Bank Locker & The Games Bankers Play

Hemant Beniwal
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2
Bank Locker & The Games Bankers Play

There are many types of valuables and important documents that people want to keep safely and away from any risks. The concern for safety for jewelry, property documents, wills, precious stones, and other valuables is so high that some inconvenience in accessing them is worth it.

The increase in the wealth of a community propagates into, unfortunately, increased incidents of thefts and robberies. The police’s lackluster attitude in either preventing or arresting the culprits and recovering the stolen items makes people afraid of keeping jewelry at home.

Bank Locker & The Games Bankers Play

Banks facilitate a safety deposit box, or popularly a Bank locker, service for secure and safe storage of any item by the service’s hirer. You can store gold jewelry, business agreements, wills, precious stones, silver gifts &coins, and insurance policies in them.

Not every branch of all banks gives a locker facility. The Reserve Bank of India has made strict guidelines as to which branch can and cannot run locker services and safety and security measures. Usually, the bank lockers are kept in a strong room or a vault within a bank.

Bank Locker & The Games Bankers Play Click to Tweet

In consideration of taking away your risk and offering a personal safe, banks charge you an annual fee or locker rent, in addition to some processing charges.

Before you opt for opening a bank locker, there are specific rules that you must know. Ignorance of these rules can come as a surprise or shock, depending on what unfolds in front of you.

Bankers rely on the general fact that people are not aware of these rules and can be taken for a ride. Like most other banking products and services, locker services see usual misselling and information obfuscation tactics by unscrupulous bankers.

Rules and how are they bent/broken

Not all bankers, and not all rules are flouted, though, but you do not know if you have been dealt a bad hand. Therefore, here are the most important rules governing locker operations and tactics to bend or break them to fulfill a banker’s ulterior motives.

#1 Processing and waitlist

Once you apply for a locker at a branch, they must start the process immediately if the locker is available or provide you a waitlist number for the type of locker you need.

Bankers’ Tactics: Bankers treat safe deposit lockers as a favor to the customer and not part of their service. So, instead of keeping a transparent waitlist, locker allotment becomes arbitrary and prone to all sorts of corrupt practices.

#2 Opening charges and KYC

Customers must give all necessary documents for completing the KYC requirements and pay a nominal processing charge.

BT: The one-time registration bank locker charges for most PSUs are nominal up to Rs. 1,000. In the case of private banks, these charges can be anywhere upwards of Rs. 2,500. Banks have made it into another cash cow to fill their “other-operating-income” accounts.

As for KYC, there are the usual ways of rejecting your KYC form by a banker – signature does not match, address-mismatch in two documents, no introduction by an existing customer, and so on.

The three risk categories – low, medium, and high – can put you in one of the higher risk categories, changing the relationship’s whole dynamics.

#3 Security Deposit

To safeguard the bank’s interests, RBI allowed them to take security deposits equivalent to three-year rent and lock-breaking charges in the form of FDs. E.g., if the rent for your locker is rupees fifteen-hundred p.a., and the breaking charges are Rs. 500, then the total security deposit cannot exceed Rs. 5,000 (1,500×3 + 500).

BT: This the point where most bankers dupe, mis-sell, and misinform their customers, as it has a direct bearing on their targets and commissions. As seen in the example, the security deposit is nominal, but to dole out the favor of jumping the waiting list, the banker manipulates you.

It may force you to open a fixed deposit, buy a ULIP, get traditional Insurance, invest in some mutual fund scheme, or take a personal loan/credit card.

Many bankers will insist on the fixed deposit to be on a safer side, as they can later justify by saying that “we offered a nominal FD, but the customer said let’s open a regular bigger FD here instead of some other bank.”

Bank Locker

#4 Bank Locker Agreement

Once your locker is operable, the banker must give you the key to your locker and a copy of the locker agreement with all rules governing its operation and responsibilities & rights of both parties.

BT: Instead of supplying the rules, guidelines, and charter of responsibilities and rights – personally, by mail, or email – bankers get the signature of customers on the column saying something like, “I have received the rules governing the operation of my locker.”

Most customers are in so much hurry that they never stop to read what is written above and below the dotted line. They are delighted to hold the key to their lockers.

#5 Operating the Locker

Customers are allowed some “free” visits to use their locker every year. It can range from 12 to 24 visits depending on the bank. Any extra visits are chargeable.

BT: Bankers can dupe you in multiple ways –

  • saying a bigger FD allows a greater number of free visits;
  • they can hide the number of visits to a very small number;
  • the RBI guidelines do not stipulate visits to be spread evenly in a year, but the bankers may make their arbitrary rules of limiting monthly visits to 1 or 2, thereby charging you; and
  • the charges for additional visits can be kept as high as Rs 2,000+GST for each extra visit.

