Planning for retirement and doing something about it is something that most youth and elders detest. For the youth there is no incentive to plan for something that will come up 35 years later. For the elders, the fear that they may not have enough money in their last phase of life prevents them for doing a deeper analysis and action after that.

Retirement Planning is not only about money

There is more to retirement planning than money. Some of the key things to be planned which actually make the planning more interesting is to consider:

1. How will you spend your time?
2. Places to visit
3. Tackling health related issues
4. Sharing the wealth created
5. And finally planning for income (of course)

In fact, most people just think of the last one without considering the first four. This leads to confusion and fear.

Tips for Retirement Planning

Plan Time: Many retired people are lost because they have not planned for the question “What next?” It is important to find some activity that will fill the 8 to 12 hours that one has spent at work. This is not only for the breadwinner but also for the homemaker. What will you do to manage a new person with whom you need to share 8 to 12 hours, suddenly?

a. Think Social Activities: There are so many activities that one may have thought of doing to the society and not done due to want of time or due to other priorities. Post retirement one can take them all with a vengeance. This not only a time filler but also a very good way to keep the brain stimulated.

b. Think Hobbies: Apart from filling time and keeping one mentally agile, hobbies also add to your skill sets. Taking up a new hobby and joining a hobby club is a great way to manage retired life.

2. Plan Travel: Except for the envied few who had great travel oriented jobs, most would have sacrificed their travel plans for their career. And don’t grow too envious because those jet flyers on the job are also cribbing because they had to travel on such tight schedules that they hardly got to see anything worthwhile travelling on the job. Retirement is a wonder time to plan for all those missed countries and places to visit.

3. Plan Health: Health insurance is very handy when you are retired. But if this is planned on the brink of retirement not only is the cost too high, but diseases may already have set in. This means that the pre-existing diseases will not be paid for by the insurance for upto 4 years after taking the plan.

4. Write a Will: Writing a will to efficiently pass the wealth created to our loved ones is very important. However in India, this is a commonly absent practice. Even some of the richest persons in India have not taken up this practice (think Dhirubhai Ambani). This leads to costly and lengthy process of passing our hard earned wealth to our loved ones.

5. Plan Finances for Regular Income: Though this aspect alone can be written in whole books, the basic idea can be summed up with a few point:

a. Do not to lock up funds in illiquid assets without cash flow – avoid buying a large house for you to stay and prefer a house from which you can get a rental income.

b. Do not to give away wealth too soon – having cash does not mean that you can give it away to your sons and daughters and brothers and sisters or to a temple. Give it to them through your will so that they get your wealth, and at the same time, the money works for you when you are around.

c. Do not experiment – To experiment with retirement funds in the stock market and commodities or a new business post retirement is highly risky. You may not have the time or energy to earn the money lost (if lost).

Retirement Planning:

Retired life is supposed to be fun filled and peaceful. But today we find more old age destitute homes popping up than schools, indicating a trend towards lack of retirement planning. The above tips will help those in their prime of life and those near retirement to plan for a comfortable retired life.

EMI is a common household term today, as more and more people are availing different kinds of credits to meet their financial needs. The same is applicable to outstanding amounts in credit card dues which the customer may find difficult to pay in one go. Is the EMI facility on credit card payments a good option or does it come with strings attached? Let’s first understand what EMIs in credit cards are.

When you make a purchase using your credit card, you can make its payment by any of the following ways:

• Make the full payment of the card on the due date
• Make a part payment and pay interest on the unpaid amount till it is repaid
• Pay the outstanding amount in EMI

The third option is when the amount can be paid back to the credit card company in equal parts. EMI in credit card dues thus works like a loan, wherein you pay off the outstanding amount equally during the pre-decided tenure.

The card issuer usually specifies the conditions that only specific purchases of certain amount from select stores would be eligible to avail the EMI benefit. While this option is generally available at the time of making purchases, some banks offer the facility of opting for EMI option even at a later date or on outstanding dues on the card. A credit card holder must ensure at the outset that the issuer of the card has given an option to avail this facility as it is not available across all kinds of cards.

