Deciphering the Demonetisation Impact

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The demonetisation move is one of the most significant reform measures India has witnessed since the 1990s. The immediate short term impact is obvious for everyone to see – the current liquidity situation being badly disrupted. The common man is spending less due to liquidity crunch which in turn has also affected consumption oriented businesses, especially the traditional small scale retail market.

Sectors with linkages to the unorganised economy where HNIs spend their undeclared income have been largely affected due to the demonetisation move. These include real estate, luxury, travel, jewellery, consumer durables, etc. The real estate sector has been the most hit with unorganised builders bearing the major brunt.

According to experts, the audacious move to weed out black money is expected to have widespread economic ramifications in the long run. These are the possible consequences predicted:

  • With liquidity drying up for new projects plus few buyers in the repurchase market, realty prices are expected to come down in the long run.
  • Banks will benefit from higher liquidity & higher deposits. The inflationary pressure will come down due to excess liquidity in banks.
  • Common man will benefit from low inflation, low interest rates and housing will become more affordable.
  • Consumption oriented sectors like FMCG, retail are expected to do well as the common man will have more disposable income on hand.
  • Government will benefit from low interest rates as it is the biggest borrower in the money market.
  • Businesses will also be able to borrow at cheap rates.
  • With black money coming into the economy, the tax net will widen. Government revenues will increase and lower the fiscal deficit.

What happens to your investments post demonetisation? The excess liquidity in the system presents a buying opportunity in debt fund category for the medium term. Economists are betting on low inflation and low interest rates which has strengthened the case to invest in bond markets.

Stock markets have reacted negatively in the last week since the big announcement made by the Prime Minister. The victory of controversial US President Donald Trump also added to the woes of jittery investors. With liquidity drying up and trade & business taking a hit, research analysts estimate GDP growth and corporate earnings to be affected over the next 2 quarters. The stock markets are already discounting the likely abysmal performance of Corporate India. Additionally, there is an air of uncertainty even now as to how things will pan out after liquidity situation turns normal. How much of the demonetisation move will positively impact the economy and how long will the benefits take to trickle down is anybody’s guess.

With an air of uncertainty and speculation, expect occasional bouts of volatility in the market. A word of caution. Stay away from all the noise and chaos associated with demonetisation discussions. As Warren Buffet states – “Volatility is a friend of the long term investor”! There could be more pain left for the stock markets, so do not press the SELL button in panic. Use this opportunity to make sound investment decisions. Stagger your investments and buy on dips rather than investing lump sum. Remember, your investment strategy should be based on your financial goals rather than on daily movements of the market.

Top things to consider before buying a vacation home

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Does getting away from the hustle bustle of the city to a serene location prompt you to think about having your own vacation home? The in-built desire of home away from home for short getaways can be very tempting. But do not jump in blindly. A lot of serious thought needs to be given to some critical factors before you purchase your weekend home. Here they are:

