Category: Knowledge and Concepts

4 benefits of a group health insurance cover from employer !

Posted on by Jagoinvestor

It is common nowadays for salaried employees working in big companies to have a group health insurance cover from their employer. Some firms provide health cover to the employee, his spouse, and his children while the more generous ones also extend this cover to the employee’s parents.

group Health Insurance Advantages

In this article, I want to help you understand in some detail, what exactly constitutes group health cover. I will also cover the benefits of group health insurance policies that are not available in the individual health insurance plans one buys directly from health insurance companies.

What is group health insurance ?

The concept of group health insurance is very simple. When you buy health cover policies covering big groups of 50 people or even 500 people, it is termed as group health cover. Normally big organizations would take these policies for their staff.

The good thing about these group health insurance policies is that it can be tailored to the requirement of the proposer (one who is taking the policy) and can be offered as a benefit to their employees. Insurance companies benefit from this arrangement, as they get massive premiums from a single source (imagine how much premium Infosys would pay yearly). The big ticket-size also allows insurance companies to offer more benefits at a relatively lower premium value (How Insurance works – The full business model).

I recommend that everyone have his or her own health insurance apart from employer health cover, but that’s a different topic of discussion. The focus of this article is to highlight some of the good points about group cover and how you can benefit if you fall under such a scheme.

4 advantages of group health cover from employer

1. No Medical Checkup’s

The best part of group health insurance cover from an employer is that there is no requirement of undergoing a medical checkup – both for self and family members. Everyone is covered automatically in the group cover from Day 1 and you can completely avoid the hassle of a medical checkup.

2. Maternity cover from Day 1

This is going to bring smiles on lots of faces! From Day 1, maternity expenses are covered under group medical cover in almost all companies. So if you join a company and if you are part of the health cover benefit scheme, you will get maternity benefits immediately; unlike the individual health cover which has timing limitations.

3. No Waiting period Concept

Another great feature of group health insurance is that there is no concept of waiting period for any illness. Even pre-existing illness are covered under group cover. So if your parents are suffering from some illness such as diabetes or heart ailments, it gets covered from Day 1. This is never the case with individual health cover that you buy on your own. Again, this exception is only made possible through the dynamics of group health cover that I explained earlier.

4. More Cost Effective because its a group cover

Like I mentioned in the beginning or this article, because of economies of scale, the premium per insured person is very low for group health insurance policies. Hence, if your employer is providing you a group health cover, it makes sense to apply for it, even if you have to pay the premiums yourself.

How to fit in Group Health Cover in your overall Health Insurance Portfolio ?

So now the question is how should a group health insurance cover find a place in your overall health insurance portfolio? While we have seen advantages of group health insurance, in the same way there are lots of disadvantage of the group health insurance. The first importance should be given to having your own individual health insurance policy so that the complete control is in your hands, not your employer. While group health insurance from employer is great, but look at it as secondary option, not primary for the reasons I have mentioned in this article.

is employer health cover sufficient

So, make sure you do not depend 100% on employers health insurance because it can stop anytime, it will not be available for long term after your retirement.


Do you want to share any insight on this topic or your views?

4 kind of exclusions in your health insurance policy which are NOT covered

Posted on by Jagoinvestor

When health insurance claims are rejected, it disappoints the customer more than anything else. Its a disappointing moment for the policy holder, when his trust is lost in company and he starts feeling that he was a fool to buy the health insurance policy at the first place and waste his premium, because companies are just fraud, who wants to loot the customers, by giving silly reasons for not settling the claim.

They feel companies are coming up with unreasonable reasons to reject their claims. This situation is a big blow to customer financially, because now they have to bear all the expenses from their own pocket. This is exactly what happens with many customers who have no idea of what their health insurance policy covers and does not cover.

What does a Health Insurance Policy does not Cover ?

In almost all the cases where claims are rejected and customers are disappointed, its seen that it happens because companies reject claims based on the policy document rules and what is covered or not covered into the policy, however the customer disappointment is always there, because there was a lack of understanding of what is covered and what is not covered. There various clauses like waiting period concept or exlusion of pre-existing illness, which customers do not try to understand fully and see health insurance policy as something which will just pay their bills in any medical case. However thats not true.

In this article I want to make you aware about the 4 major clauses in almost all the health insurance policies which will help you understand how exclusions work in case of health insurance policies and when you will not be paid. This will help you and companies both to make sure you are on the same page.

What is not covered in health insurance policies

Exclusion #1 – Permanent Exclusions

Permanent exclusions are listed category of treatments, which are never covered in health insurance policy for whole life. They are excluded permanently from the ambit of the health insurance scope. These permanent exclusions are clearly mentioned in the policy document of the health insurance product under section “Permanent Exclusions”.

Even before buying the policy, you can look at the PDF document of the policy which must be there on the health insurance company website. Almost all the companies have the same list of illnesses listed under this section, however you should anyways look at it.

Here is a sample list of some of the permanent exclusion taken from Religare Care Health Insurance policy(not the full list)

  • Any condition directly or indirectly caused or associated with any sexually transmitted disease
  • AIDS
  • Any Treatment arising from or traceable to pregnancy, miscarriage, maternity, abortion or complications of any of these.
  • Any Dental treatment or surgery unless necessitated due to an injury
  • Charges incurred in connection with cost of spectacles or contact lenses, routine eye and ear examinations
  • Any treatment related to sleep disorder etc
  • Treatment of mental illness, stress , psychiatric or psychological disorders
  • Any Treatment/surgery for change of sex or gender reassignments including any complication arising out of these treatments
  • All preventive care, vaccination, including inoculation and immunizations
  • Non Allopathic treatments
  • Any Out Patient Treatment
  • Treatment received outside India (unless its part of the policy)
  • Act of self destruction or self inflicted injury , attempted suicide
  • Any Hospitalization primarily for investigation or diagnosis purpose
  • Cosmetic and aesthetic treatments
  • plus, there are many others – which you should read in policy document

Here is an exact snapshot from Bharti Axa Health Insurance page

what is not covered in health insurance policies bharti axa

Exclusion #2 – Waiting Period Concept for selected illness

Each Health insurance policy has the concept of “Waiting Period” for a selected list of illnesses, which means that for first few years(which can be anywhere between 2-3 years) will not be covered under health insurance and only after that period they will be covered. So if waiting period is 2 years in some policy, and you take the policy in year 2014, the illness covered under waiting list will be covered only after 2 yrs are over.

