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Women & Personal Finance in India

Posted on by Jagoinvestor

Today, we’ll talk about Women’s involvement in Personal finance, especially in the Indian context. How many of us remember when our ladies at home took any decisions regarding banking, Insurance or Investments?

Their role has been always limited to household work and as caretakers of our homes & hearths, for decades and centuries now. Even in today’s world, when women are at par or even above par with men in all areas, they fall behind in this one.

Decisions (as far as finances go) are primarily made by men, & not women in general. In this article, we’ll see why it’s important for women, to know about Personal finance .

Women & Personal finance

Women not accepting their Responsibility in Personal Finance

One of the big problems, with women, is that they do not treat Personal Finance as something that’s important for them. For ages, they have not participated in Personal finance, regarding it as the man’s domain, just as they felt cooking was theirs.

Obviously, this isn’t true now, in this day & age. Cooking is as much a guy’s activity as Personal Finance ought to be a woman’s. Women, in general, don’t show real eagerness for these activities, for some reasons like

Women treating their earning as time pass activity : The biggest reason for this, is that, since the dawn of time, Man has been the main provider and the primary bread-winner of the Family .

He was responsible for earning and managing money and taking care of financial goals, Women, on the other hand, were mainly responsible for raising children and taking care of household activities and to a big extent, maintaining relationships outside the house and in the community.

Many women in spite of being qualified enough, and having skills to earn money, view their earning as secondary compared to men. They “feel” that they are not at the same level, even though its not true; most of this is psychological.

Everyone handling her money but her: From centuries women’s financial decisions were taken care of, by their fathers, then their husbands and then their sons. They never got involved & were never encouraged to do so, because they were not considered smart enough!

Men have always shown dominance over women in this space. One reason, which could be responsible for this, is that women, hardly ever ventured outside house for these activities and never got time enough from their household chores.

Current Situation Women Knowledge in Personal Finance [ Statistics ]

Personal finance literacy and Women in India

Poll Link

Why It can be trouble for Women to not Know Personal Finance

Sudden responsibility

A lot of women never learn about Banking , Insurance, Investments , how to grow money well and related topics throughout their lives .

They are smart, have a good job,  high earning , but they never learn about Money and some day when sadly, things go wrong eg., they lose their husband because of accident or some other reason; apart from emotional pain, there comes bigger pains in life , i.e. taking care of your children and overall finances, that day she has no idea on how to invest money for making sure of child education , her retirement , her Insurance etc .

She suddenly finds herself in very tough situation and will have to rely on others, (relatives , friends etc.) This is not a good situation. Girls! Ladies! please learn about money, even if you don’t like it… Learn a bit, at least up to a level, where you can take charge of things and no one is able to take advantage of your situation .

More Divorce rates

Gone are the days in India when Women would keep compromising in a relationship! Women these days, are independent, and have a say in every decision. Because of this, they have more flexibility to move out of a marriage, if things don’t work out. Divorce rates are on rise in cities from last decade.

Women who get divorces, have to, at some point in life, look after themselves and take charge of their finances.  So learning about money is important from start.

Women live longer so need a better Retirement Planning

Think Long Term! What does’t seem to be important today, might be very important tomorrow. Women worldwide, have a higher life expectancy than men, and hence have to live more than their male counterparts .

Women generally rely on their children, but they should be better planned and hence learn about things .

“On average, Women live 4-5 years longer than their husbands and over three-quarters of all women are widowed at an average age of 56. Women comprise a horrifying 87% of the impoverished elderly”.

Some Psychological Myths Women Face

women's personal finance

  • Somebody will manage my money for me : Yes, but only up to a certain age… If there is no well-wisher, don’t rely on relatives or friends! When it comes to money, no one is truly yours, and even if they are, you better learn things and manage things on your own. It’s not that tough!
  • I don’t know enough to do this myself : This is patently false! If you can be an Engineer, Doctor, House Manager, then you can definitely  understand and learn anything you set your mind to! There might be some topics which might scare you away, but there are always blogs like this and people like me to help you with doubts.
  • I will make too many mistakes : So what? Everybody does! We make mistakes to learn in life. I would encourage you to make mistakes and learn from them, because, “Making mistakes is a privilege unsuccessful people don’t get in their life” . Computers can never become more intelligent then human beings , because computers never make mistakes, only humans do .
  • I don’t have money to invest : There can be two things here… One is that you might not be saving enough. Do review your income and expenses, and find out where can you save without compromising your lifestyle. Try to live with 90% of your salary .The second point is that you have little money which is ok! Doing investments, does not mean you have to invest lots of money; every body starts small, & slowly we progress! So what, if it’s only Rs 500? Make a start, at least!  Develop self-discipline and start learning things. Tomorrow, when you have more money, you will already be way ahead of the curve .
  • I don’t have time to plan my money : This could be due to lack of interest. Review your monthly schedule and manage your time well. Even if you take out, couple of hours each month, to learn about money, its enough. Once you start learning things, you will enjoy it. If you make yourself believe that you don’t have time today, then you will never have it ever 😉

Women’s Personal Financial Dreams

For time immemorial, women have been dependent on their father or husband for money and to fulfill their dreams. If they want to go for some trip or buy some jewelry or anything else, for that matter, they have to ask (or demand) their husband for money.

Many times women have their own dreams, which they want to fulfill on their own, but they cannot . Women are good savers, but never good investors like men (even men are not for that matter.) Women diligently save money at home, but do not make best use of those savings.

That money is mostly lying idle, in the bank or at home. By learning about investments and how to invest well, women can grow their money and reach their goals. There is no need to always rely on men for everything.

I know many women readers on this blog who are excellent thinkers; they ask questions, get involved in discussions and given a chance, they’d give serious competition to their male counterparts in financial planning!

They have learned lot and can beat many women outside this space on Personal finance. Credit goes to their willingness to learn, and the time they take out in order to learn things . Here is a excellent Short Video from Manish Thakor ,  Personal Finance Expert for Women .

Even though its made for American Audience , everything applies to India Women .

Extra Benefits for Women

There are many Women only benefits like :

  • Generally Lower Education loan by 0.5-1% for Women
  • Lower Income tax for Women compared to Men
  • Premium for Insurance Policies is lower compared to Men  :  Compare at Apnainsurance .com
  • Lower Stamp Duty for Real Estate Registration in Some States

Role of Women in Personal Finance at Home

There are many men who do not involve ladies at home in the decisions regarding Insurance,  investments , retirement planning, banking , budgeting etc , and it’s not a right. Women have better understanding most of the times, about the future goals of the family, especially child education related expenses.

We men, sometimes can not understand, long-term expenses like how our expenses will be at retirement and what kind of situation we would be living in. However smart we feel we are, there are many things that women outsmart us at. We should involve them in every decision we want to take in our life.

So next time when you think about insurance, talk to her about her needs after you are gone. Don’t shy away, feeling that this is taboo in this country. You have to plan things well and understand her needs.

Also while planning for retirement, take her advice and her views on what your standard of living would look like at retirement, what are your (and hers) post retirement plans are. She will give you many suggestions and it will help in planning.

Women are the queens of Budgeting and they are the real help in making the budget and what is needed and what is not . So you can’t do without her. They also save lot of money compared to men. When we men, go out to buy vegetables and if the Vendor tells us Rs 20/KG price, we buy it!

Whereas women, tend to bargain and bring the same stuff at a much lower cost. So whatever we bring for Rs 100 , the same thing Women bring at Rs 90 or Rs 85 .

Respect and Confidence

We men, have to make sure that we encourage our Wife / Mother / Sister / Daughter to learn about money. If they understand money well, your children will also learn about money from early life!

Just imagine how many mistakes you’ve made financially… Your children, will at least not make stupid mistakes, (hopefully) you have been doing all these years before learning better. An educated Woman means an educated Family. We have to make them confident that they can learn things very well, and involve them.

When you learn about something on this blog or anyplace else, try to teach them those lessons. Ask them questions, and see if they can answer them, and if they fail, then guide them gently.

I see a day, when one of the major reasons India will outpace other countries in, is financial literacy among women of this country. Also if women learn about money they can share the financial work of men and also do it themselves. We have to respect our ladies in this field .

There are many great women personalities, like  Suze Orman and Monika Halan Personal Finance Space and each of our ladies can get there to that place, at least up to that level.

