Category: Knowledge and Concepts

5 difference between stock & mutual funds Investing

Posted on by Jagoinvestor

When we say Equity, what comes to your mind – Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes under the category of Equity and they are good option for long-term investment and needs periodic review. There are some differences between stock investing and mutual fund investing that is done by a common man. It’s a good idea to know where they differ and in which situation they differ, so that one can take better investing decisions. Let’s look at the main differences

 

Stocks and Mutual Funds Difference

Volatility

When you invest in a single stock or bunch of stocks (3-5 scrips), the change in it’s value is very high. On a given day it can be extremely volatile. It can give you 20% return and sometimes -10% loss also depending on the environment. This can be very exciting and at the same time very disheartening and gives you a feeling that you need to “act fast”. 

Mutual fund on the other hand is not that much volatile by nature, as the diversification is very large and at a time 50-100 stocks are covered. Different kinds of stocks from different sectors and market capitalization are involved in mutual fund and the over all change in value is thus less volatile (other than extreme days).

Return Potential

This is very much in line with the above point but still let’s look at it separately. There are lot of success stories where someone got quick rich by investing in equities directly and it can happen, but those are rare happenings and require lot of work and analysis, patience and belief in what you have picked. If you want superb returns in short time and you believe you can research well, you can go for stock investing directly but then risk is also more.

Mutual funds are known to deliver good returns (not in line with stocks, but still very good). So you can expect handsome returns from mutual funds but not unbelievable like stocks return. This is mainly because the money is diversified across different stocks (read ideas) and chances of all of them becoming a super success in short time is impossible.

Monitoring Required

Stock investing is a personal affair and you are doing it on your own the decision of what to sell and what to buy is on you. Even in case of long-term investing, you might have to keep an eye every quarter or yearly unless you have really spent some good time in picking the good stock. You need to also keep an eye on news and sector specific developments.

Monitoring in mutual funds is relatively low because the job of monitoring is anyways done by the fund manager who is paid SALARY to filter through the fluctuations. He constantly adds and removes the stocks from the portfolio. This can be a positive point, but sometimes it can be a negative point also if there is too much of churning.

SIP Investment

Mutual funds are known for possibility of SIP (monthly investment). SIP in mutual fund works and is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets.

However SIP in stocks do not work. Yes, some companies provide you the facility of SIP in stocks, but it’s a terrible concept. There is no diversification and SIP in a particular stock does not make sense because the risk is with single stock. A stock can be in a bad phase for years and decades, whereas in a mutual fund the bad performing stock is weeded out.

Asset Class Restriction

Stocks investing is restricted to Stocks only. You can choose a large cap stock, mid cap stock or small cap stock, but finally it will be equity asset class. However, mutual funds can invest in mix of asset classes. There are equity funds, debt funds, gold funds, Mix of Equity and debt also. To top up, even balanced funds are there which can adjust the asset allocation on its own, so in a way mutual funds are more superior in terms of features compared to a single or bunch or stocks.

Conclusion

Mutual Funds are actually collection of stocks only but just because it’s a group of stocks the characteristics are not very similar to that of stocks. You should be clear about all the points of difference and only after that you should decide whether to invest in Stocks directly or take the Mutual Fund route.

Why you should take more than 50 lacs of term insurance

Posted on by Jagoinvestor

Are you planning to buy a term insurance for less than 50 lacs of sum assured? I would suggest better take it for more than 50 lacs sum assured and there are two main reasons for it- which I will share with you in a moment. A lot of people who want to split their life insurance cover into 2 policies, split it in such a way that the sum assured of both the companies are below 50 lacs.

For example– If you want to take a cover of 80 lacs, you might want to take 40 lacs from first company and another 40 lacs from some private company, or any similar combination. But did you know that the premium you would be paying can get you much more sum assured than you had imagined. It might be the case that you can take 60 lacs life cover from each company you were planning and still pay the same premium. So now lets see in detail those 2 reasons why you should be taking a sum assured of more than 50 lacs from a particular company term insurance plan.

Reason 1: Discounted Premiums For 50+ lacs Sum Assured

Have you ever noticed how the premiums for online term plan keeps on increasing till you move upto 50 lacs, but the moment you reach 50 lacs and move beyond, the premium suddenly reduces? Now you must be thinking, what logic on this earth makes premium for 60 lacs policy lesser than the premium for 40 lacs? See an example for recently launched Bharti AXA eProtect online Term insurance plan. The premium changes when you change the sum assured from 40 lacs to 60 lacs for 30 yr old make with 30 yrs tenure.

