CIBIL will soon be providing 1 free credit report a year to every person starting Jan 1, 2017 as per RBI directions . This was said by RBI governor Raghuram rajan at a seminar on ‘Transforming Rural India through Financial Inclusion’.
This is great news for investors because right now one has to pay Rs 550 for getting a onetime credit score and report from CIBIL. While Rs 550 is not a very big amount for many people, for a majority it’s quite a good amount and most of the people are not in agreement to pay for a PDF report, as they think that it should be freely available.
How the FREE credit report will help investors?
A lot of investors have till date not checked their credit report and hence they are not aware of any issues which might be present in their report. Not everyone is ready to pay Rs 550 for their report and even that’s the reason why many people are not aware of their credit score.
With this free credit report, I think a lot of people will start looking at their report and start working on improving their score and take measures to remove the bad remarks from their report. Investors will also be able to find out if there are any fraud loans on their name taken by others if any.
Seems like RBI has really pushed on this matter of free credit report. The reason why I say this is because around a month back in June, 2016 , there news channels had reported that RBI has suggested CIBIL and other credit bureau to provide a one free report. You can check out this youtube video.
What is Credit Report?
In case you are not aware, Credit report is a comprehensive report which is prepared by CIBIL or other credit bureau from the data they get from various banks and lending institutions. The report contains your credit history and all the details about our past loan payments (including credit card). Every lender uses this report to understand how trustworthy you are and if you should be given a loan or not.
In a lot countries consumers are entitled for one free credit report a year and now it’s going to be a reality in India too. I went to https://www.usa.gov/credit-reports to understand how it works in US and found out that Americans are entitled to get 1 free credit report from all the three credit bureau there. See the snapshot mentioning that below
In India apart from CIBIL, we have Experian and Equifax as other two credit bureau, but at this moment RBI governor has only announced that one will get a free report from CIBIL. He has not mentioned about the other two.
However, I think over time even they will start providing a free credit report to catch up with the rules.
What you think about this news? Do you think it’s fair for CIBIL to charge people for providing the credit report or it should always be FREE?
Recently the PPF closure rules got changed and now a PPF account can be closed prematurely after 5 yrs itself, but only in some conditions which we will see in this article.
Till now, as per the old rules, the PPF account had a lock-in period of 15 yrs, and in no case, it was possible to close the account other than the death of the subscriber itself.
So death was the only valid reason to close the PPF account before 15 yrs maturity period.
PPF premature closure rules
As per the recent rule change by the govt, PPF closure before 15 years is now possible. You can close a PPF account if it’s at least 5 yrs old, in following 3 cases
Case #1 – Death
If the PPF holder dies, then the account can be closed anytime (even before 5 yrs) and the nominee/legal heirs can claim the amount from Govt.
Case #2 – Life-Threatening illness
The PPF account can also be closed in case, the money is required for curing the serious ailment or life-threatening disease of the following people
PPF subscriber himself/herself
Spouse
Dependent Children
Dependent Parents
Note that one has to provide the documentary evidence from a competent medical authority. So you will need to share the proof that you need to undergo some big treatment/surgery etc and you will need money for that.
Case #3 – Higher Education
If money is required for the higher education for the PPF subscriber or the minor on whose name the account is opened, then one can pre-close the PPF account. However one has to produce the fee bills and the proof of admission or any other documentary evidence.
Here are the exact notification wordings
Penalty of 1% when you close PPF account before maturity
This pre-close feature comes with a penalty of 1% of interest for each year. What it means is that for all the years since your PPF account is opened, you will get 1% less interest for each year. So if you earned 8.7% for a particular year, your calculation will be done @7.7% and this way for each period 1% will be reduced.
Govt has issued an example calculation for penalty of 1% . But the question now is does 1% penalty mean 1% less amount in final corpus after pre-closure?
No, the answer is 4.88 %!
Yes, You get 4.88% less corpus due to this pre-closure penalty of 1 %. But this is true for that example only which is given by govt in their notification. I went deeper and did the exact calculation and here are the results.
The reason why there is a good amount of difference is that there is the compounding of penalty in this example. If you check the balances in 3rd year, you will see there is difference of 2.1 %. And it keeps on increasing as the number of years increases.
Which means, Older the PPF account, the higher is the final penalty for you.
It does not make a lot of sense to close the PPF account before maturity once 10 yrs is passed, as the penalty will be higher than 4-5% if most of the cases.
PPF pre-closure rule will help investors
PPF is one of the widely popular financial products in India. Majority of families have at least one PPF account and given it’s a long term product, there is a good amount of money lying in it. Now with this new pre-closure rule, an investor gets the benefit of closing the PPF account if they want to do it.
But the only issue is that it’s not an emergency solution to the problem as the documentation requirement is there and being a govt product, you can expect a slow response while closing down the PPF account and using the money.
Please share what do you feel about this new change in PPF closure rules?
You have experienced your first rain and the weather is beautiful out there. It’s time to go on a date with YOUR financial life and to do so; we have an opportunity wrapped in this article for you.
Mark and block 7th of August (Sunday) on your calendar, our entire team will remain present in Mumbai to lead/organize an extraordinary one day workshop on personal finance. This time we are playing for a bigger event and for that we will need your support and full participation. (Watch Pune workshop Video & Testimonials from Participants)
If you are from Mumbai, Navi Mumbai, Thane, or other nearby areas (even Pune), then book your seat and then share quickly about this event with your loved ones.
Our PROMISE – It is going to be a GAME CHANGER
The workshop will be a game changer for YOU because it will add a lot of value to your financial life. So far we have seen and observed that our workshop helps investors to add new and different dimensions to their financial world.
In the whole process you learn to slow down so that you can examine what’s going on in your INNER financial world. With our help and support, YOU will also define and adopt a new set of actions and strategies to create an amazing financial life.
