Tag: Intermediate Level

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.

Online EPF Transfer and Withdrawal from July 1, 2013 – Great News !

Posted on by Jagoinvestor

Starting July 1, 2013 , EPF account holders will be able to withdraw or transfer their EPF accounts from one employer to another employer online. EPFO has said that they are working on setting up a central clearance house which will be operational from July 1, 2013 . One of the major problems faced by employees is to transfer their EPF accounts from one company to another when they change their jobs or to withdraw their EPF accounts after leaving their job, which takes years and months, without them having any transparency in the system and process. They are frustrated, lost and have no idea where to ask for their EPF status and to whom . Because of this delay, a lot of people just let things go and the matter drags for years and years

epf (employee providend fund) transfer or withdrawal online

You can also Track the Status Online

The best part is that you will be able to track your request online and will be able to see which stage your EPF withdrawal or transfer is ! .

Permanent EPF account number for each person

EPFO has earlier said that they are working on the permanent EPF account number where a employee once allotted a EPF account number will be able to use the same Employee provident fund number when he/she moves to another employer. The new employer will deposit the provident fund money in the same permanent account number. This will solve a lot of issues, but this would be possible only after 1-2 yrs , the first focus is on introducing a online withdrawal or transfer service.

Verification of Details after the request is put ?

Once you apply for withdrawal or transfer, the verification of all the details from employer will be done by EPFO . All you would have to do is just initiate the transfer or withdrawal request online (Its not clear how it will happen or what you need to exactly do). After that EPFO department will take charge and do their part of work by contacting the employer. Here is how the transfer would work

The member makes his transfer application at his new or old office or directly to the EPFO through an online application. The process is then taken over by the EPFO, which gets data verification from both offices and gets the transfer done immediately. Now, EPFO would do the work of getting details from both old and new offices where transfer is involved, says EPFO Commissioner Anil Swarup. – SOURCE

This will help 50 million Employee provident fund account holders , lot of paper work will be saved and surely the harassment will reduce . (Read how you can withdraw/transfer your EPF , if your employer is not supporting or helping you) . at this moment , a lot of withdrawal’s happen because employees know that its more easier and do not want to take chance for future issues due to the complex process. Hence this move will help a lot to EPFO department in retaining employees with their EPF’s .

What should you do right now ?

While the EPFO has said that this will be operational from July 1, 2013 , still there might be delays from their end (you know how deadlines work in real life , remember what happened with DTC (Direct Tax Code) ?) . If you can really afford to wait and want to try out this online system, then wait for 2-3 months and then give this a shot, else follow the usual process at this moment.

Conclusion

While its a welcome move and we should trust the EPFO department, still you know what happened with the EPF Online Passbook system by EPF , which is not up-to the mark and there are tons of issues with it. It might happen that this online EPF transfer and withdrawal system is built , but there can be huge disappointment with the way it would work . We can only wait and watch at this moment.

What do you feel about this move ? A lot of people might have faced bad experience while transferring and withdrawing their EPF accounts and would have wondered why dont EPFO makes every thing online. Now it comes !

PPFAS Enters Mutual Fund Business with “PPFAS Long Term Value Fund”

Posted on by Jagoinvestor
You must have heard the name of Parag Parikh, the veteran who has spend decades in the Indian stock markets. He runs PPFAS (Parag Parikh Financial advisory services) . They have been running PMS scheme for quite a while now, since 1996!. They have been practicing value investing from decades and now they have decided to enter the mutual fund space, not just as another also ran, but with a very clear focus. They want value investing to be the prime focus of investing in equities and have come up with “PPFAS Long Term Value Fund”. SEBI has cleared it and it will launch by next month!

PPFAS Mutual Funds

So, I decided to directly catch Rajeev Thakkar , CEO & Fund Manager of PPFAS Mutual Fund to answer few questions for our readers.  This should give us a clear idea of their vision. Those of you, who would really like to invest in equities for a very long term like 10-12 yrs, can place your bets if you find you are interested.

Here are few questions I asked Rajeev Thakkar (he has been managing the PMS for PPFAS since 2003).

1. A lot of investors still do not know about PPFAS . Would you like to share its history?

PPFAS Ltd. our Sponsor, was incorporated in 1992. Prior to that, our Chairman, Mr. Parag Parikh, ran a proprietary organisation from 1979. It was one of the earliest recipients of the Portfolio Management Service (PMS) licence, having secured it in 1995.

Over the years, it has transformed itself from being a stock and fixed income brokerage house to a reputed Portfolio Manager and currently manages over Rs. 300 crores in its flagship scheme. It has now embarked on the next step in asset management by sponsoring PPFAS Mutual Fund.

2. Why PPFAS entered Mutual funds when you already had a successful PMS ?

The main reasons behind this move are –

a) Over the years, the landscape for PMS has become progressively challenging for the investor. A hike in the minimum ticket size and increasingly tedious account opening procedures are two examples.

b) A PMS product is also perceived to be an opaque one – though we can proudly say that we defy this perception by disclosing various key data points on our sponsor’s website [www.ppfas.com].

c) Tax treatment of capital gains in a PMS product has also been a point of contention, subject to various interpretations based on the nature and frequency of the transactions .

On the other hand, a mutual fund is a far more regulated and transparent investment vehicle as compared to a Portfolio Management Scheme. Unlike PMS schemes, a mutual fund scheme’s performance, portfolio etc. is tracked by independent research agencies on a regular basis. This helps an investor in making comparisons and allocating capital accordingly. It scores on the operational front too. For instance, each time a client opts for a PMS scheme he/she has to undergo
tedious and time-consuming Know-Your-Client (KYC) related formalities.

This can be obviated in case of a mutual fund, where one KYC / KRA number is valid across all mutual funds. An investor is also able to deploy smaller amounts of capital in a mutual fund scheme. This is especially helpful when they are testing the waters. This latitude is all the more useful, now that the minimum initial corpus for a PMS account has been raised from Rs. 5 lakhs to Rs. 25 lakhs.

For fund managers too, a mutual fund is operationally easier to manage as it does not call for segregation of individual accounts, separate order placement etc. Unlike a PMS scheme, a mutual fund scheme is treated as a pass-through vehicle, thereby making it a more tax-efficient vehicle for investors.

3. Can you share why you have come up with just a single equity fund? Won’t you come up with 5-10 funds ?

Yes. In an age of ‘the more the merrier’ we walk alone. Others may launch an array of equity schemes with narrowly focussed objectives, but we believe, this leads to needless duplication and confusion.

PPFAS Long Term Value Fund’s mandate permits it to invest in companies, unfettered by any self-imposed limitations with regard to market capitalisation or geography. We believe that if our investors’ objectives can be met through one scheme there is no need to launch a slew of them. Hence it will be our only offering in the equity segment.

