Saturday, November 14, 2009


Have you ever wondered who is the legal beneficiary of the insurance claim money? Most people feel that the insurance money will be passed on to their husband /wife and kids as the case may be . However, this is only partially true. As per law, every individual who is related /financially dependent to the insured person has legal claim over the insurance claim money. Lot of people nominate their wife/husband as their nominee in the insurance policy and then they believe that in case of their unfortunate death, the claim money will be passed on to their spouse.
This also is only partially true. Nomination only means that the nominee has the right to claim the money only and not use it . The money is then supposed to be passed on to all other legal claimants of the money. So, in case you want your insurance money to go to a specific person only , then just nominating that person in your policy document is not enough. You also need to prepare a will making it amply clear that the money received from the insurance policy is to be passed on to such specific person. This will also needs to be registered /probated to make it legally binding.
Hence, if you haven't done this, may be its good time to consult your lawyer and prepare a will. Because , the very reason why you pay insurance premiums over donkey years is to ensure that the money is available to your near and dear ones when it is required the most. A "will" will help you ensure that.

Sunday, November 1, 2009

4 Golden principles of equity investments

If you want to invest in equities, there are only four things you need to remember.
1. Choose the right company
Look for superior and profitable growth. The company should earn at least 20% return on its shareholders’ capital.

Ideally a long-term investment perspective (more than five years) allows you to participate in the company’s growth. At the short end (3-6 months), share performance is driven more by market sentiment and less by company fundamentals. In the long run, the relevance of the right price diminishes.
2. Be disciplined
Stock investing is a long, learning experience. You will make mistakes, but also learn from them. Here is what you can do to ensure a smooth ride.
--Diversify your investments. Do not put more than 10 per cent of your corpus in one stock, even if it’s a gem. On the other hand, don’t have too many – they become difficult to monitor. For a passive long long-term investor, 15-20 is a healthy number.
--Research and analyze your company's performance through quarterly results, annual reports and news articles.
--Get a good broker and understand settlement systems
--Ignore hot tips. If hot tips really worked, we'd all be millionaires.
--Resist the temptation to buy more. Each purchase is a new investment decision. Buy only as many shares of one company, as fits your overall allocation plan.

3. Monitor and review
Regularly monitor and review your investments. Keep in touch with quarterly results announcements and update the prices on your portfolio worksheet at least once a week. This is more important during volatile times when there can be great opportunities for value picking!
Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary

4. Learn from your mistakes
When reviewing, do identify and learn from your mistakes. Nothing beats first-hand experience. Let these experiences register as `pearls of wisdom' and help you emerge a smarter equity investor.

Wednesday, August 19, 2009


Companies , these days, increasingly position the loan benefits that they offer to their employees , as a major financial benefit to the employee. But, taking a loan from the employer is something I strongly recommend people to avoid . Here’s why I believe you should not opt for a loan from your employer:
1. Any loan from your employer ties you to your job. You can’t come out until the loan amount has been cleared in full. You might argue that you can always ask your new employer to bear the loan. But where does that take you? From one chain to the next? Plus, I’m not sure if any employer today would be willing to bear existing loans.
It’s psychologically debilitating to see your take home salary cut by the EMI (Equated Monthly Installment) amount on the loan even before it’s credited into your salary account.

2.There’s a hidden cost. Though you do not actually pay any direct interest on the loan amount, the notional interest surfaces as a perquisite in your income tax calculations and adds directly to your taxable income. I didn’t know this fact until I saw my income tax calculations; it was already too late.

3. People take loans that they dont really "need" . I have seen people taking loans from the employers just to take the benefit of saving on the interest differential that is there between the employer's rate and the prevailing market rate. This leads to people taking on credit liability when they do not really need the money. Most of the time credit is not used in the best possible manner leading to drain on savings and finacial stress.
With some fanatic fiscal steps, those already in the trap can manage to come out of this situation sooner than they think.

Friday, August 7, 2009


SEBI is an institution which aims to act as watchdog to protect the interest of common investors in the equity markets. With this aim in mind, SEBI sometime back mandated that all AMCs do away with collecting entry fee to investors who wishes to invest in mutual funds. This is a revolutionary decision since it makes the mutual funds the best investment structure by a long distance. Now the investors will not be charged any entry fee and the entire money invested will be accounted for in the number of units. This will push up the effective returns that the investor will get.

But, all is not well with this step. There are certain concerns as of now which needs to be addressed.

1. No entry fee means lesser people willing to sell- The abolition of the entry fee has led to a dramatic fall in the number of distributors who are willing to distribute or sell MFs. Many banks who earlier used to aggressively sell MFs to their clientele have completely stopped or have gone slow on it since selling them does not make them money anymore. This is likely to impact the retail investor in the end since it will be difficult for him to locate point of sale of MFs now . The lower the distribution , lower would be the accessibility of this product which already has abysmal penetration of less than 3 % of the population in India.

2. Increase in Exit loads - While SEBI has mandated that entry loads be done away with, it has allowed AMCS to charge exit load of 1% . Now, most of the equity based funds have hiked their exit loads from 0% - 0.5% to 1%.

3. Increase in the holding period of MFs for no exit load - Earlier the average holding period for equity based MFs where no exit load was charged was about 6 months. Now the same has been increased to 2 years in most of the funds. This means that if an investor wishes to avoid paying exit load, then he may have to stay invested for a longer period of time.

4. The investor may be forced to pay more than 2.25% - With the abolition of fixed entry fee, the SEBI has allowed that an agent or advisor can charge his/her commission separately from the investor. This has opened up a small window where an agent might try and extract more commission out of an investor. This will then defeat the whole purpose of the abolition of the entry fee.

There are few glitches which need to be ironed out before things can be really streamlined for the AMC, the distributor/agents and the common investor.

Thursday, July 30, 2009


One of the biggest risks associated with credit cards usage for online purchases was the possibility of misuse of the credit card by fraudsters. This was such a big demerit working against both credit card fraternity and net commerce that a solution to this threat was imminent. Till now , for anyone to make online payment, all one needed was the credit card number, the expiry month and year and the CVV number. All the 3 information required to transact on internet was the one which were mentioned on the credit card. So in case a person lays his hand on your credit card , he/she could have easily misused your card on the internet since all the information he needed was readily available on the credit card itself.
This was a huge shortcoming and as such needed to be fixed. Come August 1st, Reserve Bank Of India, has mandated that the credit cards will have to have one more layer of security check before the payment transaction is approved. Now, all the credit card users will have to register their card with the card issuer and get another password which will be unique and will be known only to them. They will have to use this password every time they want to make payment on internet through their credit cards. So, in essence, now one will have to enter the following info while transacting on net
1. Card Number and issuer (Visa/Mastercard)
2. Card expiry month and year
3. CVV number
4. New password or PIN
This extra layer of protection will make the whole process of transacting on Internet more safe and secure for credit card users. This will help the user in a big way. It will also help the credit card companies by increasing the spend per card since more and more people are likely to use their credit cards for online purchases after this security feature thrown in. It will also protect credit companies from booking looses due to misuse of cards.
In short , this is a good step taken in the right direction. So if you have a credit card and would like to use it for making purchases online, then do get that registered immediately.
Be wise and wealthy...

