Wise Money Management

What to look for when taking a Housing Loan?

2013-06-01T21:39:00.000-07:00

To fulfill the dream to own a house, many people depend on housing loans. The first question, when a loan is taken, is the rate of interest. However, this is not so in all circumstances … along with it, there are some more important points to be taken note of.

Banks frequently revise the terms and conditions in case of housing loans. A rate of interest for the first year … after that, another rate … is made applicable to the loans. However, currently the interest rates are almost the same in many of the banks. It facilitates to assess the benefits available from each of the banks and take a prudent decision for selection of a bank.

History of interest rates on Housing Loan:

Examine carefully the mode of sanctioning of loans by a bank and the rates of interest it charges. Points like - How fast it reacts to changes in interest rates? Do they reduce it in tune with the trend? When interest rates increase, what facilities they provide? – are to be well-thought-out. When RBI reduces the PLR, it would be beneficial to the bank customers, if the effect of it is accordingly implemented by reducing the bank base rate as early as possible.

Opportunity for change:

Suppose, you have taken a loan with a fixed rate of interest for some years and then with application of variable rates. In such scheme, examine the conditions set by the bank. Will they definitely stick to application of agreed fixed rate of interest? Or increase the rate of interest on the pretext of unavoidable circumstances? It is advisable to take loan, where fixed rate of interest is guaranteed at least for three years.

Do Banks extend the same attention to old (current) customers also?

Banks generally dash with attractively new schemes. Their main purpose is to attract new customers. Many of the banks don’t pay even the least attention to the old customers who have already taken housing loan. Will they invite the old customers to switch over to the new loan schemes, when such schemes are introduced? Will they provide for smooth change over? – These are the points to be enquired about.

In extra-ordinary circumstances:

Even though loan is taken with a fixed rate of interest, using their discretionary powers, sometimes, banks try to revise the interest rates in the name of ‘unavoidable circumstances’. Check-up whether there are past instances, when these banks have acted so.

Miscellaneous expenses:

Carefully study the different types of fees that banks charge on loans along with the interest rates. Enquire about the penal fees collected in case of default in payment of instalments for one or two months.

When loan agreement is finalized, many people just sign wherever they are asked to sign without reading what is in the text of the agreement. As far as possible, try to avoid it, read it thoroughly. Also have an idea before taking the loan as to how the bank reacts when a problem arises.

What is Credit Score? Why it is important in getting bank loans

2013-05-26T19:32:00.002-07:00

Credit Score is the key for getting a Credit Card or going for a housing loan. Your credit score slips down and opportunities for further credit gets affected if repayments of loans are irregular or the cheques you issued bounce back. Not only that, frequent contacts with banks for loans also influence your credit rating marks.

Tarun is a higher level official in a private firm. He is thinking of purchasing a house. His colleague, Shyam has purchased a house on bank loan recently. On his advice, Tarun contacted a housing finance organisation. They agreed to sanction him the housing loan at half per cent higher rate of interest than that of Shyam, for the reason that since Tarun’s credit score is less than that of Shyam. Not knowing about credit score, Tarun obtained a copy of his credit history report. In it the details of his payments were correctly mentioned, yet, his credit score is less than that of Shyam. He contacted a financial consultant to know the reasons for it. After comparing both their reports, it is concluded that Tarun had the habit of frequently applying to banks for loans and on sanction of the loans, used to reject them. Details of such rejections also are recorded in the report. Result – his credit score has gone down. His past fancy transactions have now created a situation to pay half per cent more interest.

Credit score is recorded at every point …

Along with the particulars of loans and their repayments, every PAN card based transaction will be recorded in CIBIL (Credit Information Bureau (India) Ltd). The number of times an individual has requested CIBIL for credit score also will be recorded in it. Particulars like how much loan applied for, whether the sanctioned loan has been taken or not, the time delay for it if taken and the related particulars will be recorded therein.

Especially, contacting the Banks for loans for a number of times reduces the credit score. Its influence falls on subsequently taken long term loans like housing loans. Therefore, when on the lookout for a loan, these points should be taken note of.

Don’t forget to do these to maintain a good credit score

* Before deciding to go in for a loan, some points must be got confirmed. Is there a real necessity to apply for a loan? For how much period of repayment, it should be taken? – analyse these fundamental points first. Applying for fun for a loan and subsequently not availing it, will be recorded in your credit history, which drags down your credit score.

* Before going for a loan or for a Credit Card, apply to CIBIL for your credit report. For it, go to CIBIL web site and download the prescribed application form. Fill it up, enclose copies of your PAN card and address proof and send it to CIBIL along with a demand draft for Rs.142. Soon thereafter, CIBIL will send you your Credit Report. You can check up the particulars mentioned therein. It is always advisable to check twice when paying EMIs or using Credit Card.

* In case, mistakes are detected in the report, it should be brought to the notice of the member banks of CIBIL and request for correction of the mistake. If no response is received from the bank within one month, you can consult Banking Ombudsman. Even a small mistake in the Credit Report may cost you high in future. Therefore, extreme care is to be taken.

* It is advisable to apply for housing, personal, vehicle loans and for credit cards only after you get confirmed that there are no mistakes in the CIBIL records.

*Instead of directly contacting the banks and applying for loan, clarify yourself online on the points of doubts, for which a number of sites are available in the web. Interest rates of various banks and financial institutions are available in these sites. You can also compare them for yourself.

What to see when going for a loan?

2013-05-25T01:52:00.002-07:00

Money may not be readily available to meet the necessities. It is not bad to go in for loan or hand loan in case of emergencies, provided we carefully assess our ability to repay the loan. Financial experts say that problems can be avoided if the order of priority of our financial needs for meeting situations like urgent, pressing, for fulfilling a wish and for luxury are properly analysed.

*It is good to go in for a loan for progression of assets like purchase of plot, gold or making similar investments. Children’s’ education and performing marriages come under this category. For such events, if sufficient money is not available handy, there is nothing wrong in going for a loan. Some other unnecessary events like having dinner in a five-star hotel, purchasing costly costumes for which simply because immediate payment need not be made; Credit Card can be used … these are also loans. When it is a situation necessity, it is OK, but it is dangerous when it is thought of as extreme necessity.

* Suppose, a thought has crept into your mind for purchase of a house. First, you have to take into account the amount of money you readily have, your employment potential, the salary you are getting, the amount you wish to get as loan from the bank, the rate of interest, the period of repayment, whether you will be in a position to repay the loan installments after meeting the other necessities of your life … only after assessing and analyzing these points, then only you have to start for searching for a house. It would be a blunder on your part for going in for any amount of loan simply you liked a house and are prepared to spend any amount for it.

*Any type of vehicle … if you wish to purchase it by taking a loan, first assess the need to have it. It is a depreciating asset and therefore first, assesses its need for you and it is always better not to go for it till it is considered essential.

*Taking loans for children’s’ education is not a mistake. It is an invaluable future investment. Further, Income Tax rebate under Section 80 of IT Act is available for it. If the educational loan amount is less than Rs.4 lakhs, rebate in interest or waiver of the entire interest will be available, subject to some conditions.

* Always keep a distance from taking unsecured personal loans and loans with Credit Cards. Heavy interest rates will be charged for them. Unless it is for life saving purpose, it should not be availed of. Loans with zero per cent interest with monthly installments facility for purchase of household utensils are available; go in for them only after you get fully acquainted with the conditions, including hidden conditions.

Mired in Neck Deep Loans – Then this is for you!

2013-05-22T01:56:00.002-07:00

Wish to own a home … a branded car … go on foreign pleasure trips … now they are not that difficult. Bank loans are making a reality of our dreams. So long everything goes on well, no problem, but when once, for peculiar reasons, if the repayment of loan installment is delayed or stopped, then the real problem arises. Banks are ready to sanction loans to meet each and every of our needs; they do not even mind about the purpose for which the loan is taken.

Because loans are freely available for just for an asking, repayment of huge amounts of monthly installments puts a predominant stress and causes strain on our earnings. Think about how to make the Loan Equated Monthly Installment (EMI) repayment when an unfortunate situation arises, where the job is lost or suddenly hospitalized. These are the situations, when many people get stuck in the quagmire of loans. They will be left with no alternative except to avoid facing the Banks, forgetting that such avoidance create some more severe problems for them.

Banks generally condone delay in payment of EMI for one or two months in case of an honest customer, but suspicion arises in case of intermittent and irregular payments. Persons, who are so far regular in EMI payments, when faced with an unforeseen contingency, it is advisable to inform the Bank about it. If satisfied with the reasons, banks positively respond and suggest and allow some more alternatives, because, if a loan remains unpaid for a longer period, it has to be declared as non-performing asset (NPA). So, they suggest an alternative beneficial to both the parties.

Rescheduling the Loan EMI

In case you feel that the EMI is heavy, inform the bank convincingly. Banks will agree to reschedule the loan. EMI can be reduced by stretching the repayment period. This facility is also having its own disadvantage to the customer, since the period of repayment is extended, the gross amount of interest payable also increases. It is a temporary reprieve to get out of the problem. Once the problem is overcome, you can try to repay it as fast as you can or pay the entire outstanding loan in a lump sum.

* In some circumstances, where the income has completely stopped or left the present job to join a better one, plainly tell the bank about it. They may exempt you from payment of installments for some time, for which, of course, you will have pay a fee.

