Tuesday, March 31, 2009


With RBI's announcement of lowering of CRR and repo rate , the lending rates too have gone down. While the private banks have been less than keen on lowering rates , the public sector banks have been very proactive in lowering lending rates especially on high ticket size Housing loans. State Bank Of India, recently announced lower rates on its housing loans for all its new customers. This created a flurry of housing loan customers of other banks moving to State Bank Of India to avail of this new rate benefit. While on the face of it, it looks to be a tempting proposition for all existing borrowers to foreclose their loans with their banks and move to a new bank offering lower rate, the truth is, that it is not beneficial for all and sundry. Before we decide on foreclosing our existing loan and moving to a new bank , there are certain things that need to be kept in mind.They are:
Do a Cost Benefit Analysis (CBA)- Cost Benefit Analysis involves weighing the benefits accruing out of an activity against the cost of doing it, and if the benefit exceeds the cost , it makes sense to go ahead with the activity. Similarly, for switching your loan, you must check what is the cost of transferring the loan and whats the ultimate saving out of this activity. So what are the costs of switching the loan. The costs associated with loan transfer may be- Foreclosure fee paid to existing lender(generally 2% of the outstanding amount..could vary between lenders).- Processing fee charged by the new lender(generally 0.5% of the total sanctioned amount, could vary)- Stamp duty etc.- Miscellaneous charges. The benefit will be- the lower rate of interest charged on the new loan.
So, theoretically (Foreclosure fee+Proc fee+ Stamp Duty + Misc Charges)

How to find out whats my total savings due to lowering of interest rate on new loan?
One very simple method of calculating the total savings due to lower rate of interest may be calculated by the following simple formula

(Old EMIx Remaining Tenure of loan) - ( New EMI x New Tenure) = Savings due to lower interest rate
Whats the biggest catch?-
The biggest catch in the new lower rate of interest schemes announced by banks is that these new rates are only fixed for a year post which they may be revised. This means that after a year there is no guarantee that the interest rate of the new loan wont go up. And if it does go up, your entire savings due to loan switching exercise might be wiped out leaving you back to square one.
So, one should carefully consider all these factors before deciding on loan transfers.

Monday, March 30, 2009


In India we never had any insurance cover to protect an individual from the financial ill effects of a job loss, till now. In Western countries, the job loss insurance is very popular product and has been there for a while. Most of the countries in developed world do have such products which provide help in meeting their loan EMI obligations etc, to people suffering from layoffs etc . But, ICICI Lombard has come up with a similar product in India as well.
What is this product?
This is not a stand alone Job loss insurance policy , but, comes as an add on cover with critical illness policy of ICICI Lombard which Covers risks such as accidental death and permanent total disability.
What does it cover?
Under this policy the company undertakes to pay 3 EMIs of the policyholder in case of job loss. For example, if the policyholder has housing loan of Rs 25000 p.m. , the company will pay off the 3 EMIs on the policyholders behalf as part of this policy cover.It also covers job loss due to termination of service due to illness.
Whats the term of the policy?
The policy cover is for a period of 5 years only post which it needs to be renewed. So for example , if a policyholder has a housing loan of 20 years and he wants this cover to last the full term of the loan then he will have to renew it 4 times i.e. after every 5 years.
What is the fine print?
The job loss has to be a result of closure of division or department due to financial limitations or action of any public authroity resulting in the anyclosure of the company.It does not cover job loss due to retrenchment, voluntary resignation or early retirement.Also it covers only 3 EMI payments and not more, so if your job loss period if for more than 3 months then you may be on your own from 4 th month onwards.
Is it worth it ?
In the absence of a standalone job loss insurance policy , I feel this is a useful product considering the business environment we all live in today. The job security is fast becoming a thing of past and as such this policy definately is step in the right direction for all Indian consumers. Hopefully, in future we will have standalone job loss policies from general insurers of this country which truly is the need of the hour. Nonetheless, since its an add on feature with the critical illness policy, its premium is lesser making it a good buying proposition.

Saturday, March 28, 2009


In our quest for securing our life post retirement, we are always on the look out for an investment plan which is just right for us or in other words best pension plan for us. In India, till now the pension sector was not really thrown open to private players and as such the pension was primarily a facility given to employees of the government organizations only. For others the options were PPF, PF etc. However, subsequently mutual fund pension plan was launched and with the opening of insurance sector , pension plans from insurance companies became available to every one.
So, for some one who is planning to invest towards building a retirement corpus , what are the pension plan options available in India today and which one is the most suitable option for him.

1. Debt based saving instruments like PF, PPF etc – For large part of Indian populace, these have been the most popular saving instrument for building ones retirement corpus. Provident Fund is the mandatory deduction done by the company from the employee’s salary while an equal amount of money is also pitched in by the employer on the employee’s behalf in his PF fund. The Public Provident Fund is a voluntary scheme open to all , where an individual can save for his retirement or other long term needs . PPF is managed by nationalized banks like SBI.
Benefits of PF
- It offers fixed compounded rate of returns on ones investment (currently @8.5%)
- Capital protection i.e. no chance of capital erosion.
- Pension on retirement, death or disability.
- Lump sum insurance payout in case of death of the member, to his nominee/family
- Total maturity amount is tax free.
Benefits of PPF
- It too offers a fix rate of compounded return (@ 8%) to its investors.
- Capital protection
- Maturity amount tax free on withdrawal.
- Withdrawal facility available after 7th financial year of an amount not exceeding 50% of the balance to his credit at the end of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower.
Who does it work best for?
Since it is primarily a fund where money is invested in debt instruments , it is aimed at moderate capital appreciation while protecting the capital invested. It is best for risk averse investors. For people who have started late in retirement planning should ideally look at these options. Since PF is a mandatory deduction it is a part of everyone’s investment towards retirement by default.
Where does this let you down?
It lets you down on the issue of capital appreciation and wealth creation over long period of time as compared to other plans which also have an option to invest a part of the corpus in equities.

2.Pension Plans from Insurance Companies- Almost every insurance company in India does have its own pension plan. Here they offer investors to choose between equity , debt or balanced fund options. The insurance company in turn invests this money in the markets, bonds, debt etc.The investor invests in these funds and gets the pension after vesting age i.e. the age at which annuity payment starts (normally 55 years) based on the fund value (NAV * units)of his investment as on that day.They also have insurance component with the pension plan . ICICI PRU offers optional insurance with its Life Time pension plan. If the investor does not intend to buy insurance cover with his pension plan, he can opt for “0” death benefit.
Benefits of Pension Plan from Insurance companies
- Offers you the option to have equity exposure.
- Better scope of capital appreciation than PF, PFF etc.

Who does it work best for?
It doesn’t work for anyone. Reason? Its abnormally high charges. The insurance company deducts charges to the tune of 30-50% of the first few years premium in the name of admin charge, fund management charge etc . These charges reduce the actual money invested by the investor and hence lowers the fund value at the end.

Where does this let you down?
It lets you down by cutting you dry with its high cost structure.

3. Pension plans from Mutual Funds - Though Indian investors are aware of the pension schemes offered by insurance schemes, the pension schemes operated by mutual funds are less known.

However, currently, there are only two schemes that were launched in the 90s. Since then, there haven't been any pension plans launched by mutual funds.

1. UTI-Retirement Benefit Pension Fund (UTI-RBP) by UTI Mutual Fund launched in 1994

2. Templeton India Pension Plan by Franklin Templeton Investments; launched in 1997.
The fund managed by these pension plans is not a small amount with the two schemes managing Rs 600 crore.
Investors can start to invest a minimum of Rs 500 monthly. A unit holder of the scheme has to ensure that he invests an aggregate sum of at least Rs 10,000 before he completes 52 years of age for UTI-RBP, while investors have to make a minimum investment of Rs 10,000 by the time they reach the age of 58 for Templeton India Pension Plan.
Benefits of Pension Plan from Mutual Fund Company
- Lower cost structure.
- Higher fund value due to lower charges.
- Specialised fund management expertise at lower charges.
- Allows Equity exposure .