Why we conduct workshops?
We do offline workshops so that we can connect with some of our readers at a deeper level, round the year we write articles, reply to thousands of comments and work with a few hundred investors one-on-one and in that process we learn, grow and expand as professionals.
Our Workshop gives us an opportunity to share outrageously all the knowledge and experiences that we acquire round the year. The program is an opportunity to get our readers more and more action-oriented.
Why you should come for this workshop?
You will learn how to improve your financial life with your current set of resources and income.
You will learn how to plan for your financial life goals
You will interact and learn from other’s people’s financial life
You will dedicate one full day to get better with money management
You will learn to add new dimensions to your financial life
To understand that personal finance can also be fun
To give a whole new direction to your financial life
It’s time at add jagoinvestor workshop to your financial journey:
It has been a few years now conducting “Design your financial life” workshop and the experience has been amazing. It is a wonderful space to be in, in which the group learns and starts to fall in love with the process of wealth creation.
We do not teach tricks and tips to build wealth in fact we help you to discover your own personal process of creating wealth.
This time we want more couples to participate so that they can get on same page when it comes to personal finance. It is extremely important that husband and wife both take equal interest when it comes to money management.
We are offering special discounts to those who want to come with their partner. (You can even come with your parents, siblings or friends and can claim the discount)
The workshop we conduct is highly interactive, it has lots of activities and fun exercises that help you to discover your relationship with money. The sessions are interactive and very easy to grasp for any kind of, beginner or advanced investor. In short, there is something for everyone in this workshop.
[su_panel background=”#ffffff” color=”#333333″ border=”1px solid #f2f2f2″ shadow=”0px 1px 2px #eeeeee” radius=”0″ text_align=”left” url=”” class=””] Program Name – Design Your Financial Life (Check Program Flow)
From the bottom of our heart, we invite you to join and participate in our Mumbai workshop. Come alone or with your spouse or parents, siblings or friends but see that you do not miss this opportunity. Do not let time and money to get in your way and book your seat at the earliest because we will be taking 70 participants this time and registration will close after some days.
This workshop is strictly for investors and not for advisors or finance professionals. This workshop is strictly for investors and not for advisors or finance professionals. In case we find some financial advisor/planner or anyone from personal finance background registering for the program, we will refund the fees. We hold the right to admission to this program
If you have never participated in any personal finance workshop let this be your first workshop. If you have any questions you can write in the comments section.
We would like to extend special thanks for Motilal Oswal Mutual Funds for allowing us to use their venue for this workshop and helping with the logistics.
Today I am going to teach you about “asset classes”, which is the most primary lesson every investor should go through. Understanding asset classes is very important for an investor because when you invest your money in any financial product, then in the background, it goes to a certain asset class only.
The world of personal finance has hundreds of financial products, which makes everything confusing for an investor, but if you understand which asset class it belongs to, then this whole world of personal finance will sound easy to you.
So if you are confused about whether to invest your money in a fixed deposit or a mutual fund? Or into gold ETF’s or PPF? How do you decide?
Just ask – “Which asset class does it belong to?”
Is a fixed deposit in the bank better or a PPF would be the right thing for you, this all questions might seem to be confusing to you if you do not understand which asset class they come from? So in this article, we will go deeper into the basics of investing and help you to get stronger into the primary level information.
What is the meaning of Asset Classes?
Asset classes can be seen as a big basket where all the financial products belonging to that asset class share common characteristics. Things like risk, returns, liquidity, and various other parameters are similar.
For example, a Fixed Deposit and PPF are different financial instruments, but at the deeper level they both are secure products, you do not lose money in these products, their returns are also predefined and there is predictability in their returns.
Can you see that both FD’s and PPF share some common characteristics? It’s because they both belong to the asset class “Fixed Income”.
Here is a video which gives an introduction to asset classes
In the same way, an equity mutual fund or direct stocks, both are different financial instruments from high level, but inside they both are high volatility instruments and have potential to multiply your investment amount many times in short period of time, this is because they both belong to same asset class called “Equity”.
Below is a snapshot from the Karvy website which shows you the wealth distribution of Indian investors in the year 2015.
There are 5 asset classes
While there is no standard list or category of asset classes, widely it’s accepted that there are 5 types of asset classes namely
Fixed Income
Equity
Real Estate
Commodities
Cash
Every financial product you come across will fall into any of these 5 asset classes only. Each of these asset classes has their own set of behavior and they represent something unique about them. The chart below shows you financial products belonging to these asset classes and what these asset classes denote
Asset Class #1 – FIXED INCOME
Let’s start with the most famous and favorite asset class in India, which is “Fixed Income”. Fixed Income asset class refers to the class of financial products where your investment amount is more or less protected and the returns are either fixed or predictable to a great extent. There is almost no/less risk in these products which are from the fixed income asset class.
Investing in fixed income asset class is like lending your money to someone with the assurance of return with predefined returns. So when you make a fixed deposit in a bank, you are not exactly “investing”, but lending your money to the bank with a promise that they will return back your principle amount along with a pre-defined interest.
Fixed Deposits do not beat inflation
Even if you are getting an 8-9% return on your fixed deposits, many people do not realize that it’s the pre-tax return. As Fixed deposits are taxable (and every other debt instrument), once you pay the tax on the returns, the post-tax returns are only in the range of 6-7% and if you adjust the inflation of 8-10%, you are actually getting a negative return on your fixed-income investments.
All those who want to get a fixed return and do not want to take any risk should choose this asset class. It’s a human nature to seek assurity, and given that fact, fixed income instruments are a big hit. No wonder Fixed Deposits rule the world of investments, It’s simple and easy to understand the financial product.
