Monday, May 29, 2017

Residential realty - buy home or rent home

Series of announcements in real estate sector. RERA has been in force in more than a dozen state and about a dozen of them are about to adopt. I often wonder is #buying-a-home is realistic or an emotional decision made by most of us?

Many expert says.. one should not measure monetary value of the house one reside in. "That is not for sale" If this is the argument for buying a house, go for it! Otherwise let's do a reality check on how residential real estate fair amongst all asset classes.

10 things you want to know about the cost and risks attached to property investment 
  • A large sum of money blocked as a down payment
  • Hefty EMI
  • Monthly mainatanance charges to society
  • Interior expenses once in few years
  • Cost and tax on electricity, water connection
  • Maintaining the structure gets costlier every passing year
  • Yearly property tax
  • Tax on rent earned
  • Difficult to sale at a fair value, besides a portion of earning goes in tax and broker
  • Property prices are not regulated, negotiation can be erratic
Renting a property is much easier with significant benefit.
1. Rent paid is tax free under HRA regulation 
2. Only capital blocked is advance payment of the rent/ deposit money, refundable 
3. Don't like the house, change it
4. Don't spend on interior, just choose a better one
5. Don't stay in the old house, rent a brand new every time
6. Changing the city for job? You don't have to think about leaving behind a previous asset.
7. Put the hefty sum set aside for down payment of equity. It is likely to give double digit return over long term 
8. No extra cost apart from the monthly rent of the house and basic bills
9. Maintenance is the job of the house owner, not yours
10. Put the EMI money in debt mutual fund and earn decent money over long term, to pay your rent, which can be offset on income tax return as house rent according to your income slab is eligible for tax exemption on housing rent. 

If you are a prudent money manager, renting is a much better option if you are staying in metro like a mumbai, smaller cities still give you a little better deal with cheaper maintenance cost. buying a second home is absolutely NO NO, you will earn a much better return with equity investments through mutual fund.

My money my way :) 

Monday, May 22, 2017

Sovereign Gold Bonds, SGB, Have you missed buying? No worries.. you have chance to buy it better

*Buy SGB on secondary market through your trading account

Gold, the Godly metal of Indian household, are nowadays available in fancy formats to woo the prospering Indians. Since the economy watchdogs kept repeating the perils of buying the physical format, the rush for paper gold nd electronic gold has become a statement. While GoldBEES (GOLD ETF) is here around for sometime, Indian Government has taken a bold step by introducing Sovereign Gold Bonds, which is issued periodically with an attractive interest rate payout attached to it.

The first two tranches of the SGB offered 2.75% taxable interest on the investment beginning September 2015, the third issue onwards it remained stable at 2.5% half-yearly or as they call it semi-annually. But what if you have missed the issues due to lack f cash crunch, indecisiveness or merely being lazy, you still have a chance. Not only chance to buy, but also to decide which one of the 7 listed bonds currently available in the list. 

Plan your life-goals with the new age ULIP!

Yes, that is absolutely true. You can choose the SGB Bonds listed on BSE/NSE from your stock broker, even better if you have a trading account. The bonds which come with 8 years of maturity, can be bought on the trading app with few clicks, now at reduced time period (as the maturity date is pre-decided). So, if you buy Sep 2015 SGB, the maturity stands at 2023 which is about 5 years and few months, much less than 8 years maturity. And, guess what, if you stay invested till maturity you will be exempted from paying any capital gain tax. Moreover, you earn 2.75% interest on each unit based on the issue price. 

Looks like a win-win situation for the new investors, as because of volatile markets, Gold prices have come down and many of these SGB is trading below their offer prices. Hence buying below offer price means better interest income (better yield). I am not fond of investing in Gold and recommend investing a maximum of 8-10% of total portfolio, but for somebody who likes the divine metal, it makes a smart choice to invest in SGB through the secondary market.

