11 investing Bias which impacts investors

11 investing Bias which impacts investors – An audio Podcast !

Posted on March 21, 2017November 19, 2019 by Jagoinvestor

Do you take all your decisions based on facts or emotions? Be it personal or financial life, it’s a well-known fact that 95% of our decision are based on emotions.

Today we are going to look at various kinds of behavioral biases in the area of money and in general. For this, I got in touch with Mr. Siddhartha K Garg who is an expert on this topic.

We had an hour-long conversation on various things and how investors make mistakes in their financial life because of various emotions. You can listen to a 1-hour long audio podcast below. Just make sure you listen to the full conversation as there are various points discussed.

If you do not want to listen to the audio podcast, you can go through the summary point of our talk below.

What are biases?

Simply put our brains give more attention to something but less attention to something else, despite there being no actual inherent reason to make such a distinction.

And hence it is a bias – that is making a distinction without any reason. A simplest example which you yourself can notice right now – how many positive stories from today’s news do you remember v how many negative stories? I am certain many more negative stories than positive ones.

This is because our brains are hardwired to pay more attention to negative stores than positive ones as the negative ones are more likely to harm us. Or why that pollution in Delhi only becomes an issue every winter, but not so much in summers. Because we are biased to give more attention to an issue when it is right in front of us as opposed to something in the future (this is called proximity bias and we will shortly discuss it).

Now, apart from small purchases like everyday items, these biases can wreak havoc on your long term wealth if you don’t take steps to check them! Want to know more? Let’s read on and think which ones of the following have you already fallen prey to?

Bias #1 – Anchoring effect

Definition – Rather than explaining what this bias is, allow me to illustrate how it originated – once a shopkeeper was trying to sell a mixer grinder and was having a very hard time trying to do so. He had priced it at 25US$ and was aggressively marketing it, yet the customers just wouldn’t buy it.

But one day suddenly his sales started shooting up. Perplexed as to what is the cause of this upward selling, he went to the aisle where the mixer-grinder was stocked and noticed that a shop employee had put another similar company mixer-grinder next to it and accidentally put a tag of $100 US on this 2^nd model, despite there being barely any difference in the 2 models.

What the shopkeeper noticed was that the customers would anchor the price at the heaviest figure and then judge the models based on such price and not go into the features etc of the models at the display. As a result no one even touched the 100$ mixer-grinder but the sales of the 25$ shot up.

Example – Another similar example would be that of a famous café in Italy, that apart from the usual coffee and food items in the menu also have available for purchase a Vespa! (one of those hipster scooters) Now they obviously don’t expect anyone to buy it, but just by seeing that price tag of 800 Euros on the menu card makes the 30 Euro coffee seem not that expensive.
Solution – Now that you know about this bias, you will automatically notice yourself gravitating towards such an item, whose actual value is not worth the price or maybe you just don’t need it. Point being – decide on the purchase on the cost of the item relative to its own quality and your need and not to some item thrown in the menu to throw you off track

Bias #2 – Sunk-Cost Fallacy

Definition – Divestiture aversion or in simple we are averse to letting anything go which we already possess. In more common terms this is when we throw good money after bad.

Example – keep sticking with some stock despite consistent under-performance because we think it may improve
Solution – cut your losses – yes, a little bit of loss is better than huge loss and what you get back can be re-invested and earn to counter the loss made

Bias #3 – Confirmation Bias

Definition – we look for sources of information that confirm our beliefs rather than oppose our beliefs

Example – people who have a right-wing philosophy prefer Facebook pages that cater to that view or with left-wing philosophy will only follow pages that talk about their beliefs. Or in investment parlance – those who believe that FD is safest and surest will try and avoid news outlets or people who say that you must have equity exposure also.
Solution – get a mix of information sources and don’t just limit to one side. Hear everyone and have contrast exposure to all investment strategies.

Bias #4 – Halo effect

Definition – Halo is the golden circle you see above the heads of angels. Like in Tom and Jerry, whenever one died they showed the character in white robes in heaven with a golden circle above their head.

So in this bias, we get a halo above our head after we do something good (like not over-spending throughout the week or doing a financial review of all your insurances and investment on a weekend), that now you think that you are good boy and can get away with a little bit of unexpected spending.

Example – Sometimes people work out a lot in a gym and think that now they deserve it and come home and order Dominoes. Similarly, people can do in financial life, like for example after spending a weekend going through your finances, documents and portfolio status people think that they have done all the right financial habits that they go and splurge in the mall on Sunday evening.
Solution – notice that this is a common behavioral trap when you see yourself falling for it, back off and stick to your investment or budgetary plans.

Bias #5 – Bandwagon Effect

Definition – in simple words it is the herd mentality

Example – in your office everyone decides to invest in gold because the market is low and do so you. Or your relatives and uncles decide that life insurance is the best way to save tax, you also decide to follow. When clearly they are the wrong choice. One person example – in the SCBA (Supreme Court Bar Association) there is a tie-up with a particular company’s life insurance. And I see many people just buying that insurance because most of the other lawyers are also buying it. Now I am not saying that this particular company’s offering is bad but only saying that just because everyone else is purchasing it, makes it the right option. One should always purchase, not blindly following the herd, but after carefully analyzing the options.
Solution – Don’t just follow the crowd but analyze what are your requirements and then what are the best solutions based on your investment need. If you are a young salaried person then invest in equity and if about to retire and obviously can’t carry many risks then look for safer options – maybe debt funds. But don’t just follow the crowd and invest based on your requirements and financial situation.

Bias #6 – Proximity bias

Definition – we give more importance to things in our current than in the future.

Example – The study of people under F-MRI shows that for future they viewed themselves with the same regard as a stranger. In fact, doctors in the US, show the pictures of people on a computer screen that if they don’t exercise or take their medicine then in the future they will look so and so and this caused more compliance to the diet plan.
Solution – it might not seem important now but your future will be present soon. Days are long but years are short – so, start saving for retirement from the very first cheque and start your SIPs early to take advantage of cumulative interest.

Bias #7 – Recency Bias + Negativity bias

Definition – we pay more attention to negative and recent things

Example – stock market crashed – as opposed to a long string of bull runs or that many companies did farewell and decide to go for FD and not invest in mutual funds
Solution – Stick to a chosen investment strategy based on goals and not let blips change your mind

Bias #8 – Status Quo Bias

Definition – that we prefer to let things stay as they are and not rock the boat – it’s going fine then why shake things up

Example – simples would be not analyzing your portfolio – it’s going fine. Why apply mind and let it be
Solution – No! Get over the laziness and devote some good time like Sunday afternoon after lunch one hour once a month without phone calls or emails or any distractions and get things done.

Bias #9 – Information Overload and attention deficit

Definition – you are overloaded with information and you just get paralyzed. You stop taking any actions because you are over-analyzing things and not able to arrive at decision.

Example – let’s say you want to decide which mutual fund to invest in and get bombarded with options and decide that let’s just get the simple FD done. In fact, a study from the US shows that a company offered its mutual funds to invest in on the company’s expense. With 3 options, 75% of people selected a fund. But with 10 mutual funds options, the purchase rate dropped down to 25%.
Solution – get basic research done and then keep cutting out irrelevant information, get the main data and then decide with the help of an expert – hired or a family or friend. But just because lots of work doesn’t mean you should not do it at all.

Bias #10 – Snowflake fallacy

Definition – if you see snowflake under the microscope the you see that each snowflake is unique and so do we, think that we are special in the universe and that we know what we are doing is right or that our problem is unique and no solution to it out there, as result don’t look for the solution

Example – We think we know it all and can conquer the stock market. Stop – if you are an average person who wants full-time work in the field you are better with mutual funds. Which is basically a collection of stocks picked by experts.
Solution – remember that you are not unique and get your major decisions reviewed by someone knowledgeable in the field and don’t just ignore the basic rules of investment.
Main example – Even Sir Isaac Newton was not able to beat the stock market! In the 1720s had lost about 3 million US$ (in today’s term) when he tried to play the market on the stock of a company called “South Sea Company”.

Bias #11 – Lifestyle inflation

Definition – This is also called the “Hedonistic adaptation” – it basically means that once your salary etc starts increasing, subconsciously your spending also starts to increase. You won’t even notice it. And hedonism means the philosophy of seeking pleasure and when your salary increases you adapt your lifestyle for more pleasure, hence causing the hedonistic adaptation.

Example – You have a nice 50 inch LED. Your salary increases and you start thinking why not a 60 inch LED TV. Then after some time, you decide why not a 4k LED. Then you decide why not an Android enabled LED. Now even with the 50 inches LED you were fine. But slowly and creepingly there was inflation in your lifestyle. And to afford the same TV on EMI, you have to work more, the same time you could have just spent with your family enjoying the latest movies on the 50 inch LED! The problem that I am highlighting here is that I am not at all saying that don’t buy more as your income increases. Obviously, with more income, you would want more things but don’t go overboard and stick to your needs. And make sure that as your income increases so do your savings for retirement etc also increase because otherwise with more income and also more expenditure your savings rate will remain the same and maybe, if you don’t notice, it might even decline – as you save less even though are earning more!
Solution – be wary of your purchases. Keep strict logs and budget your discretionary spending. If you start going overboard then you know that you have become a victim of lifestyle inflation. In fact, a US study showed that people would be happiest at the income of 75,000 USD income and after that particular level of income, the happiness level remained the same and it meant only more stuff in the house.