Forms of EMI payment:

• Most EMI options on credit cards carry an interest rate. This interest rate is generally lower than the normal interest rate on the credit card. The EMI is made up of two variable components- principal amount and interest rate. Assume you make a purchase for Rs. 15,000 and opt for EMI option at a monthly rate of 1.5% over 6 months. The total outstanding amount is first calculated, which is then broken up into equal payments over 6 months, comprising of both principal and interest components. The component of interest amount is higher in initial years and decreases over the years. The component of principal amount is lower in initial years and increases over the years.

• You can avail an interest-free EMI option on certain purchases. So if the purchase amount is Rs.15,000 and you opt for a 6 month EMI, then this will translate into six monthly payments of Rs. 2,500 each. However, this could be a short-duration promotional offer where there are no charges at all. It can also be applicable if you are transacting at a retail outlet that has a tie-up with the bank. Further, in this case, you must evaluate to check if the discount on the product is taken away when you opt for EMI option. For instance, the product worth Rs.15,000 may be available for Rs. 13,000 without the EMI option.

In both the above cases, the customer is charged a one-time processing fee which is a percentage based on the transaction amount. This percentage varies from bank to bank.

Options to mitigate the EMI Risk

The credit card companies have many shrewd plans to extract maximum interest from the unsuspecting customers. They design products in such a way that they always stand to gain. Some banks do offer Insurance on EMI so that in case of an emergency the insurance takes care of your minimum dues for certain period but not the entire amount. However, you’ll have to purchase insurance upfront with a premium. Thus, the options to avoid paying higher interest when taking EMI facility from credit cards are limited.

Drawbacks of availing EMI option on Credit card dues

• If you opt for an EMI facility, the EMI amount will get reflected on your monthly credit card bills along with your other dues. If you fail to pay your credit card dues in any month, you will be charged a hefty interest of anywhere between 24%-36% for non-payment. This interest will be charged on your EMI amount as well, which already carries the basic interest of the EMI facility, causing a double whammy.

The customer gets an impression that the amount being repaid is being treated as a separate loan and once the EMI starts, the entire card limit can be used again. But it is not true as till the total amount is paid, one can only use the remaining limit from the credit card. If you want to repay the entire outstanding at one go, there is a prepayment penalty. Most banks will charge you 1%-5% on the outstanding. Moreover, if you forget to pay EMIs, there will be an extra interest cost involved.

Therefore the need for discipline in all kinds of spending through credit cards is essential for smart financial management of personal expenses. Any big ticket buy through credit card without sufficient funds to make the payment in one go can result in huge interest burden subsequently. Such offers need to be carefully evaluated on a case by case basis to see if there are any savings by the cardholder before taking it up.

Usually a family comprises of a person who works and earns money for the family and also people who are dependent on him/her. They may not have any means of earning money and it is the responsibility of the breadwinner to secure his family in the case of any unforeseen tragedy or his untimely demise. Life insurance comes as a respite to provide maximum protection to them. There are various life insurance products available in the market and term plan is one of them. Term plans are also called as term assurance and they provide coverage of life only for a short and specific duration till the premium amount is paid. If the insured dies due to any reason during this tenure, the death coverage is offered to the beneficiaries.

Most of the term plans have their premium rates fixed and are based on the age of the insured and health factors as well as other factors like gender, vices like smoking or alcohol. If the tenure of the policy completes, then it lapses and no benefits are provided to the insured. It can also be bought online which can help in saving time and money on premiums.

Why choose a Term Plan?

Term plans usually give maximum coverage for the lowest premium amount. Term plans can be used effectively if their benefits are understood well and they are used based on the requirement and circumstances. Some significant ways of using term plans sensibly are:

• Term plans should be chosen in such a way that the term cover can be increased, decreased or stopped based on the situation. It is recommended to opt for term plans without return of premium as that is the most economical option. It would be ideal to buy new term plans with different critical stages of life like marriage, birth of a child so that family members are included in the coverage. It can be bought for a maximum duration of 30 years or till the age of 65. It is better to opt for term plans when still young as the premium is much lower then. However, the duration and coverage should be reviewed often with the income increasing with age and experience and also accumulation of funds and assets. It can be further revised with the build up of assets and lesser liabilities like children working and settling.

