JagoInvestor.com recently completed its 3 yrs in Nov 2010 and following is the interview taken by one of the fellow bloggers .
Yet another milestone for Manish Chauhan, founder of JagoInvestor.com. It’s been three years since Manish started blogging and on Nov 5th 2010, JagoInvestor.com celebrated it’s third anniversary. After three years of run up, JagoInvestor.com boasts of a massive 6500 RSS followers which is still growing and a treasure-house of articles where you can find almost anything on personal finance. On this occasion, here are some snippets of a tete-a-tete I had with Manish on his journey over the last three years and his vision for JagoInvestor.
Q1) Which is your best personal finance book and why ?
I have not read any book on personal finance nor I am aware of any pure personal finance book which gives a good idea of everything on personal finance at this point in India. However there is enough material on Internet and loads of good websites and blogs which gives great education on personal finance.
More than knowledge, Personal finance is about attitude and applying common sense in area of personal finance. There are few things which a person has to understand and on top of it he himself can build all the knowledge and analyze things . Incase some one has any idea about personal finance books in India , please give the names in comments section !
Q2) What is your vision for JagoInvestor in the next 5 to 10 years ?
Personal Finance is a huge area with opportunity. I see JagoInvestor being synonymous with “Financial Literacy” and “Psychology changing website” which along with providing personal finance knowledge also provides counseling in the area of personal finance, I want to build a program which would span over few months or may be 1-2 yrs which if any one who is interested in financial freedom can join and they can totally transform their way of looking at personal finance. The program can turn a novice into a pro in area of personal finance. (Would like to read comments from readers on this point)
Overall JagoInvestor’s main motto is to “change investors relationship with money” over time.
Q3) You did you manage running a personal finance blog despite being from a different background ?
There is Chinese proverb, “start doing what you truly love and you will never have to do any work !”. Common sense has no background and I consider personal finance as pure common sense fueled with a passion to change one’s financial life. As I like number crunching and I consider myself a logical person, I started a blog one fine day without realizing that it would become this big today, readers liked it and it was making difference in their life, which motivated me to work hard and make sure I keep running this movement of financial freedom.
Q4) What would be your top three advice for investors ?
Top 3 advice I can suggest some one is
Start investing time to understand how important personal finance is in one’s life, thats one thing we work for and our quality of life depends on.
Take pain of cross-checking each and every aspect promised by products, like investors in endowment plans should calculate what is the return they are getting and how 1% more return can impact their wealth in long run.
Shift from free advice to paid services and value them, paid does not mean costly, if you get more value than what you pay, thats even cheaper than FREE. This mind set of getting FREE FREE FREE in each and every aspect of life actually turns out to be very costly in long run.
Q5) Top 3 urgent changes required in the personal finance space ?
a) Shift from sales driven attitude to value-based model in selling : When even you get a call about some product, all you hear is how great the product is, how much return it gives and blah blah.. all the focus is on the sales and even the conversation you hear is driven by sales. The biggest change which should happen is the whole model should be based on how the product will help customers in achieving their goals, a client buys a product because it helps them in life, not because its GREAT.
b) Training to agents and IFA’s : There is good number of magazines/portal for investors to help them in taking informed decisions, however I don’t see anything which helps agents and other IFA’s/CFP’s to understand how they should change their strategy in acquiring clients and giving value service to them. We need some services like these.
c) Basic Financial Planning for each Indian : While financial planning is a detailed thing in general, each person should have access to cheap basic planning for their life goals such as child education and retirement at least. There has to be a model which gives them inexpensive plan for their most basic goals in life.
Thanks to all the readers of Jagoinvestor for giving me an opportunity along with them to create this platform for learning personal finance.
Comments
Would like to hear your comments on how do you feel associated with jagoinvestor and what changes has happened in your financial life ?
We will learn about creating a WILL in India today, but before that you need to answer this question – “Do you want to leave your wealth and let your loved one’s fight with each other to get their shares (a la the Ambanis!)?” –
I guess not! . If you nominated some one in all the financial products you bought and thought that it will be passed to them legally without any issues, you are living in the world of fantasies (kind of :). It’s a common misconception). You need to create a WILL to distribute your wealth in the manner you want to, and having nominated someone ain’t the answer!
Lets fine out in this article, how to make a will in India ?
What is a Will ?
A will can be made by anyone above 21 years of age in India. You can make the will on plain paper in India. It’s not legally necessary to make the will on stamp paper. It is advisable to write your will in your own hand writing, as the same can be verified later in case of any doubts raised by relatives.
It might happen that according to your family structure and your preferences, you want to divide your wealth unequally or make a provision for a close friend or a faithful servant. This isn’t possible if you die without a will.
A lot of us feel that talking about “Making a Will” is pretty morbid, and hence, we don’t look at it with right attitude.
“A will is a sensitive topic to open up to. People are not comfortable discussing a will in India. There is a misconception that if someone tells you to make a will, the person thinks that indirectly you are telling him that his end is near or that you are eyeing his property. However, all apprehensions disappear when I tell them the consequences of not making a will.”
– Says Shankar Pai, who has done some commendable work in area of spreading awareness on making wills.
How to make a WILL in India and its importance ?
A will is so important, that it should be your first step in your financial life. If your family structure is diverse, and you want to leave your wealth to different members of family like you want to, you should prepare your WILL today, not tomorrow, not later.