So if you are a Man and a true Jago Reader, make sure your Wife / Sister / Female friends / Girl Friend read this article and get motivated to learn about Personal finance. If you are a Woman, make sure more and more women friends of yours get to read this article .

Comments , Please suggest other tips to help Women increase their Financial Literacy levels , Any good links , websites for them ?

Myth Three: I will make too many mistakes

How do Highest NAV Guarantee Plans work ?

Posted on by Jagoinvestor

Now a days, we are seeing a new “Innovative” product in the market. They’re called Highest NAV Guaranteed Plans .These products have come in, after the recent crash in the market, and companies are taking advantage of the fact that Investors are looking for some kind of a safe investment equity product. Hence, they’ve launched these Highest NAV Return ULIP’s which confuse investors and make them (the investors :)), believe that they are going to get the highest return from the Stock market in long run – generally the tenure is 7 yrs, for these plans .

In this article, we look at how Highest NAV Guarantee ULIP’s work, and you will understand, how any Guarantee product can be created by simple methods . The simple catch, here is that these schemes, are structured in such a manner, that the collected funds can be invested either in equities, debt instruments or in money-market instruments in proportions varying from zero to 100%

How Highest NAV Guarantee Policy Works ?

These plans use strategies like Dynamic Hedging and CPPI (Constant proportion portfolio insurance), which are advanced strategies used in Derivatives world. But, let me explain a simplified version of the whole process.

Supposing a policy starts today and is guaranteed to give highest NAV in next 7 yrs  and we can control how money moves to debt and equity, its pretty simple.

In the beginning, let’s assume a NAV of Rs 10, and the Asset allocation is 100% in equity and 0% in debt . Now suppose, the market moves up and NAV goes upto Rs 15 by the end of the first year, at this point, try to understand what Insurance company has to provide – they have to make sure, that they provide at least Rs 15 as the return after 6 yrs . Now in order to achieve this, all they have to do is keep X amount in debt instruments which will mature in next 6 years and provide Rs 15 at the end of 6 yrs, so assuming the debt return at 7%, they need to put around Rs 10 in Bonds , so that the maturity of the bond is Rs 15 at the end of 6 yrs .

=>  10 * (1.07)^6
=>  15.007

They can now invest the rest Rs 5 in Equity as Rs 10 is allocated to Debt . So, now they’ve made sure that whatever happens to the market, they get Rs 15 for sure at the end of 6 yrs. Now, there are two possibilities

Case 1 : Market Goes down : If market goes down, the NAV will go down correspondingly, but as per the strategy, the maturity value will be at least Rs 15.

Case 2 : Market Goes up again : If market goes up at this point and the NAV rises above 15, for example say to Rs. 18, now again they will pull out money from Equity and allocate such an amount to debt, that the maturity at the end of total 7 yrs would be Rs 18 and so on…

Note :

  • These highest guaranteed schemes do not provide wide range of product categories, such as equity-oriented growth funds, balance funds and debt funds.
  • Guarantee on highest NAV is available only if you survive the term. If you die during the term, your nominees will get the prevailing value of the fund. This is inferior to even a regular debt product because of the high cost structure involved.

Following is a pictorial description of how the Guaranteed NAV plan works with assumption of a 7 year tenure.

How does a Highest NAV guarantee plan works

How Investors get Confused

You have to read in between the lines; Investors need to understand that these schemes guarantee the “Highest NAV”,  READ AGAIN! , it’s Highest NAV and not “Highest Returns” .  Normal Investors don’t give much thought before buying these products and normally assume that the returns will be linked to the Equity Markets .

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Returns from Highest NAV Guarantee Plans

So, what are the return expectations of these funds? We know, that long-term equity returns, are normally in the 12-15% range while, debt returns turn out to be 6-7%. So, considering the fact, that these products will shift most of their money to debt, by the end of the tenure , we can expect the returns to be in range of 9-10%. We do get some equity upside in these products, but that will be limited. After a point, this product will turn into a debt oriented fund with a major portion in debt . Also if you factor in costs, like premium allocation charges , fund management charges and other yearly charges, the returns will not be what you actually expect.

You will be amazed to know, that the returns expected from these schemes, may be lower than the returns offered by equity-oriented Ulips. The reason being, that the basic objective of protecting the previous high NAV of the fund, may constrain the fund manager’s ability to take risks while allocating funds. So if the market has fallen down, the fund manager can’t take the risk of shifting the money from Debt to Equity to gain from the potential upsides in future , because they have to provide the “Guarantee.”

Read : Important Questions you should Ask an ULIP Agent ?

Source :  LiveMint Research

Current Products in Market with Highest NAV Guarantee

  • ICICI’s Pinnacle
  • Birla Sun Life Platinum Plus-III
  • Bajaj Allianz Max Gain
  • SBI Life Smart Ulip
  • Tata AIG Apex Invest Assure
  • LIC Wealth Plus
  • Reliance Highest NAV Guarantee Plan.
  • AEGON Religare Wealth Protect Plan

Controlling your emotions with these products

Let’s talk about mistakes from the investors point of view. We, as investors, don’t think with inquisitive, susceptive minds. Getting good returns from stock markets is anyways a tough thing in itself. So when these companies come up with plans like these, which say “highest NAV in 7 yrs”, we have to ask, “How is this possible?” . Dont say it’s not possible at all, just ask how? How do they achieve it? Stop seeing dreams of getting high returns without looking at the risk involved, and try to find out – what is the strategy they’re using , Is there something in between the lines ?

We all want to get great returns, but we have to shed this belief that, companies come up with plans specially for us. All the companies out there exist to earn money, and their motive behind every product is to make money, & generate profits for their companies, so that they keep their shareholders happy. So next time a product like this comes up , you have to control your emotions before getting in and first investigate. The worst part of this whole business, (of guaranteed highest NAV products) is the timing and how it gives naive investors, high illusions about the product. Products like these, take major advantage of psychology of the ordinary saver. Many Investors in smaller towns have broken their Fixed Deposits and taken some loan to invest in products like these, especially SBI Life Smart Ulip and LIC Wealth Plus because of the trust factor with LIC and SBI . See How Agents are Misselling LIC Wealth Plus

Why you should be “Pissed off” At these Insurance Companies

  • Do you Know that, The Securities & Exchange Board of India (SEBI) , the stock market and mutual fund regulator, does not allow mutual funds to guarantee returns. Therefore Mutual funds can not provide guaranteed products which are related to stock markets, but IRDA can approve things like these and all these insurance companies come under the ambit of Insurance Regulatory and Development Authority of India (IRDA). So any Insurance Company can come up with a new Plan , link it with market and start providing “Guaranteed products” . You have to understand that “equity markets” and “guarantees” are a very risky idea together , so please stay away.
  • Do you observe when do all these “Innovative” products come up in Market ? The answer is around end of the year, which is a premier Tax Investment time (Jan , Feb , Mar) . Is innovation in Finance space limited to End of the year ? Why dont these products come through out the year? Why ? The answer is simple , if it comes after anytime other than last 4-5 months of the Financial Year (ie Dec , Jan , Feb , Mar) , no body will bother to invest in these, because no body is bothered to “invest” at all . Companies very well understand investors psychology and their helpless ness at the end of the year because they have to provide investment proofs for Tax exemption as soon as possible . This is not just limited to these products , its true for NFO’s , IPO’s in booming markets , More Sales calls at the end of the year, and other new products .
  • The so-called “Guarantee” is a marketing gimmick and is implicitly a result of the way the investment is structured . what it means is that the strategy they use itself is such that it will provide you the highest NAV , even we can create our own Plan and do what they are doing . But they make sure that Investors  feel like they have done years of research and came up with these amazing plans .
  • You have to understand that there is nothing “Innovative” in this product , the fact that 7 companies have come up with the same product proves that its not “innovation” because Innovation is unique . Aegon Religare has gone ahead in this stupidity and introduced their Guaranteed Plan which guaranteed 80% of the Highest NAV , Looks like they think that it makes them look different from others .

Who should Invest in These Products ?

If you are looking for modest returns, like 8-10%, you can invest in these policies. The return of these policies may be high in the beginning, if market does well; but when market starts performing badly, the returns can take a hit and then be in a tight range. Your NAV will be protected for sure, but the returns wont be, since over time the CAGR return will go down. Remember, if your NAV is 10 today and you highest NAV is 20, for a 2 year period, the return is a good enough 41%, but by the 4th year it’s just 18.9% and by the end of 7th year it’s a measly 10.4%. So what you really need, is protection of returns, not the NAV which is just a fixed number.

