Author: Jagoinvestor

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Decoding “Rs 10,000 invested in Wipro became Rs 500 crore” example

Posted on by Jagoinvestor

I am sure you must have seen the famous example of how Rs 10,000 invested in WIPRO turned out to be Rs 500 crore in 2019. That’s a massive wealth. But today I want to decode this story and let’s see what are some of the issues and problems. I have created a video on this topic, Do watch below

First of all, note that it’s not just WIPRO that has created massive wealth for its investors. There are many other examples as well, like

  • CIPLA: Investments of Rs 10,000 in 1979 will fetch 95 crore
  • INFOSYS: Investments of Rs 10,000 in 1992 will fetch Rs 1.5 crore
  • RANBAXY: Investment of Rs 10,000 in 1980 will fetch Rs 19 crore
  • HDFC BANK: Investment of Rs 1 lac in 1995 will fetch Rs 8 crore

While there are some examples of people who were able to hold the stock for 35-40 yrs and created massive wealth for themselves the one question which we shall ask ourselves is – Is it remotely possible for a common man to do it?

2 problem will WIPRO example

Problem #1: Survivorship bias

The Wipro example is a classic example of survivorship bias, where we pick the example which has worked already and survived for 40 yrs. It’s damn simple to look back and say easily that 10,000 become 500 cr if you waited for 40 yrs?

It’s nothing more than a data point. You are just looking at the statistics.

For every Wipro, Infosys, and Reliance example – there is a Reliance Capital, Unitech, and Cox&Kings example that has destroyed all the wealth in so many years.

shares which crashed

 

How will you pick WIPRO in 1980 with so much confidence for the next 40 yrs? It is almost impossible.

Problem #2: How will you handle your emotions all these years?

“If you invest for 40 yrs” is the point.

  • Who invests for 40 yrs?
  • Who buys and holds for 40 yrs?

I will tell you, it’s mostly people who are dead or someone who really forgot about the investment made.

And then there are promotors of the company who hold for so long. And finally, there is a tiny minority of few people who might have done it successfully whose example we see on the net. But it’s never going to happen with most people because it’s almost impossible to control your emotions when you see the stock going up or down so much.

  • When you invest Rs 10,000 and it becomes Rs 1 lac in 1 yr – Will you, not sell-off?
  • If not, then what if that Rs 1 lac becomes Rs 5 lacs in the next 2 yrs? – Now will you not sell-off?
  • If not, what if that 5 lacs now becomes 1 lacs and drops in value by 80%? – Will you still have “conviction”?
  • What if that Rs 1 lacs comes back to 5 lacs? Now?

I think you got my point!

Only robots and machines can stay calm and not react. We are humans and we do.

Here people sell when prices go up by 10% and we are talking of keeping stocks for 40 yrs?

Note that I am not saying that there are people who don’t keep the stocks for 20-30 yrs, but it’s not as easy a game to play as it’s made to look.

Enjoy the journey of equity bull runs and keep using the money

Note that buy and hold for 40 yrs is not always practical. Even if you have a good stock and patience, it only makes sense to take out profits from time to time and use it for your life goals. Go on vacations, buy a house, travel, and use it to buy stuff. There is no point in dying with Rs 500 crore unless you want to exactly do that.

Another point is to have a well-diversified managed portfolio where you are betting on multiple stocks and not concentrated on few ones. So have realistic expectations from stock investing and take these examples with a pinch of salt.

Only use these examples to reassure yourself that equities have huge wealth creation potential and its an important part of your portfolio.

Do share your comments below

“Guaranteed 11% returns” – A new misselling in insurance (VIDEO)

Posted on by Jagoinvestor

Recently I got a call from an insurance company sales executives and they tried to sell me an insurance policy which they said had Guaranteed 11% returns.

The policy was Reliance Nippon Life Guaranteed Money Back Plan

I knew that there is surely some catch and they are kind of misselling me, I didn’t know what exactly it was. So I decided to dive deeper and find out more.

After I asked them tough questions, and once they realized that my knowledge about these things is much more than an average uninformed investor, they were ready to mail me from their official email id about what I will get. Finally, I solved the mystery like CID and told them the policy has just a 4.6% return and not 11%.

Do watch the video below to quickly understand the whole game.

Guaranteed 11% returns

So when I got this sales call, a lady told me that this was a 15 yrs plan, for which the premium payment term is just 10 yrs. I will have to pay Rs 1 lac for 10 yrs and I will get a total payment of Rs 24.72 lacs towards the end and the return turns out to be 11% IRR

This sounds quite attractive and anyone who is not happy with the FD returns these days will get attracted quite fast.

Here is the breakup of the amounts she told me I will get in 15 yrs

illustration misselling insurance policy with 11% guranteed returns

I told her to send me an illustration and she did that after some time (here is a PDF Copy)

When I saw the illustration, I saw that the premium was not Rs 1 lac, but it was Rs 1,05,263. This is the first thing that she never informed me of. So instead of 1 lac, the outgo from investors pocket is Rs. 1,05,263!

When I looked deeper, I found out that few numbers she told me over the phone are visible in the illustration, but the amount of Rs 8,99,147 was missing from the illustration. This was the SUM ASSURED amount.

She had mentioned to me on call that we will get this sum assured amount also, but the illustration had no information about it.

