Year: 2012

10 hidden EPF Rules which will blow your mind

Posted on by Jagoinvestor

We will discuss few EPF rules today. A small part of your salary (12% of your basic salary) is invested in something called EPF or Employee Provident Fund and an equal amount is matched by your employer each month.

This is what 95% of people know, but there are many things which a lot of people don’t know and this article is going to open some not known secrets about EPF rules. So let’s take them one by one in point’s format.

10 hidden EPF Rules

1: You can also nominate someone for your EPF

Do you know that there is also a “nomination” facility in EPF? The nominee will be contacted at the time of death of the person and handed over the money from the provided fund. However, if the nomination is not present (which you should check), it can rise to all sorts of issues while claiming the money.

There is a form called Form 2 which has to be filled to change or update the nomination. Please contact your company finance department or directly send the form to the EPFO department.

2: One can get pension under EPF

Do you know that there is something called EPS (Employee Pension Scheme) in the provident fund? The EPF part is actually for your provided fund and EPS is for your pension.

The 12% contribution made by you from your salary goes into your EPF fully, but the 12% contribution which your employer makes, out of that 8.33% actually goes in EPS (subject to a maximum of Rs 1250) and the rest goes into EPF. To understand it this way, a part of your employer contribution actually makes up your pension corpus.

But there are some caveats to this.

  • One is liable for pension only if one has completed the age of 58.
  • One is liable for pension only if he has completed 10 yrs of service (in case of more than one companies, the EPF should have been transferred, not withdrawn)
  • The minimum Pension per month is Rs 1,000
  • The maximum Pension per month is subject to a maximum of Rs 3,250 per month.
  • Lifelong pension is available to the member and upon his death members of the family are entitled to the pension.

EPF & EPS components

3: No interest is given on EPS (pension part)

You must be thinking that you regularly get compound interest each year on your contribution + employer contribution. But it does not work like that. The compound interest is provided only on the EPF part.

The EPS part (8.33% out of 12% contribution from your employer or Rs 1250 whatever is minimum) does not get any interest. At the time of PF withdrawal, you get both EPF and EPS.

4: You might not get 100% of your Provident Fund money

Imagine your contribution + employer contribution has been a total Rs 3,50,000 to date. Out of this 3,50,000 , suppose 2,50,000 has gone in EPF , and rest 1,00,000 has gone in EPS (for pension) . Now if you quit your job in the 6th year of employment and opt for withdrawal of your Provided Fund money (EPF + EPS actually), then do you think you will get a total of 3,50,000. NO!

That’s because you always get 100% of your EPF part, but for EPS there is a separate rule.

There is something called Table ‘D’, under which its mentioned how much you get at the time of exit from your job, there is a slab for each completed year and you get n times of your last drawn salary (depending on the completed year of service) subject to maximum to Rs 15,000 per month.

So if your salary, in this case, was Rs 30,000 per month, still you will be given only 15,000 * 6.40 = Rs 96,000.

Table D under EPS

Note that the table D is up to 9 yrs only, because if 10 yrs are crossed, then you are liable for a pension.

5: You can invest more in Provident Fund, its called VPF

You can always invest more than 12% of your basic salary in Employee Provident Fund which is called VPF (Voluntary Provident Fund). In this case, the excess amount will be invested in PF and you will keep on getting the interest, but the employer is not supposed to match your contribution. He will just invest up to a maximum of 12% of your basic, not more than that.

6: Withdrawing of EPF amount at job change is illegal

Almost everyone thinks that withdrawing of your Employee Provident Fund amount after a job switch is totally fine and allowed, however as per the EPF Rules, it’s illegal.

You can only withdraw your Employee provident fund money, only if you have no job at the time of withdrawing your money and if 2 months have passed. The only transfer is allowed in case you get a new job and you switch to it.

While there are no cases where EPF office tracks these things and takes up this matter, still just for your information you should know that if you got a new job and took it and then you are applying for withdrawal, it’s illegal as per law.

What in the case of EPS?

In the case of EPS, if the service period is less than 10 years, you have the option to either withdraw your corpus or get it transferred by obtaining a ‘Scheme Certificate’. Once, the service period crosses 10 years, the withdrawal option ceases.

Just for your information, you can withdraw your EPF money without the help of past employer signature by attesting your withdrawal form by a bank manager or some gazetted officer. I hope you are clear about EPF withdrawal rules.

7: One can opt-out of EPF if he wants

Yes!. I know this might be a surprising fact for many, but if one’s basic salary per month is more than Rs 15,000, he has an option to opt-out of PF and not be part of it. In which case he will get all his salary in hand (without anything deducted every month).

But the sad part is that one has to opt-out of Provident Fund at the start of his job. If a person has been part of EPF even once in his life, then he can’t opt-out of it. So if you have already had EPF in your life.

This option is not for you, but if you are new to the job and your PF account number still does not exist, you can tell your employer that you don’t want to be part of Employee provident fund. You will have to fill up form 11 for this.

8: Your EPF gives you some life insurance too

A lot of people might not know that in case a company is not providing group life insurance cover to its employees, in that case, the employee is given a small life cover through EPF. This is because there is something called Employees’ Deposit Linked Insurance (EDLI) scheme and your organization has to contribute 0.5% of your monthly basic pay, capped at Rs 15,000, as premium for your life cover.

However, companies that already have life insurance benefits to employees as part of the company, are exempted from this EDLI scheme. The bad part of this EDLI scheme is that the life cover under this option is very low and that’s the maximum amount of Rs. 60,000. While this is peanuts for most of the people in big cities.

For employees in small scale industries and small cities, this amount of Rs 60,000 will still count something.

9: You can use EPF money can be withdrawn at special occasions

So now you know that EPF withdrawal is not permitted if you are still working. But there are occasions when Employee provident fund withdrawal is allowed.

While you cannot withdraw it fully, you can withdraw a partial amount. Following is a list of events when you can withdraw the Provident Fund amount and the conditions you need to fulfill

1. Marriage or education of self, children or siblings

– You should have completed a minimum of seven years of service.
– The maximum amount you can draw is 50% of your contribution
– You can avail of it three times in your working life.
– You will have to submit the wedding invite or a certified copy of the fee payable.