Few general solutions to deal with biases

Accept and acknowledge that you are not perfect and can make mistakes – Remember – that you are human and our minds are not in as much control as we think we are. Accept that our mind works in ways that we can’t even imagine and not all decisions are “rational” decisions. This acknowledgment and acceptance is important because then you will know that yes I can make mistakes and I must setup safeguards so that I do not commit these mistakes.
Never buy major items on the spur of the moment
Never make any investment decision when (a) sleepy, (b) hungry and (c) irritated
Sleep over it! – Economists call this as a cool-off period – so you had the requirements with you and you got the various pitches. Now just take all the data and the pitches to your home, go through them once and just forget about it for one day. In a day or two automatically your brain will tell you which one to choose.
Write it down and be accountable! – When going purchasing – be it a TV, or in the market for an equity mutual fund or new health insurance for greater coverage because you want separate insurance for your old parents away from your family floater policy – WRITE DOWN your requirements and your budget and give them to your partner/spouse/friend. And if you exceed or breach the budget then again write it down again and tell your partner/wife/friend to question such a breach. This will make you accountable for the decision you took. In fact, keep looking at your written note (paper, Google keep, iPhone notes whatever) when doing the purchasing so that any aggressive sales pitch doesn’t throw you off your goal.

We hope you liked this audio podcast and the article. Please share your personal experiences around this topic? Which bias do you feel you have gone through? Share in the comments section.

(This piece is authored by Siddhartha K Garg who is an Advocate in the Supreme Court of India and a former Junior Research Scholar in the Law and Economics Department of University of California, Berkeley. He also runs an NGO Angel Trust for Animal Care in Delhi and can be reached at [email protected])

17 secret tips to book cheap flight tickets in India – Save 20% or more

Posted on February 17, 2017November 19, 2019 by Jagoinvestor

Today I am going to share 17 amazing tips you can use to book cheap flight tickets in India. Many of the tips I will be sharing would be already known to many people, but some tips might be new or unexplored by many.

While you might not get very big discounts using these tips, still you will be able to benefit some margin.

Make sure you read all the tips mentioned below, as some people might feel that they already know most of them so it makes no sense to look at all. I myself got to know 2-3 new things while writing this article.

#1 – Use the special debit and credit card offers

I personally never give a lot of thought to this tip earlier. I mostly used the coupons and codes mentioned on the social media or coupon sites, but there are various special offers designed especially for the debit card and credit cardholders only.

For example, if you have Kotak bank card, you should search for “Kotak offers flight tickets” on Google and you will surely get some page on the Kotak website or flight booking websites which will give you some special codes for getting additional discount.

When I went to that page on Yatra, it shows me various offers.

If you look at the offers above, you can see that ICICI bank offer for yatra website is there with code YTICICI17, but it’s only applicable for the flight before 31st Mar and the airfare should be minimum Rs 3,500.

So I found a flight from Kolkata to Ahmedabad for 15th March and applied the coupon code and it showed me Rs 500 instant discount (It was a real discount, not cashback)

So whatever is your bank name, just search for “bank name + flight discounts code” and you will surely get some offer page.

You may also want to explore the special credit cards which are launched in association with the airlines (like The Jet Airways American Express card) which earns you JPMiles or frequent flyer miles.

#2 – Use the wallet cash to get a further discount

I think goibibo started this and became hugely successful due to this factor. It’s one of the most trusted ways to get further discounts on flights/hotels and other bookings.

All the websites like MakeMyTrip, Goibibo, yatra have this concept of virtual wallets and you get some cash backs in this wallet which can be partially used while making the payments.

Goibibo calls it as goCash, Yatra has eCash and Makemytrip simply calls it as Wallet money. I have been an extensive user of Goibibo and no matter how great other websites offers were, after applying goCash, I always got the best price at Goibibo.

However now I get some great offers at MakeMyTrip compared to Goibibo (maybe because they are now merged).

This virtual cashback can also be used for booking hotels and you keep getting this virtual cash with most of your booking. You can also get Rs 3,000 worth of goCash by downloading goibibo App from this link

My teammate Kunal uses ixigo app, and the best part about it is that they offer the cashback directly into citrus account which can also be taken back in your bank account, so it’s a real cashback in that sense.

#3 – Book within 30-90 days in advance

Expedia did a very interesting study and found out that on an average the lowest flight tickets sold was 57 days in advance. They studied various domestic flights prices and saw the trend and found out that booking a flight very early is not always the best option. There is enough time left to fill the seats so airlines are not desperate to grab more and more customers at cheap prices.

As per their study, the prices were moderate in the start, and kept on declining and somewhere around 50-60 days before the departure date, the prices started rising and then shot up during the last 2-3 weeks.

They found out that the average ticket price was $496, while the cheapest one was at $401 and that was sold around 57 days in advance.

Now, this is not a study based in India and things are different here. Also, we know that this is just the average of 100’s of data, the conclusion here is that you should neither buy the airlines tickets very early like 5-6 months (not applicable for international flights) nor too late. Ideally, if you buy it in the window of 30-90 days in advance, you should always great a very good deal.

However, this is not true for festival times and some destinations which see a rush in some particular season. Here a small infographic on this topic.

#4 – Take flights at odd hours

If you are ok travelling very late at night, then you can get a low price on flights. But this might not work when you are travelling with family or when you need to reach your destination at a particular time (like for some meeting or a seminar etc)

However, people travelling solo who do not have a fixed time to reach can explore this option.

I travel from Pune to Ahmedabad many times a year and I like to take late-night flights as they are comfortable for me and I also don’t have to face traffic 🙂 and mostly they are very cheap. Check the snapshot below

I think the simple reason for this might be that many people do not want to reach their destinations by 1 or 2 in night and hence avoid flights at night, which means there is less demand for flights at night.

But you will not get a cheap flight if you are booking it at the last minute.

#5 – Try flexible dates

If you do not have rigid plans, you can surely look at dates which are either 1 or 2 days earlier or later than your planned date. Often, you will find out that many times you might get a cheaper option on a different date very close to your planned date.

A quick way to find this out is to the first search for your flight for the date you have planned for, and then when you try to edit the date, it will show you the calendar with the prices for various dates.

Above you can see how the flight ticket for Pune to Delhi for 10th Mar shows the price as Rs 4930, but the price just 3 days before that and 2 days later is Rs 2402, which is almost 50% less.

According to many international studies on airlines prices, it’s concluded that the cheapest dates to fly are Tuesday and Wednesday, as they are weekdays and the traffic is less. So keep that in mind while travelling.

#6 – Use mobile apps for booking

If you are still using the web browser for booking fights, you are missing some awesome offers provided by various websites. From time to time websites offers some discount codes (not cash back) which will reduce your fights prices by around 5-10% at least.

I recently booked a flight from Pune to Dehradun on MakeMyTrip mobile app and used a coupon code FLTAGAIN which reduced the flight price by Rs 800. This coupon was only valid for mobile app and only for those who got the offer on email.

It surely compensated for all the convenience charges and the travel insurance charges. Here is the snapshot of the offer taken from my mobile

Here are the benefits you generally get when you book your flights from mobile apps

You generally get more reward points (cashback points)
You get exclusive discount/cashback offers
Airlines mobile apps also provide good discount on meals booking

#7 – Make payments by Wallets

Do you know that you can get some additional cashback when you pay from wallets like Mobikwik, paytm, freecharge, payumoney?

Yes, that’s true.

Below is an example of free charge offering 10% cashback on the base fare of jet airways flights. If you book the flight on the app or website of jet airways and make the payment using the free charge wallet, you will get the cashback provided all the terms and conditions are met.

Almost all kind of wallet companies have a dedicated page for these kinds of offers and it will share various deals for hotel booking, bus booking, flights etc..

Like Mobikwik has a dedicated offers page, and I can see that it shows a deal where you get Rs 200 cashback if you book a flight on MakeMyTrip. This is above and over the other discounts and cashback.

#8 – Book two single flights from different providers

If you want to go a little extra mile and are ready to spend your “valuable” time then you can also explore booking two single flights instead of a return flight or connecting flight and maximize the cashback and discounts.

So if you are planning to go from point A -> point B and also returning back, then instead of booking A-> B return flight form a single website, you can book A->B flight from one website (and use their cashback and discounts) and book B->A from another website (use their cashback and discount offers)

While this may not give you a better deal all the times, it’s a good idea to explore especially when you are booking tickets for a higher value or international flights.

Here is an example

Imagine if a website is giving a 10% discount on tickets above Rs 5,000, with a maximum cashback of Rs 500. So if you book your return flight and total charges would be Rs 10,000, but you will get the maximum discount of Rs 500 only.

Instead of that you can book a one-way flight from one website and get Rs 500 discount and the same way you can get Rs 500 discount for other flight on another website.

The only problem in this is that you will have to enter all your details two times instead of one and the same for making payments

#9 – Book directly from the airline’s website

If you are not getting any cashbacks or discounts on the intermediary websites like paytm, makemytrip, ixigo, Expedia, goibibo etc, then it’s a good idea to check the flight rates directly on the website of the airlines. Airlines pay some commission to the middleman websites and often the prices at the airlines are a little cheaper (not much, but a little).