This was the Catch

So when I asked them – “Why is the sum assured not in the payment section?, you told me that I will get that also”

To this one of the seniors told me that it’s not in the illustration, but I will get it because “Sum Assured is always paid in the policy”. I told him that it’s paid when a person dies, but where is it written that I will get the sum assured amount apart from the other numbers he had mentioned” for which he didn’t have a clear answer.

The sales guy kept telling me I will get it and finally, he told me that it’s mentioned in the policy brochure. When I looked at the policy brochure, it was mentioned that it paid

but… but …but it paid in installments and THAT WAS THE CATCH

insurance policy brochure misselling

The sum assured is given to you in small parts in year 11th, 12th, 13th, 14th, and finally in 15th year. So it’s already paid to you which you can see in the image below.

However these guys were counting the sum assured again when they told me about the plan over the phone and that’s the reason they tell you that you will get a very big amount, which you will NOT!

They are just counting the same thing twice in the benefit and they are not even lying when they say that they can mail you that you will get “sum assured” in this policy because you are GETTING IT!

Are you getting the whole game? They are just saying the thing in an incomplete way and twisted format.

To properly understand the details, do watch the video above

How sum assured is counted twice in the policy for misselling

This was a catch which most of the investors are not able to catch and believe the sales call.

They also don’t find any mistake or bluff and even though they have heard that lots of misselling happen in the insurance sector, they still go with these policies.

IRR returns of just 4.65% instead of promised 11%

When I calculated the IRR of the policy with the correct numbers, the IRR turned out to be just 4.65% rather than the 11% they claimed over the call.

IRR of insurance policy

Conclusion

Do not fall for this kind of policies which does not clearly give full information on the returns and is too complicated to understand. They will try to convince you by saying things like they will email you from their official email id because they have learned that people have learned from previous missellings of ULIPS etc where nothing was given in writing and if they say something like that, it will look very trust worthy!

Just avoid it.

For your insurance needs, take a plain vanilla term plan and for your investments do invest in pure investments products like stocks, PPF, mutual funds, bank FD’s, NPS, etc, and keep things simple.

How I survived a Credit Card fraud today! – Experience Sharing

Posted on by Jagoinvestor

One of my Twitter followers Mr Ravi shared with me a potential credit card fraud attempt that he survived. I would like to share that with you all with his permission.

RBL Bank Credit Card OTP-Fraud

Here is goes

—

I hold an RBL Bank Credit Card along with a couple of others.

Today, I got a call from a mobile number 6391504865. The person was speaking fluent English and claimed to be from the RBL Bank. He asked me – at the time of getting the card whether I was told if this card is lifetime free or there will be a joining fee. Then he asked if I was actually given the credit limit which I was told. Till this point, I answered the questions.

Then he told me that the bank is offering me a credit limit increase of 1 lakh if I want. And then asked – “Please confirm if the PAN number I am telling is correct.” Then he told me my correct PAN number. He further proceeded saying that he was sending an OTP which should be shared with him for authorisation of this limit increase. Here comes the scary part. I received an OTP from the legit RBL messaging service (VK-RBLBNK) from which I usually receive the transaction messages. The content of this SMS was as following:

“234567 is OTP (one time password) for updating your RBL Bank Credit Card settings.”

Just to ensure that this is indeed a fraud, I asked him to tell me my existing card limit before I share the OTP. He couldn’t answer it well and started beating around the bush. I told him unless the SMS mentions that this OTP is for credit card limit increase, I will not share the OTP. I asked him to send me an email from his RBL email id about this. He said yes and hung up the phone.

Mr Ravi, soon after the fraud call connected with RBL bank customer care (fraud detection department) and came to know that it was indeed a fraud call.

Here is one more similar kind of incident

RBI credit card fraud

PAN and Credit Card Leaked

It’s very clear that all his details were with the fraudster.

No one asks for any OTP for increasing the credit card limit. It’s always informed to you by SMS, or you get to see that message when you log in to your banking portal. The OTP which was generated was surely for some other purpose (like transferring money or authorising some purchase).

So beware if you get a call for increasing your credit card limits and the other side has your PAN, Card details, Card current limits, etc. They might be a fraudster

Make sure you never share the OTP with anyone overcall. There are many youngsters who may be new to how a credit card works and fall for this fraud. Looks like Jamtara Gang is back with new tricks.

His original sharing was posted here and some part of it is reproduced with his permission

Have you faced any kind of credit card fraud ever? Can you share in the comments?

New Bank locker Rules by RBI (100 times the locker rent as penality)

Posted on by Jagoinvestor

RBI has recently issued some new guidelines for bank lockers which are consumer-friendly to some extent and will come into effect from 1st Jan 2022.

RBI went through lots of customer grievances and feedback from banks too and finally came up with some new guidelines. Let’s look at some of the most important points which really impact you!

New Bank Lockers rules by RBI which will get implemented from Jan 1,2022

1. Compensation of 100 times the locker rent

If there is any loss of lockers content due to bank negligence or irresponsible behaviour, then bank locker holders will get 100 times of locker rent as compensation. So if the yearly rent of the locker is Rs 4,000, then the compensation will be Rs 4 lacs

Here is what point 7.2 of RBI notification says

It is the responsibility of banks to take all steps for the safety and security of the premises in which the safe deposit vaults are housed. It has the responsibility to ensure that incidents like fire, theft/ burglary/ robbery, dacoity, building collapse do not occur in the bank’s premises due to its own shortcomings, negligence and by any act of omission/commission.

