Blog

Small Charges that adds up to big money

Personal Finance

-

December 12, 2012

You’re a hard worker and, more importantly, a good saver & investor. Yet, sometime you feel that your monthly budget is over stretched. That might be due to small invisible charges or fees you simply ignore knowingly or unknowingly. Remember these small charges add up to big money. We are herewith some example of these small charges adds up to big money.

Banking:-

Today most of the service avail from bank is chargeable. Bank keeps on deducting money from account such charges are:-

Duplicate Bank Statement / Passbook – 50-100 Rs/-
Reissuing Net banking/ Phone banking password -50- 100 Rs/-
Stop payment charges – 50-100 Rs/-
ECS dis honored charges -200-300 Rs/-
Record copy of cheque -100 Rs/-
Signature Verification charges -100 Rs/-
Minimum Quarterly balance charge -500 Rs/-
Account closing before one year -100 -250 Rs/-

So before availing service do understand charges for them to avoid last minute shock.

Prepayment Penalty:-

Though prepayment fee has been abolished for home loans, it still exists for car loans. “There’s no reason why it should be levied on car loans. Most customers get confused about the calculation of the prepayment fee since it can be as high as 10% if you prepay a loan within six months, and 5% if you do so within a year.

Credit cards:-

Complaints more rampant than in credit cards, before going for any credit card do check about annual charges. Most banks offer you a free credit card but that is only for 1 year. Next year onwards you have to pay fee 500 -1000 Rs-/. Even some banks also impose charges for non-usage. So if you don’t swipe card within year you will be charged for non-usage.

Real Estate:-

You are planning to buy house than you must be ready to pay extra charges. Apart from doing payment to builder you have to bare additional cost of doing registry. Registry cost is just one cost builder may charge you following:-

Development Charges
Lawyer Fees
Cost of Extra bill (In case of home loan requirement is higher)
Share Transfer fees of society( During purchase of Old House )

Car:-

If you are planning to purchase new car or old car, be prepared to pay more than you had intended to.

Most of people consider ex-showroom price as final price but remember that dealer charge lot of other thing like transit fee or warehouse charge. Not only that you have to be ready for paying extra money for insurance and RTO passing.

If you’re a new car owner, be prepared that your free servicing will come for a price. You may find that you’re paying for wheel alignment or body polishing, even if you hadn’t asked for it.

Desktop:-

If you are planning to purchase desktop remember that you have to pay additional cost for software like operating system, processing software and antivirus.

Mobile:-

The most common complaint, especially in case of prepaid connections, is the automatic subscription of a value-added service. Starting from Hello Tunes and cricket updates to astrology and travel tips, if you receive this kind of updates via SMS don’t wait for bill to come check with your service provider this message shall cost you some money.

Entertainment:-

Nothing is free in this world including entertainment when you shop or dine out of go for movie remember you are paying extra charges in following way.

Service Charge – Every time you dine out at restaurant you are paying service tax.
Parking charge – Most of the Cinema hall and Mall charges extra money for parking car
Online Movie Ticket Booking charge – When you book a movie or show ticket online, you have to pay a convenience charge of Rs 10-150, depending on the cost of the ticket.

So, remember to scrutinize all your spending, bills and statements to know which of these charges you can avoid or can, plug to save more money.

Importance of Nomination in Financial products

Investment

Shitanshu Kapadia

-

December 11, 2012

0

Importance of Nomination in Financial products

Most of us understand that a financial asset is inherited by the spouse, children or other family members in our absence but the law doesn’t recognize things this way. It needs valid papers in the form of nominations and a will, a formal legal statement declaring the distribution of assets.

Last week, there was a call from my friend regarding one PPF claim. His friend’s father has expired in an accident. His father was used to deposit money in PPF account. Unfortunately while inquiring they found out that nomination in his father’s PPF account was missing, they have no option but to complete all legal formalities to claim this money.

Money deposited in his father’s account was more than 2 lakh. In case of PPF as per rule if nomination is not made than legal heirs will get maximum of Rs1 lakh only. Missing nomination in this case will cost them more than 1 lakh.

We come across many incidents like this where people do not understand importance of nomination, they invest money but they forgot do nomination. To avoid situation mention above we should complete nomination formality in all financial products which we purchase.

What is a nomination?

Nomination is the process of appointing a person to take care of your assets in the event of your death. You can appoint a nominee for your bank account, fixed deposit, demat account, or even your house. A nominee could be a family member or a friend or any other person whom you trust. However, since it involves financial matters, you need to chose a nominee with care as the person needs to be reliable enough to take care of your assets in the event of your death.

