Author: Jagoinvestor

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Update your FATCA declaration online in 2 min, if you are an existing mutual fund investor

Posted on by Jagoinvestor

Are you an existing mutual fund investor? If YES, then you must have got an email from the fund houses where you have invested to provide some additional information about yourself and about your tax residency related questions in the name of FATCA declaration.

In this article I will quickly guide you about what is this FATCA Compliance and how you can update this information with AMC online in 5 min.

What is FATCA Compliance?

Foreign Account Tax Compliance Act or FATCA was passed in US in the year 2010 to make sure that the financial institutions across the world share some basic information of their US based clients.

A lot of investors from US (US citizen and NRI’s residing in US) were supposed to disclose their investments outside the US, but it didn’t happen the way US govt was expecting.

So finally, US govt passed this FATCA law and signed treaties with various countries across the world. India is one of them. So now various financial institutions based in India are asking all their customers to give a declaration about their tax residency, place of birth and if they are paying taxes in any other countries. I am not going into too much of detail here, because you can read it in detail in this moneylife article here .

The main purpose of this article is just to help you understand, how you can update these FATCA details quickly in 2 min online.

All mutual funds investors are supposed to update their information with AMC’s by the end of Dec 2015.

If an investor fails to update their FATCA declaration, then their additional investments will not be processed in future and any SIP which is currently running will also get stopped. So it’s suggested that you complete the declaration as soon as possible. Note that your existing investments will remain intact and there is no impact on that.

How to update your FATCA related information online?

It’s very simple. All you need to do is visit the following two links and update your information.

I have created a short video tutorial on how to update the FATCA information online. Please check it below

Note that a mutual funds is either serviced by CAMS or Karvy (all funds except franklin Templeton, go this link where you can update FATCA for franklin). So these agencies have come up with the links online where one can update all their information.

When you update your information online, an OTP will be generated which will be send to your email/phone which is registered in their records. If you are invested in mutual funds which are services by CAMS (like Birla, ICICI, HDFC etc) , you just need to update the first link (cams one). If you are invested in mutual funds which are serviced by Karvy like Reliance, UTI or Canara Robeco, then you will have to update the karvy link as well.

Below is the snapshot explaining how you can update the CAMS link 

Update FATCA online

In the same manner, you can update the Karvy link with your FATCA information. The OTP will be generated in that case also and all the information is same. You need to update the karvy link, only if you have invested in any mutual fund serviced by them in past.

In anycase, my suggestion is to try to update both the links. There is no harm anyways

FATCA Impact on US & Canada NRI’s ?

So what is the impact of this FATCA declaration on those NRI’s who are based in US and Canada. Let me be very brief and to the point here. Only 3-4 AMC’s in India are going to except fresh investments from US & Canada based NRI’s. Few of them are UTI, L&T and Sundaram mutual funds. so if you are a NRI based in US and Canada, now you will not be able to invest in mutual funds from HDFC, ICICI, Birla, Reliance and many others.

However any existing investments can be continued (SIP wont be continued, but the current worth in those funds will be as it is) . One can redeem them whenever they wish to.

NRI’s based in other countries can invest in any fund house they want.

Incase you have any question on this FATCA declaration, feel free to ask your queries in comments section

Sovereign Gold Bond Scheme Launched – Here are 6 important Facts

Posted on by Jagoinvestor

Today I want to share some quick facts regarding Sovereign Gold Bonds which was announced in budget session and recently mentioned by our Prime minister.

RBI is going to issue something called Sovereign Gold Bonds for investors who want to benefit from the movement from Gold prices. It’s an alternative way to invest in gold apart from buying physical gold or through gold ETF or gold Mutual fund.

These bonds issue is part of the market borrowing program of govt of India, where it tries to borrow money from the public for the long term. So to understand it in brief, govt wants to borrow money from those who want to invest in gold and they would return back the money after X number of years which will be linked to the price of gold apart from a small interest.

Sovereign Gold Bond Scheme 2015

10 FACTS about Sovereign Gold Bond Scheme you should know

Now let’s understand quickly what Sovereign Gold Bond Scheme is all about and some high-level important points every investor would want to know.

1. Issued by RBI and hence it’s safe and secure

These bonds are issued by Reserve bank of India and hence it carries a sovereign guarantee by Govt of India.

So in a way its 100% safe and secure and there are no chances of fraud or any issues happening in the future.

However, you need to know that the bond value is linked with the gold prices and hence the value of the bond can increase and decrease in the future depending on the gold price movement.

However, whatever is the maturity value will be paid to you and the guarantee is only for that. There is no assurity for any minimum value payment or any promise of return. One can hold the bonds in a single name or joint name as per preference.

2. First Batch of bonds available from Nov 5-20

As per a report, out of Rs 15,000 crore of bonds, the first batch of Rs 1,000 crore bonds are available from Nov 5 and the last date for application is Nov 20. The bonds are available for only residents Indian and NRI’s cant buys it. The bonds will be available at selected banks and post offices designated under the scheme.

I was not able to find exact locations, but I think all the major PSU banks in every city and some big post offices will be the contact point if one wants to purchase these bonds.

Below you can see a sample form and how it has to be filled. You can also download the form from his link

Sovereign Gold Bond Scheme form sample

3. Amount of investment and Tenure

The minimum one has to buy 2 gms worth of gold bonds and the maximum can be 500 gms. So every normal middle-class person who wants some exposure in gold can buy it. The initial issue price is fixed at Rs 2,684 per gram. Which means a minimum initial investment would be Rs 5,400-5,500 at least.

Note that price fixed is a simple average of the closing price of the 999 purity gold, published by India Bullion and Jewellers Association Ltd (IBJA).

The bonds will be issued with an 8 yr tenure, however, an exit option will be available after 5th year onwards. The bonds can also be traded on stock exchanges if you have it in Demat form. However, I think it’s not going to work for most of the investors because that will get too complicated.

Also, you will be able to trade the bonds on markets only if the volumes are very good, otherwise it will be locked away and you will be able to get back the money only after the 5/8 yrs of time. You can read detailed FAQ’s on this scheme here

Also note that these bonds can be provided as collateral incase, you need any loans.

4. You will get interest of 2.75%

You will get interest of 2.75% interest on the initial value of investment (not the market price) every 6 months. I have not gone in details, but I think the way it will work is that if you invest Rs 1,00,000 in these bonds, then every 6 months you will get 50% of 2.75% of Rs 1 lac as interest, which would be Rs 1,375

5. Taxation on returns and maturity

Note that the interest you earn every 6 months will be taxable in your hands. Also at the time of maturity, the long-term capital gains will be applicable, which means that after applying indexation, you will have to pay 20% tax on the returns. Note that because KYC is done properly, you cant escape this.

6. KYC requirement

You will be able to buy these gold bonds only after the KYC is done for you. In simple terms, at the time of application, you will have to provide your identity and provide your PAN or Aadhar card etc and the payment can be done electronically, with cheque/DD or even CASH.

However, you will not be able to hide your identity. This will surely discourage those investors who want to convert their unaccounted money (CASH) into white money.

7. Investment in Paper or Demat Form

You can purchase the bonds in paper format or Demat holding as per your preference. Means if you want the bond in paper format, you will get a receipt and a bond that you can keep in your locker or at home and at the time of maturity you can give it back. Or you can hold it in Demat form and not worry about keeping the bond safely.

Who should not invest in these gold bonds?

I think that 5-8 yrs tenure is a long tenure and you can earn much better returns in this long term. Equity mutual funds would deliver better returns compared to this scheme. Hence if you are a young person below age 40, and are looking at wealth creation as your main goal, then you can give a miss to this scheme.

The return on the scheme (2.75%) is not to be considered and the gold returns historically have been around inflation only.

If you look at the below chart, you can see 5 yrs CAGR return of the gold investment. Note that for the tenure of 2000-2010 the returns have been very very good, but then if you look at someone who invested in the year 2010, they have just got a 7% CAGR return, which is very much in tune with long term gold returns.

gold 5 yr cagr return

So if we look at the optimal use of your investment to generate a decent return, I personally dont consider this as a great investment product. You can skip this.

Who can think of buying these bonds?

Now if we look at the other side, There are many investors who are very attached to gold and really want to invest in that. No logic will move them and no conversation of CAGR will make sense to them. So for those investors who were anyways going to buy physical gold or Gold ETF, can look at this scheme as a good alternative.