Wednesday, July 29, 2009


One of the most classic dilemma facing a retired or soon - to-be -retired person is whether he should use the retirement proceeds to start up some sort of business to keep himself busy while making good money out of it or should he just invest the money in a safe place like bank FD and live off the interest accrued? There are people who would argue in favor of starting up something on ones own using the money while there are equally good number of people who think otherwise.

So, what is the right decision or rather which is the better option? Well , I think there are no right or wrong options here . Both the options have their own merits and demerits , but, I would stick my neck out in favor of one option. But before I do so , let us examine the pros and cons of both the options :-



- The first and foremost benefit of starting a business after retirement will mean that the person will be able to productively employ himself or herself. This is a big consideration since there are numerous cases where people feel left out and are unable to cope up with the feeling of being unemployed . Sometimes retired people can suffer from depression if they are not doing anything productive. Having a small business or shop etc can easily help them stay active both physically and mentally.

- Business does offer chance of making more money than the retired person will get from bank FD.

- Business, if successful, can turn into an asset which he can pass on to the family thereby creating wealth not only for himself but also for the whole family.


- Starting up a business always has an element of risk associated with it. Generally the success rate of start ups is not more than 10-15% and as such the thought of putting one's retirement proceeds into starting up a business may not turn out to be a wise decision.

- To be successful in business one requires different type of skills than what one requires to be successful in a 9-5 job. Hence, it is increasingly difficult for retired salaried people to start up a business and turn it into a success. One can however overcome this challenge by hiring experienced person with the respective domain knowledge . One would also need to learn from experience.

- The trauma of failure may not be the best thing for a retired person to handle considering that the time that he has to make a success out of the business is much lesser than a young businessman starting out in life. Retired person will have much lesser headroom and time to make mistakes and learn from it .



1. The biggest advantage of this option is that one will get enough time to enjoy one's retired life as he will have plenty of time to do things he always wanted to do. Many people never manage to find time to attend to their hobbies in their working life time and as such this option will give them that option post retirement.

2. Another very important factor for a retired person is the safety of his capital. Since the retirement proceeds is all the money a retired person has, it is prudent to invest it in an instrument which has minimum to zero risks associated with it. This option of investing in Bank FD, Post Office Monthly Income scheme, Senior citizen savings scheme etc offers retired person exactly this benefit.

3. Since health also is major concern in old age, the fact that the person will not be required to do any physical activity ,unlike in case of starting up a business, is also a big plus .


1. The strategy on living off on interest income has a limitation that the interest income does not increase with inflation and the over a period of time inflation can reduce the real income in the hands of the investor.

2. The income generated out of interest alone will not be anywhere near the income a successful business can generate.


After going through both the pros and cons of the two options , I think it is always better to play safe adopt the second option viz investing the retirement proceeds and living off the interest income. The compelling reason for this is the fact that one must attach highest importance to the safety aspect of the retirement proceeds since this is the last sum of money the person has. As such he can not take any risk with this money . Investing it in safe instruments will give him modest income and considering that a retired person has almost no liability , this should suffice. And in case a person is worried about inflation eating into his interest income over a period of time, then he might consider investing part of his sum in equity based well diversified mutual funds. The superior returns from these mutual funds will guard the investor from ills of rising inflation.

Monday, July 20, 2009


These are good times for rich people. People who are affluent have many advantages and privileges in general life. An addition to their long list of privileges is the availability of term insurance at a much cheaper rate.

The term insurance premiums have seen drastic reduction recently for life cover of RS 1 cr and above. Even term plans having life cover of Rs 25 lakhs and above also have seen quite a large reduction in the premiums. This large scale reduction in the premiums is attributed to the following reasons:-

1. Better mortality rates - The recent experience has shown that the mortality rate isn't as bad as is shown in the mortality chart currently being used. And as such the premiums have come down owing to this.

2. Access to better health care and lifestyle - Rich and HNIs have greater access to health care and quality lifestyle which also plays a role in increasing the life span of the person. This in turn means lesser claims on insurance companies pushing the overall premiums down.

3. Wider coverage - Since insurance primarily is based on the concept of "risk sharing" with increase in the number of people under insurance cover , the premiums to be paid to make the whole exercise viable, also comes down. With more and more people getting in the insurance ambit in India, it is expected that insurance premiums might see some more downward movement going forward.

Today, one can avail of a LIC term policy with a sum assured of Rs 1cr for an annual premium of nearly Rs 25,700-32 ,000. But unlike LIC whose rates are available to most buyers, Birla Sun Life has stringent underwriting norms and the rates are available to only those in the best of health.Term insurance is a cover where the only benefit is a payment if the insured dies during the term of the policy is the most basic form of life insurance. The cover is now almost a commodity with web-based aggregators offering quotes from all insurance for term protection.

Wednesday, July 8, 2009


The Union Budget presented by Mr. Finance Minister has left many people disappointed especially those who were expecting some"big bang" reforms from this budget. The budget did not lay out any such plan. But, this budget is being hailed by corporates on one account atleast ie. the removal of FBT or Fringe Benefit Tax which was introduced by erstwhile Finance Minister Mr. P. Chidambaram. This was a tax which was to be paid on all the perks enjoyed by an employee like car, company provided accommodation, ESOPs , conveyance etc. These perks were always taxed at the hands of the employee, but, FBT had transferred the onus of paying these tax to the employer. The employer,however, was free to collect this tax from the employee. FBT also meant that the effective rate of taxation was only little over 6 % as against the rate of tax charged to an employee based on his tax slab.

FBT was opposed by the corporates tooth and nail and now they have finally managed to get this off their back. This now means that the tax on perks will once again be taxed in the hands of the employee. This will increase the tax burden on the employee since the personal incpme tax rates are much higher than the FBT rate and it can go up to 30% of the perk as against just over 6% on FBT.

So, while corporates do not have to pay this tax , the employee will have to pay through his nose for the same benefits.Also the anomaly of charging tax on ESOPS on vesting stage rather than the time of actual sale is still not done away with. Hence, one will have to continue to pay on notional gain in one's shares without really realising the gain. This is a big anomaly which remains to be cured.

All the talk on TV shows about FBT removal leaving more money in the hands of the employee is misfounded. This might actually reduce the net take home salary for few . Hence, the old adage that "devil lies in detail" has come true one more time.

Tuesday, July 7, 2009


The Union Budget presented by the Finance Minister yesterday was one which aimed at doing "No harm"rather than "doing good" to the economy on the whole. There were no major big bang reform measures announced. Even the much anticipated and "taken for granted reform" of increasing the FDI limit in insurance sector didn't come through. Mr. Minister shied away from giving a target for disinvestment as well. This sent the capital markets into a tail spin. The FBT was removed which is a positive for the corporate sector , but, the MAT was increased to 15% taking away the sheen of FBT removal.

