Author: Jagoinvestor

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Financial advice for free or fee, what’s more expensive?

Posted on by Jagoinvestor

“Jo Cheez Free Mein Milti Hai Uska Paisa Kyon de Bhai?” said one person when his financial advisor asked him to pay a fee for advice, something which he has been giving free for the last 4 years. It may sound obvious that if you are getting something for free then why should one pay for it. But when it comes to financial advice, free can be very costly.

financial advice in India

It is very common these days to hear about stories of investors losing money because of wrong financial advice. You can call it mis-buying of financial products or misselling or both. And while it is reasonable to expect every individual to gain enough knowledge before buying a financial product, I think a much bigger responsibility is upon the financial advisor to guide investors in selecting appropriate financial products. But many financial advisors have failed in protecting their client’s interest. Wonder why? Read on…

Conflict of interest

When financial advisors also sell financial products, it is a clear case for conflict of interest. The craving for misselling is higher when the advice is given for free and income is earned only from sales commissions. One important question for consumers of financial products would then be: “Will the financial advisor recommend me those products that are most appropriate for my needs or the ones that give him/her higher sales commission income?”

This conflict of interest, coupled with human greed has been cited as the main reason behind several global financial crises as well as the day-to-day mis-selling of financial products.

Separating advice from sales

Across the world, steps are being taken by financial regulators* to separate financial advisors and sellers. (*In India, RBI is a regulator for banking, SEBI for securities markets including the mutual fund industry, IRDA for insurance, PFRDA for pension products and FMC for commodities markets)

In healthcare, it is fairly clear that we go to a doctor for advice and then buy medicines from the chemist, so most people are accustomed to paying a fee to the doctor and then buying medicines from a medical store. It is also clear to us that if a doctor earns a commission from the sales of medicines or medical tests and surgeries etc, then the chances of getting biased advice are very high. The same logic applies to the financial services industry, however so far the distinction between financial advisor and seller has not been very clear. (Learn about our Financial Coaching Program)

In my opinion, the chances of an individual getting the wrong financial advice are several times more than getting wrong medical advice. Why? Because so far in India there is no regulation for financial advisors and that means that anyone can print a visiting card saying that I am a “Financial Advisor” or “Investment Advisor” or “Financial Planner” etc. There are no mandatory educational qualifications, experience or registration requirements. But things are about to change!

What the financial regulators in India are proposing

The financial regulators in India are working towards regulating financial advisors. Regulations will include a minimum educational qualification and registration to get a license for becoming a financial advisor. It will have a set of rules laid down for advisors and any misconduct can lead to a penalty or even revocation of their license.

SEBI, in its concept paper for the regulation of investment advisors, has proposed several steps to separate investment advisors from investment product sellers. One of the things proposed is that all professionals who want to call themselves ‘advisors’ should not take commissions from financial product manufacturers and their income should come from the fee that they charge their clients i.e. investor.

If advisors will have no commissions to earn, their advice will remain unbiased and they would represent the interest of their clients and not of the product manufacturer. This is termed as a fiduciary relationship. Clients would then have to pay advisory fees to the advisor based on the value received. Financial product distributors or sellers who offer transaction execution and related service can earn commissions, but then they will not be able to call themselves as advisors.

So for a common man, differentiating between a financial advisor and distributor will be made easier. Here are a couple of related articles in the financial media: Sebi to come out with guidelines for investment advisory space and SEBI certificate must for investment advisors

Fees v/s Commission – does it make a big difference?

I think many individual investors resist paying fees and don’t really bother about how much commission their financial advisor or agent earns because they feel that “It is the financial product company (e.g. mutual fund or insurance) that is paying commission to the agents/advisors, so why should I care?” Well, actually it is the investor’s money from which the commission is paid! To understand this better, have a look at these two presentations on Why did SEBI Abolish Entry Loads in Mutual Funds? and How to evaluate your financial advisor.

There have been some anxiety and concerns amongst an existing lot of financial distributors and advisors. Their biggest fear against this regulation is that “consumers are not ready to pay a fee for advice, so we have to live on commissions.” Some of these concerns are valid and hence the new regulation has to be supported with adequate efforts on investor education and awareness.

What is the way forward?

Some really important developments are going to happen in the near future that will significantly impact financial advisors as well as individual investors.

In my personal opinion, regulating financial advisors will be beneficial for both – investor community and the financial services industry. However, it will be very important to implement the regulations in a consistent and phased manner with adequate investor education. By consistent, I mean that coordinated regulations should come across all products i.e. mutual funds, insurance, pension products, etc. So it should regulate financial advisor and not just investment advisor, thus encouraging holistic financial planning. The good news is that multiple financial regulators are collaborating on this effort of regulating advisors and we can hope for a comprehensive regulation.

