Which Portfolio Management Softwares do you use ? Some of the Portfolio Management Softwares in India are MProfit, Perfios, Intuit and Investplus and we will see a detailed review of these portfolio trackers in detail. Portfolio Management & monitoring is an important part of managing a good financial life and if your financial life has different components like Real Estate, Loans, Life Insurance Policies, Mutual funds, stocks and ULIP’s. You can also track your portfolio using Excel and there are lot of templates also, but it can be a tedious task to monitor which part of your financial life is doing well and how much worth do you have at each level using an excel template for Portfolio management. Hence, you can use portfolio management software which suits your needs. There are tons of Free portfolio management softwares which you can start with
There are many paid as well as free portfolio trackers available in the market which you can use to track and manage your financial data. I really recommend using one of these so that you have all the data at one place and you don’t need to struggle every time to find out your own information. Once we put all the information at one place, we get a clearer and a complete picture, which we don’t get otherwise… We are amazed to see our clients find out that they are worth so much or worth so less once we start discussing with them their financial life data.
Some important features of Portfolio management softwares
Now we will discuss some of the most important aspects of portfolio management softwares in India . These points are top level concerns of customers.
Data Security of Portfolio Management Softwares
A very big concern which most of the people have is where will their financial data be (example) ? Will it be on their local computer or will it is at third-party server and this becomes a big blocking point for them to go for those products which stores their data at their end itself. Here I am not talking about the login & password, but the actual numbers of their financial details. A lot of people don’t want their info to reside on other servers. I personally don’t buy that argument, but that’s a big concern for a lot of people. In a survey done by JagoInvestor last month, the number one concern which people had was data security, ahead of pricing and features.
Regarding the security of login credentials, with the advancement in technology and strong security advancements, it has become virtually 99.999% secure if not 100%. A lot of solutions also give an option for users to link their bank accounts, credit card and other online accounts by providing the passwords. A lot of people do not know how it works internally…
An online money manager will work well only if you provide online access to banking accounts for a one-time setup. This raises security concerns, but here is how it works. The login username and password for individual online banking accounts is used to retrieve read-only data. The ‘transaction password’ for online banking should be different from the ‘login password’ for greater security. You don’t have to reveal your ‘transaction password’. Customers do not have to give any personally identifiable information, making the process safer. Moreover, the account is completely anonymous and requires only a username and password. All the banking accounts are linked to provide consolidated data. In the consolidation process, vendors will have access to your financial records on a read-only basis, but privacy policies of these entities should prevent abuse of information. – source : moneylife
Features provided
I was surprised to see that in our survey, most of the people voted for high features and less on simple features. I personally thought that most of the people will love to have something which provides them less, but rich data. But actually people look for lot of features giving them number of reports and graphs. It’s very important for someone using the software getting more analysis and suggestions on what one should do in their financial life rather than just getting some plain info which they would have done on their own. Most of the software providers give good analysis along with different type of reports and charts which you can download in excel formats.
Easy to use
It’s extremely important that the softwares are easy to use because no one would put a lot of time to feed the data at the start and on ongoing basis. A lot of players provide statement upload facility where you can just upload your Bank Statement, Credit card statement or other demat statements and the software will put out the information and feed it automatically, thus reducing your work. Some softwares like Perfios allow you to link your accounts with them so that they can pull your information and feed it themselves (read only).
Below is a comparison of 4 major Portfolio management software’s in India market and used by thousands of people (you can read their reviews on their website). They are Perfios, mProfit, Investplus and Intuit MoneyManager
Look at the above video done by me and Manish Jain from Mprofit .
Free and Trial versions
I would say you should take advantage of Free and Trial versions of softwares, Like Mprofit gives away a full functional 30 days trial, where as Perfios and Investplus have free versions which are good enough. If you don’t want to use any software, you can manage your finances at very basic level in an excel sheet, but you will have keep updating the values etc from time to time as the situation changes, which is not the case with softwares, as they auto-update the values.
Free tools for Portfolio management
A lot of people don’t go for advanced tools and use free tools available in market which does a good enough job. Tools like money-control tracker and Valueresearchonline tracker are used by lacs of people to track their mutual funds and stock holdings. But they do not give you all the functionalities which fully fledged software’s give to you. Below is the chart explaining Arthamoney, Moneycontrol , Valueresearch and Moneysights portfolio trackers. I hope liked this review of Portfolio management softwares !
I would say you should definitely try out some softwares which provide a free version and also explore the free options, there is lot they provide free of cost and all you need is to put your data there. Some other tools which you can use are rediff money (only for stocks and mutual funds, but I like the UI), myirisplus, yodlee and rupeex.com. Please share what more do you look from these softwares and what do you think about the value you get out of these management softwares?
6 Free Portfolio Management Software Licence from Perfios
Update 12 Aug : The 6 winners are selected and this giveaway is not valid now
Perfios is willing to give away 6 free Platinum licences to Jagoinvestor readers for the first year (worth 1499). The first 10 commentators who share this article on their Facebook profile will get those licences (just cc manish at jagoinvestor dot com) (to share it on Facebook, just “like” this article below and put your comment in the box which opens).
Health Insurance sector is such a new thing in India that a lot of people have dozens of health insurance myths regarding various things and because of that they feel that this whole thing is so complicated. Today I will burst some of your long-term medical insurance myths which will help you choose right products and also build right expectations from health insurance policies.
24 hours Hospitalization is necessary for making a Health Insurance Claim.
This clause always reminds me of an incident. A little over a year ago, we were having our weekly meetings, when a doctor friend who owns a hospital in Mumbai frantically called us. A woman was making a ruckus in this friend’s hospital, insisting doctors continue hospitalization of her son and discharge only after 24 hours, as her “advisor” had informed her that they would get the claim only if the hospitalization is over 24 hours. This incident brought to light the magnitude and the level of fallacies customers have about Health Insurance. Advisors, Representatives, Telemarketers, and even hospitals and customers have frazzled their throats out on the 24 hours clause, while explaining or even using the product.
Though, the policy does mention this as one of the clauses, the 24 number in real world of claims holds lesser importance. The clause, in spirit, requires the hospitalization to be “necessary” more than it to exceed “24 hours”. This was purely from the general understanding that most hospitalizations less than 24 hours are treated under “Out-patient” (treatment at the Doctor’s Dispensary) not covered under a Standard Mediclaim. Hospitalizations (like Cataract), though required 2-3 days earlier, which are now possible due to advancement in medical science in less than 24 hours are covered, while, hospitalization by an insured for more than 24 hours for getting his routine diagnostic tests done, while no active treatments are being carried out, would not be payable under Mediclaim.
Conclusion
The thumb rule of a whether a claim is payable is not 24 hrs hospitalization but whether the hospitalization was medically “necessary” or not?
You must compare Pre-existing waiting period, always.
This is a clause that most people looking for a Mediclaim are confused about (17 Most asked questions in Health Insurance). I speak to many customers whose requirement with mediclaim is that they do not want a waiting period for pre-existing ailments. This, in spite of their entire family being completely fit, without any ailment, whatsoever. Somehow, the clause again being so popular has brought in its own confusions for customers. In reality, the 4 year Pre-existing exclusion on ailments is applicable to ailments existing at the time of applying for the policy, and not any other ailments. If you do not have any ailments or conditions, you have no pre-existing waiting period.
