Now SEBI has proposed to increase the Expense ratio by 30 basis points (0.3%) if the mutual funds are able to increase their reach to smaller towns in India and increase their contribution to 30% . In short, if a mutual funds is able to get more than 30% of its AUM from other than top 15 cities in India, they can charge a 30 basis points expense ratio higher than its current expense ratio. Lower contribution means proportionately lower expense ratios.

The big effect, is that now there will be higher expense ratio for everyone. So inflow from smaller cities will affect investors from bigger cities. Investors from big cities will have to bear the burden of increased expense ratio.

2. No internal limits in Expense Ratio

A very big change which goes in favor of AMCs is the removal of internal limits on the expense ratio and for what it can be used. Earlier there was a limit on the AMC to charge up to 2.5% expense ratio (up to 100 crores AUM), but it was allowed to charge only 1.25% as Fund Management Charge and 0.5% as distribution charges. The rest was taken as their profits.  So earlier suppose a Mutual Fund charged 2.25% as the expense ratio, then they compulsorily had to allocate 1.25% as Fund Management Charge and 0.5% for distribution.

But now, that sum limit has been removed and mutual funds are allowed to allocate expenses the way they want. This means you can now see more advertisements, more commissions to the distributors and more aggressive selling. While this is a very big change which will make AMCs happy, they will still have to keep a check on the expense ratio because of competition from other AMCs.

3. Putting Exit Loads back into the scheme

You must be wondering what happened to exit loads earlier, where did it go? When a investor got out of a mutual funds , he was charged an exit load if he quit before 1 year. That money was not transferred back to mutual fund, nor was it the profit of the mutual fund. It was actually transferred to a separate fund, which was used for sales, distribution and marketing. But now, when a investors exits prematurely, the entire exit load money will be credited back to the scheme account and will not be treated as AMC profit. However an equal amount (capped at 20 basis points) can be included in expense ratio back to compensate the AMC loss due to outgoing investors, which means that overall, for the investors on one hand,  the AUM gets increased (NAV increased marginally because of exit load money coming back to them), while at the same time they’re paying more in expense ratios, so the net effect of this would be, no gain no loss to both the parties.

4. Direct Plans with lower expense ratio

SEBI has directed that for each mutual fund, there has to be a equivalent Direct Plan with a lower expense ratio. So for every mutual fund XYZ, now you will see XYZ and XYZ-Direct options. So XYZ will come with higher expense ratio, and XYZ-Direct will have lower expense ratio. Many people who research mutual funds and like to buy it on their own directly from AMC by passing agents and other online distributors, this option will be cheaper and makes sense. However, many distributors are not happy with this move and think this will “kill” their business, all because investors will then just invest into the direct options.

Note, SEBI has not yet clarified by how much lower, the expense ratio of the Direct plans will be and if it will be mandatory for each and every plan or just some categories. We’ll need to wait for the final circular, to find out.

5. Financial Advisers and Distributors separation

Very soon, financial advisor regulation will come into effect. This means, now there will be some minimum qualification, registration and guidelines for financial advisers. They will have to register with SEBI and a separate body of regulators will soon be created for this. A financial advisor is a professional who advises his clients on investments for a “fee.” The important distinction being, he wont be able to earn any money from commissions by selling financial products. If a person wants to sell financial products and earn commissions out of it, then he will not be able to “advise” the clients. But CA, MBA, and several other professionals are kept out of this rule and even mutual fund agents who have a valid ARN code are kept out of this rule because their basic advice is seen as the extention of their work. There is still more clarity required on this, so don’t conclude anything yet.

What does it mean finally ?

If you are wondering what it means overall in single sentence, then it means increased costs (expense ratio) and lower returns for investors, but it may not be that bad as you think. Dhirendra Kumar of Valueresearchonline feels that the expense ratio increase will be in range of 0.1% to 0.4% range.

All in all, investors could see a 0.1 to 0.4 per cent increase in the fee that they effectively pay to have their funds managed. Any increase ends up reducing the returns that funds generate but all in all, this has been a deftly managed round of reforms that could get a decent bang for the buck.

Lets see all the changes and what effect it had finally on different aspects

 

Criteria Before Now
Expense Ratio Charged Maximum 2.5% allowed (depending on the AUM) Now additional 30 basis points is allowed if the fresh inflow’s from smaller towns
Internal Limits on Expense Ratio Internal Limits of 1.25% for Fund Management Charges, 0.5% for distribution costs No internal limits now
Where did Exit Load go ? Earliar it went to a seperate fund used for marketing and sales Will be added back to Scheme AUM, but will not benefit investors because of equivalent increase in expense ratio (limited to 20 basis points)
Direct Scheme of Mutual Funds Earliar there was no distinction between a investment made by agent or directly with AMC A new category called “Direct” will be introduced which will have a lower expense ratio.
Service Tax Borne by AMC Borne by Investors
Distinction between Adviser and Distributor There was no distinction earlier The regulations are now coming in . Advisor and Distributer will be separated.

 

What do you think about these changes ? Which changes do you think are in favor of investors and which are against them. How will this affect your investments in mutual funds in coming months and years ? Are you happy about these changes ?

NEFT and RTGS – A detailed Guide

Posted on by Jagoinvestor

Lets try to understand what is NEFT and RTGS and what is the difference between them. NEFT and RTGS are two main mechanisms to transfer money from one bank to another bank in India. Transferring money between two accounts in same bank is pretty straight forword and its a internal matter of the bank, it does not have to deal with other banks and their protocols, however when one bank wants to send the money to another bank in India, there is a defined mechanism it has to be done and hence NEFT and RTGS comes into picture. Both these systems are maintained by Reserve Bank of India. Lets understand both of these

NEFT – National Electronic Fund Transfer

NEFT full form is National Electronic Fund Transfer, and its a system of transfer between two banks on net settlement basis. Which means that each individual transfer from one account to another account is not settled or processed at that same moment, its done in batches . A lot of transactions are settled in one go in each batches. Presently, NEFT services are available from 8:00 am to 6:30 pm on weekdays (Mon – Fri) and from 8:00 am – 12:30 pm on Saturday.