As far as common man and his income tax is concerned, there was not much for him. The new budget proposes to increase the tax free income limit by Rs 10000 for women and men and Rs 15000 for senior citizens. So now the new tax free income slab would be

Men- Rs 1.6 lakhs

Women- Rs 1.9 Lakhs

Senior Citizens (including women) - Rs 2.4 Lakhs

The actual saving in terms of tax outflow would be as follows

Men - Rs 1030

Women - Rs 1030

Senior Citizen - Rs 1500

The tax surcharge of 10% for people with annual income of over Rs 10 lakhs pa also has been withdrawn. This is a positive step for HNIs in the country. They will save some money since the effective top tax bracket will now be at 30.99% rather than 33.99% as was earlier.

The major disappointments from Income tax perspective were

1. No increase in the exemption limit under Sec 80C.

2. No increase in exemption limit for repayment of Housing loan interest and principal component.

3. NPS still under EET rather than much need EEE tax regime.

4. No increase in the exemption for medical expenses and medical insurance limit.

5. Non inclusion of tuition fees in the Sec 80C.

The major disappointments for Corporates were as under:-

1. Increase in MAT by 5 %.

2. No major policy reforms announced.

3. Increased govt borrowing likely to push up the interest rates further slowing down growth.

4. STT not removed.

5. No road map laid out for bringing down fiscal deficit . This may affect India's sovereign rating making fund raising even more costly.

The things which corporates liked in this budget :

1. Removal of FBT.

2. Increased push on infrastructure and social spending.

3. No rollback in the stimulus provided last year.

4. Increase in STPI by another year.

5. CTT removed.

Hopefully, in the next budget, MR Finance Minister will be able to meet some of the expectations of both corporates and the common man which he could not this time. This is India's time in the sun and we need MR. Finance Minister's help to siege this opportunity. Hope Mr Minister is listening.

Saturday, July 4, 2009


The Employee Provident Fund Organisation has decided to give an interest of 8.5% on the deposits made in EPF scheme for the current financial year as well. This interest rate of 8.5 % is same as the one applicable last year as well. With inflation and deposit rates up for most of the last year , there were expectations of an increase in this rate for this year atleast. But, with the inflation down to negative territory and deposits rates heading southwards, this expectation was tempered a bit in last few weeks and as such the decision to keep the rate unchanged is a no surprise really.

The EPF interest rate has come down from the highs of 12 % earlier to 8.5% now. There were talks of bringing this even further down to 8% level last year. But, with the new government's focus on "AAM AADMI" and inclusive growth , the chances of these rates going down is remote.

This will benefit the 4.2 crore depositors who have parked their money with the EPF. This makes it one of the best available debt funds for anyone to invest. The positive tax regime of EEE applicable for EPF is another plus.

Monday, June 29, 2009


If you are looking to save income tax arising out of long term capital gains on the sale of your house,art or property etc then you have an excellent option in NHAI bonds.National Highways Authority of India (NHAI) is currently offering non-convertible bonds with benefits under Section 54 EC of the Income Tax Act.

These bonds offer returns of 6.25% pa payable annually. The minimum amount that one can invest is Rs 50000 while maximum amount in Rs 50 lakhs. The whole amount on maturity is taxable in the hands of the investor. these bonds are among the most efficient tax saving instrument for tax on long term capital gains.

The other option offcourse is to invest this money agin in a new property or house to evade taxes . But , this will again mean that your money is locked for a longer period. These bonds have a maturity period of 3 years and are AAA rated by Crisil, Fitch and CARE indicating high credit quality of these bonds.

One can hold these bonds both in physical as well as demat forms.

For more on this visit


Mutual funds are one of the most efficient and popular investment options for people looking to invest for wealth creation.There are thousands of funds to choose from, yet most investors really don’t need more than four or five funds. Sifting through all of the choices can be rather daunting.

There are thousands of funds to choose from, yet most investors really don’t need more than four or five funds. Sifting through all of the choices can be rather daunting.


A mutual fund is a fund where money is collected from all the investors investing in that fund, and is invested by a qualified fund manager on behalf of all the investors. The fund manager manages the investment and aims to beat the benchmark returns like BSE 100, Nifty 50 etc. Each of the funds will have a investment goal and strategy and the fund manager is required to invest according to that mandate. There are 3 kinds of mutual funds basically on the nature of its investments

1. Equity based mutual funds

2. Debt Based mutual funds

3. Balanced or hybrid mutual funds

Mutual funds are also classified as active funds and index funds. Active funds are the funds where the fund manager actively trades the stocks to generate maximum possible returns , while in an index fund the investment is made in stocks representing that particular index like nifty or sensex , in the same proportion. The active funds can have greater returns but also have higher costs, while index funds have lower costs and believe in "buy and hold"strategy.


First, you need to figure out what type — or style — of fund you need, which is based on your investment goals, time horizon, tolerance for risk, among other factors. After deciding what types of funds you need — like an international stock fund or a fund of small companies — you will want to evaluate the funds in each category using the following criteria:

1. Costs - First, find out if there are any suitable index funds — they have the lowest costs and typically beat their actively managed counterparts over time. The average active mutual fund charges about 2.25 percent of your investment each year — this charge is known as a fund’s expense ratio — while the average index fund costs 0.50 percent.Pay close attention to other fees. You want to avoid funds that charge loads, which are sales charges levied when you buy or sell a fund.

2. Company - Do business with companies that have long track records. The same goes for portfolio managers. Find out how long they have been running the fund, and what they have done in the past. Web sites like and track this type of information.

3. 5 star or 4 star funds only - Morningstar and valueresearchonline rate the funds depending on their relative performance over years. The 5 star rated funds are supposed to be best performing fund and one must look to invest in those only.

4. Performance over long term - Don’t put too much weight on fund performance over recent past. Often, this year’s star funds are next year’s worst performers. Check the fund’s performance over three-, five- and 10-year periods. If the fund is actively managed, compare how the fund has performed versus its benchmark, especially during market downturns. Be sure to stack it alongside its peers, or funds of the same style, too. Choose a fund with relatively consistent returns.

5. Portfolio turnover - This is a measure of how often a fund manager buys and sells the securities it holds. If a fund has a portfolio turnover of 100%, that means it has bought and sold its entire portfolio within the last year. The higher the turnover, the higher the trading costs -- and the more likely the fund will generate capital gains. Lower turnover means the portfolio manager is adhering to a longer-term buy-and-hold strategy, which should translate to higher returns. Index funds have a very low turnover ratio. For funds held in taxable accounts, it is best to choose a fund with turnover of less than 25 percent.


One can buy mutual funds from various distributors of the AMCs. Most of the banks and FIs act as agents or distributors for the mutual funds company and one can buy it from them. Mutual fund company have direct sales offices and representative as well. There are AMFI certified agents as well who sell mutual funds. One can buy it from them as well.

Sunday, June 28, 2009


The global financial meltdown has led to various governments across the globe into pumping billions of dollars into the economy to revive demand and growth in the economy. Increased money supply does help in pushing the demand for goods and services up thereby helping the economy grow . There are green shoots of recovery already in some parts of the world. India and China are already growing at a healthy rate. One of the bad effects of de-growth and recession is the menace of deflation. India is already in deflation officially. Deflation is potentially very dangerous to the economy and can lead to serious damages on the demand side in the economy.But we need not worry too much about it because of 2 reasons . First reason is that in India even though the WPI is in negative the CPI is still at 9% , which is very high. So technically the demand for essential items like food articles etc is still on the rise. The second reason is the deflation is expected to be a short lived phenomenon. This is because, the large scale pumping of money into the system will create excess liquidity in the system , which will eventually lead to inflation.