Term Insurance premium for more than 50 lacs

Why the premium reduces when the sum assured increases beyond 50 lacs? Sourav Shah of Aegon Religare helps us to understand this –

At higher insurance rates, the medical tests are compulsory for most companies. Mostly this limit is over 49.99 lakhs. So as such when a customer goes for medicals, the company is sure that they are insuring a better quality of life with a higher life expectancy. As such the risk with insured population of customers undergoing medicals and being issued a policy, is much lower than with customers who opt for lower sum assured and are not required to undergo medicals.

It’s a risk-reward mechanism. The company offers an incentive to the customers to undergo medicals by offering lower charges for higher cover. Only people who do not have enough time to go for medicals opt for life cover of lower amounts where premiums are higher. But this doesn’t mean that customers who do not undergo medicals and pay higher premiums should worry at all. Once they have declared all details correctly to the insurance company and are issued a policy, they are as secured as those customers who have undergone medicals. Also the medical costs are borne by most companies. For instance AEGON Religare bears the cost of medicals for all customers.

So from this statement what I can understand is that if you take the policy for more than 50 lacs, the company makes you go through medicals (mostly all of them) and that way they can sure at the start itself, if they want to issue a policy to you or not. In case you go for lower sum assured, then they charge higher premium because they dont make medicals compulsory! . So this reason for lower premium for more than 50 lacs should be the first reason why you should opt for more than 50 lacs cover. As you can see from the snapshot above, premiums for 40 lacs and 60 lacs are almost same, so why settle for 40 lacs ?

Reason 2: Medicals are compulsory for Term Insurance of more than 50 lacs

It’s mentioned that even those people who do not go for medicals, don’t have to worry about their claims if they are not around, because they are generally paying more premiums, for the reason they don’t have more than 50 lacs of cover. However, personally I think it’s a grey area despite all the regulations. Let’s take a case, suppose you are suffering from high BP, but you are not aware about it and then you take a term plan for 30 lacs where in there are no medicals and in the declaration you mention that you don’t have any illness, because basically you are not aware about your own illness. Now in this case, what difference does it make if you are really aware about it yourself or you are not aware about it. Later on after 5 yrs suppose if you die, then company can prove the point that you had high BP at the time of taking the policy, but how will they prove that you were aware about it or not.

You all know that ICICI iCare has no medicals in their term plan upto sum assured of Rs. 1.5 crores and that’s the reason why their premiums are higher than other companies term plans because they factor in this point that there would be many people with illnesses. Some might be aware about it and some might be not. But today if you have the option of clearing things in black and white and have your medicals done, then its better that you do it, so that tomorrow there is no chance of any confusion and repenting (oh .. you will not be around even).  Even Sourav Shah of Aegon Religare thinks alike .. here is what he says about this “no medicals” term plans.

Yes, you are right. A term plan without medicals will obviously factor in the cost and be planned accordingly. But it dosent mean that there should be problems at the time of a claim. If the customer at the time of taking the policy declares all facts correctly then there shouldn’t be a problem. But as a personal view Yes, I would definitely recommend that a customer goes for medicals and then applies for a term plan as this leaves no room for ambiguity or any doubt that the customer was absolutely healthy when he undertook the plan. But then this is strictly my personal view.

So were you planning to split your term plan and take two term insurance plans for less than 50 lacs? Better take plans for more than 50 lacs each and mostly it will not affect the premiums. What do you think about these 2 points which I have mentioned? Do you agree about these points about term insurance !

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 !

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.

Why some agents pay your first year premium ?

Posted on by Jagoinvestor

While replying to some of the comments 2 days back, something caught my attention. One of the reader wanted my opinion on what he should do with his Jeevan Saral Policy for which the first premium was paid by the agent and future premiums were to be paid by him. As this happened recently in Jan 2012 only, the first premium had been invested (by agent) and he had to pay his future premiums (monthly). What caught my attention is that his agent paid his first month premium.