This is one thing which customers do not pay attention to while taking the policy and if they get hospitalized due to some illness which is not covered under waiting period, their claim is rejected and then they feel cheated and complain about the company. Here is a real life case on our forum

Here is the list of some of the illness and diseases which are part of waiting period in most of the policies

  • Arthritis , Osteoarthritis , Osteoporosis , Spinal Disorders, Joint replacement surgery
  • ENT Disorders & surgeries, Deviation, Sinusitis and related disorders
  • Cataract
  • Dilation and Curettage
  • Piles, Gastric Ulcers
  • All types of Hernia , Hydrocele
  • Internal tumors, Skin Tumors , cysts
  • Kidney Stone , Gall Blader Stone

Some policies might have the specific waiting period for senior citizens, like in case of Family First policy by Max Bupa, there are few illness which are under 2 years waiting period for senior citizens, but not for young customers.

Specific Waiting period for senior citizens

Exclusion #3 – Pre-Exisitng Illness

Another exclusion is “Pre-existing illness” in all the policy documents of all the health insurance policies. Pre-existing illness are those illnesses which are already detected for the patient. Most of the companies do not cover these pre-existing illness for starting 2-4 yrs (exact time varies from one company to another). So if someone is suffering from some respiratory illness already, then any treatments or hospitalizations which occurs due to respiratory problems will not be covered for first few yrs (the exact tenure depends on company). This is to prevent situations where a person is detected for some disease and he takes the health insurance so that he is covered for the hospitalization, this is simply not allowed and does not make any business logic. So thats the reason its said that one should take health insurance as soon as possible so that those initial few years are passed and then you are covered for wide range of illness.

Pre-existing illness in case of Senior Citizens

In case of senior citizens, pre-existing illness are excluded for rest of the life in most of the policies, because anyways there is higher probability of senior citizens getting hospitalized due to their existing illness. So if someone has undergone bypass surgery and they are senior citizen, any heart related treatments will not be covered for all life. It will be permanently excluded from the policy. Thats one big reason why I keep on saying that you should take your parents health insurance before they turn 60 yrs. There are some companies like Oriental Insurance, which does not even require medical tests for persons upto age of 60 yrs, just the declarations given in the health insurance form is enough.

Exclusion #4 – First 30-90 days waiting period

Almost all the health insurance companies do not give cover for any medical treatment for the first 30-90 days of taking the policy, except the medical expenses which result from injury (like accident). For example Religare Care have a initial 30 days waiting period, however Max Bupa Family First policy has a 90 day waiting period

Conclusion

Health Insurance is a preventive financial product, not a reactive financial product. You take health insurance to make sure that you are covered from future problems, not to deal with current medical issues. So when you are healthy, you should go for medical policy, so that you are covered for any long term medical issues. Most of the people start the procedure of buying health insurance when some illness is detected, and that’s when health insurance policy will not help you much. Instead of having wrong expectations by assuming things, better analyse and research the health insurance policy properly and deeply by reading the policy document.

Let me know if you have any experiences on this or want to share something ?

How Wrong CIBIL report’s have harassed & destroyed many investors life?

Posted on by Jagoinvestor

A few years back, India was introduced to the world of “Credit Bureaus” and “Credit Scores”. Credit Bureaus track an individual’s credit history and create a report from that data. So all your financial history including credit cards, loans, the timeliness and regularity of your repayments and the number of times you have sought credit, is captured in this single report, and based on all this information a score is generated. This data is shared with lenders on request and subsequently used by them to make a lending decision.

CIBIL report Errors

On paper, this idea looks great because the system ensures that there is extensive record keeping for all individuals and the data can help lenders and banks make effective lending decisions. So far, the intention was good and admittedly with our huge population and fragile systems, there were bound to be a few hiccups along the way.

But it would seem that the amount of confusion created by the Credit Bureaus has reached unreasonable proportions.

Wrong Credit reports and how they are messing up financial lives of many

From the last 3-4 years, I have been hearing horror stories about how various financial lives have been destroyed as a result of wrong credit reports and mismatches in data. Banks are now mostly reliant on CIBIL reports for processing loan requests – they look at the CIBIL report and take the decision. But how does one guarantee that each and every bit of data recorded in the credit report is a 100% CORRECT?

There have been tons of instances where the report was wrong or had incorrect information and ultimately the consumer had to suffer a lot because of it.

  • Imagine a student who is looking for education loan and his father has applied for education loan, but bank is not ready to give loan because there is no Credit history ?
  • Imagine a family has made the down payment for their dream home and have applied for home loan , but it gets rejected because their CIBIL report has an entry for a credit card due which they have closed 8 yrs back and now neither they are getting loan , nor the builder is co-operating with them
  • Imagine a guy who is in need of personal loan, and if fully eligible for it, but could not get it just because his report has data of some one else whose name is close enough and the system has made the error ?
  • Imagine a guy following up with banks to update his data with CIBIL, then going back to CIBIL to know the status, asking 100 times about it, still not getting any clue on what is the status and finally he feels helpless and sorry for the whole system

Wrong Data in Reports

One of the biggest issues with present credit reports is the inaccuracy of data. Mostly this happens because the report is pulling data from multiple sources that might have incorrect data themselves or because of name mismatches. Even though this is a system fault but the end result is that the investor suffers.

I want to share Prabhat’s story on how his life was impacted due to wrong data in his CIBIL report.

Hi Manish,

Am a real victim of this “CIBIL”. Two years back i requested for a report. The report was full or errors- be it my name, identity, address, accounts etc. I raised a dispute form then. Since then, in that report, my name has changed thrice, my addresses have changed, my contact nos have changed. They apologised and said that corrections have been made. Recently i applied for a loan and again got rejected. When inquired and got the CIR, my data was merging with some other “Prabhat”. To confirm my doubts, i even called that person and highlighted all this in my next mail to cibil. But to no avail. You would always get a prototype reply- “We cant change data on your own and pls contact credit institution for modification”.

Ridiculous, is’nt it? First of all you sweat to get your issues registered (if only you get a great guy who happens to read your mail/ talk to you over phone by luck). Then follow the same to make them understand what is apparent to even a layman. in my case the other “Prabhat’s” pan no is different, dob is different, address and other things are also different but even then the data got merged and when i raised this, they are passing the buck onto credit institutions.

This is clearly not any fault of credit ins but of this cibil only. To be more precise- in their system of extracting data which they are not accepting. Sometimes, after negotiating so many mails and conversation with their executives, i really feel that this is being run by a bunch of nerds who would not listen or not understand your concerns. I have not taken a single penny as a loan in my whole life and now not getting loan just because of this cibil.