Anyways your investment value will move as per gold prices and on top of it, you will get 2.75% interest which you do not get in case of physical gold or gold ETF/funds. The best part of this scheme is that you don’t have to worry about the quality of the gold or where to store it as its all in paper format and no one is going to steal it from you.

The money will only come back to your bank account only which you have provided at the time of investment.

However, note that the investment in these bonds is going to be mainly illiquid in the very short term. If you buy physical gold, you get that liquidity in your hand and if you need money urgently you can sell off the gold. You will not get it here.

So overall, you are the right person to pick if this scheme is for you or not.

Please share what are your views on this scheme. Do you think it’s going to be a hit among investors?

Financial Life of a cab driver & life of Mumbai

Posted on by Jagoinvestor

I recently visited Mumbai for some work and it was 7:15 pm in the evening. When I came out of a building in Andheri East, Mumbai.

I had booked a cab from Pune to Mumbai and I was now ready to be back. I called up the cab driver and here is the conversation…

ME – “Bhaiya, kidhar hain aap?”

Driver – “Bas sir, Yahi hun 200-meter piche, 20 min me aa jaunga, aap gate ke pass hi rahiye”

ME – “Main aa jata hun paidal chal kar, Aap bataiye kidhar hai exactly”

Driver – “Arre nahi sir, aap wahin rukiye jidhar hai, itni bhid me Mujhe nahi khoj payenge”

Finally, after a long 20-30 min, I saw a car near me, honking like hell and flashing lights on me. It was my cab driver and he was indicating – “Get inside the car asap” …

Finally, I was inside the cab and we were going back to Pune. It took us another 20 min to just get out of the lane. It was really frustrating to just see yourself in the middle of traffic and move nowhere.

The first half of the total time took us to come out of Mumbai and the second half took us to reach Pune. Finally, I reached Pune at 11:30 in night.

Story of the Cab Driver and his Financial life

In this article, I just want to share with you a conversation between myself and a cab driver I met recently. I asked him some questions about his life, a bit about his financial life and his work schedule. I know, it’s not directly related to personal finance, but I think, it’s a good idea to share it with you all as it has some good things to know about.

Tax driver

(The photo above is not the real cab driver in question)

The moment we were out of the lane we were stuck in at Andheri, the driver looked really irritated by the sheer amount of traffic. I asked him – “Bhaiya, Mumbai ki life Kaisi Lagti hai aapko?”

And his answer stunned me – “70 saal jeene waala insaan 50 ke khatam ho jayega, yahi hai Mumbai ki life”

While I knew he was a bit tired and his frustration was making him speak these words, there was surely some element of truth in his words. The way of life, the speed, the running around for everything. It’s really mind-boggling in Mumbai.

Anyways, One my way back to Pune, I had conversations with Driver and here are few things I came to know.

1. He drives 400 km EVERYDAY

Did I ask him if travels to Mumbai often? He said every day. YES – Everyday .. 30 days in a month… May be once in a while there is no pick or drop but in general every day. He said that he does close to 10,000-12,000 KM every month. His legs and Back pains a lot and sometimes it’s so bad, he can’t explain it. We reached Pune around 11:30 pm at night and he had to get back at 4 am again to take someone to Mumbai airport.

2. No family life

I think we felt by good talking to me, and he kept on going.

“Family life nahi hai Kuch Bhi Sir .. Ghar Jata hun, khana khata hun aur sidhe so jata hun”. He told how his life is tough and there is no energy left once he is back home. He has no motivation to talk to his kids, spouse or enjoy with them.

Even when he has to drop or pick someone, he has nothing to do and he just sits inside the car and it’s really tough to do that, day after day, month after month and year after year … It’s the height of boredom”

He was a calm person, but he said that when he is stuck in jams atleast he feels he want to throw away the car like HULK. It was a calm frustration coming out of him.

3. He had Life + Health insurance

I realized that his job is very risky. He has to drive each day and he is prone to accidents. His legs are so important for his job and to earn the money. I thought I will explain to him why he should think of covering these risks and I asked him – “Do have Insurance?”

  • “Yes Sir, I have life insurance and health insurance both from ICICI Lombard”

I was happy and a bit shocked to hear that because I didn’t expect him to have that. He told me that one of his agent friends had explained to him about these products and how it might help him. I congratulated him on that point and said that it’s a great thing that at least he has something. Thank god he did wait to find the “best product”

4. He saved Rs 4,000 per month in Recurring deposit

Though his earnings were limited and he was on a tight budget, he told that he managed to save Rs 4,000 per month. He gave it to his wife every month which is invested in Recurring deposit. I thought it was a great thing and didn’t say anything like “why don’t you invest in equity?”. I think it would have confused him a lot and it was not the right time for all that Gyan. He was doing well.

What do you learn from this?

Let me know what you feel after reading the story of this cab driver? I think that the cab driver did a few things correctly which even many with a lot of privilege fail to do. Like if you see this cab driver, he has a habit of saving some part of his income even though he does not earn as we all do. He had life insurance and health insurance which is really commendable. I know he does not represent an average cab driver from that angle, but still.

Please share your thoughts

How I wrote my 1st book in 500 days – Here is the complete story

Posted on by Jagoinvestor

Sometime around March of 2010, I was checking my inbox and saw an email from a person from CNBC. The message said that there was an opportunity of me authoring a book on personal finance.

For a moment, I could not believe it.

It was an ecstatic moment for me because I was just 27 yrs old, with 2 yrs of experience in IT industry and 2 yrs of experience running this blog. The world around me was all about python, Perl and servers and here was an email asking me to author a book on money which would be published by CNBC. I was going to be a mini-celebrity and I knew it would be counted as great achievement on my portfolio. This blog was around 2 yrs old at that time.

I replied back that I would surely be interested in this assignment and wanted to know how it works. It was a great coincidence that I had a very rough idea of a book already in place, when I used to fantasize the idea of book writing some day and here was the opportunity knocking my door.

I went to Mumbai, had a quick meet with concerned person and I was all set on the assignment of Book Writing.

Starting of the Book writing journey

The next few days were highly energetic.

I could not believe that I was really writing a book at this age. I had already done more than 300+ articles by that time and had interacted with thousands of investors by that time over comments section of this blog. I had a fair understanding of what kind of book will really help an investor.

I started jotting down all the important points and concepts which I should cover in the book. I thought that writing a book would be easy for me, as I had written so many articles on various concepts already. After all, I just needed to arrange them in a certain manner which looks like a book, change the language of the content to look powerful, add few examples and enough stories to make it interesting and engaging.

I created a Google doc folder and started creating various chapters’ pages. Here is a snapshot of how it looked like finally…

book writing experiance

My initial way of planning and thinking about the book was like this…

I thought, if I wrote 10 pages daily, it would just take 25 days to write 250 pages. If I target the book in 30 days, I would still have 5 days left. I added 1 more month as a buffer period to refine my book and make any changes if required. I thought 2 months would be enough.

The book finally took me 500 days

I know what you are thinking right now. I know I so stupid.

As you must have guessed by now, I had done a very poor job in planning and estimating the time required to write a book. I think it’s not even “poor planning”, it was “pathetic planning”.

I over-estimated my capabilities to the highest level. I finally took 1.5 yrs (500 days) to complete the book and now I will give you insights on why it took so long.

Let me share with you that, I was very clear that I don’t want to do a “good book”. I wanted to write an extra-ordinary book, which is relevant for many years to come and truly helps an investor who is new to the world of personal finance.

I had seen some the other books which were written and they all focused mainly on the “knowledge” part of personal finance. Each of those books had information about various financial products, tax saving avenues etc. I think those kind of books have their own importance and are required. However, I didn’t want to write “just another book” on the shelf, which is giving the same information to investor like others.

What kind of book I wanted to write?

I wanted to do a book, which shakes the investor. A book which shows them the mirror and truly makes them understand some really important principles of personal finance. I wanted to do a book which is ACTION oriented, not just information oriented.

I wanted to write a book which wakes up an investor from their sleep and clears their way of looking at their financial life. A book which acts like a big brother guiding them on how to look at their money matters and builds a guideline for them to follow. And I think, I succeeded in what I wanted to do, the proof is 81 reviews on flipkart, with an average rating of 4.4 out of 5

I was like the director of the movie, who had to make sure he casts the right actor, good story, great scenes, and dialogues and at the end, had to connect all these elements and come up with a master piece. Before I move ahead, I would like to check out a review by “Saravanan A” on amazon. It captures the essence of the book beautifully

reader testimonial for book

I started writing the book

When I finally started writing the book, I started building the book skeleton.

