Author: Jagoinvestor

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Under Construction vs Ready to Move Property – Which is better ?

Posted on by Jagoinvestor

There is absolutely no confusion in saying that everyone wants to buy a house, a dream home which they can call their own. However, one big confusion among buyers is whether to buy an Under-Construction Property or a Ready to move in Property. Each of these options has its own pros and cons and it is extremely important to be aware about the advantages and disadvantages of Under construction and Ready to move property. Lets look at them:

Under Construction vs Ready to move in properties

Negative Points of Under Construction Property

1. Delay in project & Dispute of the Land & Permissions

If you know of any project which was delivered on the exact day that it was promised, its rare! Delay in the project for various reasons is one of the top most issue with under construction properties. On an average 2 years is the deadline given by the builders, but it gets delayed and further delayed most of the times. 2 yrs can turn out to be 4 or 5 yrs of wait in a lot of cases and this adds to the frustration of buyers.

This delay is caused mainly because of the dispute on the land, cash crunch and most of the times incomplete permissions from authorities. Builders start the construction after obtaining most of the required and most important permissions, but at times there might be few permissions which are still going on, but builders start the construction. So it becomes very important thing for a buyer to check all the required permissions and the ownership details of the lands. This is very true for small builders especially.

One important point to note is that even though the house is delayed by just 1-2 yrs and finally comes in your hand, but in a lot of cases promised amenities are given after a long period and some people are still waiting for that swimming pool which was promised in 2001 .

2. You don’t get what you see

The biggest issue, I repeat – the biggest issue of under construction properties is that you never get what you are promised or have seen as sample flat . Sample flats are built-in a way and decorated in a manner that your heart will met down and you will sell your self to grab that opportunity, and over years you will build so much expectations from your under construction house. But when you really get the possession, you will realise that a lot of things are not up to the mark and not as per the promise done. Sometimes layouts are changed & you may not like the new one.

Another issue is over promise in many things. For example – Some builders give false promises that Municipal Corporation Water Supply will be made available in the society after 3-6 months of completion of construction of society, but some builders never fulfill this problem once all the flats in the Society are sold. The builder’s objective of selling the flats is fulfilled and then he is not interested in the problems that people face. A lot of times oral promises are done on many things like cost of parking, extra facilities like swimming pool, gym etc and then they are not fulfilled. And at the end, you are in a situation where you can’t do anything. Either take it or fight a case against the builder and many hassles that come along. Hence please never agree to any oral agreements under any circumstances – Always insist on written agreements with clear delivery milestones etc. One bad experience from T. Ashok is like this

The builder did not construct shelfs and almirahs as promised. He left the house only with walls and lafts. So, I had spent more than 2 lacks for wooden works in kitchen and two bed rooms. Really that was a big burden for me apart from loan amount. So, here after anybody buying house, must ask the builder to mention all in agreements like painting, shelfs, windows, doors,etc., otherwise they may suffer like me.

3. Quality of work may be compromised

Another issue is the quality of work that gets done. The quality of the construction material used, Doors and windows fillings can be compromised with, electrical sockets and switches can be of cheap quality, plumbing can go horribly wrong and even the facilities like parking space, children playing area and other amenities might be below the mark or what you expected and when you complain about all this, there will be all sort of explanations like losses in other schemes, cash flow issues and the cost increase by builders and a new series of promises that it will be done soon. For an example watch this video experience for bad quality of construction and unkept promise by Unitech

4. Income tax claim is headache unless you get the possession certificate

I hope you knew that you can avail for tax benefits only after you get the possession of the house. Saving tax on the EMI’s is one of the big reason why many people plan their house buying, only to realise later that they never thought about this aspect. So if you are going to buy under construction property , be ready to pay rent + EMI and not getting any tax benefit unless you get the possession certificate, and incase the construction gets delayed by few months to 1-2 years, it will be frustrating.

Positive Points of Under Construction Property

1. You start paying slowly & conveniently

The best part of Under construction properties is that it is affordable for most of the people through a home loan. When I say “affordable”, all I mean is that from payment perspective life is easy. You make a down-payment which is generally 20% of the property price and then start making the monthly EMI’s each month and this is how a lot of people are able to own the house. Later after few years , a lot of people feel comfortable as their salaries go up, but the EMI’s value is very much the same. Even if one is not taking a home loan, they can pay the money in parts as it can be construction linked payment.

2. Choices of floor or location are much wider

There are various locations where new projects come up, so the choice in terms of location or which floor you want are generally high. If you are not happy with 12th floor, you can pay more and take the 3rd floor, but in case of ready to move apartments, if 12th is available, then that’s all you have. No choice!

3. Good scope of Price Increase

Under Construction properties are generally in the outer area’s or the non-core part of the city and hence the price appreciation due to future development is good in under construction properties. However this is not true in each and every case. You still have to look at the location and future plans around that area. But the point is that compared to ready to move in apartments, under construction properties have more potential for price increase.

Negatives Points of Ready to Move Property

1. A lot of legal work and documentation

Generally there is a lot of legal work and documentation required in case of Ready to move properties compared to Under construction, because there are no fresh documentation, but a lot of “transfer” documentation.

2. You need to arrange all the money in one shot for down payment, registration etc

In case of Ready to move in properties, all the payment has to be made upfront and all at one time. There is no stages in payment like you have in Under construction properties. So even if you are buying it on home loan, you have to pay all the down-payment, registration charges, stamp duty etc all at one go.

3. Chances of getting duped!

In case of ready to move in properties, there is a big risk of getting duped. You have to make sure that you investigate things very properly. There are cases where same property has been sold to more than 1 person. Make sure you hire a good real estate consultant or a good lawyer who can study the documents well and the fine prints.

4. Inflated Price already

The price appreciation in case of Ready to move properties is generally lower than Under Construction properties from percentage increase point of view (not absolute increase). Most probably the ready to move in properties which are much older than 5 yrs, a lot of development around them has already happened and the price appreciation has taken place for most what is deserves.

Positives Points of Ready to Move Property

1. You buy what you see

When you buy Ready to move properties, you exactly get what you have seen. There is no chances of getting duped at least in those things which you can feel and experience. This is not in the case of Under construction properties , because you never see the actual thing , you see samples or the “projections”. It’s a good idea to talk to the people around or the neighbors about the water/electricity and other things and take their feedback.

