How Multi Level Marketing (MLM) schemes with Pyramid Structure works ?

Today we are going to talk about MLM or Multi Level Marketing Schemes which have a pyramid kind of model. For years and decades, these kind of schemes are active and a lot of people get trapped in these Pyramid Schemes and lose their hard earned money. In this article, we will see the common mechanism they work on and their characteristics. We will also create a dummy Pyramid scheme to show you the traps & pitfalls. Before we move ahead, get this fact that we are talking about those pyramid schemes which also have different levels of people one on top of other and where one guy pays money which gets passed on as reward to another.

Multi Level Marketing Plans

How Multi Level Marketing schemes work?

Multilevel marketing schemes are generally network based marketing schemes, in which a person has to add more people under him. The people obviously pay some money to “join” the business and then they add more people under them. In almost all the schemes, the person is incentivized for adding more people under them.

You all must have heard about the AMWAY business model, which is nothing, but a great example of Multi Level Marketing, while the business is legitimate and there is no fraud in it, still it also falls under a pyramid model. Even I have attended its meetings once when I was novice child :). The business model looked so easy, just pay Rs 5,000 to join the business and then keep adding more people to “business” and you get some percentage from the entire sales under your Tree. There are various ranks like Silver, Gold , Diamond etc., and the higher your rank, the more you make. Lot of people make money in it through legal way, and more you work harder , the money you can earn, but the point is , people who get in early make more money and the people at bottom struggle a lot.

Why most people lose money in Fraud Pyramid Schemes?

Guess what?!  A lot of people make money in these Multi Level Marketing business models, and they become the ambassadors of the business. They flaunt the cheques and the money they make and believe me, some of them are real!. They really do make money and we will quickly see more on that, but the point is, that the majority of the people lose lot of money and struggle in these kind of get rich quick pyramid schemes. And that happens, because there is a limit to adding people. You can’t add more people in the tree after a certain point and when the tree becomes bigger, than it’s trouble point, it’s reaches a  kind of saturation level when the biggest chunk of people who are at bottom lose all the money. Here is an example graph which will give you a good idea of what I am talking about.

How MLM or Pyramid Scheme Works

Example of SpeakAsia

You must have heard about the latest craze called Speak Asia Online! I will really not be surprised if you tell me that you were part of it! I will not be even surprised if you tell me you made lot of money too! That might happen if you started earlier! Because then, the scam was still in the making! If you joined at the end, you were at the bottom of the tree you lost your money. This is how it worked!

A person can join SpeakAsia by paying Rs 11,000 and becomes a “panelist.” He then starts getting 2 surveys per week and getting Rs 500 for filling up each of them. That’s around Rs 4,000 per month and 48,000 per year and that was how Speakasia was promoted by its member to lure other members. This was at the start and though the amount of money  coming IN was less than the amount of money which went OUT, and the whole model was unsustainable in long run, it was definitely sustainable in short term. Just think about it! Is it not easy to pay 10 smaller bakras if 100 bigger bakras join the next batch?

And after all that, it crashed! But still there are innocent people out there who claim that it was genuine and it worked for them. They are not wrong! It really worked for them and they made money, but that was part of the game. They wanted you to make lots of money so that you can bring more people in and then one fine day when they make a really big pile money that they can just vanish! Poof!

Breaking Relationships !

The biggest other bad thing about these pyramid schemes are how the relationships become sour and messed up when the person who is part of MLM tries to add all their friends and relatives into the MLM, suddenly they start looking at humans as “targets” , Here is one incident which happened with Shantanu 

I know about this as I faced these offers couple of times from my very close friends and relatives. And I know how hard it was for me to tell them “I am not interested”. Those who is a very extrovert in nature and also convince people more, like insurance agents can get success. But most people are in the other side only. In fact one of relative faced very tough challenge later on when people found his scheme a scam. Anyway, I think after such articles also these schemes will come in future and again many will trap in them also.

In one other incident, one of the Fraud scheme called as “Japan Life” made someone lose his girlfriend

Long time back in 2000, my girlfriend got stuck up in a similar scheme called “Japan Life”. They used to take 80,000 Rs. and will give you a magnetic mattress. She tried to get me in as well and I was almost about to get trapped but sanity prevailed and I escaped, however since I did not join, I lost my girlfreind forever. I remember this fraud came up in Star News and I could see so many people getting cheated. This was around New Delhi and surrounding areas

Some other popular Multi Level Marketing and Pyramid businesses which were actually a scam were GoldQuest, StockGuru , UniPay2U etc etc (add more name in comments section if you are aware about them). Moneylife has also done this story on Multi Level Marketing companies in Forex trading, Have a look at it.

Jagoinvestor MLM Scheme – Lets create a SCAM Plan right now

Let me know you how simple it is to create a pyramid scheme and it will look so attractive . You all know I have written a Personal Finance Book called “Jagoinvestor – Change your Relationship with Money.”

Now here is a scheme

  • Pay Rs 1,000 and become a member of the scheme
  • You get the book FREE on signup
  • Make a person join the pyramid scheme and get Rs 250 for each person
  • You can add any number of people to this scheme

You realize that if you add 4 people to the group, you will get a 1,000 bucks and a Free Book! So it’s extremely easy for you if you join the scheme early.

Let’s say 10 people join under me.

Level 1 – Add 10 people

So 10 people will pay 1,000 each and I will make Rs 10,000 total , and I will send back a FREE book to all the 10 people. I incur Rs 5,000 expenses and make a cool profit of Rs 5,000.

Level 2 – Add 100 people 

Now let’s see… Each of these 10 people persuade 10 more people under them, and 100 more people join the scheme. They will pay Rs 1,000 each to me;, that means Rs 1,00,000. I will spend Rs 50,000 for the 100 books , and I will be left with Rs 50,000. But out of this 50,000, I need to give a share to each member at level 1, for 1 person the incentive is Rs 250 , so for 10 people, the incentive is Rs 2,500 for each person at level 1, and because there are 10 people at level 1, I will have to pay Rs 2,500 to each at level 1, and I will have to share 50% out of 50,000, that’s Rs 25,000. But I still keep Rs 25,000 with me.