Who does it work best for?
It works best for people who are young and have time at their hand. Since equities as an asset class do require longer time period to beat all other asset classes in terms of returns generated, it is most suitable for younger people having 15-20 year time frame.

Where does this let you down?
It charges about 2.25% of the invested amount as fund management charges which is mighty low than the charges on pension plans from insurance companies , but, is higher than the one proposed in New Pension plan.

4. New Pension Plan – Govt Of India has opened up the pension sector for all the citizens of this country by allowing New Pension plan. This was supposed to be launched from 1st April 2009, but, has been postponed due to coming general elections and its code of conduct being in force. This is plan which will work on the lines of pension plans from mutual fund companies. Here also there will be specialized fund managers managing the investments for people. But, the clincher for this plan is its rock bottom charges at 0.0009% of the total investment. This when compared to 2.25% charged by mutual fund companies seems nothing. This difference in charges will give huge kicker on the final fund value or maturity amount in this fund. It will offer 3 types of funds namely – equity, debt and default option. For people wanting to go for capital appreciation, equity fund will do , for conservative people debt fund will work and default option will give you the best of both worlds depending on your age. Under default option, the debt portion will go up with increase in age to protect capital.

Who does it work best for?
It will work for everyone because of its hugely favorable cost structure.
Where does it let you down?
The tax benefit on withdrawal is not there as of now , which is a disadvantage. But, hopefully sicnce all other pension plans have that benefit, this too might get it when launched.

The verdict is to go for New Pension Plan as soon as its launched. Also continue with your mandatory PF deductions to ensure that your overall portfolio is well represented by equity and debt and is balanced.

Stay wise n stay wealthy….

Thursday, March 26, 2009


We all get lucky with money once in a while. Sometimes we get unexpected bonus at work , while at times we get gifts from relatives or some investment maturing etc gets us cash surplus. So what should you do with the extra cash that you have. Here by the term extra cash I intend to mean the cash flow which was not accounted for in your household budget. Now getting back to the issue of deploying it to the best use. Should we buy stuff for us like LCD TV/Fancy Laptop etc or should we go on vacation to Miami or should we buy a new car or should we invest it for rainy day or should use it pay off our bills?? The answer to this will depend on the amount of money that we have at our hand. Large amount of money can help us do all of the above . But, what if we have limited sum of money and we want to get the best out of it.

I suggest that we put our money to use in the following order:
1. Pay off your credit card debts first - Since credit card debt is the most expensive debt to have in the world, it makes lot of sense to pay off this debt first with the extra cash.
2. Pay off other debts- After getting light on credit card debt, use this money to pay off other debts like personal loan, education loan, mortgage etc. We should start by paying off the debt which is smaller in value and then go for the next bigger debt. this will encourage us to keep knocking off loan accounts in future as well.
3. Build an emergency fund - After you have paid your debt, if you have some money left, then use it to build an emergency fund for yourself. This could be equal to at least 6 months of your household expenses.
4. Invest - After providing for emergency fund, if you have some money left then invest it based on your investment strategy.
5. Pay yourself - After doing all this if you still have money left , then I think you would really want to celebrate this and then you might consider paying yourself for vacation etc.

Wednesday, March 25, 2009


The thought of writing this piece came while I was watching news where Delhi Police claimed to have solved Soumya and Jigisha murder mystery. They did so by tracing the credit card transactions of Jigisha. The murderers took Jigisha’s credit card after murdering her and went on a shopping spree buying LCD TV, Reebok Shoes etc. People can and do misplace/loose their cards. Sometimes they are stolen. After your card is stolen, the first thing that you need to do is to call the card call centre and report loss/theft of the card and get it blocked immediately so that no one can use it from that moment onwards. But, there are chances of the card being misused from the time it was stolen till you call the call centre and get it blocked. So how can you protect yourself from the consequent liability on your card? Or god forbid, if something were to happen to you causing total or partial disability because of which you are not able to work and hence unable to earn, who will pay your card bills then? Or what if the card details of the card you are using for Internet transaction is hacked and then is used for multiple other transactions by hackers setting you back dearly. In fact, as per the 2007 Online credit card fraud report, the total looses due to online credit card fraud in 2006 itself was $53 billion. How can you protect yourself from all this? The answer to this is Payment Protection Insurance.

While this is an old concept in US, in India, it is a relatively new concept. Here the card issuing company offers you a insurance on the payment liabilities arising due to fraud, death, total or partial disability etc. Once the card holder has this insurance on his card , he is protected from any liability on his card due to theft, fraud, death, disability etc to the extent of the insurance cover . The card issuer will issue the card and the insurance is generally provided from a general insurance company. For example HDFC Bank offers Payment Protection Insurance on its credit cards from SBI Life.
In India, some of the popular cards having this insurance cover are HDFC Credit Cards, Citibank Credit Cards, Standard Chartered Credit cards.Lets see some of the salient features of these cards.
HDFC Payment Protection Insurance cover
This cover is also provided by SBI Life. It protects the primary cardholder's family from the burden of payment on the outstanding balance in the credit card, subject to a maximum of Rs 1 lac, in the unfortunate event of death or TPD (Total Permanent Disability) of the primary cardholder, due to any cause.
Payment Protection Insurance cover comes at a premium of 0.075% of the monthly outstanding. This premium will vary from month to month depending on the outstanding balance.
Citibank Card Protection Plan
Fraud Protection:
Fraud Protection Prior to notification- Rs. 50,000 for classic card and Rs. 1,00,000 for premium card.
Fraud Protection Post notification- Rs. 15,00,000 for classic and Rs. 20,00,000 premium
Standard Chartered Plus Extended Protection Plan
The Plus Extended Protection Plan (PEPP) is a 1 year general insurance benefit package, underwritten by TATA AIG General Insurance.

-Reimbursement of the unauthorized charges that you are responsible for on your lost or stolen payment card, up to 12 hours prior to your first reporting the event to your payment card issuer(s). - Maximum Sum Insured INR 100000.

- Reimbursement of the money you withdrew from any ATM around the world using your payment card against a robbery event that occurs within 15 minutes of the withdrawal of the money. - Maximum Sum Insured INR 100000.

- Reimbursement for replacement costs for the lost or stolen wallet as well as the personal papers and payment cards that were in the wallet.-Maximum Sum Insured INR 15000.

-Cover for items purchased entirely with your payment card from loss due to burglary, theft or accidental damage within 90 days from the date of purchase.-Maximum Sum Insured INR 500000.

Some credit card companies provide credit shield insurance. Here the due on the card is paid off by the insurance company in case of death or disability of the card holder. This too is quite useful protection plan.

Tuesday, March 24, 2009


Thinking beyond Section 80C for saving taxes in India??
Individuals, who need to save more to save their tax money more than what section 80C allows for, can opt for other options:

