Virtual Credit Card – Create Instantly & Use for Online Transactions

Are you scared of using your credit card online on some website because you feel there might be  fraud or a security threat? If that’s the case, then welcome to the world of Virtual credit cards, which I will explain in today’s article and also how it can be useful for you.

Virtual Credit Cards in India

virtual credit card (VCC) is an add-on credit card issued on your primary credit card; only it’s virtual and does not have any plastic existence. You can instantly create it, using your net-banking facility by providing your credit card or debit card details. All relevant details like the card number, the ‘VALID FROM’ date, the expiry date and the CVV number are visible online to you and this virtual credit card enables you to transact online with a credit limit of your choice. Also the virtual card does not have any fee associated with it and comes for FREE!

The key details of your VCC like the card number, expiry date etc. are used when you transact online, but your primary card details are never shared with the merchant online, so you never have to be worried about losing your card or having to carry it ‘safely’ in your wallet. There are tons of banks which offer these instant virtual cards these days. Some of them are

  • ICICI VCC
  • HDFC NetSafe
  • Kotak netc@rd
  • SBI-Virtual Card
  • Axis Bank e-wallet card

Validity of the virtual card ?

The virtual credit card is valid only for a single use and automatically expires within 24 hours if the virtual credit card is not used, which means that the chances of credit card fraud or misuse are significantly lower than a real credit card. Also understand the if you hold a VISA card, then the virtual card which you will get will be VISA one and if it’s Master Card, then it’s going to obviously be a Master card.

Is virtual Credit Card only for Online Use ?

Yes, as a virtual credit card is not a physical card, it can be used only for online transactions, for which all you need is credit card number, CVV number and Expiry number. Once used the card expires and can’t be used again. If you want to execute another transaction, you will have to generate another virtual card. The maximum limit of your virtual credit card can be as high as your actual limit on the real credit card. When you make the payment on some website using your virtual card, it will appear on your physical credit card statement itself.

Most of the banks issue a card which is valid internationally and you can use them on the websites outside India, however some banks like SBI bank still issue virtual credit cards which are not valid outside India. You will have to check with your bank if it is valid internationally or not.

Can you create Virtual Credit Cards using a Debit Card?

The answer is Yes for most banks. Even if you just have a debit card and not a real credit card (Check out the best credit card in India as per our survey), you can still use your debit card to create a virtual card. There are many people who want to transact online at times, but do not hold a credit card. Now they can create a VCC and use that to transact online. However I just checked my ICICI account and when I want to create a virtual credit card, it asks for my credit card number, so it seems like ICICI bank doesn’t allow VCC creation via a debit card. Anybody created one using debit card in ICICI bank? Let us know!

Real Life Situations when you can use Virtual Credit Card ?

  • When you are transacting on a website, where you do not feel very confident about security, but still you have to transact anyways due to some reason. Check out this fraud
  • When any friend of yours ask you for your credit card, where you want to “NO” , but still can’t say NO. You can now create a virtual credit card and give the details to him.
  • When you do not have a real credit card, but only have a net-banking facility, you can still create virtual credit cards and use them.
  • You can also use these virtual cards where you just want to try out the service , but by default the website starts charging the card on renewal basis. If you use virtual card, it will anyways get cancelled after one use and there will be no renewal charges later – Here is a real experience.

Do you feel virtual credit cards to be of any use in your life? Are you already using virtual credit card or planning to use them? Please share it with others!

TDS Guide – Everything you want to know about Tax Deducted at Source

A lot of investors still do not understand what is the meaning of TDS (Tax Deducted at source) is and how it’s related to their taxation.

While the concept is very easy overall, I have seen that tons of investors still get confused when TDS is cut on their Fixed Deposits at maturity and they feel that they don’t need to pay any tax now, or feel that they don’t have to pay any tax on their Fixed Deposit interest just because it was below 10,000 and TDS was not cut.

So in this article, let me make sure that you are 100% clear about Tax Deduction at Source and what it means.

what is TDS and how it works?

What is Tax Deducted at Source?

TDS or Tax Deducted at Source is a tax collection mechanism by Government of India, where at the time of transaction itself, the tax is deducted by the paying party and directly deposited to the income tax department.

It’s assumed that the receiving party (one who gets the money) will have some tax liability. Now at the end of the year when you find out your tax liability, the TDS amount is the tax you have already paid and now you need only pay the balance amount.

So in a way, Tax Deduction at Source is a good thing for 2 reasons. You automatically pay a part of your tax liability and income tax department receives their tax collection. So TDS is always a mechanism, to reduce tax theft. Let me give you some very simple examples of TDS collections

Example 1 – Tax Deduction Source cut by Employer

When a company pays salary to employees, you must have seen that they pay the salaries after cutting the tax amount.

So at the start of the year itself, after the employee declares his 80C investments, HRA, LTA and other tax deductions which he will avail, the employer ‘estimates’ what will be the tax outgo of the employee and then each month they cut a certain amount as tax and pay directly to the income tax department.

And then at the end, the employee calculates his actual income tax liability to be paid. If the Tax Liability is more than TDS cut, he pays rest of the tax money and files the returns. If the Tax to be paid is less than the TDS amount, in that case he can claim for a refund in the tax returns.

Example 2 – TDS cut by Banks on Fixed Deposits

When you open a Fixed Deposit, you earn some interest in a year. Now the rule is that if the interest amount each year exceeds Rs 10,000 on your fixed deposits (across the different branches of the same bank also), the TDS has to be deducted by the bank.

Now a lot of people confuse this by paying the tax. The rule is that any amount you earn as interest is taxable. Even if the interest is Rs 100 or Rs 1000, you still need to pay the tax on that amount. Just that if the interest exceeds Rs 10,000, the bank will cut the tax directly and pay the tax to govt.

That will make sure that you pay your tax in advance itself (you know how difficult it is to pay tax when you have finished that money at the end). Note that TDS is also applicable in case of Sweep in Accounts and MODs (Multi option Deposit Scheme by SBI)

What about NRI Fixed Deposits?

In case of NRIs, the sad part for them is that there Tax Deducted at Source is cut @30% on any interest income earned on NRO fixed deposits (no limit of Rs 10,000 interest.)

Even if they earn Rs 1,000 as interest, they still pay TDS @30%. Note that the Fixed Deposits in NRE and FCNR accounts are totally tax-free in India, hence no Tax or TDS. A lot of NRIs send money back to India and invest in Fixed Deposits in their NRO account.

If they have to pay tax at the end, well and good, else they need to file the tax returns and claim it back. NRI’s should read this article on TDS applicability in economic times and also read this article to understand how NRI’s can claim exemption on TDS is applicable for you.

If you want to know more about the tax applicable on NRE, NRO and FCNR account then watch this video:

Make sure you quote your PAN

A lot of times, PAN card number is asked by banks or at other places before the payment is made to you. Do you know that there is a reason for it? If there are any TDS to be cut, they first check if PAN number of the receiving party is available or not.

If PAN number was given by the party, then the TDS is cut at a lower rate, but if PAN number is not quoted, then TDS cut is high.

For example, in the same Fixed Deposit amount, do you know that the TDS is cut @10% if PAN number is given, but if PAN is missing, then its 20% Tax Deducted at Source? These are the numbers of individuals (not companies, LLPs or corporate bodies.)