So now you can see, I made a total 5,000 from 10 people at level 1 and Rs 25,000 from 100 people at level 2. And each of the 10 person at level 1 made cool 2,500 from 10 people they added under them, they not only recovered their 1,000 back, but also got extra Rs 1,500 and a FREE book! Wow! This business model is amazing!

Level 3 – Add 1000 people 

So the business is expanding and the word is spreading and my book ambassadors are in the market advertising this scheme and showing the kind of money they are making and the free book they get! Dude! They also have a valid cheque with them! No fraud! . So the word has spread like wildfire now and everyone wants to join this business.

Now, lets say each person at level 2 adds 10 more people under them again, because the word is spreading about this awesome business. There will be 1,000 people at level 3, paying 10 lacs to me and I will incur 5,00,000 expenses. I will pay 2,500 to each person at level 3,  that means 2.5 lacs in total, but I will still keep 2.5 lacs with me.

Level 4 + 5 + 6 

Can you see, how it’s growing? And how people are making money? From 1 person to 10 people, and from 10 to 100 and them from 100 to 1,000? But what next? Level 4? Level 5? Level?

When this reaches level 6 , there will be 10 lakh people under this scheme and they will be paying 100 crores to me! . You guys are going to hate me at that level! . Because you will never see me again! . Neither will I send any more books to anyone!, Nor will I send any share to anyone. I will just run away and you wont be able to trace me! . Any person who would have joined in at the start would find it easy to grow and spread the business. But people at bottom will just not be able to do anything, they are the last batch of fools!

Real Life Examples related to Fraud Schemes

Krishna shares

During my College days there were 2 such schemes ( 7000/- & 1200/- each) introduced to me by my friends & asked me to join them. I explained them that they are highly unsustainable by using simple exponential formula (2^e). But still they thought i am a fool & not making money out of this wonderful Golden “Pyramid”. Thanks to God for that!!!. I just want to say that “User Pure Maths” before entering or dealing with any thing with your hard earned money. Be on your foot not on air.

Sam shares

In 2007, one of my good friend called me when i was out of station. “Sam, i have something great to share with you, when are u coming back? i cant wait to meet you etc etc”. I was kinda surprised and was very curious what he is gonna talk about. He took me to this office where many others showed cheques explained business model, asked me to buy some product and become a member. People were so promising that they will help me , let me grow & earn lots of money and all.. It was ‘Gold Quest International’. That day i made the biggest mistake of my financial life. They made me buy some Gold & Silver coin for Rs.38000 rupees using my credit card. After i joined i tried to reach out to some people in my circle and most of them are already part of it & others are not interested. To pay this credit card bill, i had to take a small personal loan. It was the initial days when i got into job and all these incidents made my financial position worst.

Sachin Shares

I lost 20 K in this MLM bullshit … it was with the name Cossets in Delhi . They arranged a huge pomp show in Siri Fort to show off the happiness of the people who had made money and became millionaires. There were multiple stores in Delhi where u cud purchase if u were a member Then some Ex army also got fooled joined in and invested smthng like 4-5 Lakhs his life savings got duped and then he made a case on the company . Phew Cossets was like GAYAB.

Suhas Shares

My brother was a victim of it late in 2002 in scheme(scam) called netkhazana.He lost around 17k at that time.And from that time I have got recommendations from freinds(?) and relatives(?) in to hell lot of schemes but never got into any because of the first bitter expereince. I suppose this schemes are gr8 if you have selfless people involved but that does not happen as the corpus grows to crores of rupees and people at top tempt to cut the goose.

Other Models of Scam

There are many other multi level marketing scams, which are not in a pyramid model, but they ask for money for some awesome investment based on some logic and then they really give back awesome returns to handful of investors, who spread the word about the scheme and them more and more people join the investment scheme and once it becomes very big, the person who started that scheme vanishes. The Govt is going to take some tough measures on these kind of fraudulent schemes. Here is a nice video which explains more about this.

Beware of these Get Quick Rich models

There are a hell of a lot of schemes and businesses running which show promises of making awesome returns from gold, stock market, real estate and many other kind of investments. They mostly will look really attractive and credible, but always remember that if someone is offering you anything better than bank fixed deposits, there is no doubt that there is some of the other risk involved. The bigger the potential return, bigger the risk.

Disclaimer : Note that we have just discussed how Network Marketing works and the basic mechanism. There might be various businesses and models which are making money, and might be good. This article just wants to bring awareness among people on the concept of pyramid schemes and they fool and loot majority of people in our country .

If you come across any Business like this, first make sure you check that its a member of India Direct Selling Associationwhich kind of gives a legitimate name and also they follow certain code of ethics. If its not part of this, I would say better stay away from it. Amway is part of it. So, not all Multi level marketing models are fraud, a lot of them are genuine also. Here is what Sunil shares about this

A Multi Level Marketing is different from Direct selling. Any company selling directly to the customer, removing all the supply chain management commissions behind, will be governed by Indian direct selling association, (within India) and world federation for direct selling association, . There are many companies like Avon Cosmetics, Amway, Oriflame, Herbalife, Tupperware etc.. registered under these federations. These companies work under the ethics defined by the IDSA or WFDSA and are very harsh on the people who dont adhere to these ethics. Many people reading this article will agree that the quality of the products they produce are amongst the best in the world. Many people are under the impression that these companies are similar to the other ponzi schemes.

Let us know what do you think about the concept of Multi Level Marketing and associated businesses. What is the biggest reason you think people fall for them and get trapped?

Best bank in India – With survey & Customer reviews

Which is the best bank in India? Is it yours ? In this article, we will look at the top 6 parameters which define a good bank and look at various Indian banks and how they fared on those parameters. The best way to find out how good a bank is to ask the existing account holders. So I ran a big survey on the topic of “Which is the best bank in India?” and a huge 2,418 people took that survey!