4. What are the top 3 things which you feel will be different with PPFAS LTEF and other equity funds in market? What is the value proposition you are offering?

The top three differences between us and the others is –

  • We will be the first mutual fund to disclose the holdings of key employees of PPFAS Mutual Fund in the scheme.
  • As mentioned above, we will launch only one scheme in the equity segment.
  • On our website (amc.ppfas.com) we have explicitly mentioned the kind of investors, we do not want. I do not know of any other mutual fund which actively discourages the wrong kind of investors from investing in its schemes.

Apart from these, there are a few more differences which have been outlined on our website

5. As It is a new entry in mutual funds, a lot of investors might want to wait and watch for the performance of your NFO. What do you have to say about it?

Sure… We are cognizant of that.

That is why we are not hard-selling our scheme through the mainstream media at this juncture. Also, that is why we have not approached the national distributors / banks. Only a few distributors (currently 20) who believe in our approach have signed up with us.

Many key investors in the PMS scheme of our Sponsor, have agreed to migrate to ‘PPFAS Long Term Value Fund.’ They will form the nucleus of our scheme. Besides these, we have received over 300 expressions of interest from new investors through our website and other sources. Some of them may invest either at the New Fund Offer stage or soon thereafter.

We envisage greater interest among the distributor community after a couple of years, once we have built a track record and are actively tracked by reputed agencies such as Morningstar and Value Research.

6. I am sure a lot of investors might want to invest through DIRECT route now. How can some one invest easily with PPFAS, because right now I suppose you do not have a lot of offices across India or in various cities? 

We are actively promoting the benefits of investing through the Direct Plan, positioning it as a cost-effective mode of investment. Investors can choose between

The online option – via our website

OR

The offline option – Investors can submit the duly filled forms either at our Corporate Office in Fort, Mumbai or at any of the offices of our registrar, CAMS, who will double up as Points of Collection. CAMS has a very good network of offices India-wide.

7. What is your outlook for next 10-20 yrs for equity markets? I am asking you this, because you have come up with a equity fund, saying that it’s a long term fund.

While our scheme stresses on the long-term it does not necessarily mean that we have any strong view on the state of the overall stock market. Our premise is that investment-worthy stocks will be available irrespective of index levels and we prefer to concentrate on that aspect, rather than crystal-gaze.

Having said that, we obviously believe that equities form an important constituent in the portfolios of most investors now and over the coming decades and as a corollary, you could infer that we are positive on the future prospects of equities in general.

8. Anything else you would like to tell our readers?

Just like the boilerplate which states ‘Read the offer document carefully before investing’ we urge investors to read the contents of our website carefully and then decide whether you would like to invest with us or not.

While we cannot guarantee you any returns owing to the volatility inherent in equities, we will manage your money prudently, based on the time-tested principles of value investing, and play a role in helping you achieve your long-term financial goals. We are here for the long-term and our journey is just beginning. You could join us if you believe in our method of money management.

Scheme Information Document – PPFAS Long Term Value Fund

Here is the Scheme Information document of PPFAS Long Term Value Fund attached below.

Conclusion

While there are tons of AMCs in India, most of them focus on too many funds. PPFAS mutual funds seem to be very focused on what they believe in and seem to be on the path to evolve as a fund house that’ll be known for value investing. In a recent interview with firstport, Mr. Parag Parikh is sharing how they are themselves going to put their own money into the fund, so that there is inherent accountability and committment.

About 29 years ago, I started off as a broker and we were the first brokers to have a research department. That was the competitive edge which I wanted to get the institutional business, because that was cornered by about 12-13 brokers. As far as broking was concerned, we always believed money management is a profession rather than a business. When it is a profession, you do what is good for the client. But when it turns into a business, you do what the business demands.

Unfortunately, in mutual funds today you have this mad craze for getting assets under management. You have marketing teams, distributors. You pay them anything to get the money. From our MF’s point of view, we were professionals and we will keep it that way and run the MF as professionals. That’s the idea.

Ultimately, when you invest in our fund, what are you looking at? Returns. That is where we want to be game-changers. Secondly, what is your commitment to a fund? Today, me, Rajeev (Thakkar, CEO of PPFAS AMC) and all our senior people are going to make our own equity investments through the fund. We have to believe in what we’re doing. Whatever equity investments we have in the market, we’d rather put that in the fund.

Are you going to invest in PPFAS mutual funds ? Anyone !

Getting Claim from Multiple health insurance policies – Rules and Process Explained !

Posted on by Jagoinvestor

One of our readers Yogesh asked on our Jagoinvestor forum, about the claim process in case of multiple health insurance policies. I then realized that this is one the biggest doubt in the mind of investors and it needs to be cleared. Another doubt which is there in many minds is what is the claim process and the documents required if one wants to claim from multiple health insurance companies.

Multiple Health Insurance Claims

In this article, I will explain you the rules regarding heath insurance claims from multiple companies and some important points, along with the claim procedure too!. Recently IRDA came up with IRDA (Health Insurance) Regulations 2013 and overall it has made the claim process more easy and customer friendly, which we will see in some time.

A lot of people can end up with multiple health insurance policies with them. It may happen that they have a health cover from employer, and side by side they have taken a separate health insurance plan (which is a good thing) . Also there might be a case that a person had a old health insurance plan taken years back and now he has taken extra cover through a different plan . Another case can be when a person has taken more than two health insurance plan so that parents are also covered and immediate family like spouse and kids are in another policy. So these are few reasons why a person can hold multiple health insurance plans.

Declaring your existing Health Insurance while buying a New Policy

Before we move forward, its extremely important to understand that when you take a new health insurance policy, you always have to declare your old health insurance policies which are currently in force. This would include all those policies for which you are paying the premiums yourself from your pocket. If you are not paying the premium from your pocket and if your employer is paying it, then you don’t need to declare it in the new policy. Note, there are certain Insurance Companies which do not demand such information. In such cases, you are not required to inform about this.

This is extremely important because if you do not disclose this fact, you are violating the terms and conditions of the health insurance contract and in case of investigation this could be termed as mis-representation. Now we will discuss the rules regarding claiming from multiple health insurance policies .

Claiming from multiple health insurance policies

A lot of things have changed few months back. So we will discuss both “before” and “after” rules, so that there is no confusion left.

Before the Regulations (Previous Rules) 

Before the regulations came into effect , there was something called as “Contribution Clause”, which said that a customer has to inform all the health insurance companies he is insured with and all the insurance companies will contribute the cover amount in the ratio of their sum assured (read how much health insurance is good enough). Obviously the assumption here is that the insurance companies are aware that you also have a cover with someone else , which you must have declared with them at the time of taking the policy .