#6 Dormant lockers

RBI rules state that if the lockers of high-risk customers stay dormant for one year, three years for medium-risk customers, the banks can break them open. However, before doing that, banks must notify the customers that their services will be suspended, locker lock is broken, and contents are taken into custody.

This rule is applicable, even if the rent for the locker is being paid without any fail. Once the locker is broken, the bank can rent it out to another customer. You can take possession of your locker contents when you will clear all dues and present necessary documents to prove that you were the person operating it.

BT: Again, the unscrupulous banker can reduce the limit for medium-risk customers from 3-years. As the RBI guideline is silent on low-risk customers, most banks apply the same rules as medium-risk customers.

Many customers report that they never received any notices about the inactive status of their lockers. And as mentioned above in point on locker agreements, they are not aware of the rules, to begin with.

Also Check: 5 Best Mobile Apps for Budgeting in India

Conclusion

If you are pressured into opening an FD or buying ULIPs, Insurance, Mutual Funds, or getting a personal loan/credit card, it is best to find the contact of the bank’s vigilance officer on their website and call them / write to them.

RTI is another tool that you can use to ask the bank manager to spell out rules related to opening and operating a locker. But this will work in the case of PSU banks only.

Finally, you always have a last resort solution, a Ram-Baan of sorts, to write to the RBI’s local banking ombudsman.

A little information from a credible source never goes unrewarded. You may not need a locker now, or any more, but if you come to know of someone, do not hesitate to share this article with them.

Please share hurdles that you faced while opening a bank locker…

11 Unusual Ways of Saving Tax In India

Hemant Beniwal
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0
11 Unusual Ways of Saving Tax In India

Last-minute Income Tax (IT) planning can be a confusing and cumbersome task just because it was not planned well ahead in time.

But with knowledge on your side, you can address several aspects of your smart tax planning and use some really creative and 11 Unusual Ways of Saving Tax In India.

11 Unusual Ways of Saving Tax In India

Must Read – How Can Your Family Help You To Reduce Tax Liability

The Income Tax Act differentiates between tax evasion and smart tax planning and provides many opportunities and ways to reduce your tax liability. In addition to the common investments and expenses that allow you to claim deductions and rebates u/s 80, you have many more unconventional and best ways of saving tax.

Note: Below is various ways that people use to reduce tax liability but consult Your CA Before Taking Any Action.

Ways of Saving Tax In India

This is possibly the most comprehensive list of such unusual ways to save income tax.

1. Route your Investments through Parents

If your parents are senior citizens, then they enjoy special treatment from the taxman in form of tax breaks and extended limits. If their post-retirement income is in a lower tax slab than yours, then you can make investments in their names and treat it as a gift to them.

11 Unusual Ways to Save Tax Click to Tweet

There will be no tax on the gift that you make to them, and any future income arising out of such an investment will be theirs to claim. You can make such investments in senior citizens’ fixed deposits schemes, post office schemes, senior citizen’s savings schemes, and even equity mutual funds.

As you all live together, their increased tax-free income will add to your family’s financial well-being and bring stability to your finances.

2. Contribute more to National Pension Scheme

The annual contribution to the National Pension Scheme u/s 80C has a limit of Rs. 1.5-lakhs. But you can tell your employer that you are opting to invest an additional sum of Rs. 50,000 in the NPS (Tier-I) and this will be tax-free u/s 80CCD (1B).

3. In 2021, buy home appliances using the LTA cash voucher scheme.

The Leave Travel Allowance or LTA is paid to employees by their employers to undertake trips within India with their families. If provided, LTA can be claimed as a tax exemption only two times in a block of four years. Usually, you claim this exemption by submitting proof of travel (tickets and hotel receipts) for the trip undertaken.

As almost the whole of 2020-21 was a washout year for any kind of travel due to the COVID-19 outbreak, the Finance Minister, Mrs. Nirmala Sitharaman, announced the LTA cash voucher scheme in December 2020.

The scheme intends to help boost the demand for certain products as well as to help employees save tax using the LTA. The taxpayer or their family can spend a specified amount on certain goods and claim an exemption without going on any trips. There are some conditions for that:

  • The ‘specified expenditure’ should be on payment for goods or services attracting12% or more GST.
  • Such a purchase/payment must have been made on or after October 12th, 2020, and on or before March 31st, 2021.
  • The exemption cannot exceed Rs 36,000 per person in the family or one-third of the ‘specified expenditure’, whichever is less.
  • The payment for such ‘specified expenditure must have been made via electronic payment system and a ‘GST tax invoice’ must be submitted to the employer.

Under this scheme, you can buy high-end mobile phones, laptops, and appliances like air conditioners and TVs. This way you can buy white goods worth Rs. 1.44-lakhs and still save tax on that amount. The maximum benefit available for a family of four persons is Rs. 1.44-lakhs (36000*4).