Increasing Repayment Period for a Loan

Compared to the loans, insisting no security with personal credit card, a number of facilities are available in secured housing loans. The reason is that the possibility of the value of the pledged asset will go on increasing more than the loan amount and therefore, banks will not be in a hurry to take immediate action; they even are prepared to review and extend the repayment period. However, for such action, there should be a strong and convincing case for non-repayment of the installments. Reserve Bank instructions restrict the extension of the repayment period only to one year.

Close Down the Loan

Banks build pressure for repayment of loan in one lump sum in case of chronic defaulters. In such circumstances, you can start negotiations with the bank. Depending on the developments, the bank may waive all the penal fees and in some circumstances, may also reduce the amount of outstanding loan. Under inevitable financial circumstances, Insolvency Petition (IP) can be submitted in a Court and orders obtained.

* Banks act harshly in case of loans granted without any security, but on a personal credit card. In such a case, try to covert the same into a loan on some security, which not only reduces the rate of interest, but also reduced the strain of EMI.

* Avoiding a problem is not a solution for it; face it with determination. Otherwise, it grinds down your psychological stamina and you may have to lose your hard earned properties. Try to convince the bank to show that you are putting sincere efforts for repayment of the loan. It helps to avoid further problems and felicitates to get rid of the loan.

Under inevitable circumstances …

If no solution could be found and all doors are closed, banks prepare themselves with the next chain of actions. Conditions vary with the amount of the loan.

In case of Vehicle Loan

In case of vehicle loans, if the repayment of installments is not made for three months, banks will issue notices to the defaulters allowing them 7 to 15 days for payment, stating therein that in case of non-payment, the pledged vehicles will be seized.

* Even after seizing the vehicle, the defaulter will be given one more opportunity to cleat the vehicle loan. The banks will specify the amount to be repaid for release of the vehicle and also inform that if still there is no response, the vehicle will be auctioned.

* Vehicle will be handed over within 7 days if the total loan amount is repaid.

* In the event of non-repayment, then Bank will auction it within 90 days from the date of taking possession of the vehicle and adjust the amount to the loan account.

* In terms of RBI instructions, notice will has to be served on the defaulter, after it is identified as Non-Performing Asset (NPA).

* Customer will be allowed 60 days for repayment of the loan, after which another notice will be served.

* In case the customer refuses to repay the loan amount, Authorized Officer of the Bank will serve a suitable notice on such customer.

* After taking possession of the property, it will be auctioned after 30 days. Still the defaulter has the opportunity to repay the loan before that date. If still there is no response, the date, time and place of the auction will be intimated to the customer. Loan amount will be adjusted from the auctioned amount and the balance, if any, will be handed over to the customer.

Properties will be attached for non-payment of loan. Along with it, credit score goes down. He will be black listed by the banks and no loans will be granted to him in future. Even when loans are granted, the rate of interest charged will be heavy. Therefore, it is advisable to repay the loans taken from banks promptly.

Twelve principles for a relaxed Financial Future

2013-05-20T09:44:00.001-07:00

If you want to lead a relaxed life and do not worry about your future in any angle including financial matters, these 12 principles will help you to do so...

1. Draw the Budget:

Didn’t you ever draw your personal budget so far? If not, start it now. If you start it by noting the present date in a new note book, it acquires a speciality to your task. Hope you will agree.

2. Life Insurance:

Insurance takes care of family protection in the event of happening of an untoward incident. Check-up whether you have sufficient life insurance cover. Go in for a policy from a reliable life insurance company. Ensure that the special date appears on the policy document.

3. Health Insurance:

No need to repeat to you about the special need of health insurance in these days of escalating medical/ surgical expenses. If you already have it OK, otherwise go for it immediately; don’t look for an auspicious day.

4. Debility (Accident) Insurance:

Occasions may arise, when we will not be able to discharge our duties properly due to physical disability due to accidents. In such events, this insurance comes handyto provide us financial protection. Its cost is very low.

5. Mortgage Insurance:

We generally purchase a house, a car taking loans – we cannot own them till the entire loan is repaid. If something untoward happens during this repayment period? Family will be thrown into a state of distress. Therefore, take out mortgage insurance to cover the amount of outstanding loan. This is also called ‘Loan Cover Term Policy’.

6. Emergency Fund:

Spending what all you earn may put you in a fix. It is necessary to create a fund to meet the unforeseen emergencies during at least the next 6 months. If you didn’t have this fund so far, think deep to create one.

7. Housing:

You might be in the thought process to fulfil your dream to own a house. Get prepared to buy a house by paying an initial amount of at least 25 per cent of the total cost. If you have already got sanction of Bank loan … if everything goes on well … fix up present date as the registration date.

8. Retirement:

Think about your retirement right on the day you start earning. Already delayed - don’t worry. Start action in the matter from this special date. Plan and prepare yourself to create a fund sufficient to cover your entire retired life.

9. Children’s future:

Everybody desires to provide a bright future to their children. To meet the future educational expenses … start saving some amount for it from now itself.

10. Financial independence:

Searching for a source for a loan when need arises will never allow you to stand on your feet. Don’t get compromised with your earnings sufficient to cover your day-to-day expenses. To achieve the set goals, you have to save sufficient amount of money. It takes care in the event of necessity. To accomplish it, take a pledge today itself.

11. Enhance the value of your life:

Wealth should grow … liabilities should come down … if it is otherwise, no need to explain about the situation to you. Evaluate the value of your life today. Check-up whether your investments are sufficient, appropriate and diversified.

12. Execute a Will:

Shred the thought that ‘Will’ is only for the rich people. Everyone should identify the necessity for executing a will. In case you have not so far executed a Will, do it on this special day.

* Note all of them: Note down the details of your investments, insurance policies, loans taken, your assets, your financial transactions and try to do it today itself and keep it at a safe place.

Cheque Truncation System (CTS) - 2010, New Cheque System to make transactions easy

2013-04-24T04:17:00.000-07:00

Cheques play an important role in banking transactions. Not only from being treated as an alternative to cash, cheques are used as instruments of guarantee to the loan taken and other similar multifarious functions. With such noticeable functions cheques perform, they are also prone to large scale frauds. Not only to curtail these frauds, but also to get instant cash, new cheques system CTS 2010 came into existence from 1^st January 2013.

What is Cheque Truncation System 2010?

As per the earlier practice, when we present a cheque to the bank, first the bank will send it to RBI; next, it goes to the cheque supplying bank and when that bank says ‘Yes’, then only the amount will be credited to your Account. For completing all these transactions, it takes at least 2 days. The new system CTS – 2010 (Cheque Truncation System – 2010) has stopped this system. From 1at January 2013, it would be enough if the photos of the cheques are sent. It means that from now on, cheques travel online and it facilitates faster clearance of cheques. It reduces the bank’s administrative expenses and also saves time. Customers will get credit of the amounts faster.

Then what is the difference?

Until now, banks used to design the cheques as per their choice. They used to give prominence to the look and feel, quality of paper and print of their cheques. As per CTS – 2010, all banks will have to follow the specified uniform design.

* The paper used for these new cheques should be of good quality and should be well-suited for taking photos. Any corrections made in them can be easily detected. They will not get damaged even if liquids spilled on them.

* Like Mahatma Gandhi’s picture is printed in the white space in the currency note, these cheques contain the symbol ‘CTS INDIA’. It can be seen when light is focussed from behind on it.

*Bank’s name will be printed on the left side in the cheque and it can be seen only using ultra-violet rays.

Earlier, we can attest any correction in the cheque with a signature beside it. New cheques will not accept this practice; it puts a stop to frauds.

* While indicating the location, where to sign; it will be prominently printed on the cheque that it is acceptable nation-wide.

* Cheques of all banks will be uniform in their design. Account number, name of the bank, Water Mark, and the location where the cheque number is printed and other particulars will be uniform for all banks.

Then what should we do?

Old cheques became invalid from 1^st January 2013. Therefore, if you have already issued cheques to anybody, get them back and issue the new cheques, especially in case of repayment of loans. Note that in case a cheque bounces back, unnecessarily you will have to pay a penal fee.

* In case, you forgot the names of persons to whom you issued the cheques, check-up the details recorded in the first page of the cheque book. Try to issue new cheques to them; even otherwise, there will not be any problem, since anyway the old cheques will become invalid.

If you are having old cheques with you …

Request the person, who issued the cheque to issue the new CTS – 2010 cheque. If you are still having unencashed cheques with you, deposit the same into the bank immediately. Some banks are advising to return the old cheques to them; if you have any, then return them and get new cheques.

Revised Interest Rates on Savings Schemes and Fixed Deposits

2013-04-22T10:22:00.001-07:00

Small investments occupy special importance in personal financial planning. Confidence in their security and guarantee in the returns on the investments is the main reason for it. Some investments may be for getting income tax exemption. Many people like to invest in Public Provident Fund (PPF) and National Savings Certificates (NSC). Over a period of time, they encourage for long term savings in future.

However … from now on, the return gets reduced to some extent. From the next financial year i.e., from April 1, 2013, there are slight changes in the interest rates in these schemes. Basing on Shyamala – Gopinath Committee recommendations, the interest rates on these schemes will be periodically reviewed and changed according to the changes in the interest rates in the market. The rate of interest will be announced at the beginning of the financial year.