2. Immediate relief from Rent & travelling cost

A lot of people who are paying very high rent or travelling very far for their work tend to buy the ready to move houses because they want immediate relief from the high rent or travel cost and one can get it in ready to move properties.

3. You can know what kind of people live around you

This is one big advantage of ready to move houses. You can already see who your neighbours are, what community they belong to , what income level they have and if you would like to be with them or not . In case of under construction houses , you are never sure what kind of people will be around you.

Conclusion

So the final conclusion from various experience is that if you want to buy the house from investment point of view, then buying an under construction house makes sense. However if its mostly from living purpose and you want to consume it for your own purpose, then buying a ready to move house makes more sense. Also all the pros and cons discussed can vary from case to case and the points discussed here are based on a general information and feedback.

Can you share what are your experiences and pros and cons of under construction vs ready to move property !

Income is not Wealth

Posted on by Jagoinvestor

Let me ask you a question. Ajay earns Rs 1 lac per month, and his friend Robert earns Rs 40,000 per month. Who is more rich and in better position ?

In all probabilities most of the people would say Ajay because he earns more than Robert and that too 2.5 times of Robert’s salary. However you can’t give the judgement so fast, because we have not mentioned how much are their expenses, or in other words how much money they burn at the end of the month and what is amount is actually saved. What if Ajay’s expenses are Rs 90,000 and Robert’s expenses are Rs 20,000? In that case Robert would be saving 20,000 per month and his rich friend Ajay would be saving just Rs 10,000 per month. Right ?

High Income or Saving

What matters is Savings, not Income

So you can see that the real thing that matters is the money saved!, not earned. However more income helps in more savings at the end, but its not true always!. The real wealth gets created by your savings and not just by earning big!. So, if you are earning a lot and saving a lot of it parallely each month then you are in a good position. But if you are earning a lot, but spending a LOT too, then in reality you are no better than someone who is earning less and saving less. In that case, from the future aspect, wealth creation will either be too low or it just won’t happen.

Lots of people who have big incomes are actually not very good at saving money – they’re used to having plenty of money coming in, so they don’t pay enough attention to the money going out.

For example – If you and your friend both are saving Rs 20,000 per month and in long run, it’s going to continue that way, it really make no difference for how much you both really earn, because in the long-term, your wealth creation is the function of how much you save and how much of it you actually invest properly.

So this boils down to one big question – “Are you just rich by your Income or are you really rich by savings?”.

A lot of people earn very high salaries, but they end up spending most of it. You can blame this to high standard of life style, high status symbol and all sort of expenses, but your real worth is what you save at the end. I know one friend personally who is a bachelor and he makes around 1 lac per month, but spends 70,000 per month and I know one more friend who earns 70,000 and spends 20,000 per month. Though the first one earns more than the later one, the wealth creation is happening pretty fast for the second guy, even though he is earning lower than the other friend.

Now the question is – How much of your income do you save?. By Saving, I mean any kind of savings which is left with you at the end of the month after expenses + the investments you do in different places (because even that’s part of saving only).

Whats your Saving Ratio?

A good indicator to know is finding a simple ratio called “Savings Ratio”. Just divide your savings at the end of the month by your income and that’s your saving ratio? How much is it? Is it 20%, is it 30% or is it 75%. How much is it?

Lets see an example . Say Ajay makes Rs 50,000 a month and he pays rent of Rs 10,000 , pays another 12,000 in home related expenses, spends another 6,000 in entertainment and outings and at the end of the month is left with Rs 22,000 , thats Rs 22,000 saved with income of Rs 50,000 – which is 44% saving ratio . You can do it on monthly or yearly basis , but put some numbers on table and do this important calculation.

I would personally say that a saving ratio of more than 40% is a good enough number. But if its below 20%, you should really do something about it. So what are your plans about increasing your saving ratio from this point onward? What are your thoughts about this concept of Income Rich and Savings Rich ?

File an RTI application for EPF withdrawal or EPF Transfer Stutus

Posted on by Jagoinvestor

Are you frustrated because of the delay in your EPF withdrawal or EPF transfer? Are you waiting from many months or years at times to get any kind of clarity on your EPF status?

Are you frustrated with your EPF withdrawal or transfer?

I have seen countless number of people on this blog and other forums really getting frustrated with waiting and waiting for years at times for their EPF withdrawal/transfer and they don’t get any information or update on the status. It is only when you personally visit the EPFO offices, you get some clarity, but even that does not help. So now if you are fed up with the EPFO office and it’s slow speed of work, what’s the final step you can take? In this article I will show you how you can use file an RTI application and successfully get lot of information and at times get your work done at a speed which you never imagined. Filing RTI application for EPF information has worked wonders for many people and they claim that it works brilliantly (if you do it right way). I know your eyes are shining, but let’s understand some background before you rush to find out how it works!

Some success stories of RTI solving the EPF issues

Case 1

I would like to share the success with RTI. I opted for EPF withdrawal about 4 months back, and did not receive my PF amount until I decided to file an RTI Application. And it was realy shocking to see the amount getting credited to my bank account within 3 days of receipt of application by K.R.PURAM, Bangalore EPFO. – Rohit

Case 2 

My EPF withdrawal issue was resolved with RTI. After submitting the forms, after around 3 months, the EPFO claimed that they transferred my withdrawal money to my bank account. However I didn’t receive the money in my bank account. I raised online grievances for 3 times. Each time I got the same answer saying that the money has been transferred and has not been returned back to EPFO, so it must have been deposited to my bank account and I should check my bank account. Around 6 months went in this process with no results. As a last option, I filed an RTI application and to my surprise, the money got deposited in my bank account in 5 days (with additional interest for 6 months) and also received a reply for my RTI application.If EPF grievance system does not work for you, go for RTI. – Manish

Case 3

Yep RTI does the trick most of the time , I got all my PF issues sorted out with RTI application and have all the written proofs with cheque numbers etc for all my previous transfers. They even informed my about my balances for current year and told that they are yet to prepare the PF a/c’s for my company for the current year , but here are your balances with us. It really helps. – Hitesh

 

What is RTI and how it applies to EPFO office?

