Tax on EPF withdrawal & other key highlights from Budget 2016

Posted on March 2, 2016November 15, 2019 by Jagoinvestor

Before I even start this article, please watch the first 5-6 min of the following video which comes from Ravish Kumar of NDTV and you will get the hottest points of discussion in this budget, which is taxation on EPF withdrawal.

The video below discusses various viewpoints from govt representatives, economists and some other people on why this is a foolish decision from govt and at the same time, why it makes sense to tax the EPF withdrawal. You will listen to the full video if possible for you, or else at least listen to the first half.

So, I was watching Budget 2016 yesterday and desperately waiting for the personal taxation announcement because that’s the main thing I understand :). By the end of the budget speech, it became clear that there were no changes in income tax slabs nor 80C limits and all hell broke loose on the news that the EPF withdrawal will be taxed on the 60% corpus.

The whole twitter and facebook was full of angry people showing their disappointment on the budget and how it has betrayed the salaried class. The issue went really out of hand and a twitter trend #RollBackEPF started trending and every person from across the country wanted it to be taken back. It was really a crazy day. And today govt has clarified that the tax is only applicable on the interest component only (more on that later in the article)

rollbackEPF trend for union budget 2016

This budget’s major focus was on the rural economy and farmers which are neglected for decades anyways. Only time will tell if the efforts were taken in this budget work or not and if things improve and get better for farmers and rural economy. Let’s wait for that.

While there were many things in this budget, on the taxation front and other announcements, nothing major was there in this budget for a common man on taxation front and that made the salaried class very very disappointed.

Let’s look at the budget highlights one by one. My focus is to share all the major points which concern or are related to a common man.

1. No Changes in Tax Slab rates or 80C

Let me again share it. There was no change in the income tax slabs or the 80C limit. Everything remains the same on this front. Everyone was expecting that the slab will be raised or 80C limits will be increased, but that didn’t happen. There were conversations like the basic exemption limits should be raised to at least Rs 5 lacs from the current 2.5 lacs, and this was, in fact, Arun Jaitley’s demand in 2014 that the limits should be raised. Not sure what’s coming in his way now when he himself is the decision-maker.

raise IT exemptions limits

2. Up to 40%, NPS withdrawal maturity becomes tax-free

Now 40% of the NPS corpus will be tax-free at the time of maturity, rest 60% corpus will be taxed if you withdraw it fully. However, if you buy an annuity (pension) from the remaining 60% corpus you won’t have to pay the tax. However, note that the pension amount which you will get will be normally taxes as the income in your hands.

This means that if you have Rs 1 crore in NPS at the time of maturity, if you withdraw the full amount, then 40 lacs will be tax-free, but the rest 60 lacs will be taxed. Now if the applicable tax at that time is 20% (just an example), then 12 lacs will go in tax and you will get the remaining 48 lacs in our hand. So a total of 88 lacs you will get out of 1 crore. However, you can choose to just take 40 lacs in hand and leave the 60 lacs in a pension product to generate the monthly income (which I think many will choose anyways).

One good point is that if the NPS holder dies, then the full death claim will be tax-free in the hand of the receiver.

3. EPF Interest becomes taxable for 60% corpus

As I said earlier, the EPF was the center point of discussion after the budget speech and govt has clarified that only the interest component will be taxed at the time of withdrawal and that too only on the 60% corpus. The 40% part will be tax-free fully. Note that this is applicable only on the interest earned after 1st Apr, 2016. The interest earned before this date will be tax-free.

Also, an important point here is that there is a lot of debate and confusion around this point as of now. We should wait for more clarification on this from govt in the coming days.

epf rollback

4. PPF remains tax-free (its still EEE)

PPF is untouched and still remains full tax-free as of now. Yesterday there was this confusion, that NPS, EPF and PPF, all of them are brought at the same level and many worried people whose PPF was going to mature in the coming months/years panicked and started asking if their PPF corpus will also get taxed.

So at this point of time, PPF remains the only investment product which comes under EEE (Exempt, Exempt, Exempt)

5. Employer contribution in EPF restricted to 1.5 Lacs per year

Now an employer contribution is EPF is restricted to Rs 1.5 lacs per year or 12% of the basic salary whichever is lower. Till now there was no limit like that, but with this budget that is changed. Incase employer does contribute more than 1.5 lacs per year, then it will taxable in employees hand.

Also, note that the govt will now contribute the 8.33% EPS part for the employees from its own pocket for the first 3 yrs for the new EPFO members.

6. Health Insurance of Rs 1 lacs for Senior Citizens

There will be a health insurance scheme launched soon which will provide Rs 1 lac of health cover to poor families. Also, the senior citizens who belong to these families will also get an additional Rs 30,000 top-up cover on top of Rs 1 lac. The govt budget documents give the reasoning for this scheme.

Catastrophic health events are the single most important cause of unforeseen out-of-pocket expenditure which pushes lakhs of households below the poverty line every year. Serious illness of family members cause severe stress on the financial circumstances of poor and economically weak families, shaking the foundation of their economic security

7. HRA exemption under Sec 80GG raised from 24k to 60k per year

As per sec 80GG, those who do not get HRA in their CTC from their employer can now claim up to Rs 60,000 per year as a deduction under rent paid. Earlier this was only Rs 2,000 per month. This will help a lot to those people whose employers are not giving them HRA Component. Rs 5,000 though is a less amount, but still a respectable deduction at least.

In other word eligibility will be least amount of the following :-

1) Rent paid minus 10 percent the adjusted total income.

2) Rs 5,000 per month. (this was Rs 2,000 earlier)

3) 25 percent of the total income.

8. First time home buyers to get extra Rs 50k deduction in Interest

The first time home buyers will get an additional Rs 50,000 tax exemption in interest part apart from the current exemption, provided following points are true

The loan amount should not be more than 35 lacs, and the value of the house should not be more than 50 lacs
The loan should be sanctioned between 1st April 2016 – 31st Mar 2017
The home buyer should not have any other residential house on his name

9. Dividends above Rs 10 lakh to attract an additional 10% tax

Now if a person is earning more than Rs 10 lacs of dividend from stocks will have to pay the tax of 10% on it. Right now companies anyways pay DDT (Dividend distribution tax) on the dividends declared. I think this is anyways going to impact only those who have very high investments in stocks and they earn big dividends. A normal investor will mostly be out of this.

10. Service tax increased from 14.5% to 15% due to Krishi Kalyan cess

A new cess called Krishi Kalyan cess of 0.5% is added to service tax, which is applicable to all taxable services, which simply means that the service tax has now gone up from 14.5% to 15%. While this 0.5% does not look much, its actually going to be a decent amount for a common man in addition to what we pay.