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Do’s & Dont’s for filing your Income Tax Returns

Posted on by Jagoinvestor

With the tax-planning season about to end, most individuals are rushing around to make investments to minimise their tax liability.

And although, the last date for filing income tax returns is just a few months away (July 31), some of us are still unaware about the procedure and guidelines. Have a look at recent changes in the Income tax slab and how it affects the common man.

Income tax return

Q. I have a Permanent Account Number (PAN). Do I still need to file my tax returns?

A. Just having a PAN number does not mean that you have to compulsorily file your tax return. As per the Income Tax Act (1961), you are required to file a “Return of Income”, if your taxable income exceeds Rs 1.60 lakh for the financial year 2009-10 (Rs1.90 lakh in case of women and Rs2.40 lakh in case of senior citizens).

However, you need to have a PAN in order to file income tax returns. Read more

Q. What are the benefits of filing income tax returns (ITR)?

A. Filing ITR is really beneficial for an individual. Apart from the legal obligation, it is mostly required for purposes like:

  • Availing any kind of loan, like home, personal or education.
  • Visa and immigration processing
  • Income proof / net worth certification
  • Refund claims (in case of excess taxes paid)
  • Applying for a higher insurance cover
  • and ultimately, “Peace of mind!”

Q. How does one plan for better investments under section 80C ?

A. Section 80C is the most important provision under the Income Tax Act (1961). Making use of the available tax deductions can go a long way in helping individuals accumulate wealth.

Benefits of tax planning (for FY 2008-09)

Income (Rs) Tax Rate (%) Maximum tax savings

after 80C deductions (Rs)

Savings invested

@ 8% pa for 20 years (Rs)

Savings invested

@ 15% pa for 20 years (Rs)Upto Rs 1.50 lakh

Nil ———Rs 1.50 lakh to Rs 3 lakh101030048008168575Rs 3 lakh to Rs 5 lakh202060096016337151Rs 5 lakh and above 3030900144024505726
The amount saved in turns can be invested in various, in order to gain maximum benefits. Prime examples:

Case in point: Consider an individual, in the highest tax bracket, with a gross total income of Rs 6 lakh. If he chooses to ignore the tax sops available under Section 80 C, his tax liability will amount to Rs 87,550 (for AY 2009-10).

Conversely, if he chooses to make eligible investments/contributions of Rs 1, 00,000 under Section 80 C, his tax liability will be Rs56,650 i.e. a saving of Rs 30,900.

Look before you leap – Tips for better and effective planning of your investments:

Every tax saving investment scheme has inherent advantages and disadvantages; & each individual has to decide his investment strategy based on:

  • Lock-in period and safety of the investment
  • Return, before Tax / Return, Post Tax / Tax Free returns
  • Whether interest will be treated as fresh investment under Income Tax Act
  • Age and risk appetite
  • Liquidity, surrender charges etc.

Some tips to plan your finances better:

  • One should by default set aside 10% of his/her income;  Start living with your 90% of salary
  • Avoid waiting to invest a lump sum, at the last minute, as most of the times we tend to run short of money, resulting in a loss of tax benefit, besides the savings and long-term capital appreciation.
  • Last minute decisions mostly result in investing in unwanted and futile schemes
  • Use ECS / Direct Debit facility offered by the bank for investments; this will help you invest, without fail, regularly.
  • Invest monthly or quarterly as it provides long term capital appreciation
  • Monthly or systematic investments also provide a check against market volatility

Watch this video to learn everything about Income tax return:

Q. Since tax is already deducted from the salary well in advance as a TDS, then why does one need to file Income Tax Return?

A. Although tax has been deducted and there is no further liability to pay tax, an employee has to compulsorily file his/her income tax return if he/she exceeds the maximum amount, not chargeable to tax.

It is, in essence, a declaration to the income tax department that you have derived only income from salary and not any other source (if you do have income from other sources, then the same needs to be incorporated).

Note. Many a times, employees do not include the interest that they receive on their savings bank account. The entire interest earned on the savings bank account is taxable.

Q. Can you please explain the complete procedure to file ITR?

Step 1: Gather all the necessary documents.

These are:

1. Form No. 16: This is issued by the employer, stating your income from salary, and tax deducted by your employer from salary income.

Form 16

2. Form No. 16A: This is received from all the payers, who have deducted tax, while making payment to you, during the year. For e.g. banks and companies.

Summary of all bank accounts operated during the year: This summary will give an idea about all the interest income earned during the year.

Details of property owned during the year: If you have bought some property during the year and put it on rent, then you will need details of rent received and receipts of municipal tax paid during the year.

In addition to this, if you have bought such property through a loan, do carry the loan details and a copy of certificate of interest paid during the year.

Sale & purchase bill/documents/contract note in respect of shares transactions during the year: You will also need purchase documents corresponding to the sales made during the year. In case of a large number of transactions, it is advisable that you prepare a statement of sale and corresponding purchase of these investments and arrive at the amount of profit or loss, before actually calculating your taxable income.

Details of tax payments made during the year: This is required only if you have made advance tax or self assessment payment during the year.

Step 2: Select the proper income tax return form i.e. ITR, which is based on the nature of income earned.

FOR INDIVIDUALS: Form No. Applicability

ITR 1 Meant for Individuals, who have

a) Income from salary
b) Interest income
c) Family pension

  • ITR 2 Individuals/HUF not having any income on account of business or profession
  • ITR 4 Individuals/HUF having income from a proprietary business or profession

Step 3: To file your tax returns:

You can file your returns either Manually or Electronically.

Electronically: The Income Tax Department has introduced a convenient way to file these returns online. The process of electronically filing your Income tax returns, through the Internet, is known as e-filing of returns. This is a really convenient facility, since it saves you the hassle of traveling all the way to the IT office.

This facility is available round the clock and returns could be filed from any place in the world. It also eliminates reduces ‘friction’ between the assessee and tax officials.

Manually: For manual/physical filing, the individual takes a print out of the respective ITR form , from the income tax site, along with the acknowledgment form, and after duly filling it, files it with the respective income tax office. Forms are available free of cost too

Q. What are the documents required, which has to be attached with returns of income?

A. Under the new procedure, be it is electronic or physical filing, individuals do not have to attach any documents or enclosures with the return of income. However, one should preserve the supporting documents as they can be called for, at a later stage by an income tax officer to check the accuracy of the claims made.

Some of the documents are:

  • Detailed calculation of taxable income and amount of tax payable/refundable
  • Form No. 16/16A (original)
  • Counterfoil of all the tax payments made during the year
  • Copy of documents, concerning sale of investments and properties
  • The Copy of bank statements
  • Copy of proof for all the deductions and exemptions claimed in the return of income

In case of a refund, the bank account details needs to be filled in accurately. In case the refund is opted to be received via ECS direct into the bank account, adequate care should be taken to correctly fill in the MICR code.

PRECAUTIONS THAT ONE NEEDS TO TAKE

Filing returns at the eleventh hour often lead to a lot of inconvenience. Also Filing online, very close to the last day, is risky, as the peak load on the servers of the e-filing website during the last few days may make the whole online filing quite frustrating, causing needless delay.

Filing return after the due date, may lead to empty the pockets of the taxpayer who have incurred losses; which he wants to carry-forward to future years. Under the tax laws, some losses are not allowed to be carried forward for being set-off against future income, unless the return has been filed by the due date, even though all the taxes have been pre-paid.

Similarly, if a paper return is filed, the acknowledgement slip should be preserved carefully.

SOME TIPS TO AVOID LAST MINUTE RUSH

  • Step 1: Select and get the appropriate forms from the Income Tax site or offices
  • Step 2: If a professional is handling your taxes, meet him and make an appointment early before your accountant’s schedule gets completely booked. If you’re preparing your own taxes, set a day aside on your calendar for preparing taxes.
  • Step 3: Review your tax documentation before  submission
  • Step 4: You can file your returns offline or online. However, before doing so, check whether you still have a tax liability. If you are still to pay taxes, do so through Internet banking or through cash/cheque at any bank along with Form 280. In both cases, you have to furnish challan details in the income tax return (ITR) form.
  • Step5: Prepare your taxes. Now that you have all of the necessary forms and documentation, you can prepare your taxes without waiting for the last minute.