• The term plan can also be used to take care of the home loan in case there is sudden death of the insured. Usually the home loan repayment is done by the insured and it lasts for most of the working life. In case of a death, then the family members will have to take care of the repayment of the home loan or lose possession of the home. In such a case, term plans help as they are of low-cost and a high coverage and can take care of the rest of the home loan.

• Term plans can also be used for taking care of shorter-term loans. Short-term term plans can be used effectively to manage loans like car loans or purchase of business equipment. The term plans can be stopped as soon as the tenure of the short-term loans gets over.

Buying a Term Plan

A prospective policyholder can buy a term plan from insurance companies, agents or even online. A comparative analysis should be done before choosing one which is most suitable for the policyholder based on his age, gender and other related factors. Most of the insurance companies provide information on their company websites. Information can also be collected from authorized agents.

A comparative chart of products with their premium amount is given below. It is specific for term plans of Rs. 50L at the age of 25 years.

Hence, term plan is suitable for those who do not want to merge their investment objectives with risk objectives. If the policyholder is fine during the tenure of the policy, no money is given to him or his family members. However, in case of a death, the family members can get the sum assured. Though the premium is quite low for high coverage, it can be increased or decreased at the end of each term. It covers not only the policy holder but his family members as well in case of any unforeseen tragedy.

In today’s world of ever increasing expenses, spending on your children results in a substantial outflow from your pocket. However, did you know that you can get tax benefits on many expenses and investments made in your child’s name? This includes a wide variety of expense heads and investments. Most of these investments fall under the ambit of Sec 80C within the Rs. 1 lakh limit. Here are a few such cases, which will help you reduce your tax outflow:

Interest on Education Loan: The cost of education for your child is a huge outflow, and needs to be well planned. Most of you may opt to take a loan to fund your child’s higher studies. While this results in a repayment burden, you can gain partially, as the interest portion on education loan is fully tax deductible under Section 80E of the Income Tax Act. This loan can be taken by the borrower, parent or spouse of the student from a recognized financial institution. The loan must be taken for a full-time course, which can either be a graduate course in engineering, medicine or management or post graduate course in engineering, medicine, management, applied sciences or pure sciences including mathematics and statistics.

Payment of tuition fees: Tuition fees paid by the parent to fund his child’s education in any school, university, college or any other education institution within India can be deducted under Sec 80C, upto Rs. 1 lakh in a year. The amount of deduction is restricted to two dependent children and should pertain only to actual tuition fees paid. However, both husband and wife have a separate limit of two children. So each parent can claim for two children each.

Health insurance premium: When you take a health insurance for your child, you can claim the premium paid as a deduction from your income, upto a Rs. 15,000 in a year.

Expenses on treatment of disabilities and certain ailments: The Income Tax Act allows the parent to claim a deduction from his income, an amount incurred towards treatment of specific disabilities and illnesses of his child under two sections. Sec 80DD of the Act states that expenses incurred towards medical treatment of dependent children suffering from a disability are eligible for deduction. The limit of deduction under this section is Rs. 50,000 for a normal disability (impairment of atleast 40%) and Rs. 1 lakh for severe disability (impairment of 80% or above). Sec 80DDB of the Act allows expenses incurred towards treatment of specified illnesses for children to be deducted from income, upto Rs. 40,000.

Deduction of allowances: There are a host of allowances specified in the Income Tax Act, which is allowed by an employer as a deduction from the income of the employee. The first is a hostel allowance of Rs. 300 per month per child, upto a maximum of 2 children. However, these expenses need to be incurred in India. The next is an education allowance, wherein Rs.100 per month per child upto a maximum of two children is exempted from income. Here also, the expenses need to be incurred in India. Medical expenses incurred for dependent children are allowed as a deduction upto Rs. 15000 per year on furnishing of medical bills. Most of these upper limits are those which have been set several years ago, and seem like an insignificant amount today, on the back of growing inflation. Several representations have been made to the Government to increase the exemption limits of these allowances.

Minor child’s income: When you make investments in your child’s name, the income earned from these investments will be clubbed with your income. However, if you have invested anywhere in your minor child’s name and this investment generates an income, you can claim upto Rs. 1500 as a deduction on this income. This is available for up to two children. For example, you can invest upto Rs. 15000 in a long term FD which gives an annual return of 10%, and be exempt from tax. Remember that if the interest is on a compounding basis, the interest amount will grow over the years, resulting in an increase in tax liability.