Any NEFT Transfer done between 8 am – 5 pm generally gets settled on the same day, but if you deposit the money after 5 pm, then that will be settled the next working day. In case of Saturday, any money deposited between 8 am – 12 noon can be expected to reach the beneficiary account the same day.

NEFT Transfer Example

For example lets say Ajay has ICICI Bank account and Robert has a bank account in HDFC bank , Now Ajay deposits Rs 10,000 in Vijay account through NEFT transfer at 10:30 am . The money will be then taken out from Ajay’s ICICI Account and will be sent to Vijay’s HDFC bank the same day, then HDFC bank will credit Vijay’s bank account. In case money can not be transferred to the target account (beneficiary account) , the money will be credited back to the source branch within 2 hours of the batch in which it was processed.

RTGS – Real Time Gross Settlement

RTGS full form is Real Time Gross Settlement and its a system of money transfer between two banks in real time basis, which means the moment one bank account transfer the money to another bank account, its settled at that time itself on real time basis between the banks, but the beneficiary bank has to make the final settlement to the bank account within two hours of getting the money. RTGS is the fastest possible money transfer between two banks in India through a secure channel.

Let me give an example, lets say Ajay has a SBI Bank account and Vijay has an Axis Bank account, Ajay transfers Rs 5 lacs to Vijay’s account  through RTGS transfer, SBI bank instantly transfers Rs 5 lac to Axis Bank, now Axis bank has 2 more hours to deposit it in Vijay’s account . Hence in worst case even with RTGS transfer there can be delay of 2 hours.

NEFT and RTGS Timings

NEFT and RTGS Charges

NEFT and RTGS transfer charges depends on the Bank. RBI has guidelines for the maximum fees which can be charged, but it finally depends on the bank in question. Note that NEFT and RTGS charges, varies depending on the amount transferred and the timings when its done. While NEFT charges depends purely on the amount transfered, RTGS charges depends on the amount transferred as well as the timings of the day when its done . A RTGS transfer early will cost a little less charges. Note that, Service tax is also applicable to the charges. Below are the charges shows for NEFT and RTGS for retail banking (not for institutional banking)
NEFT and RTGS Charges

Information required to make an RTGS & NEFT payment?

For making a payment through NEFT/RTGS, following information has to be furnished.

  • Amount to be remitted
  • Remitting customer’s account number which is to be debited.
  • Name of the beneficiary bank.
  • Name of the beneficiary.
  • Account number of the beneficiary.
  • IFSC code of the destination bank branch
Note : MICR code is generally not required for NEFT or RTGS transfer

Points to Note

  • Each Bank has their own NEFT and RTGS application form, which you can download from their website
  • RBI declared holidays each year when you cant do NEFT and RTGS fund transfer transactions, see 2012 list
  • To find out different bank branches which are enabled for NEFT and RTGS transactions, you can see this RBI list

Difference Between NEFT and RTGS

Finally let me list down all the differences between NEFT and RTGS in a table, so its easy for you to understand the conclude finally.

 

Criteria NEFT RTGS (Retail)
Settlement Done in batches (Slower) Real time (Faster)
Full Form National Electronic Fund Transfer Real Time Gross Settlement
Timings on Mon – Fri 8:00 am – 6:30 pm 9:00 am – 4:30 pm
Timings on Saturday 8:00 am – 12:30 pm 9:00 am – 1:30 pm
Minimum amount of money transfer limit No Minimum 2 lacs
Maximum amount of money transfer limit No Limit No Limit
When does the Credit Happen in beneficiary account Happens in the hourly batch Between Banks Real time between Banks
Maximum Charges as per RBI Upto 10,000 – Rs 2.5
from 10,001 – 1 lac – Rs 5
from 1 – 2 lacs – Rs 15
Above 2 lacs – Rs 25		 Rs 25-30 (Upto 2 – 5 lacs)
Rs 50-55 (Above 5 lacs)
(Lower charges for first half of day)
Suitable for Small Money Transfer Large Money Transfer

Are you now clear about the difference between NEFT and RTGS and their transfer charges?

How Delay in Land Registration Costed Rs 50 lacs to Vivek – Real Life Experience

Posted on by Jagoinvestor

I want to share a real-life incident. One of my friend Vivek told me how he lost Rs 50 lacs worth of Land in one shot because his grandfather made a mistake of not doing land registration on time and kept delaying it for so long, that it was finally too late. It was just an irresponsible attitude towards documentation. The funny part is that no one in the family knew about this except his grandfather and these guys only came to know about it and were shocked by the incident. Vivek’s Grandfather lived near Varanasi and had always believed that the money should be invested in land and properties, Its the only way to grow your money faster and there is no risk in it.

Whenever he has any chunk of money, he just used to buy land with a future vision that one day it will be useful and give good returns and help his big family and so many children and grandchildren. This was during the 1960’s and ’70s. So once, he bought a big plot near Varanasi. You might be aware of how in villages and small cities, most of the work is done on relationships and verbally. Someone’s word is taken as promise and that was a time when people were not that bad like today:), hence things went smoothly, especially in those days and in a situation where everyone knows everyone.