PENALTY FOR FILING RETURNS LATE

For details , you should look at the article  “How to miss your tax return filing deadline and still Enjoy”

Conclusion:

A little extra care, planning & precaution on the part of taxpayers can help them avoid committing mistakes, while filing the tax return and keep away, unwelcome visits from the taxman.

It was a guest post by Rishabh Parakh, who is the director of Money Plant Consulting

https://www.jagoinvestor.com/2010/01/how-to-miss-your-income-tax-returns-itr-deadline-and-still-enjoy.html

5 Logical Tips about Credit Cards

Posted on by Jagoinvestor

Credit cards are becoming increasingly common in India, and while they come with a lot of convenience, the high interest rates and other charges mean that you have to be careful about how you use them.

In this post, we look at 5 tips on wise credit card usage, and how following them, can save you a whole lot of financial heartache. These 5 tips are pretty logical & self-evident; we have to understand that the free credit we get from a credit card is not really free. It’s actually a business for Credit card companies and hence somewhere in the whole process, they have to have a way to make money .

1. Pay your balance in full: This one is so basic, I was not going to point it out at all, but on second thought – I realized that this should really be the first point. Of all the loans you take, credit cards come with the highest interest rates. If you run a credit card balance every month, then the interest charges add up really quickly. If you have a balance on your credit card, pay it off in full before the next due date. This ensures that you don’t pay interest on your balance, which really is extra money you can keep to invest and build savings for yourself.

Curiously enough, I know of people who don’t pay off their credit card balance in full, but at the same time, put their money in low yield investments. This is really bad math. If you have a credit card balance that is charged at about 30% per annum and an investment that gives you just an 8% return – you are much better off paying the entire credit card balance before you even think of investing your money. The extra interest you pay on your outstanding balance offsets any interest income you receive from your investment. If you run a balance, realize, it normally is a strong indication that you are spending beyond your means.  This is a bad financial habit that you should get rid of as soon as possible.

2. Avoid credit cards with annual fee: Unless you have a specific benefit in mind, from the credit card, don’t get a card that has an annual fee. It is always good, to get a credit card with no annual fee, because then the only expense you have on it, is the interest payment; and if you pay off your balance in full every month – you don’t pay any interest and your credit card will, in effect, be free! Add to that, the fact, that even most free credit cards have some sort of a reward program, you can benefit from. Why pay for something when you can get it free?

The other thing to keep in mind, while evaluating the fee, is how likely you are to benefit on it, based on your usage. I reviewed the HDFC Value Plus Cash Back credit card a few months ago, which had an annual fee of Rs. 700 and up to 5% cash back. At a cursory glance, it seemed to me that Rs.700 may not be very high due to the cash back, but a deeper look at the terms and conditions told me, that the cash back will only be credited to your account if the monthly balance is over Rs.10,000. I realized the card was not meant for people like me, who aren’t likely to run up such a balance on their credit card every month.

Bottom-line: If you are going for a credit card that has an annual fee – make sure you go through the fine print and are certain it will be worth the cost to you.

Credit

3. Get a credit card that is easy to pay off: I used to have an ICICI credit card and a SBI credit card. Both of them had similar features, but the ICICI card was really easy for me to pay off, as I had an existing ICICI Bank account, and the credit card was linked to it online. All I had to do, was go online, and pay off the credit card balance, through my ICICI login. As a result, I ended up using the ICICI credit card a lot more than the SBI one. Ease of payment, means that I can pay off the balance very often, very easily, and rarely run the risk of late fees or interest charges. While thinking of which credit card to apply for – consider just how easy it is, to make a payment on it.

This might sound like a trivial thing now, but you’d kick yourself later, if you had to pay late fees just because you lost your cheque book, or were too busy with your work to go to the bank and deposit the cheque. In fact, I’d go on to suggest that you add payment reminders on your email, phone or even a little post it on your refrigerator. Life gets busy sometimes, and a little help can go a long way in saving you late fee and interest payments.


4. Keep a track of your statement: A few years ago I went through my credit card statement online and saw that there were some charges from an unknown merchant. I was pretty sure, I had not bought anything from them, and I called up customer care to know what the charges were all about. I was put on hold for a long time, and couldn’t get through. However, the next day, I noticed that the merchant had reversed the transaction, and I even had a small credit from them.

While I was lucky in this case, there is no guarantee that credit cards won’t get abused. Always keep track of your monthly statement. If you can go online and check your transactions – that is even better, because you don’t have to wait until the end of the billing period. I go online every week or so and check up on my credit card statement to make sure no unauthorized use is happening.

5. Don’t use your credit card as an ATM: By this, I don’t mean that you shouldn’t use your credit card at the ATM, (although you should really, really avoid it as far as possible). What I mean is, there’s a tendency to withdraw cash from your credit card (since it’s so convenient) and that’s pretty addictive. Treating your credit card as an easy, reliable, access to cash will not help you in the long run. For one, the interest rates on cash withdrawals are generally much higher, and if you get into this habit, – you will run up high outstanding balances pretty quickly.

The cash advance limit, is also generally, a lot less, than the overall credit limit, so it won’t get you very far, anyway. The interest will keep adding up and grow very quickly. Withdrawing cash from your credit card should really be the last option. Usually, cash withdrawals come with some sort of cash advance charges, and more than that if you regularly withdraw cash from your credit card – again, it indicates a tendency to overspend and go beyond your means. This really means, that your personal finances are going down-hill.

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Read a Customer review on Mouthshut

I have saved all my friends by sharing my horrible experiences with ICICI Credit Cards.The customer care people are polite only till the greetings other wise they behave and speak like a criminal and very sarcastically. I have been using it for 2 years. But the customer care behavior problem is consistent. Normally I have been paying them always on time and the bill is normally above RS 5000. But once (3 months back) I had to go outstation suddenly and missed the pay date for first time for a day or two. The amount this time was also very low (maybe 1500 or 1800) as compared to other months bills. I suddenly started getting calls from a HORRIBLY SPEAKING customer care lady. When I mentioned I am travelling and will not be able to pay for another 2 days as my journey is a 3 day journey she started abusing and threatening me. She even mentioned that by tomorrow morning if I will not arrange for the payment she will send some one to my home for payment, when I said this is rubbish and she should not speak like this she started shouting and said “I will send someone and can do anything if not payed by tomorrow and reminded me that if I will not pick this call after seeing her number further she will be worse”. Is this is the way a bank should treat a long time and good customer? I have stopped using the card from that day. [LINK]

Credit Card Mistakes [Video]

Conclusion

The overarching theme of these tips is, “Get the convenience of credit cards for free.” That’s what it really boils down to.

To me, credit cards make shopping convenient and that is a big benefit, but at the same time, they also tempt me to go beyond my means, and then pay extra by way of interest. The key is to get the benefit of convenience but not have to pay anything for it. The above tips will help you do both, or at the very least – strike a balance between the two. What do you think? Have I missed out any obvious tips or is there something you’d like to add, based on your experiences?

POLL

What is your Spouse’s level of Understanding and Interest in Personal Finance ?online surveys

Comments please ? Leave your comment to provide another tip 🙂 and let us know what you think about Credit cards .


This is a guest post written by Manshu from OneMint. If you liked this post, please consider subscribing to his site.

Review of LIC’s Wealth Plus

Posted on by Jagoinvestor

If you were to hear about an investment plan with 17% p.a. returns i.e. if you invest Rs. 1lac today, it would become Rs. 3.5  lacs  in next 8 years time, wouldn’t you get greedy?And what if it is told to you that such Highest  NAV Guaranteed ULIPs are guaranteed by one of the biggest financial institution LIC of India, it would be Icing on the Cake and a “Never Miss Opportunity”. But everything sounds so good, if looked deeply may reveal something else. Someone rightly said “the big print give it and the fine print take it away”. Such is the case with LIC’s new insurance plan- Wealth Plus.

Game Started in 2007

Every year during the last quarter of Financial Year, insurance agents find new ways to misguide people and make them invest in policies based on false assumptions and promises. Let us take example of year 2007 when LIC launched one of its most famous policy “Money Plus”.

