Jagoinvestor

August 16, 2012

Results of Personal Finance Quiz – with answers

I took a personal finance quiz last week, in which close to 1,000 people participated. It was amazing to see the participation and the way you guys took the survey. I am now publishing all the questions with correct answers and the explanation for the answers , along with some observations (results and how different income group, profession performed in it) . Each answer had a 1 mark , so someone who answered 4 right out of 10 , has a score of 4/10 .

Personal Finance Quiz was tough

I did not want to make a simple quiz, so I had designed the questions in such aq way , that the answer which comes to mind immediately was not correct , the right answer was a little hidden one and not easy one . Hence you might see that the answer which naturally came to mind was actually a wrong one , the right answer was a little tricky one.

Some Observations from Personal Finance Quiz

  • The average score of all the quiz takers was 3.48/10 .
  • 94% quiz takers could not score more than 5/10
  • 50 people who were extremely overconfident and said “All 10 questions are correct” , all of them scored below 5 , and the average score was 2.84 out of 10
  • The high income earners were the worst performers with average score of 2.69/10
  • One of the worst performance was from software professionals with average score of 2.91/10
  • Only 27 people were able to score more than 7/10 and just 4 person scored 8/10 . Most of these people had income less than 5 lacs and they thought they had “more than 5 correct answers” , but not all correct.

Answers for the 10 quiz questions

Here are all the 10 questions from the quiz and their answers with explanations. You know what was your answer and hence you can find out what was your score exactly.

1. If you have a bad remark in your cibil report ? What is the maximum tenure it will be there and after that it will be removed ?

Right Answer was There is no upper limit on this I was sure that a lot of people will choose the answer as “7 yrs”, because they had heard that number “7 yrs” as being the limit after which the bad remark from CIBIL is removed, but its again a myth ! . Yes – you will be shocked to hear this, but 7 yrs is the MINIMUM time-frame for which bad remark will appear, its not maximum. In the question, it was asked for the maximum limit, and right now there is no maximum limit. I was on a phone call with a senior person from CIBIL, and she told me that right now there is no decision on what will be the maximum limit, so on the higher side, the bad remark on CIBIL can be for even 15-20 yrs , you never know , but for sure it will be there for minimum 7 yrs . Now understand that this is when you do not do anything about your Bad remark , if you pay off your outstanding or pending debt , then it will be cleared of, Read this article on how to improve your cibil score and Report

2. CIBIL score is calculated based on past how many years credit history ?

Right Answer was 2 yrs . I was not very surprised when most of the people chose 3 yrs as answer. It must be because they are aware that the CIBIL report contains your last 36 months of history , it has all the data about how much was outstanding and how much you paid. But your credit score is only dependent on past 24 months credit history only, whatever would be the algorithm for calculating the credit score, only past 24 months of data is used.

3. The money you withdraw from your Endowment policy after the 3 yrs lock in period is Tax Free 

Right answer is True.  As per the revised rule, any surrender value from Endowment plans are tax free after 3 yrs, but earliar it was 5 yrs, now its changed  (This answer was updated later)

4. If EMI for 20 yrs – EMI for 25 yrs = EMI for 25 yrs – EMI for X yrs , what is X

Right answer is None of the aboveThe other 3 options was not a right answer because X will depend on the interest rate value, If the interest rate is a number which is like 10% or something , then the X value will be infinite, but X can actually be 100 yrs or 200 yrs , if interest rate is very small like 3-5% (test your self), hence the answer is it purely depends on the interest rate. You can check this using the this EMI Calculator .

5. Ajay bought a house in Nov 2011 and paid stamp duty of Rs 50,000. Now its June 2012, and his friend recently told him that stamp duty can be claimed under sec 80C. How much of Stamp duty out of 50,000 paid can be claim now ?

Right Answer – He can not claim Stamp Duty Under 80C nowThe simple rule is that Stamp duty can be claimed under 80C, only in the financial year its paid.  If you see the question clearly, then you will see that Ajay bought the house in Nov 2011 (that’s 2011-2012) , hence the 80C benefit for stamp duty can be claimed only for 2011-2012 . But the question says that now its June 2012 when Ajay’s friend tells him about the stamp duty thing , now the time has passed, he cant claim it back now .

