Category: Knowledge and Concepts

Budget 2015 : 16 things which every investor should be aware about

Posted on by Jagoinvestor

When budget speech was over, the first thing I did, was that I created a poll asking people, if you are happy or disappointed with the overall budget. I was sure that most of the people will vote for “Disappointed” and that’s exactly what happened. Around 192 people voted for it and around 65% people said they were disappointed.

budget 2015 highlights

While, I agree that the budget didn’t offer too many benefits to common man, as they had expected, but the budget 2015 has a lot of things to offer and it’s worthwhile to look at things a little deeper. So what I am going to do is list down all the major changes for you below and explain them

1. No changes in Tax Exemption Limit or 80C limit

One of the big blow for most of the people in India was that there were no changes in the income tax exemption limits and 80C limit. At the moment, there is no income tax to be paid if taxable income is upto Rs 2.5 lacs in a year. Most of the salaried class people were expecting some relief in this area and were expecting that the limit should be changed.

However, they were disappointed heavily, when there was no change. Mr. Arun Jaitley himself had demanded raising the limits from 2 lacs to 5 lacs sometime in 2014 when BJP was not in power, but now when he is finance minister himself, he didn’t do what he “expected” from others.

income tax exemption limit budget 2015

2. Health Insurance limit increased from Rs 15,000 to Rs 25,000 per year

A big change in this budget was increase in health insurance exemption limit from Rs 15,000 per year to Rs 25,000 per year. In the same manner, for senior citizens – its raised from Rs 20,000 to Rs 30,000. This is really a good move because health insurance premiums can go up to Rs 25,000 per year in case one is paying the premium for self, spouse and children. This will encourage more and more people to buy health insurance.

So if you are paying yours and senior citizen parents health insurance premium, you can avail a maximum of Rs 55,000 under sec 80D. It’s a good time to head over to this website and leave your details if you are interesting in buying health insurance.

One more announcement was made that those senior citizens who are above 80 years in age, and are not covered by any health insurance, they can avail a deduction of Rs 30,000 towards expenditure on medical treatment.

3. No tax on Interest under Sukanya samriddhi account

When few months back Sukanya Samriddhi account was launched, that time the interest was taxable and investors complained how PPF is better than this scheme, but Arun Jaitley clarified that there won’t be any income tax on the interest part also, which makes this scheme better compared to its earliar version. However its still debatable if its good or bad compared to other alternatives like PPF or mutual funds in a long run.

4. Transport Allowance Limit increased from Rs 800 to Rs. 1600 per month

Another good thing about budget was that the transport allowance was raised from Rs 800 to Rs 1,600 per month. Transport allowance is not taxable at all.means now out of your overall income, total Rs 19,200 will be deducted

That means whatever income you earn, Rs 19,200 will be deducted on the name of transport allowance (Rs 1600 X 12) and you need to pay tax only on the balance amount, subject to other exemptions and benefits. While it’s doubled from Rs 800 to Rs 1,600, still Its not very high amount, especially for big cities where the transportation expenses are very high.

5. TDS introduced for Recurring Deposits Interest

You might not have heard this in the budget speech, but now the TDS will be cut even for the recurring deposits. Till now for so many years, TDS was deducted only in case of fixed deposit, and not in case of recurring deposits. But now this has changed. While it’s not a big issue, but anyways you need to pay the tax on recurring deposit interest earned, even if TDS is not deducted. An amendment will happen in the definition of “Term/Time Deposit” under sec 194A and recurring deposits will come under TDS.

6. Service Tax Rate Increased from 12.36% to 14%

This was a big blow for common man. The service tax rate was increased to 14% from earliar rate of 12.36%. That means whichever services you avail, you will be paying the additional 1.64% in service tax. In case of restaurants, you will be paying 0.656% more every time (restaurants are required to charge service tax only on 40% part of the bill) . So if your restaurant bill was Rs 1,000, you earlier paid Rs 49.4 as service tax, but now you will pay Rs 56 , which is Rs 6.6 more.

7. Wealth Tax act abolished and replaced with 2% surcharge for super rich

Wealth tax is now abolished. Wealth tax is the tax one used to pay for certain kind of assets worth Rs 30 lacs. The wealth tax didn’t bring a lot of wealth for govt and hence they have simplified the whole thing by removing it. Instead of it, they have introduced a 2% surcharge on the those who earn more than Rs 1 crore a year. This new move will bring in around Rs 9,000 crore in govt kitty!

What I loved about whole removal of wealth tax is that CA students were very happy about this as their syllabus is now simplified :), here is one tweet which confirms that!

wealth tax abolished

 

8. Tax-free infrastructure bonds worth Rs 20,000 crore to be introduced

Tax-Free Infrastructure bonds are back. Keeping the focus on the infrastructure development, especially for railways and roads, the finance minister announced that the bonds worth Rs 20,000 crores will be introduced. The interest on these bonds will tax-free and the maturity will be after the long term tenure of 10-15 yrs.

9. PAN Mandatory for all Transactions above Rs. 1 Lakh

Now, if there is a transaction of more than Rs 1 lac, it would be mandatory to quote the PAN Card. For example, if you are paying Rs 4 lacs for buying a car, you will have to quote your PAN number for sure. This requirement of furnishing PAN is for both purchase and sale transactions. Finance minister also mentioned that tax authorities are also making provisions to check “splitting of reportable transactions” , which means that if someone tries to split the transactions only for the sole reason of avoidance of mentioning PAN, then it would be detected.

Suppose you want to make a transaction of Rs 4 lacs into gold through your debit card, but if you make 5 payments of Rs 80,000 to avoid mentioning PAN, then there will be some mechanism to detect this and you will have to explain it to tax authorities if there is any enquiry.

The Finance Bill also includes a proposal to amend the Income-tax Act to prohibit acceptance or payment of an advance of `Rs 20,000 or more in cash for purchase of immovable property’.

10. FM to Reduce Corporate tax rate from 30 to 25% over next 4 years.

This is not directly related to common man, but its important to mention it here. Just like salaried people pay tax, even corporates (companies and firms) also pay tax and the rate was 30% till now. That will be reduced to 25% over the next 4 yrs. This is really big thing, because a lot of tax is earned by govt from big and small companies and it was a bold move to reduce the taxation rates for corporates.

11. Choice between EPF and NPS

Now employees will get an option between EPF and NPS, but this option will be available to only those employees whose monthly income is upto a limit, which is not yet shared. However the good part is that employer will still have to contribute their share into EPF, only the employee share will either be invested in NPS or EPF.

Both EPS and NPS are retirement tools by govt and I personally think that over the years, govt should keep only NPS and abolish EPF, so that the whole system is more simplified.

12. Upto 10 Year imprisonment for concealment of Income or Assets abroad

Do you have any property or income abroad ? If Yes – please understand that you need to mention and declare it in your income tax return in India. Otherwise it amounts of black money and as per this budget you can be jailed for upto 10 yrs if found guilty. So if some Indian who has or does not have income of India or not, is getting any income outside India and has any assets outside, they have to file the tax returns for it without fail. If govt finds out that you didnt follow this rule, even your assets in India might be siezed in India.

Not just that, even you will have to pay a penalty of upto 300% . Read this article which explains things in a bit more detail.

13. NPS limit raised from 1 lac to 1.5 lacs 

The limit of NPS has been increased from 1 lac per year to 1.5 lacs. NPS is a retirement benefit investment product by govt were you can invest and create your retirement corpus.

14. Pay Rs 12 a year and get 2 lacs accidental insurance

Focusing on poors who do not have any access to insurance products, it was announced that a special scheme with name “Pradhan Mantri Suraksha Bima Yojana” will be launched soon and will be connected to Pradhan Mantri Jan Dhan Yojana . By paying Rs 12/year , one would be eligible for getting accidental cover of Rs 2 lacs.

The exact details on this are yet to come and it would be interesting to read the finer points on this scheme and how it works. Because this scheme will provide 1 lac of insurance for Rs 6 , however in market when you buy any standard accidental insurance, the premium per lac can range from Rs 100 to Rs 500. Lets see more on this when the scheme details come in future.