You should also know that in this budget Tax Deducted at Source @1% is to be cut for any real estate transaction above 50 lacs!

I want to invest where TDS is not applicable

A lot of investors try to invest in bonds, securities or at those places where TDS will not be cut. They do not understand that TDS is nothing but paying tax in a different way. I assume that they thought that if TDS is not cut, they don’t have to pay any tax, which is totally wrong.

All they are doing is taking the onus on themselves to pay the tax at the end. Or many might be finding ways to save the tax by various means suggested by their CAs.

A lot of investors also try to open a lot of small FDs and break it in the same bank but in different branches or in different banks too, but they do not know, that in this era of core banking, banks and tax officials can just punch your PAN numbers (yes, my CA told me this) and get all your tax-kundali and how much fixed deposits you have and how much interest you earned out of your investments.

So you need to pay your tax on those amounts anyway, whether TDS was cut or not. If TDS was cut, in a way it’s better because you pay the tax in advance itself and don’t have to arrange for tax amount at the end of the year. It really pinches at the year-end to arrange money and see it go into tax!

Make sure you ask for TDS certificates

Whoever cuts the TDS and pays it to income tax department has to issue you TDS certificates as the proof that you have paid the TDS. The document they give you is called the ‘TDS certificate.’ You would need this document if you want to show that the TDS amount is being adjusted in your tax payment.

Generally, as a rule, all the parties send the TDS certificates to you, but make sure you are proactive in asking’ it from them.

Myth: I don’t have to pay any tax if TDS is deducted

At a lot of times, it so happens that you don’t have to pay any tax at the end of the year and you already know it, but just because your deposits are earning more than Rs 10,000 of interest income, the bank cuts the TDS amount and then you have to claim it back by filing a return.

Case 1 – If Tax payable (TP) is more than TDS

In this case, if yearly TP is more than the TDS then the investor will have to pay the remaining amount left after deduction i.e TP – TDS = Remaining Tax Payable.

Case 2 – If Tax Payable (TP) is less than TDS

In this case, If yearly TP is less than the TDS then the investor will have to file for tax return because the tax which he was supposed to pay was less than the deducted tax.

Case 3 – If Tax Payable (TP) = TDS

In this case, if TP is equal to TDS then the investor will not have to pay any extra tax because the tax is already paid. However the investor will have to file for ITR toi show that he has paid the interest and is not liable to pay anymore tax.

Form 15G

All those people can simply submit Form 15G/15H to bank (each year) and then the bank will not cut the TDS (my father in law told me how Bank of Maharashtra guys in some particular branch still cut the TDS even if you deposit the Form 15G/H and how they are such a pain).

TDS tip – for salaried investors

Let me share with you a little tip which a lot of you might know already, but it will surely help new people. If you are a salaried employee, your employer must be deducting the tax each month already and you know that you don’t have to pay any tax at the end.

But now if suppose you already have made some fixed deposits or some investments, where the Tax was deducted, then you have already paid some part of tax liability.

Your employer is not aware that you have already paid some tax through TDS route. So in the Jan-Feb season when they finally ask for your investment proofs, you need to also give them form 192 and deposit the TDS certificates to your employer so that he can adjust the Tax paid and pay you back the extra amount. (March month salary is generally higher due to this money coming back and also because of HRA/LTA reimbursements).

I suggest you all follow this amazing thread on our Q&A forum where Ashal single has cleared so many doubts t on this topic

I hope you are now clear about TDS and how it works. If you have any doubts then put your query in the comment section.

5 reasons why you should not take Term insurance till 75 yrs !

Got a term plan for your family? Or may be you’re planning to take the term plan in a few days. If you are, good for you! . One of the biggest questions, every person considering term insurance has, is – “Should I take the cover for the maximum period?” . This is exactly what Chetan also asked on our questions and answers forum

Aegon provides coverage upto 75 years of age. or 20 25 30 35 40 years. I am confused which policy term is better to get maximum benefits?

Just like him, hundreds of investors have asked me this question over and over again, and I tell them, “Just take it only until you reach 60 years of age.”

And they happily ignore my suggestion; as if I am crazy, suggesting this to them. The “Insurance only till 60 years” looks kooky to them – kind of a “wrong deal” and they want to get “maximum benefit” out of the term plan. “The chances of my family receiving the  claim amount is higher when I am covered for long” is the common thought process of every person who is in the mad rush of buying the highest possible tenure.

term insurance plan for higher tenure

Trust me, that’s flawed thinking and I will explain why today. More than a sermon, think of this article as a discussion, where I put some points in front of you and you reflect and ask yourself – “Does it really make sense? or not?” and then make your own decision. So here are those 5 reasons on – why you should not take Insurance till the age of 75 years or more

1. You don’t need it beyond your working life

You really need to ask yourself the question – “Why am I taking Life Insurance?” and the answer is – “Because right now, I don’t have enough net worth, which will help my family if I am gone” or in other words – “Because my family is financially dependent on me.”

For a person who is not earning and does not bring money home, his death will cause family only emotional loss; not financial loss. Hence, logically you need to cover yourself through a life insurance product, only for the time you are working and others are financially dependent on you.

2. You will have “probably” have enough wealth by the time you retire anyway

Stretching the 1st point, if you are taking life insurance cover until you are 70-75 years, will you really need it at that time? Do you really feel that you will have any reason to have a cover of 1 crore that time (after 30-40 years?) . I am sure (more confident than you), that you would have completed all your financial goals by that time, you will have your own home by that time and you will have done everything in your life by that time. You focus area at that old age will be very different than what you focus on right now.

To understand this point, you have to stop for a moment and go into 2040-50; when you are retired and close to the heaven’s door. Are your children really financially dependent on your income – which does not exist? Is your spouse dependent on your income? You must have already accumulated enough wealth by that time and you must be getting some income out of that. Your death has nothing to do with family cash flows at the time.

3. The premium factors in your tenure already

Most of the people who feel that they are smart enough to take term plan till 75 years, forget that on the other side is a professional business running for decades now. They have hired people who are 10 times smarter, who design products (they are called Actuaries) that generate large profits for companies and not investors. Life Insurance is a “for-profit” business. They design things, so that they earn profit. If a company allows you to take a plan that lasts until you turn 75, why have they done that? Why did they allow that to happen? The premiums they charge already factor in everything. You pay premiums to get that term plan, it does not come free!

4. You will live longer – and they already know that.

Like I said in my last point, companies are “for-profit” businesses. They will not issue you a policy if your chances of living beyond 75 is not high. If you are a healthy person, already earning well, have access to good health care, what are the chances you will live beyond 75 years of age? Extremely high, that’s what!

Look around you – Are people dying early on average? No, you see people living beyond 80-85 already and here we are talking about your future which is 30-40 years away, when the average life expectancy of an average person in India would be closer to 73-76 years anyway (as per projections by govt studies.)

Now just imagine this … Compared to the 1.25 billion people in our country, are you in top 25% or lower?

Which means that you have much much better prospects to live beyond 80-85 years.  Which brings me to another point, that you should seriously worry about about your retirement planning a lot more than the less important question of insurance beyond 70-75 years.

Even when we do financial planning for our clients, we make sure that we plan for their retirement beyond 85 years and have them covered only till 60 yrs or even lower if they feel they will retire earlier. The important point to understand here is that, a life insurance coverage is just a support for your family in your early life when you are making money, your financial replacement, if you will. So when a life insurance company issues you a term plan until 75 years, it’s not you who are smart, but the company! They know, with a really high degree of probability, you will keep paying the premiums till 75 years.