6. Father creates a Fixed Deposit on his child name for Rs 10,000 @10% interest rate. Next year who will pay the tax on the interest amount of Rs 1,000 , if child has no other income source

Right answer – No one will pay income tax . I was sure people will confuse this with the income tax clubbing rules, which says that income of minor will be clubbed with the parent who actually invested the money, but here if you see the income for the year is Rs 1,000 which is from the Fixed Deposit on child name, and what many people might not be aware is that, as per section 10(32), income upto 1,500 per child is exempted from income tax clubbing . Only income above Rs 1,500 will be clubbed, which means that a person can make FD’s on their child name and interest upto 1500 will be treated as purely child income and no tax will be paid on that. This is one of the tip you can use to save small tax on the income from investments .

7. Ajay’s age is 25 yrs right now , His birthday is coming next month, but he will not be able to take his term plan before 3 months, Why should he worry ! 

Right answer was There is nothing to worry aboutIts because Life Insurance calculations considers the “nearest” birth date, not the next or previous one. So in this case Ajay’s birthday was coming next month, so whether he takes a term plan before 2 months of his birthday or after 2 months, it does not matter, his premium will be same, because his age will be considered as same. Now this has become a standard way of calculating the age, but there might be 1-2 insurers who are still calculating it on the completed age.

8. Ajay sold his land after 9 yrs, but still suffered a capital loss of Rs 8 lacs, In order to save the tax on that, Ajay had also bought some shares 2 months back which have appreciate a lot . He sold them at a profit of Rs 3 lacs, Which option is correct now?

Right Answer was Ajay can carry forward 8 lacs of capital gains loss for next 8 yrsThe first point is that a capital loss can be forwarded for next 8 yrs, not 6 yrs. The other point is that most of the people must have offset the 8 lacs long term capital loss with 3 lacs of short term capital gain, and thought that he can forward only 5 lacs of capital loss, but they forgot that a Long term capital gain loss can not be adjusted against Short term capital gain (a short term capital loss can be adjusted against both short/long term capital gain) . Hence he can fully carry forward total 8 lacs of capital loss for next 8 yrs.

9. You can file an RTI and get information in respect to ?

Right Answer – Both SBI and PPFAll the govt departments comes under RTI act . As PPF comes under Post Office (Govt of India undertaking) and SBI Bank (a govt bank), both come under RTI , and in the same way all the PSU banks like Bank of Baroda , Canara Bank, Bank of Maharashtra etc also come under RTI , in-case you are facing any issues which you wants answered, you can file an RTI application and get your queries answered. Look at this example of how can file RTI for your EPF (Employee provident Fund) queries.

10 Ajay family consists of Brother, Wife and Mother. Ajay holds a Demat account (nominee is brother) and a Joint bank account with wife (nominee is mother) . Now Ajay and his brother both died in an accident , Ajay had not written any WILL . Which of the following is true ?

Right Answer is Demat will be claimed by Mother & Wife, but Bank account will be claimed by Wife OnlyIt was simple, but confusing. When a nominee dies, its as good as no nominee. Hence The demat account will be considered to have no nominee, which means the hindu succession law will apply in this case as there is no written will, and the demat account will be equally claimed by Wife and Mother (both class 1) . However the bank account will just go to wife because its a joint account, hence the second holder reserves full right on the bank account after primary holder death, the nomination or WILL has nothing to do here, because nominee and Will comes into picture only after both the holders death.

Prize for Top winner of Jagoinvestor Wealth Club

Out of the 4 people who scored 8 , We are picking one random winner , who is Mr. Rajasekaran, and we would like to offer him 1 yr free membership of upcoming Jagoinvestor Wealth Club, which is a paid product . Not disclosing much on what it is exactly, wait for it ! .

