Month: March 2021

DevOps & Personal Finance – A guest post by software professional

Posted on by Jagoinvestor

This is a guest post by our reader Phani Kiran, who has tried to see personal finance from the software industry perspective. It will be more clear to software people but I think the way its written, everyone can understand it. Over to Phani Kiran

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Hi All

DevOps needs no introduction to people working in the Software industry.

It is a set of best practices where Developers (Dev) and IT Operations (Ops) work together in delivering Software faster, cheaper and with better quality. This article tries to explain how DevOps can be applied to the world of “Personal Finance”.

For those who are hearing the term ‘DevOps’ for the first time, a rough analogy can be made with the FIRE (Financial Independence, Retire Early) movement. Both are best practices where we need to change our thinking, behaviour and tools but at the same time there’s nothing cast in stone and no one size fits all approach.

CAMS

DevOps is needed as old software methodologies are no more relevant in a world where innovation needs to happen faster. Same with personal finance habits and practices – we need change as we move towards a lower PPF, EPF and Savings rate regime.

DevOps is frequently explained by CAMS Model (not your CAMSOnline :)). CAMS stands for

  • Culture
  • Automation
  • Measurement
  • Sharing.

Let’s see how each of these can be applied to Personal Finance.

C – Culture

  • Investors need to start moving away from the culture of only investing in ‘fixed’ income investments. As Warren Buffet, mentioned in his recent annual letter – “fixed-income investors face bleak future”.
  • Culture of treating tax saving as a separate and as a year-end only activity needs to be done away with.
  • Need to stop combining insurance and investment needs and start saying ‘No’ when resorted to pressure tactics from a so-called relative or a well-wisher selling ULIPs.
  • Start focusing on goal setting, risk profiling and asset allocation.

A – Automation

  • SIP (Systematic Investment Plan) is the automation you can make to your personal finance. In her book – ‘Let’s Talk Money’, Monika Halan talks about keeping investments on an auto-pilot mode using 3 different bank accounts. (Salary, Investment & Spending accounts)
  • Automating SIP or RD instalments inculcate discipline and removes personal biases. This can be your first step towards ‘passive investing’ as you no longer will be focusing on – if Market is High or Low.
  • For those who are prone to more discretionary spending, SIPs can be scheduled in the first half of the month so that you will establish a ‘Culture’ of Saving before Spending.

M – Measurement

  • The portfolio needs a periodic (quarterly or half-yearly depending on one’s perspective) review of performance. This is possible only when you have a target goal – ie. ‘target corpus’.
  • As they say about your year-end KPI (Key Performance Indicator) goals, equally personal goals like retirement, child’s education need to be SMART – Specific, Measurable, Achievable, Realistic and Timely.
  • Investment deductions on Auto-Pilot mode need course-correction as and when required. This doesn’t mean too much ‘Action’ (churning) though.
  • Measuring and monitoring returns and tracking whether you are on the path to achieving the desired goal or not needs more emphasis as equity returns can be volatile.
  • As SIPs automate the corpus-building phase, you can use SWPs (Systematic Withdrawal Plan) to move accrued investments to safer avenues once you are nearing a target goal.

S – Sharing

  • Keep your family in the loop about your financial and insurance decisions and documents.
  • Be a life-long learner and don’t hesitate to learn and talk in ‘numbers’ (compounding, inflation etc)
  • Read good blogs and attend personal finance workshops (Even DIY (Do It Yourself) needs some framework and strategy).

Just like DevOps improved software delivery productivity and reliability, following these principles should lead to a ‘virtuous cycle’ of prosperity. Keep your corpus build-up ‘flow’ by following a CI (Continuous Investment) strategy and let your periodic portfolio reviews provide the required ‘feedback loop’.

Happy Coding. I mean Happy Investing 🙂

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So share if you liked this article or not in the comments section. And I thank Phani Kiran to give an attempt in writing this article.

 

Can you get a plot loan if you don’t want to construct a house?

Posted on by Jagoinvestor

Lots of people in India want to buy land, especially investors from big cities as land is a scarce commodity and it sounds amazing to build your own house on a piece of land instead of staying in apartments.

Plot Rules, is it compulsory to build a house after taking plot loan?

However, do remember that there are no specific loans available to buy agricultural land. The only loans available to buy the plot are for “residential plots”, which means that if you take these “plot loans”, you need to also construct a house within 2-3 yrs of buying the plot. You can’t just buy a residential plot and skip building the house.

However, many people do that. Some intentionally and some out of ignorance.

  • What exactly happens when you dont build the house on a plot taking on a loan?
  • Is there a penalty?
  • Can there be any actions against you?