So first you should filter and search for the appropriate flight best suited for your requirement and then note down the flight number and timing of the flight and then head over to the airline’s website and directly book the flight from there because you might end up saving few bucks there.

Why does this happen?

Because you will save on the convenience fees as the airline’s fees are lesser than what is charged by the intermediary websites.

To check this points, I searched for one way fare from Kolkata to Ahmedabad on 3rd Mar 2017 (around 3 pm) and I found out assuming no cashback and discounts are available, would the total amount payable (just before you make the payment) is lowest at the airline’s website?

I did flight comparison on Yatra.com, Makemytrip, Paytm and Indigo website and found out that the cheapest was indeed at the indigo website

#10 – Use incognito mode while “researching”

Most of the airlines now keep changing their flight ticket prices dynamically as per the demand and supply. This is called dynamic pricing.

So when you search for a particular flight on a particular day, and then keep researching about it for next 20-30 min, the airlines and the intermediary websites understand that there is a demand for a particular flight and if you spend too much time just researching, they know that your chances of buying a flight ticket are high now

And suddenly you will find that when you go to book the ticket, the prices go up dynamically ! . There are technical things like web cookies which track and remember what you are searching for, so as a precaution it helps if you use incognito mode while browsing.

Also, note that this might be more applicable when you are using the mobile apps for booking because the websites know who exactly is doing it (you register your email/phone in-app)

#11 – Use Student & Senior Citizen Discount if applicable

Some airlines allow students and senior citizens some basic discount on the base fare, it’s a small discount like 8-10%, but still saves you some money. If you are travelling with your children or parents, you might want to check if you can get some further discounts.

However, these discounts are applicable only on the airline’s websites. For example, Spicejet has an 8% discount on base fare for students. Here is a snapshot

Do read the terms and conditions for this student and senior citizen discount offers as they might not be applicable on some dates or routes.

#12 – Use hand-baggage-only fare tickets

If you are travelling solo and don’t have much luggage, choose the hand-baggage only option while choosing the flight. Airlines expenses increase if the flight is heavy and hence they give incentive to you if you carry less stuff

#13 – Check out for coupons and offers

Something which everyone can do is search for offers while booking for the flights. Almost all the times there are various websites which offer different types of discount or cashback for booking flights.

Sometimes you will find offers for booking both way flights, or for international flights and sometimes it’s based on the total ticket price (like “applicable only if tickets prices are above Rs 8,000”)

It never hurts to spend a few minutes to look at the offer pages of websites like Makemytrip, goibibo, Yatra, Cleartrip and other websites.

You can also try to search for flights coupons on various coupon websites. Make coupons website offer their own cashback to you additionally as they get some commission from the aggregator websites.

#14 – Put the alerts for price decline

Google Flights give you an option to track the prices of a particular flight and will email you from time to time when the prices change. So if you have a lot of time left and can wait for the booking, better wait and track the prices.

Just make sure that you should be clear when you will book the flights, else it might happen that you just keep prices to fall down and never book it and then pay a lot towards the end).

#15 – Subscribe to the Airfare Newsletter

Various airlines and intermediary sites keep sending various offers from time to time, you can subscribe to their newsletters if you don’t mind constant emails on offers. I will surely help someone who travels a lot.

#16 – Book now, Pay Later

Some websites like goibibo and Yatra have introduced options to book the flight without paying the money (it’s like blocking the seats). You can block it and pay it later after a few days.

So if you are not sure about your schedule or plans, just block the seats and pay when your plans are confirmed OR if you are not getting cheaper flights later:).

The cancellation and rescheduling charges are very high anyways.

#17 – Don’t be loyal to one website itself

If you are loyal to one website (intermediary) or an airline, then you might be missing some good offers from other websites. I know some people feel it’s not worthwhile to spend a lot of time trying to save few bucks, in which case it’s ok to be loyal, but otherwise, you can quickly surf 3-4 options and then choose the best option.

However … Here are the precautions

While I have talked about various things you can do to book the cheap flight tickets in India, there are a few points I want to make.

If you feel you are getting a good deal already, just try a bit to improve it and book it. Don’t get paranoid trying to bring the price down. While it’s great to get some discounts, you should check for yourself if it’s really worth your time.
If you like to eat every time you are on the plane (like me), it makes sense to prebook the meal, What you can get at Rs 300 in-flight without booking is available for Rs 250 or Rs 200 if you pre-book it. So if you are already clear that you will be eating, why not save that money.
If you are looking for cheap international flights, some of these points might not be applicable, but still, you should try most of these as it would be great to save money because of high prices for international flights to US and European countries.
Make sure you consider the full cost going from point A -> B. If you choose a cheaper ticket which has a 6 hours overlay in a city in between, please understand that you will also spend on food, lounge or some entertainment etc. It should not happen that to save Rs 200, you have spent Rs 500 in between. People don’t consider these points while searching for the cheap tickets
Also, consider your time worthwhile finding low-cost tickets. If your time is highly valuable and you can spend 2 hours in something valuable like writing a book, or solving some important thing worth something, then don’t waste your energy and time waiting for the connecting flight just because you are saving few hundred rupees

In the end, you want some more information on this topic, you can look at this infographic which will give you some more understanding about how airlines work and where they spend etc.

Let me know if I missed some points or some trick?

How Rs 3,700 crore online fraud happened with with 7 lacs investors !

Posted on February 3, 2017November 19, 2019 by Jagoinvestor

A new online fraud worth Rs 3,700 crores has been busted recently by Uttar Pradesh special task force. Around 7 lacs people have been cheated in the name of ‘Earn Rs 5 per click’ investment scheme.

This was a classic example of a very smart online fraud structure where you first make a lump sum investment in the company scheme, and you get a chance to earn a daily income by liking facebook pages. You can also add people under you (more money comes in the company) and you get benefits from that.

Structure wise it’s very similar to speakasia where you earned money by taking the survey’s and here you get it by click on the pages.

A company was set up with the name of “Ablaze Info” whose board of directors named Anubhav Mittal, Shreedhar Prasad, and Mahesh Dayal are arrested. They had set up various websites to dupe people like socialtrade.biz, freehub.com, intmaart.com, frenzzup.com.

How this scheme worked?

There were 4 schemes where you had to pay a joining fee ranging from Rs 5750 to Rs 57,500 and you got X number of clicks each day which assured you get Rs 5 for each click, making sure you get a monthly income.

There was also a bonus for adding more people under you (2 people) and some more benefits apart from that. It was a classic case, where few people join the scheme, get the assured income for 1-2 months and by then they bring more people by word of mouth, who bring more money in a company which makes sure that the fraud company has more money to pay everyone …

This continues for a few months/years and once there are thousands of people at the bottom who brought millions in the company, that’s the time when the company either runs away with all the money or they are caught by the law as it happened in this case.

Members trying to add other members

Every MLM scheme works on the basis of referrals and most of the people were trying to add others under them to get the bonus and added benefits which come out of referrals.

People started approaching their friends and other relatives to join this “business” and you can see in the video below how one of the people who was part of this is explaining the business model and is so convinced about it himself.

Why most people get duped in these kinds of fraud schemes?

You will find a lot of people who still believe in this kind of schemes mostly because they are not duped themselves and have experienced earning income consistently from these companies, but that is true for a small minority of people who join this fraud business early, because that’s the time when the company properly pays money without fail

The problem happens when the user base is quite big (in this case, 7 lacs) and then it becomes almost impossible to sustain the madness. Here is how the MLM business looks like

In the video below you can see how this one guy is so convinced about the authenticity of this social trade business and feels that the crackdown on the company because govt can’t sees poor people earning lots of money.

Do you know anyone who was cheated by Social trade company? What do you think about these kinds of MLM schemes?

Buying your first car? Here is the data of 451 buyers for you to decide!

Posted on January 19, 2017November 19, 2019 by Jagoinvestor

No, I am not sharing my personal opinion here in this article.

I am actually telling you about 451 people who have shared their personal data with us in a survey we conducted some time back and we are presenting you the data in this article. That data will help you know how others think and what are their numbers and that way you take a decision for yourself.

buying car india

You mainly have to decide following 3 things when you buy your first car

Should I buy a brand new car or a 2nd hand car?
How much should I spend on my first car?
How much loan should I take?

451 people shared their data about their car ownership

We asked few questions in our car survey like their first car value (when they bought it), their per month income when they bought it, If it was a brand new car or a 2nd hand one, what was the % of loan they took, and some more questions regarding what they feel about the car.

I will share all that data in this article.

Point #1 – Should I buy a brand new car or a 2nd hand car?

Most of the people who buy their first car, generally go for a brand new car, however, some people also prefer to buy a 2nd hand car to start with and then upgrade it later to a new car in the future.

In my own case, I bought the 2nd hand car because I wanted to make sure that I am aware that I make a rough use for all my belongings and its better to first buy a 2nd hand car. Also, I had my budget constraints.

80% of buyers prefer buying a new car

Around 80% of the survey takers, shared that their first car was a brand new car, whereas 20% bought a 2nd hand car as their first car. The average cost for a brand new car was close to 6.78 lacs and in the case of 2nd hand car, it was close to 3.05 lacs.