Conclusion
When applying for a Mediclaim, if you are completely healthy, the Pre-existing exclusion clause is not applicable to you
Cashless is an on-call Emergency Service.
Ever since it was introduced as a value addition to Mediclaim, Cashless has remained a buzz word. To a level, that for a lot of people, Cashless became a prefix, or, even synonymous to Mediclaim. The reason for the cashless concept getting popular was obvious; it was a great value add, which helped customers tide away the burden of large payments on their bank account, documentation and of course, the stress of waiting for the claim cheque. Yes, Cashless can do all this, but expecting it to work when there are emergency funds required for Hospitalization is asking for too much.
You should understand the Cashless mechanism as a concept to know why it cannot be depended on at the time of emergencies. Cashless is an arrangement between the Health Insurance Company/TPA and the Hospital where, the Hospital agrees, under contract, to grant credit facility to the Insurance Company/TPA against authorized claims. Such an arrangement is only for authorized Claims, and not for all claims. TPAs/Insurance Companies, hence, need to assess every claim received, against the policy terms and conditions, to authorize payment. Such an authorization could require additional information as well as documents and hence can take anywhere for 4 hours to 2 days of time. In their role, the TPA or the Claims Team at the Insurance Company would have to do its job of evaluation of the claim, irrespective of how urgent the medical admission or treatment is. Cashless will help you save the burden of processing a reimbursement claim, but it cannot provide you the convenience of on-call emergency funds.
Moreover, one should also note, unlike the hospital cashier, Insurance Desks in hospitals (which coordinate for cashless claims) have fixed work-hours from 10.00 AM to 7.00 PM. Cashless process and approvals after 07.00 PM are processed by the Hospital the next day. Hence, though the TPA provides 24/7 service, the cashless process may not move, once the Hospital stops working on it.
Conclusion
Expecting Cashless to work as an on-call Emergency Service is foolish. You should plan your emergency medical fund, as well as ensure you have good unutilized credit card limits, always.
You must compare no. of Day Care Procedures covered
Most Insurance Companies (specially the Private ones) flaunt a large list of more than 100 Day Care Procedures being covered under their policy. In fact, it is a highlight of their product pitch. The truth is comparison of such numbers can be very misleading. One company could list every procedure, while another could list macro-level treatments, including the listed procedures of the former. For instance, a person who compares Apollo Munich’s Easy Health Insurance which covers 140 Day Care procedures, with an Oriental Happy Family Floater which covers only 26 procedures would feel that Apollo has wider cover on Day Care Procedures. Believe me, but it could actually be the reverse. How? Oriental promises to cover Eye Surgery (a broader definition) in its daycare list, compared to say an Apollo which lists 15 specific eye treatments, which results in a larger number. Now, if the treatment being carried out is an eye surgery, which is day care but not a part of the 15 specific treatments, Apollo or many other Private players may not pay, whereas, in the case of Oriental it would get paid in the broad definition of eye surgery. By providing a specific list of surgeries instead of a macro area of treatment, the coverage under Apollo may actually be more restrictive in the long run than Oriental’s wide area of treatment wise list.
Conclusion
A short list of procedures could be wider than a long one. Do not compare the no. of Day Care Procedures.
You should check the list of Network Hospitals.
Many customers, we have interacted with demand Hospital network lists. They select the mediclaim product depending on whether their preferred hospitals are part of that Insurance Company’s list. What they fail to realize is that a Hospital Network is ever-changing. Insurance Companies regularly blacklist defaulting Hospitals. Hospitals blacklist or refuse cashless of certain Insurance Companies/TPAs for delayed payments. What is clear from this is that there is no fixed or contracted list of hospitals between your Insurance Company and you – which means there is no assurance that the hospital name in the list, which you are depending when you buy the policy, would exist in the network when you have a claim, say 4 years down time.
Conclusion
Network List of Hospitals are not fixed or contracted through policy terms. Do not depend on the network hospital list to decide a suitable product for your family. The list could change even tomorrow, in fact it could change any moment.
Capping on Room Rent is bad:
Public Sector (PSU) Mediclaim products and their current terms and conditions are evolved from experiencing and analysing millions of claims spread over more than 20-25 years. Hospital Rooms are classified into various categories like General, Shared, Private and Deluxe Rooms. Earlier without the room rent limits, for the same treatment, a person with a sum insured of 1 Lakh paying a measly premium of say Rs. 2000, would have access to the same category of room, as a person who pays 5 times the premium, and takes a Rs. 5 Lakhs cover for himself. The 1% and 2% Room Rent Limits in Mediclaim brought a clear sync between the kind of premium one pays and the eligibility of room. With such cappings, an individual who pays a high premium gets a better room, than one who pays a smaller premium, for the same treatment, which is fair. It’s like any other product with categories, like Indian Railways, providing you better facilities/services, as you move from 2nd Class to 3rd AC to 2nd AC and so on. In my opinion, sooner or later, Insurance Companies would either have to hike premium for lower sum insured or bring in a capping of some kind. For instance, the newest health insurance company – Max Bupa, has a restriction on the type of room according to the sum insured selected, instead of a “no capping on room rent” feature.
Conclusion
Cappings are good for Health Insurance as a community fund. Cappings could actually be helpful to customers in the long run.
Health Insurance Plans sold by Life Insurers are the same
The highly advertised Health Plans from LIC are Defined Benefit Health Insurance Plans, sold as “hassle free” alternatives with guaranteed payments. These plans should not be considered as a substitute to Standard Health Insurance plans sold by General Insurance Companies. These plans provide fixed benefits against no. of days of hospitalization and/or surgeries. These plans do not take care of healthcare inflation. For instance, with 18-25% healthcare inflation, a fixed benefit for Angioplasty at say, Rs. 1,50,000/- would miserably fall short in 10 years. Defined Benefit products are actually supplementary plans which provide a cover over allied costs of hospitalization including loss of earnings, if any, but such products surely cannot be a substitute to the good ol’ traditional mediclaim. Read more about the difference here.
Conclusion
Beware of what you buy. A Traditional Mediclaim should be the first product you buy to cover the financial risk of healthcare expenses of the future. Defined Benefit Products are supplementary and not substitute to Traditional Health Insurance.
Health Insurance is a Tax Saving Tool:
A large Healthcare expenditure can severely affect your financial planning for the future. The goal when you buy Health Insurance should be to financially insure your family against such large scale healthcare expenditure. Buying a health insurance product blindly, for the 80D tax benefits, is a wide-spread fallacy, which has left a large no. of people underinsured or insured with products which are not suitable. The worst part is most of them are unaware of this.
Conclusion
Health Insurance at its core is not a Tax Saving Instrument. It could save you much more than your tax, if you invest wisely.