In addition to this i recently taken Lic Jeevan saral policy in the month of Jan 2012 (First premium payed by agent) and i need to pay from feburary 2012 thru ECS. After i read the article i realized the returns will 6 ~ 7%. My doubt is.. Do lic returns 6~7% any proof or evidence? If it is sure 6 ~ 7% what i need to do whether to continue or stop? (source)

You might be aware that many agents offer to pay first month premium and at times the whole first year premium. Many a times hungry investors shamelessly ask their agents if any pass-back can be earned out of it! So in such scenario, agents have to pay premiums from their own pocket. Now to many of us this whole “agent paying premium” might look very shocking and confusing because what can be the reason for an agent to pay your premium? So lets see why this happens.

Agents get commissions out of your premiums

One reason as to why an agent might be ready or eager or forced to pay your 1-2-3 months of premiums is because he earns commissions out of your premium. He earns around 25% of the premiums as commission in first year, 7.5% in 2nd and 3rd year and 5% for all the other years. Hence agents can safely afford to pay up to 25% of the premiums (which he gets back in form of commission) from his own pocket. So he can pay up to 3 months of premium without loosing any money.

Because of the competition and wrong attitude of clients

Another reason why most of the agents are forced to do this is because of the competition in the agent business. If one agent does not offer the pass-back of premiums in form of paying the first few months of premiums then some other agent will and the agent will lose the customer and all the future commissions he might have earned. Even the customers want to choose agents based on how much commissions he can pass back to them rather than how he will serve his clients. While writing this article, I came across this yahoo answers link where the question topic was “Where Can I find a LIC agent who returns the commission?” and then these clients will blame agents for miss-selling.

Purely as a bait to the client

Who in India does not like the word FREE? When someone else pays your premium, you are so tempted to take it and ignore the fact if it’s really a worthy product or not. So if the agent feels that a client might be interested in a product, well and good. If he feels a little hesitation or sees that a client might get stopped because of some reason, then an offer of paying first few months premium is really an ace move. That really stumbles the client’s rational thinking ability.

Because it plays with clients psychology

It’s very simple. I don’t need to sell you anything, just start the policy and pay first 2 months premium. I tell you that “Sir, your policy is started, don’t worry for the first premium as I will pay it”. Then comes next month and then I say “Sir, I have already paid your two month premiums now all you need to do is continue it”… So this gives you a feeling that you already got 2 premium payments for FREE. This in a way attracts you to make future commitments and the agent had to part away for some of this first year premium commission, but in a long run, he will make money out of it.

Meeting targets and urge to win incentives

A lot of investors have no idea on this point, but companies have load of sales targets and even bigger incentives for meeting these targets. For example – Foreign trips for top 100 top Development officers, a CAR to the agent selling maximum policies and many more like these. So at times in order to meet these targets and be eligible for those incentives some agents pay the first year premiums for some of the client.

Conclusion

As this trend to pass-back commissions is totally disallowed by IRDA. Its illegal for agent to pay clients premium or give him excessive gifts to lure him in taking the policy. An agent should totally avoid paying his clients premium. Also as a client, one has to understand that it’s not in his best interest to ask an agent to pay their hard-earned money for your policy. In the case an agent is offering to pay your premiums please ignore it!

Equifax Credit Report – A new credit score in India

Posted on by Jagoinvestor

Today we will look at Equifax Credit Report given by Equifax – a worldwide credit bureau. It has started giving credit reports and credit scores in India just like CIBIL (read about CIBIL Credit report). CIBIL was the first credit bureau in India that initiated giving credit scores for individuals. Banks and other lending institutions have started looking at these individual credit reports before approving any sort of loans and hence these credit reports have become the backbone in deciding whether or not you will be given any loan now or in future.

What is Equifax Credit Report

Equifax credit report is a consolidated report given by Equifax Credit Information Services Ltd. This report contains details of your past and current credit behaviour. It also has the details about all the outstanding loans and enquires done in the past. Equifax is the second credit bureau in India to provide such credit reports after CIBIL. Just like CIBIL, Equifax Credit Bureau also provides CIR (credit report) and Credit Score + CIR. If you just want a credit report (without score) it would cost Rs 138, however if you need Credit Score (comes with CIR), it would cost Rs 400.

Equifax Credit Report is said to be more useful as it is represented with graphs, pictorial description and better colour coding as compared to CIBIL reports and hence should be more user-friendly for the individual as well as loan/credit approving authority to understand the minutes. As much as 150+ institutions share the data with Equifax regarding their customers credit behaviour (CIBIL has 500) and it has past 48 months of credit history.

What does Equifax Credit Report Contain ?