Formation of a Trust: You can set up a trust in your minor child’s name to save on tax. You will need to make an irrevocable transfer to the trust, so that the money will not be claimed by you. When you make investments through this trust, the income made through these investments will not be clubbed with your income. Even though the trust has to pay tax on this income, the total tax liability will be lesser if the income is clubbed with your income.

When you have children, you will be forced to incur various kinds of expenses on them. A smart investor is one who knows how to get maximum benefit on the expenses incurred on his children, as well on the investments made in their name.

Gifting to your loved ones is an essential part of Indian culture and is special. However, it often leaves many of you hassled as you are unable to come up with appropriate gifting ideas. For all those of you who face a tough time in choosing gifts, a pre-paid gift card is an excellent option. Read on to understand more about pre-paid gift cards.

What is a pre-paid gift card?

The pre-paid gift card is a smart gifting solution which essentially works like a gift voucher. A pre-paid gift card is a magnetic strip based pre-paid card which looks similar to a credit card or debit card. However, a pre-paid gift card is neither a credit card nor a debit card in entirety. It is not like a credit card as it does not allow the user to accumulate debt on the card. It is also not like a debit card as the amount spent is not linked to the bank account.

You can purchase pre-paid gift cards from banks by paying the value of the pre-paid card along with any joining fees, if applicable. Once the bank receives your funds, the card will be activated with the loaded amount. You can then gift this activated pre-paid gift card to anyone, and the recipient will be able to use it across merchant outlets which accept that particular type of card (Visa, Mastercard or American Express, as the case may be). Every time the gift card is used, the purchase amount is deducted from the card balance. The recipient can use the card till the entire amount is used.

Features of pre-paid gift cards?

Pre-paid gift cards are issued by most leading banks in the country, in association with Visa, Mastercard or American Express. Some online portals also sell pre-paid gift cards.

• A pre-paid gift card is issued in a particular currency. Most cards issued by Indian banks are issued in Indian rupees.
• Some pre-paid gift cards come with a PIN, which can be used to check the card’s balance and transaction history, making it easy to track.
• The gift card is meant for electronic use and can be used only at merchant establishments which have the terminal which accepts such pre-paid gift cards.
• Pre-paid gift cards are available in various denominations of Rs. 500, Rs. 1000, Rs. 2000 and Rs. 5000. Some banks also issue in multiples of Re.1.
• Pre-paid gift cards can either be recharged/reloaded or are non re-loadable. Majority of the banks issue cards which cannot be reloaded.
• The balance on the pre-paid gift card can be found out at anytime by the user, either by contacting the bank or by using it in the bank’s ATM.
• Funds in the pre-paid gift card are non-transferable to any other card. Cash withdrawal on such cards is also generally not permissible.
• Pre-paid gift cards have a validity period. Most banks issue it with a validity of 1 year.

Fees and Charges

A nominal fee of Rs.50 – Rs.100 + service tax is charged as joining fee when you purchase the pre-paid gift card. In the case of loss of card, a similar amount is charged for a card replacement. Some banks levy similar amounts towards other charges like requiring physical statements, regeneration of the PIN, cancellation etc.

Documentation required

Most banks do not require the purchaser of the gift card to be their customer. If the purchaser is not a customer of the bank, then a full KYC is carried out. The purchaser needs to provide a proof of identity card and a residence proof along with the completed gift card application form. On the other hand, if the purchaser is a customer of the bank, then such formalities are not required.

Benefits

• The pre-paid gift card is more personal than cash and hence is a popular gifting option.
• The receiver is free to decide how he wishes to spend the card amount. A wide variety of options including shopping, dining and partying is possible with the gift card.
• It is more durable and easier to carry compared to any other type of gift voucher.
• The pre-paid gift card offers the ultimate flexibility of usage – the user is free to decide the value and location to spend the amount according to his wish.
• The user can track the usage of the card and check any upload and expenditure immediately.
• Pre-paid gift cards have wide acceptability.
• Pre-paid gift cards are safer compared to cash and gift certificates, as they carry a unique ID numbers.