  • Purpose of buy: Think about what you want out of your vacation home. How often are you going to visit it? Do you see it as an ideal location for annual family gatherings? Are you eyeing regular short-term rental income out of it to subsidise any mortgage payments or offset maintenance costs? Do you want to also double it up as a retirement home? Addressing these questions would help you to arrive at a clear decision of whether it would be worth to own a vacation home.
  • Location: Location of your vacation home is very important from a number of perspectives. Firstly, determine how far is it from your permanent residence. If it is more than a 3-4 hour drive or a plane ride away, you are less likely to use it often. You don’t want travelling to eat up all your time in just reaching your weekend home. Prefer a location which is at the most 3-4 hour drive from your city home. Further, visit the surrounding locality, meet up with people, assess what amenities are available, etc. You don’t want to end up in a very remote location and then bother about carrying all kinds of stuff in travel to stock up at your vacation home. Also, while buying a weekend home is a long term commitment, you never know how frequently you will be using it in the long run. Your kids after growing up may no more be interested in visiting it as other activities consumer their holidays. Your priorities may change to take time out to visit your weekend home. Even your financial situation could change and warrant a sale of your vacation home. So, choose a location which has got good rental potential and resale value. You do not want to be stuck with a dead asset for the long run.
  • Affordability: Work out a tentative budget. Affordability here does not just imply a one- time buying cost of the house. Once you buy it, there would be various recurring and non-recurring expenses that you would have to consider, irrespective of whether you live in the house or not. These are:
  1. Initial costs: You would have to incur all the costs of furnishing a new home right from furniture to consumer durables, kitchen items, etc.
  2. Maintenance & utilities: You will have to spend money on the regular utilities & other maintenance costs like water, gas, power, property taxes, etc. You would also need to hire and pay a trusted caretaker who will guard and maintain the house in your absence.
  3. Repairs: Unwanted repair costs can always come up. You may have to shell out on repairs of electronic items, roof & water pipe leakages, etc.
  4. Insurance: There is a high probability of a vacant house attracting thieves. There is also the risk of a fire in the case of short circuit. You would thus need to buy a comprehensive property coverage to insure for various losses.
  5. Interest costs: If you partially finance the house through mortgage, you will have to service interest costs on the loan.
  • Understand tax implications: If you rent out your vacation home, the income will be taxable under the head income from house property. However, not many people are comfortable renting out their property and allow strangers or even relatives to utilise it. Note that if you do not put your house on rent and keep it vacant, you will still be paying tax on it. The property will be deemed to be let-out property chargeable to tax based on its annual value. For the purpose of taxation, annual value is calculated which is the inherent capacity of the property to earn rental income. You can however claim deductions in the form of municipal taxes, 30 per cent standard deduction and interest on loan to arrive at the net annual value of the property. A thorough understanding of taxation rules will help you decide whether to rent your vacation home or not and accordingly minimise your tax liability.

Conclusion: A vacation home is not just about fun, relaxation and building memories for a lifetime. There are huge costs involved. An untimely purchase or a wrong buying decision can disrupt your finances and affect your goals too. Besides assessing your financial preparedness, visit the location a couple of times, do you research well before you take the big decision

Top tips to avoid overspending online this Diwali

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With the ongoing festive season, the online Diwali sale offers are being frequently promoted by big e-commerce giants like Flipkart, Amazon and Snapdeal. As per media reports, the festive season of Diwali accounts for a significant 30-40 per cent of the sales of online retailers. As per Live Mint, Flipkart which announced its Big Billion Day sale from 2-6 October raked in sales of about Rs.3,000 crore. That is huge. This reflects how the online shopping mania has gripped the average Indian. Not just apparel, furnishing, footwear, jewellery but Indians today are also comfortable buying LED sets, furniture, refrigerators, etc., online.

However, this profusion of choices and the hefty discounts have turned people into online voracious shoppers. Call it instant gratification, peer pressure, show off on social media, the convenience of online shopping is gradually turning into a habit, a dangerous one for many. An individual may be addicted to online shopping if he/she:

  • buys an item to avail a huge 70-80 per cent discount but do not really require
  • browses shopping portals and apps every day to check offers and saves in shop cart.
  • spends on non-essential items every month
  • rolls credit card bill every month
  • spends beyond budget but not aware

Though it is easy to get carried away in the festive season, going overboard on mindless purchases has its repercussions on personal finances and the impact is felt much later. Here are a few useful tips to stop overspending online.

  • Make a list: Firstly, make a list of items that you really need. When you go shopping online, strictly stick to the list. Avoid the impulse of looking at hefty offers on items that you do not really require and may unnecessarily clutter your home. This will ensure that all your purchases are driven by necessity rather than just bargains.
  • Prepare a budget: Plan a budget to spend on festival related items including clothes, footwear, household items, decoration items, gifts for relatives, friends, etc. This would give you a rough idea on how much would be your outflow in the festive season. The festive budget will serve as a reminder of not going overboard, so try not to deviate from it too much.
  • Clear outstanding dues on credit card first: Before you start your online festive shopping, clear your outstanding credit card dues, if any. This will help you to start with a clean slate instead of piling up additional debt. Clearing dues will also have a positive impact on your credit score. If your current savings are inadequate to clear credit card dues, then ensure to keep a tight leash on online spending.
  • Reduce credit card limit: It is easy to get carried away and use credit card excessively during the festive season since it really doesn’t pinch when you swipe one! To avoid extreme usage, you can reduce your credit card limit before you plan your shopping. Another smart way is to switch to cash mode of payment. It would serve as a harsh reminder of how much you are spending.
  • Invest first, spend later:While shopping is on the priority list during the festive season, allocate a portion of your savings to investments first. This could be in addition to the regular investments you do every month. You can also utilise a portion your Diwali bonus to make new investments. Gift your spouse or your child a fixed deposit or may be open a recurring deposit in their name or start a SIP in mutual fund. Just like majority people inevitably buy gold every Dhanteras, make investing a ritual too every year in Diwali. It is a good way to control your urge to spend more. The money spent less and also invested would give you a good feeling about your financial future.
  • Control the buying impulse: Daily announcements of big bargains on your mobile apps could be very tempting. Turn off those notifications so that you do not feel the urge to look at them day in-day out and make that unnecessary impulse buy. Further, avoid adding items to your shopping cart list. You would be tracking offers on it daily and then eventually end up buying stuff at bargain prices but the ones you do not require.