a. Home loan:
Interest payments towards home loans of upto Rs 150,000 pa are eligible for deduction under Section 24.
b. Medical insurance: An individual who pays medical insurance premium for self or spouse/dependent children is allowed a deduction of upto Rs 15,000 pa under section 80D.
An additional deduction of up to Rs 15,000 pa is allowed for premium payment made for parents. In case the parents are senior citizens, then the maximum deduction allowed is Rs 20,000 per year.
c. Donations: Subject to the stated limits, donations to specified funds/institutions are eligible for tax benefits under Section 80G.
d. Education loans: The entire interest of an educational loan is eligible for deduction under Section 80E. The loan can be for self, spouse or child from an approved charitable institution or a notified financial institution.
e. Restructure the salary
Restructuring the salary and including certain components can go a long way in reducing the tax liability. Unlike eligible investments which lead to an additional cash outflow, restructuring the salary is a more 'efficient' means of claiming tax benefits. The following can form a part of one's salary structure:
Food bills are exempt from tax up to Rs 60,000 per year.
Medical expenses which are paid back by the employer are exempt up to Rs 15,000 per year.
House Rent Allowance (HRA) Since housing is one of the fundamental needs for us, the government treats it sympathetically, and gives us various tax breaks towards it. To claim the benefit you need to provide rent receipts and rent agreement
Transport allowance is exempt upto Rs 800 per month.
Leave Travel Allowance (LTA) can be claimed by the employee and his family, for two journeys in a block of four calendar years commencing from the calendar year 1986. The current block is calendar years (January to December) 2006 to 2009. Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, it may be carried forward.
f. Claim tax benefits on house rent paid
Salaried individuals can claim rent paid by them for residential accommodation, if HRA doesn't form part of their salary. This deduction is available under Section 80GG and is least of the following:
25% of the total income or,
Rs 2,000 per month or,
Excess of rent paid over 10% of total income
This will only be applicable if the taxpayer or his spouse or minor child does not own a residence in the location where the taxpayer resides or works.
g. Opt for a joint home loan
As discussed earlier, the principal repayment on a home loan is eligible for a deduction of up to Rs 100,000 pa and the interest paid is eligible for a deduction of up to Rs 150,000 per year.
In cases where the home loan is for a substantial sum, it is not uncommon for the interest and principal repayment to exceed the stated limit. To ensure that the tax benefit is optimally utilised, an individual can consider opting for a joint loan with his spouse or parent or sibling.
This will ensure that both the co-owners can claim tax deductions in the proportion of their holding in the loan. The co-owner falling in the higher tax bracket should hold a higher proportion of home loan to ensure that the tax benefits are maximized.

Monday, March 23, 2009


These days we see so many ads in print and electronic media about the capital guarantee ULIPs being branded and promoted as the ultimate solution to investor worries in this bear market. There are many more such plans and all the insurance companies in India have this product in their portfolio. The prospect of capital being guaranteed in this volatile market scenario is very tempting one. Lets try and figure out all about these products and understand how is that they are promising to deliver what others can’t.
Capital Guarantee ULIPs, by definition, is a product where the money invested in the plan is guaranteed i.e. the investor will at least get back his money invested in the plan ,unlike, normal ULIPs where the investors gets the fund value as on the redemption date. This fund value may or may not be higher than the total money invested in the plan by the policyholder.
Most of the capital guarantee ULIPs promise capital preservation and as such there is no chance of capital erosion in the long run (in the short run, it might not hold true).The policyholder gets higher of the fund value or the money invested.
These products, though seem attractive, are not really in the best interest of all the investors due to some serious flaws in it. They are
- Capital means money invested net off charges – By capital guarantee, one would imagine, that the total money invested in the plan is guaranteed. However, that is not the case with ULIPs. Here the term capital means the money actually invested in your fund net off charges i.e.
Capital = Premium paid – Charges
And we all know that the charges in ULIPs are extremely high and can go up to 50% of the premium paid in initial few years. Subsequently it does decrease but still it is much higher than other investment tools like MF etc. So, for instance if you pay Rs 10000 as annual premium and the charges are40% , then the capital guaranteed on this would be Rs 6000 only ( RS 10000-4000) and not Rs 10000 as people would expect. This is certainly not capital guarantee.
- Low headroom for capital appreciation – Since insurance companies endeavor is to protect capital , they primarily invest the money in debt instruments where there is no scope of capital erosion. But, this also limits your chances of capital appreciation in the long run unlike equities. People invest in long term instrument like ULIP primarily for wealth creation along with insurance cover and as such this does not serve them well on this parameter. Also, if they have to protect your capital via investment in debt instruments, you may look at investing in debt instruments yourself(via mutual funds, bonds etc) which will not only give you capital protection but also has lower charges.
- Low rate of returns (4%) - Most of these plans guarantee returns as low as 4% which is even lower than inflation at times. The normal fixed deposit in your local bank will get you more returns on your money than this.
- Low surrender value – Most of these funds penalize you if you were to withdraw or exit out of the plan prematurely. This way they ensure that you stay invested for a long period of time. This in itself is not bad, but, takes away the liquidity aspect from this instrument.

- UTI Fiasco was a result of this – Since Mutual funds or ULIPs invest the money collected from investors in the market, the returns generated on this is also a function of the market dynamics. No one can guarantee any returns on the market . This was amply proved by the UTI fiasco where the investors were promised a guaranteed rate of return on their investment. The Company could not honor its commitment and finally the Govt Of India had to bail out the investors. So we need to learn our lessons from this as well.

The insurance company executives claim that they can guarantee returns simply because the returns are so low (4% or so). I have a problem with this and that is why anyone would invest in a plan which offers such low returns in the name of guaranteed return when they can easily get more out of bank FD.
I would not recommend people to fall for such policies. You may look at so many debt instruments available in the market if capital guarantee is your primary concern. You may invest in FD, PPF,NSC, KVP, Debt based MF etc. By doing so chances are you will end up with better returns due to low charges in these products. If you want capital appreciation for wealth building then invest in good mutual fund . If you want to invest in ULIP only , then go for the ones which have more than 50% of corpus invested in equities. What would I do? I would invest in a well diversified mutual fund like Reliance Growth and buy a term plan from LIC.
Please share your thoughts in the comments section below.
Also check http://moneyforinvestment.blogspot.com/search/label/Insurance

Saturday, March 21, 2009


We all use debit and credit cards in our daily lives for multiple purposes right from cash withdrawal to shopping in malls to online shopping to paying bills , the list is endless. While it does offer a great convenience value to us, it also requires us to be little cautious while using it. To ensure that your card is not misused by anyone, there are few precautions which you must take with your card. They are:
1. NEVER SHARE YOUR PIN - The first thumb rule is that you should NEVER share your ATM/DEBIT/Credit card PIN number with anyone. The PIN number is a unique identification number meant for you and not for anyone else. So keep it that way.
2. HAVE ALPHA NUMERIC PIN – After you get your card , the card company sends you a computer generated PIN which is to be used for the first time post which you are encouraged to change PIN . While changing PIN, the mistake most people do is that they choose the obvious ones like ones birth date, Car number, Street number etc. The problem with these PIN are that they are easy to decode for anyone. If people know you then chances are that they might also know your birthday, Car number, Street number etc. So, you must not go for these obvious ones as you PIN. Instead always go in for alpha-numeric PIN. For example
dilbert@546, mickey#65, America@964 etc. These are difficult for anyone to decode and hence provide better protection to you against hackers/fraudsters etc.
3. BLACKEN THE CVV NUMBER – The back side of the debit and credit cards
have the CVV number (3 digit number) which is critical for all online transactions. I suggest that you should blacken the CVV number on the card and instead either note it down somewhere else or still better just memorize it. This will ensure that in case you loose your card , it cant be used for online transactions.
4. STAY ALERT OF PHISING ON NET – Lot of fraudsters out their use internet to
defraud people. The modus operandi is very simple. They generally send a mail to the user which looks like a mail from the bank , and ask the user to verify their bank account or card details for the banks requirement. The mail will be very similar to the original bank’s mail and would appear to have come from the bank only, on cursory look. They sometimes also design sites which are similar in look and feel to the banks original website and hence it works for them. So, what should you do? I suggest as a matter of principle, NEVER reply or validate or confirm your bank or card details on internet. No bank I know of asks its users to do so.
5. WATCH OUT FOR SKIMMERS – Some fraudsters use a machine called skimmers which copies the details of the card marked on the magnetic strip of the card . This way they can create a duplicate card and use it. This is generally done at ATM centre, petrol pumps, restaurants etc. So always look out for loose wires, tampering etc from ATM machines, swiping machines etc. They might have skimmers in it. Also never leave your card with anyone for long.
6. DON’T LET CASHIER ENTER PIN FOR YOU – While paying for shopping bill from a debit card , we are required to enter the PIN n umber on the swiping machine. Never let the cashier enter it for you. You must enter your PIN number yourself.

