Category: Knowledge and Concepts

20 terms which will Super Charge your Real Estate knowledge !

Posted on by Jagoinvestor

The biggest tool an investor has is knowledge on his side. But when it comes to real estate, we can see a lot of investors do not pay a lot of attention to smaller details which can create big problems for them. Today I want to hand over to you a real estate terminologies toolkit, which will explain various things to you in most simple and shortest way. When you go out to buy your home next, you will not need anyone on your side to have conversation with the builder and you will give him the feeling that you know more than him. It should help in someway.

Real Estate Terms and Termninologies

18 terms which will super charge your Real Estate knowledge

Here are those 18 terms and terminologies.

1. Carpet Area – When you buy a flat, you actually area on which you can lay carpet is called as “carpet area”. Note that builders advertise the property based on other parameters, but as a buyer this is what you are going to actually use for next many decades. Higher the Carpet area, better space you get.

2. Built up area – Built up area is the area which covers Carpet Area and the Walls and doors . A good 15-20% of space goes into walls and doors and your super built up area is generally 20% higher than carpet area. Ideally the rate quoted by builders is based on “built up area”.

3. Super Built up Area – A lot of times you will come across a term “Super Build Up area” , which is nothing but built up area along with all the space common to all the residents of society like Corridors, staircases, parking area etc . So Super Built up area is higher than Built up area. A lot of builders also use “super built up area” to advertise the projects which gives an artificial picture of property. Never rely on that

4. Sub-Registrar Office – For Registrations of Properties, there is an official department called “sub registrar office” , you can visit it to get your properties registered and also obtain any legal documents related to properties and land. If any officer tells you to “pay for Chai Pani” there, tell him you are filing a RTI and putting his name in the application for the “request” he made to you and ideally he behave properly with you. Note that you can get sub registrar office address online. Example – for Delhi its here

5. Capital Gains – When you sell a property after 3 yrs, the amount of profit you make is called “Capital Gains” . Tax will be applied on this Capital gains after applying Indexation. Also you can avoid paying this tax if divert the profits part in another property or another way of saving tax on that amount is investing in NHAI or REC bonds.

6. Encumbrance Certificate –  Encumbrance Certificate is an evidence of free title or ownership of property. This document clearly tells you if there is any legal or monitory dues on property. So if you are going to take a home loan against a flat, bank will need Encumbrance Certificate to be sure that there is no other loan going on for the same property. You can get the Encumbrance Certificate from the Sub-Registrar Office (where registration of properties take place). You can ask for upto 30 yrs of data (if available) . It takes around 15-20 days at times to get it after you have put a request to get encumbrance certificate . Read more about Emcumbrance certificate here

7. Title Deed – A title deed is a legal document used to prove ownership of a piece of property. So if you are buying property from Mr. Manish Chauhan, make sure you check the title deed. Title deed is something which you can get from Registry office of the concerned jurisdiction. Title deed is something which one must always obtain and check if you are buying an old property, because at times land and property is owned by some one old and children claim that its in their name just to speed up the process, but at times it gets ugly later. Important Tip – Never rely on Xerox Copies of the Title Deed, get it examined in original because sometimes the seller might have taken a loan and given in the original deed to lender (and does not tell you about this) .

8. Stamp Duty – Real Estate Stamp Duty is the tax collected by Govt . The stamp duty payable differs from one state to another. In some states its 3-4% and some has it at 8% also. The Stamp duty is payable on Agreement Value. So a lot of times buyers and sellers do the property agreement at lesser value and involve black money in the transaction. Its important to factor in stamp duty cost as per of your home purchase plan, because its quite a huge amount . For a Rs 50 lacs property, it can be in range of Rs 2-3 lacs. Important point is that women in many states have to pay lesser stamp duty compared to men.  For instance, in Delhi, a women need to pay a stamp duty of 4% compared with 6% for men. Thats 2% saving and for a 50 lacs house, its a saving of Rs 1 lacs” .

9. Franking Charges – When you go for home loan, there is a small charge called as “franking charges” paid you buyer to Bank . Franking (incase of real estate transaction) is actually the activity to stamping a document which proves that the Stamp duty has been paid to govt. Its an official seal kind of thing which is to be done in sub-registrar office for a small fees (Few Hundreds), this is done by the bank and they collect those charges from buyer.

10. Registration Charges – Just like you pay Stamp Duty, you also pay Registration Charges when you register the property in your name and the charges again depends from state to state . In Maharashtra, the registration charges are 1% of property or Rs 30,000
whichever is lower.

11. Gift Deed  – Generally you “sell” the property in exchange of money. But when you have to transfer the property rights to some one without taking the money like what happens in families, then you should to pass it on as GIFT and a Gift Deed should be prepared to document the process. Note that Stamp duty is to be paid even if the property is transferred through Gift Deed. Learn more about income tax on gifts here

12. Power of Attorney – A lot of times you will find that someone is trying to sell you land or a flat, based on power of attorney, which is a legal way of transferring your rights to someone else. But Supreme court has now banned all the real estate transactions based on power of attorney. So next time someone tells you that the owner of land is outside India and hence assigned him power to sell the flat, do not get fooled, only deal with someone with clear title deed.

13. Sale Deed – A sale deed is one of the most important legal documents in a purchase or sale of a property. Once its signed by the seller and buyer only then the sale is assumed to happen legally. The registration of property and stamp duty payable is based on sale deed only. A sale deed will also contain property details , measurements and other important details.

14. Service Tax and VAT – Service tax needs to be paid only for under construction properties untill complition certificate has been obtained by builder. Because till the flat is under construction, its regarded as “service”, so service tax is applicable (3.09% at the moment). But once the construction is over and complition certificate has been obtained by Builder, then the property like “goods” , where the service tax is not applicable. In the To be Paid for Under Construction Flats. VAT again is applicable for under construction properties, but only in those states where state govt has asked for VAT. Not all states have VAT applicable.

15. Conveyance Deed – Conveyence Deed is a legal document which a builder executes in order to transfer the land title to Housing socities formed. This is generally done once all the flats are sold in a project. This step is extremelly important because if this is not done, the title of land still remains with Builder and incase in future something happens, there is unnecessary legal battles. So make sure that once the society is formed, the conveyance deed is executed.

16. Completion Certificate – Once the project is completed, the local authority visits the site and inspects the construction and various things and awards completion certificate to Builder. so Completion Certificate is kind of certificate from local authority, that now the work is complete. This is the moment a builder can officially declare about the project completion. There still can be few last minute things which might need to be addressed.
17. Possession certificate – Possession letter is issued by the Builder which is actually the official permission to take possession of property. Generally its given to those who booked property during under construction. If its a ready to move in flat, the sale deed is enough and will work just like possession certificate. Note that a builder can give possession certificate only after he has obtained completion certificate.

18. Ready Reckoner Rates or Guidelines Value – For each area, there is a official govt defined rates for property which acts like the  base price. The minimum registration and stamp duty charges has to be on those guidelines value. Builders generally charge premium over these guideline values . Read more here

19. FSI (Floor Space Index) – It is the ratio specified by local authority (generally municipal corporation or urban development authority) which governs how much area one can build over a specific plot of land. i. e. if FSI for an area is 2 and you have a 1000 sq ft plot, you can build (2 X 1000) 2000 sq ft building over it. Generally, common areas like staircase, lift, passage leading to the flat door, service ducts outside toilets and kitchens, etc. are not considered in this 2000 sq ft FSI area, which means, you can construct these areas over and above the permitted FSI area. At macro level, this magic ratio called FSI determines how much construction will come up in a city.

20 – OC (Occupancy Certificate) – Well, generally CCs (Completion Certificates) are issued by municipal corporation in stages. i. e. a 25 floors high building may be issued CC for every 5 floors depending on its design. However, building is considered to be ready-for-occupation after builder has not only completed the construction but has also made it habitable by bringing in all services like electricity, water supply, drainage connection and fire fighting facilities. The corporation, after receiving NOCs from all concerned dept. will issue OC. Ideally, builder should / can issue Possession Letter only after receiving the OC. In reality though, several (not few) buildings have OC even after years of completion and being occupied. Buildings not having OC have higher outgo towards water bill, electricity charges and property tax.

Thanks Mehul for adding last 2 points as contribution

Please add more terms

If you are aware about some other thing which you have come across or feel can be added here, please add it in comments section.

Also let us know if you feel like a “pro” now in real estate terminologies or not ?

How Ready Reckoner rates by Govt affect real estate Prices ?

Posted on by Jagoinvestor

A lot of investors wonder how the real estate prices go up and down (do they?) over years. A very big role in the movement of real estate prices is played by something called “ready reckoner rates” . Ready reckoner rates for each area in the city are defined by the state govt. Let us understand this thing in detail.

what is ready reckoner rates

Ready Reckoner rates are the prices of land, residential properties, and commercial properties for any given area defined and published by govt each year. It’s revised from time to time whenever govt feels that there is a need for prices revision. Stamp duty and registration costs that are paid by a real estate buyer cant be below this ready reckoner price or the actual price of the property.

For example – Let’s say that ready reckoner rates for some location is set at Rs 4,000 per sq ft (as per state govt) and the cost of the property as per that comes at Rs 40 lacs. Now imagine that the builder is quoting the cost of the property to you at Rs 50 lacs. Now the stamp duty will be paid on Rs 50 lacs only because its higher than Rs 40 lacs. However – suppose you decide to pay Rs 20 lacs in black and only Rs 30 lacs in white money, still, your registration & stamp duty will be paid on Rs 40 lacs costs because that’s the minimum pricing set by govt itself.