Conclusion: Racking up huge credit card debt from frequent online shopping can do long term damage to your financial health. It could also derail some of your essential financial goals. So ensure to spend wisely in the festive season. Wishing all our readers a very Happy Diwali and a Prosperous New Year!

Have you financially planned for expensive school education of your child?

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Parents want the best of education for their children. And, they are willing to spend lakhs of rupees in these inflationary times. Wait, I am not talking about higher education here. It is school education which has become very expensive and ironically costs more than graduation! Besides the ICSE and CBSE curriculum, many schools nowadays offer international courses like International Baccalaureate (IB) and Cambridge International Examination (CIE) which are comparatively more expensive than the latter.

The Nursery fees generally range from Rs.50,000 in an average school to about Rs.1.5 lakh in a high end school. If you wish to enrol your child for IB and Cambridge courses, be ready to shell Rs.3-5 lakhs in the primary schooling years itself.

At the bottom of every school admission form is a note which states that school fees are subject to a 10-15 per cent increase every year. So imagine what would be the school fees you would be coughing out by the time your child reaches 10th grade. And, there is more. The school fees do not include bus transport fees, excursion fees, competitive exams, etc. Despite putting in the best of best schools, parents also spend a bomb on their children tuition fees, at least in the higher grades. And then there are extra-curricular activities to spend on for the overall personality development of the child.

With higher education a long term goal, at least 8-10 years away, parents have time to plan and invest in advance to achieve the target corpus. On the other hand, school fees are normally paid from the current savings every year. However, what if an unfortunate event strikes and disrupts your regular finances. Paying high school fees in one go could mean stretching your finances a bit during an unfortunate event. So it is prudent to plan for school fees in advance before the start of an academic year.

Usually for short term goals, financial planners advise to invest in fixed income options. The emphasis here is not much on investment and returns since it is a recurring goal every year. What matters is having the funds available at the opportune time when required. You can invest in debt instruments which offer guaranteed returns and carry no risk. For instance, you can open a recurring deposit account with a bank online. Depending upon the frequency of the fee payment, you can open more than one recurring deposit account and align its maturity with the fee payment period. So for e.g., if you will be paying the school fees in 2 instalments i.e., half yearly, you can open 2 accounts with a gap of 6 months and align their maturity with the fee payment period. So, every 6 months, your RD account will mature and you will have the funds in handy to pay the fees. This exercise would also instill the discipline of investing every month as against huge funds laying idle in savings account. Alternatively, you can also invest in fixed deposits to achieve your goal.

This may sound exaggerated but if you wish to put your child in an international school in the future, you should start investing even before your kid is born.

Considering inflation every year, the secondary education costs would involve very high fees plus parents inevitably also spend on private tuitions or coaching classes. If your child is small and secondary education is at least 7-8 years away, you can even consider investing not more than 20-30 per cent of the target fees in equity mutual funds.

Further, you would not like your child’s education goal to suffer in the case of any unfortunate event. So instead of buying child insurance plans, ensure that you have adequate life insurance cover so that your dependants would have the financial means to fund your child’s education in your absence.