Pros buying New Car

The special feeling of ownership with pride
The latest technology, with current features
Peace of mind, as you know there are no issues with car

Cons of Buying New Car

Much Expensive compared to a used car
Much higher depreciation (Try to sell it in 6 months and see the price you get)
Takes away a good part of your wealth
More pressure on your cash flow if taken on Loan

Pros buying used Car

Cheaper and Most of the times can be bought without a loan
Low Insurance premium
Lower depreciation
Better resale value (buy for 3 lacs and sell again in 2-3 yrs)

Cons of buying used Car

Old Technology and features
Difficult to trace the history and find the legality
High maintenance costs
Inferior feeling in front of peers who own better cars)

For those who are interested in new vs used car debate can check this detailed article on Team-BHP

For how many years are you planning to own the car?

If you are planning to own a car for just 1-3 yrs, it’s better to go for a used car. However, if you have a view of 5-6 yrs or more, then better go for a new car.

Also if you are tight on your budget and still want to buy a car, you can explore the used cars and after a few years you can upgrade to a better car. However, if have the capacity of buying a new car, you should go for one.

Below is a short video which shows you what all to check if you are planning to buy a used car

Point #2 – How much should I spend on my first car?

Now comes the next important point, which is how much should I spend on the car you are buying. A person earning Rs 10 lacs a year can buy a car costing Rs 5 lacs also and 20 lacs also if they want. However what is the right amount to spend on your car purchase?

This will depend on many factors like

Do you want to take a loan or not?
If you want to take a loan, how much EMI do you want to pay each month?
Is “Car” mere a machine that moves you from point A to point B, or is it much more for you?
What is the role of the car in your life?
How passionate you are about driving, fancy cars etc

How many times of your income should your car cost?

A good way to look at the potential car value you should buy is the X times of your monthly income. If a person thinks that he should not spend more 6 times his monthly income on the car and if he earns Rs 80,000 per month, then he should buy a car worth not more than 4.8 lacs.

If he feels it should be 10X, then not more than 8 lacs should be spent on the car. However the problem is no one really thinks this way when it comes to decision making, so let’s see what were the actual numbers for various groups!

As per our survey data, those who bought a brand new car, for them this ratio was 9.7 on average (their car value was 9.7 times their monthly income)

And for those who bought a 2nd hand car, it was 6.4

Ratio of car value vs monthly income

Your Salary and what you feel “car” is?

What will be your car value will surely be

We also calculated the same ratio for those whose monthly salary was above 1 lac and below 1 lacs.

Ratio of car price and salary based on salary

If you see the whole data above , you will figure out that if you are buying a brand new car, or if your salary is above 1 lacs per month or if for you a car is much more than a machine which takes you from point A – B, then you ideal money to be spent on your car is anywhere from 9-12 times your current monthly income, else if none of the above is true, then you can go with 5-7 times of your monthly income.

It’s just a benchmark and a rough direction based on what hundreds of people do.

Point #3 – How much loan should I take?

Do you know that as per our survey 75% of the people who bought a 2nd hand car, did not take any loan?

Only 1 out of 4 people took a loan which was on average half the value of the car (to be exact, it was 52%).

However, when it came to those who bought a new car, 69% of them took a car loan and their average loan was 2/3rd value of the car price (rest 1/3 was down payment)

The amount of loan you take will depend on the price of the car, your capacity to pay the downpayment, your views about debt in life. I personally think a person should have the capacity to pay for full car value and only in extreme cases one should go for a car loan as its a depreciating asset anyways.

Burdening yourself with more EMI does not fit my philosophy that too for a car. This is truer if you still don’t own a home or if you have not yet started investments for your long term wealth creation.

Below is a detailed information salary-wise and also thinking wise.

car loan for first car

You will find two kinds of car buyers. One who feels that car is nothing more than a utility which does a job of taking you from point A -> point B. They are not that passionate about cars in general and view the car as just another possession.

Where as on the other hand, there are people who feel CAR is an important part of life. There are various life moments that are linked to your car. Your exotic vacations, long drives and many events in life will not be possible (most of the times an expensive one).

Who is right or wrong?

None of the groups are wrong or right, its a view and everyone has the freedom to express what they feel about cars.

Coming back to car loan, I feel you should first try to avoid the car loan totally if possible for you, and if not, then you should take less than 50% loan only.

Otherwise, a big chunk of your monthly salary will go into paying your car EMI and your wealth creation might take a hit due to that.

Let us know what you feel about this topic in below comments section.

6.5 million Debit Cards compromised in India – Was your card one of them?

Posted on October 21, 2016November 20, 2019 by Jagoinvestor

Around 6.5 million Indian Debit Cards have been compromised recently which is one of the biggest security breaches our country has seen to date.

Around 641 customers of 19 different banks have reported frauds worth Rs 1.3 crores in total as of now and after that, all banks started investigating the matter. Some of the banks that are worst affected are SBI bank, ICICI bank, HDFC bank, and Axis bank.

Here is a real incident reported by Vishal Sharma on this article below in the comments section

My card got cloned and my account was wiped out on 5th Sept 2016 by cash withdrawals from china . I immediately informed my bank Standard chartered who then blocked my card. It took 10 days and a lot of following up before they gave me a temporary credit.

SBI alone has reported that it has blocked around 6 lacs debit cards and going to issue new cards soon. This is done as a precautionary measure so that no frauds are done on these 6 lacs cards.

As per the following video, these compromised debit cards were used in the US and China while the debit card owners were in India.

How did this all start?

Around Sept start, various customers started complaining to banks about the fraudulent transactions, and that when banks started reaching out to National Payments Corporation of India (NPCI), which found out that it was a malware-related security breach in various ATM’s and Points of sale systems which were managed by Hitachi Payment Services.

That’s when the banks asked its customers to change their PIN. Banks also blocked cards and started providing the new cards to its users.

The banks are saying that this security breach has happened outside the bank’s network, but still, the investigation is going on right now and more details will come up in coming times.

How did the security breach happen & What got Hacked?

As per the above video from NDTV, almost every detail of the card was hacked like

Name on the card
Expiry Number
Card Number
CVV number

When you use your card at an ATM or a point of sale (in some shop), the data first goes to a central server (central server switch) and that further sends the data to your bank to check if you have balance in your account or not. This central server had the malware sitting and the data was compromised at that point.

Around 3.2 million debit cards hacked in India

Can you take some precautions?

The only thing you can do right now is either change your PIN. Most of the security measures are already taken by the banks, so you can’t do much from your side now other than getting your card blocked (not recommended). You can read more details about this news here

Do you know anyone who faced the card fraud? Can you share that?

What do you think about this issue? What are your views?

From 1st Oct, Insurance policies will be issued online (even renewal policies)

Posted on September 17, 2016November 14, 2019 by Jagoinvestor

Starting 1st Oct 2016, all the insurance policies are going to be issued in electronic form.

Yes, you heard it right

Few years back IRDA had come up with the concept of 13 digit e-Insurance Account (EIA), where an investor had the option to convert their existing physical policies into demat form, but till now it was not mandatory. However now things have changed and starting 1st Oct,2016 it has become compulsory.

Now, every insurance company has to issue all kinds of insurance policies in an online format. So if you are buying any kind of insurance policies (life, health, motor, pension policies and all kind of general insurance policies too) you need to have an e-Insurance Account (EIA) and the policies will be issued in Demat form only in that account.

This will be true even for renewal policies. So even if you are not buying any fresh new policy, at the time of your policy renewal this will apply to you

Under which cases, is this e-insurance account mandatory?

This e-account is required only if the annual premium crosses Rs 10,000 for most of the policies like term plan and health insurance or if the sum assured is above 5-10 lacs. The exact requirement is as follows for various kind of policies (source link)

e-insurance-rules-policies

How to open E-Insurance Account?

Step 1: Choose the Insurance Repository

There are 5 registered insurance repositories in the country, licensed by IRDA, out of which you need to choose one. These are …

CAMS Repository Services
SHCIL Projects Limited
Central Insurance Repository
Karvy Insurance Repository
NSDL Database Management

Note that you can choose any one of them, and there won’t be any difference, other than level of service. At the backend, everything will be the same. Also if you are not satisfied with your insurance repository provider service, you can switch to another one later.

Step 2: Fill up the form and submit the documents

The process now is very simple, once you have decided the repository company, all you need to do is fill-up the form and attach your KYC documents and submit it to their office in your city.

CAMSrepository also has an option where you can first fill-up the form online and then download the filled form. I think it will work for most people and save time. If you want to fill the form offline, you can download e-insurance account opening form here

Following are the documents you need to submit

e-Insurance Account form (fill by hand OR filled online one)
Date of Birth Proof (PAN , Passport, Voter Id etc)
Photocopy of ID proof (PAN or Aadhaar Card)
Photocopy of Address proof (Aadhaar, Passport, Electricity or Telephone Bill etc)
Canceled cheque
Passport size photograph

Note that the canceled cheque is required so that the information of the bank account is captured beforehand, Any maturity proceeds or claim amount will be paid in this same account. Ideally, this should be the same one from where the insurance premium is paid, but not mandatory.

All the major insurance companies like LIC, ICICI, HDFC, and others have already joined hands with this facility.

Check out this short video created by CAMS team

Once you submit the documents, it will just take a few days to open the account.

