Year: 2012

Which Model of Financial Advice do you like ?

Posted on by Jagoinvestor

There are many different ways financial advisory runs in India (and worldwide). You must have encountered one of them for sure at some point of time. I have been able to pick 5 financial advisory models and wanted to highlight them and want you to tell me which advisory model you like and which one you hate? & why?

1. Financial adviser earning commissions out of products sold to you

This is the most common advisory model. Also, due to the widespread know how of this model, majority of Indian’s are stuck with bad and unwanted products. In this model the advisor/agent/planner comes to you, pitches the product, makes it look amazing through graphs/projections/emotional-blackmailing and then you buy it. In this model, the commissions are the main source of compensation for the seller. There is no fees paid by you directly to him and you feel like a KING.

2. Financial Advisor with fixed yearly charges

This model is not much widespread, but some people do it. In this model, the advisor/planner (whatever you call), will be available for you throughout the year, whether you need him/her or not. Its kind of yearly contract where he advises you on anything you ask him on your financial life. If in some year you ask more, that’s fine, you pay same fixed cost and in some years if you don’t “consume” his services much, still you pay him the same money. With this model, you are clear about the fixed cost you will incur on your financial advisor and even advisor knows that his cash flows are fixed. This model as per me is one of the best, but sadly this does not work much in Indian environment.

3. Financial Advisor on demand (pay when you want advice)

This model is very much like the above one, but in this you pay your advisor “on the go”. So whenever you take his advice or use his time for asking anything, you pay only for that much time, nothing less and nothing more. Again this model is not that much widespread, but some courageous advisors take this route. This model from one angle is really “american” style, where each thing is paid on “hourly” basis. So if you take 20 hours of your advisor in some year, pay for 20 hours. And if in some year you take only 5 hours, just pay for 5 hours. For advisor it makes his life easy as he spends his time only for what he is paid for and is really committed to produce the value for that time. Indian’s laugh on this model as of now.

4. Financial Advisor on One time payment basis

A lot of advisors work on one time basis, you approach an advisor, you take the service/advice and he works with you till you get what you need and then tata-bye-bye-see you. Financial advisors really try to make sure that there are yearly relationships, but most of the times clients don’t come back after a year as they feel it’s a waste doing it again and again. But some advisors just run on this model. So it really ends up like – “Come, pay the fees, take what you want, and that’s all”.

5. Fees charged as percentage of Portfolio Worth

Call it wealth management or Financial Planning + Wealth Management, in this model a fixed percentage of your net-worth is charged. The yearly fixed fees can be present or missing, but a percentage of your AUM (total worth) are taken by the advisor/planner/wealth-manager. A lot of people feel comfortable with this model as this is linked to their net worth. If there is no increase in their net worth, then no fees to be paid, but if the net worth increases, you give away a part of it in fees.

Which model do you like and why?

Now the question is which model do you like and why? What is the reason you like a particular model and why do you think it should really be encouraged? A plain brainstorming! let’s do it. Leave your comments and express yourself!



Jagoinvestor Workshop in Bangalore -13th May [Video]

Posted on by Jagoinvestor

We conducted a paid workshop recently in Pune called “Design your financial life” . The idea was to take participants beyond financial products and involve them in the thinking process. It was a fun filled day with lot of participation and some really good money conversations which made people really think about their financial lives and how they are leading it till now. Here are some snaps and video testimonials of participants.

Workshop in Bangalore | 13th May (Sunday)

The next event is scheduled in Bangalore on 13th May 2012 (Sunday). The seats are limited and there is a Rs 200 discount for the first 10 people who will apply the discount coupon ACTIONTAKER . They will save Rs 200 on the ticket. It will be a full day event from 9 am to 6 pm at Shilton Royale , 9, 100 Feet Road, | Koramangala, Bangalore 560 047 (Near Sony World). The resigtrations are based on first come first serve basis and it will close by 10th May 2012 .


Spend one day for your financial life

We really want these event to be your event and not just a jagoinvestor event. Its an opportunity to spend a full day dedicated to your financial life. We really encourage people to take those 10 hours for out of 1 full year and just focus on how you want to shape your financial life for future. There will be lot of sharing’s , conversations on money and some exercise’s which will really help you get a deep insights in the area of personal finance.It might be the case that you are interested in this workshop but not registering right now , in that case just let us know that you are interested and still thinking.

Pictures from Pune Workshop

Personal Finance Workshop

We really want to make this workshop a readers event and we want couples to come together so that they can jointly spend a full day in this workshop.

8 tips to Improve CIBIL Score !

Posted on by Jagoinvestor

Is your CIBIL report and Score messed up ? Then the biggest question you must be having is “How to Improve CIBIL Score ?”. “Bad credit score” is really a scary phrase these days. Many people are stuck with a bad credit score/report due to their own or credit card company mistakes, but most of the times I see that it happens due to poor credit behaviour and mis-management of credit officers. Everyone wants to improve cibil score, so that they do not face any issue in getting loans at some point in future. Now in this article, I will highlight few tips/points which will help you understand what makes a great credit report and good credit score. To understand this, just be clear that your credit score is dependent on several things and taking care of each point is very important. Read in detail about CIBIL Score here

1. Late payment / missed payments

The biggest reason for a bad credit score is bad loan repayment history. A lot of people pay their bills late or miss the payment completely. It’s so tempting to pay the minimum balance now and pay the balancing due later. Doing this just saves you from late payment fees, that’s all. The interest is charged and more than that you should be worried because this information is updated by your bank to CIBIL and the next thing is obvious, your credit report and score gets uglier each month because of this. So every time you miss your home loan EMI, car loan EMI, credit card payment or you make a late payment, it affects your score badly. If you have done a lot of late payments or missed payments earlier, its your time to fix it by being more disciplined from now on. Dont worry, if you now promise to pay things on time and do it regularly for next 1-2 yrs, it will surely improve cibil score for you.