I want to knock the doors of law, to claim a heavy compensation- can you suggest me how and where can i lodge my complaint. I have all the evidences in black n white.

Prabhat

Here is another case of spelling mismatch

I got my CIBIL report recently. My Name is CHANDRA SEKHAR SHARMA but the name that I have found on the report is CHANDRA SEKHAR S V. It is not a spelling mistake as CHANDRA SEKHAR S V is a different person at all. But all my credit cards are listed against this name and one loan which is taken by MR CHANDRA SEKHAR S V is also showing here. So it is overall one report mixed up with two person’s information. In other word CIBIL is selling one report to 2 person.

I am going to report this dispute to CIBIL. But it is raising lot of question on CIBIL.
This CREDIT score concept hold good and easy to maintain in country like USA. They are having SSN concept where they are uniquely identifying each individual. But in our country we still to have such concept until UIN /adhar effective completely. Till then we have to face such situation .

Gap in Communication from Banks

The other problem is gap in communication with banks . The whole system is not efficient enough for speedy updates. Given huge banking system and widespread network, its bound to have communication gap. Here is one instance where Subhajit was marked as Defaulter by CIBIL , just because SBI didnt update some data from their side on a loan closed years back

I took a loan from SBI in 2004 and closed it in dec 2012. Now at present when i applied for another loan to some other bank, CIBIL marked me as a defaulter as they did not get any updates from SBI on the closure details. I contacted Chief Manager of the SBI branch from where I took the loan and asked her to send out an email to CIBIL ([email protected]), mentioning all my details and report that the loan account is closed now. Even after this was done, CIBIL is still saying that they might take 30 days untill the credit institution reverts back with their response. I dont understand whether CIBIL has a huge miscommunication between their call center folks and the email department. what do i do now?? i wanted to escalate this to the highest authority in CIBIL but i dont have any contact information for the same.

Regards,
Subhajit

Here is another case of Vijay

Hi Manish

In my report, the SBI card which I used to have was mentioned as “WRITTEN-OFF” and the Days Past Due section also had a number 120 put for the last several months ending in Sep-2006. This was definitely wrong info since I had checked with SBI in 2006 and they had informed me that there was no due from me at the time of closing the card. So I contacted SBI and they informed me that it was a mistake from their end and that they have corrected it in the latest update to CIBIL.

Then I informed CIBIL about the mail from SBI and asked them to confirm if the erroneous entries have been removed. CIBIL gives me a very vague answer stating the SBI card account is closed as per instruction. But I want to know if the word “WRITTEN OFF” has been removed from my report and if the Days Past Due section have been set to 0. I have sent them at least 3 mails asking for precise info on the above two queries. But they continue to give me very generic and vague answer.
Please let me know if there is any escalation mechanism when CIBIL gives vague responses.

Also in the score section, there is a line which states “*One or More Trades with Suit Filed Status in the Past 24 Months*”. I asked them for an explanation on what the above line meant. But they have not given any explanation. It sounds like some company has filed a suit against me in the last 2 years. I am not aware of any such suit. I am not able to get CIBIL to explain the line or tell me which company has filed the suit. I am at my wits end to get a proper response from CIBIL. Any help is appreciated.

Regards

Vijay

Using CIBIL report as a weapon

Some banks have also started using CIBIL report and its impact as a weapon against investors. They have started talking in the language of – “Do this, else your credit history will … ” (here is the proof).

Here is a what happened with Ravi

I was using a credit card from ICICI bank and I used it for about 6 months, in between I forgot to pay the due amount for one month and in the next month statement I found additional 6000+ Rs to be paid as late fees + interest + taxes that I refused to pay and deposited the amount that I was expected to pay. And after this I traveled abroad for 1.3 years and on my return from there I was called up by bank and asked to deposit 31 000 Rs against that, here again I refused to pay initially and asked them since I have not used this amount why should I pay this much. But later one gentle man from the same bank called me and said that if I will not deposit the same amount it will affect my credit history and I will not be able to get any loan in future. Hence I deposited all the stated outstanding amount at once.

But now when I applied for car loan , my loan request got rejected by the AXIS bank due to that credit card credit-history. I also approached ICICI bank for same and they immediately issued me the NOC with 0 Rs outstanding for me.and also requested them to get my name cleared from CIBIL, for this they told me that your name is already updated in CIBIL for 0 balance. I forwarded the same email to AXIS bank but still they are not ready to issue me the loan saying that I have paid the money lately after 1 year. Hence I am very anxious about it now that without doing any fault from my side I am becoming a victim here.

Your rights incase you are suffering because of Credit Beureu mistakes ?

A lot of investors who are affected by this CIBIL menace and mistakes from the banks side just feel angry, but they let things go and do not force a resolution. But you need to know that no one has any right to play with your financial life and if someone has, then they need to pay for it. If you have been facing an issue because of CIBIL or the bank and it has impacted you financially or mentally, you should always reach out to the consumer court or banking ombudsman. There have been many cases where customers have got some compensation. The only catch is that you need to be committed to pursue the case and have patience.

Here is one instance where a person was awarded compensation because was mistekenly marked as “defaulter” by the bank and suffered due to this

City residents continue to be hassled by the ‘CIBIL defaulter’ tag over minor disputes with banks. Now, a Sector-39 resident received justice from the UT Consumer Disputes Redressal Forum after a private sector bank had labelled him a defaulter and sent his name to Credit Information Bureau India Limited (CIBIL), an all-India data bank which carries credit history of all commercial and consumer borrowers.

The Chandigarh Consumer Disputes Redressal Forum has directed the bank to pay Rs 10,000 to the harried complainant, and Rs 5,000 as cost of litigation.

The order was issued by the Forum following a complaint filed by Bhajan Palm who told the forum that in 2003, he took a personal loan of Rs 66,000 from the bank, and repaid it in equal monthly installments.

Here is another instance where HSBC was fined for adding the name of a person to defaulter list without strong reason

Hongkong and Shanghai Banking Corporation (HSBC) has been ordered by a consumer forum here to pay Rs 20,000 as compensation to one of its credit card holders for adding his name in CIBIL’s defaulters list even though he had paid all his dues.

While awarding the amount to the HSBC credit card holder, the New Delhi District Consumer Disputes Redressal Forum said the Bank should have “gracefully” accepted its fault instead of adopting an “obstructionist attitude” by seeking rejection of his complaint.

You can read some more cases here or here .

Below is a 2 part video series from MoneyLife Foundation on “How to file effective complaints and win your battles in Consumer Courts”

Can you share any experience of yours on CIBIL mistakes or any struggle you faced ?