Prepaid gift cards have become a popular gifting option in recent times in India on the back of various benefits and have carved a niche in the market.

Buying a home is indeed a dream come true. And with a home loan, this dream is not beyond the reach of individuals today. However, depending on your income and credit rating, you will be eligible for a certain maximum loan amount from the bank. What if your dream home demands a slightly higher loan amount than what you are eligible for?

Worry not — you could take a joint home loan!

Apart from increased tax benefits, you stand to get a higher loan amount too (provided the co-borrower has a regular source of income).

Here is your dose of  ‘know all’ on joint home loans.

Who can take a joint loan?
– A married couple or a parent and child can take a joint loan.

– Some banks allow brothers to take a joint home loan provided they will both be co-owners of the property. Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.

Exceptions: Sisters, friends or unmarried couples living together are, generally, not allowed such loans by banks.

Do both borrowers get tax benefits?
Yes. You as well as the co-borrower can avail tax rebates on the principal and interest repaid on the loan.

This way you can maximize your tax benefits.

Example: Let’s assume that the principal and interest repayment on your home loan for a given year is Rs 2.4 lakh and Rs 3.5 lakh respectively. Now, under Section 80C, you can get a maximum tax deduction of Rs 1 lakh on principal repaid and under Section 24 you can get a tax break of up to Rs 1.5 lakh on interest repaid. However, if you and your spouse had taken the home loan jointly, you would collectively be able to claim a deduction of Rs 2 lakh and Rs 3 lakh on the principal and interest repaid.

Note: The tax benefits are according to the proportion of the loan. That is, if the ratio of the loan is 70:30, then a loan of say, Rs 50 lakh will be split as Rs 35 lakh and Rs 15 lakh respectively and this ratio will be applicable while calculating tax benefits on interest/principal repaid on this loan.

Smart tip: For tax purposes, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.

What documents does the bank need?
You as well as the co-borrower need to submit individual proofs for the set of documents required, as both of you are applying for the loan.

The list of documents differ from bank to bank. Following is the exhaustive list of documents. Check with your bank or NBFC which of these you need to submit for the loan processing.

Here is a standard list of options for each document required.

1. Identity proof:
– Driving license
– Voters ID
– Passport
– PAN card
– Ration card
– Employee ID
– Bank passbook
– Letter from a recognised public authority or public servant verifying your photograph
– Confirmation letter from your employer or another bank verifying your photograph

2. Address proof:
– Driving license
– Voters ID
– Passport
– Ration card
– Bank passbook or Bank account statement
– LIC policy/ receipt
– Utility Bill – telephone, electricity, water, gas (less than 2 months old)
– Letter from any recognized public authority verifying residence address of the customer
– Letter from your employer

3. Age proof:
– Driving license
– Passport
– Bank passbook
– PAN Card
– Birth certificate
– 10th standard mark sheet

4. Income proof:
The following set of documents that detail your credit profile varies according to whether you are a salaried individual or a self-employed individual.

a. Self Employed/Entrepreneurs
– A brief introduction of Business/Profession
– Balance Sheet, profit and loss account statement of income, proof of income tax returns
for the last 3 years certified by a CA
– Photographs
– Receipts of advance tax payments if any made
– A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
– Registration Certificate for deduction of Profession Tax
– Certificate of Practice
– Receipts of Bank loans
– Proof of investments (FD Certificates, Shares, any other fixed asset)

b. Salaried individuals
– Income Proof ( you just need to provide one of the options listed for income proof):
Latest Pay slip
Form 16
Increment/Promotion letters
Appointment letter
Pay slip (Last 2 months) with salary account bank statement
Certified letter from Employer
IT returns ( for three years )
– Investment proof (FD certificates, shares, any fixed asset etc.)
– Documents supporting the financial background of the borrower (his liability and assets if
any)
– Photographs