Land Registration In India - Mistakes and Real Life Experience

So he bought land from one of the known people who lived very near to their home. e paid the money and bought the land (everything verbally).

It was a normal incident.

Their point was “Documentation will happen in a few days/weeks” . Both parties were fine with this, as the world was not going to end and there was ample time to things. Grandfather also started construction on the land and things started moving. No attention to proper documentation and registration even after many weeks and months. The land registration fees was also not that high. Few people kept reminding Vivek’s grandfather that Land registration is still incomplete and it has to be done. But he kept on delaying it as he was over-optimistic and never felt that anything can go wrong. He over-trusted the people around him.

From Future to Now

40 yrs are gone. Grandfather is no more, The guy from whom he had bought the land is also not in this world, he was a good guy. Grandfather’s vast properties were divided between his children (obviously daughters didn’t know that they are also legal heirs and claim their share as per Hindu Succession law). Now the guy who had sold his land took the money and is dead now, his children one day found out the property papers and saw that it’s on their father’s name.

You know what happened next.

They knew this is a bloody awesome situation and gave Vivek and his brother a choice. Either give 50% of the property back (without much fuss and delay) or 100% property with a court case. They knew the other party is totally weak (100% weak) from the documentation angle and legally they can not do anything. The proof that “land was sold and money was paid” does not exist anywhere. Knowing how badly they are stuck with this situation, Vivek and his brother had to hand over 50% of the property to these people else they could have lost everything. The land cost was approx Rs 1 crore and the 50% part was worth Rs 50 lacs in today’s standards.

What is Land/Property Registration and Why is it Necessary?

Land or Property Registration refers to the registration to document changes in ownership and transactions involving immovable property. Whenever you buy a piece of land/immovable property, you need to register the same with the authority concerned, so that a legal ownership title is guaranteed to you. This greatly reduces the risk of fraud and helps solve disputes easily, in addition to creating and maintaining an up-to-date public record. While Land Or Property registration is not that easy, still there are some measures being taken for making property and Land registrations easy in recent times. Also, the registration process depends and varies from state to state, you can get the information about some state here

Is your Land Registration Complete?

A lot of instances like this happen in our life also. We make payments to people and do transactions and make promises verbally. If anything happens to us in between, neither there is any track or it, nor any information about it, our family will never be able to find out what happened, in fact they will not even know that “it happened” . So always refrain from doing anything which is not backed up by supporting documentation. Never!

Especially on the Real estate part, check if the documents are totally in place, see it from “What if I am not there” angle! Do you have any experiences like the above-mentioned example? Do you know someone who has not completed his Land Registration of Property Registration?

Wife gets 50% share in husband’s property after divorce – India Law

Posted on by Jagoinvestor

Do you love your wife? You better do!

There were few changes proposed weeks back in the marriage laws in India, which everybody should be aware about. A bill called “Marriage Law’s (Amendment) Bill 2010” was passed by the cabinet, which is pending for discussion in Rajya Sabha and some major changes in the women’s rights are suggested, on how the properties would be divided after divorce.

Women Rights in husband property after divorce - India Law

The biggest change says – “As per new Divorce law, Wife share in property would be 50% in all her husband’s residential properties, no matter what and in other properties, her share will be decided as per the court decision.”

Wife share in property owned by the husband would be 50%

Earlier, before this change – a woman was entitled to a share in husband’s properties, but there was no quantum defined as per law, it would be any percentage depending on the case, but now with this suggested change, a women will enjoy equal sharing without any condition in all the residential properties owned by husband. But in this case, women will have to specifically apply for her share, she should be aware of this law about “50% share”.

A major change in this amendment is that this rule is applicable to all the properties of the husband acquired before and after the marriage, whereas the earlier law made sure that the wife gets share only in those properties which are acquired by her husband only after marriage. Now men stand to lose on this front, in-case things are so sour with the wife.

Husband & Wife joint holder’s in a residential property

You should be clear by now, what will happen in the case where a property is registered in the joint names of husband and wife. A lot of couples register a house in joint names, a lot of times both pay’s from their respective salaries, and in some cases, only one party pays (generally husband). Imagine divorce happens – Who will get how much? Women will keep her 50% part and she will also get half of her husband share in the house, so 75% wife and 25% husband.

Rights of women after divorce on other properties in India?

Apart from the mandatory 50% share in husband’s residential properties, the wife will also be entitled to get a share in another kind of properties, but the quantum is not set, as per the Bill, it will depend on “living standard of the wife”

Waiver of six months cooling period possible

As per the old Indian law which governed the division of assets for women after divorce, it was mandatory for husband and wife to spend at least 6 months together before applying for divorce, but with this new amendment bill, there are provisions of waiving off the 6 months cool off period or lessen it, but only if both husband and wife want it. This means if one of the spouses wants to get divorce on an “urgent basis” , but other does not, it will not be possible. This is one of the major change in the bill and will help those couples who do not want to serve that “6 months” cool off period of living together.

Is this an anti-male law?

A lot of groups have termed this change as anti-marriage and anti-male law and critically oppose it, they have termed it as a bill totally against males and illogical. The major issues with the amendment are as follows

  • The bill talks about only the division of Husband Properties, but not wife’s properties. So in-case women are at fault, still, she will get a 50% share in husband property, but her share of the property will not be divided.
  • A major disappointment for men in this bill is that even the “person at fault” can apply for getting the share of property, and the other party will have to respond to it. Generally as per old law’s when mutual consent was not there, the victim applies for the property share and the person who is the “bad person” has to respond to it. Now with his law change, his wife can seek a divorce and ask for a share in the property.
  • There are concerns raised like this law will encourage more divorces are women can get hold of property easily for sure.