That means an extra Rs 2 in the bill if you have food worth Rs 1,000 in a restaurant.
That means an extra Rs 5 in your phone bill of Rs 1,000

service tax increase impact

I think it will add a few hundred extras in your expenses if you count entire years of expenses. This will be applicable from 1st June, 2016 so you still have some time 🙂

11. TDS of 1% on buying cars above Rs 10 lacs

1% TDS is proposed on the purchase of luxury segment cars costing Rs 10 lacs or more. The same TDS is also there if one buys any goods or services exceeding Rs 2 lakh. On top of this, an infrastructure cess of 1% is on small petrol cars, CNG cars and 2.5% cess on diesel cars are there, which means that cars, in general, become a bit expensive.

Even the branded clothes and tobacco items will become costlier due to the excise duty increase

12. Possession period for property raised to 5 years for claiming tax benefit

Earlier, if one used to buy/construct a property, one had to get the possession in 3 yrs itself to claim the tax benefits on the interest paid under sec 24. Now it has been raised to 5 yrs. This will help those real estate investors who have not got the possession due to delays from builders.

13. Tax Rebate of Rs 5,000 for those with income less than 5 lacs

For small tax payers with an income of fewer than 5 lacs, the tax rebate is increased from Rs 2,000 to Rs 5,000. This means that if the income tax payable is upto Rs 5,000 for small tax payers, they don’t have to pay it. Rs 5,000 will get deducted from the tax payable. So if a person is earning Rs 4 lacs (taxable income), then as per slab his income tax is Rs 15,000 (10% of the income above 2.5 lacs), out of this Rs 15,000 tax payable, he will get the rebate of Rs 5,000 and he will pay only Rs 10,000. This was earlier set at Rs 2,000 only, but now changed to Rs 5,000

14. ATM’s in Post offices

Over the next 3 yrs, govt plans to roll out the ATM’s in post offices so that more people in rural areas can access the banking services. The department of Posts plans to bring around 25,000 post offices under this in the next few years.

There are many more things in the budget, but I am not going into each of those. The points above are the main highlights which I am discussing here. You can read all the points of budget in this PDF file

Please share how do you rate this budget and what do you think about the move on the EPF taxation?

Govt restricts EPF withdrawal amount to employees share only till retirement

Posted on February 24, 2016November 15, 2019 by Jagoinvestor

Indian Govt has brought a new amendment in the EPF rules, according to which the members will not be able to fully withdraw from their EPF before they reach the retirement age.

The maximum one will be able to take out is their own contribution and its interest (which was raised to 8.8% recently), and that can be done only after 2 months of ceasing employment.

The only exception shall be made for female members resigning for the purpose of marriage or pregnancy or child birth. I came across this news from Nitin Jain when we got an mail from his employer about this notification. Thanks for Nitin to send the notification PDF to me.

EPFO restriction news

Below is the snapshot of the exact wordings taken from the notification which was released by the govt recently. please find out the PDF of the notification here

EPF notification limit on withdrawal

So whatever your employer is contributing to EPF and the interest on that part will be retained in EPF till the retirement age and you will be able to use it only at the end.

Many investors when they change jobs withdraw from their EPF’s and till now they used to get the full amount. But this is not going to happen from now onwards. What this means is that if you have an EPF account, your relationship with EPFO is lifelong now, because your account will be active till you retire (or die)

This is not a sudden decision taken. It was properly planned many months back itself and there was news about this restriction coming up in future, however that time, it was said to be the limit of around 75% of the total amount, but now it’s close to 50% only (employees share only).

Also note that as per the stats from EPFO; out of the 13 million annual claims pending with the EPFO, over 6.5 million claims are for 100% withdrawal, that’s 50%. This means that out of every 2 claims which EPFO gets for withdrawal, 1 of them is for full withdrawal.

This means that a big portion of claim withdrawal applications was coming from people wanting to withdraw the full amount. Now with this new rule, the number of applications to EPFO will also reduce drastically.

Is this new change in EPF withdrawal rules Good or bad?

From an employee’s point of view, the flexibility to withdraw the full amount (the painful process) has gone and now you can’t just take out full money like you used to do earlier. EPF is a social security measure, and was designed keeping that in mind, but people used to apply for withdrawal the moment they changed the jobs most of the times, now with this new change, it will not be possible and in reality one will be forced to keep a part of their wealth in EPF till their retirement

No matter how much I try to think like an employee, my experience of working with thousands of investors tells me that it’s a good move. PDF is the only saving at the moment, which happens by default for a salaried person, and even though one does not touch it for years, eventually a big percentage of the population always thinks of withdrawing the money on job change and the money gets utilized somewhere.

Retirement Age increased from 55 to 58

Another change in the notification is that the retirement age is increased from 55 yrs to 58 yrs, which means that one can now only consider themselves to be retirement from the EPF point of view once they turn 58 yrs. One can also apply for a pension only at that point in time.

This is a good move if you think long term. Consider a person who is 28 yrs old, and his salary is Rs 30,000 per month. Assume that his basic salary is 40% of the gross amount, which here comes to 12,000 per month. Now on this, he will get 12% of salary deducted as for the EPF and another 12% will be added from the employer which would total Rs 2,880 per month.

Now if the salary increment happens @7% per year and the return on EPF continues to be 8% per year, the person will retire with 80-90 lacs of EPF corpus at the time of retirement, provided he does not withdraw anything in between. However now even if the person chooses to withdraw the money in between, with this new rule the employer contribution is going to the restricted and one will bound to have 40-50 lacs at a time to retirement (with the assumptions above). Below is the chart which shows how the numbers move.

EPF corpus new

Note that the above chart is only for illustration purpose, The only point I want to make it a decent amount of money will be there at the time of retirement because of this new forced rule.

Please share what you think of this new rule. Do you think it’s good or not? How do you react to this?

How mutual funds operate internally and have strong structure ?

Posted on February 15, 2016November 15, 2019 by Jagoinvestor

Today, I want to help you understand how a mutual fund operates in layman language and how its structure looks like. How various entities come together to create a mutual fund.

There are a lot of investors who are new to mutual funds concept and they have just heard about the mutual funds. All they know about it is that some investors pool in their money in mutual funds, which invests in markets by a fund manager and they get very good returns. While that’s a simple explanation, I today want to inform you about the details and how things actually are structured, which makes mutual funds one of the safest instruments and highly professional, and leaves almost no chance of fraud in mutual funds

So let’s get into the entities which comprise of a mutual fund.

1. Sponsor

The first entity is the “sponsor” of a mutual fund. It’s a person or the corporate body which initiates the launch of a mutual fund. You can see this person as the promotor of the company, who is the first one to think about the company. As per SEBI, the sponsor should have a good reputation, great professional competence and they should be financially sound to become a sponsor.

They also need to have at least 5 yrs of experience in the financial services industry and should contribute 40% of the AMC net worth (we will soon see what is AMC). The sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the schemes beyond the initial contribution made by it towards setting up of the mutual fund

2. Trustees

The next thing you should know is that a mutual fund is created as a public trust and registered with SEBI. The sponsor appoints the trustees which look after the trust and they are the owners of the mutual fund property and assets.

However, the role of the trustees is not to manage the day to day affairs of the mutual fund, but only to regulate the mutual fund. They make sure that everything is happening as per regulations and the money invested is managed as per the objectives set by the mutual fund. The trustees act as a protector of unitholders’ interests.