Your credit report has many components and gives a full overview of different parts of your credit behaviour . Lets see which are those –

1. Identification and Contact Section: Confirm application information with access to the consumer’s name, date of birth/age, address and ID information

2. Credit Summary: Get a quick overview of consumer’s key credit characteristics.

3. Recent Activity: Helps you quickly access consumer’s recent activity including accounts which have gone delinquent, new accounts that have been opened, etc.

4. Account Details Section: Account-wise details of the consumer’s repayment history.

5. Inquiries Section: Details the Inquiries made on a consumer.

What is Equifax Credit Score ?

Equifax Credit Score is a numerical score ranging from 1 to 999 that is assigned to each person. This credit score will determine how good or bad your score is. Higher the credit score, better your repaying capability is. “The risk score is designed to predict the likelihood of a customer defaulting over the next 12-month period. An account is said to be a default when it crosses the 90 days mark of no payments. The score will help banks monitor their loan portfolios,” says Samir Bhatia, managing director and chief executive officer, Equifax.

Equifax Credit Score

What makes Equifax Credit Score ?

A credit score depends on almost 600 different kind of variables which affect your equifax credit score , but the top most variables are

  • Past credit payment history
  • Current credit usability
  • Number of credit cards you hold
  • Number of secured loans you have
  • Number of unsecured loans
  • Demographic variables such as address
  • Your Income

Who can get credit score ?

Equifax Credit score is available to anyone – whether he has any credit history or not. Unlike CIBIL who scores only for those individuals who have some kind of credit history in the past, Equifax scores individuals with no past credit history as the individual being assessed will have some kind of score based on parameters like address, city and income level.

How much does Equifax Credit Report cost ?

It would cost Rs. 138 to get a credit report and Rs 400 to get your Credit Score (along with Credit report). However those who want to monitor it throughout the year can choose an option to get their Equifax credit report 4 times a year for Rs 1,000. Those who are looking for any kind of loan can choose this option as they can monitor their report every quarter.

How to apply for Equifax Credit Report ?

You can follow these 6 steps by step procedure to apply for Equifax credit Report

1 : Download and fill in this equifax credit report application form

2 : Attach a self-attested copy of Identity Proof (Pan Card, voters ID card, driving license, passport)

3 : Attach an address Proof (electricity bill, Telephone Bill,Credit card or Bank Statement, Gas Utility Bill, Ration Card)

4 : Make a demand draft depending on what you want. ( Credit information report (CIR) will cost Rs 138 , Credit Score (with CIR) will cost Rs 400 and a 1 yr subscription with credit score every quarter will cost Rs 1,000)

5 : Send the above documents through Courier/ Regular Post/ Speed Post to – “Equifax Credit Information Services Private Limited , Office Number 2 Ground Floor, Lotus Estate, Madhusudan Mills, Near Peninsula Corporate Park, Shankar Rao Naram Path, Lower Parel, Mumbai – 400013 . Maharashtra , India”

6 : Post receipt and validation of documents, the credit report shall be sent via courier or postal service within 7 working days on a best effort basis.

Other Points to remember

  • All photo copies should be self-attested
  • Please ensure that ID card numbers and photographs are clear and visible.
  • All bills should be within 3 months from the current date.
  • All ID proof documents with validity dates should be valid at the time of sending the request.
  • The name and address on the documents should be of the requestor
  • The address should be clear and visible

Wrong information in your Equifax Credit Report

Incase you find some mistakes in your credit report or any kind of mistakes , you can raise a Dispute resolution with Equifax by filling this Dispute Resolution Form . All you need to do is fill up the form , attach the required documents mentioned in their website and send it to them. Equifax will followup with the banks and try to resolve the dispute.

Equifax Credit Score vs CIBIL score – What it means for you

Now there are two credit bureaus in India, CIBIL and Equifax – So the obvious question is, “Which one is better?” and Does it make sense to have credit score from both the companies? You will be surprised to know that in India many banks are already looking at more than one credit report and are expected to look at multiple sources of information before lending to anyone. So having a credit report and credit score from two credit bureaus will help a lot. So if you have good credit score with both CIBIL and Equifax, it really works in your favour as it’s a double confirmation for the banks that you are a good customer.

Whereas if you have a bad score – “god save you”… It would be extremely tough to get a loan in that case. Also incase there is any discrepancies in the scores then banks can give more weightage to one score and less to other or just choose one score which it feels right. So incase you want to check your Equifax credit report go ahead and apply for it.