Inflation is a double edged sword , while it provides an opportunity for an appreciation in assets , it also pushes the purchasing power of money lower. With the likelihood of inflation making a grand comeback , how should you be approaching your investment strategy. Well there are few asset classes which do well in an inflationary economy and as such you must look at these asset class right now to benefit when the inflation returns.

1. STOCKS - There is a direct relationship between the money supply in the economy and the stock market gains. Whenever there is excess liquidity in the market, the stocks prices go up. The bull run of 2002-2008 was primarily driven by the excess liquidity and cheap credit world over, and the recent bear market started when the liquidity dried up from the market post Lehman Brothers fiasco. So, when inflation returns back, chances are that the stock market will go up again. It already has gone up by 50%-80% . It might go up more in coming 12-24 months. Mr. Rakesh Jhunjhunwala has predicted that Nifty might touch 6000 by 2009 . Another famous broking house has predicted that BSE will trade at 30000 in next 3 years. So,chances are that stock markets will give more than average returns when the inflation returns back. Investing in stock markets now will help book handsome profits during the days of healthy inflation. Word of caution on stock investing is that you must invest in stocks depending on its value,price fundamentals etc. Do not invest indiscriminately in stocks.

2. SHORT TERM BONDS - Bonds are a good investment when the inflation is low since the impact on the yield is not much . But one must stay away from investing in bonds for a longer maturity period , if one expects inflation in future. This is because inflation will push up the interest rates and any increase in the interest rate will pull the yield on the bond maturity down. So your gains from the investment in bonds will be lower. As such since inflation is at an all time low these days, you must invest in bonds for shorter duration. Use the ladder approach, where you can reinvest the maturity proceeds again in bonds at a higher coupon rate.

3. COMMODITIES - Inflation pushes the prices of commodities higher. And any investment made in commodities now, is very likely to fetch handsome returns when the inflation inches northwards . One can look at investing in commodities like gold,silver, copper etc now when the prices are muted. My suggestion would be to invest about 15-25% of your investible corpus in a mix of commodities comprising gold, silver, copper,cotton etc. Stay away from betting just on 1 or 2 commodity. Investing in the shares /stocks of commodity based companies will also be beneficial.

4. REAL ESTATE - Another asset class which benefits from rising prices or inflation is real estate. The surge in real estate prices during 2003-08 is a testimony to the fact that when inflation is higher, the prices of buildings,plots,flats etc zoom up. People made lot of money in real estate during those days. Now the prices have come down, but are expected to head north once again. hence anyone looking to invest in real estate, should do it now since the prices are lower and aslo the interest rate on home loans are lower. Both these will rise once again . Real estate is an evergreen investment which grows in value over a period of time. It fetches more returns during inflation.

The above mentioned are few of the assets where one can invest now, to reap the benefits of capital appreciation when Mr. Inflation makes grand comeback. And inflation will come back . According to the RBI's estimate, the inflation in expected to be 5% by March 2010 from the current level of -1.14%. So, get your portfolio right so that it stays healthy for you in face of inflation as well.

Happy investing...

Friday, June 26, 2009


While deciding on the home loan ,personal loan or car loan we are all very sensitive to the rate of interest being charged on the loan by the bank. This is because rate of interest directly impacts the repayment amount of the loan. A higher rate of interest obviously means more interest payout and hence is that much less desirable. This is perfect. But, what most of the loan seekers do not focus on is the tenure of the loan. Tenure of the loan , like rate of interest, impacts the repayment amount directly. Tenure is very important factor that one needs to check and negotiate on while taking a loan. Let us understand in greater detail how tenure of the loan impacts us.

1. Longer Tenure Increases the repayment amount on the loan - Let us consider an example. Assume Mr. X takes a personal loan of Rs 100000 at an interest of 10% annually for a period of 3 years. Consider the rate of interest as flat for sake of simplicity and ease of understanding. Now, for a tenure of 3 years the total amount that Mr.X will have to repay would be

Rs 130000. The monthly EMI would be Rs 3612. Now, If Mr. X wants to repay the same loan in 5 years, his terms are likely to change. For longer tenure loan , the banks charge a slightly lower rate of interest. So lets assume his rate of interest for a 5 year loan of Rs 100000 is 9%. Then his total loan repayment amount would be Rs 145000. The EMi would be Rs 2416. Thus, you can see that for the same loan Mr. X would end up paying Rs 15000 (145000-130000) extra if the tenure is increased from 3 years to 5 years.

2. Longer Tenure reduces the rate of interest and EMI amount - In the above example, you saw that both the rate of interest and the EMI amount for Mr. X was reduced from 10% and 3612 to 9% and 2416 respectively. Thus longer tenures makes the loan EMI more affordable for a borrower. This is the benefit of loans with longer tenure. Loans with high sanction amount generally are of longer tenure to make the EMI affordable to the borrower. Example is housing loans where most of the loans are of upto 20-25 years tenure. But, the point to note is that even though , increase in tenure reduces the nominal rate of interest charged and makes the EMI more affordable, the overall interest component and the loan amount to be repaid is increased.

There are times when longer tenure makes sense while there are times when shorter tenure makes sense.

Longer Tenure Loans

1. In case of loans where the loan sanction amount is high ,like in case of housing loans , the EMI would be very high if the tenure is short. To make the EMI affordable , one must increase the tenure of the loan.

2. As a corollary to the above point, a longer tenure in the loan, increases the loan eligibility of the borrower. This is because of the fact that loan eligibility of a borrower is based on,among other factors, the EMI that he can afford. A lower EMI does increase his loan eligibility.

3. The value of money decreases over a period of time i.e. the purchasing power of rupee decreases over a period of time. In a potentially inflationary economy, longer term loans might make more sense as the depreciation in the value of the rupee would be more and in effect the money that you would be repaying would be lesser in real terms. But, it is very difficult to judge the inflation rate 10-15 years from now on.

4. Longer tenure loan can really hurt if you are looking to foreclose the loan in short time, since in loans with longer tenure, the first few EMIs , more or less goes towards interest servicing and as such when you foreclose the loan ,the loan amount would hardly reduced and you will have to pay the entire the loan amount along with the foreclosure fee.

Shorter Tenure Loans

1. Shorter tenure loans makes sense for people who can afford relatively higher EMI. Shorter tenure makes your loan cheaper since the interest component on the loan is lesser.

2. Suited best for people looking to foreclose or pay off the loan quickly.

3. Does not require long term commitment and as such is less of a strain on your future cash flow.

Hence, you can see that both have their own advantages and disadvantages and you must decide between them depending on your need.