There will be no changes in the terms of the Mediclaim I bought:
Expect changes in your product, terms. Don’t be surprised. The Health Insurance companies and other stakeholders in India are going through a mindset change. Losses in Health Insurance are no longer acceptable by key stakeholders at Insurance Companies. A lot of streamlining and normalizing in premium, terms, benefits and procedures, which have already begun, is expected in the next 5 years. Group products would turn expensive, and restrictive. Parents would be out of most Sponsored Employee Mediclaim Covers. Large and small tweaks are expected in Retail/Individual products and processes, especially from new and private players who are till experimenting and understanding how to make a long term sustainable (read profitable) product for the Indian market.
For instance, last year, PSU Insurance companies tightened the procedure of intimation and submission of reimbursement claims. Customers who were not aware of such a change faced harsh action of denial of claims, and lost good money.
Conclusion
Ensure you are updated with changes in the terms and procedures of your Mediclaim Product. Ensure you have recruited a good advisor who keeps you posted on such changes.
I can destroy Mediclaim Policies once they have expired.
Don’t know how many of you have observed at the time of renewals, but PSU companies and their divisions are infamous in the industry for changing their TPAs year over year. With TPAs being the custodian of claims, change in TPAs could result in scattered claims information amongst various TPAs across years of continuous renewals. Hence, when there is a claim, the TPA in all probability won’t have information regarding how long you are continuously covered, an essential data point to approve claims, especially, and those treatments which had a waiting period at entry into the policy. TPAs for evaluation of continuity may demand policy copies of past 3 to 4 years. Hence, destroying policy copies records have cost many customers lot of stress in proving continuity of cover. Yes, we know that it is ridiculous for the Insurance Company or its representative to ask for their own record from the customers, but then this is how it is. A good health insurance advisor knowingly would keep a repository of all policy copies, to ensure such queries do not create roadblocks in a smooth claim settlement.
Conclusion
In addition to the current one, keep copies of at least 3 previous year policy copies. Ensure your advisor also records them.
My Friend, My Health Insurance Advisor
No offence to agents, but in our interaction with Customers, we have noticed time and again, that most customers, who were found with a wrong health insurance product, bought these either from a friend, a friend’s relative, or a relative, or a relative’s friend. Most of these customers did not spend enough time in selecting an advisor, and relied on pure reference. Most of these agents selected were Life Insurance agents, who did not have a detailed understanding of mediclaim products, neither were they providing any real expert assistance (beyond picking of forms, and providing the TPA’s no.) at the time of claims. The advisor selected should have the capability and the intention to provide unbiased advice, the advisor should forever own the product they sold you, and provide services across the Health Insurance service cycle, including Purchase Assistance, Records management, Claims Assistance and Renewals. A good advisor would be able to hand hold you through the dynamic transformation that the Health Insurance industry in India, is witnessing and will continue to witness for the next 2-3 years.
Conclusion on Health Insurance Myths
Select an advisor on merits and the services he demonstrated, and just not merely on reference.
What was the biggest and most valuable learning for you out of this article ? How many of your health insurance myths were really broken ? Please share it on comments section .
Is your under-construction flatin Noida Extention in danger? No! But there are thousands of buyers who have invested their hard earned money in flats that are being constructed at Noida Extension. In this article I will talk on the issue of Noida Extension and what learnings can we take from this whole issue. For people who are not aware on the recent Supreme Court decision to stop construction in a part of Noida Extension and give it back to farmers from whom it was taken by the Noida Authority in the name of “Land Acquisition”. Now thousands of buyers who booked their flats are in danger of not getting their homes which they had booked.
Background
So the whole issue goes back to 2005-06 when Noida Authority snatched land from farmers saying that the land will be used for “Development” purposes, Industries will be put in, there will be factories which will further help villagers and their future generations get employment and their life will be “great”. They were given pennies for that land. Then later this land was given to Builders for construction purpose and thousands and lacs of investors bought their dream homes in these projects.
The land was under dispute and after a lot of construction has already happened and people have put their hard earned money in lumpsum or through EMI’s. Now Supreme Court says that the land acquisition was illegal and was not done in the right way, so the land now should be given back to farmers. This is only for one part of Noida Extension issue which still affects thousands of buyers and later again there was a judgement passed in favour of farmers for another village.
Now this has given farmers the confidence that even they have a big say in this issue and someone is there to listen to them. All villagers now want a revised compensation at high rates (which I feel is totally right and it should always have been that way) or they want their land back. The builders have already spent crores of rupees in construction buyers have already paid the money for flats or have taken a home loan and paying the EMI. Now if all the land is given back to farmers what will happen to builders and thousands of buyers who bought the homes? Who will bear the loss of the mental agony and financial setback which will come as part of this package?
Recently, the judgement has been postponed till mid Aug 2011, when Allahabad High court will decide on the final judgement for the dozens of villagers land. If it says that the land has to be given back, the situation will get uglier. This whole issue is now engulfing whole of Noida and Greater Noida.
Who is to be blamed ?
Now assuming you have understood the situation, who do you think is the real culprit here? Is it the builders lobby who are known (or I would say secretly known) to manipulate the land acquisition part and then do construction there? Or is it only Noida Authority (read Mayawati Sarkar) and their policies for land acquisition? Or if you allow me to say, is it buyers who didn’t spend too much time to foresee the future of their houses if legal dispute gets uglier later? Who among all took things for granted?
I personally feel that there are two main parties who are really suffering here and those are Farmers and the home buyers. Farmers plight is from long time who are fighting for their rights from years and not even living a life of dignity even after feeding me and you and the whole country. Buyers are those who had spend their life earnings in their dream homes and now are seeing chances of delay, in their dream to own a house. More than financial loss, I see it as a big emotional breakdown. No one is there to hear and address their issues. They are skipping their work and business to give Dharna’s and by showing their outrage in masses.
What do you think is the solution in this case? Do you think incident like these are going to change the way people look at real estate buying? Can this Noida Extension issue teach people to pay more attention in what they are buying?
What do you think about this? Open your heart on comments section and let’s discuss it?
Today I am going to write on a simple topic which will highlight some basics of personal finance, which you can see as axioms or the core rules of personal finance. If you understand these simple rules then you can probably build lot of understanding and strong knowledge about money. Some days ago I heard Subra saying a one liner – “I strongly believe it requires a brilliant mind to understand simple things” and it is so much true to personal finance.
If you want to learn personal finance in a better way, you don’t need to look at all the policies , all the products and 100’s of topics . All you need is in the start is to build a strong foundation of understanding some of the core rules of money . If you know these core insights, you will automatically be able to see all the complications and secrets behind the complex world of personal finance. I can see that most of these points are nothing but common sense .
1. When you invest in Safe products , Its nothing but Lending
This can’t get simpler. When you choose products like PPF, Bank FD, companies FD, NSC, KVP, Infra bonds, RBI bonds etc … You are choosing safe investment product, where the money will come back with a high guarantee … Now with these products its foolish to expect very high returns, you are doing nothing but lending your money to someone else so that they can expand their own business. In case of Companies FD, your money is used in Companies expansions.
In case of PPF, it is used by Govt. In case of Infra Bonds, it is used by Infrastructure companies and in case of Bank FD’s, it’s used by banks to lend it to other people who are in need of credit. So your money is used by others. You are nothing but a lender, lender and only lender; get that point. All you will get is some near inflation returns or even less.