RTI as we all know is a common man’s tool to get a speedy and clear information from any govt office. Supreme Court has clearly mentioned under article 19(1) that Right to Information is a part of Right to Speech & Expression. Now, as EPFO comes under the RTI purview, you can file an RTI application and ask anything you want about your EPF. Govt is bound to respond within 30 days to your letter with all the information you had asked. So if you are unclear about what your EPF status is or if your EPF transfer work has even started? Why did your EPF money still not credited in your bank account etc etc… You can ask all these questions and you should be getting the 100% right and clear answers within 30 days. The only point here is that you should be doing it the RIGHT way. So lets see what all you need!

Note : Before filing the RTI , a good idea would be to file a EPF grievance redressal form online

File RTI in 3 easy steps

Step 1: Buying a Postal Order of Rs 10 from Post Office

The first step is to go to Post Office and buy a Postal Order for Rs 10.  It should be in favor of Accounts Officer of the Concerned EPFO Office. Like if you are sending your EPF letter to Bangalore, the Rs. 10 postal order should be in favor of Accounts Officer, EPFO, Bangalore. The fees can also be paid by demand draft, but that would be expensive, better go for Postal order as it is commonly used for RTI.

Step 2: Drafting your RTI letter

The first step is to draft RTI letter for your EPF related queries. All you need to do is write a letter on a normal paper (better take a very high quality A4 size paper). Though there is no specific format for RTI application letter, still there are some rules of drafting it.

  • The letter subject should start as “Application Form for Seeking Information under RTI Act 2005”
  • The letter should be addressed to Central Public Information Officer, Employees’ Provident Fund Organisation, (Provide Concerned PF office address). Refer to this EPFO directory for exact address of PF office for your jurisdiction.
  • Make sure you mention your Name, Address, Contact telephone number and your Email id along with EPF account number.
  • Now, put all your queries which you want to ask regarding your EPF (putting them as bullet points is recommended)
  • As a next thing, you should have a declaration – “I do hereby declare that I am a citizen of India. I request you to ensure that the information is provided before the expiry of the 30 day period after you have received the application”
  • Finally at the end of the letter, mention the proof of payment of fees as – Proof of payment of application fee: Attached Indian Postal Order for Rs. 10 /- dated  dd/mm/yyyy  favoring “Accounts Officer of EPFO” as application fee.
  • And complete the letter by putting your Signature, Place and Date.
  • Sign the letter and Put your Postal address
  • Mention the payment details like Postal order number, issuing post office, date, cash receipt details, etc., towards the end of your application

Following is a sample RTI letter.

EPF withdrawal or EPF Transfer RTI application Template

Download the PDF format here

Step 3 : Send the RTI letter by Registered Post or Speed Post

The final step is to send this RTI letter by Registered post only, as no courier is accepted. Please make sure you keep the acknowledgement receipt carefully for all the future communication (if any). It might be required by you.  Once you complete the 3rd step, the RTI letter should reach the concerned authority in few days and then within 30 days you should be getting the reply within 30 days (as per RTI act).

Two RTI’s application needed in case of transfer of EPF

Note that in case of EPF withdrawal case , all you need to do is file an RTI query for the concerned EPF office. But in case of Transfer of EPF, there are two EPF offices involved, they are Source and Target. For example if you got transferred from Bangalore to Delhi and applied for EPF transfer, then your source EPFO office is “Bangalore” and your Target office is “Delhi”.

You will first have to file an RTI for the Source EPFO office to find out if the transfer has happened from their side or not. It might be the case that they rejected your application and you don’t even know about it. Once you file an RTI to them, you will atleast know what is the exact status. If you get a reply that the Transfer has still not happened, then they will let you know by when it will happen or give some pointers on the situation, but in case they say that they have transferred it from their side, then it means that the issue is on Target EPF office and they might not have processed your transfer yet. In that case the next step is to file second RTI to the target EPFO office.

File an RTI application for the Target EPFO and this time, along with all the details also mention about the first RTI and the response you have got from the Source, so that you show them all the proof of what you have done. Now you should get a reply from them again within next 30 days on what is their action and what is the exact status of your EPF transfer.

Online RTI Filing (For NRI’s or lazy Resident Indians)

For those who are too busy to visit Post office and do RTI filing offline. You can use the services of www.rtination.com for filing the RTI. They will help you create the RTI letter and then you need to download it, sign it, scan it and send it back to them by courier or ordinary post. They would speed post it to the concerned officer and also enclose the fee. At the moment the fees is Rs 150.

Important Points while Filing RTI application

When you file an RTI application, there are some very important points you should remember, because incase you don’t take care of some very critical points, it would mean rejection of your application and unnecessary work again. Here are some important points:

  • Do not address your RTI application to the PIO by his name, just in case he gets transferred or a new PIO is designated in his place, it will be an issue. However addressing the Officer by name has its own advantage like when it reaches his desk, by seeing his name, he might see more interest in opening it and that might mean speedy work. However in my opinion, better not put the exact name of the person.
  • Before filing the RTI, see if checking the status online helps here
  • The matter can be hand written, or typed. There is no compulsion of typing the content.
  • Be very specific while asking the questions, don’t ask unimportant or unnecessary questions, because some states like Karanataka have limits on the number of words in the RTI application (150 incase of Karnataka)
  • Check the exact fees for RTI application for the state where you are sending it. Because it can be different from states to states. Like incase of Haryana, it’s Rs 50, not Rs 10.

You can read about RTI in detail here

Can you share your experience about EPF withdrawal or EPF transfer and in case you have used RTI for resolving the issue? Are you going to use RTI to get your EPF problem solved? Please update your results once you are successful.

Should you repurchase a new Term Plan ?

Posted on by Jagoinvestor

Did you buy a term plan few years back? Many of you did. Aegon Religare was the first company to launch its term plan in India and from that point, lots of companies have launched their online term plans. Recently I got a comment from one of the reader who had bought his term plan from Aegon religare long back and they increased his Sum Assured by 25% because they have reduced the premiums recently

I had taken AR iterm couple of years back. today i received an email saying my sum assured is increased by 25% of original to keep it at part with the new iterm rates. This is a good experience from AR – Says Muthu Krishnan

Term Insurance premium is constantly coming down from many months and new companies entering this online term plan business are making sure they keep down the premiums due to competition. The new entrant in this field is Bharti Axa eProtect plan which has lowest premiums compared for 25-30 yrs group at the moment.