As banks cannot claim that they bear no liability towards their customers for loss of contents of the locker, in instances where the loss of contents of the locker are due to incidents mentioned above or attributable to fraud committed by its employee(s), the banks’ liability shall be for an amount equivalent to one hundred times the prevailing annual rent of the safe deposit locker.

2. SMS and Email alerts at the time of locker access

Now you will get email and SMS notifications on the same day when the locker is accessed. This will help if there is any kind of fraud or unauthorised access (like someone from your family opens the locker without telling you)

Here is what point 4.1.3 of the notification says 

Banks shall send an email and SMS alert to the registered email ID and mobile number of the customer before the end of the day as a positive confirmation intimating the date and time of the locker operation and the redressal mechanism available in case of unauthorized locker access.

3. Last 180 days of CCTV footage are required for locker operation

Banks will have to install CCTV to monitor the common areas and doors from where entry and exits happen inside the locker room. This CCTV footage has to be stored for the last 180 days.

Here is what point 2.1.2 of the notification says 

The area housing the lockers should remain adequately guarded at all times. The banks shall install Access Control System, if required as per their risk assessment, which would restrict any unauthorized entry and create digital record of access to locker room with time log. As per their internal security policy, banks may cover the entry and exit of the strong room and the common areas of operation under CCTV camera and preserve its recording for a period of not less than 180 days.

In case any customer has complained to the bank that his/her locker is opened without his/her knowledge and authority, or any theft or security breach is noticed/observed, the bank shall preserve the CCTV recording till the police investigation is completed and the dispute is settled.

4. Banks are allowed to charge 3 yrs of rent as term deposits

Banks are allowed to charge up to 3 yrs of rent + charges of breaking the locker from customers. So they may ask you to create an FD, but this has to be of a small amount, not any exorbitant fees like what happens on ground level. This is just to make sure that banks are protected for a situation where the locker holder does not pay rent on time or is unreachable for some years.

So if locker rent is Rs 4,000, the FD – they can ask you shall be for Rs 12,000 + some more charges like Rs 500-1000. So in total, it shall surely not cross 4 times the rent in any situation.

If the bank official asks you to create an FD for 2-3 lacs or forces you to buy any kind of insurance policy, then please tell them you are aware of rules and you will complain to RBI on this.

Here is what point 2.2.1 of the notification says

Banks may face potential situations where the locker-hirer neither operates the locker nor pays the rent. To ensure prompt payment of locker rent, banks are allowed to obtain a Term Deposit, at the time of allotment, which would cover three years’ rent and the charges for breaking open the locker in case of such eventuality.

Banks, however, shall not insist on such Term Deposits from the existing locker holders or those who have satisfactory operative account. The packaging of allotment of locker facility with placement of term deposits beyond what is specifically permitted above will be considered as a restrictive practice.

Another small point is that if locker rent is collected in advance, in the event of the surrender of a locker by a customer, the proportionate amount of advance rent collected shall be refunded to the customer.

5. Waitlist numbers & Vacant Locker list to be displayed

Now each locker application has to be duly acknowledged and a waitlist number has to be given to the customer. That waitlist number has to also get displayed in banks along with the number of vacant lockers. This is to ensure transparency. Right now the things are very opaque and customers don’t get enough information and clarity about their locker applications

Here is what point 2 of the notification says

In order to facilitate customers making informed choices, banks shall maintain a branch-wise list of vacant lockers as well as a wait-list in Core Banking System (CBS) or any other computerized system compliant with Cyber Security Framework issued by RBI, for the purpose of allotment of lockers and ensure transparency in allotment of lockers.

The banks shall acknowledge the receipt of all applications for allotment of the locker and provide a waitlist number to the customers if the lockers are not available for allotment.

6. New Agreement by Jan 1, 2023, for existing locker holders

A new locker agreement has to be signed with all existing locker holders with all these new guidelines and rules. A draft copy will be framed by IBA (Indian Banking Association). So if you already have a locker, do wait for the bank to reach out to you in 1-2 yrs to sign a new contract.

Here is what point 2.1.1 of the notification says

Banks shall have a Board approved agreement for safe deposit lockers. For this purpose, banks may adopt the model locker agreement to be framed by IBA. This agreement shall be in conformity with these revised instructions and the directions of the Hon’ble Supreme Court in this regard.

Banks shall ensure that any unfair terms or conditions are not incorporated in their locker agreements. Further, the terms of the contract shall not be more onerous than required in ordinary course of business to safeguard the interests of the bank. Banks shall renew their locker agreements with existing locker customers by January 1, 2023.

Here is what point 2.1.2 of the notification says

At the time of allotment of the locker to a customer, the bank shall enter into an agreement with the customer to whom the locker facility is provided, on a paper duly stamped. A copy of the locker agreement in duplicate signed by both the parties shall be furnished to the locker-hirer to know his/her rights and responsibilities.

Original Agreement shall be retained with the bank’s branch where the locker is situated.

7. Closure and Discharge of locker items

The notification lists down 3 situations when a locker can be opened by the bank.

Here is what point 6 of the notification says

This part refers to the breaking open of the locker in a manner other than through the normal access by the customer using her/his original key or password under any one of the following circumstances:

  1. If the hirer loses the key and requests for breaking open the locker at her /his cost; or
  2. If the Government enforcement agencies have approached the bank with orders from the Court or appropriate competent authority to seize lockers and requested for access to the lockers; or
  3. If the bank is of the view that there is a need to take back the locker as the locker hirer is not cooperating or not complying with the terms and conditions of the agreement.