15. Pay Rs 330/year and get 2 lacs life insurance

Under ‘Pradhan Mantri Jeevan Jyoti Bima Yojana’ one would be entitled to a life insurance of Rs 2 lacs sum assured for a premium of Rs 330/year . This would cover natural and accidental death both and any person under age range of 18-50 will be eligible to buy this policy.

The good part of this scheme is that one would be able to buy a lower sum assured of Rs 2 lacs because for people in lower income range, even a sum of Rs 2 lacs ifs good enough and it would really help them in life, but the premium of Rs 330 is not very cheap, because that turns out of be Rs 165 per 1 lac of life insurance. However in market when you shop for any pure term plan , the premiums are very much in same range. For example when a 30 yr old person buys a 1 crore term plan, he/she pays around Rs 8,000 a year, thats Rs 80 for every 1 lac of sum assured.

Anyways, its a good scheme which can benefit poors. The details are yet to come and we are not sure of the fine prints as of now.

16. Gold Bonds to be launched other measures

A special kind of gold bonds will be launched very soon, which will be alternative of buying the physical gold in market. So if you want to invest in physical gold “only” for the prices appreciation, then you can instead buy these bonds whose prices will move as per market price only. This is really good because there were almost no option to invest in pure gold other than physical gold. And the good part is that this will be from govt :).

Another good thing announced was that there would be Gold Scheme’s where one can deposit their physical gold which are in forms of bricks and coins (anything other than jewelry) and earn interest on it. While this is not very much beneficial for a common man, as they mostly have their gold in jewelry format only. So big institutions, temples, and other charitable trusts would benefit from this scheme.

Apart from this, new gold coins will be minted which will be having India ashoka chakra on it, so it will be “Indian gold coins” which didn’t exist till now and one had to buy foreign gold coins.

So overall – How was the Budget ?

The only question, a common man is asking is “How was the budget ?” . I personally think it was a balanced budget overall. For a salaried person, they might not find too many things in this budget and budget surely disappointed them and then there are some things which are good also. Lets not get into debate of “good” or “bad” because one person opinion might be wrong for someone else. Its a personal judgement overall

So you tell me, how was the budget for “you” and how do you feel about it ? What are good and bad things you find in this budget ?

 

UAN – All you wanted to know about the new EPF system

Posted on by Jagoinvestor

EPFO has brought some major changes in the way it works and a new system called UAN (Unique Account Number) is in place now. This UAN is a way to simplifying the process of collecting and managing the provident fund money for employees.

Transfer EPF account online

Background – The pain of the old EPF system

Before I start explaining, Let me go back a bit to help you understand a bit of background. Earlier when a person joined a new job for the first time, he got an EPF account opened by the employer where his provident fund money was deposited. For years, this money got accumulated in that EPF account.

Now when this person left his job and joined some other organization, the new employer again assigned him a new EPF account and started depositing his provident fund money in that account.

This way, if a person changed his job 5 times, he had 5 different EPF account numbers and in case he wanted to withdraw his EPF money, he had to apply at 5 different employers or transfer then one by one to his latest EPF account and this called for a big headache

This way, if a person changed his job at 5 different places, he had 5 EPF accounts and now he had to either withdraw money from his EPF accounts one by one, or they have to transfer the old EPF money to new EPF account.

But that was a big pain!.

Transferring your old EPF money to new EPF meant filling up the forms, then EPFO department sent to your old employer to get their signatures and if they denied or didn’t exist at all (if they closed down), then things would fall apart and now you were stuck with no information, no proper status and no idea what you need to do.

Calling EPFO department or emailing them didn’t work most of the times, and a lot of people just let their old EPF account exist and didn’t do anything, because of the sheer amount of uncertainty and ambiguity. This whole system was raw, old and not friendly for the employees at all.

Things have changed now quite a bit after UAN has been introduced and most of the pain points have been addressed. Let me now share some critical points about UAN or Universal Account Number as it’s called.

What is UAN?

In simple words, UAN is a 12 digit single account number which will be linked to your provided fund money. Now you don’t need to worry about different EPF accounts and then transfer them when you join a new job. Now

each employer will just give you a member id, and all those member ids will be linked with the same UAN. Even the employee’s having EPF under private trusts will be assigned the UAN.

This is the new system and will be applicable now for your current and future employment. Any EPF account you had before this, sadly will not be handled in this system. You will have to manually deal with old EPF accounts, for anything new will now be under UAN. The image below clearly shows the situation now and then.

UAN-vs-EPF

3 Steps of obtaining and activating your UAN?

Below there are steps to be followed if you want to get your UAN and activate it.

Step 1 – Get the UAN from your Employer

The first step is to ask your employer for your UAN. EPFO department has already allotted most of the UAN (4.2 crores as the last count) and communicated it with employers. So most probably your employer must have shared your UAN number to you.

If your employer has not yet shared it with you. You can still validate if your UAN has been issued or not. For that, you need to follow the steps below

Then click on the “Check Status” button and it will show a message saying “UAN is activated” in case it’s already activated by EPFO department. Once you see that message, then check it with your employer. Below screenshot gives you an idea about how to do it.

check UAN allotment status

So like this, you can first verify if your UAN is allocated or not against your EPF. Also, note that UAN is to be allotted to only contributing members whose accounts are active. All the dormant/inactive account is going to get closed.

So if you have 3 EPF account, out of which 2 are old and dormant, please check the status using your current EPF account number which is active.

Step 2 – Activate the UAN

The next step is to activate your UAN. For that, you need to follow the steps below

  • https://uanmembers.epfoservices.in/uan_reg_form.php
  • Enter your UAN, mobile number and EPF account details
  • Get authorization PIN on your mobile
  • Submit PIN and activate your UAN
  • Then generate your login/password and registration is complete.

Activate UAN and Authorization PIN

Step 3 – Update your KYC details

After that, you should log in to UAN portal with your username and password and once you enter the portal, you will see many options like for downloading passbook, downloading UAN card, and editing your details. Apart from that, you will see an option to Edit your KYC Details.

UAN KYC update

Following are the documents which can be used for KYC. You need to upload a scanned copy of any one document

  • National Population Register
  • AADHAR Card
  • Permanent Account Number
  • Bank Account Number
  • Passport
  • Driving License
  • Election Card
  • Ration Card

Below you can see an example of how it looks when you choose PAN as an option.

KYC update UAN

Special Benefits of UAN

Let us now see some of the benefits of UAN compared to the old EPF system. Some changes in UAN were really required from last many years (even decades). Let’s see them one by one.

Benefit #1- Communication directly between employee and EPFO

The best thing about UAN is that now the communication can happen directly with EPFO and Employee. Earlier the employer was in between employee and EPFO for most of the things, especially for withdrawals and transfer of EPF.

Your employer had to sign the documents from their side, now this will not happen. The employer will now act like a depositor in your account and nothing else.

Benefit #2- UAN will remain same throughout the career

The best part is that Universal account number is going to be same throughout your whole career. Each time you change your job, all you need to do is provide your UAN to your new employer and he will tag the member id they create for you to that same UAN.

Note that your overall career moves will be recorded at one place because your UAN is nothing but a central database of all your employers and your past employment, but this will only be visible to the employee and no one else.

Benefit #3- Sms notifications when your Provident Fund is deposited

Now each month, when your employer deposits your provident fund money, you will directly get an SMS notification informing you about it. This is really great because now you know if your employer is actually depositing the money with EPFO or not.

This will be exactly like you get notifications from your bank when your account is credited with salary. This is especially nice because in past there have been cases where the employer didn’t deposit the EPF money for years and months and employee came to know about it much later and then they had to lose their hard earned money

Benefit #4- Update your KYC at one place

Now you just have one single window where you can update your address, mobile, email and other KYC details in case they change in future. A lot of issues happened in the earlier model where the same person had a different address and contact details with different employers and that created issues while withdrawal and transfers.

Benefit #5- Transfer of your Provident fund money automatically

Now the transfer of EPF is very simple. When you join a new job, you just need to furnish your UAN number to your employer and automatically within 1-2 months, your provident fund money will be transferred. In a way, it just has to get linked to your UAN

Benefit #6- Extremely friendly process for EPF withdrawal or Applying for Loan

This is still in process and can take up more than 6 months to a year, but once it’s complete, then the process for withdrawal and loan will be super fast and simple. You might not be aware that you can withdraw from your EPF for important events in life like marriage, buying a house, or medical emergency subject to some rules and restrictions.