Common sense Tip: Don’t pay your bills through cheque just 1 day before the last due date, because it does not mean that your payment is done. Some one will collect it, send it somewhere, then some one will make an entry for it etc, etc… This can take some time and result in delayed payment. Why not drop it 5 days earlier instead of 1 day? Please automate the payments for EMI’s and your bills. If the bills are not fixed each month, at least put a recurring reminder in your phone 5 days before the last date and then make the payment. If I can do this, why can’t you? In last 4 yrs, I have made my FULL credit card payment 48 times exactly 4-10 days earlier than the last date of payment. My CIBIL score is 831. You can also check your CIBIL score online

2. Large Number of credit cards and loans

There was a time when having 6-8 credit cards was a commonly practiced trend and something to show off, now you will pay for it! A lot of credit cards and loans above a “natural” limit is a big negative thing. That shows credit hunger and an extreme dependence on credit in your life. It shows that your life is too much dependent on external credit. Lets say you have two friends Ajay and Robert. Ajay asks for some credit from 2 people in whole year and then asks you for another Rs X and you have good friendship with him, I am sure you will think once and then may be give the money to him. But on the other hand imagine Robert who has taken a credit from 8 people in your office and 2 other people outside office, then when he comes to you and asks for even Rs X/2 amount, you will think 5-10 times before giving it to him. What kind of feelings you will be having in mind? What all doubts will be there in your mind? Some thing same happens in the loan industry, if you have more than “required” or acceptable limit of credits, it badly affects your score. Your score reduces point by point each month.

Common sense tip: If you have a lot of credit cards, better increase the limit of 2-3 of them and close the other credit cards. This way you will have same Credit limit in total and have reduced number of cards. Its better to have 2 cards with 25,000 limit each, than 5 credit cards with 10,000 limit each.

3. Utilizing your full Credit Limit each month

One of the easiest way to improve cibil score is to effectively use your credit card and do not utilize it fully to the limit. If your credit card limit is Rs 50,000 a month and every month you use 40,000 or 45,000, it will affect your score in bad way. Even if you are paying your dues on time, still what it shows is that you are utilizing your limit to fullest, companies don’t know that you might be doing it deliberately to “manage” your credit effectively, but the way it is seen is that your life is dependent on credit. So stop reaching 80% or 90% of your credit limit. A 30%-40% credit utilization is well accepted and seen as “positive” and make sure its the case with all the credit cards you have.

If you have 2 credit cards with limit of Rs 10,000 in first card and Rs 10,000 in second card and you spend Rs 9,000 from first credit card, but Rs 0 from second credit card, then your 1 st credit card utilization is 90% & 0% in second. Which means that you are seen negatively on your first credit card and “positively” on second card, but what you can do is spend 5,000 from first card and Rs 4,000 from second card, so that your credit utilization is 50% and 40% on both the cards and its “positive” on both.

Common sense tip: If you are reaching your limit, either make sure you move to cash/debit card for a part of your expenses and reduce your credit card limit, but in case you can not reduce your expenses on credit card, better call your credit card customer care or write to them that you want your limit to be increased. Most of the companies will do it. Just tell that you have few things lined up in next 2-3 months and you want the limit to be increased.

On the other hand think well before closing a credit card that you are not using. Your over all credit limit will come down if you close a credit card. So make sure you think twice before closing a credit card from credit utilization ratio point of view.

4. Higher percentage of Unsecured credit

A high number/amount of unsecured credit is bad. Unsecured credit here means credit card debt and personal loan debt, which are totally unsecured and you can run away with it. If you have total 1,00,000 worth of debt and out of that 80,000 is because of credit card and personal loan, then 80% of your debt is Unsecured. This is bad. If you had 80% of Secured debt like education/home/auto loan, then it was a different thing. I believe this is very obvious, the more unsecured debt you have, the bad it looks like. It shows that your life has more “emergencies” than a normal person, which makes you hungry for immediate credit. So this makes sure your credit score takes a hit. Remember that having a good mix of credit types is a good idea. So if you have home loan, education loan and credit card, that’s 3 types of loans, which is good. But if you have 5 personal loans and that’s all, it shows too much dependence on one kind of loan.

Common sense tip: Make sure your total unsecured debt, looks small in front of your total debt. You if have 80,000 of unsecured debt out of total debt of 1,00,000, then your unsecured debt ratio is 80%. If you take 5 lacs of secured loan, then your unsecured debt comes down in percentage, that makes things look better. Or make sure you prepay a part of your unsecured debt and bring down the percentage, Its one of the ways to improve cibil score !

5. Being a guarantor without giving a thought

If I take a home loan and ask you to be a guarantor for my home loan because I have helped you with so many things in personal finance, because I have answered so many of your comments and helped in solving your queries, what would you say? Don’t think more on this, you better say “Go to hell”. Because if I default on that home loan, you are held liable and your score will go down. While my score will be affected more, yours will also take a good hit! A lot of people because of various reasons become guarantor for other’s loan and then the primary person runs away or is unable to pay off the loan. Don’t do it, unless you are really sure you want to do it. I can do it for my brother, but not for you.

Common sense tip: Don’t leave your documents here and there, if you don’t agree to become a guarantor, many people try to make you guarantor by forging documents and misusing xerox PAN card or driving licence. Signature is easy to copy these days! Also when your friend who has spent good time with you in last 3 months, asks you to become a guarantor, tell him you were thinking of asking him to be guarantor for your home loan, good way to test the friendship!

6. Duration of your credit history – more is better

Longer the history, better it is. You will trust a 5 yrs old friend more than 3 months old one. That’s true in case of credit history too. If you are paying your payments/EMI’s for all loans on time from last 5 yrs, it’s very much a proof that you pay on time, you have a good history, but if I have a good history from last 5 months, that is not that strong. So higher the duration of good payment history, the better your score will be and will help you to increase cibil score.

Common sense tip: If you do not have a credit card, there is a good reason why you should get one now and do your payments with credit card and pay in full every month, so that your payment history is built.

7. Too many inquiries in short spam of time

Making too many inquiries in a very short time is not looked at positively. Imagine you have made a credit card inquiry, a personal loan inquiry, a car loan inquiry in last 3 months itself. What does it show? It shows credit hunger, it shows that you want to snatch any credit which you can get, you want to get things in life on credit. Hence have a respectable amount of gap between each inquiry you do. Dont apply for home loan with 6 banks. Note that each and every inquiry you do is reported in your credit report and if your report is full of inquiries, your score will stink! Any lender will doubt your payment capacity when you are so much dependent on credit. So the best way to improve cibil score is to keep your enquiries minimum.