Same goes for PPF, NSC, recurring Deposits and various govt bonds or debt mutual funds. However note that this asset class does not beat inflation or nearly matches it, hence over the long term, while the amount of your investment will become bigger in number, the purchasing power will remain stagnant or might drop. So this asset class is to only protect your money, not grow it.
Asset Class #2 – Equity
The equity asset class is an interesting asset class and slowly getting more and more acceptance from the last 1-2 decades.
Equity means ownership
So when you invest in equity, it means that you have bought ownership into a business. For example, when you buy stocks of Infosys or Reliance, you become a small owner of that business.
Even the RSU and ESPP which you get from your company makes you a small investor in the company and that’s “equity investment”
Now obviously when you invest in the business, you get a % ownership. And if that company becomes big someday in the future, your overall worth also goes up. But there is a problem, the business grows only over time and in between, there are ups and downs and that reflects in the stock price of the business/company.
If you look at all the rich people today (really filthy rich), it all happened with equity investors. Someone either opened their own company or invested in some company which was growing and held it over the long term.
Equity Investing works in the long run
Below is the 10 yrs return chart for various years for Sensex. You can see that most of the time sensex has given more than 12% return (much more than that actually) every 4/5 times. This is since the time Sensex has been into existence.
Because the equity returns are very volatile, most of the people refrain from mutual funds investment or investing in direct stocks, but they are the real wealth builders for any investors. There are mutual funds from various Asset management companies that have a proven track record for building wealth for its investors.
Asset Class #3 – Real Estate
Real estate, as we all know refers to physical space, or physical structure like land, residential flats, commercial spaces, etc. These spaces are either used for living purpose or for doing the business and generate income. Should one invest in real estate or not is a topic of debate and I am not getting into that right now.
Over the last 2 decades, the real estate asset class has got tremendous interest from investors. Everyone wants to now own a home and real estate is very sought after asset class. As the country develops and expands, we see many upcoming areas in all cities and a location which was considered outskirt of the city becomes a very important location in the city and we see some amazing returns.
However, the fact is that we always hear the “good” stories and never the bad stories where one got bad returns from real estate or lost their money.
Returns from Real Estate
The real estate market has cycles of ups and downs and returns from real estate can be very volatile and can depend on various factors like city future, govt policies, political situations and many more. For example, if you look at Hyderabad, the returns in real estate have not moved anywhere in the last 7-8 years and we are talking about average returns here.
Bigdecisions.com has done a study based on NHB Residex to compute the real estate returns in various Indian cities from 2007-2014 and below were the results.
I am in on way saying if real estate is good or bad. All I am trying to do is make you aware of the characteristics of real estate as an asset class. You need a high ticket size for investment, the market is not regulated at all (only recently the regulation has been made) and it’s more or less one side market with a lot of opaqueness.
Asset Class #4 – Commodities
Commodities refer to various types of physical goods or products which we all can buy and sell for various uses. Gold, Silver, Copper, Rice, and Oil etc will be counted under this asset class. The price of these products depend on demand and supply in the market.
Commodities are for “Trading” and not investing
With my limited understanding, I came to the conclusion that commodities are not for investing for the long term, but mainly for trading, where you can benefit from the market cycles and predict demand and supply moves and get a profit or loss.
Returns from the commodities can be very volatile and each commodity has its own market and dynamics.
Only a handful of commodities like Gold or Silver can be invested in for a very long time because they can be stored without losing their usage. A common man can’t store other commodities in the same way, hence trading them for short term is a feasible option.
Asset Class #5 – Cash
When I say “cash”, I don’t just mean the hard cash bundles, but also the money lying in your saving bank account, or liquid mutual funds. I will refer all of these things as “Cash”.
The best thing about cash is that it gives you the freedom to “buy” anything you want instantly. You can buy a car, a house or a phone or invest your money in other asset classes.
The freedom you get with cash is very high and that’s one reason why most of the people prefer to hold a lot of cash. Also the cash cannot be tracked (unless it’s several multi-crore rupees) and many people keep their black money in form of cash.
It’s not uncommon to see many lakhs lying in a savings bank account just because the investor thinks “What if something goes wrong?”
However cash has one problem, it does not fight inflation at all or very little. The money lying in saving bank account just earns 4% and that does not help you as an investor.
Which asset class you should invest into?
Where should you invest your money? This question can only be answered if you are clear about your requirements like how much risk can you take and how much return do you expect out of your investment?
Are you ok with locking your money for several years or not? I have made a simple table that compares all asset classes on various parameters.
I hope this article gave you a high-level understanding of all asset classes and cleared your basics. Please share which is your favorite asset class and why?
Are you going to apply for a home loan in the near future? If Yes, then this article is written exactly for you, because I am going to share with you a checklist which you should follow to make sure that your loan application process is smooth and also to increase the chances of your loan application getting approved.
We all take various kind of loans these days, be it home loan, car loan, personal loans or even credit cards. I will show you some very important checklists which if you follow; you will save yourself from various issues faced by other loan seekers.
Note that while this article is primarily written with a home loan in mind, but the checklists discussed will also apply for any kind of loan.
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Checklist #1 – Check your CIBIL report/Score in advance
Don’t underestimate the role of credit reports/score in loan approval process these days. The first thing the lender looks at is your credit score/report when you apply for any kind of loan (even credit card).
The moment you enquire for a loan with a lender, they check your report from CIBIL or any other credit bureau like Equifax or Experian and based on the remarks on your report and your score, they either reject your loan application or forward your case for further checks.
There are many real-life cases, where a person applied for a loan and found out that it got rejected because of this credit report is messed up. It might be due to a credit card settlement he did a few years back or because he was not able to make timely payments on his past loans.
Imagine a person who has already paid the booking amount for a car or a house and then he is stuck because he/she can’t get the loan approved. That’s not a situation; you would like to get into!