In the survey we counted how many people had a particular bank account and it was not a surprise that 76% of the market share was from the top 4 banks which were State Bank of India (SBI bank) , ICICI bank, HDFC Bank and Axis Bank . Rest 24% consisted of all the other banks combined. Other than this, we had also asked how long were their bank accounts . 77% of the bank accounts were at least 3 yrs old, which means that a person taking the survey had a fair understanding of his/her bank. Below is the graph showing the exact numbers

Indian banks market share

6 parameters of a Great bank

Banking is the core financial service any individual uses. There are hundreds of bank in India with millions of bank accounts and a person might have no other financial product or investment, but he will always have a bank account. One has to deal with banks all the time, be it credit card, home loan (Read Best Bank for Home Loan), auto loan, personal loans or any normal banking service, so one can not escape banking.

So its very crucial that one has a great bank that treats it’s customers well. So what defines a great bank? What we did, is define 6 parameters on which a bank can be judged.

1. Customer Care of the bank

For any issue we call our bank customer care, the quality of a bank customer care shows how much care a bank wants to take of their customers. Customer care is what you would need a lot of times and it’s of great importance in choosing a bank. This is where the maximum number of interactions happen.

2. Core/Basic Banking services provided by the bank

Core banking means the real banking services which are the base services. Facilities like cheque issue, money transfer from one account to another, Demand Drafts, Debit card issue, Interest paid on the account and other core activities. These are the services which have to be there no matter when, other advanced things are not present. These services form 90% of what you need from the bank. Ergo, these banking services are a must.

3. Advanced Banking services provided by the bank

Advanced services are those banking services which are over and above the core banking services. There are the latest technologies which the bank could have adopted. Some of the examples of these are providing IMPS money transfer service, Prepaid recharge and various other such add-on like services. They are “good to have” services, but not must have services. In this era of technology, it’s a prudent thing to have a bank which offers these kinds of services.

4. Online Facilities provided by the bank

The face of banking is changing, A lot of bank customers have totally shifted to online services. Its only the in the worst case scenarios that one visits the bank physically. Else, everything is done online . So do go look at the bank’s online facilities. For example, when I needed a Demand Draft for some purpose, all I did was to put a request to create the DD in my ICICI Bank through net banking and opted to collect it from the branch in next 2-3 days. I got a notification on sms and on email when the DD was ready and I could go collect it anytime. So the next time I passed by my bank, it took me just 10 min to collect it. No time wasted! There was also an option to get it delivered at my home at nominal charge. Its generally said that HDFC Netbanking and ICICI Netbanking is one of the best among banks in India. Things like these matter a lot in today’s fast paced world where you dont have much time to go to bank physically.

5. Transparency maintained by the bank

This is a crucial aspect. How transparent is your bank to you when it comes to charges, facilities, penalties and the offers it gives you on some services? Is your bank too opaque? Does it make life easy for you or tough? One simple example that comes to mind is regarding opening of a PPF account in SBI. There have been so many instances where the SBI bank officials have not been very transparent regarding the rules. Then there was one instance where Axis bank was not very transparent to one of our readers when taking a home loan and actually sold him a policy without his permission. So it really is a big parameter to look at, in a bank.

6. Overall Attitude of the bank towards its customers

And finally, at the end of the day, you have to look at your bank attitude towards you as customer. Does it really treat you as king or trash? How do you get treated when you walk inside the bank? How are you treated on phone with customer care? Does you bank understand that your time is precious and tries to help you, or just looks at you as just another target?

Which is the best bank in India & their rankings ?

In the survey, we had asked from people the 3 things

  • Name of their bank
  • How old is their banking relationship
  • How do they rank their bank on these above 6 parameters

Based on the 2418 answers in the survey, we have created the following result table which shows you how well each bank fared on each parameter. We will look at total 25 banks , the top 10 banks in India and then next 15 banks . “Very Bad” equals 1 and “Very good” equals 5 marks.  The table shows the average marks obtained by a particular bank . At some places you can see the green background which shows that the bank was in top 5 position. This is done for top 10 banks and next 15 banks also .

Best Banks in India

Top Indian Banks as per Survey

If you look at the above table, and look at the banks which have got the average of more than 4 marks as total, we get total 14 banks with more than 4 marks. Note that the names are considered as per survey results only and based on real feedback.

  • ICICI Bank
  • HDFC Bank
  • Axis Bank
  • CitiBank
  • IDBI Bank
  • Kotak Bank
  • Corporation Bank
  • Oriental Bank of Commerce
  • Syndicate Bank
  • Andhra Bank
  • Yes Bank
  • Standard Chartered Bank
  • Karnataka Bank
  • HSBC Bank

15 Real life Experiences from Bank Customers

Here are some of the comments made by people on their banks in the survey. I am putting some of them here for you to read.

Rakesh say’s“I observed that most of the times in ICICI Bank, customers are taken for granted…I dont see it as an attitude problem with the individuals working there…it has happened in many of the branches I visited…Infact their Bank by Phone assistance is more courteous than the actual working class”

Aditya Karnik says“One of the branch of HDFC Bank in Nashik city was having some issues with system and hence all cash transactions were stopped. Executives at the counter couldn’t give satisfactory answers as to what led to the issue and rudely asked customers to go to some other branch within city to transact. Well I can understand systemic issue but communication could have been better.”

Mahesh says“Once my mother, aged 50, had gone to Union Bank of India, Chembur Branch for submitting a form for FD and by mistake she had signed below the dotted line. For that one of the lady staff over there humiliated my mother in front of everyone. My mother came home with a teary eye. We were so pissed off by the way they treated such an elderly woman that we shifted our account to another branch. Some one from the bank said that everyone in the bank is fed up of her temperament and irrational behavior.”

Arindam says“A recent incident occurred when I need my new address to be updated. Normally, Customers are asked to visit the Bank to update all the records (In the year 2012). However, in this case, I was asked to raise a Service Request through online net banking and the issue has been resolved within 24 hours and I have received my current month’s e-statement with the new address. That’s a fabulous support by ICICI Bank.”