Once you do these, I am pretty sure that chances of you falling prey to any misuse/fraud will be next to nothing.

Stay wise n Stay wealthy….

Friday, March 20, 2009


Every now and then we come across cases of fraud involving credit card in print and electronic media. Most of these incidents are shocking, but, these can be easily prevented by the bonafide user if he takes due care of his card and its usage. To prevent ourselves from falling prey to these credit card fraudsters out there in the market , we need to know how do they operate and what exactly are the dangers involved.
As a user we need to careful right from the time we apply for the card till the time it is cancelled and safely disposed to prevent any abuse. So, lets see the possible frauds at every stage, right from application to termination/cancellation, and also understand what can you do about it.
1. Manipulation while filling the app form by the agent – Most of the people applying for credit cards just sign on the blank/partly filled app form and rely on the agent to fill in other details. While this may seem convenient to you, by doing so you will be exposing yourself to the grave danger of manipulation by the agent on your behalf. There have been quite a few instances where the sales agent has filled in either his address or his accomplishes address as the mailing address for the delivery of the card. Since there is no address proof required for credit card application, it virtually becomes very difficult for credit card companies to smell any foul here. The agent will also pose as customer during physical verification by the company and the card gets issued in your name but is delivered to the agents place. He receives the card and can simply go on swiping it on your behalf. The company will hold you responsible for the payment.
What can you do to prevent it – Fill the app form completely yourself. If you are genuinely interested in getting credit card for yourself, I am sure you can spare 5 minutes to fill app form as well. Remember applying for credit card is akin to applying for unsecured loan and hence deserves at least that much time from you.
2. Use the photocopy of front and backside of your credit card to misuse it on internet- There are lot companies which offer credit card users another credit card basis their old card from other companies. For that the generally ask the applicants to submit photocopy of the front side of the credit card. But, lot of agents take the photocopy of both front and bank side of the credit card as supporting documents. The front side of the card contains details like card number, name of the card holder and date of expiry of card etc while the back side contains highly sensitive CVV number (3 digit number). If one has access to all these details of any cardholder, the same may be used to transact on the internet on someone else’s behalf. And yes, you will have to pay the bill for it.
What can you do to prevent it – Never give the photocopy of back side of the credit card to anyone under any circumstance. The credit card companies themselves don’t need it.
3. Multiple applications on your behalf – Another very common fraud plaguing the credit card industry is the rampant use of applicants documents for multiple applications to various credit card companies on the applicants behalf. For example, you may have applied to credit card from Bank A and would have given the documents to the agent, but, that agent might take duplicate copies of your document and apply to Bank B Bank c and Bank D as well. This is possible because the documents required at almost all banks are same which is basic ID proof and income proof. The agent will in addition to this forge your signatures on other app forms and get them issued which may be used by others on your behalf.
What can you do to prevent it – Most of the credit card companies are aware of this and hence they do what is called “Back check verification from the customer:. Here they call the customer and check all his details as are entered in the app form. So , when they call you , check if they are calling from the same bank you applied , else tell them you didn’t apply. That should end the matter there as the company will not process your application. Also encourage them to check your postal address etc and validate it.
Sometimes the card is misused before the delivery of the card to you. The courier company delivers the card to the users and at times the card is removed from the packet and is used before its delivered to the user. Also sometimes , the magnetic strip from the card might be copied before the card is delivered to you. If someone has a copy of your magnetic strip on the card its as good as him having your card and can go around swiping it at your cost.
What can you do to prevent it – Always check the delivery packet for any signs of tampering. If so, refuse to accept it and let the credit card company know about it.
1. Hackers might hack your card details during net transactions –
There are lot of hackers out there to hack your card details as you enter them on sites while transacting on net. Like I mentioned earlier, once they have your details they can go on transacting on your behalf.
What can you do to prevent it – First and foremost, use your credit card only when you really need it like ticket bookings etc and not for routine purchases like CD, movie rentals etc. This will reduce the chances of hacking. Also use only secure sites which have strong security features. Look for a lock sign at the right hand bottom of the site. All relatively safe and secure sites have this sign. And lastly, use 2 card policy for transacting on net.
2. Magnetic strip might be copied at petrol pump/restaurants etc – There have instances where the magnetic strip on the back of the card containing all details were copied in a duplicate strip by waiters/attendants etc at restaurants and petrol pumps etc when the credit card was given to them for swiping. Copying the magnetic strip is very easy since it only requires them to swipe your card once to their copier and then they can merrily misuse your card.
What can you do to prevent it – Never leave your card with someone . Always be present when the card is being swiped and stay alert for any such activity in restaurants /petrol pumps etc.
3. Theft of card – Sometimes the card may be misused after it gets physically stolen from you. The person who stole might use it for shopping purposes and thus can set you back dearly.
What can you do to prevent it – As soon as you know about the theft , call the call centre and get it cancelled immediately. This will limit the damages. Also if the card is swiped at some shopping stores etc, you may use the CCTV footage of the shop to nab the culprit.
Most of the people using cards have no clue about the procedure of closing or surrendering the card. This opens up opportunities for agents to take advantage of the situation. I know of an instance where the agent went back to his customer(he had got him the card, hence earned trust of the customer) and collected the card from his for canceling it on his behalf. The customer had himself called the agent telling him he wanted to surrender the card. Then the agent went around shopping for his finest jeans and watches and mobiles and what not on that card. And guess who got the bill…the customer.
What can you do to prevent it – Whenever you intend to surrender the card, call the call centre and check the process. Generally the card companies advise the user to cut the card into 4 and then courier it to them along with a letter saying that they want to surrender the card. This removes the chances of misusing the card by anyone.

Hope that these tips will help you keep those fraudsters at bay.

Stay wise n Stay wealthy…

Wednesday, March 18, 2009

EMERGENCY FUND - Do you have yours?

Life is full of uncertainties. Everyone goes through good and bad times in his/her life. While good times are relished by everyone , its the bad times that people really dread about. So when we think about the subject of financial planning whose basic aim is to plan for financial security, we can not help but plan for all those bad times that might present themselves in our lives.

How do we do that? The answer to that is first to acknowledge the need for planning for a rainy day as they say.

What exactly is an "emergency fund"?

Emergency fund is the fund kept aside to be used only during an emergency. They are not supposed to be used to meet your daily expenses.Examples of emergency are need to plan for possible job loss, medical emergencies, temporary loss of pay due to temporary physical disability etc. These situation might put great amount of stress on ones finances, if not planned properly. The best way of planning for any such eventuality is to create a basic emergency fund. This emergency fund will help you meet both your expected and unexpected expenses for atleast 6-8 month s time period.

So how much should we save for this emergency fund ?

Generally it depends on your life style , your liabilities and your own sense of job security etc, but, I do think one should at least have at least that much money in his emergency fund to last him and his family at least 6-8 months. Now you work your expenses , both fixed and discretionary for 6-8 months and you know how much to save.

Where should I keep this money?

Since its supposed to be fund to be used during emergency, it needs to be put in an instrument which is liquid enough. for example, you can have it in FDs in banks or invest it in liquid funds etc. But, I would recommend FDs since they provide excellent liquidity and are quite safe as well. Mind you, getting returns from our emergency fund is not our main objective. We need to keep it where there is no chance of loss of capital/principal.

When should I save for fund, before my other investment or after?

You should look to build emergency fund as the first step in financial planning. We need to create a safety net for ourselves before we start investing for wealth creation, retirement planning etc.

Why its more relevant for Indians?

Unlike , developed countries like USA etc we in India don't have any social security and as such we are pretty much left on our own during any emergency/job loss etc. We don't have insurance policies to protect oneself from the financial impact from job losses , unlike in some other developed nations. Hence , its almost an absolute necessity to have an emergency fund for all of us in India.

Stay wise n Stay wealthy..