During the launch, pamphlets were distributed in all the nook and corner of the country showing high returns. Eg. Invest Rs. 1 lac for next three years and get Rs.3.38 crores after 20 years at a return of 25% p.a. Based on such exuberant returns printed on a pamphlet and false promises made by agents, thousands and lakhs of investors across India invested their money. Not only did people invested their savings but there were many instances where smaller households sold their jewelry and other personal belongings believing what they were told by the agents that LIC is guaranteeing such high returns.

What LIC have to say

Later when the news of misguided selling of this policy was brought to the notice of LIC management. LIC states that such assumptions are unrealistic and totally false. Investors should not be misguided in the name of LIC. On a letter dated February 12, 2007 to all the Zonal Manager and Sr. Divisional Managers,  Managing Director of the LIC Mr. Mathur himself writes that “The unethical practice of circulating such pamphlets to misguide the public and get business is betraying the trust we built-in the last 50 years.” See the Letter Below (Click to read in bigger Size , recommended)

LIC Zonal officer letter for misselling in LIC Wealth Plus ULIP Policy

Though efforts were made to stop agents to use such pamphlets to increase their business but since the agent community is so big and scattered not much could be done. It was quite amazing that all over India similar pamphlets were distributed and hence it is clear that without the help of Development Officer of LIC such work was not possible. D.O. of LIC also gets commissions or incentives when his agents gives more business to LIC. See the pamphlets Below:

Pamphlets showing returns with Term 3 yrs and investment 25,000

LIC Wealth Plus Misselling Pamphlets

Pamphlets showing returns with Term 1 yr and investment 1,00,000

LIC Wealth Plus ULIP policy misselling pamphlets

Another template with LIC Logo

LIC Wealth Plus Guaranteed NAV ULIP Misselling

What other Govt bodies have to say

Ministry of Consumer Affairs, Food and Public Distribution through “Jago Grahak Jago” also acknowledged that such misleading things are taking place and hence warned investors to refrain themselves from such high return promises.

D Swaroop (PFRDA Chairman) committee on investor awareness & protection states that “The chief cause of mis-selling is the incentive structure that induces agents to look after their own interest rather than that of the customer. If that were not true, the average sum assured of the insured Indian would be higher than the current Rs 90,000.”

 

Now when a income earner of an average Indian family dies untimely, do you think his family will survive for the rest of their life with less than Rs. 90,000? Insurance is meant to cover risk of untimely death first and investment and tax savings are secondary criteria. But we Indians, have been taught Insurance as an investment first, tax savings second and then somewhere in the last we talk of insurance as well. Now again such practice of miss-selling has emerged and agents are targeting with LIC’s new product Wealth Plus.

What is LIC Wealth Plus Product

This product of LIC which was launched on February 9, 2010 (Table 801) states that LIC will guarantee the highest NAV to the investor in the first 7 years and product will mature after 8 years. It nowhere guarantees the return. In it’s official web-site, LIC states that the minimum guarantee will be of Rs. 10 NAV as Rs. 10 will be the starting point. Actually that means that they are not even guaranteeing that you will get your entire money back as there will be certain charges in the policy itself. They have nowhere written that they will guarantee any amount of return to the investor. Nor they have mentioned that your money will be invested 100% into equity.

Now what Agents are telling

  • LIC is giving guarantee on HIGHEST RETURN. (LIC is saying Highest NAV)
  • Now what is highest return? Based on past performance of LIC’s ULIP policy (Bima Plus), you will get 17%-18% return on investment.
  • Lumpsum Rs. 1 lac invested today will become Rs.3,45,693/- or give Rs 25000 for 3 years & get Rs.2,14,690/- after 8 years.
  • You should switch all your  earlier product (on which agents have already made huge commission) into this product as this is something which is as good as KOHINOOR DIAMOND.

To generate such high returns, the money has to remain in equity but LIC nowhere states that. In almost all ULIPs it is clear how much money will go in equities and how much money will go in debt but this policy is silent on the allocation percentage and hence you may land up getting return that of endowment or money back (nearly 6%-7%).

Bima Plus of LIC was a ULIP where it was mandatory for the fund manager to remain invested in Equities in a pre-decided proportion. It was launched in 2001 when the markets were trading at 3000 sensex levels and later sensex touched even 21000. Is it a right approach to compare such high returns which were made during Bull Market and making investor believe that such returns will be now guaranteed by LIC. Now if you go to a small shopkeeper, a carpenter or a young executive and show them that you will get such high return, why he/she will not invest and that too if they are told that guarantee is done by the India’s biggest financial institution, LIC.

We feel sorry to say but such agents who are misleading people do not even think twice before selling such policies in a wrong approach. The fact of the matter is that the money is just not invested in policies but gets invested in someone’s kids higher education, someone’s retirement, some dreams which common man look to achieve.  We believe that

Insurance agents have sold to Indian everything other than Insurance.

Comment from a Reader who is an LIC Agent

Thanks Manish for bringing up this burning issues today. As a agent I can confirm you that these pamphlet actually circulated by LIC office. If you have any doubts go to any LIC branch ask any sales manager or BM they will tell you same. Actually agents sell the product because they are misguided by Senior LIC officials but unfortunately when debate arise agents are vindicated and punished. The projection shown in the phamphlet, circulated to us at the time product launch meeting. For a wealth plus policy LIC given extra incentive to us. But yes you are absolutely true we should think about our client not LIC/BM/DO. It is not true that agents always think about their pocket,they bound to sell product sometime otherwise they face a painful situation. Ask any Insurance company/agent how many term insurance they sell, they wont tell you the truth. IRDA also not interested about selling pure term insurance product otherwise they also issue circular to increase the term insurance sales growth. If this is the situation what will a agent do? Either he has to terminate his agency or keep continuing same practice as Big agents/Insurance Company/IRDA like to do. ( Original Comment )

What is IRDA guidelines says

As per IRDA, agents and Insurance companies are mandated to show return either at 6% or 10%. But the pamphlet distributed have no regards for Regulatory guidelines. Let’s Compare return according to pamphlet & IRDA Guidelines:

Regular Premium Single premium
Premium 25000 100000
Paying Term 3 years 1 Year
Pamphlet 214690 345639
As per IRDA guidelines
6% 87549 118442
10% 114306 161697
  • Figures are approx

Innocent Investors ?

We believe even investor is at fault and not all the blame should be transferred to the Agents alone. It is always “Buyers Beware”. We take well thought decision before we buy even a fridge in our house. We do research which fridge is best for us and look at least 4-5 shops before we finalize. But when it comes to financial products, we don’t really do our home work and at times decision is taken not even going through the pros and cons of the policy.

Now what investors should do?

If you have already taken the policy

  • Cancel the policy if bought under false promises and high projection. The policy can be returned within 15 days of the receipt of the document without any charges under ‘free-look’ option.
  • If 15 days are over, nothing much can be done.

If Not Taken

  • Take your well thought decision before jumping on to this product.
  • Tell your friends about the same.

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Comments ? would love to here your views on Wealth Plus from LIC . Please share what do you feel about it ?

This is a guest article by Hemant Beniwal & Ashish Modani. They both are CERTIFIED FINANCIAL PLANNERCM & writes at The Financial Literates

Regular Premium

Single premium

Premium

25000

100000

Paying Term

3 years

1 Year

Pamphlet

214690

345639

As per IRDA guidelines

6%

87549

118442

10%

114306

161697

Floating Rate Mutual Funds – How, When and Why?

Posted on by Jagoinvestor

Let us say you have 1 Lac rupees and you want to invest for the term of 1 to 1.5 years that can earn a decent interest rate. You thought of investing in fixed deposit in a bank for 1.5 year @ 6% per annum. Just after one month, bank increased it’s FD interest rate by 0.5% and again after 6 months interest rate is increased by 1%. But you cannot avail this benefit since your FD carries fixed interest till 1.5 years. Is there any investment instrument that could work to handle this situation? Of course YES, Mutual fund industry does offer floating rate debt mutual funds to invest in.

Basic Definitions you should know

  • Coupon rate: The stated interest rate on a bond or other debt security when it’s issued.
  • Benchmark rate: A rate used as a yardstick for measuring or setting other interest rates.
  • Expense ratio: A measure of what it costs an investment company to operate a mutual fund.

What are Floating Rate Mutual funds?

These are the Debt mutual funds which invests about 75% to 100% in securities which pay a floating rate interest (bank loans, bonds and other debt securities) while the rest is in fixed income securities. See List of best Debt Oriented Mutual funds

There are two kinds of floating rate funds– long term and short term. The portfolio of the short-term fund plan is normally skewed towards short-term maturities with higher liquidity and the portfolio of the long-term plan is skewed towards longer-term maturities. However, even the longer-term funds are positioned more on the lines of short-term funds and are not very aggressive in nature.