Ready Reckoner rates are linked to Built-up Area

Note that the ready reckoner rates are linked to the Built-up area of the property, not carpet area or super built-up area. So if ready reckoner rate is Rs 4,000 sq/ft and builder tells you that he will also sell the property to you at Rs 4,000 sq/ft, don’t get fooled!, because builder tells you the pricing linked with super built up area and not built up area, which in most of the cases is higher, so eventually the rate charged by builder is always higher, if you convert it for the built-up area. Just for example if super built up area is 1,000 sq/ft and built up area is 800 sq/ft, then Rs 4,000 per sq/ft area quoted for super built-up area (Rs 40 lacs cost), is same as Rs 5,000 sq/ft quoted for built up area (same Rs 40 lacs) .

Just to make sure you understand the terminologies –

  • Carpet area – A Net usable area of the property (imagine you put carpet, what all part of flat, it will cover)
  • Built-up area – Carpet area + walls and doors area (imagine you remove the thick walls and all doors, then what you will be left with)
  • Super built-up area – Built-up area (which you get) + everything from the staircase, garden, gym, swimming pool and everything you use (your proportion)

How ready reckoner rates affect the prices of real estate

Now – It’s very clear, that ready reckoner price is the FAIR PRICE (which is fair value) set by govt itself. Now builders can charge the premium on that fair price depending on market condition, demand, quality and their goodwill and their exploitation power :). So the market price (the actual prices prevailing in the market), will definitely be always higher than ready reckoner prices (benchmark). Now if the benchmark itself is higher at any given point of time and also keeps increasing over years, the market price quoted by builders will also be high.

Example – Just to give you an example, in one of the areas called “Kondhwa” in Pune, the ready reckoner price set by govt is around Rs 3,700 per sq/ft, however, the builders are charging anywhere from Rs 4,500 to 6,500 per sq/ft at the moment. Imagine if this year govt increases it to 4,000, then automatically the rates will go up by that much margin because builders get a good reason to escalate the cost.

One of the largest revenue sources of any state govt is the stamp duty from property registrations and it’s always in state govt interest(from a revenue point of view) to keep the ready reckoner rates higher or increase it if there is any justification for it, live development done, roads constructed, etc…

Where to find the Ready reckoner rates for your area?

Now, you cant control the actual price you have to pay to a builder, but it’s a good idea to check out the ready reckoner rates of the area, where you are thinking of buying the property. Now there are few ways you can find out the ready reckoner rates of your area (or any area). Here are a few of them, some easy and some tough.

1. On the website of “Registration and Stamp Duty Department”

Each state govt has its own department of “Registration and Stamp Duty”. You can reach the website by searching the sentence “Registration and Stamp duty department” and adding state name along with it on google. Like if you want to find out the website for Maharashtra search for “Registration and Stamp Duty Maharashtra” (direct link) and the first link you get it “igrmaharashtra.gov.in/‎”. On the website, you need to search for a link – which says something like “market rates” or some equivalent in the local language of the state. If you are lucky, you might reach the final page which helps you find out the ready reckoner rates for all the cities in the state. It will help you find the rates as per city, taluka, location or survey number. I tried this trick and was able to find out the websites links for 3 states

  • Andhra Pradesh (for Hyderabad) – Direct Link

Note – The rates might be displayed in per sq yard, per sq meter etc, so better change them to per sq feet and also make sure you use IE or Firefox to access the websites because they still don’t know chrome exists!

2. Using RTI application

The second way to find out the rates is to use the RTI application against the same Registration and Stamp Duty department (many times called “revenue department” like in Delhi). All you need to do is file an RTI to the respective officer and to your jurisdiction asking for the rates in a particular city and area. You can take help of this article to understand the format and procedure

3. Office of Sub-registrar

One of the best ways would be to go to the sub-registrar office (where the properties are registered) and find out the rates from there itself. If you do not find the support of the staff there, don’t forget to mention words like RTI, CIC and “One of my friend works in Media” and they should accept doing some work for you.

4. From the newspapers

All the newspapers keep on publishing these rates from time to time. Just keep an eye on real estate section from time to time and you should be able to get some info. Below I am attaching some snapshots I got from the Internet for the revised rates in the year 2013 from 2012.

mumbai ready reckoner rates

Pune ready reckoner rates

Pimpri Chinchwad ready reckoner rates

No Ready Reckoner rates for rentals

There are ready reckoner rates for buying the properties, but there are no ready reckoner rates for rentals. It would be amazing if govt comes up with that too, it would then help us to understand which area is doing better then others and how much premium home owners are asking for over govt defined rental rates.

Overall what do you think about ready reckoner rates and does it helps the overall industry or goes against it? Please put your comments!

8 things in Real Estate Regulations Bill which can affect Property Prices

Posted on by Jagoinvestor

It has been 5 yrs when the first draft of the Real Estate Regulatory Bill came and then there were many amendments in it over the years. However on 4th June 2013, it was passed by cabinet and now the next step is to table it in parliament this monsoon season and if our country people are really lucky, it will finally become an ACT of law.

real estate regulation bill

Real Estate Sector is hugely unorganized and against buyers

We all know that the real estate sector is so much unregulated and unorganized. There are no proper guidelines on any thing and builders use this to make maximum out of the situation and take buyers for the ride at every level. Builders and Politician nexus are very known and from last 10-15 yrs, the real estate prices have crossed the level that a common middle-class family would never afford their own house.

In this scenario, the real estate regulations are not just a requirement, but a big need of the industry if our economy and society need to some stability over the long term. In this article, we will discuss all the major points in real estate regulations. There are many good points in the regulation and it will help the industry, however like any other law, this bill also has many loopholes and many rules can be exploited by the builders. This bill whenever becomes the final act, will only be applicable to new real estate projects, not the ongoing and completed projects.

From the last few days, there has been a great number of discussions over various news portals and discussion forums on how these regulations will be a great thing and how it is just another failure. So let’s see major highlights of the regulations

1. Mandatory to acquire all clearances before the launch

As per the bill, it would be mandatory to acquire all the required clearances from relevant authorities and govt bodies before formally launching the project. Right now builders launch the project when there is nothing more than plain land on the site and have no permissions for anything. They give rosy pictures to investors, start taking the money from the public and then start the overall process of acquiring the land, getting approvals, and coming up with the structure. This means there will be obvious delays and lots of confusion and frustration for investors.

With this, the concept of “pre-launch” offers will vanish and you can expect the prices of the property to be high on launch. A lot of people are saying that because of this, there might be a slowdown on the supply side because right now a builder keeps launching new projects. Another requirements is that these permissions taken are to be displayed on the website of the developer.

2. Use of Photograph of actual site for advertisements

As per the bill, the builders will have to use the actual sire pictures or the actual construction work pictures for advertisements for the project. Right now builders do not use the actual pictures for promotional purpose.

It’s easy to create an illusion by using graphics and shiny pictures and that is what happens most of the time. Builders use the classic graphics image of the project site which is full of greenery and nature around it and the feeling it gives you is that its an opportunity one cant miss. However, in reality, the project site is quite different. It might happen that there are buildings around it and no trees or any natural habitat. The roads around might be bad and the elevation of the project site might be high or low than the normal.

If a builder is found to be putting up misleading or wrong advertisements, then there can be a jail term of up to three years, if it’s done repeatedly.

3. Sale of property as per prices linked with Carpet Area

The bill says that any sale proceedings should be using the prices which are linked with carpet area and not super built-up area. Generally, builders use “super built-up area” as the parameter and define the per sq ft price as per that. Carpet area is the net usable area which can be used for living purpose (imagine you lay down carpet, then how much area it will cover), however super built-up area (or salable area as called by many builders) is combination of net usable area, area covered by walls, doors, parking area, staircases, temple in side the project, gym, garden and everything you can imagine which is part of your package (divided per buyer). So super built-up area becomes high and the per sq ft price looks small, however, if you divide the whole cost by the carpet area, then you will realize how much you are paying.

You should also know that even in agreement, only the carpet area is mentioned. However, builders quote the pricing only on super built-up area.

4. State Level Regulators and central appellate tribunal to be set up

The bills also say that a central appellate tribunal should be set up as a central body and each individual states should also have state regulators. This means that there would be some central guidelines for the real estate sector and builder and each state will focus on regulating their states real estate builders. There might be few rules different from states to states. I personally feel that there might be some confusion due to this.

5. Real Agents/Dealers need to register themselves

Right now, real estate agents and dealers are not at all registered with any central/state body and hence due to highly unregulated environments, they do not have any code of conduct or service standards defined. Now they will have to register themselves and will have clear responsibilities and functions. Consumers will be able to demand their rights from agents and dealers for the amount of commissions paid to them.

6. Separate bank accounts for every project

As per the bill, A builder will have to maintain separate bank account for each and every project and up to 70% of the funds for that project has to be there in that same bank account. In the previous drafts, this number was 100% (means no money for Project A can be used in Project B) , but looks like the builders and politicians lobby has been successful in diluting the quality of the bill wordings and in new draft now the number is 70% or less. It does not serve the protection of buyers because builders will still be able to divert 30% of the funds from one project to another.

Right now, the way it works is that a builder when faces a severe cash crunch launches a new project and uses the money collected in another project to complete the old project and this cycle goes on. This creates a lot of issues for home buyers because there are huge delays at times. Firstpost did an excellent article on this topic and concluded that real estate is a kind of Ponzi scheme

7. Builders cant take more than 10% advance without a written Agreement

A builder will not be able to take more than 10% advance money from buyers without a written agreement. Right now a lot of dealings happens by paying huge advances and the agreement part is delayed by many. In many cases, agreements happen after many months or years, as lots of transactions happen on a trust basis. This might help in curtailing some part of black money transactions. However only you guys can tell some real-life cases which this clause might not help and fail.