Common sense tip: A lot of people just apply for loans even if they really don’t need it, keep this thing in mind and deliberately make sure that there is few months of gap between 2 loan applications (at least 6 months gap would really be good).

8. Settlement of your Loan Or running away

This is the worst mistakes of all. There are people who first take on a lot many loans and then are unable to pay it. So they either ran away (companies mark it as “write-off”) or at best just made some payment and settled the loan (companies mark it as “settled”). And this will make sure you are blacklisted for at least 7 yrs. You will not be given any loan, you can cry your eyes out for that 1 small credit card and you will be treated like you are nothing.

Common sense tip: Cut your debt, when it shows a sign of going out of control. One common ground rule which can be followed it that the overall outstanding credit at any point of time should not be more than 1 month of your take home salary. There is no solution of an out of control credit card debt other than paying it in FULL. Live a life with credit card as if you don’t have one!

Each tip on How to Improve CIBIL Score has its own weightage

Note that different factors which affect your credit score has its own weightage, so one factor can be more stronger than the other, but make sure you follow all the best practices and do not make any wrong decision. Look at your actions from the lender point of you. See what kind of people you would like to give credit if you were the loan provider. Just act like what you had expected

Did you understand how you can improve cibil score ? Can you share some top to increase your credit score , incase its not covered in this article !

How Jagoinvestor Forum answered 10,000 times !

Posted on by Jagoinvestor

Most of the readers of this blog do not know whats going on at the other end of this blog which is our questions and answers forum. It’s a place where you can post any personal finance query, whatever doubts you have in mind and the community will help you with answers. You can extend the conversations untill you are fully satisfied and some amazing people on the forum will go miles to fully help you.

I want to take this opportunity to thank few key people on this personal finance forum who have gone beyond expectations and really taken up the full charge of the forum. You can say these people have taken over the forum from me and I am damn happy about it.

Some amazing statistics about the forum

There are close to 2,300 questions asked till date on the forum and close to 10,000 answers are already given, which makes it an average of 4 answers per question asked, which shows a good mix of discussion. I feel proud to say that out of those 2,300 question , all 2,300 are answered, which means 100% questions are answered. The average time it takes a question to be answered ranges from few minutes to few hours . I hardly know any question which was answered after 24 hours of its posting. There are around 1,300+ members on the forum.

Teaching is the best way of Learning

I would like to acknowledge mainly two people on forum who are really amazing and have exceeded the expectations of everyone. They are Ashal and Ramesh . You would really be amazed that they have answered at least 30-40% of the total answers out of those 10,000 answers and they have some really amazing and deep understanding of personal finance topics, which can even beat some certified financial planners ! .

The main idea of this post is to show you that incase you want to excel in the area of personal finance, all you need to do is help people solve their queries, give some time to help others and answers more and more questions from others. This is exactly what Ashal and Ramesh have done and they are the best people I know when it comes to personal finance understanding.

Btw, Ashal is a chemical engineer and Ramesh is a Doctor and this is enough to break your myth that “I cant be great in personal finance because I am not from finance field” . I want to stress on the point is that personal finance is not an area which demands you to be from a finance field. All you need is some passion and that attitude of helping others and learning through teaching others – that’s all . Within no time – you will develop a good understanding of everything 🙂 .

Some really good conversations on Forum

To give you an idea, here are few good questions asked on the forum and you can see the length of the discussions and to what level discussions happen.

Why should you use Forum and When ?

You can ask your question on the forum, for any topic which you need to discuss at length, or anything which you feel should get extra attention and different people views. You can also use the forum to take a second opinion. Just make sure that you have done some homework on your side before asking the question.

If you want your login/password to be created for the forum, you can register yourself on the forum here or just fill up this form and let me know that you want me to open an account for you by filling up this form.

I really want you all to acknowledge the efforts of these wonderful people on the forum and congratulate them. They have really done outstanding work.

I would also kind of acknowledge the efforts of some other heroes who have contributed significantly on forum like BanyanFA , wealthucreate , justgrowmymoney , Shashank , Bharat Shah, Jagadees , Rakesh , Prabeesh , Abhishek and MoneySavingsHelp and many others !

5 difference between stock & mutual funds Investing

Posted on by Jagoinvestor

When we say Equity, what comes to your mind – Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes under the category of Equity and they are good option for long-term investment and needs periodic review. There are some differences between stock investing and mutual fund investing that is done by a common man. It’s a good idea to know where they differ and in which situation they differ, so that one can take better investing decisions. Let’s look at the main differences

 

Stocks and Mutual Funds Difference

Volatility

When you invest in a single stock or bunch of stocks (3-5 scrips), the change in it’s value is very high. On a given day it can be extremely volatile. It can give you 20% return and sometimes -10% loss also depending on the environment. This can be very exciting and at the same time very disheartening and gives you a feeling that you need to “act fast”. 

Mutual fund on the other hand is not that much volatile by nature, as the diversification is very large and at a time 50-100 stocks are covered. Different kinds of stocks from different sectors and market capitalization are involved in mutual fund and the over all change in value is thus less volatile (other than extreme days).

Return Potential

This is very much in line with the above point but still let’s look at it separately. There are lot of success stories where someone got quick rich by investing in equities directly and it can happen, but those are rare happenings and require lot of work and analysis, patience and belief in what you have picked. If you want superb returns in short time and you believe you can research well, you can go for stock investing directly but then risk is also more.

Mutual funds are known to deliver good returns (not in line with stocks, but still very good). So you can expect handsome returns from mutual funds but not unbelievable like stocks return. This is mainly because the money is diversified across different stocks (read ideas) and chances of all of them becoming a super success in short time is impossible.

Monitoring Required

Stock investing is a personal affair and you are doing it on your own the decision of what to sell and what to buy is on you. Even in case of long-term investing, you might have to keep an eye every quarter or yearly unless you have really spent some good time in picking the good stock. You need to also keep an eye on news and sector specific developments.