Also let me remind you of the ‘Oh my God’ offer coming on 7th Jan 2014, which you will not like to miss at any cost. Its one of its kind of offer coming soon !

A detailed information about Inflation Linked Bonds from RBI and investment in it

Posted on by Jagoinvestor

RBI has announced that its going to issue Inflation Indexed National Savings Securities – Cumulative (IINSS-C) for retail investors where one can invest and get returns equal to Inflation + 1.5%.

These bonds are now coming up in markets, as it was announced in the last budget that govt will bring inflation linked products very soon (RBI link here).

The minimum Investment amount for these inflation linked bonds is Rs.5,000 and the maximum can be Rs.5 lacs per applicant per annum. The inflation linked bonds are going to be available only for 9 days, starting from 23rd Dec to 31st Mar 2014 only (update – This date was earlier 31st Dec, later it was extended to 31st mar).

The best part about these bonds is the hedge against inflation, so you don’t have to worry if your investments will be able to beat inflation or not.

rbi inflation linked bonds national saving securities

Returns from Inflation Indexed Bonds

As per the RBI guidelines, the return you would get is “Base rate of 1.5% + Inflation Rate based on Consumer Price Index (CPI) , compounded half yearly”. So assume that, CPI inflation number is 10%, so your final return would be 11.5% (10% + 1.5%) .

Actually because its compounded half yearly , the returns would be a little more than 11.5% . One important point to note is that in case of negative inflation (which we are all sure will not happen), you get 1.5% guaranteed.

The best part about these bonds is that the benchmark for returns is CPI inflation and not WPI !. Because CPI is one the best measures of inflation parameters available in India. CPI is more close to reality, tracking the change in prices of end-user numbers unlike is sister WPI (Wholesale Price Index), which tracks the price changes in wholesale market. Read more about WPI vs CPI here .

Below is the last 3 yrs history of CPI inflation for you to get an idea about what was CPI in last some years ! .

CPI Inflation India 2013

Taxation Angle ?

This can be disappointing for many, but there is no tax benefit when you invest in these RBI bonds. You do not get any income tax exemption at the time of investing under Section 80C or anything else, nor they are tax friendly at the time of maturity.

You will have to pay income tax on your returns as per your slab rates at the time of maturity. Now that’s the price you need to pay to get the guarantee that your investments will be hedged against inflation.

Can you get Loan by Pledging the Bonds ?

Yes, you will be able to pledge these bonds and get the loan against it. Given that the bonds comes from RBI and govt guarantee’s the returns part, the lenders would not mind lending you against the inflation linked bonds. However you wont be able to sell the bonds in secondary markets, like you can do some of the other bonds which came few years back.

Can NRI’s Invest in These bonds ?

NO. NRI’s are not allowed to invest in these inflation linked bonds from RBI. As per the guidelines from RBI declaration about bonds, only Individuals , HUF’s and Charitable Institutions and Universities are allowed to invest.

Premature Withdrawal

The bonds tenure is 10 yrs, however its possible to withdraw prematurely after 3 yrs of investments (with penalty charges) , however a senior citizen (65+ yrs) would be able to do premature withdrawal after just 1 yr. Note that premature withdrawal rates are high enough to discourage you to do so ! .

How to Invest ? 

One can invest in these bonds at branches of SBI bank , all other nationalized banks (Vijaya Bank, Bank of Baroda, Maharashtra Bank, Bank of India etc etc … all of them) and 3 private banks which are ICICI bank, HDFC bank and Axis Bank.

Subscription to the Bonds will be in the form of Cash/Drafts/Cheque/online through internet banking. Cheque or drafts should be drawn in favor of the bank (those mentioned above), specified in paragraph 10 and payable at the place where the applications are tendered. I think its better to visit the bank for exact procedure incase you are interested.

Full Brochure about these bonds from RBI is below:

Who should Invest ?

At first glance the bonds look very good option to make long term investments who are too scared with inflation and it worries them to core.

Those investors who are approaching retirement and want some kind of security against inflation can surely look at these bonds, but then be ready to pay income tax on the returns part. Truly speaking your final return depends on various things like CPI inflation in future and the Taxation laws at the time of maturity.

I contacted some of the other bloggers and experts to know their opinion about these bonds and their comments and here they are !!

Karan Batra, A Chartered Accountant who writes on Income tax on his blog was not very excited about these bonds and says

These Bonds are only Inflation protected and not Tax protected but sadly the Tax Rates in India are much higher than the Inflation Rates in India. Therefore, it is always advisable that the investor should prefer to invest in tax-free instruments like PPF as they yield a better return.

Moreover, the computation of interest and principal readjustment is complex which leads to an even highly complex tax structure. These Bonds may give slightly higher returns but the complexities are so much that it I’m advising my clients to stay away from this issue and rather invest in PPF/Fixed Deposits

However when I contacted Deepak Shenoy to comment on these bonds from long term perspective, He was positive about these bonds and says

The product makes sense for anyone in income brackets that are less than 30%, but you have to buy the idea that inflation will remain fairly high over the next few years. If the CPI inflation falls, your return comes down appropriately. (In which case the fixed coupon tax-free bonds or PPF is a way better idea).

You can read the detailed posts from Deepak on these inflation linked bonds here and here.

Are you worried about inflation in future? Are your investments hedged against inflation? Please share your thoughts about it in comments section below !

Also be ready for the “Oh My God” Offer coming on 7th Jan, which will be a great one in a year offer from Jagoinvestor you can’t afford to miss. More information about it soon !

Forget IQ – Have you ever thought about your Security Quotient (SQ) ?

Posted on by Jagoinvestor

Today, on Jagoinvestor, I will coin a new term – Security Quotient. Just as I.Q. (Intelligence Quotient) is a score that measures your overall intelligence, Security Quotient (S.Q.) measures how well you have managed the security of different areas of your financial life. By security I am taking about insurance against external factors.

Imagine a warrior – heading to battle and donning various pieces of armor to protect his body. He covers himself from top to bottom and ensures there are no chinks in his armor. A warrior can concentrate on fighting against the opponent only when he is assured that he is secured from all sides. If he leaves himself exposed, he risks getting severely injured every time he is attacked.

How secured is your financial life overall

Now imagine yourself as a soldier too. You head out of your home everyday and brave the perils of your daily job to earn money. You strive to ensure you have enough funds to meet your financial goals and to have a good lifestyle including buying a home, car and other assets. But you are always exposed to various kinds of external risks in life. If you do not take measures to handle them, you can come under attack from them some day and your financial life may be severely crippled or may even collapse. It is therefore imperative that you protect yourself well from all sides and have the resilience to deal with any kind of risk. This should take the form of preemptive action, which ensures that should an adverse situation arise, you already have put things in place to eliminate or minimize the risk.