Details of Changes in Interest Rates from 1^st April, 2013

Scheme	Old Interest Rate (2012-13)	New Interest Rate (2013-14)
Savings Account	4.0%	4.0%
1 year Fixed Deposit	8.2%	8.2%
2 years Fixed Deposit	8.3%	8.2%
3 years Fixed Deposit	8.4%	8.3%
5 years Fixed Deposit	8.5%	8.4%
5 years Recurring Deposit	8.4%	8.3%
5 Years Sr. Citizen Savings Scheme	9.3%	9.2%
5 years Monthly Income Scheme	8.5%	8.4%
5 years National Savings Scheme	8.6%	8.5%
10 years National Savings Scheme	8.9%	8.8%
P.P.F	8.8%	8.7%

How to Make Long Term Investments to Lead a Secure Life?

2013-04-16T17:25:00.000-07:00

Long term investments in share market show rewarding results; they help to fulfill the set goals. To achieve them, what are we to do? Design appropriate plans to accomplish them.

How much money we need to have by the time you retire to lead a peaceful and unencumbered retired life? A residential home, children’s education, their marriages – for fulfilling these tasks how much time you can wait? In the process of achieving them, are you prepared to bear the risk of loss? What is the percentage of investments in your gross savings, in Mutual Funds, Fixed Deposits, Bonds and fixed assets? These are the questions generally an investor faces and put him in a fix. To get proper answers to them, one should have precision in understanding, which in turn helps to get good returns in long term investments.

Before investing in mutual funds or equities, we have to introspect the purpose for which we are making such investments. Investment in share market needs many points to be taken into account. Especially, when our money in shares is likely to be locked up for quite a longer time, we need to study the invested Company’s business philosophy. If found satisfactory, regular investments in shares, would give us the benefit of compounded interest along with tax exemptions. You cannot achieve bigger goals without long term investments, since the amounts in small and medium term investments will generally be diverted to meet the routine needs. Basically there are two types of long term investment plans in equities: they are – growth oriented investments and value based investments.

Growth oriented investments:

Investments will be made in the shares, where opportunities for growth are many. Doubt arises as to how to identify them. When the performance of a company is recorded as better than the average performance of parallel companies or it is perfectly competing with the gross performance of the entire market, we can conclude that there is possibility of growth in it for our investment. People in this category give importance to such of those companies, which are performing well now and likely to continue so in future also. They feel that better performance is the index for better results and accordingly invest in them.

Risk of Loss: We cannot completely rule out the risk of loss in growth oriented investments. Expecting a good growth rate, we may select high priced shares, but when they fail to meet our expectations, we have to bear such losses.

Value Based Investments

It means planning to invest when the prices of the shares of a company are less than the real value of the shares of that company. Tactfully they plan and own such shares when the share value is more and its price in the market is less. Either when scaling up or sliding down, market reactions will be unpredictable. They feel that the present share prices do not reflect the long term performance of companies and that they are subject to price fluctuations of shares in the market and therefore, when the market is at its ebb, they purchase the shares of performing companies at lower prices. Like that the investor looks for ‘margin of safety’.

Risk of Loss: Even while purchasing shares at substantially lower prices, it cannot be ruled out the possibility that investor in making miscalculation of share values.

By purchasing value based share of Rs.100 for Rs.50, value-based-share-investors protect their share values even when the market is in the down trend making a lot of bargaining in the stock prices; whereas investors with growth-oriented concept, purchase share of value Rs.100 for Rs.150, if they feel that the share takes the process of growth.

For those, who do not want to bear the risk of loss, value based share investment shall be the best choice and for those who are prepared to accept risk of loss, growth oriented investment shall be appropriate.

Reviewing is essential:

Investors should periodically review the market trends, while investing in it. How much can be invested in equity and money market instruments? When the market is healthy, naturally investments in equity give good profits. In such environment, transfer a part of equity investment to debt. When market is in corrective mood, reverse it i.e., transfer back the funds from debt to equity. However, care should be taken to maintain equilibrium in investments in equity and debt.

Keep cash handy:

Collapsing market sometimes gives good opportunity for investment. If cash is kept handy, such situations can be best utilized and it also facilitates to maintain equilibrium in investments.

Selection of Shares:

Share prices will become opportune for purchase when market is slowing down. Short and medium term investors take advantage of such situation to go in for stocks, for which keep the shares of some companies selected and invest in them to take advantage when market is in down trend.

Warren Buffet - Principles that Made Him Top Stock Market Investor

2013-04-12T17:25:00.000-07:00

Warren Buffet – the Grand Master in Share Market

Warren Buffet is at the top-end of the list of the richest persons in the entire world. He is a role model to Stock Market investors. To scale such heights, what could be his strategies to become a successful investor? What principles he followed? Let us get to know about them.

It is impossible to predict the wavering trends of stock markets. Warren Buffet is the person, who has practically proved that priceless treasures of prosperity are hidden in the wavy trends of Stock Markets and that enough if one knows the tricks to extract them.Every word comes from out his mouth is a path finder to the investors. Know the plans he followed…follow at least some of them…you will be transformed into a successful investor!

* Warren Buffet suggests that every investment in stock market must be carefully taken care of. There are two primary principles he follows – one is that there should never be any loss to the investment and second one is not to ever forget the first principle. Buffet always tells that these two requisites only have made him to reach this present stage.

* Warren Buffet never even peeps into a business he is unfamiliar with. Some people have good understanding in some areas and some others have in other areas. They have the related analytical skills in their respective areas. Always invest only in those areas, in which you have good understanding and gained such skills; that it will take the needed care of your investment.

* Warren Buffet says Companies, which show good results with their inherent strengths even in a competitive environment, can grow faster. Such companies in stock market provide both security and growth to the investments. Identify the companies in share market, which spread their activities on the entire globe and those which have international identity and invest in them; they will provide good growth to the investment.

* Sometimes in stock market, unexpectedly shares of some successful companies will become available at attractive prices. Warren Buffet never ignores such rare opportunity and grabs them.

* Always give the same importance in purchasing the shares of a company as if that you were purchasing the company itself. Warren Buffet says once you have the correct understanding of business, you can draw conclusions on the efficiency of a company. One of the successful stories of Buffet is -purchasing shares of successful companies at low prices.

* Shares of extra-ordinary companies can be purchased at reasonable prices, but not of less efficient companies buffet thinks.

* As per Warren Buffet stop assessing the market; don’t think too much about state of economy, interest rates and influence of elections on the stock market. Analyse and assess the strength of a company, its values and its future. If everything you feel favourable to you, purchase its shares.

* To minimise the risk of loss, restrict your investments to 5 to 10 companies in stock market. It facilitates you to make in-depth study of those companies. Many financial experts suggest that investments should be diversified to reduce the risk of losses; but Warren Buffet invests differently. If he likes a company in share market, he invests in it heavily. He believes that perfect understanding of a company will give the anticipated returns in stock market. Investors should make a note of this. Purchasing shares at the opportune time, while minimising the risk of loss, gives attractive returns also.

* You pay the price… you get the value out of it – make a note of this.

* It is important to invest in stock market shares when their prices are attractive. Warren Buffet purchases shares only when he feels that the price of share of a company is less than the value of the company. Think about investing where there is no risk at all or there is minimum risk of loss.

* Warren Buffet advises if you are an investor, keep an eye on the functioning of the company and if you are a speculator, speculate in the price of the company’s shares.

* In the view of Warren Buffet, a successful investor is one, who is nervous when the other investors are participating in the stock market transactions with enthusiasm, and who becomes enthusiastic when the others are nervous and backing out. Many people think about shares, which are interesting; when they like them and fall on them, it is sure they incur losses.

* Another principle Warren Buffet strongly believe is – take correct share market investment decisions, reduce erroneous decisions – then only it would be possible to see growth in wealth.

Warren Buffet has grown to this towering position as a perfect investor by following not only his strongly believed investment principles, but also with his unique qualities of individual discipline, firmness, bravery, trust , stability, patience and other such traits. Taking him as a role model, many stock market investors could multiply their incomes and growth of wealth.

Stock Market Down Trend - How to keep your losses low and profits high?

2013-04-09T17:49:00.000-07:00

Stock Market…

Presently, Stock Market is facing severe ebb and flow in its index. Caution is not the only way out; investors have to know what to do to safeguard their invested money, study the trends to know the risk of incurring possible loses and learn how to face and withstand them.

Returns from investments in high security schemes will naturally be less. High risk coupled with high return schemes doesn’t guarantee security. Therefore, investors, who are prepared to accept losses, can expect to get more than normal profits. For example, there will be security to the investment and the income from it in fixed deposits. Income from it will be just around 9%. If it is invested in the Stock Market, there is the possibility to get higher amount of income from it and at the same time, the risk of losing a part or whole of the investment cannot be ruled out. However, it is not that difficult for investors, who keenly observe and understand the share market movements and effectively face the odd ones, to get good returns on their investments.

Along with the market…

Market trend is the prime factor for getting profits or incur losses on the investments in shares. Suppose, when market is in upward trend, prices of all the shares may not go up, but when market is in the reverse direction, prices of many shares will fall down faster than the market trend. Before investing in shares, don’t be influenced by the market status, but satisfy how attractive the share price is. It seems to be simple, but in practice, many Stock Market investors get jerks and bumps. Psychological factors influence many investors; they don’t foresee the possible loses. When market is rallying, they concentrate on the rise in share prices, ignoring the likely chances of incurring loses. When market is falling, for many people, focus will be on the downward trend in the share prices; they don’t even think about the idea that when a share price is coming down, what possibility is there for it to go up in future.