Once UAN system is fully functional, you then just need to fill up a form and provide your fingerprint to a biometric reader and once things are matched, the amount will be transferred to your registered bank account within an hour.

This used to take months and years earlier. I am not sure if in reality, it would be as simple and fast, as they claim – but still, things are bound to get simple and fast.

Conclusion

Make sure your UAN is activated and you have uploaded the KYC document. If you have any other queries regarding UAN, please share it with us and we will try to find out the answer.

Sukanya Samriddhi Account with 80C benefits – Special scheme for girl child

Posted on by Jagoinvestor

You must have heard about “Beti Bachao Beti Padhao” initiative recently on television advertisements. As part of it, the government has recently announced a scheme called “SUKANYA SAMRIDDHI ACCOUNT”, which is mainly for saving money for the girl child.

This is a welcome move because a lot of investors will get some extra incentive to save in the name of their girl child once they are born from a long-term perspective. You can see the exact PDF containing all information.

Sukanya Samriddhi Account

Let me share with you all the benefits and features of this scheme in details.

What is Sukanya Samriddhi Account?

Sukanya Samriddhi Account (SSA) is an investment scheme which can be opened for a girl child. The scheme is specially designed for girls higher education or marriage needs and should be opened by her parents or legal guardian(in case parents are missing).

One can deposit a maximum of Rs 1,50,000 per financial year (Apr-Mar) and the yearly interest rate in this account is 9.1% compounded on a yearly basis. Note that this interest rate is not fixed and will be notified on a yearly basis or from time to time whenever applicable, very much like PPF.

The best part is that the investment in this account is exempted from income tax under sec 80C.

Amount of Deposit and Frequency

The minimum amount one has to deposit per year is Rs 1,000 and the maximum amount is Rs 1,50,000. There is no limit of the number of transactions in a year. When you open the account for the first time, you have to deposit a minimum of Rs 1,000 and above that any multiple of Rs 100 (like Rs 1200 or Rs 1400, but not Rs 1,450).

You also need to make sure that you do not skip your payments each year, otherwise a penalty of Rs. 50 will be levied for each year of non-contribution. At this point in time, it’s not clear if NRI can invest in these schemes or not. I don’t see any wording in the official document published by govt. If someone has clarity on that, please share it in the comments section.

This account can be opened before the girl attains 10 yr of age. So the moment the girl child is born, you can open this account in her name or wait for some years and open it later, but once the age of 10 is reached, one can’t open a new account for the girl child.

You can deposit the money in the account only for the 14 yr period, from the date of opening, so the best thing is to open the account early itself so that you get the maximum window of 14 yr to accumulate the money.

You will need following documents to open this Sukanya Samriddhi account. 

  • Birth certificate of the girl child
  • Address proof
  • Identity proof

One can open only maximum of 1 account per girl child and in total only 2 accounts can be opened by parents for 2 girls (one for each), but in case the second birth has resulted in twins, then 3 accounts are allowed. You can’t open multiple accounts for the same child as you do in saving bank account.

Where can you open this account?

As per the notification, this account can be opened either in a Post Office or any public sector bank. You will get a passbook under this scheme which will have details of the account holder (daughter name) along with other information like date of opening etc like it happens in the case of PPF account. Also, the account can be transferred to any city in India later if you wish.

As this has been recently announced, I believe the banks and post office must be in the implementation mode right now and must be training their staff on this.

So if you immediately visit them to open an account, you might face problems as the staff might not be 100% clear of rules. So I suggest to wait for 2-3 months and let the whole thing settle down.

Maturity and Premature Withdrawal

Sukanya Samriddhi Account will get matured after 21 yrs from the date of opening the account or before the marriage of the girl, whichever is earlier. The good part is that if parents want to close the account before 21 years for marriage purpose, they have to give an affidavit that the girl has reached at least 18 yr of age so that one can’t use it for child marriage (before 18 yr).

One can also partially withdraw 50% of the balance amount after the girl reaches 18 years of age, for the educational purpose and rest has to be left in the account so that it can be used for the marriage purpose.

Sukanya Samriddhi account Rules

Also in the worst case, if there is the death of the girl child, the account will have to be closed and the money will be paid to the legal heirs (mostly parents). Apart from that, the account can still be closed much before in cases of extreme compassionate grounds such as medical support in life­ threatening diseases. death, etc.

There is no loan facility under this scheme.

How can you deposit the money under this scheme?

You can make the payment by Cash, Cheque or demand draft by going to the post office or the bank where you have opened the account.

Unlike PPF or Saving bank account, you can’t deposit the money online as of now, which will really discourage those investors who are too much into online transactions. However, I am sure this is not a cause of concern for people from smaller cities and villages who are the main target for this scheme.

Tax applicable on the money deposited and earned and maturity amount?

As of now, the taxation status of this scheme is ETE (Exempt, taxed, Exempt), which means money deposited is exempted from tax, interest earned is taxable, but the maturity amount is again exempted from tax.

This is exactly how tax-saving fixed deposits work, they also have ETE status. Some people will compare with PPF which is EEE (Exempt, Exempt, Exempt) and there is no tax to be paid in any case.

How much corpus you can accumulate by investing in Sukanya Samriddhi Account?

So how much money you can accumulate in this scheme if you try to get the maximum benefit from this scheme. Assuming you open the account the moment your girl child is born, you will have complete 21 yrs in hand, and if you invest the maximum permissible amount Rs.1,50,000 per year for 14 yrs (tenure allowed for investment).

It can accumulate to the approx amount of Rs 72 lacs after 21 yrs tenure. You will have approx 55 lacs, by the time the girl turns 18 years. So in a way this account can be meet your girl’s education and marriage expenses.

You can withdraw 45-50 lacs for education purpose and also have 25-30 lacs for marriage expenses (try to focus more on education expenses rather than marriage).

The below graph gives an approximate idea of how your corpus will grow in this scheme.

Sukanya Samriddhi Scheme Maturity amount
Should you open Sukanya Samriddhi Account for your daughter or not?

If you look at the features of this scheme, then you will realize that it’s very much close to PPF features, the lock-in period, interest rate, passbook facility, partial withdrawal, and taxation status.

So the real question is if it is better than PPF? Or Recurring deposit? In my opinion, overall it’s a good initiative by the government, the intention is pure and something very much required, but it still does not beat PPF as the product. I personally didn’t find any reason why I would prefer this scheme and not PPF?

However, when you look at this scheme, it’s much better than the traditional child policies and child plans (non-equity) from insurance companies. I would recommend this one over them.

How to open Sukanya Samriddhi Account – Real Experience

Thanks to Dr Dinesh Rohilla for sharing his real life experience of opening the SSA account. I am sharing his exact words and experience below

Quite surprised by the updated knowledge of post office staff in a small town like Pataudi regarding this scheme while the commercial banks in the area didn’t have any instructions regarding SSA neither there customer care helpline.

Anyway following is the procedure adapted by me :-

1) Downloaded form from internet along with gazette notification
2) Fill the form and deposit it along with –

  • Date of Birth Certificate of my daughter
  • My identity proof
  • Latest electricity bill for residence proof

Note:- I had pasted photo on form on which it is written that photo is optional but at post office they told me to give them two more photos. So be prepared.

3) Please check whether they had correctly written in pass book the name of the account holder (girl child) and the depositor (parent/guardian).

In my case they had written just depositor name ( girl child which is not correct way) and after bringing it to their notice they promptly corrected and said they write this way on all pass books but will be happy to know the correct method.

4) Please deposit original birth certificate .Postal staff told me that there is no need to deposit original certificate and photocopy will be sufficient. Being a Birth and Death registrar earlier I know that wherever required Birth/Death certificate should be original. You can take as many as certificates as you wish from authorities by paying fee .

5) On the day of opening account you cannot do other transaction as per staff but can open account with any amount.

Overall experience was very pleasant and efficient working of staff really made me happy .
Thanks India post.

S.K Morthy also confirms that many people have started opening this account in the head post office in Chennai .. See his message below

opening of Sukanya Samriddhi Account

Given the long-term nature of girls education and marriage goal, it’s important to beat the inflation and some part should be invested in equity component too. I would suggest SIP in mutual funds for some amount at least if not full.