Top reasons your health insurance claim can get rejected & how to ensure a hassle free settlement

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Buying a health insurance policy is one of the wisest things you can do for yourself and family. But what happens if the insurance claim which you are in dire need of to pay hospital bills is rejected by the insurance company. While the health insurer could be at fault for wrongly denying a claim, many a times, it is the mistake of the policyholder. Before you accuse the company, start with knowing the reason for claim denial. Let us examine the probable factors which may lead to claim rejection:

  • Waiting period: Every health insurance policy has a waiting period right from day one of buying the policy. During the stipulated period, if you claim for hospital bills, it will be rejected. If you have any pre-existing illness at the time of taking the policy, you will not be covered for a maximum period of the first 4 years. Some companies have shorter waiting periods depending upon the type of illness. Some illnesses are temporarily excluded and covered only after a certain number of years. In the case of a critical illness plan, any claim for an illness like cancer, stroke, etc., diagnosed within the first 90 days and death within 30 days following the diagnosis of the critical illness plan will be rejected.
  • Exclusions: If you claim for certain treatments like dental surgery, cosmetic surgery, infertility treatment, etc., it will be rejected as they are not covered in most health policies. These are called permanent exclusions.
  • Delay in policy renewal on time: If you fail to renew your policy on time, it will lapse and any claim during this period will not be entertained by the health insurer. Moreover, your waiting period will start afresh after the policy renewal.
  • Non-disclosure of important information: Some customers believe that concealing important health information could result in lower premium cost of the policy. Any pre-existing illness, past medical history, or any relevant information about health, if not disclosed but detected at a later stage during hospitalisation could land you in trouble. The health insurer reserves the right to reject your claim on the grounds of non-disclosure of material facts pertaining to health.
  • Incorrect personal details: Minor errors in providing personal information in the application form at the time of buying policy can lead to hassles later during the time of claim. For instance, applicant name spelled incorrectly, mistake in date of birth, etc.
  • Lethargy in documentation: For insurance claim, if the relevant documents including diagnostic reports and medicine bills are not submitted properly, then you may face problems in recovering the full amount. Even if a single prescription slip is missing from the entire medical file, you will be denied the claim to that extent.

What to do to ensure a smooth claim settlement process?

  • It is important to understand the policy thoroughly before buying one. Be familiar with the terms and conditions of the policy including waiting period, number of diseases and the procedures covered for treatment, cap on room rent, etc. In the case of any doubts, seek information from your insurance agent. Having complete policy information will help to avoid surprises in the future and you will be mentally and financially prepared for it.
  • Ensure to renew the policy on time to avoid its lapsation. Register for mobile alerts with the insurance company or broker for timely reminders. You can also set an alert in your smart phone calendar for policy renewal. Continuity in policy will not just aid in smooth claim settlement but also ensure benefits like no-claim bonus.
  • In the application form, a lot of questions are asked pertaining to age, past and current health condition, ongoing medication, existing health policies, if any, nature of occupation, consumption of alcohol, tobacco, etc. All these factors provide the health insurer the risk he is taking to insure you and he is relying on you for all this information. So, while buying an insurance policy, disclose all the requisite details honestly or else it would result in your loss in the future.
  • Do not rely on agents to fill up your application form. If you get stuck, clear your doubts with the agent but fill the form yourself. Check all the details in the proposal form thoroughly before signing on the dotted line. After receiving the policy document, check all the details carefully again. In the case of any discrepancies, inform your agent or insurer immediately and get it corrected.
  • Timely intimation to the TPA or health insurer is important within 24 hours of hospitalisation. Further, it is your family who will do all the running during the crucial hour of your treatment. So, it is important that they are aware of the location of policy documents, health card, etc., to ensure a hassle free settlement for you.

 Despite taking a health insurance policy and paying premiums, you do not want your claim to be rejected and then run from pillar to post for money. Following the above simple guidelines right during the application of health policy will ensure you and your loved ones do not face any inconvenience in claim settlement.

Do you want to buy or invest in Gold? Know the difference!

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Indians are the most obsessed people in the world with gold. Be it at weddings, festivals, thread ceremony, donating to temples, gold is a status symbol for Indians. They not just spend a lot on gold but also gift gold to close relatives on special occasions as per customs.