It’s all chance. Yes, there will be people who will die before they reach 75 years of age and yes, their family will get a lot of money, but it really is just the game of chances … Companies make profits because of those who will live beyond 75 years and not by those who die before that.

5. The value of your sum assured is peanuts later

I hear it most of the time – “I am taking the term plan till 75 years, so that even if I die, my family will get the money. So, the higher the tenure, higher the chances of making money.” But they forget that by doing so, they are actually helping the insurance guys make profit, but lets say you die at 70 years. Celebrations! Your family will get that 1 crore, which at this moment sounds good, but will not be worth a lot that time.

Let me show you the mirror that lets you look into the future 🙂

Let’s say you are a 30 year old guy, and your monthly expenses are 40k per month. You say to yourself, “Let me take that term plan worth 1 crore so that in case, I die my family can get 1 crore which will provide them some good monthly income.”

It would be very good number if you die early in your life! . With each passing year that 1 crore will be worth less. If you die the next year of taking the term plan, the worth of that 1 crore is pretty much same, 1 crore. But if you die after 10 yrs, that 1 crore will be worth 50 lacs in today’s world. So getting 1 crore after 10 yrs is same as getting 50 lacs right now. Are you getting my point? The money you get in term plan is a constant number, not linked to inflation!

So imagine you have taken the term plan till 75 years and you die at 70 (after 40 yrs of taking the term plan), what is the worth of that same 1 crore at that time? Hold your breath! It’ll not more than 6-7 lacs assuming a inflation of 7% and even if inflation for next 40 yrs is a small 5%, it would not be worth 15 lacs today! . So when your family gets that 1 crore after 40 yrs, it’s kind of worthless. No one would be depending on that money anyway; it’s just a bonus on your children’s inheritance money!

Act like a real informed and smart investor

I have been seeing this madness for many months now and was constantly wondering why people are focusing so much on this small thing called “long tenure” in the term plan. I see investors abandoning one insurance company for another just because the other company is offering a term plan till 75 years.

You are allowing yourself to fall into a trap if you do this. If you have already taken the term plan till 75 years, do not worry … do not cancel it, just let it run it’s course. Stop paying premiums when you feel that your family can be taken care of, by the wealth you have generated. If you are planning to take a term plan right now, take it for as long as it takes you to retire, probably till 55 to 60 years, but not beyond that.

Would be happy to hear your thoughts and your views on this topic! . You have taken the term plan for very high tenure ! .

Online EPF Transfer and Withdrawal from July 1, 2013 – Great News !

Starting July 1, 2013 , EPF account holders will be able to withdraw or transfer their EPF accounts from one employer to another employer online. EPFO has said that they are working on setting up a central clearance house which will be operational from July 1, 2013 . One of the major problems faced by employees is to transfer their EPF accounts from one company to another when they change their jobs or to withdraw their EPF accounts after leaving their job, which takes years and months, without them having any transparency in the system and process. They are frustrated, lost and have no idea where to ask for their EPF status and to whom . Because of this delay, a lot of people just let things go and the matter drags for years and years

epf (employee providend fund) transfer or withdrawal online

You can also Track the Status Online

The best part is that you will be able to track your request online and will be able to see which stage your EPF withdrawal or transfer is ! .

Permanent EPF account number for each person

EPFO has earlier said that they are working on the permanent EPF account number where a employee once allotted a EPF account number will be able to use the same Employee provident fund number when he/she moves to another employer. The new employer will deposit the provident fund money in the same permanent account number. This will solve a lot of issues, but this would be possible only after 1-2 yrs , the first focus is on introducing a online withdrawal or transfer service.

Verification of Details after the request is put ?

Once you apply for withdrawal or transfer, the verification of all the details from employer will be done by EPFO . All you would have to do is just initiate the transfer or withdrawal request online (Its not clear how it will happen or what you need to exactly do). After that EPFO department will take charge and do their part of work by contacting the employer. Here is how the transfer would work

The member makes his transfer application at his new or old office or directly to the EPFO through an online application. The process is then taken over by the EPFO, which gets data verification from both offices and gets the transfer done immediately. Now, EPFO would do the work of getting details from both old and new offices where transfer is involved, says EPFO Commissioner Anil Swarup. – SOURCE

This will help 50 million Employee provident fund account holders , lot of paper work will be saved and surely the harassment will reduce . (Read how you can withdraw/transfer your EPF , if your employer is not supporting or helping you) . at this moment , a lot of withdrawal’s happen because employees know that its more easier and do not want to take chance for future issues due to the complex process. Hence this move will help a lot to EPFO department in retaining employees with their EPF’s .

What should you do right now ?

While the EPFO has said that this will be operational from July 1, 2013 , still there might be delays from their end (you know how deadlines work in real life , remember what happened with DTC (Direct Tax Code) ?) . If you can really afford to wait and want to try out this online system, then wait for 2-3 months and then give this a shot, else follow the usual process at this moment.

Conclusion

While its a welcome move and we should trust the EPFO department, still you know what happened with the EPF Online Passbook system by EPF , which is not up-to the mark and there are tons of issues with it. It might happen that this online EPF transfer and withdrawal system is built , but there can be huge disappointment with the way it would work . We can only wait and watch at this moment.

What do you feel about this move ? A lot of people might have faced bad experience while transferring and withdrawing their EPF accounts and would have wondered why dont EPFO makes every thing online. Now it comes !

PPFAS Enters Mutual Fund Business with “PPFAS Long Term Value Fund”

You must have heard the name of Parag Parikh, the veteran who has spend decades in the Indian stock markets. He runs PPFAS (Parag Parikh Financial advisory services) . They have been running PMS scheme for quite a while now, since 1996!. They have been practicing value investing from decades and now they have decided to enter the mutual fund space, not just as another also ran, but with a very clear focus. They want value investing to be the prime focus of investing in equities and have come up with “PPFAS Long Term Value Fund”. SEBI has cleared it and it will launch by next month!

PPFAS Mutual Funds

So, I decided to directly catch Rajeev Thakkar , CEO & Fund Manager of PPFAS Mutual Fund to answer few questions for our readers.  This should give us a clear idea of their vision. Those of you, who would really like to invest in equities for a very long term like 10-12 yrs, can place your bets if you find you are interested.

Here are few questions I asked Rajeev Thakkar (he has been managing the PMS for PPFAS since 2003).

1. A lot of investors still do not know about PPFAS . Would you like to share its history?

PPFAS Ltd. our Sponsor, was incorporated in 1992. Prior to that, our Chairman, Mr. Parag Parikh, ran a proprietary organisation from 1979. It was one of the earliest recipients of the Portfolio Management Service (PMS) licence, having secured it in 1995.

Over the years, it has transformed itself from being a stock and fixed income brokerage house to a reputed Portfolio Manager and currently manages over Rs. 300 crores in its flagship scheme. It has now embarked on the next step in asset management by sponsoring PPFAS Mutual Fund.