For someone who is not willing to take any risk, this scheme is a good choice. Also, note that it’s a good idea to open this account if you are already exhausting your PPF limit and cant invest more on girls child name. Even though you will not be getting tax benefits, but you can still invest more money with help of this account.

Sukanya Samriddhi Scheme vs Other investment options

Also, one good point of this scheme is very much focused on girl’s education and marriage expenses and their future, so mentally it’s easy for investors to relate to it and keep their investment separate.

Below there is a comparison between Sukanya Samriddhi Account and PPF account (SSA vs PPF), along with recurring deposit – because you can open all 3 accounts for long-term and invest on a regular basis like on a per-month basis.

Sukanya Samriddhi Scheme comparision

I hope you are the best person to judge if this is better than other alternatives or not.

Please share your thoughts on this initiative and comment back.

6 facts to know before you apply for credit card in India

Posted on by Jagoinvestor

So you want to apply for credit card? That’s great, but are you well versed with the world of credit card? Do you know how does bank evaluate its potential credit card customers? Are you clear about your requirements and why are you so eager to get a credit card?

Most of the people do not spend much time to check which credit card is best for their requirement, but just grab the one that is offered to them for the first time. So today, I want to make sure I give you a sneak 360 view of the world of credit card and what all things one should be looking at before they apply for a credit card in India.

1. Your Income is important parameter for Credit Card Eligibility

When you fill in the application form while applying for a credit card, the lender asks you for various information like your age, city, take home income per month and type of your employment, which all is required to decide if you qualify for getting a credit card or not.

But out of those, your income is a very important parameter because that’s the main thing which determines your repayment capacity of your dues each month.

Someone earning Rs 50,000 per month is generally more eligible than someone who earns Rs 25,000 per month, because higher income is an indication that you will be able to pay your bills on time and on a consistent basis.

You income is also an important information for bank to set your credit limit at the time of issuing the credit card to you. You can see below a snapshot of HSBC credit card page and they have mentioned that the minimum annual income of a person has to be Rs 5,00,000 to apply for these credit cards.

income criteria for credit cards

So if you are earning good enough money, only then banks will be interested to give you a credit card. Make sure you do not apply for credit card just for the sake of it without a minimum threshold income. Also, note that you would need to submit your latest ITR copy for income proof.

2. Existing relationship with bank fastens the process

If you already have a salary account or saving account with some bank, it is relatively easier to get a credit card, especially when you have handled your accounts properly, I mean not have too many overdrafts, maintaining your minimum balance over the years and having a consistent flow of money in your account.

This is because the bank can easily verify your income details and see your activity and how responsible you have been over the years.

So for example, if you want a HDFC credit card, but you have salary account in ICICI bank, it would be recommended that you apply for ICICI credit card first (assuming it does not matter much to you). You can easily apply for the card online on bank website, and even bank will ask if you are an existing account holder in the bank or not. To which you can choose YES

existing bank account for credit card

If you do not want to apply online for your card, then you can also visit the branch and meet the representative face-to-face. Bankbazaar is a good portal to compare and apply for credit cards or any other kind of loans.

3. Your past credit history matters

It also matters how was your past credit history, if you are looking for credit card. If you have taken some personal loan, education loan or home loan and now applying for credit card (generally a second credit card), your CIBIL report will be checked by the company to find out how was your credit history.

Did you make your payments on time? Did you close all your loans and outstanding without any balance or not?

You can see a snapshot by cibil.com below which shows you what all documents are required by the lender before issuing various kinds of loans and it shows that the latest credit score and CIR is mandatory.

apply for credit card document

In fact the CIBIL report is now mandatory check for any kind of loan. Make sure you surely check your credit report once before you apply for your card.

4. Be clear about the purpose of credit card

There are various kinds of credit cards available with bank. You need to understand very clearly what is the main reason you want the credit card?

If you want to use the credit card primarily for dining and shopping, then you can choose the card which gives more benefit for that. If your main spending is on fuel, then there are cards which cater to that requirement. There are tons of ways you can get rewards and cash back on credit cards. It’s important to do a bit of research on this.

Below you can see some HDFC cards examples .

hdfc credit cards

Most of the credit card companies offer cards under categories like Silver, Gold, Platinum, and Titanium and then as per categories like Diners card, Fuel Card, Cashback cards. If you look at HDFC credit card page, you can see categories and various kinds of features as below

5. FREE vs. Annual Fee credit card

There are credit cards which are totally FREE for lifetime and then there are cards which come with annual fees ranging from Rs 99 to few thousands per year. Most of the people want a lifetime free credit card, which is totally fine if your credit card usage is basic in nature.

But if you have very heavy card usage and 40-50% of your spending happens on credit card itself, then it makes sense to go for premium credit cards, which have some annual fees, because those cards offer you awesome benefits and various ways to save money.

You get higher reward points and cash back in those cards. Also, they have special tie ups with airlines, hotels, shopping stores, fuel companies etc and you get maximum benefits by being a premium member.

For example: Those who travel a lot by airlines can look at Signature Credit Card from HSBC which has special tie up with Makemytrip and comes with annual fees of Rs.3,500, but gives lots of discounts and vouchers which can be used by the cardholder. You will not get these offers if you have a normal credit card.

Signature Credit Card HSBC

If you want to learn how can you use your credit card in more efficient way, a good resource is this article written by Shabbir.

6. You can also get credit card against a fixed Deposit

Do you know that you can also get credit card against fixed deposit open with a bank ? Yes – That’s possible . There are many banks, which will offer you a credit card, if you open a fixed deposit and want a card against it as security (These are also called Instant Credit Card).

This is very much beneficial for those people who are not able to get credit card due to low credit score and banks are rejecting their credit card application. So you can apply for a credit card if you are ready to open a fixed deposit and its also one of the good ways to start improving your credit score, if its messed up.

Below is a snapshot of ICICI Bank credit card page about instant credit card

credit card against fixed deposit

Most of the banks have a minimum threshold of Rs 20,000 fixed deposit to be opened with them and your credit limit is always below that FD amount.

So if you open a Rs 40,000 FD with bank and take a credit card against that FD, then your card limit might be 20-25k per month and if you default of payments for a long time, bank will break the FD and take their dues from it, so there is no risk for bank.

This is the reason that it’s much faster to get a credit card against a fixed deposit and there is no income proof required to get credit card against a FD .

Get set Ready

I hope you are now clear on various things before you apply for credit card from any bank. It’s very important to be very clear on your expectations from the card and for what purpose why you need it.

I would be happy to know your views on this and if you can give some tips to a beginner who is looking for cards for the first time

What happens when you accidentally transfer money to wrong bank account ?

Posted on by Jagoinvestor

Have you ever wondered what will happen if you accidently transfer money online to some strangers bank account ? If you are thinking thats its a rare event, you are wrong. There are thousands of real life cases where a person transferred the money to someone account and then realised that one digit in account number has changed by mistake .

Do you get the money back ?

What are the rules from the bank side and what are your rights as a customer? We will look at this topic today, so that you know what you need to be careful about !

NEFT by mistake to someone else account

Before we go ahead, I would like to show you some real life examples and complains people have given

Real Life Example 1 – How Rajni transferred Rs 30,000 to strangers account

I did online transaction of transferring Rs 30,000 with ICICI Bank on September 30th,2008.By mistake I transferred money to wrong account number which I did not intend to .I wanted to transfer money to Adarsh Kumar A/C – 000501518633 but by mistake i transferred it to someone by name Virender Asati A/C 000501518366.I gave written letter to ICICI bank ,GT Road ,Jalandhar branch on Oct 4th which they are not able to trace and then I gave one more written letter to ICICI,Dwarka Branch ,Sector 5 ,New Delhi where I am holding the account in November and also sent several emails to them through net banking but ICICI back says that they can not transfer the money without Account holder’s permission . (Source)

Real Life Example 2 – How Vipin by mistake sent Rs 1,00,000 to strangers bank account

I am writing to you for a payment of 1 lac rupees through NEFT transfer on 2nd April 2012 to my sister Meena A/C . But due to a very high level technical mistake by HDFC my payment didn’t receive to my sister a/c whereas it had gone to other person account in some where. After few days when I enquired about that same we came to know that you have filled a starting digit incorrect that’s why your payment had gone to other person accounts. Here my question is to hdfc if anybody fill any information inaccurate, account will not be added as i know but in my case my all entries was correct except one digit error as you are telling us. It’s a universal awareness that there are so many mandatory requisite information criteria; when they not simultaneously completed transaction becomes failed like unmatched IFSC Code , unmatched city and even error of gender.