Though a nominee is an important person, he or she has no rights over the money or assets unless that is specified under the will or the nominee happens to inherit the money. So as such a nominee is a mere custodian of the assets. He is a contact point for the investments. So in the event of a person’s death, a bank could get in touch with the nominee for further instructions to act on the account. At the time of claiming the savings, the nominee will have to give a proof of his identity to the relevant authority.

For example, if a man during his lifetime makes a will. In the will, he mentions his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets. It is essential that one needs to execute a will. It is the ultimate source of truth and replaces the succession law. Nominee can also be one of the legal heirs.

Point to remember while doing Nomination:-

Do Mention the Full Name, Address, age, relationship to yourself of the nominee.
Do not write the nomination in favour of “wife” and “children” as a class. Give their specific names and particulars existing at that moment.
If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.

Nomination in Life Insurance:-

The policy holder can nominate a person as nominee while he is alive to receive the claim amount in case of his death. The insurance company will settle the amount to the nominee. In case, there is a Will, then the nominee has to settle the amount, as per the Will. If there is no Will, the amount has to be distributed to the legal heirs as per the succession law.

You can change the nomination any number of times during the term of the policy. If you are nominating a minor, don’t forget to appoint an appointee, who can receive the claim amount during the minority of the nominee.

Nomination in Shares:-

The role of nominee is different in the case of shares. In this case, the nominee will get the right of the shares, in case of death of the party even though he is not the legal heir. So be careful, while making nomination in demat account. Ensure that you are nominating the right person, who will protect your interest after your death.

As per the Companies Act, nomination supersedes Will. So, the nominee in your share investment will become the absolute owner, after your death.

Nomination in Mutual Funds:-

You can make nomination while investing in mutual funds by writing the relevant details in the application form itself. Later, you have the provision to change the nominee, by submitting the relevant form for that. A minor can be a nominee provided a guardian is specified. Please note that the nomination is Folio specific and if you make any further investments in the same folio, the old nomination is applicable to the new units also.

Nomination in PPF:-

You can nominate one or more persons as nominee in PPF. Form F can be used to change or cancel a nomination for PPF. Also note that you cannot nominate anyone if you open an account for a minor.

In case you have lakhs of rupees in PPF account you must check for nomination. As per PPF rules legal heirs will get maximum of Rs1 lakh only in case of PPF account without Nomination. So if you have not done nomination in PPF get it done now.

Nomination in Bank Accounts:-

While opening a new account, there is a column for nomination in the same form and you should fill it. Note that in case you have not done any nomination till now, you should request your bank branch and nominate a nominee.

Conclusion:-

To avoid financial loss and tussle at later stage it is better to nominate the right person in each of your insurance/investments, except for Share investments. If you have not nominated anyone as nominee I request you to complete nomination formalities in all financial products you own.

Should you buy or live on rent?

Real Estate

Shitanshu Kapadia

-

December 10, 2012

0

Buying the house is perhaps the biggest and the most common dream of every professional. Though buying a house has high emotional quotient, it is a decision that has to be financially prudent. A wrong decision could result in excess debt and an illiquid asset. Due to increase in property prices many people prefer to rent the house. Renting is associated with expenditure. However, renting gives flexible lifestyle option, high level of mobility and is easy on the purse when compared to the Home loan EMI.

A study report by ArthaYantra compares property prices and rentals in seven top cities. Know the cities in which you can buy a house and where it’s more cost-effective to rent. ArthaYantra compared the property prices with rentals in seven top cities across India, taking into account the income and saving potential of the buyer, the cost of capital, as well as the increase in property prices and rentals.

A key outcome of the study is the ArthaYantra Buy versus Rent Score (ABRS) assigned to each city. ARBS score indicates that whether it makes financial sense to buy a house or live on rent in a particular city. Since affordability is a function of income levels, the ABRS is calculated for six income levels, beginning from Rs 8 lakh a year up to Rs 25 lakh a year. ARBS score is given below.

Highest score here shows that rents are very high and it is advisable to buy. Lower score means can afford to rent but can’t afford to buy.

Reading Report Findings:-

Delhi NCR: The low rental values compared to high property prices makes it a place where renting can be easily afforded and the EMI associated with home loan in high. It is advisable to rent for a professional with a salary range of 8 – 25 lakhs

Kolkata: The ABRS score of 75 for a salary range of 8-12 lakhs signifies the fact the rental value is critically high but a professional in the salary range can’t afford to buy. A professional whose salary range is between 13 – 25 lakhs is better off owning a home than renting it.