2. Why PPFAS entered Mutual funds when you already had a successful PMS ?

The main reasons behind this move are –

a) Over the years, the landscape for PMS has become progressively challenging for the investor. A hike in the minimum ticket size and increasingly tedious account opening procedures are two examples.

b) A PMS product is also perceived to be an opaque one – though we can proudly say that we defy this perception by disclosing various key data points on our sponsor’s website [www.ppfas.com].

c) Tax treatment of capital gains in a PMS product has also been a point of contention, subject to various interpretations based on the nature and frequency of the transactions .

On the other hand, a mutual fund is a far more regulated and transparent investment vehicle as compared to a Portfolio Management Scheme. Unlike PMS schemes, a mutual fund scheme’s performance, portfolio etc. is tracked by independent research agencies on a regular basis. This helps an investor in making comparisons and allocating capital accordingly. It scores on the operational front too. For instance, each time a client opts for a PMS scheme he/she has to undergo
tedious and time-consuming Know-Your-Client (KYC) related formalities.

This can be obviated in case of a mutual fund, where one KYC / KRA number is valid across all mutual funds. An investor is also able to deploy smaller amounts of capital in a mutual fund scheme. This is especially helpful when they are testing the waters. This latitude is all the more useful, now that the minimum initial corpus for a PMS account has been raised from Rs. 5 lakhs to Rs. 25 lakhs.

For fund managers too, a mutual fund is operationally easier to manage as it does not call for segregation of individual accounts, separate order placement etc. Unlike a PMS scheme, a mutual fund scheme is treated as a pass-through vehicle, thereby making it a more tax-efficient vehicle for investors.

3. Can you share why you have come up with just a single equity fund? Won’t you come up with 5-10 funds ?

Yes. In an age of ‘the more the merrier’ we walk alone. Others may launch an array of equity schemes with narrowly focussed objectives, but we believe, this leads to needless duplication and confusion.

PPFAS Long Term Value Fund’s mandate permits it to invest in companies, unfettered by any self-imposed limitations with regard to market capitalisation or geography. We believe that if our investors’ objectives can be met through one scheme there is no need to launch a slew of them. Hence it will be our only offering in the equity segment.

4. What are the top 3 things which you feel will be different with PPFAS LTEF and other equity funds in market? What is the value proposition you are offering?

The top three differences between us and the others is –

  • We will be the first mutual fund to disclose the holdings of key employees of PPFAS Mutual Fund in the scheme.
  • As mentioned above, we will launch only one scheme in the equity segment.
  • On our website (amc.ppfas.com) we have explicitly mentioned the kind of investors, we do not want. I do not know of any other mutual fund which actively discourages the wrong kind of investors from investing in its schemes.

Apart from these, there are a few more differences which have been outlined on our website

5. As It is a new entry in mutual funds, a lot of investors might want to wait and watch for the performance of your NFO. What do you have to say about it?

Sure… We are cognizant of that.

That is why we are not hard-selling our scheme through the mainstream media at this juncture. Also, that is why we have not approached the national distributors / banks. Only a few distributors (currently 20) who believe in our approach have signed up with us.

Many key investors in the PMS scheme of our Sponsor, have agreed to migrate to ‘PPFAS Long Term Value Fund.’ They will form the nucleus of our scheme. Besides these, we have received over 300 expressions of interest from new investors through our website and other sources. Some of them may invest either at the New Fund Offer stage or soon thereafter.

We envisage greater interest among the distributor community after a couple of years, once we have built a track record and are actively tracked by reputed agencies such as Morningstar and Value Research.

6. I am sure a lot of investors might want to invest through DIRECT route now. How can some one invest easily with PPFAS, because right now I suppose you do not have a lot of offices across India or in various cities? 

We are actively promoting the benefits of investing through the Direct Plan, positioning it as a cost-effective mode of investment. Investors can choose between

The online option – via our website

OR

The offline option – Investors can submit the duly filled forms either at our Corporate Office in Fort, Mumbai or at any of the offices of our registrar, CAMS, who will double up as Points of Collection. CAMS has a very good network of offices India-wide.

7. What is your outlook for next 10-20 yrs for equity markets? I am asking you this, because you have come up with a equity fund, saying that it’s a long term fund.

While our scheme stresses on the long-term it does not necessarily mean that we have any strong view on the state of the overall stock market. Our premise is that investment-worthy stocks will be available irrespective of index levels and we prefer to concentrate on that aspect, rather than crystal-gaze.

Having said that, we obviously believe that equities form an important constituent in the portfolios of most investors now and over the coming decades and as a corollary, you could infer that we are positive on the future prospects of equities in general.

8. Anything else you would like to tell our readers?

Just like the boilerplate which states ‘Read the offer document carefully before investing’ we urge investors to read the contents of our website carefully and then decide whether you would like to invest with us or not.

While we cannot guarantee you any returns owing to the volatility inherent in equities, we will manage your money prudently, based on the time-tested principles of value investing, and play a role in helping you achieve your long-term financial goals. We are here for the long-term and our journey is just beginning. You could join us if you believe in our method of money management.

Scheme Information Document – PPFAS Long Term Value Fund

Here is the Scheme Information document of PPFAS Long Term Value Fund attached below.

Conclusion

While there are tons of AMCs in India, most of them focus on too many funds. PPFAS mutual funds seem to be very focused on what they believe in and seem to be on the path to evolve as a fund house that’ll be known for value investing. In a recent interview with firstport, Mr. Parag Parikh is sharing how they are themselves going to put their own money into the fund, so that there is inherent accountability and committment.

About 29 years ago, I started off as a broker and we were the first brokers to have a research department. That was the competitive edge which I wanted to get the institutional business, because that was cornered by about 12-13 brokers. As far as broking was concerned, we always believed money management is a profession rather than a business. When it is a profession, you do what is good for the client. But when it turns into a business, you do what the business demands.

Unfortunately, in mutual funds today you have this mad craze for getting assets under management. You have marketing teams, distributors. You pay them anything to get the money. From our MF’s point of view, we were professionals and we will keep it that way and run the MF as professionals. That’s the idea.

Ultimately, when you invest in our fund, what are you looking at? Returns. That is where we want to be game-changers. Secondly, what is your commitment to a fund? Today, me, Rajeev (Thakkar, CEO of PPFAS AMC) and all our senior people are going to make our own equity investments through the fund. We have to believe in what we’re doing. Whatever equity investments we have in the market, we’d rather put that in the fund.

Are you going to invest in PPFAS mutual funds ? Anyone !

Launching our 3rd book “11 principles to achieve Financial Freedom” – By Nandish Desai

We are extremely delighted to share the news about the launch of our 3rd book – “11 principles to achieve financial freedom”, which is written by Nandish Desai and published by CNBC18. I consider this book as a masterpiece work by Nandish, which presents a totally new dimension to investors on how to think about financial freedom and how to step by step improve their mindset and thinking beyond the traditional thinking and ideologies when it comes to money.

When Nandish started writing the book, we brainstormed many times as we wanted to make sure the book becomes a gem of the lifetime. I read the book at every stage and re-read it 3-4 times after it was completed (as part of proof reading and to check things are fine) and every time I personally got so much learning and value out of it. I think every investor who will not read this book will loose some thing amazing in his life.

11 Principles to Achieve Financial Freedom - Personal Finance Book by Nandish Desai
Pre order Book

What is the Book all about – “Forward” from me

The best way to give you an idea about what this book is all about, I am putting the “Forward” section which is written by me specially for the book. It will clearly give you the understanding of what this book is all about.