Besides physical jewellery, people have a lot of options to put money in the yellow metal through gold exchange traded funds, gold mutual funds, sovereign gold bond scheme, etc. Somehow, the common perception among most people is that one should invest in gold to accumulate gold for marriage.

But buying gold is different from investing in gold. Gold as a commodity broadly serves two purposes, one is for consumption, i.e., buying jewellery for marriage and the other is for diversification of investment portfolio. Let us examine them.

  • Marriage goal: You will need to first have a fair idea about the amount of gold required for the wedding depending upon its importance in your community events. There are 2 ways you can plan to accumulate gold for marriage. One option is to buy gold on periodic dips. A word of caution here. Do not be bound by tradition and buy gold on Dhanteras or Akshaya Tritiya when gold prices typically rise. Instead of looking for a “shubh muhurat” to buy gold, buy smartly in the slump season when gold prices are in the red. Further, if your goal is at least 5-7 years away, then buying gold bars or coins would be a better option than buying jewellery. Gold jewellery may become dull over the longer time frame and the look & design could become outdated. In that case, you will have to incur the redesigning and refurbishing costs. The second option is to create a corpus to buy gold jewellery in the future for marriage. This would make sense only if the marriage goal is long term, at least 8-10 years away. For the creation of corpus for marriage, however, avoid putting money in gold ETFs, gold funds, sovereign bond scheme, etc. Equity is comparatively a more tax efficient option which would offer better returns and also likely to beat inflation. Even a 10 per cent compounded return on equity is good enough to accumulate all the gold you want for the future. You can use both options to accumulate gold depending upon your time horizon and requirement. Avoid gold schemes of jewellers. You run the risk of fluctuation in gold prices at the time of actual purchase plus the high making charges.
  • Portfolio Diversification: As advocated in many of our earlier blog articles, diversification is very important in an investment portfolio to reduce volatility. It helps to manage downside risks as various asset classes behave in a different manner in different economic situations. Gold can be a part of your diversified portfolio to hedge your investments against any economic turmoil. You can take exposure to gold through ETFs, mutual funds, sovereign gold bond scheme, etc., to diversify your portfolio. If you have a demat account, you can buy gold in electronic form as ETFs on the stock exchange. Gold ETFs are easily tradable on exchanges and can be bought in as small quantity as equivalent to 1 gram. You can also invest in gold mutual funds just as you invest in equity or debt mutual fund. No demat account is required in this case. Both Gold ETFs and mutual funds are liquid and can be redeemed anytime just like any share or mutual fund. Sovereign gold bond scheme offered by the government is another option. It offers fixed interest for a fixed tenure and capital gains, if any.

Conclusion: Accumulating gold and investing in it are two different things. The rationale behind putting money in gold needs to be clearly defined. If you want to buy gold for marriage, buy on periodic dips. Depending upon the time horizon of the goal, you can also create a corpus for buying gold for the future through investment in equity mutual funds. The corpus can be utilised to buy gold jewellery at the time of wedding. If you wish to diversify your investment portfolio, then you can take exposure to gold through ETFs, mutual funds, sovereign gold scheme, etc. While gold can be a good hedge in any economic downturn, it should not exceed 10 per cent of your total portfolio value.

When not to buy Life Insurance?

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The primary goal of buying a life insurance policy is replacement of future income of the breadwinner in the event of his death. Life insurance is vital for the future well being of loved ones as it helps them to cope with financial responsibilities in the absence of the earning member. While insurance is essential, it is possible that in certain situations, it is not required. Like for instance, if you do not own a car, you do not need auto insurance. Similarly, in certain situations, life insurance is not required or some people may outlive the need for insurance in their lifetime. Let us examine the possible situations in which insurance is not required to be bought:

  • No income: If a person does not have any source of income, there is no reason to buy life insurance at all. Sadly, people forget this simple fact. It is common to find life insurance policies being sold to non-earning members in the family. Housewives typically buy endowment and money back policies. Further, policies are being bought in the name of minor children. Child insurance plans are no different from the other traditional plans involving the investment component. Such products prove to be expensive, offering sub-optimal returns and do not serve any purpose for the child. The primary purpose of life insurance to cover for loss of income is defeated here.
  • No financial dependants: Your financial priorities change through various life stages. When you are single, working and have no dependants, you may not require a very huge life cover. As you get married and start a family, you will require a big sum assured which would cover for living expenses till your spouse’s lifetime, outstanding liabilities, if any, and your children’s education & marriage goal, etc. Typically, at the time of retirement, your liabilities are over, your kids are all grown up, working and capable of taking care of themselves. When you have no financial dependants, your life insurance requirement would cease. Some retirees commit the mistake of buying a life insurance policy during old age with the intention of investing their hard earned savings. They ignore the fact that the primary purpose of life insurance is not to provide investment income. They are better off investing in other liquid options like fixed deposits, recurring deposits, etc. If sufficient corpus has been accumulated to replace regular income in retirement, then life cover is not required in old age. Paying for insurance premium from retirement savings is thus a waste of money.
  • Super rich: There are people in this world who are so filthy rich that they have no idea what to do with the excess money! The first thing they do is buy a life insurance policy and pay premiums worth lakhs of rupees. They are easy baits for unscrupulous agents who earn hefty commissions by selling them policies. The fact is if you are rich and have accumulated enough assets which take care of your lifestyle, emergencies, liabilities and financial goals, you do not require life insurance at all. Instead of wasting money in paying insurance premiums, you can invest in real estate, equities to grow your net worth further.
  • Tax saving deadline: Insurance policies are popularly perceived to be a tax saving investment option. With limited time on hand as the deadline draws near to submit tax proofs to the HR department, people become vulnerable and get lured into buying life insurance policies from crooked agents. Endowment and unit linked insurance plans (ULIPs) are the typical products pitched to investors to take benefit of section 80C. Just to save tax in a particular year, investors buy policies to commit to paying premiums for 20-25 years. Such haphazard tax planning affects both their insurance and investment goals. Life insurance policies need to be bought with a calculated approach by assessing genuine financial requirement of the future. So avoid buying life insurance during the tax saving season.

To conclude, life insurance is essential for the primary goal of income replacement of loved ones. Buying insurance for all the wrong reasons can prove to be a costly financial mistake. So it is imperative to realise in what situations or during what life stage you do not require life insurance.

How to tackle unfair selling practices of banks?

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A plethora of financial products are available today suiting our various financial goals and risk appetite. More the choices, more the confusion. Banks have become a one stop shop for offering all kinds of financial products and services besides accepting deposits and lending money. While the objective of the RBI is to enhance the wider reach of financial products by appointing banks as intermediaries, it has given rise to a menace – rampant misselling. With bank employees being offered performance linked incentives, the question of potential conflict of interest is always existent. It has become a common practice, rather malpractice of banks to pitch financial products to customers which they don’t really need. Misselling is widespread in the bundled products space, especially in the case of home loans, bank lockers, debit card and credit card.

Take the case of bank lockers. Opening a fixed deposit is usually shown as a precondition for the allotment of a bank locker. Similarly, to open a PPF account, opening a savings account with the bank is represented to be mandatory.

Another common example is that of home loans. Rather than the core lending product, banks promote the home loan package which is bundled with life insurance. The customer is required to pay a lump sum premium and is added to the home loan amount to be paid along with the monthly EMI. The buyer does not know how much exactly he has paid for insurance. Further, the cover reduces with the payment of the principal amount. If you switch the loan to another bank or foreclose the loan, the cover will expire. Such home loan protection plans are costlier compared to pure term insurance cover. These are pitched tactfully so as to give an impression that life insurance is mandatory to buy along with the home loan product. Customers are not aware that they have an option to refuse bank for insurance and there is no compulsion to buy it as per RBI rules. Some even fear that if they do not buy the bundled product, it might create a problem in their home loan application.  In some rare cases, customers are not even aware that they have been assigned a life insurance policy along with home loan as they blindly sign a pile of loan documents.