To wit, if you die without preparing a WILL in India, your wealth will then be distributed as per ‘Hindu Succession Law’ (Government rules, on how wealth should be divided among family members). A common misconception, is to believe that all the estate is automatically passed on to the spouse, because children and sometimes even relatives can stake a claim to the property.
Laws of inheritance and succession, are complicated and diverse in nature, and are different in case of Hindus and Muslims.
Inconvenience for the family members:
Another point you should consider, is the inconvenience caused to your family members because of your laziness, in not making a will for them. In case of a dispute, your family members have to produce the proof about their relationship with and also have to go helter-skelter to lawyers and spent money and energy.
Much better then, to gift them some time of yours, and creating a will! This will save them a lot of headache.
Watch this video to know why it is necessary to get a registered will:
How do you make a Will in India?
A will has several parts, which duly completed, make up a complete Will. Though there is no legal or defined format, there is a template, which has been generally used for ages. It’s simple, it’s very logical and derives from common sense. Let’s look the whole format and some important points while creating a will.
Step 1 : Declaration in the beginning :
In the first paragraph, you have to declare that you are making this will in your full senses and free from any kind of pressure. You have to mention your name, address, age, etc at the time of writing the will so that it confirms that you really are, in your senses 🙂
Step 2 : Details of Property and Documents :
The next step is to provide list of items and their current values, like house, land, bank fixed deposits, postal investments, mutual funds, share certificates owned by you. You must also indicate, where all these documents are stored by you. In all probability, these are in your bank safe deposit box.
Even the will should be stored in there! Make sure, you take the details from the bank manager, about the procedure and rules of releasing your will from the safe deposit after your death. Make sure you communicate it to the executor of the Will or your family members.
I am sure, they’ll be pretty interested in this 🙂
Step 3: Details of ownership :
At the end of the will, you should mention who should own your assets items and in what proportion, after you have gone. If you are giving your assets to a minor, make sure you appoint a custodian of your assets till the individual you have selected, reaches an adult age. This custodian obviously, has to be a trustworthy person.
Step 4 : Signing the Will :
At the end, once you complete writing your will, you must sign the will very carefully in presence of at least two independent witnesses, who have to sign after your signature, certifying that you have signed the will in their presence. The date and place, also must be indicated clearly at the bottom of the will.
Make sure you and the witnesses sign all the pages of the will. One important point while choosing witness, is that they should be your friends, neighbors, or your colleagues and not the direct beneficiaries in the Will. They only certify, that you yourself have signed the will in their presence and are not a party in making the will in India.
The envelope has to be sealed after completing all the formalities and the seal must bear your signature and the date of sealing. The witnesses need not sign on the seal of the envelope.
See another Template from Department of Stamp and Registration, Karnataka here, thanks to Babu .
Execution of Will in Court ?
When you are dead, there is someone called an “Executor” who will be responsible for dividing your wealth amongst the beneficiaries and he will make sure the whole process is smooth (You must have seen this in Hindi movies). It is not legally required to get the will executed in a court of law in presence of a judicial Magistrate in India.
However, if you wish, the will can be executed in the presence of Magistrate or the public notary, nominated by the government authorities and sealed in their presence.
Changing the WILL in India ?
You can change your will any time you want to. However, make sure that when you make a new will, you mention that this will is the latest and supersedes all earlier wills. If you don’t, it can complicate the situation, cause major confusion, make such matters go to the court of law and take several years before arriving at any final verdict.
Making a Will through Lawyer
“Do-it-yourself” wills often do not contain all the necessary components as required by law and many times ruled as invalid by courts (for example no signatures from witness or no witness at all). Many a time, it can happen that while creating the will, you use such ambiguous language that it results in lengthy legal battles (“My House should go to Sunita.”
Now if both mother and wife are called Sunita, which Sunita ought to get it?. Anyone who might benefit from the ambiguity of the will can jump in to claim a share! And if the courts decide in his/her favour, you wont like that situation 🙂 (not that, you’ll be around!)
What is a Probate and it’s importance?
A probate is nothing but a copy of will, certified under the seal of court. The executor (someone who is responsible to execute the will) has to file a probate petition in the court of law and if all goes well, the probate takes six months to a year. No right as executor or legatee can be established unless a court has granted the probate of the Will.
Probate can be granted only to the executor appointed by the Will. The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state. Probate is very important in case of Real Estate.
Legal heirs to get possession of the property from the nominees have to go through a legal process called probate. In Maharashtra this means, the will have to be submitted to Registrar and one will have to obtain a probate. The Registrar may ask the claimants to put an advertisement in newspaper to ensure that they will not be contested.
They may even ask the witnesses who have signed the will to come to their office and sign documents. After all this, and some court affidavits, the claimants have to pay the necessary tax to the state govt. which is hefty and based on property value. After Goverments takes its cut, then finally the probate order is given. Only then will the legal heirs get their property.
Note that, probate requirements differ from state to state. Hence even when making a will a Lawyer should be consulted. I know of fights between Nominees and Legal Heirs. Roadblocks put up by Goverment ( some times they ask for Registered Will etc.).
So just writing a will is not the end of the story. Better consult a lawyer before drawing a will.