Right now, what you are holding in your hands is not just a book, but years of effort and creation. Nandish and I started our career making financial plans and somewhere we started to realize that many investors’ financial life was changing after having a financial plan in their life. After a lot of research, we concluded that a financial plan was just one part of the process and other elements were required to live an awesome financial life. This book is about those elements that we have discovered over time.

We challenged the traditional financial planning process a few years ago and that is how our financial coaching program came into existence. This book is based on our financial coaching program that we have conducted with over 100 people spread across the globe.

With this book, we invite each investor to look beyond financial products and returns, and look at wealth creation as a game. Most investors make investments out of compulsion and out of need; the core message of this book is to see wealth creation as a project and will teach you how to fall in love with the process of wealth creation.
There are books that follow the trend and there are some books that set the trend. This book falls in the latter category; it is here to set the trend in the personal finance world.

Discovering who you are as an investor

Most investors are in search of solutions and answers; this book is not about getting answers, but about discovering who you are as an investor and gaining insights on how you can connect with your true wealth.
Nandish has written this book after working with hundreds of people. I am sure this book has the power to change your financial life; to some it will act as a wake up call, to some it will help them discover who they are as an investor, to some it will help them add different dimensions to their financial life.

While I was going through the initial draft of this book, I was convinced that this book would be a game changer not only for investors but also for financial planners. This book is simple and yet powerful and it will leave a deep impact on you as an investor.

There is a lot of hype around the words “personal finance” and “money” out in the world. While you are reading, this book will teach you to fall in love with the process of wealth creation.

Working with a Financial Coach

The narrator of this book is Sam, an IT professional based in Mumbai, who shares his experience of working with a financial coach. This book is not a story but it has conversations between Sam who is a lost, confused and directionless investor and his financial coach. They both meet and Sam participates in a program called the “90 Day Money Game.” The coach invites Sam to work with him for the next 90 days. The money game has 11 exciting levels that span the next 90 days.

Sam is a confused investor full of fear with a pessimistic view about his financial life before meeting his coach. But with each passing level, as his financial coach teaches Sam, his life starts changing as he implements the elements of living a great financial life and incorporates changes in his thinking and attitude towards various things. As Sam starts experiencing a big shift in his financial life, he starts to experience a new level of enthusiasm, positivity and motivation. With each passing level, Sam identifies why his financial life was a mess and how his whole life offers great possibilities.

The book teaches that an upgrade is always available in life. At the end of the 90 Day Money Game program, Sam is now a totally new Sam. He calls this his journey from Sam 1.0 to Sam 2.0.

If you also feel that you need direction, motivation and some exciting new ideas in your financial life and you want to move towards financial freedom, this book is for you. Nandish is an amazing financial coach in real life who has worked with hundreds of investors and changed their lives. Now it’s your turn!

11 levels inside the book

The book is beautifully written where the coach takes a person called Sam through 11 levels, each of which fuels a new thought inside the investor mind and opens up his thinking level in a totally new direction. Here are those 11 levels (chapter names), may be you get some idea about them by name of the chapters.


[table]

Level 1 Laying a strong foundation
Level 2 Creating new relationship with money
Level 3 Investigation begins
Level 4 The game changers
Level 5 Don’t set goals, set yourself
Level 6 Create system to create wealth
Level 7 Mastering game of financial freedom
Level 8 Active income vs. passive income
Level 9 How wealth is created
Level 10 How to increase your income
Level 11 Make each year your best financial year

[/table]

A small taste of the book content

Let me share with you 1-2 pages content from the book middle chapter, so that you can get a taste of the book

Personal finance is a level 3 promise

My coach said that 90 Day Money Game is all about making and keeping promises. Personal finance is not about gathering knowledge; it is a game of promises and actions.He taught me three levels of promises, which helped me immensely. Let me share what he taught me. He asked me to close my eyes and asked me three questions.

How good you are at keeping your professional promises?

I replied, “I am extremely good at keeping my professional promises.”

How good you are at keeping your personal promises? (With family and friends)

I replied, “I am not that great at keeping my personal promises. I keep them at times and break them at times.”

And how good you are with promises that you make with your own self?

I replied, “I am very bad in this area. I have a series of broken promises.” This question made me feel very guilty as I could see many such broken promises in my life.

He then asked me to open my eyes. He wrote on a white board


[table]

Level One  Professional promises  You keep them always
Level Two  Promises made to family members  You keep them at times
Level Three  Promises made with self  You break them all the time

[/table]

Professional promises: He said, “Sam you are good at keeping your professional promises, when a new task is assigned in your professional life, you really make sure that you give your best. Your colleagues see you as a committed person. You feel so proud when your company and its people see you as a committed person. You really do whatever it takes to fulfill your professional work commitments. At times you become a warrior, you work extra hours, take your work home but you make sure that the promises are kept.”

Promises made to family members: He asked me whether I had broken promises with my family members. My answer was “yes.” I could see that I have not taken my personal promises seriously the way I was with my professional promises. I could see the GAP between both levels.

Promises with self: This really came as a shock to me as he asked me how many broken promises I have with my own self. I could not even count them, as they were so many. I could see myself as a master killer when it comes to breaking promises with self. Every day I used to make a promise of waking up early and going for a morning jog but never went.

3 levels of promises

My coach said, “You are good with your professional commitments, you are ok with your family or personal commitments and you are the worst when it comes to making and keeping promises with self.”

Going for exercise every day and personal finance actions falls in third category where as an investor you need to make promises with yourself and then complete them. At a family get together or in any business conference no one will ever ask you whether you are consistent with your investments or not. No one will ever ask you whether you are paying your premiums or making your investments on time or not.

I got a very important lesson that quality of my financial life depends on how many promises I make and keep with myself.

He said, “Every time you have a broken promise, you are going away from your cheese.”

This was a big lesson for me, which I wrote in my wealth journal.

Learning – Personal finance is all about making and keeping promises

Want to join Action Revolution ?

For those who are promising themselves that they will take some actions in their financial life, we are coming up with an amazing action oriented program which we are calling as “Action Revolution”, launching on 1st May – Be on our email list to get the first chance to register for it. CLICK HERE

This book is 3rd one from jagoinvestor team . We have also published 2 other books . You can look at our books page to get all information about the 3 books.

Pay Rs 50,000 or buy this book

Nandish has worked with over 100+ coaching clients (we offer a program called financial coaching at Rs 50,000 at the moment). This is the best way to get exposed to what is it to work with a financial coach personally. So I would say, you should not even think for a moment and grab this book asap.

Getting Claim from Multiple health insurance policies – Rules and Process Explained !

One of our readers Yogesh asked on our Jagoinvestor forum, about the claim process in case of multiple health insurance policies. I then realized that this is one the biggest doubt in the mind of investors and it needs to be cleared. Another doubt which is there in many minds is what is the claim process and the documents required if one wants to claim from multiple health insurance companies.

Multiple Health Insurance Claims

In this article, I will explain you the rules regarding heath insurance claims from multiple companies and some important points, along with the claim procedure too!. Recently IRDA came up with IRDA (Health Insurance) Regulations 2013 and overall it has made the claim process more easy and customer friendly, which we will see in some time.