5. Property documents

If a flat is purchased from the builder, you need the following supporting documents to submit to the bank:
– Original copy of your agreement with the builder
– 7/12 extract – This is issued by the concerned land authorities giving details such as the survey numbers, area, date from which current owner is registered as owner etc.
– Property register card, which is obtained from the City Survey Department
– N.A. permission for the land from the collector, if its agricultural – If the land is agricultural and is being utilised for residential/ commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and a Non-Agriculture Order has to be obtained from the Collector of the district where the property is located.
– Search Report and Title Certificate – A search report and title certificate can be obtained from an advocate who will conduct a survey of the title of the property by visiting the office of registrar. A legal opinion can avoid any legal hassles later and is mandatory to be filed with the agreement for sale.
– Development agreement between the owner of land and the builder
– Copy of order under the Urban land Ceiling Act
– Copy of building plans sanctioned by the competent authority
– Commencement certificate granted by the Corporation
– Building completion certificate
– Latest receipts for taxes paid towards the land or property or flat to be purchased
– Partnership deed or memorandum of association of the builders firm

In case you are buying from a Cooperative Society, then ensure you have the following documents in place:
– Original share certificate of the Society
– Allotment letter from the Society in your name
– Copy of the lease deed, if executed
– Certificate of the registration of the society
– Copy of the byelaw’s of the Society
– No objection certificate from the Society
– 7/12 extract or property register card in the Society’s name
– Copy of N.A permission for the land from the collector
– Search Report and Title Certificate
– Copy of order under the Urban Land Ceiling Act
– Copy of the building plans sanctioned by a competent authority
– Commencement certificate granted by Corporation
– The latest receipts of taxes paid for the property
– Original Agreement to assign / Deed of assignment

If you are constructing on your own land then you will need the following documents:
– Original sale deed of land and extract of Index II
– 7/12 extract or property register card in your name
– Copy of N.A. permission for land from the collector
– Search and title report
– Copy of tax paid under Urban Land Ceiling Act ( obtained from Commissionerate of Urban
Land Ceiling and Urban Land Tax )
– Copy of the building plans sanctioned by a competent authority
– Building permission granted by the Corporation
– The latest receipts of taxes paid for your land
– Estimate of the cost of construction certified by the architect

Exercising discipline is extremely important in every aspect of life. This cannot be more stressed in the case of managing your money. The manner in which you manage your expenses is the key to reduce liabilities and save more. According to a famous trading and investing legend- One must not spend time looking for the Holy Grail of investments or trading systems. It doesn’t exist. The Holy Grail is within you. It’s not the investment that’s going to determine success or failure rather it’s the discipline of the investor.

There are 2 friends Mr. X and Mr. Y both in their late 20s. Mr. X has a monthly income of Rs. 60,000, while Mr. Y has a salary of Rs 40,000 per month.  However, Mr. X’s job is more stressful and demanding; while Mr. Y has a comfortable job with low stress levels and better work life balance.

Mr. X lives a lavish life. He spends most of his salary; saves inconsistently. On the other hand Mr. Y is very regular in savings. From his monthly income, he saves Rs 15,000 a month in the following investment options.

Pension - Rs 3,000; Child plans -  Rs 2,000; Mutual Funds -  Rs 4,000; Emergency fund -  Rs 1,000; Vacation fund -  Rs 1,000; PPF – Rs 2,000; Mediclaim-   Rs 2,000

Suppose at the age of 44 years, both have a medical emergency. Due to lack of savings Mr. X would be stumped. However, in case of Mr. Y, his saving patterns, as visible below, would be able to save the day and give him the ability to meet the sudden expense.

One can never predict life. It’s difficult to anticipate bad times. Hence, it is essential to save for such rainy days. One should make it a habit to save, even if it’s a small amount.

Here are some steps which one can follow.

Track expenses: This is the foremost step. You should keep a check on monthly expenses. Unnecessary expenses should be avoided. One way to know how much one spent for a month is by having a monthly budget. This will show where the money is spent and also regulate the cash flows. This done over a period of time will help you identify areas where there is room to cut back on spending and save money. This will free up cash, which can be used to pay up existing debts or help save for the rainy day. Reducing spending, as opposed to earning more money, is the real key to gaining control of finances. Also, you must ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be set aside such that can be readily accessed in case in times of emergency or as a contingency fund.

Pay off debts/ credit card debts: Paying off your debts early is one of the best investments you can make, specially paying off debts which have a high rate of interest.  This includes the credit card payments which generally have higher interest costs.