Many customers take the word of bank officials at face value or feel they have no other choice but to go for bundled products. So what can you as a customer do to tackle the unfair practices of banks? Let us examine the options:

  • Firstly, be very clear of your requirement and do a thorough research of the product you want to buy. Then, if you find yourself in a situation where a bank official is trying to forcibly sell you a product, convey a clear message to him that you are aware of the RBI rules as an informed customer. If he tries to sell you a bundled product, refuse and tell him you can buy later individually as per your need. Most of the times when you show resilience, bank officials back out.
  • If you still find that the bank official is reluctant and gives you no choice other than the bundled product, ask him to show the official notification which mandates the bundling of financial products. Alternatively, you can ask him to give the same in writing. If he refuses, let him know about your plan to approach another bank. If the bank is desperate for business, it would sell you the product you require without any conditions.
  • In the case of home loan, some bank officials deliberately bring up the issue of life insurance during the final stage of loan agreement. After going through a long drawn out process and desperate for the deal to get over, you may end up buying whatever comes with the core loan product. So it is prudent to seek clarification with the bank in the initial stage of the agreement. Read the papers carefully before signing.
  • In case you find out the wrongdoing after buying a product, escalate the matter to the branch manager of the bank. Write a complaint letter to the higher authority and mail a copy to the concerned bank official also whom you were dealing with. Ensure that you maintain records of all communication, both electronic and physical.
  • If your complaint is not acted upon by the bank, you can approach the banking ombudsman, the grievance redressal system of the government. It takes care of banking related complaints that include unfair selling practices. You can fill up a form online or courier the physical form to their postal address. It is a hassle free process and very effective.

To conclude, a wrong financial product in your portfolio can prove to be very costly. It is thus prudent to remain cautious at the time of buying a product and read the fine print. In case you find yourself in a weak spot after a product is being sold to you fraudulently, do not let matters slip away. Confront bank officials and file a complaint. Be persistent in follow-ups and fight for a refund. After all, it is your hard earned money!

Having multiple bank accounts? How many do you really need?

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The definition of convenience has evolved in the 21st century thanks to the internet. Ironically, the more convenient our life gets, the busier we have become. It is because we humans have a tendency to complicate the simplest of things. We focus on so much unnecessary clutter that we forget to view simplicity as it is. Take the case of online banking. One need not visit the bank nowadays for financial transactions or information. Everything is available at the click of a mouse. But still, managing multiple bank accounts could be a cumbersome task. Ask anyone how many bank accounts do they have and the common answer would be at least 2-3. Besides the salary account, the other accounts which people may usually have are a home loan account, any dormant salary account from previous employer, account attached to home loan, demat., etc. And how many would these be actively used? Barely one or two. Let us examine the pitfalls of having multiple bank accounts:

  • Managing multiple accounts mean going through the maze of statements or passbook entries of all banks to track transactions. The more infrequent you look at them, the less you remember where your debit and credit of a transaction has come from. Not just that, remembering atm pins, internet log-ins, passwords of multiple bank accounts could be tough. Further, collating all TDS and interest income information at the time of filing tax returns would be a daunting task.
  • The more accounts you have, higher is the probability of blocking huge funds unnecessarily in savings account. This could otherwise be channelized into productive investing.
  • Many users continue with dormant accounts from previous employers and forget or ignore to change their personal details. There is a higher risk of internet frauds taking place in such accounts.
  • Bank officials intentionally or otherwise levy charges which are not applicable to your account. It becomes increasingly difficult to coordinate with them to get the charges reversed later.

Having multiple accounts can thus be a big drain on time, energy and money. So how many bank accounts should you really have? While there is no thumb rule, limiting the number to around 2-3 accounts would be financially prudent. The practical approach most people adopt is paying their living expenses, monthly bills, EMI payments, insurance premium, etc. from the salary account. However, in the event of change of job, it can cause inconvenience with the change of salary account and may lead to cheques getting bounced.

It is thus prudent to have just one dedicated bank account in addition to the salary account. The latter will be your temporary account in which you can maintain minimum balance. You can use the dedicated account for payment of your household expenses, utility bills, EMI payments, insurance premium and investments. You can transfer a fixed sum every month into this dedicated account to maintain sufficient balance for all payments.

To conclude, it is best to have two, at the most three bank accounts. It would be far easy to regularly track them and channelize funds efficiently for various purposes. So consolidate your bank accounts and simplify your financial life!

Common traps a real estate buyer should avoid!