CIBIL score of 750+ is a good score
How much CIBIL score can be considered good enough to get any kind of loan? Well, there is no guarantee that you will get a loan just because your credit report is high, but as per CIBIL, out of every 100 people who got a loan approved, 79 people had a score of more than 750.
This means that if your score if more than 750 out of 900, there is a good chance that your loan will be approved, provided there are no bad remarks on your report and other things like income proofs are in place.
Apply for your CIBIL report in advance
So when should you apply for a CIBIL report?
I think it should do it much before you apply for a loan. I suggest at least 6 months in advance because if there is some issue in the report, you get enough time to rectify that mistake.
There are many cases, where a person applied for a home loan after paying the down payment money, and their home loan is not approved because of CIBIL related issues. Now they are stuck as they are not getting back their down payment money back and their application is also not getting approved.
They run around to fix their issues or try to improve their CIBIL score, but now it’s very late because it takes many months to follow up with CIBIL or Banks involved. Last-minute fixes do not work, that’s the reason this check needs to be done well in advance.
Checklist #2 – Make a simple Cash flow statement
If you are applying for a big loan like a home loan or a car loan, then it’s very important to understand where you stand financially. You should have a very clear idea about the maximum down payment you will be able to make (and you should also try for that) and what is the realistic EMI you can pay each month.
As our wealth is scattered across various financial products like saving bank account, fixed deposits, mutual funds etc, it’s important to note it down in an excel sheet to get better clarity.
You should also list down the income and expenses details so that you can get an idea about how much you save each month. Your surplus each month is a very important criterion used in calculating your loan eligibility by the lender.
Below is a sample working of cash flow in an excel sheet, which gives the good enough indication of the down payment amount and the potential EMI a person can afford.
It should not happen that you applied for a loan much beyond your capacity and then at the last minute, you are wondering where you will arrange for extra money. It can be a very frustrating situation, where you are stuck in a deal and you are not able to figure out how to arrange for the money.
Checklist #3 – Increase your home loan eligibility
When most of the buy a house, they wonder how big a house they will be able to afford? Just because they have a high salary, they think that they will get a big loan, which most of the time is true, if you don’t have any existing loans.
But then a lot of people have several small loans running like a personal loan or a bike loan or any other consumer loans, and these small loans come in the way of your loan eligibility because they show up in your “pending loans” or “Existing EMI” list.
So one the actions you should take is to close off any small loans you have because they will increase your “surplus” as the EMI will get stopped, and also you will have one less commitment to take care of and lender likes that.
Below are some handy tips if you want to increase your home loan eligibility.
Let’s see an Example
Suppose, your per month income is Rs 1 lacs and you have a bike loan (or personal loan) currently running with Rs 8,000 EMI per month with 10 more installments to go. Now with this profile you are eligible for Rs 43 lacs of home loan.
How can you increase your home loan eligibility in this case? You can prepay your entire bike loan as it’s a small loan if you look at the outstanding amount; you can dig into your other savings and pay it off. This will surely reduce your savings a bit, but increase your loan eligibility by another 8-9 lacs because now you have another Rs 8,000 surplus each month.
Even your CIBIL report will also show that you have successfully completed and paid off a loan provided you do this a few months in advance before you apply for a home loan.
Close you credit card outstanding also
You should also consider to pay off your entire credit card outstanding bills. May people keep rolling their credit card debt by paying the minimum dues, but that’s not a good thing if you want to get some loan in coming future.
If you are looking for a home loan, then go to this home loan eligibility calculator, enter your details and our trusted partner will help you in securing the best home loan. You also transfer your home loan by applying here
Also, decide if you want to apply for a joint home loan
One way of increasing your home loan eligibility is to add your spouse or any other earning member from your family as a co-borrower of the property. This is one factor you should consider if the spouse is already an earning member. Even if it’s not a significant amount, still mentioning that they bring in some small income helps your loan application, as it adds to the “stability” factor.
Checklist #4 – Arrange all documents required for a home loan
Some background preparations on the documentation front can help you save last-minute hassles and running around. I have often seen many people running around, for ITR proofs and other documents because they didn’t plan well in advance. Below are various documents that might be required for your home loan documentation purpose.
It’s a good idea to prepare a file and arrange all these documents well in advance. These documents are keeping in mind a salaried resident Indian.
KYC related Documents
2-3 Passport Size photos of applicant and co-applicant
Identity proof like PAN or Voter ID card, Passport, Aadhar card
Latest 6 months bank statement attested by the bank in original
Latest Form 16 for 2/3 yrs
Proofs of all savings like FD’s, mutual funds, gold etc (for a down payment)
All ongoing loan account statement for past 6-12 months
Relieving/Experience letter of the previous company if current employment is less than 2 yrs old
Property Related Documents
Original copy for Sale Deed or Agreement to Sale
7/12 extract
Commencement Certificate
NA certificate
Search and Title Report
Building Completion Certificate (if available)
Latest Tax receipts
Development Agreement
Below is a video from IREF, where a guy (seems to be from a bank) is explaining the home loan process and overall documentation requirement. It’s a 7-8 min video in Hindi, kindly view the full video to understand why some document is needed.
Extra documents for self-employed and business professionals
In case you are not a salaried person, then some documents will be different in that case, which is as follows
3 yrs ITR, along with profit and loss statements certified by a CA
Your bank account statement for last 1 yr
Shop Act License
Partnership deed or Company related documents
Brief write-up about your business and the nature of work/revenue
Some Important points to remember before applying for a home loan
In case you are planning to quit your job or planning to change the job, it’s better to first apply for a home loan and then quit/change, otherwise, it will get very tough to get a home loan later.
If you are sure of getting an increment very soon or your pay rise is on the cards, then wait a bit and apply for the home loan later as it will increase your home loan eligibility
I hope this article gives a clear direction and action checklist to someone who is looking forward to a home loan or any other loan. Please share any other critical checklist which I have missed out. Also, I request other members to share their experience when they applied for a home loan.