Must Read – Do NOT opt for Home Loan Protection Insurance Plans 

4. Pay for parents’ health and health insurance.

Section 80D of the IT Act allows you to claim a deduction of up to Rs.25,000 for payment of the health insurance premium for yourself and your family. If you pay the medical insurance premium for your parent’s too, then you can claim an additional tax deduction u/s 80D.

The benefit available is dependent on parents’ age as follows:

  • Under 60 years: Rs. 25,000 on health insurance + Rs. 5,000 on preventive health check-up = Rs. 30,000
  • Between 60 and 80 years: Rs. 50,000 on health insurance + Rs. 5,000 on preventive health check-up = Rs. 55,000
  • Over 80 years: Rs. 50,000 on health insurance + Rs. 7,000 on preventive health check-up = Rs. 57,000

Read – What is Family Floater Health Insurance ?

U/s 80DDB, you can avail up to Rs. 40,000 or Rs. 1-lakh as a deduction for medical expenses incurred on treatment of ‘dependent’ parents. The limits are applicable for parents under 60-years of age or above it, respectively.

5. Donate to social causes.

Section 80G of the IT Act allows you to make donations to specified charities or organizations, social or religious, to fulfill your social duties. By donating to such charities, you can avail from a fifty to one-hundred percent tax exemption for the donated amount.

There are certain funds that the government had set up that can help you get 100% exemption such as PM National Relief Fund, National Defence Fund, PM CARES Fund (set up especially for COVID-19 efforts), and funds especially set up for a declared national disaster. You can find a complete list of charities under “Exempted Institutions” on the Income Tax department website.

smart tax planning

6. Contribute to political parties.

When individuals donate to specified political parties approved by the Election Commission of India, they can claim from 50% to 100% tax deductions on such donations. These donations can be directed to a political party (registered u/s 29A of the Representation of the People Act, 1951) or indirect to a registered electoral trust.

The deductions are available u/s 80GGC if the payments are made through cheques, net banking, or UPI. Any donations made in cash or in-kind do not qualify for tax deductions. You can claim the entire amount donated to a political party as a deduction from your taxable income. But there is an upper limit on the amount of the donations – up to 10% of their gross earnings in the year.

7. Pay rent to parents and claim HRA.

Living in a joint family with parents can help you save taxes! You must pay them the rent that will be added to their income and will make you eligible to claim the deduction for HRA. You can contribute towards the financial independence of your parents by ensuring a steady source of income for them.

The owners of the house, your parents, can charge up to 30% of the rent as house-property maintenance expense and only the remaining 70% will be added to their income. If your parents co-own the property, then they can split the rent on paper, and save more tax.

8. Book profit and reinvest your gains.

The new rules for long-term capital gains tax (LTCG) kick in if your profits are over and above Rs. 1-lakh in that year on sale/redemption/maturity of such long-term assets. The smart move is to annually book profits in smaller amounts and reinvest the same in fresh investments to save LTCG tax.

You can also fulfill any shortfall you may face for making fresh investments in tax-saving instruments. Such smart withdrawals can help you save tax on two fronts – avoid paying LTCG tax on future LTGCs, and new investments in tax-saving instruments to avail more deductions.

Also, read – 10% LTCG on equity so bad?

You can also reinvest in the same instrument or stock to ‘up’ your cost of acquisition and avoid future LTCG tax incidence. For e.g., the current market value of an investment in stocks, originally done with Rs. 3-lakhs is more than Rs. 3.8-lakhs owing to the market rally since May 2020. You can sell the entire investment and re-purchase it, ‘upping’ your acquisition costs to Rs. 3.8-lakhs. This way, you’ll pay only a small STT and brokerage, but will save on 10% LTCG Tax applicable if the gains were to exceed Rs. 1-lakh.

You can follow the same strategy every year, to continue to ‘up’ your acquisition costs, but remember that the stocks must be in your portfolio for more than 1-year (365-days) to qualify as a long-term asset.

9. Set-off capital losses.

When a capital asset is sold at a loss, such losses can be set off against capital gains made in subsequent years. The capital loss will depend on the actual cost of acquisition, or indexed price, or the fair market value, and will the cost for any additions, enhancements, renovations, construction, registration, etc. done.

The cost price is dependent on the nature of the asset – property, bullion/jewelry, financial assets, etc. The nature of the asses also determines the long-term and short-term duration, indexation benefit, and whether the costs of additions/improvements are admissible or not.

One general rule is that most short-term capital losses can be offset against short-term and long-term capital gains in the same or the subsequent years, but long-term capital losses can be offset against only long-term capital gains. You must also remember that setting off of capital losses is permissible only against capital gains, not any other income head. The carry-forward of such capital losses is permissible up to 8-assessment years, so always show your capital losses in the ITR!