Thursday, June 25, 2009


It is not entirely uncommon to see people making payments of their home loan,personal loan EMI, credit card,mobile bill payments etc in cash to the collection executive who comes to collect the same at their office or at home. While there is nothing wrong in doing so, one needs to be little more careful and do some mandatory checks before making payments. The reason for this is that there are lot of cases of fraud reported , where the collector collects the money from the customer but never deposits it in the bank. At times, collectors collect the money from 5-10 customers at a time and run away with the money , while there also have been cases where the collection executive after being dismissed or after having quit the organisation, continues to collect the money from his regular customers . Obviously , this money is never deposited by him in the customer's account. These are the malpractices which have crept into a system which is meant for the customer's benefit.

As a prudent person, you can protect yourself from such frauds by keeping in mind following things:-

1. Always check the collector's ID Card- Whenever a collector comes to collect your EMI or bill payments, you must ask him to show you his ID card. This will ensure that you are dealing with a collector only who is authorised to collect on the bank's behalf. This will also eliminate chances of an ex-employee of the bank collecting money from you. Never make any payments to anyone without checking his ID card to your satisfaction.

2. Ask him to show you your account statement - Banks and NBFCs often give the account details mentioning the outstanding amount etc to the collector who is responsible for collecting payment from you. You must always ask him to show you the statement. It will help you find out the exact amount that is due by you to the bank and also will serve as second line of identity check for the agent.

3. Cross check the outstanding amount from the bank call centre - At times, collectors might not carry the account statement with them and use that as an excuse to collect more than what you owe to the bank. Though this is a remote possibility, but this can and does happen to people. As such, it is advised that in such circumstances it is better to cross check the outstanding amount on your loan from the banks helpline or call centre. These are 24X7 call centre and will provide you with the relevant details whenever you ask them for.

4. Always check the receipt properly - In lot of cases of fraud reported, it is generally found that the collectors use duplicate receipts to collect money . These duplicate receipts are then handed over to the customers which have no meaning and value. So, in order to avoid that you must check the receipts properly. Original receipts will be generally of better quality , will have banks logo in it along with the agency's name , will always have to be filled in duplicate( 2 copies , one for the bank and one for the customer) if not triplicate. Bogus receipts generally are not filled in duplicate (as in 2 copies). Also check the agency details as mentioned on the collectors ID card with the address mentioned on the receipt. They should be ideally be the same.

5. Ask for the receipt - This is very basic but most important nonetheless. You must never make any payment to anyone without taking the receipt from him for the same amount. Receipt of the cash paid is the only evidence that you have of having made the necessary payments.

6. Avoid paying foreclosure or prepayment amount to the collector - When you want to close your loan or foreclose it, you must always do so at the bank branch. You must never pay foreclosure amount or prepayment amount etc to an agent or collector . This is because the agents are not allowed to collect foreclosure money or amount from the customers unless the loan is a delinquent one. Even if you are a delinquent customer , you should avoid paying foreclosure amount to a collector. Always do it at the branch. IF at all you want to pay it to a collector , then you must do so only after he gives you a letter in writing from the bank officials (not from the collection agency) stating that on the payment of so and so amount your loan account with us stands closed as on today or something to that effect.

7. Keep the receipt with you -Last but not the least , you must keep the cash payment receipt properly with you. At times , banks might miss out on updating your payment in your account even though the money collected has been duly deposited by the collector. This could result due to various factors. In such cases, you will have to produce the cash paid receipt. Upon producing the receipt, the payment is updated and your account becomes regular.


Banks and NBFCs use the credit scores from rating agencies like CIBIL to evaluate the loan or credit card application from its customers. Based on the credit scores , the banks/NBFCs take their credit underwriting call. For good customers having higher CIBIL Scores, the loans generally gets approved while for people having lower scores, the loan is denied.

But, the problem is that these scores are never shared with the customer. Unlike, in West, where every customer has access to his/her credit score, in India, this was not possible till now. But, now there is something to cheer. Now, as per the regulations, all banks and NBFCs are directed to provide the details of the CIBIL score to all such customers/applicants whose loan or credit application has been declined by the bank on the grounds of bad or substandard credit score. The customer can demand his/her credit score details from the bank. The customer,however, will have to pay Rs 50 towards this service.

This is small step in the right direction as this will make the whole process more transparent. Also this will increase the awareness about credit scores in India.

Wednesday, June 24, 2009


The banking and finance sector is structured in such a way that most of the banks and other NBFCs depend a lot on the channel partners for sale of their products. The channel partners like DSA and DSTs, even though are a different entity separate from the bank/NBFCs, have become an integral part of their distribution network. Bulk of the sales of bank's products like salary account, current account, home loan, personal loan, car loan etc happens through these channel partners. As such, sometimes they become the face of the bank to a customer and can yield great deal of influence over them. Using this influence , the DSA /DST executives sometimes charge a commission from the customer promising them that they will somehow "arrange" the loan from the bank for them.

Customers fall for these claims because of various reasons. Firstly because they see these agents as part of the bank/NBFC and as such assume that they might be able to influence the credit approval process in their favour. Second reason is mostly the desperation of the customers to get loan. They want the loan faster and as such do not mind paying a commission , if that helps them get the loan faster. But, the truth of the matter is that agents are not supposed to charge any commission from the customer since they are adequately compensated by the bank/NBFCs for their services. They are strictly prohibited from taking any money or commission from the customers on any pretext. But, most of the customers are not aware of this and as such fall prey to these money making tactics of few agents. Here, it would be necessary to say that all agents do not indulge in these malpractices. The scope of this article is to expose only those agents who are out to make money at the expense of naive customers.

Let me state the various reasons why you should never give any commission to any agent for your loan or credit approval.

1. Banks do not allow agents to take any commission from customers- Most of the banks/NBFCs have a policy whereby their agents are strictly prohibited from taking any money in any form from the customers on any pretext. Agents are hired by banks for soliciting customers and they are paid salary and incentives by the bank against their services rendered. Banks take strong exception to any complaints from the customer against agents in this regard . Agents are generally fired immediately after a customer complains against them ,for asking money, to the bank .

2. Agents have no control on the credit underwriting and loan approval process - Another important thing for everyone to know is that in most banks and NBFCs the sales function and credit underwriting function is completely separate with sales team having no or limited influence over the process of credit underwriting . As such, one must understand that the sales agent can not help influence the outcome of the credit underwriting process , even if he is paid money to do so. The money you will pay will just be pocketed by him , in case your loan gets approved, which would happen automatically under normal process if your case has merit.

3. Banks might deny you a loan if they come to know of this - In case banks come to know about you having paid money to an agent for getting your loan approved, they may view your case with a bit of suspicion , since paying money implies that you have something to hide or have some deficiency in your documents or in merit of the case. Also, it is assumed that customers who pay money to an agent as commission are more likely to be delinquent than others. Banks , obviously, do not want to lend to customers who are likely to be delinquent as such your case becomes weak if they come to know that you have paid money to the agent.

It is important to understand, that while you may be paying your agent money as a compensation for his services, banks consider this as you having paid bribe to the agent to "push" your case. This might go against you at times.

4. Agent might forge documents or signature - When you may commission to an agent , he has a vested interest in you getting a loan. As such at times, he might resort to malpractices like forging documents like income tax returns, salary slip etc on your behalf . At times he might also forge your signature. These things he would do to get your loan approved by "hook or crook", but you must understand that these are unlawful activities being done by an agent on your behalf which might get you in trouble.

