Blog

July 26, 2012

Buying a home is one of the biggest financial decisions of life. You do enough amount of research & due diligence before purchasing your dream home. Yet sometimes builder creates false pictures and cheat you. To make you aware we are here with some of the methods builders are adopting to cheat innocent customers.

How Property Builders Can Cheat You?

“Booking is almost full or There is only one flat available”

This is the most common statement made by builders to any inquiries about their projects. This is done by builders to create a false image of the booming market. In most cases it is found that the builder has either sold a few flats or not even sold a single flat.

He makes this statement to create negative emotional feelings in buyers. Due to this buyer will hurry up or will be ready to pay the higher amount.

Available flat in most cases is found on the top floor or at locations with bad views or bad ventilation, as builders want to get rid of this type of flats as early as possible.

“No flats are available directly but we have some flats in resale”

Another attempt to cheat you is by telling you that all flats are sold and no flats are available for direct purchase. This is just to show you that there is huge demand. But if you ask the builder to show a copy of register agreement or sale deed in most of the case answer will be that all were cash transactions and they don’t have any documents like this.

So they can show anyone as an investor, as no record exists for cash transactions it is very difficult to catch them.

This is generally done to show heavy demand for his project so that genuine customers can be fooled & he will be forced to pay a higher amount.

“Loading factor to make property price look cheaper”

A few years back concept of a super built-up flat was introduced. This means an extra common area of construction is also added to each flat, which includes a staircase, a verandah between flats, and all common places of buildings that you rarely use. The actual flat size will be around 25% -30% smaller than the super built-up area claimed by the builder. This 25-30% extra construction is known as the loading factor.

In most of the projects, this loading factor is decided by the builder. Builder does not provide you with any data or documents on this loading factor.

We do agree that the builder provided some extra amenities, left the passages and bigger corridors, or made extra basement parking and nothing wrong in calculating or taking the price for this, but it should be reasonable. It is found that in some cases loading factor goes up to 45%.

A 45% loading means that 45% of the carpet area is made for common usage.

Example of Loading Factor:-

Builder A is selling a flat A of 1000 sq ft super built-up.
Builder B is selling a flat B of 1000 sq ft super built up.

Pricing as per Super Built up
Flat A: 3000 / Sq ft Total Price 30 Lacs
Flat B: 2500 / Sq ft Total Price 25 Lacs

The loading on Flat A = 30%
The loading on Flat B = 45%

Thus the carpet Area that you get is

Flat A: 700 Sq ft
Flat B: 550 Sq ft

Now if you calculate the Price / Carpet area

Flat A: 4285 / Sq ft
Flat B: 4545 / Sq ft

It’s very easy for a common man to get confused and consider that Flat B is cheaper, but actually, he is wrong and making the wrong deal. Surprisingly we have observed that even regular real estate Investors have made decisions without considering the loading factor.

In case you find a difference in price for the 2 flats in the same area, then you can always check the extra amenities between the 2 projects and you can find on your own if the loading factor is justified or not.

This super built-up concept was never there and it was introduced a few years back. I think it is only for helping greedy builders to earn more profits.

I guess the government has no regulation or control on this, so buyers have no choice.

“You will get the legal papers only after paying the cash component of the deal”

Before buying any property you should check copies of all legal documents like approval of municipality, sample sale agreement, etc. This document should be verified by lawyer.

In some of the cases, it is found that the builder is not ready to give legal documents or may tell you that legal paper will be shown to you after paying the cash component of the deal.

In such a case, we request you not to make the mistake by blindly paying the builder in cash. It may be possible that you will never get this money back or you will be trapped.

At the end, I would like to say that check all aspects of the project and builder before making any real estate deal.

ICICI Pru Smart Kid Regular Premium plan is really smart?

Life Insurance

Shitanshu Kapadia

July 22, 2012

ICICI Pru Smart Kid Regular Premium plan is really smart?

Cost of living is sky-rocketing today, with each passing year we are witnessing increase in the cost due to inflation and other factors. Not only cost of living cost of education is also increasing like anything.

As a responsible parent we have very important role to be play for our child. We have to make sure that our child gets whatever he/she needs to develop his potential and be successful. To convert this dream in to reality we need adequate money and prior financial planning. We have to make sure that we will fulfill our child’s dream, no matters what happens.

Today we will discuss about similar type of insurance plan available in market by ICICI that claims to fulfill your child’s dream no matter what are the uncertainties in your life.

ICICI Pru Smart Kid Regular Premium Plan is endowment regular premium, traditional plan with two options to receive guaranteed educational benefits. Let’s check out ICICI Pru Smart Kid Regular Premium plan is really smart or not.

ICICI Prudential SmartKid Regular Premium Plan key benefits:-

Like traditional plan this plan provides risk cover and guaranteed and non-guaranteed benefits. It provides two options to receive those benefits. You can take this benefit in last 5 years of the policy or you can opt for benefit at intermediate milestones.

Let us look at the illustration given below:-

Above illustration is for a 30 year old parent who has a new-born child. The tenure of the policy is 22 years. The sum assured is Rs 2,50,000 and the premium is Rs 12,717 to be paid for 22 years, so total amount paid in 22 years is Rs 2,79,774.