Further please note especially in case of land or house property, the society will not transfer the flat without a probate and tax paid certificate. Many times, a prospective buyer will not buy a flat or land, if the holding is not clear and if the property had not been cleanly transferred and if there are disputes between nominees and legal heirs.
Flat may still stay in the dead person’s name till their heirs and nominees settle their disputes. Till then, the flat may be used by Nominees or any other person. But Society will not transfer the flat to prospective buyer till the process of probate is settled first. Hence such property cannot be sold easily.
Please proceed with great care in this matter.
Important points while making a Will
If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you dont make stupid mistakes at the time of writing and signing it. 🙂
The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and some times make your will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years! And you want them to be present in this world 🙂
Write your will on good quality thick white paper so it doesn’t get spoiled over a period of time. It should be stored in a plastic envelope in full size, without folds.
Note that you should keep just one more copy of will and stored separately from the original will. The will must be stored very safely in your bank, in safe deposit box. You must also inform your next of kin, as to where you have stored your will. Do not make many copies of your will.
In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”
A will must always be dated and if more than one will is made, the one with the latest date will nullify all the previous ones. In fact, there should be a statement in your will, nullifying all other previous wills. The pages should be numbered to avoid fraud.
The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.
So what appeals to you more ? Writing a will your self or hiring a lawyer for this and pay to him ? I hope you are clear about the rules and procedure for writing a WILL in India ?
Over time, we have seen a lot of products, and figured out some good ones. In the process of understanding them, we now believe that some things are always good — which sadly, is never the case.
So today, let’s have a look at just the flip side of all the products and concepts. This post is going to talk about the problems and issues associated with financial products & services.
Term Insurance
Term Insurance, as you know is pure risk cover, with a cheap premium. The problem with Term Insurance, is that many people get over insured because of the fact that premiums are cheaper in case of term insurance. Many people who need coverage of 25-30 lacs might end up taking higher amounts of insurance as it costs very less.
They might think that nothing is lost — What you lose, is the extra premium over the years for over insurance. At the end, your chances of death increases drastically (duh!). A lot of people on the other hand are severely under-insured because they think that just because term insurance does not return your money its a bad product , but these people are totally wrong (read why)
Equity Mutual Funds
Equity Mutual funds are taken as the best investment option by many. And they are, but not for everyone! A person needs to understand, that they are long term products, due to their inherent nature, equity funds should be invested in, for the long term.
Over a short period, like 2-3 yrs, Equity Mutual funds can be risky and can give you jitters whenever markets make a heavy movement to either side. Also your choice of funds matters! Choosing any equity mutual fund will not help you grow your money, since nearly half of the equity funds, under perform their benchmark indices themselves.
Debt Mutual Funds
Remember this, No Mutual fund is safe! There is always some kind of risk with every mutual fund, unless stated otherwise. Does any debt fund mention clearly that it’s 100% safe? No!
Watch this video to know more about debt mutual funds:
Debt funds are of different kinds and they are depend on several factors like inflation, price variation in bonds (More), the ability of corporate’s to repay the debt on time, and other economic indicators some times.
Overall, debt funds do not give negative returns and mostly perform better than plain FDs, but there have been instances of debt funds giving very low returns like 3-4%. Negative returns in short term, can’t be ruled out either. (link). Risk with debt funds though, is usually very small.
Many people also put money in Debt funds for very short term, just as an alternative to Fixed Deposits (FMP ?), which earns them marginally better returns but at what cost? How much in absolute terms? The quantum is so less, than it’s not worth the hassle.
Real Estate
“Real Estate is the best Investment!” – While that’s open to debate, let’s looking at the negative aspects and issues. First of all, real estate transactions are really complicated and as an investment it means you have to figure out a lot of things at every step of the transaction, else you might pay more than what it takes, every time if you don’t know the game.
There’s also no proper regulatory body in real estate, so things are unaccounted for, with no proper sound rules for the whole process. This means, every step has its own price depending on the city.
Another major issue with real estate is liquidity. You buy a flat, you spend 2-3 months on the whole deal and once things settle down, you live happily in it. But life takes a wrong turn, it can take several months to find a prospective buyer for your asset at the price you want.
It may be frustrating to see prices move down and no body ready to buy at your price, in which case you have to settle for less. You might have to compromise for a really low ball offer too, if you need money urgently for some emergency need, unlike fixed deposits, mutual funds and other products. (Returns from Real Estate)
PPF
PPF is considered to be the most secure and best debt product. However, putting money in PPF for 20 yrs can be just as idiotic as anything else. At the end, you are not getting more than 8% on your money, so only invest as much as is good & needed your asset allocation.
For a young starter his/her debt component is generally taken care of, by the EPF in the company. It makes no sense to put another 70k every year in PPF. It will just increase their debt percentage share in their portfolio to no good end.
Use PPF to build some debt component (Read a tip), but it’s not always prudent to put the whole 70K every year religiously. At the end, its not going to fight inflation very well. Want to open a PPF account at SBI , read here
Endowment/Money back Plans
They are totally secure products.., true, however the returns you get on your Endowment/Money back plans are pathetic . The worst part of these plans are that they trap you like anything.
Ask some one who has bought them recently, paid a couple of premiums and now wants to get out. The products are designed in a way that err, discourage you to move out of. If you do, you get a very small sum in return.