If you need the detailed list of the documents required, you can view this PDF document (2nd page)

The concept of Authorized Representative

A special feature called “Authorized Representative” is introduced in this e-insurance account where an investor can assign someone trustworthy or close to being AI (authorized representative) who will be able to access the details of the account in case of death of the policyholder. This is different than the nominee.

For example, I can give my close friend name and details in the AI section ask him to have a look at all my details in case I am dead and ask him to communicate things to my family as per my plan.

Features and Benefits of e-Insurance Account (EIA)

Let me know to share some benefits and key points of this e-insurance account and how it will benefit the overall insurance industry as well as the investor, even though it may look like another hassle to you right now

FREE account – This account will be 100% FREE account for investors, there are no charges or maintenance fees to be paid by anyone. One person will have only a single account (like PAN)
All policies at one place – This will be the single point of contact for investors to view, download and manage their insurance policies, be it life, health, motor or any travel insurance policy.
No KYC repetition while buying new policies – After doing the KYC first time, you won’t have to do it again and again when you buy new policies. All you would need to do is mention your EIA number and buy the policy.
Get reminders – You will get reminders for your policy maturity, payment reminders and any other important updates.
Single place to update your KYC – IF you want to update your mobile, address or other details, you will just have to update it in e-insurance account and not in each policy individually.

Understand that with this initiative, the insurance companies will simplify their process and a good amount will be saved as there won’t be a lot of paperwork involved (printing of documents, courier etc) and that’s why insurance companies will fund this initiative and will keep it FREE for investors.

Converting your existing physical Policy in Electronic form

I know you must be thinking about what will happen to my existing policies which I have bought till date? So, there is a simple process to convert them online.

Once you open the e-insurance account, you can apply for conversion of your existing policies into the online form (its good that you do it beforehand, because at the time of renewal it’s going to happen anyways going forward)

As per Cam’s repository FAQ point 18, you can just mention your policy number and it will be converted into an online format

18. How do I convert my existing paper policy into electronic form?

If you already have eInsurance account, log in to your eInsurance account, click on “ePolicy conversion” and enter your policy number, name of Insurance company that needs to be converted into ePolicy. In the next few days, your policy will be converted into ePolicy.

You can also download the policy conversion form and submit it for offline -> online conversion of policies

Please share what do you think about this new rule? Do you think it will help investors and the insurance industry?

Apply compounding to your life – Secret of creating a great financial life

Posted on September 5, 2016November 14, 2019 by Nandish Desai

To create wealth, you have to first get in touch with the power of compounding. I am not just talking about the mathematical concept here but making the “compounding” your way of life. You will understand what I am talking about as you move forward.

Today’s write-up is close to my heart.

It is not just an article, it is about someone experiencing a breakthrough in his overall life. I thought of sharing some of the conversations we exchanged with one of our clients because there is something important to learn from it and it has the power to strengthen your journey as an investor.

Power of Compounding in your life

What happens if you just improve by 1%?

Nothing!

Yes, nothing will happen to you if you improve your skills, attitude, salary, net worth, relationship by 1%, but when you improve it constantly by a small margin for a very long time? What happens if you do that for 365 days?

Then?

Here is what happens!

You bring a drastic change in any area because you are allowing the compounding to work there. See the image below …

Let me share an incident with a client where he emailed me about himself and how he wanted to improve. Below is the conversation. Please go through the full conversation until the end.

Here is the first email, which hit my mailbox

Dear Nandish,

I am one of your financial planning clients and I would like you to coach me in the area of money. I am a competent person, have a solid work experience and also earn decent money each month but still my financial life is a mess”. Can you please help me find the solution to my problem?

I tried hard to get the answer but failed to crack this issue.

Thanks

XXXXXXX

And here was my Reply

Dear Client,

Thanks for writing to me and for showing trust in me. I may not have a readymade solution for your problem but I can surely help you to see your situation under a different light.

Before I suggest you anything I have a simple question to ask:

Question: Tell me how many areas in your life you have you been consistent with from last 5-10 years time?

In Service,

Nandish

To this, the client replies back …

Dear Nandish,

I really can’t figure out any such area from my life where I have been consistent from last 5 – 7 years.

Let me know what I need to do now.

XXXXX

My Reply

Dear Client,

I invite you to look into your life and check for yourself, maybe what is missing in your life is the power of compounding, compounding as a way of life and not just mere as a concept. The majority of people know compounding only as a concept. There are very few who experience the real power of it.

The Situation you are into may sound like a mystery to you but in reality it is not.

Now, getting this insight is not enough and so I have an assignment for you for the Next 1 year.

Assignment:

If you really want to experience the power of compounding you will have to take-up 3 more areas along with the area of money. Compounding is all about expanding your capacity as a person and so it is important to pick some more areas. Pick any four areas in your life which are new to you and engaging with them will help you to practice the power of compounding for the Next 1 year.

I would like to hear back from your experience exactly after a year from now and not before that.

If you are game for this assignment let me know.

I want you to just not have amazing ideas but also focus on the action part and execute what you are thinking because only that action will bring the compounding into action, Check the image below and you will get what I am trying to say.

Reply from client

Dear Nandish,

Thank you, coach. I am a game for this assignment.

My 4 areas

Health: Will join gym and work with my trainer

Music: I always wanted to learn Guitar but never started

Quit Smoking: I would like to get rid of my smoking habit

Money Management: Complete actions as per the plan and start my sip of 25k pm for next 1 year

Thanks, Nandish. Thanks for coaching me and for giving a sense of direction to my life. I will let you know my experience exactly after a year.

Thanks once again. Thanks a lot.

Excited Client

XXXXX

I then received his reply, exactly after a year.

Dear Nandish,

I am one of your most excited and enlightened Financial planning clients, remember you gave me an assignment 1 year back to practice the power of compounding.

Here is the assignment you gave me

Assignment:

If you really want to experience the power of compounding you will have to take-up 3 more areas along with the area of money. Compounding is all about expanding your capacity. Pick any four areas in your life which are new to you and engaging with them will help you to practice power of compounding for the Next 1 year

My Life has completely changed the day I started doing the assignment. I created a journal for all four areas and started to capture my experiences. Before I share about my assignment I just want to say I am extremely happy as an investor and in each and every area of my life.

Here are some of the highlights from each area:

Health: I joined the gym the very next day and the first thing I did was hired a personal trainer. I shared with him about my assignment and he chalked out a well designed 1-year exercise plan for me. We decided to exercise 5 Days a week along with a specific diet plan. The first month was tough to follow but I slowly daily exercise started to become an integral part of my life. My strength , stamina, and overall fitness have gone to a whole level in last 1 year. I would like to thank you and my personal trainer for getting me started.

Music: I joined the music school; again the first month was difficult. In the start, I could not even hold the guitar. I was not comfortable with the guitar and even the guitar was not comfortable with me. My Music sir always emphasizes on one word “PRACTICE”. My sir kept reminding me that practice leads to compounding and eventually it leads to mastery. I slowly started playing songs and now music really relaxes me from all the noise out in the world. I am so happy I got connected to music, it has taught me many things in last 1 year.

Quit Smoking: This was the hardest of the all. Initially, it looked impossible for me to quit smoking but I really wanted to get rid of my smoking habit and I started putting efforts. I decided not to hold the cigarette between my two fingers, no matter what. I also shared about my project with my friends and family members and they really supported me a lot in this area. My commitment to fitness and music also helped me a lot to get rid of my habit. I can now call myself a non-smoker. I am free, completely free from my habit of smoking and it feels great.

Personal finance: Happy to share all the personal finance actions that you suggested in the plan are complete. I took help of your team and completed all the required actions. I also started my sip as per the commitment I made. Today, my financial life is in sync with my dreams, goals, and aspirations. Thanks to you and your team for all the support and guidance. I realized that personal finance is all about actions; it is not about worrying about future or regretting about the past. I can say in this area things have shifted and things are moving in the right direction. I am happy in the area of money.

Thank you for assigning a wonderful project to me, I keep sharing with my team and other about the power of compounding and I keep getting people coming and sharing their results with me. Thank you for bringing the magic back into my life.

Conclusion

Can you see the real power that resides in the word “compounding”? It is not about how your money grows but how you grow as a person. Pick any 4 areas in your life and start engaging with them. The more you engage, the more you will grow in those areas. Don’t take only one area because one single area takes a back seat very easily.

Now tell me which area you want to improve and start working on improving it by 1% each day or even a week. Watch out this video below to get a more detailed idea on this

Many of you may be new to investing or equities do not get scared try out this assignment and see what happens after 1 year. Make the power of compounding your way of life and don’t just know it as a concept. Do share your views in the comment section; most importantly I would like to hear about your 1-year project which will help you to practice the power of compounding.

This article is written by Nandish Desai…

Applying for home loan? Here are 4 highly critical checklist you should follow

Posted on June 1, 2016November 20, 2019 by Jagoinvestor

Are you going to apply for a home loan in the near future? If Yes, then this article is written exactly for you, because I am going to share with you a checklist which you should follow to make sure that your loan application process is smooth and also to increase the chances of your loan application getting approved.

We all take various kind of loans these days, be it home loan, car loan, personal loans or even credit cards. I will show you some very important checklists which if you follow; you will save yourself from various issues faced by other loan seekers.

Note that while this article is primarily written with a home loan in mind, but the checklists discussed will also apply for any kind of loan.