“Term life insurance premium depends on the mortality experienced by a life insurance company,” says Suresh Agrawal, executive vice-president, Kotak Mahindra Old Mutual Life Insurance. “As the mortality experience of the insurer improves over a long period of time, it is passed on to the customers in the form of lower life premium for the new customers.”

However the point we are raising today is, what about those people who had already taken term plan 2-3 yrs back? It can be online or offline doesn’t matter, the point is that they are paying a very high premium compared to a new policy which they can buy.

For instance, someone who had bought a policy with sum assured of 50 lacs before 1-2 yrs must be paying around 7,000-8,000 premium, however if they dump their old policy and take up a new policy they will get it much cheaper despite their higher age now. So the good idea would be to look back at your term plan and see how much are you paying and how much is latest premium in the market for the same company or some new company?

Important point before you take a new term plan and change your Policy

1. Older the Policy, better it is

A very important point worth noting here is that in Life Insurance any claim which comes within 2 yr is considered as “early claim” and it’s scrutinized in detail, very detail. However a policy which is more than 2 yrs old does not come under “early claim”. So, if you have already completed 2 yrs or close to completing 2 yrs, this is one thing you will lose out when you take a new policy. However its just a point you should know, it’s not something which should stop you.

2. Look at your health changes

You need to see how your health has changed after you had taken the term plan, if you have developed any illness in between then for you the premium will increase (loading) after the medical tests. So even if the premium might show cheaper on the calculator, after you do the medical, the new premiums can actually be much higher than your old premium. So better look at that aspect.

3. Take a new term plan and then close the old one

The best way of moving ahead with new policy and dumping your old one is to first apply for the new term plan and once you get it, then close the old one. Do not just close the old one and then take a new one because in case there is some issue in getting a new term plan or if you are unsatisfied in between, it will be a bad situation to be in.

This topics brings another question in mind – Should there be Life Insurance Portability in Future ? Do you think its something desired or not ? Did you understand when you should switch to a new term plan ?

Paid Jagoinvestor Workshop in Pune (25th Mar)

Posted on by Jagoinvestor

We have planned a 1 day paid workshop across different cities in India, starting with Pune. The first workshop will be on 25th Mar (Sunday) in Pune and it will be a full day event. It was not easy to decide what should be covered in the workshop, but we really want to make sure it is of extremely high value and should leave an experience. So, after a lot of discussions and brainstorming we designed the workshop which we are calling as “Design your Financial Life”.

Contents of Design your Financial Life

The workshop will start at 9:00 am and will go up to 6:00 pm in the evening. The focus of the workshop is, that any one who attends has a clear understanding of how he should lead his financial life. The talks will be a rich mix of mentoring on how to think about money and what mistakes to avoid (coaching aspects) and it will also have some talks on how one should look at various dimensions of their financial lives and get the ground rules clear about them. There will be 2-3 group activities and exercises which will enrich the program. Here is the table which gives a full day time line.

Jagoinvestor Workshop Details

Pune Workshop Registrations are Closed now

Who should attend the workshop

This workshop is targeted at those who are beginners and have made a start in area of personal finance and they would like to spend a full day to hear and experience rich conversations on money and learn the ground rules of most important area’s of personal finance.  The workshop will assume that participants are beginners/moderate knowledge about money related matters and they would like to build on it from that point. The session will be a mix of mentoring & insights on how to think about personal finance related things.

By the end of the session you should be capable of charting out your Financial Roadmap and be self-sufficient in basic level of thinking in personal finance.

You can register for workshops in your city here

What this workshop is not

This session is not for experts who know it all. This session is also not for those who wants any stock or mutual funds tips or any kind of get rich-quick kind of tips. Financial Planners or advisors should also refrain from attending the workshop.

Why to save & invest money for future? Here are 10 simple reasons

Posted on by Jagoinvestor

Are you saving for the future? NO or YES?

If you are, then you must be wondering what a stupid question that is, because it’s so obvious that one needs to save money for the future. We all do it anyways!

You are WRONG!

Trust me, in last 10 yrs – we have dealt with so many investors who are not as prudent and forward-looking as you are. Many investors are hand to mouth when it comes to saving money. They are just postponing their savings in future and relying on luck or maybe they are not giving putting enough energy to save money.

So today, I thought of writing about 10 simple reasons why one should save and invest their money for the future. I want these 10 points to act as a reminder to you. Note, when I say “Save” in this article, it means “Save and invest”!

Why to Invest for future? Here are 10 reasons discussed

Let’s start

Reason #1 – It will help you in bad times

We all know that life is dynamic and bad things can happen. One may lose a job and become jobless some day. Or one may need lots of money to admit a loved one in the hospital. You never know what the future has in store!

If you have enough savings with you, you will be able to handle the situation in a much better way and won’t have to run around to others for money. There are always phases in life when things are going bad and if you don’t have savings, it can trouble you!. So savings help you in bad times!

Reason #2 – One day you will stop earning

At times, I am surprised to see many people forgetting this simple point, that one day they will stop earning.

That’s called “Retirement”

I see many people in their 30’s and 40’s behaving as if they will keep getting salary in their bank account all their life. They don’t take enough efforts to save money. They keep delaying their plans to invest and one day they realise that they are now in danger zone!

Dont forget that after you start your job, the expenses will never stop after that, but your earning will come only till you are 55-60 yrs!.

Reason #3 – To have peace of mind

One always feels a sense of security and peace of mind, when you have enough wealth to fall back on.I am talking about the day to day feeling you go through when there is bad news coming in.

Imagine situations like

  • Talks of layoffs in your company
  • Thoughts of getting someone hospitalized in the family.
  • News of your children school raising the fees .. AGAIN!!

All these small things in life will subconsciously haunt you and you will not have peace of mind because you know deep down you have no savings or less wealth. If something happens to your job, how will you manage things?

If you are working for many years, you will agree at there are some tough days, when you feel like just running away from everything and just chill out and enjoy life. You feel tired of corporate life and this rat race and all you wonder is – “If only I had enough wealth in my bank account”! ..