Hence, it is always better to stay away from paying any money to any agent. The best strategy is to walk in personally to a bank branch near you and speak to an officer there. They will be more than happy to help you with the process and document requirements. This way , you may never have to deal with a DSA/DST agent.

Tuesday, June 23, 2009


According to a recent survey conducted , it was found that Asians believe that indulging in small luxuries is the best way to beat the downturn stress. 82 percent of respondents also believe that indulgence was the best way to beat the stress of modern life, and that spending time with family, short holidays, spa sessions and small luxury items were among their favourite ways to relax.Nearly 70 percent of respondents said life should contain as many luxuries as possible.

The survey also found that people from India, China and Vietnam were the most likely to shrug off the downturn, while respondents from the more developed Singapore, Hong Kong, Australia and Japan were the least positive about the future.

For more on this survey log on to

NFO - No Fun Offer

New Fund offers or NFOs, as they are popularly know, are quite popular among lot of people for various reasons but the most important factor which is responsible for the popularity of NFOs is the notion among investors that NFOs offers units at a discount or at a cheap rate. They feel since NFOs offer units at NAV of 10 , they are better off investing in an NFO as against investing in other schemes where the NAV is higher than 10.The feel by investing an X amount in an NFO they will get more units and hence would be better off. This is completely wrong theory about NFOS and NFOs are in no way cheaper or better than other funds available in the market.
Let us examine this in detail . Now, the question that we need to answer is this : Do we invest in a fund to make more money /return or to buy a unit at lower NAV? the answer is obvious. There are various drawbacks of a NFO , some of which are mentioned as under:-
1. NAV of 10 does not mean you are better off - Return on any investment is determined by the following formula
Return = (NAV at the end of the review period-NAV at the start of the review period)/NAV at the start of the review period X 100
Now, let us take an example of Rs 1000 being invested in 2 funds . One is an NFO offering units at NAV of Rs 10 while the other one is an existing fund with NAV of 12. So the units that one gets in both the fund will be
NFO - 1000/10 = 100Existing fund - 1000/12 =83.33
Now , assuming at the end of 1 year the NAV of these funds are as under
NFO - 12Existing fund- 15
The returns in both these funds at the end of 12 months
NFO = (2/10)X100=20%Existing fund = (3/12)X100=25%
Total fund value at the end of 12 months
NFO = 100X12=1200Existing fund = 83.33X15 = 1249.50
So , you can see that in the existing fund, the returns are more than the one in NFO even though the NAV of NFO at the time of entry in the fund was lower than the NAV of the other fund.This establishes the fact that the return on your investment does not depend on the NAV of the fund when you enter into it. It depends on the growth in NAV during the time you enter and the time you exit. Hence, the notion of NFO being a better option simply because they offer NAV of 10 is completely false one.

2. NFOs have higher charges - NFOs have higher charges than an existing fund since they have to spend on marketing and sales promotion of the fund. A new fund is launched amidst much fanfare and all this cost money. Even the sales commission for an NFO is significantly higher than the existing fund and all this add up to increase the charges. NFOs have first year charge of 3-4% as against a charge of 2.25% for an existing fund. So, you end up loosing money in an NFO because of these unnecessary charges.
3. NFOs do not have any track record - The most important principle in mutual fund investing is that one must invest in a fund having proven track record of at least 3-5 years , if not more. This ensures that you are putting money in a good fund which has delivered goods consistently over a period of time. This reduces the risk for an investor to some extent. But,NFOs do not have any track record and as an investor you are pretty much taking a big chance with the fund. The fund may or may not do well. All NFOs do not tend to become great funds .

Since NFOs are in no way better than an existing fund , then the question is why are they so popular? They are popular because of NFOs offer companies to package their fund in a unique way and they also play on the mindset of investors that low NAV is better for them. An informed investor will stay away from NFOs and would invest in funds which have performed exceedingly well over 5-10 years. Why would you like to take a chance with a newcomer when you have a veteran ready to take care of your money.

Monday, June 22, 2009


Remember the story about a tortoise and a rabbit competing in a race? In that race ,the rabbit , being more agile and fast , expects himself to win the race hands down against a slow but steady tortoise. We all know who wins the race in the end. We have the same race run on stock markets every day. We have traders and investors both competing to make more and more profit.

Traders are very similar to the rabbit who was fast and agile , while investors are more like the tortoise who made slow but steady progress. The end goal for both of them is same but the route that they take is different.

TRADERS - Traders are those set of people who make transactions in the stock market with a definite exit strategy. They initiate trade for short term and look to exit from the stock on making small gains. Sometimes, they can buy and sell the same stock 3-4 times in a single trading session, making smaller gains every time. They do not believe in "buy and hold" strategy.

INVESTORS - Investors are those set of people, who are looking to invest in a company stock for a longer period of time. They believe in the business fundamental of the company and are looking to profit from the dividend as well as appreciation in stock price over a long period of time. They have more patience than traders are in for a long haul.


1. Traders are considered to be businessman and as such they do have tax incentives. They can offset their losses in trading against any benefit /gain in future trades. They are also allowed busines expenditure deductions.

2. They make money faster than the investors. They do not have to wait for a longer period of time.

3. They can make money both in bull and bear markets by initiating trades accordingly.


1. An investor makes money both from dividend declared by the company and also from the capital appreciation of the stocks over a period of time.

2. In India, there is no tax on dividend income and also on long term capital gains on stocks held for more than 12 months.

3. Long term wealth creation due to the power of compounding.

WHICH IS THE BEST STRATEGY? Both these strategies have their own merits and it depends entirely on you as to what do you want to do. Anybody looking to make money over a long period of time needs to stay away from trading. Also trading involves full time involvement of the person and a person having day job can not do it on his own. He can do it via a broker, but that will at into his margins. For common people, I think the best strategy even today is to buy good stocks with solid fundamentals and then hold it for 5-6 years at least to reap the rewards of dividend income and capital appreciation. The best and most famous investor Warren Buffet says" I buy stocks with a view of never selling it , I would buy the same stock even if the stock markets were to shut tomorrow for next 20 years". Besides, even in real life when it comes to money , its the tortoise which wins the race to financial independence more often than rabbits do.


India's largest life insurance company LIC , has unveiled a plan to make it possible for its policyholders to claim their LIC benefits like maturity amount, sum assured amount ,annuity etc from any branch , irrespective of the branch where he took his/her policy from.As of now , this is not possible since most of the branches are not interconnected.
LIC already has started taking premiums from all its branches and its policyholder can pay their premiums at any branch . In next 2 years, they will be able to take the claims /benefits etc also from any branch. This will be huge step in meeting the customers expectation of seamless delivery of service from LIC.
LIC has over 23 crore policy holders across the country . The digitization of record of these policy holders will ensure archival of physical records in electronic form and will eliminate risks of loss or damage to physical records due to natural and other disasters.