2. Medical treatment for Self or family (spouse, children, dependent parents)

– For major surgical operations or for TB, leprosy, paralysis, cancer, mental or heart ailments
– The maximum amount you can draw is 6 times your salary
– You must show proof of hospitalization for one month or more with leave certificate for that period from your employer.

3. Repay a housing loan for a house in the name of self, spouse or owned jointly

– You should have completed at least 10 years of service.
– You are eligible to withdraw an amount that is up to 36 times your wages.

4. Alterations/repairs to an existing home for a house in the name of self, spouse or jointly

– You need a minimum service of five years (10 years for repairs) after the house was built/bought.
– You can draw up to 12 times the wages, only once.

5. Construction or purchase of a house or flat/site or plot for self or spouse or joint ownership

– You should have completed at least five years of service.
– The maximum amount you can avail of is 36 times your wages. To buy a site or plot, the amount is 24 times your salary.
– It can be avail of it just once during the entire service.

10: You can file an RTI application for EPF issues

Did you know that you can file an RTI applicable to get any kind of information regarding your EPF? You can file it if you are facing issues like no clarity about EPF balance, no action taken for your EPF withdrawal or transfer. To find out information about other issues on the Provident Fund. I have done a detailed post on how to file an RTI for your EPF issue.

Watch this video to know how to file RTI for EPF withdrawal or transfer issues:

UPDATES

  • In the recent budget 2015, the govt has made it clear that now an employee can choose between EPF and NPS. The employer will have to give this option.
  • Now the new system of UAN is in place for EPF, which has made a lot of things more simpler

Conclusion on EPF rules

The overall Employee provident fund rules are too complicated and very old. A common man does not know all these EPF rules, but knowing these minimum 10 EPF rules will help him in his financial life.

Is looking for perfection killing your financial life ?

Posted on by Jagoinvestor

Do you know that looking for perfection for everything in your financial life can be one big reason why your financial life is a mess! . If you dont think so, read the story below.

The Perfect Woman

Once upon a time, an intelligent, attractive, self-sufficient woman in her late twenties decided that she wanted to settle down and find a husband.  So she journeyed out into the world to search for the perfect man.

She met him in New York City at a bar in fancy hotel lobby.  He was handsome and well spoken.  In fact, she had a hard time keeping her eyes off of him.  He intrigued her.  It was the curves of his cheek bones, the confidence in his voice, and the comfort of his warm, steady hands.  But after only a short time, she broke things off.  “We just didn’t share the same religious views,” she said.  So she continued on her journey.

She met him again in Austin a few months later.  This time, he was an entrepreneur who owned a small, successful record label that assisted local musicians with booking gigs and promoting their music.  And she learned, during an unforgettable night, that not only did they share the same religious views, he could also make her laugh for hours on end.  “But I just wasn’t emotionally attracted to him,” she said.  So she continued on her journey.

She met him again in Miami at a beachside café.  He was a sports medicine doctor for the Miami Dolphins, but he easily could have been an underwear model for Calvin Klein.  For a little while, she was certain that he was the one.  And all of her friends loved him.  “He’s the perfect catch,” they told her.  “But we didn’t hang in the same social circle, and his high profile job consumed too much of his time,” she said.  So she cut things off and continued on her journey.

Finally, at a corporate business conference in San Diego, she met the perfect man.  He possessed every quality she had been searching for.  Intelligent, handsome, spiritual, similar social circles, and a strong emotional connection – perfect.  She was ready to spend the rest of her life with him.  “But unfortunately, he was looking for the perfect woman,” she said.

Just like the story above, we all are looking for the “best” and the “perfect” financial products, services and financial life, which does not exist in reality. As we don’t get perfection in most of the things we are looking for till the extent we want, we don’t take any action. We keep on searching that perfect financial product which has no defect and which is better than it’s competitors and gives us the maximum benefit.

Perfect Financial Life

Let me share with you couple of instances which happen in real life

Imagine a guy who wants to buy a term plan. He wants a term plan which is cheapest in the premium, he wants a term plan with best customer support, he finds few options. He was going to buy it but then suddenly he read that there is something called “claim settlement ratio” and the best of premium and customer support is of no use if this “claim settlement ratio” is not high. 3 months are gone.

He again gets on net and then concludes that the company with best settlement ratio’s have high premiums and only 2 companies are with good settlement ratio and low premiums, but he has seen 2 people complaining on jagoinvestor.com about the bad customer service. He decides to wait for some other company which fits in his criteria. 2 yrs passed by .. he never took any term plan.

Now imagine a guy who wants to go for a fixed deposit for 3 yrs. He is so excited with high interest rates that he decided to put some extra money then he planned for. But then came the issue, there are smaller banks which are offering 0.25% higher interest rate than his bank and he does not want to “loose” the free interest money. After all, all the banks are same. Then some one advises him that never go for pvt banks because they are all “chor”, but PSU banks especially the big one’s which his father approves are not giving that high interest rates. While all this as going on suddenly banks have now dropped the rates back and all his plans are dropped. His money kept lying in saving banks only.

Now again imagine this guy wanting to hire a financial planner, The planner he wants to hire comes on TV , writes few articles on few websites and also educates everyone. The financial planner charges Rs 20,000, but this guy “feels” that the fees is too high for him and that planner is not giving him sample plan also and the planner is not ready to give a free consultation too! . So there are few things which didnt match his expectation and he decided to give himself some more time. And this guy had 20 lacs in saving bank account which remained there for next 3 yrs because he didnt know where to invest it for best returns.

Is looking for perfection stopping your financial life to grow?

Now coming to the real point, what I want to say is that we all are looking for perfection in our financial lives, mutual funds, term plans, financial planners, bank deposits, relationships, education, marriage etc etc. This looking for perfection is somewhere not helping us grow. Its stopping us from taking decisions which can be much much better than not taking any decision because we didnt find that perfect thing.