2. When you invest in Equity or Real Estate, you are a partner
When you put money in stocks, Mutual funds, ETF’s, Index Funds, Real Estate etc, you are not lending money to anyone; all you are doing is putting your money in some business or an idea. You share all the good and bad phase and its effects and become part of profits or share the risks involved. You can get high returns or low returns or negative returns and that’s not happening because of some secret, you have chosen it yourself.
So if you invested in HDFC Top 200, you are agreeing to take ownership in Reliance, Infosys, Bharti Airetl and dozens of other companies. Your investment will depend on their future and how these companies perform. If you expect 20% return without any risk involved, come on!… Wake up. Over the long-term these investment options will perform good , but in short-term there will be a lot of volatility, which can scare you .
3. Risk and return go hand in Hand
“Where should I invest for next 5 years to get maximum return and minimum risk?” . This can be a question from someone who really has no clear idea of basics. What is being proposed here is just not possible. The safest investments at any point are Bank FD’s or PPF. See how much return they are providing. If any other product offers higher returns than these, there has to be higher risk associated with that, otherwise wont every bank will put their money in these high return product itself and enjoy.
So if you want more returns, then you need to be taking more risk. Else it’s not possible. Over short-term, there is no chance you can get high returns with high probability. Its only accidental and on luck.
4. Companies are here for business, not charity
All the companies offering Mutual Funds, Term Plans, Endowment Plans, ULIPs, Health Insurance, PMS, Motor Insurance, FD’s etc are all in existence only for one reason i.e.- to make excellent profits for themselves. Don’t expect charities. If you are obese, then your life insurance premium or health insurance premiums have to be more than some normal person. Don’t feel bad about it. It’s perfectly ok and ethical from company’s points of view. Even you would do the same thing what companies are doing if you were to run that business.
If you are investing in Mutual funds, AMC’s are bound to charge Fund Management Charges. Insurance companies are there to take your money and exploit your attitude of “If I get something back, the product is good” mentality (example) and throw all the useless policies at you. If you have a Relationship manager assigned, his main job is to motivate you to keep investing your idle money in company’s products and less of helping you with personalised services.
5. You are never sold something, you always buy it
Don’t try to get sympathy of others by telling them “An agent came to my home, threatened me to shoot and took my signatures on the policy, he sold me that policy” or “My uncle created a situation where I had to buy it”. While that might be the case at times, please accept that you were wrong and you need to change that attitude, or else you will keep blaming what happened to you, but never yourself. It will create more problems in your life. A nice short article on mis-buying from subra.
6. Pain now or later, your choice
Pramod Moudgil , one of our readers once told me what his grand mother told him
“zindagi maein bhagwan ne sab ko khane ke liye Channe aur Halwa diya hai aur ye dono sab ko khane hain. Ab agar pehle chane (which are hard) kha loge to phir aaram se halwa khana otherwise abhi halwa kha lo phir chane chabane padenge. Bas fark itna hoga ki tab tak daant nahin rahenge so make your choice abhi mehnat kar ke saari umr aaram karoge ya abhi aaram karke saari umr mehnat”
If you have not inherited lots of money or are not working on something great which will make you millionaire soon, then probably you will work for salary for most of your life and your financial life will be mostly like majority people. If you are enjoying too much today at the cost of future, then there are tough times ahead for you.
People burning their money in useless spending today do not realise that they are eating money from their retirement corpus right now, they are putting pressure on their future at this very moment, just because its years away, you don’t realise all this, but one day you will remember all this. Look around people who are retired today, how many of them are self-sufficient and totally independent, enjoying their life to fullest and exactly the way they dreamt all their life ? Not many . Do you want to be like them ?
7. Not taking risk is extremely risky in today’s world
I remember how one of the person I was talking on forum told me that he keeps all his money in FD’s and PPF and LIC policies , because he does not want to take any risk , All I asked him was “What are doing now then ?” and he didnt understand what I am pointing at .. If you are like that and hate to put your money in Equity , don’t like to spend time on your financial life , don’t like to take time from your busy schedule to organise it , your are already taking a high risk in your financial life , you are distancing yourself from a good financial life each day and each moment. You will probably meet all your goals , but may be half-baked, not on time , who knows !
So what is your learning from these basics of personal finance ? Do you feel more knowledge in yourself now ? Which of these points do you think is hardest for other people to understand ?
What is CIBIL report ? Are you looking to check your credit score and want to know why your loan application was rejected ? Yes, if you are misusing your credit taking capacity, you are being watched at like never before in this country. I am talking about CIBIL here and in this article let me show you how your current behaviour related to credit card, personal loan, home loans are going to affect you in future in a good and bad way. Also see 2 real life cases where a person’s loan application got rejected because of Bad CIBIL report and how they didnt even knew about it ! .
What is CIBIL and why you should be concerned ?
CIBIL is Credit Information Bureau of India Limited, which acts like a central repository of credit information in India. As many as 500 different banks and financial institutions are CIBIL’s clients and they report each of their customers (like me and you) actions to them.
So if you take a credit card from ICICI Bank, then ICICI bank reports to CIBIL about it. If you enquire about car loan to HDFC Bank, hold your breath! as even that enquiry is reported to CIBIL, if you can’t pay your EMI for home loan with SBI Bank for a particular month, that also gets reported to CIBIL.
Not just your bad actions, but even your good actions like paying EMI’s on time, paying credit card with punctuality also gets reported with CIBIL. You can see that this way, a history is maintained at CIBIL for each person, which can be good history or bad history depending on the case and this information is very useful for banks to decide if they want to give loan to you in future or not. All the banks are now looking at CIBIL report before taking the decision.
Good and Bad credit Report
CIBIL report is not always bad. It’s an extremely good concept which is now taking shape in India recently. If there are two people A and B and A is a good guy and B is a bad guy, obviously A should get better rates of interest, faster processing, first right to loan. Whereas, guy B should get loan at higher rate of interest (because he is risky) and may be banks can even deny entertaining him at all.
CIBIL gives us the power to build our credit report. So if you become responsible and use your credit effectively and with planning, you can build a good credit history with CIBIL, which will help you in long run. Also note that taking a lot of loans without having the capacity is also a negative thing and that can affect your credit report.
I would like to warn you that you have to be super sensitive and careful with credit card and loan repayment, because one small mistake or being lazy in this area can cost you a lot. I would like to share some instances of readers who faced a lot of issues in area of getting loans and finally they checked their CIBIL report and found that they were having bad history
Some bad experiences from readers
Rajaram mentions on our forum how his home loan payment was rejected because of his credit card late payment issues
I had two credit cards one from HDFC and other one from ABN AMRO.
In case of ABN AMRO, salesman told me that if I do purchasing of Rs.1000 within 1.5 month then the annual fees will be waved off. As per his instructions I did purchasing of Rs.1000 within that stipulated time frame. But still I got a bill with annual fees after a month. Hence I complained to the Call center executive gave the brief about my complaint. I also told him that I will be paying the amount which was spent by me and according I paid it through cheque. No further transactions done through the card and subsequently told them that I am returning it to them. But later on bills started coming with annual fees with charges. I again informed the call center executive and told him that I am not going to pay the annual fees which wasn\’t there. Later on bills stopped coming.