No doubt that long term investment in stock market will give better returns than investment in any savings schemes; but many people get scared even when there is a nominal downward trend in the prices and offload their shares as fast as possible, incurring losses. It would become clear how market undergoes up and down trends when its course during the last 2 months is followed.

Then what to do? To skip over the losses in the near and not so far future, the only protective cover is in long term investments. When the stock market is at its high, transact carefully; when the market is in the down trend, don’t leave the chance to purchase smart shares. It is always good to select shares, which retain its stability irrespective of the market trends.

Influence of financial sector…

When financial sector is in unexpected confusion and panic, fear of loss of returns from the Stock market will be high. Presently, inflation is high and interest rates and prices of goods and services are swelling, which definitely adversely affect the financial sector functioning in the near future.

Then what to do? To combat the losses in such state of the Stock market, identify the companies, which can withstand and achieve good results. Involve in the share market transactions taking into account the probability of long term growth of Indian economy; don’t reply on short term deviations.Continue investments at different opportunistic points, while assessing the long term gains.

Investment in only in one area…

Some people show lot of interest in one segment for investment. They like to invest and continue in the same segment. To such people, when that segment is in disarray, possibility to incur loses will be heavy. For example, during the year 2000, when IT boom was there, many people invested heavy amounts in IT shares in stock market. Those companies have done well then, but suddenly after the economic meltdown, they were smashed to a new low. Real estate and Telecom shares also are not that attractive during the last 2 years.

What to do? Shred the fondness to invest only in one segment; examine for diversification of investments. When investing in prime areas, assess the risk of loss and invest only a fraction of the total investments. Then only can withstand the risk of loss.

Before picking up the companies…

Before picking up the shares of a company in a share market, a numbers of points are to be studied – its real price, the least price at which it is available, chances of its growth and such similar points. Go in for shares with strong fundamentals and at attractive prices. Going for low priced shares will push into losses. Shares presently showing good results, but when their sales are low for the last 2 to 3 months and they do not meet the expectations of the investors, possibility of getting such shares at lower prices is more. Intense competition, mismanagement and financial bankruptcy drastically pull down to a point of collapse of a company. Experience in the Stock market for the last 2 months tells us that the prices of shares of mismanaged companies have collapsed to a point of no return.

What to do to get out of it? To reduce the risk of loss to the minimum, ensure that there are shares of 8 to 12 companies in the portfolio.

Level of acceptance of risk differs from individual to individual. Some people do not mind for a loss, which some other people feel severe. Individual environment plays a role here. Age, income, investment timing, responsibilities, investment target, volume of portfolio, investment awareness, reactions to rise and fall of prices – these are the points which influence and decide the level for bearing the risk of loss. Attractive results of the investments in Stock Market can be enjoyed only when long term investments are made with correct assessment of risk of loss and taking appropriate decisions depending on the prevailing conditions.

Stock Market - How to choose a Brokerage House to open an Online Trading Account

2013-04-08T18:00:00.000-07:00

Online Trading – wisely open a Demat Account

Stock market Trading is quite easy nowadays compared to earlier times. Allotting time to go to the broker, handing over a cheque to him…in case of need, again going to him for getting cheque… for trading in shares, ring up and wait – these are the routine tasks for people dealing with share market these are the things of past. To avoid such teasing moments, there is a way out and it is Online Trading. More and more people are availing this online trading facility in Stock Market.

Before jumping to avail these facilities, you better take note of some important points. Select the broker tactfully for conducting the transactions if you want the innumerable benefits that are available for online trading customers. Enough one has a computer and a trading account; customer can directly do the transactions. It is simple to purchase shares online. No need to ring up to the broker to purchase shares. Absolutely no need to spend time, money and get strained to go to the Bank, to the broker, deposit the cheque and for similar operations. Related transaction activities need not be restricted to equities and derivatives; applying for mutual funds, IPOs, fixed deposits, postal and insurance schemes can also be covered. Purchasing mutual funds, insurance policies, applying for IPOs, investing in fixed deposits can be done through online broker. Especially, young professionals are extensively utilising this mode of trading.

Open an online trading account according to your needs.

If you are new to the trading, be cautious not to give any guarantee in the transactions. If you choose the option of payment according to the transactions, you have to pay some percentage as brokerage. No need to pay anything if there are no transactions. If the broker requests you to take pre-paid offer, limit it to a small amount. Pre-paid offers start from Rs.1000.

Be alert in your dealings through online

It is a common practice with brokerage organisations to offer attractive rates to tempt investors. Note that for every transaction you make, the total expenses would include along with brokerage, security transaction tax, turnover tax and other related charges. Whoever the broker may be, the charges related government will be uniform. Usually, brokers charge small amounts of brokerage, since the Depository Account will be with them only; however, if the Depository Account is with some other one or somewhere, then they charge higher brokerage. Get sufficiently acquainted with such small, but vital information while discussing with your stock broker.

Cash Transfer…

The most teasing point that investors generally face is Cash Transfer. Many brokers have tie ups with banks for online cash transfer facility. Be extra careful when there is two-way cash transfer i.e., from bank account to broking account and from broking account to bank account. Regular monitor your bank account and it’s transactions.

Multiple choices…

Stock Brokers facilitate for maintaining the account through various modes - telephone, online or through the departmental Relationship Manager. When there is no internet facility or you are on the move, telephone is the best choice. Some of the Share Market brokers charge less for online transactions; if they are through Call Centre or through Relationship Manager, the charges will be higher. Get acquainted with the charges you have to pay for each mode.

Be careful…

You will be highly elated when you are viewing the demo relating to online dealings, but when you practically do it, a number of problems may arise, especially when the internet speed slows down. Some trading terminals need broad band net connection. Therefore, it is advisable to have both types of connections – Light Version, which works with internet connection along with Broad Band Fully Loaded Trading Screen Version.

Keep an eye on security…

Stock Broking terminals take all security precautions for online transactions. Investors have to keep confidential with them their user name and password and never disclose them to others. Under no circumstances, do any online transaction in your trading account in Cyber Café. Prominent brokerage organisations periodically review their security arrangements.

Facilities in online stock broking

* Research reports and transaction related information will be received through Email.

* Daily market reports will be received.

* Your bill and transactions details through Email.

* Credits and debits to your account, Depository Account details will be received in electronic mode. No paper use at all.

* In case it is not possible to do transactions through online, problems can be got solved through Call Centre or the Branch Office.

Brand New Schemes for Tax Exemption

2013-04-07T23:45:00.000-07:00

Reliance ETF for tax saving!

Reliance Mutual Fund has released a new scheme R*Shares CNX 100. Investments made in this scheme get tax exemption under Section 80 CCG (Rajiv Gandhi Equity Scheme) of Income Tax Act. This is an open-ended index exchange traded fund. The lock-in period in this scheme is 3 years. This fund will be invested in nearly 100 companies spread over around 38 different segments and therefore, it is a perfect diversified investment.

95 to 100 per cent of the funds will be invested in CNS indexed companies and 0.5 per cent in cash-related schemes. Investment in NFO can be up to rupees five thousand or any amount more than that. However, to get tax exemption, the maximum investment is Rs.50, 000, 50% of which i.e., Rs.25, 000 becomes eligible for tax exemption. Closing date of NFO is 15^th March 2013.To invest in this scheme, necessarily, one should hold DMAT account.

Jeevan Sugam – Single Premium Policy

Keeping in view the tax payers, Life Insurance Corporation of India (LIC) has introduced a single premium conventional policy Jeevan Sugam. It is available for a limited period and its term is 10 years. Insurance protection will be for an amount equal to ten times the premium paid. Persons aged between 8 and 45 years are eligible to take this policy. Minimum sum assured is Rs.60, 000; there is no maximum limit. Payment will be made with an addition of 3.5 per cent for sum assured more than Rs.1, 50,000 and 4.5 per cent for 4 lakhs and above. In case of happening of an undesirable event within 5 years, the sum assured will be paid and if it happens after 5 years, along with sum assured, loyalty additions also will be paid.

Types of Mutual Funds and How to Choose a Suitable Fund to Invest?

2013-04-07T06:29:00.000-07:00

Choosing Funds is challenging!

For those, who do not have any knowledge about direct investment in share market, investment in Mutual Funds is quite comfortable for them. With a view to penetrate into rural areas, recently SEBI has facilitated the Fund Management companies with some concessions. In this background, it would become easy for us to know about the available types of Funds, Funds that suit our requirements and then to choose the best of them.

Around 40 Mutual Fund Companies … hundreds of schemes offered by them … we are in fix to take a decision as to their suitability to our requirement and match the goal we set for its use. To overcome this difficulty, basically, we need to know the different types of Mutual Funds and the funds those suit our needs.It helps us to select the best scheme without getting mislead.

With fear of loss.... Equity Diversified Fund

Investments put in small and medium type companies are called Equity Diversified Funds. In them, possibility of loss is more. Before investing in them, first assess yourself as to how much loss you are prepared to absorb and then only go in these funds. Note that in the long term planned investment process, there is every possibility of getting good returns. It is advisable that people having long range plans for children’s education, provision for retirement etc. can go in for them.