8. Full refund with interest, if property not handed over time

As per the bill, the builder has to refund your money along with the interest, if he fails to deliver the project on time. At this moment, this point gets added in the agreement and almost all the times, builders make sure that this point is omitted in the agreement and if it’s not there, you have to file a consumer court and after a long time, you are rewarded your right. However, the bill will make it a standard rule or clause.

The Bill rules apply to project over 4,000 sq meters in size

The biggest worry about this bill is that it’s applicable only to projects which are of 4,000 sq meters and above size overall and if a project is bigger than 4,000 sq meters, the bills allow to break the whole project into different phases and see each phase as different project. Now this clause itself destroys the protection layer for consumers. Because a builder can always break the whole project into different phases and show them as a separate project. Many builders anyways run various projects under different companies’ names to save on tax. So running two or more sub projects on different names (which are actually just one project side by side).

The old draft of the bill had this number at 1,000 sq meter, but this current recent bill has it at 4,000 sq meter, so again someone has been able to influence the bill.

No Single Window Clearance for Approvals

One of the major challenges and problems builders face is about the govt clearances and various approvals. This takes a lot of time and opens up the gate for bribes and bureaucracy, the bill does not address this problem at all. It would be great if there would be a separate govt department which would have a single-window clearance. This would help in defining the project completion time with more accuracy.

Will all this reduce the property prices or not?

This is the million-dollar question which is in every body-mind, that with this bill, will the prices of real estate come down or not, which is the biggest issue common man is facing right now, compared to any other issue. Delays and consumer exploitation is all fine if prices are normal and affordable, but if prices itself are so high that its out of reach of common man, then every other problem is secondary.

Here is a copy of the Real Estate Bill which I got from Moneylife article

There are many implications of this bill and tons of factors and variables which can affect real estate prices. Some are saying that prices might go up and some are saying pricing might come down. But It would only be clear when the bill becomes a reality.

However, we would like to hear what you think about this real estate bill and how it might impact the real estate prices?

SBI MaxGain Home Loan Review – With FAQ’s

Posted on by Jagoinvestor

In this article we are going to share SBI Maxgain Home Loan review with you. Now a days many home loan borrowers are opting a particular type of home loan from State Bank of India which is called Max Gain because it has many advantages compared to other kind of home loan scheme’s. In this SBI Max Gain home loan, an Overdraft (OD) account is assigned to the customer’s home loan & any amount parked by customer is treated as loan repayment for the purpose of interest calculation, for the days, the amount stays there in that OD account. As on date following banks are offering similar types of home loan to their customers. I would like to thank to Mr. VKS Nathan who gave the Idea of this article.

sbi maxgain home loan review

SBI, IDBI, CITI, HSBC & Standard Chartered. Punjab National Bank can also be added in this list but it’s offering a combo of normal loan + Overdraft. In this article, we are going to discuss only SBI Max Gain as in OD linked home loan, the maximum business is with SBI & the most discussed topic on Jagoinvestor Forum is also related to SBI Max Gain Scheme

What is an Overdraft account?

Before we discuss Max Gain, first understand, what is an Over Draft Account? All of us are well aware of functioning of an ordinary saving bank (SB) account. Here account operates between zero to positive & positive to zero. As we deposit our money, it’s used by bank & we get interest on our money from bank. In case of an OD account, bank first ask for a security & then assign a credit limit on the basis of the market value of that security. This security may be Fixed Deposits, Insurance Policies, National Saving Certificates, Shares, Mutual Fund units, house/commercial property etc. Now when we are using this assigned credit limit, the amount is going from zero to negative zone & when we are repaying, it’s coming from negative to zero. As we are using bank’s money in this case, the interest ‘ll be paid by us to bank. That’s how an OD account works.

So what is the correlation between Max Gain home loan & Over Draft account?

For Max Gain borrowers, State bank of India opens an Over Draft account where the Credit limit as discussed above is equal to the loan value assigned to the borrower. Here underlying security is the home you have purchased or constructed from that loan amount. Now as & when you are parking any surplus amount into this OD account, the parked amount is treated as payment towards loan (effectively you are bringing down your loan liability from negative towards zero position) and thus the interest ‘ll be charged only on the difference amount i.e. total loan amount – parked surplus amount.

What is the primary benefit of SBI Max Gain Scheme?

Well the primary benefit of MG is to keep your liquidity intact & still bringing down your interest outgo. To understand it better, please imagine a situation you are running a home loan of 30L Rs. & now you do have 2L Rs. with you to prepay. In normal home loan, your 2L Rs. ‘ll be accepted by bank & adjusted towards home loan & your amount is gone forever so no liquidity for you of that 2L Rs. amount. On the other hand, if you are MG customer, simply park those 2L Rs. in your MG account & your interest outgo ‘ll be lower from that month itself till those 2L Rs. or a part of it is there as surplus in MG account.

What is Drawing Power ?

Drawing Power is nothing but your as on date actual outstanding loan amount. Before final disbursal or start of loan repayment, it’s your sanctioned loan amount. Once your EMI starts, it’s your as on date actual outstanding loan amount. Please check Image below, Drawing Power here is 1867053 Rs. as on date. (Click here to understand it better)

What is Available balance?

Before final disbursal, it’s the sum of undisbursed amount + parked surplus & post final disbursal, it’s your parked surplus amount which is available to withdraw. Please check Image below, Available Balance here is 1084177.72 Rs. as on date. (Click here to understand it better)

What is book balance?

It’s the adjusted loan amount arrived after deducting the Available Balance amount from Drawing Power. In your account statements it’s shown with a negative sign. Please check Image below, Book Balance here is  – 782875.28 Rs. as on date. (Click here to understand it better)

Is there any extra interest for Max Gain?

No, the interest for home loan is same in SBI be it for normal home loan or for Max Gain.

I’m an existing SBI home loan customer. Can I convert my old term loan to Max Gain?

Yes, you can. Please contact your loan serving branch or RACPC for the required paperwork to be done. This may be an outdated info so please do check with your loan serving branch for current day rules on conversion.

I have taken the Max Gain for an Under Construction Property. Can I park surplus amount to save on interest outgo?

The answer is yes & no both. Yes you can park your surplus during under construction phase but do remember SBI is disbursing partially at this juncture & in case due to any emergency you want to liquidate your surplus, SBI ‘l not allow the same. so park only that much surplus, you feel you ‘ll not need even in an extreme emergency.

If I’m parking some money on monthly basis or in lump sum, will my loan term come down or EMI go down?

No. Neither your EMI ‘ll come down nor your loan term. The only saving is in terms of interest outgo. To understand it better, Let’s assume a test case of loan amount 30L Rs. @ 10% Rate of Interest for 20Y term. The normal EMI for these nos. ‘ll be 28951 Rs. The break up of your EMI for first month ‘ll be 25000 Rs. interest & 3951 Rs. for principal repayment.
Now if you do have 2L Rs. surplus in the very first month & prepay the same as below –

Case – 1 Normal home loan

Your 2L Rs. is gone & outstanding loan amount ‘ll come to 2796049 & interest outgo ‘ll still be 25000 Rs. but the no. of months ‘ll come down from original 240 to 198 months.

Case – 2 Max Gain home loan

Your 2L Rs. are parked in that OD account & the interest for the very first month ‘ll be calculated on 28L Rs. & thus it ‘ll be 23334 & thus there‘ll be an interest saving of 1667 Rs. which‘ll remain available in your OD account as surplus along with your parked surplus 2L Rs. so for next month, the parked surplus amount ‘ll be 201667 Rs.

Please do note in case 2 above, Your loan term is still 240 months but the saving of interest ‘ll keep on increasing on mly basis from the parked surplus & of course the liquidity of those 2L Rs. is there.

How can I calculate my saving in Max Gain?

To know your actual saving, first of all please demand a loan amortization schedule from your loan serving branch & now for each month compare the scheduled interest outgo as per your loan amount. schedule & the actual interest outgo.

What should I do to maximize the savings in Max Gain?

If you are paying your EMIs from SBI’s SB account, you can maximize your benefits. How? here it goes. Say 15th is the EMi date on which EMi amount is debited from your SB acct. Now in a normal home loan, people ‘ll keep at least 2-3 months’ EMI amount as buffer in SB account. but in case of Max Gain, you do not need to keep buffer in SB account. Keep this buffer amount also in your MG account along with your routine surplus amount. now use the power of net-banking of SBI for your own good & create a schedule transaction of your EMI amount 28951 Rs. (in the above example) to be transferred on 13th of every month from MG account to SB account. At a time you can schedule for next 12 months by using standard instruction. So it’s technology that’s helping you.

I can transfer to MG account from my existing net-banking enabled SB account but reverse is not happening. why?

The answer lies in the fact that Net-banking transaction rights on your MG account is not enabled yet by your loan serving branch. if final disbursal is done, you can apply for transaction rights. if only partial disbursement has been done, sorry, you can’t apply for transaction rights till final disbursal.

Is it mandatory to purchase property insurance & life insurance along with Max Gain?

Having property insurance as well as sufficient life insurance is compulsory but purchasing the same from SBI’s sister cos. like SBI General ins. & SBI Life ins. is not at all mandatory. if you feel that policies are being cross sold to you to exploit your position (home loan seeker), please contact the AGM of your local RACPC where your loan application is under processing.

Is SBI charging higher processing fee for Max Gain?