90% Perfection Rule

I will say that the only solution to this problem is to look for only 90% perfection in whatever you do and let 10% go. Focus on the next step, that’s taking action because 10% of it will be things you will neither be able to find out, nor it will be totally constant. So as soon as you start getting a feel that you have understood 90% of something and 10% of things are remaining, focus your mindset on taking action, choose things based on that 90% knowledge itself. While this 90% is subjective, you can choose 95% of 85% , but make sure its not 100%, because then it does not serve you.

What do you think about this?

Minimum Balance in Credit Card – How does it work ?

Posted on by Jagoinvestor

A lot of people have no idea on how their credit card works and what is the exact interest applications. Credit cards are in the market mainly to make money from customers by charging them huge interest because they overuse their credit limit or just fall for the minimum balance option and get into a debt trap. Let’s first understand a few concepts like billing cycle and grace period to start with

How Billing Cycle in Credit Card works?

The billing cycle is the duration for which you are liable to pay the due amount. e.g. from the period 6th Mar- 5th Apr. It means that your bill gets generated on the 5th of every month. This bill includes all the transactions done in the last 30 days. If you buy something on 7th Mar, that transaction will appear on the bill generated on 5th Apr and if you buy something on 4th Apr, still it appears on the bill generated on 5th Apr.

What is the meaning of the Grace period?

A grace period is a number of days up to when you have the liberty to pay off your last bill. For example, if the grace period is of 25 days, in that case, you will enjoy no interest for the next 25 days from the recent billing date. In our example, as the billing happens on the 5th of every month. You can pay off the bill till the 30th of that month, but after that you start paying the interest if you don’t pay the bill in full.

A maximum number of days without interest?

So now based on this info, what is the maximum number of days for which you can enjoy interest-free credit?? The answer is the maximum 55 days! It’s because your billing cycle length is 30 days and grace period is 25 days, so if you purchase anything on the first day of your billing cycle, in this example say 6th Mar, then it will actually appear on your bill of 5th Apr (30 days are gone) and you still get 25 days to pay off this loan, so total 30+25 days = 55 days of interest free credit. However, if you buy anything near the end of your billing cycle, like 4th Apr, then that will appear on the 5th Apr and you can pay off that in the next 25 days, so in this case total 26 days of interest-free credit.

How Credit card billing cycle works

Now this means that if you have any large purchase or any big-ticket size purchase to be made, it’s always better to make sure you do it exactly at the start of the billing cycle to get maximum out of your credit card.

The myth of Minimum Balance

Do you know that you start paying interest on your balance outstanding even if you have Rs 1 in outstanding? Yes, if you don’t pay off your full balance by the end of the grace period, you will be charged with the interest from that point of time. Even if you pay off the minimum balance, still you pay the interest on the rest of the outstanding balance. A lot of people live in this myth that just because they have paid the minimum balance, they will not pay the interest and can pay off the rest of the balance next time without any interest. This is totally wrong!

Paying the minimum balance is just going to make sure that you are not charged any penalty for late fees. That’s the reason “minimum balance” is there. The worst part of this whole minimum balance thing is that once you have any outstanding balance in your credit card, the concept of the grace period is lost. You keep on paying the interest on your outstanding balance at the end of your billing cycle. The grace period concept will only return once the 100% dues are cleared.

Impact of Minimum balance in credit card

This is one big reason why the credit card outstanding balance ballons to such a big amount once a person starts paying the only minimum balance. Let’s understand this with a picture.

Minimum balance is to make sure you don’t pay full?

Minimum balance is a trick, pure trick to make sure you pay less and get into a debt trap. Credit card companies know very well, that if they do not give any option to pay the minimum balance, people will have no other option than to think “let’s pay off my bill in full”. But they know that if they put an option saying “minimum balance”, most of the people will then think – “Ok! this month let me pay this small amount and next month I will settle the full amount.” Sadly this is the first step for most people to get into the debt trap, and this cycle never ends. As this strategy is a lifeline of credit card companies, they make sure they take full advantage of this.

How Psychology Affects Your Payment Behavior

A recent research study concluded that when a person looks at the amount of “minimum payment”, it can influence how much of his balance he decides to pay off each month. The study looked at how people’s behavior changed when they saw a specific number as “minimum balance” and when they did not see anything as “minimum balance”.

A random sample of 481 Americans was taken and divided into 2 groups . One group saw a mock credit-card statement showing a balance of $1,937, and an annual interest rate of 14%, but they didn’t saw any “minimum payment” option. However one the other hand, the other group also saw that the minimum payment of 2% of the balance was mandatory.

What they found is that people who did not see any minimum payment number desired to pay a higher amount of their balance — significantly more than 2% . Whereas people who were shown the minimum payment number were inclined to pay closer to 2% (meaning they’d be in debt longer)

Example of Ajay paying Minimum Balance

Let us see an example to understand all the concepts and working of credit cards. Let’s take an example of Ajay
credit card payment example

Suppose Ajay pays a minimum balance of Rs 300 and carries forward the outstanding balance for next month and also spends Rs 5,000 more in the next billing cycle.

In this case, as Ajay makes the minimum balance of Rs 300, then his outstanding balance would be Rs 9,700 as on due date (30th Apr). Now his total interest will be charged on this Rs 9,700 and that would be 3% of Rs 9,700 = Rs 291, which will be added to his outstanding amount and his final outstanding amount would be Rs 9,991 (just Rs 9 less than his original outstanding amount). Now as he carried forward an outstanding amount on his credit card, there is no concept of grace period. Now in this billing cycle as he has spent another Rs 5,000. That will be added to his old outstanding and the total would now be Rs 9,991 + 5,000 = Rs 14,991

Now this time, suppose his minimum balance is Rs 400 (just for example), and he pays it, then his outstanding balance will come down by Rs 400 and his final outstanding balance would be Rs 14,991 – 400 = 14,591. Now as there will be no grace period, he will be charged the interest of 3% on his outstanding balance of Rs 14,591, that’s 3% of 14,591 = 437.73 and will be added back to his outstanding, 14571 + 437.73 = 15,008 (approx)

Example of how Credit cards works

You can see that even after making the minimum balance he is actually having more than his previous outstanding amount because of interest paid. In case he does not pay the minimum balance also, in that case, he will also be charged a heavy penalty for late payment and that will be added back to his credit card debt. You can see how the minimum balance gets one into a debt trap.