As per the SEBI rules, At least 2/3rd of the directors of the trustees have to be independent directors who are not associated with the sponsor in any manner.

3. AMC (Asset Management Company)

Now comes the main thing.

AMC means the Asset Management company which actually manages the investor’s money and takes the decision of investing the money. The AMC is appointed by Trustees. AMC does the fund management and charges a fee for their services which is borne out of the investor’s money (that’s why expense ratio is there)

The AMC has to be approved by the SEBI and the Board of Directors in AMC must have at least 50% of Directors who are independent directors. So an AMC functions under the supervision of SEBI, Trustees and the board of directors.

Some rules set by SEBI

As per rules set by SEBI, An AMC (also referred to as fund house) can’t use the same broker to buy more than 5% of the securities. Just like we use a trading account to buy and sell securities, in the same way, an AMC uses a broker to buy and sell securities in large quantities, but they can’t buy a bulk quantity with the same broker, which makes sure they can’t have any “arrangements” with one of them.

So when you say HDFC Mutual Fund, you are referring to the Trust. The AMC for HDFC Mutual Fund is “HDFC Asset Management Company Limited”. So all the investment decisions of buying and selling the securities are taken by the AMC and not HDFC Mutual Fund (the trust)

Below you can see the details of trustees, sponsor, and AMC which I took from the HDFC Mutual Fund website

AMC is responsible for floating a new mutual fund scheme, and inorder to do that, they have to follow rules prescribed by SEBI and require the signature of the trustee.

So the HDFC Top 200 fund was floated by HDFC Asset Management Company Limited (AMC), but owned by HDFC mutual fund (the trust). It is the AMC that hires all the fund managers, IFA (agents) who helps in sales, and all the employees who work at the AMC offices.

4. Custodian and Depository

Here comes the interesting part.

The securities which are bought and sold by the fund manager, it’s actually not in the custody of AMC, but another entity called custodian or the depository participant. It is registered with SEBI and has the access to the securities.

A custodian keeps the physical securities (like GOLD and any physical certificates) and any Demat stocks/units are stored at Depository level.

A custodian is also responsible for keeping an eye on all the corporate actions like when is a stock declaring dividend, bonus issue etc in the stocks where fund has invested. So an AMC just focuses on the decisions like buying and selling and all the task of managing, storing of actual securities happens at the custodian level

Note that an AMC can have more than one custodian for various kinds of securities, like in case of HDFC AMC, the securities are with HDFC Bank LTD (one of the custodians), but for their HDFC Gold ETF, the custodian is Deutsche Bank A.G which stores physical gold.

As per regulations, Sponsor and the Custodian must be separate entities which make the mutual funds a very safe instrument and fraud is almost impossible.

5. Registrar and transfer agents (RTA)

Finally, comes to a very important entity called as Registrar and Transfer agents(RTA), which are appointed by AMC

These RTA are the entities that carry out all the clerical work like processing of applications, processing KYC of investors, issuing unit certificates, sending refunds, processing redemption orders etc. So you must have heard about CAMS and Karvy, which are the RTA agencies for mutual funds. So some AMC’s give contract to CAMS and other AMC’s have given it to Karvy. The RTA charges a service fee for the work they do.

So for example, HDFC, Birla, ICICI, SBI are serviced by CAMS, whereas Reliance, UTI, Axis mutual funds have chosen Karvy as their RTA. Note that all the AMC offices also carry out the clerical tasks like if you want to change the address in your mutual funds or add a nominee, you can go to AMC office directly or their RTA

Below is a snapshot of what all mutual fund companies servicing is done at CAMS at the time of writing this article

This completes the high-level structure of mutual funds. There are various other small entities that are sub-parts of these bigger entities but let’s not get into that as of now.

By looking at the above structure you can understand that a lot of care has been taken to design the mutual funds and at various points, the conflict of interest does not arise.

Are you investing in mutual funds?

Mutual Funds are wonderful products and especially for long term goals. You can now start your mutual fund’s journey with Jagoinvestor if are planning to invest in mutual funds.

The Big Day Has Arrived – Jagoinvestor School Launches today

Posted on February 1, 2016November 15, 2019 by Jagoinvestor

Our biggest dream gets fulfilled today. We are once again ready to serve investor’s community with our brand new offering jagoinvestor school.

There has been enough of text articles on our blog (which will continue as it is). We now want to go to the next level and for those who are committed to going to the next level, for then we will do more of webinars, video programs and online classrooms where learning and sharing insights will make personal finance FUN.

We both (Manish and Nandish) will give our best to the school members, but we will also get the best of the best people to share their knowledge, wealth creation ideas and strategies with school members.

What is Jagoinvestor School?

Jagoinvestor School is all about becoming a dedicated student of wealth. The school will help you to fall in love with the overall process of wealth creation. For the next few years we are going to dive deep into the school. We will dedicate our time, energy, knowledge and skills to empower members of the school.

We will teach and share everything that we have learnt so far from the time we started this blog. We will stay committed and will also generate high level of commitment amongst all school members. We will demand action and will ask members to do the required work.

The school is not for the faint of heart, it is for those who are committed to creating wealth. The foundation of the school will be FUN, ACTION and COMMITMENT.

Why you should join the school?

If you have benefited from the blog and want to learn more about personal finance, then come and be a part of our school. If you want to create an extra-ordinary financial life you should immediately join the school. The school is for those who want to get accountable in the area of money, who wants to work on their financial life and someone who wants to take their financial life to the next level.

It is our promise you will see a dramatic shift in your discipline level and will start to enjoy the overall process of wealth creation.

Here are the 10 things you will get in Jagoinvestor School

360° evaluation report on your financial life
Access to DIY program “100moneyactions”
Access to 50+ Video/Audios under Wealth Club
Monthly Webinars/Classrooms on Various Topics
23+ Excel-based Tools & Calculators
Monthly Reporting & Tracking Structure
Start SIP for your goals with Jagoinvestor
Discount on Workshops & other Services
Access to Network of Trusted partners
3 ebooks on Signup

Join School Now !!

Why we love teaching and making a difference?

Because there are so many people waiting to get help in their financial world and when we help someone to reinvent their financial journey it fills our heart with a lot of fulfillment. In the last 2 months, we have received 100+ thank you emails, out of which we are sharing some of them below.

We are not sharing their names and these are personal sharing written straight from the heart. The sharing done is not about us it is about investors who have rigorously worked on their financial life and created an amazing financial life for themselves.

Success Story/ Sharing 1#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Hello Manish and Nandish,

Hope you are doing great. After having consulted with you ~3 yrs back through “Financial Coaching” I had seen a phenomenal change in the way I treat things in lieu of financial discipline. I truly have to appreciate your efforts in transforming me like this.

I now am relatively confident that I will be able to tackle things much more carefully when it comes to policies / ULIPs etc.

I now want to go with you again, to review my new financial goals and the path I am taking to achieve those. Please let me know what is correct means to go over this with you. Please do revert at your convenience. Looking forward to a positive reply from you.