10. Reduce tax as a HUF.

The traditional joint-family structure of the Hindu society resulted in a unique tax personality in the Indian Income Tax Act – the Hindu Undivided Family, represented by its Karta. If you have multiple sources of income, in addition to your salary, then showing your other incomes as earnings of the HUF will reduce your tax liability substantially.

HUF is treated as an independent financial entity – for Hindu, Sikh, Jain, and Buddhist followers – and can act on behalf of all the family members in it. Family members can show their additional personal incomes as gifts to the HUF so that they don’t have to pay any tax on subsequent income from investments made from such gifts.

11. Gift or loan money to your major children.

If you have extra income or capital gains, and you invest them, then any income from such investments will be added to your income and will be taxed at the usual rates. But if your children have attained adulthood, then you can gift or loan (interest-free, of course) it to them for making such investments.

When your kids will make investments from this, and earn interest, dividends, or capital gains, they will come under the lower tax bracket than you, and therefore, as a family, you can save a substantial tax amount.

Please share if you follow any other ways of saving tax .

Why Nobody Cares For A Financial Planner

Hemant Beniwal
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0
Why Nobody Cares For A Financial Planner

Financial planning is not terribly difficult, but it requires time and effort. It also needs some amount of expertise and knowledge.

A qualified and competent financial planner will be able to devise and execute a suitable financial plan for you. But most people do not prefer to enlist the services of one. Many prefer managing finances on their own for multiple reasons.

Why Nobody Cares For A Financial Planner

A comprehensive financial planning process includes the following steps –

  • Determine the current financial situation.
  • Determine financial goals.
  • Create a financial plan based on income, expenses, savings, and goals.
  • Review the financial plan regularly.

Let us consider why people do not care for a financial planner and evaluate the reasons –

Must Read –7 Compelling Reasons To Hire A Financial Planner In India

1) Hiring a Financial Planner is an expense

Financial planners are professionals who charge fees for their services just like doctors or interior designers or lawyers. They charge fees in different ways –

  • Fee-based planners charge a certain fee irrespective of the money invested or returns generated.
  • Other planners charge based on the total assets under management. This links their growth with the client’s growth.
  • Some planners earlier used hybrid models.
  • Some planners charge for every transaction made or based on returns generated. (normally PMS guys)

People feel it is an added expense that can be avoided. Some feel that planners who charge fixed fees get paid regardless of performance. So there is not much incentive for them to work hard and smart. Others feel that planners who get paid for transactions might increase the number of transactions unnecessarily.

But it has to be understood that they use their knowledge and financial management skills to plan your finances. If you are unhappy with their guidance, you can always stop availing of their services. Are you cost-conscious and also willing to spend time on managing your finances? You can do it yourself after a couple of years of handholding. (but even after almost 2 decades in this investment world – I have a Financial Planner)

Read – How much should an Indian Financial Planner Charge

2) I can plan my finances by myself

Sriram, who is a 32-year old corporate sales manager, wants to plan all his investments and finances himself. He feels he can do it himself by reading books and watching business channels and getting information from financial websites. Some people feel they just need to invest money in index funds and let them grow. But putting money in index funds is just one aspect. Insurance, risk management, retirement, and other aspects have to be managed including behavior management.

Why Nobody Cares For A Financial Planner Click to Tweet

It is good to learn financial planning and also be able to handle your finances independently. But do you have enough time and energy? He works long hours and travels at least 10-12 days a month for work. So he does not get enough time to optimally plan his finances. This leads to haphazard money management or investments based on friends’ recommendations. It might be better to hire the services of a professional who can manage your finances keeping your particular circumstances and goals in mind.

Blog Post – 10 Questions if you are on the Path of Do-It-Yourself Investing

Hiring a Financial Planner is an expense

3) Financial planners will not have my best interests in their approach

Banking relationship managers & insurance agents push certain products that might not be in your best interests. You are doing the right thing by avoiding such people. But now you have better options including SEBI Registered investment Adviser or Certified Financial Planners – who are fiduciary & keep clients interest first. Always remember – trust but verify.

Also, Read – Importance of Financial Planning in Your Life.

4) I do not have much wealth and so do not need a financial planner

I have heard many people say, “I am not Ambani to need a financial planner. It is a misconception that only the rich need financial planners. Rich or poor, you require money to take care of your needs and wants, give your family as comfortable a life as possible and achieve your life goals. It is advantageous to have an expert to guide you on the right path to create wealth.

   Check –9 Little Ways to Save Money in India

5) I do not want a third party managing my money

People are wary of disclosing their financial information to strangers. It is quite understandable. But an able financial planner understands you and your financial aspirations before creating a plan or giving you advice. He will make you feel comfortable sharing information with him. If you are not comfortable working with him, you can look for alternatives. If they feel you need a different kind of planner, they would suggest the same.