In a recent notification, income tax department has come up with a new form 12BB, which from now onwards has to be submitted if you want to claim your LTA, HRA and Interest on Home loan interest.
It’s a single form, which you need to fill and attach all proofs and furnish all information related to these exemptions. This form will be applicable from June 1, 2016.
What all information is asked in Form 12BB?
Following is the list of various things you need to arrange before you fill up this form 12BB form
LTA (Leave Travel Allowance) – One has to provide all the proofs of travel like tickets, invoices, boarding pass (in case of flight). More info here
HRA (House Rent Allowance) – For claiming HRA, If the rent paid is above Rs 1 lacs a year, one has to provide Name, Address and PAN of the landlord and Rent receipts.
Interest on Home Loan – To claim this, one has to furnish the name, address and the PAN of the lender organization
Deductions under 80C & Others – You will also have to furnish the details and proofs of the actual investments done under Sec 80C and others
You can download form 12BB here, It’s a PDF version (We don’t have excel format). Below I have provided a snapshot of the form 12BB format, so that you can have a look at it and see what all fields you have to fill up.
Main reason to introduce this form 12BB?
The primary reason why this new form is being introduced is that till now there was no standard process to collect all the proofs and information regarding the various deductions.
IT department thinks that with this new change, fraud will go down. Here is what Financial Express says on this point
You may no longer be able to provide fake bills to claim income tax deductions for leave travel allowance (LTA) and house rent allowance (HRA).
Changes announced on Tuesday in reporting format for individuals claiming tax deduction on leave travel allowance (LTA), leave travel concessions (LTC), house rent allowance and interest paid on home loans is aimed at plugging leakages on account of fake bills, experts say.
So with this form, all the information will be captured in one place and even the employers will be made accountable for checking all documents and if the proofs are genuine or not.
Please share what do you think about this new form? Do you think that this will add more work and headaches for salaried employees?
Today I am going to share with you some data related to software engineers and their home ownership pattern. But before you move ahead, I want to share with you that approx 55% of the software engineers who took our survey did not own a house.
Survey with 10,917 participants
Recently I ran a very large survey which was taken by around 10,917 participants. Out of those 4,940 people were from the IT Industry. I had asked many questions related to real estate ownership like how big houses they own If its bought with a home loan or not and if they don’t have a house, what kind of rents are they paying apart from many other questions.
As a big portion of this blog visitors is software professionals, hence I thought let’s do an article only for software professionals in India as of now. I will publish a detailed report later on the overall data, but as of now, you can look at 3 big and important information.
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So what did I find in this survey? I found out that out of 4940 software professionals who took the survey, 2706 of them said that they don’t own any house or real estate property. That around 55%.
Majority of software professionals in India bought house with home loan
I know this is not a finding. Almost everyone buys a house on loan only because very few people can pay the full amount on their own and this gets confirmed by this survey. Around 81% IT professionals said that they took home loan for buying the house, however 10% people got the house in inheritance and only 9% people paid the full money out of their pocket, which I think is a good number.
90% of the house owners (IT professionals only) own either 1 house or maximum two house. Only 10% house-owners have more than 2 properties.
Out of 100 software engineers who dont own a house, 36 work in Bangalore
If we look at the top 6 cities which are into software jobs creation, we found out that the higher the cities reputation into IT Industry, higher is the number of non-home owners % wise.
I mean out of 4940 software engineers, 1533 work in Bangalore and out of those 886 said that they dont own a house, which is 36% of the total IT population which took the survey. So 36% of software engineers who dont own a house, live in Bangalore, compared to only 10% in Mumbai or 11% in Chennai. Here is the full data
Who is responsible for the high real estate prices in big cities?
In this article, I want to understand what you all think about high real estate prices? What is the reason behind it? Can we say that to some extent (if not fully), the IT professionals contribute to the real estate prices increase?
I know not all software professional earn very high salaries, but in all the big cities, there is a section of IT class which earns a very handsome salary and they suddenly use it to take home loan and buy a house either for consumption or for investment purpose.
This is true for many other Industries as well, but do you think IT sector contributes much more than other industries? I do not want to make any judgment here, but I want to hear from IT professionals who read this blog about what they think about this?
Some people told me that we can’t blame software professionals for high prices in real estate, which I agree. No one can blame anyone, but I wanted to know what thousands of people from IT background and non-IT background think? What is the perception?
So I separated non-IT and IT people from the survey and I asked them the same question and looks like people from IT industry are of stronger opinion that real estate prices are high because of IT industry. While 39% people from non-IT background said clear “NO”, only 28% people from IT background denied that IT industry has contributed to rise in property prices. Below are the results of survey by around 10,917 participants out of which 45% are IT professionals themselves.
What people have to say about this?
Let’s hear some people who have shared their views about this topic and how they feel that IT industry is somewhat responsible for high real estate prices.
But 55% of Software professionals still don’t own a home
At the same time, we have a big number of software professionals who cannot afford a house because they don’t belong to that very high earning class. Software industry like every other Industry has its own issues. A big percentage does not earn very high salaries and that is confirmed by the survey also.
Salaries in IT industry is highly skewed
Only 12% of IT professionals who were surveyed, are earning more than 20 lacs per annum where as 57% of the participants are earning below 10 lacs. Now that’s just 80,000 per month and I am sure, if one is living in a city like Bangalore, Pune or Hyderabad, it will not be considered as a very high income because given the expenses these days, people at that salaries would hardly be saving anything significant.