Making Minimum payment affects your Credit Score

Do I need to give any other reason why one should stay away from minimum balance whenever possible? Making a minimum payment means not making full payment on time and the more number of times you do it, the worse your credit score gets each time. Read more on Improving your credit score here

Conclusion

Now you know all the terminologies in credit cards and how it works exactly. You also came to know about how minimum payments work and how it gets you into a debt trap. Try to make sure you become more responsible for your credit card payments. What do you think about it ? Give your views about this

Mutual Funds Performance vs Benchmark Performance

Posted on by Jagoinvestor

How would you judge whether you have scored good marks in an exam? How do you define “good”? If you had a very very easy test and most of the questions were easy, would you call 80/100 a great score? NO. In the same way, if the exam was very very tough and made everyone cry, but you scored 75/100. Would you call it a great score then? Yes! So the point I want to make is there’s always a benchmark in any area to decide if the performance was good or bad. If you have done better than the benchmark, you did well, else you did bad.  This is exactly how mutual funds are to be judged. You can’t just say a mutual fund has performed bad or good based on the returns it has given in a time frame.

What is a Benchmark?

Each and every mutual fund has a mandate and rule defined on where will it invest and in what proportion. Like if a mutual fund says that it will invest in all the large-cap companies in India, then its benchmark would be mostly NIFTY because NIFTY is the indicator of the large-cap companies. And the whole point of investing in a large-cap mutual fund is that it should give you better returns then NIFTY because you can always invest in NIFTY and get the returns without any fees or risk. So only if a large-cap equity mutual fund beats NIFTY, you can say that it performed Good. Because if it does not then it has performed badly even after you paid him the fees, what’s the point of paying the fees and getting returns lesser than the Index which gives you some returns anyways.

In the same way a Small Cap Mutual Fund would have CNX MID CAP. One can just buy that Index and get returns from it based on the movement of the stocks in that benchmark. A mutual funds tries to take a call on what stocks to select and when to get rid of them to generate superior results and only if it can beat its benchmark, we can say that the mutual fund performed better than it’s benchmark.

Bad Market Performance in the last few years

So in any mutual fund, there is a benchmark and you can say that the mutual fund performed good or bad in a time frame only if the returns from a mutual fund are better than its benchmark for that particular period. Now based on this very simple rule, let’s see some cases. In the last few years, stock markets have performed badly. This bad performance from markets will obviously affect mutual funds performance too. So if a mutual fund has not given double-digit returns, can we conclude that mutual funds are bad investments? No.

Sandeep asked a question related to this 

I was told that HDFC Top 200 is an excellent fund . But I invested around 50,000 in that fund last year and now my fund value is near 46,000 . Is this fund really good ?

This kind of questions come to all the investor’s mind, this happens when you dont know how exactly you should judge a mutual fund’s performance. The only way here to say is HDFC Top 200 did good or bad in the last 1 yrs is to see if its return is more than its benchmark or less than its benchmark and to what extent?

HDFC Top 200 example 

If you look at HDFC Top 200 returns in the last 1 yrs from today (27th Apr 2012), its return has been -9.8 %. Now anyone hearing that kind of return will scream – “Oh .. that’s really bad”. But when you look at its benchmark (which is BSE 200), you can see that its benchmark has given around -12.06% So you can clearly see that HDFC Top 200 has outperformed its benchmark by 2.26% which means that it has done a better job.

Note that mutual funds have stocks as the underlying assets in which they invest, so mutual funds performance will depend totally on stock markets performance and in last 5 yrs, its not mutual funds which have performed badly, its actually stock markets, Mutual funds just mimick the portfolio’s in some manner and the real parameter of how good or bad they have done is to see how they have performed compared to the risk-free benchmark they are following.

Now coming back to the same example of HDFC Top 200 , it has given around 22.6% returns CAGR in last 3 yrs , but its benchmark (BSE 200) return was just 16.2% , hence you can say that HDFC Top 200 has done a good job and outperformed its benchmark by 6.2% on yearly basis, that’s really a good number.

Escorts Tax Plan Example 

Now lets look at 5 yrs performance of a tax-saving fund called Escorts Tax Plan, The fund has to give -15% return on absolute level in last 5 yrs (1 lac became 85,000) and an agent can say – “Sir – markets were doing badly in the same time, that’s the reason the fund has given bad return’s, in future it would do great” . In this case, all you need to ask is – “Fine, I can understand that market performance affects fund performance but has it performed better than the risk-free benchmark it was following? “

If you look at its benchmark “Nifty”, it has given a 24% positive return in the same period. This means that the fund has performed worse than the index which is totally free, while the fund has not performed even after bring run by professional fund managers. Then what’s the use of that fund.

So now you have a simple rule to judge a mutual fund performance

  • If Fund Performance > Benchmark  – The fund performance was good
  • If Fund Performance < Benchmark  – The fund performance was bad

Note that the duration should be good enough like more than 1 yr at least to say anything and the gap between the fund performance and benchmark performance should also be considered. You can say that a fund was bad just because its returns were 8% and the benchmark was 7.8%. that is very much close and does not conclude much.

Now a fairly good way of choosing a mutual fund is just based on how it has performed in the last many years compared to its benchmark. So I am putting up some top funds which have done very good compared to its benchmark

Some Top Mutual Funds vs Benchmark Returns

The following are some of the very good potential mutual funds for 2012 and they are really doing good overall. Let’s see their returns overall for 5 yr and 3 yr timeframe along with their benchmark returns. You can see some funds outperformed their benchmarks with huge margins. For example, Quantum Long term equity fund has return 28.38% in 3 yrs compared to just 14.78% from its benchmark which is Sensex. Thats 100% more, really brilliant.

Mutual Funds performance vs Benchmark performance

So overall the learning is that if you want to find out some good performing mutual funds, you should be looking if a mutual fund has outperformed its benchmark over several years with a good enough margin or not. If it has consistently done that, you can be clear that fund management is going well.