Pradeep says“I asked for Home loan amortization through e-mail. They did not reply. After 2-3 e-mails, I wrote a strong e-mail to DGM and then got a reply from SBI. Most staff do not know simple rules and regulation on Home loan prepayment. They are also ignorant of latest decisions. This is terrible.”

Nilufer says “Whenever we need to contact the servicing branch of HDFC Bank, their numbers are connected to the customer care numbers, where 8 out of 10 times there is only a machine talking to you.. There is no one in person who one can talk to about an urgent query.. this pisses me off no end… At-last i had to call one of my previous contacts (who has now got transferred from my branch) on his cell, to get the info on my query. In an emergency, only a machine talking to you, is no 24×7 service which these banks claim to give.. Forget after office hours, even during office hours we dont get a human being taking care of us on those lines.. atlast i had to call the branch manager on his cell to get things sorted out… pathetic customer care service where only a machine is left to service its customers with that no ending options that it keeps blabbing out…” 

Subradas says “Whenever I talk to bank officials they try to bullie. Either they knowingly do it or because of their ignorance but they do it. They try to bluff at the first go. It seems that Kotak Bank has recruited the worst manpower of the industry. They have tried to shift/do most of the work on back end making the process time consuming. They have delegated hardly any power to their executives sitting in the branch. To close an account it may take 7 days to more than a month where as it takes less than an hour in most of the PSU banks.”

Devendra says – “While my son was proceeding to the United States for higher education, I wanted a certificate from SBI that i could meet more than Rs. 8 lakhs for his studies. Since I was earning more than this amount and also had money in my account, I thought it was quite easy task. Yet the bank refused to issue the  certificate. I then approached Corporation Bank and got the certificate.”

Sumit says“They had called me to give free Financial Planning advice from a CFP. The fixed a time for meeting and the adviser did not appeared on that day. I did not expected this from a bank like HDFC. Post that, there has been few more appointments taken and shuffled and I haven’t met any adviser yet. (incident took 1 month back.)”

Rahul says – “I wanted to prepay the Education loan taken from Andhra bank, Howrah branch. I had to travel to the branch more than 10 times to get my loan account closed even after making the full payment. The total process took me over 3 months.On the last day, i sent my brother with an authorized letter to collect the hypothetical LIC policies. They confirmed earlier that they would deliver it to him but denied on the spot. Ultimately, i had to rush to the bank in high fever to get those documents. I literally scolded them at this behavior. Another big dismay was the interest rebate- The loan policy document mentioned that a 50 bps rebate in overall interest would be allowed if interest payments are regular. To regularize interest payments, i opened another savings a/c in the bank through which they can collect interest payments every month.

I also gave written application for direct debit from my savings a/c to loan a/c and ensured that there was adequate balance in the savings a/c at all times. Yet, i was not given any rebate in interest. As mentioned earlier, i had to scold them on the last day- you can easily understand the scene at that point of time. I preferred to get the a/c closed asap irrespective of the interest rebate. Meanwhile the banks Branch manager and Loan dept. staff was changed twice and the position remained empty for more than 6 months.

Anand says“I required a locker, hence requested my Banker (BOB) for the same which they ensured to allot as soon as they get any vacancy. Within a few days i got a call from them confirming the availability of the locker and asked me to come to Bank for fulfilling the formalities and accordingly allotted me the same forthwith.I was really happy with their promptness.”

Gopal says “Citibank gives you update almost immediately regarding the tranactions taking place in your bank account. Once my cheque was dishonored due to the year I placed on the cheque. The concerned branch immediately called me and I made the payment to the party by other channel.”

Ravindra says – “Several years ago, the then Manager of the IDBI Bank branch, where I have my account was habitually rude with his staff. He used to rebuke them within the hearing of customers. Naturally, this caused us considerable discomfort, as would have to deal with these staff within minutes after being forced to overhear the unpleasantness. I sent an email to the then MD, who sent a senior officer to enquire into the issue. The Manager was more discreet after that, and the staff worked better when the stress and tension was reduced.”

Ramprasad says “Karnataka Bank is a good bank, but their customer service at the branch level or over phone is among the worst. I had a problem with using the Internet Banking Service and had to reapply for the passwords but even after i was charged Rs50 for internet banking password re-issuance the passwords never reached me or the bank branch. They told me to reapply once again, and the branch was very non-cooperative in their service including the branch manager.”

Karthik says “Most of the times I didn’t have to approach their customer care. The times I had to, they were extremely courteous and quick in resolution. My first card was rejected because I didn’t have a CIBIL score then, having come fresh out of college. I was able to speak and reason with their Regional Manager, Credit and get my application application approved. Very progressive and sensible rules! at CitiBank”

Conclusion and Disclaimer

The above survey will help you take a better decision in choosing the best bank for your banking needs. Note that the above survey was taken by 2418 people who are the readers of this blog. This survey only represents the net savvy population of the country and it should not be taken as a representation of the whole country. The views of people outside this blog might clash with the findings of this survey. Also the above survey only focuses on the banking aspects and not things like home loan, personal loan etc.

Here’s a crucial aspect of the survey you need to understand. The above results are average of many views, hence its natural that there are many bad experiences with the banks which are considered best in the category and there can be many good experiences for those banks which are not part of these top banks in India.

We are soon going to add a full video course on banking in our jagoinvestor wealth club. Incase you feel you need to understand banking terms and terminologies, you should join the club.

What do you think about this survey? Do you agree with the results or not? Was it useful for you ? Do you feel that yours is the best bank in India ?

CIBIL Score 2.0 – An Improved version of Credit Scoring

CIBIL has recently come up with Cibil Transunion Score 2.0 which it calls an improved version of the CIBIL Credit Score. This new Credit Score will help in a better identification of new borrowers (having credit history of less than 6 months) and help classify them into risky and not-risky categories.