Benefit on Survival or Death:-

Option:-1 Benefit at Intermediate milestone

If you select option of benefit at intermediate milestone than Fixed amounts, depending on the sum assured are paid at the end of 15, 17, 20 and 22 years.

A guaranteed amount equal to 3.5% of the sum assured of the first four years is paid on maturity. Additional non-guaranteed benefit either @6% or 10% will depend on the performance of the company.

Option:-2 Avail of benefits in the last 5 years of the policy

If you select option of benefits in last 5 year of the policy than Fixed amounts, depending on the sum assured are paid at last 5 consecutive years of policy.

Similar to option 1 here also guaranteed amount equal to 3.5% of the sum assured of the first four years is paid on maturity & again additional non-guaranteed benefit either @6% or 10% will depend on the performance of the company.

The policy provides for a premium waiver benefit. This means that in case of death of the parent, the future premiums of the policy will be waived. So essentially, the benefit will be paid to the child as per schedule even if the parent is no more.

Additional Rider Benefits:

This is an additional benefit which can be availed along with the base plan, by paying a marginal extra cost.

Income Benefit Rider:-

On the death of the parent (Life Assured) during the term of the product, 10% of the Sum Assured under the rider is paid to the nominee every year, for the remaining years, till the maturity of the policy.

Accident and Disability Benefit Rider:

On the death of the parent (Life Assured) due to an accident, the child gets an additional Sum Assured. In case of accidental death of the parent while travelling by mass surface transport, the nominee will get twice the Sum Assured under the rider.

Catch points:-

(1) This policy does not gives money whenever you want. Either you can take payout for last five years or at for intermediate milestone only. If you need money at early stage it is not possible in this plan.

(2) Rate of return in this plan is in between 3.5% to 6.5%. Compare to current inflation in education and other need this return may not suffice.

(3) Compare to this policy other investment avenue offers better returns instead of this policy if someone invest in PPF than 8.8% interest can be earned and all money can withdraw after 15 years.

(4) Non-guaranteed return shown @ 6% or 10% in this policy is approximate & based on assumption actual return may vary and depends upon ICICI.

(5) Tax benefit on this product is as per current tax law which may change.

Based on above one can say that this policy not seems to be smart or not giving smart returns.TV advertisement may encourage you to purchase this policy (based on premium waiver benefit) but Only premium waiver benefit is not good reason to buy any child plans.

Financial Planning Tips – Before Buying a Home

Real Estate

Shitanshu Kapadia

July 20, 2012

Buying real estate is one of the biggest financial decisions of life. It requires a good amount of research and financial planning. With the increasing property prices and inflation, it is very difficult for most of us to make a lump sum payment while buying a home.

You may go for the home loan option but the challenges are many starting from the loan application to the disbursement stage. The following tips will help you understand what to look for while buying a home.

Before Buying a Home

Financial Planning Tips – Before Buying a Home

How to do budgeting?

The first step you need to do is budgeting, you need to make yourself ready with details of how much savings and investments you have for making a down payment while buying a house.

Start finding current housing rates in the locality of your choice. Visit various projects interact with real estate brokers, and go through property advertisements and real estate portals. Another way to find rates and upcoming projects is by visiting property shows/exhibitions held in your city.

How much Down payment is to be made?

Once you come to know the average price you can decide the amount required for making a down payment. If you are planning to take a home loan make inquiries to banks about your loan eligibility. Most of banks provide home loans of around 80% of your property document value. You have to make a 20% down payment on the property’s cost.

A builder may ask for a certain amount in black. As the loan is given on white value only, you need to make a down payment considering the white value cost. This cost includes money given to the builder by cheque, stamp duty, and registration costs.

Any additional cost is involved?

Keep in mind that there are some charges for which you need to prepare your budget accordingly.

If a white component of a property document value does not suffice for the home loan amount required by you, then either you have to arrange additional money or you have to produce a bill of extra work.

Other additional costs that you need to consider are stamp duty and registration costs which depend on the location of the property and the prevailing rate (decided by government authority). You can use tools like a stamp duty calculator to estimate additional costs associated with the property purchase. This helps ensure you have a clear understanding of all expenses and can plan your finances accordingly.

You need to consider the cost of loan processing fees charged by the lender. If you are seeking a lawyer’s advice for the property due diligence or valuation you need to consider lawyer fees also.

Buying a home via a broker may cost you an additional 1% of the property cost. If you are buying a flat then it may cost you additional society share transfer fees. So in total additional cost

In general additional costs that may be incurred are:-

Stamp duty and registration
Loan processing Fees
Extra Document Charges
Brokerage Charges
Lawyer Fees
Society Share transfer fees

How much Home Loan I am eligible for?

Before buying a home you have to check about your maximum loan eligibility and how much you should borrow. This eligibility mostly depends on your monthly income. Approach the bank you plan to borrow from and ask it to assess your loan eligibility. They will issue you a letter stating your maximum eligibility for a home loan.