Banks shall have a clear Board approved policy together with a Standard Operating Procedure (SOP) for breaking open the lockers for all possible situations keeping in view the relevant legal and contractual provisions.

Apart from the points above, there are many minor things which are all listed in the notification which can be downloaded below

Download the RBI Guidelines PDF here

Please share your views about this notification and guidelines set by the RBI in the comments section.

 

 

5 major reasons for health insurance claim rejections

Posted on by Jagoinvestor

What are some of the reasons because of which you may get a shock while making a health insurance claim?

There are tons of bad reviews for various insurance companies and policies that they rejected their claims or didn’t pay in full. A lot of times these incidents happen because customers are not aware of many rules and best practices of making claims. So we did a podcast with Mahavir Chopra of Beshak.org (listen to the whole podcast + Q&A below) to understand the top 5 reasons for this.

5 major reasons for disputes & claim rejections in health insurance

#1 – Proportionate Deductions

Proportion deduction happens when you choose a hospital room whose rent is higher than the one you are eligible for. In this case, all the other expenses (other than the room rent) also get the deduction in the same proportion and you can lose a lot of money.

For example, if you were eligible for a Rs 5,000 per day room, but if you choose Rs 10,000 room, then the proportionate deduction will be applied for your entire bill, not just the room rent part. So if the entire bill is for 10 lacs, you will be just paid 50% or 5 lacs in claims.

A lot of old policies or PSU policies still have a room rent limit. Even corporate policies have a fixed amount limit on their policies, so it’s always suggested to check this before you choose the hospital room.

#2 – Not disclosing pre-existing illness

A big reason for many claims dispute is when your claim is rejected or partially paid because you didn’t mention some past illness, surgery, issue which you had but never disclosed it.

A lot of people feel that only some recent surgery or a big illness has to be disclosed while buying health insurance. But the truth is that even the smallest of details has to be shared. That small surgery 20 yrs. back, that 2 months of medication for hypertension which one went through the long back, some illness which got cured long back – everything matters, simply because this all data is used by the insurance company to gauge the risk factor.

You never know how all these medical issues are linked to each other.. Don’t skip it, else that will be used against you. And the premium does not necessarily increase by mentioning every detail!

#3 – Reasonable and Customary Charges

Don’t think that insurers will always settle any amount of bill which the hospital charges. There is a clause of “reasonable and customary charges” in health insurance, where the insurer will only pay if the hospital charge is reasonable and has an acceptable logic. That means that it should be close to what others hospitals of the same nature on average charge in a given location.

So if surgery is costing 2 lacs on average, the company will not pay if you go to a hospital that charges 10 lacs for it. It’s your responsibility to make sure that you also put some thinking and effort into making sure that you are not overcharged just for the sake of it. Insurance is not a license to overspend or enjoy hospitalization at lavish hospitals.

A little deviation from the average cost is fine, but too much deviation will not be accepted and you may be getting a rude shock later. So better spend as if you are paying from your pocket.

#4 – No coverage for “Consumables”

Imagine you went to a restaurant for your dinner and in the bill, the restaurant also charges you for the AC, the food plate, the 2 hr rent for the chair you used apart from the food.

You will freak out! .. RIGHT!

You will say, but you always thought that it’s part of the whole deal and it’s all needed to provide you with the dinner.

That’s exactly is what consumable expenses are. These are various small things that will be required for the medication/surgery etc. which shall be all part of the room rent or the surgery cost and shall not be charged separately (but hospitals still charge many of these separately).
Insurance companies don’t pay for these consumables separately as they consider them as inclusive of the hospital package. Examples of these things are…

  • Masks
  • Gloves
  • Cleaning kits
  • Spectacles
  • Hearing aids
  • Adhesive bandage
  • Crepe bandage
  • Cotton roll
  • X-ray Film
  • Surgical drill
  • Hair removal cream

Note that the consumables cost can form around 2% – 10% of the overall bill in general, but in COVID times, we have seen that the consumables themselves was forming around 15-25% of the hospital bills and they were not paid by the insurer.

There are some extra riders for consumables that one can buy while buying the health insurance policies (it will cost extra)

#5 – Unnecessary Hospitalization Case

Insurance companies won’t pay for unnecessary hospitalizations.

Unless there is an active line of treatment at the hospital which is really needed, it will not be considered a valid claim. Let me give you an example that Mahavir Chopra shares in our conversation. Let’s say that a 50 yr old person has chest pain and the family rushes to the hospital. The doctor checks up everything and tells you that you may want to just get admitted for 1 day so that they can monitor things to be on the safer side.

Now, this is not treatment. This is simply monitoring of things and it’s really not required as such. It may be required in your world as you want to be safe and because it came as a doctor’s suggestion, but from an insurance angle, this is not treatment. Most of you will also agree that hospitals do this simply to charge of a day and play out the fear factor.

I am not denying the need for it. But the insurance companies will consider this is an invalid thing.

Another good example is a covid case. Just because one got Covid and his oxygen level is 90, does not mean that they rush to the hospital because things can still be treated at home. If one wants to play safe and wants to get admitted just to play safe, that’s his/her personal choice, but it’s not payable (unless things go really bad and then there is a doctor recommended that hospitalization is unavoidable)

#Bonus Tip – Dont forget the PRR 

At the time of making claims, many times people forget small things but always remember the PRR principle.