5 ways they sell you wrong financial products

*LTCG in Gold is applicable as debt instruments
*Selling SGB in secondary market will attract as per tax laws
*Tax-exemption benefit is available for only holding until maturity
*The volume of SGB is not very high in secondary market, difficult to trade in large quantity
* 1 unit of SGB is equal to 1 gm of Gold
* The price of SGB OF different tranche varies in trades, though having same underlying asset

Saturday, May 13, 2017

5 ways they sell you wrong financial products

#Mis-selling is rampant in financial services and it spares none! Beaware and take decisions rationally. Here in this post we would focus on how they sell you wrong financial products and how can you fight it.

Financial literacy is important. Even more important is to know how to manage own finance. Be it loan, insurance, stocks, or simple savings account in banks, on a regular basis we need to deal with some decision making with our finances which defines our financial habits and saving behaviour. Many people are averse to discussing this important aspect "money" as they dislike numbers, or even hate to keep a check untill a major decision needs to be taken like tax saving, taking housing loan, or god forbid some medical emergency. The sales representatives of various forms like advisors, brokers or plain simple sales executives of the financial industry mints money during these emergencies without providing the right guidance for which they are paid for. Not only the less educated people, even financially aware people fall in the trap lured by bonus, rewards and false promises. Let us look at what are the common methods are used for misselling the products. Surprisingly in many cases the buyer is partially aware that product is not right for them. Let us look at 5 common ways of getting conned.

1. Buy an insurance to open new bank account - without taking the name, this is a common feature in India's largest public sector bank. Public sector bank account pass book is often used as a address proof. So, when somebody especially new in the city tries to open an account in the branch of this Bank, he/she is politely directed to the branch manager, where the applicant is almost forced to buy a life/health insurance in exchange of a savings account. It has been a personal experience in large city as well as smaller towns. Besides account opening this method is openly encouraged by seniors in the system for any work/favor a customer asks for (within the scope of banking services )

2. Hiding the hidden charges - This is also common, cold callers luring potential customers with half information. It is seen that despite probing multiple times, the executives dont give out details. And, the customer only comes to know once he start using the product, hence, trapped for short time or for ever. It is common for life insurance and credit cards.

3. Emotional black mailing by family and friends - Rampant in life insurance industry, driven by incentive model, the large number work force is part-time advisors, highly crowded by house-wives, retired professionals or somebody looking for an extra income. They often sell highly incentivised product for quick buck without bothering about the need of the person. Being family or friends, buyers often give-in to save the relationship or motivate them. This emotional buying cost them dearly. They mostly don't even go back and complain even unsatisfied. 

4. The vanish act - Selling a product takes the seller closer to his target. Spilling the beans about the risks involved or fee structure can take them one step back and a 10 pitches back. To avoid the hassle, they simply sell the product to never return to service their customer. 

5. Not explaining the complex products - They are in a hurry or simply they don't understand the product. Often, they sell complex products like ULIP plans, endowment plans even pension plans without taking out time to explain the details unless asked for.

Take accountability 

Though regulatory bodies like SEBI, IRDA doing their bit, it is important for every individual to basic research on the product you are buying. The basic Google search on the product can throw up a lot of information on the product. The aggregator sites on insurance, loans, deposits can further help with additional information and best rates. 

Ask the broker for written guidelines on product usage and costs involved , especially on insurance and credit cards. Do read the terms and conditions, however pathetically time consuming it may feel. It is your duty to do double check as much as it is the with the sellers. And don't buy the product if you find discrepancy in what the seller said and mentioned in the written document.

If any official/broker/advisor sell you wrong products, do reach out to consumer grievance cell.

Beware. Take charge!

Wednesday, May 3, 2017

Plan your life-goals with the new age ULIP!

Often my friend Sheena is found daydreaming about her stress-free retired life, zooming past the country sides on a road trip with her husband, painting on a Goa beach and having detox SPA at Kerala. All of 35, Sheena is a school teacher and mother of a 5-year-old. One fine day, she called me up and asked me if it’s a feasible life goal she has and if her current investment style will be enough to take care of future needs? Averse from the new age financial instruments, her FD returns promised very low return and her worry of not able to fulfill her dreams weighed her down.
Like her, there are many of us, who undermine the new age financial products. There are many products like mutual funds and ULIPs which offer higher return and over the long term with some planning and discipline, reducing the risk with a disciplined approach. ULIPs offering SWP, a tax-free regular income can be generated for a long term period by selling units, which can work very well as pension or second income.