Monitoring in mutual funds is relatively low because the job of monitoring is anyways done by the fund manager who is paid SALARY to filter through the fluctuations. He constantly adds and removes the stocks from the portfolio. This can be a positive point, but sometimes it can be a negative point also if there is too much of churning.

SIP Investment

Mutual funds are known for possibility of SIP (monthly investment). SIP in mutual fund works and is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets.

However SIP in stocks do not work. Yes, some companies provide you the facility of SIP in stocks, but it’s a terrible concept. There is no diversification and SIP in a particular stock does not make sense because the risk is with single stock. A stock can be in a bad phase for years and decades, whereas in a mutual fund the bad performing stock is weeded out.

Asset Class Restriction

Stocks investing is restricted to Stocks only. You can choose a large cap stock, mid cap stock or small cap stock, but finally it will be equity asset class. However, mutual funds can invest in mix of asset classes. There are equity funds, debt funds, gold funds, Mix of Equity and debt also. To top up, even balanced funds are there which can adjust the asset allocation on its own, so in a way mutual funds are more superior in terms of features compared to a single or bunch or stocks.

Conclusion

Mutual Funds are actually collection of stocks only but just because it’s a group of stocks the characteristics are not very similar to that of stocks. You should be clear about all the points of difference and only after that you should decide whether to invest in Stocks directly or take the Mutual Fund route.

Does Home Loan kills Enterpreunership ? May be YES

Posted on by Jagoinvestor

Who doesn’t want to start some venture of their own? Majority of the people are in jobs and a big number of people do not like what they do. If they had a choice, they would really run away in this very moment. But our responsibilities in life and the situation we create for ourselves makes sure that we are stuck and can not get out of the rat race. We see so many people who want to work in start-ups, many people who really want to do something which they really love and enjoy even if it does not pay a lot but it’s not possible for lot of people to simply quit and start something of their own. Today we are discussing if home loans are a big killer of entrepreneurship which lot of Indian’s have in them?

Does home loan kill entrepreuneurship ?

We all know flipkart.com – One of the co-founder of the company, Binny Bansal made an interesting comment that – Home loan kills entrepreneurship.

India is definitely happening and there are a lot of opportunities in different fields. If you are thinking of starting up, this is the best time. But don’t take a home loan,that actually kills entrepreneurship. You can never get out of it. – Binny Bansal , co-founder flipkart.com (via)

Home loan is a big commitment, especially in a family where there is one earning member. People take jobs, get married, get a home loan, car loan etc, have kids in between and life becomes so “formula driven”. Income has to be earned and expenses have to be taken care. Risk of job loss, income loss due to medical emergencies and similar kind of risks are on the minds of a people who are paying for home loan – and this pressure kills the dreams of doing something of his own and the natural thinking then becomes – “Not an issue – Let me earn for next X years and once I retire, I will live all my dreams”. I am not sure if it really works at the end or not.

There can’t be a bigger liability than owning a house on Loan

Santosh Navlani of moneysights.com confirm’s in one of this comments, that saw same kind of thing while he was hiring people.

I am an entrepreneur & meet many people who at times are potential employees for my start-up venture. Now, most of these house-owners even if they are “excited & thrilled”, don’t join a start-up which would offer them great earning potential in the future because of the uncertainties that a start-up job brings to their income. Simply because they have a huge liability!

If one factors the cost of “forgoing” the pursuit dreams, I guess there can’t be a bigger liability than owning a house on loan. I have seen people getting stuck in wrong jobs where they sacrifice their long-term future by satisfying the urge of saving the rent. And yes, you don’t decide to pursue a dream of start-up or a job-switch by thinking extremely hard on it. It just happens that you are not able to take the job anymore. The last thing one wants then is fear of home-loan coming in way.

So what you do if you are young enough, unmarried and want to taste entrepreneurship? This is the right time to take the plunge and take the risk, so that you have that cushion to come back in the game if you fail. Once you take a home loan and are married, life is full of commitments and you will not be excited enough to start something on your own or join a more fun (low paying – at least in starting years) job. One of the friend who didn’t want to reveal his identity shared with me on facebook.

When I was 25, working as a software engineer at Hexaware Mumbai in 2002, earning Rs. 25,000 per month, I quit my job and went to Goa, following my dream and started a completely new career stream at an income of Rs 4,000 p.m. At that time, I was single, did not have any home loan or other commitments and that certainly helped otherwise I may not have been able to take that jump.

Interestingly, when I met a few ex-colleagues from software industry recently, to my surprise, I figured that not only I earn more or equal to them, but am also much happier because I am enjoying what I’m doing. They confessed to not enjoying their jobs and feel that as software professionals working late nights to meet client calls in US, long daily commute to office etc. they felt as though 10 years of their personal life was “sucked” by their jobs.

Conclusion

There is saying – “If there is a will, there is a way” and a lot of people I talked about on this topic, said that if a person has the guts, vision and passion, he can make it real, even if he has huge debt!. But we are talking about the masses here (majority of people) and for most of the people it’s really difficult to take that kind of risk, even thought they have huge passion and mindset- their situation just does not ALLOW IT. Do you really agree to it ?

Would you like to share about your experience and thoughts on this topic ? Do you really think that home loan (or any such kind of huge responsibility) really kills entrepreneurs and stops people to explore low paying but hugely satisfying careers ? Really ?

Why you should take more than 50 lacs of term insurance

Posted on by Jagoinvestor

Are you planning to buy a term insurance for less than 50 lacs of sum assured? I would suggest better take it for more than 50 lacs sum assured and there are two main reasons for it- which I will share with you in a moment. A lot of people who want to split their life insurance cover into 2 policies, split it in such a way that the sum assured of both the companies are below 50 lacs.

For example– If you want to take a cover of 80 lacs, you might want to take 40 lacs from first company and another 40 lacs from some private company, or any similar combination. But did you know that the premium you would be paying can get you much more sum assured than you had imagined. It might be the case that you can take 60 lacs life cover from each company you were planning and still pay the same premium. So now lets see in detail those 2 reasons why you should be taking a sum assured of more than 50 lacs from a particular company term insurance plan.