I prepared the chapter names and just wrote down what each chapter will talk about. Trust me it sounds very simple, but it took me over a month to just do that part in proper manner. Write one article was easy, but how do I write a book which is 100X times an article? At the same time it had to be interesting, outstanding, full of examples, insightful and had to have a strong flow at the same time. The book was suppose to make sure it hooks the reader till end.

It was not an easy job

I first created the list of chapters, and the number went upto 22 in numbers. There was so much to write in each chapter. I started with first chapter, then 2nd and then 3rd …

Gggrrrr…….

I realized, that I have done everything wrong. After I did 50-60 pages, everything I did looked so damn bad to me. I was not happy with it.

I hit the delete button and all 3 chapters were gone. I realized, I needed to relook at my strategy.

I now started defining the chapter names, sub-topics under each page. I wrote down the headings part of each chapter and what all will go into it. It was like mini-index of the whole book.

This way, it became more easy for me, because now I was actually creating a proper flow and was actually giving the shape to the book. Once I had completed that, I just have to expand each point with 200-300 words and my 800-900 point skeleton book would expand to 100X size and would be a 90,000 words book.

This was a top to bottom approach.

Trust me, it looks the obvious way to write the book NOW. But that time, it didn’t click me. I made a lot of mistakes and lost a good amount of time to just figure out, how to give a good start.

Anyways!

Finally, I ended up with 8 chapters. Some chapters were long, some were very short.

The First Chapter – My best work !

The first chapter I wanted to do was on the topic of early investing.

I was first wondering does this topic deserve a full chapter? After all how long can I write on the point of early investing?

In one line, if you summarize it, it looks like “If you invest early, you can start small , but if you are late, you will have to put more money later to build the same amount of wealth”.

But then were are so many dimensions to this single topic and I was so fascinated with it that I wanted a detailed chapter on this single topic, which is outstanding and goes beyond the simple conversation.

I wanted to give examples, real life analogies and enough data as the backup to prove my point. I found out that though the starting the chapter was very tough, it was not that tough later. Once I was in the flow, I started enjoying the book. I could visualize how a reader will feeling while reading it. What kind of questions they will have and what kind of examples will help them to understand the concept in a better way.

Working in Excel

I did a lot of work on excel, created charts, came up with examples and did a lot of number crunching.

I came up with lots of interesting conversations which would make investors understand the point. I wrote 40+ pages for the first chapter. I read the whole chapter once I completed and I found I can do better, then I went through the chapter, edited it back, and pruned the content, added some more ..

I created the rough sketch of examples and images and the designers at CNBC did an excellent job at recreating nice illustrative pictures which conveyed the same in the book. The eye-catching graphics which they created, increased the richness of the book. Here is a snapshot of what I created and what you see in the book.

How editing happens

I was happy on my achievement

Finally, I was satisfied and happy with my 1st chapter and I was proud of it. I could see the power and impact of the first chapter book on an investors mind.

My goal was simple – “If someone reads my first chapter, he will not delay his investments after that”.

It was as simple as that. Some book readers told me, that they started their SIP just after completing the first chapter, they didn’t even wait for completing the book.

I had done the first chapter in 15 days time and it was the biggest chapter of the book. I recalculated the time I would take to complete the book told CNBC, that I will not be able to complete the book before 6 months. They were happy listening to that 😉 (maybe they knew the reality)

Once I completed the first chapter, I thought of taking the break before I start my 2nd chapter. The short break lasted for 2 months. After working so extensively on the 1st chapter, I was a bit exhausted and was flying high with confidence and every time I thought of returning to the book writing, something or the other came up and made sure I could not concentrate on the book.

My 6 months deadline was about to complete and I was done with just 2-3 chapters only. It was just 40% of the book. For the first time, I was understanding how tough it was to keep your deadlines promises. Whenever someone defined the deadlines for the projects in our projects meetings, I had a dangerous smile on my face.

Finally, I completed the book

Now, let’s cut things short and come to the main point. I finally wrote other chapters on risk and return, insurance, simplicity requirement in next few months.

I also added a chapter called, “Relationship with Money” which touched the point of how our emotions are connected with money and how we see money in our life. It was a very different kind of concept which was introduced by Nandish Desai, my business partner.

So I requested him to write that full chapter because I knew that I will not be able to justify that chapter because of my limited understanding of that subject and I think he did a brilliant job in that. It added a whole new dimension in the overall book and it was aligned with the book mission.

It helped investors to connect with their emotional side of money. Thanks to Nandish to author that chapter (we will soon come up with his 1st book story)

Editing of the Book

Finally, I managed to complete the book in a year. By the time, I completed the 80% part of the book. The editing had started.

I was sending each chapter to CNBC which was now edited by a professional. They checked the whole book for the English language and the sentence duplication. If 3 lines conveyed the same thing, It was merged into one and the sentence was pruned. When the edited version of the chapters came back to me, I was horrified to see how pathetic my English was (I knew it was bad, but SO BAD ?)

The Book Editing

With heavy heart when I asked the editor is that was normal? They said – “YES – It was totally normal and it happens with every writer”. I was a happy writer again 🙂

The Polishing of the book content

I saw, how the editor had polished the book language and made it look more professional. They had also suggested some changes (very minor) and I incorporated them. To my surprise, this whole thing again took few months and finally I got one final version of the book to check for one last time before the first print happens.

I started reading the edited version of the book. This was the first time when I was reading my complete book as a reader. That cute little thing as attachment, on my email was one of the most beautiful thing I had seen. I felt like I was a mother who just delivered a baby after 9 months of labor (1.5 yrs in my case).

I started the first sentence, then first page, first chapter … and finally the whole book.

Happy and Proud Moment

I was extremely happy and proud. I could see that the book was able to make an impact. I had taken a lot of time to do the book, but I had not compromised with the content quality. I didn’t write it with rush.

We originally gave the name of the book as “Jagoinvestor”, because the book focus was to wake up an investor and that name looked appropriate, however after an year, we changed the name to “16 personal finance principles every investor should know”, because it was a more clear name and conveyed what the book was all about.

16 personal finance principles every investor should know Financial Planning Book in India - Personal Finance Book in India

✓Buy the book – NOW
Today when I look back, I am happy that I was successful in writing the book I visualized. As a first time writer, I did a very good job.

The book has been so powerful, that a lot of investors who read my first book suddenly start acting on their financial lives and some even contact us to do their financial planning. Our best clients came to us by reading our books. A lot of investors who are DIY investors, even they get a lot of value from the book.

What I learned by writing the 1st book (and you should know that)?

A book is a creation, which comes into life after a lot of hard work. There are many dimensions which comes together and then a book takes the shape. Writing a book might be easy, but writing a “good book” is not.

When you read any book, if you get one insight or one learning which can impact your life, I think the author has done his job and you have got your value. A book can have some mistakes, some part of the book might not sound great to you, but be thankful for the good part, ignore the average part.

Now when I read a book, I ask myself if I learned any ONE THING from the book or not? If the answer is YES, I consider the book as great. I have stopped criticizing any author (anyways, I never did) because I now know the other side too. I recently read a book called “Predictably Irrational” by Dan Ariely. My god – What a creation ! .. What a book it was .. If only I was 10% of that author, I would have done wonders!.

Share your comment

Let me know what do you think about my journey of writing the book? What did you learn from it? Also share if you have read my first book or not?

Want to buy health insurance with small premium? – Use super topup policies?

Posted on by Jagoinvestor

Do you want to know how you can take a high health insurance coverage at a cheaper premium, without compromising on the benefits and features? Today I am going to share how you can do that using top-up health insurance policies.

Gone are the day’s when Rs 2-3 lacs of health cover was considered a good cover, its not even average cover these days. With rising health care cost, a health cover below 5 lacs is just not sufficient for most of the people. I am confident on that, because in last 6 months, we have helped more than 1000+ people to take their health insurance and majority of them ended up with a coverage in range of 5-20 lacs.

I know, a lot of investors understand the importance of high health insurance cover, but they are unable to afford a high premium. So what is the alternative?

Use Super Topup Policies to increase your health cover at lower premiums

The solution is Super topup policies.

You can use Super Top-up health insurance policies to upgrade your health cover by paying a lower premium. Super Topup plans are the health insurance plans which pays only when a certain threshold is crossed.

For example, consider a super top-up plan for Rs 20 lacs with deductible of Rs 5 lacs.