Tax exemption…ELSS Mutual Fund

For people, who wish to get tax exemption, Equity Linked Saving Schemes (ELSS) are most suitable. In this scheme, exemption up to one lakh rupees under section 80C is available. In case, you have already invested one lakh rupees, it is not advisable to invest in this scheme again. Note also that the lock-in period in this scheme is 3 years. This scheme is suitable only for getting exemption from tax and nothing else.

For short term investments….Balanced Mutual Funds

Compared to Equity Funds, possibility of loss is less in Balanced Funds. 70 to 80 per cent of these funds will be invested in shares and 20 to 30 per cent in Debt Schemes. Equity funds generally get influenced by the share market’s up and down trends, but in Balanced Funds, the effect will be less. For short range plans like to purchase a house, start a business venture, meet expenses for children’s education, investment in the Balances Funds is good.

For a regular income…MIPs

The best suited funds for those, who do not wish to bear the losses, are Monthly Income Plan (MIP) Mutual Funds. They invest 70 to 80 per cent in Debt Schemes and the rest in Balanced Funds. Those who decide to go in for short term investments to meet their requirements within the next 2 or 3 years, can select these funds. When market is at its best, divert a portion of equity funds into these funds; we will be safe even if the share market nose-dives.

More than FD income… Fixed Maturity Plan (FMP)

In these schemes, investments will be made in Bonds, Deposit Certificates, Government Securities, Commercial Papers and similar domains. Possibility of loss is insignificant in them. They are available in 90 to 366 days or higher periods. This is good alternative to those who feel that returns from fixed deposits are low. It is useful even in case of getting tax exemption. These are useful for short term targets and single payment investments.

For short terms… Liquid Funds

In these schemes, investments will be made only in money market. In case the period of investment is less than one year, investments will be made in Treasury Bills and Debt Schemes. Return will be more than in Savings Account. People, who wish to invest in Mutual Funds with a single payment, can first credit the amounts to these funds and subsequently transfer them in STP mode to the schemes one may select.

Investments in Gold…

Investment in Gold Funds is like investment in Gold ETF. Smaller amounts can also be invested. Profits as for Gold investments can be earned by investing specified instalments of amounts. It is advisable to invest in them 10% of the amount allotted for long period investment. Facility of encashment is easily available in them. Tax liability will be less.

In tune with the indexes…

In these schemes, investments will be made according to the reflected market indexes. In a way, these are also equity-diversified funds. Its value is dependent on NAV of the funds. For people, who don’t have time to study the markets, can go in for these schemes. Chances of losses are more. They can be utilised to meet the long term set requirements.

What are your plans? How much you can invest? How much time you can wait? - basing on the answers to these questions, select the funds, in which you wish to invest. Then only, you can get the expected returns and get your property developed.

Is it better to invest in Gold and Silver?

2013-04-07T05:28:00.000-07:00

Red-hot Gold prices – equally blazing Silver

Widespread speculation for further acceleration of this trend in future too.

Then what to do – will it be wise to invest in silver and gold?

Be bullish or bearish or stay neutral – in a fix!

Talk making rounds that gold and silver price may touch double their current prices within the next 2 or 3 years. It is making common man to spend sleepless nights. For people, who wish to buy gold and silver as a hedge against inflation for future needs are in a deep dilemma? Such people have to think twice and take a sensible decision before they go in for investing in these precious metals. Most important of all is that the present state of economy is to be studied; otherwise no right decision can be taken.

For Indians gold is a symbol for prosperity, purity and social status. It is customary to use silver for making ornamental items and other domestic rarely used items. Actually, in global view, gold is nothing but a trading commodity. It is a safe investment and acts as rescuer in times of severe economic depression and the like. It is a saving tool with the strength to withstand inflation. Silver is a metal used for industrial and other purposes. During the last 5 years, gold has been giving a return of around 25% to the investor. There are a number of reasons, which contribute for the surge in gold and silver prices internationally. Supply and demand as in the case of other commodities are not the actual reasons. Influence of global phases of economic trend, currency, shares, monetary policies of countries, prices of crude oil and many more play a dominant role on the prices of these precious metals.

Can we expect any break?

Price of 10 grams surpassed 28 thousand - rupee mark. Price of a kilo of silver is oscillating around 52 thousand rupees. In such a situation will it be wise to invest in them? It is a brain-breaking thought. Experience tells us that a number of international events decide the prices of gold and silver. We cannot assertively say as to when their prices still go up. We are in such a harsh situation that we cannot even predict when these violent oscillations would get rectified. Many people prefer these metals to keep their portfolio strong. We can conclude that their prices can go on rocketing so long the international economic instability continues.

Can I invest now?

Gold and silver investments are in the fore-front for the last many days in giving good returns to the investors. People, who invested in them during the year 2010, got an attractive yield of more than 42 per cent. If we analyse the present investment climate, it can be considered as a wise decision if you invest in gold and silver.

Taking decisions according to favourable trends…

Decision for buying or selling gold or silver is to be taken at the appropriate favourable time. Sometimes, even such decisions back - fire. Therefore, think twice before you take a decision.

Market trends are unpredictable. Don’t invest in them with over-expectations. Always it is better to invest with the needed discipline and with a long term insight.

*Gold and silver can be purchased if there is some stability in the current prices. For investment in gold in a systematic mode, it is better to select ETFs.

* The point to be taken note of is…treat it as a hedge against inflation. It is not wise to invest the entire funds in gold. Ensure that investment in gold does not exceed 15 per cent of the total investible funds. Similarly, invest in silver as a diversified investment. Exception is for gold and silver intended for personal use and for giving as gifts.

Time for selling…

Some people, who purchased them at lower prices, want to make money by selling them now at the present prices. Note this point – presently, they reached the peak of their prices. In such a situation, it is worthwhile to wait and see. Anyway, the moment prices start sliding down, they can be sold.

* To identify what is ‘appropriate time’, observe the trend of exchange value of American Dollar. Gold and silver prices generally move in inverse direction to the dollar. No need to long term investors to make a note of this point.

* Did you purchase gold or silver solely for getting good returns? If so, you can sell a part of

it now and make some profit. Suppose, you purchased a gram of gold, when its price was Rs.1300, selling it now will not make a difference. But this sale should satisfy the investment purpose that you get something out of it.

* Those, who wish to diversify their investments, can sell a portion of these precious metals

and invest such sale proceeds in some other segments. There will not be any variation in the allotted total value of these investments.

Investment in gold like this…

There are a number of ways to invest in gold.

* Ornaments, Ingots and Coins: In our country gold is mostly used for making ornaments. This is our inherited custom. Persons, viewing it as an investment channel, purchasing coins and ingots, but there will be problem relating to their purity and security. We have to pay rent if Bank locker is hired or if sold, have to pay tax on the profit. There may be wide variations between the purchase and sale prices.

* Gold Exchange Traded Funds are also called GETFs. They facilitate for allowing investments in them even without purchasing gold. Units will be allotted for the investments. Usually, the price of each unit will be equal to the price of a gram of gold. Transactions in them will be similar to Stock Market Share trading. No problem for transparency and security. They can be sold at any time.

*Gold Mutual Funds: Funds, which will be invested in gold Mining and Production Company shares, can be purchased.

* In silver: For now, ETFs are not available in silver. Investments can be made in the silver or commodities market or have to buy silver and store it.

Type of Insurance Policies NRIs should buy to secure his family future

2013-04-04T20:29:00.000-07:00

Do you have plans to go abroad?

Before you go, make sure to have a plan to provide for your financial stability by the time you return to your country. How to make investments here to achieve your goal? What precautions are needed to be taken? Did you plan to provide for financial protection to your near and dear, who depend upon you?

It is natural aspiration for people to go to developed countries, secure a job there and make good earnings. Nowadays, it has become a routine for Indians to go and do jobs in foreign countries. With the standard of expertise and commitment, Indians are the most sought after in the entire world. But the million-dollar question is that how long can we stay with our job there? It is very difficult to predict the timing and which country would sink into which type of economic depression. At the same time the growth rate in India is stable with 6 to 7% per annum. In this background, people getting employment opportunities in foreign countries should so plan to get a good yield by the time they return, simultaneously taking care to see the dependent parents are economically supported. Our Bank deposits give higher returns than foreign Banks offer, which is the main attraction for our NRIs to invest in fixed deposits in our country.

There are multiple choices for NRIs for designing their financial plans. Depending on their financial status and responsibilities, the mode of each investor’s plan varies. Same principle applies to NRIs. Diversified investments in secured sectors would give peace of mind and confidence for a happy retired life. Here comes the utility of insurance policies. There are a number of types life insurance plans designed to suit the varied needs of the policyholders. Simply select the type of policy that meets your needs.

Here is an example…

Ashok is aged 40 years. He is working as Senior Project Manager in a software company in London. He has got two children aged 9 and 5 years. His wife is Asha. She is a housewife. His parents are senior citizens, residing at Hyderabad and the entire responsibility to support them is on Ashok. Let us examine which type policy would suit to his needs.

* Family should get sufficient financial protection in the event of happening of an untoward incident.

* A policy that takes care of his Children’s education.

* Provides regular income to his Parents for their maintenance

* For growth of property for his and his life partner’s enjoyment.

Best Financial Protection…

Five people are dependent on Ashok. Should therefore plan to have the best financial protection in any type of adverse event, for which ‘Term’ policy is the best. Presently, almost all insurance companies are making it available on-line. There is no cumbersome procedure. Moreover, discount in premium is also available. Depending on the income, if a ‘term’ policy is taken on his life, he will be rest assured for the complete financial protection for the needs of his family.