No, as on date there is no differentiation in fee for term loan & Max Gain but SBi reserves the rights to charge different fee.

Can I claim section 80C principal repayment benefit for the surplus amount parked in Max Gain?

The answer is NO. Only the regular principal repaid by you from your EMI as part of your loan amortization schedule is available for tax benefit under section 80C. the parked surplus amount is liquid money & you can withdraw it any time, hence it’s not considered as actual repayment of loan & thus not eligible for tax benefit.

Can I avail cheque book & ATM card for my Max Gain account?

Yes, as & when you‘ll demand these, SBI ‘ll offer you the same. In case you are already holding an SBI SB acct. linked ATM card, you have the option to link your MG acct. also with this existing ATM card.

Can I enroll my MF SIPs in Max Gain?

Yes but do note, there should be a surplus balance i.e. available balance on the date of SIP, else your ECS or SI mandate ‘ll bounce.

Can i pay for my utility bills, credit card payments, online shopping from Max Gain?

Yes, you can do all this & more. In fact it’s in your best interest that you treat your MG account as your primary money parking account & route all your transactions through it so that money is lying there for maximum possible time & thus helping you to bring down your interest outgo.

I used my MG account ATM card to withdraw cash from other bank’s ATM & I was charged the money very first time in the month. Why?

The reason is, as per RBI’s circular 5 transactions on other banks’ ATM are free only for SB account & in this case, you forget the point that your MG account is not SB account. it’s an overdraft account.

For an imaginary situation, my loan amount is 30L Rs. & parked surplus amount is also 30L Rs. Does it mean, my loan is closed & I can claim my property papers from SBI?

No, your loan is not closed. Only interest outgo ‘ll become zero & EMi ‘ll remain continue as it is. Yes the interest part of your EMI ‘ll keep on accumulating in your MG account. If you want to close your loan at this point, you w’d have to inform SBI in written & now SBI ‘ll adjust your parked surplus amount towards the outstanding loan amount. you ‘ll lose the liquidity of your money but loan ‘ll be over & now you can get your property papers back.

How can I transfer my loan from other banks to SBI Max Gain?

For loan transfer, first of all contact your existing lender & ask for following things.

  • Loan Account statement from day one.
  • List of Documents, which were submitted by you at the time of availing original loan. In day to day language of bankers, it’s called LOD.
  • As on date outstanding loan balance with applicable interest, penalty & any other fee to close the loan.

Now contact, the nearest SBI Branch (if you do have an existing SB account with SBI, it’s advisable to contact there for ease of operation). Inform in that branch that you want to transfer your loan from existing bank to SBI Max Gain. fill the application form, submit the necessary papers & SBI’s RACPC ‘ll do the back ground job.

Once SBI is ready to accept the transfer, it ‘ll issue you a sanction letter of the loan amount & ‘ll ask you to go for loan related agreement documentation work with SBI. If you are not having property insurance, SBI may ask to purchase one. Same ‘ll be the case for your life insurance. Once legal documentation is over, the cheque of the loan balance ‘ll be issued directly into the name of the bank in question. After the amount is credited to your existing bank, within next 20-30 days, you ‘ll get the original documents submitted by you, from the existing bank. Now you w’d have to submit these documents to SBI. In some states like Gujarat, Maharashtra, Karnataka, SBI may ask to go for registration of mortgage deed on your property in the office where your property was originally registered in your name. 

 

SBI Max Gain

Normal Home Loan

Liquidity of your part prepayments is there

No Liquidity. Money is gone for ever, once you prepay.

A bit complex to understand

Easy to understand

For people who can generate regular surplus amounts

For people who can only manage regular EMIs

 

Click here to know the real life example of Mr. Sudhir S for SBI Max Gain.

Do you feel, this article was able to answer your all queries related to SBI Max Gain? Was this article helpful for you to understand the overall concept of SBI Max Gain home loan? Please feel free to ask for more help

This article is written by Ashal Jauhari, who manages a great facebook group on investments and also is one of the most active and helpful member of our Jagoinvestor forum. This article was written by him and reproduced from this blog here

How Insurance Companies Work – The Ultimate Guide to understand their Business Model

Posted on by Jagoinvestor

I have written almost every possible article on Life Insurance and even Health Insurance, but strangely I still find a lot of investors asking questions which clearly shows that somehow, somewhere they do not understand what is the underlying business model of  insurance business and how are the products designed overall. Let me use simple stories and recreate some examples which will show you how things work in any insurance business. Lets move on ..

The concept of Insurance Business Model

I see a lot of people saying something like – “How can these companies offer 1 crore term plan by charging just a small premium of Rs 10,000. Its surely a racket!”

Then a lot of people still feel that insurance companies are cheats and they will not pay out when a claim arises, just to make sure that they do not have to pay a big amount from their pocket. I am not advocating any insurance company here, nor am I saying that I have a solution to your doubts. All I can do is share what insurance is all about. This should surely help you understand the business model of insurance companies and how they make money. You can then choose to trust the system or reject it. Note that In our 100moneyactions program we have one of the tasks as completing your life insurance and health insurance with basic support system, So if you have still not registered for it, do it now.

Insurance Centuries Back – Lets go back in History

Insurance as a concept, is not a new thing in this world. It’s been in existence for centuries. Let me start with story which will give you some idea about insurance business and its evolution. Long back, there were businessmen all over the world, who traveled from one country to another for doing trade and business . They sent their stocks, inventories and material across globe on boats and ships. A lot of times when they used to send their ship from Point A to Point B, it so happened, that some ship drowned and everything on the ship got wiped out.

And this happened 10% of the time on an average. Out of every 10 ships which started from Point A, only 9 reached the destination and one businessmen almost surely went bankrupt. So you can see that the certainty was about the loss of 1 ship, but there was uncertainty about “whose” ship it will be (just like there is certainty that one an average 1-2 person will die in a city in accident for sure, but who will it be is not sure) .

So all the businessmen started to think over the issue and they found the solution. They started collecting 10% worth of the stocks from each of them, collected it in a bag. When each of 10 businessmen did this, the bag was full of money which would compensate any ship owner who was the unlucky one and lost his ship. If there was no accident and all the 10 ships arrived safely at their destination, there was no issue at all. But when there was a ship lost, the whole bag of money was given to the one who was affected, which meant that he didn’t suffer other than temporary shock and resentment.

So now if you see closely, you can relate this with insurance. These businessmen were doing nothing but mutually insuring their risk by pooling in the money (premium) and then compensating the unlucky business man in case of a disastrous eventuality (sum assured equal to 1 ship worth).

Any ship owner, who did not wanted to participate in this (thinking he would loose that 10% money if his ship was safe), was free not to participate, but then he was just taking a huge risk of wiping out everything he owned and going bankrupt.

So you learnt – What is Insurance exactly !

So you are still not clear about the concept of insurance with this small but simple story? Let me now rephrase it in modern terms.

Insurance is all about transferring the risk to someone else, by paying a small cost called a premium. The person who runs the insurance business (for profit!), takes care of all the research and data which makes the business viable in long term. Let me attempt to build a simple (imaginative) job loss insurance business right in front of you.

Job Loss Insurance for Software Industry

Let’s say, I decide to launch an insurance product called “Job Loss Insurance” for IT professionals  . So, I research and find out that out of every 100 people in IT sector sector, 3 lose their job each year for some reason or the other, but then they are able to secure another job within 6 months (just an assumption). Now assuming that the average salary of a software professional is Rs 50,000 per month, it means that I can create a job loss insurance product which says –

“Pay a premium X each year and in case you lose your job, we will pay you 6 months salary to you, so that you can keep your mind cool and search for another job and pay your home loan EMI, children school fees and other commitments.”

Why am I suddenly feeling that some of the IT guys reading this really want this kind of product …

Anyways, so I know that out of 100 people, 3 people on an average will lose their jobs who would need 6 months of oxygen till they find another job (50k X 6 months = 3 lacs) . So, I would need 9 lacs  to pay all these 3 claims which will arise each year.  So now, I need a market of 100 people to whom I can pitch this product and generate 9 lacs of total money. Which means that I will have to price it as Rs 9,000 per person per year. In short 100 people will pool in Rs 9,000 and generate 9 lacs and then out of those 100 people, 3 will loose the job and file for a claim.

But wait, where is my profit ? I am not doing a charity ! Its a business for me ! . So for that reason, I will not charge Rs 9000, I will charge Rs 12,000 per year. So I keep a cool Rs 3 lacs as profit!

But , There is a problem …

Each year, its not that, only 3 out of 100 will loose the job! It could be 4 or 5 in some year and it can be 1 or 2 or even ZERO! in some other year. The 3/100 was just an average over long term . So while I know that a particular year can be very very bad or very very good, over a 10-20 yrs period, the average will be 3/100.

So, I will make sure that I keep sufficient capital with me before starting the business (what if in first year itself, there are 6 job losses out of 100). That’s the reason, why there are IRDA norms that a particular amount of net worth should be there with every insurance company before they get a licence and its called Solvency Ratio.

So now, based on their premium pricing strategy and overall experience in next many years, an insurance company is very profitable in long run (high probability) or they suffer a loss. That might explain, why most of the new insurance companies are in a loss at the moment (insurance is a long term business, very long term).

how does insurance company works and its business model

Premium Increase for some customers

Now a lot of people wonder, why insurance companies increase the premium for some customers (called as loading the premium) . Let me show you with same example.