Reason 1: Discounted Premiums For 50+ lacs Sum Assured

Have you ever noticed how the premiums for online term plan keeps on increasing till you move upto 50 lacs, but the moment you reach 50 lacs and move beyond, the premium suddenly reduces? Now you must be thinking, what logic on this earth makes premium for 60 lacs policy lesser than the premium for 40 lacs? See an example for recently launched Bharti AXA eProtect online Term insurance plan. The premium changes when you change the sum assured from 40 lacs to 60 lacs for 30 yr old make with 30 yrs tenure.

Term Insurance premium for more than 50 lacs

Why the premium reduces when the sum assured increases beyond 50 lacs? Sourav Shah of Aegon Religare helps us to understand this –

At higher insurance rates, the medical tests are compulsory for most companies. Mostly this limit is over 49.99 lakhs. So as such when a customer goes for medicals, the company is sure that they are insuring a better quality of life with a higher life expectancy. As such the risk with insured population of customers undergoing medicals and being issued a policy, is much lower than with customers who opt for lower sum assured and are not required to undergo medicals.

It’s a risk-reward mechanism. The company offers an incentive to the customers to undergo medicals by offering lower charges for higher cover. Only people who do not have enough time to go for medicals opt for life cover of lower amounts where premiums are higher. But this doesn’t mean that customers who do not undergo medicals and pay higher premiums should worry at all. Once they have declared all details correctly to the insurance company and are issued a policy, they are as secured as those customers who have undergone medicals. Also the medical costs are borne by most companies. For instance AEGON Religare bears the cost of medicals for all customers.

So from this statement what I can understand is that if you take the policy for more than 50 lacs, the company makes you go through medicals (mostly all of them) and that way they can sure at the start itself, if they want to issue a policy to you or not. In case you go for lower sum assured, then they charge higher premium because they dont make medicals compulsory! . So this reason for lower premium for more than 50 lacs should be the first reason why you should opt for more than 50 lacs cover. As you can see from the snapshot above, premiums for 40 lacs and 60 lacs are almost same, so why settle for 40 lacs ?

Reason 2: Medicals are compulsory for Term Insurance of more than 50 lacs

It’s mentioned that even those people who do not go for medicals, don’t have to worry about their claims if they are not around, because they are generally paying more premiums, for the reason they don’t have more than 50 lacs of cover. However, personally I think it’s a grey area despite all the regulations. Let’s take a case, suppose you are suffering from high BP, but you are not aware about it and then you take a term plan for 30 lacs where in there are no medicals and in the declaration you mention that you don’t have any illness, because basically you are not aware about your own illness. Now in this case, what difference does it make if you are really aware about it yourself or you are not aware about it. Later on after 5 yrs suppose if you die, then company can prove the point that you had high BP at the time of taking the policy, but how will they prove that you were aware about it or not.

You all know that ICICI iCare has no medicals in their term plan upto sum assured of Rs. 1.5 crores and that’s the reason why their premiums are higher than other companies term plans because they factor in this point that there would be many people with illnesses. Some might be aware about it and some might be not. But today if you have the option of clearing things in black and white and have your medicals done, then its better that you do it, so that tomorrow there is no chance of any confusion and repenting (oh .. you will not be around even).  Even Sourav Shah of Aegon Religare thinks alike .. here is what he says about this “no medicals” term plans.

Yes, you are right. A term plan without medicals will obviously factor in the cost and be planned accordingly. But it dosent mean that there should be problems at the time of a claim. If the customer at the time of taking the policy declares all facts correctly then there shouldn’t be a problem. But as a personal view Yes, I would definitely recommend that a customer goes for medicals and then applies for a term plan as this leaves no room for ambiguity or any doubt that the customer was absolutely healthy when he undertook the plan. But then this is strictly my personal view.

So were you planning to split your term plan and take two term insurance plans for less than 50 lacs? Better take plans for more than 50 lacs each and mostly it will not affect the premiums. What do you think about these 2 points which I have mentioned? Do you agree about these points about term insurance !

Did you start your Health SIP ?

Posted on by Jagoinvestor

I begin each day of my life with a ritual of receiving one sms around 5:30 am from my fitness coach Sanjay. The sms reads “I am coming at 6:00 am so get ready” I take a look at the sms and reply “yes”. Initially, I thought that my ritual is to exercise every day, but my real ritual is saying Yes to my coach because, the moment I say YES to him my laziness goes away, my reasons/excuses disappear and I look up to the ceiling of my room and say to myself “Get ready Nandish it’s time to invest in your fitness.” This ritual has had transformative effect on me. I know it is absolutely no fun to wake up in the dark and push ourselves to go for a tiresome run or to hit the gym. But if you really want to cherish your wealth in later years of your life start forming healthy habit of exercising. One of the best website you can explore to get yourself educated on various exercises and diet is http://exrx.net/.

Health SIP

We have a rule if you do not exercise you can’t become our coaching client no mater how much money you have. It is because health is your true wealth. Let me share what we ask to our coaching clients

One of the Questions that we have asked all the people who have worked with us is

Is your well-being on your priority E.g. Do you Exercise/Go for a walk or play any sports? (If the answer is no this will be the first thing we will ask you to start, this will allow you to enjoy the wealth that you are going to generate in life)

Here are some Real Life answers from real people that I have received; I am sharing this so that you can learn from other people’s sharing

  • Yes, I am health conscious and selfish when it comes to health
  • I don’t exercise regularly
  • I used to. I will be resuming soon
  • Yes, for the past 7-8 months I have been going to gym regularly and have a very balanced diet.
  • To somewhat no. I try to maintain a healthy life-style, but fail occasionally.
  • Yes. I am too occupied to start with any of the activities. I am currently working on this.
  • Yes. My wife is an athlete and she pushes/motivates me to stay healthy. I walk every evening and try to maintain weight. I very strictly believe that Health is wealth. There is no use of money at all if I cannot stay healthy. E.g. – Yuvraj Singh – what will be the use of so much money if cannot be cured.
  • Yes. I go to Yoga in my office, daily. I have started this since last 8 months and doing it regularly<90% attendance>.
  • Sporadic exercise. Swim and play badminton regularly.
  • This is exactly what I don’t do at all. All I need to do is start ASAP.
  • Yes. I used to walk daily till 2 months back. Due to back pain and monsoons now it’s held up for two months.
  • I keep doing exercises on and off. More than 3 months back I have taken up Karate. I do that twice in a week, and I am quite sure that I am not going to quit that
  • I hardly do the above, but I will try to make it as a habit very soon.
  • No. My physical activities have reduced
  • Yes, I believe it is. I have started to go on a diet plan and been on it for a couple of weeks now. I have also started to go to fitness centre (tread mill and weights) for a week now. I hope and believe I can continue this.
  • I thoroughly enjoy sports. I play tennis and walk quite a bit. I also do yoga fairly regularly.JMy biggest priority is stay healthy and fit – a fitness freak, if you will. (I wish I had the same drive for money, ever since started earning!