As per a website payscale, which has an extensive database of various jobs related information like the skills needed, salaries etc. The average Salary of an experienced Software Engineer in India is close to 13 lacs (with experience of more than 10 yrs) . Note that this is an average number
Hence, while there are many IT engineers who earn big amount (many a times double income family), and who can afford to buy a house easily. At the same thing, there are many software engineers who do not earn a big amount and are struggling to manage their expenses. Here is one perspective
I analyzed the results of 10,917 people who took the survey and found out that if you look at the percentage home ownership industry wise, then software industry is not at all at the top. Infact, it’s quite below average. But then we are talking of only big cities (top 10 cities of India). On top of it, IT Industry has somewhat slowed down in last 5 yrs and its not at its peak now. You can read this long thread on IndianRealEstateForum where people discuss about the impact of IT slowdown on the real estate market.
So basically we are trying to see that out of 100 people who belong to XYZ Domain, what percentage of them owns a house. Domain here means Software, Medical, Govt Job, Business, Marketing, Sales, Engineering * Finance. There are many other domains, but we are not considering them, because there was not enough data. For each of the above domains, we had at least 200 data points each and at times more than 500 or 1000. Here are the results.
I had kept Retired also as one of the categories, because that would be a big number. So we found that the those who are retired have the highest home ownership which is kind of obvious, but after that business class has the highest home ownership ratio of 52% , followed by Manufacturing and Medical, but they are not having very big margin.
IT Industry ownership stands at 45% and we can be kind of very assured of that because that comes form 4940 people data, which is quite huge.
Also, note that the lowest home ownership is among Sales and Marketing Professionals & Even Pharma, I don’t have much interpretation for that, but may be it’s because they might have a big variable component in their salary and that might be a deterrent in their home buying. If you have insight on this, please put them in comments section.
Question for you ?
We want to know from you, what is your views on increasing real estate prices in most of the Indian cities and do you see IT industry contribution to it? Please share what you think in comments section.
1,90,000 crore was spent using credit cards in India in the year 2015. Over the last decade, the usage of cards has increased many folds and while that’s great for the economy, it also means more and more people getting into credit card debt as many people are now dealing with credit cards.
In the graph below which was published by Livemint, it shows the growth in the card usage in our country
How investors get into Credit Card Debt Trap?
Credit cards if not used properly can get you into debt trap very easily. We get several emails and comments regarding how to handle credit card debt. Below is one of the comments
“I have a SBI card in which I have an outstanding balance of Rs 100000 so I went for settlement and they offered me a settlement amount of Rs.78000. Can it get it still reduced? Because I am not in a position to pay this amount”.
A lot of investors who do not use credit card in a wise manner end with a large outstanding on their cards and finally have to go for credit card debt settlement which lowers their credit score and puts a black mark on their credit report and this inturns hampers their chances of getting loans in future.
In this article, I am going to share some of the options which one can explore. If you want to quickly look over those 6 points, you can just watch the video below
Note that these points to be looked in order. I mean first, you see if option 1 is applicable to you or not. If not, then you move to option 2, if it still does not help you then you move to another option.
[su_table responsive=”yes” alternate=”no”]
Option #1
Break your investments and pay the bill
Option #2
Pay off the credit card debt in 5-6 payments
Option #3
Take a loan from friends/family and pay off the credit card outstanding amount
Option #4
Take a personal loan to pay off credit card debt
Option #5
Convert your credit card loan to EMI
Option #6
Use a Credit Card Balance transfer facility
[/su_table]
So here you go
Option #1 – Break your investments and pay the bill
There are many people who keep rolling their credit card debt, and at the same time have money in their bank account or a fixed deposit. It does not just strike them that they can just pay off the full outstanding by breaking their FD or cash into the account.
This happens out of ignorance most of the time.
So if you can restructure your money here and there and can pay off the credit card debt, it’s the best option.
Option #2 – Pay off the credit card debt in 5-6 payments
If option #1 is not feasible for you, then the next best option is to pay off the debt in 5-6 parts. Most of the people get too attached to the minimum balance amount and then they just stick to it because that’s the minimum required to be paid to save the penalty.
But then the interest is anyways to be paid, which makes sure you never get out of the debt.
So go beyond the minimum balance amount and pay 3-4X of the minimum balance each month. For example, if your credit card debt is Rs 2 lacs and the minimum due amount which can be paid is Rs 10,000.
Then try to pay 2-3X of that amount, which is Rs 30,000 or Rs 40,000 per month. If not that much, then at least 20,000. That way at least you will pay off the entire debt in next 1 yr if you are disciplined enough.
Option #3 – Take a loan from friends/family and pay off the credit card outstanding amount
The 3rd option is to try to get some loan from friends or family members and pay off the credit card debt in one go and then pay back the person later as per what you agreed with him/her. One can often get free loans without any interest from a close friend or a sibling if you communicate your problem well.
Make sure you pay them back exactly within the time frame mentioned.
Most of the people have burned their fingers by giving money to their friends and relatives because it gets very tough to ask back the money and it can bring sourness in the relations due to money matters.
So you can also choose to pay some interest because the person can anyways earn some money from FD, so better offer to pay 10% interest per year. It’s a win-win situation if it works out!
Option #4 – Take personal loan to pay off credit card debt
If you don’t get loan from someone close in family/friends, then you can go for a personal loan and use that money to pay off the card outstanding. Interest will be in the range of 14-18%, but still, it’s better than paying 40% on a yearly basis.
This does not clear your debt, but just shifts your debt from credit card to a personal loan. Much better option. For those who already have a home loan going on, they can also look at the top-up loan facility which will be much cheaper to a personal loan.
Option #5 – Convert your credit card loan to EMI
If you are not getting a personal loan, then you can convert your debt to an EMI option from the same lender. Almost all the big banks give an option to convert the credit card debt to EMI for tenures like 3/6/9/12/24 months. The interest can range between 13-18% depending on the lender.