A lot of people can end up with multiple health insurance policies with them. It may happen that they have a health cover from employer, and side by side they have taken a separate health insurance plan (which is a good thing) . Also there might be a case that a person had a old health insurance plan taken years back and now he has taken extra cover through a different plan . Another case can be when a person has taken more than two health insurance plan so that parents are also covered and immediate family like spouse and kids are in another policy. So these are few reasons why a person can hold multiple health insurance plans.

Declaring your existing Health Insurance while buying a New Policy

Before we move forward, its extremely important to understand that when you take a new health insurance policy, you always have to declare your old health insurance policies which are currently in force. This would include all those policies for which you are paying the premiums yourself from your pocket. If you are not paying the premium from your pocket and if your employer is paying it, then you don’t need to declare it in the new policy. Note, there are certain Insurance Companies which do not demand such information. In such cases, you are not required to inform about this.

This is extremely important because if you do not disclose this fact, you are violating the terms and conditions of the health insurance contract and in case of investigation this could be termed as mis-representation. Now we will discuss the rules regarding claiming from multiple health insurance policies .

Claiming from multiple health insurance policies

A lot of things have changed few months back. So we will discuss both “before” and “after” rules, so that there is no confusion left.

Before the Regulations (Previous Rules) 

Before the regulations came into effect , there was something called as “Contribution Clause”, which said that a customer has to inform all the health insurance companies he is insured with and all the insurance companies will contribute the cover amount in the ratio of their sum assured (read how much health insurance is good enough). Obviously the assumption here is that the insurance companies are aware that you also have a cover with someone else , which you must have declared with them at the time of taking the policy .

For example , if earlier you had two health insurance plans with 3 lacs sum assured from company A and 1 lacs sum assured from Company B , and if you had a claim of Rs 2 lacs. Then you had to ideally inform both the insurance companies about the claim and they will settle your claims in the same ratio of the sum assured. So 1.5 lacs (75%) was to be paid by company A and 50,000 (25%) had to be paid by company B because of the “Contribution Clause” . Its a different matter than customer never told one insurance company about the cover with another companies and the company which got the claim request happily settled the full amount, even if it was not supposed to . This kind of rules earlier made sure that it was not in customer interest and lot of hassles was there if he had more than two policies. But after the regulations it has changed !

After the Regulations (Current Rules) 

Now after the regulations are into effect, the claim rules are very easy . Now the contribution clause will not be applicable if your claim amount is less than the sum assured of the insurer where you are claiming. However , if your claim amount is above the sum assured of the policy, then the insurance company will impose the contribution clause. You are free to choose which insurer to catch for your claim. So let us revisit the same example we took some time back.

  • 3 lacs sum assured by company A
  • 1 lacs sum assured by company B
  • Claim amount = Rs 2 lacs

Now with the new regulations , you are free to catch company A or company B to settle your claim, but now

If you go to Company A for settlementThen your claim amount (2 lacs) is less than the sum insured (3 lacs) , so company A has to fully settle the full claim of 2 lacs and they cant tell you that the contribution clause will apply.

If you go to Company B for settlement – But, if you choose to go to company B for settlement , then your claim amount (2 lacs) is more than the sum insured with them (1 lacs) , so company B , has the right to apply the contribution clause and then they will only pay 50,000 to you (25% of their share , remember  they have only 1 lacs sum assured out of your total 4 lacs) and will ask you to claim the rest from company A .

Now imagine the different scenario where your claim amount is 4 lacs

In-case here in this same example, if your claim amount is 4 lacs, then your the contribution clause will apply because your claim amount is more than the sum insured of 3 lacs and 1 lacs both, so it does not matter which company you approach first, the contribution clause will come into effect .

Better to have a Large cover with single insurer

Which now explains why its advantageous to have a big enough cover from a single insurance company (like say 10 lacs sum assured from one company) , rather than having small covers from multiple insurance companies like (4 lacs , 4 lacs and 2 lacs from 3 companies) . You will face a lot of documentation issues if your claim amount is large because then the contribution clause will apply. ( Read 17 Most asked questions in Health Insurance)

I hope these examples has made it clear to you about the the rules for multiple health insurance policies claims . In-case you have more than 2 policies , still the same rules will apply.

What is the Claim Process in case of multiple health insurance policies?

Here there can be two cases – Reimbursement Claim or Cashless Claims , but for this article, we are looking at reimbursement claims procedure. Even in case of cashless claims , if its from more than one insurer, reimbursement is involved anyways, because – The final approval for any Cashless claim comes at the time of discharge. Hence, only one claim can be made through cashless. All the other would have to be made through the reimbursement mode. Now lets see what is the procedure involved in claim process.

In case of single claim

  • Intimate the health insurance company at the time of hospitalization
  • At the time of actual reimbursement, fill up the claim form
  • Attach all the bills, receipts, discharge documents, prescriptions, diagnostic tests, including films required by them in ORIGINAL
  • Keep tab on the claim status. The TPA or Insurance Co. could ask for additional documents for settlement of the claim. You need to provide such documents.
  • You will get the claim in  around 30-40 days depending on Insurance Co. to Insurance Co.

Incase of multiple claims

  • Intimate all the health insurance company at the time of hospitalization
  • Now you first have to choose the company from which you will claim first.
  • Fill up the claim form
  • Attach all the bills and documents required by them in ORIGINAL
  • Take additional attested copies from Hospital for the no. of insurance companies you are likely to claim from.
  • Insurance company will issue you a statement saying that they have all the original proofs and documents and they have settled the claims
  • once the claim is settled by first company then you move to the next company, you need to get a claim settlement summary (which mentions about the claim made, deductions made, and claims settled etc.)  then you move to the next company
  • Fill up their claim form
  • Attach the claim settlement summary
  • Attach Attested copies.
  • Create a covering letter explaining that you have earlier claimed from Company X, and the details of documents enclosed.
  • If you still want to claim it from more companies , take the claim settlement document from 2nd company also.
  • Repeat the process with all companies from which you want to get the claim. You will get the claim in some days or weeks

How will the claim be paid

  • The first Insurance Company will apply deductions and limits as per the terms and conditions of the policy against the claim made and make the payment.
  • The second Insurance Company will also apply deductions and limits as per the terms and conditions of the policy against the claim made as if the claim is originally made to this Insurance Company, and arrive at the payable claim amount. Once this amount is arrived, it will deduct the amount already received from first insurance company.

Does Sequence of Claim matter in-case of multiple companies ?

My friend told me that the amount of claim you get back at times can be different depending on the sequence of claim. Mean if you settle your claim from company A first and then Company B , it might happen that you may get less money back compared to when you first approach company B and then company A .

But there is a catch here, this situation assumes that the insurance company does not apply the contribution clause, which actually happens in reality. Mahavir Chopra shares with me that in real life , the claim cases they handle, they have observed that companies do not bother to apply contribution clause even if it applies. So the companies in real life in maximum cases, the health insurance companies settle the claim or reject it as per the situation and condition.

Now coming to the main point which I wanted to tell you. Lets say that someone has two health insurance policies with him.

Policy 1 – 2 lacs sum assured (but with some limits and sub limits applied)
Policy 2 – 1 lacs sum assured with NO LIMITS or restrictions

And lets say that his hospital bill was 2,50,000 in total as explain in the chart below. So now he has two choices , Either claim from Policy 1 and then Policy 2 , or reverse that order and first claim from Policy 2 and then Policy 1 . In both the cases he will get back different amount. Lets see those.