Now as per my data research, There might be a category of IT guys who have a higher changes of 5/100 job loss and that one is Software Engineer whose company is not US based and they are into Embedded systems . So in short a IT guy who is into Embedded systems with a Non-US based company is more dangerous customer to me . While I will still give him insurance, but I cant charge him same premium like every other IT guy. So I would charge him not 12,000 per year, but 24,000 per year – because he is risky! .

While he might not get fired by his company, I am taking a very high risk against him and I deserve to be paid more, otherwise it does not make any business sense to me. Now if he hides this information from me and does not tell me before hand while filling up the form that he is working in embedded systems, that too with a company which is not US based (guys, just a random assumption, don’t take it seriously), should I be paying him any insurance money if he actually loses his job? the answer is rude NO. I can’t be emotional here and look at your tears! You cheated me, so you pay for it!

This might explain to you, why insurance companies apply loading, when you tell them you are a smoker, or you drink, or you are obese or you are working for the Army!. You are a high risk customer, and as per business rules, they will definitely increase your premium, even you will do the same, if you started up a insurance business. Wont you ?

Will company really pay me at the time of claim ?

Yes, it will. Because for you 1 crore at Rs 8,000 per year might look very absurd, its actually not . Because Insurance is a volume’s game. One individual case is not going to affect a company, because it was already factored in. It was known to happen. Thats why the premium was collected and you will be paid because thousands like you will NOT file for claim. My premiums might be used to pay your claims! . So Like in my example, when a person loses his job, I know that he is part of that small group which is surely going to lose his job. I will not be worried paying you 50,000 per month for next 6 months even if you paid me just 12,000 in a year. I know for sure, that the rest of the 97 people will not lose their jobs and I can surely pay you what you are insured for.

Amount Accumulates and grows into a big pool

If in the first year, less than 3 people lose the job, then I have extra money left at the end of the year and I can carry forward this money into future for those bad years when more than 3 people will lose the job. I can also invest this money, which will grow over time, and If I have done my research right, I am surely going to be profitable over long term.

But my research will be different than your research, you might find different kind of data, may look at the job loss data differently, may look at scenarios in other ways, which does not match my philosophy and hence you might charge Rs 15,000 per year and not 12,000 per year, or you can charge Rs 8,000 per year and not 12,000 per year like me.

Which explains why premiums are different for different companies.

Auto Insurance – They know all the data that if a car is older than X number of years, what the chances of it crashing into another one, and then how many premium makes the business viable and profitable.

Health Insurance – Health insurance companies know the data about the hospitalization charges, the probability of a person of certain age to get hospitalized in next X yrs and all those kinds of data. So when they price their policies, they are smarter than you. You might look at an individual case of yours and feel that you will profit from it (which can be the case), but surely its will not be a loss making proposition for the company either (over a long term, collectively).

Life Insurance – They know how many people out of 100, will die on an average in a year and within how many years. So if a big number of people pay for some years at least, it will be enough to pay the dead ones families.

Credit Card Insurance – There are insurance businesses around insuring credit cards. They know on an average out of 100 credit cards, how many are lost and on an average what is the loss amount. So they keep the premium such that they still make profits over a lot of customers.

Conclusion

I would like to conclude this article by telling you to understand the business model of insurance companies. Once you get it, suddenly all the doubts you had over years will go away. Insurance is a very strong concept which is a win-win model for the companies and for customers. At-least we used some stories and examples in this article which was just for illustration purpose and dont start arguing the data and numbers from examples 🙂 .

Are Gold Saving Schemes from jewelers really worth investing ?

Posted on by Jagoinvestor

Are gold saving schemes by jewellers really a great investment option? There are huge number of people who become part of gold saving schemes offered by jewellers, assuming that they are amazing deals which they should not miss! There are few advantages and disadvantages about these gold saving schemes. It’s important to understand them before you invest in those.

Ankur asked this simple question on our jagoinvestor forum which triggered this article

Lately there are ads coming on TV abt this Golden harvest scheme (GHS) from Tanishq, where you pay for 11 months and the company will bear the installment for 12 month to buy Gold. Any reviews abt the scheme?

Gold Saving Schemes

1. Most of the schemes are plain money saving schemes

The way a lot of gold saving schemes project their plan is as if you are buying real gold each month, but majority of them are just plain money saving scheme where you deposit a fixed amount each month for X months and in the last month the jeweler deposits the “bonus” installment and then finally you use the money to buy the gold jewelery at the price prevailing at that time! Not at the gold price the time of joining the scheme! So in practice the whole scheme becomes like a recurring deposit where you deposit some money each month. The bonus installment deposited by jeweler makes sure you get a return around 8-10% on the overall installment.

2. You cant redeem Money

Unlike recurring deposits, you can’t use the money accumulated in gold saving schemes for any purpose. The gold saving schemes make it mandatory that you have to buy gold jewellery and only gold jewellery, not even gold bars or coins. So in case you need money for some other purpose, you can’t use it. But you will say that it’s fine, because at times you also are offered “Zero Making Charges” under these schemes, but you miss reading the terms and conditions which says that it’s only on selected designs and models. What if you do not want to buy those designs? In that case you have to pay the making charges which are applicable and what happens if the design and model which you like have much higher price than you have accumulated? In that case you have to shell out more money. The making charges which you will pay will cancel out the 8-10% returns which you make on the whole scheme.

3. Not as safe as Recurring Deposit

Now as you have understood that gold saving schemes deep down are just like a recurring deposit. However they are not as safe as a banks recurring deposit, for the simple reason that jewelers are not as strong financially as banks and some jewelers actually deposit the money they get in schemes in banks as fixed deposits only. Some jewelers might even be using the money for their operating expenses also.

4. Gold saving schemes are designed to guarantee future sales

If you look into the design of gold saving schemes, it’s clear that it’s a way to assure future sales. People join these schemes, start saving money with jewelers and after 1-2 yrs, they will buy some thing from them. So if X people join the program, all X people will buy something at the end.

R.K. Sharma, executive director from PC Jeweller confirms this – “This scheme is a business building programme. By getting customers involved in this scheme, we ensure future sales. A majority of the times, people purchase a jewellery for a higher price than the amount invested. It is a sure shot business opportunity through which we seal our future sales.” – source

Some of the gold schemes in market

  • Gold Harvest from Tanishq
  • Jewels for Less from PC Jewelers
  • Shagun from Gitanjali
  • Kalpvruksha from Tribhuvandas Bhimji Zaveri
  • Gold Tree from GRT Jewelers
  • Jos Alukkas Gold Saving Scheme
  • Kothari gold deposit scheme
  • Gold Schemes – Bhima Gold

When you should join these Gold Saving Schemes ?

So given these fine points, there are few advantages to these gold investing schemes and there are conditions when you might want to invest in those.  The first thing is that, a lot of investors who do not understand what are other kind of options for investment in gold like Gold ETF, e-Gold etc which are popular ways to buy gold online these days. Because of not having full information, investors get inclined to these schemes and invest on the name of “Gold”.  However good part of these schemes is that, because of these gold schemes, they atleast develop the habit of regularly investing some money, which they would not have done otherwise. So these schemes can be your monthly gold investing plan in a way.  These investors will not invest in gold ETF and simple recurring deposits anyways, so its better that they atleast invest in these gold investments schemes by jewelers atleast. So these schemes are good from that point of view.

Another reason when you can look at these schemes is when you have a marriage or function due in next 1-2 yrs and you might want to systematically invest some fixed money for the purpose of buying gold jewellery. Even in that case it makes sense to get into these schemes.

Have you invested in these kind of gold saving schemes online without understanding how it works? What are your comments on these kind of schemes?

Top up & Super Top up Health Insurance Covers – How they work ?

Posted on by Jagoinvestor

What do you do when you want to take a very high health insurance cover like 20 lacs? Is the only option a regular health insurance plan? In this case, you can use top up health insurance plans, which are one of the best ways to enhance your health cover after a certain threshold? In this article lets understand how top up and super top up health plans work and how they benefit you. So we will understand both “top up health insurance” and “Super top up health insurance” in this article, but let’s understand first what the meaning of “Top up” is, in general.

What is the meaning of “Top Up” Cover ?

A top up cover actually covers you after a “threshold limit” is already exhausted or used. To give you an example lets say you have a top up health cover of Rs 10 lacs sum assured with the threshold limit of Rs 5 lacs, in which case the policy will only cover your expenses beyond Rs 5 lacs only. If your claim amount is Rs 8 lacs, then it will only pay you Rs 3 lacs (8 – 5), and NOT Rs 8 lacs total. That’s the main difference between a regular health cover policy and a top up cover.

So now if you already have a health insurance cover of Rs 5 lacs sum assured, then you can take a top up cover up to Rs 10 lacs with threshold limit of Rs 5 lacs, that way you will be covered up to 10 lacs. The first policy will cover you up to Rs 5 lacs, and the top up cover will cover you for the 5-10 lacs range. You can understand that more clearly with following image.

Suppose you have following 2 policies.

  • Policy A –  Regular Health Insurance Plan with Rs 5 lacs sum assured.
  • Policy B –  Top up cover of Rs 10 lacs with threshold limit of Rs 5 lacs.

top up health insurance plan

Now let’s take this same example and try to understand how Policy A (Regular Health Insurance) and Policy B (Top up health insurance) will pay you in 3 different scenarios, just to make sure you fully understand how top up health insurance policies work.

Scenario 1 – Claim of Rs 3 lacs

In this case, the first policy will cover you for full Rs 3 lacs, as your policy itself is for up to Rs 5 lacs.