You cant beat inflation with these products, as the returns for all type of plans range from 3-6%, at the most 7% once in a while, depending on the bonus (and probably the phase of the moon :)) Don’t let the trust factor influence your thinking so much, it makes your financial life miserable.
ULIPs/ULPPs
Nothing wrong with the concept, but the costing of the product is such, that they are highly prone to mis-selling (and they have been mis-sold/mis-bought heavily.) You make some profit in a ULIP, but get out soon & the cost of the product will be very high. They are complicated products and 99% people don’t use ULIPs the way they should be (switching is not used by most people) .
A 3 year lock in period is often taken as “I can sell after 5 yrs and I will get 100% of my money”, which is not true. 5 years is just lock in, from a taxation point of view. If you sell the ULIP before 5 years, first you have to pay surrender charges and the the money you receive, will become taxable in the year of receipt.
Watch this video of Term plan vs Endowment plan vs ULIPS:
Direct Equity
The biggest problem with direct equity is that a very small number of people can do it right. Most of the people just feel they’re alright, till they get really screwed big time. Direct equity demands too much attention at times.
Also depending on your time frame, it can be addictive! And when you can’t control yourself, it can ruin your portfolio and wipe out your savings.
Gold
Too much confidence from investors. At the end of many years gold should be giving around 8-9%, a little more than inflation, but in this new generation, gold has done so beautifully that it might outperform earlier returns and end up giving 10-12%. Fingers still crossed though. Read a study on gold
SIP
SIP is sometimes seen as the ultimate solution for generating good returns, but SIP can give lesser returns in growing markets, so for people who have that ability to sense the movements in markets, SIP will prove to be wrong thing to do. These kind of investors can take a call on direct investment.
SIP is good for investors who does not have much idea about how markets functions but want to invest in equities without worrying about movements in the markets. So the best learning is, don’t start SIP after a bear market !
Diversification
You should always diversify your investments. Whats the problem with that? The main problem is that this is not true for a person who understands the ins and outs of an asset class and has all the time to closely look at his investments.
In that case, diversification will prove to be very costly. I know people who have 96% in Equity and they are doing wonderfully well, because they are masters of the subject and closely follow what’s happening to their money. So diversification is not the ultimate solution.
As Warren Buffet says, diversification is for one who does not understand what he is doing, which actually means that a person does not have much knowledge about an asset class to exploit it’s full potential. Most people fall in this category and for all those, it would make sense to diversify in Equity, Debt, Gold and Real estate etc.
I don’t see much negative in Health Insurance, other than the dilemma customers have, in choosing the right products for themselves. There are many things which a customer should look into a health insurance product which would suit him, but because of plethora of products & options, customers are confused and end up taking the inappropriate policies.
See 17 most asked questions and answers in Health Insurance here.
While we should cover ourself with health insurance, the best health insurance is good health by eating well and doing exercise everyday, read this ebook for more .
Saving Account
Though there is nothing called as “investing” in Savings accounts, maximum number of investors keep their money in their savings account unintentionally over and above their emergency needs and it’s like loosing your money to inflation , prices are rising at rate of 8-10% and your money is rising at 3.5% or even less. So in a way your money is depleting over time .
Fixed Deposits
While fixed deposits are excellent and easy short-term investment option, it leaves your money handicapped when you invest in it for very long duration like 10-20 yrs and many investors actually do it especially in smaller cities and towns , for them its the only investment option .
Though the number goes up in your bank account , the purchasing power remains at the same point or at worst decreases sometimes due to inflation and taxes overtime. So use Fixes deposits for short-term investments not very long-term.
Portfolio Management Services (PMS)
The biggest problem with PMS is that there are rare PMS which can be called good. PMS is also managed just like Mutual funds where some person or team takes the decision of buying and selling , the only difference is that its meant for HNI’s, who have minimum investments of 5-10 lacs.
There are high costs involved and most of the people fall in trap thinking that it’s some premium product which would deliver better returns . However there has been cases where PMS delivered great returns, in most of the cases they turn out to be a hype.
Most of the big companies in financial services run PMS schemes which do not have that strong performance or are half-baked . Read a review of ShareKhan PMS.
Comments ? Do you think I have left anything or any product ? Which was your favorite one ?
We love Diwali—with its wonderful feeling of a fresh new start. And, it came just in the nick of time. A lot of people always want to know the best investments they can make? This Diwali, we want to share one of the greatest investment tip with you. If there is one single investment with the potentially highest payout, we would argue that it is maintaining a healthy body. All too often in the pursuit of financial health, we forget that we also need to invest in caring for our physical health.
We don’t stop playing because we grow old; we grow old because we stop playing.”
Everybody is running around the best 4 star, 5 star rated mutual funds, stock or the cheapest term plan or any killer tip which will make them wealthy. However we often forget more important things in our life like Education , good values and great health which is more critical part of our life , Health is our True wealth and today we want to share an e-book which will help you understand how you can make your life more simpler and healthy using some basic suggestions made in the book.
If you want to invest this Diwali, the best thing I would recommend is to invest some hours of your time to read this valuable ebbok (atleast go through the content page and you will love it) , and your will reap the benefit all your life.
Thanking you all to be part of this awesome community 🙂 . Happy Diwali to you all
Last month we launched Questions Forum, which is a place where you can ask your personal finance doubts . There were some prizes which I am going to announce today . JagoInvestor Forum is a place where anyone can ask a personal finance question and get its answer within 24 hours from experts present there .