Tuesday, March 17, 2009


Since January 2008 when the Indian Markets were at dizzying heights of 21000 , the market has corrected over 55% and is hovering at 8500 today. There are lot of people who have lost tons and tons of money in equity from the markets peak. But, unless they entered in January 2008 in the market, they may not have lost that much. Also people who have been investing for over 4-5 years ion the market still have their capital intact even at these low levels. So much loss of wealth over last 12-15 months has set a sense of dejection and hopelessness towards equity markets. Is this correct or this hopelessness is overdone?

Should we be shunning equities for ever?or is there still some merit in it?

My take on this is that while its true that equity markets have not performed well in last 12-15 months , we can not forget that this market over a period of last 5-6 years has still given handsome returns to all its investors. The bull run from 2002-2008 has been nothing short of exceptional where people made huge amount of money. The returns generated by equity markets were far superior than any other investment option available. So when going was good people loved it , everybody and his uncle wanted to put money in equities. Now when the tide has turned people just abhor equities. Both of these are extreme reactions. Equity markets have their own boom and bear market cycles and one needs to play around it.

I am sticking my neck out and saying that in the next 20 years , equities will not only give better returns than others, they will give the best return that one will hope to get from any investment tool. Why do I say so? There are plenty of reasons which suggest that it will turn out that way.

1. Low Equity penetration in India
Equity markets get only about 1% of the total savings in India, whereas in developed economies this percentage is 25%. Imagine if we were to reach that kind of equity penetration , what impact it will have on our markets. More money flowing into equity markets will take it to greater heights. Boom in any equity market happens when there is more money chasing fewer stocks and with equity penetration in India bound to go up from here, the equity markets too will follow suit.

2.Entry of Pension Funds in Equity Markets
In India, till now , the regulators had not allowed pension funds to be invested in equity markets. they were mainly invested in Gsecs and debt instruments.But now with companies managing pension fund being allowed to invest in equities , it will throw open floodgates of cash into equity markets in near future. The New Pension Scheme is slated to be implemented with effect from April 2009.

3. India's long term growth story is intact
As per Goldman's report , India is slated to be among the largest economies of the world by 2020. India is currently the second fastest economy in the world and its growth story of likely to continue for another 10-15 years atleast. Higher growth in the economy will mean more savings , leading to more investments in equities. It will also bring in FII since high growth economy always attracts huge FIIs. Infact last bull run (2002-08) was partly due to huge FII inflows.

4.Ridiculously low valuations at the moment
Since return on equity investment depends on the purchase price or entry price of the stock. The market is trading at ridiculously low valuations. There are blue chip stocks trading at multi year lows , which is a great opportunity for people to invest in them now and reap the benefits when the market rebounds.

5. History repeats itself
Lastly, the history of equities will clearly tell you that this is where you will get the highest returns over a long period of time. Look back at the equity market's performance over any 15-20 year period and you will know what I am talking about.The BSE sensex gave compounded return of 16.9% between 1979 -2005. That kind of return compounded for 26 years is a great return by any standard and is unmatched by any investment tool available currently.

And there is no reason why it will not be same again.
So Friends, take your bet on equities and I am sure you will be happy to have made that decision when you will be busy enjoying your pension or funding your kids education out of this investment.

Stay wise n Stay wealthy....

Monday, March 16, 2009


There are so many investment options like mutual funds, insurance, ELSS,gold, FD, NSC , PPF, POMIS, Senior citizen saving scheme, Pension plans etc available to Indian investors that it sometimes becomes difficult for him to decide where to invest his hard earned money. While investment decisions are primarily driven by ones investment goals and risk appetite it still requires some research and analysis before one can zero in on the final investment tool/option.

So how should we go about it? What should we check before we choose to invest in a plan/policy etc? Well there are primarily 5 parameters on which we need to analyse each and every investment option before we put our money into it. They are

1. SAFETY - First and foremost concern of every individual is to ensure that the money which he is investing is secure i.e. the money comes back to him either more or equal to the amount invested. There should not be principal erosion in the investment. Equities don't fare too well on this parameter as they can never guarantee that due to their high volatility. While some do well on this parameter.

Example :- All debt based instruments like Fixed Deposits, NSC, PPF,Bonds etc.

2. RETURNS -Another parameter on which the investment option needs to do well is return that it offers to the investor since this is the primary reason why people invest. Equities over a longer period of time do give high returns while most of the debt funds give lower returns. Risk and return are inversely proportional and hence funds which dont do well on security will generally do well on returns front. As they say "No guts No Glory". Investment options which do well on returns are

Example:- Equity Based instruments like Mutual Funds, ELSS, direct stock etc. Within debt funds senior citizens saving scheme does give higher returns as compared to other debt funds.Post Office Monthly Income Scheme too does give better returns.

3. LIQUIDITY - You never know when you might need your money and as such liquidity aspect of the invested money can never be underestimated. Funds which allow easy and quick liquidation are generally good to invest. There are lot of options which are pretty bad on liquidity aspect like PPF, NSC etc. The money invested here gets locked in for a certain period and even if you do withdraw, you will have to pay penal charges on it.

Example:-Gold,Fixed Deposits in banks,Liquid funds etc are very good on liquidity aspect.Absolute liquid investment would be money in your saving account, but, that is not investment in true sense.One should look at building one's emergency fund out of these options.

4. TAX BENEFITS - One of the main drivers of investment ,in India at least, is the tax benefits associated with various investment options. Government offers tax incentive to induce saving habit in people . This too is very important parameter as investment in tax saving instrument help you lot of money in taxes which you consider as immediate returns out of the money invested. For example for someone in 30% tax bracket, an investment of Rs 100000 in tax saving instrument like ELSS will save 30000 in taxes , hence we can say that his investment in ELSS gave him 30% return on investment itself. So makes sense to invest in tax saving instruments if you have that Sec 80C limit with you.

Example: Sec 80C - ELSS

5. LOAN FACILITY - Some people also look to take loan on their investments. Investment in insurance endowment policies can be used to take loan against them. LIC uses this feature as selling point for lot of its endowment plans.

Example - Endowment plans in insurance. PPF , NSC etc.

So, next time when you decide to write a check for investment , do run through this checklist and accordingly write the payee details on it.

Stay wise n Stay wealthy....

Sunday, March 15, 2009


We all have wondered at some point in time as to which is the best investment strategy for me? Where should I be putting my money? Which is the most stable, secure and flexible plan for me? Well in short we always wanted to know the ideal portfolio for us which will help us meet our investment goals. So here I will try and list down the ideal portfolio for each one of you.

Before deciding on the architecture and structure of your portfolio ,one needs to identify the investment goals of each person along with his risk appetite because its the investment goal or end result which will help you decide on the ideal investment portfolio. For simplicity sake , I am dividing everyone in age brackets coz age has go strong correlation with financial needs and goals of an individual.It also gives you an idea about the risk that a person can take with his investment.

So, the various age brackets are

1. 20-30 years

2. 31-40 years

3. 41- 50 years

4. 51 - 60 years

5. 61 and above

So, now that we have the various age groups with us , lets try and understand their long term financial goals with respect to their risk appetite.


20-30 -- Wealth Creation -- High

31-40 --Wealth Creation and liquidity-- Moderate

41-50 --Wealth Creation , liquidity and safety --Less than moderate

51-60 --Safety, liquidity and wealth creation --Low

61 and above --Safety and liquidity --Very Low

Since this group has time on its hand, their ability to take risk is highest among others. They can afford to invest is relatively risky assets which will give them higher returns over a longer period. So equity has to be the preferred investment choice for them. They also need to invest part of the corpus in debt and gold etc. Their portfolio should be invested in following proportion:

Equity - 70-80% of the fund

Debt - 5 - 15% of the fund

Gold - 5%

Liquid funds- 10%

Gold will give them hedge against inflation but not very superior returns and as such should be in the portfolio as inflation hedge only. And for every person an emergency fund is required and as such I suggest a minimum of 10% of the funds should be in liquid funds which can provide the needed liquidity at all points in time.