For example , if earlier you had two health insurance plans with 3 lacs sum assured from company A and 1 lacs sum assured from Company B , and if you had a claim of Rs 2 lacs. Then you had to ideally inform both the insurance companies about the claim and they will settle your claims in the same ratio of the sum assured. So 1.5 lacs (75%) was to be paid by company A and 50,000 (25%) had to be paid by company B because of the “Contribution Clause” . Its a different matter than customer never told one insurance company about the cover with another companies and the company which got the claim request happily settled the full amount, even if it was not supposed to . This kind of rules earlier made sure that it was not in customer interest and lot of hassles was there if he had more than two policies. But after the regulations it has changed !

After the Regulations (Current Rules) 

Now after the regulations are into effect, the claim rules are very easy . Now the contribution clause will not be applicable if your claim amount is less than the sum assured of the insurer where you are claiming. However , if your claim amount is above the sum assured of the policy, then the insurance company will impose the contribution clause. You are free to choose which insurer to catch for your claim. So let us revisit the same example we took some time back.

  • 3 lacs sum assured by company A
  • 1 lacs sum assured by company B
  • Claim amount = Rs 2 lacs

Now with the new regulations , you are free to catch company A or company B to settle your claim, but now

If you go to Company A for settlement – Then your claim amount (2 lacs) is less than the sum insured (3 lacs) , so company A has to fully settle the full claim of 2 lacs and they cant tell you that the contribution clause will apply.

If you go to Company B for settlement – But, if you choose to go to company B for settlement , then your claim amount (2 lacs) is more than the sum insured with them (1 lacs) , so company B , has the right to apply the contribution clause and then they will only pay 50,000 to you (25% of their share , remember  they have only 1 lacs sum assured out of your total 4 lacs) and will ask you to claim the rest from company A .

Now imagine the different scenario where your claim amount is 4 lacs

In-case here in this same example, if your claim amount is 4 lacs, then your the contribution clause will apply because your claim amount is more than the sum insured of 3 lacs and 1 lacs both, so it does not matter which company you approach first, the contribution clause will come into effect .

Better to have a Large cover with single insurer

Which now explains why its advantageous to have a big enough cover from a single insurance company (like say 10 lacs sum assured from one company) , rather than having small covers from multiple insurance companies like (4 lacs , 4 lacs and 2 lacs from 3 companies) . You will face a lot of documentation issues if your claim amount is large because then the contribution clause will apply. ( Read 17 Most asked questions in Health Insurance)

I hope these examples has made it clear to you about the the rules for multiple health insurance policies claims . In-case you have more than 2 policies , still the same rules will apply.

What is the Claim Process in case of multiple health insurance policies?

Here there can be two cases – Reimbursement Claim or Cashless Claims , but for this article, we are looking at reimbursement claims procedure. Even in case of cashless claims , if its from more than one insurer, reimbursement is involved anyways, because – The final approval for any Cashless claim comes at the time of discharge. Hence, only one claim can be made through cashless. All the other would have to be made through the reimbursement mode. Now lets see what is the procedure involved in claim process.

In case of single claim

  • Intimate the health insurance company at the time of hospitalization
  • At the time of actual reimbursement, fill up the claim form
  • Attach all the bills, receipts, discharge documents, prescriptions, diagnostic tests, including films required by them in ORIGINAL
  • Keep tab on the claim status. The TPA or Insurance Co. could ask for additional documents for settlement of the claim. You need to provide such documents.
  • You will get the claim in  around 30-40 days depending on Insurance Co. to Insurance Co.

Incase of multiple claims

  • Intimate all the health insurance company at the time of hospitalization
  • Now you first have to choose the company from which you will claim first.
  • Fill up the claim form
  • Attach all the bills and documents required by them in ORIGINAL
  • Take additional attested copies from Hospital for the no. of insurance companies you are likely to claim from.
  • Insurance company will issue you a statement saying that they have all the original proofs and documents and they have settled the claims
  • once the claim is settled by first company then you move to the next company, you need to get a claim settlement summary (which mentions about the claim made, deductions made, and claims settled etc.)  then you move to the next company
  • Fill up their claim form
  • Attach the claim settlement summary
  • Attach Attested copies.
  • Create a covering letter explaining that you have earlier claimed from Company X, and the details of documents enclosed.
  • If you still want to claim it from more companies , take the claim settlement document from 2nd company also.
  • Repeat the process with all companies from which you want to get the claim. You will get the claim in some days or weeks

How will the claim be paid

  • The first Insurance Company will apply deductions and limits as per the terms and conditions of the policy against the claim made and make the payment.
  • The second Insurance Company will also apply deductions and limits as per the terms and conditions of the policy against the claim made as if the claim is originally made to this Insurance Company, and arrive at the payable claim amount. Once this amount is arrived, it will deduct the amount already received from first insurance company.

Does Sequence of Claim matter in-case of multiple companies ?

My friend told me that the amount of claim you get back at times can be different depending on the sequence of claim. Mean if you settle your claim from company A first and then Company B , it might happen that you may get less money back compared to when you first approach company B and then company A .

But there is a catch here, this situation assumes that the insurance company does not apply the contribution clause, which actually happens in reality. Mahavir Chopra shares with me that in real life , the claim cases they handle, they have observed that companies do not bother to apply contribution clause even if it applies. So the companies in real life in maximum cases, the health insurance companies settle the claim or reject it as per the situation and condition.

Now coming to the main point which I wanted to tell you. Lets say that someone has two health insurance policies with him.

Policy 1 – 2 lacs sum assured (but with some limits and sub limits applied)
Policy 2 – 1 lacs sum assured with NO LIMITS or restrictions

And lets say that his hospital bill was 2,50,000 in total as explain in the chart below. So now he has two choices , Either claim from Policy 1 and then Policy 2 , or reverse that order and first claim from Policy 2 and then Policy 1 . In both the cases he will get back different amount. Lets see those.

Maximize your claim in health insurance from multiple health insurers

Learning – In case you have 2 policies , and there was a case where you have to claim from both of them, always claim first from the company which has LIMITS and restrictions, and later from the company which does not impose any limits, this will maximize your claim amount in total.

Important Note – In case where contribution clause is applied, even in that case the conclusion remains the same, the case 2 claim amount in that case is 1,14,000 (unlike 1,71,000 without contribution clause) . You can check out the workings yourself.