What happens if you dont build the house on the plot?

When you take a plot loan, it comes at a lower interest rate because the assumption is that you will be building the house on that land within 2-3 yrs. But if you fail to do that and dont submit the required documents (completion certificate) to the lender on time, your loan will be converted to a normal loan and the interest rates will be increased by 2-3% with a retrospective starting date as per the agreement between you and the lender.

This means that your loan outstanding amount will go up by some amount due to this change and you will have to now pay that additional amount. At the end of 3 yrs, the bank will ask you for the proofs of construction, and if you fail to submit them, you will have to pay an additional amount.

Here is an example of a Rs 20 lacs plot loan which is taken for 10 yrs @7% interest rate. The interest to be paid in this case will be 7.87 lacs apart from the 20 lacs principal amount.

Now if the interest rates are revised to 9% (2% increase) the interest, in this case, will increase to 10.4 lacs, which is 2.53 lacs more than the original amount.

Plot Loan calculation example

Is there a single loan for plot and house cost?

Some banks like SBI (as told to me by a representative) first issue a plot loan and then after 2-3 yrs issue another home loan for the purpose of constructing the house (two separate loan account numbers), whereas some banks may issue a single loan itself for both purposes and it will be mentioned in the agreement (for example 40% amount is for plot and 60% for house construction).

Note that you can avail of 80C benefits as these loans are issued as home loans (the part of the loan which will be used for house construction).

Wrong information was given by the bank representatives

Many times you may get wrong and misleading information from the bank representative. They may tell you that “Nothing will happen after 3 yrs, dont worry” or “These are all just formalities..” mainly because he is interested in getting the loan approved due to their targets. This is wrong and makes sure you dont believe them. Always rely on what is written in the agreement.

Note that the loans are given at a cheaper rate for plots because there is a bigger agenda of RBI and govt that everyone shall access to housing. If you are buying the residential plot simply because you can sell it off in future for profits then you cant get the benefit of the lower interest rates.

For you, the interest rates will be revised because you will have to construct a house on the plot after 2-3 yrs as per rules.

Some features of plot loan

  • The age requirement is between 18-70 yrs.
  • A CIBIL Score of‭ ‬650‭ ‬or above is required (in most cases)
  • Up to 60% to 70% of the property price is given as a loan depending on the bank.
  • These loans are given for a maximum of 15 yrs tenure

Points to remember before going for the plot loan

Make sure you take these plot loans only in case you are really interested in building the house. You can also ask the bank to first disburse only the loan amount for the plot and later release more amount at the time of house construction. It’s really not worth playing around with bank and playing tricks as it will mostly waste your time and you won’t gain much in case you dont want to build the house.

Here are some more important points which were shared by our reader Jayaprakash Reddy

  1. Generally, banks calculate plot value based on the sale deed value, most of the cases sale deed value is lesser than the market value. Also, as mentioned above, banks like SBI will only consider sale deed value but some private banks might also look at market value in that area and which will be derived through their certified valuers. SBI will give a loan on plot purchase (House construction in future is intended) up to 60% of the sale deed value and it is the same with even private banks but that will be on market value.
  2. There is no clarity even with bankers about what happens if you sell the plot within a year or two without construction, most of the representatives told me that it will be like closing a home loan but I guess that’s a false statement and depends on the bank and agreement if mentioned specifically in it.
  3. The total loan again depends on the construction value in that area. For example in the area where you are purchasing a plot, the construction cost could be 1500/sqft. Then based on the sqft you are planning to construct the total loan amount will be derived. Let me put it in numbers:
    Plot Area: 300 sq yards. – SBI bank loan – Sale deed value is 10000/sqyd – 30 lacs. For plot purchase – 60% of 30lacs will be given to you as a loan. 18lacs loan will be provided by the bank, this is given as cheque payment directly to the seller. For the construction of the house, they will provide it based on the sqft permission you got. For example, in a 300sqyrd plot if you are constructing G+2, then you might get permission to build ~3000sft (not an exact number). So the construction value of the house will be 3000*1500 = 45lacs, out of this bank will give you up to 80% loan, which again depends on your credit rating.
    In total, you can get a 63 lacs (18+45) loan, provided you are eligible for such a loan based on your income.
  4. To prevent malpractices, in the case of a home loan, the bank keeps the sale deed of the plot. With documents not available, one can not legally sell the plot. There can be a word of mouth agreement whereby the buyer can give money to the seller to release the loan and documents and then purchase.

Also, here is a checklist before buying a plot in India in case you are planning to buy one!

Do let us know if you have any questions