Floating Rate securities vs Traditional bonds

As you may know, that most bonds have fixed interest rates which are set when they are first issued, either by a government or a corporation. That rate of interest doesn’t change for the life of the bond. A floating rate security on the other hand, has a variable interest rate. That means it’s interest rate will go up and down, or “float” to reflect changes in current market rates.
Depending on the particular floating rate security, the interest rate may change daily, monthly, quarterly, annually, or at another specified interval. The rate is generally changed to keep it in line with a particular interest rate benchmark, which is often called the “Reference Rate.” Among the benchmarks used to set the interest rate on floating rate securities are the MIBOR (Mumbai Interbank Offered Rate). Hence, each time the benchmark rate fluctuates; the coupon rate is adjusted accordingly.

Note

The MIBOR rate is the weighted average of call money business transactions done by 29 institutions, including banks, primary dealers and financial institutions. This rate is calculated and disclosed by FIMMDA-NSE.  [ Ignore If you dont understand ]

Credit Quality and Risk/Return spectrum

Credit quality is the measurement of a bond issuer’s ability to repay the debt it undertakes. Investment into AAA and equivalent rated instruments, call money market and government securities are the safest and most liquid instruments, while below AAA and equivalent rated instruments reflect downgraded quality and lower liquidity. However, their lower quality results in better returns, albeit at a higher risk.

All about floating rate mutual funds in india

Example analysis

Let us compare the floating rate, fixed rate debt fund and liquid funds over the years to understand the performance.

 

HDFC Floating rate Income fund long term plan (G) HDFC Floating rate Income fund Short term (G) HDFC High interest (G) HDFC Liquid fund (G)
Category Debt: Floating Rate Long-term Debt: Floating rate short term Debt: Medium-term Debt: Ultra Short-term
1 month 0.35 0.35 -0.65 0.3
3 month 1.20 1.06 -0.4 0.95
1 year 7.68 5.0 5.53 4.68
3 year 8.58 — 8.2 7.17
5 year 7.48 — 5.98 6.77
Expense ratio 0.25 0.75 2.25 0.5
Exit load 3% within 18 months Nil 0.5% within 6 months Nil

 

 

Why, When & How

Why to opt for floating rate funds

  • The primary advantage of these funds is that, they are less volatile than other types of debt funds. In case of fixed rate bonds, when interest rates in the economy change, the price of the bond adjusts to make up for the fixed coupon of the bond.
  • Looking at the performance table over different time frames, floating rate funds have delivered outstanding performance over the years and more importantly, with considerable consistency.
  • A look at the performance table also reveals a better consistency in delivering higher returns when compared to other type of funds.
  • Credit quality of floating rate funds’ category is more or less similar to liquid funds and ultra short-term funds. Average maturity does not play a very important role in case of floating rate funds as they invest in instruments, that have a variable coupon rate.

When to opt for floating rate funds

  • Floating rate funds make better choice when interest rates are set to rise.
  • Floating rate fund can be considered to establish emergency fund. In the above case of HDFC Floating rate Income Long term plan (G), one can slowly build up emergency fund and once 18 months are over, you can redeem any time.
  • If investment period is 1 to 2 years and liquidity is a concern, then one can look at floating rate funds over fixed rate debt funds. Now banks are coming up with recurring deposits with quarterly revision of floating rates. Always look for alternatives as per your investment period, returns, risk and liquidity.

How to select floating rate funds

  • Long term floating rate funds are better than short term considering performance, less expense ratio.
  • Select a fund which has proved its performance over a period. (This shows the effectiveness of the fund house in mobilizing the assets under management).
  • Select the fund which invests significant % of asset in companies/securities with highest credit rating.
  • Select the fund with low expense ratio.

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Floating rate funds in India

The primary reason for their lack luster presence in the mutual fund industry has been investor ignorance of the nature of floating rate funds. There is a shortage of sufficient long-term floating rate instruments. Due to this, fund managers divert certain portion towards fixed interest securities. In the present situation of Indian economy money market and higher inflation situation, interest rates are set to rise in near future. Always consider floating rate funds over liquid/ultra short term/debt funds.

List of Top Floating Rate Mutual Fund

Long Term

Short Term


Comments! Do you think you can add these to your Portfolio for some short term goals?

This is a guest post from Srinivas Girigowda who is one of the best contributors on this blog :), Kudos to him. Check out his finance blog Here

Real Story about an Investor who Fought for 9 months with ICICI Bank

Posted on by Jagoinvestor

Can you fight back ? Really ? If you were taken for granted as a customer by some Bank or any institution and you were forcibly sold some product by officials at some Organisation assuming you are a weak customer who will not raise his voice and fall in trap , What would you do ? Will you have the guts and energy for fighting back and getting what you deserve ? Here is a real life Story directly from the customer who faced lot of problems from his Bank when He wanted to shift his Home loan from One city to another . Lets see in this article in his own words and find out how Officials in these big banks take advantage of customers situation to make money for them selves . See other Force Selling Examples

How it all started

I have two home loans, one in Delhi and other one in Pune and I wanted to go for a home loan ROI switch (conversion of higher rate of interest to an existing rate of interest). My prevailing ROI was very high for both the home loans so wanted to reduce the ROI, of both, by paying the processing fees. ICICI bank has a process where-in one can go for ROI switch by paying the processing fee. First, I went to the Pune office, as I am in Pune, in March 2009 and then visited the Delhi ICICI branch in May 2009 for the loan switch.

  • March, 2009 : ICICI Bank, Shivaji Nagar, Pune – The  officials asked me to buy a ULIP of 40K for the conversion. They changed my loan account number and took all the documents again as if I am applying for a fresh loan. They also took 1 month to process my loan switch.
  • May, 2009 : ICICI Delhi – The customer care executive asked me fill an agreement on a 50 rupee stamp paper, took the switch fee and all the formalities were done in record 80 minutes. He did not ask me for any other paper and my loan ROI was switched in 2 working days.

Read the process in detail here.

The ugly truth

ICICI Pune branch has forced me to buy a ULIP and took 1 month for the switch procedure where as Delhi has taken 80 minutes. ICICI home finance Pune in collaboration with ICICI Pru is duping customers. ICICI Pru people are simply forcing their policies on ignorant home loan customers. This is how ICICI Pru executives are achieving their monthly targets.

Just imagine if I would have only one housing loan and that too in Pune, I would have been blissfully unaware of this racket. They must have done it with many home loan customers in Pune.c

The Confrontation

I sent my first complaint letter to  ICICI Pune, heard nothing for weeks. Sent many letters to all the 3 level of escalation as described on ICICI website, still no response. Finally, I complained the banking ombudsman (See How to complain to Banking Ombudsman) View the full complaint timeline Below .

The Result

Due to the Ombudsman intervention I got my 40K ULIP premium back, but ICICI evaded the answers of my other questions and no action was taken against the two officers involved. I realized that ICICI is capable of dragging this to eternity so I created this blog and uploaded all the conversation which I had/ was having with ICICI. My blog created a lot of noise and after 9+ months few senior folks from ICICI finally decided to extend the support.  Finally my queries were answered and Interest loss was credited back in my savings account. I was happy to find the answers but also sad as it took 9+ months for ICICI to respond. I have sent a letter of appreciation to ICICI in the same regard.

The Lesson Learned

  • Never trust any bank official as they have hidden agendas behind their suggestions and make it a point to read all the documents carefully.
  • Never do something which is being pushed upon, always take your time. Remember if they are rushing you and want everything today, take your sweet time and do a research.

How to avoid such scenarios

If you have been asked to buy a ULIP for any loan related process, use any of the method below to get back your money.

Option 1 :

Resolution Duration : 9+ months
Pain, mental trauma, stress and harassment : High

  1. Send ICICI a complaint mail with all the relevant docs photocopy (I maintained the correspondence on a blog which served dual purpose)
  2. Send a mail to all the three level of escalations mentioned at ICICI website – this is just a formality as u need to give a proof of ur complaint before sending a mail to Banking Ombudsman. dont expect anything from ICICI as it is a sheer waste of time but you have to do it.
  3. Now send a mail to ICICI ombudsman with all complaint letter attached. Make sure you provide the complaint in the desired format.
  4. Send a mail to ICICI Pru Bombay, thru post and online, the ICICI Pru is very fast in resolving any dispute.
  5. Keep sending stinker mails to ICICI, well they not budge but you will feel good and light

Summary : Online blog will help u maintain the flow of sequence and the best part is that u will learn how to blog :-). Keep on following and one day someone will respond, in my case it took them 9+ months…..