Now lets look at few areas, both big and small, and how you can take actions to protect yourself from risks in these areas.

1. Protection against Life Risk (35%)

What if you die before you expect to? A few days back I heard the news that 40 people had died in a mishap while travelling from Bangalore to Hyderabad in a Volvo bus. Do you think any of the passengers had expected such a situation to arise while boarding the bus the night before? Similarly, you have no way of predicting when the truck behind you on the road might lose its balance and run you over. So while you can control your actions, you have little to no control over the actions of others and the incidents arising from those actions.

So have you taken sufficient life insurance through a term plan or are you still deluding yourself by having those 3 or 4 traditional life insurance policies, which would not even feed your family for 2-3 years in the unfortunate event of your demise!

2. Protection against Hospitalization Risk (25%)

The wife of a relative of mine was suddenly hospitalized a few months back after having lived a healthy 55 years without any major illness. Her husband had felt that paying premiums for a product that ‘might’ not be needed was a waste of money. Unfortunately, as a result of the unexpected hospital bills, a good part of his retirement corpus is now eroded and he is making enquiries with me for a good health insurance policy. I had to inform him that it would be tough now to get a policy at a reasonable premium. The best time for him to take health insurance had long since passed.

How about you? Are you sitting on a pile of cash to the tune of 5-10 lakhs? You had better be ready with this money it if you are not planning to take good health insurance cover.

3. Protection against illness (5%)

Now what if you catch some major illness? Are you taking care of your health properly? Are you walking, exercising, biking and eating correctly? These are some steps you should be taking today to make sure you lower your risk of illness or disease. Admittedly, this was a non-finance tip, but also consider taking critical illness cover so that in the event you are diagnosed with some thing major, you get support from health insurance companies in form of money.

4. Protection against Theft at Home or Fire (5%)

I know the probability of these things occurring is miniscule – but there is still some risk you are exposed to. The more I watch Crime Patrol on Sony TV, the more I am convinced that world is not as safe as I assumed it to be! The courier boy might not be a courier boy – He might be a burglar!. A few years back, a relative’s house almost caught fire at Diwali time as a result of children carelessly bursting crackers inside the house.

Again, though chances of something like this happening are minimal, the risk will always be there. It is therefore your choice if you want to be prudent and get insured against home damage due to theft, fire or other natural disasters. The good thing is, it does not cost a lot of money. A Few hundred rupees are all you need to pay for reasonable coverage against these risks.

5. Protection against Frauds on Credit Card and Banking (5%)

The Internet is filled with millions of complaints against credit card frauds and banking related frauds yet at the same time it is also filled with credit card numbers, PAN card numbers, bank account numbers and so many important details.

The frightening thing is that smart people have lots of tricks to exploit the fragile systems to mine this information and loot investors. The ideal way to protect yourself is to know and apply the best practices to secure your information and also study the rules about banking and credit cards. You also have the option to take insurance cover against credit card theft and frauds, if that appeals to you.

6. Protection against Job loss (10%)

The shock of job loss is high because most people are immediately concerned about two things – “Will I get another job?” and “How will I handle my expenses for next few months?”

You can actually handle the second issue by maintaining an emergency fund that is sufficient to cover your expenses for a predefined number of months in the event of job loss. Say for example your expenses amount to Rs. 50,000 per month. You should be setting aside Rs. 3 lakhs only to be used if you lose your job. You could deposit the money in a F.D. and earn good interest on it – but it has to carry the mental label of ‘for emergency use only’! . You should read this article to learn how I created a job loss insurance product hypothetically

You also need to make sure you enhance your job skills and also build a strong position in your company. The ideal situation is when your employer needs your expertise more than you need that specific job! Achieving this outcome is purely in your control.

7. Protection against your Car Accident (10%)

I recently had to get a replacement for my car’s windshield. I was not worried about the expense because I had covered it already. A stone struck the windshield and shattered it. While this was a small incident, there are bigger problems lurking on Indian roads. What if your car were to be in a major accident and get badly damaged? What if it were to get stolen? What if you were to hit someone by accident and have to foot a bill of Rs. 35,000? Who will pay for all these expenses? (A similar analogy can be applied to 2-wheelers as well)

The way you can protect yourself against these risks is by taking auto insurance. Thank god it is almost mandatory in India and no one makes a fuss about getting it (like they do about term insurance).

8. Protection against loss of key documents (5%)

There was an instance when I was convinced that I had lost my Passport, original driving license and a few other key important documents (thankfully they were not lost – just misplaced). I panicked and was cursing myself for not keeping a scanned version of the documents with me, even though I had planned on doing so a lot of times.

After some frantic searching I managed to find the documents and the first thing I did was to create duplicates, keep one copy at my wife’s home and the other in my bank locker. I now make sure, that I am more careful about handling these critical pieces of paper. While I will do my best to ensure I never lose them, I always have a backup somewhere should I misplace the originals. The same goes for the keys to my home as well my important emails and digital documents!

So whats your Security Quotient between 0% – 100% ?

Just look at all the 8 points above. If you think you have secured yourself against that risk, give yourself a score from the number written next to each point. Tally up your total points and let me know how much you scored?

How banks make money when you swipe your card and by lending your money to others !

Posted on by Jagoinvestor

During my school and college years, I often used to wonder– “How do Banks make money?”. I did not however put a lot of effort in understanding the subject and naively assumed that the government was running banks in order to provide services to its citizens and to shore up the country’s infrastructure. It was only over time, that I realized how wrong I was! .

Banking is a purely profit oriented business, Just like any other business – It has its own costs and income streams. In today’s article, I would like to give you some idea of the various ways a bank earns income and makes profits. We will also talk about expenses in the banking business and hopefully provide you with a holistic view of banking.

1. Earning money through Lending

This is the heart of banking business.

Lending to its customers is the biggest money-spinner for banks. The usual way this works is that banks accept deposits from their customers (through savings bank account, fixed/recurring deposits), providing the bank with a big pool of money. Now this pool of money is then used to lend to customers who need loans.Its very obvious that not all the money deposited will be withdrawn the next day itself. If a bank has Rs 100 as deposits, not more than Rs 10 is often needed to repay back to customers, which means Rs 90 can be lent to those who are ready to pay high interest and have repayment capability.