Checklist one should follow before applying for home loan in India

[su_animate type=”flipInY” delay=”1″] [su_button icon=”icon: arrow-right” url=”https://www.jagoinvestor.com/solutions/apply-home-loan” size=”5″]Are you looking for Home Loan? Click here to Apply with our trusted partner[/su_button] [/su_animate]

Checklist #1 – Check your CIBIL report/Score in advance

Don’t underestimate the role of credit reports/score in loan approval process these days. The first thing the lender looks at is your credit score/report when you apply for any kind of loan (even credit card).

The moment you enquire for a loan with a lender, they check your report from CIBIL or any other credit bureau like Equifax or Experian and based on the remarks on your report and your score, they either reject your loan application or forward your case for further checks.

There are many real-life cases, where a person applied for a loan and found out that it got rejected because of this credit report is messed up. It might be due to a credit card settlement he did a few years back or because he was not able to make timely payments on his past loans.

Imagine a person who has already paid the booking amount for a car or a house and then he is stuck because he/she can’t get the loan approved. That’s not a situation; you would like to get into!

personal loan rejected because of CIBIL

CIBIL score of 750+ is a good score

How much CIBIL score can be considered good enough to get any kind of loan? Well, there is no guarantee that you will get a loan just because your credit report is high, but as per CIBIL, out of every 100 people who got a loan approved, 79 people had a score of more than 750.

This means that if your score if more than 750 out of 900, there is a good chance that your loan will be approved, provided there are no bad remarks on your report and other things like income proofs are in place.

cibil score required for home loan approval

Apply for your CIBIL report in advance

So when should you apply for a CIBIL report?

I think it should do it much before you apply for a loan. I suggest at least 6 months in advance because if there is some issue in the report, you get enough time to rectify that mistake.

There are many cases, where a person applied for a home loan after paying the down payment money, and their home loan is not approved because of CIBIL related issues. Now they are stuck as they are not getting back their down payment money back and their application is also not getting approved.

They run around to fix their issues or try to improve their CIBIL score, but now it’s very late because it takes many months to follow up with CIBIL or Banks involved. Last-minute fixes do not work, that’s the reason this check needs to be done well in advance.

Checklist #2 – Make a simple Cash flow statement

If you are applying for a big loan like a home loan or a car loan, then it’s very important to understand where you stand financially. You should have a very clear idea about the maximum down payment you will be able to make (and you should also try for that) and what is the realistic EMI you can pay each month.

As our wealth is scattered across various financial products like saving bank account, fixed deposits, mutual funds etc, it’s important to note it down in an excel sheet to get better clarity.

You should also list down the income and expenses details so that you can get an idea about how much you save each month. Your surplus each month is a very important criterion used in calculating your loan eligibility by the lender.

Below is a sample working of cash flow in an excel sheet, which gives the good enough indication of the down payment amount and the potential EMI a person can afford.

sample cash flow calculation before applying for a loan

Download this Excel Sheet and Calculate your numbers

It should not happen that you applied for a loan much beyond your capacity and then at the last minute, you are wondering where you will arrange for extra money. It can be a very frustrating situation, where you are stuck in a deal and you are not able to figure out how to arrange for the money.

Checklist #3 – Increase your home loan eligibility

When most of the buy a house, they wonder how big a house they will be able to afford? Just because they have a high salary, they think that they will get a big loan, which most of the time is true, if you don’t have any existing loans.

But then a lot of people have several small loans running like a personal loan or a bike loan or any other consumer loans, and these small loans come in the way of your loan eligibility because they show up in your “pending loans” or “Existing EMI” list.

So one the actions you should take is to close off any small loans you have because they will increase your “surplus” as the EMI will get stopped, and also you will have one less commitment to take care of and lender likes that.

Below are some handy tips if you want to increase your home loan eligibility.

Let’s see an Example

Suppose, your per month income is Rs 1 lacs and you have a bike loan (or personal loan) currently running with Rs 8,000 EMI per month with 10 more installments to go. Now with this profile you are eligible for Rs 43 lacs of home loan.

How can you increase your home loan eligibility in this case? You can prepay your entire bike loan as it’s a small loan if you look at the outstanding amount; you can dig into your other savings and pay it off. This will surely reduce your savings a bit, but increase your loan eligibility by another 8-9 lacs because now you have another Rs 8,000 surplus each month.

See the home loan calculator snapshot below which shows you this.

Home loan eligibility calculator example

Even your CIBIL report will also show that you have successfully completed and paid off a loan provided you do this a few months in advance before you apply for a home loan.

Close you credit card outstanding also

You should also consider to pay off your entire credit card outstanding bills. May people keep rolling their credit card debt by paying the minimum dues, but that’s not a good thing if you want to get some loan in coming future.

If you are looking for a home loan, then go to this home loan eligibility calculator, enter your details and our trusted partner will help you in securing the best home loan. You also transfer your home loan by applying here

Also, decide if you want to apply for a joint home loan

One way of increasing your home loan eligibility is to add your spouse or any other earning member from your family as a co-borrower of the property. This is one factor you should consider if the spouse is already an earning member. Even if it’s not a significant amount, still mentioning that they bring in some small income helps your loan application, as it adds to the “stability” factor.

Checklist #4 – Arrange all documents required for a home loan

Some background preparations on the documentation front can help you save last-minute hassles and running around. I have often seen many people running around, for ITR proofs and other documents because they didn’t plan well in advance. Below are various documents that might be required for your home loan documentation purpose.

It’s a good idea to prepare a file and arrange all these documents well in advance. These documents are keeping in mind a salaried resident Indian.

KYC related Documents

2-3 Passport Size photos of applicant and co-applicant
Identity proof like PAN or Voter ID card, Passport, Aadhar card
Address proof like Electricity bill, Telephone bill, Employer Certificate, Aadhaar Card

Income & Employment-Related Documents

Past 3 months salary slips
3 yrs ITR (Income tax Returns)
Latest 6 months bank statement attested by the bank in original
Latest Form 16 for 2/3 yrs
Proofs of all savings like FD’s, mutual funds, gold etc (for a down payment)
All ongoing loan account statement for past 6-12 months
Relieving/Experience letter of the previous company if current employment is less than 2 yrs old

Property Related Documents

Original copy for Sale Deed or Agreement to Sale
7/12 extract
Commencement Certificate
NA certificate
Search and Title Report
Building Completion Certificate (if available)
Latest Tax receipts
Development Agreement

Below is a video from IREF, where a guy (seems to be from a bank) is explaining the home loan process and overall documentation requirement. It’s a 7-8 min video in Hindi, kindly view the full video to understand why some document is needed.

Extra documents for self-employed and business professionals

In case you are not a salaried person, then some documents will be different in that case, which is as follows

3 yrs ITR, along with profit and loss statements certified by a CA
Your bank account statement for last 1 yr
Shop Act License
Partnership deed or Company related documents
Brief write-up about your business and the nature of work/revenue

This common floor article mentions even detailed list of documents

Some Important points to remember before applying for a home loan

In case you are planning to quit your job or planning to change the job, it’s better to first apply for a home loan and then quit/change, otherwise, it will get very tough to get a home loan later.
If you are sure of getting an increment very soon or your pay rise is on the cards, then wait a bit and apply for the home loan later as it will increase your home loan eligibility

I hope this article gives a clear direction and action checklist to someone who is looking forward to a home loan or any other loan. Please share any other critical checklist which I have missed out. Also, I request other members to share their experience when they applied for a home loan.

55% of Software professionals in India, dont own a house [Survey Results]

Posted on May 18, 2016November 20, 2019 by Jagoinvestor

Today I am going to share with you some data related to software engineers and their home ownership pattern. But before you move ahead, I want to share with you that approx 55% of the software engineers who took our survey did not own a house.

Survey with 10,917 participants

Recently I ran a very large survey which was taken by around 10,917 participants. Out of those 4,940 people were from the IT Industry. I had asked many questions related to real estate ownership like how big houses they own If its bought with a home loan or not and if they don’t have a house, what kind of rents are they paying apart from many other questions.

As a big portion of this blog visitors is software professionals, hence I thought let’s do an article only for software professionals in India as of now. I will publish a detailed report later on the overall data, but as of now, you can look at 3 big and important information.

A survey on home ownership among Indian software professionals

[su_animate type=”flipInY” delay=”0″] [su_button icon=”icon: facebook” url=”https://www.facebook.com/sharer/sharer.php?u=http%3A//www.jagoinvestor.com/2016/05/software-industry-real-estate.html” icon_size=”48″ size=”6″] Click Here to Share this on your Facebook profile[/su_button][/su_animate]So what did I find in this survey? I found out that out of 4940 software professionals who took the survey, 2706 of them said that they don’t own any house or real estate property. That around 55%.

Majority of software professionals in India bought house with home loan

I know this is not a finding. Almost everyone buys a house on loan only because very few people can pay the full amount on their own and this gets confirmed by this survey. Around 81% IT professionals said that they took home loan for buying the house, however 10% people got the house in inheritance and only 9% people paid the full money out of their pocket, which I think is a good number.

90% of the house owners (IT professionals only) own either 1 house or maximum two house. Only 10% house-owners have more than 2 properties.