[/su_note]

Success Story/ Sharing 2#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Dear Manish/ Nandish,

Wishing you and your families a New Year 2016 Filled with good health, peace, and happiness.

Please find below a small write up on my personal finance journey in 2015.

2014

One of my colleagues told me about the Jagoinvestor website.
Began reading the articles written by Manish/Nandish.
I had huge credit card bills during that period. The articles helped me take the right steps and gave me a perspective.
Planned and worked towards getting debt free on the credit card bills in 2014.
I had improved on that front but wanted to get better and make my financial life stronger and be more in control.
Dropped an email on 20^th Dec 2014 wanting to connect with Jago and avail of their services/support.

2015 :

Since I was travelling on a business trip, Set up my 1^st call with Nandish on Sat 24^th Jan 2015 around 11:00 AM.

Nandish shared a couple of docs that entailed the complete flow of our association e.g. Data Sheets, Health Checkup Data Sheet > Final Report, etc..
Nandish invested some time in going through my data sheet and reverted with a Basic Financial Plan. Along with the plan were simple action check-list for taking actions for me.
Now commence the journey to bettering and being more in control in my financial life.
- Learned on what basis were the most important and had to be in place.
- Corrected and improved on the wrong choices and products I had made in the last 10 yrs.
- Which never took into consideration inflation and may other critical areas that need to be looked at.
Based on Nandish/ Manish guidance we worked on strengthening the foundation in the below areas
Term Plan
Medical Insurance for Family
Investments (SIP)

Attended the Jago workshop held in Mumbai and personally met Manish and Nandish and various individuals like me, It boosted the confidence all the more, to stay focused and consistent on this journey leading to financial freedom.

It has been a slow and steady journey to correct the errors of the past and dig and build a New and strong financial foundation for the future for me.

I’m very happy about the progress we have made in 2015, this would not have been possible without the guidance and support from Manish and Nandish. Based on my personal experience I’ve recommended the same to my various friends and even my sister who is working with the Jago team.

Looking forward to keeping on bettering and strengthen the foundation each year and being more financially free and continue this associate with Manish and Nandish.

Not sure if I manage to cover all the points, as I just keep writing impromptu

[/su_note]

Success Story/ Sharing 3#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Starting the year 2015, I made a promise to myself that I will not ruin my sleepover money management issues. To fulfill this, I had taken the necessary steps towards being a better money manager of our(me & my husband’s) hard-earned money, i.e. meeting Nandish & Manish.

I was following the blog from 2014 but I was always having doubts in mind: Does these process really work and will it work for me as well? I attended a one day workshop that is held in Pune by Jagoinvestor and that was the turning point of my life.

After the workshop, I decided to take help from Manish & Nandish and hand over all my worries to them. I did it and I can really sleep better now.

For 2016, my goal is to be a better organizer on maintaining Financial documents and do the remaining planning part of it.

[/su_note]

Success story/ Sharing 4#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Hi Nandish, happy new year to you and your family too.

2015 has been a great year for us. We continued on our monthly targets and never missed any. We saw great growth coming this year and we are completely debt-free this year. Though we need to improve on two fronts. Our expenses have increased a lot now after the kid.

So we need to be careful to plan nicely and stick to it. On the heath front, some health issues are cropping in. So we need to exercise much more and much harder.

Hope this was good information.

[/su_note]

Success Story/ Sharing 5#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

The year 2015 gave me a better awareness of why Financial Management is important. In terms of finances throughout the year, the inflow was barely able to meet the outflow. Midway through the year, the realization dawned that my finances are more tilted towards Real Estate and questions on liquidity, gain in the context of a weak Real Estate market.

I was sincerely praying that I get proper guidance on how I should be saving for my next 5-10 Years. I do not know if I should call it as luck or prayers answered, I somehow got a chance to read Manish’s book “16 Financial Principals every investor should know” which was an eye-opener pointing me to the mistakes I have made in my investments.

It did not take time for me to connect with Jago Investors and have been interacting with Nandish. I feel I am in safe hands and hopeful that the year 2016 will be a year of consolidation and growth in my financial journey.

[/su_note]

The School is about creating SUCCESS STORIES:

I shared a few stories with you because jagoinvestor school is all about creating success stories. Every month we will encourage school members to learn and to take action in their financial life. It is our promise if you will surrender to the structure of the school your financial world will go to the next level. You can visit a dedicated page of school to learn more about the elements of school.

Invitation to join the school

We invite readers, Asset Management Companies, Insurance companies, and various other financial institutions to get associated with this school. From the bottom of our heart, we invite each one of you to be a part of the school, this is one of the best choices you will be making as an investor.

We would like to join hands with some Asset Management companies or organizations to make sure the school reaches maximum investors.

The money generated from the school will be used for the expansion of the school, we will one-day eradiate financial illiteracy and every Indian investor will be a proud jagoinvestor. We need your love, blessings and encouragement, share about school with your loved ones and see that you join the school at the earliest.

If you have any questions about school feel free to ask in the comments section.

Join School Now !!

Love you all, see you at the school.

5 Challenges which you should overcome to create long term wealth

Posted on January 21, 2016November 15, 2019 by Jagoinvestor

Do you want to create a lot of wealth? Do you want to see crores of rupees in your bank account? I am sure you know that’s not an easy task. You also know that it will take a lot of time and dedication to create wealth over the long term. Do do you know that it’s more tough than you think? I will show you why?

Have you ever seen those retirement calculators online, where you punch in your numbers and find out how much corpus you will be able to generate over the years if you consistently invest a fixed amount year after year at a certain rate of interest?

The calculator throws a big number at you and you feel – “Wow … That’s looks straight forward and simple”

Below you can see an example.

I calculated how much wealth a 30 yr old guy can generate by the time he retires at age 60 (30 yrs tenure) if he invests Rs 20,000 per month at a return of 12% per annum. Below is the result.

It looks so simple on paper. One can generate a wealth of Rs 7 crores in 30 yrs period if one consistently invests Rs 20,000 per month.

Doesn’t it look over simplified? It definitely is!

While the calculator above makes it look like a child’s play to create long term wealth, in reality – it’s definitely not that easy and there are various things to be considered here, which I want to discuss in this article.

What are the assumptions in the calculator above?

If you look at the calculator above and the numbers, you will realize that 5 assumptions which are

The investor keep earning over the years and bring back the income
The investor will have enough surplus each month
Investor will be able to generate a 12% return over long term
The investor will not disturb his wealth creation process
The investor will not use the money out of the accumulated money till the end of tenure

Now if you look at the 5 points above, long term wealth can be created only if all the 5 points above are true or maximum of them are true. Each of the point above is a challenge in itself. If you overcome all these 5 points, you are then set to build long term wealth.

So now, if you try to capture these points as the ACTION and RESULT, then here is how it looks like

So let’s touch on each of these 5 assumptions one by one and see in detail and see what are the challenges in handling them

Assumption #1 – The investor will keep earning over the years and bring back the income

Let’s start from the most basic foundation point.