High Interest Charged, Low interest paid

Now, riskier the loan, higher the interest charges it carries, so that in the event of a loan going bad (called as NPA – Non Performing Asset), the huge interest charged more than makes up for the loss incurred by the bank. This also explains why home loans and education loans (which have security deposits – if you cant repay, the home is there to sell off and recover the loan) have comparatively low interest rates compared to loans that are totally unsecured (e.g. personal loans or credit card debt). That explains which why CIBIL report containing high number of unsecured loans do not get loans, because they give an impression that they are so much dependent on credit in their financial life.

Anyways, To put this concept in simple terms, banks make their money by paying interest to depositors at about 4% (saving bank account – the low interest rate is because you can take out the money anytime) or 8% p.a (in FD or RD, because of some kind of lock in there, and a kind of approval by you that you will leave that money for a long time with bank and not withdraw in short term), while they give out loans/credit and earn interest themselves about 12-13% p.a. – thus earning the 5% spread in between. When you further deduct from this, the significant overhead expenses banks have to pay (like rent for offices, salaries to employees and other costs), what you are left with is the profits of the bank.

how banks earn profits and money
This also answers a common question – how banks make money on credit cards?

In case of credit cards, a few bad customers who do not pay on time, pay huge interest charges (3.5% monthly or more than 40% years) and late payment fees, which are good enough to make up for the services given to a good customer who is paying on time and availing the benefits of the card. That should answer those who ask – “How can banks afford to give me a credit for 40 days?” – Its not the bank , but those bad customers who are helping you to get that free credit ! – they pay the BIG charges.

2. Earning money through Services and Products

The other way banks earn money is by providing lots of services in addition to their core banking products. For example, when you open an account, you do not pay for basic services such as banking, transactions on an ATM machine and getting a chequebook.

However, if you need more than these basic features, you will have to pay for them. Such “extra” things are

  • Extra cheque book in a quarter
  • Feature rich credit cards with yearly fees
  • More account statements other than the default you get
  • NEFT/ RTGS charges
  • Charges for SMS notification
  • Processing charges for giving loans

There are all some examples of these paid services.

Why banks keep distributing credit cards ?

I was also curious about the eagerness displayed by banks in providing consumers with credit cards – what made them do so and how were they benefiting from it. I came to the realization later that the greater the frequency of a customer’s credit card use, the more money banks make. This is because every time you swipe your card at a shop,the bank which owns the swipe machine pockets a cool transaction fee of up to 1-2% of the transaction amount. That explains why these days banks are tying up with e-commerce companies to provide “Swipe on Delivery” service to customers other than “Cash on Delivery”

So imagine if you swipe your card for Rs. 10,000 in a month.The shopkeeper has to pay 1-2% of the transaction amount to the credit card company which owns the swipe machine (Break your 4 big myths about credit cards here). So 1-2% of Rs 10,000 is Rs 100-200. Now imagine millions of people swiping their debit/credit card each month over the years, and you can clearly visualize how much money banks make (Of course these banking services have their attendant expenses including the cost of the swiping terminals, employee salaries, rental/ purchase charges for the bank premises and other general administrative costs). So it make sense for banks to keep giving credit cards and debit cards to anyone who has potential for spending and repaying it back 🙂 . So your SPENDING creates INCOME for bank 🙂 .

Here is a detailed note of how banks money when you swipe your debit or credit cards on terminals – Thanks Vivek for the explanation

Do you know why Banks market Credit cards aggressively and give to all and sundry. It is because its one of the highest revenue generating asset for the bank. The interest rates on Credit cards are as high as 3.4% per month (APR 41%), plus service tax of 12.36% on the interest portion, effectively taking it to 3.8% pm (APR 46%). But did you know, that credit card companies have another income stream. It is INTERCHANGE FEE.

For every Credit card transaction done by you, the bank gets fixed 1.1% of the transaction amount as Interchange fee (APR 132.2%). Who actually pays this fee.

The merchant installs a POS terminal called EDC Machine at his place. Customers charge bill to their credit cards on the merchants EDC machine. The merchant in turn submits the charges to his bank called “Acquiring Bank” who acquires the charges. The Acquiring banks pays the merchant the transaction amount, less commission called Merchant Service Fee or Discount rate which is in the range of 1.6 to 4%. Typically, it is 2%. The Acquiring bank presents these charges to the Issuer bank through clearing mechanism, and gets the transaction amount, less Interchange fee. All in all, Credit card is an important folio for banks. The Customer should use to card to his advantage.

It is not free money and if one misuses it, he will have to pay through his nose. I would suggest one to have a Credit limit of not more than Rs.35,000/- or at best Rs.50,000/-. The maximum cards should be restricted to 2. Remember, Credit card debt is a TOXIC Debt. One is better off using Debit card. Interest free Grace period should not be a criterion to have a credit card.

Were you aware about these points? Lets discuss more about this in comments section. Please share your views on this topic!

What is “Undivided Share in Land” and why it should be in mentioned your agreement ?

Posted on by Jagoinvestor

You bought your “Dream Home” and you are on top of the world. The joy and pride you have after buying your home is amazing. The property is at great location and the prices are appreciating, and you feel you are the Hero ! . Now you want to sell your flat for some reason and you are more than confident that you will get a buyer and the deal will take just few weeks and you will be bathing in cash from top to down.

undivided share in land india

Prospective buyers have started meeting you and they want to buy the property, but they are all rejecting it. They are “informed investors” who take care of every single detail and they ask you that killer question –

“Everything is fine, but where is your undivided share of land (UDS) in agreement?”

You are wondering whats going on, quite amazed only to realize later that you were only sold the building which is depreciating each moment, but “LAND” , which is the real thing is not owned by you.

You are SCAMED or FOOLED ! or both ! . Let me introduce to the term “Undivided Share of Land” or UDS as its called generally in real estate world and why you cant ignore this at any cost while purchasing properties.

What is Undivided Share of Land (UDS) ?

I will keep it short and simple. Undivided Share of Land is the share of land owned by you when you purchase the property. Basically when you buy a flat or apartment, you are buying two things

1. The constructed building – where you actually reside
2. The proportionate share on the land, where the whole property is built

The Price Appreciation in real estate actually is the appreciation in land prices, because technically the building will depreciate overtime. Its not that cement and concrete structure which is the prime thing, but the land. Have you ever thought what will happen if there is an Earthquake and the building collapses ? What is in future, the govt wants to acquire the land for some national project and wants to give compensation to you ?

Leave all that, imagine in future your building after many years needs to be redeveloped and a new construction has to happen. At that time, the amount of land you own will matter. Note that incase of co-operative societies, the Undivided Share of Land might be on the name of society and not on the home owner name, because they are share holder in the society, which is fine.