Scenario 2 – Claim of Rs 8 lacs

In this example, the first plan A, will cover you up to Rs 5 lacs, but if your hospitalization expenses go to say Rs 8 lacs, then the first policy will only pay Rs 5 lacs, but the second policy (B) will cover you for the rest of  the Rs 3 lacs, which is above the threshold of Rs 5 lacs.

Scenario 3 – Claim of Rs 12 lacs

In this case, first policy A will pay you Rs 5 lacs, and the second policy B, will pay you next 5 lacs only, because you have taken a top up cover of up to Rs 10 lacs only. So the Rs 2 lacs extra, you will have to pay from your own pocket.

What is Super Top up Cover ?

Just like a top-up cover, there is something called as Super Top-Up cover, with a very small difference. A top-up cover will pay you only if your claim amount (bill for a single hospitalization) is above the threshold. Like, in our example above, the top up cover will help you only when your bill is above Rs 5 lacs each time, only then it will come into picture, like in the case of the Rs 8 lacs bill, then the top up cover will pay you an additional Rs 3 lacs. But if you have two bills of Rs 4 lacs each, then the normal Top up cover will not help because no single bill amount is above the threshold limit of Rs 5 lacs.

That’s where Super top up plans come into picture, which takes into consideration the TOTAL of the bills in a year and not just the single instance. So in case of two bills of Rs 4 lacs each, your total bill is Rs 8 lacs (above threshold limit of Rs 5 lacs), then Super top up cover will pay you, where a Top up cover will not.

Let me clear that with a more detailed example by using the chart below

difference between top-up and super top-up health insurance cover

Companies Offering Top up and Super top up plans in India

Companies offering Top up

  • Apollo Munich OptimaPlus
  • Bajaj Allianz Extra Care
  • Bharti Axa High Deductible Health Insurance
  • ICICI Lombard Healthcare Plus
  • Star Health Super Surplus
  • United India Top up Health Insurance

Companies offering Super Top up 

  • United India
  • HDFC Ergo Health Suraksha (offering to bank and credit customers, currently)

Let me give you a comparison chart of the current Top up health insurance plans in India at the moment. Not many Super top up plans, so they are not in the chart while comparing.

top up health insurance policies comparision

Super Top up Cover for Employees having group cover from Employer

A lot of salaried employees already have a group cover from their employer and they feel that they should not waste their money in a separate health insurance policy (which is not quite a right way of thinking, and you can read this article to know why I say that.) A top up cover is a very useful way for those employees to extend their cover beyond a point.

Lets say you already have a 5 lacs cover from your employer, but you feel that it’s insufficient and you wanted to have a cover up to Rs 10 lacs. Now, one way of doing it is to take a separate cover of Rs 10 lacs, but you can take a top up cover of up to Rs 10 lacs with threshold of Rs 5 lacs (as you are already covered from your employer up to 5 lacs). This way you will be covered up to 10 lacs. But understand that in that case you will have to claim your expenses multiple times.

Additional Health Insurance cover or Top up cover – Comparison

Just give me pointers, I will write about it, or just send me an example where we are comparing a 10 lac cover with A 5 Lac cover + top of 5 lacs

When does a top cover policy makes sense – Hear from experts

So is topup or super top up cover the best option to upgrade your health insurance coverage ? No !. Here is what Mahavir Chopra, a health insurance expert suggests –

Most Insurance advisers recommend a top-up plan to upgrade your coverage. In terms of convenience of purchase and claims, we would recommend upgrade of the same health insurance policy, as the best option. This is of-course, provided you are happy with the policy terms and services.

The second best option would be to compare available options of Super Top-up with option of Additional Mediclaim Policy. If the premium is more or less the same, we would recommend additional policy more than a Super Top-up.

After all the above options, look for the option of a simple top-up to increase your cover. Be sure you are aware of the fact, that this option is more useful in the very long term (6-10 years), since it will trigger only when your one claim goes above the threshold/deductible mentioned in the policy.

Features of Top up Health Insurance Plans

Let me tell some more points and features about the top up plans so that you are more clear about it and if its useful for you or not

1. Cheaper than regular health insurance plans – You have already seen that they are cheaper than the regular health insurance plans because they cover you only beyond a threshold, the probability of which happening is very less.

2. You can buy it from anywhere – You can buy a top-up cover from any company, there is no compulsion that you need to have another cover from same company. In-fact there is no requirement that you should have another health cover at all. You can just take a top up cover even if you do not have any other health insurance product.

3. Available with the option of individual and Family Floater Cover – A top up cover is available as individual cover and also as a family floater. So you can extend the cover for your entire family. Just that some policies might consider parents into family floater and others might not.

4. Concept of Pre-existing illnesses and Exclusions – Just like a normal health cover policy, even a top up cover can impose the restrictions on the pre-existing illnesses and exclude the diseases which they feel they do not want to cover. Also some top up covers might not cover pre and post hospitalization expenses. Some policies like Bajaj Allianz Extra Care provides continuity for already existing main policies. For instance, if you have a policy for 10 years with say New India Assurance, and you are buying a Top up from Bajaj Allianz, you will get continuity for the 10 years on the top-up and hence the waiting periods will not apply to you.

5. Tax benefits under Section 80D – You can get the tax benefit under sec 80D for the top up cover policies

6. Cashless facility would be difficult – I am not sure on this one, please guide! You need to follow the same cashless procedure, when your hospital bill exceeds the sum insured of main policy. If you are aware in advance about the high hospital bill, ensure you intimate at the time of admission itself.

Are you looking for extending your health insurance cover using a top up or a super topup cover ?

TDS Guide – Everything you want to know about Tax Deducted at Source

Posted on by Jagoinvestor

A lot of investors still do not understand what is the meaning of TDS (Tax Deducted at source) is and how it’s related to their taxation.

While the concept is very easy overall, I have seen that tons of investors still get confused when TDS is cut on their Fixed Deposits at maturity and they feel that they don’t need to pay any tax now, or feel that they don’t have to pay any tax on their Fixed Deposit interest just because it was below 10,000 and TDS was not cut.

So in this article, let me make sure that you are 100% clear about Tax Deduction at Source and what it means.

what is TDS and how it works?

What is Tax Deducted at Source?

TDS or Tax Deducted at Source is a tax collection mechanism by Government of India, where at the time of transaction itself, the tax is deducted by the paying party and directly deposited to the income tax department.

It’s assumed that the receiving party (one who gets the money) will have some tax liability. Now at the end of the year when you find out your tax liability, the TDS amount is the tax you have already paid and now you need only pay the balance amount.

So in a way, Tax Deduction at Source is a good thing for 2 reasons. You automatically pay a part of your tax liability and income tax department receives their tax collection. So TDS is always a mechanism, to reduce tax theft. Let me give you some very simple examples of TDS collections

Example 1 – Tax Deduction Source cut by Employer

When a company pays salary to employees, you must have seen that they pay the salaries after cutting the tax amount.

So at the start of the year itself, after the employee declares his 80C investments, HRA, LTA and other tax deductions which he will avail, the employer ‘estimates’ what will be the tax outgo of the employee and then each month they cut a certain amount as tax and pay directly to the income tax department.

And then at the end, the employee calculates his actual income tax liability to be paid. If the Tax Liability is more than TDS cut, he pays rest of the tax money and files the returns. If the Tax to be paid is less than the TDS amount, in that case he can claim for a refund in the tax returns.

Example 2 – TDS cut by Banks on Fixed Deposits

When you open a Fixed Deposit, you earn some interest in a year. Now the rule is that if the interest amount each year exceeds Rs 10,000 on your fixed deposits (across the different branches of the same bank also), the TDS has to be deducted by the bank.

Now a lot of people confuse this by paying the tax. The rule is that any amount you earn as interest is taxable. Even if the interest is Rs 100 or Rs 1000, you still need to pay the tax on that amount. Just that if the interest exceeds Rs 10,000, the bank will cut the tax directly and pay the tax to govt.

That will make sure that you pay your tax in advance itself (you know how difficult it is to pay tax when you have finished that money at the end). Note that TDS is also applicable in case of Sweep in Accounts and MODs (Multi option Deposit Scheme by SBI)

What about NRI Fixed Deposits?

In case of NRIs, the sad part for them is that there Tax Deducted at Source is cut @30% on any interest income earned on NRO fixed deposits (no limit of Rs 10,000 interest.)

Even if they earn Rs 1,000 as interest, they still pay TDS @30%. Note that the Fixed Deposits in NRE and FCNR accounts are totally tax-free in India, hence no Tax or TDS. A lot of NRIs send money back to India and invest in Fixed Deposits in their NRO account.

If they have to pay tax at the end, well and good, else they need to file the tax returns and claim it back. NRI’s should read this article on TDS applicability in economic times and also read this article to understand how NRI’s can claim exemption on TDS is applicable for you.

If you want to know more about the tax applicable on NRE, NRO and FCNR account then watch this video:

Make sure you quote your PAN

A lot of times, PAN card number is asked by banks or at other places before the payment is made to you. Do you know that there is a reason for it? If there are any TDS to be cut, they first check if PAN number of the receiving party is available or not.

If PAN number was given by the party, then the TDS is cut at a lower rate, but if PAN number is not quoted, then TDS cut is high.

For example, in the same Fixed Deposit amount, do you know that the TDS is cut @10% if PAN number is given, but if PAN is missing, then its 20% Tax Deducted at Source? These are the numbers of individuals (not companies, LLPs or corporate bodies.)

You should also know that in this budget Tax Deducted at Source @1% is to be cut for any real estate transaction above 50 lacs!

I want to invest where TDS is not applicable

A lot of investors try to invest in bonds, securities or at those places where TDS will not be cut. They do not understand that TDS is nothing but paying tax in a different way. I assume that they thought that if TDS is not cut, they don’t have to pay any tax, which is totally wrong.