In HDFC case I had used this credit card for one year and in one month while paying the dues I dropped my cheque in their drop box 3 days prior to due date. When next month\’s bill received it came with late fee charges. I contacted to call center executive and told him that I had dropped my cheque 3 days in advance then how come this charges. He said it received 2 days later than my due date as was not having any proof I could not prove it. I paid the amount due to me excluding the charges. 2-3 month they sent the later but later on they stopped sending bills.
Above two instance happened to me and had forgotten also. But this year when I applied for Home loan from one of the housing bank then suddenly they put down one condition to give clarification about Credit card issues. They got this information from CIBIL which I was unaware of.
Now I need help to come out of this issue so that my housing loan clearance will be faster.
How Nihal credit report got messed up because he gave his pan card to his friend
One of my friends took a car loan from a nbfc 3 years back and he wanted a reference for this loan (i now realize there is no such thing as a reference for a loan) i obliged and gave him a duplicate copy of my pan card.
For atleast 2 years i have been applying for credit cards and getting rejection letters from all the banks. I finally was fed up with this and decided to get my cibil report and was shocked to see that i was the co-applicant for the car loan my friend had taken 3 years back. He had defaulted on this loan which was reflecting on my cibil report and that being the main reason for me not getting any credit card.
Like i mentioned earlier i had given my friend a copy of my pan card but i had never signed any loan application form, so i followed up with my friend (who still claims that i was supposed to a reference for this loan) and also with the customer care at the NBFC (who i must say were extremely rude). I managed to get the loan application form from the NBFC and i’m a cent percent sure that my signature has been forged on the form. Now my friend (would not want to call him a friend anymore) claims that the person who gave him this loan never told him about me being a co-applicant and he always thought i was only a reference.
Yes, I checked my cibil report last month because i had a suspicion and it was proved right.i had a c/card from icici which for a meagre sum of rs.2000 which i lost track because i was transferred to different city and didnt notice the bill. i also didnt use the c/card at the new place, as i had another card with c/limit of rs.45,000 which i started to use(sbi).
after 7 months, when i tried using the card again, it was getting rejected. when i checked with icici, they said the card is blocked. then only i came to know of the card outstanding, which by this time due to interest, and fine/charges etc had come to about rs.4000. Immediately, it was settled in full and closed the c/card a/c.
Now my cibil report shows “810″ with “history of more than 6 months outstanding 7-12 months back”
i feel cibil should consider the fact that the outstanding was settled in full – including fine/interest/etc…. and give a good score….
so i feel the system is flawed and i am paying a price for it.
my other loans – 2 wheeler loans and other sbi c/card a/cs – was showing prompt payment, either payments finished or under regular payments.
i dont know why i am still given a defaulter score when i have settled in full.
is there any way to reset my score with cibil.. pls advise…
How to get your CIBIL Report Offline
There are two kind of reports which you can get from CIBIL . The basic one is called CIR Report which is nothing but a basic information on how is your credit history and what kind of information is there with CIBIL . This is called CIR report and it costs Rs 142 . This is good enough if you just want to check your status with CIBIL .
The second thing which you can get from CIBIL is your Credit Score which is called as CIBIL TransUnion Score and ranges from 300 – 900. This is number which scores your credit ranking . A lower number means your credit score is bad and you will be considered as Risky ! . If its 900, you are doing great, Higher the better . The cost of CIBIL TransUnion Score along with your CIR report would be Rs 450 . I would say this is not at all expensive if you can get this vital information at such a cost . If you are facing any rejection for loans or if you fear that your past history can haunt you , then its a good idea to check the CIBIL report each year and find out how does it look like. I have created a step by step procedure for you on how to apply for CIBIL report . Have a look
Can you fix the CIBIL report have wrong Information?
A lot of times Banks makes mistakes in Cibil Report and it is mostly manual mistakes or lot of times delay in communicating the details . If you check your CIBIL report and find out any problems , please ask your bank to communicate it to CIBIL as soon as possible . Also if based on your CIBIL report, if you clear some loans , make sure you ask your bank to communicate to CIBIL that you have cleared the liabilities , so that it can get updated in CIBIL report. CIBIL report is your lifeline for future , don’t do anything which makes its dirty, else that will affect you in long run .
JagoInvestor did the first workshop on Personal Finance. Guess where? It was at Mussoorie and the audience were 120 IAS officers who graduated last year and are posted at various parts of the country. This workshop was done by Me and Nandish at LBSNAA , Mussoorie .
I would like to thanks Nagarajan, who is our reader and an IAS Officer himself, who invited us for the talk. His stand for his community is commendable and worth appreciation. He took a lot of effort in gathering all the officers, organising the talk and co-ordinating it with us. It won’t have been possible without his involvement and dedication towards Personal Finance.
Offline Workshops in Different cities
We have been collecting data of all those readers who are interested in paying a fee and attending our 1-2 days workshops in their cities, we will now start our offline seminars/workshops starting next month in different cities. We would really like to provide the value in these workshops. If you are interested in attending these workshops and want us to intimate you about fees and content before we do it, please register your details here . You can also fill up the form if you can gather a group of 20+ people .
I would like to hear from you what you think about these offline seminars/workshops, please put your suggestions and expectations in comments section. Note that these seminars would be a 1 or 2 day premium seminar which will take care of lot of your financial life related doubts and also give you a proper direction.
Do you know that you are holding some of the bad financial products in your portfolio? Also you are not clearing some of this mess because of a very well-known behavioural concept called “Endowment Effect”. Did you know that this same behavioural concept is used by the sellers to make more sales! I will talk about that also.
Endowment Effect
Endowment Effect theory is a well-known concept in the world of Behavioural Finance. Endowment Effect says that we tend to value thing more just because we own it. However we don’t value things more in pricing terms if we don’t own it. Endowment Effect also says that we tend to love what we have already and if someday we need to change it, it’s not easy for us. We resist it a lot. So final one line conclusion is “If I own it, it’s good and it’s valuable and if I don’t own it, I am not sure, maybe it’s not worth!” . You can see this in all aspects of your life. Check with any couple, who has the cutest child in the world? Check with any employee who loves his organisation; ask him which is the best company to work for ? Ask any murderer’s parents, if they really think their son/daughter is involved in crime and you can hear, “No it’s not possible, their son/daughter is innocent”. So the point endowment effect puts is, what is ours is clean, good and worth something. This is what happens with most of the people , if not all .
To explain it other simple words; How much money do you expect for your mobile phone, if you wanted to sell it? And then think how much money would you like to pay to someone if you wanted to buy it? In most of the cases, one wants a higher price when he wants to sell and wants to get the same thing for lower price. There is nothing wrong in this as we all are human and we will think from money point of view. But take the underlying learning from here. If a person has something, he treats it very special and does not think rationally at times and it affects him a lot in his financial life. A lot of people don’t want to admit that what they have is ordinary and just like others. Let me take each area of financial life and show you how it’s applicable there.