The sum of all the flat owners UDS has to be equal to the property land size. You should also know that the undivided share of land will be proportionate to your property area.

Example 1 – If there is land measuring 1,000 sq and there are 10 flats or equal size is constructed on that land, then each owner will have 10% of the land as his/her share.

Example 2 – Lets say there is a big township where 100 units of 2 BHK flats of 1,000 sqft and 50 units of 3 BHK measuring 1,500 sqft . Then the total constructed area is (100 units * 1000 sqft) + (50 * 2000 sqft) = 2,00,000 sqft . Anyone who owns a 1,000 sqft flat will have 0.5% share in the total land (Because 1000 is 0.5% of 2,00,000) and anyone who owns a 2,000 sqft flat (3 bhk) will have 1% UDS .

There has been cases where the builder has allocated less undivided share to flat owners and kept some part of himself and the original land owner (a lot of times, builder buy the land from someone else). Here is one such example

Current apartment which I am staying is 10 years old apartment. Building having total 24 flats. Whereas builder made total 26 undivided share. Other than 24 flat owners one share for builder and one share for Land owner. In the share of builder and Land owner they constructed few shops in building cellar. SOURCE

Important Point – The above example is for apartment system . If its a co-operative society, then the land share is equal for each member, irrespective of their property size.

What to check in Agreement ?

When you buy the property, your builder will give you a date when you have to come to registration office and all the agreement work will be done. Most of the times, builders are reluctant to show you the agreement copy. But they will be ready to share someone else agreement copy at their office or at the main site.

Just have a look at that agreement which is like a specimen or the format, on some of the page, you will see “Details of Undivided Share of Land” and it will be mentioned in percentage terms like “0.45%” or exact area in sqft terms. Just read the whole thing carefully.

Then when the actual agreement has to take place, you can then read the agreement in detail and make sure you look after this point in your agreement copy. A small tip here is that when builder calls you for registration, tell him you would like to come before 1 hour from the scheduled time and have a detailed look at the agreement, if possible also get a lawyer with you and have him look at the agreement.

So did you check your agreement copy and see how much Undivided share of land you own ?

Rs 10,000 Income Tax Exemption on Saving Bank interest – Sec 80TTA

Posted on by Jagoinvestor

You can now save tax on an additional Rs 10,000 that you earn from savings bank interest. In the financial bill 2012, A new section called 80TTA was added to the Income Tax Act – 1961. This section allows an income tax deduction of up to Rs 10,000 to an individual or a HUF for interest earned on the savings bank account held with a Bank, Post Office or a Society.

Note that it’s not applicable on Fixed Deposits or Recurring Deposits. It’s only applicable to a normal savings bank account. The section is applicable with effect from April 01, 2013 and will apply from AY 2013-14 onwards.

Few Clarifications on 80TTA (Amendments)

  • If the interest earned out of saving bank account is more than Rs 10,000 . You will have to pay tax on the remaining amount over and above Rs 10,000
  • This tax deduction is over and above Rs 1 lac deduction under Sec 80C.
  • Rs 10,000 is the total deduction allowed by combining all the saving bank accounts interest. If you earn Rs 6,000 from each of 3 different accounts (Total Rs 18,000) , you will get deduction of Rs 10,000 and pay tax on remaining Rs 8,000.
  • The filing of income tax return would not be mandatory if your Gross Total Income is below the applicable basic exemption limit even though interest on saving accounts exceeds Rs. 10,000/ . (For example , if your saving bank interest is Rs 40,000 , but overall income is still Rs 1,60,000/year, you dont have to file income tax return)

Relief from tracking Small interest amount

The best thing I love about this tax deduction is that for tax purposes, investors will no longer have to worry about considering small amounts of interest that they earned on their savings bank account. It was a common occurrence to get a few hundred rupees as interest multiple times a year and it was a real pain to include them while computing taxable income. Almost all investors avoided including them, and thus were officially coming under the scanner as tax avoiders. With this tax deduction, they can now breathe a big sigh of relief.

Will fixed deposits give better returns ?

The answer is YES, in almost all cases, Fixed Deposits (despite being taxable) will give better returns than a normal savings bank account. However, there is a special case where Fixed Deposits are going to only marginally beat a normal savings bank account. It’s for those who come under the 30% tax slab and those whose saving bank interest rate is close to 6% (like Kotak or YES Bank).

I know this is a small percentage of investors, but if they invest some money in Fixed Deposits, the net returns are going to be very close to those of a normal savings bank account. Assuming they want to invest Rs 1 lakh or 1.5 lakhs for a year, returns on a 1 year Fixed Deposit after tax will be very close to interest earned on a savings bank account, because the latter will not be taxable. The table below explains this in more detail

saving bank fixed deposit sec 80TTA

Huge Balance in Saving bank Account ?

If you are earning 6% from your savings bank account, it takes Rs 1.66 lakhs to get Rs 10,000 interest in a year and if you are earning 4% interest, it will take 2.5 lakhs balance through the year to get the full exemption. However in our experience, we have seen a lot of our clients, as well as other investors, who keep a huge savings bank account balance – as high as 20-30 lakhs in some cases. In that case you will be earning a huge amount of interest on your savings bank account and it will all be taxable. So it is always a good practice to create a Fixed Deposit for the excess amount and only keep about 1-2 lakhs in your savings bank account.

Is your saving bank account interest more than Rs 10,000 in a year ?

Crisil Real Estate Star Ratings (Crest) – Something which can help Real estate Investors

Posted on by Jagoinvestor

Today I am going to share with you information about the CRISIL Real Estate Star Rating (CREST). It’s a product by CRISIL that rates a real estate project based on numerous parameters relevant to different entities such as investors and lenders. You can visit the CRISIL Rating page on its website

crisil-real estate rating and scale

Parameters checked by CRISIL for rating a Real estate Project ?

There are various things that determine the final quality of a project and how good or bad it is. The CRISIL Real Estate Star Rating looks into the parameters listed below and then assigns a rating to the real estate project.

  • Construction and legal track record
  • Organisation strength, systems & processes
  • Financial strength of developers (s)
  • Structural quality
  • Clarity of Title
  • Infrastructure & Integrated Facilities
  • Restrictive Covenants
  • Finishes
  • Encumbrances
  • After-Sales Services
  • Sale Agreement
  • Likelihood of Time and Cost Overruns
  • Development Agreement
  • Accounting Quality
  • Project Economics or Viability
  • Financial Flexibility
  • Innovation in Construction technology
  • Innovation in Building design
  • Innovation in Project funding

Rating Scale

CRISIL has an 8-point rating scale for the properties, beginning from “1 Star” and going up to “7 Stars”. The lowest rating is “Non Deliverable”. On CRISIL’s website, you can see the list of different cities and their associated CREST ratings. So if you want to buy a property in Bangalore (learn 20 terms in real estate here), you can check the CRISIL website to see if the property/ project you are interested in is mentioned. The project might have already gone through the rating process by CRISIL, and obtained a rating.