Some Good practices and points to remember

  • If you have a group cover from your employer, it would be a good idea to apply for the claim from them first, because the claim process is faster with group cover , the preexisting illnesses are also covered there in initial years and lastly, the number claims there is not going to impact your premiums .
  • Its always a good idea to have a single company cover of a higher amount, rather than having small covers from many policies, If you have small covers from different companies, it would be a good idea to consolidate your cover in a single policy or maximum 2 policies, not more
  • The same thing claim rules will apply in-case of Top up and Super Top up health insurance policies, because there you claim from more than 2 health insurance companies.

Conclusion

At the end, I would say that its always good to have a big enough cover for yourself so that you don’t have to deal with multiple health insurance companies. You can have the separate cover along with your employer cover if you want. So, How many health policies do you have currently ? I hope you are now clear about the claim procedure from multiples health insurance policies ?

CIBIL marketplace – Get Customised loan offers based your credit score

Posted on by Jagoinvestor

CIBIL has introduced a new facility called “Cibil Marketplace“, which will act like a portal where a person can get customized loan and credit card offers based on his cibil score. Right now, what happens is – when a person applies for some kind of loan or a credit card, the lending institution checks his credit report and credit score and based on their internal criteria and rules, reject or accept the application and move to the next step .

cibil marketplace enter data

How does CIBIL marketplace work?

With CIBIL marketplace, the whole process is reversed. Here, you can find out which lending institutions are ready to give you different kind of loans, interest rates and other conditions based on your credit score. So a lot of lenders will participate in the cibil marketplace and will give their criteria and checklist, like what kind of customer they would like to offer loans. For example – A lender can say that they are ready to give Car loan @13% interest rate to a person having cibil score between 700-800 and @12% if cibil score is more than 800 . Thats one example .

Another lender can say that he is ready to give home loan to people who have credit score below 700 score, but on a condition that he should be working in a software job, however the interest rate would be as high as 15% – this is just an example of how it might look like. So this is how all the lenders will give their own criteria and when you enter the market place, after the filtering you will be shown only those lenders and loan offers which are exactly for your profile. So if you want to increase the number of loan offers, you need to improve your cibil score for that.

Right now the CIBIL marketplace is started with only Credit Cards. But very soon, you will see Home loans, Auto Loans, Personal Loans and even Business Loans on the portal. Just wait for some time or the next update from CIBIL on this.

How to Apply for Loan with CIBIL marketplace ?

Step 1 : You need to first visit Cibil Marketplace website. When you go there you need to fill in two information.

Step 2 : You need to enter your Control Number (which is 9 digit number that is mentioned at the top right of the CIBIL report) and your latest Credit Score, which should be maximum 2 months old. That means, if you had applied for a credit score long back (more than 2 months back) , you will not be able to use that data to enter CIBIL marketplace. You will first have to apply for a latest cibil score (You can get your cibil score online) and only then you will be able to enter the marketplace. One reason for this is that, cibil score and report keeps getting changed each month when banks update the customers information with CIBIL. So ideally if you know control number and cibil score of some other person, you can enter the cibil marketplace with that information and see all the data . Therefore make sure you dont share this data with anyone whom you dont rely.

cibil marketplace enter data

Step 3 : The next step is to go inside the marketplace. You can see different kind of loans section and how many lenders are ready to lend you in each section. For example you can see that only 1 lender is interested to lend in this example and that’s “credit card” section . As of now, only credit cards are offered as this is new facility. But in future you can see more lenders in different sections. All you need to do here is click on the kind of loan you want.

cibil marketplace enter data

Step 4 : After you choose the section, you can see the list of all the lenders individually with some information like Tentative Credit Limit offer, interest rate, fees, charges and other information. You can click on “Apply” button and instantly a small box will appear where you can apply for the loan there itself. Now this will be a kind of pre-approved loan because this is customized to your cibil score, but the next step will be the documentation check, which is part of the check in general . For those who would like to learn more about CIBIL and Credit Score etc, there is a detailed 40 min video course on our Wealth Club.

cibil marketplace enter data

So these are the 4 steps you need to do to take the benefit of CIBIL marketplace.

Few Important Points related to Cibil MarketPlace

  • You can choose only one offer in each category
  • While purchasing your CIBIL TransUnion Score (and CIR), please make sure you fill up your income details accurately. As this will ensure the offers that are displayed in your Market Place are the ones you are eligible for. Any incorrect income detail will mean incorrect offer eligibility and can be rejected by the lender at the time of verification.
  • It also depends how many lenders choose to participate in CIBIL marketplace. There might be lenders who choose not to.
  • Once you have selected an offer then the respective lender will get in touch with you. Please ensure the details entered by you in the CIBIL TransUnion Score (including CIR) purchase form is accurate. This will enable the lender to respond to you at the earliest. You can also provide alternate contact details while selecting and confirming the offer in the CIBIL Market Place.

Who will benefit with Cibil Marketplace ?

CIBIL marketplace is an innovative platform and will also be helpful to those people who have low cibil score and a bad credit report , but still want to go for some kind of loan, even if it means on certain terms and conditions. It may be the case that they might pay a little more interest, but that would be better than not getting loan at all. This platform might also be the first step in providing incentive to those customers who have excellent cibil score. They might get loads of loan offers from lenders with lower interest rates compared to normal customer. Only the time will tell how this platform will evolve.

Let us know what do think about CIBIL marketplace and is it useful for you ?

8 ways to Upgrade your existing health insurance cover – know more about healthcare inflation

Posted on by Jagoinvestor

Is your health insurance cover enough at the moment? May be No! And you might want to increase it now. But if you feel that your health insurance coverage is sufficient right now, even then, it will need an upgrade after another 5-10 yrs.

Healthcare inflation is on rise in India and there is no way you can live with the tiny health insurance cover for rest of your life.

So let’s check 8 ways you can upgrade your health insurance cover.

Upgrade Health Insurance Cover

If you have bought your own personal health insurance before 2010, in all probability, you have sum insured coverage of less than Rs.4-5 Lakhs.

While it’s great to hear that you at least have your own independent health insurance, and are not dependent on your employer health cover, it’s high time you realize that with the skyrocketing healthcare inflation, the sum insured you have is too low to even cover one hospital bill, leave alone cover you for your hospitalization expenses in your retirement years.

The amount of health insurance coverage you need has already been addressed in one of my earlier posts. What we are going to discuss here are the options available when one is looking for upgrading his/her coverage

8 ways to upgrade your Health Insurance Policy

There are various ways you can increase your health insurance cover. Below are some of them mentioned.

#1. Upgrade later, when needed

Though this may look like the most cost effective, ‘smart’ thing to do, mind you, this is the diciest options of all. Health Insurance companies will accept your upgrade request till you are young and healthy. No one wants you to enter their portfolio or books, once you are old, grumpy or dying.