Different Kind of Loans In India against securities

Posted on by Jagoinvestor

What are the different types of loans you can take in India ? Do you always think about Personal loan when you want a loan? A lot of people despite having different kind of assets go for personal loan even if they have other options where they can mortgage an existing asset and take a loan at lower interest rate. In this article I will give you 5 alternatives to personal loans and tell you a little bit about each.

Personal Loan

Before we move forward let us understand a basic rule of lending. There are two kind of loans , Secured Loan and Unsecured Loan. Secured loan is a loan where a lender has access to some kind of asset so that incase you run away, he can liquidate the asset and take his full or partial money back, as there is a sense of security in secured loans, you have to pay a lower rate of interest on these loans. However an Unsecured loan is a loan where the lender has no access to any asset and incase you run away, bank has no way to get back that loan , that’s the reason you have to pay very high interest rates on these loans, Personal loan and credit card are examples of these loans. The biggest reason why someone should go for these alternative loans is that the processing of these loans are much faster and better interest rates compared to a personal loan. So now lets see some alternatives to personal loan incase you posses an asset.

1. Loan against Gold

Lets me start with the best option to take a secured loan in India. You can pledge your Gold jewellery and take a loan from Banks and companies like Muthoot Finance or Mannapuram Gold. The best thing about gold loan is that the processing is extremely fast (from few hours to 2-3 days) depending on your case. The way it works in Gold loan is like this – The higher the margin of safety you leave , the lower the interest rate. Here is an example , if you have gold worth Rs 10 lacs and you are ready to pledge it for a loan of just 5 lacs, then you are leaving a comfortable margin of Rs 5 lacs for Bank (incase you run away or gold prices decline) . So in this case you will get a very good interest rate offer , but if you take a loan which is 80% or 90% of the worth , then you will be asked for a very high interest rate. Generally the interest rate asked is between 12% – 15% .

There are no pre-processing charges or too much documentation involved in gold loan, in most of the cases the only thing required is your address and id proof. that’s all and you can get a loan within 24 hours easily .

2. Loan against your Insurance Policies (LIC/SBI)

Lets talk about LIC policies here. You can also get a loan on your LIC policy incase its eligible for loan (most of them are) . But to get loan on your LIC policy, it should have a SURRENDER VALUE, which happens only after payment of 3 yearly premiums. Only after that you can avail for a loan which would be around 90% of Surrender Value. Lets see an example – Ajay has a LIC endowment policy which has a yearly premium of Rs 50,000 . He has paid 10 years premium (total 5 lac) , the surrender value of his LIC policy is around 3 lacs at the moment. So he can get a loan of around 2.7 lacs.

One can take a loan either from LIC itself (recommended) or from banks, for which they will have to pledge their LIC policy totally to them. So incase they are not able to pay the loan, their LIC policy will be surrendered and company will take their money back. The best part of these loans is that you get it only at an interest rate of 9-10%. So if you have a LIC policy and it has a respectable Surrender Value , then you can take Loan against these policies and not take personal loan which has hefty interest rates. Check the loan amount available on your LIC policy by just sending this SMS – ASKLIC YOUR-POLICY-NUMBER LOAN to 56677

3. Loan against Fixed deposits

Incase you have a Fixed Deposit for long-term and would not like to break it in times of emergency, you always have an option to take a loan against that Fixed Deposit. The interest rate you will have to pay on that loan should be 1-2% higher than the interest rate earned on the FD and the loan amount available to you would be around 75% – 80% of the FD current Worth. For an example – suppose you have a FD which has its current worth at 10 lacs and you are earning 10% on that FD , then you can get around 8 lacs of loan at 12% interest rate . This is one good option incase you do not want to break the FD and also want to take a loan.

4. Loan against Property

You can also take loan against your property (Residential and Commercial) . Banks give loan upto 50% of market value of the property or 30-40 times your monthly income . The interest rate charges is in range of 13-16% depending on how big the loan is and how much margin you can leave. Loan against property is generally recommended for those who want a big amount as loan for purposes like expansion of business, wedding or some big-ticket expenses. Incase you need just 2-3 lacs of loan then it’s not recommended.

There can be processing and prepayment charges in these loan against properties (LAP) . A good place to compare the loans against property is policybazaar page . Public sectors banks like Bank of Baroda, SBI banks are known to not charge the prepayment penalties and have lower processing charges . All the loans against property comes at FIXED interest rates.