This also leads to a lot of stress and you may feel left-out compared to peers. Hence it’s very important to start saving for the future!

Reason #4 – To Get Financially Free

We all want to reach a stage in life when we dont have to depend fully on our salaries. We all want to create a level of wealth so that its enough to generate some income for us to handle our basic expenses at least. I am talking about financial independence.

When you start working, you have no wealth and you have to rely 100% on your salary. But over time, your wealth basket needs to go up in value so that if required – you can take out money if needed.

If someone needs Rs 40,000 a month for his expenses and he has 4.8 lacs savings – they know deep down that they at least have 1 yr worth of money with them.

With 48 lacs – they can last for 8-10 yrs (not considering inflation here)

This way, you reach a point in your life when your wealth itself is enough to create a stream of income which handles your basic expenses at least if not a lavish lifestyle.

Recently I tweeted – “Investing money is nothing but an act of gifting yourself more Retirement days”

If you have started your wealth creation journey on time – you are moving towards your financial independence slowly and maybe somewhere in your 40’s or 50’s (dont confuse this with your retirement) you will have some level of financial independence

Reason #5 – So that you don’t get into the debt trap

Remember that people who are into debt trap today started small. They got into a small debt first, and then they continued it, didn’t manage it well and now after many years, they find themselves into a deep debt trap. Think why they even started with the small debt like credit card debt or a small personal loan of 2 lacs?

Its because they didn’t have enough money saved!!. The root cause of the debt trap is because people do not save for the future, and then slowly have to rely on debt to fund their needs and desires.

Reason #6 – Feeling of Progress in life

Sense of “progress” is very important in your financial life. You may have ZERO bank balance at the start of a career. But if after working for 8-10 yrs, you have very less to show – then its crushes you from inside.

It’s like running for hours, only to realise that you have not moved much. If you do not save on time, then over a period you may feel like a failure because you dont see any progress in your wealth.

I also said in one of my tweets that “If your Net worth if not going up, you are probably a RICH SLAVE” and nothing more than that. Think about it!

And its not too tough to create wealth over time. A small sum of money can also turn out to be a big sum over a long period of time.

Check out how much wealth can you create just with the monthly SIP of Rs 10,000 in 30 yrs

Wealth Creation using SIP in 30 yrs.

So if you have been late till now – START NOW!

Reason #7 – To handle major life events

A lot of major life events are going to come in your life.

  • Kids School fees (recurring)
  • Vacations (recurring)
  • Child Education Higher Education
  • Buying House
  • Upgrading of Car (recurring)
  • Home Renovation
  • Retirement

and lots and lots of small events which will demand money constantly!

What are you going to do – if you will not save enough for the future? Depend on Loans? Get into a Debt Trap?

Starting your wealth creation journey early in life increases the chances of you meeting these financial goals with less stress and on time without compromising on them!

Reason #8 – So that you can spend without guilt!

I have seen enough families who do not take enough vacations or spend properly on themselves enough. They keep cutting corners and often try to show that they are simple people and they dont believe in wasting money. But deep down the reasons is that they just don’t have wealth!

This means that on each occasion, they often feel guilty for spending money. They feel as if they are doing something wrong. They deprive themselves today so that they don’t have to deprive their future-self!

It doesn’t only impact them but their spouse, kids, parents and everyone around them at some level. A good financial life is not about just saving money, but spending money sensibly!

So start your saving today to that in future, when you have to spend money on things you love, you can do it with free mind without any guilt feeling!

Reason #9 – To explore an alternate career

A lot of people are not happy with their jobs. They feel stuck and they want to do something about it. But once you take a home loan and don’t possess any other skill, it becomes a permanent job for you.

You cant quit and explore other career choices because you have no backup plan. Forget switching career, ask yourself if you can even take a 2-3 yrs break from the job? Do you have enough wealth to support that?

If you save enough today, there will be a time when you will feel more comfortable to take that kind of tough decision. Having wealth on your side – gives you enough power to tell your boss that he sucks and that you are not coming from the next day!

You will be able to take calculated risks in life and try out many things .. so start saving now!

Reason #10 – Do that you can leave a legacy

I have many friends who have got enough legacy from their parents. Their money issues are partially solved. Imagine someone in a big city (Bangalore or Mumbai) whose parents are going to leave them a house or a big portfolio/business.

Only a person is burdened with a big EMI and no future inheritance can understand what I am speaking about.

One of my close friends has a Rs 10 crore net worth today (he is just 35 yrs age) all created by his grandfather. He has his own home, other properties and few income sources. Imagine how it would be for you if you were to acquire a lot of wealth from your ancestors!. What would be your mental state?

I am not saying that this itself will solve all your life issues, but you have one big less thing to worry about in life. You just build upon that!

You don’t get legacy because your parents messed up their retirement and didn’t do enough wealth creation. You can choose to not do that your next generation. I know that its a subjective thing and not everyone is excited or agree with the idea of leaving an inheritance.

Why we don’t save enough money when it’s so obvious?

Below is an excellent video from Shlomo Benartzi on why we don’t save enough and a framework to solve that issue. Listen to it!

A simple financial plan for you to invest your money

So here is a very generic roadmap on what you can do to invest your money

  • First, take enough term plan and health insurance early in life
  • Make sure you have 12 months’ worth of expenses invested in an ultra-short-term bond fund. This will give you good liquidity and decent returns at the same time!
  • Invest 20% – 40% of your take-home income into equities (as you already have debt portion covered by EPF). The options can be a mutual fund, Index funds, direct stocks if you understand it
  • Over time, as you grow older you may also have investments into debt mutual funds to lower the volatility of your portfolio
  • If you wish to, you can also have some fixed deposits – but preferably very less of it
  • If you are investing in NPS already, you have some equity exposure!
  • Stay away from an endowment and money-back insurance policies
  • You can open a PPF account, but don’t over-invest in it at a young age!

The above suggestions are all generic in nature. If you are interested in wealth creation in a more focused and structured manner, you may want to look at our investments services brochure

Let me know if you liked the article and share your comments

Meaning of different Term Insurance Riders !

Posted on by Jagoinvestor

There are different kinds of insurance riders and the common question is “Which insurance riders should I take?” . This is not a question I or anyone else can answer for you. This has to be decided by you and no one else. All you need to know is what exactly a rider is and what it is going to provide you.