PRR means

  • Prescription
  • Receipt
  • Report

Always ask the doctor to give a prescription for each test, surgery, medication … Dont forget it

Always ask the doctor to give a receipt, make sure its dated (pre-printed or stamped, but not handwritten)

Always obtain the report wherever applicable (mostly in tests)

A lot of times you will have to send these for getting a reimbursement (even in cashless, you may have to send documents to claim the pre & post-hospitalization reimbursements), and if you miss any of these then you will not be paid the money.

How was your health insurance claim experience?

I hope this was helpful and please share your inputs and claim experiences in the comments section. Were you paid the full amount or some major deductions were made?

 

Can Cryptocurrency be considered as an asset class?

Posted on by Jagoinvestor

So the topic of debate today is “Is Cryptocurrency like Bitcoin be considered as an asset class?”

Till now we all know that there are many asset classes like Equity, Fixed Income, Real Estate, Cash and Commodities. Some people also argue if “Art” is an asset class or not.

And now, there is this new debate is crypto is the new asset class in itself or just an alternate currency or at best a speculative instrument?

Does Cryptocurrency fall under the definition of “Asset Class”?

Investopedia defines Asset Class as follows :

An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments which often behave similarly to one another in the marketplace.

If you look at “fixed income” asset class and see various instruments under it like Fixed Deposit, PPF, EPF, Senior Citizen Saving Scheme, NSC, Debt mutual funds etc. you will see that they have common characteristics (As they all are basically a loan given to someone) and various laws and regulations are similar across the country and globally (though the names of products can be different)

The same thing can be said to the Real estate asset class where Land, bungalow, REIT, Commercial shops all are physical spaces and their prices go up and down mainly due to similar reasons.

Can this be said for various cryptocurrencies also?

While all of the cryptocurrencies are basically a digital payment alternative based on blockchain technology, we are not very sure if it can also be considered a “store of value” unlike other asset classes. Also, there is no common agreement on how various countries want to see cryptocurrency? While there are various countries that have legalized crypto, there are many that have not done that.

At the same time, a large chunk of crypto investors is buying it mainly for speculative reasons and not as a fundamental investment instrument where they want it to grow in value due to some fundamental reason linked to the economy or its usage.

Here is an excerpt from a paper, which gives more idea on what I am saying!

crypto currency in various countries

Why I personally don’t want to consider Crypto as an asset class?

Cryptocurrencies have gained extreme popularity in the last 3-4 yrs and major crypto’s like Bitcoin, Ethereum, Tether etc has seen its market cap go into billions. It’s a complex world based on a very complex technology, which is again not like other asset classes which are quite easy to explain and understand for a common man.

Try explaining Real Estate or Equity to someone against the Crypto mining process and you will understand what I am trying to say.

Another reason why I personally don’t consider Crypto as an asset class is that cryptocurrency is in the end purely a software code. While it’s widely accepted and used, Are we saying that something which is so much dependent on a computer and electricity is considered as an asset class? What will happen if one day the world runs out of energy or all computers crash?

In the same case, things like equity, debt, real estate, cash (in any form), commodities, art all will survive and be there in some form.

When I asked this question on our telegram group and on Twitter, here were the responses.

Do you consider Crypto as another asset class or just a new-age online payment technology?

Coming to you, it’s also a matter of perception if you want to consider it as an asset class or not. Can you please share your thought process around it? What do you consider it?

Disclaimer: I am not saying that cryptocurrencies will not rise in value? All I am debating is if it shall fall under the definition of asset class or not?

Rs 98,779 crore lying unclaimed in various accounts in India

Posted on by Jagoinvestor

Do you know that there is a possibility that your grandparents or someone else in the family might have some bank account or some policy that you are not aware of till today and the money is lying unclaimed for decades?

Yes, that can happen!!

Can you believe that a whopping Rs 98,779 crore is lying in various investment products in India like banks, EPF, PPF, Mutual funds, LIC, and many other entities!!

In the last 18 months, so many people lost their lives and their families had no idea of the investments made by them, or if they had any life insurance policy or not. A lot of them still don’t know and will never come to know probably.

What happens to that money? How will family members get access to them? How will they claim it?

They WON’T!

Here is the breakup of how much money is lying unclaimed at various places in India, have a look!

How much money is lying unclaimed in banks, LIC, EPF, PPF, Mutual Funds etc. in India

Let’s talk about these

Rs 24,356 in Banks

As per the RBI report, Rs 24356 crore is lying unclaimed in around 8.1 crore bank accounts as of December 31, 2020. This turns out to be close to Rs 3,000 on an average per bank account. The biggest share in this unclaimed money is in SBI bank and then other private sector banks.

Rs 26,497 crores in EPF

This is the amount of money lying unclaimed in EPF accounts across the country. Some of this money may be of those people, who have not withdrawn the money after changing or leaving jobs, but a bigger chunk is lying there for years and years and many of them may never be claimed as the families are not aware of these investments

Rs 17,880 crores in Mutual Funds

A big chunk of money is also lying in inactive folios which is close to Rs 17,880 crores. A lot of investors have invested in mutual funds in physical format decades back and many family members may not be aware of these investments after their demise. This unclaimed amount is close to a little less than 1% of the entire AUM of mutual funds.