A lot of people who have been earning from many years (let’s say 5 yrs) and never faced any issues in their career seem to feel that its a cakewalk to continue doing it without any issues for the next 20-25 yrs of their life. They think that it would be a smooth ride. However, you need to know that

There is a section of the population who are struggling in their career and will not be getting the same salaries if they switch jobs
There are people whose income is not rising as per their expectation and a lot of people take salary cuts
A lot of investors are out of their jobs/business due to competition, policy changes in the industry
A lot of investors at times spend many months without bringing back any income because of health issues, layoffs, and other reasons.

At least 3 of our clients have stopped their SIP’s in the last 6 months because their income has stopped/reduced due to some issues at their workplace. While it might be a short term problem, you never know if it can extend for a very long time for some one. One client is working in the Middle East, and his job is not that stable and he is damn scared of this fact.

Another client told me that as per his understanding, he is getting the maximum salary he can command in his industry and if he loses his job for any reason, he will have to join another company at a lower salary.

One client is hell scared because he is just surviving his job from many years and if he is fired due to non-performance, he does not believe that other companies will hire him at the same salary

Focus on your “employability” and potential to earn

My partner Nandish Desai, says a very important point about employability – “To get a job, you need to be useful for someone”

You need to make sure that whatever you do, whichever sector you enter, which ever skill you acquire – do it like a pro. Become a highly useful person in your domain of work. Be among the best. Your skills should be outstanding and you should be the master of what you do. If that happens, you will be highly sought after and everyone will want to hire you.

This way you are ensuring that all your future income is secured. If things get tough in your industry, you will be one of the last people who will face issues. If you face any issue, you will soon find a new job. And if you want to switch, you can command a better salary.

Focusing on your career and investing in your own development is one of the most rewarding decisions you can make in your financial life. Only when you ensure that you have taken care of this point, other points will come into the picture.

You need to understand that only if your future cashflow is protected, only then you can save from it and only then you can think of the returns and everything else. No income, no wealth in the future!

Assumption #2 – The investor will have enough surplus each month

Taking the example above, the 2nd assumption was that the investor will continue investing Rs 20,000 per month over the next 30 yrs without fail. For you personally, this number can be Rs 10,000 or Rs 50,000, the same is true for yourself.

Will you be able to consistently invest that much each month? Will you be left with that much each month? year after year?

You might be able to continue that for some months or years but think of the real-life issues which we all face. And you never know your life will take turns, you never know how unpredictable things are. You might have to switch jobs because of health?

When you will have kids, your expenses might shoot up, you may face an emergency which might last for many months to come, there can be health issues and you can get into the never-ending cycle of –

High income -> high expenses -> less saving.

In fact, I have seen this in reality. Forget about investing each month, one of our clients is redeeming back from his mutual fund’s corpus because there is a prolonged medical emergency at home and he is not able to handle all expenses the way he had planned before.

My whole point is that it’s very very tough to maintain the consistency and discipline in investing in real life and there will be disturbances.

High Lifestyle is making saving tougher

Now a day’s it’s more common to see people living on a paycheck to paycheck basis. The high lifestyle and the increased consumerism have ensured that even if you are earning high, it will get tough for you to save. Salaries like Rs 1 lac or 2 lacs per month are very common these days in many cities, but the savings are not in line with the salary.

Hence, you need to ensure that you after your expenses are done, you generate a consistent and a minimum 20% of investible surplus from your salary. Take it as a game and try to win it each month.

Assumption #3 – The investor will be able to generate a 12% return over the long term

The next assumption is that the investor will generate 12% return over long term from his investments? Now where do you invest your money to get more than 12% returns over such a long term?

Any guesses?

The answer is equities !. It has to be in shares, equity mutual funds, ETF’s, Index funds, etc. This is not an easy thing for the majority population in India, because most of the people in India do not understand how equities work and banking products are their lifelong favorite. They are earning 8-9% (6-7% post-tax) from years.

So for them to earn 12% would be very tough because first, they need to get clarity about how equities work and get comfortable with it.

Data and chart:

Now let me show you some data and charts which will convince you why you should be in equity to earn a 12% return on your investments.

Below is the chart which shows the CAGR return for 10 yrs periods if the money was invested in NIFTY. The data is from 1st Jan 2001 to 1st Jan 2016, so there are many 10 yrs period like

1st Jan 2001 – 1st Jan 2011 (first point)
2nd Jan 2001 – 2nd Jan 2011
—
—
1st Jan 2006 – 1st Jan 2016 (Last point)

We then plotted the CAGR Return for all these periods and below is the answer. The CAGR return almost always was above 12%, however for few months towards the end it was a bit below 12% .

Another graph which I want you to see is the 10 yrs CAGR return chart from Sensex, which is for its 36 yrs of existence.

So there are 26 different “10 yrs” tenures and we calculated the CAGR return for all the 26 data points and below is the result. Around 21 times out of 26, the return was more than 12% and at times it was very high like 20%-30 %. Few periods had fewer returns like 6% or 11 %, but then if you look at the overall 36 yrs period, the CAGR return converts to 17% return.

Now while it’s very easy to conclude that if you invest in equity over a long term, you will get required 12% return, its very tough to practice in real life, which we will see in next point very soon.

Lets me share with you that a very small percentage of our India population invests in Equity.

The major money lies in FD, Gold and insurance products and even real estate. And it’s going to be very tough to generate a 12% return from these asset classes. In fact, Morgan Stanley’s Research has clearly shown that equity has beaten all the asset classes in the long run and below is a snapshot of that research.

So if you want to build wealth over the long term and you are investing the majority of your money in FD, understand that your post tax return is lower than the inflation.

Your money might be growing in numbers (Rs 10 lacs became 20 lacs in 9 yrs), but the worth of your money has come down (20 lacs today can buy less of what 10 lacs could have bought 9 yrs back). You are in fact getting poorer in a slow-motion and you are not realizing that.

Assumption #4 – The investor will not disturb his wealth creation process

Read the following question and answer.

Q – Do you know what is the biggest challenge for an investor if he has invested in equities (mutual funds or Stocks)?

ANS – To remain inactive and sit tight without doing anything and let his wealth grow.

Making money in stock markets is challenging, not because markets have any issue, but because we investors have a behavioral issue. We can’t handle the uncertainty and volatility which comes with the stock market. It’s not for weak-hearted.

For some one who has been with FD’s and has the habit of seeing his investments grow in a linear fashion, he can literally go crazy with mutual funds because it brings so much of ups and downs and volatile movements.

Should I stop SIP when the market is falling?

In the last 2 weeks itself, we have got many emails from our clients whose SIP’s are going on in equity mutual funds, asking if they should stop their SIP’s as markets are falling? I have told them to act like a ninja investor and see it as an opportunity and pump in more money because in the coming years we might see a very good bull run? (any body remember what happens for the next 2-3 yrs after 2007 crash ?)