Term Insurance Riders

What are different kind of Insurance Riders ?

Insurance Riders are the extra benefits that can be purchased and covered for under the life insurance policy. Apart from the basic Life insurance cover, you can choose to add some extra benefits to the life insurance cover, but you will have to pay extra premium to get such add-on benefits. The basic premiums will then increase. Note that the base policy features are always there and you get the base Sum Assured in case of death. Addition of these riders has nothing to do with the original rules of the policy. Let us see all the insurance riders one by one.

1. Accidental Death Rider

In this rider, you get additional sum assured if the death occurs due to an accident. The biggest myth which investors have is that they will get the money if death is due to accident only if this rider is added, else not. This is not true. If you don’t take this rider, still the base Sum assured will be paid to you. This rider is only for the extra sum assured in case of death due to accident at additional cost, nothing else. So if you take a policy of 50 lacs sum assured with accidental rider of 25 lacs. You will get 50 lacs in case of death other than accident and 75 lacs in case of death in accident. A lot of policies cover you from disabilities which arise out of accidents. See Accidental Insurance Policies

2. Permanent & Partial Disability

This rider is helpful in case you are disabled permanently or temporarily due to accident. In that case most of the policies pay periodically for next 5-10 yrs a certain percentage of Sum Assured. For example, 10% of Sum Assured per year for next 10 yrs. This way this rider acts like an income generation insurance most of the times. However note that the rider is helpful only incase the disability happens due to accident only. Read the policy document of the company for exact wordings. Most of the times, this rider is combined with Accident Death rider.

3. Critical Illness

This rider gives you a lump sum amount if you are diagnosed with an illness which is pre-specified and is mentioned in the policy. Generally all the major illnesses are covered in Critical Illness cover. Some of the examples of critical illness mentioned are Heart Attack, Cancer, Stroke, Coronary artery by-pass graft surgery (CABG), Kidney failure and Paralysis for example. After the critical illness is detected, the policy might continue or terminate as per the policy document. At times, the policy coverage reduces by the amount paid to you. So better read the policy document to know exactly what will happen in this rider.

4. Waiver of Premium

This rider makes sure that in case you are not able to pay future premium due to disability or income loss, the future premiums are waived off but your policy is still in force like always. This is in a way insurance of the premium payment till your policy expiry date. In case this rider is not present and you are disabled and not able to pay the premiums, then the policy will expire and you will not get any benefit later when you die because due to non-payment of premium the policy expires and the cover stops.

5. Income Benefit Rider

This rider is present in some policies and it’s mainly for the income generation after the death of the policyholder. If this rider is present, the policy holder’s family will get additional income per year for 5-10 yrs along with regular Sum Assured. For example, 10% of Sum Assured for next 10 yrs will be received by the policy holder’s family.

These Insurance Riders come with cost and exclusions

Note that riders come with cost, so just because they are present in the policy as add-ons, don’t jump and include every kind of rider possible. Ask yourself why you need a rider and if there is really a need for it. Read about the rider rules in details and read what is not included in that rider. Also compare the cost of insurance riders from different companies to take a better decision.

How to Create your own Child Policy with this Calculator

Posted on by Jagoinvestor

Everyone is so desperate to buy a child plan (example). The features of so-called children plan are bundled in a way that it looks magical, as if there can’t be any other product like a child plan and hence, we pay much more than the price it really deserves most of the times. So today we will see how we can create your own child policy by combining term plan and other investments like PPF, FD or a Mutual Fund.

When you hear “Child Policy”, It looks extremely attractive. It gives you money on your death, It gives yearly income and it also gives you money on the maturity of the plan (generally when you child is ready for higher education) . So the point is that a child policy is so much in demand and attracts investors because of its features. However there are some issues with child plans in market. They come with high costs, rigid structure and very less control over it. Traditional Children plans (which are endowment or money back type) mainly do not deliver of returns front and ULIP children plans come with high cost .

So what can you do now ? Can we create a child policy on your own by combining Term Plan and Investments in some separate instrument, in a way that the Term Plan will take care in case of your death and investments will take care of higher education cost in case you survive.

So just like you pay a yearly premium for a Child policy, even in this case you will pay a fixed amount every year. A part of it will go as Term Insurance Premium and rest will go into investments. But in this case the term plan will also open ways for yearly income, as well as future big time expenses for child higher education as well.

When you are not there, the amount received by family from term insurance can be invested in such a manner, that it can provide a yearly income + lumpsum money NOW  + Lumpsum money in FUTURE. Lets us take an example and see how it will look like. Suppose you have a 1 yr old daughter for whom you want to create a Child Policy like structure, and you want to achieve these 3 things.

 

1. Lumpsum Money If you are no more , family gets 50 lacs upfront as lumpsum.
2. Regular Income  After your death, your family should get Rs 50,000 per year separately for your daughter education for next 20 yrs and this Rs 50,000 should increase every year by 9% (so that inflation is taken care of) and assuming this money will grow at 8% return (FD)
3. Money for Higher Education When your daughter turns 21 yrs old and is ready for her higher eduction, she should get another 25 lacs at that time.

 

In order to achieve the 3 things mentioned above , you need to buy a term plan for Rs 65 lacs (Sum assured) and start investing Rs 50,000 per year in something which gives 8% return on annual basis. Apart from this, you will need to clearly define to your family what actions they need to do once you are no more (these are simple tasks like opening a FD or investing money in PPF or balanced funds). The yearly premium for this structure would be around Rs 60,000 (50,000 investment + 10,000 premium for term plan) . Lets us see how this structure will be helpful .

If case of death (Your family gets 65 lacs)

  • 50 lacs can be taken out as lumpsum
  • 5 lacs can be invested one time to get 25 lacs at the end of 20 yrs
  • 10 lacs can be invested one time to get a yearly income of 50,000 increasing by inflation figures!

Incase you survive

  • Your investments of 50,000 annually will create a corpus of 25 lacs at the end of 20 yrs anyways

Lets us see this same example through a picture, which will clearly illustrate how this 60,000 premium payment will create a Child policy kind of structure and how it will help you in case of death and survival.