Now there are some serious concerns due to these changes. If a husband has one residential property, old parents who are financially dependent on him and there is a divorce between husband and wife, the wife could take 50% share, in which case the men will be left with 50% property, this seems very unjustified. What is the woman already owned 2 more properties on her name? She has nothing to worry about!

One serious drawback of this law is that some men, who are undergoing a bad phase of marriage, may convert their residential properties into immovable assets, or just transfer it on other names to save themselves from parting away with 50% share in the worst case.

Conclusion

While there are cases where women are deprived of their share in wealth at the time of divorce in India and there was a requirement of strong laws which focuses on rights of women in case of divorce in India, this amendment seems to have gone beyond what it wanted and has loopholes which can be exploited by women. With due respect to each gender, it would be great if there would have been some balanced law, and some thought should have gone for the worst cases.

To summarize things, here are the take away’s from the changes made in marriage laws.

  • In the case of divorce, Woman will have 50% share in the residential property of a man
  •  The wife will have to take the initiative of seeking her share in such cases.
  •  Women and children will also have rights in the other assets of man, which will be decided by court
  •  It does not matter if the property was acquired by before or after the marriage

What do you think about this amendment? Do you also feel its too anti-male but only designed keeping women in mind? Do you feel its correct to keep a 50% share for wife in husband’s property in case of divorce as per law in India? Note that the bill still needs to be passed and right now only the cabinet has passed the changes. It is yet to become a law after getting passed in both houses.

Note: The information provided in this article is based on various media articles and the exact circular could not be found out. Also, the bill still needs to be passed, only then it will become an act finally and will be implemented.

6 type of Portfolio Diversification – Meaning & Strategies

Posted on by Jagoinvestor

A lot of people with high net worth still do not understand Portfolio Diversification. They made good money, their investments have zoomed over the years and they feel that they have understood the mantra for growing wealth. However, an important parameter to look at is “Diversification”. How much diversified you are in your overall financial life? Let us understand what strategies we can adopt for diversification of portfolio, but let’s look at 2 examples to understand the problem first.

Example 1

Let’s look at Ajay’s example – whose net-worth has is 4 crores overall, but 3.5 crores are in just one flat in Mumbai. What can go wrong? There can be several events which can affect Ajay, An earthquake in Mumbai can come someday, prices may suddenly take a hit (if not today, maybe in future, Ajay might come to know someday that the quality of material used is not good, Liquidity issues etc etc

Example 2 

Robert has successfully grown his net-worth to Rs 15 lacs in just 3 yrs, but the issue is that most of these 15 lacs in concentrated into a single mutual fund called HDFC Top 200. What can go wrong ? – The equity markets can see one of the biggest fall just 3 years before Robert needs the money, The stocks picked by the funds can do exceptionally bad, the fund manager might take wrong decisions in a row, The expense ratio increases and you don’t know its hurting you badly from many years etc etc.

While these are hypothetical examples, you must have got a good idea of what I want to say here. A portfolio extremely skewed on one side can be extremely dangerous, maybe the chances of risk are low, but still, it can occur.

Diversification in Personal Finance

6 types of Portfolio Diversification

Asset allocation is a word that describes how well are your assets allocated across various asset classes and you do it with diversification! A lot of people feel that just because they have invested in 10 mutual funds, they have diversified their investments, but portfolio diversification is achieved at different levels. In my book Jagoinvestor, In the last chapter I talk about the simplicity of Financial life and show how 3 mutual funds are not too much different than 5 mutual funds in equity diversified category, Their underlying investments (large-cap stocks, mid-cap, the concentration of the largest stock) are pretty much exact same. Now Let’s see some of the types of Portfolio Diversification

1. Across Asset Class

You might want to diversify your investments in different asset classes like equity (mutual funds, stocks), Real estate, Debt products, commodities like gold, silver and finally Cash. It’s important to do this kind of diversification if you are not an expert in one asset class and can not handle it fully.

2. Within Asset Class

When you invest your money in one asset class but in different kinds of instruments or companies, you are diversifying it across various instruments of the same types. A very simple example is opening Fixed Deposits in various banks. If you had to open a 10 lacs FD, the chances are you will choose 4 banks and put 2.5 lacs in each rather than doing it for 10 lacs in just one bank. In the same way someone investing in 5 different equity mutual funds. While the underlying asset class is exactly the same (equities), but still some kind of diversification is there (different fund managers handling it).

3. Geography Wise

Then you can diversify location wise or geography-wise. You can invest in real estate in India, US, UK .. You can also invest in real estate across different cities within India. You can buy stocks in the Indian stock market, US stock markets, and other countries too. The idea is to take advantage of currency fluctuations too, but this is only for experts who understand that.

4. Across Capitalization

When you invest in mutual funds, you can choose to invest in small-cap funds, large-cap funds, extra large-cap funds, small companies, big companies, etc, etc. Note that the risk and return potential will be different and anyways you will invest in different companies.

5. Across Time

Your investments can be across time also, like long term investments, short term investments, medium-term investments, You can have a 5 yrs deposit, 2 yrs deposit and 6 months deposit as well. Imagine if you have done 5 yrs deposits only – which can affect your liquidity

6. Across Style

There can be diversification across styles – You can invest in products giving you fixed income, or which are just for growth purpose. You can invest in something that has value investing principles or more speculative ideas.

Can you think about more kind of diversification or any other benefits for portfolio diversification?

What about Over diversification?

Should you diversify in all ways? Definitely not. The above ideas are just to show you how many kind of diversifications can be there, you should not overdo it and try to incorporate all kind of diversifications in your financial portfolio. Just see how much makes sense in your case and properly access how much you need it.