Example of Endowment Effect with Stocks
You might be able to relate to this. The stocks you own are always worth and they have potential to go up, that’s what you think. If market goes up, you feel that your stock has potential to go further up and if markets go down, you say – “huh!, this is temporary, they don’t understand how strong fundamentals are for this stock, I will wait”.
In 99% cases its nothing but endowment effect, just because you have it, you start feeling special about it, but the other guy from some distance can clearly see what an idiot you have been so far! And incase you didn’t hold that stock, it might happen that you would have not recommended it to someone else, you could see things clearly only if you don’t own it. (read my experience) Even in mutual funds, if some of your friend asks you which funds he should go for, most of the people will recommend mutual funds which they already hold. For them just because they have bought some XYZ mutual fund, it’s one of the best (that’s why they bought).
We get comfortable & repulsive to change
Another big thing which happens to us is that once we buy something or own something, we start being very comfortable with it and find all the reasons of why it’s good for us and why it’s not worth changing it. Look at your job portfolio, its same!. (read another beautiful concept called Mental Accounting).
How Trial & Money back guarantees make use of Endowment Effect
So now you will relate to Trial & Money back guarantees. Once we bring something on Trail or buy product on money back guarantee; almost never one’s returns back as they have tasted it, felt it, owned it and now they believe that they need it. I have never seen anyone returning some product which was on money guarantee! The sellers understand the power of endowment effect and hence use it to their advantage. In his book called “Stocks to Riches”, Parag Parikh talks about an incident relating to this.
Raju : Mom, See what I have got !, The latest Stereo system . It will fit perfectly in our drawing-room. Wait till I play it , you will love the sound.
Mom : Raju, where did you get the money to pay for such an expensive item ?
Raju : Its on a 15 day trial basis , The shop round the corner allows you to use the goods before you buy it . Since college is closed for 2 weeks , I thought I will listen to music for some days .
Mom : Are you sure they will take it without any fuss ?
Raju : Off course Mom , dont worry , see here is the card . It says that they will take it back , No questions Asked !, if refunded with 15 days trial period.
Mom : Thats great , Handle it carefully . They may not take it back if it’s misused.
Raju : Dont worry , I will be careful .
After 14 days…
Mom : Raju , dont forget that trial period ends tomorrow, We will really miss this stereo , we had so fun listening to music .
Raj : Did you notice how exactly this fits our decor and space . I really love its sound . We wanted it from so long , Lets keep it only , and make the payment , anyways we needed it .
Mom : Yea , I think we should keep it , the price is also justifiable and within our budget and we really needed on for long and the best part is we got to use it without paying :
Did you see how Raju and his Mom got comfortable with the stereo? A seller knew that out of 10 times, 5-6 times people will get starting loving what they start using and accept it as part of their life. Not a big price to pay for 15 day trial!
Conclusion
One should think about his financial products from other’s eye also and should be open to accept that it’s time to find alternatives and change it. Don’t just concentrate on those points which makes you believe that what you own is best, also see the bad side. Let me know if you realise that you have seen this endowment effect in your life ?
What is the best way to File your income tax returns online ? Tax filing season is on and most of us will still wake up after few days.
I will talk about efiling your tax returns with govt website and also private websites like taxspanner, taxsmile and investmentyogi which are autorised by income tax department. You can also win some free coupons for income tax filing through some online p0rtals .
Income Tax efiling using govt website
I just want to tell you that incase you are just salaried and have no income from other sources, then the whole process of e-filing is just as simple as filling up details in tax return form at govt website, creating a .xml file and preparing an acknowledgement form using the tools provided by income tax website and then you need to speed post it to Bangalore Income Tax Office.
Step 1: Login to https://incometaxindiaefiling.gov.in/ and download the appropriate software from the website as per your case. This software is nothing but a nice detailed excel sheet (enable the macro’s)
Step 2: Once you have the excel sheet on your computer, fill up all the details (if you don’t have form 16, you can still fill all the details manually). After that verify it once again and then export it to XML (the export button is there in the software itself)
Step 3: Once you have the xml file with you, you need to login to the website (you will have to register for it once). You will see the option called “Upload Return” on left side after login. Click on it.
Step 4: There will be two options called “Digital Signature” and “No Digital Signature”. As most of the people would not have digital signature, just choose the option. Upload your XML file and just create your acknowledgement form called ITR-V , You need to download it . Once you have the acknowledge form, just verify it once again.
Step 5: Just send this acknowledgement form using a regular or speed post (no courier allowed) to “Income Tax Department – CPC, Post Box No.1, Electronic City Post Office, Bangalore – 560100, Karnataka”
Step 6: You will get the receipt of your ITR-V receipt by email in some weeks (takes time) , you can track its status of your ITR.
A lot of people who work in big companies might already have filed their taxes as they get lot of tax filing agents coming in their offices, but for people who still want to do it by themselves, they can take this pain. I personally prefer to to through an agent 🙂
E-filing your tax returns through private websites with Taxspanner or TaxSmile
There are various online websites authorized by income tax department who can file your tax returns . The major reason why you might want to explore these online options are because they are really convenient . One more reason for you to start e-filing your taxes is because in coming years e-filing is set to become mandatory (just like for corporate’s) .
Watch the video given below to now how to file ITR online:
So may be you want to be comfortable with that before it becomes mandatory . There are multiple benefits of filing e-return especially through private websites authorized by income tax department. The additional benefits over govt website include convenience, accuracy, tax planning cum saving, professional support after filing ITR and
1. Processing on real time:
E-filing ensures income taxes are uploaded in the tax system instantly which helps in tax computations processing on a real-time. If PAN details are matching the income tax department and income tax return filed, the taxpayers gets an acknowledgement on e-mail called ITR V.
In case PAN card information is incorrect, the electronic returns get rejected and the taxpayer is intimated for failure i.e. the ITR V copy is not delivered. This ensures the return has been submitted in time.
2. Jurisdiction free:
In case the return is being filed manually and an employee gets transferred to other city than he/she need to transfer his income tax return to the city where he is working presently. Whereas, e-filing is jurisdiction free.
This means your PAN address will be the jurisdiction and same can be continued even if you move out of city or country.
3. Faster refund:
As per the Controller and General Auditor of India, there are 40 lakh pending cases of refund with the income tax department as on 31.12.2010. Refunds are generally received in 10 months in the case of physical tax returns ran.
Whereas, the refunds are getting cleared within 1-2 months in the case of return filed electronically. “We want tax-payers to file electronically as that helps in faster processing of refunds,” Sudhir Chandra, chairman, Central Board of Direct Taxes.
4. Revise return online:
In case the return is filed online before the due date, and taxpayer has missed out on declaring any income or investment. He/she can revise the return online without visiting ITO. If the original returns have been filed physically then, the revised returns cannot be filed online.
If there is refund in the revised return then, you will get the benefit of faster processing and refund.
5. Rectify the mistake online:
In case of physical returns, if there is an error at the time of filing, the mistake cannot be rectified online which means it will be more time consuming and costly too. The process of online rectification is faster and simplified.