Along with regulations of financial advisors, it will be very critical to conduct an awareness drive to make people sensitive to the fact that paying fees to a financial advisor/planner are more transparent. This shift in perception is very important otherwise many honest financial advisors will have a tough time running their practice and many consumers will be deprived of good financial advice.

Also, I’m not saying that paying fees for advice is any guarantee for getting good advice, you may even get very valuable advice for free from a friend or you can educate yourself enough to be your own financial advisor. But if financial advisor as a profession has to grow and mature, then I think a consumer paying fees for advice is much more transparent than the commission-based model which has an inherent conflict of interest.

Are investors fully aware of this critical issue?

In my professional experience spanning over 14 years, I have had the privilege to work closely with various banks, asset management companies, stockbroking and distribution houses, independent financial advisors, insurance companies, media houses and financial regulators in India. So when SEBI made the concept paper for regulating investment advisors open for public comments in October 2011, I interacted with various stakeholders on this issue to get their opinion.

And I realized that while the financial industry is abuzz with discussions these developments, there was hardly any discussion happening amongst the investors and consumers of financial products. Most of them are not much bothered about this issue of fees and commission. So I thought it was important to write about this issue with an objective to give individual investors a viewpoint that would help them in working with their financial advisors. Many good, honest financial advisors are today facing a lot of challenges in sustaining their business and convincing their clients to pay fees for advice, service, etc.

And many myopic financial advisors are going around finding newer ways to misguide their clients under the garb of being their trusted financial advisors or ‘relationship managers’. Hence it is important to take an informed and balanced view on this. We have also created a website – http://wikipaisa.com to spread more information on this issue of Free v/s Fee for financial advice.

I’d like to take this opportunity to know your views as an individual. Do you currently pay a fee for advice? And if not, do you think it makes more sense to pay fees? Or do you think the current model of the commission structure is fine? If you are an advisor, do share your feedback too, but please mention in the comments that you are an advisor. So do share your views and also answer this poll question.

This is a guest post by Deven Shah, who works as a Consultant with the National Institute of Securities Markets (an educational institution established by SEBI) and has played a key role in initiatives like InvestorFirst.in, The Pocket Money Program and CPFA Examination.  All views expressed in this article are his personal opinions and do not represent the views of any organization he is associated with. He also leads WikiPaisa – a collaborative effort to make money simple and live happier. He can be reached on [email protected]

Health Insurance is Wealth Insurance

Posted on by Jagoinvestor

Does Health insurance or Mediclaim Insurance really protect your health ? Ask yourself this question and deep down in your heart you will hear someone shouting , No Idiot ! , There is no policy which can protect your health ! . Health can only be protected by right diet , right exercise and right lifestyle (download this ebook). Unless you are doing any of these your health can’t be insured. So what is Health/Mediclaim Insurance, when it does not protect your health ?

In reality, what we all fail to realise is that Health Insurance is actually “Wealth Insurance” . When you buy a health insurance policy, all you are doing is protecting your wealth from those scenarios which would ask for a lot of money from your wealth. So you have to understand the importance of buying a health insurance policy. (You can buy it from Coverfox website)

I was talking to some one few days back in Goa (Yes, I go on vacations too) who rejected to take a mediclaim policy because of higher premium due to his diabetes. I told him that I hear something out of his decision of not buying a health insurance plan. He was surprised to hear this because he didn’t say anything else other than “I will not take health insurance” . So I told him what I heard.

I told him that I hear from him that he is ready to lose a big part of his wealth in few years if he is detected with any further illness . I told him that I hear that he didn’t want insurance company to pay for his medical bills , but was ready to bear the cost on his own. If he has to spend 5 lacs , he will pay it . If its 15 lacs , he will pay it ! and even if its 30 lacs (after 12-15 yrs) , he will still pay it .

Protecting Wealth is much easier than Protecting Health

I told him that by choosing not to buy a health insurance plan, he is accepting that he is ready to bear a big cost in future incase the situation demands . A lot of people do not think about health insurance like this. While this is the internal truth that the job of health insurance is to protect your wealth and not your health, a lot of people just fail to look at it this way .

So if you love your Wealth , buy health insurance.

For health , you can take other routes like eating right food, physical exercise daily , having a positive and a good life style (see this post from subra)  .. But the sad thing is protecting your wealth is much easier than protecting your health 🙂

What are your views on this ? What have you done to protect your health and wealth ?