Jokes apart, even if one of your family members suffer a chronic ailment like Diabetes, Thyroid etc. or worse make a claim in the health insurance policy, your chances of upgrade in the policy are almost zero.

If you are not aware, let me clarify – whenever you apply for an upgrade, you will have to make a fresh application to the Insurance Company for the upgrades giving declaration of any new diseases contracted etc. The insurance company will then evaluate the upgrade request similar to a new application and decide.

All said and done, even if the upgrade is approved, all waiting periods are applied to the upgrade part of the policy, from the year of upgrade, and not retrospectively.

#2. No procrastination. Upgrade your cover now

This is by far, the most ideal option if you have a lifetime health insurance plan and your family is reasonably healthy. Just apply for an upgrade to the highest coverage available first, before you try anything else, including a Top-up plan.

Yes, you will have to request for the upgrade at the time of renewal by filling an application, which will be subject to approval of the Insurance Company. If you one of you family members have had a claim for a chronic disease, you must explore upgrade for all the other members. If you are all covered under a floater, you can apply for a separate plan (explained in point 4).

If you are covered under individual plans, ask for upgrade for the remaining members in the same plan.

#3. Port your health insurance cover + upgrade

If the sum insured you have is the highest available with the current Insurer, you can explore the option of porting your policy to another product within the same insurance company, or another insurance company, which has higher coverage plans.

Note, for portability, in most cases, you need to apply to the new insurance company, 45 days in advance. While applying for portability you need to request for your preferred sum insured in the proposal form. Of course, you will get portability only for the existing sum insured and not for the upgraded sum insured. The waiting periods will start again for the upgraded part of the coverage.

#4. Buy second Health Insurance policy

If the sum insured you have availed is the maximum sum insured offered by the Insurance Company, and portability is not possible as explained above, another option is taking a second health insurance policy from another Insurance Company.

If you ever claim above the sum insured of Policy 1 you can always claim from Policy 2 for the rest of the claim. Ensure you inform about the existing policy in your proposal form for the new policy.

#5. Top-up Cover

Though Top-up plans are recently a popular option to increase your health insurance coverage, you need to understand how they work, before you sign-up for such plans. The policy provides a high coverage with a threshold amount upto which you cannot make any claims.

For instance, you buy a 10 Lakh cover with a 3 Lakh threshold (also called deductible) – you will be able to claim in this policy only when you have made claims of above Rs.3 Lakhs.

top-up health insurance cover

There are primarily two types of top-up health insurance plans :

1. Top-up health insurance:

Per claim deductible: Here the top-up coverage will trigger only when one hospitalization claim crosses the threshold sum insured.

For instance, if in the plan in the above example, there are 2 claims in a year of Rs.2 Lakhs and Rs.3 Lakhs each, the top-up coverage will not trigger since none of the 2 claims crossed the “per claim threshold” of Rs.3 Lakhs. On the other if there is one claim of Rs.4 Lakhs, then the top-up policy will pay the remainder Rs.1 Lakh, as per the terms and conditions.

2. Super Top-up health insurance:

As the name suggests, this is a better version of a top-up plan. Here the coverage will trigger even if the sum total of all claims made in a year cross the threshold sum insured. In the above example, where there are 2 claims made, both the claims will be paid, upto the sum insured of Rs.10 Lakhs.

Unfortunately, there is only United India which provides this plan (albeit, with a lot of reluctance) HDFC Ergo and Max Bupa are in the process of releasing such a plan, soon. Watch this space.

#6. Critical Illness Plans

In most cases, a high coverage of health insurance is required due to contraction of a critical illness like Cancer, Paralysis, Heart Attack, Kidney Failure, Bypass Surgery etc.

A Critical Illness Plan provides a lump sum benefit irrespective of the actual expenses incurred provided the insured person is diagnosed for a listed ailment and survives for 30 days. Taking coverage of around Rs.5-10 Lakhs for critical illness is a good option. The only flipside of this plan is risk of suffering an ailment not listed in the policy.

Ensure you take a policy which covers an extensive list of illnesses, at least till the age of 70. There are plans which provide coverage for a list of 20 ailments.

#7. Defined Benefit Plans

Defined Benefit Plans provide fixed compensations against list of surgeries, irrespective of the actual costs incurred. For instance one plan pays a fixed benefit of Rs.1.00 Lakh for Angioplasty, Rs.2 Lakhs for a Bypass Surgery. These plans pay such claims based on minimal photocopied hospitalization papers.

Additionally these plans provide a host of other fixed benefits including fixed amounts per day of hospitalization etc. These plans are different from Critical Illnesses which are based on diagnosis, while these plans are based on actual hospitalization and surgeries.

#8. No Claim Bonus Plans

Given a choice, if you are going for a fresh cover, go for plans which provide No Claim Bonus (Increase of sum insured every year) rather than No Claim Discount (decrease of premium). This helps an assured increase of your coverage every year till you don’t make a claim.

Most good plans provide a bonus of at least 50% of the base cover. Of course, this is not a long term as one claim completely wipes out this bonus at the time of renewal of the policy.

Note – In my 2nd book – “How to be your own Financial Planner in 10 steps” , you can read about Health Insurance in the 3rd chapter

Watch this video to know 9 rules to keep in mind while buying a health insurance:

Top-up Vs. Super Top-up Vs. Upgrade Existing Policy Vs. Buying additional Policy

Most Insurance advisers recommend a top-up plan to increase your health insurance cover. In terms of convenience of purchase and claims, we would recommend upgrade of the same health insurance policy, as the best option. This is ofcourse, 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.

Other Important points when you plan for upgrading health insurance

1. Upgrade deadline

If you observe around you, lifestyle ailments are spreading like an epidemic across India, thanks to the sedentary lifestyle we live.

You will observe that most of the ailments start cropping up in the late 30’s or early 40’s. If you/your family are in your early 30’s and already have health issues (overweight, underweight, breathlessness, borderline high cholesterol etc.) it is recommended that you go for the highest coverage on mediclaim immediately, rather than get a restricted cover in case you suffer from a chronic ailment in the interim of your plan to increase coverage.

In any case, ensure you upgrade to desired coverage by the time you reach the age of 40 years.

2. Option of stepping up your upgrade plan

If you are in your early 30s, and you cannot afford a one-shot upgrade is too heavy on your current financial budget, create an upgrade plan. Spread the desired upgrade amount across your age upto 40 and upgrade the amount in a manner that you reach the upgraded amount by 40 years. For instance, increase your sum insured every year by say Rs.1 Lakh.

3. Upgrading Features of your plan

Moving to a plan with better features. If you are happy with the sum insured, but not with the features (limitations like room rent limits or co-pays etc. or maybe the network of hospitals) and you are looking at an upgrade, you need to first look at the same insurance company, and check whether they have an advanced plan you are looking for.