Sunday, June 21, 2009


Health insurance is supposed to be one of the first and foremost things that one needs to plan for while planning for his/her financial future. It aims to provide cover against any untoward medical expenditure that might come up in future. Health insurance is a very important and useful product,something that is usually recommended for one and all. But, these health covers also tend to have an unintended bad effect on the overall cost of medical care.
With the increase in penetration of health cover among vast majority of Indians, the hospitals have started to benefit greatly from this. The overall medical cost is on the rise . Let us examine in detail, as to how health insurance may be pushing the overall cost of medical care up ,especially in private hospitals/nursing homes.
1. People with medical insurance prefer deluxe rooms/hospitals - People having medical cover tend to go to hospitals which are expensive and are supposed to provide "deluxe amenities". The rationale behind this is the perceived value in things which are expensive. A hospital which charges high fees for its medical facilities is perceived as better than the ones which charge lesser. This consumer behaviour is the root cause why hospitals are getting bigger and more expensive with every passing day.While it is perfectly normal to expect the best , when it comes to medical care, the truth is that most of these so called "best hospitals" do not provide any tangible benefit which is different from other budget hospitals in the same area. The patients tend to opt for deluxe rooms which are expensive ,since they do not have to pay the bills themselves and its the insurance company which will pay up for them. Lot of patients may not really need the deluxe rooms or super deluxe facility , but end up using it. This rush for deluxe rooms/amenities puts pressure of hospitals to have more and more such rooms at the cost of general wards or budget rooms. And due to lack of enough budget rooms, many are forced to pay for deluxe rooms out of their own pocket (in absence of insurance cover) even if they can not afford it.
2. Every other expenditure is linked to the "room type"- The most important decision that one makes while getting himself or his patient admitted in a hospital is the room type that he chooses to stay in , because hospitals follow a very unique pricing model where they price all their services like nursing charges,doctor visits,operation theatre charges,operation charges etc on the room type that one stays in. this means a person staying in deluxe room will have to pay more for his operation as against a person from budget room or a general ward for the same operation. This pricing model is flawed and is aimed at milking the rich and people having health insurance cover. But, this affects people without insurance cover very adversely since they too have to pay as per this when they end up taking these rooms for lack of other rooms.
3. Overdose of medical tests etc - Hospitals are in essence, a for profit organisations ,and as such their primary motive these days has become earning more and more profit. In order to do so, there is a tendency among doctors and hospital staff to make the patient undergo as many tests as possible, some of which may be completely unnecessary. These test help them shore up the bills which are paid up either by the insurance firm or by the patient himself. The patient having insurance cover does not mind these tests as he equates more tests with better care . All these bills are paid by insurance firm which helps the hospital staff make decent money in the process. This practice initially started to milk the patients with health cover has now become a general practise which makes the whole process too costly for people without an insurance cover.
4. Insurance cover too will become costly - As a by product of this trend, the premium for health insurance cover too would increase in future. Since ,premium for health insurance is decided primarily on the basis of the perceived health risk of the insured, the cost of medical care in the area/city among other factors , any increase in the medical cost will subsequently increase the premium for such health covers as well. Thus the consumer will end up paying more to get the same cover in future.
Sometimes, even the best of actions have unintended results and this is one such case. The government and health officials need to get more involved in this sector by regulating it well so that the Indian medical care industry does not become as costly as its American counterpart has become.

Saturday, June 20, 2009


Loan or credit , in India was regarded as not such a good thing to have by our forefathers. They always believed in living within their means .Taking credit or loan for them was a bad thing , something ,which they resisted at all times. However, things have changed over last generation and today, credit is not considered such a bad thing , anymore. In fact, in America, credit is much sought after and most of the Americans live off on credit. The level of debt that Americans have on their head is unparalleled.
Even in India, the penetration of debt is increasing. People are buying more and more on credit these days. But, the question that needs to be answered is whether or not credit is a good thing? Many argue that credit is vital for the economy at it creates demand for goods and services, thereby pushing growth in the economy. A growing economy in turn benefits everyone. The other school of thought is that debt is bad since it eats into your savings and your future earnings in a way are used up servicing the debt. This reduces your savings and investment ability thereby impacting your overall financial well being. Both these arguments have their own merits. My take from an individual's point of view is that credit when taken for productive purposes is always good while credit just for consumption sake is not good.
Like most other things, credit too is both good and bad. From an individuals perspective the credit taken for productive purposes is good credit while one taken for buying consumption item is bad credit.
GOOD LOAN- Loans like housing loan taken to buy a house for you is a good loan. It helps you get a house to live in which is a necessity. Also without your own house , you will have had to stay on rent ,which is an unnecessary expense. Housing loan helps you save on rent and build a long term asset. Similarly, education loan taken for financing higher studies,too is a good loan. It helps you get higher degree, which enhances your employability, and thus increases your earning potential. The money earned after acquiring higher education is much more than the money paid as interest on the education loan. The crux of the matter is that the loan which helps you earn or save more than the interest paid on the loan, is good for you.At times, there are medical emergencies where you may need to take loan. Eventhough these may not earn you anything in return monetarily, these are also considered as good loans, as they help you save life and life as we know is priceless.
BAD LOAN - Loans like sales finance loan, taken to buy LCD TV, second car, sports bike etc comes under this category. Other examples of bad loan would be personal loan taken to finance your holiday, loan taken for spending on lavish wedding etc. These loans do not add any monetary value and are meant only for consumption.You end up paying huge interest on these without earning/getting anything out of it. However, a loan taken for buying a truck to be used for commercial purpose is a good idea since it will earn you more than the interest that you pay on the loan.
So, next time when you are thinking about taking any loan , ask yourself if this is a good loan or bad loan? Go ahead with it if you think its a good loan to take , else you will do well to pay heed to our forefathers advice of shunning loans at all cost.

Friday, June 19, 2009


SEBI in a sweeping reform has done away with the practise of charging "Entry Load" on mutual fund investments , by the AMCs. Till now, the AMCs used to charge an entry load of 2.25%, on the money invested , from the investors. This fee was used to pay the sales commission to the dealers and sales agents involved in sales and distribution of mutual fund schemes. But, there was no transparency on the amount of commission being paid by the AMCs to the sales intermediaries out of this 2.25% entry load.
Now, SEBI has removed this entry load and as such AMCs (Asset Management Companies) can not charge any fee to the investor when he invests in a fund. This will ensure that your entire money is invested in the fund without any deduction. As far as commission to the sales intermediaries is concerned , SEBI has made a provision where the investor directly can decide the amount of commission he wishes to pay the sales agent. The AMC will henceforth, be not involved in this. The commission will directly be paid by the investor and the amount will be decided by the investor. This offers scope of saving in the commission fee as well. The investor will now have to pay 2 cheques, 1 to the AMC and one to the agent for his commission.
The various advantages of these reforms are
1. The mutual funds will have even lower cost structure now.
2. More transparency in the sales commission paid.
3. More powers to the retail investor in deciding the commission he wishes to pay to the advisor or agent.
There are possible drawbacks as well of this move
1. Since 90% of the mutual fund distribution is through the sales intermediaries, reduction in incentive/commission might deter them from selling/distributing mutual funds.
2. AMCs might start charging higher exit fees to recover the loss of revenue due to abolition of entry fee.