Also Read: 7 Compelling Reasons to Hire a Financial planner

You can select a financial planner based on references or set up initial meetings to understand their expertise and rapport with them.

There are some cases wherein you can work on your own –

  • You have recently started earning and have no dependents. You can manage basic financial planning. You might not require a financial planner as of now. But in the future, your income increases or you have financial dependents, you might need an expert to take care of your finances.
  • You are retired, and most of your life goals have been achieved, you might not need the services of a full-time financial planner but at least have regular financial checkups if you understand the importance of health checkups. 
  • You are an expert in financial matters and can manage your investments without bias and emotions. In this case, you may be able to manage your financial plan. But you would need to invest a significant amount of time and effort into it. Moreover, you will have to update your knowledge regularly in aspects of taxation, investments, optimum money management, etc.

In most other cases, it will be beneficial to avail of the services of an expert to manage your investments, monitor financial risks, and work towards increasing your income and wealth.

Falling interest rates put investment goals in jeopardy. What are your options?

Hemant Beniwal
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4
Falling interest rates put investment goals in jeopardy. What are your options?

My retired Tauji, my father’s cousin’s brother, was in for a shock when he went with my cousin to renew his non-cumulative 5-year-old fixed deposit.

The deposit rate offered to him was a mere 6.20% (including the added interest of 0.60% applicable for senior citizens) for a deposit of more than five years. It was a drastic 31% drop of 2.80% from 9.00%, which he got on a 5-year deposit in 2015!

The back of the envelope calculations showed that he stands to lose Rs. 2,800 annually, for every one-lakh rupee deposit. It means an Rs. 28,000 hit annually, for a deposit of 10-lakhs; Rs. 42,000 for 15-lakhs; and Rs. 56,000 for a 20-lakh deposit.

For a retired but independent and upright, person a loss of annual income by more than thirty percent was nothing less than a punch below the belt.

Since he retired in 2011, he never thought that he would need anything more than his safely deposited retirement corpus’ interest income. He did not have any rental income either, as he preferred investing in his children’s education to building property or buying gold.

Falling interest rates put investment goals in jeopardy. What are your options?

Also Read: Best Retirement Plan in India-Pension, the need of your future

Why are interest rates falling?

The fall in interest rates is not sudden and is due to the COVID-19 economic stress. They have been declining steadily for the last 4-5 years. 2015 was the last time that deposit rates were more than 8% for any term above the 1-year.

The decline in interest rates was gradual and went with manageable inflation. Like my Tauji, it made people oblivious to the fact that interest rates follow a cycle of up and down. The only thing uncertain is the timing and the quantum of the movement.

Falling interest rates put investment goals in jeopardy. What are your options? Click to Tweet

The COVID-19 pandemic forced global central banks to reduce their policy rates, to stimulate economic activity, once again to near zero or even sub-zero levels.

Similarly, RBI took aggressive actions to supply liquidity in money markets to tide over the pandemic stress.

Some of these actions aimed to restore confidence after the failure of many prominent NBFCs and banks – IL&FS, DHFL, PMC bank, and Laxmi Vilas Bank are some examples.

RBI’s Monetary Policy Committee (MPC), in its latest meeting on December 3, 2020, kept the policy rates unchanged and suggested they will keep an “accommodative stance” in the future.

The repo rate (at which banks borrow from RBI) and the reverse repo rate (at which RBI parks funds from banks) were unchanged at 4% and 3.35% levels.

RBI also suggested that its Long-Term Repo Operation or LTRO policy would continue and expanded to cover more stressed sectors. Under the LTRO, banks can borrow from RBI at current historic low repo rates for one to three years.

Both actions signify that RBI is pushing for growth over inflation concerns in the short to medium term to pull the economy out of a recession.

Also read-  What are Alternative Investment Funds ( AIFs)

Impact on saving and investments

The banks usually have the CASA (current and savings account balances) as the prime source of cheap funds. But with RBI supplying cheap money, they are forced to reduce their lending and deposit rates.

Interest rate fall acts as a general mood dampener for investors, savers, and retirees. It results in a drop in incomes, some even below the sustenance levels, and yields on safe investments.

The interest rates on a savings-bank account have dropped for the first time below the sentimental 3% mark and hover around 2.70%. Similarly, the interest rates on fixed deposits have reduced to 5.40% for depositors under 60, which is way below the 6.93% inflation rate in November 2020.

It will not be easy for anyone going forward, as the continued rate suppression by RBI will stoke it further.

But it will be particularly challenging for those living off their interest income in coming quarters, if not years, as they will face a double-edged sword – falling interest rates and increasing inflation.

Investors – especially retirees, pensioners, and people going to retire this or the next year – are scrambling for safe and steady avenues to get a fixed income from their retirement corpus.