5. Loan against Other investments

Shares and Mutual Funds – There are loans offered against Mutual Funds and Shares , but there is a list of approved Funds and Shares which can get loan, also as the values of shares and mutual funds are highly volatile, there is high level of margin required on it , Means that if you have shares worth Rs 10 lacs , the amount of loan you can get is much lower than 10 lacs.

Public Provident Fund – You can get loan on your PPF account also , but there are some restrictions , you can only get loan from the 3rd year to the 6th year and the amount of loan will be only 25% of the balance in the account 2 yrs back . For example – If you want to take the loan in 5th year after opening your PPF account , then you will only get loan of 25% of the balance in 3rd year , if the balance was just Rs 2,00,00 in 3rd year, then you can only take loan of Rs 50,000 .

So I hope you have got a clear understanding of what options do you have incase you want to take loan against your assets. Note that the lower interest rates are one of the reasons why you should go for these alternative loans, but the bigger reason can be fast processing of these loans in case of emergencies.

Personal Accident Insurance Policies in India – With Comparision

Posted on by Jagoinvestor

Did you ever know someone who met with an accident and he was the main bread-winner of the family? Mostly yes. A personal Accident Insurance plan is policies that cover a person from accidental death, accidental disability and several other features. There can be very bad consequences of meeting an accident like death or pause in income, ranging from a few weeks, months to even years.

A term plan can only help in death and a health plan can help in case you are hospitalized, some of these policies also offer accidental riders, but these riders are not as comprehensive as standalone Personal Accident Insurance policies have. In these articles, let’s see the benefits and features of Personal Accident Insurance policies.

Ajay was one of the best employees of his company based in Bangalore . He bought a term plan as soon as he realised the important of securing his life. He also bought a health coverage to secure his wealth (not health). He had recently bought a home through loan and he was also investing for his 2 kids future . Ajay was the only one earning in his family which also had his mother as dependent on him.

It was the last working day of the week just before Diwali holidays and he had to rush home early that day. He was as attentive while driving as he was always, but he forgot that accident happens not because you are careless , but because other can be damn careless … While Ajay was taking a u-turn another car slammed into his car which was coming with a lot of speed.

It was a serious accident and what Ajay never imagined happened ! . Both of his hands were non functional after the accident . Being a senior programmer in his company, he knew that his future is lost now . This one incident changed him life. While his income stopped, his expenses at the house, EMI etc had to still continue.

His term plan could not pay him because he was not dead. His health insurance plan covered the expenses for hospitalization, but only covered for a basic amount incase there was a temporary disablement. But Ajay case was not covered in any of his existing insurance policies. At this point in time, if Ajay had a Personal Accident Insurance Policy, it might have helped him a lot.

If you are a reader of this blog. Most probably you must be living in a big city, most probably you are salaried class and obviously you must be travelling from home to office and office to home, you will do it every day, for months and years .. that would be thousands of days. The chances of death or getting hospitalized for some illness is far lower than the chances of meeting an accident these days. So in today’s world more than a Life Insurance and Health Insurance, the first thing which you need is an accidental insurance policy and why not. Its costs so less that one can afford it very easily. You can buy a 10 lacs accidental cover anywhere from Rs 800 to Rs 1,500 per year depending on the company and benefits. But one thing is sure that it’s very cheap.

what a Personal Accident Insurance policy gives you?

Think for a moment, what all can happen if one meets an accident, what can happen, what are different kinds of end results of it? An Personal Accident Insurance policy covers almost all of them. Below is a table that gives you an idea of what kind of situations are covered by accidental policies.

 

1. Death In case of a death due to accident, the policy would pay 100% Sum Assured to the nominee. Some companies also pay a “Children?s Education Bonus” of 5000 or 10000 for a maximum of 2 children.
2. Permanent Total Disablement This means that in case there is a permanent total disability, in which a person is disabled for life, the SUM assured is paid to the person. Some companies also pay around 125% or 110 %, depending on the company. Example – Loss of

  1. both hands or both feet
  2. one hand and one foot
  3. one (hand or foot) and an eye
  4. loss of sight of both eyes OR speech OR Hearing of both ears
3. Permanent Partial Disablement In this case, a small percentage of SUM assured is paid on a weekly or monthly basis. For example – 1% of the sum insured is paid every week up to 100 weeks. Example below