Create discipline: You need to have discipline in the way you spend and control your expenditure. It is the key to save. A consistent plan of saving and investing helps attain one’s goal. With discipline and time one can reach goals.

Importance of saving: Here is a simple example. There are 2 friends, Mr. A and Mr. B. Mr. B saves Rs 500 per month. Mr. A saves nothing. Over the years, here’s what happens.

The discipline of saving regularly has helped Mr. B be richer by Rs 19, 931. Also what you earn is not as important as what you save. If you spend everything you earn in futile pursuits and wasteful expenditure, then there is no point to the amount earned.

Invest: Start the wealth building exercise by investing in low risk investments. Once the base is strong, then increase the risk exposure by investing in higher return investments. Also, do not put all the eggs in the same basket. Your risk tolerance level goes a long way in defining your investment approach. However, do remember your investment objectives before you subscribe to an investment plan.

Follow a systematic investment plan: Invest at regular times. By doing a SIP, you can SIP (sleep in peace). This will help you reduce the cost and earn higher returns in the long term.

As seen in the case of Mr. Y, by saving regularly helped him meet the medical emergency with ease. By following these simples steps, you can make your money last longer!

Fixed deposits in banks are one of the most preferred investments by risk averse Indians who also look forward to earn a higher interest rate as compared to the normal savings account in the bank. Now these fixed deposits have another wonderful benefit to offer the customers and that is the provision to take a personal loan against it in times of requirement. This a great idea for personal loan that actually comes at a much lower rate of interest as the bank gets the security of the fixed deposit against which it provides the loan.

Key benefits of Personal Loans against Fixed Deposits

The reason for the growing popularity of this option as against traditional unsecured personal loans is the host of added benefits that come with such a loan.

• The interest rates available for personal loans against fixed deposits are lesser than conventional personal loans. The rates for such loans are generally 1 to 2% higher than the rates being paid by the bank for the fixed deposit.
• Such a loan does not require one to liquidate the FD which in that case lesser interest for being broken midway. This way the asset remains while the immediate financial requirements are met.
• The tenure for the personal loans against fixed deposits normally extends up to the maturity of the fixed deposits.
• The processing is also hassle free as the bank where you already have the fixed deposit will itself provide the personal loan against it.
• There is no prepayment penalties associated with these kinds of loans which gives the borrower the freedom to repay whenever his cash flow situation improves.

The Procedure for Personal Loans against Fixed Deposits

The process involved in availing a personal loan against fixed deposits is relatively simple and fast. In this case the fixed deposit will have to be hypothecated to the bank. At the time of the application the following documents will have to be submitted to the bank.

• Demand Promissory Note
• Pledge/lien Letter
• Loan Documents
• Overdraft Agreement
• Application Form
• Deposit Receipt
• Signed Receipt

There is a small processing fees that will be charged by the bank for the approval of this loan and the loan will be sanctioned in a very small time frame.

However one must carefully analyze the actual losses that will be accrued by taking a loan against the fixed deposit at an early stage of the deposit as compared to taking it against a deposit that is nearing maturity. In most cases it is preferable to take loan against deposits that are closer to maturity as the amount due will be more in this case. But at the same time one must understand that the tenure available for repayment reduces in this case. Weighing the pros and cons of both the situations the borrower will have to decide for himself which is the most advantageous situation for him. However in all cases taking a personal loan against fixed deposit is always better than a high interest rate pure personal loan.

Today there are a plethora of options in personal loans being provided by various banks and other financial institutions. Though the exact eligibility criteria for availing such personal loans varies from bank to bank there are few common guidelines which most of the lenders follow when it comes to approving a personal loan in India.  The basic parameters that determine an individuals’ eligibility include age, profession, annual income, credit history and outstanding liabilities at the time of applying for a personal loan.

Age Criteria: The general guideline followed by most banks and other financers is that for availing a personal loan a salaried individual must between the ages of 21 to 60 years while a self employed persona has to be within 25 to 65 years of age.

Employment Stability: A salaried person with a minimum of 2 years of professional service with 1 year in current profession and a self employed person with a minimum of 5 years of total earning tenure with at least 2 years in current profession is eligible for a personal loan. However these criteria are flexible depending on other factors that the lender shall decide.