Since people in this age group too are relatively young and have time on side , they too can afford to invest in equities to get the benefit of superior returns and wealth creation that equities provide over a longer period. But, they also need to diversify more into debt to protect their capital. gold and liquid funds will remain the same. The final portfolio should be in the following proportion:

Equity - 60-70% of the fund
Debt - 15-25% of the fund
Gold - 5% of the fund
Liquid funds- 10 % of the fund.


People in this age bracket need to be more cautious with their asset allocation as the risk appetite that they have is less than moderate.They need to have comparatively lesser exposure to equity and more into debt funds. Balanced mutual funds would be ideal for them. The overall portfolio should be

Equity - 50-60%

Debt - 25-35%

Gold -5%

Liquid funds- 10%


People in this age bracket have low risk appetite and need to look at wealth creation but without compromising on safety of the invested funds. The equity exposure should come down even further and debt allocation should go up leaving the gold and liquid funds allocation unchanged.

Equity- 40-50%

Debt - 35-45%

Gold - 5%

Liquid funds-10%


For people in this age bracket the top most priority has to be safety of the funds and liquidity. they need not aggressively look at wealth creation through equities. Most of the fund should be in debt leaving Small equity and gold exposure to help them beat inflation. Liquid funds will help provide liquidity.

Equity- 15-25%

Debt - 60-70%

Gold- 5%

Liquid funds- 10%

The above portfolio is designed to help you create wealth , guard against inflation, capital protection and to meet immediate liquidity needs. If you structure your investment portfolio with this in mind, it shall keep you in good stead.

Stay wise n Stay Wealthy..

Saturday, March 14, 2009


One of the major worry for every person approaching old age is his deteriorating health condition. To make matters worse his conventional medical policy (ex Mediclaim etc) gets over once he/she crosses age of 60 years. So the time when he needs it most , the cover is gone leaving him with no choice but to provide for himself. Right? Wrong Because there are quite a few insurance companies primarily in the public sector in India which offer medical cover to senior citizens between the age of 60-80 years and in some cases even up to 90 years as is the case with National insurance Company.
These policies are provided to everyone in the age bracket. So why is that very few people seem to know about? Why is that if companies are offering such product , they don't advertise about it considering the huge demand for it? Well folks the reason is bottomline of these companies. Its no secret that most of the general insurance companies offering medical/health policies make losses on these policies on a standalone basis due to high ratio of claims arising on them. This becomes even worse for health/medical plans meant exclusively for senior citizens. So they dont go overboard advertising about it.
Next question would be , why do they offer a policy which is a loss making proposition for them? The reason is government regulations. These policies as of now are offered by following companies:
1. New India Assurance
2. Oriental Assurance
3. United India Assurance
4. National Insurance Company.
5. Star Health and Allied insurance.

So if you have any person who is past 60 and is struggling to get mediclaim /medical/health policy for himself, now you know where to look for one.

Please check out this news article on DNA site

Stay wise n Stay wealthy.


I found this interesting video on youtube.com about the lecture given by noted economist Mr Venkatesh at an event in Chennai. His thoughts on globalisation and its effect will startle you. Its a very nice speech and it exposes one of the greatest myths of this century and that is that globalisation in its current form is good for everyone. He explains how and why America has delinked dollar from gold in 1970s when all currencies were supposed to be linked gold deposits. He explains how America has used up worlds savings to fuel its own consumption and that it has managed to do by simply keeping the dollar's value high artificially by creating demand for it. One way of creating artificial demand for dollar is through setting oil exchanges in its own backyard and allowing oil trade to happen only through these exchanges where the currency used is dollar thereby creating perpetual demand for dollar resulting in its high value.

He also cautions world against putting its savings in American dollar as it is supposed to fall wiping out the entire saving of the countries who would have invested in American G Secs and bonds. China is by far the largest creditor to America and its lending has increased to the tune of $1.3trillion and this is the money used by America to fuel its consumption. the consumption rate in America is highest at 107 %. Yesterday only Chinese premier came out officially with the concern on safety of the Chinese investment with America. Check out the news at wall street journal(http://online.wsj.com/article/SB123692233477317069.html).

God save America and God save all who have all their savings invested in dollar.

Friday, March 13, 2009


In my earlier post we evaluated Gold as an investment option and why it should be a part of every prudent investor. There are primarily 3 ways in which one can invest in gold. They are :

1. Buying physical gold
One of the most ancient and popular way of investing in gold has been through the purchase of physical gold either in form of gold bars, gold jewellery or gold coins etc.Most of the families in India do indulge in gifting gold ornaments to the bride on her wedding night.This in most cases forms bulk of the gold investment that bride has throughout her life. Few others invest in gold bars or gold coins. This is the most popular form of investment in gold in most of the countries even today.
2. Exchange Traded Funds (ETF)
As the wikipedia an exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. In Gold ETFs the underlying asset is gold.Simply put in Gold ETFs , companies collect fund from investors and invest it in gold on investors behalf. the investors are issued units in the Gold ETF which they can redeem whenever they want in exchange for money. These funds offer an option of investing in gold to an investor without really having the trouble of holding physical gold. Helps them save money which they would otherwise spend on safety and security of the physical gold. In India too gold ETFs are available.

3. Gold Equity Funds (GEF)
These are equity funds which invest in companies involved in gold mining. They only invest in companies which have control over gold and its production. Its pretty much similar to a mutual fund investing in gold mining companies.
So, as an investor we do have few options before us if we want to put our money in gold. Which one of these is really the best way of investing gold? Which makes more sense to an average investor?
Well there are no easy answers to this since each of these methods /funds have their own intrinsic advantages,but, if one really were to ask me I would say that the best thing to do is to invest in physical gold. The reason is simple , and that is that since it will give you physical control over the asset you invested ie. gold.This is very important advantage which ETF and GEFs dont offer you. In these difficult times when you have every second financial organisation going belly up , investing in ETFs launched by them is not risk free , since if they go bust you would be left with only claim on the gold invested with them , NOT the real gold. So this is a big risk one needs to avoid. Also some experts believe that while companies launching gold ETFs are supposed to only invest in gold , this is not true with all companies at all times and hence it exposes you to even greater risk. In bad times , you would want to have your gold with you not with some company and hence investing in physical gold is the way to go.
As regards GEFs, they are exposed to the limitations with which the gold mining companies operate. They will have their own set of challenges like macro economic factors like gold prices, economy, dollar exchange rate etc,micro economic factors like labor issues, wage issues etc. All these will make their operation dependent on too many things and hence the returns of GEFS may be quite volatile.
So, in the end can safely suggest that if you want to invest in gold, do just that i.e. buy physical gold. And yes buy gold bars/coins not jewellery since jewellery will have cost associated with it in terms of making charges which will reduce your overall return on the asset.

Also check out this video where its explained why physical gold is the way to go..

Stay wise n Stay wealthy...

Thursday, March 12, 2009


For any investor worth his salt, a portfolio without gold in it is a bit embarrassing because there are compelling reasons for buying /investing in gold. The investment in gold makes more sense today than it did ever before. In India, there is an old practise of investing in gold via ornaments etc which is a very health practice as it helps every household diversify its investment portfolio to that extent.(Though gold bars would be much better).

The reason why investing in gold is a fantastic idea for you me and everyone else is because of the following inherent advantages that it offers as an investment class:

1. Acts as "Quasi Currency"

Almost all the paper currencies of the world right from dollar to pound to euro to all other currencies of the world is backed by physical gold. Gold determines which country can print how much paper currency as the value of paper currency like dollar($) lies in the physical gold behind it as security. So primarily gold is main currency of the world and hence its value is unquestionable unlike paper currencies. It will always have some intrinsic value for holders of the physical gold.

2. Most Liquid Asset

Gold is among the most liquid asset in the world. The holder of physical gold can convert it into currency at any time. Whenever one gets into a distress situation financially , the best thing one can hope for then beyond cash would be gold because its such a liquid asset.The liquidity offered by gold makes it a very compelling investment tool. No one ever get stuck with gold if he wanted to sell it .