Some banks also provide online modules to check this eligibility.

Home loan Tax benefits – Section 24, 80EE & 80C- 10 less known facts

Which Interest rate loan option should I select?

Home loans available from banks have two options either you can opt for a fixed interest rate option or a variable (floating) interest rate option. In fixed interest rate option rate of interest remains the same throughout a home loan. In the floating rate option rate of interest varies.

Choosing a fixed-rate home loan offers an advantage over a floating rate as the rate remains the same even if market interest rates increase, requiring the borrower to make consistent fixed monthly payments. This choice is ideal for individuals who seek to protect themselves from fluctuating interest rates and prefer consistent payments over a set amount and duration for their loan. If you wish to benefit from different home loan interest rates, you should choose the floating rate option.

Finally, after your loan is approved and payment of the black and white amount is done you have to pay the appropriate stamp duty and registration fees to get disbursement of the loan.

Don’t end up taking excessive loans; make sure you take home loans up to the amount you can afford. Your first home doesn’t have to be the home of your dreams.

Do not be afraid to ask for help from financial advisors or real estate professionals when dealing with the challenges of buying a home. They can offer valuable knowledge on the financial aspects of owning a home and assist you in making well-informed choices.

Explore government schemes and incentives aimed at first-time homebuyers, such as subsidized interest rates or tax deductions on home loan repayments. These schemes can help reduce the financial burden of homeownership and make it more affordable.

Conclusion

Buying a home is a significant financial decision that requires careful planning and consideration. By following these financial tips, you can ensure a smooth and successful home-buying experience while safeguarding your long-term financial well-being.

Download Family Monthly Budget Planner

Personal Finance

Shitanshu Kapadia

July 10, 2012

Most people are too lazy to make household budget plans. They sit back and enjoy life as it comes. They spend money every day on things that they do not need rather than on essential things. Many of them are not bothered to track their spending.

Due to this one day, they may be trapped in a situation where they will need money for an emergency such as an accident, the treatment of a disease, or a loss of job. At this time, they will realize that they do not have any resources to dip into during emergencies. Hence, it is very important to have a family budget plan to track expenses & savings.

Keeping track of family finances is a very difficult task without a proper household budget planner. Often, a spouse is in charge of all financial matters and it can become daunting, especially at month or year-end. Finances are something that many shy away from because of the lack of incoming funds and the abundance of outgoing funds.

Creating a household budget can be a lifesaver. By creating a budget you can better see where your money is going and where it needs to go.

monthly budget planner

Family Monthly Budget Planner

The first thing you need to do is know your monthly income. This will help determine how much money you have coming in each month.

Now start the exercise of knowing your monthly expenses. The first task you need to do is break your expenses into a list of categories like groceries, clothes, utility bills, etc. Make sure to include both fixed (e.g. rent) and variable expenses (e.g. groceries).

To make the list more accurate you can use your bank statement. This is applicable if your spending is through cheque or credit card & if you spend money in cash then get maximum information from last month’s bills.

Now you know your monthly expense it is time to make a budget. Creating a budget may not be an exciting task, but it is vital in keeping your financial house in order. Budgeting is also required to control your expenses. Draw your monthly and yearly budget based on monthly expenses.

When you were going through the list of expenses you might have noticed that some expenses are necessary, but can vary from month to month. Examples include groceries, utility bills, dining out, entertainment, etc.

Determine the expenses that fall into these variable categories. If you feel you are spending more on any category item, create a simple budget (amount) for that category and monitor your spending concerning the budget limit you have set.

If you make a purchase with a credit card or debit card make sure to check your statement on a weekly basis to see if you are within your budget or not. If you are spending money in cash, then withdraw the monthly budgeted amount at the beginning of the month and only spend the cash that you have.

A Simple Excel sheet is attached herewith you can use this to track your expense.

Family budget planners are crucial to ensure we have a good understanding of our family’s financial situation. Begin a financial record to get a true picture of your family’s earnings and spending.

Given budget planner if used properly can help you to limit unnecessary expenses and let you know exactly how much you can afford to spend on non-essential items. A family budget can even help you set up savings for the future and establish habits in your children that can assist them later in their lives.

Creating and maintaining a family monthly budget planner is a proactive approach to achieving financial security and realizing financial aspirations. By prioritizing needs, setting realistic goals, and fostering good financial habits, families can navigate through various financial challenges and build a stable financial future.

FAQs

Is it necessary for every family member to contribute to the budget planning process?

Yes, involving all family members ensures shared responsibility and commitment toward financial goals.

How often should I review my family budget?

It’s advisable to review your budget monthly and make adjustments as needed to reflect any changes in income or expenses.

What if my income fluctuates each month?

Allocate funds based on an average monthly income and adjust the budget accordingly during months of higher or lower earnings.

How can I teach my children about budgeting and financial responsibility?

Start by explaining basic financial concepts and involve them in age-appropriate budgeting activities to instill good money habits from an early age.

What should I do if I consistently overspend in certain budget categories?

Review your spending patterns, identify areas where adjustments can be made, and consider reallocating funds from less essential categories to cover overspending.

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