More about CIBIL Score 2.0

The biggest change here is that the CIBIL Score 2.0 is for new borrowers who have a short credit history, i.e. 6 months. So now there will be two classes of borrowers

1. Less than 6 months of credit history 

Any borrower having less than 6 months of credit history earlier used to get a score of 0. But with CIBIL 2.0 , they will get a score in between 1 to 5, where 1 represents high risk of default and 5 denotes least risk of default. This score between 1-5 will depend on parameters like 90 days overdue in any given month (for last 24 months), credit seeking activity (number of loan enquiries you make), type of credit (secured or unsecured) and the demographic (age , location etc.)

This move is going to help a lot of people who are very new to credit and have recently taken credit cards or have taken some kind of loan and need another loan. There have been instances that due to their short credit tenure, they didn’t have any credit score and a lot of bank rejected their applications for loan just because they didnt have one.

2. More than 6 months of credit history 

For those who have more than 6 months of credit of any kind, for them the credit score will be in range of 300 to 900 score, just like earlier. However, it seems like this scoring method will consider only higher scores like 800+ as the better score. As per this firstpost article, it says that an old score of 751-800 will now be equivalent to something like 662-697 in the new score version .

For borrowers with more than six months of credit history, the old scoring criteria 300-900 remains, but for the lower score you get. For instance, the old score of 751-800 will be equal to 662-697 in the present one.

The newer version is initially made available only for CIBIL’s 862 member banks and financial institutions, after which it will be available for the customers as well, he said, without giving an exact timeline for the completion of the process.

Cibil Score 2.0 is a better Score

This new CIBIL score is said to be a better indicator of someone repayment capability. It has been designed keeping in mind the Indian market and the way consumer behavior is changing from last some years.

 “CIBIL TransUnion Score 2.0 predicts risk more powerfully as this scoring model has been customized for the changing Indian market and consumer behavior. This scoring model will enable banks to better identify good customers, thereby enabling them to provide credit to more consumers and increase credit penetration and financial inclusion in the country.”

– said Mr. Arun Thukral, Managing Director, CIBIL

The new CIBIL score is tested by the company old random data and it seems to identify the risky customers in a more better way. Here is a snapshot of results I found out on transunion website. You don’t really need to understand this graph, just get that this identifies risky customers in an improved manner.

Old vs New CIBIL Score 2.0

Now, The credit institutions that have adopted the new scoring model will decide on customer’s loan application based on this new score. So it would be interesting to watch out the credit score banks ask for giving loans .

What do you think about this new cibil score 2.0 and the changes which has taken place ?

We are happy to share that we have got a great response to our newly launched Jagoinvestor Wealth Club some days back . There are already 140 members and we are giving the discounted pricing to only 300 people . We are excited to share that we are moving towards our vision of creating a great dedicated closed community. Join the club if you feel you need to be present there.

Jagoinvestor Wealth Club Starts today- India’s first online wealth club

Would you like to be a part of committed investors community to create more wealth? Would you like to be a part of structure that helps you live a good financial life? Why not join us to help you provide a structure that makes you a better Investor. For good health we go to health club. similarly to live a good financial life we have created  Wealth Club. We get numerous mails from people asking, ”Hey what is this Wealth club all about? ”. The wait is finally over, as the coolest club is now OPEN to SERVE you as an investor.

The whole Idea behind creating this Jagoinvestor Wealth Club

We strongly feel that every investor is blessed to live a good financial life. This club is for committed investors. It will help investors to add different dimensions to their financial life.  We see wealth club as a movement that will inspire people in living a good financial life. The wealth club is designed to  provide you with an environment that supports investors in their financial life. After all the blogging, financial planning, writing and coaching hundreds of people, we see personal finance as an ongoing journey and every investor somewhere needs a structure or an environment where he feels safe, enjoys learning about personal finance and gets constant empowerment to STAY in action.

The BIG idea behind creating this wealth club is to help you build muscle to  live a good financial life. Some time back , we ran a survey trying to find out how people feel about their financial life and here are some findings !

  • 90% people need some safe space or structure where they can learn, study and think about their financial future
  • 91% people would like to have access to online library, where they can get quality audio/video’s on personal finance
  • 90% people would like to be part of a committed investors community
  • 87% would like to get in control of their financial life with or without financial plan
  • 92% people feel that if they get personal finance calculators/tools/templates, they will become a better investor
  • 81% people are afraid of misselling
  • 78% people say they dont understand complex financial products
  • 83% people are not able to trust people easily for making investment.
  • 72% peopel feel they read a lot on personal finance BUT unable to implement
  • 64% people feel paying a high fees every year to some advisor is constraint for them

With these points in mind, we have designed wealth club which will provide  a safe environment where investors learn, grow and enjoy the process of wealth creation. You can get a feel about this Wealth club by seeing following video

Here are some of the testimonials from the few set of people who have been using it from last 2-3 weeks. May be you can get a better understanding from their testimonials.

Testimonial from Aparna 

Jagoinvestor Wealth club is an eye opener. The wealth club is easy to access. The courses available on the club are very informative and thought provoking. After listening to each coaching conversation, there are a couple of action items that I make note of and take actions. The conversation is not just about the financial life. The conversations actually enhance our way of living and financial life is just one part of it. There are a couple of calculators which are very easy to use and very useful. For example: the goal planning calculator. This calculator can be used throughout our life to keep track of our financial life, since financial planning is not a one-time activity.

There are a couple of ebooks also. These teaches and reinforces the financial concepts. And moreover, if we plan to invest our money via mutual funds, there is a ready reckoner list which helps us to make informed investment decisions. I did not have to scratch my head to find out the best mutual fund for my requirements. In one of the audio course, Nandish says “Personal finance is about getting things done”. What a powerful statement!!! This website provokes us to take action and be on our toes always…  Thanks Nandish for such a wonderful club

Testimonial from Lavanya

We find it a very useful single place for all information related to personal finance more importantly in a very good structure. I find all the categories useful, especially engrossed now in the courses and conversations. Having gone through some of the conversations with Nandish in past, We find it very useful to refresh memory and there are new topics too. Of course now getting used to this, I want more detailed conversations on some of the topics. The courses too are a very useful feature and done in a very simple easy to understand format. I am certainly using it and expecting the content and categories to increase in breadth and depth. Great start and keep giving us more. 