All they are doing is taking the onus on themselves to pay the tax at the end. Or many might be finding ways to save the tax by various means suggested by their CAs.

A lot of investors also try to open a lot of small FDs and break it in the same bank but in different branches or in different banks too, but they do not know, that in this era of core banking, banks and tax officials can just punch your PAN numbers (yes, my CA told me this) and get all your tax-kundali and how much fixed deposits you have and how much interest you earned out of your investments.

So you need to pay your tax on those amounts anyway, whether TDS was cut or not. If TDS was cut, in a way it’s better because you pay the tax in advance itself and don’t have to arrange for tax amount at the end of the year. It really pinches at the year-end to arrange money and see it go into tax!

Make sure you ask for TDS certificates

Whoever cuts the TDS and pays it to income tax department has to issue you TDS certificates as the proof that you have paid the TDS. The document they give you is called the ‘TDS certificate.’ You would need this document if you want to show that the TDS amount is being adjusted in your tax payment.

Generally, as a rule, all the parties send the TDS certificates to you, but make sure you are proactive in asking’ it from them.

Myth: I don’t have to pay any tax if TDS is deducted

At a lot of times, it so happens that you don’t have to pay any tax at the end of the year and you already know it, but just because your deposits are earning more than Rs 10,000 of interest income, the bank cuts the TDS amount and then you have to claim it back by filing a return.

Case 1 – If Tax payable (TP) is more than TDS

In this case, if yearly TP is more than the TDS then the investor will have to pay the remaining amount left after deduction i.e TP – TDS = Remaining Tax Payable.

Case 2 – If Tax Payable (TP) is less than TDS

In this case, If yearly TP is less than the TDS then the investor will have to file for tax return because the tax which he was supposed to pay was less than the deducted tax.

Case 3 – If Tax Payable (TP) = TDS

In this case, if TP is equal to TDS then the investor will not have to pay any extra tax because the tax is already paid. However the investor will have to file for ITR toi show that he has paid the interest and is not liable to pay anymore tax.

Form 15G

All those people can simply submit Form 15G/15H to bank (each year) and then the bank will not cut the TDS (my father in law told me how Bank of Maharashtra guys in some particular branch still cut the TDS even if you deposit the Form 15G/H and how they are such a pain).

TDS tip – for salaried investors

Let me share with you a little tip which a lot of you might know already, but it will surely help new people. If you are a salaried employee, your employer must be deducting the tax each month already and you know that you don’t have to pay any tax at the end.

But now if suppose you already have made some fixed deposits or some investments, where the Tax was deducted, then you have already paid some part of tax liability.

Your employer is not aware that you have already paid some tax through TDS route. So in the Jan-Feb season when they finally ask for your investment proofs, you need to also give them form 192 and deposit the TDS certificates to your employer so that he can adjust the Tax paid and pay you back the extra amount. (March month salary is generally higher due to this money coming back and also because of HRA/LTA reimbursements).

I suggest you all follow this amazing thread on our Q&A forum where Ashal single has cleared so many doubts t on this topic

I hope you are now clear about TDS and how it works. If you have any doubts then put your query in the comment section.

5 reasons why you should not take Term insurance till 75 yrs !

Posted on by Jagoinvestor

Got a term plan for your family? Or may be you’re planning to take the term plan in a few days. If you are, good for you! . One of the biggest questions, every person considering term insurance has, is – “Should I take the cover for the maximum period?” . This is exactly what Chetan also asked on our questions and answers forum

Aegon provides coverage upto 75 years of age. or 20 25 30 35 40 years. I am confused which policy term is better to get maximum benefits?

Just like him, hundreds of investors have asked me this question over and over again, and I tell them, “Just take it only until you reach 60 years of age.”

And they happily ignore my suggestion; as if I am crazy, suggesting this to them. The “Insurance only till 60 years” looks kooky to them – kind of a “wrong deal” and they want to get “maximum benefit” out of the term plan. “The chances of my family receiving the  claim amount is higher when I am covered for long” is the common thought process of every person who is in the mad rush of buying the highest possible tenure.

term insurance plan for higher tenure

Trust me, that’s flawed thinking and I will explain why today. More than a sermon, think of this article as a discussion, where I put some points in front of you and you reflect and ask yourself – “Does it really make sense? or not?” and then make your own decision. So here are those 5 reasons on – why you should not take Insurance till the age of 75 years or more

1. You don’t need it beyond your working life

You really need to ask yourself the question – “Why am I taking Life Insurance?” and the answer is – “Because right now, I don’t have enough net worth, which will help my family if I am gone” or in other words – “Because my family is financially dependent on me.”

For a person who is not earning and does not bring money home, his death will cause family only emotional loss; not financial loss. Hence, logically you need to cover yourself through a life insurance product, only for the time you are working and others are financially dependent on you.

2. You will have “probably” have enough wealth by the time you retire anyway

Stretching the 1st point, if you are taking life insurance cover until you are 70-75 years, will you really need it at that time? Do you really feel that you will have any reason to have a cover of 1 crore that time (after 30-40 years?) . I am sure (more confident than you), that you would have completed all your financial goals by that time, you will have your own home by that time and you will have done everything in your life by that time. You focus area at that old age will be very different than what you focus on right now.

To understand this point, you have to stop for a moment and go into 2040-50; when you are retired and close to the heaven’s door. Are your children really financially dependent on your income – which does not exist? Is your spouse dependent on your income? You must have already accumulated enough wealth by that time and you must be getting some income out of that. Your death has nothing to do with family cash flows at the time.

3. The premium factors in your tenure already

Most of the people who feel that they are smart enough to take term plan till 75 years, forget that on the other side is a professional business running for decades now. They have hired people who are 10 times smarter, who design products (they are called Actuaries) that generate large profits for companies and not investors. Life Insurance is a “for-profit” business. They design things, so that they earn profit. If a company allows you to take a plan that lasts until you turn 75, why have they done that? Why did they allow that to happen? The premiums they charge already factor in everything. You pay premiums to get that term plan, it does not come free!

4. You will live longer – and they already know that.

Like I said in my last point, companies are “for-profit” businesses. They will not issue you a policy if your chances of living beyond 75 is not high. If you are a healthy person, already earning well, have access to good health care, what are the chances you will live beyond 75 years of age? Extremely high, that’s what!

Look around you – Are people dying early on average? No, you see people living beyond 80-85 already and here we are talking about your future which is 30-40 years away, when the average life expectancy of an average person in India would be closer to 73-76 years anyway (as per projections by govt studies.)

Now just imagine this … Compared to the 1.25 billion people in our country, are you in top 25% or lower?

Which means that you have much much better prospects to live beyond 80-85 years.  Which brings me to another point, that you should seriously worry about about your retirement planning a lot more than the less important question of insurance beyond 70-75 years.

Even when we do financial planning for our clients, we make sure that we plan for their retirement beyond 85 years and have them covered only till 60 yrs or even lower if they feel they will retire earlier. The important point to understand here is that, a life insurance coverage is just a support for your family in your early life when you are making money, your financial replacement, if you will. So when a life insurance company issues you a term plan until 75 years, it’s not you who are smart, but the company! They know, with a really high degree of probability, you will keep paying the premiums till 75 years.

It’s all chance. Yes, there will be people who will die before they reach 75 years of age and yes, their family will get a lot of money, but it really is just the game of chances … Companies make profits because of those who will live beyond 75 years and not by those who die before that.

5. The value of your sum assured is peanuts later

I hear it most of the time – “I am taking the term plan till 75 years, so that even if I die, my family will get the money. So, the higher the tenure, higher the chances of making money.” But they forget that by doing so, they are actually helping the insurance guys make profit, but lets say you die at 70 years. Celebrations! Your family will get that 1 crore, which at this moment sounds good, but will not be worth a lot that time.

Let me show you the mirror that lets you look into the future 🙂

Let’s say you are a 30 year old guy, and your monthly expenses are 40k per month. You say to yourself, “Let me take that term plan worth 1 crore so that in case, I die my family can get 1 crore which will provide them some good monthly income.”

It would be very good number if you die early in your life! . With each passing year that 1 crore will be worth less. If you die the next year of taking the term plan, the worth of that 1 crore is pretty much same, 1 crore. But if you die after 10 yrs, that 1 crore will be worth 50 lacs in today’s world. So getting 1 crore after 10 yrs is same as getting 50 lacs right now. Are you getting my point? The money you get in term plan is a constant number, not linked to inflation!

So imagine you have taken the term plan till 75 years and you die at 70 (after 40 yrs of taking the term plan), what is the worth of that same 1 crore at that time? Hold your breath! It’ll not more than 6-7 lacs assuming a inflation of 7% and even if inflation for next 40 yrs is a small 5%, it would not be worth 15 lacs today! . So when your family gets that 1 crore after 40 yrs, it’s kind of worthless. No one would be depending on that money anyway; it’s just a bonus on your children’s inheritance money!

Act like a real informed and smart investor

I have been seeing this madness for many months now and was constantly wondering why people are focusing so much on this small thing called “long tenure” in the term plan. I see investors abandoning one insurance company for another just because the other company is offering a term plan till 75 years.

You are allowing yourself to fall into a trap if you do this. If you have already taken the term plan till 75 years, do not worry … do not cancel it, just let it run it’s course. Stop paying premiums when you feel that your family can be taken care of, by the wealth you have generated. If you are planning to take a term plan right now, take it for as long as it takes you to retire, probably till 55 to 60 years, but not beyond that.