In this case, the policy will pay only when the initial Rs 5 lacs is paid off and they will pay the additional amount above Rs 5 lacs. So if the claim amount is Rs 12 lacs. The policy will only pay Rs 7 lacs (over and above 5 lacs deductible. If you are new to this concept, we have already explained the topic of super top up in detail here, please read it first.

So how can you use super top up to take a higher cover?

Instead of taking a full cover of X+Y amount, you can take a base cover for Rs X and take a Super topup plan for Y amount with X as deductible. This way you will be covered upto X amount by the base policy and for any claim above Rs X, the super top-up policy will get triggered and come to your rescue.

The main benefit here is that the Super Top-up policies come very cheap and overall your premium will be small.

Example of 3 member family (2 adults below 35 yrs + 1 kid)

Suppose you want to take a high cover like 20 lacs for your family (3 member family). Here you have two choices

Choice 1 : You can take a stand-alone policy of Rs 20 lacs here. If we take an example of Optima Restore Family Floater, the yearly premium would be Rs 23,527.

Choice 2 : As 2nd choice, suppose you the same take the same Optima Restore Family Floater for Rs 5 lacs, which will cost you Rs 12,513 and on top of it, you take a 20 lacs super topup from L&T Medisure Super Top Up with 5 lacs deductible, for which the premium would be Rs 4,389. So the total premium in this choice will be 16,902.

That’s a saving of 28% in premium.

However, note that both the choices will differ with each other, because from features point of view there are a lot of differences in both the choices.

So for those who already have a 5 lacs cover already and wanting to increase their cover to 15 lacs total, below I have listed down some companies top up cover plans and the extra premiums they will have to pay.

Below is an example of how you can increase your health cover from 5 lacs to 15 lacs (or take 15 lacs cover).

super topup plan example

Do you have a small health cover right now?

So, ask this question to yourself? Do you have a small health cover of 2 lacs, 3 lacs or max 5 lacs and you want to upgrade it to a big number like 15 lacs or 20 lacs?

For the sake of explanation, let me take an example of 5 lacs existing cover and lets see how you can increase it to 15 lacs for a small premium increase. So all you need to do is take a super top-up cover of 15 lacs with 5 lacs deductible. Below are some plans with the premium amount for a single individual of age 35 yrs.

Premium for different Super top up plans in market

Comparison of Super Top-up Plans in Market?

Below I am sharing the comparison of various super top up plans in the market and how they differ from each other on various parameters.

Top up policies comparision

Why Super top up premium is less?

I am sure many investors will have this question in mind that “Why is the premium for a super top up plan so less?“. The answer is that the probability of a super top up getting triggerred is statistically very less and hence the risk for the insurer is not that high.

Think about it this way. If you have a large cover of 15 lacs right now, what  would be the hospital bill on an average? Most of the times, it would be in range of 50,000 to 1 lacs if you get hospitalized for a minor case and few lacs if there is some accident or some major issue.

Only in a very very fatal case or if you are highly unlucky, your bills will run over in the range of 10-15 lacs and thats going to happen once or twice in your lifetime. So the chances for a company paying for a claim above a certain threshold is very less. That’s the reason the premium for a top up plan is less. Higher the deductible, lower the premium.

Is it advisable to buy the base plan and super top-up from the same company ?

The answer is YES. If your base plan and the super top up plans are from the same company, it would surely help because you have to deal with the same company for both the claims. The documentation process is more simple and the communication is smooth. The company will not find any issues because it has all the records with them.

However note that even if you have it from different companies, it’s ok. You ultimately have to look at the features and what combination works best for you and if the total premium is affordable to you or not.

What are Convertible Top-up plans ?

Lately, a new kind of top up called as convertible topup plans are coming up in market.

“Some companies offer Super Topup plans with an additional feature that allows the plan to be converted into a base plan. This is done by buying out the Deductible in the plan.

For instance, if you have your company health insurance for Rs. 3 Lakhs you could buy a Topup of Rs. 15 Lakhs with a deductible of Rs. 3 Lakhs. In case you leave this employer, and/or are without cover, you can apply for buying out the deductible at the time of renewal by paying additional premium. There are certain conditions/triggers based on which this feature gets activated into the plan.

This is an excellent feature for people who feel that they would be working with employers who will provide health insurance cover all their working life, without any break.

For instance,

In case of Religare Enhance – The convertible feature gets activated after 4 continuous renewals. The plan has a waiting period of 1 year for Pre-existing diseases

In case of Apollo Optima Super – The option is available for customers who have bought the policy before crossing the age of 50 years. The option can be opted between the age of 55 and 60 years at the time of renewal by paying additional premium, if the policy has been renewed continuously without break. “

Who all should buy a super top up plan ?

  • Those who are having a small cover by themselves or a group cover through their employer and want to increase their cover (ideally you should have a base policy for a minimum amount)
  • Those who are right now having a small cover and want to upgrade it
  • Those who can take care of small medical bills themselves (like up to 2-3 lacs) and only want help in case of bills beyond that number by paying a small premium

Other Important Points related to Super top-up plan

  1. A super top up policy can be taken stand alone – A super top up policy can be taken without a base policy. There is no compulsion that you should hold a base policy.
  2. Premiums will rise as per age slab – You should be aware that just like a normal health insurance plan, a super top up plan premium will also rise as per age slab in coming years, so even if the premiums look very small right now, it’s bound to increase later
  3. No Claim Benefit not present – Generally super top up plans do not offer No Claim Bonus (NCB) . This is the primary difference between taking a base cover of a high amount and combining a small cover with top up cover, because then you loose on the benefits of a No Claim Bonus over the years.
  4. Not always a great option – Just because the premium is less, it does not mean that combining a small base cover with a super top up is always the best plan. Depending on situation, you need to find out if its a good option in your case or not. It might happen that you might loose out on some benefit and feature on the top up plans

I hope this article helped you to understand how you can increase your health cover at a small premium. Please ask your questions if any below in comments section

The secret of taking better financial decisions in your life – 4 point decision making framework

Posted on by Jagoinvestor

Do you know, which is the one thing – which is responsible for making financial lives complex these days?

The answer is – LACK OF CLARITY!

Most of the investors take wrong decisions in their financial lives and regret later about it. However, I want to assure you that by the time you complete reading this article, you will learn how to take better financial decisions and lead a simpler financial life.

Each financial decision you take has some pros and cos and some advantage or disadvantage. Some decisions will put pressure on your cash flow and some will make you rich in eyes of society, while some will create assets for you and some will destroy your net worth.

And finally, decisions will give you peace of mind and some make your life hell.

Some examples of decisions which investors have to make !

  • Should I prepay the home loan or invest it?
  • Should I buy that plot or not?
  • Should I take 2nd property or put the money in mutual funds?
  • Should I buy the higher end model of the car or the lower one?
  • Should I change my job for higher salary or be in my comfort zone?
  • Should I give 1 lac to my friend as loan or make some excuse?
  • Should I buy the 2 bhk or 3 bhk?
  • Should I keep so much money in FD or invest in the 2nd house?
  • Should I save for my kids education right now or leave it to fate?
  • Is it fine to spend money on outings so much?
  • Did I make a mistake by spending so much on myself? Am I selfish?

I must acknowledge that its always going to be tough, to take a decision. But can we do something which can simplify the process of decision making and give us a framework using which we can quickly decide and take things to next level.

4 point Decision Making Framework

Let me introduce you to the concept of “decision-making framework”, which I recently invented and to test its effectiveness, I ran a survey which was taken by around 132+ people online. I will share the results with you below shortly.

Below are the 4 points which I have included in the decision-making framework.

decision making framework

What is decision-making framework?

Like you saw above, a decision-making framework is nothing but few choices which you make before hand. So whenever you need to take some major financial decision involving money, you can check if it’s aligned with your overall decision-making framework and vision for yourself. You can check if the decision will take you closer to your goals in life or take you farther!

So now, let’s dive deeper into each point and you decide for yourself which side you fall into.

1. Debt Free or With Debt – What is your priority ?

The first point in your decision-making framework is if you want to lead a debt free life or if you are comfortable with debt and side by side you are creating your wealth.

This question is very important to answer because debt trap has destroyed many lives and made some really amazing people slaves in today’s world. So a person wanting to be debt free asap, keeps getting into debt because each opportunity looks so promising that they are attracted towards it and even though it does match with his vision in life, they still fall in.

Its happens because of instant gratification problem !

The first home loan is allowed!

Note that I am not taking about the first home loan you take in your life. No matter how much logic I put in, I think in today’s times, there is a very high chance that most of the people will end up with a home loan at least even if they want to be debt free. So for the sake of this 1st point in the framework, we will allow one home loan and nothing more than that.