How do you feel now

Truely speaking, the personal finance quiz turned out to be very good and I really enjoyed it . You must have see how you quickly answered few questions and got them wrong, you must have spent some time to read them carefully :). This quiz was also designed so that you can see yourself that where you stand when it comes to personal finance and understanding the internals of it. Would love to hear how you feel after knowing the answers, do you feel you were overconfident with your knowledge ? Do you have any confusion in the answers of these personal finance quiz questions and would like to understand more ? Please leave your comments .

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Annonymous
Annonymous
11 years ago

EMI for 20 yrs – EMI for 25 yrs = EMI for 25 yrs – EMI for X yrs
Therefore X = 30 years irrespective of interest rate (10% or 3% )

Sushant K
Sushant K
Reply to  Annonymous
11 years ago

Hi Annonymous ,

Please note that the equation talks about the variable “EMI for X yrs” and not “X” itself. EMI does not have a linear relationship with number of years . So, your logic is simply not applicable to this equation.

You can find the formula for EMI calculation with google. Your deduction would be true if and only of EMI is would have been linearly dependent on number of years.

Hope it helps!

Annonymous
Annonymous
11 years ago

EMI does depend on the interest rate, but after the value (of IR) is fixed, it is constant Easy Monthly Installment, thus the answer of X in Q4 has to be 30 years and for the purpose of answering the question, one does not need to know the interest rate.

Karthik
Karthik
11 years ago

Thanks Manish, That was a good but tough quiz.

Mansoor
Mansoor
11 years ago

It was a very tough quiz, glad I learned a lot of new stuff. Thanks Manish. And your analysis is very cruel (just kidding), software engineers need a lot of financial education I guess 🙂

Mansoor
Mansoor
11 years ago

It was a very tough quiz, glad I learned a lot of new stuff. Thanks Manish.

Jayant
Jayant
11 years ago

Eye opening quiz to tell us how less we know about personal finance. Keep posting such quiz. I m less worried about score and more on gaining golden nuggets. 🙂

Suhas
Suhas
11 years ago

Tricky Answers…for tricky quest…I should have done Homework and answered them.
Anyways it was good learning..Next time will take care to read between the lines as i do for offer documents of financial products…… 🙂

It reminded me of mine Physics coaching I took when I was in 12th.
We had test and quiz every day so that donot forget and understand the concept throughly..No doubt I scored 90% in that subject……

Good Initiative and will look forward for future quizs……..And hoping for scoring high… 🙂

Paresh Deshpande
Paresh Deshpande
11 years ago

Hi, Good Quiz ..but confused for couple of things as stated below.
If any one surrender endowment plan within 3 Yrs then surrender value will likely to be lower than premiums paid till date ..isn’t it? Then how to calculate the tax payable???Is it like that I have to add the complete surrender value in my income,,irrespective of premiums paid earlier?
Q.8…If Ajay suffered a capital loss in land deal,why he will buy shares to save tax on it?….not understood exactly. …Sorry,if I read something wrong.

Paresh Deshpande
Paresh Deshpande
Reply to  Jagoinvestor
11 years ago

Thanks for the reply.

Ram krishna
Ram krishna
11 years ago

Hi Manish Team
Thanks for a quiz, learned many things too…. Keep going.

Srinivas
Srinivas
11 years ago

Interesting quiz.

I had not taken the quiz and had I, I would have been tricked by most of the questions.

Few observations.

As was pointed out, the score need not be seen as a validation of one’s genius or otherwise. As with any test/quiz, it only should help us understand point(s) better. There were discussion on some points. They just show that there can be more than one view point, and more importantly they can be logically and legally resolved.

I too had different opinions on taxability of insurance withdrawal and registration claim. Though the intent of this quiz is to make known some intricacies of law, if the points were understood clearly, I feel that they can save some money for individuals when a situation arises or at least prompt one to consult a tax practitioner for right course of action.

After all this, one should appreciate the effort taken by the setter. The questions are deceptively easy. I was just remined of IIT exam bit questions, which i had taken long ago. If you know the concept, it will be very easy and straight forward, else will get bowled.

Thanks Manish for one more learning session.

Keep up the good work.