Option 2:

Resolution Duration : 15 days to 1 month max
Pain, mental trauma, stress and harassment : NIL

  1. Go to the bank and agree to buy the ULIP in return of you loan related process.
  2. Give them ULIP premium cheque, get a photocopy of the ULIP docs/forms and the check.
  3. Take the visiting card of all the people who were involved in ur case (this is very important, if no visiting card atleast take their name, designation and mobile no.)
  4. Ater u have agreed to their demand of ULIP now make sure you get ur work done ASAP. Don’t give them any time get ur work done at the earlier. Be firm and be rude.
  5. Wait for the ULIP welcome kit
  6. Once you receive ur ULIP welcome kit, write a strong complaint letter to ICICI Pru telling them about the forced ULIP, the names of the people involved and your request of cancelling the ULIP. In all the insurance firms there is a freelook period of 15 days to 1 month during which u can refund the policy without providing any reason (but you must cite your reason in this case).
  7. Make sure your complaint mail is very strong. ICICI don’t respond to polite mails, they simply ignore them.
  8. Your ULIP money will be refunded.

Summary : This is a very simple way of getting ur work done smartly by complying to all the stupid rules set by ICICI or any other bank for that matters. Just agree to their demands and cancel the ULIP during the free look period.

Good luck and have a safe banking .

How Much Home Loan can you afford (please vote , Data will be used for future Article)

Comments , What do you think can be done to avoid these situations ? Are you aware of any thing like this in your real life ? Lets share our views on what are the different preventive and corrective measures which can be taken to avoid these kind of situation . Dont forget to praise the efforts made by this Guest 🙂

Note : Though utmost care has been taken while taking the information , Jagoinvestor do not take any responsibility about the information provided above.

New income tax slabs and its Impact on Common Man’s financial life

Posted on by Jagoinvestor

Finance Minister Pranab Mukherjee on Friday announced revised tax slabs for individual tax payers and also said that the New tax rates would offer relief to 60 per cent of taxpayers.

But looking at the below comparison between the tax payable last year and the proposed one it seems that the so called “Aam Aadmi”, the middle class would not be gaining so much tax benefits as there are absolutely no tax savings for the person earning up to Rs. 3 lakh p.a. and those who are earning up to Rs. 4 lakh would end up saving only Rs. 10,000.

income tax slab

New tax slabs would benefit greatly to the higher middle class as compared to the Aam Aadmi, though the additional investment of Rs. 20,000/- in the infrastructure bonds would provide some relief especially to those who are interested in traditional savings tools.

Introducing Saral-2 form back is a good initiative and would make it more Saral for the tax payers to file their IT returns without hassle as the current ITR are not easy for the taxpayers to prepare & file on their own.

In order to make tax compliance process more efficient two more CPCs (Centralized Processing Centre) are proposed to be set up apart from extending “Sevottam” a pilot project at Pune, Kochi and Chandigarh to four more cities in the year. Sevottam provides a single window system for registration of all applications including those for redressal of grievances as well as paper returns.

Long awaited increase in the limits for turnover over which accounts need to be audited is also enhanced to Rs. 60 lakhs for businesses and to Rs. 15 lakhs for professionals as compared to the existing limits of Rs.40 lakh and 10 lakh respectively.

Tax Slabs for 2010-2011

The basic threshold limit for income tax exemption will remain at Rs.1.60 lakh. Under the new proposal, 10 per cent tax will be levied between Rs.1,60,001 and Rs.5,00,000, 20 per cent on incomes between Rs.5,00,001 and Rs.8,00,000 and 30 per cent above Rs.8,00,000.

Apart from this you also get Rs 20,000 additional Tax benefit if you invest in long term Infrastructure Bonds.

Tax Slabs
OLD NEW TAX RATE
Upto Rs.1.6 lakh Upto Rs.1.6 lakh NIL
Rs.1.6 – 3 lakh Rs.1.6 to 5 lakh 10%
Rs.3 – 5 lakh Rs.5 to 8 lakh 20%
ABOVE Rs.5 lakh ABOVE Rs.8 lakh 30%
Tax Slabs
OLD NEW TAX RATE
Upto Rs.1.6 lakh Upto Rs.1.6 lakh NIL
Rs.1.6-3 lakh Rs.1.6 to 5 lakh 10%
Rs.3-5 lakh Rs.5 to 8 lakh 20%
ABOVE Rs.5 lakh ABOVE Rs.8 lakh 30%
  • Exemption Limit for Women : 1.9 Lacs
  • Exemption Limit for Senior Citizen : 2.4 Lacs

How Much do you Save because of New Tax Slab?

Income

Old Slab

New Slab

Your Savings
60,000 0 0 0
3,00,000 14,000 14,000 0
4,00,000 35,020
 24,720
 10,300
5,00,000 55,620
 35,020 20,600
6,00,000
 86,520 55,620 30,900
7,00,000
 117,420
 76,220
 41,200
8,00,000
 148,320 96,820
 51,500
9,00,000 179,220 127,720
 51,500
10,00,000
 210,120 158,620
 51,500

What are your comments on New Tax Slab ? How is it going to Impact you?

This is a guest article written by Mr. Rishabh Parakh who is a Chartered Accountant and Director at MoneyPlant Consulting he had been contributing to leading newspapers like DNA & NavBharat (Money Plant Consulting is a premier outsourcing & a financial services provider which aims to offer solutions for all your financial needs and queries.)

How many Mutual Funds you should have ?

Posted on by Jagoinvestor

Investment in how many mutual funds is enough? Though it depends on individual needs and situation, we can always arrive at a number or a range which should be optimal for a large chunk of mutual funds  investors. Many a times Investors invest in a large number of mutual funds which does not add any additional value to their portfolio most. They have to understand that investing in every new mutual fund coming into the market will not help them in any ways because after a point they have their investment in most of the companies in stock market. In this article lets see how many mutual funds a common man should invest in general.

Reason we buy mutual funds

Before moving forward, let’s understand why do we buy Mutual funds at the first place? We sometimes neglect the basic reason to invest in mutual funds, the reason is very simple:

We invest in Mutual Fund because we have money to invest but we dont have the expertise to invest in Stock Market. We do not want to spend time to manage the investments directly in different stocks and we want to make sure that we diversify our investment across a number of different companies.

Statistics on Number of Mutual funds in a portfolio

I conducted a Poll on this topic and we have some interesting results .

Facts

  • 63% people invested in less than 6 Mutual funds
  • 84% people invested in less than 10 mutual funds
  • 50% people invested in 1-6 mutual funds
  • The maximum number of investors were in the optimal range of 4-6 .
  • Total Vote : 225
  • Average number of Mutual funds : 5.57

If you look closely the graph results mimic binomial distribtution (Ignore this if you don’t understand), which shows that law of numbers apply even to this phenomenon and somewhere the average number of mutual fund converges to the most logical number by default .

Why it does not add much value when you invest in more mutual funds?

Each mutual fund on an average invest in at least 50-60 companies. If you buy 3-4 mutual funds then you are anyways going to invest in close to 100 companies overall (considering there will be some overlaps). So If you buy any equity diversified mutual funds, your money is going to be invested in some of the best companies probably 50-100 of them. Now when you buy another Equity diversified mutual fund there are high chances that the money is going to be invested in almost same set of companies in some proportion, so you are going to invest in same set of companies again. Buying 2nd mutual fund of same category will obviously increase your reach to some companies which were not part of the 1st mutual fund. But now as and when you add 3rd, 4th or 5th mutual fund, you will actually be invested indirectly to same set of companies. The price movement of these companies share prices will be same for all the mutual funds (most probably).

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So what you have to understand is that after a certain point, adding more mutual funds of the same category is of no much value for the portfolio. Adding more number of mutual funds leads to another problem which is tracking problem if you are a kind of investor who buys a mutual funds and just looks at the NAV to find out if you are in profit or loss then you are not doing right thing. Mutual funds investing is very much close to Share investing where you track the instrument, see how it’s performing, what’s going inside the fund, how is fund manager doing, how are they churning the portfolio etc etc. So if you have too many mutual funds in your portfolio, it will be too tough to track them and your portfolio will be very cluttered.