Here is what one of our clients wrote me – “I have reduced my weight by 12 kgs in 6+ months and my BMI is close to ideal though still a bit above. Feel so much more energetic. How is your health investment doing?”

Some Need Shock Therapy

In one of the readers meet held at pune one of our client shared his life changing experience with the group .Once he had to participate in check-up camp organized in his company. He got his tests done and the doctor gave him a very serious look and told him to move to a separate room and relax there for some time. Doctor came after some time and said everything is going to be fine, with this his tension was at its peak. Our client got restless and asked the doctor “what’s the matter?” and doctor said “Diabetes” Our client’s world got shattered in that moment, his heart sank and his throat got dry.

Doctor saw all this and then said, “You are not having diabetes my friend but you are close to having diabetes and so it was necessary for us to give you some shock Therapy.” Our client bought new shoes the same day and was all geared up to take charge of his health. The next day, even with heavy rains, he was jogging in the park…. Do not wait for important things to get urgent, act today, take the learning’s from this experience.

Here is something that I received from my father a few days back

The Dalai Lama, when asked what surprised him most about humanity, answered, “Man. Because he sacrifices his health to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then he dies having never really lived!”

Start your Fitness SIP

Sharing from my personal life, I avoided doing physical exercise for years. My reasons were bigger than my commitment. I broke my reasons 2 yrs back, I hired a Fitness Coach who comes to my home and makes me do a lot of work-out. The fee that I am paying him for his services, I consider it as my HEALTH-SIP. I am familiar with all the exercises and capable to do them on my own but those 5 extra counts that he makes me do is only possible with him. I take this opportunity to thank my coach Sanjay, his commitment is amazing.

Some people…

  • Take better care of their pet than what they do themselves
  • Take better care of their gadgets than what they do themselves
  • Take better care of their car than what they do themselves

Focus more on your health than buying health insurance

When I coach people I see that people are more committed to buy the right health cover and more laid back on focusing on their health! Your body is the only thing which is going to stay with you for the rest of your life. See that you take care of yourself because it is said that your body is the only place you are going to live in for the rest of your life. Connect with your true wealth first, we have heard this since childhood health is wealth but most of us forget this when we grow –up. Getting health cover is important but do not deviate focus from your health, make a commitment you will live your life in such a way so that you do not have to use your health insurance ever. (Unless it is an accident or some other major health issue)

Health Insurance for parents

We interact with many people who want to buy health cover for their senior citizen parents. It really becomes very difficult in getting health cover after certain age and even if you get cover it comes with high premium. More than health cover start giving time to your parents, put 2-3 lacs aside (you can put even more if you have) for them and you can have your own health cover designed for your parents. All they want is your time, your attention and unconditional love. Encourage your parents in doing light exercises or light yoga . One very powerful meditation is conducted by organization called vipassana Meditation, they have world wide centers http://www.dhamma.org/ . My parents have done the same and I think it is the greatest gift we can give to our parents. Enroll your parents for naturotherapy, see that they have proper intake of fruits and dry fruits. See that your parents are not feeling lonely and they are around their friends. Take steps that make them happy this is far far better than saying I am a responsible son I have bought health cover for my parents.

Conclusion

As people are turning towards term plans a lot of people also turning towards joining gyms, going for a brisk walk, hiring a fitness coach, taking advantage of fitness facilities provided by companies. This is your true wealth. I always tell people that at the age of 55 or 60 you might have a lot of money but what if your body is not aligned to cherish that money? Stay healthy, stay committed and stay FIT. Do share what message you got from this post, if you are one of those who are not exercising simply start from this moment. After you complete reading this article do 5 push-ups, climb a stair, just do something in this moment, take small steps, engage in activities that you enjoy doing and change your relationship with health and fitness.

This article is written by Nandish Desai 

This week action ?

  • Do you exercise? Yes or No
  • Hire a coach or join a gym in this week?
  • What one action you can take to bring more life in your parent’s health?

13 important points from Budget 2012

Posted on by Jagoinvestor

Budget 2012 was out yesterday and within minutes, it was clear that almost all the people were disappointed, but then Sachin’s century made sure that every one was back in mood and were able to sleep happily by the end of the day. I looked at various articles on budget which were flooding every minute. I didn’t hurry to post this article, because I wanted the dust to settle down and then come up with only those major points which you can consume, understand and which really matters to you. So I read this budget memorandum for some points which had confusion and came up with 13 points which really concerns most of you.

Union Budget 2012

The budget did not live upto the expectations of many people because rising inflation had created an expectation among people that this time they will get some major relief from taxation and were expecting exemptions upto 3 lacs income and big raise in 80C limit. But Congress made sure that they lose and waste this last change which they had to give people a small reason to like them. What a waste of this golden opportunity they had. Anyways, lets keep aside things and get to the top most points I extracted for you from the budget 2012.

1. Change in Tax Slabs

The minimum taxable income on which tax has to be paid was increased from 1.8 lacs to 2 lacs, so the new slab is as follows – Nil tax between 0-2 lacs income, 10% tax between 2-5 lacs, 20% tax between 5-10 lacs and 30% tax above 10 lacs income. The taxable limit for men and women is same, which is 2 lacs, but the limit for senior citizens (above 60 yrs) is 2.5 lacs and for very senior citizen (above 80 yrs) is 5 lacs. No change in that. This means that most of the people will save additional Rs 2,000 on tax outgo , thats all . Not a big deal ! .