Option #6 – Use a Credit Card Balance transfer facility
There is a facility called Balance Transfer provided by many credit card companies, where you can switch your current credit card outstanding to a totally new credit card. In this case, the new credit card will pay off your old credit card and will also offer you some benefits like an interest-free period of 3 months or low interest for the first few months.
Almost all the major credit card companies like SBI credit card, ICICI credit card, and HSBC have this credit card balance transfer facility service with them. SBI credit cards even provide 0% interest for the next 60 days.
However, before opting for this option, please check if there is any processing charge or not? It might happen that the lender is providing free interest period, but then high processing fees will nullify the advantage 🙂
However, note that this is a temporary solution for the next 2-3 months and by that time you should look for further solutions.
Use your credit card wisely
Below are some high-level points which will save you from getting to credit card debt
Pay your Credit Card 3 days before the due date, keep a reminder on the phone if it helps
Don’t spend much more than you can afford.
Carry debit card instead of credit card, You will pay only what you have
Don’t keep very high credit limit, if you can’t control yourself when it comes to spending
Today I am going to talk about some mistakes which young investors make in their early life. Many experienced investors would be able to relate to it, because often we make these mistakes because there was no one to guide us when we started our journey of wealth creation.
“Young investor” here means any person who has just started their careers. Most of them would be below 30 yrs of age. I will share 7 mistakes in this article. You can consider these 7 points as the words of wisdom from experienced investors.
Mistake #1 – Not Focusing on increasing the income
Nobody became rich by only controlling their expenses!
“Low income” is probably #1 reason, why most of investors are unhappy in their financial lives. Low income means low/no savings, restricted life style and constant worry about future. A small financial mistake can turn very costly if one has small income.
Imagine a guy living in Mumbai & earning just Rs 35,000 a month (or even Rs 80,000 now a days) and have to support a family of 4 people? Can you imagine how “tight” his situation is?
For most of the people, salary increment “happens” naturally and never worked on consciously. Most of the people take whatever comes their way for many years, only to realize that rather they should have come out of their comfort zone and worked “actively” on increasing their income.
They could have relocated to a new place with better opportunities, changes their jobs, asked for a salary raise, or could have worked on an alternative income, but most of the people don’t do that. They just go with the flow thinking – “I will get, what I deserve”
In one of the survey’s I have done recently, I asked participants to choose the top most mistake of their financial life. I gave them 8 different options to choose from and 39% of the people chose – “Never worked on increasing my income seriously”.
As a young investor, the best investment you can make it not some mutual fund, or a policy, but you yourself. Invest in yourself and develop skills which makes you “valuable”. Make yourself so employable that people run after you.
Remember, if you earn a big income, you can still make a lot of mistakes, spend like hell and choose not to control your expenses.
Mistake #2 – Getting into Debt Trap Early in Life
Don’t get me wrong!
I am not against taking debt.
But, a large number of young kids who start their career have bad relationship with money and credit facilities.
They start using credit cards as if it’s a money toy. It all starts with a small outstanding credit card bill, and soon it starts rolling up every month and soon they find themselves paying minimum due amount and finally when things go out of control, they take a personal loan to close off the loan or convert the outstanding amount to EMI’s and starts how their debt trap starts!
Then follows car loan, home loan, another personal loan, another credit card and this way a person gets into deep debt cycle. I am sure if you look back, you will realize that the debt trap started very small.
Let me share some data with you on this. As per this report, personal loans as % of loans stands around 18% as in the year 2016 (Out of every 100 loans, 18 are personal loan).
As a young investor, you can still do mindless spending, but that should happen with cash money and not credit. Because getting into debt is easy, but coming out of it is not that simple. So as a young investor try to take debt only if you don’t have any choice. As far as possible, take responsible credit which helps you in life (education loan or home loan).
Mistake #3 – Not taking risks in start of your career
I am not saying that everyone should go and start taking some risk without planning. All I am trying to convey is that its more easy to take risk when you start your career, rather than middle of your career or when you turn 40, because in your early days you have less responsibility and enough time to fix your mistakes if any.
Think of these options below!
Want to move out of your industry and try something else?
Want to try a start up?
Want to try that online business idea?
Want to change your career path because you don’t feel you belong to current job?
Want to ask for a salary hike, but too afraid to lose the job
The above 5 things can be tried at any point of career, but practically you have more appetite to try out these things in the start of your life, when you have less responsibilities and enough time in hand to correct the mistake if any.
If you are still confused about this, you should listen to this YouTube video about best practices in Career Risk-Taking. It will help you
Once you have already spent significant number of years in your job, you will get married, have kids, get into the cycle of “life” and it will become very difficult to come out of the comfort zone. I get many mails which starts with “Had I tried it 10 yrs back … ” and I can see how people feel so stuck into their jobs and now they can’t take much risk at this point of life.
Mistake #4 – Buying policies from your relatives/friends
There are millions of investors in India, who have lost a lot of money in bad products which were sold to them by someone close to them. It was often an uncle, aunty, father’s friend, distant relatives or even your siblings at times.
A lot of products are bought in India based on trust and goodwill. Often relatives pressurize you to take a policy.
This is particularly true for Endowments policies, ULIP’s and other insurance products. You will often find someone in your close circle who is an agent and your parents trust them like anything and force you to buy a policy from them.
Years later you realize that you have burnt your fingers and can’t express your dissatisfaction openly. So what is the way out? Either research on things on your own or directly buy form the companies or if you need external help, better hire an advisor or an external agent, but not a relative
Mistake #5 – Investing in a product you don’t understand yourself
On an average, 90% of the investors can’t explain what exactly they have bought. I was once talking to an investor in our workshops (the upcoming one is in Pune on 22nd May, 2016) and the guy said he has few policies. When I asked how many? He had no idea
When I asked what are the names of the policy, he didn’t even know that.