Children Policy Example

So using this structure you can achieve what a child policy provides. However this whole method has its own pros and cons. There is a lot of flexibility in this structure which a child policy does not have. However this kind of structure would need some level of trust and you will need to instruct your family about it and what they need to do incase you are not around. I think if you are preparing a will, you can clearly mention what needs to be done with the term plan money, so that family members can take those actions.

Download the Calculator and Start Planning your child Policy

Below is a calculator which you can download and punch in your numbers, the calculator will tell you how much term plan you need to take and how much investment has to be done per year. The expected return and inflation is decided by you. So if you want your family to put the money in FD or PPF after you are there around, then put the return expected as 8%, if you want it to be in Balanced Funds put 10-11% and incase of Equity Mutual Funds, put 12-15%. Also note that the premium for term plan will depend on the company you choose for taking a term plan (LIC is coming up with its term plan in few weeks as declared by them recently).

Download Child Policy Calculator Here

Comparison with Child Plans in Market

It’s important to see what is the difference between the child plans in market and this custom-made child policy by combining term plan and investments

Child Plan Comparision

Comparing it with LIC Jeevan Ankur

Lets compare this with LIC Jeevan Ankur Policy. If a 30 yr old male has to take a 25 lacs policy for a tenure of 20 yrs, He will have to pay premium of Rs 1,00,000 per year (approx) . In case of death, his family will get 25 lacs + 2.5 lacs income per year till maturity + 30 lacs of maturity (assuming 20% loyalty addition) , incase the person survives, he will get 30 lacs anyways on maturity.

This same thing can be achieved if a person does a 60,000 per year investment in PPF or FD (assuming 8% yearly return) and taking a term plan for Rs 55-60 lacs for a premium of say Rs 10,000 per year (for most company, the premium is 5,000 but lets assume LIC online term plan is taken which will come in few weeks now). So he has to pay total 60k + 10k = 70k per year to achieve the same results, with a lot of flexibility.

Do you think this whole strategy of creating your own child policy is of any use? Do you think it’s too complex? Share your views.

How two readers got justice and got their money back

Posted on by Jagoinvestor

Today I want to show you how 2 fellow readers of this blog were in a fix when it came to their hard-earned money and they were struggling to get justice from their respective banks and financial institutions. They mailed me and commented on this blog and when I saw those comments, I thought – “lets see what can be done!” This is a post where you can learn what kind of things can be done if you are having issues at times and then try to resolve it further.

Case 1: How an old lady got justice from ICICI Prudential

Some months back an old lady named “Nita” commented on this blog how ICICI Prudential representative have taken advantage of the situation and played around with her money. It was not a case of miss-selling, it was actually unethical behaviour (or call some kind of fraud). So I decided to help her in whatever way I could. Here is what she wrote 

Dear Sir,

I was holding ICICI Prudential Life Time Super policy (Policy number: XXXXXXXX) and have already paid two premiums. The third premium was due for payment in July 2009. Due to delay, there were frantic calls from ICICI Bombay office for making the payment. On 28th December 2009 when called again from ICICI Prudential Bombay office, I requested them to get the premium collected as assured by their officials at the time of issuing the policy. I was told by their office that a representative would come on 29-12-2009. On 29th Mr. K N Pandey mobile No XXXXXX a representative of ICICI prudential came and after verifying his credential from Dehli office in-charge Mr. Mratunjay Sharma Mobile No XXXXXXXXXX  a cheque for Rs.50000/- was given. He demanded that a photo and a signed copy of form was required to get the lapsed policy restored. these were given to him.

Later on, finding that instead of a receipt of the premium paid for the old policy (policy number: 05225842),a new policy “LifeStage Assure Pension- policy number: 13129468″ was delivered. This was issued under forged signature.(photocopy attached). Soon after the receipt of the new policy in 3rd week of jan-2010, the matter was reported to the company’s representative Mr. K.N. Pandey and his immediate superior Mr. Akhilesh Gupta Financial adviser of ICICI prudential Mob. no 09838506002 and Delhi office Mr. M Sharma. They accepted their mistake and I was assured that the new policy will be closed and the amount of the premium will be transferred in my old policy no: 05225842.I trusted them since they begged saying that if the matter was reported, they were to lose their jobs.

But, having failed in my efforts the matter was reported to the chairman ICICI Prudential in September 2010. I never got the reply but when I presented all the documents before ICICI Prudential Manager at Kanpur office I was given a copy of reply sent by the Bombay office in Sept 2010.

(photocopy attached)

The local office after having gone through the records and finding my complaint genuine, they again sent the complaint to Bombay office and I was asked to wait. Again there has been no communication from Bombay office but on my approach to local office I have been given a copy which is ditto of the previous reply.(photocopy attached).  On the advice of local branch manager to save my one Lac rupees deposited earlier in policy No. 05225842, I have borrowed the money to deposit Rs ONE Lac i.e. two years premium to get the policy revived. The amount has been debited from my account on 26/05/2011 but I have not yet received any communication regarding revival of my policy.

The fraudulently (under forged signature) issued new policy No 13129468 is still hanging in abeyance and my Rs.50000.00 is at stake. Since I am an old lady with meager source of earning I cannot afford to operate two policies and that’s why I have been trying to get the amount of the second policy credited for the old policy. Since now, I have come to know about IRDA can help in such matters I therefore request your good office to look in to my case and help me to get justice.

Yours faithfully,

NITA TRIPATHI
06/12/2011

What I did

I tried to find out who is the current CEO of the company and tried to find his email id, but failed. Then I found him on facebook and left a message to him (didn’t get any reply). I then contacted a PR agency in Mumbai who earlier contacted me on behalf of ICICI Pru and I knew they must be knowing someone at ICICI Pru who could help the lady. This worked and I got a mail from ICICI saying that they will work on this and get back with their response. I replied back to them on email like this –

If it was a normal misselling case , I would have let this go , as misselling is same as misbuying . but here it was fraudualant activity and without any reason the old lady is harrassed and she is not able to do anything . Please take up this case with priority and more than professional grounds , help the lady on human ground . It would be appreciated if you can follow up with the concerned people who were send to collect the money from lady and even their seniors .

I am cc’ing Mr Kunal Pradhan and lady Nita Tripathi .