Rs 24,586 crore with Insurance Companies

LIC alone had close to 10,509 crores lying unclaimed with them as of Mar 31, 2018, and another 4,657 crore was with private insurance companies. The current figures as per IRDA is at a whopping 24,586 crore with all the insurance companies combined. Most of this is with LIC and you know there are so many policies that are never claimed after maturity due to various reasons.

Here is the old breakup of these amounts companies wise as per financial chronicle report

Unclaimed amount lying with LIC and other insurance companies in India

Rs 3,460 crores with IEPF

A big chunk of money is also lying with IEPF in form of unclaimed dividends and debentures etc., which were lying idle and no one, claimed them back on time. These amounts are transferred to something called IEPF after 7 yrs which is then used in things like investors’ awareness and protection of the interests of investors. Moneylife did an extensive story on this entire topic

Rs 2000 crore from Income Tax Refunds

As per a 2015 report by NDTV, close to Rs 2,000 crore of tax refunds were lying unclaimed with them. If a person pays the extra tax due to excess TDS deduction, one can claim the refund back by filing the returns (for the last 6 yrs). However many times investors are not even aware of these refunds or due to laziness, they don’t file the returns. Now the figures must be on the higher end.

Where does all this unclaimed money go?

The question is – If all this money is unclaimed, who exactly gets benefitted? Does the bank or insurance company keep all this money and just use it for their own benefit unless someone does not claim it back?

The answer to that is that govt has formed some of the FUNDS where these amounts shall get transferred after some number of years and that fund will be used for some purpose. Here are those funds

1. Senior Citizen Welfare Fund (SCWF)

All the unclaimed money from EPF, PPF, Insurance companies and postal deposits go to Senior Citizen Welfare Scheme which works for the betterment of senior citizens who are below poverty line in the country. I am really not clear which are the schemes or ways they do it.

2. Depositor Education and Awareness Fund (DEAF)

All the money which is lying claimed in the banks like saving bank account, fixed and recurring deposits, demand drafts etc. is transferred to this fund called DEAF and it’s used for depositor’s awareness and protection.. Which I really don’t understand what it means !

3. Investor Education Protection Fund Authority (IEPF)

IEPF is another fund which is created for investor protection and financial awareness and it gets all the unclaimed dividends, shares, matured unclaimed dividends etc. I have already written about how to claim refund from IEPF here

Make sure your money does not become part of unclaimed money in future

The learning from this is that you shall make sure that all your investments details etc. are shared with your family properly and they shall be aware of it.

What are different ways to invest in International Equities?

Posted on by Jagoinvestor

For the last 2-3 yrs, more and more investors want to diversify beyond Indian equities and want to invest in other countries stocks.

We all have seen news of how some international stocks like Amazon, Facebook, and Tesla etc are doing wonderful and today we will see how Indian investors can also invest in these international stocks in 3 ways

#1 – Directly through a Broker website

One of the ways to invest in global equities is through a brokerage house by opening a Demat/trading account.

This can either be an Indian brokerage house like ICICIDirect, Motilal Oswal which has tie-up with a foreign brokerage house again. Or it can also be some new-age startups like Vested, IndMoney which has a direct tie-up with the global brokerage houses.

Once your account is opened, you can transfer the money to that account and do the buy and sell transactions. However note that these are quite expensive in nature, simply because there are transfer fees (while sending and while taking back the money in your account) which can make them quite expensive especially if your ticket size is quite small.

Here is a simple illustration given in this tweet on only Rs 6,166 get invested when you put Rs 10,000 because a lot of money gets eaten up in the charges etc.

This simply means that this route is only for someone whose transactions is of large size, and someone who wants the fun of selecting the stocks themselves and reviews them on their own. I feel this is a cumbersome method of investing out of India, simply due to the paperwork and hassles involved.

#2 – Investing through a mutual fund

Another way to invest in international stocks is through a mutual fund. The best part of this is that for a retail investor, there is no change in process and no extra paperwork. You can simply buy the units of mutual funds or do the SIP in the same manner.

Another great advantage is that you get tons of variety and options you get through a mutual fund. If you want to invest directly in stocks through a broker, mostly you will see the option for investing in US-based companies only.

However, with mutual funds, you can get options based on countries, emerging markets, sectors or geographies.. Here are some examples

By Countries / Region

These are mutual funds that focus mostly on a specific country or a region.

  • Edelweiss Greater China Equity Off-shore Fund
  • DSP US Flexible Equity
  • Edelweiss US Value Equity Offshore Fund
  • Edelweiss Europe Dynamic Equity Offshore Fund
  • Edelweiss Asean Equity Off Shore Fund
  • HSBC Brazil Fund Gr Dir

Global or Emerging Markets Funds (which invested in various countries)

These are funds that mainly are not linked to any country, but are ready to invest in various countries stocks depending on growth sectors and opportunities spotted.

  • Kotak Global Emerging Mkt
  • ABSL Global Emerging Opp
  • PGIM India Global Equity Opp
  • Sundaram Global Brand Fund
  • Edelweiss Emerging Mkts Opp Equity Offshore Fund
  • Mirae Asset NYSE FANG + ETF FOF
  • Kotak NASDAQ 100 FOF
  • Motilal Oswal S&P 500 Index Fund

Funds based on a theme/sector

Finally, there are funds that are focused on a specific sector or theme and feel that it’s too promising. It can be technology, Real estate or consumption etc.