Note that all these clients SIP’s are running for very long term goals like retirement or children’s education which are going to arrive only after 15-20 yrs. There is no problem as such with that behavior.

It’s very natural, but I am just trying to tell you that it’s not that easy to handle the pressure which comes from the volatile nature of markets and very few investors have that dedication and understanding of how things work in the stock market.

Very few people can control their greed and fear and that’s the reason very few people are able to make the most of the returns from the equity markets over the long term. Below you can see a snapshot of kind of queries which start coming up if markets show any kind of fall for a long time like 6 months or a year.

The cycle of Greed and Fear

If you see the stock markets right now, you will realize that we currently are in that same phase where investors panic and take out the money from their portfolios. Markets are falling from last 1 yr and especially this month it has gone down by a big margin.

So even if an investor is investing a good amount each month and he has read about how equity markets work and they understand the game of equity, still it’s very tough for an average investor to stay calm and stay with markets consistently for a very long time.

Some stop their SIP’s, Some redeem their money and shift it to FD’s thinking – “I will again be back, when the markets will calm down and start going up”.

However, you never know when that up move started and by the time you realize, you lose the next bull run. The below chart clearly shows how 99% of investors think and behave in stock markets.

So what is the solution? What should you do?

Remember that if you are in equities with a long term view like 10-15-20 yrs, then you are going to see many cycles of ups and down. You can’t escape it. You need to think of the down market as the “sale” where you can accumulate more stocks or mutual funds units at a cheaper price so as to gain from the up move later.

And when markets are going up, don’t redeem your money or try to “book the gains” because you will most probably miss the bigger up move trying to redeem the smaller up move. You need to understand that you are not there for “trading” or short term profit booking (incase, you are there for trading, then this does not apply to you)

Just sit tight, keep your SIP going and make sure you are in right mutual funds (not the best, because it does not exist). Review them in a few years and let the process of wealth creation take place. It requires patience and only a small percentage of investors are going to reach the final destination. Be one of them.

Assumption #5 – The investor will not use the money out of the accumulated money till the end of tenure

Having 5 lacs in your bank account is very different from having Rs 5 crores. You might think – “What’s the difference? it’s just 100X, rest everything is same”

No, your feelings about your money, your risk appetite, your thoughts around money, your desperation to do something will be at a very different level when you have 100X money in your bank account.

It’s a very tough thing to “not do anything” when you have so much money getting accumulated in your account. Once your corpus reaches a respectable limit like 80 lacs or 1 crore, you will start thinking in these lines

Let’s shift some money in FD now.
Let’s upgrade our house now, I can surely take out 50 lacs from my portfolio
Now I deserve that dream car I always wanted, I have good money now
Let me have a grand wedding for my children, after all – I have a good corpus now

Your lifestyle will go up, your vacations will get luxurious and you will get all the reasons to spend the money and take a dip in your portfolio.

Let me be clear, that I am not saying there is anything wrong with spending your money or using it for yourself.

please do that. After all, if you have managed to earn so much money and accumulated the good corpus, you surely deserve a better lifestyle.

All I am saying is that it’s a challenge to let your portfolio grow and not disturb it. So in our example at the start of the article, you might not reach 7 crores as per calculation, but may be 4.3 crores or just 3 crores, because you keep taking out the money out of your corpus many times in between for various reasons.

If you are just taking out a portion of your corpus and reinvesting in something else which you can redeem back later, it’s still fine. But if you are “spending” the money and consuming it, then it’s GONE. That part will not reflect in corpus now and you will have a lesser corpus to that extent.

If you can make sure you have that ability to stay calm and see your wealth grow without disturbing it, then you are bound to see a good amount of wealth in your life.

So here is the final checklist before you start your wealth creation journey

Spend a good amount to time to understand how equities work in the long run. I have explained about equity in the 3rd chapter of my 1st book – “16 personal finance principles every investor should know”. Get a copy and read it
Work on your career strongly and become very very good at what you are doing. Make sure you are highly employable even if the bad time comes. This will make sure your cash flows are more or less ensured.
Spend 10% time on cutting down your expenses if there is any scope, and spend 90% of your energy in increasing your income. Remember, reducing expenses is tough and has a lower limit. Increasing income does not have a ceiling.
Make sure you start the SIP in equity mutual funds with a long term perspective. When markets fall, rejoice ! and keep adding more money. Be a tough hearted and you will be rewarded over long term
Make sure you plan for other goals separately so that you do not use your main corpus in between for small things

Let me know if your way of looking at long term wealth creation has changed or not by reading this article. I would love to hear your views.

Why is ICICI bank charging redemption fees on Payback points usage?

Posted on January 10, 2016November 15, 2019 by Jagoinvestor

This is a guest post by a reader Prithvi, who wanted to share his views on the redemption charges by ICICI bank on the payback points. Here goes the article which was sent by Prithvi to me over email. We would like to have a discussion on this topic and see what everyone else has to say about this.

–
Hi Fellow Investor

This is Prithvi. I wanted to share few thoughts I have about the ICICI bank and its redemption charges on usage of Payback points.

ICICI Bank is probably the best private sector bank in this country, it is because of them that the banking scene in this country has progressed so much.

PAYBACK is probably the best loyalty program in India, before PAYBACK, people never even thought that reward points meant anything and PAYBACK was the reason that this changed in India.

Now, there is one thing that this bank is doing that is not ethical. ICICI Bank is looting its account holders with the name of PAYBACK.

PAYBACK is a loyalty reward program with ties to several major brands in the country. You can earn PAYBACK points when you shop online or offline with many outlets, Future group outlets are one of them, Brand Factory, Pantaloons, Home Town, Central. Online you can earn and spend PAYBACK points at eBay.in, MakeMyTrip.com etc, to name a few. You can also earn PAYBACK points with your ICICI Bank Debit/Credit Cards and also ICICI Internet Banking. Note that PAYBACK and ICICI Bank are different entities

American Express also offers a card with which you can earn PAYBACK points.

Now, what’s unethical here? Let’s look at how you can earn and spend points.

Ways to earn PAYBACK points

Swipe your PAYBACK card at partner outlets
Enter your PAYBACK number at partner websites
Use ICICI Bank Credit/Debit Cards/Internet Banking for Purchases
Use American Express Cards for Purchases

Ways to spend PAYBACK points

Swipe your PAYBACK card at partner outlets
Enter your PAYBACK number at partner websites and confirm spending with a PIN.

Now, there are 2 categories here

Non-ICICI Bank Account Holders
ICICI Bank Account Holders

Steps For Non-ICICI Bank Account Holders

Enter your PAYBACK number/Mobile Number on the website(e.g eBay).
Enter your PAYBACK PIN to confirm. (4 PAYBACK points = INR 1)
If you are purchasing an item that costs INR 1000, you have 2000 PAYBACK points, you will get INR 500 discount and you have to pay only the remaining 500.
The transaction completes for free

Steps For ICICI Bank Account Holders

Enter your PAYBACK number/Mobile Number on the website(e.g eBay).
Enter your PAYBACK PIN to confirm. (4 PAYBACK points = INR 1)
If you are purchasing an item that costs INR 1000, you have 2000 PAYBACK points, you will get INR 500 discount and you have to pay only the remaining 500.
The transaction completes, but you are charged a redemption fee in your ICICI account.