If you look at your current portfolio, Many many marks out of 10 will you give on the parameter of “Portfolio Diversification” or “Asset Allocation”?

Shocking ! – Job Rejection due to Bad CIBIL Report

Posted on by Jagoinvestor

Your credit score is going to affect your Employment. You can face job rejection due to it! Yes – that’s happening already. A lot of companies especially Finance and Software Companies have started asking candidates to present their CIBIL report and score (or any other credit report) at the time of the interview and it has started playing a role while selecting a candidate. So if your credit report is bad because you have not paid your loans on time or if you settled your loans in past, you might get rejected in your next job interview provided your prospective employers look at your cibil report/score. Note that it’s standard practice internationally to check credit score before employment and various other purposes.

Employers looking at cibil report at job interviews

3 Real-Life Example of Job Rejection due to Bad Cibil Report

I am sharing with you 2 real-life example’s where credit report was asked before the interview and they were eventually rejected (there can be other parameters for rejection apart from the bad credit report)

Example #1 – How Sapan has rejected a job in HDFC

Sapan a reader of this blog faced job rejection twice by HDFC Bank and an NBFC just because there was a credit card dispute on his credit report and he could not convince them that it was his fault.

I lost the Job twice in HDFC Bank even after got selected for Relationship Manager but rejected by HR team because of my credit card dispute which was stolen and unauthorized transaction took place of 50000/-. In the end of the day I was failed to convince the HR team and I was forcefully to pay 50000/- and got a job in one of the NBFC which also checked my CIBIL before getting job. – from facebook comments below

Example #2 – Rejection by Indian company for a Bad Credit Report from the US

Even those who are coming from US to India and looking for Jobs, employers are asking their US credit score – Here is an incident which happened with Nandish’s friend, this sharing was from Nandish

He was in US for almost 8 yrs. During that time he created a lot of debt for himself. His job transfer got him back in India, he knew his credit score in US is bad and he never bothered about it as he thought now he will be staying in India. His job was going on well and his life was comfortable. On one fine day he decided to quit his job and started his own business. He could not make it in business, his social responsibilities forced him to get once again in job. He started applying in different companies and finally one Bangalore based company offered him 16-20 lac pay package. He was excited and thrilled to get this offer. This company was US based and one of the most important criteria they would check is their US credit score…My friend tried hard to convince them but finally he was not selected. To improve his US credit score he is now really working hard but nothing seems to be working for him.

Example #3 – How an Indian Bank asked for CIBIL report

One of the readers was asked for her CIBIL report when she applied for a job in an Indian Bank, She applied for CIBIL report and handed over to the bank, the bank has not followed up with her after that.

I have applied for a job in bank and they have to check my CIBIL. I have a loan taken just 2 months back and only one installment hit my a/c thru cheque and tht was honored. Bank want to check my CIBIL before hiring. I haven’t had any bad experience but ya this is first time my CIBIL gonna check… and might be there is some problem according to bank ppl as they have not reverted me after my cibil check.

Quotes from some of the latest articles on media

  • If you thought you had only to worry about banks getting hold of your credit histories, there’s more. Of late, employers too have been asking prospective candidates to submit their Credit Information Report from CIBIL. Your employability could be affected by the report, as it happened with an acquaintance of mine, who was refused employment in a bank because of his poor credit history. Would you rather pay for your mistakes at a later stage in life or plan for those loan EMIs and pay them on time? – source
     
  • Some employers may also ask a potential employee to submit his/her credit report during the hiring process. Those with poor credit scores may be rejected in favor of those who have demonstrated better financial planning. Thus, the credit score and report may become a vital ‘reputation’ collateral even for employment in the future. – Source
  • Companies in western nations are known to make credit checks before taking people on board. In India, companies have started checking the creditworthiness of an individual, especially for senior-level hiring. Employers ask the candidates to produce their credit report at the time of interview because employers cant access it directly.  The trend is picking up in financial and IT sector companies. – said Harshala Chandorkar, senior vice president, consumer relations, Credit Information Bureau (India) Limited (Cibil). – Source 

Why Do Employers want to check your Cibil Report?

If you think for a minute and try to understand it from an employer’s perspective, you will realize that there are some reasons why employers might want to look at your CIBIL report before they hire you. Here are some –

1. It’s part of “background check”

A very valid point can be that checking your credit report or score can be seen as a part of “background check” . While there are genuine reasons why some innocent guy had a bad CIBIL report, a person having a bad CIBIL report can be seen as an irresponsible person and not capable of taking care of things. Just like no company likes to hire someone who has a criminal record, in future even having an extremely bad credit report can be seen in that way.

2. Bad credit record might indicate bad intentions as general

A person having a bad credit report might not be seen as an honest, credible person to work with and he/she might be seen as a potential threat to the work environment. While this is a big debatable topic – look it from employers point of view, they see things in a very defined manner, if the company policy tomorrow says that we will not hire someone with any person whose credit report has a WRITTEN OFF status on a loan, or has a score below 650 , then even those who are innocent and have got a messed up report will feel ask if its unfair, but companies go as per their framework and rules defined, not case to case basis.

3. High debt trap might lead to bad performance

If you have a huge debt on your head, it’s really tough to give your best at work. This is exactly how employers can see it, even though you disagree with it. It has been known that financial issues have a big impact on professional life, you might not concentrate fully if you are in a financial mess and paying off your debt is consistently on your priority list each and every moment.

Bad credit report leads to job rejection in interviews

Is the CIBIL report being checked by all employers and sectors?

