Month: March 2020

Today, there was a news about 3 months moratorium (which means a temporary relief) benefit on all kind of loans and how investors won’t have to pay their EMI for 3 months. However it was celebrated by investors without understanding it fully.

So I thought of clarifying some doubts regarding it and to share with you that it’s actually not a very big benefit and why most of the investors should not OPT for it.

Let me clarify on what is the EMI moratorium meaning and how does it apply to you?

Meaning of EMI Moratorium

A lot of people in our country might get impacted due to coronavirus and this 21 day lockdown and their incomes and salaries might get impacted. A lot of people may find it very tough to service their EMI on time and there was a need of the hour for some relief. Hence govt has given permission to banks, NBFC’s and housing finance companies to consider an EMI moratorium and pass on the benefit to the customers

Which simply means that it’s not a forced rule, but only a permission given to banks if they want to do it. RBI will not count those missed EMI payments as “defaults” and not count it as NPA (non-performing assets) and also directed banks to not report it to CIBIL and other beaureu

Now it’s up to bank on how they would like to implement it. Banks might pass on the benefit to ALL or some customers. Here are the exact RBI notification wordings you might want to read.

Will your EMI deducted stop ?

No, looks like you will have to apply for this benefit in case you wish to and only when you apply for it, the EMI will then not get deducted. If you just don’t take any action, then the EMI may get auto deducted as always.

A guy names Siddharth told me on twitter that his bank might deduct the EMI (will not pass the benefit) if salary is credited in the account. Here is the conversation snapshot

As I said, this will only happen if you get this benefit from your bank and bank agrees for it. Checkout the tweet below where an investor asked his bank about it and bank person told that it might not be applicable to him if he gets the salary.

Will I pay any interest for those 3 months of moratorium ?

A lot of investors are showing their happiness about this RBI notification and feeling like they are getting some very big benefit. However in reality it’s opposite and it’s suggested for you to NOT take this benefit.

If someone takes this moratorium benefit, they interest will be accruing on the outstanding balance and you will have to pay the interest at the end of 3 months. Their EMI will start getting deducted after 3 months.

What it means is that assume someone has a 30 lacs of home loan, and an EMI of 30,000 (just a random assumption) and interest rate is 8% , then one month interest will be Rs 20,000 (30 lacs * 8% = 2.4 lacs yearly .. Divide that by 12 to get monthly interest = 20,000)

And for 3 months, it will be Rs 60,000 additional simple interest. This additional interest will be added to your outstanding balance and your tenure will go up.

Same is true for outstanding balance on credit cards.

The only benefit you will get here is that you will not be paying any kind of penalty and it won’t be reported to CIBIL.

Update from various banks

Here is a notification from SBI bank and ICICI bank to its customers that interest will still be charged on the outstanding balance if one wants to avail this benefit.

Most of the banks have also clarified that to take this benefit, one has to contact the bank and ask for this benefit. If you don’t take any action, then the EMI will get deducted as usual.

Should you opt for EMI Moratorium benefit?

By now, you must have understood that this benefit is not for someone who is not facing severe financial crunch or whose income/salary is going to go down due to coronavirus impact. So if you can easily pay off your EMI’s, then please do so and don’t opt for this moratorium benefit.

It’s only for someone who is going to see salary loss, job loss and is facing very hard time financially due to this lock down. They are getting TIME from bank side and nothing else.

Do let us know what you feel about it in comments section.

As I write this, Coronavirus is already spreading in India and there have been 148 positive cases in India. 3 people have died.

Coronavirus is spreading across the world and has killed so many across the world (especially China, Italy, Iran, and Spain). A lot of us have bought life and health insurance policies and the natural question you might have is “Does my insurance company cover coronavirus?”

And the good news is the answer to that is “YES”. I also called up the customer care of my term plan and health insurance companies and got a confirmation in audio format which is there below if you want to listen to it.

Almost every life insurance and health insurance policy will be covering coronavirus related claims and policy holders don’t have to worry about it. Even IRDA has issued a guidelines against coronavirus and how insurance companies should deal with it in its recent circular

Life Insurance & Coronavirus (Covid-19)

I just called to the customer care of the insurance company from where I had taken term plan and they told me clearly that the entire claim because of coronavirus will be paid and we do not have to worry about it.