  1. Loss of Index Finger or thumb
  2. Loss of hearing in 1 ear
  3. Loss of 1 eyesight
  4. Loss of 1 hand
4. Temporary Total Disablement This means that for some weeks or months a person is totally disabled and will not be able to work and earn money. In this case, most of the companies pay a part of the sum assured, some pay 100% and some pay 50 %, there is also a cap in this case, like a maximum 5 lacs or 10 lacs. Example below

  1. Bed rest of next 3 months
  2. Fracture in hands or legs

Other Features

  • Some companies cover claims arising out of Terrorism or acts of Terrorism
  • No health check-up required for policy issuance
  • Worldwide coverage of the policy
  • It gives coverage starting from 5 lacs to 50 lacs
  • Free lookup period of 15 days
  • 5% per claim free year to a maximum of 50%.
  • Family discount of 10%

What is not included (Exclusions)

Accidental policies do not cover Deaths or disablement because of

  • Intentional self-injury, suicide or attempted suicide.
  • Influence of intoxicating liquor or drugs
  • By committing any breach of law with criminal intent
  • Suffering from any pre-existing condition or pre-existing physical or mental defect or infirmity.
  • Aircraft pilots and crew, Armed Forces personnel and Artistes engaged in hazardous performances are totally excluded

Premiums do not dependent on AGE

The premium of accidental policy does not depend on age. So if you are 25 yrs old or 50 yrs old, the premiums would be the same, rather it would depend on your working conditions and the nature of your job. If you are a software engineer working in Bangalore, then your chances of meeting the accident are different from an army personal working in the border or a worker in a factory that has dangerous machinery. So each kind of job profiles are divided into different risk level, sometimes it’s 1,2,3 and sometimes it’s just 1,2. Risk level 1 are those who are less risky and their premiums are lower and risk level 2 are high risky category and their premiums are higher. Let me give you an example

underground mines, explosives, magazines, workers whilst involved in electrical installation with high tension supply, jockeys, circus personnel, engaged in activities like racing on wheels or horseback, big game hunting, mountaineering, winter sports, rock climbing, potholing, bungee jumping.

 

Risk Level 1 (Low Risk) Risk Level 2 (High Risk)
1. Doctors
2. Engineers
3. Bankers
4. Accountants		 1. underground mines workers
2. jockeys, circus personnel
3. Mountaineering, rock climbing & bungee jumping,

 

Note that some companies have a list as 3 different risk levels – 1,2,3

Examples of some good accidental policies

Below I am listing down some of the accidental insurance policies and their different features. If you see all of them, you will realize that all the policies have something good or bad in them. This chart is made by collecting information from different portals and companies’ websites. Note that the premiums below are for Low-risk professions (Level 1)

Accidental Insurance policies in India

If you see the above table, you can see that on absolute level Bajaj Allianz seems to be the best option and it’s the recommended one. The best part is that the claim settlement ratio is high and that’s the biggest parameter people look for.

Please comment on what do you feel about Personal Accident Insurance policies and what has been your experience in that?

 

 

The reason why premiums of Online Term Insurance Plan are cheap !

Posted on by Jagoinvestor

So let’s just come to the point directly! Why the hell on this earth are these Online Term Insurance Plan premiums so cheap? Sometimes even 25-30% of what an offline term insurance plan costs.

So now, think hard! What are the factors which make Online Term Insurance Plan premiums so cheap?

Online Term Insurance Plan

You will hear most of the agents, planners and even media personalities tell you that its lower because the agent commissionis saved and other administrative costs are not present in online term plans, but that’s not the biggest reason because if agents commission is just 25% of the premiums in 1st year and there after it’s in single digits for rest of the term.

So if agents commission’s absence was the reason for lower premiums than it should be just 10-15% lower than offline term plans.

Current Online Term Insurance Plan in the market

At present, there are a total of 10 Life Insurance companies who are providing online term insurance plans and their premiums differ from each other. The cheapest premium seems to be from Aviva iLife for most of the categories.

For example for a 30 yrs old male, term insurance for 1 crore for a 30 yrs term would cost only Rs 8200.

  1. Aviva iLife term insurance
  2. ICICI iCare term insurance
  3. Kotak e-preferred Term Plan
  4. Aegon Religare iTerm
  5. Metlife met protect
  6. Future Generali Smartlife
  7. HDFC Click 2 Protect
  8. IndiaFirst anytime
  9. DLF Pramerica – UProtect
  10. Edelweiss Tokia – Life Protection

The real reason why online term insurance plan premiums are so cheap is that the segment which buys online is perceived to be less risky! It’s about the target market category. A person who is net-savvy is perceived to be less risky than a person who is not net-savvy and then it’s assumed that he will have access to better health care a better lifestyle and more chances of outliving his non-net-savvy counterpart.