However, if a project has not been rated by CRISIL, it does not mean that the project is bad or is not worth investing in. It just means the builder has not applied for the CREST rating or CRISIL has not picked up that project yet. Given the number of projects coming up in different cities, and the total time it takes to scrutinize a project (close to 4-5 weeks), it is really not possible to rate all the projects in one go.

Different Projects in Cities

If I look at the CRISIL website, I can see many cities listed and numerous projects listed under each city. All you need to do, is to click on a city name and you will see the list. Here are some snapshots, which will give you a clearer idea

Different cities in CRISIL Real estate Rating

Mumbai CRISIL Rating

bangalore crisil rating

Pune crisil rating

How to use CRISIL Rating?

If you are lucky, the real estate project you selected is already rated by CRISIL, in which case you can see how many stars it has got. “7 stars” is the highest. So if the rating is either 7 star, 6 star or 5 star, I would say it’s a good rating overall. But you should re-look at projects with lower rating; especially a project rated as “2 Stars” or “3 Stars”.

However, CRISIL might not have rated the project yet, in which case you will be have to check the project and evaluate it on different parameters on your own – we have already discussed some of the parameters on this article.

Let us know if you were aware about CRISIL real estate star ratings (CREST) or not ?

Everything you should know about Breaking your Fixed Deposits before Maturity

Posted on by Jagoinvestor

Today let me share the procedure and some points regarding the premature breaking of your fixed deposits. We have seen, that due to the ease of creating fixed deposits online, more and more investors create them if they are not able to find the right purpose of their surplus money and then in case of emergencies, they have to break their fixed deposits prematurely.

are you thinking of breaking you fixed deposits before maturity? here is the procedure

Procedure for Breaking Fixed Deposit Before Maturity

Now the procedure for breaking the fixed deposit is fairly simple and much faster. However, the whole procedure can vary across PSU banks and Private banks. The procedure can also vary if you take into consideration online vs. offline

When you create a Fixed Deposit or Recurring Deposit, the bank sends you Deposit Certificate or receipt after some days of opening it (In case of many PSU banks, you need to collect it manually by going to branch). This is just a receipt or a proof of deposit. Now you can carry this deposit certificate to branch and ask the bank official to break your FD, they should be able to process your request.

However in case you do not have the deposit receipt or have lost it somewhere, you don’t have to worry much, in that case, you will have to give them a letter or fill up a premature FD breaking form available at the bank branch, read further to know about it. Read about Requirement of Fixed Deposit on Opening Lockers here

Online Procedure of Breaking Fixed/Recurring Deposits

A lot of banks allow you to open create fixed deposits online from your net banking account.  I have seen that most of the private banks allow you to break your fixed deposits online itself, all you need to do is go to “service request” section of your net banking and you will see a section where you can break the fixed deposit before maturity.

In ICICI, when you go to “service requests” section, on the right-hand side you can see “Fixed/Recurring Deposits related”, you can go to that section and choose “Premature Closure of Deposits” and then choose the FD/RD number and cancel it.

Your request will be processed in the next working day and you will get the money in your account. Check the screenshot below which shows you that.

Breaking Fixed Deposit before maturity Online

Offline Procedure of Breaking Fixed/Recurring Deposits  by visiting the Branch

A lot of PSU banks do not allow breaking your Fixed deposits or Recurring Deposits online. You will have to visit the branch itself and manually break it. Here is what you need to do

  • Step 1 – Write an Application mentioning you want to break your FD/RD, mention the Deposit Number and account number where it should get credited. At times, you have to fill the premature FD Breaking form available at the bank itself. In almost all the cases, the fixed deposit is broken instantly, the bank official must be able to do it with a click of the button.
  • Step 2 – Attach an ID proof (PAN etc). Private Banks have the Xerox machines inside the bank itself, so you just need to carry the original id proof and they will help you with the photocopy.

Below is a sample letter stating wish to break the fixed deposit or recurring deposit prematurely.
Breaking Fixed Deposit or Recurring Deposit Letter

Do I need to pay fine on Breaking Fixed Deposits before maturity?

When you break fixed deposits prematurely before maturity, you will not get the same interest rate offered originally. You will get the interest rate which is applicable for the tenure you actually ran the FD for. For example, suppose you opened the FD for 1 yr originally, and the interest rate offered was 9 %.

Now if you closed the FD in let’s say 3 months, and if the interest rate for 3 months FD was 7%, then you will get only 7% interest for the period of your fixed deposit. Also in several cases, there might be penalty charges which are nothing but another reduction in your interest rates.

Like the bank, rules can say that if your FD was opened for 1 yr, and if you break it before maturity, you will get 1% less interest than offered. Many a time, there is no penalty for short-term fixed deposits.

Best practices before you create Fixed Deposits!

  • If you already have few commitments in near future, avoid creating long-term Fixed deposits, create short-term FD’s
  • Instead of creating one large FD (example 5 lacs FD), better create 2-3 FD of small amounts like 2 lacs + 2 lacs + 1 lacs. This way if you need a partial amount (let’s say 3 lacs or 2 lacs or 1 lac), you will be able to break the FD’s partially. It won’t affect the full amount
  • You can take a loan against Fixed Deposit or overdraft against your FD.

Some Important points to know

  • There is various kind of fixed deposits products, at times there are fixed deposits which also allow you to withdraw the FD money instantly through Debit Card itself, like for example Kotak bank Flexi-Deposit.
  • Also, if your fixed deposit is under Sweep In Account, then you should be able to withdraw the money instantly without manually breaking it, read more about the sweep in accounts here.
  • For some banks fixed deposits (private banks mostly), the some FD’s get broken if you issue a NEFT/RTGS transfer to some bank account. Like if you have a 2 lac FD in Kotak Bank (Flexi deposit) and if you transfer Rs 2 lacs in another account through NEFT/RTGS/IMPS, then the transfer happens and the FD is broken.
  • In the case of companies with a current account, company seal will be required along with signatures of partners.
  • In worst cases, your Fixed deposit breakage might require some approval from the main branch, but it should not take more than 2-3 days in worst to worst cases.

Share your personal experience about breaking the Fixed Deposit in the comments section if any!