He said that he had bought them few year back for tax saving and does not exactly know what they are !
The problem is that investing in products, which you don’t understand blocks your financial energy. Your money is stuck in a rotten product and takes away a lot of time.
So if you are buying a financial product, please learn how it works and how it’s going to benefit you at the end of the day . Find out everything about return, risk, liquidity and taxation. If possible, better know which financial goal it’s going to fund.
Mistake #6 – Not saving early in life
After spending many years in your job, you will realize as an investor that “I will save when I will have more money” is an illusion.
When you start earning money, your income is less and you are not able to save money at all because you are hardly left with anything at the end of the month.
However note that this is going to be true always. While your income will rise in future, so will your expenses. You will get married, have kids, your lifestyle will improve. You will get a car, buy a house and what not. You will enough feel that you have enough to save.
The graph for expenses is set to rise and this feeling of “I will save in future, when I earn more money” will be intact. This is the reason a lot of investor never save enough money which they deserve.
The graph below shows you if a person starts investing Rs 10,000 a month, they can accumulate around 2.9 crores in 30 yrs. However if they delay it for 5 yrs, and then start the same thing. They will accumulate only 1.6 crore by the same time. That’s a big difference because of the delay.
As a young investor, you need to understand that habit of “saving money” is more important than how much do you save. If you can’t save anything, start with Rs 100 per month.
I know it sounds like a joke. But once you do it for 5-6 months, you at east know that you can save Rs 100.
Then upgrade the number!
Upgrade to Rs 500 or Rs 1000 a month. Continue for another 6 month.
Soon, you will realize that you have reached Rs 5,000 or Rs 10,000 because you are just increasing the number, the “habit” was already in background.
Mistake #7 – They neglect their health
If you do not have good health, it will not matter how much money you have earned, because you won’t be able to enjoy that money at all. It does not make sense to lie down on a bed made of gold in your retirement.
While earning money is important and required, make sure you also pay attention to your physical and mental health. These days, the jobs are too demanding and there are many money matters which will take the peace out of your life. You might get lost in the rat race and forget that you have a body to take care for years.
Only years later you will realize that it would have been better to earn a bit less and have a healthy body, rather than having bad health with money.
The quote from Dalai Lama is worth reading
Learn from others mistake
At this point of time, internet is flooded with the mistakes other investors have done. It’s a wise thing to learn from those mistakes and not repeat them.
A good and healthy start of one’s financial life helps a lot and if you are a starter, I strongly suggest you take a note of the points above and implement them.
Please share your views on the points above. Were they helpful to you as a new investor?
Our full day workshop is BACK in PUNE on 22nd May 2016 (Sunday).
We invite you to block 22nd May (just one Sunday) so that you can participate in our one day workshop. We are inviting you because our workshop will add a lot of value to your existing financial life. So far we have seen and observed that our workshop helps investors to add new and different dimensions to their financial world. In the whole process they learn to slow down so that they can examine what’s going on in their financial world. With our help and support they also define and adopt new set of actions and strategies to create an amazing financial life.
Our last workshop was done in the city of Hyderabad and it went very well. So now we are back in Pune this time.
Why we conduct these workshops?
We do offline workshops so that we can connect with some of our readers at a deeper level, round the year we write articles, reply to thousands of comments and work with a few hundred investors one on one and in that process we learn, grow and expand as professionals. Our Workshop gives us an opportunity to share outrageously all the knowledge and experiences that we acquire round the year. The program is an opportunity to get our readers more and more action oriented.
Why you should come for this workshop?
You will learn how to improve your financial life with your current set of resources and income.
You will learn how to plan for your financial life goals
You will interact and learn from other’s people’s financial life
You will dedicate one full day to get better with money management
You will learn to add new dimensions to your financial life
To understand that personal finance can also be fun
To give a whole new direction to your financial life
It’s time at add jagoinvestor workshop to your financial journey
It has been a few years now conducting “Design your financial life” workshop and the experience has been amazing. It is a wonderful space to be in, in which the group learns and starts to fall in love with the process of wealth creation. We do not teach tricks and tips to build wealth in fact we help you to discover your own personal process of creating wealth.
This time we want more and more couples to participate so that they can get on same page when it comes to personal finance. It is extremely important that husband and wife both take equal interest when it comes to money management. We are offering special discount to those who want to come with their partner. (You can even come with your parents, siblings or friends and can claim the discount)
The workshop we conduct are highly interactive, it has lots of activities and fun exercises which helps you to discover your relationship with money. The sessions are interactive and very easy to grasp for any kind of investor, beginner or advanced. In short there is something for everyone in this workshop.
Listen to workshop Participants who attended in Past
Register for Pune workshop on 22nd May, 2016 (SUNDAY)
8:30 am - 6:00 pm , 22nd May (Sunday) , 2016
Ramee Grand Hotel, Apte Road
Shivaji Nagar, Pune
The hotel is very near to Santosh Bakery, on the main Apte Road
Lunch and Breakfast is included in the program fees
What you get as a participant?
You get a FREE Financial Health check-up Report worth Rs 499
One day workshop with some personal finance tools like budget sheet, Mutual fund tracker etc
Invitation to join our inner circle
Invitation to join and participate
From the bottom of our heart, we invite you to join and participate in pune workshop. Come alone or with your spouse or parents, siblings or friends but see that you do not miss this opportunity. Do not let time and money to get in your way and book your seat at the earliest because we will be taking only 35 participants this time and registration will close after some days.
This workshop is strictly for investors and not for advisors or finance professionals. This workshop is strictly for investors and not for advisors or finance professionals. Incase we find some financial advisor/planner or anyone from personal finance background registering for the program, we will refund the fees. We hold the right to admission to this program
If you have never participated in any personal finance workshop let this be your first workshop. If you have any questions you can write in the comments section.
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