3.Hedge against Inflation

Gold also is known as the best asset class to hedge against inflation. Lets understand this is in little detail. We now know that all paper currencies of the world derive their value from the underlying gold as security and all the currencies are backed by physical gold. Now since paper currencies are printed by governments all over the world, they might print more money sometimes without really increasing the gold as security backing them. Essentially this means that governments just print paper money and circulate it into the market. For example, today most of the Central Banks in the world are printing money and infusing it into the system via financial stimulus package to restart the economy in the wake of recession that the world is facing today. This leads to more money chasing fewer goods leading to inflation. But since gold can not be produced in unlimited quantities, the value of gold with respect to the dollar/any other paper currency goes up. This also explains the reason why the value of dollar is inversely proportional to the value of gold.Thus in inflationary environment gold offers good hedge for all its investors.

4.For Diversification sake

One of the thumb rules of investing is to adhere to the principle of diversification i.e. to invest in multiple asset classes to spread risk. Gold investment provides very good diversification to the portfolios of all investors. It protects the portfolio in inflationary environment from loosing its intrinsic value and subsequent returns for the investor.

Thus, investing in gold is a must for all prudent investors. Have at least 5-10% of your portfolio invested in gold to reap the benefits of a well diversified portfolio.

Stay wise n Stay Wealthy....

Wednesday, March 11, 2009


Well lets start with a very basic question? Why do we take insurance policies ? Is it for insurance sake i.e cover the risk of loss of the asset insured?,or is it for investment? or is it for both? The answer to this could be all three.There are people who buy it just for insurance sake, while some buy it for investment purposes, while some others see it as both as an investment and insurance tool.

So which is the right way of approaching insurance? Friends, insurance polices are meant only for insurance sake and NOTHING else. Get this very clear. It is NOT an investment tool ,at least not an effective one.

So first thing to do is to buy insurance only for insurance sake. And one must have insurance in his portfolio as it is the most important hedge against any eventuality that might rock your finances. Now, that its clear that we need an insurance plan which actually serves to meet the "insurance" promise, which policy should we go for ? Basically there are only 2 types of insurance plans ie. endowment and pure term plans. The plan to go for is TERM INSURANCE only.

Term Insurance is the basic insurance policy which seeks to provide life cover to the subject insured at a very nominal premium without offering any survival benefits.Some people might ask this: Now if it does not provide survival benefits , how is it better? Don't we end up loosing all the money we paid if we were to survive?Lets try and understand the reasons why term insurance is the only insurance plan you will ever need to buy.

1. Meets the need for life cover at the lowest possible premium - Term plans offer you life cover at much lower premiums as compared to endowment plans. For example,

LIC Anmol Jeevan Term Plan , the premium for a 30 year old male, SA of RS 20lakhs and for 20 years is Rs 7578 annually. While if the same person was to take endowment plan of Rs 20 lakhs the premium would be Rs 95910.Need I say more? Just see the difference.

2. Lower charges than Endowment Plans - The biggest disadvantage with endowment plan is its ridiculously high cost structure. Conversely, the biggest advantage of term plan is its low charges. Endowment plans might eat up to 50-60% of your premium as charges in first few years and subsequently too the charges are higher as compared to term plan. These charges are taken in the name of mortality charges, admin charges, fund management etc. The biggest reason for this is that they have to pay huge commission to the agent selling you endowment plans. You can avoid paying such high charges by buying term plan. Simple.

3. Lets you play "Buy Term and Invest Rest Strategy"- In the beginning of this post, I mentioned that its not wise to look at insurance plans as an investment tool and the reason for this is that there are better investment options available in the market which give far superior returns than any insurance plan will ever give.So for all those wanting to have insurance for self and also get some returns the option is to play"Buy Term and Invest Rest Strategy". For example, in the earlier example if a 30 year male wants 20lakhs worth cover , he could buy LIC term plan for RS 7578 and invest the difference (Rs 95910-7578) Rs88332 in any good equity diversified fund which will give at least 15-18% returns over 20 years if not more. No insurance plan can ever give you better returns than well diversified equity fund. Few of the good equity diversified mutual funds are Reliance Growth Fund, HSBC EQUITY , Sahara Growth etc.

So,friends my advice to you is that you MUST buy insurance for self and others and with insurance I off course mean Term Plan ONLY.

Stay Wise n Stay Wealthy...

Tuesday, March 10, 2009


We are always in pursuit of perfect investment tips so that our money is safe ,secured and earns us above average returns. While this is desirable by everyone,not all manage to make perfect investments. There are quite a few who have made one or more investment mistakes that they should have avoided. Here let me state 10 such very obvious mistakes that you must guard against at all times:-

1. Buying any insurance plan other than pure Term Plan

I am of the firm opinion that we all must have life insurance for self and family members,but, I strongly recommend you to buy only Term insurance and not any other plan like endowment,money back etc. The reason is very simple.In term plan the companies charge you premium only to cover the mortality charges while in endowment plan they charge you huge charges like admin charge etc over and above mortality charges. In traditional endowment plans as much as 40-50% of the premium paid might just go in servicing the charges for first few years thereby severely impacting the returns that you get. Hence, look at insurance plans as pure insurance and not investment tool. Buy only pure term plan from any insurer.

2. Falling for "New Fund Offer" in Mutual Funds

Another big scam out there is the "New Fund Offer" bait that mutual fund companies use to lure customers. New Fund offer basically sells on the premise that you get units at lesser value of Rs 10 while older funds might have NAV much higher than that. Hence in new fund offer you get more units. But this argument is big fallacy since there is basic difference in the way mutual fund and normal stock/equities work. In equities there is difference in the intrinsic value of the stock and market value, while in mutual funds the intrinsic value and market value are same. Hence more units at lower NAV does not mean better deal for mutual funds. Also in new fund you dont know the track record of the fund and the performance of fund manager. Hence, its like taking a shot in the dark not knowing the target and hoping for the best. My advice: Stay out of New Fund Offer, always invest in funds with proven track record over 5-10 year time frame.

3. Investing in equity /mutual funds only on the agents recommendation

Lot of people put their hard earned money in funds only on the basis of their agents recommendation without doing even basic research on the fund quality,its performance track record,fund manager and his credentials etc. While doing research may not be easy or tenable for all, it certainly does not mean that one should put money where agent tells us. Agent mostly have their own interest to take care of first before they take care of yours and hence their advice may not be best for you.They may be guided by the motive of making commission and hence might advice you accordingly. My advice :Do some preliminary research yourself before investing;if you cant do it then take a certified financial planners view.

4.Not investing in Health/Mediclaim Plans

Another mistake that people do is to never think about the medical contingencies and the effect it could have on ones mental,physical and financial health. It can wreak havoc on your finances at times. Hence, its almost a necessity to have medical/health plans for the whole family so that you are well prepared to meet any such eventuality should it arise.My advice:Buy a floater plan of atleast Rs 5 lakhs for the family from a good general insurance firm.

5.Too much or too little exposure in equities

Equity markets have always evoked extreme reactions which also reflects in the investing habits of people. The mistake with equity investment that most people do is to have either too much or too little exposure. Both are not desirable. Too much exposure means you are exposed to the vagaries of markets beyond manageable limits and too little exposure limits the upside gains opportunity that these markets provide. So how much equity exposure is right for you? The thumb rule is to subtract your age from 100 to arrive at the equity portion of your investible corpus. For example if your age is 30 , then you should have 70%(100-30) of your portfolio invested inequities. My advice:Stick to 100-Age rule for equity investments.

6. Concentrated portfolio

As the old adage goes"Never put all your eggs in one basket" we should always look to have a diversified portfolio. Concentrated portfolio's are much more risky than a well diversified one and hence can cause severe damage in difficult times. My advice: Have a well diversified portfolio comprising of investments in gold,equity,debt,bonds,mutual funds,FD etc.The proportion of each of these components will depend on your risk appetite and financial goals.