Even the working-class people in age groups under 55-years need to reconsider their debt allocation in these turbulent times and find a safe, long-term, and growth-oriented strategy to rebalance their portfolio.

falling interest rates investment options

Fixed-income Instruments

According to ValueResearchOnline.com, many debt funds, investing in government bonds, quality corporate, and PSU papers, returned more than 9% percent in 2020. But as the famous adage goes, never chase historic returns.

Must Check –Benefits of long-term orientation in Life & Investing

Post-office Savings Schemes

The India Post, a unit of the Government of India, offers one of the best and safest savings options for the depositors of all income classes and for all life goals. It also runs the India Post Payments Bank, which works on the same commercial principles as any other bank.

But the parent India Post still offers the most competitive interest rates ranging from the 4% simple interest (SI) on the savings bank accounts to the 7.4% on the Senior Citizens Savings Scheme (SCSS) or the 7.6% on the Sukanya Samriddhi Account Scheme​​ (SKSS) for the girl child.

Its other deposit schemes have interest ranging from the 6.7% annual interest on the 5-year term deposit to the 6.6% on the Monthly Income Scheme (MIS), where you deposit a lump sum to get a monthly income from the deposit.

Post offices also accept the long-term public Provident Fund (PPF) deposits on which the PPF organization (backed by the government of India) offers 7.1% annual interest. There are schemes like the Kisan Vikas Patra (KVP), National Savings Certificate (NSC), and the recurring deposits with maturity and interest rates of 124 months & 6.9%, 60 months & 6.8%, and 60 months & 5.8%, respectively.

High-yield savings accounts

Some new-age banks like Au Small Finance Bank and Bandhan Bank provide an interest of 4% to 7% on savings accounts with different deposit limits and features. These are anywhere between 48% to 160% higher than the Sb interest of 2.70% from SBI!

Bandhan Bank and Au Small Finance Bank are robust in their fundamentals. Yes Bank, now under the joint new management of SBI, ICICI, HDFC, Axis, Kotak Mahindra banks, is now stronger than ever.

Sweep-in FDs

Most banks now offer higher interest if you have opened a sweep-in facility linked to your savings account. Whenever the balance in your savings account goes above a threshold, say Rs. 50,000, the bank will automatically convert their higher savings into short-duration FDs, earning higher interest income.

If your balance drops below another threshold, say Rs. 10,000, then the FD is automatically swept out, and the principle with interest is credited to your savings account.

Government Bonds and Gilt Funds

Bonds issued by the Government of India are the safest investment option in India. As the ticket size is considerable, you can take part through Mutual funds or ETFs.

As ETFs are tradeable on stock exchanges and mutual funds allow same-day withdrawal on these bonds, they are also highly liquid. You can sell them whenever there is a need and withdraw funds.

As the interest rates fall, the yield on them increases, and it currently stands at more than 5% on bonds over 4-year maturity and goes up to 6.5% for the maturity of 10+ years.

But the top funds investing in these have returned more than 11.40% and up to 13.34% in the past year. The top funds in this category are ICICI Prudential Constant Maturity Gilt, IDFC Govt Securities, SBI Magnum Constant Maturity, and DSP 10Y G-Sec funds.

Also, Check- Gilt Funds- Should I Invest?

Credit-risk Funds

If you can park some of your investments in riskier assets for a possible better return, the high-yield bonds funds and ETFs are other options. We will never suggest you invest only in these funds for higher returns, but only 5-10% of the corpus gives that extra thrust.

Credit risk funds are aggressive and invest up to 65 percent of their portfolio in low-quality high-yield debt securities from corporates. Top 5 credit risk funds in this category – HDFC Credit Risk Debt, ICICI Prudential Credit Risk, SBI Credit Risk, ABSL Credit Risk, and Axis Credit Risk – funds earned yields of 10.22% to 11.39% in the past year (as of 1-Jan-2021).

If your 5% corpus earns 11% annual returns and 95% corpus earns 6% returns, overall returns can be 6.25%. With a 10:90 allocation in credit risk and safer instruments, this return can be 6.5% – an extra 0.25% income with a 5% allocation in riskier assets.

Also Check: Risk in Debt Mutual Funds

Fixed Maturity Plans (FMP)

An FMP is a mutual-fund counterpart for a bank FD. You can only invest in these close-ended funds when the NFO comes out and get a lump sum payout on maturity. The difference between these and bank FDs is that the yield on the latter is pre-determined and fixed.

FMPs invest in fixed income debt instruments with their maturity aligned, having the same tenure as the scheme. FMPs help investors guard against a sudden drop in the interest rates by locking in prevailing interest rates.

Top FMPs from Nippon, IDFC, and UTI fund houses gave returns upward of 4.5%, with the top two going above 6% yield. The problem with FMPs is the lock-in and lack of liquidity.

Insurance Policies

Normally we don’t suggest mixing insurance & investment but in the current scenario, if you are close to your retirement & in a higher tax slab – a few of these policies are good options. HDFC life Sanchay plus like policies are still giving 6% tax-free returns.