Out of 100 software engineers who dont own a house, 36 work in Bangalore

If we look at the top 6 cities which are into software jobs creation, we found out that the higher the cities reputation into IT Industry, higher is the number of non-home owners % wise.

I mean out of 4940 software engineers, 1533 work in Bangalore and out of those 886 said that they dont own a house, which is 36% of the total IT population which took the survey. So 36% of software engineers who dont own a house, live in Bangalore, compared to only 10% in Mumbai or 11% in Chennai. Here is the full data

citywise data of software engineers realestate ownership

Who is responsible for the high real estate prices in big cities?

In this article, I want to understand what you all think about high real estate prices? What is the reason behind it? Can we say that to some extent (if not fully), the IT professionals contribute to the real estate prices increase?

I know not all software professional earn very high salaries, but in all the big cities, there is a section of IT class which earns a very handsome salary and they suddenly use it to take home loan and buy a house either for consumption or for investment purpose.

This is true for many other Industries as well, but do you think IT sector contributes much more than other industries? I do not want to make any judgment here, but I want to hear from IT professionals who read this blog about what they think about this?

software and real estate price rise

Some people told me that we can’t blame software professionals for high prices in real estate, which I agree. No one can blame anyone, but I wanted to know what thousands of people from IT background and non-IT background think? What is the perception?

So I separated non-IT and IT people from the survey and I asked them the same question and looks like people from IT industry are of stronger opinion that real estate prices are high because of IT industry. While 39% people from non-IT background said clear “NO”, only 28% people from IT background denied that IT industry has contributed to rise in property prices. Below are the results of survey by around 10,917 participants out of which 45% are IT professionals themselves.

IT industry and real estate prices

What people have to say about this?

Let’s hear some people who have shared their views about this topic and how they feel that IT industry is somewhat responsible for high real estate prices.

real estate high prices in India

Snapshots taken from Asan Ideas of Wealth Facebook group

But 55% of Software professionals still don’t own a home

At the same time, we have a big number of software professionals who cannot afford a house because they don’t belong to that very high earning class. Software industry like every other Industry has its own issues. A big percentage does not earn very high salaries and that is confirmed by the survey also.

Salaries in IT industry is highly skewed

Only 12% of IT professionals who were surveyed, are earning more than 20 lacs per annum where as 57% of the participants are earning below 10 lacs. Now that’s just 80,000 per month and I am sure, if one is living in a city like Bangalore, Pune or Hyderabad, it will not be considered as a very high income because given the expenses these days, people at that salaries would hardly be saving anything significant.

As per a website payscale, which has an extensive database of various jobs related information like the skills needed, salaries etc. The average Salary of an experienced Software Engineer in India is close to 13 lacs (with experience of more than 10 yrs) . Note that this is an average number

Average salary of software engineer in India

Hence, while there are many IT engineers who earn big amount (many a times double income family), and who can afford to buy a house easily. At the same thing, there are many software engineers who do not earn a big amount and are struggling to manage their expenses. Here is one perspective

real estate high prices in India

I analyzed the results of 10,917 people who took the survey and found out that if you look at the percentage home ownership industry wise, then software industry is not at all at the top. Infact, it’s quite below average. But then we are talking of only big cities (top 10 cities of India). On top of it, IT Industry has somewhat slowed down in last 5 yrs and its not at its peak now. You can read this long thread on IndianRealEstateForum where people discuss about the impact of IT slowdown on the real estate market.

So basically we are trying to see that out of 100 people who belong to XYZ Domain, what percentage of them owns a house. Domain here means Software, Medical, Govt Job, Business, Marketing, Sales, Engineering * Finance. There are many other domains, but we are not considering them, because there was not enough data. For each of the above domains, we had at least 200 data points each and at times more than 500 or 1000. Here are the results.

industry wise home ownership India

I had kept Retired also as one of the categories, because that would be a big number. So we found that the those who are retired have the highest home ownership which is kind of obvious, but after that business class has the highest home ownership ratio of 52% , followed by Manufacturing and Medical, but they are not having very big margin.

IT Industry ownership stands at 45% and we can be kind of very assured of that because that comes form 4940 people data, which is quite huge.

Also, note that the lowest home ownership is among Sales and Marketing Professionals & Even Pharma, I don’t have much interpretation for that, but may be it’s because they might have a big variable component in their salary and that might be a deterrent in their home buying. If you have insight on this, please put them in comments section.

Question for you ?

We want to know from you, what is your views on increasing real estate prices in most of the Indian cities and do you see IT industry contribution to it? Please share what you think in comments section.

Buying Land or Plot in India? – Here is a 10 point checklist which you should know before purchasing any property in India

Posted on March 14, 2016November 15, 2019 by Jagoinvestor

Are you looking for buying a plot or a piece of land? If not today, maybe you have this dream of owning a plot sometime in the future.

Buying land or plot has in a way to become a premium thing these days especially in big cities because the land is scarce commodity and the pride is associated with having your own plot where you can build the house as per your wish.

In this article I will tell you 10 important things that you should know before purchasing any property in India.

If you happen to visit any real estate exhibition, you will come across many plots projects along with the residential apartment schemes. These plots are generally within 20-100 km of the city radius and often marketed as a second home or vacation home.

On top of it, the pricing is attractive (often within 5-20 lacs) and there is also the facility of installments which makes it too easy to own a plot. The deal is often paying a token amount and pay the rest amount in parts (EMI).

However, a common man is often not aware of the risks associated with buying land and the complexities involved in it. Buying a land is a very different kind of ballgame altogether compared to buying a flat (which is much safer), and today I am attempting to make things easy for you to understand.

My Personal Experience

I have personally visited a few plot schemes myself over the last few years (near Pune). I have interacted with the salespeople and have some experience in this area. Hence, I will try to share what I know with you. If you can also add to my points, I would love to incorporate it into the article.

This article will mainly help a newbie with the simple checklists which they should look at before buying a plot or when they go to visit a scheme or if they are interacting with the salesperson (here is a checklist for buying apartments).

Note that this article is mainly keeping in mind plot schemes or gated communities, but most of the things will also apply for a standalone piece of land.

1. Is the land on the name of the builder?

The first question you should ask the salesperson is that if the builder has legal rights to sell the land or not. Find out who is the current owner of the land? Is it a builder himself or not?

A lot of builders either buy the entire land from the previous owner or enter into a joint agreement with the owners to sell or develop the land and sell the plot scheme. No matter what, make sure that this part is clear. Ask for the documents which clearly show the builder has legal rights on the plot himself.

Here is a story on how small builders do frauds

2. Has the developer taken a loan from Bank for the project?

Builders often take a bank loan for the Plot schemes and even residential schemes. It’s a sign that the builder is more serious about the project and it’s also a positive sign, because if there is the money with builder which will be specifically used for the project development.

The builder is not dependent fully on the advance money the home buyers. It shows that there is a cash flow dedicated to the project and the issue of cash crunch will be minimized.

It’s not always the case the scheme has a bank loan, but still enquire about it. If bank loan is there, it’s proof that the bank has done thorough verification from their side on the legalities and only then granted a big amount (often in crores)

3. Where is the NA order?

By default, all the land in India is ” AGRICULTURE LAND”, unless it’s defined for some other purpose by the govt. So a piece of land is either agricultural or non-agricultural (commonly called as NA in real estate industry)

Agricultural land can be used for Agri purpose, whereas if you want to do any other thing other than agriculture then one has to first convert that Agri land to non-agricultural (NA)

However just because a land has got NA status, does not mean that one can start using it for residential purpose, because there are various types of NA like

NA – Commercial
NA – Warehouses
NA – Resort
NA – IT
NA – Residential (this is the one where one can build a residential house)

So if a plot of land is type NA – Resort, that means that that one can build a resort there, but can’t make a residential scheme. If a plot is NA – warehouse, then one can build a warehouse there for commercial purposes, but can’t make residential schemes and sell to the common man.

So you need to look for “NA – Residential” Plot

So, the point is that you need to ask the builder/salesperson, if the plot of land you are planning to buy is “NA-Residential” or not? Ask them for a copy of that. A lot of other kinds of NA plots are sold as “NA plot, collector approved” which is a misleading thing.

I am attaching a sample NA order below (from Maharashtra) for you too just get a feel of how it looks like

Another thing you have to be very cautious is “Proposed NA” schemes. A lot of builders try to sell a non-NA land telling you that its a proposed NA land, means he has initiated the process of converting a land into NA scheme, and the papers are already in process and “very soon”, the land will become NA-residential and how you will then reap the benefits of the high prices.

While there are chances that the conversion happens, but in most of the cases, its a gimmick to sell a cheap land at high prices and often buyers are stuck in the project, because the land is nothing more than a piece of crap later.

Don’t fall for it, because converting an Agricultural land to NA-residential is a very lengthy process in which a lot of approvals needs to be taken for it. There are cases where it’s been 10-15 yrs and it’s “still in process”

I suggest you read the following experience to understand more about this point.

So, ask the salesperson to show you the NA order papers. Have a look at it yourself and do not fall for the promises like its coming in 2 months or next week or anything like that. Don’t get stuck into those kinds of deals.

Understand one thing very clearly, NA plots with clear title are limited and scarce, & often you will have to pay good price for it, If the land price is dirt cheap and it’s promised as NA-residential, there is a good chance that it’s fake or very very far away from the city limits.