Testimonial from Jassi/Priya

I think this is one of the most innovative ideas a financial institution like yours can have. A club exclusively for members can go a long way in keeping an individual connected with his/her financial life. The most important aspect of being wealthy is to be consistent and disciplined. Individuals can have excellent plans but they can succeed only if there is regular drive and actions. This club is a brilliant way to always stay connected and be motivated to taking actions, learning and getting closer to goals. Since, it is a club of like minded individuals; it could be a good platform to learn from other’s experiences and always stay in touch with the core principles of financial success. This surely is a very good chance to create many wealthier satisfied individuals in the future to come. Content-wise, We are very pleased to see good coaching courses and teachings of finances. Looking forward to much more content in the wealth club.

Testimonial from Arvind

I was promised 1 yr membership to Jagoinvestor Wealth Club as part of financial planning service in past. From that day I was waiting for this Jagoinvestor Wealth Club and finally I registered and listened all the audio clips (Conversations) and seen Video Clips (Courses).  I found that these are much more powerful than that of Jagoinvestor blogs. The difference in Jagoinvestor blogs and Jagoinvestor Wealth Club is something in the way that, In Jagoinvestor articles you have to realize, you have to read, it is time consuming and in Jagoinvestor Wealth Club you can view videos, you can listen various conversations, so I found it is more powerful. And the content is totally different and well structured. I wish all the best to Jagoinvestor team for the success of Jagoinvestor Wealth Club.
Are you ready to Join the Club and be Part of it

We really invite each one of you to be a part of our initiative. Let’s learn and grow together and get committed to producing a lot of wealth in life. This is an inner circle where we will serve you with our full energy and efforts. We promise to deliver our best creations to you each month and help you grow and design your financial life.

Please share in comments section, what do you feel about this initiative .

RGESS Tax Saving Scheme – Too Complicated !

RGESS or Rajiv Gandhi Equity Saving Scheme is the new tax saving scheme, for saving taxes. This is mainly  for first time equity investors in securities market. The whole idea for introducing the RGESS scheme is to promote an ‘equity culture’ in India as well as widen the  retail investor base in the Indian securities markets. Look at the below video where a discussion is going on RGESS.

Lets us look at some major points which defines RGESS

1. Maximum Investment Limit and Tax Saving

RGESS scheme is available only to those investors whose taxable limit is less than 10 lacs per year; and the maximum limit of investment is Rs 50,000 per year. The tax advantage will be available on only 50% of the amount invested –  which means that tax saving can be done only on upto Rs 25,000. Which means, if you invest Rs 50,000 and belong to 20% tax slab , you will be able to save 20% money on 25,000 (50% of 50,000) – a Rs 5,000/- tax saving.

2. Applies to new Investors Only

The RGESS Scheme is available only for “new investors”; defined as those whose PAN numbers don’t have equity transactions, which means either a person has not opened a demat account ever, or has opened a demat account, but have never invested in equity before the scheme came into effect. The investment can be done throughout the year, and not restricted to a one time investment, so investing Rs 50,000 in one shot or investing Rs 10,000 in 5 shots , both are eligible. But the big confusion is for those investors who already have equity investments through mutual funds, but do not have demat account ?

3. Lock In period of 3 years

This rule is a little messy. There will be 3 year lock in period for this investment. However if an investor wants to, he can collect “profit” part after a year of investment.  So for the entire first year, you cant sell your shares! And after the first year of investment, he can take out the profits if he so chooses. He can sell all his shares if he wants, but he will have to bring back the same amount through some other stock.  After first year, 2 more years of lock in will apply, and in this period, you have to maintain your balance at the end of first year, which should be minimum of the amount on which you claimed income tax or the balance at the end of the 1st year .

So if a person invests Rs 50,00 , and in next one year

Case 1 : His worth is Rs 55,000 , then he can take out 5,000 and after that he has to keep his balance minimum 50,000 (the amount on which tax exemption is claimed), if a person wants, he can sell off his shares totally, but then again has to come back with 50,000 investment in some other or same stock. He can take out the profits part (above 50,000) if he wants in these next 2 yrs

Case 2 : His worth is Rs 25,000 , then in this case, he has to maintain this 25,000 balance in next 2 years. If you are still unclear, Deepak Shenoy has done a better job in explaining this lock in part, in his article on RGESS.

4. Where can you invest for RGESS Scheme?

You can invest in stocks which belong to

  • CNX 100
  • BSE 100
  • IPOs of PSUs whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years
  • Large Listed PSU’s
  • And any ETF , Mutual fund which are listed and traded in stock exchange and whose portfolio includes stocks which are eligible under RGESS

Should you invest in RGESS ?

Personally, I feel that RGESS has too many terms and conditions to follow, and is not that easy to understand for a common man. Especially a new investor who is anyways afraid of markets and his money being lost. The restriction of “can’t not sell at all in first year” is kind of scary, especially for those who are too risk averse.

Another bad point about RGESS is that it’s a once in a life time investment scheme. Once you become eligible for this scheme, for next year you will not be a “new investor” and hence wont be eligible, so its only for the fresh batch of new investors each year. The only positive point is that for those who were anyways going to take plunge in stock markets will get extra benefit of some tax saving and might instill some compulsory discipline of investing (lock in period).

Let us know what do you think about this RGESS Scheme (Rajiv Gandhi Equity Saving Scheme) , and if it interests you. Will it be a hit tax saving scheme or a flop one? What do you think?

How is interest on saving bank account is calculated ?

A lot of people do not know interest is calculated on their savings bank account.In this article I will explain all the aspects of interest on a savings bank account. Earlier all the banks had the same interest on their saving bank accounts, which was 4% , so a person had no choice in terms of interest rate, you would have got the same return with any bank. But, RBI has recently de-regulated interest on saving bank account and now banks can decide the interest they want to pay on saving bank. This has had a positive impact for customers, because now due to competition, banks like Kotak Bank and Yes Bank have started offering higher interest rates like 6% or 7% and using that parameter to attract lot of customers.

How is interest on saving bank is Calculated ?