From that date I called so many times to customer care and visited the respective branch but I am not getting any proper answer from them and not knowing that what action is taken from your side. This is very sad to me that your are not taking any action and not giving me any assurance of my money. (Source)

Only “Account number” matters for online transfer

Let me give you shock of your life now.

Do you also think that if you transfer money to someone by adding their name, accounts number and IFSC code and if one of those does not match the transaction should fail and you should get back your money in your account. Right ?

But its far from reality ! . As per RBI guidelines, at the end of the day only bank account number should matter and name of the account holder and IFSC code are additional information which should be ideally checked by bank on their end, but there is no rule like that.

If you mess up with the account number, the transaction can go through you the money will be transferred. Its totally a bank choice and a “suggestion” from RBI to banks that they should ideally match Name and IFSC code before the transaction, but its not mandatory.

Below is the RBI notification for you to read, which clearly states this. I suggest you read it fully to understand how the banking world thinks and works.

RBI Notification for using only account number for online transfer

Responsibility lies with the remitter and not beneficiary

As per RBI directions, the final and sole responsibility of cross checking the account number, Name of the account holder, amount and every other detail lies with the remitter (the person who is sending money) and not the beneficiary (who is getting the money) . You can check numerous times before clicking the final button and after that no one else is responsible for your loss or transaction.

You as customer can not blame the bank to not check details at their end. There are thousands of cases where while typing the account number, one last digit got interchanged with another digit and the person did not realise this and their money is then at stake and in most of the cases , they never got it back. (You can learn more about NEFT and RTGS here)

If the account number does not exist, then surely the money will come back to you, because there is no valid destination to send the money. But if the account number exists and its active, then there are high chances that the transaction will go through .

What you should do if you have accidentally transferred money to wrong bank account ?

If you have made a mistake of transferring the money to a strangers account, then you should follow these steps mentioned below

The first step is to make sure you inform your bank the moment you realise that unintended money transfer has taken from from your end. The bank will then contact the beneficiary account holder and try to explain the situation to them. They will ask the account holder to give them permission to reverse back the transaction. In most of the cases, I have read on internet that the recipient of the money have agreed for the reversal (We have good people in this world, despite widespread belief that world is evil) . Below is a real life incident where the person sent back the money.

Getting back money after wrong transfer of money

In some cases, where the other party is greedy (when amounts are quite big) , the other person might not revert back at all or just delay the whole thing and withdraw the money or just don’t take any action . In which case you really are in a fix and it becomes almost impossible to get back your money.

You should then meet the branch manager of your bank, who can go one step further and talk to the destination bank and if they can help in this or in communication with the beneficiary.

One important point to note here is that bank cannot reverse the transaction from their side without the customer approval, because its a breach of agreement and is not the right thing. You never know what exactly is the whole story and who is saying truth (I can pay you and then just say, it happened by mistake)

icici response in case of wrong NEFT transaction

3 Precautions you should always take while transferring money Online ?

Precaution is better than cure, I personally believe that we are ourself responsible for any money transfer done online. Nothing stops us from taking extra precautions while transferring money online.

Lets see few things you can do ..

Trick #1 – Use CTRL-F to verify your account number

Most of the times, we are typing an account number which we have got in our emails, we look at the number (few digits at times) and then type it in other window when we are adding the beneficiary. What I personally do is once I have typed the account number (you cant copy paste the account numbers in all the bank website, as its disabled) . In that case you can just copy your account number from email, and type CTRL-F and paste the number there and you can visually see if it matches with what you just typed. Below is a screenshot I created for you to understand what I am talking about..

copy paste technique wrong neft

Trick #2 – Transfer Rs 1 first and test the transaction incase of big amounts

If you are transferring a big amount to someone, you can go one step ahead and first transfer Rs 1 and then confirm with the beneficiary if they have got it, and then on confirmation, you can trasfer the full amount. But I suggest to use it only in extreme situations when you really want to make sure if the account is genuine or not. At times, you might come across someone who gives you their account number and you are aware that they are careless by nature, and might have made some mistake while sharing account number, In that case you can take this extreme precautionary step ! .

Trick #3 – Verify the account number from right to left

Generally we are programmed to read left to right and we also match the account number that way, truly speaking, it might happen that we sometimes get fooled by our own confidence (4 zero , might look like 5 zero) .. So its better to also cross check the account number digit by digit from right to left. I personally cross check an account number digit by digit 2-3 times because I transfer any money online. I have never faced any issue of wrongly sending money to strangers account or sending excess money by mistake (One excess Zero in 10,000 and it becomes 1 lac) ..

Spend 1 extra minute to save your self big trouble

I hope you are clear by now that its your mistake if you transfer money to someone else account and you cant held someone else responsible for your mistake. Hence its always better to add the beneficiary account with precaution. Always cross check the account number 2-3 times.

I would be happy to know if you benefitted by this article and if there are any real life incidents around this area. Also please share anything related to this topic in comments section.

Everything you wanted to know about Advance Tax and Penalties under it

Posted on by Jagoinvestor

Are you paying your income tax only at the end of the financial year ? If your answer is YES, then understand that you are doing it in wrong manner. Today we will learn about Advance Tax which is not widely understood and its quite important thing to know. I know that majority of the people don’t follow this process and pay the income tax at the end of the year only (infact on the last minute many times), But today you should understand if advance tax is applicable in case your case or not.

You can either view the youtube video below to learn about it, or skip it and read the article below.

What is Advance Tax ?

As the name suggests, Advance Tax is part payment of your income tax liability in advance. So instead of paying everything at the end of the year, you pay it 3 times in a year in parts. The concept of Advance tax exists because govt wants you to pay income tax as you earn month after month and not at the end of the year. Advance tax is to be paid when your annual tax liability exceeds Rs 10,000 overall .

However important point is that Advance tax is applicable on your Income from sources other than your Salary like

  • Interest on FDs or Savings bank deposits exceeding Rs. 10,000/-
  • Rental income on House Property/properties
  • Capital Gains on sale of Mutual Funds or Shares
  • Income from any other sources not mentioned as above.

Which means that if you are a salaried employee who does not have any other income source and if your employer deducts TDS regularly, then Advance Tax is not applicable in your case. You dont need to worry about it.

On which date you have to pay Advance Tax ?

You have to pay advance tax 3 times in a year, which is 15th Sept , 15th Dec and 15th Mar and you should be paying not less than 30% , 60% and 100% of your income tax liability before these dates. Below picture makes it clear for you.

advance tax payment

Which means that if your income tax liability for a year is Rs 1,00,000 , then you should pay advance tax of Rs 30,000 by 15th Sept, another Rs 30,000 by 15th Dec and rest Rs 40,000 by the end of 15th Mar

What if I don’t pay Advance Tax on time ?

If Advance Tax is applicable in your case, then you should be paying it on time, but if you don’t pay it on time, then you can pay it on the next due date along with the interest. So those who have not paid the first installment (i.e. September 15) of Advance Tax (if applicable to you), then you can pay it together with second installment (on of before 15th Dec), but with interest on the first instalment for deferment of the same by three month and if you are not paying it even on Dec 15th , then you can pay it by the end of the year along with the interest.

You will be charged with penalty under Sec 234B and 234C incase you ddon’tpay your advance tax on time. Let me quickly share what is sec 234C and sec 234B

Understanding Penalty under Section 234C

Lets first understand sec 234C. Under this section, if you don’t pay your installments of advance tax on time, then you are charged 1% of simple interest for next 3 months on the amount of shortfall. So this is the penalty to be paid because of DELAY!

Understanding Penalty under Section 234B

If your total advance tax paid by last due date (15th Mar) is less than 90% of your advance tax liability, then you will have to pay 1% interest on the balance amount each month until you complete the payment. which means that suppose your income tax liability is Rs 1,00,000 in total and if you have not paid anything upto 15th Mar, then you will be charged 1% on the outstanding balance (Rs 1 lac in this case) each month, unless you pay it, so if you pay in June , then you will be charged for 3 months penalty and it would be Rs 3,000 in total other than penalty under sec 234C.