Thanks
Manish

The case was resolved and Lady got her money back

After that there was no activity for few days and some weeks back I got a mail from the lady and she confirmed that the things are resolved now.

Dear Mr Manish,

Wish you a VERY HAPPY HEALTHY AND PROSPEROUS NEW YEAR.

I am extremely sorry for not writing to you earlier about the progress in the matter. In fact after your intervention, ICICI Pru immediately responded. They have now cancelled the mis- sold policy and have credited the amount to the old policy account after getting the formalities completed locally.They have issued the receipt and provided the number by email but I have not received the hard copy as yet.

Honestly speaking I have no words to express my gratitude and thanks for all the help. I pray to GOD to give you all the success and happiness in life.

Thanks once again.

Nita Tripathi

Case 2 : How Bharat Kamble got his Rs 24,000 back from ICICI

One reader Bharat Kamble was struggling to get back his money from ICICI Bank. His credit card was charged twice and ICICI was making him run around here and there without any valid reason. Here is the problem he was facing. I thought of using twitter to communicate this issue to ICICI bank and ask them to act on priority.

ICICI Complain on twitter

Within 24 hours, I got a message from ICICI stating a reference number and they asked Bharat to reply back to ICICI and mention that code number in the message subject (I guess they take it with priority and seriousness). Bharat did exactly that and then he got his money back. I asked him to write a testimonial for us and here is what he sent back in email (problem and solution both).

Dear sir,

I am a 29 year old Geotechnical enginner from mumbai. I am planning for migration to Australia and have already applied for an Australian PR (Permanant Residence). On 21st June 2011, i have paid the fees for PR application to the IEA (Immigration Engineers of Australia). The amount was Rs. 24603/-. I gave the details of credit card in the application form and the amount of Rs. 24603/- was deducted from my ICICI credit card. This amount was reflected in my July month statement. Later in the August month statement i saw the same transaction been done again on 22nd July 2011. I called up to the IEA department for clarification. They said that the first transaction was unsuccessful and hence they did the second transaction which was successful.

I told them that the money has been deducted for both the transactions. They said that ask your bank to talk to our bank (commonwealth bank) for the unsuccessful transaction, also they me the reference file number for the failed transaction as a proof. Later daily i had been calling the customer care of ICICI bank for the problem and solutions. but i got only one answer from all of them stating ” its the mistake of commonwealth bank and they have to sort out the issue. The only alternative for this is that to raise a dispute against this amount”). I was really very tensed and worried about this problem. I showed them the reference file number which was given to me by the commonwealth bank , but they said that we cant check this reference number.

On 23rd Sep. 2011, i file a dispute against this transaction with ICICI bank. They told me that it will take 45 days to solve this dispute and also the result make not be in your favour. i was really suffering from a bad time in that period. after 45 days on 18th november, i called the CC of ICICI bank for the status of the dispute and they said that it will take another 45 days to solve the issue.

Finally while surfing on the solutions on internet i came across “jagoinvestor”. I read all the comments (some of the problems were similar to mine one but not the same exactly and thought lets put up my problem over here. Within 24 hrs i got a valuable feedback from Mr. Manish Chauhan. He gave me a code number and said that put this in the subject matter and send this email to [email protected]. I did the same thing and after 3 days i got a reply to that email mentioning that the amount has been debited on your account. I felt like my feets were not on the earth. I was relaxed and happy.

What should i say about this guy. I am very thankful to him.
I would like to inform you all that beware of such kind of theft and use of credit card has to be limited.

 What you can learn from this?

This post was to show you that one should reach some key people in the company and then communicate the issue to them. Just talking to customer care wont help. Reach to CEO, MD directly, mail them and expect some help. Leave messages on twitter or facebook pages of these companies. At times it works. However I am not saying that this will always work, but nothing to lose if you try!

 

How PPF interest is Calculated (With Calculator)

Posted on by Jagoinvestor

There is a great confusion among investors on how PPF interest is calculated ? Just because a lot of investors don’t know this , they have questions like “what is the best time to invest in PPF to get maximum interest” or “Should they invest in lump sum or monthly?” . Once you know the procedure and exact ppf interest calculation method, life will be easy. Let me explain with examples how its done and also give you a ppf interest calculator in a excel sheet format at the end.

To explain in one line – “PPF interest is calculated monthly on the lowest balance between the end of the 5th day and last day of month, however the total interest in the year is added back to PPF only at the year-end” 

Excerpts from Official PPF page

8. Interest – Interest at the rate , notified by the Central Government in official gazette from time to time, shall be allowed for calendar month on the lowest balance at credit of an account between the close of the fifth day and the end of the month and shall be credited to the account at the end of each year

What this means is that the interest is not compounded monthly ! . While there is no ppf interest calculation formula, but the way its calculated is very simple ! . The interest earned in a year will added back to final amount only at the end of the year. Thats the only catch ! .

So lets see 3 different kind of cases where money is invested in PPF differently and see how the interest is calculated and added back to PPF account at the end of the year. We will see these 3 cases

Case 1 : Rs 60,000 deposited once on 1st Apr

Case 2 : Rs 5,000 deposited before 5th of every month

Case 3 : Case 3 : Rs 5,000 deposited after 5th of every month

The following examples give all the 3 cases examples assuming investment of Rs 60,000  in a year , but invested differently. I have taken interest at 8.6% per annum . Recently the PPF interest rate was increased to 8.6% and the limit was raised to Rs 1,00,000 and its now applicable from Dec 1, 2011 . So if you have  invested Rs 70,000 earlier in this year , you can still invest Rs 30,000 more in your PPF account.

PPF interest calculator

Note : Interest assumed is 8.6% for all the 12 months. However in reality it might happen that it may change in between for some months due to changes from govt.

Some Important Points on PPF Interest Calculation

  • If you are investing in PPF on monthly or several times a year, before 5th or after 5th will not matter a lot , it would be just few hundred rupees.
  • If you are investing your money in lump sum on yearly basis, it would be better if you can invest before the 5th of April, this will make sure that you earn interest on more balance for the month of Apr.
  • The interest on a particular month depends on the interest rate applicable for that month, if PPF interest rates change in between , then there might be different rate applicable from a point onwards.

Download PPF Interest Calculator Here