So if you have any doubts on your Insurance policy , Banking, Mutual-funds, stock market , tax related or any kind of money related query , feel free to ask it . JagoInvestor Forum has got great response in this last 1 month with more than 250 people asking 300 questions and with 1200 answers overall .
First Prize : The winner is Mr. Gopal Krishan Doda. He has been a great help in providing good answers and has answered more than 150 times. He wins a free one year subscription toMProfita desktop portfolio management software worth Rs. 1488.
Second Prize : The second Prize goes to Mr Naveen Arichwal for asking maximum questions. He wins the book on retirement Planning named “Retire Rich Invest” or any other book of choice .
Bonus Prizes : Jagadees and Rakesh (rakeshnwo ) , they also win the book “Retire Rich Invest” , or another book of their choice . They have also contributed well in answering the questions of others . Good job .
Free-Stuff to all Members of the Forum
As promised I also sent some free stuff to all the registered members of the forum. Here is the list of things I sent to them.
HouseHold Budget Spreadsheet to maintain your holdhold budget and see basic analysis
A research report on a Mid-cap Stock (Not made by me)
Do you want these free stuff ? I am planning to mail this to all the members who are subscribed to this blog in coming week , so if you are not yet registered on the blog you can register by putting your name and email on the subscription form on the right side sidebar or Click Here to directly go to the Subscribe Form
Note : Make sure you click on the subscription Link you get in your email after you fill in the information , Its required step to get subscribed
Win Prizes every month
You can now win every month! , You you heard it right . There will be total of 2 prizes every month from now onwards. Just ask a question on the forum for any personal finance related doubts and the question which gets the maximum number of comments will win the first prize. So make sure you ask an interesting questions which is of everybody’s interst and make the question very clear. Apart from this first prize , there will be a second prize for a member who will give the maximum number of good answers and helped other to solve their queries . I will choose the winner based on every month data . So every-month you can win prizes by asking your questions . Let me know how do you like this concept.
First Prize : The person who asks a question and gets the maximum number of comments wins a free one year subscription to MProfit– a desktop portfolio management software worth Rs. 1488.
Second Prize : The second prize would be the person who gives the maximum good answers and helps others in clearing their doubts . He wins a personalised Tshirt or a book of his choice worth Rs 500 .
I would like to hear back the feedback of readers on the forum , Is it useful ? What changes are required to make it a better community ?
Winners Please contact me for claiming the Prize 🙂
Are investors in India spoiled a lot? Does it look like we have enough regulations for the investor to make sure his money is safe or do you think that laws still need to be made to make investing a happy experience?
The stock market looks robust and we haven’t seen a major scam for quite sometime now; IRDA and SEBI have and are still sorting out the ULIP mess; SEBI has made Mutual Funds cheap – is there more the investor wants?
Sure they do – there is always room for improvement at the top! To assist the regulators, the investor needs to increase his awareness too. Here are my top 3 wish lists for the small investor in the personal finance space which will make investing a memorable experience for him.
#1 Introduce Stringent Real Estate Regulations
A home is often the most prized possession for the small investor today. But often he finds himself at the receiving end of the deal. The modus operandi is the agent or builder will sweet talk you into booking an apartment after you have shown interest in the project.
Once you shell out the booking amount, you are locked in with the builder and the project you bought into. Future demands of money come in; you pay up through a home loan and the builder delays the apartment delivery, in many instances routing your money to launch other projects. A home is the biggest asset the small investor buys in his lifetime( Also see Tips to Buy house).
Paying the home loan is a huge burden to begin with.
Given this, it is but anybody’s guess what a nightmare he goes through when the real estate builders delay the projects by years – the investor has to pay the rent and pre-EMI together. That is a huge drain on his finances.
The regulators ought to come out with a mechanism to stem this rot. Builders need to be rated and penalized for late or shoddy delivery. There needs to be a mechanism in place to penalize builders who cannot deliver the most prized and costly possession for the investor.
CRISIL has already come out with its Real Estate Star Ratings in August 2010 – we will have to wait to whether this helps the real estate industry in a positive way or it becomes just another rating mechanism without serving any useful purpose for the buyers. Till that happens, the investor has to suffer and fight the battle himself.
#2 Sell Insurance to protect against risks, Don’t just make commissions
The old adage “Insurance is never bought, it is sold” holds true even today. Seldom does one buy insurance for protection purposes; it has been mostly sold as an investment vehicle. And whenever a product is sold, it is commissions that drive the sale, not the investor’s profits.
Call it the insurance agent’s smart tactics or the gullible investor’s ignorance, insurance, and especially ULIPs, continues to be mis-sold. This seems to be the most talked about topic in every personal finance corridor. There are regulations to stem the dirt from spreading and there are investor awareness programs out there; the regulators fight and introduce more regulations but at the end of the day, the investor continues to still suffer.
Given the history around this, I think no amount of regulation can eradicate this illness. The only answer is investor awareness. If the investor empowers himself with what is best for him, he will buy the best insurance and probably look at money back, endowment plans and ULIPs the last!
We need to get to a state where insurance is sold only for what it’s meant to be bought for – protection!
#3 Educate themselves about Equity, Don’t just have a short-term view
It’s a very old saying – “It’s not timing the market that matters, its time in the market that matters most”. Equity is meant for the long-term but most investors buy and sell equity to make profit in the short-term.