Coming to the main question, the procedure to calculate saving bank interest, we will first see how it was done earlier and then we will see how its done now.

Old Method

Earlier, Banks used to pay 3.5% interest on the minimum balance between 10th and last day of the month. This was not a very customer friendly method because if you kept Rs 5,00,000 in your saving account for the whole month and on 26th, & let’s say you take out 4,90,000. You would have got interest only on Rs 10,000 @3.5% , which is just Rs 28.

New Method

Now a new method is used to calculate the interest on saving bank account which is very fair.  From April 1, 2010 , as per the RBI circular on new guidelines on saving bank interest calculation; this is the rule for interest calculation.

“The interest has to be calculated on daily basis for the closing day balance” – It’s that simple. So let’s say the interest rate is 4% , then you will get interest @4% on daily basis for your closing balance and it will get accumulated , but it will be paid back to your account only after 3 or 6 months. While RBI wants all the banks to pay the interest every quarter, each bank has its own criteria , like ICICI Bank pays it twice a year right now in Sept and March.

So now, if you see the same example we discussed above, with the new method of interest calculation, the interest will be 4% on 5 lacs (Rs 1,369) for 25 days (from start of month to 25th) and on 10,000 for next 5 days (Rs 5) (26th – 30th) . So the interest would be total Rs 1,374 . In the old method it was just Rs 28 . Can you see the gigantic difference?

Saving Bank Interest Calculation

High Interest on Saving bank from some banks

You must have seen some banks are now offering 6-7% of interest rate and they have dual interest rates, like 5.5% below 1 lac and 6% above 6% (in case of Kotak Bank) , which means that you will be getting 5.5% on the amount below 1 lac and only on the difference amount above 1 lac, you will get 6% interest . So if you have a balance of Rs 1,50,000 in your bank (lets say kotak bank) , you will get 5.5% on 1,00,000 and 6% on 50,000 .

You should be more interested in interest below 1 lac

If you see the average amount kept in saving bank account , it should not cross 1 lac for most of the people . While there are people who park their money in saving bank account for some time, but it does not happening with most people. So if some bank is giving higher interest for amounts above 1 lac, that’s a secondary benefit for you, not the basis of selection of bank. Because if you are anyways ready to keep a balance of more than 1 lac, why not just create a short term deposit online,which can be broken anyways or just activate your sweep in account option, so that an amount above a target amount automatically gets converted to FD and earn more money.

Do you now understand how interest on saving bank account is calculated? Will it help you manage your bank money in a better way?

Planning for Unexpected Expenses – Why it makes sense !

Have you ever heard someone say something like – “I had planned to buy a car from last 2 yrs and I was saving for it regularly with discipline, but I think I will have to delay my decision because some thing urgent and unexpected cropped up in between! . It happens all the time.”

Here are some more examples of “unexpected expenses”

  • My Car Servicing had to be done urgently. I didn’t expect it to break this month
  • My brother asked me Rs 1,000 more this month, I had to send that extra money this time which I didn’t plan for.
  • My daughter had to see a doctor last week, and now suddenly this month budget’s gone for a toss!
  • I was planning to buy Manish’s Book next month, but those awesome reviews forced me to grab my copy from flipkart today itself, I never planned to buy it ! .

95% people don’t plan anything. They just go with the flow. And for the rest 5%, who do any kind of planning; even their planning fails at some point of time because of a very simple and over looked factor in financial life, which is “unexpected expenses” . If you write down all your monthly expenses on a paper, do the total, and keep exactly that much money in your pocket… You can be very sure that you will have a really tight month!  And that must be happening already !

Unexpected Expenses in Life

These “unpredictable” expenses are very predictable

It’s because when we make any assumption, our conscious mind can only think about the bigger picture and we never deal with smaller details and mostly never count the uncertainties of life . We never consider that you might have to shell out Rs 2,000 on something which suddenly comes up (it can be anything). Suddenly there can be some trip, some eating out, some medical expense, some expenses related to the kids school etc. By now you must have realized that these unpredictable expenses are very predictable 🙂

I mean, you can always expect the unexpected. See each month, without fail, some thing or the other always crops up out of nowhere, your planning never fits the target , you are always short of what you were thinking earlier! , Sound familiar? Life is so unpredictable, that it’s a great idea to factor that “unexpectedness” into your planning. When you do your monthly budgeting, have a “Unexpected Event” category too, and allocate some money for that anyways, because it will happen 🙂

But its anyways taken care , so why Plan for it ?

If these unexpected events happen a lot in your life, you will agree that the money you need to shell out is not the big issue, rather the real issue is the psychological nonacceptance and your irritation every-time it happens. You have not mentally prepared yourself for those expenses and every time they happen, its like a pinch on your face! You didn’t think about it and now it’s in your life, staring you in the face. To overcome this issue, you need to create that unexpected expenses buffer. Once you’ve done that, you are mentally ready to expect something unexpected and when you need to spend money for it, you know it will come from your “unexpected event” account.

If nothing happens, you can always use up that buffer for your other expenses, its like a  bonus for you. On the similar lines, Ramit Sethi of talks about the Stupid Mistakes Account, which is for the same concept of planning for unexpected expenses.

 (Direct Link for Video)

Keep buffer even in your investments

The same thing applies to your investments also . If you are planning for a goal which is going to come after 6 yrs, better plan for just 5 yrs and keep 1 yrs as buffer. If you are assuming a 12% return , better plan assuming 11% only , and keep 1% as buffer , if your SIP amount needed for a goal is Rs 5,000 , better invest Rs 6,000 instead of Rs 5,000 . This way , the chances of the final outcome fitting into your expectations is much higher!

What do you think about it?