Maximize your claim in health insurance from multiple health insurers

Learning – In case you have 2 policies , and there was a case where you have to claim from both of them, always claim first from the company which has LIMITS and restrictions, and later from the company which does not impose any limits, this will maximize your claim amount in total.

Important Note – In case where contribution clause is applied, even in that case the conclusion remains the same, the case 2 claim amount in that case is 1,14,000 (unlike 1,71,000 without contribution clause) . You can check out the workings yourself.

Some Good practices and points to remember

  • If you have a group cover from your employer, it would be a good idea to apply for the claim from them first, because the claim process is faster with group cover , the preexisting illnesses are also covered there in initial years and lastly, the number claims there is not going to impact your premiums .
  • Its always a good idea to have a single company cover of a higher amount, rather than having small covers from many policies, If you have small covers from different companies, it would be a good idea to consolidate your cover in a single policy or maximum 2 policies, not more
  • The same thing claim rules will apply in-case of Top up and Super Top up health insurance policies, because there you claim from more than 2 health insurance companies.

Conclusion

At the end, I would say that its always good to have a big enough cover for yourself so that you don’t have to deal with multiple health insurance companies. You can have the separate cover along with your employer cover if you want. So, How many health policies do you have currently ? I hope you are now clear about the claim procedure from multiples health insurance policies ?

Is filing FIR compulsory for issuing duplicate passbook in PSU Banks?

Ayush lost his SBI bank account passbook and faced some issues from SBI bank, which I thought should be shared with others . Here is what happened with him. Read it directly from him (through our jagoinvestor forum)

Hello everyone. I recently lost my SBI savings account passbook unfortunately somewhere in my home. When i approached the branch, they said i need to file an FIR in the nearest Police Station. They said without it they will not issue me a duplicate passbook. When i went to the Police Station, after making me wait for an hour, officers were asking me for a bribe to file an FIR. : ) They were also asking for my complete account and other personal details. I hesitated to disclose any personal details to anyone. I thought i should avoid having an argument with them. So i came back home without filing an FIR. Isn’t it too much to ask for, for just issuing a simple duplicate passbook?

I also have accounts with HDFC and ICICI Bank, one for expenses and the other one for savings and investments. In HDFC Bank, they issue the passbook on the same day in case of loss of passbook. You just have to give a written application to them and its done within few minutes. Now i am thinking of leaving the SBI account dormant after leaving the balance to zero. It is so much of a headache. : ) I only opened the savings account with SBI because they have the best network of ATMs in the country. Is filing FIR in Police Station compulsory for issuing a duplicate passbook?

Is FIR really required to claim the duplicate Passbook Copy ?

The answer is NO .

There is no requirement like that . As soon as I read Ayush question on our forum, I was very clear that SBI employees whom he contacted just didn’t wanted to work and wanted to have an easy day in office, so they misguided him by telling that he needs to have a policy FIR for this, which actually worked ! and Ayush was back to home frustrated, promising himself that enough is enough and he does not want to SBI bank account at all. I feel SBI needs to seriously work on its employees and train them on “Customer Handling” .

Procedure to get the duplicate passbook from bank

The process is as simple as anything . Pattu (very active on our forum) shares 

I have lost my SBI passbook twice and got it replaced. There is no such rule. These days they have our photo and signature stored in the computer. So if the account holder turns up and gives a request for new passbook they will have to comply.

Even Naveen shares his parents experience 

Let me share my exp with SBH , where both my parents have sb accounts. My father needs passbook entries because he is not comfortable with debit card transactions and not having much knowledge about internet etc… He kept both passbooks at some location and couldn’t recollect where they are. Later, i have been to SBH branch and paid a challan paying slip( below 50 I remember 3yrs back) for both the accounts and submitted receipts to clerk, where i have been told to come at 4 pm later on the same day with both my mom and dad passport size photos…

Passbooks are ready and photos are pasted and stamped with bank seal and submitted to me on the evening itself. I felt happy for the service bcos my parents cant travel long to do this by themselves..

Give them RTI shock !

I had explained earliar how you can use RTI against PSU banks to get any kind of information and that’s exactly I suggested him. I suspect that SBI guy who told him that was not in the mood to work that day and just wants to tell you things which will make sure his work decreases.  I would say go to the SBI bank branch and tell that officer that you filed a RTI and put his officer name and asked them that what this officer is telling me is really required or not and RTI reply said that – There is no requirement like that . Demand him to meet bank manager and confirm it.

Finally what happened ?

After we all helped this guy on forum, he went back to bank branch and applied all that we told him. This time it worked and here is what happened –

 I went again to the branch and this time the same lady officer who was persistent for filing an FIR said that it is not compulsory. I was amazed by her reply. I also felt angry that i have to make two trips to the bank for this. The lady officer said, i have to talk to the Branch Manager in this regard and if he agrees, she will issue me the duplicate passbook. So i waited for another 1 hour since the Branch Manager was not in his room. When he didn’t came for another 15 minutes, i left for home. So i have to make another trip to the bank. This time i will directly talk to the Branch Manager and if he doesn’t agrees i am done with the bank. I will leave the account dormant after leaving the balance to zero. So much for issuing a simple passbook. : )

What do you think about this incident ? Do you feel PSU banks exploit customers ? Any personal cases ?

Direct Plan of Mutual Funds – Everything you wanted to learn about it !

A lot of buzz is going around “Direct Plan” when it comes to Mutual funds. A lot of investors still don’t understand the full impact of Direct Option and if they should invest in the same old way or with this new option. In this article – we are going to unearth all the aspects of Direct and Normal Option of investing in mutual funds.

Direct Plan in Mutual Funds

Direct Plan in Mutual Funds – What does it mean ?

SEBI few months back announced that all the AMC’s should come out with two options for each and every mutual funds scheme they have, One will be normal one (which you have been looking till date) , And Then the other option will be DIRECT PLAN, which will have a lower expense ratio compared to the Normal Option . This is because when you invest in mutual funds direct plan, there is no intermediary involved in between and a lot of costs which are associated goes away . That’s the reason direct plan will have less expense ration. So If I have to explain in one line. Direct option of mutual funds will have no agent in between , you will be directly investing with AMC . However with the NORMAL Option, you will be investing through an agent which can be any individual or a online broker.

A mutual fund scheme will have to affix “-DIRECT” word in their scheme name. So for example now there following options for investments if you want to invest in HDFC Top 200 mutual funds.

  • HDFC top 200 Growth Option
  • HDFC Top 200 Growth Option – DIRECT
  • HDFC top 200 Dividend Option
  • HDFC Top 200 Dividend Option – DIRECT

Its a big worry for those agents who are not adding any value through their advice and have HNI/big clients.

And guess what already Direct Plans are HIT among investors and a lot of investors and big corporate investors (who invest in DEBT mutual funds) have seems to have shifted to mutual funds direct plans. This is proved by the fact that in the first month of Jan – 2013 alone, 56% of the total incremental flow of 60,732 crores in mutual funds was through direct option, which is around Rs 33,830 crore, which means that out of total Rs 100 , which was invested in mutual funds, Rs 56 came in through Direct Plan and only Rs 44 came in through Standard plan, but the majority of that would be in Debt fund, but anyways – the point if that Direct Plans are already popular and investors have started taking the advantage.

Is Direct Option Superior in Terms of Returns ?