Policies for Children’s Education…

Expenses for children’s education are escalating day by day, for which proper investment has to be made, otherwise their education phase may get upset. To avoid such situation one should plan for it.

* A policy that takes care of children’s higher education and at the same time to get periodical instalments of specified amounts.

* In case some unfortunate incident happens to Ashok, there should not be any break to his children’s education and withstand the financial strain – a policy to cover these events must be taken.

It is always advisable to go in for Children’s policies made available by life insurance companies. There is a lot of difference between ordinary policies and children’s policies. In children’s policy, if the insured event happens, the claim amount will be paid to the nominee and no further premiums need be paid from then. What is more, the full sum assured will be paid on the date of maturity of the policy.

Old Age Protection plans…

Presently he is earning well, leading a happy life. But, in a man’s life a day will come, when the flow of earning may decrease or even stop. What to do to face such events? Systematically plan for it from now on. Go in for long term investments and at the same time they should be diversified i.e., not to make the entire investment in one company only. As a country, in the developing phase in the financial sector, there is the possibility of getting good returns if invested in equities, in our country. Offer of the twin benefits of investment and life protection is available in Unit Linked Insurance Plans (ULIPs). Equities and Debt Funds having the capacity to absorb the losses can be selected for your investments. It provides for spending a happy and peaceful retired life. Intermittently the share values may oscillate up and down, but in the long run, we can hope to get good income. NRIs can use these long term investments for growth in their wealth.

For Regular Income

Ashok’s parents are residing in Hyderabad. They should get regular uninterrupted income for their maintenance. ‘Immediate Annuity’ plan is best suited for this purpose. Paying a single premium at the inception by him, his parents get specified regular income every month. It relieves the stress on him. In case his parents expire, he can get back the invested amount. He can utilise this amount for investment in another plan.

Published by Wise Money Management

How much Insurance you should buy to live a relaxed life?

2013-04-03T00:38:00.001-07:00

How much really you need insurance on your life …

Enough to cover. Ten times your annual income – these are the interpretations generally financial experts suggest for insurance. Then what is ‘enough’? How to calculate it? When going for insurance, what basic points you need to take into account. Let us explore the matter.

If you are asked whether you have life insurance policies, instantaneously you will say “Oh ! I have four or five of them”. In fact only a few people analyse whether they do have sufficient life coverage. Generally people go in for insurance for getting Income Tax rebate or just to satisfy a friend’s suggestion or pressure exerted by somebody. For getting sufficient financial protection to the loved ones in the event of happening of an unfortunate incident, as a person owning such responsibility, one will have go in for adequate insurance. The sum assured in a life insurance policy depends upon a number of factors. Age, annual income, number of dependents, expenditure, housing and vehicle loans, other loans, savings, investments, way of life, amounts needed for future contingencies – when such of these numerous facts are taken into account, then only one gets clarity as to how much life insurance to be bought.

Right approach for assessment of Insurance

When a person wants to know about the quantum of life insurance, financial consultants say that it should be 8 to 10 times the annual income. In a way, it may be correct, but it will not be applicable to all situations. No need for youth to go in for bigger insurance policies, when they do not have dependents, but at the same time, they have to foresee the needed educational expenses, expenses for advancement in life, which are usually heavy and also to cover some undesirable happenings.

Nobody can compensate for the mental agony that parents undergo, but one can atleast partially replenish it with financial support to them. It is always advisable to get life insurance equal to 8 to 10 times the annual income, right from the moment when one starts earning.

Financial standings and needs of life differ from individual to individual. Generally, people wish to know the amount of premium they can bear before they take insurance. It may be OK for the present, but when a real need arises in future, it may not be that useful. To meet such unforeseen contingencies also one has to make up his mind for planning now itself. For this there are some scientific methods.

Insurance in tune with income…

In this method, insurance depends on the present annual income. Simple equation for this is… Total insurance = Annual Income x Number of years of future service.

For example, a person is aged 35 years. He still has 23 years to retire. Annual income is

Rs.3 lakhs. On this basis, he needs insurance of Rs.69,00,000 i.e., Rs.3, 00,000 x 23.

* There is another method for calculating the amount of insurance basing on income:

At least, it should be 10 times the annual income. This principle also varies with age.

For age range 20 - 30, it would be 5 to 10 times; range 30 to 40, it would be 15 to 20 times; range 40 to 50, 10 to 15 times and for age range 50 – 60, 5 to 10 times their annual income. In addition to the income, the future liabilities on account of housing and vehicle loans, personal loans and other liabilities also are also to be taken into account for arriving at the sum assured of insurance.

Insurance basing on the value of life…

Life is life, its value cannot be measured in terms of money, but then who will take the responsibility for future needs of dear ones? So, a value should be set to life and every individual has a value expressed in financial terms. Some methods are there to work out it. Important among them to be taken into account are – anticipated future income, expenditure to meet the family related future responsibilities.

For example…

Ramu is aged 40 years. He retires on attaining 60 years. His present annual salary is

Rs.3, 50,000. His personal expenditure , Income Tax, Life Insurance Premium and miscellaneous expenses total up to Rs.1,25,00. So, he still has a balance of Rs.2, 25,000 for his family and so we can say his annual value is Rs.2, 25,000.

Suppose, something bad happens at his 41^st year of age; his family will be left in a lurch and do not have any income to live on. Keeping such events in view, how much insurance Ramu should have taken? Let us calculate.

We know that his family is getting Rs.2, 25,000 out of Ramu’s total earnings. It means that the amount the family gets in 20 years is Rs.45, 00,000. Actually this is the total accumulated value at the end of 20 years. Now we have to arrive at its present value. If the presumed rate of interest is 8%, its present value would be Rs.23, 85, 000.

What about Insurance Premium?

Amounts we have calculated are big, but what about the premium to be paid? Presently insurance companies are offering ‘Term Insurance’ policies, where one can get high sum assured with small premium. It is available even in the net. It is possible to get around Rs.1 crore policy for a premium less than Rs.10, 000for a person aged less than 30 years. Enough if he spares atleast 3% of his annual earnings, he gets perfect family protection in case some unexpected eventuality happens. Two or three lakhs insurance seem big, but note that they do not meet the future contingency needs.

One more important point..

Expenses and responsibilities go on multiplying with the passage of time. Review your insurance needs every three years, basing on them.

Essentiality in meeting necessities…

Before going in for insurance, review yourneeds and responsibilities and assess the quantum of insurance you really need to have. In this context, make a note of the following points.

1. Responsibilities: What level of standard of living your family wish to follow? Children’s education, their marriages, provision for financial protection to parents and other routine and unexpected expenses will have a bearing on your responsibilities.

2. Existing need of money: Repayments for housing, vehicle and education loans and for creation of an emergency fund.

3. Monthly expenses: Total monthly expenses for the family. House Rent, monthly provisions, children’s expenses come under this head.

If spouse also is an earning member, take into account earnings of both of you. Estimate the shortfall in case there is a break in earnings of one of you. (For example, let us assume the monthly expenses as Rs.50, 000. Spouse’s earnings are Rs.30, 000. The shortfall is Rs.20, 000). Assess how many years this shortfall continues.

4. Investment income and income from other sources: Calculate the accumulated total income from savings, investments made, terminal benefits from the employer in case of sudden demise of the bread winner. Also, take into account rental income, if any, you are getting.

The quantum of insurance you need is simply the positive difference between the income you get from investments, properties and other sources and the total of the gross expenses you incur.

Shyam is aged 37 years. His wife, Sunitha is a housewife. She is aged 35 years. They have a daughter Kirtana aged 8 years. Shyam’s annual net post- tax income is rupees 4 lakhs. Their monthly expenditure is Rs.12, 000. School fee of Kirtana is rupees 20 thousand. He has an outstanding housing loan of rupees 10 lakhs, paying monthly EMI of rupees 10 thousand. Basing on his income and expenditure data, let us calculate the amount of insurance he needs.

Policy value Shyam needs….

Expenses Amount

Domestic expenses (@ Rs.15000 per month for 37 years) - 47,62,657

Kirtana’s educational expenses - 3,00,000

Provision for parent’s financial protection - 5,00,000

Emergency Fund & miscellaneous - 2,50,000

Housing loan - 10,00,000

Personal loans - 1,00,000

Daughter’s higher education - 8,50,000

Daughter’s marriage - 6,00,000

Total amount required - 83,22,657

Properties and investments…

Savings account - 1,00,000

Fixed Deposit - 2,00,000

Value of agricultural field - 5,00,000

Provident Fund - 2,00,000

Gratuity - 75,000

PPF - 1,00,000

Total properties/investments - 11,75,000

(After adjustment of income with domestic expenses – figures in rupees)

From the above table, we will observe that the total expenditure for the needs amount to Rs.83, 22,657, while the total value of properties/ investments are Rs.11, 75,000. The difference between these is Rs.71, 47,657. Shyam is presently having insurance for rupees 10 lakhs. He now needs a further insurance of Rs.61, 47,657. What we could grasp from this example is that in case something adverse happens to Shyam, his family should get around Rs.58, 87,656.

Hope this article helped you in deciding how much insurance policies you should take.