Hybrid funds

Hybrid funds invest in equities and bonds in differing ratios depending on their approach – aggressive, balanced or conservative.

Aggressive hybrid funds can invest up to 65 to 80% of their portfolio in equities and the rest in debt. For balanced funds, it is 40:60, 60:40, or 50:50; and for conservative funds, it is usually 25:75 for equities and debt, respectively.

Depending on your risk profile, investment horizon, and ability to withstand market volatility, you can add any of these to your portfolio for an investment horizon of at least 3+ years.

The top-performing aggressive hybrid fund was Quant Absolute, with returns of 38.01% over the last year. Tata Young Citizens Fund topped the balanced category with 22.485 annual returns, and Kotak Asset Allocator Fund the conservative variety with 25.84% returns.

Wrapping up

All investors must brace themselves for reduced returns and be flexible in investments without compromising the safety of their capital.

The options mentioned above are all safe compared to equity and other asset class and can generate better returns than traditional bank deposits. These options include deposits, bonds, and fixed-income mutual funds with a strategy that may not work for you at other times but is best suited for these times.

Please share how you are coping with reduced interest rates – if you have any questions, add them in the comment section.

ESG Funds – The Change That’s Going To Last

Hemant Beniwal
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0
ESG Funds – The Change That’s Going To Last

Our kids bring in sweeping changes to the way we live, consume, and invest. In this case, One of my regular clients posed a unique dilemma he was facing, during his annual financial health check-up.

His 11-year old daughter, Nainika, saw a show about plastics and electronic waste, undisposed PPEs, and oil spills affecting marine life and oceanic ecosystems. She knew that he is a stock investor in big-big companies, and those companies made everything from her noodles to the car they have.

So, she asked him a pointed question – “Dad, do you have shares of companies that do these dirty things with sea and sea animals?”. Then she went on to add, “I know my dad is so smart that he will never have them!”

As a loving father he wanted to tell her that he only has shares in companies that are responsible and eco-friendly, but like most people, didn’t know which companies followed sustainable practices and which did not.

ESG Funds - The Change That's Going To Last

Must Check – Whesgat is an Emergency Fund & how to create it?

ESG Funds In India: What are they?

ESG mutual funds, just like any other thematic fund, have different criteria to let any company enter their universe. The fund managers identify and invest in, corporates showing responsible behavior and actions taken to sustain the environment, support society, and maintain the highest corporate governance standards.

In addition to the usual financial metrics, ESG fund portfolios integrate environmental, social, and governance factors into their investment process. It means, if the fund manager is very particular, then stocks and bonds in the fund may make up what you can call a green fund or a rainbow fund.

The UN Principles for Responsible Investment, launched in 2006, provided the framework for launching ESG funds and socially responsible investing. This Fund is growing in popularity among investors for its impact and return.

ESG Funds - The Change That's Going To Last Click to Tweet

Vocal for Global

ESG investment philosophy gained currency globally over the past few years as people become more aware of many global issues – climate change, undemocratic and autocratic regimes, companies with poor governance records, or discriminatory policies against a section of society.

Ideally, an ESG fund can hold in the portfolio only stocks and bonds issued by the corporate or government with a high sustainability score from Morning Star, MSCI, and other leading indices.

These funds would exclude corporations who are defaulters in pollution cases, have had poor labor relations, have less than desirable transparency, or poor management practices. These funds would, desirably, also keep away from government bonds of countries with poor records on any of these.

Research shows that applying the ESG filter led to thorough scrutiny and better investment decisions. Better risk management resulted in avoiding potential duds earlier than the market and better returns for the investors.

As of Nov 2020, a third of all US financial assets were controlled by ESG funds totaling USD 17.1 trillion, a 42% increase over 2018 (Click Here).

As per the KPMG European Responsible Investing Fund market 2019 report, there were EUR 496 billion in assets under management, with a 12% y-o-y growth.

According to another report, these funds are expected to manage EUR 7.6 trillion across Europe with a market share of 57% in 2025.

ESG Funds in India

These Funds were first introduced in India in 2018 when in 2018, SBI AMC reclassified its SBI Magnum Equity fund (both direct and regular plans) as an ESG fund. The first proper launch of an ESG fund was by the Quantum MF in July 2019 with its Quantum India ESG Equity fund.

The year 2020 saw ESG funds launched by six fund houses viz. Axis, ICICI, Quant, Mirae Asset, Kotak, and Aditya Birla Sun Life.

The ESG theme not only has an emotional value for some investors, on many counts, but it is also a more practical and rewarding theme. Environmentally sustainable companies have a lower risk of regulatory sanctions and societal ire, resulting in steady growth with less volatility in share prices.