  • Edelweiss US Technology Equity FOF
  • Axis Global Innovation FOF
  • Invesco India Invesco Global Consumer Trends FOF
  • DSP World Gold Fund
  • Kotak Intl REIT FOF
  • DSP World Energy

I would to also show you the top 10 international mutual funds based on 5 yrs returns.

Best international mutual funds

Know this, before you invest in international mutual funds

Note that it’s also quite fancy to think that you are investing in an international portfolio, so many people go overboard and put a very high amount in these funds. Look at these funds mainly as a way to diversify your portfolio and reduce the dependence on Indian equities only. There is no compulsion that you have to invest out of India.

Also, on the taxation front, one big disadvantage of these international mutual funds is that they are taxed like a debt fund. Yes- so any profits you earn before 3 yrs, they will be treated as a short term capital gain and taxed at your income slab rates.

Final point is that these are all mostly funds of funds at the end of the day, which means that they are just a mutual fund that is buying the mutual fund units of another foreign mutual fund (that’s totally ok). So their expense ratio may be a little on the higher side!. But if they are saying you from all hassles, paperwork and guesswork, I think it’s worth paying the fees and participate in the fund.

Do let me know if you have any questions on investing in global equities?

Model Tenancy Act 2021 – Will it Fix Home Rental Market in India?

Posted on by Jagoinvestor

Model Tenant Act, 2021 is very soon going to be a reality in India and it’s mainly to set up the rules and protect the rights of tenants and property owners from each other.

The rental market of properties is a very vibrant and deep market in India and every year millions of people rent out properties (residential and non-residential) in India.

At one end, tenants think that property owners are bloodsuckers, who just want to withhold the security money at any cost and try to dominate them. On the other hand, property owners feel tenants are also horrible who do not care for properties and do a lot of damage which forces them to keep enough security deposit with them.

10 Important Rules under Model Tenancy Act 2021

Many times, though an agreement is made legally, on the ground level things don’t work out and there is a lack of professional relationships. This Model tenancy Act 2021 is trying to exactly solve this and wants to lay down enough guidelines, rules which will help both parties.

Here are some of the most important rules you should be aware of the model tenancy act, 2021

1. Heavy Penalty if the tenant does not vacate premises on time

Once the agreement is over, there is a maximum of 6 months of extension on the same conditions and rules which are mentioned in the agreement. But if even after this 6-month extension, (or if the tenancy is terminated by notice or order) the tenant does not leave the premises, then there are heavy penalties levied on them. They will have to pay double the rent for the first 2 months, and then 4 times rent for another 2 months and then 6 times the rent for another 2 months.

2. The security deposit can’t exceed more than 2 months’ rent

As per the law, the security deposit which homeowners take from tenants can’t be more than 2 months of rent. In cities like Bengaluru, one has to deposit the security deposit as high as 10-12 months of rent, which many tenants complain about. However, at the same time, a lot of homeowners feel, it’s too little money to cover the risk of having the premises damaged by the notorious tenants. Note that this limit of 2 months’ rent is only for residential properties. In the case of non-commercial premises, the security deposit can be a maximum of 6 months’ rent.

On Twitter, Krish gave his real-life example which shows us how 2 months of the deposit is not enough in real life for property owners

3. Separate Rent authorities, courts & tribunals set up in each district

A separate 3 tier system will be created in each district for handling the cases related to the rental market. A civil court will not have jurisdiction over these cases which come under Model Tenancy Act. At the first level, there will be rent authority, then a rent court and finally a rent tribunal will be set under each district. This will make sure that a separate resolution system will be set up for these things.

4. Written Agreement is mandatory

Now a written agreement is mandatory when any premise is given on rent. I guess anyways most of the people were making a proper agreement, but now it’s a law in itself. This agreement is also to be submitted to the concerned rent authority within 2 months of the agreement date. There will be some digital platform that will be set up for this as per the current wordings.

5. The landlord cannot stop the essential supplies of the premises

It mentioned that the property owner cannot stop the supply of any essential supply like water, electricity etc. just because there is some dispute with the tenant. In real life, it’s seen that if there is any dispute or argument, the homeowners take these steps to “teach a lesson” to the tenants. It is mainly to protect the rights of tenants as far as they have occupied the premises. If the homeowner still does this, the tenants can complain to the rent authority and order can be passed by them to restore the services and also put a penalty on the homeowner

6. No structural changes or sub-letting of property

The tenant cannot make any structural changes in the property, nor they can sub-let a portion of the property to someone else without the consent of the property owner. If sub-letting is to be allowed, a supplementary agreement has to be made and even that has to be submitted to the rent authority

7. Eviction of the tenant on certain grounds

If the tenant has to be evicted, then the property owner can’t just appear one day and order the eviction. It has to be done only by seeking eviction through the rent authority and it can be done on certain grounds like

  • refusal to pay the agreed rent ;
  • failure to pay rent for more than two months;
  • parting of possession of part or whole of premises without the written consent of landlord;
  • misuse of premises even after receiving written notices to desist from such misuse; and
  • structural change by the tenant without written consent.

8. Rent Revision can happen only as an agreement

The rents can’t be increased arbitrarily now, it has to happen only as per the agreement which was written and agreed on. This will help the unorganized rental market where many times, homeowners increase the rent many times just to make sure people leave the house on their own.