In case you like a plan from another Insurance company, you would have to opt for portability with this new Insurance Company 45 days before renewal of your existing policy. Do remember, in the real world (outside the IRDA guidelines) there are limitations on who can get portability, especially if your family is older than 45 years, has a claim history, or a chronic disease.

Go for any options you like above, the bottom line remains – TAKE ACTION. TAKE ACTION NOW. You have too many priorities in your life at home and work, to really be able to remember and act on this even tomorrow.

This article is from Mahavir Chopra of Medimanage. This article first appeared on medimanage blog

Days Past Due (DPD) section – What is the meaning in CIBIL Report ?

Posted on by Jagoinvestor

You might have seen a section in your Cibil Report which says DPD (Days Past Due). While Loan Status and Credit Score matter a lot when it comes to getting a loan approved or rejected, a big myth among people is that a clear report (without SETTLED or WRITTEN OFF status) and a credit score above 750/800 are the only two things that they need to get a loan.
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That’s not true. While a clean report and a good score are definitely primary level requirements for getting a loan approved, there are finer details which a bank looks at, before deciding if they want to give you a loan or not; and Days Past Due or DPD is one of those important metrics. Lets understand this then …

What is Days Past Due (DPD) on a CIBIL report ?

Days Past due or DPD means, that for any given month, how many months worth of payment is unpaid. And this information is for each account . Which means that if you have 3 different loans going on, then you will have DPD information for each of those accounts. For each account you can see Days past due information for each month for the last 3 years , i.e., 36 months.

You might already be aware that your cibil report contains the past 36 months of your credit information. Each and every month, your lender who is a member of CIBIL, will update the CIBIL with the latest information like Did you pay on time or not? How much outstanding loan do you have at that moment? How many months worth of loan is remaining and other micro details are shared on monthly basis by banks and lender to CIBIL. So each month, a new month’s data is added and the oldest month (36th month) is removed from the cibil report and this way a sliding window of 36 months data is available on your cibil report at any given point of time.

Example – Date 06-12 and DPD value is 90

If DPD value is 90 for a date say 06-12, it means in June 2012, the payment is due for last 90 days, which means 3 months dues! So you can now understand the the DPD in the last month (May 2012) would be 60 and for Apr 2012 would be 30.

When you default on any payment or do not make the full payment, this DPD value will start getting a number and it will be a negative thing. So if there is a cheque bounced from your side and the loan not paid on time, you can expect one entry of DPD for the latest month with value 30 – which says one month of dues are not paid. If you clear it on time before the next cycle comes, it will help you to improve your bad credit score and the DPD value for next month again will be normal, but if you do not make the payment and keep those dues , then the DPD value for the next month will increase to 60, which implies that from 2 months you have not paid the dues. See the graphic below to understand more examples of DPD

Days Past Due (DPD) example in CIBIL report

What does XXX means as DPD Value ?

There are certain values which can appear in DPD section and each of them has some meaning, however the safest values are 000 and XXX . If you have the value as 000, it means the dues are totally clear on that date and nothing is outstanding. And if the DPD value is XXX, then it simply means that bank has failed to report the data for that month to bank, and it does not impact you at all . At times instead of 000, the value can be STD which means that the dues are for less than 90 days . While any other number other than 000 is a negative thing, but make sure it does not go above 90 days , because then its super negative.

At times, some lenders also report DPD values in a different way, as per asset classification norms set by RBI. In that case, the values which appear under Days Past Due section are STD , SUB , DBT or LSS which denotes good to bad , where STD is good and LSS is the worst one. Here is what each of them denotes

 

STD (Standard) Payments are being made within 90 days. Note that any delay of more than 90 days is seen as Non Performing Assets (NPA) by banks
SUB (Sub – Standard) An Account which has remained NPA for upto 12 months
DBT (Doubt ful) The Account which has remained Sub Standard Account for a period of 12 months
LSS (Loss) An account where loss has been identified and remains uncollectible

 

Can DPD values be changed ?

There have been cases that lenders have rejected loan applications based on DPD information even though the credit report was clean and the score was quite good. And the common worry at the time is “Can’t I change my DPD information somehow?” and the answer is NO . You can’t change DPD information like you can change SETTLED or WRITTEN OFF status by taking some action. All you need to do is wait for some time and as time passes, new month information will get added to your report and old data will keep getting phased out. So if you have some bad DPD data before 12 months, then it will go out in next 24 months, and if you have some DPD data 2.5 years old, it will go out in 6 months period.

For those who like to learn through video’s, we have a 40 min course on Credit Report and Scores in detail on our Jagoinvestor Wealth Club, which will explain all the aspects of the subject in a clear manner and great detail

Did you understand the meaning of Days past due or DPD which appears in CIR (Cibil Report) ?

6 credit card myths – which can kill your financial life someday !

Posted on by Jagoinvestor

One of the most used financial products is the Credit card. We all spend so much time to get best credit card, but I have never seen someone, who has spend his time to fully understands the importance of the CVV number, One time password, Signatures on the back of credit card or how secure their credit card is overall ! .

There are so many credit card frauds going on, and yet  each of us thinks, that our credit cards are fully secure and it cant happen with us. However, this is really far from the truth, because of the 4 big myths people have about their credit cards and we will bust them today for you, so that you become a more powerful and informed investor!

Credit Card myths

Myth 1 – My Credit Card is secure, because no one knows my PIN/Password

When you make a transaction through a credit card in India, at the end of the transaction, you are asked to enter one more final PIN number, which makes your transaction more secure and gives you an additional layer of security. RBI had come up with this additional password requirement just last year. While you needed credit card number, expiry date and your CVV number to make a transaction earlier, now as an extra security layer, you need this additional PIN too.

However note that this is limited to online transactions on Indian websites only. When you make a transaction outside India, this additional step is not compulsory. This means that someone having every other detail of your credit card other than your PIN can also do transactions even if he does not know your PIN . You must have realized this yourself, if you have done any transaction outside India.

Myth 2 – No one knows my CVV number, so I am secure

One of the biggest myths about credit card is that, if no one knows your CVV number, its impossible to do the transaction. Take a small breath, while I tell you this.

“CVV is not always mandatory on all websites to make an online transaction.”

Yes, you heard right!. You can make a online transaction on few websites out of India with only the Credit Card number, the expiry date and obviously the name of the credit card holder. If you don’t believe me, here’s a small example.

Try to book a domain name at godaddy.com. I was almost numb, when I booked a domain name some time back, only to realize that the domain name was booked, but the site never asked me my credit card CVV number and I was like – “What ?! Seriously ?!” . I then found out, that asking for CVV number is just optional for credit card merchants. While some countries make it mandatory, others don’t. It’s just a choice!