Lets understand sec 234B and 234C with help of case studies. Lets assume that your total Income Tax payment for the year would be Rs 50,000, then as per rules of Advance tax, you should be paying

  • Rs 15,000 by 15th Sept
  • Another Rs 15,000 by 15th Dec
  • And Rest 20,000 by 15th Mar

Now imagine you don’t pay any advance tax , then how much penalty you will pay under sec 234B and 234C under various situations ? Below I have explained 4 situations where you pay your full income tax on different dates. Check out how much penalty you will have to pay under these situations !

advance tax payment example

How to pay Advance Tax ?

Now comes the final question, that how can you pay your advance tax ? Most of the people are worried on this, as they feel that paying advance tax would be very tough or involves lots of hassles, but thats not correct. You can make payment of your advance tax in less than 5 min.

There are mainly two ways of payment advance tax.

1. Offline option

Almost all the banks have tie up with govt for accepting the advance tax from the taxpayers, you can go to the banks which have the tie up and fill up the challan number 280 and pay your advance tax to them.

1. Online Payment of Advance Tax

The other faster way to make payment online. Here is how it works

Step 1: Go to https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

challan 280 for advance tax payment

2. Choose Advance Tax option and other details and make payment

When come to the next page, you will have to choose various details here. Make sure you choose your

  • PAN Number (of utmost importance)
  • Advance Tax (under Type of Payment)
  • Email, Phone and Address details
  • Assessment year (to know more about this, click here)

Once you choose these details, you can then click on “proceed” and it will connect you to the Bank which you had selected, It will show you your NAME on the next page, so that you can confirm there was no mistake from you end, then you can make the payment online, and you will be able to print the receipt online (you will also get it on email)

Online Payment of Advance Tax

Are you paying your Advance Tax

I guess, you are now clear about the advance tax and how its calculated . Its a good practice to pay your advance tax on time and do not delay it because it can mean a penalty of few thousand rupees in most of the cases. I know its tempting to delay the headache and complete the payment once in a year, a lot of people might be ok with paying some penalty, but then you also invite related problems with it. Pick your choice.

What happens if policyholder dies within grace period ? The answer may surprise you !

Posted on by Jagoinvestor

Do you know what happens when the policyholder dies within the grace period provided after the due date of paying the premium. The answer might surprise you because there is a big myth around this topic.

Every life insurance company provide a grace period of 30 days for paying the premium after the due date is over. Companies send reminders on SMS and emails to make sure the customer pays their premiums on or before the due date. But if they forget to pay the premiums on time, still they get 30 days of grace period.

If premium are not yet paid after the grace period, then the policy is considered to be LAPSED and no death benefits will be given if the death happens after the grace period.

Do you get sum assured if death happens during grace period ?

And the answer is YES. As per the rules, if the death of the policy holder occurs on the due date of the premium payment or during the grace period, still the policy is valid and the beneficiaries will get the sum assured. But after deducting the the unpaid premium for the current year.

As a proof I am putting up a proof of what the website of Max New York Life Insurance says below. You can see the exact wordings below.

Grace Period in Life Insurance

So if a person has taken a 1 crore term plan for a 30 yrs period with premium Rs 10,000 per year on 20th dec 2010 and imagine the policy has run for 3 yrs , and now its the 4th premium is to be paid on 20th dec 2014 . The grace period will be upto 20th Jan 2015 .

Now if the premium was not paid and the death happens on 25th Dec 2014 , then its during the grace period. How much will be the sum assured paid to the customer family ?

It would be Sum Assured – all unpaid premiums for the current year

= 1 crore – 10,090
= 99.9 Lacs

Payment of Sum Assured if death happens during grace period

There have been a lot of cases, where a person just discontinued his policy for some reason and they faced an accident and died. Internet is full of these kind of cases.

A lot of times death happens during the grace period and because the family is not well educated on this aspect, they don’t know that they are still liable for a claim (we provide our clients family claim assistance service).

Conclusion

So make sure you do not forget to pay your premiums and make sure you do not wait for the reminders from the insurance company. You can set up your own reminders and be more alert and proactive on this.

Let us know if you knew about this information or not ?

How Top up loans are good alternatives of Personal Loan ?

Posted on by Jagoinvestor

Imagine you already have a home loan and now after few years of payment, you again need some extra loan for some purpose? What would you do? One would ideally think of applying for a fresh loan from scratch and might get it too. But there is a faster option to get a loan if you already have a running home loan and its called top-up loan.

Top up loans

How does top-up loan works?

When you take a home loan for the first time, you have some home loan eligibility up to which you can take the loan. If you have consumed that full limit, then you are not eligible to get any further loan immediately, but over the years when you have paid back some part of your loan and if your income has also increased, then it may happen that your loan eligibility has gone up. At that point, you are eligible to take up a top-up loan which is over and above your existing home loan. What exactly happens if you get a loan up to an amount of your loan eligibility minus your existing outstanding loan.

Almost all the bank rules say that you are eligible for a top-up loan only after 6-12 months of paying off the earlier loan because only after some time is over, your loan eligibility changes.

Let’s take an example

Assume that Ajay, a software engineer working in Bangalore has an income of Rs 10 lacs a year. Assume that his loan eligibility was Rs 50 lacs and he takes a home loan of Rs 45 Lacs. Now assume that he has serviced the loan EMI for the next 3 yrs and now his overall income has gone up to 12 lacs per annum and his outstanding loan balance now is only Rs 38 Lacs. Now based on his current income, his new loan eligibility is 55 lacs.

Now if he applies for a top-up loan, the bank will deduct the 38 lacs of an outstanding loan from his new loan eligibility of 55 lacs and only provide him 17 lacs (55-38) of the top-up loan. The documentation and the overall process will be faster in this case, as there is an existing relationship and also the history is known by the bank. Below is the graphical representation of the same example I took above.

Top up loan example in India

You need to have a good repayment track record to avail a top-up loan. Just because you have some loan eligibility does not mean that there is a guarantee of getting a top-up loan. The final decision is always with the loan provider. The bank will also investigate with you the purpose of taking the top up loan. Below you can see for what purpose the top up loan can be taken.

  • Renovation at home
  • To be used as a personal loan
  • To buy another property
  • To buy a plot or Land
  • Purchase of consumer durable products
  • Children’s marriage/education
  • Business requirements
  • Medical expenses

5 Benefits of Top-Up Loan

Benefit #1- Tax Benefits on a top-up loan 

You will get tax benefit on a top-up loan only if the loan amount is used for buying a house (on principle and interest) or if you are using it for renovation purpose (interest part). For any other purpose, if you use the money, you will not get any tax benefits.

Benefit #2- The interest rate for a top-up loan 

A The interest rate for the top up loan is around 1.5% to 2% higher than the home loan interest rate of the bank, which means it can go up to 11.5% to 14% finally.

Benefit #3- No Security Required

A top-up loan does not need you to mortgage some asset, because its given on top of your home loan and anyways your home documents are with the bank. So one important point to note here is that even if you close your original home loan, you need to also close your top up loan before you can ask back your original house papers from the bank.

Benefit #4- Top-up loan amount 

 Generally, the amount of top-up loan cant exceed the original home loan amount you have taken and also there is always an upper limit defined by the bank for the top up loan, which can range anywhere from 15-40 lacs. So if you have taken a Rs 30 lacs home loan, you can take the maximum top-up loan of another Rs 30 lacs if your eligibility supports you after some years.

Benefit #5- Processing Fees

Almost all the banks will charge a processing fee for approving the top up loan . The charges are same as their home loan processing charges . For example – if you take a case of HDFC LTD , the charge 0.75% of the loan amount or Rs 2,000 which ever is maximum as the loan processing charges for the top up loan.

Top up Loan is a good alternative of Personal Loan

By now you must have understood that a top up loan is a much better alternative to a personal loan. there are a much higher chances of getting a top up loan if you already have a home loan and have a clean and good track record of payment in past. Also if you have already passed 3-4 years of your home loan repayment , you can get a decent amount of top up loan. Given the interest rates of personal loan can be as high as 18-24% , its always a good idea to try for top up loans.

Let me know if you knew about this concept or not ?