Does Sushil Kumar (KBC winner) require a Financial Plan ?

Posted on by Jagoinvestor

We all know that Sushil kumar has won 5 crores from KBC few days back (actually 3.5 crores after tax) and now he is already being approached by wealth managers, relationships managers to advise him on how to “invest his money”. So I want to just discuss my thoughts with you all on how Sushil kumar should put his money at work ? Does he really need a Financial Plan ? Does he really need an advisor ?

Sushil Kumar 5 crore KBC winner
Let us see what he can do with his money and how I think he should utilize his 3.5 crores. Given his background and education level and assuming that he listens to me, here is what I would suggest Sushil Kumar.  Divide your money in 4 buckets A (1 crore) , B (1 crore) , C (1 crore) and D (50 lacs)

Bucket A (Security of future)

The first thing which I would tell Sushil Kumar is that he should just keep things simple and simply keep that 1 crore in a Fixed Deposit and let it accumulate there without any complication. This part of his wealth should be there incase THINGS GO HORRIBLY WRONG ever , he can just leave this part as it is for growth, even if its going to increase at a slower pace compared to equity or anything else.

Bucket B (Regular Income and Security of Capital)

I would suggest him to use the next bucket to generate a regular income along with his capital being secure, again there can be many ways of doing this , but considering his background and assuming that he might not be too sure about financial matters , again I would recommend him to put his next 1 crore into a fixed deposit with a monthly or a quarterly payout of interest . This will make sure that his initial capital of 1 crore is secure and he will start getting an income of Rs 65,000 – 70,000 per month (before tax) .

This income of 65,000 – 70,000 will be more than enough for him to live his regular life, thanks to him not very much addicted to junk foods , extravagance and other useless spendings which our generations have. He will surely be left with a lot of money each month or quarter and thats where he can put some money in equity on regular basis . No stocks , no mutual funds , just plain index funds, so that he does not have to bother about funds not performing every year and does not require a short-term review.

Bucket C (Assets creation , Education , Business)

Once his worst case is covered (bucket A) , his regular income is taken care , now he can use the next 1 crore for building a new house for himself and his family , he can also use some part of his money to fund his education and some part he can use to start a new business which can again open a new stream of income for him) . This purpose of this 1 crore is to take care of all the things which he wanted to do in his life. This part is not to save , but to utilize for his aspirations and his dreams.

Bucket D (Enjoying his Life)

I think he should use the last 50 lacs to just blow off and enjoy his life on regular basis which a lot of people just dream of . He should take a vacation abroad first using 10-12 lacs and then rest of the money he can use to go for a regular vacation each 6 month , with 35 lacs he can get a 2.8 lacs a year as interest income which would be enough for him to take 2 vacations a year with whole family 🙂 . The focus of this 50 lacs can be purely for enjoyment purpose because his other area’s in financial life are complete.

Other Suggestions

  • Life Insurance is not required for Sushil Kumar because there is no requirement of Life Insurance, There is enough wealth with him and his family incase he is not around.
  • Health Insurance would be something nice to have as it would come at a small cost compared to what he has in life, this would make sure that someday if something goes wrong , his wealth is protected against the unexpected expenses.
  • He should stay away from any relationship manager , Agents or even Financial Planners as there is more for “Allocation” and less to “Plan” . He has already passed the Accumulation phase and only if he takes care of his existing wealth now, he should do good.
  • Because of his less knowledge (assumption) about overall personal finance, he should keep things simple and be with simple products like Fixed Deposits which he understands properly.

Sushil kumar real enemy might not be inflation or ignorance about money, but his own relatives and Bihar goons ! . So what do you think about these suggestions to Sushil Kumar ,? Do you agree with it ? How would you allocate his 3.5 crores if you had to do it ?