So make sure you are safe, do this

  • Scratch your CVV number on the back of your credit/debit card
  • Always make sure the swiping happens in front of your eyes! , I know, it can be a little embarrassing for you, but its just an extra mile security, see if its possible for you
  • Better do not use Credit Card at all , use Debit card instead!

Myth 3 – My credit card can’ t be duplicated.

Yes, your credit card can be duplicated and it happens in India. A card (credit or debit) might be using something like EMV chips or Magnetic strips, and that’s where the problem is at. While EMV chips are more secure, the magnetic strips are not!. If your card has magnetic strips, it can be duplicated.

Here is how it works …

Your card has a lot of data inside it and it sits on the magnetic strip. When the card is swiped, all the data is extracted from it, for verification purposes. Now some expert hacker with bad intentions, can extract all this data from the swipe machine and make a new card using a technique called Cloning. There are machines called “skimmers” , which helps in extracting the data from the swiping machines to a new card. If you are still wondering if this all happens in India, here is a story excerpt from Hindu website

According to the police, the machines were used to swipe cloned cards by one Rahul. The cloned cards were arranged by Pankaj Deewan, Yogesh Mahajan and Yasin through their contacts. The amount transferred to Dheeraj alias Rohit’s account was shared by the machine holder and cloned cards holder at 40:60 ratio respectively.

Following this, the police launched a hunt and subsequently arrested Dheeraj, Pankaj, Yogesh and Yasin. They purportedly told the police that the domestic cards were cloned by one Kamal and international cards by Devender Chauhan of Agra with the help of a professional hacker. The cards were cloned by obtaining information of genuine customers and then copying the same on a plain card having a magnetic strip. According to the police, the accused used skimmer (a device used to copy data from credit/debit card) for the same.

And if you still don’t believe all this, here is a video you might want to spend time on

If you need more , read this incident on Credit Card cloning here

Myth 4 – The signature on the back on credit card does not matter much

One of the most misunderstood and unknown facts about credit cards is the signature on the back of the card. Let’s understand the rule today and lay this to matter to rest. If a credit card does not have a signature on the back, it’s an invalid card. As per the agreement between card issuer and merchant (the shops and hotels which give you the facility to swipe the cards), the merchant is supposed to check the signature on the back of card with the signature on the bill, and only if they match, the merchant should allow the card to be swiped.

However almost all the merchants avoid checking it, as if it does not matter at all. This is violation of terms and conditions and if you have lost a credit card which was SIGNED, and some transaction takes place, you are not suppose to be charged, because the merchant should have checked the signatures on card with the signature on the bill. What this means is that if there has been ever a fraud on your credit card, and you are asked to pay the money (Like this Incident) , just ask your card issuer to check the signature on the bill with your specimen signatures with them and if they do not match, they are not suppose to pay the merchant at all and let merchant take the loss for not doing their duty of checking the signatures.

Credit Card signature and CVV

This explains why you should sign your cards on the back and not leave them blank, because if someone steals your card and puts his signature on the back, then the transaction can be done successfully even if the merchant does his duty of checking the bill signature with the signature on card and in that case you are bound to pay the money to card issuer.

MYTH 5 – By paying minimum balance, I do not have to pay Interest

As you have used your credit card and now it’s time to pay your bills of Rs 15000. But you don’t have money to pay back the bill. You are in tension because if you don’t pay your bill you will be charged penalty. So to avoid penalty you pay minimum balance of Rs 3000 and now you will not be charged penalty. So now the left over bill amount is Rs 12000.

You must be happy that you will have to pay Rs 12000 only but let me tell you that you will have to pay Interest of 3 to 4% on this 12000. So even if you pay your minimum balance to avoid penalty but you cannot avoid the interest charged on the left over amount.

MYTH 6 – Too many credit card will improve my credit score

Many people think that if they opt for more than one credit card then there credit score will increase eventually. But this is other way round. If you opt for too many credit cards you won’t improve your credit score but you end up being more dependent on these credit cards, which is not a good sign. Managing too many credit card becomes burdensome.

Tips to Secure your Credit Card

I hope, now that these myths are busted, you are a more informed and powerful person who the rules of the game of credit cards . To summarize, lets put out some tips to secure your credit card

  • Do not share your one time credit card password (IVR) with anyone ever
  • Scratch your CVV number and remember it in your head !
  • While making any online transaction, make sure the website starts with https://
  • While making any transaction offline like on petrol pumps , hotels etc, make sure its swiped in front of you as far as possible.
  • Make sure the card is swiped on a machine which is issued by authorized banks and not some machine which looks suspicious , it can be a “Skimmer” machine which steals your data.
  • Put a signature on the back of your credit and debit card, so that unauthorized transactions are not done and you are protected a card holder
  • If possible, better use a credit card which has a small limit like 10k or 20k for shopping.
  • There are virtual credit cards these days, you can use them for online transactions

If you ever had any incident that was mentioned here, please share it with others and if you have some thing to teach others, please share it here with everyone.

4 things to do, when you are forced to buy a Policy with Home Loan !

Posted on by Jagoinvestor

Have you even seen cases where when a person wants to get a home loan, and the bank or the lender says that taking some kind of ULIP policy or some other kind of insurance product is mandatory if you want the loan to be approved? Most of times, banks impose this restriction in the final stages of loan approval process because that’s the time when most of the customer will not reject the option and will forcefully go for it, because they don’t want to lose the home loan for this tiny roadblock.

Policy Forced Selling with Home Loan

If you are thinking about 50 lacs of home loan, you will not get stopped by this 40,000 per annum premium policy. Here is a case which was discussed on our jagoinvestor forum.

I recently planned to buy a home. So, after market research I approached SBI bank. But the manager informed by saying that ‘I need to take SBI Insurance along with home loan’ else will not sanction SBI home loan. Please let me know whether is it the case with SBI home loans?

Cross Selling is Unfair – IRDA

Some customers falls for these kind of gimmicks, but in reality there is no compulsion to buy any kind of product with home loan. It’s just a marketing gimmick and a way to exploit people. IRDA itself has clarified in its circular that this kind of bundling or forced selling is not fair and should be stopped. However banks still continue to ask customers to buy the insurance along with home loans and ill treat them.

Tying is defined as two or more products packaged together where at least one of the products is not sold separately while Bundling occurs when products are packaged but are also available separately. There could be various issues of concern for the consumer that arise from cross-selling. Packaging two or more products could become unfair to the consumer when it impedes his or her choice or makes price comparisons difficult or impossible.