Would be happy to hear your thoughts and your views on this topic! . You have taken the term plan for very high tenure ! .

Direct Plan of Mutual Funds – Everything you wanted to learn about it !

Posted on by Jagoinvestor

A lot of buzz is going around “Direct Plan” when it comes to Mutual funds. A lot of investors still don’t understand the full impact of Direct Option and if they should invest in the same old way or with this new option. In this article – we are going to unearth all the aspects of Direct and Normal Option of investing in mutual funds.

Direct Plan in Mutual Funds

Direct Plan in Mutual Funds – What does it mean ?

SEBI few months back announced that all the AMC’s should come out with two options for each and every mutual funds scheme they have, One will be normal one (which you have been looking till date) , And Then the other option will be DIRECT PLAN, which will have a lower expense ratio compared to the Normal Option . This is because when you invest in mutual funds direct plan, there is no intermediary involved in between and a lot of costs which are associated goes away . That’s the reason direct plan will have less expense ration. So If I have to explain in one line. Direct option of mutual funds will have no agent in between , you will be directly investing with AMC . However with the NORMAL Option, you will be investing through an agent which can be any individual or a online broker.

A mutual fund scheme will have to affix “-DIRECT” word in their scheme name. So for example now there following options for investments if you want to invest in HDFC Top 200 mutual funds.

  • HDFC top 200 Growth Option
  • HDFC Top 200 Growth Option – DIRECT
  • HDFC top 200 Dividend Option
  • HDFC Top 200 Dividend Option – DIRECT

Its a big worry for those agents who are not adding any value through their advice and have HNI/big clients.

And guess what already Direct Plans are HIT among investors and a lot of investors and big corporate investors (who invest in DEBT mutual funds) have seems to have shifted to mutual funds direct plans. This is proved by the fact that in the first month of Jan – 2013 alone, 56% of the total incremental flow of 60,732 crores in mutual funds was through direct option, which is around Rs 33,830 crore, which means that out of total Rs 100 , which was invested in mutual funds, Rs 56 came in through Direct Plan and only Rs 44 came in through Standard plan, but the majority of that would be in Debt fund, but anyways – the point if that Direct Plans are already popular and investors have started taking the advantage.

Is Direct Option Superior in Terms of Returns ?

Now lets look at the returns from Direct Plans vs Standard Plans and lets see some aspects related to it.

Expense Ratio of Direct Plans vs Standard Plans

Expense ratio of a mutual fund has a deep impact on the final returns over long term. A small decrease in expense ratio can increase your long term returns by a very good margin, provided every thing else is same. Direct option of mutual funds are going to have a good enough difference when it comes to expense ratio. If you talk about equity funds, the direct plans will have anywhere from 0.40% to 0.75% less expense ratio compared to a standard plan . For example – If I have talk about HDFC Top 200 mutual fund , the standard plan has an expense ratio of 1.78% per year . Where as the Direct Plan expense ratio is only 1.19% , which is a 0.59% difference and whopping 33.15% less than standard plan , Means that you will save 33% costs when you migrate to Direct Plan of HDFC Top 200 as an example . Note that all the numbers I just quoted are as of 28th Mar 2013, and change in future. I checked few equity funds from HDFC Mutual funds and DSP Black Rock and found that that the ‘Direct’ option have lesser Expense ratio compared to their Standard Plans . Here is a snapshot for 5 funds.

 

Difference between Expense Ratio

expense ratio difference between standard and direct mutual fund

Difference in NAV ?

The Direct Plans took effect from Jan 1,2013 . Means that on Jan 1,2013 the NAV must be same for Direct and Standard Plan and from there, the NAV must be different for both plans. And As Direct Plan expense ratio is going to be lower, the NAV for direct plan should also be lower and the gap should widen too. To just make sure that its happening in reality. I picked up the same HDFC Top 200 and listed down the NAV for both standard as well as Direct Plan from Jan 1,2013 to Mar 26th 2013 and checked out the difference between them and I was correct . The NAV gap was growing and Nav in direct option was 0.13% higher than the standard plan NAV , thats just 3 months of difference and if you extrapolate in future, the difference might be as good as 0.5%-1.00% difference in a year. Thats a big enough amount, 0.5% on Rs 10 lacs portfolio means Rs 5,000 . Isn’t that a good ! . And if you look into very long term in your financial life , the difference will be very high, which we will see now

NAV difference between Direct Plan in mutual funds vs Standard plans

Impact on Wealth ?

Considering the same example of HDFC Top 200 and their expenses ratio of 1.72% (standard plan) and 1.29% (Direct Plan) , What happens to your wealth after 10,20,30 yrs if you consider these two options ? Will the corpus you will accumulate at the end will be huge ? Even if we assume a conservative returns of 10% on equity in long term, the difference in corpus at the end is huge because of sizable difference in the expense ratio. Below I have provided the corpus of two options and the difference between them over 10 yrs, 20 yrs and 30 yrs.

Direct Plan Mutual Funds Corpus Impact

Note that these numbers and difference might look big to you, but you will not realize the difference to be very big in a short term like few months of every 2-3 yrs. Also you might argue that one might not invest for such a long term, but we are only highlighting the impact of such costs and its impact in long run.

So, Now I hope you must be clear about the Impact of mutual funds direct plan on your wealth.

Who should invest in Direct Options

Now coming to the important question – Who should Invest in Direct option of mutual funds ? A lot of people might feel that direct plan is for each and every investor , but thats not right way of looking at it . Only those investors should go with the direct plan of mutual funds who are

  • Capable of choosing right mutual funds for themselves
  • Who are ready to review their portfolios all by themselves without anyone help
  • Those who can point to bad performing mutual funds and remove from their portfolio
  • Who are ready to invest with each AMC seperately

I guess a lot of people will fall into this category and would be ready to go the direct route for the kind of benefit they get out of it. However lets see who should not choose Direct Plan

Who should not Choose Direct Plan?

You must be wondering who should not invest in direct plan ? A lot of investors have very very good advisers , who have good capability to advice and record keeping abilities. The value of their timely advice is so much that it over weights the advantage of direct plan. So if you feel that you have an adviser who helps you pick good funds and helps you in removing bad funds over time and because of him you are able to get extra 2-3% returns on your portfolio, its worth paying commissions he deserves . Also It might happen that you are a busy person who wants a third party to handle your portfolio and inform you on time to time basis about your portfolio and whats going on where , you might want to consider not moving to direct plan.

So at the end , its about the question – “Is there any value in sticking with your adviser , platform or financial planner?” and if its adding enough value to your financial life , and do they deserve the commissions they get out of your portfolio with them. Its a question you need to ask yourself . Do not rush to convert your mutual funds into Direct plan .. Take some time to think over it and look at the long term effects of it.

How to invest in Direct Plan of mutual funds ?

The only thing you need to do is when you fill up the mutual funds investment form, there is an option called as “Direct Plan” there, all you need to do is put a tick mark there, If its ticked marked, then your investments will be into the DIRECT plan . Even if the agent/distributor puts his ARN code (the unique code which identifies a mutual fund agent) , he will not get any commissions from your investments. Also in some of the forms , that separate tick-mark option might not be available, in which case you have to mention the word “DIRECT” in the ARN column . Note that if you forget to mention that you want it to be under DIRECT plan and also the agent code is missing, by default the investment is going to be under mutual funds direct plan .

You can fill up this form directly with the AMC by going to their Office , or you can also use CAMS/Karvy for making investments , who are back-office partners for a lot of AMC’s . If you invest through CAMS/Karvy , still the investments will be into Direct plan, just make sure you do not leave the DIRECT unticked.

How to Change your Existing Mutual funds to Direct option?

Your existing investments in mutual funds will NOT switch to direct plans automatically, no matter you did it with an agent or directly with AMC (Read which AMC is better then other) . It will has the same expense ratio as of old funds.

To convert your existing holding from a standard to a direct plan, you need to submit a switch request. All you need to do is contact your AMC and ask for Switch reuest form . Which is a written request telling them that you want your existing mutual funds to be now converted into DIRECT plan . Once they get this request , they will process it , they will intimate you once its done . Your agent will not like you for this 🙂 .

Will my existing SIP’s be considered under Direct plan by Default? ?

All the SIP’s which were made through an agent/distributor will still be under the standard plan , you will have to manually request the switch to Direct Plan . But if you had any SIP which was done directly with AMC (without involving Agent Code) , in that case your SIP’s  done after Jan 1, 2013 will automatically be considered under DIRECT plan , but all the old SIP’s which were done before Jan 1,2013 will still be there under Standard Plan and the higher expense ratio will apply there.

Can you convert your existing Tax Saving Mutual Funds (ELSS) under Direct Plan ?

If your tax saving mutual funds are still in lock in period , then you CANNOT convert them right now, only when the lock in period is over, you will be able to convert them into Direct Plan.

Will there be Exit Load applied when I move to Direct plan ?

Yes and NO !

If your existing mutual funds investments is through an agent/distributor , then there will be exit load at the time of switching them into a Direct version of mutual funds, but if your existing investments are through AMC directly, then there will not be any Exit Load while switching to Direct plan.

Important Points

  • There is no DIRECT option in ETF’s and closed ended mutual funds
  • There will be no difference between the portfolio’s of Direct Plan and Standard Plan . Every thing will be same except that the Direct plan will have a lower expense ration. Thats all !

Finally Are you going to invest into the Direct Plan of Mutual funds or going to continue with your old investments through an agent or distributor ? Please share your thoughts and inputs about it. What do you think about the Direct Plan of Mutual funds ?