Financial Situation: The current and previous financial condition of an individual sis an important consideration while approving a personal loan. Minimum levels of income have been specified by the different banks for applying for personal loans. The financial condition determines the repayment capacity of the individual and hence the lenders take maximum cognizance of this aspect while giving an unsecured personal loan. The amount of loan that one is eligible for is also decided based on this criteria.

Credit Rating: The credit history of the applicant is another aspect that lenders would like to look into while approving personal loans. Delays and defaults in paying EMIs of other loans or credit card dues are some issues which can lower the eligibility for personal loans from banks and other financial institutions. A good credit rating on the other hand enhances the total amount that one is eligible for.

Employer: Since the loan is unsecured the kind of employer the applicant is working with is given due credit while deciding eligibility for personal loans. Public sector employees and those working with reputed and established private companies thus are better eligible for availing personal loans as compared to others as there is stability in their income.

Outstanding Credit Liability: Any other pending loans which the applicant has at the time of applying for a personal loan are also likely to reduce the eligibility in terms of maximum amount possible. Since the amount is calculated as per EMI that the applicant can possibly repay the contributions towards other outstanding loans reduce the total personal loan amount drastically.

However in the case of personal loans the local branch manager is given substantial discretionary powers which he can use to approve a loan despite limitations in the eligibility criteria of the applicant. The customer must always try to bargain the best possible deal while negotiating with the branch manager for a personal loan.

When the insurance advisor approaches to sell a policy or plan, his persuasive tone might drown your doubts that are critical to wise investment. Only features that provide a feel good factor are disclosed to the customer and the aspects that may discourage the customer are conveniently hidden by the agent. A careful inspection of the fine print in the policy document will reveal many such loop holes that may actually prevent you from getting all the promised benefits of the policy. It is a good idea to get all your doubts clarified right from the beginning to avoid unpleasant surprises later. One may also approach the branch manager or the training manager of the insurance company in order to get all the details simplified whenever there is any confusion regarding the terms and conditions or the features of the plan.

Hidden Charges

Depending on the insurance variant and nature of the plan the fee and charges will vary. If you are opting for an insurance plan that combines investment and insurance your agent might casually overlook any mention of the allocation fees and administrative charges that the insurance company is going to take from the amount deposited. The first aspect through which the buyer will lose money when taking an insurance policy is the allocation fees, which comprises of the administrative charges and the risk premium charges. This implies that when you buy a policy there will be a considerable amount deducted from the money paid towards allocation fees and the remaining will only be used to buy units for your insurance account. The allocation fee is typically highest in the first year and thereafter reduces proportionally. Thus in order to recover the basic amount that has been invested the investor will have to wait till the NAV of the remaining amount grows to make up for this amount.

Lock in Period

The lock in period is another aspect that the advisor is usually shy to explain. This is the mandatory period for which the money must stay invested with that company in order to derive benefits. In case the investor wishes to withdraw during this period there are likely to be sever penalties which will significantly reduce the net amount payable to the investor. As high as 4 % of the amount paid may be lost in case withdrawing before completion of the minimum prescribed lock in period. Thus while making the decision to buy a policy one must look at the possibilities of any requirements for withdrawing in between and then put in the money.

Surrender Charges

The surrender charges are never mentioned to the buyer at the time of purchase. The agent will usually promise that the entire NAV of the plan will be paid out to the customer incase the policy is surrendered before its maturity. However, this is not the case in majority of instances. All companies do levy a fixed surrender charge if the policy does not reach maturity. This charge can be quite an amount considering the fact that the plan is held for 10 years or more and surrendered before maturity. Thus while buying a plan it would be wise to carefully consider the maturity period specified for that plan.

Terms and Conditions

There are several other factors that the terms and conditions of any insurance policy mention to which most buyers do not pay any heed at the time of purchase. However this slip up may actually render the policy invalid or make it extremely difficult to claim the full benefits at the time of requirement. It is in your own interest and the interest of the family members whom you are trying to protect, which warrants a careful study of all the clauses that is mentioned in the fine print of the policy before actually signing the deal.