The investor’s lure is milked high and dry by brokerage houses that earn on brokerage charges which investors generate for them by buying and selling securities.
All brokerage houses will bombard you with SMSes and calls about a hot stock tip, in fact, we recently had the same brokerage house giving a buy and sell signal on the same stock on the same day, one to institutional investors and the other to retail investors.
More churning and constant buying and selling never made anyone rich except the broker. Look at what the Executive Director and COO of Pramerica Asset Managers was quoted in Money Today as saying.
Active and passive trading:
It has been proved that the amount of money that one could generate by active trading is usually less than the amount you could generate by passive investing over a long period of time.
Despite this, most of us still lose money by trading; brokerage houses still walk away with our hard-earned money and we keep thinking “How did the guy next door get rich quickly ?!”
IPO’s are issued using the book building process with the idea that the price discovery will happen by buyers but it’s anything but that. Investors still lose money in IPOs. It’s not just insurance that is mis-sold, its equities too !
As a nation bursting at it seems with a young population, the regulators, investors and product sellers need to make sure that investors can have the confidence in investing in products that suit their over all portfolio – its only then that we can pass on the baton of confident investing to the next generation.
This is the 3rd series of learning from comments ,where I handpick some of the best comments which gives some very good insight and useful information. Following four comments talk about Gold ETF’s , Education about finances to Children , Real estate prices relation to supply of land and KYC .
Gold ETF’s might not be safe
There are serious allegations on various gold etf’s & custodians like GOLD across the globe of using very high leverage for gold holdings. I was going through the fact sheet of SBI GETS & UTI GOLD FUND. Susprisingly all indian ETF are using Bank of Nova Scotia as the custodian for Gold. If you just try to find out the repute of this custodian in financial blogosphere by typing ‘Bank of Nova Scotia is the custodian for Gold’ in google search, you will get to know the kinds of risks involved in GOLD ETF’s – mainly technical risk (its a technical default if gold is not held in reality). So as they say Let the buyer beware. Since most indian families usually keep atleast one locker, i would suggest its better to buy physical 100gms /coins from a reputed jeweller with bill. Its also more easy at the time of selling if bought frm a jeweller than buying coins frm bank also its costs less. – Shared by Rahul .
Money should be discussed with Children
You are right Manish as everybody must teach the children about money but the biggest dilemma people face is how they will be treated back if they start talking about money. Our society treat Money as necessary evil with more stress on the evil so 9 out of 10 times a person is feared to be called Money minded or Kanjoos if they just try to stick to a discipline of Budget within their family. So many parents just avoid asking their kids how they spend money for the sake of their image. We have always thought money as a bad thing which must not be discussed (Mard se uski kamaai aur aurat se Umar nahin Poochte 🙂 ). In our films Rich has always been a villain but things have to be changed. I still wonder that rather than showing hero taking a loan from money lender and then becoming a Daku for revenge, why dont our films show that taking a loan to spend lavishly on your daughters wedding beyond your means is bad thing and the best solution to keep lala away. Secondly we always think that kids are not mature enough to talk about sex and money. (Often not knowing how smart they are 🙂 ). We must respect their senses and impart knowledge to them gradually. If you dont teach your kid about these things he will seek Pornography and Financial Pornography is much more dangerous. Can we compare “double your money schemes in one year” with Pr*******tes in the world of finance. So every parent has to cross these mental blocks and take up this duty to empower their kids to face the real world. – Shared by Pramod
Is Short supply of Land responsible for High Real estate prices
Who says land is in short supply in India ? It is kept in short supply in India by the builder politician nexus. Have you ever tried to look at Delhi’s satellite image from Google maps. Mind you 50 % of the land within boundaries of NCR is vacant. The mechanism is – You (Farmers or forest or something else) have land. You want to build a house over that land. Govt will not allow you and will force you to buy some expensive piece of land in an “approved” area. Once all the land is sold then the same land where you or any other ordinary citizen was not allowed to build houses (becuase the land was meant for farming, forest, green belt Archeology blah blah blah) will be captured (acquired) by the govt and will be given to builders by changing status of the land use. Then you will buy the plot at sky high price and new land will freed once all the plots are sold and the cycle goes on. If govt declares its master plan at once and free all the land which is marked for residential use in one go then there will be no shortage and no high prices. BTW All of the population lives on 30% of the land. Rest 70 % is covered by ice, deserts, high mountains etc. Just wait Global warming will ensure that if 10% of the world sinks in water 20 % will become available to mankind as ice shields will go away 🙂 Wait till Unitech starts buying Norway and Siberia. – Shared by Pramod
How to Check if you are you KYC compliant
For those who are not sure if they are KYC compliant can check the http://www.cvlindia.com/. Click on ‘enquiry on kyc’ option (Direct URL) and enter the pan card number. Invalid data means the person is not KYS compliant. Shared by Raj Panda .
From the Budget, infrastructure bonds are also eligible for additional tax exemption upto Rs 20,000 over and above Rs 1 lakh under Section 80C. IFCI Ltd was the first company to issue these infrastructure bonds and they have collected a substantial amount in the last few months. Now, IDFC Ltd has introduced its infrastructure bonds and there are a lot of investors, who are considering these bonds as an option to save additional tax for this year. Rajendran and Prashant have also asked the questions related to Infrastructure bonds some days ago on Jagoinvestor Forum. In this article, I give you brief information on IDFC Infrastructure Bonds.