So if you look at the other side, a lot of people after they have taken the first home loan, keep taking additional loans for 2nd house, 2nd car, plot loan, loan against property or topup loan and keep giving away their salary in EMI and keep making assets on the side.

While this is not an issue as such, but the problem happens when you realise that you wanted to debt free long back, but have spent all your life living in the pressure of EMI’s and never felt that independence of not having debt on your head.

Let’s see what most of the people choose out of the two choices.

As per the survey, it was a big tie between the two choices and almost 50% people said that they want to take the route of debt free life asap, but the other half were fine with the debt in their life while they create the wealth on the side. I am sure these are the investors who have a strong predictable income structures and safe job which gives them the confidence to say that. Below are the results

Is debt free always a good option ?

Real life example when it becomes tough to choose

Imagine you have taken a home loan which is 50% complete. You are regularly taking all the efforts to prepay your loan and because of your extreme focus, the loan will soon complete (in few years). You also have few lacs in your bank account accumulated from last few years which you wanted to keep as surplus funds and are now planning to repay the home loan further and that will almost make you debt free.

BANG!

Now suddenly you come across an amazing flat/plot which sounds like an amazing opportunity and you start visualizing how this can be an amazing addition to your portfolio. How after few years you will make 100% profit on it. You visit the site, the sales guy tells you about the amenities, location, the future prospects of the property and now you don’t want to miss the offer.

Your spouse is already happy and proud of you making further real estate investment.

You were closer to get debt free, but you again get into that debt trap, because this offer comes and now you are on the way to take another loan to fund the purchase of a new property. On one side, you are so happy, but on the back of your mind, you are worried if something happens to your job, will you be able to handle the EMI for another so many years? You are worried if the new property didn’t turn out to be that great, then what?

You are worried, if it really really makes sense to buy something which you will use after many years? What if it didn’t fetch you good rent? 

Truly speaking, there is no right or wrong decision of the above problem, but your decision has to align with what you wanted in your life and hence you should before hand if leading a debt free life is bigger priority or not.

2. Simple or Luxurious – What will be theme of your lifestyle?

The next thing which I feel should be part of your decision-making framework is a clear choice between what kind of lifestyle do you want to lead? Will it be simple, plain, minimilistic or a lavish and luxurious one?

I know some people will say, they want a balanced life which has a mix of simplicity and luxury both? I get that !. But there is always one of these dominating one, which will be the major part, we are talking about that here. Its totally ok to choose to live a simple life, which occasionally has luxury in it or vice versa. But the theme has to be clearly defined for you and your family.

When I asked this same question in our survey, around 66% people said that their life theme has to be simple and minimalistic and 34% said they wanted it to be lavish and luxurious.

simple or lavish financial life

Let’s not judge people on this parameter. I am sure a lot of people who want to choose luxury theme deserve it and are working hard for it. It’s a choice of leading a life, after all it’s one life and when will you not live like a king if not right now at this moment.

On the other hand, there are people who are very uncomfortable with lavishness and want their life to be simple and plain. These people also spend a lot of money on few things they love and they become spendthrift at various points of their life. I am on of them.

Both the themes discussed above are RIGHT, and we never know why people choose the theme they are choosing. It all depends on how they have lived their lives till date, what is their outlook towards life, their past experience with money, the struggles they have seen in their life and what kind of people they associate with. There are too many dimensions to it

Why choosing your theme is important?

So that when a big purchase comes, you can see if it fits your theme or not?

  • So that you can choose which car to buy?
  • So that you can choose how much furnishing to do at your newly bought home?
  • So that you can decide if you want to buy a premium villa or a normal 2 bhk house.
  • So that you can decide where you want to give the kids birthday party.

I am associated with both type of people in my life. One of my friends bought 70 lacs home and did a 25 lacs of interior (his house is awesome), while the other friend bought a 35 lacs home and bought minimal furniture and setup, but he has bought a high-end camera which is very very expensive.

Its not about show-off

A lot of people might feel that those who want to lead a life of luxury want to impress others and show off, but let me make it clear that it’s not like that. It is how those people want to spend their life on this planet which is anyways limited and its very natural. Just because you are not like that, does not make the other person wrong.

So, if you have made the choice of lavish living as your theme, then “to hell” with those friends who keep saying why you should save for future. Spend yourself like a king, earn more and spend more on yourself, buy awesome clothes, go on exotic tours, travel like there is no tomorrow. But be clear that you wanted it 🙂 and the best part is that you will not be guilty about it. After all, you have chosen your life to be that way.

3. Blocked Assets vs Liquid Networth – What excites you?

For those who think a lot of money will solve their struggles, you will be amazed to hear that there are many investors with net worth of 2-3 crores depend on a personal loan if they suddenly need 8 lacs of money and if they suddenly loose their job, they will panic like anyone else, because they are not sure from where the next month EMI is coming up.

Why is it so when their networth is 2-3 crores? 

Because, its all blocked and locked in assets which is highly illiquid. If they want to take out the money, it will take many months and years to get the best deal. These investors choose to spread their money across various assets (especially real estate like plot and houses) and anytime they have some cash in their FD or mutual funds, they feel it should be diverted to something concrete which they can touch and feel (even gold is one asset class).

So they keep increasing their networth, but are always low on liquidity. The biggest problem which I feel with these investors is that if some great opportunity comes and knocks their doors, they are so low on liquid money that they cant take advantage of the opportunity and have to take help of loans.

The worst part is that a lot of these investors never wanted things to be like that. But because they never slowed down in their financial lives to think of how it should eventually look like, their financial life took the shape on their own based on circumstances.

Some investors like Liquid money !

Liquid money means the money which can be redeemed very soon, but with fair and decent returns. So A lot of money in mutual funds, fixed deposits and limited money in real estate is what I call as “liquid networth”. In our financial planning terms, Me and Nandish think that having 1 crore in liquid networth has to be one of the primary milestone of every investor.

You will find many investors who are having networth of a crore, but all of it will go away if you take out real estate out of the equation.

So the main question comes – “What excites you more?”

Do you want to create high networth comprising of liquid networth (stocks, mutual funds, FD,Cash + 1 real estate for living purpose) OR you want to be high on real estate, various properties, plots, businesses etc and lower on the liquid networth?

Whatever choice you make, it will help you to take further decision in life which you have to decide where should that Rs 5 lac go which you got as bonus!. I was surprised that 73% people in our survey said that they want high liquid networth (not sure if its because real estate is not doing so well from last 1-2 yrs). Below are the results.

Should you block your money in various assets

It would be a good exercise to see if your current networth is aligned to your theme or not ?

4. Yourself vs Others – For whom are you creating wealth for?

This point if the decision-making framework can be a bit uncomfortable for many investors, because now we are going to be a bit selfish in life here. And the tough question for you all is – “For whom are you earning this money?”

  • Mainly Yourself + a bit for others in your life (kids, parents, others in life)
  • OR Mainly Others + a bit for yourself

Our parents created wealth primarily for us – their kids. They earned all their live, but never enjoyed the fruits of their labour. They never gave priority to their desires in life. They never owned a car, so that we can have a bike. They never created their retirement fund, because they were busy funding our post-graduation. They never went for any lavish vacations despite having money because their daughter’s wedding had to be planned years before and the money was to be accumulated.

But this story is taking a new shape in last many years. 

I am constantly seeing the shift in mindset. From last 10-15 yrs, the mindset has shifted on “them” to “Me”. from “their needs” to “my wants”. The aspirations have gone 10X  high and we want to consume, spend, enjoy, live life in a very different way compared to our past generations.

We have seen many of our clients focusing more on their “Retirement goal” rather their “kids education” or “kids marriage” and to some level I think they are going right.

Kids Education and Retirement

In old days “Kids Education” means “Retirement goal”

You will find various parents today who have hit retirement, have nothing great in networth to talk about and don’t have a penny to feed themselves and there is no help coming from their kids as well for whom they spend all their wealth till date. A lot of parents secretly wonder, if they did the right thing to over think about their kids and others and never thought about their own retirement or aspirations.

But things are changing !

Today, you have to plan both the goals separately and for most of the people its not possible to reach both the goals easily. Kids today have many options like taking education loan (if they are highly smart and crack good institute) or first take a basic job go for higher education few years later using their own money. In fact, many parents are now taking the route of education loan (they help taking it), but finally ask the kids to repay it themselves.