As of now, looking at credit reports while the interview is a very new trend seen in India. It’s not widespread, but have started happening. So you can safely assume that it will be a regular process within some months or years. As of now, CIBIL Report is checked at only senior-level interviews especially in Financial and IT sector, but soon this will be happening across sectors and all levels. Employers can not directly access a candidate credit report because RBI guidelines allow credit bureaus to share it only with banks and financial institutions who are clients of CIBIL, hence Employers ask the candidate themselves to present their report when they come for an interview.

Note that credit reports are just one of the parameters being checked by the employers, it’s not the only basis for job rejection. Apart from the credit report, other main and important parameters like job qualification, experience and salary expectations will also matter while hiring, a credit report is just a part of the whole process.

Who else can use Credit Report and Score in coming future?

In an email reply to me, Harshala Chandorkar – Senior Vice President – Consumer Relations of CIBIL shared with me that credit reports can enter our lives in a big way in the future. In future landlords may demand a credit report before renting out an apartment and even telecom providers can see your credit report to assign the limits for your usage, but this can happen in the future, not very soon. Here is what she said in an email reply to me

In more developed economies, an individual’s credit information report and credit score is critical reputational collateral and is being used for multiple purposes by various institutions. Employers review it before recruiting a new employee; landlords require it before renting out an accommodation and of course telecom providers check an applicant’s credit history for assigning limits.

We may see similar evolution in India when a person’s credit report and credit score will be imperative for a lot many things in addition to availing institutionalized credit facilities. Therefore it is very critical for students to maintain a good credit history and pay back the loan dues on time.

Share this information with your friends (you can share it by clicking on the “Share” button on the left side) and let them know about it, they will thank you. Also, let us know – What do you think about this about job rejection due to the CIBIL report? Do you feel it’s going to help us all? Do you think it’s fair to check credit reports by employers in job interviews?

Results of Personal Finance Quiz – with answers

Posted on by Jagoinvestor

I took a personal finance quiz last week, in which close to 1,000 people participated. It was amazing to see the participation and the way you guys took the survey. I am now publishing all the questions with correct answers and the explanation for the answers , along with some observations (results and how different income group, profession performed in it) . Each answer had a 1 mark , so someone who answered 4 right out of 10 , has a score of 4/10 .

Personal Finance Quiz was tough

I did not want to make a simple quiz, so I had designed the questions in such aq way , that the answer which comes to mind immediately was not correct , the right answer was a little hidden one and not easy one . Hence you might see that the answer which naturally came to mind was actually a wrong one , the right answer was a little tricky one.

Some Observations from Personal Finance Quiz

  • The average score of all the quiz takers was 3.48/10 .
  • 94% quiz takers could not score more than 5/10
  • 50 people who were extremely overconfident and said “All 10 questions are correct” , all of them scored below 5 , and the average score was 2.84 out of 10
  • The high income earners were the worst performers with average score of 2.69/10
  • One of the worst performance was from software professionals with average score of 2.91/10
  • Only 27 people were able to score more than 7/10 and just 4 person scored 8/10 . Most of these people had income less than 5 lacs and they thought they had “more than 5 correct answers” , but not all correct.

Answers for the 10 quiz questions

Here are all the 10 questions from the quiz and their answers with explanations. You know what was your answer and hence you can find out what was your score exactly.

1. If you have a bad remark in your cibil report ? What is the maximum tenure it will be there and after that it will be removed ?

Right Answer was There is no upper limit on this . I was sure that a lot of people will choose the answer as “7 yrs”, because they had heard that number “7 yrs” as being the limit after which the bad remark from CIBIL is removed, but its again a myth ! . Yes – you will be shocked to hear this, but 7 yrs is the MINIMUM time-frame for which bad remark will appear, its not maximum. In the question, it was asked for the maximum limit, and right now there is no maximum limit. I was on a phone call with a senior person from CIBIL, and she told me that right now there is no decision on what will be the maximum limit, so on the higher side, the bad remark on CIBIL can be for even 15-20 yrs , you never know , but for sure it will be there for minimum 7 yrs . Now understand that this is when you do not do anything about your Bad remark , if you pay off your outstanding or pending debt , then it will be cleared of, Read this article on how to improve your cibil score and Report

2. CIBIL score is calculated based on past how many years credit history ?

Right Answer was 2 yrs . I was not very surprised when most of the people chose 3 yrs as answer. It must be because they are aware that the CIBIL report contains your last 36 months of history , it has all the data about how much was outstanding and how much you paid. But your credit score is only dependent on past 24 months credit history only, whatever would be the algorithm for calculating the credit score, only past 24 months of data is used.

3. The money you withdraw from your Endowment policy after the 3 yrs lock in period is Tax Free 

Right answer is True.  As per the revised rule, any surrender value from Endowment plans are tax free after 3 yrs, but earliar it was 5 yrs, now its changed  (This answer was updated later)

4. If EMI for 20 yrs – EMI for 25 yrs = EMI for 25 yrs – EMI for X yrs , what is X

Right answer is None of the above . The other 3 options was not a right answer because X will depend on the interest rate value, If the interest rate is a number which is like 10% or something , then the X value will be infinite, but X can actually be 100 yrs or 200 yrs , if interest rate is very small like 3-5% (test your self), hence the answer is it purely depends on the interest rate. You can check this using the this EMI Calculator .

5. Ajay bought a house in Nov 2011 and paid stamp duty of Rs 50,000. Now its June 2012, and his friend recently told him that stamp duty can be claimed under sec 80C. How much of Stamp duty out of 50,000 paid can be claim now ?

Right Answer – He can not claim Stamp Duty Under 80C now . The simple rule is that Stamp duty can be claimed under 80C, only in the financial year its paid.  If you see the question clearly, then you will see that Ajay bought the house in Nov 2011 (that’s 2011-2012) , hence the 80C benefit for stamp duty can be claimed only for 2011-2012 . But the question says that now its June 2012 when Ajay’s friend tells him about the stamp duty thing , now the time has passed, he cant claim it back now .