How often do you look into the benchmark? What else do you think should be looked at while judging mutual funds?

How Husband & Wife can create Magical Financial Life [Video]

Posted on by Jagoinvestor

What happens when husband and wife take equal interest in their financial life? – It helps in creating an ‘awesome’ financial life. Yes! When both create partnership and put efforts, it helps in creating magical results in their financial life. In the world of personal finance, husband and wife is considered as one entity. They both go out, earn money, help each other in elevating their financial life. We would love to share about two of our client’s rather friends who worked together in designing an awesome financial life.

“Nothing great was ever achieved without enthusiasm.” – Ralph Waldo Emerson

Financial Success of Jassi and Priya

We always tell our clients to live their financial life in a way such that it inspires others. Personal finance is not at all personal if you are confident to share your financial life with the world. It can have results, it will have mistakes but the point is you are proud of the way you live your financial life. This video is of Jassi’s and Priya’s success, we simply played role of a catalyst.

We really want each and every Jagoinvestor reader to create such videos so that we can inspire everyone to live a good financial life. The lesson is if they can do it you can do it too. They really took the Financial Coaching with an open mind and heart, they got on calls on time and are very good receivers. It is their victory that we would like to celebrate it with the world. We asked them to record how they felt after working with us and share it with others, have a look at the video below (youtube link)

Find more about Jagoinvestor Services

Did you listen to their sharing? Did you notice their high enthusiasm and excitement level that they carry with them for their financial life? Did you see how they are on the same page, Did you see how they have created partnership as a couple. Don’t see this video as how great our service is, but really listen to the enthusiasm this couple has shown in their sharing what they created in their financial life. Jassi shared with me once that this video was created in one take and when you see you can experience that it is straight from their heart.

This sharing is really straight from the heart and it is something we would love to share with as many people we can. They are an example that if both husband and wife get together financial success is bound to happen.

May be it’s NOT your cup of tea

May be you think personal finance is not your cup of tea and you do not like to take interest in financial matters. It is not possible that you understand each and everything about finances but at least you can always support your partner when he/she is trying to improve the overall financial life. I like action movies and my wife likes watching romantic movies. I would join her for romantic movies even though I don’t like watching them. It is really not about movies it is about taking interest in those matters which are of interest to your partner. I love reading and my wife hates reading books. From past 1 month she has started reading books, in fact she completed one book which she started and she said she is enjoying reading.

We really have the power to generate interests in our partner if we want to. We can slowly enroll them into financial matters or any matter that we think are important for building a strong future. No need to force or put any compulsion, the more you demonstrate and enjoy something the more they will be keen to join. Take the risk of sharing with your spouse to take interest in financial matters the maximum they will say is NO to you but at least give an honest try to it, give a loving invitation to join you in creating a strong financial future.

Respect your co-pilot

One of the experiences I had was when a woman (one of our client) who got in touch with us for basic financial planning. Initially she gave only her data to us as her husband was not taking any interest in financial matters; he even refused to provide his details. When we delivered the plan to her she showed the same to her husband and he slowly started showing interest in financial matters. I could see how committed the lady was for their financial future. They decided to pay us once again to get a new plan which had combined data of both of them. I could see that this was a golden opportunity for this couple; this moment can be a moment of change for them. I agreed to re-do their collective finances but instead of financial planning I enrolled them in to doing financial coaching.

They agreed and we started the process. On every call wife was a stand for her husband and with each call husband started taking interest in financial matters. He started sharing what needs to be done to take their financial life to the next level, where they need to bring improvements, he started doing the home work that I would give, and every coaching conversation was received by him with an open heart and mind. They really started enjoying the process of wealth creation. They could see that if they play together in their financial life they can achieve anything that they want. Husband and wife are one entity, they hold common vision. I could share with the husband how lucky he is to get such committed wife in his life and to really see her as co-pilot in driving their financial life.

Conclusion

This magic is waiting for you and it can happen in your financial life too.  Forward this article to your spouse if you want their 100% participation in your financial life.  If your spouse is taking equal interest than its time for acknowledgement and to celebrate your partnership. If you need external help go to some planner or a financial coach, schedule a meeting and really take your financial life to the next level. Lastly if you are single you can create similar partnership with your siblings or someone you really trust.

This week action

  • Sit with your spouse and create your financial future
  • Acknowledge your spouse for being with you in your financial ups and downs
  • Take one action together in your financial life and share with us the outcome

How Hindu Succession Law applies if written WILL is missing ?

Posted on by Jagoinvestor

Do you know that Hindu Succession Law applies for the division of wealth in case a person dies without a written WILL? I know you might have never thought about it because you are not aware of how ugly it gets when the will is missing. Money is so powerful that relations don’t take time to break. Family members can really fight over the issue of who gets how much out of the wealth and a lot of times unexpected things happen. Even people you never thought can suddenly appear claiming their share in the wealth.

A properly written will (and registered one) is the best way to make sure the wealth is passed on to different people as desired. But in reality people don’t write will and keep thinking “one day, I will surely write a will when ..”.

So now coming back to the point, if a will is written, then there is no confusion and the wealth is divided as per the WILL. However, if a WILL is missing, then the wealth is divided as per the Hindu Succession Act 1956 laws for Hindu’s, Jain’s and Sikh’s. We have a separate law for Muslims and Christians, but for this article’s sake, let’s just talk about Hindu succession Law applicable for the Hindu population.  Also, note that in this article mainly we are talking about the succession laws related to what happened after death of a MALE (not female).