However, online rectification is allowed only for the returns filed electronically
300 readers win free tax filing discount coupons
Whats the use of this blog if I cant get some freebies 🙂 . TaxSpanner & TaxYogi has agreed to give 100 & 200 promotional codes (taxspanner – 100 and taxyogi – 200) to jagoinvestor readers which can be used for free tax filing from their website.
I will pick 300 best comments on this article & other articles and all of them get to file free tax return using the promotional code. Note that it will be totally free and there are no charges for you . Apart from taxspanner.com & taxyogi.com, even taxmunshi.com has offered 5 promotional codes to jagoinvestor readers .
Note that these can be used to file only ITR1 & ITR2. Some other websites which can be used to file tax returns are taxsmile.com & taxshax.com.
E-Filing means faster tax refund
Did you know that if you have some refund to get back, then e-filing would ensure that you get it back faster than manual process.
With online filing it saves a lot of time which is taken in other process like generating acknowledgement form, feeding your details from the form and various other things, that itself takes few months. So e-filing ensures that you get your refunds faster. On of the very active members of our forum , Ashal Jauhari confirms this
Dear Rakesh, I’m already e-filing ITRs from the last year i.e. FY 2009-2010. Till date I have not face any problem for me & my friends (mainly office friends). Last year I e-filed some 40+ ITRs & this year the figure is already over 125.
Error has been reduced tp a great extent after e-filing on our parts.
Me or my friends who were calculated refund refunds, got the same last year within 40-50 days of ITR-V reaching Banglore & that too through ECS. Cool isn’t it?
Thanks
Ashal
No need to file return if, you have only salary income and earnings are less than 5 lakhs per annum
If your only income is from salary and its less than 5 lacs in 2010-2011, then you are not required to file the tax returns. Note that this is true only if you don’t have any other source of income. If you have some income from mutual funds, shares or bank interest etc, then you need to file tax return.
So which website is the best one to file your income tax returns online ? Which one did you use ?
What are Chit funds and how do Chit funds work ? There are lots of chit funds in india like shriram chit funds , margadarsi chit funds and I would like to show you how chit funds exactly work and what are pros and cons in Chit funds. Over the past many years there has been large scale frauds and scams done by large chit fund companies. However, a lot of people do not understand the working and wonder how chit fund works.
What are Chit Funds & How they work !
Let’s say there are 20 people who come together and form a group. Each one will contribute Rs 1,000 per month and this will continue for next 20 months (equal to number of people in the group). In this group there will be one organiser, who will take the pain of fixing the meetings, collecting money from each other and then doing other procedures.
So each month all these 20 people will meet on a particular day and deposit Rs 1,000 each. That will make a total of Rs 20,000 every month. Now there will be a bid on who will take this money. Naturally there will be few people who are in need of big amount because of some reason like some big expenses, liquidity crunch, business problem, Beti ki Shaadi etc etc … Out of all the people who are in need of money, someone will bid the lowest amount, depending on how desperate he is for this money. The person who bids for lowest amount wins. Suppose out of total 3 people who bid for 18,000, 17,000 and Rs 16,000, the one who bids the lowest will win. In this case it’s the person who has bid Rs 16,000.
There will also be “organiser charges” which are around 5% (standard) of the total amount, so in this case its 5% of Rs 20,000 , which is Rs 1,000. So out of the total 16,000 which this winner was going to get, Rs 1,000 will be deducted and the winner will get only Rs 15,000, Rs 1,000 will be organiser charges and Rs 4,000 is the profit, which will be shared by each and every member (all 20 people), it comes out to be Rs 200 per person, and it will be given back to all 20 members. So here you can see that the main winner took a big loss because of his desperate need of getting the money and others benefitted by it. So each person actually paid just 800, not 1,000 in this case (they got 200 back). Note that when a person takes the money after bidding, he can’t bid from next time, only 19 people will be eligible for bidding.
Now next month the same thing happens and suppose the best bid was Rs 18,000 , then winner will get 17,000 (after deducting the organiser fees) and the rest 2,000 will be divided back to people (Rs 100 each) . So each person is paying effectively Rs 900. This way each month all the people contribute the money, someone takes the money by bidding lowest, organiser gets his charges and the rest money is divided back to members. You will realise that the person who takes the money at the end will get all the money except organiser fee, as there is no one else to bid now. So the person will get around Rs 19,000 in the end, if you try to find out the returns which he got out of the whole deal, it will depend on two things, how much lower bids were each month and the fees paid to organiser, if bids and charges are very low, then a person will make more money at the cost of other situations.
So this is pretty much how a chit fund works, there are various versions of chit funds and how they work , but the idea was to communicate the basic model and how it works.
Trusted and untrusted Chit Funds & Some experience
A big question which is in every one mind is “Should I invest in Chit funds?“. Chit funds are not some investment products in which someone invests! By design you can see that it’s only a support structure for needy people who are unsure of their cash flows or some big expenses coming on the way. It’s only for those who can’t get loans from banks or some lender. In which case chit funds provide that structure where one can take the benefit of it. But beware! Whenever someone says “Chit funds”, the only thing which comes to the remind is “Fraud”, “Scam” and “Something Fishy” and its true to great extent as there many chit fund companies which come in market and run with the money. The only condition where I feel one can go for it is if all the participants of the chit fund are known to each other properly and there is high level of trust between them. For example, you can do it with your colleagues at office whom you trust and are friends with for long. But if you dont have liquidity issue and can get loan from a bank, then I dont see any need of doing this.
Good experience
In smaller cities, you can see your father, grandfather and even many housewives form these groups with friends with whom they are from last many years. A lot of people on this blog might have experienced how their father used these networks to get huge cash at the time of need. One of the readers Jagadees shared his experience with me on mail
The great advantage for the village people would be availability of immediate funds in the times urgent need. My father would say that he met all his life obligations like his sister’s marriage, his marriage expenses, my grandpa’s medical emergencies, our education expenses were met solely through this type of monthly chit fund investment.
Bad experience
Greed has no limit. What was created for help to each other under a trusted network is now converted as a business and many people have started opening Chit fund shops where they become the main organiser and pocket the organiser fee. Investors have started looking at these chit fund companies from investments point of view and in greed of high returns, they invest their hard earned money with these chit fund companies and at times there are frauds and scams. Chit fund companies are regulated in most of the states by Central Chit Funds act,1982 and they come under the purview of state governements. RBI has no role in regulating them. But still you know how easy it is to do frauds and scams in India (don’t forget commonwealth & 2G and 3G and 4G scams, wah ! I am futuristic). Let me share with you a horrible experience how an old man lost his 40 yrs of earning in chit fund
My father-in-law when he retired, without telling any of us he put all his money in a chit fund. nobody knows how much & in which chit fund he deposited. That was the time when a series of chit funds went bust in chennai. Pity the chit fund in which he deposited also went bust. he had a mild heart attack. The pain he underwent other than the heart attack was terrible. He was in an ordinary job & after 40 years of hard work he had earned that money.