Already a lot of kids are guilty these days that their parents have to spend on their weddings and they want to arrange it all themselves. I know this is a sensitive topic, but this always keeps hiding in every investors mind and no one talks about it.

Spending culture in increasing

These days more and more people are going on exotic vacations abroad and within India, spending more and more money on entertainment, eating out, having great experiences, and spending on possessions. But some people are not able to do that because they are not yet clear if its morally right to do it or not.

Here comes the biggest surprise. Almost half number of people who took the survey chose themselves over others and the other half choose others over themselves.

for whom should I-earn

You have to complete your responsibilities in life

In no way, I mean to say that someone who is choosing themselves as the primary beneficiary of their wealth are running away from their responsibility. You still have to pay your kids school fees, clothes, your parents health expenses. Do all that!, but when you have to choice do a SIP for your retirement and another option is to pay EMI of a second house which you think will help you kids in future, you have to make a clear choice on who will get a bigger pie.

Will this decision-making framework help you ?

Truly speaking, YES and NO both are the answers. This whole exercise is nothing but bringing out your subconscious mindset on paper and make it clear to yourself on what you want your future to be like and how you would like to lead your financial life. You will not get robotic about your decisions, and obviously deviate from these points which you decide by yourself, but at least this will give you a structure to think and act.

At least 69% people who took the survey said that just by answering these 4 questions and choosing their answers helped them realise what really they wanted in life and how they should take their future decisions.

financial framework

I also now realize, that why we should not think why others don’t act like us and why some are materialistic and others don’t, why some people spend too much on their comfort and some live frugally. Why some people buy too much of real estate and others don’t. Why some people are in rush to close their loans while you might be thinking that they are not taking right decisions.

SO what works for you might not be others priority and does not fit others life. Its important to understand this point and brings maturity in your thinking.

So what is my personal answers for my decision-making framework ?

I thought I will share with you all about my personal answers for these questions above and how I think about my own financial life. Below they are

my personal framework

Understand that the above points are my personal points based on my life experiences and my mindset, you should think that they are better than yours or anyone else. Because of my clarity on above 4 points, I will decide in following manner.

I would like to hear what do you think about this idea and does it make sense to you. Do you feel something like this simplifies the decision making or not? Also please share your personal decision-making framework. What are your answers on these 4 points?

Jagoinvestor is coming to Hyderabad – 1st Nov 2015 (Workshop)

Posted on by Jagoinvestor

Hyderabad – We are coming !

Finally, we are doing our 1st investors workshop in Hyderabad on 1st Nov 2015 (SUNDAY). We started doing workshops few years back, till now we were doing programs in Pune, Mumbai and Bangalore and have trained around 500+ investors till date. It’s time we expand and include more cities, we are excited for our Hyderabad event.

Why you should spend 1 full day with us ?

We always love spending full day with participants, having some amazing conversations around money, how to plan their financial life and how to make  things more simple and robust.This one day can bring a real turnaround in any person’s financial life and it can help you get started as an investor. It is our promise you will walk out of the room with a new level of energy and vision as an investor.

Note that no personal finance knowledge is required to be part of this workshop.

You can just skip this article and directly register for the workshop (early bird tickets available at discount)

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 an individual.

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

Below are some of the pictures from our Mumbai Workshop we did recently

mumbai-workshop-2015-4

mumbai workshop 2015

mumbai-workshop-2015-3

mumbai-workshop-2015-1

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.

Register for Hyderabad workshop on 1st Nov, 2015 (SUNDAY)

Earlybird Ticket
(Last 1 ticket remaining)		 Rs 3,700 + Service tax @14% Buy Earlybird Ticket
Single Ticket Rs 4,200 + Service tax @14% Buy Single Ticket
Couple Ticket Rs 8,000 + Service tax @14% Buy Couple Ticket
Venue and Timing Details

8:30 am - 6:00 pm , 1st Nov (Sunday) , 2015
BEST WESTERN Ashoka
6-1-70, Lakdi-ka-pul,
Hyderabad – 500 004

Check Map
Detailed Directions

  • The hotel is 5 in walk from Lakdi Ka Pul Railway Station
  • Lunch and Breakfast is included in the program fees

We invite you to join and participate in Hyderabad 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 or money to get in your way and book your seat at the earliest because we will be taking only limited participants and registration will close after some days.

This workshop is strictly for investors and not for advisors or finance professionals. If you have never participated in any personal finance workshop let this be your first experience.  If you have any questions you can write in the comments section or you can mail us.

9 ultimate checklist to know if your financial life is on track or not?

Posted on by Jagoinvestor

Let’s quickly see today what I call as a good checklist to find out if your financial life is on track? Are you doing well? When can you say that your financial life is an ideal financial life?

What are those parameters? 

  • Is high income good?
  • Is having low expenses great?
  • Is having 50 lacs in saving’s great?

A lot of investors do not even know if they are doing good, bad or just average.

checklist of good financial life

I know its very subjective to say if someone is doing well or not and no one other than you should make the final judgement, but still lets look at some high level points which should be present in a good financial life. Atleast you can get a sense of how you are doing on few parameters.

Lets see how many of these are true for you.

1. You have positive surplus each month

The first indicator I think is very simple and very important – “Are you left with a positive surplus by the end of the month or not?”. Its as simple as that. Unless you are left with some surplus (income – expenses), it makes no sense just to brag about your salary itself. What will matter is if you are having a good positive surplus each month or not.

And I am talking about a decent surplus, like 20-30% at least. So if you are earning Rs 80,000 a month, but you are left with just 2-3k by the end of the month, please don’t say you are left with surplus. It should be at least 15-20k, because this is what will help you in building your wealth. If can surely say that you earn a lot and spend like a king and enjoy life like anything. Well that’s great and its surely a great thing. But not having a surplus is surely a big negative point.

Did you pass this check or not?

2. Your net worth is going up on yearly basis

Is your net worth increasing on yearly basis? Are you getting wealthier over years or not?

  • Are you wealthier as compared to 5 yrs back?
  • Are you wealthier as compared to 3 yrs back?
  • Are you wealthier as compared to 1 yr back?

I am not saying that be highly rigid about 1 yr. It’s totally fine if your graph is a bit down for few months or last 1 yr, but as a general rule, it should be moving up over the years (especially if you are young and moving towards your retirement)

If the answer is YES, then fine – you are doing great, else there is something you need to fix. Your net worth would keep going up and up in two cases. First is when your investments are doing well and the interests and returns you earn on it add up, this happens mostly in later part of your life, when money already have reached to a level and now the compounding.

The other case is when you keep investing out of your surplus each month and its very important in initial years of your life, because only when your net worth reaches a respectable level, you will be able to feel the power of compounding and its effect on your net worth.

Did you pass this check ?

3. You are not heavily dependent on loans to pay your bills?

If I take away your credit cards with the condition that it will be returned to you only after 3 months, will you panic?

I am sure many investors will panic and start wondering how they will manage now. Note that said “heavily dependent” and not “heavily using”. Personally I use credit card a lot and frequently, but you can take away my credit card and never return to me and I will not even care for a minute (after I block it).

However, some people are so dependent on credit card, like its oxygen for them. Apart from credit card, a lot of people get into this cycle of

  • Need money for some purpose
  • Take personal loan
  • Keep paying the EMI to clear off the loan
  • Need money for some purpose
  • REPEAT !

This is a very unhealthy sign in your financial life and you should just not be doing this because its messing up your credit report and it will cause you insane amount of trouble getting future loans

Did you pass this check?

4. Are you protected by external risks which will destroy your wealth

In technical language, I mean to ask if you have taken life insurance, health insurance, added life insurance if you have home loan or not.

Imagine, that you are saving money for your down payment of your dream house, but you don’t have a health insurance (here is a checklist on how to buy health insurance) and suddenly some accident occurs which requires hospitalization, what is going to happen?

All your money which you have accumulated over the years for your dream home will just disappear and you will be back to square one, wondering how will you achieve your goal now?

If you didn’t take sufficient life insurance and you have a home loan EMI, then you are completely gone!, then your family will either have to pay the money from somewhere or vacate the house.

As per a rough calculation, if a male aged 30-35 yrs earning 10 lacs a year, wants to take sufficient life and health insurance, he can get a 1 crore worth of term plan and a 5 lac health insurance for around Rs 20,000 a year easily. Thats just 2% of his yearly salary. I think you should calculate, and judge if its worth covering these risks or not. By the way taking your life and health insurance is a one time task.

Do you pass this check or not?