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The real estate industry in India is pre-dominantly a seller’s market. It is largely an unregulated industry with lack of transparency and property agreements heavily favoring the builders. People do not read the fine print as there is a general lack of awareness and become vulnerable, falling prey to unscrupulous builders. Here are some common traps that you as a prospective property buyer need to be wary of:

  • The illusion called Sample Flat: Sample flat is one of the most potent marketing tool used by any builder. To start with, there are usually no doors in the sample flat and the ceiling height is high. The walls are thin and in some cases instead of brick walls, plywood partitions or gypsum boards are used. Further, the furniture design is carefully thought out so as to look small in dimensions. All these give a very spacious feel to the entire flat. Further, the flooring and the painting is of high end quality. The expensive modular kitchen and the superior tiling offer a luxurious feel. But the popular saying, “What you see is what you get” doesn’t really hold true when it comes to sample flats. The reality is quite different and there is usually a gap between the specifications of the sample flat and the actual flat sold. Do not hesitate to ask the builder questions about facilities offered in the sample flat vis-a-vis the actual flat. For example, seek clarification whether the flooring, tiling and electrical fitting used in the sample flat will be a part of the actual flat. Also, be on the same page with the builder on the layout of the flat. Further, ensure that that the carpet area is clearly mentioned in the agreement between you and the builder.
  • Do not get tempted by pre-launch advertisements: Pre-launch offers of builders come with a good 20-30 per cent discount to the market rate and can be very tempting for prospective buyers. At times, the discounts are also accompanied by offer of a free car or foreign vacation in a lucky draw for the first few bookings. However, there are various risks associated with such offers. Many builders launch such projects and accumulate money from investors even before securing the requisite clearances. Without the approvals, it is illegal for a developer to publicise the property, allot flats and collect money from buyers. Such pre-launch offers thus face the risk of total cancellation due to lack of clearances. They may also face inordinate delays in construction due to approvals not coming on time. This in turn could push up the total cost of the project which the builder may pass on to buyers even if it is not mentioned in the agreement. Further, if the buyer is not financially strong, he would be unable to pump in timely capital to continue the project in case of delay in getting clearances. It is thus prudent to enquire about all clearances beforehand and also about buyer solvency.
  • Beware of dummy investors: Usually in newly constructed ready-to-move in properties, you will observe that majority of the flats are vacant. But your broker will tell you that barring few, all the flats are sold out, i.e., they are investor flats. While every property investor is a buyer first, it may so happen that you may be dealing with a dummy investor. And these are mostly brokers. It is also possible that many middlemen are involved and you never know who the real owner is till you close the deal. The main objective of these dummy investors is to artificially keep prices high in the property market. These properties are quoted at 10-15 per cent discounted price than what is offered by the builder. This is a smart marketing strategy to entice buyers and make them perceive that they are buying at a cheaper rate. But in reality they are buying higher than the market price. It is thus better to remain cautious when buying ready-to-move in properties. Such properties if not rented out or not sold for a very long time should ring a warning bell in your mind. While it is difficult to identify whether the investor is genuine or not in the beginning of the transaction, insist on having a meeting with the builder and investor together. Also, check the difference between the prices quoted by the builder and the investor. If there is a huge discount offered by the investor, then do not be in a hurry to close the deal but introspect further. You can also enquire about prices from recent dealings done by newly moved-in residents with the builder.
  • Do not give in to the pressure tactics of builders, agents: The typical marketing gimmick of selling any product or service is to create an urgency, a rush in the minds of customers for buying. Any sales team of the builder or the broker would show you how majority flats of a project are being sold out and only few are left in the pipeline. Further, they almost make you believe on the potential development of infrastructure in the vicinity of the property and hence the probable rise in prices in the near future. Such sales tricks try to put psychological pressure on buyers of monetary loss or fear of being left out or missing out on a valuable buy. Avoid being trapped into such pressure tactics and making buying decisions in a rush. Contemplate and then make big the property buying decision in your life.

To conclude, you may come across these usual traps while buying property from a builder. Exercise caution and do not rush into taking the big property decision. We have already talked in our previous article about preparing a basic checklist on builder goodwill and past history, property location, flat specifications, amenities offered, documentation, etc. So do some due-diligence before buying a property to avoid such traps.