9. Respect of Privacy and Rights of Tenants

The law also tries to establish the fact that once the tenant has occupied the house, the property owner can’t treat them in the wrong way and can enter the premises anytime without notice just because of the fact that they are the owners. They have to inform that tenant about their visit 24 hrs. before the entry (through an electronic medium). No doubt that this is not applicable if your relationship with the other party is cordial and friendly. This point is mainly there to protect their rights and privacy.

10. Roles and Responsibilities of both parties

The law also defines the roles and responsibilities of landlords and tenants and tells what has to be fixed by whom. For example, It is the tenant responsibility to do most of the repairs and replacement of small components like Wash Basic Repair, Taps, switches and sockets. On the other hand, the landlord is responsible for the whitewashing of walls (hello Bengaluru). In the 2nd schedule of the act, all the details are given which I am putting below

tenant landlord responsibilities model tenancy act

Important Points

  • These rules will not be on a retrospective basis and will not impact the old agreements. It’s only for new one’s
  • These rules do not apply for premises like hotels, lodges, or any central or state govt owned properties, or even premises owned by corporates, universities or religious entities etc

Download the draft in English

Download the draft in Hindi

Will Model Tenancy Act 2021 really work on the ground level?

Many people raised the point of this act will really work at ground level or not. One person said to me on Twitter that the Indian rental market is a seller’s market and all these laws won’t work, as property owners will also find some other way to get away.

I feel that over time, the law will get implemented, if not in short term. The country is huge and any law like this takes a lot of time to get into the system. But the good part is that at least govt is thinking about this issue and trying to fix things. The law may not be 100% perfect, but things get amended over time and that will happen with this one too.

One feeling which I was getting is that the law is trying to micro-manage many things and in real life, I think it should have not done that.

What do you think about this new law? Please share your opinion in the comments section below

Loan Against Property (LAP) – A Detailed Guide

Posted on by Jagoinvestor

Today I will tell you about loan against property (LAP)

If you have a property that is free from any loan, then you can take a loan by keeping that property as collateral

What is loan against property?

Loan Against Property (LAP)

A Loan against Property (LAP) is a secured loan availed against a commercial or residential property kept as collateral with the lender. As the funds come with no end usage restriction, borrowers can utilize the funds for various purposes such as business expansion, weddings, child’s education, etc.

Benefits of LAP –

  • Simple approval process
  • Attractive interest rates
  • Continuous ownership
  • Easy and hassle-free documentation
  • Optimum use of a property
  • Claiming the interest as expenses (only for business person)

Eligibility criteria for LAP

A loan against property is offered to the following individuals –

a) Salaried – An individual who is in permanent service in the government or a reputed company. Further, he/she should be above the age of 24 years at the time of loan commencement and up to the age of superannuation.

b) Self-employed Businessmen – Any individual filing Income Tax Return (ITR) and who is over 24 years of age at the time of loan commencement and up to 65 years at the time of maturity.

c) Self-employed Professionals – Professionals such as doctors, engineers, dentists, architects, chartered accountants, cost accountants, company secretaries, and management consultants can apply. The age criterion is similar to that of self-employed individuals.

Documents required for LAP

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Salaried Individuals Self-Employed Professionals/Businessmen
  • Application form, photograph attached
  • Application form, photograph attached
  • Valid photo identity (such as Voter Id card, Passport, Aadhaar Card, Pan Card, Driving License)
  • Valid photo identity (such as Voter Id card, Passport, Aadhaar Card, Pan Card, Driving License)
  • Proof of current residence
  • Proof of current residence
  • Latest salary slips (minimum 3)
  • Proof of business existence, Certificates of educational qualifications
  • Form 16
  • For Professionals – Last 3 years IT returns (self and business), Last 3 years Balance Sheets and P&L statements.
  • For Businessmen – The business profile, Last 3 years IT returns (self and business), Last 3 years Balance Sheets and P&L statements.
  • List of Directors and Shareholders with their individual shareholding certified by a CA / CS in case of the business entity being a company.
  • Memorandum and Articles of Association of the Company.
  • A partnership deed in the case of the business entity is a partnership firm.
  • Bank statements of the last six months
  • Bank statements of the last six months – both business and personal in case of businessmen
  • A cheque for processing fee
  • A cheque for processing fee

 

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FAQs –

What are the types of properties against which LAP can be taken?

  • Self-Owned and Self-Occupied Residential Property
  • Self-Owned but Rented Residential Property
  • Self-Owned Piece of Land
  • Self-Owned Commercial Property
  • Self-Owned but Rented Commercial Property

Can I take a loan against the property for any reason?

Loans against the property can be taken for the following purposes. They are as follows –

  • For Business Expansion
  • Getting your son/daughter married
  • Sending your son/daughter for higher studies abroad
  • Funding your dream vacation
  • Funding medical treatments

What is the maximum loan amount a person can get in LAP?

The maximum loan amount a person can get against LAP is up to Rs 25 crore. However, the LAP should not exceed above 60% of the market value of the property. The maximum loan availed will vary from bank to bank.

What is the minimum credit score required to get a LAP?

The minimum credit score required to get LAP is a CIBIL score of 750 and more.

What can be the maximum repayment tenure and interest rate of the LAP?

The maximum repayment tenure of LAP is 15 to 20 years. Whereas the interest rate will vary from bank to bank but the interest rate will range somewhat between 9.80% p.a to 16.60% p.a.

Conclusion –

This was all that I wanted to share in this article. You all can post queries in the comment section.