Article written by Manmadha Rao, Retired L.I.C. employee for Wise Money Management

How to use Credit Cards? How to improve your credit score?

2013-04-01T23:27:00.000-07:00

Credit Cards tell your History

Buy now – Pay later… Credit Card users get used to this behavior Cautious use of it gives plenty of benefits; otherwise it puts you in unimaginable trouble. Its influence on your Credit History and Credit Score is immeasurable.

“At least now I wish my credit score is good, because I need to have a Credit Card” – these are the words of the famous American Mathematician John Nash in the context of his getting Nobel Prize in 1994. Even though it is surprising, in fact its importance in deciding Credit Score is indescribable. Credit History and Credit Score play a very important role not only for getting Credit Card, but also for getting any type of loan.

It is in your hands to get a healthy Credit History displayed and to get a finer Credit Score. Once you make flawless use of Credit Card, it itself takes protective care of your Credit History. Credit Card allows interest-free transactions for a specified amount for a specified period of time. Purchases you made will reduce the allotted amount and the moment you repay them, the allotted amount gets automatically replenished, facilitating you to use it again. The type of your expenditure and the mode of repayment reflect your actual financial state. Fluctuations in the Credit Score depend on this.

*Pay promptly – Credit Cards allow loans without any surety. Suppose, you are using Credit Card for the last one year and you are prompt in clearing the bills, your Credit History will be put at a higher level. It puts a strong belief in the Credit extending organisations that you are sincere in repayments. They recognize you as a disciplined individual and come forward to offer you the needed loans.

* Applying for more than one card: There may be some benefits in having more than one Credit Card, but applying for more credit cards within a short period definitely shows its influence on the Credit Score. The number of Credit Cards for which you have applied will be shown in the ‘Enquiry’ section of your Credit History. It indicates the necessity of more loans for you, resulting in restriction or even refusal of loans to you.

*Cancelling it soon after getting it: Many people get Credit Cards and immediately cancel them. It is not a good practice. It should be used at least for a period of 12 months. Details of getting the card and cancelling it will be recorded in your Credit History. Whether you use it or not, if you keep it with you for at least one year, loan sanctioning institutions will have an idea about your financial position.

* Using beyond the allowed limit: Exhausting the allowed limit of your Credit Card or exceeding the limit - both are not good. It puts an adverse influence on your credit History. Suppose, the maximum limit of your credit card is 2 thousand dollars and you utilized 1500 dollars. It indicates that you depend on loans only. When you apply for fresh loan, your repayment capacity will be calculated basing on this.

*In case of extended cards: Do you have extended Credit Card? If it is being used by your spouse or children or relatives, keep an eye on the transactions under this card. Take suitable action for prompt repayment of the debts under this card. Even though it is an extended card, when loans are kept outstanding beyond the allowed time, its influence falls on the original card holder. Result – Credit Score goes down.

Important

Note that your Credit Card will be most helpful to you when you promptly pay your bills and properly utilize it. It gets you the needed loans. It is also important to periodically check to know your Credit Score. It provided an understanding on your financial dealings. Financial discipline helps you to get the needed loans in future easily to reach the targets you fix.

Article published by Wise Money Management

Car Loans - Things to be considered

2013-04-01T05:45:00.000-07:00

Car Loans – The Procedure and precautions

Car manufacturing Companies are extending warm welcome with hands wide open to potential car buyers. In tune with this, Banks and Non-Banking Financial Institutions are coming forward with different types of vehicle loan facilities. Before we get attracted to the welcomes or facilities, some important pints are to be taken into consideration.

With the onset of the festive season, a number of car show-room dealers are entering into tie-ups with financing agencies. Apart from attractive interest rate discounts, dealers are trying to make the consumer benefitted with some offers.

* To get the benefit of interest discounts, first we have to study what actually and really we can gain from it. When it is published that the interest rate for purchase of car is only 7%, there is every possibility that there are some hidden charges/costs. After we start repayment and by the time we completely clear off the loan, it may end up with 12%.

* Once you decide the model or brand of the car and from whom to avail the car loan, explore the dealers, who offer good discounts or offer free car appliances and tools.

* Have clarity about the amount of EMI at the time of taking loan itself.

* Also ascertain the amount of loan you are eligible for, for which you need not directly approach the Banks. Don’t forget that every time you consult a Bank, your details will be included in the CIBIL report. There are a number of avenues available on-line for this.

* Before sanctioning the loan, Banks will take into consideration you age, your income, your employer, length of your service etc. Person aged 28 years may easily get higher amount of loan and it may not be that easy for a person aged 57 years to get a loan. Some Banks prescribe age more than 25 years as an eligibility condition for loan.

* Annual income also is one of the eligibility conditions. Nationalised Banks sanction loans only to persons with annual income of more than Rs.2,50,000.

Buying Car for the First Time? Know the basic guidelines

2013-03-30T23:48:00.000-07:00

Buying a Car is an art!

Car was a luxury in the past. Now it is a necessity. Car Owner numbers are multiplying day by day with liberal Bank loans even to middle class common men. A number of points are to be taken note of at the initial stage of selection, for keeping a Car in fit condition for a reasonably good period of time, when you go to buy a car paying lakhs of rupees. Proper selection will give you the pleasure in driving it.

Soon after you decided to buy a car, decide whether it is with diesel engine or petrol engine.

If you travel for more than 1500 kilometres in a month, go in for diesel car; otherwise, petrol car is advisable. Note that there is a talk that diesel prices may scale up to 90% of petrol prices in the near future and this point needs to be taken into account in your decision to buy a car.

Cost is the index of the quality of Car

When we want to purchase a car, we take into account its price also. Arrive at the amount you can pay and the amount of loan you need. Study the interest rates of Banks offering vehicle loans.

*Select the Bank, whose interest rates are low. Scan the offers of the manufacturers. Sometimes dealers also notify offers like free-insurance.

Keep an eye on maintenance

Many potential car buyers desire to know which care is with the least maintenance expenses.

Their selection depends basing on this and they go on enquiring about this point with persons known to them. Generally the response will be mixed up with some confusion. In this context, note these points:

* Quality of any two cars of the same company will not be the same.

* No two drivers drive a car with the same skill. In the maintenance point of view, no two owners take the same care.

Therefore, as far as maintenance is concerned, we can arrive at only an estimation. In fact, it is not that easy to affirm that the maintenance cost of a particular car is low. However, the following fundamental points may give an idea about it.

Drive and assess

Not confining to a single model, select two or three cars. Drive each of them. Have your family members also beside you. Discuss with them. Now you can take a correct decision.

* Observe the structure of the car both inside and outside, whether spacious or not.

* Do you feel comfortable in driving? Is the ride smooth on rough roads, on speed breakers and on damaged roads? Causing any body shake-ups? Whether comfortable or not and free leg-space is available in the front and back.

* Test its pick-up, engine strength and its brakes. Observe the performance of its AC. Analyse these points and arrive at a decision for a car that suits your perceptions.

It is natural to fall in a dilemma as to how so many points are to be studied when they are first timers to buy a car. Take the guidance of an experienced person for selection of your new Car. Comfortable ride in a new Car needs such precautions to be taken.

When a new brand of Car is released into the market, reviews relating to the Car can be found in top-class dailies and weeklies. Depend on them for taking preliminary decision. Advice of experienced self-driving Car Owners may be sought.

Get more Tax Rebate with Sections other than Section 80C

2013-03-27T23:41:00.001-07:00

Income Tax Exemptions – a timely alert

Tax Exemption means for many people it is Section 80C only, but in fact there are many tax exemptions available in the Income Tax. Act. Interest paid, health care expenses and some types of investments made within the IT Act provisions are also eligible for IT exemption. Let us get acquainted with them.

Income Tax exemption is available to individuals or to Hindu un-divided families up to one lakh of rupees under Section 80C of the Act. In case, you have already invested some amounts, just review them. Remember that tax planning also is an integral part of your financial planning. Check-up whether you have still some more investible funds for getting the tax exemptions. Note that such amounts should be invested before 31.03.2013.

· Recollect whether you have informed your employer about your savings / investments made for availing IT exemption.

· Public Provident Fund (maximum one lakh rupees), National Savings Certificates, Life Insurance policies, tuition fees paid for your children’s’ (maximum two children) education, ELNS, Post Office Savings Deposit, 5-year Bank Fixed Deposits come within the purview of this section.

· Along with the above, Stamp Duty paid for registration for purchase of a house, come under this section and exemption can be claimed on them.

Exemption on interest paid on housing loan

Individuals, who go in for housing loans can get exemption by deducting a maximum amount of Rs.1,50,000/- from the total income. Of course, it applies only for self-occupied houses. In case it is let out, exemption can be claimed on the entire interest paid without any limitation on such amount.

· Interest paid on loans obtained for repairs to the house, is eligible for exemption; however, the principal amount of loan is not eligible for.

For both…

Exemption is available when you are residing in a rented accommodation, subject to the conditions relating to House Rent Allowance. Lease Agreement, Rent receipts will have to be submitted to your employer. Note that this exemption applies only when the rent is actually paid.

· Even when you have your own house at one place and you are working at another place and paying rent for your residence at that place, you are eligible for exemptionalso for the rent you are paying.

Health Insurance Section - 80D

Applies to - Premia paid for Health Insurance cover and policies taken on the lives of wife, children and parents.

Documents to be submitted

Proof of payment of the premium through cheque.