PPF interest rate now at 8.6%

Posted on by Jagoinvestor

PPF interest rates was increased to 8.6% by govt recently.  This is good news for all the investors who are primarily debt instruments investors. The Public Providend Fund interest rate was 8% from very long time and the investment limit for PPF is increased to 1 lac from old 70,000 . This will be applicable from 1-12-2011 (source) . There are some other changes which were done in other investment products , which are

  • The Maturity tenure for National Saving Certificate (NSC) has been reduced to 5 yrs (earlier it was 6 yrs) and interest rates increased to 8.4% from 8%
  • A new National Savings Certificate (NSC) would be launched with a 10-year maturity with an annual interest rate of 8.7 per cent.
  • Post office savings account interest is increased from 3.5% to 4 per cent.
  • Interest on loans obtained from PPF will be increased to 2% p.a. from existing 1% p.a
  • Kisan Vikas Patra has been discontinued from now onwards . The committee had said that the KVP was a bearer-like certificate with a regulated premature closure facility and was open to abuse by tax dodgers. They can be bought or sold without going to the post offices.
  • Maturity period for Post Office Montly Savings Scheme (POMIS) has been reduced to 5 yrs and interest rate has been increased from 8% to 8.2%. Also the 5% bonus on maturity has been scrapped.
  • Commission for agents on PPF and Senior Citizens Savings Schemes are scrapped. For any other instruments, agents commission will now be 0.5% against 1% earliar . According to the Gopinath Committee, the agents were paid around Rs 2,400 crore commission in 2010-11.
  • The interest rates of varios tenures fixed deposits in Post Office is increased , for example for 1 yrs Fixed deposit , the new interest rates is 7.7% against 6.25% earliar . There are changes in other tenure fixed deposits also (See image above) . This has happened because interest rates on small saving instruments have been aligned with G-sec rates of similar maturity, with a spread of 25 basis points.

These measures are in sync with the recommendations of former RBI deputy governor Shayamala Gopinath committee that submitted its report to finance minister Pranab Mukherjee on June 7 this year.

Jayant Pai has an interesting comment on ppfas blog which goes like this

By now you must be aware that the interest rates on Government Small Savings Schemes (SSS) have been increased. Newspapers are going around town proclaiming that this is a bonanza for small investors. Well, it is true that soon (Most probably from December 1, 2011) you will be earning more by investing in these instruments but in a way this move is similar to the recent deregulation of bank savings account rates by the Reserve Bank of India .

You may be earning more today but this could change in the future. In other words, interest rates on all SSS will be dynamic and linked to the yield for comparable Government Securities although the rate changes will occur only once in a year and the relevant announcement will be made on April 1 each year. The Government will however ensure that a spread ranging from 25 to 50 basis points over the relevant benchmark security will be maintained.

Note that the news of PPF interest hike was published on Jagoinvestor news blog within few minutes of govt decision .

Personal Finance News [Oct 2011]

Posted on by Jagoinvestor

Some of you might know about news.jagoinvestor.com which publishes small and crisp “one-paragraph” news on personal finance on regular basis. These are those news items which cant be converted to a full-fledged articles but still are important to communicate to you all. So with this article I am introducing Personal Finance News Blog which has small news items on personal finance on regular basis, you can subscribe to it if you want to read news items on regular basis on your email. I am putting some of the latest developments in personal finance in the month of Oct 2011.

1. Get different interest rates on saving bank accounts

RBI in its monetary policy for 2011-12, has deregulated the interest rates on saving bank accounts. Till now the saving bank interest rate was uniform across all the banks and was decided by RBI (it was 4%) , but now all the banks are free to provide an interest rate which they want. However there is a caveat. On any deposit of less than 1 lac, there will still be a uniform interest rate by all banks which will be decided by RBI, but on deposits more than 1 lacs, banks will have freedom to choose the interest rate they want to give.

Yes Bank has even upped their saving bank account rate to 6% , so if you keep your money in YES BANK saving bank account , you get 6% interest which will be computed on daily basis. This move is expected to bring lots of competition among banks and hence decrease their profitability too.

2. No more pre-payment penalties – says National Housing Bank

Housing finance regulator National Housing Bank (NHB) has directed all housing finance companies (HFCs) to stop levying penal charges on customers for pre-payment of home loans with immediate effect. These prepayment penal charges are levied mainly by the private sector banks and housing firms and could be as high as four per cent. The move is expected to provide relief to lakhs of home loan borrowers from HFCs. National Housing Bank (NHB) regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and Dewan Housing Finance.

“The move benefits only HFC borrowers at present. But if the move spurs the Reserve Bank of India (RBI) to follow suit, that will relieve all the borrowers, including home and auto loan borrowers, from the prepayment charges,” said a personal finance advisor, who wished not to be identified. “The pre-payment charges were restraining customers from moving around,” NHB chairman and managing director (MD) R.V. Verma said.

3. RBI raises repo and reverse repo rates by 25 basis points

RBI today increased repo and reverse repo rate by .25% or 25 basis points. Repo rate now stands at 8.5% and reverse repo rate is at 7.5%. Repo rate is the rate at which banks borrow from RBI , which means that this extra .25% might be passed on to the end customer which will increase the home loan EMI’s and other EMI’s too.