7.Not monitoring your portfolio

Another mistake that people tend to make is to stop monitoring their portfolio's after they make their investment. It is very important to keep reviewing ones portfolio at regular intervals to find out which portion or fund is under performing and whether there is any need to change asset allocation. Remedial measures must be taken periodically be weeding out bad performers from time to time.My Advice:Never underestimate the power of reviewing portfolio regularly. It can help you grow your money faster.

8.Splurging on credit cards

Lot of people fall prey to this one. Credit card being such a convenient product makes splurging very easy for us . We all need to stay out of it because it can put severe strain on your savings and investments. My advice: Use credit card wisely. Never buy luxury for self on credit.

9. Taking Loans to invest in IPO/stocks

I know that there are quite a few people out there who don't mind taking loan and investing it in IPO(Initial Public offering ) of companies hoping to make a quick kill on listing day. They hope to return the loan and pocket the profit made. While this may work at times, it is not a very smart thing to do since we don't know for sure whether we would certainly make a profit on listing. Also as a thumb rule never borrow money to invest in stock market hoping to cash in on bull market or someone told you that this stock will do well or your friend made decent money that way. My Advice:Never borrow to invest. invest only when you have surplus saved out of your earnings.

10. Starting too late

This is the classic one. most of us do regret not having started early on investment. Very few of us do manage to start investing right from their first salary. The power of compounding works wonder when someone starts early.So friends, if there is one mistake you don't want to commit, it should be this one. My advice: The best time to invest is today. Remember its the early bird which catches the worm.

Stay wise n Stay Wealthy....

Monday, March 9, 2009


Friends, with so many companies offering so many different credit cards with so many different features that the customer gets confused as to which one is really suitable for him. While most of the credit cards are same in basic features , they do differ from each other on things like interest rate charged,credit period, add on features, co branded offers etc. So to make your job of choosing a suitable credit card for you easier, I am listing down few do's for you:

1.Credit Card with "No Annual Fee" - Annual fee is the fee charged by credit card companies annually to offer you credit card . This is fixed fee and is not dependent on your spends and hence is fixed cost for you. There are quite a few credit card companies which offer you credit cards at 0 annual fee. Always choose credit cards which do not charge you annual fee so that you save money on this and your charges are spend based.

Example - ICICI Credit Cards, HSBC Premier cards etc.

2.Credit Card with "Low Interest Rate"- The general rate of interest charged by credit card companies can vary quite a bit and the difference between the one charging lowest rate of interest and the one charging highest rate could be as high as 8-10% pa. That's quite a huge margin and hence one should always do some research and look for credit cards with lower interest rate. This is very vital as most of your charges are going to be on spends and interest charged and higher interest rate will really hurt you in the long run.

Example-Amex International Gold Card,BOI Domestic Visa Card etc

3.Reasonable Fees- Credit card companies charge the users various fees like late payment fees,cheque dishonour fee etc which varies between company to company. Thus its only wise to look out for cards which have reasonable fee structure as compared to others in the market.

Example- SBI Cards, Allahabad International Card etc.

4. Co-branded Cards for petrol/shopping etc- Co-branded cards are the cards which are issued by credit card company in collaboration with another company. These cards offer additional benefits to the users. For example, ICICI HPCL card is a co-branded card between Citibank and HPCL. HThis is good for people filling petrol through credit card as they get extra rewards points and also no transaction fee on these cards. People who love to shop a lot with credit cards can opt for co branded card with a retailer .For example Citibank has co branded cards with Shoppers stop offering unique benefits to the shoppers at Shoppers Stop. So depending on your usage pattern, you may choose these.

5.Card with "Liberal Reward Point System"- Always look out for cards which offer better reward points on usage than others. The extra reward points might help you pay part of your outstanding on card by redeeming the points. This will lead to savings and hence is beneficial.

6.Cash Back Credit cards- There are quite a few companies offering credit cards with "Cash Back" offer. A cash back offer is one where the user gets credited a part of his spend(usually 5%) back on his card . This is like getting a discount of 5% on your spend from the card company.So,if you get this then grab it.

7.Credit Cards with"O Transaction fee on Cash withdrawl"- Credit card companies discourage people to withdraw cash and hence usually levy a heavy cash withdrwal charge over and above the normal rate of interest. This leads to jacking up the effective rate that the user pays on the card for cash withdrawl. But there are cards which do not charge you this fee. So go for them.

Example-BOB Cards, Corporation Bank Cards, Thomas Cook Card etc.

8. Cards with "Minimum Liability on Lost Card"- If you loose your card then the liability of any misuse on the card till you report its loss to the card company , is generally on you for most of the cards. But few cards in the market limit your liability to a minimum amount which wont hurt you and hence gives you your peace of mind. This is a huge benefit and your card must have this.

Example-UTI Bank Domestic Gold Card.

So, next time you receive call from one of the telecallers trying to sell you a credit card, ask them these questions and then decide whether you want to take the card or tell them not call again.

Sunday, March 8, 2009


Friends, in these recessionary times everyone wants to stay light on debt. Hence people are staying away from borrowing money now and avoiding debt. But for those of us who already have debt on our head and want to get light on this account need to get their debt consolidated.

Debt Consolidation is a process where the company will consolidate the customers all unsecured loans into another unsecured or secured loan to offer the benefit of lower interest rate , lower EMI etc to the customer. Simply put its a process of taking a new loan of lower interest rate and foreclosing all your current high interest loan ,thereby paying only 1 EMI at a time.

There are quite a few ways wherein a person can consolidate his/her debt. They are:

1. Taking DC loan

First and the most obvious one is to take a Debt Consolidation loan from a company which will foreclose all your high interest loans like credit cards dues , personal loans etc and offer you a new loan at a lower rate of interest. This will help you save money due to the lower rate of interest charged. Also you will be required to pay only 1 EMI against multiple EMI you were paying earlier. Find out the best company in your area before taking DC loan.

2. Pay Off your Credit Card Loans

If you are one among those who have the habit of having huge credit card outstanding regularly and revolve it, then first thing that you need to do is to prioritise the payment of your credit card debts . Nothing is more important than paying off your credit card bills as the dues on credit card attracts atrocious rate of interest. Lot of people I know would have high credit card balances and also decent money parked in their savings account. This is blatant error one does due to fact of knowledge , I presume. Savings account will give you at best 5% returns while on your credit card debt you end up paying anywhere between 35-40% p.a. Just imagine the difference. So wise thing would be to remove money out of savings account and clear off your credit card balance now.

3.Explore Partial Prepayment Option

If you have loans where the outstanding is large and you can not pay off the entire thing at one go,then try exploring partial prepayment option. Most of the banks offer the option of partial prepayment of your loans. This will help reduce the principal outstanding on your loan thereby reducing the resultant interest charged to you. So great way of bringing down your debt/liabilities.

4. Taking good Balance Transfer Option

Another great option to bring down ones debt is to go for good balance transfer options in the market. This works very well for credit cards but for loans like Housing loan etc also it works very well since due to competition,companies keep offering to take your loan at introductory interest rate which may be lower than the one you are currently paying. for credit card , lot of companies do BT for 0% for a fixed period. It works well if you are looking for lower debt in near future and intend to pay off everything little later.

5. Switching to another company with better rate

Another option worth looking is to look at companies offering you the same product at much lower rate and switch to them . for instance, if you have a housing loan from say Company A at 12% for 20 years and then due to market forces if you see that Company B is offering HL at 10% for 20 years, then it makes sense to switch to Company B by foreclosing the loan at Company A. Company A might charge you foreclosure fee so do your maths and switch.

6. Don't get back to old ways

Last but not the least , is the fact that once you do manage to bring your debt in control avoid the temptation of going back to your old ways of extravagance. Stay disciplined and keep your debt in control through financial discipline.

Stay Wise n Stay Wealthy...