The maturity period of these bonds is 10 years and the lock-in period is five years. These bonds will be listed on the Bombay Stock Exchange and National Stock Exchange. After completion of five years, you can keep these bonds for additional five years and withdraw money at the time of maturity. In case, if you need to withdraw money before maturity, then you always have an option to sell these bonds on stock exchanges. Thus, these bonds can be traded like stocks on the stock exchanges but only after the lock in period of five years is complete. You would require a demat account and Permanent Account Number (PAN) to invest in these infrastructure bonds. The face value of each bond is Rs 5,000. The minimum application has to be for two bonds and in multiples of one bond thereafter. Hence, the minimum investment required is Rs 10,000. You can invest more than Rs 20,000 in these bonds but the tax-exemption would be only upto Rs 20,000.
Taxation on Infrastructure Bonds
You will get tax exemption benefit up to Rs20,000 when you invest in these bonds. However, the interest gained will be taxable. The interest would be added to your income and taxed at the existing slab rate. this taxation rule will be same even after Direct Taxes Code (DTC) Bill comes into effect. Both, the current Income Tax Law and DTC require you to pay tax on the interest earned.
Infrastructure Bonds in different series
Note that these bonds come in 4 different flavors and they are called as Series 1, 2, 3, 4 . Each of these series is different from each other in some way. There are two main things you should understand , which might be of concern to you.
Interest Cumulative : Series 1 & 3 do not provide cumulative interest. They will pay interest annually. For example, if you invest Rs 10,000, then after completion of 12 months, the interest amount will be paid to you every year and the bonds maturity value would be same as your investment. However, bonds which have cumulative interest will keep accumulating interest. And this interest would be compounded every year. (see CAGR)
Buyback : Series 3 & 4 have buyback option. Buyback option means that you can sell your bond back to issuing company after five years; once the lock in period is complete. In return, you will get back your original invested amount and the interest accumulated for five years. You would notice that interest rates for series 3 & 4 is 7.5%, which is because they have an added advantage of buyback facility. If you don’t want buyback option, you will get 8% interest. People not opting for buy-back options will depend on secondary markets to sell their bonds if they require money urgently before maturity (10 years). Thus, after lock-in period (five years) is complete, they will have to find a buyer in secondary markets else wait till maturity, when they will get the money back from IDFC.
Other features of IDFC Infrastructure Bonds
NRI’s cant invest in these bonds (Only available to Resident Individuals and HUF’s)
The bonds don’t attract any TDS
The bonds are rated LAAA by ICRA, However high rating is not something you should be very excited about. (Link)
The interest accrued on the bonds will be credited to the respective bank registered with the demat account through ECS on the due date for interest payment
Interest on the bonds shall be payable on annual or cumulative basis depending on the series selected by the bond holders
The bonds can be pledged for availing loans after the lock-in period of 5 years
Subscribe to the Bonds in physical form
If you do not have demat account and want to apply for these bonds in physical form , you can still apply for them using these steps (link) , Thanks to Srinidhi for giving this info .
Don’t fill up the demat details in the application form
Compulsorily provide the following three documents with the application form:
Self-attested copy of the PAN card;
Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.
Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:
Ration card issued by the Government of India; or
Valid driving license issued by any transport authority of the Republic of India; or
Electricity bill (not older than 3 months); or
Landline telephone bill (not older than 3 months); or
Valid passport issued by the Government of India; or
Voter’s Identity Card issued by the Government of India; or
Passbook or latest bank statement issued by a bank operating in India; or
Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or
Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.
Should you Invest ?
Though, it’s mentioned that the interest rate on these bonds are 8% or 7.5%, the interest earned would reduce further to 5.5%-6% range when you count the tax paid on interest. But if you look at it from a different angle, and count your money saved due to the tax-exemption at the time of investing, in that case the return would turn out to be around 9.5%-10%, but do you think it’s the right way of looking at returns?
What do you think about these bonds ? Are you investing or not and why ?
We had Mumbai and Ahmedabad meets in last month and I am sharing Presentations and Pictures of those meets . We have done around 5-6 meets in total in Pune , Mumbai and Ahmedabad as of now and we are looking forward to do more in coming months with more better structure and more enthusiasm .
Mumbai 3rd Meet Presentation
Ahmedabad 2nd Meet
Give your opinion on these meets and presentations . Readers from Mumbai/Ahmedabad are invited to Join our Facebook group and also attend future meets. We will try to do the next session by this month end or the next month end depending on how much we can do it with everyone support. We would like to hear your suggestion about the meets in cities and what you all are looking for these meets which we do face to face. Should it be more on basic level or at advanced level ? What topics should be cover in coming sessions . We would do Bangalore session soon .
How does claim settlement work in case you have more than one term insurance policy? Does term insurance provide cover outside India? What if I suffer from some major illness or start smoking after buying a term insurance policy? How easy is it to get a claim from a private insurance company as compared to the state-owned Life Insurance Corporation of India (LIC)?
I am sure you must be concerned about all these questions if you have a term insurance policy or planning to buy one.
Today, I will answer some of the most asked questions, which an individual has in his mind, about term insurance. These questions if left unanswered would not only lead to fear, but may also delay one from taking the right decision.