Here is the problem.

PAYBACK confirms that its redemptions are free of charge and also confirms that PAYBACK does not charge for redemptions.

ICICI says that they have a right to charge for redemptions because they have a tie-up with PAYBACK.

ICICI PAYBACK potential Scam

Now let’s look at a scenario where it gets a little complicated, if you have a PAYBACK card from Brand Factory and you also have an ICICI Bank account and both of them are linked, this is when ICICI begins to loot you.

If you earn points at Brand Factory, the points get credited to your PAYBACK account and now when you spend those PAYBACK points, ICICI charges you a redemption fee.

ICICI PAYBACK scam points

This is blatant robbery. ICICI has no right to charge PAYBACK users for redemptions. Please listen to this audio which was created by me to explain my views on this topic.

ICICI Bank says that it has the right to charge users for PAYBACK redemptions when contacted by email.

PAYBACK confirms that it DOES NOT charge its users for redemption.

Please share what are your views about this?

Why your credit report remarks matter more than high credit score?

Posted on December 31, 2015November 20, 2019 by Jagoinvestor

So, you have been reading a lot about CIBIL these days and you have got the impression that having a high credit score like 800 or 850 is a key to get your kind of loan?

If that’s the case, let me break your myth that having a high credit score is not a guarantee that you will get a loan from a company. Look at the following comment and you will understand what I am talking about

Dear Sir,

I have taken the PL of Rs.1.5 L from HDFC and get settled of amount Rs.15 k in 2013. In March 2015, I checked my CBIL score, it is 813 however loan status is settled.

Recently I applied for PL of Rs.5 L in ICICI but it gets rejected based on previous settled loan. I don’t get this, when my CBIL score is 813 then how its get rejected. Kindly guide me how could I get PL as its v.urgent for me.

Regards

What is CIBIL remark and score?

In case you are new to this CIBIL concept. I suggest you read this article or watch this video below from the Cibil team.

It will help you understand the concept of the credit bureau and credit report. Once you view the video, then you can move ahead.

Your credit report remarks matter more than your Credit Score

Let me share with you a personal experience. My brother had taken a bike on loan a few years back and I was with him in the Bajaj showroom where I asked the executive if they really looked at CIBIL score (CIBIL was new around that time). The executive shared with me that they don’t look at a credit score, instead, they look at the remarks on the report and that is what matters most along with your other factors.

It was really a new thing for me to know that a credit report does not have that much Importance compared to the credit score in your loan approval process.

Credit remarks vs. Credit Score

Let’s understand both the concepts and the meaning of these two things

What are Credit Remarks on your report?

If you have 3 different kinds of loan accounts (1 home loan, 1 car loan, 1 credit card). In that case, you will have the remarks for each of these loan accounts and the current status. Imagining you have closed the loan accounts, the remarks may say “Settled” , “Written Off” or “Closed”, out of which the first two are bad remarks. At times, if you are not able to pay off the loan, the loan guys will try to persuade you to settle the loan with a lesser amount and close the chapter.

However note that it’s a short term solution to just get away with the problem. Eventually, the remark will be marked as “Settled” or “Written Off” and in future when another lender looks at your report, he will come to know that you didn’t pay the full/partial amount of loan outstanding.

written-off-status-cibil

At this point in time, even if you have great salary or a good credit score (we will look at it below), they are going to reject your loan application.

What is a Credit Score?

Credit score is a number between 300 and 900, which signifies your credit worthiness and how likely are you to default on paying your loan installments. A low credit score means that there are higher chances of you defaulting on the loan payments. This credit score calculation is a trade secret and no one knows the algorithm of how it’s calculated, but there are various factors that are considered by the credit bureau which its calculation.

So one can still have a high credit score (the chances of paying their future EMI’s regularly), but still their past remarks will have a greater impact on their loan evaluation process. While a score of 750+ is desirable (as per CIBIL around 79% loans were given to those with CIBIL score of more than 750), don’t think that just because your score is higher than 750 means that you will surely get a loan.

cibil score 750

In the same way, if yours is less than 750 (like 600 or 720), but if your credit remarks are clean, you will most probably still get the loan, considering you qualify on other parameters like (salary, other EMI etc)

So while credit score gives a future insight, the credit remarks gives insight into the history.

4 other factors because of which loan application rejection can happen?

If you are a guarantor for a loan which is already defaulted. Though you have not taken the loan directly, your application might get rejected if you have become the guarantor of a loan by your friend/relative and they have defaulted.
If you are too dependent on credit already (means if you are over-leveraged). Imagine if you are already paying 50% of your income on EMI’s and have many different kinds of loans running. Even then your application might be rejected.
You don’t have enough tax payment history. If you have not been paying your taxes regularly, then it’s tough for the company to ascertain your paying capacity, hence, make sure you file your returns regularly and properly
Too many unsecured loans, if your loan portfolio has too many unsecured loans (credit card, personal loans) then it’s not a good sign and makes you look a credit hungry customer. This might lead to rejection.

So what’s the learning?

So what’s the learning out of this?

The main thing you should focus on is to make sure that your credit report does not contain any bad remarks and if there are any, then you should take actions to rectify it. It will by default help you in improving your credit score. Don’t get obsessed with increasing the credit score. If your credit score is above 700 and your report is clean, you are 95% good to go. Beyond that, if your score is higher, it’s a great thing. But don’t over-focus on it.

Before applying for any kind of loan, make sure you apply for your credit report and score before few months and analyze it to find out if you need to fix it or not. Over the long run, just keep paying your dues on time and do not abuse your credit utilization and you should be good in the long run.

Let me know if you have any queries about this.

ICICI launches “Smart Vault” – Robotic technology in bank lockers

Posted on December 21, 2015July 20, 2019 by Jagoinvestor

ICICI Bank has recently launched “Smart Vault” which is a cutting edge robot managed locker service. There is almost no intervention with the bank staff and the security is very high. Watch the video below to understand how it works.

Here is how the “Smart Vault” is operated

Locker owner will swipe their debit card and enter their ATM PIN
There is a biometric authentication required
You will then enter a private room where a robot will bring the locker in front of you
You can open your locker with a unique key, provided by the bank. For added safety, you may also choose to have an additional personal lock on your locker.
Once you are done, you can keep your belongings back in the locker and robotic technology will take it back
You may leave the locker room once the “Thank You” message flashes on the kiosk screen

The vault uses robotic technology to access the lockers from the safe vault and enables customers to access their lockers at any time of their preference,” the statement issued by ICICI Bank, country’s largest private sector lender, said.

In case a customer has more than one locker, the interface allows customers to choose which locker they want to operate.

The lockers will come in different sizes and the cost will depend on the size of the locker and the city location where the locker is located (linked to real estate prices) icici smart vault size

As of now this smart vault is launched in Delhi, but soon it will replicate in other cities as well. Its a great thing because its a new innovation from ICICI bank on the locker service.