You have to understand that investment of 1 lac in 20 mutual fund will roughly behave in the same way as investment in 5 mutual funds because finally the investment has happened in shares of top companies (roughly the same number of shares), so the investment value is result of the underlying share prices movement and not the number of mutual funds in the portfolio.

Thumb rules:

You can ask two basic questions to yourself to find out if your portfolio size is too big for yourself:

  1. Can you name all the mutual funds in your portfolio and a 2-3 line explanation about what the fund does?
  2. Can you guess roughly how does the movement in stock market affect your corpus in general? If stock market is going to drop or increase by X%, so you have a rough idea of what will happen to your portfolio at a high level?

Example of a Portfolio of Mutual funds

Let’s create a sample portfolio of mutual funds. We will consider ETF’s as a mutual funds for this example:

  • 2-3 Equity diversified Mutual Fund (Tax + Non-Tax saving): See the List
  • 1-2 Debt Fund: See the List
  • 1-2 ETF’s or Index Funds

Note that 2-3 Equity Diversified Mutual funds will cover almost all the big companies in your portfolio. Some ETF or index fund will give index level exposure and make sure you invest in top companies. Debt funds will add exposure to Debt part and no-correlation with Equity.

Most of the people do not invest in the same old fund they have bought, they feel that buying every other mutual funds in market will some way help them earn extra returns which is far from truth. Consistency in investment and faith in one of the good funds you have chosen is the right way to invest in mutual fund.

How having more than one Mutual fund in portfolio reduces the risk?

You have to understand the concept of standard deviation, it’s nothing but risk and return potential from mutual funds point of view. So a single mutual fund has the highest standard deviation and the risk and return can be very high. Adding more funds will help in reducing the standard deviation of the portfolio. As per Morning Star Research (Many thanks to Hemant Beniwal for sharing this)

After 4 funds, the effect of adding another fund diminished. It’s still noticeable, but not so dramatic. After 7 funds, things have mostly leveled out and after 10 funds, a portfolio’s standard deviation stays nearly the same regardless of how many funds you add. Thus, once you own between 7 and 10 funds, there may be no need for more. In fact, the more funds you own, the more likely you are to own at least a couple that do practically the same thing. That could be a drag on your returns because if you have multiple funds doing the same thing, one is likely to be better than the others. Focus on the superior fund and you’ll get better returns .

How do you Buy Mutual Funds? [POLL]

Comments, Please comment on what do you think is the optimal number of mutual funds?

Force Selling combined with other financial products

Posted on by Jagoinvestor

Can some one force you to buy ULIPs when you take a loan from the bank? I am seeing very unethical things going on in financial world these days in India. Lot’s of people are complaining that many companies are selling junk things like Endowment plans or ULIPs (which make big commissions) along with big loans or something big where a small ULIP might look like “Ok, let’s take this small thing for that big thing”. But this is not right! This is breaking the faith and such practices are against the principal of  utmost good faith!             Let’s see some real life cases:

Force Selling along with Loan Approval

I had to take this policy without knowing any details about this, as the Barclays finance company said this is mandatory for approving any loan , not sure how far it is correct. But as I was running out of time, i opted for it.

Force Selling along with Locker Facility

I requested for a locker in ICICI Bank in Hydderabad, VIdyanagar Branch, and they said there is lot of people in queue for lockers so they cant give me. But if I invbest in ULIP or make a FD of 5-10 Lakhs he said they will consider my Locker request on priority. This is forced selling and I told them straightaway that making investments for a locker is ridiculous reason and stayed away. I wish I could complain this to somebody but there is no written proof of they asking for investing in ULIP as it was verbal conversation.

Force Selling along with Home Loan

I thought banks like SBI would be straight in their clauses. I had a difficult experience recently with my loan.

 

Pre-Processing Blues:

The loan agent who works in my office, did not have any clue on the terms and conditions on loan. He was a retired officer from SBI and used his position to leverage the file movement. One fine day, he asked for payment against the services rendered (It was a shock to me). I guess, he would be getting some service fee on my loan from Bank already. I gave some required papers for gaurantor to him which was not in my file. I think he lost them. I reduced my loan amount during processing, for which I had submitted the request letter. Upon my loan approval, I noticed that there is a 1.9 Lakh additional loan sanctioned for me and added to the loan amount. I had declined the insurnace cover for the loan as I had planned to cover it on yoy basis. I discussed this with the manager and he agreed to waive it.

Next, the gauranor must be present when you go to sign the papers. I managed to get the gaurantor to accompany me during early morning hours.

Forcibly Selling SBI-Insurance with the Loan

I saw that Insurance cover has not been removed and the SBI person would not agree to waive it even when i told that i would buy SBI insurance policy. I was told that I need to go to branch where I applied for loan and get the approval from bank manager and then it will again go for approval in the loan processing center. After a lot of persuation with the sanctioning office and Chief manager, I managed to convince for a year on year insurance cover which I had to buy for this year on the spot.

Further, I was told that my this year loan is fixed for 8% ( I was happy that I was wise in choosing SBI) then I was updated that my loan is fixed at 9.75% for next 4 years. No one had told us this clause until we went for signing. We had asked this question from clerk to Manager level. No one had a clarity on it but the clause was there in the documents and I had no option but to sign it. In the recessionary situations, I understand that the rates will look further south but I will be stuck at 9.75 for next 4 years.

Otherwise, I am kind of satisfied with the pace and professionalism of officers but I feel that more transparency in the terms and condition is must.

Moral of the story: Read all the clauses before you go to sign and do not be satisfied if you do not get an answer. Private or Public banks – every one has clauses in fine prints that suits the bank and there is no one to tell you about them.

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Force selling along with Opening NRE Account

About a year ago, a 70-year-old non-resident Indian (NRI) woman went to one of the largest private sector banks in the country to open a non-resident external (NRE) account. While opening the account, an executive from the bank lured the lady into buying a co-branded insurance product under the pretext of ‘mandatory’ rules. He also told her that she will have to pay the amount of Rs10 lakh only once. With no option left for opening the account, the lady obliged and left for her overseas home.

“When that lady returned after 12 months, she was asked to pay one more premium for the insurance plan. Since the bank would not return the money which she had paid for the first premium, she was again forced to pay the second instalment for the insurance policy that was forced upon her,” revealed an independent financial advisor (IFA). Read full article

Another Case of force selling along with transfer of loan

I also also seen a case where one guy wanted to transfer his Home loan (ICICI Bank)  from Pune to Delhi and just for this , he was being forced to buy an ULIP from the officials who would be helping him in the paper work , other wise his work was stuck . At last when he approched Delhi branch , his work was done smoothly . So in this case the officials were forcing the unsuitable product.

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How to Complain for the Force Selling

To tackle such increasing fraudulent cases, the Reserve Bank of India (RBI) introduced a banking ombudsman scheme under Section 35 (A) of the Banking Regulation Act, 1949. The Act is in effect from 1995. A customer can register a complaint with an ombudsman if no reply is received from the bank within one month or if the bank rejects the complaint, or if the customer is not satisfied with the reply given by the bank. If a complaint is not settled within one month, the banking ombudsman may pass an award up to Rs10 lakh or to the extent of the losses suffered by the customer up to Rs10 lakh, whichever amount is lower. Between the years 2002-06, the banking ombudsman has settled around 36,000 complaints.

Conclusion

This is nothing but a form of corruption happening in Financial world these days. Sellers are thinking that loans are critical things for everyone and in order to let them happen smooth they can force people by miss-selling them, they feel like people in India are anyways frustrated with other things, what will they do? They will enquire a bit and then finally they will lose the patience and just buy the products and that happens. But please don’t let this happen. Raise your voice, ask explanation, demand proof and evidence, threaten them to complain and take matter higher to banking ombusdsman and consumer court etc. I am sure they will budge after some time.

Even on this blog which discussing PPF account opening at SBI we came to know that SBI bank officials sometimes force PPF account openers to start a Saving Bank account at SBI, which is a form of force selling.

Comments, please share some live examples you know of? Has this happened to you? What can be done to solve? Come unite and share ideas, you can leave a mark!!