So a govt employee from Jaunpur buying a term plan directly is seen differently than an IT professional from Bangalore taking an online term plan.

So on average, a person from a big city like Mumbai, Bangalore, Pune, Hyderabad and other big cities having an ability and access to buy online has a different profile, then a person who belongs to a tier-4 and tier-5 city who is not net-savvy!

Both have different risk profiles, different mortality rates and hence premiums vary a lot.

Commissions and Admin costs?

Not to forget the agents’ commissions and administrative costs which are saved when an online term plan is issued. Those also help in saving the cost to some extent. As each and every company has its own claim record, their own underwriting rules (rules to decide the premium) and depending on how aggressively they want business :), the online term plans premiums can vary a lot across insurers.

You should check this article from money life on the Term plan and their premiums pricing. So I hope you must have got a clear understanding of why Online Term Insurance plans premium is so cheap compared to other Offline Term plans.

Non Convertible Debentures – What are NCD in India ?

Posted on by Jagoinvestor

We recently saw few Non convertible Debentures coming into market like Shriram Transport Finance NCD, Muthoot Finance NCD and Manappuram Finance NCD. A lot of investors wanted to invest in these NCD’s and many did. But does each of the investors understand what NCD is and how it works? What are the risk factors associated with NCD in India? Let’s look at it…

Non convertible debentures (NCD) in India

To understand non convertible debentures, it would be a good idea to understand convertible debentures first. As the name says convertible debentures are those debentures which are converted to normal equity shares after a specified term. Till that time these debentures earn regular income in form for interest but once they are converted to equity shares, they are just like normal shares.

Hence non convertible debentures (NCD’s) are those debentures which are not convertible to equity shares. NCD in India more or less work like company fixed deposit, where you are lending a company to get some interest income and your money back after few years. You need to check the rating of that bond. Such debt bonds are normally rated by credit rating agencies like CRISIL. A good rating indicates reasonable assurance of safety and return of principal as well as interest.

Non convertible Debentures can be secured or unsecured

A NCD can be a secured NCD and unsecured NCD.

 Secured Non convertible Debentures (NCD) are backed up by some assets which can be liquidated for paying off the bond holders incase something goes wrong. For this reason, the returns on secured NCDs are lower than unsecured NCDs. See a discussion on Tata Capital secured NCD on our forum

Unsecured Non convertible Debentures (NCD) are the ones which are not backed by any assets and incase company is in financial crunch, there can be an issue in paying back the bond holders. Only after the payment is made to every entity which has some security, the unsecured NCD bond holders have any chance of getting back their money. So that’s the reason why these NCD’s have high interest rates.

The transparency in NCD is another issue, a lot of companies have come up with NCDs to raise capital, but a common man does not have time and ability to study the NCD and how safe it would be. Look at the following comment:

Can an NBFC disburse all the money it raises? Investors also do not know how much the company has borrowed. The only document for analysis is a (dated) balance sheet. In addition to public offerings, NBFCs constantly tap the ‘private placement’ market for debt. So investors don’t know the total debt burden. There was a subsidiary of India Infoline which raised money through the NCD route. How could investors know that the proceeds were going to be utilised for a subsidiary? In the 1980s, there was a craze for fixed deposits from leasing companies, thanks to high interest rates and fancy incentives paid to investors and intermediaries. The lure was the promised rate of return and not credit quality. The same herd mentality is on display now. At some point, there will be some defaults. – via moneylife

Features of NCD’s

  • They are listed on stock exchanges. Hence, provides liquidity to holder.
  • The tenure of NCDs can be anywhere between 2 years and 20 years.
  • NCDs are rated by rating agencies such as CRISIL.
  • If you buy a NCD that pays interest then the interest will not attract TDS
  • The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest

Taxation on NCD

Taxation on NCDs is just like debt funds. If you sell your debentures before a year, the profits will be added to your income and you will pay taxes at the same rate as per your income tax slab. But for any profit made by selling it after a year, you will pay tax of 10%, if indexation is not done, or 20% if the indexation is done.

Did you invest in any NCD ? Did you knew how NCD worked ?

ncd in india