What do you think about Smart Vault service and the robotic technology used? Would like to avail such kind of lockers by paying a higher premium rents?

EPF withdrawal made super easy – No Employer signature needed

Posted on December 9, 2015July 20, 2019 by Jagoinvestor

Here is a great news for all EPF account holders. EPFO has come up with new and revised forms using which EPF withdrawal process is now super easy and can happen without employer signature or any involvement. Now you can directly submit the EPF withdrawal forms and the settlement will happen directly into your bank account.

Earlier, the EPF forms were first sent to employer for their verification and signatures, which used to take a lot of time and many a times employers used to harass employees because they had the power to block the EPF withdrawal. However with these new changes, withdrawing from your EPF account is going to be very easy and fast and now it makes a lot sense, because EPF should not be linked to employer anyways. Few months back, with the concept of UAN, the EPFO had anyways delinked the EPFO from the employer to some extent, and this move looks like an extension to that.

New Forms – 19 UAN, l0-C UAN and 31 UAN

EPFO has issued 3 new forms which will be used for as follows

Form 19 UAN – You can fill this form to withdraw from your EPF at the time of retirement or leaving the job. Taking our money from the EPF is allowed only if you are unemployed for 2 months. So in case you just change a job and join a new company within 60 days, you can not offically withdraw from EPF, You need to apply for EPF transfer in that case
Form 10-C UAN – You can fill up this form in order to withdraw from your EPS amount. EPS account is a seperate account linked to your EPF which is for the purpose of pension. Note that one is allowed to withdraw from EPS only if your EPF is not more than 10 yrs old.Check more details on this here.
Form 31 – UAN – This form can be submitted if you want to partially withdraw from Employee providend fund (EPF) account for the purpose like marriage, house buying or medical emergency. There are different rules for different situations. You can check more details on this in this article

Note that there exist forms 19, 10C and 31 already (without the word UAN), but now the new forms end with the word “UAN” to differentiate between old and new forms.

Who can fill up & use these new EPF forms?

Here is the catch!. The new EPF forms can be used by only those employees who fulfil following two conditions

UAN must be active and should be linked with aadhaar number
Your KYC details (especially bank account number) must be verified by employer using digital signature

If the above two points are true for you, only then you can use these new EPF withdrawal forms

Step by Step process of withdrawing money from EPF account

Let me help you with the steps of EPF withdrawal now. For the sake of explanation, we will consider the case of Form 19 UAN, which is used to withdraw the EPF money once you leave the job or are retired. The same process is used for the other forms as well.

Step 1 – Make sure your UAN is active and KYC details are verified

These new forms can be used only by those whose UAN is active and all the KYC details are verified by employee as explained above.
Hence, the first step is to verify your eligibility. For that, you can go to http://uanmembers.epfoservices.in/ and login with your login and password and then go to Profile->Update KYC Information, where you can either update the details or check them. It looks something like the below example (thanks to my close friend who has passed his details to me for creating this snapshot)

In case, you have more than two UAN allotted to you, then you should discard one of them and should be using the latest one provided to you by the current employer.

Step 2 – Fill up the EPF Withdrawal form and send along with cancelled cheque

Once you have verified that all the details are fine. You can then fill up the form. Below you can see form 19 UAN as an example. One has to provide the Mobile number, UAN number, date of leaving, the reason for leaving the service (make sure you choose it properly, because TDS will be applied depending on that reason),PAN & full postal address.

Note that apart from this form, you also have to attach the cancelled cheque of the bank account which is mentioned in the UAN KYC details.

Step 3 – Send the form to the EPF jurisdiction office

Finally, the last step is to submit this form, along with the cancelled cheque to the EPF office which comes under your jurisdiction. The simple way to find the exact address of the regional EPF Office is to go to http://search.epfoservices.org:81/locate_office/office_location.php and enter your state and district of the office where you work/worked. You will get the full address. You can then courier the documents to that address.

The above 3 steps will help you to withdraw from EPF money easily. If you want to withdraw your complete EPF amount, then you need to fill up form 19 UAN and form 10-C and send both of them.

BONUS – Fill up form 31 UAN to withdraw from EPF for purpose of buying house

Let me also share one very important thing related to buying house or repayment of house loan through EPF amount. Form 31 UAN can be filled for partial withdrawal for the purpose like buying house, repaying home loan or things like medical emergency or marriage at home. For more on this, please look at this article.

You can see the snapshot of form 31 UAN below. If you look at 4th and 5th point, you can clearly see that you can take the money directly in the name of the “agency”, which can be the builder or the company which is helping in construction of house. The cheque can be taken for that.

EPF Withdrawal process to be online very soon

I hope you are now clear about these EPF withdrawal forms and how to fill them up. Note that very soon these facilities will become online, it’s just a matter of time. Once that happens, the process will be much smoother and fast, because things will become online.

Let me know if you have any doubts or any questions on this topic. Do you think these forms will help in EPF withdrawal a bit faster?

No claim rejection for life insurance policies older than 3 yrs – IRDA

Posted on December 6, 2015November 25, 2019 by Jagoinvestor

There is very good news for those who have bought life insurance policies (especially term plans). From now on, life insurance companies will not be able to reject claims for any policy which is 3 yrs old.

Yes, you read it correctly.

no claim rejection for life insurance policies older than 3 yrs

No Claim rejection after 3 yrs

If your policy is 3 yrs old, no matter what happens, the life insurance company will not be able to deny the claims. There was an amendment in the sec 45 of the Insurance Act 1938, and due to that now onwards a policy can’t be denied a claim because the policy-holder gave some wrong information.

As per IRDA, the company has 3 yrs in hand to detect any misrepresentation or misstatement from the customer side and reject the policy. However, once this period is over, the insurer will have to settle the claims.

What this means is that those investors who were highly suspicious of insurer’s intention and always kept looking at the claim settlement ratio numbers don’t need to worry now.

While this seems to be great news, one should think of what kind of implications will arise out of this change. I can think of a few of them

1. It will not be easy to buy life insurance

The major impact of this change will be that now the medical tests might get more details checking a lot of things. Till now insurers were bearing all the costs, and I think it will happen in future also, however, I think this will result in higher premium amount, which I think investors will not mind because now there is a guarantee of claim settlement

2. Chances of Fraud in the life insurance space

Already, there are many frauds that happen in life insurance space from the customer’s side. I remember an episode of Crime Petrol, where a man planned his death so that his family can get the life insurance money, however, he didn’t get the money because he was not able to execute the plan.

However, with this new change – the chances of fraud and misrepresentation can increase. Imagine a smoker or a person involved in risky activities. A lot of people like these to not disclose these facts because their application might get rejected or the premium might rise. So a lot of people suppress disclosing this fact and it’s going to be a hard time for companies to figure out these things. There will always be few cases which will not come under their radar.

What do you think about this latest development? If you hold a life insurance policy already, how do you see this new change?