4. What is the FSI for the plot?

Suppose you bought a plot of size 2000 sqft for building the house on it.

How much construction can you do?

Here comes the concept of the FSI or Floor space index. FSI simply means how much construction can be done on a piece of land and it depends on the location of the plot.

FSI of 100% means if you have a plot of size 2000 sqft, you can build a house of 2000 sqft on that. If the FSI is 75 %, then you can only build 1500 sqft of house on that 2000 sqft land.

The project I recently came across:

I recently came across a project called Royal Purandar near Pune when I went to visit a plot exhibition. The lady at the counter told me that the plot sizes start from 5000 sqft and go up to 40,000 sqft (which is very big). I was shocked to hear about so big plot sizes because 5,000 and 10,000 sqft plots are quite big.

However, when I asked her what is the FSI of the plot, she told me it was just 15%. So with FSI of 15 %, if you buy a plot of 5000 sqft size, you can just build 750 sqft of house, which is generally a small bungalow.

There is nothing wrong with that, but you should be at least aware of it.

Why FSI is very very important?

So understand that FSI has a very important role to play when you will construct something or even when you will sell the plot to someone else. Imagine 2 plots which are of the same size (2000 sqft), but with different FSI like 50% and 100%

Plot A (50% FSI) – You can make just 1000 sqft home on that, which will be like a 2 BHK)
Plot B (100% FSI) – You can make a 2000 sqft home, which will be like a 4-5 bedroom Bungalow.

But then it might happen that Plot A is selling at 10 lacs and Plot B is selling at 15 lacs, and you might say – “Plot A is cheaper because its less priced and the size is same (2000 sqft)

One important thing you should know is that FSI for agricultural land is very small generally. In Maharashtra, it’s just 4 %, which means even if you buy a 10,000 sqft Agri plot, you can only do the construction of 400 sqft on that land.

You should definitely ask the builder/salesperson to share the document which mentions the FSI on it. Judge the price of land only after learning about FSI, not just the area.

5. What are the other projects done by the builder?

You should ask the salesperson about the other projects done by the builder. Check if they have done other similar projects in the past? What was the response to it? What is the quality of those projects? Were there any legal issues with those schemes? Are the buyers happy with the builder work there?

You can often get some clue about all this on the internet or the online forums. Just go to the website of the builder and find out what are the other schemes he has done. Search with the other project names and see what others are talking about?

If you get a chance, I suggest paying a visit to past projects once. Spending half a day in this will only help you further to take the decision.

6. When will the Sale Deed happen?

You will often hear about the “agreement to sell” which is executed when you book the flat/plot and clear your initial payments (around 35-40%). This is the time when you pay stamp duty and registration charges. Once the agreement to sale is completed, a lot of buyers think that the flat/plot is registered on their name and now they are legally safe.

However, this is a myth and the “agreement to sell” does not make you a valid buyer. The agreement to the sale (often called ATS) is just the AGREEMENT TO SALE, which means it’s an agreement between buyer and seller on the initial points and terms under which the sale will happen in the future.

It mentions the terms and conditions of the deal, how much initial payments are you making along with cheque number and also the future dates, by when you will clear the payments, etc.

What is the “Sale Deed” document?

“Sale Deed” is the document that needs to be registered in the office of sub-registrar in order to make the sale happen. Unless the sale deed is done, you do not become a legal owner.

Hence, ask the builder or salesperson about the sale deed? When is it going to happen? The sale deed is generally done, only when the builder gets all the dues from your end.

7. Will I get an individual 7/12 extract in my name?

Let me first help you understand what is “7/12 extract”? It’s a term which you will often hear in states like Maharashtra and Gujarat. In Karnataka its called 7/12 Uttara. It’s the document maintained by the revenue department which mentions how the land moved from one owner to another owner in the last 30 yrs.

So in a way, its a history of the land and you will find exactly on which date who sold to whom. This way you will find out who is the current owner of the land also.

For example:

If person A sells the land to person B, then it’s important that the name is 7/12 extract is changed from A-> B. Unless B name is not registered in the 7/12 extract, B will not be a valid landowner.

So it’s important to ask the seller about the 7/12 extract. There are many complications around this, like if you buy an agricultural plot from the seller in the name of “NA plot”, then your name will not be there in the 7/12 extract, because there are restrictions on who can buy the Agri land and even the minimum size restriction is there.

Also at times, the builder will tell you that the name of the builder will be there in the 7/12 extract, and not yours. Or the society name will be there in the 7/12 extract and not yours.

Also at times, what happens is that a big piece of plot is broken down into small land areas and sold to many people and a joint 7/12 is made, where all the buyer’s name is there in 7/12 extract (see the conversation below), which makes things very complex in future.

So make sure you enquire on this aspect properly, and if an individual 7/12 extract will be done or not.

8. What will be the per annum maintenance after buying the plot?

Once you buy the plot, there is annual maintenance that needs to be paid which goes towards maintaining the basic amenities like security, upkeep of the project, gardens, water, security etc. It should not be a surprise for you later. This maintenance is generally paid on a yearly basis and it’s proportional to the plot size. For example, if it’s Rs 4 per sqft and your plot size is 2000 sqft, then your maintenance per year would be Rs 8000.

9. Is the plot on flat land or on a slope?

Don’t assume that your plot is always going to be a piece of flat land. If it’s a big project, it might happen that the overall land which builder has acquired is uneven or has slopes. So when it’s divided into several small plots, many plots might be on the slope or it might be uneven.

You will ask what are the main issues when we build a house on land with slope or an uneven plot?

Below are some important points regarding the land on the slope from this website

If the plot is on a significant slope, either the land will need to be cut and filled, or you’ll need to build a house that takes that slope into account. It’s worth remembering that while these things might make your house more spectacular, they’re also likely to cost a fair bit more.

Depending on the angle of the slope and what’s built on neighboring properties, a slope can also reduce your exposure to sunlight – which in turn can affect how much light you get in living areas, and your potential to harness the sun both for passive solar heating and for collecting solar power.

Where we live in the southern hemisphere a north-facing slope is ideal for solar access – a steep south-facing slope not so much.

Below is how the project brochure looks like when its shown to you (often when the project has not yet launched or into the exhibitions)

By seeing this kind of image layout, you never get an idea if a particular plot is on slope or not. So it’s always a good idea to ask this question and verify it by visiting the site yourself.

10. What are the arrangements for water and other basic amenities?

Always ask how they are going to provide water and other basic amenities. Is it going to come from the municipality or the gram panchayat? Or they are doing their own arrangement for it?

And also ask some other questions like :

What about electricity?

Are they going to arrange for a individual electricity meter?

How much are they charging for it?

If the plot/land is too much away from the main road, then what about the access road?

Who will develop it?

What about fencing of plots?

What about security?

Ask everything in detail and in points.

With this, I think we have completed the main high level 10 things you should ask when you are buying a plot. Below is another video on this topic where some industry-level people are talking about the same issue of buying land and the complexities involved.

I strongly suggest watching the 15 min long video below

Now we will see some important points which you should keep in mind before you buy the plot.

Important tips for someone buying a land

Do not hurry. Period! – Buying land is an emotional decision and often salespeople use a lot of tactics for selling the plots (just like flats). Don’t believe the seller when they say that just 12 plots are remaining or the prices are increasing next quarter when they do their “Mega – Launch” . It never happens.
Make many visits to the plot – Don’t book the plot just after one meeting or without visiting the plot yourself. I would say that one should make at least 3-4 visits before the deal. Try to visit the plot once when your salesperson is not on the site. Just make a surprise visit and ask others on the site about important points and you might find some new information about the plot which was not told to you
Check the nearby development yourself – Don’t believe the salesperson about the nearby development information. If the salesperson says that a new flyover is coming up nearby or if there are 3 colleges within a 2 km radius, just find it out yourself.
Talk to people nearby the plot – If you can go a bit further, see if you can talk to people who live nearby the plot. Make a random visit and then ask the shopkeepers nearby, houses nearby on the points which concern you.
Bargaining for the price – Often the list price quoted for the plot is never the final price. In a country like India, it’s a well-known fact that there is always bargaining. So you can easily assume a 5-10% margin. Ask them to reduce up to 10% price and then settle for at least 5%. Take a lot of time to decide and often you will see the prices coming down. It’s very important that you do not show your desperation on buying and also share with them some names of nearby projects and how you also like them and you need a strong reason to buy a plot from them
Search online about the plot scheme or the area of land – Always search for information about the project or builder online. You will often come across others who have visited the site, or interested in the same project, you can connect with them and discuss it

I hope this article has given a good knowledge to you about the important things you should ask and keep in mind before you buy a plot into some scheme.

Beware of small unknown builders for plot projects

By now I think there is no need to tell that land buying is very complicated and one should not attempt it if you do not have the risk appetite for it.

There are many small flies by night people who know how mad people can get to own a plot of land and they come up with schemes where their sole intention is to make money for themselves and cheat customers. Please see this below video where some buyers are sharing their real-life experience of buying a plot and getting cheated.

I would strongly recommend that you involve a good property lawyer for verification of documents and the legality of the project. It would increase your cost a bit, but then it becomes a more secure investment.

Please note that all the points I have mentioned above, are based on my knowledge and understanding. If there is any correction to be done, please share that with us. Also please share your comments and views in the comments section below.