In the last 18 months there has been several hikes in interest rates , which has pushed the rates by 5.25% from the bottom. This has increased a lot of pressure on those loan payers who were on fluctuating interest rates . Also RBI has pointed out that this might be one of the last leg of interest rate hikes and from here on the rates might decrease in long terms.

4. Federal Bank and Oriental Insurance launch Pravasi Insurance scheme

Federal Bank has partnered with Oriental Insurance Company to launch a mediclaim policy for the NRI community, ‘Fed Oriental Pravasi Insurance’, which will offer NRIs a cover for normal hospital expenses and unforeseen events such as repatriation and accidents. The policy also includes a legal/litigation cover, hospitalization cover, personal accident cover and a medical floater cover for family members, besides maternity benefits.

All new NRI customers, who maintain a minimum balance of Rs5,000 or more are eligible for the insurance coverage. Medical floater cover for family is available in the event of death or disability of the insured for Rs 10 lakh. This policy provides cashless treatment facility at more than 3,000 hospitals.

 For regular news updates , subscribe to news.jagoinvestor.com

10 different ways of generating regular income

Posted on by Jagoinvestor

Do you want to generate regular income for yourself by investing a lump sum amount in some financial product ? It can be because of any reason like retirement , unstable income from job/business or just wanting to have your own income flow. In this article we will see 10 different ways of creating regular income in India our of which 5 will be safe methods and 5 would be risky (hence chance of high income) .

Income Generation

5 Safe Ways

Below are 5 safe way of generating income , in which the principal and the return are almost assured . It’s suggested for those investors who can not take any risk in their financial life .

1. Post office Monthly Income Scheme

One can invest a lump sum amount in POMIS and get monthly income for next 6 yrs. The return one can get is around 8% and the income can be given in form of monthly interest for next 6 yrs. One will get back his principal amount along with a  5% bonus at the end. One can invest only upto 4.5 lacs for an individual account and 9 lacs in a joint account.

2. Monthly interest from Fixed deposits

The most famous option is to open a fixed deposit with monthly interest payment. This is simple and one of the safest option one can take . the interest rate will depend on the tenure for which you open the Fixed deposit. One can expect a interest of around 7-8% . The interest income is taxable.

3. Annuity from Insurance companies

One can also buy annuity plans from LIC or pvt insurance companies. The returns on these plans will depend on the pension tenure and which option you have taken while buying the product (return of principal amount or not). The return of these plans are very low and sometimes not even known in advance like in case of NPS . One should get into this only if you are not capable of doing anything else with your money

4. Govt long-term bonds

One can buy long-term govt bonds with maturity of around 25-30 yrs and paying a half-yearly interest at around 8% (this varies from time to time). These are real long-term bonds and at the end of the tenure you get back your principal amount . These bonds are govt way of raising money for public and you can consider these bonds as one of the safest instruments. These bonds are also tradable in secondary market, so you can also sell them if you want to get rid of them.

5. Senior citizen Saving Scheme

One of the best option for senior citizens above 60 yrs of age is to put their money in senior citizens saving scheme and get interest of 9% per year which is payable quarterly. SCSS is only for 5 yrs after which they mature, they are extendable by 3 more year after that. Note that even investors in age group of 55-60 can invest in SCSS, provided they have opted for VRS (voluntary retirement scheme) and the funds are coming from their retirement benefit.

5 Risky Ways

Now we will discuss 5 risky ways of generating income, these options have some risks like fluctuations in your assets pricing and volatility in the income , but for this reason one might end up with much superior returns and high income compared to safe options . It’s suggested for those investors who are more pro investors and are ready to take high risk.

6. SWP from Mutual funds

One can invest in Equity mutual funds or debt mutual funds and opt for a SWP (systematic withdrawal plan) which will liquidate a fixed number of units or portion out of mutual funds and credit it to your bank account. This is reverse of SIP and can be one of the ways of generating an income. Note that SWP might attract exit load if started immediately , so its better to start a SWP after a year or two. Note that the investments in mutual funds might be volatile if it’s a equity mutual funds. If one does not want too much of volatility , better invest in debt funds.

7. Monthly Income plans of Mutual funds

There are mutual funds which are of category Monthly income plans (MIP). These mutual funds have inbuilt structure of providing regular income (not always montly, purely depends on dividend declaration) . These MIP’s can be little volatile as they have a little part in equity also. The dividends are tax-free in hands of investors.