IMPS – Online Money transfer in 30 seconds from your Mobile Phone

IMPS or Interbank Mobile Payment Service is a technology which offers an instant electronic fund transfer service through mobile phones between two banks in India. There are other two money transfer systems called NEFT and RTGS already in India, but they are not a mobile payment system like IMPS and they’ll  take some time to get settled. IMPS is a real time system of money payment.  The service has been developed by National Payments Corporation of India (NPCI), a section 25 company formed by Reserve Bank of India (RBI) and Indian Bankers Association (IBA). Here’s a testimonial from Harsh, who transferred money using IMPS…

Recently I issued a cheque from one of my account and did a NEFT transfer to build balance but NEFT failed to do the job in 48 hours, in the middle of night i started searching for how to do a instant transfer and then I got to know of IMPS. Registration happened instantly in matter of minutes and shockingly money transfer happened in micro seconds even faster than a google search – (via)

The transfer limit through IMPS is defined by RBI in the Mobile Payment Guidelines issued to banks. The customer can transact on IMPS subject to a daily cap of Rs. 50,000/- per customer overall for transactions through mobile for the funds transfer.

How to do Money Transfer using IMPS

All you need to make a transfer through IMPS system is your mobile number and MMID number . MMID number is a 7 digit random number which you get by registering for IMPS facility with your Bank. But make sure your mobile phone is activated before you register for MMID. Note that both sender and receiver should have their phone and MMID number from their respective banks. Once you have that you can transfer the money using sms or internet banking . A lot of banks also provide a mobile application which you can download from bank website and install on your phone. Note that before sending the money to the receiver, you should register them once as you do for any bank account.  The image below gives you good idea on what needs to be done for carrying out an IMPS transfer.

Steps to transfer money through Mobile using IMPS

What happens with your do a IMPS Transfer through Mobile ?

When you make a IMPS transfer, your sender mobile first sends this information to the sender bank , which checks the data; whether your MMID is correct or not and if it matches with what it has in its system. If it’s all correct, it debits the money from your bank account and transfers this to the NCPI server, which then transfers it back to the receiver’s bank. The receiver bank goes about checking everything again and then sends the status of the whole transaction to NCPI, which passes it back to Sender’s bank. Both Receiver and Sender are then updated about the transaction through SMS. All this normally takes just about  15-30 seconds for everything to happen and the money gets transferred near instantaneously. How does IMPS work

5 Advantages of IMPS over NEFT and RTGS

Let me enumerate 5 major reasons why you want to register with your bank for IMPS and generate your MMID as soon as possible. IMPS offers some major advantages over NEFT or RTGS money transfer and here they are

1. Instant Transfer of Money

When you do an IMPS transfer, it happens instantly within few seconds, so it’s practically real time money transfer, unlike NEFT or RTGS which works in batches and takes time in money transfer. Which means in case of emergencies, you can use IMPS and it will act like a fast money transfer mechanism

2. Transfer without Internet Connection You dont need a internet connection or a computer for IMPS transfer, you can just do the transfer using your mobile phone through SMS or using the mobile application, hence you can do the money transfer even when you are travelling, all you need a mobile connection 3. Money transfer even on Holidays and outside working Hours

You can transfer the money anytime, 24X 7. With NEFT or RTGS , you can’t do money transfer on holidays or even Sundays. You can’t do it outside the working hours defined by the banks. But with IMPS you can literally make transfers in early morning, midnight or whatever time you want.

4. No Need to disclose Bank account number and other details

All you need for making the transfer is mobile number and MMID , so you don’t need to disclose your actual account number or even the bank name.

5. Easy, Simple and Secure

Making a IMPS money transfer is so easy.  All you need is the MMID, Phone number and the amount. The money gets transferred easily so fast. It makes easy for those who fear technology and do not want to deal with it . You can teach this to your parents or some one who is not that technologically advanced.

IMPS Charges

The charges depends from banks to banks . While exact charges details you can find from your respective bank, it seems the charges are extremely low and are on per transaction basis, not on the limit of money. It seems to be Rs 5 per transaction (not confirmed) yet. Apart from the charges from banks for using the service, if you are doing the money transfer using SMS , you will have to pay standard sms charges . However if you use internet or the mobile application, there will be no charges apart from the service charges.

Money Transfer Limit under IMPS

The limit is defined by RBI in the Mobile Payment Guidelines issued to banks. The customer can transact on IMPS subject to a daily cap of Rs. 50,000/- per customer overall for transactions through mobile for the funds transfer. Transactions up to Rs. 1000/- can be facilitated by banks without end-to-end encryption.

Which Banks are part of IMPS Facility

As of now 52 banks are the members of IMPS facility. Some of them have started the IMPS service and some will start it very soon. Those are

  • ICICI Bank
  • Axis Bank
  • State Bank of India
  • Indian Bank
  • Kotak Mahindra Bank
  • Oriental Bank of Commerce
  • Union Bank of India
  • Andhra Bank
  • Canara Bank
  • HDFC Bank
  • Lakshmi Vilas Bank
  • Bank of Baroda
  • Indian Overseas Bank
  • Bank of India
  • Punjab National Bank
  • South Indian Bank
  • Vijaya Bank
  • IndusInd Bank
  • UCO Bank
  • Federal Bank
  • State Bank of Hyderabad
  • Citibank
  • State Bank of Bikaner and Jaipur
  • Punjab and Maharashtra Co-operative Bank
  • The Thane Janata Sahakari Bank
  • Development Credit Bank
  • Dombivli Nagari Sahakari Bank
  • State Bank of Travancore
  • Catholic Syrian Bank
  • Syndicate Bank
  • Yes Bank
  • State Bank of Patiala
  • Allahabad Bank
  • Karur Vysya Bank
  • The Greater Bombay Co-operative Bank LTD
  • Corporation Bank
  • IDBI Bank
  • Tamilnad Mercantile Bank
  • United Bank of India
  • Standard Chartered Bank
  • Bank of Maharashtra
  • Central Bank of India
  • Dena Bank
  • Dhanlaxmi Bank
  • ING Vysya Bank
  • Janata Sahakari Bank, Pune
  • Karnataka Bank
  • State Bank of Mysore
  • The A P Mahesh Urban Co-operative Urban Bank
  • HSBC Bank

you can look at the latest list of all the banks and their details here  What do you think about this technology ? Will it help in your financial life ? Are you going to use IMPS facility to money transfer through your mobile ?