How I failed into stock trading and 4 amazing things you can learn from my experience

Posted on by Jagoinvestor

Today you are going to learn some valuable lessons of stock market trading from experiences of a person who traded in stock markets for 1.5 yrs and failed miserably during those 1.5 yrs. This person is no one else, but myself

My mistakes in Stock Market Trading
Background

Let me share my story

Sometime in June 2007, I got recruited in Yahoo from campus placements. I was 23 yrs old, fresh into job and had no idea how my life is going to take shape at that time. Suddenly, I saw a huge inflow of money (salary) in my life and I was not very clear what to do with it.

I had some weird notions about “Getting Rich Quick” back then. I was good with numbers, knew about stock markets basics and considered myself to be “analytical”, so I thought I am smart, very disciplined internally and can “possibly” do better than “average” in stock markets (every one thinks like that only).

So I was ready to enter the world of stock markets.

Now, there was one more guy in our new joiners group who was equally enthusiastic about stock market (that guy is now an IAS officer) and just like a smoker finds another smoker in a big group, we found each other and became buddies.

Over the next few weeks we made various plans on how we will get rich trading in markets. We were already millionaires on an excel sheet and we thought even in worst case scenario, we will do well.

So our next step was to open trading and demat accounts.

When God Sent that guy!

Things were all set, we were about to start the race.. and one day one ICICI Direct guy was in office (targeting new set of employees to open trading accounts) and we thought he was god sent ! . We opened our trading + demat accounts in no time.

The Rs.500 annual charges seemed too small to us compared to what we would be minting in coming months. When he said its “FREE” for the first year, we were like – “We won’t mind even if you charge 10X for that in the first year” .

We got to know about “options”

While we were ready to start our journey in stock markets . We got to know that there is something called Options (derivatives) apart from regular stocks. This was something new for us. We googled and searched about options, and we came to know it’s a high risk/return thing. We didn’t focus too much on “high risk” part , the only thing we could read was “high return” part.

So next moment, 20-30 eBooks got downloaded on our laptops and we decided we will learn about it and make sure we don’t leave any stone unturned for make our “millionaire dream” a truth. It was a bit hard for us to delay our “trading” for few weeks 🙁

Learning about options was FUN

Learning about Options trading opened up to a whole new world for us. We learned that options trading is an amazing leverage tool which was very fascinating. I learned about technical analysis also and used all the office bandwidth to download technical analysis eBooks and videos (at one point of time, I had 1000+ eBooks on stock markets and I didn’t read 998.8 eBooks out of it).

For those who want to learn about options in detail, I would recommend an excellent resource on it from Deepak Shenoy of Capitalmind. He did a webinar on the topic and it was recorded and uploaded on youtube. You can see it below

After getting introduced with Options, our greed went to next level and now we became much more rich on excel sheet. Our profit margin went really high (but we didn’t focus too much on risk factor, infact we were not even clear on where we are entering into and how risky it can turn out to be).

So were all set with high energy, but could not take any action because our trading account was still not active that time and we were waiting for it.

Finally we started Trading

So, one day I got a sms – “Your Trading account XXXXXX9484 is Activated – ICICIDirect” . I logged into my account, transferred 10,000 from my ICICI bank account to ICICIDirect account (they were interlinked already) and there was one stock we were following from long time. We bought an OPTION for that stock , I had to pay approx Rs 6,000.

  • We went for lunch and were back in 3o min
  • I logged in my trading account and saw the current price of the Option trade
  • It was Rs 8,500. I SOLD it

I made Rs 2,500 profit , a 24% profit during LUNCHTIME and now we were planning, if we can I leave our jobs ?

I realized years later that one should never make profits in their first trade in stock markets, it fuels the overconfidence in you like anything and gives you a false sense that you are really some smart guy !

Now the Learning Starts

Till now I was giving you the background of what all happened before we started our options trading journey . For next 1.5 yrs, we were very much involved each day into stock markets, made some money, lost a lot more money, got frustrated, some short-lived happy moments came in too and finally one day I put a big break on my options trading.

I learned a lot of lessons in those 1.5 yrs of my journey in stock markets and realized that I can pass on some learning’s to others who are now trying to enter the markets or are fascinated with the potential stock market trading holds .

I am not saying my learning’s are some hidden secrets which are very new, but I can share what all I learned in my style , I am sure it will help someone who wants to learn from my mistakes.

These few points will help you to not make mistakes I did and help you overcome some myths and notions associated with stock market trading . Just a request – Note that these learning have come from my trading in Options (which is derivatives) and not regular stocks, but that does not change the learnings you are going to read below.

Mistake #1 – I focused too much on Knowledge

When I entered into stock markets, I was of the impression that I need to acquire a lot of knowledge on how things work, how various strategies work ? How technical analysis can help in trading ? I learnt all the technical indicators, back tested them on the past data, wrote lot of programming scripts to test my hypothesis.

I even went on to download lots of videos online and watched it over and over for many months and I realized that my knowledge had gone up significantly. I now understood lots of concepts, strategies, complex terms .

I could see a chart and instantly see lots of hidden patterns and could tell more than a normal person who does not know how to read a chart.

But then, over the months, I realized that “knowledge” is just a secondary element to trade successfully in stock markets. Almost all the good traders around the world agree that “knowledge” does not contribute more than 10-15% in being a successful trader. It’s an important thing , but certainty not the holy grail

I am not saying that one should not focus on “knowledge” part, all I am saying is that it’s not that KEY thing to succeed. Over knowledge will only create problems for you.

One of the famous stock trader Ashwani Gujral says in his book – “How to make money trading derivates” – that as per his experience over many decades, he feels that knowledge of charts etc contributes to just 10% of success for any trader. Here is the chart which explains what he mentioned in the book

elements of successful trading

So, learn things in stock market and then concentrate on the other important elements which you will learn in some time. Dont overthink about knowledge part.

Mistake #2 – I went against the Trend

What I have seen is that all the new traders somewhere want to challenge the markets and want to predict when markets will fall and when it will rise. They want to predict when the trend will reverse. They want to catch that top or bottom.

This is the essence of where most of the failed traders are stuck . If markets are rising , somewhere inside me, I wanted to catch the top and wanted to prove as if I “almost” know that now markets will fall OR if markets were going down.

However in this process, I realized that all the time I was just trying to swim against the trend, If markets were going up, I tried to predict when it will fall and how much and vice versa, and in that process I never stayed with the trend. There was some kind of fun in going against the trend. It was very tough to accept that markets can be simple (not easy)

Below you can see last 1 yr graph of NIFTY Index and see that there has been an uptrend in market and it has risen from 6000 in 2013 to around 8000 now . That’s 33% increase , but imagine someone who didn’t stay with the trend and always tried to predict when will market fall and looked at markets with suspecting manner and never got in the trend itself.

Don’t go against market trend

So just make sure that you never go against the flow in general. If I have to compare this trend following with some adventure sports, then I will compare it with Surfing, where you ride on the flow of the water. The flow of the water itself will take you with it, you just need to stay with it. Imagine what happens if you try to go against the water flow, the chances of you getting crushed is high.

So, try to identify the overall trend (upside , downside) and then make sure whatever is your trading style , be with the flow itself.

There is nothing wrong in having a contrarian view and predict when the markets will turn its direction, but be sure you know how you will take that decision. You can surely take a call against the trend , but make sure you accept that you were wrong in case you fail. Don’t try to prove yourself right if you are wrong, because it’s only going to harm you.

Mistake #3 – I didn’t realize that Money management is supreme

I personally think this is the most important part of being a successful trader . The biggest reason for my failure was that – I was very casual about money management and made the biggest mistakes in this area. Money Management in context of trading is all about managing your overall money and how much part of your overall trading capital you put at risk in each trade.

I will give you an example – Let’s say you have set aside Rs 10 lacs for stock market trading . Now let’s say you make 2 rules

Rule 1 : You will never use more than 20% of your capital in any given trade, no matter how promising it looks to you. Which means out of Rs 10 lacs you have , you will not put more than Rs 2 lacs on any single trade (so even in worst case, you will lose only 20% of your capital)

Rule 2 : The maximum loss you will allow on any give trade is 10% , which means that if you put Rs 2 lacs on a trade, you will not let the loss cross 10% , which is just Rs 20,000

If you see these 2 rules, you can see that the maximum loss in any single trade will not be more than Rs.20,000 which is 2% of your overall capital. So assuming you make 1 trade each month, you have 50 months of quota with you to go wrong fully

No one is so bad that they will make bad decisions every time, you make good and bad both decisions , but important point is that you should survive in markets till that time when you start taking right decisions .. Hence it’s important to be in the game and unless you take money management very seriously , you are bound to get out of the game some or the other day.