6. Father creates a Fixed Deposit on his child name for Rs 10,000 @10% interest rate. Next year who will pay the tax on the interest amount of Rs 1,000 , if child has no other income source

Right answer – No one will pay income tax . I was sure people will confuse this with the income tax clubbing rules, which says that income of minor will be clubbed with the parent who actually invested the money, but here if you see the income for the year is Rs 1,000 which is from the Fixed Deposit on child name, and what many people might not be aware is that, as per section 10(32), income upto 1,500 per child is exempted from income tax clubbing . Only income above Rs 1,500 will be clubbed, which means that a person can make FD’s on their child name and interest upto 1500 will be treated as purely child income and no tax will be paid on that. This is one of the tip you can use to save small tax on the income from investments .

7. Ajay’s age is 25 yrs right now , His birthday is coming next month, but he will not be able to take his term plan before 3 months, Why should he worry ! 

Right answer was There is nothing to worry about . Its because Life Insurance calculations considers the “nearest” birth date, not the next or previous one. So in this case Ajay’s birthday was coming next month, so whether he takes a term plan before 2 months of his birthday or after 2 months, it does not matter, his premium will be same, because his age will be considered as same. Now this has become a standard way of calculating the age, but there might be 1-2 insurers who are still calculating it on the completed age.

8. Ajay sold his land after 9 yrs, but still suffered a capital loss of Rs 8 lacs, In order to save the tax on that, Ajay had also bought some shares 2 months back which have appreciate a lot . He sold them at a profit of Rs 3 lacs, Which option is correct now?

Right Answer was Ajay can carry forward 8 lacs of capital gains loss for next 8 yrs . The first point is that a capital loss can be forwarded for next 8 yrs, not 6 yrs. The other point is that most of the people must have offset the 8 lacs long term capital loss with 3 lacs of short term capital gain, and thought that he can forward only 5 lacs of capital loss, but they forgot that a Long term capital gain loss can not be adjusted against Short term capital gain (a short term capital loss can be adjusted against both short/long term capital gain) . Hence he can fully carry forward total 8 lacs of capital loss for next 8 yrs.

9. You can file an RTI and get information in respect to ?

Right Answer – Both SBI and PPF . All the govt departments comes under RTI act . As PPF comes under Post Office (Govt of India undertaking) and SBI Bank (a govt bank), both come under RTI , and in the same way all the PSU banks like Bank of Baroda , Canara Bank, Bank of Maharashtra etc also come under RTI , in-case you are facing any issues which you wants answered, you can file an RTI application and get your queries answered. Look at this example of how can file RTI for your EPF (Employee provident Fund) queries.

10 Ajay family consists of Brother, Wife and Mother. Ajay holds a Demat account (nominee is brother) and a Joint bank account with wife (nominee is mother) . Now Ajay and his brother both died in an accident , Ajay had not written any WILL . Which of the following is true ?

Right Answer is Demat will be claimed by Mother & Wife, but Bank account will be claimed by Wife Only. It was simple, but confusing. When a nominee dies, its as good as no nominee. Hence The demat account will be considered to have no nominee, which means the hindu succession law will apply in this case as there is no written will, and the demat account will be equally claimed by Wife and Mother (both class 1) . However the bank account will just go to wife because its a joint account, hence the second holder reserves full right on the bank account after primary holder death, the nomination or WILL has nothing to do here, because nominee and Will comes into picture only after both the holders death.

Prize for Top winner of Jagoinvestor Wealth Club

Out of the 4 people who scored 8 , We are picking one random winner , who is Mr. Rajasekaran, and we would like to offer him 1 yr free membership of upcoming Jagoinvestor Wealth Club, which is a paid product . Not disclosing much on what it is exactly, wait for it ! .

How do you feel now

Truely speaking, the personal finance quiz turned out to be very good and I really enjoyed it . You must have see how you quickly answered few questions and got them wrong, you must have spent some time to read them carefully :). This quiz was also designed so that you can see yourself that where you stand when it comes to personal finance and understanding the internals of it. Would love to hear how you feel after knowing the answers, do you feel you were overconfident with your knowledge ? Do you have any confusion in the answers of these personal finance quiz questions and would like to understand more ? Please leave your comments .

EPF e-Passbook – Check Employee Provident Fund Balance Online

Posted on by Jagoinvestor

Good news for EPF account holders. Now you can check your Employee provident fund balance online using the new e-passbook service by EPFO website. EPFO has introduced a new concept called “EPF Account Passbook”, which will allow EPF Account holders to download their EPF Balance passbook at any time they want, which means you can now do EPF balance enquiry each month and see how it’s increasing.

How to register for Employee Provident Fund e-Passbook?

Here are 4 simple steps to register for the Employee Provident Fund e-passbook online and after that you can do the EPF Balance enquiry anytime you want.

Step 1: Register yourself on the website

Register for EPF e-passbook

The first step is to go to the e-passbook members website – http://members.epfoservices.in/ and click on the registration link. Once you are taken to the next page.

Step 2: Generate your PIN and login

Generate EPF epassbook PIN online

You will be taken to the next page where you need to provide details like

  • Mobile number
  • Date of Birth (make sure it matches with EPF records)
  • One of the documents mentioned in the drop-down
  • Name and Number on the document (Like PAN card and the PAN Number)
  • Email

Then you need to click on “Get PIN” button to generate a PIN which will arrive on your mobile and email. This PIN is required for authorization every time you want to download the e-passbook and check your Employee Provident Fund Balance. At this point in time, you will need to log in again which will take you to the main page where you can do your EPF balance enquiry and download the e-passbook.