In this post, I would like to elaborate on one such product with smart features to suit the need of investors and help them realise their goals, and how one can make most out of it.
#ULIP, known to be insurance cum investment product, is actually an investment cum insurance product with some awesome features and thanks to stringent guidelines by IRDA.
And if  you already consider the new age ULIP as a dynamic investment tool with an additional life cover, you are a sorted investor. The main hurdle we find with the investments is choosing vehicles with irrational expectations because of lack of understanding and product and mis-selling. 

One such plan actually broke my misconception about ULIP is Wealth Ultima by Edelweiss Tokio Life Insurance. The ultra-low cost ULIP rewards you for being a disciplined long-term investor.
Edelweiss Tokio Wealth Ultima, a new product on the block comes with some amazing flexible features given the multiple life goals it aims to attain.
Notable Features
  • < >EdelweissTokioLife- Wealth Ultima is bundled with insurance cover with investment options of equity, balanced and bond funds
    Policy Term and Premium Paying Term as per your need:
    • Policy Term ranges from 10 years to ‘till age 100’.
    • Premium Paying Term* ranges from 5 years to ‘till the end of the policy term’
  • Policyholders also have a choice to switch portfolio in funds o his/her own
  • ULIP’s are a good choice as they allow an investor to choose market tools to invest in, and change their choice depending on how the market turns
  • The approximate cost per year based on the tenure chosen
  • Policy term – Minimum 10 years of maximum 100-entry age
  • Entry age – Minimum 0 years to maximum 70 years
  • Policy payment term – Minimum 5 years, maximum 70 –entry age or 100-entry age (depending on the policy chosen)
    The disciplined approach

  • Systematic monthly (Investment) plan – This feature gives the investor the freedom to invest a pre-decided amount monthly in the plan. It helps to address the short-term volatility of the market and rupee cost averaging of the investment
  • Systematic transfer plan – Based on requirement one may choose to protect their investment by systematically transferring the profit amount into less risky bond funds, which can be done with target profit booking/ life stage and remaining duration analysis, one also have a choice to self-manage the portfolio
  • Withdrawal - Retirement planning through SWP – Often we are worried about accumulating wealth, seldom we think on how to manage and withdraw investments in a logical manner. SWP in #Wealth-Ultima gives an opportunity to the investor to choose SWP after 10 years of lock-in period, wherein investor can withdraw the specific number of units according to his choice (Monthly/quarterly/semi-annually/annually) to fund their sabbatical/ retirement or just a second income. This unlike pension products don’t attract tax enjoying the triple tax benefit under section 80c
    Special features of the products
  • Double indemnity benefit under Little Champ benefit – Little champ benefit aiming to protect the future of a child is taken by one parent and can be started at ‘0 years’. In the case of the death of parent, the future premiums are waived but the plan continues for the child. Top-Ups – you may choose to top-up your investment flexibly
  • Reduction / Increase in policy payment term allowed  
  • It pays to stay – “Additions to the fund”
    • Loyalty additions  - Loyalty Additions will be added to the Fund Value at the end of every Policy Year, starting from the end of sixth Policy Year till the end of the Premium Paying Term
    • Booster additions - added to the Fund Value at the end of every fifth Policy Year starting from
    • end of 10th Policy Year till the Maturity Date of the Policy
    • Guaranteed additions - Guaranteed Additions are added to the Fund Value at the end of every Policy Year, starting from the end of sixth Policy Year till the Maturity Date of the policy

      My take – I also introduced this product to Sheena and she found that ULIP is one of the most cost-effective investments cum insurance tool for a long term horizon. The product offers dual benefit of investment and insurance, which makes it a complex in nature. Also, the product demands long-term disciplined approach and commitment. Looking at the above two points, it is prudent to consult a financial advisor and insurance company to make an informed decision. You must ask the advisor about the product features, lock-in period, policy charges and all benefits.
      If the investment is made with thorough understanding, one can enjoy maximum benefit.
      Please visit the website and download the product brochure for better understanding.
      Thanks to Edelweiss Tokio Life Wealth Ultima, it gave Sheena a chance to fulfil her dreams!

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