8. Dividends from Equity shares

If you are a stock lover, you can invest in long-term stocks which have good enough dividend paying history. Note that in this way the income is not always guaranteed through dividends, but if you diversify your investments across 10-12 stocks , then you can be assured that there will be regular flow of dividends from some of the other stocks. Also the actual value of your investments can fluctuate as it’s a risky investments . But for people who understand stock markets and are patient with their investments , it can be a good option.

9. Dividend from mutual funds

For those who cannot invest in equity directly ,they can opt for long-term mutual funds with dividend payout option , this will make sure they get a dividend income from mutual funds , but that will happen only once a year . It wont be a monthly payout . One should diversify across 3-4 funds to make sure the dividends are coming from different funds.

10. Rent from Real estate

One can also invest in real estate and generate an income through the rental income. While the value of property will appreciate , one will also get a regular income, but understand that this is high maintenance option and you will have to keep on monitoring your asset. There are risks like not getting good tenants and not getting right tenants for months . It’s best to take a property in the middle of city which would be in demand rather than outskirts .

Which of these options was yours favorite ? Can you suggest more ways of creating regular/irregular income in India

Is someone misusing your Financial Documents ?

Posted on by Jagoinvestor

Is it a total truth that you are too careful with your documents? Did someone recently asked for your PAN Xerox (extra) copy without any reason and you gave it without thinking much? Do you handover your Driving license or passport copies to some agent without giving it a second thought? If yes, you need to be careful because this can land you in trouble in big way. There has been a lot of cases reported on this blog by your fellow readers which you can learn from. Let me take some of them.

financial documentation

How one relative misused the pan card for taking loan

A lot of people handover their documents to their relatives without thinking much. They feel they are helping the other person, but you never know how the other person can misuse your documents and get you in trouble. Read this case

One of my cousion taken a two wheeler loan in 2005, and i had given my pan card duly self attested at the time of taken loan.
Now i had applied for 2 wheeler loan in 2010, it got rejected upon applied to CIBIL report i came to know that i m the coapplicant of the two wheeler loan taken by my cousion in 2005. But unfortunetly he died in 2010 . So i had made the complete payment including all bouncing charges as well as the principal amount dues on him. But as i am the co-owner as per the bank records my name also reflect as an overdues amount (Defaulter) in your CIBIL Report which is harming my credit Worthiness in the market. I just spoke to the HDFC CUSTOMER CARE DEPT they said your loan is clear and had been reported to CIBIL upon checking again with CIBIL ,now report shows as settled . I had made full payment still its showing settle please help me out what i need to do now Please note that i do not have any direct dealing with the bank in the above said loan i just made a mistake of giving my sign in the reference column for which i have paid a price of making payment of RS 6322 to bank. (source)

How one friend used friends reference to make his co-applicant

Friends are forever, until they take advantage of your trust. A lot of people give their documents to their friends for being a reference (guarantor), but they themselves don’t understand what does guarantor mean? Read this below case to know what happened with one person

One of my friends took a car loan from a nbfc 3 years back and he wanted a reference for this loan (i now realize there is no such thing as a reference for a loan) i obliged and gave him a duplicate copy of my pan card. For atleast 2 years i have been applying for credit cards and getting rejection letters from all the banks. I finally was fed up with this and decided to get my cibil report and was shocked to see that i was the co-applicant for the car loan my friend had taken 3 years back. He had defaulted on this loan which was reflecting on my cibil report and that being the main reason for me not getting any credit card.

Like i mentioned earlier i had given my friend a copy of my pan card but i had never signed any loan application form, so i followed up with my friend (who still claims that i was supposed to a reference for this loan) and also with the customer care at the NBFC (who i must say were extremely rude). I managed to get the loan application form from the NBFC and i’m a cent percent sure that my signature has been forged on the form. Now my friend (would not want to call him a friend anymore) claims that the person who gave him this loan never told him about me being a co-applicant and he always thought i was only a reference. (source)

How an agent used documents of someone to to take advisor license

We call a lot of agents to home to buy financial products ,we give them our financial documents without realising that it can be misused if we dont want to go for the product later , we never ask it back . Read the following case based on this.