Step 3: Download the EPF Passbook which has your balance

Download EPF e-passbook PDF

Now on this page, you need to go to option which says “Download E-passbook” and under that click on “Download E-passbook”, It will ask for the state where your establishment is covered like Maharashtra, Karnataka, Delhi etc.. Once you click on the state, it will ask you to choose the exact EPF Office.

Step 4: Enter your EPF details

Finally download the EPF Passbook

Now you need to enter your EPF account number and name of the account holder, and click on “GET PIN”, which will generate the PIN on the fly which will come on your phone and email. You need to now enter this PIN below and you can download the PDF which has your current Employee Provident Fund Balance and other details. Make sure you do not close this page unless you get the PIN. One of our Financial Coaching Client, Jassi tried this whole thing and his experience was good

I followed the same steps. Yes the PIN is received in your mobile after some time, so one needs to be patient. And the page should not be closed until one receives the PIN, to access further. After receiving the PIN, log in to the application. If e-passbook is available, it should be shown immediately. Otherwise, one might have to wait. – On Email from Jassi

Checking your Employee Provident Fund Balance from time to time?

Now with this method, you can keep checking your EPF account balance from time to time, you can check it each month after your salary is deducted and some days pass, or you can also check your PF balance on a quarterly or yearly basis, whatever works for you. I hope you are clear about some hidden and must-know facts about your EPF

Sample EPF e-Passbook

Below is a sample EPF passbook which you can view and download. It shows how EPF e-passbook looks like and different entries made by the employer. But you will see only those entries which were uploaded and updated by your employer. It might happen that some people see their old data only.

sample epf passbook

12 Important points to know about EPF passbook

Here are some of the very important things you should know about the Employee Provident Fund e-passbook facility.

1. One Mobile number

One mobile number can be used for one registration only. However, you can change this mobile number later if you want so in case your mobile number changes, no worries.

2. One EPF account per establishment

You will be able to view only one EPF account details per establishment, means if you have two EPF accounts under Maharashtra (suppose you had a job in Mumbai and Pune), then you will not be able to view both of them, In that case you will need to first transfer one EPF to another. However, you can view your EPF account details which are under different establishments like saying one in Karnataka, Maharastra and Delhi (suppose you had 3 jobs)

3. Total of 10 EPF accounts can be viewed

A total of 10 EPF account details can be viewed under different establishments. I think its very fair logic because, in all probabilities, a person will not have more than 10 EPF accounts in several establishments, if he has, no one can help him anyway 😉

4. Inoperative & Settled EPF account details not available

If someone’s EPF account is inoperative (it happens if you leave the job and for 3 yrs there is no activity in your EPF account, even the interest will not be credited to that account), or the account is settled (you withdrew the amount already) , then your details will not be available. Tip – You can file an RTI application for your EPF queries and get them answered.

5. Details on request if you left the job before Mar 2012

If you have left your job before Mar 2012, then your EPF account may not be seeing any credit in past few months, in that case he will not be able to see the Employee provident fund details immediately, but it can be requested on the website (you will see a link) and that will be uploaded in few days.

6. Available only if the employer has uploaded Electronic Challan Cum Return of May 2012 onwards

This facility is available only to those whose employers have uploaded the Electronic Challan cum return for May 2012 onwards, Electronic Challan is a way of submitting the employee’s contribution to EPFO online, which is recently introduced by EPF organisation.

7. No need to remember user id and password

There is no user id and password, all you need is your mobile number, document name and document number, which we all remember anyways. At the time of downloading your EPF Balance passbook, you will need to generate the PIN online which will be sent to your phone, this will reduce the chances of fraud

8. Private EPF trusts not eligible 

Those employees who have their EPF with private PF trusts (or called as establishments exempted under the EPF Scheme) will not enjoy the benefit of this e-passbook facility, hence they will not be able to check their employee provident fund balance online using this.

9. Use multiple id’s to register

You can add several documents like Driving license, passport, ration card etc in the same account, this way you dont need to remember just one document id and its number, you can log in using any of those which you are carrying at that time.

10. Details and Entries in the EPF passbook

Month and date wise transactions made in member’s account will be displayed in the passbook from the year for which the annual accounts were updated for the establishment for the first time since computerisation of the concerned field office. For example, if the first annual accounts of member’s establishment were updated for the year 2008-09 by the concerned field office after its computerisation, the passbook will display the opening balance for the year 2008-09 and all transactions thereafter.

11. Error while Downloading the passbook

While downloading your EPF passbook, you might see an error saying “YOU HAVE ENTERED INVALID MEMBERS ID OR NAME”.

Please check whether you have entered the correct code & account number and/or name. In case yes, the name may not be matching as per the record in EPFO. In such a case, the member has to contact the concerned EPFO office. At times some entries from EPF passbook might be missing, in which case, the member should check first with the employer whether the returns for the month/year related to the missing entry has been submitted by him to the concerned EPFO office. In case yes then he/she can contact the concerned EPFO office regarding the missing details.

12. Not getting the PIN on your mobile?

Ideally, you should get the PIN on your mobile as soon as you click on “Get PIN”, but if you dont get it fast, it means the lines are busy and you should wait for more time and re-try!

Tip : Use Chrome instead of other browsers, Some components are running smoothly on Chrome, but not on other browsers .

Are you going to check your EPF Passbook?

Is this working for you? Did you try to find out your Employee Provident Fund Balance using this method? Once you are able to do your PF balance enquiry using this way and check your EPF passbook online or not? kindly let us know on the comments section.