HIndu Succession Act 1956

Concept of Legal Heirs under Hindu Succession Law

Legal heirs are well defined in the Hindu Succession Law. All the relations are categorized into two classes called class I and class II. The first right on wealth is of Class I heirs. Only if there is no one available in Class I, then relations under Class II can claim their rights. If Class I & Class II both are missing, then there is something called Agnates and Cognates, but we will talk about it in some time. For now, let’s understand Class I & Class II heirs under Hindu Succession Law

Class I relations 

  • Son/Daughter
  • Widow
  • Mother
  • Son/Daughter of a pre-deceased son (pre-deceased means “already Dead”)
  • Son/Daughter of a pre-deceased Daughter
  • Widow of a pre-deceased son
  • Son/Daughter of a pre-deceased son of a pre-deceased son (3 levels)
  • Widow of a pre-deceased son of a predeceased son

Class II relations 

  • Father
  • Brother/Sister
  • Son’s daughter’s son/daughter,
  • Daughter’s son’s son/daughter
  • Daughter’s daughter’s son/daughter
  • Sibling son/daughter
  • Father’s Parents
  • Brother’s widow
  • Father’s sibling
  • Mother’s parents
  • Mother’s sibling

If Class I & Class II is missing?

In the absence of heirs of Class I and Class II, the property is passed to the agnates and cognates of the deceased in succession. Now, one person is said to be the agnate, if he/she is related by blood or adoption wholly through the male’s chain line. Similarly, one person is said to be the cognate of the other if the two of them are related by blood or adoption, but not totally through males, i.e. there has to be some intervention by a female ancestor somewhere. The first preference is given to Agnates and only if there is no Agnate, then the Cognates comes into the picture. To understand Agnate/Congate in plain Hindi, It means “Bahut Door ke Ristedaar”, Agnates are “Door ke Rishtedar” from the chain of Male line and Cognates are “door ke relatives” , but does not compulsory from the chain of males in the family. But leave this point as of now, I think from an understanding point of view just Class I and Class II is enough for someone.

Note that if there are more than one Widow’s, then they get one share only and then divide it between themselves and a person’s immediate family will also be considered as one unit only.

Some Important Rules and Points

  • A child in the womb is treated as a separate child as if he/she was out in the world, He/she gets a separate share in the property.
  • No succession rights if the widow has remarried on the date of succession.
  • If a person has killed the person from whom he was supposed to acquire the wealth and has been declared as a murderer by law, then he loses his right to acquiring assets.
  • If there is no heir qualified to succeed to his or her property in accordance with the provisions of this Act, such property shall go to the Government.

For Muslims, the succession laws are defined under The Shariat Act. Under that 50% of the property goes to the Widow irrespective of the number of other legal heirs (remember in case of Hindu Succession Law its equal share between Widow and children) and rest is shared in equal parts between children

Some Examples

Now based on the learnings we had till now, let’s see 6 examples (not real) and how the wealth will be divided into each of those cases. I have tried to take different scenario’s.

Example 1

Lets say Ajay is dead without a will and he has 5 people in his family

  • Wife
  • Two son
  • One daughter
  • Father

In that case his wife, 2 son and 1 daughter will come under Class I , but his father will come under Class II , in that case all the 4 people under class I will get equal share in his wealth. So Wife will get 25% of the wealth, First son will get 25% , second son will get 25% and daughter will also get 25% of the wealth (married or unmarried) .

Example 2

Lets say Robert was 60 yrs old. He dies in an accident and has no WILL . Suppose he has following people in his family

  • Wife
  • Widow of his dead son
  • 2 Children of his Dead son

This is an interesting case , in this there are mainly 2 units . The first one is his Wife who will get 50% of his wealth and the next unit is the Widow and 2 son of his dead son who will equally get 50% of the wealth and legally, they all need to share it in equal amount . Note that this happens considering as if the son was alive, in which case he would have got 50% share and then his family chain would claim it from him. So understand that each family here would be 1 unit and all the members of that unit will again share it back between them with same principles.

Example 3 

Suppose Ajay is dead without a WILL , but his family consists of

  • A pregnant Wife
  • Mother
  • Brother

In this case , there are 3 entities in the Class I , those are Wife , Mother and the Child in the Womb, here 1/3rd wealth goes to Wife , 1/3rd goes to the unborn child and 1/3rd goes to Mother. Note that a child in the womb has same right as a born child.

Example 4 

Suppose Robert dies without a WILL and leaves behind

  • Father
  • Brother
  • 2 children of his sister (sister is dead)

In this case, you can see that Class I has no member, all the members are from class II , in which case Father will get 1/3rd wealth, Brother will get 1/3rd part and his sister’s children will get 1/3rd and will divide it between them in equal parts.

Example 5 

Ajay dies without a WILL , his family consists

  • Mother
  • Brother
  • 2 Sister’s
  • Widow of one of his dead Brother

Here you can see that only one person belong’s to class I (mother) and every one else is in Class II , hence 100% of the property goes to Mother (remember that Class II gets anything only if there is no one in class I)

Example 6

Ajay is the head of the family and lives in a ancestral house in Pune and has his personal savings in Bank FD and one flat in Mumbai which he had bought from his own funds. Now Ajay dies, but he was smart and he has written a WILL and written that everything goes to his Wife and no one else gets anything. Suppose his family has

  • Wife
  • Mother
  • Brother
  • Sister

Now what happens in this case ? In this case, his Bank FD and his flat in Mumbai will 100% go to his Wife and no one else, However his ancestral house in Pune will be divided equally between all the 4 members. This is because there was a flaw in the WILL . An ancestral property can not be passed on through a WILL . Ajay had made a mistake thinking that he can assign the flat in Pune to anyone he wants . A person can only pass on his wealth through WILL if he has earned it (think bournville) , if you have acquired it from your older generation, then it will be claimed by all the legal heirs, and in this case it will be passed on to all the legal heirs of the family , so 25% to each member as they are all into Class I for Ajay’s father

Hindu Succession Law in case of a Female death

Till now we saw all the rules which are applicable if a person in question was a dead male, but in the case of a female some points are a little different.  The property of a female Hindu dying without WILL shall be distributed according to the rules set out as follows –

1. Firstly, upon the sons and daughters (including the children of any pre-deceased son or daughter) and the husband;
2. Secondly, upon the heirs of the husband ;
3. Thirdly, upon the mother and father;
4. Fourthly, upon the heirs of the father; and
5. Lastly, upon the heirs of the mother.