Manyam
Manyam
11 years ago

Good one.. the score is something like what we learned from the personal finance articles, need not worry about scores. Just need to learn from wrong answers.. waiting for few more quizes like this..

khalid
khalid
11 years ago

Hi Manish,

Thanks for the right answers, i was waiting for that as so many questions were very tricky. Keep up your efforts to spread the knowledge.

khalid

Sayan
Sayan
11 years ago

Hi Manish
How much I scored?

Sachin
Sachin
11 years ago

Hi Manish,
It was great quiz. Looking forward more of these.

and omg I got so many wrong..I am going back to reading jagoinvestor

Regards

Sushil
Sushil
11 years ago

the quiz was excellent. i already said that such type of quiz should be regular on this blog. Regarding Q no 5, i was having same line of thinking as of Bhaskar Parkash…..so i think both of us are right
anyway…..overall it was excellent

bkkumar56
bkkumar56
11 years ago

It was a nice experience. Looking forward to have more quiz form your side. Well done Manish.

Sunil Kumar Dalmia
Sunil Kumar Dalmia
11 years ago

Respected Manishji

A very good quiz.Where can i see my score or can you mail me.
However as per my knowledge
1) As per section 80C
(a) in case of any single premium policy, within two years after the date of commencement of insurance; or
(b) in any other case, before premiums have been paid for two years; or
(ii) terminates his participation in any unit-linked insurance plan before contributions in respect of such participation have been paid for five years;
then only benefit is disallowed.
2)For answer to Q5 For Mr Ajay’s previous year is 2011-2012 he can file the ITR on or before the due date of filling the return i.e June 2012.And even in one has not claimed the benefit while filing the original return then he can file the revised return and claim the benefit of stamp duty payment.
I have given my views . I may be wrong but i would like to know the correct answer. Awaiting your reply.

Bhasskar Prakaash
Bhasskar Prakaash
11 years ago

Dear Manish, hi,

I admire your efforts in sharing the knowledge of personal finance through this blog. I am a silent reader of almost of every post on this blog . It is good to see that your blog covers every area of personal finance, be it tax, estate planning, investment, insurance, mutual fund, equity shares, or any other particular area which may influence it. This is the first time that I am posting my personal view on your blog.

I had seen the questions of your quiz on the day of its posting however, I could not take part in the same due to lack of clarity in few questions. I saw the result today. Had I taken this quiz I would have got between 4-6 marks only.

I am very much afraid that answers to few questions are not precise. I may be mistaken but it requires re-checking with you by referring to the relevant Act or fact. These questions are Q no: 3 and Q no: 5 respectively. I am mentioning below my understanding with respect to these questions.

Q no: 3. As per section 80C of the Income Tax Act, the minimum period of holding to avoid rollback of tax benefit claimed in previous years by investing in traditional policies, such as Endowment or Money Back policy is 2 years only. The 5 year term is applicable for all ULIP products irrespective of whether it was issued before or after 1st September, 2010. This is the year in which radical change took place with respect to the features of ULIP products. The provision of the holding period is independent of section 10 (10D) of the Income Tax Act.

Q no: 5. Please tell me how one can claim benefit of section 80C? As per my understanding, by filing ITR on or before the due date of filling the return. Now, It is obvious from the question itself that Ajay had purchased the house in PY: 11-12 and its corresponding AY would be FY: 12-13, and it is still June 2012. So, what’s wrong if he files his return in June 2012, much before the due date of filing returns, and claim the benefit of section 80C. Prior possession of the house is also not a valid stipulation.

I have posted my views above. I am eagerly awaiting your reply.

With regards,

Bhasskar Prakaash.

Amit K
Amit K
11 years ago

Manish: I have altogether a different observation with regard to the answer of Question No. 7 because what you have mentioned here is true for LIC but not for other companies e.g., Aviva (i-Life), Bharti Axa etc. I, myself, took a policy for my wife, a day before her birthday because the premium was increasing for her day after. Please check on Aviva site to gather more details…
Thanks…

vasudha
vasudha
11 years ago

good learning….. but difficult for a non professional