Tax Exemption

Up to Rs.15,000; for senior citizens (aged above 60 years), it is Rs.20,000.

· Exemption is available on another Rs.15000 on policies taken on the lives of Parents and if they are senior citizens, it is Rs.20000.

· Not only that… in terms of Section 17(2), you can seek exemption for a maximum amount of Rs.15000, reimbursed by your employer, under medical expenses.

Interest on Educational Loan - 80E

Interest paid on loan taken for higher education for self, spouse and children is exempt under Section 80E. There is no maximum limit. However, the loan should be utilised only for prosecuting graduation or post-graduation courses in Engineering, Medicine or Management. It equally applies to post-graduation courses in Science stream.

· Interest on the loan taken for education in foreign countries also is eligible for exemption.

For Handicapped.- 80U

Physically handicapped can seek exemption up to Rs.50,000 under Section 80U. Rupees one lakh, if it is permanent disability. This point should be taken note of by them in their tax planning. To get this exemption, invariably, they have to get certified the specified form (10 IA) and attach the same to the IT Return.

For dependents - 80DD

Applicability: Medical and maintenance expenses actually and necessarily incurred for physically handicapped dependents.

* Deposits made for them in some specified schemes

Tax Exemption:

Up to a maximum of rupees 50 thousand if the handicap is not less than 40%

If it is severe handicap (80% and more), up to one lakh rupees.

Documents to be submitted:

Confirmation letter from an authorised Medical Officer in the form of a certificate in Form 10 IA, along with the Income Tax Return.

Expenses for treatment Section - 80DDB

Illnesses covered:

Expenses incurred for treatment of prolonged illnesses enumerated in Rule 11DD – Cancer, AIDS, Neurological Diseases, Chronic Renal failure and similar diseases.

Documents to be submitted:

Form 10 I in the form of Certificate along with the Return.

Tax Exemption: Maximum Rs.40,000; for senior citizens Rs.60,000.

Donations - Section 80 G

Exemption can be claimed for donations made to permitted Trusts, Service Organisations, Educational Institutions and other similar groups up to a maximum of 50% on the donation made. For some special types of organisations, can claim up to 100%.

* Such claims to be mode only when the Return is filed.

House Rent Allowance -m80 GG

Those, who are not in receipt of any HRA are eligible to claim exemption.

Who are eligible: Employees, Self-employed, Employees who do not get HRA.

How much: Rent paid in excess of 10% of your income (or) rent actually paid (or) 25% of total income (or) Rs.2,000 per month; whichever is less.

Investment in Stock Market - 80 CCG

This is a new section introduced during the current year. New entrants (those who do not have DMAT account) are eligible under this section. Maximum investment is Rs.50,000. Exemption is available on 50% of the investment. Suppose, you invested Rs.50,000. Then you can show your income deducting therefrom Rs.25,000. Investments can be made for three years.

* For investing under this section, the annual income should not exceed Rs.10 lakhs.

* Invested amount should not be withdrawn within three years.

Before planning to save / invest for getting tax exemption, first arrive at the amount of tax payable. Then only you will have a clear idea as to the mode of saving / investment. In view of the closure of the financial year, be alert to prepare your financial and tax planning.

Consumer Rights and How to Complain in Consumer Forum?

2013-03-17T18:32:00.002-07:00

March 15^th WORLD CONSUMERS’ DAY

Fixed up with the tour operator to go to a marriage function; if the tour operator fails to make available the bus in time…

Paid the specified fee and registered your name in the marriage bureau web site; if the agency is non-responsive for a long time…

Purchased a new pair of chappals; the right-leg chappal is bigger than the left-leg chappal…

Such of these incidents seem to be simple, but they leave behind a lot of financial loss and inexpressible mental agony to you…

Then what is the way out for us?

As consumers, routinely we go in for purchase of goods and services. We pay for them, but could not get the desired guarantee for their publicised quality. Sometimes, we may get irked and even have to face some severe problems. Definitely, we cannot keep quite if we happen to face such situations repeatedly.

Then what is the alternative for us?

What rights do we have as consumers and what actions need to be taken to enforce them?

Ms. M.Srisha, Senior Member, In-charge President, Andhra Pradesh State Consumers’ Forum, Hyderabad has clarified in simple terms.

Consumer Protection Act guarantees some rights to the consumers. They are:

Right to protection: Right to protect life and property from hazardous goods and services.

Right to information: Right to know about the quality, quantity, practical utility, purity, weight and price of the commodity before we purchase it.

Right to selection: Facilitate to scan the ranges of items, compare their prices and then only purchase. Consumer should not be pressurised.

Right to represent: To represent in the relevant consumer forums commensurate with the concern and need of the consumer.

Compensation: Right to get compensation through the Forum when the consumer gets cheated.

Consumer education: Right to update the knowledge relating to the goods and services and to know about the consumer rights.

Circumstances …

Consumer Protection Act 1996 extensively protects the consumers’ rights. Even Lawyers’ and Doctors’ services also are brought under this Act. This Act provides for compensation for the deficiency in the quality of goods and services and for causing loss to the consumer.

Let us know the circumstances in which we can approach the Consumer Forum…

When deficient in quality and contaminated goods are sold.

When expired and inferior quality medicines are sold or charged more than the maximum retail price.

Deficiency in service of private medical practitioners, resulting in loss or damage to you.

When a Government Hospital collects user charges, it comes under the provisions of the Consumer Protection Act.

When the quality of Banks’ services is found to be inferior, when they charge for such services.

When Life and General Insurance companies create problems in settlement of claims.

When farmers incur loss due to inferior qualityof seeds and fertilisers.

Deficiency in the services extended by Railway, Airlines, Electricity Board, Banks, Insurance companies and Chit Fund companies.

To get compensation for loss of life to formers due to live electrical wires.

When builders do not hand over the flats in time, when they do not provide the agreed facilities, when they do not fulfil the conditions for development agreed upon with the land owners.

These are only a few examples of deficiency in services or quality of goods. In case you encounter such experience; you can approach the relevant Consumer Forum/Commission.

Where to complain?

Right from District level up to National level, there are different tiers of Forums / Commissions. You can approach one of them depending on the description of the goods and services, their values and the compensation you claim.

Consumer Forum Complaint Expenses are nominal In case the Consumer approaches the court, court fee is also very low
Compensation for the value of the goods	Fee to be paid
District Forum
Less than one lakh	Rs.100
From one lakh to less than 5 lakhs	Rs.200
From 5 lakhs to less than 10 lakhs	Rs.400
10 lakhs and above	Rs.500
State Commission
From 20 lakhs to less than 50 lakhs	Rs.2000
From 50 lakhs to less than 1 crore	Rs.4000
National Commission
One crore and above	Rs.5000
These fees can be paid through Bank DD or Postal Order, the DD/Postal Order to be drawn in case of District Forum in the name of President of District Forum; Registrar of State Commission in case of State Commission; Registrar of National Commission in case of National Commission.

You can re-appeal …

If you are not satisfied with the lower court judgement, you can appeal to the higher court within 30 days and the fee for such appeals would be Rs.25000, if appealed to the State Commission; Rs.35000, if appealed to National Commission; (or) half of the amount of compensation the lower court has awarded, whichever is less.

What is the procedure to complain in Consumer Forum or Court?

When a problem is detected, first you have to contact the shop where you have bought it; then, if no solution is forthcoming, contact the dealer; and if still it persists, contact the distributor and if still it is not solved, then approach the relevant Consumer Forum or Commission.

Your complaint should be simple and unambiguous. In case of consumer goods, details like brand, model, batch/serial numbers, manufactured date, expiry date, Price paid, manufacturer’s name, address and other connected details are to be furnished. In case of financial services, details of your account, certificate folio numbers, bond numbers and their values, dates of their issue, premium paid, fees paid for revival, the servicing company / institution, their agents, consultants and their addresses are to be furnished. Copies of Bills, cash receipts and the papers relevant to the complaint are to be attached to the complaint.

Complaints against builders should be accompanied by a copy of the agreementwith the details thereof.

Along with the complaint, you need to convey the solution you expect to get. Do you want refund of the amount? Do you wish to get compensation for the inconvenience / distress caused to you? You have to substantiate your expectations with suitable reasons.

Complaint should be filed within two years. Either you or your advocate can represent you in the Court.

Be alert to note…

If the goods are purchased for your business, you are not a consumer. If they are for your own consumption, then only you are a consumer.

Care to be taken by the Consumer when purchasing goods and services

Don’t purchase anything without proper bills, simply because attractive discounts are offered.

Always keep the bills, warranty, guarantee cards in safe place when you purchase costly items

Before purchasing, check-up the manufacturing and expiry dates.

When purchasing seeds, farmers are advised to check-up whether they are properly packed or not. If the seeds are found to be fake or inferior in quality, get confirmed from the Agricultural department and then approach the Forum.

Ensure to get all the papers – case sheet, discharge summary, medical prescriptions, before you get discharged from a hospital, after treatment. Also enquire about the problems those may arise in case of surgeries.

When you wish to invest in a Chit Fund company, ensure that it is authorised.

In case insurance premium are being paid through Banks, periodically check-up whether the premium are being paid on the due dates; if not bring them to their notice.

Don’t admit your children in unrecognised schools. It facilitates you to seek compensation in case you are deceived.

When taking health or life insurance policies, take care to enquire about the details of the exceptions listed out in such policies.