Important Points in case of Women Property

  • If the women have acquired any property from his Father or Mother, in that case, the first right will be of the heirs of her father and not husband, in case of absence of his sons or daughters
  • If the women have acquired any property from her husband, in that case, the first right will be of the heirs of her husband, in case of absence of his sons or daughters

An Example

Suppose Supriya is a widow without any children dies without a WILL. She has acquired 1 flat in Mumbai from her Father’s, and has acquired one Flat in Pune from her Husband through a WILL, now suppose Supriya has 3 people in family.

  • Father in law
  • Mother in law
  • Brother in law

Now understand this case properly , As the person in question here is a Women, there will be distribution of her property like this-

The flat in Pune was acquired by her from her Father and as she also has no children, that flat in Pune will go to her Father’s legal heir. if Supriya had a Sister Poonam, in that case Poonam would be the legal heir of her Father and she would get 100% of the flat in Mumbai. Supriya’s Family would not be able to claim it legally.

However the Flat in Pune was acquired by Supriya from her husband and in this case , her husband’s legal heir would be claiming it, which means Supriya’s mother in law would get the absolute right on the Pune Flat because only she comes under Class I (Father and Brother come under Class II for a Male) .

Conclusion

In case a will is missing and the legal heirs get into a fight over the wealth, things can get ugly and the wealth might to someone which you might not have wanted or imagined. Hence writing a WILL should be on a high priority list. This article just gives very basic rules under Hindu Succession Law, in reality, things can get more complicated and it’s always advisable to hire a good lawyer in these cases. This article is just for information and awareness purposes. Dont take it as the complete guide.

Please share your case or define an imaginary case and let’s see how the wealth would be divided in that case as per Hindu Succession Law.

Joints Account , Nomination or Will – Which one to use ?

Posted on by Jagoinvestor

There are 3 ways one can pass on his wealth to someone – joint accounts, nomination and Will. A lot of people do not know which one is more powerful than the other and when to use which one. Today let’s discuss a few points about joint accounts, nominations and will and some scenarios which will make them clear.

3 mistakes which investors make

1. Not understanding what a joint account means

If you want to make sure that after your death, your wife operates the account without any problem, then don’t just make her the nominee, better make her a joint account holder in the bank account itself.

If you choose “either or survivor” mode, she will be able to transact and do things along with you. But remember that when you make her a joint owner, she is the owner of 50% part only. If something happens to you, she will not automatically get your 50% share. It will be divided as per your WILL or will be divided as per succession laws.

2. Forgetting about old joint holders

A lot of people have joint accounts with their father, mother, brother etc years back, but now they want to pass on their wealth to their children/wife on their death, so they put their names in the nominee and also write a WILL (for full proof documentation), but once they die, the nomination and WILL be of no use, because there is still a joint account holder and their share cant be touched. So better change the joint account holder if you wish to pass on that part to someone else in the family.

3. Not changing Old nominations and WILL

A lot of people do not change the nominations of their bank accounts, mutual funds, or life insurance policies due to laziness, someone else is on the nominee list, but they want to transfer the asset to someone else. A lot of people think that making a WILL is the final solution, but in real life, there can be complications. What if the nominee and the person mentioned in a WILL are different? The nominee can take out cash from the bank or do some transactions. Then the legal owner will have to run from pillar to post to claim that money back and do all the legal work. See this classic issue of forgetting about the WILL

Hi , I am facing a big issue .. My husband had written a WILL long back stating that all the wealth should go to his brother after his death, but this happened years back, when we were having a lot of issues in marriage and fights, but after that everything was fine and things were on track. But seems like my husband never wrote another WILL after that and didnt change the WILL.  He died recently in an accident and now his brother has claimed all our property and bank balance because of that WILL . What can I do ?

Truly speaking, This lady can’t do anything … her husband was ignorant about these things and now she will pay for his mistakes!

Some best practices

  • If you are 100% sure that your wealth should go to some specific person, always have a joint account with that person with you as the primary person and also write a WILL for your share, so that it also can be passed to them seamlessly later.
  • Make sure your nominee should be the same person you want to pass on some policy proceeds or property, It does not make sense to say in WILL that your wealth should go to A, but in nominee the name mentioned is B.
  • If you have opened any accounts/properties/mutual funds/policies long back, it’s a good idea to revisit it and see that the nominee name is appearing and is consistent with what you want it to be.

Joint Accounts, Nominations and Wills are all ways to pass on your wealth to someone else once you die, so it is very important that you structure these in the best possible manner. Have consistency in all these 3 things. If you pass on your money to a person better open an account or buy the asset along as a joint owner, make sure you put his name as the nominee and also make sure that the WILL is written with clear directions.

How Axis Bank fooled a Home Loan Customer – Real life Case

Posted on by Jagoinvestor

This post is to bring to you notice how banks can get you in trouble while signing the home loan documents and use your casualness and trust to force-sell you some junk product. Recently one of our readers Nitin Mittal took a home loan from Axis Bank after a lot of research and study, but Axis Bank officials sold him a home loan insurance without his notice and issues him loan of extra 4.25 lacs along with Max New York life Insurance company. Read his story in his own words

I applied for a home loan to Axis Bank, Ghaziabad Branch considering good interest rates and transparency. The property was Amrapali Heart Beat City-I, Sector-107, Noida and I was sanctioned a loan of Rs 45 lacs. In this duration 100s of papers were signed by me telling me that these are all formalities and are needed.

However when the first disbursement was made then I came to know that the total sanctioned amount is Rs. 49.25 lacs. When I enquired I was told that the balance 4.25 lacs is the amount of insurance policy that the bank has paid to the Max New York company for a full cover of 49 lacs for me and my wife for a full tenure of 25 years in single shot.
This was never told to me clearly and I cannot bear such a loss. The purpose of bank was to earn unlawful commission from insurance agency at our cost. Also the cost of insurance is much higher than the prevailing market rates. I and my family feels cheated by this unscrupulous activity and seek you help to save our hard earned money.
As nobody in the bank replies properly and only assures that the insurance will be returned if loan is prepaid . this is only a way of fooling customers. The bank has not only disbursed 4.25 wrongly but also charging interest on the same.