One of the major concerns is bringing in transparency to prevent unfair commercial practices. At the same time, cross-selling facilitates service providers to use existing channels to reach out to those who are looking to buy insurance products. It is, however, necessary to ensure that the consumer is not put to any kind of disadvantage because of the packaging.

J. HARI NARAYAN
CHAIRMAN (IRDA)

So what’s the way out? It might be, that if you are careless on documentation front, the bank might sell you the policy and you come to know about it very late; like it happened in this case where Axis bank sold life insurance along with home loan to this guy. While you always have an option to go to consumer court over the issue, that comes a little later.

What way you can settle this at the bank level itself? The main idea is to communicate to bank officials that you are not a easy bait and are an informed investor who knows his rights as a customer. Below are a few things you can do in a situation when bank tells you “Sir – Insurance is compulsory along with home loan, else it will not be processed”

What to do when forced to buy insurance along with home loan ? Lets see 4 tips which you can use when you are told by your lender that some kind of policy is mandatory to buy along with home loan.

Option 1 – Directly tell them, you know the rules

One of the simple things you can do is tell them straight forward that you know the rules on this, you are aware about the RBI circular that these practices are not fair and ask the bank for an explanation on how they are still doing it. Also tell them, that you have yourself helped another friend of yours to get a home loan without the bundled insurance when XYZ bank asked for it. You can tell them that you have already filed for RTI to IRDA and asked for this, if they want you can bring the RTI reply from IRDA. This first tip itself should be enough for your home loan provider to come to the right path.

Option 2 – Reject the Offer and Wait – They will come back

When you show desperation, they know you will do anything for getting a home loan and that’s one reason why they put forward such idiotic restrictions of taking policies. Another thing you should do in these kind of situations is that you can just reject the offer totally and tell them that you really are not so desperate to get the home loan, you can wait for some months or you already know other bank officials who have not put forward such kind of restrictions . In all probabilities, they will just come on track or if not that time, they will be back to you later saying – “Sorry Sir, we take back that restriction .. blah blah… ”  This is exactly what happened with Muthu Krishnan which he shared on this blog some time back

IDBI tried to con me in similar manner. I told them that I don’t need their loan. After two days, they called back and offered loan without insurance which i accepted. Though you are absolutely desperate for loan, do not show it to the banks. The banks are very desperate to disburse loans as it is their livelihood and not ours. They will come around to our terms.

Option 3 – Ask them to give it in writing

The next option is to look at the bank official and ask him to give in writing that “Buying the Policy is mandatory along with Home Insurance” and also tell them you are thinking of inquiring about this with banking ombudsman because you have already filed a case for your friend and got compensation for this. If they are not ready to give it in writing, tell them that you don’t need home loan from them anyways, but you will still file a complaint with Banking Ombudsman to see what can happen and politely ask the official if he can also share his Name, designation and Employee id for additional information.

Option 4 – Take the Policy and return back in Free Lookup period

This is the last option, but if you feel that other options are great but you are victim of family pressure and at this time just need to go ahead even though you are disgusted by this force game, just go ahead with policy and pay the premium for first year. Then be a little alert and make sure the moment you get policy documents, just initiate the process of returning back the policy within the 15 day free look-up period . For those who do not know, the free look up period starts from the day you get the policy in your hands, not from the day you bought the policy. This helpful tip was shared by one of the person who shared his case with ICICI mis selling.

Conclusion

Any kind of loan should not be bundled with other products. Most of the bank officials try to pressurize the customers just to meet their deadlines and targets. So do not fall for forced selling and act like an informed and powerful customer.

Have you come across a situation like this? Can you share?

Cheque Truncation System – New Benchmark for Cheques in Banks

Posted on by Jagoinvestor

It might happen that your cheque’s start bouncing and do not get accepted from Jan 1, 2013 . There is a new standard in banking called as Cheque Truncation System or CTS 2010 , which all the banks have to follow now. RBI has issued a circular telling all banks that they should only process and accept those cheques which follow CTS guidelines.

What is Cheque Truncation System or CTS ?

Its just a new improved structure for chqeues and a set of guidelines which will change the way cheques are being processed and cleared. Right now, all the cheques are sent directly physical to the other bank for clearance, but with this new Cheque Truncation System guidelines, the banks will send the digital version of cheques (read scanned image) to the other bank and the clearance will happen almost same day or very fast. Some of the features of CTS cheques would be

  • It would have the wordings “please sign above this line” at right bottom
  • All CTS-2010 cheques will have a watermark with the words “CTS INDIA”, which can be seen against a light
  • A bank logo will be on cheque with a Ultra Violet Ink , which can be seen only under UV Scanners.
  • The Cheque Truncation System 2010 enabled cheques will not allow any alterations. If there is any mistakes, the cheque will be invalid
  • “payable at par at all branches of the bank in India” text will be at the bottom of all the cheques
  • There will be IFSC and MICR code on the cheque
  • You will have to sign the cheque will a darker ink, so that your signatures are valid for scanning.

If you look at these features, you can simply see that these are required for digital processing and once these Cheque Truncation System enabled cheques arrive , the whole banking system will start clearing the cheques in a must faster time. This will improve banking and save paper 🙂 . Below is a sample of cheque which fulfil CTS criteria’s.

Cheque Truncation System CTS cheque sample

SBI has already told all its customers to get new cheques because all the old cheques will become invalid , In the same way HDFC bank and ICICI bank have also told their customers to get new cheque books.

What you must do ?

1. Replace your Post Dated Cheques

If you have given any post dated cheques to someone like for your home loan payments or for some other kind of payment, then its the time to replace them with fresh cheques else it will just bounce and you might have to pay the bounce charges

Deposit any Old Cheque now

At times, we accumulate old cheques and deposit them for clearing only after many days or weeks. If you have any cheque which is to be cleared, better deposit it and encash !

A lot of banks have also asked its customers to give return back the old invalid cheques at their branch and collect new cheques, not sure why they need old cheques , why cant they issue the new cheques directly ? Also note that the cheques will be sent to the last updated address only. Learn more about CTS here .

You already have CTS-2010 compliant cheque books ?

Note that RBI has directed all banks to issue Cheque Truncation System 2010 enabled cheque books already from last many months. So it might happen that your cheque books are already complaint with those standards . So please check it once and dont rush to bank to issue you new cheque books . Like one of the reader found out that he already has the right cheque’s .

Banks like ICICI Bank and Axis Bank had already started issuing CTS-2010 compliant cheque books since last year. So please verify whether cheque book you have a already CTS-2010 before rushing to bank to get a new one. After I placed a request for new cheque book, I found that my existing cheque book issued to me in Mar-2012 was already a CTS-2010 one.

I hope you are clear about Cheque Truncation System (CTS) and how your cheques will become invalid from Jan 1,2013