5. You will be able to handle sudden surprise expenses without external help

Do you have enough resources to handle surprise expenses or any unplanned expenses? Imagine following scenario’s

  • Your father needs 75,000 by tomorrow
  • You spouse needs Rs 1 lac which will come back after a 1 month.

Are you in a situation to arrange this money instantly (at least 2 months of salary) or not?

By instantly, I didn’t mean that it should be lying in your saving bank account, but can you at least arrange for this amount yourself without any external support or not is the main question.

Many people I know will have NO as the answer, because they either have locked the money in financial products because of tax saving or they just don’t have it. So this point actually tests how you have managed liquidity in your financial life.

Are you able to pass this check or not?

6. You are investing a minimum of 10% of your income consistently

This is related to the first point. But still lets give a better framework to it. Are you investing at least 10% of your income consistently or not? Ideally it should be maximum but can you afford to invest, lets give a number which looks possible for everyone.

So if you earn Rs 50,000 per month, you should at least be saving Rs 5,000 a month, that too consistently.

Please don’t say you started a recurring deposit of Rs 5,000 few months back, BUT later stopped it because your kids school fees had to be arranged. That does not qualify!

I think any investor has to first learn and experience what it feels to regularly invest and next comes the conversation of mutual funds, generating high returns and all that.

That’s why, I think once you start your career, you should atleast open a recurring deposit and let it run for a year. First see how the wealth accumulation looks like, and how does it feel your wealth growing.

This will give a good base to start your wealth creation journey.

Anyways, Did you pass this check or not ?

7. You are not over-leveraged beyond the danger levels

What percentage of your income goes into paying EMI’s?

The higher it is, higher is the leverage. And beyond a level, its highly dangerous. Imagine a family whose total income is Rs 1 lac a month, but they are paying an EMI of Rs 72,000 and managing everything else in the rest amount.

Imagine what all can go wrong with this situation?

A lot of people commit themselves to too much debt which looks manageable in that moment, but in long term they are a big pain.

Double Income, No kids families with too much debt

The best example I can give are double income couples, who take the loan considering that both husband and wife will keep earning and the incomes will keep rising.

However few years down the line, if wife stops working due to the new born kid (most of the cases), it becomes very tough for them to manage the EMI, and other expenses.

What is the problem here?

They planned for the “best case” and not the “worst care”. So when you plan your loans, the future looks rosy, everything looks perfect – but life is not like that. You have to consider all angles possible and in advance think about all things which can happen in general and then position yourself towards it.

As a thumb rule (which obviously does not make sense in every situation) is that one should not be paying more than 40% of their income in EMI. Keep a lot of breathing space in between. This is not applicable to you, if you are highly adventurous.

Did you pass this check or not?

8. You are earning real return in positive number

Are you earning positive real return on your investments? Which means that your post tax returns are beating inflation.

It makes no sense to earn 8% in a fixed deposit, out of which 30% will be deducted as tax (if you are in 30% tax bracket), and left with 5.5-6% return at the end of the day, whereas prices of all things are going up by 9% inflation.

So when you tell yourself –  “I have invested in FD”, in reality you have only earned a positive absolute return, but a negative real return.

Its exactly like, you can buy apples for Rs 150/KG near your home, but you went to that favorite shop 5 km away here you get it cheaper at Rs 135, only to realise later, that you spend Rs 40 in petrol.

So as a good practice, keep limited amount in saving bank, fixed deposits (especially if you are in higher tax bracket) and more and more in asset classes which will give you higher return (with high volatility, not risk) like Equity mutual funds, stocks or real estate.

Did you pass this check or not?

9. You are on a high level clear what you want from your financial life

This is one parameter which I like and its not related to numbers.

So here is my question to you – “Do you have clarity on where you are headed in your financial life?”

You have been working from last many years, and you are saving money properly and everything is in place, but what is your game? Where are you headed towards?

Let me explain you with an example

When I called one of our clients from Bangalore, just few days back – he told me he is headed towards creating his ONE crore networth in next 4-5 yrs and he is already 40% done.

I loved this, because what he has done for himself is that he is kept all the clutter out and he is highly focused on what is wants out of his money. He knows his game !

  • So are you headed towards becoming “Debt free” and working towards it?
  • Are you headed towards buying a house in next 5 yr?
  • Are you headed towards building a regular income of Rs 40,000 per month in next few years?
  • Are you headed towards spending 50% of your income each month and enjoy your life to fullest without worrying for future?
  • Are you headed towards setting up a business along with your job?

So whatever it is, it has to be very clear. Don’t go in silence when I ask you where are you headed? A lot of investors face this problem of not knowing what are they doing, why are they doing it, what they want to achieve ultimately, everything is vague and very unclear. Don’t be like that.

Are you able to pass this check?

How much did you score?

Out of these 9 points, I would like to know how much did you score and if you are happy with it? Where can you improve and whats your plan towards it? Do you think this is a good checklist which you should look each year once and ask yourself about it.

Please share your views about this article in comments section.

What are Arbitrage mutual funds and how they are safe and tax efficient ?

Posted on by Jagoinvestor

Do you want to invest in a mutual fund which has near zero-risk, offers returns in range of 6-9% with high liquidity and at the same time, they are tax efficient? Welcome to the world of “Arbitrage Mutual Funds”.

arbitrage mutual funds

Arbitrage mutual funds are a category of mutual funds which are comparable to liquid funds or a pure debt fund whose returns are in range of 6-9% per annum, but from taxation perspective they are treated like equity mutual funds. These arbitrage funds have suddenly become very famous with investors after this tax budget, because the taxation on debt funds changed and became unattractive compared to past.

How does an Arbitrage mutual fund work ?

You should first understand the word “arbitrage”. In short arbitrage means – “simultaneous purchase and sale of an asset in order to profit from a difference in the price”.

Let me give you an example

  • Imagine that a person wants to buy a second hand phone and is ready to pay Rs 2,000 for it. You go to OLX and see that the same phone is selling at Rs 1,200 there. You then buy the phone at 1200 and sell it at 2000 and make the profit of Rs 800 . This is one example of arbitrage
  • Another example is gold. Gold prices are different in various cities. So there is a possibility that gold can be cheaper in bangalore compared to chennai and a gold dealer buys it from Bangalore and sells it in Chennai. This is another example of arbitrage

In the examples above, the problem is that the buy and selling happens at two different times, and hence there is small risk.

But what will happen if you are able to buy and sell at the same time? In that case, there is no risk, because instantly you are locking the profits (the difference price)

This is exactly what happens in Arbitrage mutual funds

In case of arbitrage mutual funds, the funds explore the arbitrage opportunities where the same stock is quoting at two different prices at BSE and NSE at the same time and they buy and sell in different markets and make the profits.

The other thing which an arbitrage fund does is use cash and derivative markets. For example, a stock might be available at Rs 100 on stock market, but it might be selling at Rs 104 in future’s market (if you dont understand derivative markets, thats ok , dont worry) and they make the difference as profits.

Lets not go to much into detail of how they work, as of now just understand that arbitrage funds use the arbitrage technique to earn the profits from the gaps in markets and its almost risk free.

Arbitrage funds returns are tax free after a year

So lets come to the biggest plus point of an arbitrage fund.

The biggest advantage of arbitrage funds is that they are treated as equity mutual funds, when it comes to taxation. Hence any return you earn after holding it for 12 months is tax free, and incase you hold it for less than 12 montsh and make any profits, the taxation is 15% (short term capital gains tax).

So, return wise arbitrage funds can be compared to a liquid fund and the returns potential are in range of 6-9% depending on the time frame and the yield of the instruments they have invested into.

Now think about this scenario

If you want to park a big sum of money for some months or approx one year, but you dont want to take a lot of risk on the capital and at the same time want a highly tax optimized solution, what are your options?

FD is not that great option, because if you are in 30% tax bracket, you will be paying tax at the rate of 30% and if you break your FD in between before maturity, you will also pay penalty. In that case, these arbitrage funds can be a very good alternative, because they can give decent returns, high liquidity and lower tax (no tax if held for more than a yr)

Below you can see some of arbitrage mutual funds and their performance over the last 1 yr (as on sep, 2015)

arbitrage funds in India - some examples

You will see that the returns from these funds have been in the range on 8%, which is quite good and comparable to Fixed deposits and liquid funds.

Are there any risk in Arbitrage Funds?

Yes, But more then risk, I would say these are some points which every investor should be aware about before they invest in arbitrage funds.