It has come to my notice that an advisor license was taken in my name in MetLife, Asansol Branch under Sales Manager by the name Mr. Debrup Banerjee. This person had approached me for a Life Insurance policy and had some papers signed by me. The Policy never materialized, but the papers (EPIC, PAN Card, Photo) was used to take out a License in my name. In fact, I was working in Bihar Sharif when the IRDA Exam was taken. A more serious and criminal act on part of Mr. Debrup Banerjee was to open an account with the Axis Bank in my name using the same papers. SMS alerts from MetLife has brought these misdeeds of Mr. Debrup Banerjee to my notice. I would request you to take necessary steps to declare the Advisor License, taken by Mr. Debrup Banerjee for MetLife, null and void. (source)

Make sure you take care about whom you are handing over your financial documents to. People can misuse it and take advantage which can get you into trouble later and you will come to know about it only when things are out of control.

LIC of India policy status on SMS

Posted on by Jagoinvestor

Do you want to get your LIC Policy Status and  details by SMS ? If yes, now there is some good news for you , you can get basic information about your LIC policy very easily by sending an SMS. You can get general information like Bonus amount vested till date , details of nominations etc by just send one SMS t0 56677. This is a free service from life corporation of India (LIC)

ASKLIC <Policy No> PREMIUM/REVIVAL/BONUS/LOAN/NOM

where –

Premium – Instalment premium under policy
Revival – If policy is lapsed, Revival amount payable
Bonus – Amount of Bonus vested
Loan – Amount available as Loan
NOM – Details of Nomination

Example

AskLIC 8955940009 NOM

One can also get LIC pension related information by SMS

LICPension <Policy No> [STAT /ECDUE/ANNPD/PDTHRU/AMOUNT/CHQRET]

Where-

a) IPP Policy Status, (STAT)
b) Existence Certificate Due, (ECDUE)
c) Last Annuity Released Date, (ANNPD)
d) Annuity Payment thru (CHQ/ECS/NEFT) (PDTHRU)
e) Annuity Amount (AMOUNT)
f) Cheque Return Information (CHQRET)

What is Your LIC Policy Number?

The LIC policy number consists of nine digits and can be found at the top left hand corner of the schedule of your policy bond. Did you knew this information ? Kindly share if this worked for your LIC policy .

Non Convertible Debentures – What are NCD in India ?

Posted on by Jagoinvestor

We recently saw few Non convertible Debentures coming into market like Shriram Transport Finance NCD, Muthoot Finance NCD and Manappuram Finance NCD. A lot of investors wanted to invest in these NCD’s and many did. But does each of the investors understand what NCD is and how it works? What are the risk factors associated with NCD in India? Let’s look at it…

Non convertible debentures (NCD) in India

To understand non convertible debentures, it would be a good idea to understand convertible debentures first. As the name says convertible debentures are those debentures which are converted to normal equity shares after a specified term. Till that time these debentures earn regular income in form for interest but once they are converted to equity shares, they are just like normal shares.

Hence non convertible debentures (NCD’s) are those debentures which are not convertible to equity shares. NCD in India more or less work like company fixed deposit, where you are lending a company to get some interest income and your money back after few years. You need to check the rating of that bond. Such debt bonds are normally rated by credit rating agencies like CRISIL. A good rating indicates reasonable assurance of safety and return of principal as well as interest.

Non convertible Debentures can be secured or unsecured

A NCD can be a secured NCD and unsecured NCD.

 Secured Non convertible Debentures (NCD) are backed up by some assets which can be liquidated for paying off the bond holders incase something goes wrong. For this reason, the returns on secured NCDs are lower than unsecured NCDs. See a discussion on Tata Capital secured NCD on our forum

Unsecured Non convertible Debentures (NCD) are the ones which are not backed by any assets and incase company is in financial crunch, there can be an issue in paying back the bond holders. Only after the payment is made to every entity which has some security, the unsecured NCD bond holders have any chance of getting back their money. So that’s the reason why these NCD’s have high interest rates.

The transparency in NCD is another issue, a lot of companies have come up with NCDs to raise capital, but a common man does not have time and ability to study the NCD and how safe it would be. Look at the following comment:

Can an NBFC disburse all the money it raises? Investors also do not know how much the company has borrowed. The only document for analysis is a (dated) balance sheet. In addition to public offerings, NBFCs constantly tap the ‘private placement’ market for debt. So investors don’t know the total debt burden. There was a subsidiary of India Infoline which raised money through the NCD route. How could investors know that the proceeds were going to be utilised for a subsidiary? In the 1980s, there was a craze for fixed deposits from leasing companies, thanks to high interest rates and fancy incentives paid to investors and intermediaries. The lure was the promised rate of return and not credit quality. The same herd mentality is on display now. At some point, there will be some defaults. – via moneylife

Features of NCD’s

  • They are listed on stock exchanges. Hence, provides liquidity to holder.
  • The tenure of NCDs can be anywhere between 2 years and 20 years.
  • NCDs are rated by rating agencies such as CRISIL.
  • If you buy a NCD that pays interest then the interest will not attract TDS
  • The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest

Taxation on NCD

Taxation on NCDs is just like debt funds. If you sell your debentures before a year, the profits will be added to your income and you will pay taxes at the same rate as per your income tax slab. But for any profit made by selling it after a year, you will pay tax of 10%, if indexation is not done, or 20% if the indexation is done.