2. DTC not coming this year, hence ELSS gets one more year

DTC (Direct tax code) will not be implemented this year, which was very obvious – thanks to Anna Hazare, Food security bill and other issues which made sure govt has no time for DTC . What this means is that Tax Saving Mutual funds (ELSS) are still a tax saving option for 2012-2013 and you can invest in them and claim tax benefit next year also.

3. EPF (Provided Fund) Interest cut from 9.5% to 8.25%  

EPF interest rate cut was not part of this Budget 2012, but it happened just one day before Budget, and as this is an important update, you better know that EPF interest rate is reduced from 9.5% to 8.25% now and it will be applicable from next year. Last year itself the EPF interest rate was increased to 9.5% .  This is a very steep cut and really wont make any salaried person happy. Not sure what is the reason to keep it below PPF interest rates. Anyways – you cant do anything about it – Bite the bullet ! .

4. Income tax exemption for health check-ups upto Rs 5,000 under section 80D

A new kind of deduction called “preventive health checkup” is included under section 80D . Till now you were able to claim Rs 15,000 for the medical insurance premium paid for self, spouse and dependent children, but now you can also include health checkup cost upto Rs 5,000. But note that this is included in Rs 15,000 limit and not additional one. You can make cash payments for these checkup’s.

5. Tax exemption for Direct Equity Investments if income is less than 10 lacs

Just like the above point a new tax deduction is introduced for direct equity investments, Its called as “Rajiv Gandhi Equity Saving Scheme” – under which a new equity investor will be able to claim 50% of his investments in direct equity upto the maximum investment limit of 50,000. This investment would be subject to 3 yrs lock in period (just like ELSS) . However this will be available to only those whose taxable income is below 10 lacs. There are 3 questions which I am not clear about and I want to know. a) Is it only for direct stocks or even equity mutual funds ? b) Is it only for those who will invest for the first time in equity because the rule mentions “new retail investor” . c) How will they make sure that a person does not sell his shares before 3 yrs, will this limit be from demat provider ? Will get more clarity on this in coming days ! . Read more on Rajiv Gandhi Equity Saving Scheme from Subra ! 

6. Tax exemptions on Saving bank interest upto Rs 10,000 

Till now all the interest income earned from your saving bank was taxable. However now saving bank interest income upto Rs 10,000 will not be taxed. Not that it is applicable for Saving bank account, Post Office Saving account and all co-operative bank accounts. But I doubt how many people will really be able to take full benefit of it, because to earn 10,000 interest in saving bank, you need to keep anywhere close to 2 lacs or 2.5 lacs, which does not happen with most of the people. A lot of people anyways never paid any tax on the interest from saving bank and might be fearful if some one catches them, now law itself asks them now to pay upto 10,000 , I can see some witty smiling faces 🙂 . Also dont confuse this with interest earned on your Fixed Deposit, that is still taxable!

7. Life Insurance deduction available only if premiums are below 10% of Sum Assured

This is a little hidden clause and not highlighted by media, but as per the budget 2012, any life insurance policy issued on or after 1st Apr 2012, will be eligible for “tax exemption each year [80C] and “no tax on maturity [section 10(10D) ]” only if the yearly premium in all the years are below 10% of Sum Assured. Currently this percentage is 20%. So for example if you buy a life insurance policy with premium of Rs 20,000 for a Sum Assured of Rs 1,00,000, then it will not qualify for tax exemptions because here premium is 20% of sum assured. However existing policy holders dont have to worry about this, their policies wont be affected.

8. Securities Transaction Tax (STT) reduced from 0.125% to 0.1% 

Whenever an equity transaction is done, STT transaction tax is applicable and you have to pay it. It was 1.25% earliar, but now its reduced to 1%. So it means you will have to pay less for your equity transactions. Good for those who buy/sell stocks/mutual funds frequently or in big quantities.

9. Service Tax increased from 10% to 12% 

This move should worry you, because with increase in service tax, your bills for telephone, internet, hotel stay, eating out at restaurants, flying by air and several other kind of services will cost a little more, because we all pay service tax on all these things. So as service tax is increased from 10% to 12%, we will pay 2% more on the bill amount. This will add up to a good enough amount in whole year even though it does not bite you in small installments. Surprise! – Be ready to pay more for your Life Insurance and Health insurance premiums also, because we pay service tax on the premiums too. As per a rough estimate for most of the urban class people like you and me, the additional service tax we will pay due to this will cancel out that Rs 2,000 additional tax saving which happened due to increase in tax limit.

10. TDS @1% at the time of real estate sale above 50 lacs

A lot of people will cry hearing this one and will not appreciate this move by govt, but it’s for good. As per this budget 2012, now whenever you sell your residential flat/house/plot (any kind of real estate) and the selling price is more than 50 lacs, you will have to compulsorily pay TDS @1% . This is actually a big problem, because it might happen that even though the sale value is above 50 lacs, but after indexation and your decision to use the funds in next house purchase, your overall tax out of the transaction might be Zero, but still you will have to pay 1% TDS. So in worst case you will have to claim that tax amount back by filing a return. Note that property registration will not be permitted without proof of deduction and payment of this TDS , so you cant escape it, incase you thought you thought you will escape somehow. All the registration offices across the country will be following this one.

11. Increase in Excise Duty from 10% to 12% 

Excise duty is the tax paid by manufacturers on production of any kind of goods. So now that is increased from 10% to 12%. So it means that manufacturers pay more tax and recover that same additional burden from consumers, which in turn means that a lot of goods will get costlier, it would include daily use items and what we consume in day-to-day life. Anyways – you never realise this as consumer 🙂 because instead of increasing the price, they reduce the weight of the product, I hope you know that the Maggi packs which used to be 100 gms , are now 90 gm from many years and still costs Rs 10 and you were so happy all these days! .

12. For Medical Insurance – Senior citizen age reduced from 65 yrs to 60 yrs

In the last budget the age for senior citizen was reduced from 65 yrs to 60 yrs, but it was not applicable for sec 80D and 80DDB.  Till now people above 65 yrs old were considered as senior citizens in case of medical insurance deduction, but in this budget, that rule is amended and anyone above 60 yrs will be considered as senior citizen. Infact now for all the taxation purposes, senior citizen age is above 60 yrs. In case of Sec 80DDB , the deduction up to Rs. 40,000/- for the medical treatment of a specified disease or ailment is allowed.