You should understand that arbitrage opportunities must exist if arbitrage funds have to perform better, means if the markets are uncertain, then good opportunities will exist for arbitrage funds and they will give decent profits, but if markets are not volatile enough, it might happen that the returns from arbitrage funds are unattractive.

If you look at past 3 yrs returns, you will find that the returns have been very good, but if you go a bit in history you will see that they have not give the same kind of return always. See the chart below for Kotak Equity Arbitrage fund, a very good fund in that category

arbitrage mutual-fund performance and risk

You will see that in the year 2009 and 2010, the fund has not performed well like it did in earliar years or after 2011. So be very clear that you cant expect them to return in the range of 8-9% always. There will be times when they will return 4% or 5%, but that happens rarely.

How liquid are Arbitrage funds ?

Lets talk about liquidity factor now.

You will often hear that arbitrage funds can be compared to liquid funds as they are highly liquid and risk free. So some extent this is very true, but if you go deeper, there are few differences.

  1. Arbitrage funds redemption can take 3-4 days : An arbitrage fund redemption can take 3-4 days compared to just 1 day in case of liquid fund, so if your requirement is that the money should come back to you the next day if you want to redeem, then arbitrage funds are not the right choice.
  2. Arbitrage funds have exit load for 90 days – Most of the arbitrage funds have a small exit load anywhere from 0.25% to 0.5% if you take out the money before 90 days. If compared to liquid funds, there does not exist any exit load and you can take out the money even in a week without any loads. For example, incase of ICICI Prudential Equity arbitrage fund, its exit load is 0.25% if redemption before 30 days

The above two points conclude, that one should ideally choose arbitrage funds if one is looking to park funds anywhere from 3 months to 2 yrs. Also someone who is falling under a lower tax slab, will not benefit too much from investing in arbitrage fund because anyways their tax slab is less.

Comparing Arbitrage fund with Fixed deposit and Liquid fund

Finally, let me give a rough comparision of arbitrage fund with bank FD and liquid funds, which will make you more clear. The comparision chart below shows various criteria and how these products compare.

comparision of arbitrage mutual funds vs fixed deposit vs liquid fund

So shall you invest in arbitrage funds?

I think based on the above information, you can now take the call if you want to invest in arbitrage funds or not. Let me know what you are going to do and what comes to your mind about this category of mutual funds.

Here are the 5 most important things to know before you Submit Investment proofs for tax saving

Posted on by Jagoinvestor

Do you know everything regarding investment proofs which you provide to your employer at the time of tax-saving season? If your answer is NO, then this article will help you understand a lot of things which you don’t know or partially know about.

So, I will talk about some of the common things you should take care while giving your investment proofs to your employer for tax saving purpose.

investment proof for tax saving

1. Investment declaration helps employer to deduct appropriate tax

The first and most basic thing, that you as an employee should know is that your employer is supposed to deduct your income tax on monthly basis and deposit it with govt on 7th of the following month.

For this, the employer should calculate your taxable salary and it can only happen if you before hand give him an idea about how you are planning to save tax, and apart from that how much of  HRA, LTA, Medical reimbursements you are entitled for.

For this purpose, your employer asks you to declare your various investments in the start of the year itself, so that they can compute your net taxable salary and then pay your salaries accordingly, after deducting TDS from your salaries.

And then, finally around Dec/Jan, they start asking you to provide them the actual proofs of your investments and receipts so that they can match things with their initial calculations and if there are any difference they have 2-3 months in hand to handle the discrepancies. Below is a small example of it

investment proofs importance

What If you failed to submit investment proofs?

If you failed to submit your investments proofs (you declared them, but didn’t invest in reality), in that case you are liable to pay higher income tax, but employer has not deducted it and hence they get a 2-3 months of extra time to adjust it from your salary.

Following things are required by employer as investment proofs.

  • To claim LTA, you need to provide Travel receipts (flight boarding pass, train tickets)
  • Home loan certificates if you want to claim deductions under principal and interest repayment
  • ELSS investments proofs or any other 80C investments
  • Life insurance and health insurance premium receipts
  • Various donations receipts
  • Rent receipts to claim HRA

2. You can also share your saving bank interest, FD interest with employer

A lot of people do not know this, but you can share your saving bank interest, FD/RD interest earned during year, any capital gains from shares or mutual fund, rental income and other kind of incomes with your employer, so that they get a complete picture of your taxable salary and deduct your income tax which will be more accurate.

If you do not disclose these additional incomes to your employer, in that case – you will have to separately pay additional income tax yourself and then take these things into account while filing your income tax returns.

Note that another advantage of declaring these additional income with employer is that you will not have to pay any penalty which might arise due to not paying advance tax on time.

Also, you won’t have to take the burden of paying the additional tax at the end of the year, the tax will get distributed almost equally throughout the year.

3. Didn’t submit income tax proofs to employer? You can claim things later

A lot of investors have this myth, that if they didn’t do their investment proof submission to employer, they will never be able to claim the deductions and will have to pay higher income tax. This is not true.

Yes, it’s a good practice to give the investments proof to your employer on time, and that will save you a lot of headache later while filing the returns.

But for some reason, if you fail to provide the investment proofs (example, like you don’t have money in the month of Jan and you decided to buy a life insurance policy only in Mar), in that case – your employer will deduct the income tax, but then at the time of filing your tax returns you can claim the tax refund, if you finally managed to invest in tax saving products later.

Here is a chart which will give you a better idea

investment proof work for tax saving

Here is another detailed example of how it happens

  • Ajay has the salary of 12 lacs a year, and he declares to his employer that he will invest Rs 1.5 lacs in 80C products
  • Employer based on Ajay declaration will calculate that Ajay taxable salary is 10.5 lacs and will be based on that suppose the total income tax for the year is 60k (just for example) . So Ajay final salary will be 10.5 lacs – 60k = 9.9 lacs. This 9.9 lacs divided by 12 will be 82500 which he will get on monthly basis and the employer will deposit Rs 5,000 as his tax to govt on monthly basis
  • Now in Jan, when the employer asks Ajay to give them the investment proof, suppose Ajay realizes that he forgot to make the investments and does not have money to invest 1.5 lacs in 80C products. But he will do it in Mar himself. And he fails to provide the income tax proofs to his employer.
  • Now his employer will come to know that Ajay real taxable salary is 12 lacs and not 10.5 lacs as declared by him and lets say on this his income tax is 1 lac, so additional 40k is to be recovered from Ajay, which will be adjusted from Ajay’s salary in Feb/Mar
  • Ajay then invests 1.5 lacs in Mar and finally his taxable income should be just 60k , as per the planning (because his taxable income is 10.5 lacs as declared in the start). However his employer has deducted 1 lac in total from his salary and paid to govt.
  • Now Ajay can declare in his tax returns that he has invested in 80C products and he is liable to get refund of Rs 40,000 which he will get in next few months.

In the example above, you can see that not giving investment proofs on time has resulted in some inconvenience for Ajay, but that does not mean that he will lose out on his tax benefits. One can always invest around the end of the year and then claim back the tax refund later.

However, there is one exemption here

Few exemptions are made only at employer level, like LTA and medical reimbursements. So if you fail to provide LTA and Medical reimbursements proof to your employer on time, then you lose the benefit. You can’t claim it back at the time of filing returns.

4. You DONT need to submit any proofs while filing your tax returns

Another important point you should remember is that while filing income tax returns, you just have to furnish the information about your investments, and not attach any investment proof.

Please do not attach xerox copies at all. It’s not required.

Its required by the employer because they are deducting the TDS and as a third party they need the documents for verification purpose.

But if you are claiming at all the benefits yourself at the end of the year, you just need to declare things. However note that you should keep the receipts and all the required documents with you for some years, because if their is any scrutiny later, you need to be prepared to answer income tax authorities along with documentary evidence.

Which means that you should never lie about your investments which you have not done in reality. Always provide true information.

5. You need to give “proposed investment” proofs for the month of Feb and March

A lot of people are confused on how will they provide the investment proofs for the month of Feb and Mar in Jan itself, when the employer asks for investment proofs. It might happen that your life insurance premium is due in Mar or if you are doing SIP in ELSS funds, you still don’t have the statements showing the investments.

In those cases, you have to provide a declaration that you are going to make the investments for Feb/Mar and based on that declaration, your employer will process the TDS.

All the employers provide you with the declaration form. You just need to write there that you promise to do the investments for tax saving in next 2 months and your exemptions should be given to you based on your declaration.

Let me know if you have any questions or if you want to share some important information on this topic