Mumbai: The score of 65 signifies that though the rents are high, it is advisable to rent because the property prices are also high. The EMI payments to be made in case of ownership are not affordable.

Pune: For a professional with a salary range of 8- 11 lakhs in Pune, it is advisable to rent. A professional with a salary of 12- 15 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but have to make few adjustments to the current lifestyle in order to afford the additional amount for EMI payments. Professionals with a salary range more than 15 lakhs are advised to buy.

Hyderabad: For a professional with a salary range of 8- 9 lakhs in Hyderabad, it is advisable to rent. A professional with a salary of 10- 11 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but have to make few adjustments to the current lifestyle in order to afford the additional amount for EMI payments. Professionals with a salary range more than 12 lakhs are advised to buy.

Bengaluru: The score of 55 for a professional with a salary range of 8-14 lakhs signifies that the

monthly cost of renting is cheaper than that of buying by more than 70%. The low rental prices also mean that though a professional with a salary more than 15 lakhs can afford to buy a house, renting is a better option.

Chennai: The score of 55 for a professional with a salary range of 8-19 lakhs signifies that the monthly cost of renting is cheaper than that of buying by more than 70%. The low rental prices also mean that though a professional with a salary more than 20 lakhs can afford to buy a house, renting is a better option.

If you plan to buy a home, go through the excerpts of the report for more such nuggets of information. It might help you in taking an informed decision on buying a house or renting one.

iWish Flexible Recurring Deposit by ICICI

Investment

Shitanshu Kapadia

-

December 7, 2012

0

iWish Flexible Recurring Deposit by ICICI

Many of us in today’s stressful times want flexibility in practically whatever we do. We wish quite a many things and also have a desire in our heart to have it our way. Even while we invest, with today’s rising cost of living, we often prefer to invest a small portion every month or periodicity as per our choice, which enables us to save for a financial goal systematically and at the same time provide us with flexibility. Seemingly recognizing this aspect, recently India’s largest private sector bank – ICICI Bank Ltd. launched flexible recurring deposit scheme, named “iWish” for its savings account customer. The bank’s savings account holders can book this variable recurring deposit by logging on to their Internet banking account.

The product offers customers the flexibility to choose when and how much to save to meet their life goals, and interestingly for the first time in India also share their goals on Facebook with friends and family, who can choose to contribute to the goal.

Unlike a traditional recurring deposit wherein you are required to deposit a predetermined fixed amount at a periodicity for a pre-fixed rate of interest per annum and for a set tenure of time; “iWish” provides you:

Flexibility to save varying amounts of money at any time of choice
Create several goals and track their progress on an easy-to-use online interface
Enables customers to share their wishes on Facebook, and let their friends and family be a part of their dreams by contributing to the customer’s account from any bank account (using a VISA debit card)

For instance, say you have decided to invest Rs 8,000 every month over a period of six months. The total investment amount, therefore, is Rs 48,000. However, due to strained cash flows, you are unable to meet your commitment in say the fourth month. In a regular recurring deposit you will have to pay a penalty, but in case of iWish, you will be allowed to skip that month’s payment. But, you will have to invest higher amounts in the subsequent months to ensure that you meet the target of Rs 48,000. Also, you need not make payments on a pre-decided date. Depending on your cash flows, you can direct small sums into this recurring deposit on a daily basis, too.

The minimum duration the depositors can choose is six months, while the minimum amount required to open this account is Rs 500. Like regular deposits, interest rates vary from 6.5% (for six months) to 8.75% (15 months to five years). Interest rates for senior citizens are higher by 50-75 basis points.

Many of you may be wondering how such an innovative financial product was developed. Well, ICICI Bank Ltd. has developed this product in collaboration with Social Money – who is a leader in the social saving space in the United States (U.S.), and the product has been customized to suit the Indian market and regulations.

Upside:

Flexibility in making periodical payments is the key benefit. It will appeal to individuals who stay away from recurring deposits fearing penalties due to missed installments

Downside:

The feature of making goals public on Facebook and seeking contributions is being promoted heavily, but offers no tangible benefits. It is low on utility quotient, as friends and family members have access to several other avenues for giving gifts.

Our Opinion:

iWish” is indeed an innovation in social savings and provides one to flexibility while one would like to plan for life goal(s). But we think although flexibility feature is good and luring, it is imperative for investors to have a much disciplined approach and save and invest regularly. Also one needs to consider lots of aspects such as your age, income, expenses, existing asset, liabilities and nearness to your financial goal; for you to plan for your life goals very prudently. Remember financial planning require customization and mix of asset classes in your portfolio, on your path to achieve your life goals.

To see how iWish RD by ICICI works view the demo here.