More than the loss of the money, it’s the shame, foolishness and the iyalaamai to take any action by us, the government kills.we supported him, but he wanted to be independent even after retirement. that objective was defeated by his shear foolishness. none of us ever asked him anything about it. but every day he must have been repenting for that . (via)
Easy & MicroFinance Tool
Can you believe that as high as 5-10% families are associated with chit funds in South India ? For example – The share of households participating in Chit Funds increased by 9% in Andhra Pradesh, 89% in Delhi, 15% in Tamil Nadu and 4% in Kerala between 2003 and 2006. You can see below graph that shows Kerala having 9%+ penetration in Chit funds which means 1 out of every 10 family is in some chit fund.
Source : IFMR research
As per a report from IFMR on Chit Funds , most of the people in smaller places are attracted to chit funds, because of easy availability of easy credit and simplicity of chit funds. In small places banks are not much interested in lending to poor people and poor people see chit funds as perfect way of getting a loan, though at a high cost. So you can also look at them as microfinance tools. All of south India and Delhi is deeply flooded with chit fund companies (thousands of them) and its reach is much above what you are thinking right now.
Should you invest ?
Overall, chit funds are not recommended unless it’s a person group formed by friends and relatives whom you trust a lot. I don’t think one should put money with chit funds which are not among their social circle. It might make sense for people in smaller cities to look up to them. As the last note, these chit funds are not investment vehicles where you park your hard earned money, So please avoid them unless you want to exactly take that kind of risk.
Please share your personal experiences about chit funds , I am sure all the readers who are from smaller places , they have seen it and for sure there father or grandfather had used chit funds at some point of time to fund a financial goal 🙂 .
Do you know how expense ratio can impact the returns on your mutual funds returns ? We often hear that expense ratio of a fund is 2% or 1.8%, but we never put lot of thought to understand its impact on our mutual funds returns and our own wealth! Lets touch this topic today in detail. For simplicity, I will talk about Mutual funds in this article, but expense ratio as a concept is applicable in almost all the management financial products like Mutual funds, UlIP’s , NPS etc
What is expense ratio in Mutual Funds?
Let me first clear out what is expense ratio? As an investor we just buy and sell mutual funds, but in the background there are many expenses which a mutual fund (and even ULIP’s) has to incur. Some of which are; fund management fees, agent commissions, registrar fees, and selling and promoting expenses. As per SEBI regulations, the maximum expense ratio of an equity fund can be 2.5% and for a debt fund, it should not cross 2.25%.
Now who will pay for this? Obviously you have to pay for it and that’s where expense ratio comes into picture. Expense ratio is cut from your investments on daily basis from mutual funds and only after that NAV is published and that’s how you pay expense ratio. For Example, If you have invested Rs 1,00,000 in a mutual fund whose expense ratio is at 2% and suppose your mutual fund saw a growth of 0.5% in a day, which turns out to be Rs 500. You NAV won’t be 1,00,500. Before that you will have to pay 2%/365 (that’s 365th part of 2% as charges, as it’s for 1 day, remember 365 days in a year) and that would be, Rs 5.48. Hence, final value of your investment would be 1,00,000 + 500 – 5.48 = 1,00,494.50 that’s 0.4945% increase and not 0.5% .
So, the next question which will come in your mind is “So, does this small deduction really make a lot of difference?” The answer is Yes & No. If you are looking at 6 months or 1-2 yrs, it’s not much of a concern, you can probably just avoid it and answer is Yes, if you are looking from long-term point of view like 5-10-20 yrs. In that case it’s mostly something which you can put your eye on once.
Expense Ratio – With & Without
Let me first give you a very clear idea about the distinction between two scenarios where there was expense ratio and there was no expense ratio in a mutual fund. Let’s take this example at least to understand the concept.
Suppose there was a mutual fund called “Jagoinvestor-Ninja Fund” (attractive name haan!) which generates a 12% return before expense ratio. Now let’s see how this fund final returns will turn out to be in different expense ratio scenarios like 2% , 1.5% , 1% ,0.5% and 0% (imaginary) .
Did you see that? How same funds performance can lead to huge a huge difference depending on expense ratio. In a longer term, you can see how the corpus value reached 29.9 lacs without any expense ratio, but if the expense ratio was 2%, then despite the same performance, the corpus would be reduced to only 16.3 lacs. That’s huge deficit of 45% compared to original corpus. While it’s a little unrealistic to consider 0% expense ratio, because it’s not possible in real life. Let’s see the different between 1% and 2% expense ratio. You can see that with 1% expense ratio the corpus was 22 lacs and with 2%, it was 16 lacs, that’s again huge 20% difference.
Also if you see the chart above, you can see a greed part showcasing how low expense ratio cases achieved the same corpus few years early than the high expense ratio scenario. You can see that with 0.5% expense ratio, 16 lacs was the corpus in 26th year itself which took 30 yrs in case of 2% expense ratio. In the chart below you can see how much the difference in different scenario’s final corpus percentage wise was.
Remember that when you compare returns of mutual funds in long run (video), the calculations are shown after-expenses; hence it might happen that a better fund today is better in returns because its expense ratio was lower than the other one. It might happen that two funds differ in returns to some extent, but don’t vary too much when it comes to their ability to generate returns before the expenses. Naturally the mutual funds which have lower expenses would have better return at the end.
Case Study – HDFC Tax Saver vs Canara Robeco Equity Tax Saver
If you look at Valueresearch website, it has given Canara Robeco Equity Taxsaver fund a 5 star rating, but HDFC Tax saver gets just a 4 star. If you look at both these funds history, both the funds are 15 yrs old funds and if you look at short-term performance of both the funds, you will see how Canara Robeco is doing equally good or better than HDFC Tax Saver. But if you look at long-term performance of both the funds, you will notice a big difference.
While HDFC Taxsaver stands with tall chest giving 31% annual return, Canara Robeco seems to stare the earth with just 20% annual return. Now there can be a lot of reasons for this, but if you look at expense ratio, Canara Robeco has as high as 2.49% expense ratio, where as HDFC tax saver has just 1.91% expense ratio. So it might happen that Canara Robeco these days has to perform better than HDFC Tax saver before expense ratio and only then it’s able to sustain the performance.
As per a small study by moneylife, this phenomenon is true across the category , here are the excerpts : –
Consider the performance of 43 equity diversified funds which have been in existence before 2000. We chose 2000 because we wanted to gauge decadal performance of the funds. Of these 43, we selected the 15 most expensive funds and 15 cheapest. Among the expensive lot, we have only seven outperformers and eight underperformers. Whilst among the cheap funds, we have 12 outperformers and only three underperformers. It is not that the expensive funds have not earned good returns, but a part of their returns has been washed away by their high expense ratio.
For instance, Birla Sun Life Advantage Fund, which is one of the costliest and was launched in February 1995, has given a return of 19% beating its benchmark, BSE Sensex, by a margin of 8%. Reliance Growth, launched in October 1995 (seven months later), has given a return of 28% beating its benchmark, BSE 100, by a huge 16%. Was it the pure stock-picking skill of Reliance? Maybe. But the fact is the Birla Fund has an expense ratio of 2.31% and Reliance Growth Fund has an expense ratio of just 1.79%.
Conclusion
High expense ratio will hurt you in long run, so incase you are choosing two similar looking and similar performing financial products, you should look at their cost structure.
Can you share what you took from this article and how you will apply in your financial life?