Please note: The following questions and answers are only for term insurance policy and are generally true for any company’s term plan. However, very rarely these questions and answers may differ across insurers.
1. Do Term Insurance pay in case of Accidental Death?
Yes, term insurance pays in case of an accidental death. The sum assured or cover taken under the term plan will pay the claim if the death has occurred due to any reason, be it natural or accidental death, or death due to some illness.
There are certain riders (additional benefits) such as accidental death benefit, permanent disability rider and critical illness rider. By buying/adding these riders to the policy, a policyholder can ensure that his nominee will get an amount over and above the basic sum assured (due to any of the rider-related incidents).
2. Does Life Insurance covers death outside India?
Yes, term plans cover death outside India provided the policyholder has updated this fact with the insurance company. He needs to mention that he now lives outside India. Just like change of phone number, address or nominee, there is a facility in the policy service form where the policyholder has to mention that he is going abroad.
However, if he is going to a country that is marked as unsafe like Pakistan, Burma, Somalia etc., then the company will decline this facility. Otherwise, this cover will be valid in other countries like US or UK.
3. To what extent Pvt Insurance companies investigates death compared to LIC?
There is a difference between early claim and normal claim. If a claim arises within the first two years of buying the policy (This period varies from company to company), the company investigates extensively before settling the claim.
You can very well understand if someone has a cover of Rs.50 lakh by paying Rs.7,000 annually (And he has taken this policy on monthly basis, i.e. paying around Rs.600 monthly), then the company is at a great risk. Hence, the company will doubly check everything to settle the claim.
In normal claim, premiums are paid regularly and the policy is in force for a long period, say 12 to 15 years. In these cases, there are not much issues in getting a claim, be it LIC or any private company.
4. If I buy a term insurance policy today, can its premium change in the future?
Unless and otherwise it’s mentioned in the policy document. Premium of a term insurance remains the same throughout the term of the policy provided everything remains the same with the policyholder. That is, the policyholder has not developed any illness or any smoking/drinking habit.
On declaring any such thing, company might apply loading and thus the premium amount changes.
5. What if a person becomes a smoker after some years of taking the policies?
If the policyholder has developed any habit, like drinking or smoking, after buying the policy, he generally does not have to disclose this fact to the company at all, unless it’s clearly mentioned in the policy document
6. What if a person was a smoker long back but not at the time of taking the policy?
Depends on the policy, but just for example, the Kotak Life Insurance proposal form mentions that the client has to declare whether he was a smoker or drinker earlier also even if he has left that habit long ago. Please see page 4, question 10.3 of this document . However, I am not sure about other companies. Also, it depends on the company whom they consider as a non-smoker at the time of issuing a policy.
For example: Max New York Life Insurance, for its Platinum Protect (term insurance), considers people, who have left smoking more than three years ago, as non-smokers. So please check the company’s rule 🙂
7. What kind of deaths are not covered in term insurance?
Some important facts, which most of the people are unaware of, are that most companies exclude “Death due to Terrorist Attack”. Although such claims are settled on humanitarian grounds later on when the nominee approaches Insurance Regulatory and Development Authority (IRDA) but such exclusion is there in most companies.
Other important fact, which public at large is unaware of, is that insurance companies do not cover death due to war or natural disaster like earthquake/tsunami. Because in these cases, death toll is high and the claim to be settled runs in crores of rupees which is difficult to settle by the company all of a sudden.
8. How to take care of claim settlement in case of more than two policies?
The very first thing, in these cases, is to declare in the proposal form that you already have a policy from an XYZ company. (There is a column in every company’s proposal form, which a client has to fill if he has an insurance policy from the same company or any other company).
Once such information is provided, then at the time of claim, the usual practice is to submit the Death Certificate to the insurance company with whom the policy is running for the longest period. Other companies are then informed of the procedure due and an acknowledgment from the FIRST Company is provided to them which are accepted by other companies.
Moreover, of late, it has been reported that generally insurance companies do not ask for an original death certificate to settle the claims, even a photocopy of the certificate will do. So be alert while filling the form and provide all the information about your previous policies to prevent even a minor problem later on.
9. Can NRI’s buy Term Insurance?
They can, but there is a catch. As a general rule, a person has to be resident in India to take up insurance policy from an Indian Company, reason being the documents required by the company like Address proof/age proof are to be for some place in India.
Moreover, if the Sum assured required is more than 50 lakhs or so, customer is required to submit his financial papers such as last 3 years ITR or Form-16 which again should be done in India only. Last thing, medical tests would be done at some medical center affiliated to the insurance company near the address of the client which again should be in India.
So these are reason why insurance might have been declined to some NRI.
So one way which might work is this , If a NRI wants to take Insurance, then on his/her next visit to India he should submit his proof of residence, age, last 3 years ITR etc. and get his medical done at his Indian address. This way he can get his policy issued very easily.
However, there is no need to complicate it and in-case you are out in some country and plan to be there for next couple of years, the best thing would be to take term insurance from your country of residence and later when you come back to India, you can buy term insurance that time.
Watch this video to know some more FAQ’s about term plan:
Comments Do you have any other doubts in Term Insurance which are not covered here? Which one out of the above 9 did surprise you most?
The inputs are provided by Dhawal Sharma, who is an agent for Kotak and Max Bupa.