Here is a clarification from Aviva Life Insurance on Coronavirus coverage

Death from these kinds of natural calamities and illnesses are covered in life insurance. So if you have a running life insurance policy, you should not worry about it at all. The claims will be paid

Health Insurance & Coronavirus (Covid-19)

Even in health insurance policies, the claims against expenses for coronavirus treatment and quarantine will be covered. However, when I called my health insurance policy company, they told me that while the treatment in recognized hospital will be surely covered just like other illnesses, the treatment at home will not be covered (this was Religare Care)

Here is a clarification from the customer care of Religare

One of my teammate at the office have the policy with Birla Sun life and they got an SMS which clearly told them that they need not worry about it and its covered. Here is the snapshot of the message –

So, I think you should not worry at all about its covered by your health insurance company, however, you may want to call your company customer care number and verify in case you want to be double sure about it.

Get clarity from your Insurance company

Only the active insurance policies will be cover coronavirus related claims. If someone is in between the purchase of the policy and gets the virus, the policy might not cover it. Please get clarity on this from insurance company. Also on some articles, I read that some health insurance companies may not cover a disease that is declared as an epidemic or pandemic by the World Health Organization (WHO).

So to be double sure about it, it’s better to go through your policies and check this on your own with customer care.

Do let me know what you think about this matter and if you have any more questions.

Sensex is down by 7.96% today

In the last 1 month alone the markets have corrected by 23% and it was one of the fastest and steepest declines ever in the history of stock markets in India (and globally)

A lot of equity investors are very new to this game and many might be wondering what is going on and why markets are falling?

So in this article, I will just jot down 2 big reasons which are contributing to this steep fall.

Reason #1 – Fear and Panic because of Coronavirus

The biggest reason and the trigger of this huge market falls from the last 1 month is because of the coronavirus.

The entire world is fearful about the spread of this virus and its impact on the world.

In the entire world, the businesses are hugely impacted because of coronavirus. Because of this virus and the fear around it, various factories are shut down and work is stopped. Other companies which needed raw material are not getting it and production is down. Overall manufacturing is HIT.

Which also means that consumption is down and will be down in the near future also and it will only go up slowly over time.

One very simple example is APPLE. Its products get manufactured in China and because China factories is shut down, the apple stock is down because it’s going to hit their profitability.

One more way of understanding coronavirus impact on business is simple meat/poultry businesses especially in India. The demand for Chicken/mutton or other similar items have drastically gone down. No one is buying it. Now imagine the job losses, no sale of associated products like poultry feeds by poultry farms..

Another example is the tourism industry. People are not going on vacations, or booking very less flights, etc. which is directly going to impact so many companies on at a deeper level.

So in general various businesses around the world are impacted and as you might be knowing stock markets chase earnings. Because the future earnings of companies across the world are going to be impacted, the stock markets are just reflecting that today.

Markets are desperately looking for news where we develop some medicine or vaccine for coronavirus which gives some kind of assurance that we will be able to control this virus and further damage.

Reason #2 – Crude Oil Price Crash

Crude oil in international markets has crashed badly.

The oil price was a few days back fell by almost 30% in one single day and hit around $30 per barrel (Oil price in 1947 was $28 per barrel)

This was $120-130 around 10 yrs back and just 2 yrs back it was in $60-70 range.

The huge drop in oil prices also indicates huge slowdown and low demand, even though it’s amazing news for India because we import oil and it’s going to save us billions of dollars in oil bill.

Why is it happening?

Well, its extremely complicated thing for a retail investor like you and me, but for now you should know that there is a price was going on between Russia and Saudi Arabia which has triggered this oil crash. Russia did not honor its promise as per its OPEC promises and now Saudi Arabia is kind of punishing it for going against OPEC and have crashed the prices which as per some analyst is not going up very soon.

You can either read this article or watch this excellent YouTube video to understand about oil crash.

Conclusion

For the last many months, there was a correction expected but the sudden rise of coronavirus has added a new level of fear among investors and the crash happened before people even realize what is happening.

Markets have corrected by a good margin and now we have officially entered into a bear market (above 20% fall is bear market). While no one can catch the bottom and can’t guarantee that more down fall cannot happen, this is surely not the time to sell off your long term money. If it was your short term money, it should not have been there in equity markets at all.

One of the suggestions right now would be to partly invest some money which you don’t need for the next 8-10 yrs and be ready with some cash incase the market falls further from here.

Disclaimer: This is a highly complex topic and I do not claim to be an expert on this matter. I have shared my opinion and my limited understanding, so please feel free to correct me on any point.