Now lets look at the returns from Direct Plans vs Standard Plans and lets see some aspects related to it.

Expense Ratio of Direct Plans vs Standard Plans

Expense ratio of a mutual fund has a deep impact on the final returns over long term. A small decrease in expense ratio can increase your long term returns by a very good margin, provided every thing else is same. Direct option of mutual funds are going to have a good enough difference when it comes to expense ratio. If you talk about equity funds, the direct plans will have anywhere from 0.40% to 0.75% less expense ratio compared to a standard plan . For example – If I have talk about HDFC Top 200 mutual fund , the standard plan has an expense ratio of 1.78% per year . Where as the Direct Plan expense ratio is only 1.19% , which is a 0.59% difference and whopping 33.15% less than standard plan , Means that you will save 33% costs when you migrate to Direct Plan of HDFC Top 200 as an example . Note that all the numbers I just quoted are as of 28th Mar 2013, and change in future. I checked few equity funds from HDFC Mutual funds and DSP Black Rock and found that that the ‘Direct’ option have lesser Expense ratio compared to their Standard Plans . Here is a snapshot for 5 funds.

 

Difference between Expense Ratio

expense ratio difference between standard and direct mutual fund

Difference in NAV ?

The Direct Plans took effect from Jan 1,2013 . Means that on Jan 1,2013 the NAV must be same for Direct and Standard Plan and from there, the NAV must be different for both plans. And As Direct Plan expense ratio is going to be lower, the NAV for direct plan should also be lower and the gap should widen too. To just make sure that its happening in reality. I picked up the same HDFC Top 200 and listed down the NAV for both standard as well as Direct Plan from Jan 1,2013 to Mar 26th 2013 and checked out the difference between them and I was correct . The NAV gap was growing and Nav in direct option was 0.13% higher than the standard plan NAV , thats just 3 months of difference and if you extrapolate in future, the difference might be as good as 0.5%-1.00% difference in a year. Thats a big enough amount, 0.5% on Rs 10 lacs portfolio means Rs 5,000 . Isn’t that a good ! . And if you look into very long term in your financial life , the difference will be very high, which we will see now

NAV difference between Direct Plan in mutual funds vs Standard plans

Impact on Wealth ?

Considering the same example of HDFC Top 200 and their expenses ratio of 1.72% (standard plan) and 1.29% (Direct Plan) , What happens to your wealth after 10,20,30 yrs if you consider these two options ? Will the corpus you will accumulate at the end will be huge ? Even if we assume a conservative returns of 10% on equity in long term, the difference in corpus at the end is huge because of sizable difference in the expense ratio. Below I have provided the corpus of two options and the difference between them over 10 yrs, 20 yrs and 30 yrs.

Direct Plan Mutual Funds Corpus Impact

Note that these numbers and difference might look big to you, but you will not realize the difference to be very big in a short term like few months of every 2-3 yrs. Also you might argue that one might not invest for such a long term, but we are only highlighting the impact of such costs and its impact in long run.

So, Now I hope you must be clear about the Impact of mutual funds direct plan on your wealth.

Who should invest in Direct Options

Now coming to the important question – Who should Invest in Direct option of mutual funds ? A lot of people might feel that direct plan is for each and every investor , but thats not right way of looking at it . Only those investors should go with the direct plan of mutual funds who are

  • Capable of choosing right mutual funds for themselves
  • Who are ready to review their portfolios all by themselves without anyone help
  • Those who can point to bad performing mutual funds and remove from their portfolio
  • Who are ready to invest with each AMC seperately

I guess a lot of people will fall into this category and would be ready to go the direct route for the kind of benefit they get out of it. However lets see who should not choose Direct Plan

Who should not Choose Direct Plan?

You must be wondering who should not invest in direct plan ? A lot of investors have very very good advisers , who have good capability to advice and record keeping abilities. The value of their timely advice is so much that it over weights the advantage of direct plan. So if you feel that you have an adviser who helps you pick good funds and helps you in removing bad funds over time and because of him you are able to get extra 2-3% returns on your portfolio, its worth paying commissions he deserves . Also It might happen that you are a busy person who wants a third party to handle your portfolio and inform you on time to time basis about your portfolio and whats going on where , you might want to consider not moving to direct plan.

So at the end , its about the question – “Is there any value in sticking with your adviser , platform or financial planner?” and if its adding enough value to your financial life , and do they deserve the commissions they get out of your portfolio with them. Its a question you need to ask yourself . Do not rush to convert your mutual funds into Direct plan .. Take some time to think over it and look at the long term effects of it.

How to invest in Direct Plan of mutual funds ?

The only thing you need to do is when you fill up the mutual funds investment form, there is an option called as “Direct Plan” there, all you need to do is put a tick mark there, If its ticked marked, then your investments will be into the DIRECT plan . Even if the agent/distributor puts his ARN code (the unique code which identifies a mutual fund agent) , he will not get any commissions from your investments. Also in some of the forms , that separate tick-mark option might not be available, in which case you have to mention the word “DIRECT” in the ARN column . Note that if you forget to mention that you want it to be under DIRECT plan and also the agent code is missing, by default the investment is going to be under mutual funds direct plan .

You can fill up this form directly with the AMC by going to their Office , or you can also use CAMS/Karvy for making investments , who are back-office partners for a lot of AMC’s . If you invest through CAMS/Karvy , still the investments will be into Direct plan, just make sure you do not leave the DIRECT unticked.

How to Change your Existing Mutual funds to Direct option?

Your existing investments in mutual funds will NOT switch to direct plans automatically, no matter you did it with an agent or directly with AMC (Read which AMC is better then other) . It will has the same expense ratio as of old funds.

To convert your existing holding from a standard to a direct plan, you need to submit a switch request. All you need to do is contact your AMC and ask for Switch reuest form . Which is a written request telling them that you want your existing mutual funds to be now converted into DIRECT plan . Once they get this request , they will process it , they will intimate you once its done . Your agent will not like you for this 🙂 .

Will my existing SIP’s be considered under Direct plan by Default? ?

All the SIP’s which were made through an agent/distributor will still be under the standard plan , you will have to manually request the switch to Direct Plan . But if you had any SIP which was done directly with AMC (without involving Agent Code) , in that case your SIP’s  done after Jan 1, 2013 will automatically be considered under DIRECT plan , but all the old SIP’s which were done before Jan 1,2013 will still be there under Standard Plan and the higher expense ratio will apply there.

Can you convert your existing Tax Saving Mutual Funds (ELSS) under Direct Plan ?

If your tax saving mutual funds are still in lock in period , then you CANNOT convert them right now, only when the lock in period is over, you will be able to convert them into Direct Plan.

Will there be Exit Load applied when I move to Direct plan ?

Yes and NO !

If your existing mutual funds investments is through an agent/distributor , then there will be exit load at the time of switching them into a Direct version of mutual funds, but if your existing investments are through AMC directly, then there will not be any Exit Load while switching to Direct plan.

Important Points

  • There is no DIRECT option in ETF’s and closed ended mutual funds
  • There will be no difference between the portfolio’s of Direct Plan and Standard Plan . Every thing will be same except that the Direct plan will have a lower expense ration. Thats all !

Finally Are you going to invest into the Direct Plan of Mutual funds or going to continue with your old investments through an agent or distributor ? Please share your thoughts and inputs about it. What do you think about the Direct Plan of Mutual funds ?