It is, therefore, requested kindly do something in this matter so that my loan amount is reduced back to 45 lakhs. Also please the interest charged on this insurance amount should also be waived off.

Home Loan Customer and Mistake of Axis Bank

The fact that the customer came to know about the home loan insurance after the loan was sanctioned clearly shows that Axis Bank operations was not transparent at all and the customer was taken for granted. How can you sell him a home loan insurance without even telling him? This has to be communicated well? Was there a person one to one communication done with the customer if he can afford it or not ? A normal term plan with 50 lacs cover with 25 years tenure will cost less than 1 lac , but a policy worth 4.25 lacs was issues and no one even cared to understand it from customer point of view. This clearly shows the in-sensitiveness of the bank officials involved in the whole process.

What do you suggest in this case? What can this customer do and what do you think about Axis bank ? Will you ever consider Axis bank for Home loan after hearing about this case ?

Not disclosing your old Insurance policy can lead to Claim Rejection

Posted on by Jagoinvestor

Everyone makes mistakes and are not aware about it ! . A lot of people who buy more than one insurance policies, do not declare about their existing policies to the new company. Some do this because they are not aware about this “compulsory” rule, but some do it intentionally! & there are some who do not pay much attention to it thinking that they will be able to “escape” it and fool the company. However, you should know that companies are very careful about the rules and regulations as mentioned in the policy and declaring your old Insurance policies is a mandatory and important rule. No matter how much your policy sum assured is for, even if its 1 lac, you have to declare it when you take a new life insurance policy (This means term plan, ULIPs with insurance cover, Traditional Policies) . For an example see how Debajyoti was confused on this non-declaration of old policies question and I told him how it was a very important thing to do.

Declare old Life insurance policies while taking a new policy

Today, I am going to discuss a recent case I saw in Crime Petrol (a tv show showing real life cases, must watch) and it is an eye-opener for those how have not declared their existing insurance policies while taking a new life insurance policy. Because in this real life case, a guy family was rejected 1.25 crores of life insurance claim just because the guy did a small mistake, he never disclosed his old policies. Read on –

Real Life Story of Sandip from Gujarat

Sandip was in a lot of debt. His business was not doing well and he was very much worried about his family and what will happen to them. The only solution he could think of is Life Insurance money which they would get after his death, but his life insurance was very very small (few lacs). So he took around 1.25 crores worth of life insurance, thinking that after his death, their family would get all the money.

But there was an issue, a big-big issue. He could not commit suicide, as it was not covered for the first year and his life was becoming really hell and he didn’t want to live anymore. So the only solution was that he should be killed in an accident or some one murders him. He asked his friend to kill him in a way that no one comes to know about it and it looks like murder. This way, he would die and his family will get the life insurance money and his family would live happily.

His friend was scared to death to kill him and really was not able to do it as he was a good friend of Sandip, but finally he killed him on his request. Police came, verification was done and finally Police was able to crack the case and catch his friend. The family figured out about the insurance policy when Sandip’s wife saw the documents in an almirah . The family went to insurance company and asked for claim amount, but the insurance company pointed out the violation of terms and conditions and said that the claim will NOT be paid as there was violation of rules. Family freaked out and gave all sorts of reasons why they should get a claim , but rules and rules. The family filed a case against the insurance company in court, but that was of no use as the court also gave judgement in favour of insurance company.

The family never got any money. Here is the youtube episode of the Crime Petrol Story I was talking about for those who want to watch it

Have you declared your old policies to new insurance company?

You have probably done the same mistake. If you were holding any endowment/moneyback policy, ULIP, Term Plan or any kind of Life Insurance and then you took a new policy and didn’t declare all the old policies, then after your death, your family is not going to get any money! Please take it seriously.

So your action item is to check with your insurance company customer care about the declaration of old policies and incase you have not given that information at the time of taking the policy, better give them this information, because I don’t think you should be doing that big charity!

Want a Loan ? Pay your phone/electricity bills on time !

Posted on by Jagoinvestor

Is there a way to determine whether or not it is risky to lend ‘You’ money? How do I know that you wont be a bad customer one day? Very simple – Just look at your credit history and see if you paid your dues on time or not; How many times you were late in making your credit card payment, home loan payment, personal loan dues. This is how CIBIL took birth in India.

But wait – Is this enough? No, we have several other kinds of dues and we make various  payments – those are mobile bill payments (post paid- around 5 crore of them), internet monthly fees (post paid), electricity and other utility bills, even your health insurance premiums. So now very soon you will hear that your mobile bills, electricity bills, internet bills etc are being tracked (actually they are already being tracked) and they will contribute in making of your credit history.

As of now CIBIL, Equifax and Experian (all 3 are credit Beauru) use only your Loan repayments as the criteria for your credit report and credit score, but the Credit Information Companies (Regulation) Act 2005 allows insurance, cellular as well as phone services companies to be counted amongst specified users of credit information companies, therefore, making them eligible to use the database. So very soon all such payments will start contributing to your credit score.

Past records will also affect your credit report

All the major telecom service providers in the country — BSNL, Vodafone and Airtel — are now in discussions with CIBIL for sharing their customer database. So, have you ever declined paying your phone bill? Have you delayed your electricity bill for many months/years or have been late all the time? Do you have this attitude of paying the mobile/internet bills only after getting 2-3 reminders? If the answer is YES, then you better know that all those past sins are staring at you and soon will haunt you.

Be ready to see your home loan or car loan application being rejected because you never paid that vodafone bill for Rs 1,500 and ran off or changed your address? Dude!, your name, photo, past address, DOB is all with them- it will unfold now and if you doubt that- see what CIBIL has to say about it.

“Our systems are capable of handling past payment records as well. If the telecom companies are able to give us the past payment records, we will upload them in the system,” says Arun Thukral – MD, Credit Information Bureau

It’s not clear how much weightage will be put on these kinds of utility bills and insurance premium payments because these are small ticket size in nature and should not be seen in lines with home loan EMI’s and credit card debt which can grow to a big amount. But what do you think about this move and do you think its right?