This is exactly what happened with me. By the time I started realizing that I am moving from “bad trader” to an “average trader” zone , my capital was over and I was already in loss and I never went back to the game itself.

Why one should use Money management ?

The biggest reason why money management should be used is that it does not expose you heavily to the risk on a broader level, even if there is very high risk on individual trades.

And the next big reason why money management is crucial is that it brings some kind of consistency in your growth overtime.

Below you can see 3 versions of money management, which is BAD , Average and GOOD money management, where the overall risk taken on a single trade is moving from high to low.

I did some simulation on excel where we are measuring how capital will grow over 36 months (assuming 1 trade is done in a month) . I ran 25 tests and plotted them on a graph together. You can see how in case of bad money management the growth of capital is very random, unpredictable and varies from very high (lucky) to very low (unlucky)

But in case of good money management , the growth of capital a trader has moves up over time and with high consistency .

money management system case study

So to sum up , I would say money management system is like having a great stamina . If you are there for longer time in markets, in a way you win the battle to some extent.

Mistake 4# – I thought trading is all about WINNING

Psychology plays a big role in being a good trader. From the childhood we are programmed to WIN and that same mindset takes over rational thinking in stock markets trading too. We want to WIN on all the trades , It’s hard to accept that you were wrong , being wrong means taking a LOSS . LOSS equals FAILURE and we are never taught properly how to take failures. And that’s exactly what happens in trading, novice traders don’t cut their losses fast, they let them grow (ego) and keep hoping that they will WIN

This is what also happened with me. When I bought an option for a stock, every time I wanted to WIN, every time I wanted to make profit on that option. I thought I will become a great trader , if I WON more and more ..

I was so WRONG

Winning MORE times is not same as making MORE money in stock markets trading. I know some of you who are reading this are confused with this statement , but let me explain this important point

So when it comes to stock market trading, you can’t choose how many times you WIN or LOOSE, but can control HOW MUCH you will win or lose !

All you can do is 3 things

1. You can control how fast you can get out of loosing trade (getting out of a bad decision)

2. You can control how long you will stay with a winning trade

3. And You can control when you will take the decision using your knowledge.

WINNING MORE , but still LOOSING

Every trade you make in stock market, you should make sure that your profits potential is generally much higher than the risk potential. Here is how it should look like

risk reward of money management system

It’s very much possible that a trader wins 6 out of 10 times and still looses the money and in the same manner, it can happen that a trader wins just 4/10 times and still makes a lot of money.

Let me explain this with an example. Let’s say a person has Rs 10 lacs to start his trading .

A good trader wins just 4 times, but he makes sure that he will make big win and every time he makes a bad decision, he cuts the loss fast.

And in same way, a bad trader might win 6 times , but every time they are in hurry to book their profits (so they earn small every time) and when they are in loss, they do not book their losses fast (no money management rules in place) and hence let their losses grow because they can’t accept they made mistake (Ego) . The chart below will explain you this .

Why Winning in stock markets is not important

This is the only big difference between a good trader and bad trader .

Conclusion

Today I have shared my mistakes I did when I traded OPTIONS and I hope you will learn from my mistakes . But this can just be starting point only, you will only learn when you get on the ground and do the real trading. Till then it’s just a practice no matter what you do.

It’s extremely addictive to trade and if you are like me, you will feel a great thrill trading either stocks, futures or options (or any other instruments) , while I didn’t succeed in trading, I at-least know why I failed, I at least came to know my weakness and now I can improve upon it. I can at least help others to not make the same mistakes I did.

Also in future, if I get into trading again, I am sure I will be 10X better compared to earlier version of mine. I know it will still be very though, but I can try at least and when I stopped my trading, somewhere I felt bad about leaving it. I felt as if I am turning my back and got a feel of leaving the battle ground, but it was a right decision because I could have damaged my own net-worth to a big extent had I not stopped.

I would love to hear what you feel about the points I shared and if you would like to share your own experiences

Why you should collect NOC (No Objection Certificate) once your loan is complete ?

Posted on by Jagoinvestor

Once you pay off your loan, a big responsibility is off your mind and you feel relaxed. Its a moment where you do not want any further run around and want to now move on to other things in life.

And this is exactly why most of the loan customer do not collect a document called “NOC” or “No Objection Certificate” from their lender and it can get them into trouble later in life. At some places you will hear the word “No Dues Certificate” , but generally most of the executives in real life use the word “NOC” only

Read the incident below to understand its importance

importance of NOC No objection certificate

What is NO Objection Certificate (NOC) ?

With reference to loans, An NOC or No Objection Certificate is a legal document provided by the lender which states that the loan has been complete and their is no outstanding to be paid by the customer as on a specific date. Whenever a person pays off a loan, its important to take this NOC document from your lender.

How to get the NOC ?

Generally, all the lenders dispatch the NOC document to your registered address once your loan is complete. However at times, people do not pay attention to it and loose out on it for some or the other reason. Also if the registered address with lender is your old address (suppose you changed the address in between the loan), then also you will miss the NOC document.

So if you do not get the NOC, better contact your lender and ask for it specifically.

What kind of problems can happen if you dont have NOC ?

A lot of people think that just because the EMI’s are paid off fully, the job is done. However its extremelly important to have a legal document with you which clearly states that you do not owe anything more to then lender.

This way you are protected legally and if someone claims later in life that you owe more to the lender, you can produce the NOC if required. I would like you to have a look at the incident below which create some issue for one of the loan customer, who had paid off the loan, but didnt have the NOC with him

Hi Manish,

I have taken a personal loan from Bajaj Finance in the year 2004. All along, I have been thinking that I have paid the loan. To this effect, Cibil report also says, there is no balance outstanding and the account is closed on 31.12.2008. I don’t have NOC.

Today, I have received a call from a Lawyer saying that he has a summons to arrest me and I need to pay the balance amount of Rs.3750/- and that too I need to pay before 3 pm.

Could you please responds me as to what should I do. My question is will he really have Summons or just he is threatening. I can pay, but he is asking me to pay beofre 3 pm. That’s what I am not able
understand.

Here is another incident where Rahul settled his outstanding credit card dues with Standard Chartered bank and didnt collect the NOC . Then after many years he got a notice from the bank to pay 7.7 lacs. Here are his comments

Its been 12 years now, and I dont have the copy of NOC (or No Dues Certificate) with me. How do I prove my case as SCB isin’t ready to check me credit card history to see where the problem was. They just keep saying “they can’t retreive the information as they have sold those accounts to saha finlease.

And what about the notice they sent me asking me to attend conciliation camp to be held on 11th November?

Read the full incident on our forum

How NOC can help you in future if some problem arise

NOC is a legal document which has weightage . It proves that you really have paid off the loan fully and if there is any confusion, then NOC solves it.

Read these two incidents which were shared on our forum and you will understand its importance

Dear Manish,

Same problem as Sandesh I had with Indus Ind Bank Kolkata recently. They told me that my score is very low so they are not considering me. However, I submitted them my CIBIL Report which clearly says 763. There was an issue with a credit card which I cleared 1 year back.

I submitted them the NOC too. The HR here told me that she has forwarded the details to her central office. Now I am waiting to hear from them.

(Source)

Dear Ravish,

If you have the NOC issued by the bank, saying all dues have been cleared and there is nothing pending, you can get a loan. But as Dear Ashal has suggested file dispute with CIBIL and wait for 2-3 months to get it rectified.

I had the same experience about 3 years back and credit card in question was issued by HSBC. I got the NOC issued by HSBC and applied for loan with HDFC, while submitting the application I informed HDFC about the HSBC story. Later on, HDFC asked for the NOC and cleared my loan.

(Source)

Go get your NOC right now

So now, if you had any loan in past which you have completed and paid off, make sure you have applied for the NOC and keep it safely in your records