Did you invest in any NCD ? Did you knew how NCD worked ?

ncd in india

Review of Tata Retirement Saving Funds

Posted on by Jagoinvestor

There is a new retirement plan in India designed through a mutual fund that is launched by Tata mutual funds called the ‘Tata retirement saving plan’. The company is trying to market it using a word 30-30 challenge which says that there are 30 yrs of our work life and then 30 yrs of retirement life and you need to plan for the next 30 yrs in the first 30 yrs. The plan is currently at NFO stage and will be open till 21st Oct 2011.

Tata retirement savings plan

There have been some readers who enquired about this plan in our forum. Let me review the plan in this crisp article. Basically this plan has 3 different kinds of funds inbuilt which are called as 1) Progressive Plan, 2) Moderate Plan and 3) Conservative plan which all have different risk profiles (risky, balanced and safe). As per the asset allocation rules the investor’s money will be moved from one fund to another fund as per his age. So all investors who are below 45 yrs age will be in progressive fund (highest risk), then once they reach 45 yrs, their money will be moved to moderate plan and once they reach 60 yrs, they will be moved to the safest option called conservative plan. Once investor reaches 60 yrs of age, he will be getting pension from this plan in form of SWP (systematic withdrawal plan) which is nothing but a known way of withdrawing out of mutual funds systematically. There will be option of getting 1% of corpus monthly or 3% of corpus quarterly. Let’s see this auto switch and auto withdrawal options in a little detail.

Auto-Switch

There is an auto-switch facility in this plan, which means at each milestone you will be automatically be switched to the next fund without any exit load. So when a person reaches age of 45, he will be switched from Progressive plan to Moderate plan automatically and when he reaches age 60, he will be auto-switched from moderate plan to conservative plan. Note that one has to choose for auto-switch option at the time of buying the plan.

Switch between the funds manually

One can also switch between the funds manually whenever they want, but in that case if the switch is before 5 yrs from the date of enrolment, there will be exit loads applicable, but if 5 yrs has passed, then 3 exit load free switches will be allowed.

Auto systematic withdrawal plan (Pension)

A feature called Auto systematic withdrawal plan is there in this plan, which will start redeeming your funds and start giving you your money in the form of pension. There are two options in this. In the first option you can get 1% of your total corpus each month and in second option you can get 3% of your corpus each quarter, as decided by you. You will also have an option of not taking any pension amount through SWP route if you wish. So one can just leave his money in the fund and let it grow.

Tata retirement savings plan

High Exit Loads

As this is a long-term investments tool, the early withdrawals are discouraged and the exit loads are high. There is no exit load if you withdraw your money after 5 yrs of investment, but if you withdraw your money before 5 yrs there are high exit loads. The exit load comes down by 1% each year till 5th year. So in first year, the exit load is 5%, in second year its 4%, in 3rd year its 3% and so on… At last after 5 yrs, there is no exit load.

Some other points

  • Minimum Investments for Lumpsum = Rs 5,000
  • Minimum Investments for SIP = Rs 500
  • There is only growth options under this fund , no dividend options
  • As per the plan mandate, fund manager can also take upto 10% positions in derivative products ,which can be quite risky.

Good points

  • These kind of plans are much better than regular pension plans as there is a good enough equity component which is good for long term.
  • The good thing about this plan as a retirement plan is that you get a known amount (in percentage terms) from your money, unlike the NPS

Not so good points

  • As this is a NFO , one can not be sure of its performance, features are ok, but the real thing would be the performance of the fund.
  • The exit loads are high in starting years, which makes exit not so attractive incase the fund performance is bad and one wants to get out of it.
  • The fund has features which will come into effect after many – many years. For a 25 yrs old, we are talking about 20-30 yrs from now when the auto switching will start happening. It’s quite early to comment on how it will turn out then, because there is not much history at the moment about the performance of mutual funds with such long durations.

For Jagoinvestor readers who are quite pro in themselves, the personal suggestion would be to make their own diversified portfolio and have a full control on what they can do with it. This fund look good from features point of view, but it’s mainly for non-DIY kind of investors.

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