13. Tax Benefit on Infrastructure bonds removed

2 yrs back Tax Saving Infrastructure bonds were introduced and apart from 80C (1,00,000), additional 20,000 was eligible for tax exemption. However this year this benefit is not extended and now there is no tax exemption on Infrastructure bonds. However companies are allowed to issue 60,000 crore worth of bonds compared to 30,000 crore worth bond last year. However I doubt if the excitement this time will be very high as it was last year. (source)

Some Other Changes in Budget 2012

  • No Advance Tax for Senior Citizens if no income under head “Income from Business” .
  • The amount of goods you can bring from outside India increased to Rs. 35,000 from the earlier Rs. 25,000 .
  • Tax filing compulsory for any resident who holds a property outside India even if the taxable income in India is below the limit.
  • Under Section 80G, any donation made above 10,000 has to be done by any mode other than cash. Till now you could donate through cash by cash, but now that limit is there.

How do you rate this budget 2012 and are you happy with it ? What as per you was that one thing which budget should have this year ?

Loan Settlement hurts Cibil Report & Score !

Posted on by Jagoinvestor

Did you do any loan settlement in past ? That will surely affect your CIBIL report and score ! . Before we look at that, look at this data – Over 88% of new home loan borrowers in 2011 had a CIBIL score of 750 and above. Do you have a score of 750+ or not ?

So now by default if your CIBIL Score is less than 750, you stand a very low chance of getting any kind of loan to be approved. Most probably your loan application will be rejected. However, today we are going to talk about “Loan Settlement” aspect of any Loan. Lets see more!

CIBIL has really made life worse for a lot of people. A lot of people have misused their credit cards or other kind of loans , on top of it outstanding loans piled up so much over time, that they could not pay it off completely. Banks suddenly told them- “Hey, Don’t worry if you can’t pay off your Rs 3 lac outstanding loan, just go for loan settlement and all you need to pay Rs 60,000. We will send you loan settlement letter or NOC letter after that”. Are you one of those who went for Loan settlement months or years back ?

Loan settlement impacts your credit report negatively

Settlement of Loan is not a solution

A lot of people feel that Settlement of their loan outstanding in case they cant pay it off is a permanent solution to their worries? However, for one and the last time, understand that SETTLEMENT of Loan is just a temporary solution. It’s just a short cut way to get rid of constant reminders from banks and credit recovery agents. Banks do this because they know you are a waste and mostly you will never be able to pay back your 100% dues, so they settle for whatever you can pay! . Atleast they will get something back from you.

This settlement of loan will NOT clear your name in CIBIL report. In fact its a negative sign. It shows that you took loan, happily used it, ballooned it with late charges/interest by not paying on time and finally bank in frustration said – “Fine… Let’s take whatever we can get out of this guy, if we don’t get some part right now, we will not get even a penny later”.

Mak was worried why his name is appearing on CIBIL report as “settled” and his loan application was rejected.

I want to remove my name from Cibil report, I Used to have 2 CC, from HDFC & another from citi bank, I do had personal loan from citi finance, which I settled long 2yrs back for which I have settlement letter as well. Recently when I applied for a Bajaj finance loan for home electronic, It got declined, reason given to me was as my name reflected as a defaulter of Cibil. Please advice me to clear of my name from Cibil.

What Mak has to understand is that Loan settlement is a negative thing, and banks will report this incident to CIBIL and mind you, your status will be marked as “Settled” for next 7 yrs. So forget about getting any kind of loan from any bank for next 7 yrs at least. Once 7 years passes, then the SETTLED status will be removed , however your credit score by that time will be so low , that you will not get any loan even after that point, unless you work on improving your credit score. Now if your score is low at that point, it will again be very difficult for you to get any kind of loan (because of low score). So ultimately, the final conclusion here is that once you settle your loan, it becomes very very negative thing for you and your future and over the years it will not let you get any kind of loan unless you pay off each and every paisa of your loan.

Loan Settlement is Tempting

Loan Settlement gives you instant gratification. It’s something you really want to go for? Obviously, it gives an impression that all your worries will be taken off by the bank, its shown to people as an “opportunity” by banks. And most of the people fall for it. Swetha is one of those people who is confused about the Settlement of her loan

I have a personal loan and i have defaulted , my loan completes in the month of april the collection guys asked me to settle the loan for half the price of the remaining loan amount which is rs 44000 and he said the NOC will be mailed to within 15-20 days and also can i get a loan again . Please guide should i go for the settlement or payoff the whole amount.

No doubt, once you settle the loan and pay the settlement amount, the banks will not bother you anymore by calling and asking you to pay. They will also send you an NOC that this guy has settled his loan of X amount by paying Y amount (Y<X). But please don’t be mistaken that bank will forget you and is so generous that it will show any mercy on you. Bank will make sure your life is hell after that point. You will not get any kind of loan from that bank plus, they will send this information to CIBIL that this guy was not capable of paying off his full amount and hence we showed mercy on him by settling his loan. Please mark him/her as “SETTLED”.

Unless you pay off each and every penny/paisa of your original loan outstanding, your CIBIL report will show status “Settled” and it’s a very bad sign. Finally let me tell you what CIBIL website has to say about “Written Off” or “Settled” status in CIBIL report.

Given that a CIBIL credit report helps a loan provider ascertain your ability to pay additional debt based on your past performance, a ‘’written off’ or ‘’settled’’ account implies that you have not been able to pay your past dues. Hence, Loan providers may view accounts that are reported as ”written off” or “settled” negatively and this may affect your chances of a future loan approvals. – from cibil website

Conclusion

If you have done any kind of loan settlement in past, first check your credit report and see what is your score. If its low (lower than 750) , you will seriously face getting any kind of loan in future, So the only solution is to pay off the loan outstanding. Talk to your bank and pay it off. This will still not improve your score immediately, over next 1-2 yrs , make sure you pay your existing loan/credit card on time and dont misuse your credit capability. Your score will improve over time. Can you share your Loan settlement Story with us ?