Thursday, June 18, 2009


There is a good news for all those small investors who ,till now, could not invest in mutual funds because they did not have a PAN Card. Since PAN card details were necessary requirement for anyone wanting to invest in mutual funds, a vast majority of small investors were kept out of this . The idea behind PAN card details being asked from investors was to follow KYC (Know Your Customer ) norms . KYC norms intend to eliminate the chances of money laundering.
But, now the regulation allows investment in mutual funds via SIP without PAN details as well. This is however permitted only till investment of Rs 50000. In banks too , the PAN details are asked only on deposit of Rs 50000 or more and in that respect this is consistent.

What this change will do is that it will bring a whole bunch of small investors, who invest in small amounts , into mutual fund fold. They too can save for themselves and invest in mutual funds , thereby reaping its benefits. This will also increase the participation of retail investors in mutual funds industry.


Banks have always placed lot of emphasis on trust factor in order to win over the customers confidence. People park their money with banks and as such would always prefer to deposit money in bank which they see as more stable ,trustworthy and fundamentally sound. As per the Brand Equity Survey conducted for most trusted brands in India, the results in banking space threw no major surprises.

The top 2 slots were taken by government owned PSU banks viz. State Bank Of India and Bank Of India. The third place was taken by ICICI Bank, which to my mind is a bit of surprise considering the numerous incidents of near run on bank, fuelled by rumours of insolvency , in the past. LAst year too there was rumour afloat that ICICI bank was near bankruptcy due to its vast exposure in mortgage securities in the west. This had led to situation of uncertainty among the banks customers. Infact, the situation was rescued only after both RBI governor and Finance minister making a statement in favor of ICICI bank's stability. The fourth spot was held by one of the most respected and profitable banks in private sector space in India, HDFC Bank.

Government owned banks are more trusted as government is the primary owner of these banks and the chances of these banks going bust is perceived much lower as against the private banks. Last year when most of the banks were struggling to get deposits due to liquidity crunch , SBI was having a field day. It managed to attract deposits daily to the tune of Rs 1000 crores /day, a feat which clearly established the fact that in difficult times, money takes a flight to safety and SBI being perceived as the most trusted and safe bank, benefited from it.
The complete list of most trusted banks by Indian consumers are
1. State Bank of India
2. Bank Of India
3. ICICI Bank
4. HDFC Bank
5. Central Bank Of India
6. Bank of Baroda
7. Punjab National Bank
8. Axis Bank
9. Kotak Bank
10. Citibank
11. Standard Chartered Bank
12. HSBC Bank

Wednesday, June 17, 2009


Generally the insurance companies pay upto 60-70% of the total repair cost of your car post an accident , under the car insurance cover. This is because the insurance companies pay based on the depreciated value of the car, do not pay for rubber,glass ,plastic ,fibre items etc. This results in significant monetary burden on the owner during car repair inspite of him having insurance cover. However, there are various add ons which are available in the market which will ensure that your cover on the car goes up and you are saved from the stress of paying for your repairs post any eventuality. Following are few of the options that one can look at

1. On Road Protector - Under this option, the insurance company pays for the assistance you might need in case of your vehicle getting immobilised post an accident. This will cost less than Rs 1000 per year.

2. Return to invoice - Biggest issue with vehicle insurance is that they tend to pay you the depreciated cost of the vehicle. So in case, you loose your vehicle to theft, you get depreciated value of the car while you may need to buy a new car. The insurance claim wont suffice then and you would have to cough up extra money to replace the car. However, under this cover, you will get the replacement cost of your vehicle as your claim amount.

3. Depreciation Reimbursement - This offers the full value of the parts which are replaced ,without any deduction.

4. Daily Allowance - Daily Allowance cover intends to meet the daily expenses of hiring another car till your vehicle is under repair in a garage. The rent for the vehicle is paid by the insurer.

5. Key Replacement - Covers the cost of replacing lost or stolen vehicle's or residence's keys or locks . This really comes handy when your residence keys gets stolen along with the car.

6. Loss of Personal Belongings - Offers to pay for the loss or damage to personal belongings that were in the vehicle at the time of loss or damage to the vehicle .

7. Repair of glass,fibre,rubber items as well - Under this add on, the insurer will pay for the repair/replacement of glass,fibre,rubber items in your car/vehicle as well, which is generally not paid for in a plain vanilla vehicle insurance.

8. Emergency Transport and Accommodation expenses - Covers the cost of overnight stay and taxi charges for returning to the place of residence, or the nearest city, if the insured vehicle has met with an accident and cannot be driven .

So, next time you are renewing your car insurance, think about getting some of these add ons to make your car insurance cover more extensive and meaningful.


According to the data available with Chief Metropolitan Magistrate, the incident of bouncing a cheque has seen an increase of 129% in Mumbai alone. One of the chief reasons cited for this increase is the current economic downturn and increasing job losses. But, irrespective of the reasons , bouncing a cheque is deemed as a criminal activity and can have serious repercussions on the guilty party. Lets understand the full impact that bouncing a cheque can have on the person guilty of it.

1. Is a legal offence and can get you in jail - Dishonouring a cheque is a criminal offense under Negotiable Instruments Act , punishable by imprisonment of upto 6 months. The affected party can drag you to the court in case you bounce the cheque drawn by you in his favour. There have been numerous cases , where court has punished the guilty.

2. Loss of credibility - For any honourable man in general and businessman in particular, his credibility and integrity is very dear to him. An act of bouncing a cheque results in loss of credibility and can seriously hamper the business prospects of a businessman. His future dealings with his creditors might be adversely impacted.

3. Bad credit history - An incident of bouncing a cheque does negatively impact your credit score (CIBIL,FICO ,SATYAM etc) . This credit score will go to all the banks and financial institutions and will be viewed negatively by them. Next time when you apply for a loan with them, they may not approve the loan to you or in case they do, they may charge you higher rate of interest as they will consider you as less reliable borrower.

4. Blot on your bank statement - Cheque bounces are also captured and recorded in your bank statements. Bank statements are required as a mandatory documents by all banks and financial institutions when an applicant approaches them for a loan. Any cheque bounces in your bank statement will make your case weaker and your chances of getting a loan might suffer a setback.

5. Cheque Bounce Charges - Bouncing a cheque also attracts direct monetary fine. Your banker will charge a cheque dishonour fee to you . And if you bounce an EMI cheque of another bank, then you will have to pay cheque dishonour fee to the second bank as well. So, bouncing one cheque can set you back monetarily as well.

6. You may have to pay more than the original amount - In case the other party were to take you to court on the issue of bouncing cheque and not paying his amount, the court may direct you to clear his rightful due along with an interest which is compounded . This can make the total amount payable to the other party by you a much larger sum than the original amount.

7. Bank may not issue you any more cheque leaf/book - Banks generally want to discourage people from bouncing cheques and as such they do ,at times, refrain from issuing fresh cheque book/leaf to the habitual defaulters in this regard.

In , the end, I am sure , you would agree with me that bouncing a cheque is something we should avoid at all costs as it can have very detrimental effect on us.