Similarly, companies having low standards of corporate governance are the potential bankruptcies of tomorrow. Investors and mutual funds who had shares of Satyam, Kingfisher, and DHFL in recent years would have saved many heartburns had they followed ESG investing style.

And like Warren buffet has said, “First Golden rule of investment is not to lose money” and “the Second Golden rule is never to forget the first rule”, ESG investing can help you avoid the losers, so that your winners can take care of themselves.

Also Read: How to identify Companies which Dupe Investors.

ESG Funds – Is it the new fad?

The core idea behind the ESG funds is that what is right for humanity, must be suitable for investors. But in India, These funds are in a nascent stage and have yet to take the fancy of retail investors.

For a country obsessed with cars’ mileage, the performance record is a necessary condition to attract interest.

In western economies, the ESG theme is strong, as many endowments and pension funds with big purse strings mandate a responsible investing style. As their asset managers form the bulk of foreign portfolio investors in the Indian markets, the ESG style of stock picking is already affecting us.

The FPI shun the companies having a low score on the ESG scale maintained by Morning Star, MSCI, or companies, not on India’s own Nifty 100 ESG or S&P BSE 100 ESG indices.

It makes the significant FPI inflows not going to companies with a low ESG score, and as their stocks do not give spectacular returns, they eventually go out of favor. The FPI inflows would undoubtedly provide the necessary tailwinds to ESG funds, and when they deliver, investors will jump in.

So, Indian investors may gradually move towards this fund, more due to dwindling returns in non-ESG funds than anything else.

ESG Criteria – Inclusive or Exclusive!

This fund can take multiple approaches to build their portfolio – inclusive, exclusive, mimicking.

Some proactive ESG funds work on actively promoting the principles and helping individual businesses achieve pre-defined goals. For example, a company manufacturing organic herbicides/pesticides would have more ESG funds willing to buy its stocks and bonds.

Other ESG funds may define an exclusionary criterion – corporations engaged in individual businesses would not make it to their portfolio, ever. Some of the most common exclusions may include companies in tobacco, gambling, alcohol, fossil fuels, controversial weapons, or acting as state agents of oppressive regimes.

Finally, many passive funds may follow an ESG index maintained by a bourse or a reputed rating/index agency and add stocks to their portfolio according to their normalized ESG scores.

Performance of ESG Funds in India

The Nifty ESG Index has outperformed the Nifty50 in one and five-year periods. As of October 30, 2020, the Nifty ESG Index delivered a five-year return of 10.80%, while the Nifty50 gave only 8.99%, both CAGR.

For the one year, the Nifty ESG Index returned 5.42% and Nifty 50 a negative return of -0.98%, a gap of close to 6.5%!

As per AMFI, ESG funds in India have an AUM of INR 45 billion, and it would grow further with increased awareness and better returns. The positive side effect would be that many companies may start cleaning their backyards, follow better governance standards, and safeguard the environment.

To compare the five-year ESG funds performance of the S&P BSE 100 ESG index with its other thematic categories, glance at the chart below (Source: BSE):

ESG Mutual Fund

In India, like elsewhere, ESG funds have delivered higher returns over 1 and 5-year periods. It was possible because by filtering out firms with issues or controversies, you can save yourself from losers.

Two funds may consider the same index as a benchmark but still deliver different results. It may be because of many factors, like portfolio building methodology, time of the funds’ entry, or simply because one of their stocks didn’t pay off.

So, what is the advice to Nainika’s father?

To contribute to building a sustainable future for our kids like Nainika, companies, and countries with good ESG scores are likely to be fair employers and a positive impact on society.

Compliance ensures that risks and threats to the local climate can be managed, mitigated, or avoided. Foreign investors look closely at ESG metrics very seriously. If India wishes to continue to attract its FPI investors, it has to take it seriously.

In the end, Nainika’s father must thank his little champ, who forced him to ask questions. He could now not only say proudly that he contributes towards a better tomorrow. And he would go laughing to the bank, doing so.

Hope you got a good idea about ESG mutual funds in India – if you still have any questions add them in the comment section.

Do Not Invest in Gold Just for The Returns

Hemant Beniwal
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0
Do Not Invest in Gold Just for The Returns

Gold prices have risen significantly in the last two years. You might be getting advice or reading about how gold is a great investment.

Traditionally Indians love to buy gold. We believe in investing in the metal either in the traditional form or buy paper gold in terms of mutual funds or bonds.

I have attempted to answer a few questions on investment in gold.

Do Not Invest in Gold Just for The Returns

Must Check – Sovereign Gold Bonds – All You Need to Know

Is gold investment is a good idea of investment?

Indians do not always look at gold as an investment. We buy it for consumption and for auspicious occasions. We should not treat the gold bought for consumption as an investment for the simple reason that we will not sell it when prices are attractive. Moreover, it is in jewelry form and therefore it is not considered in the ‘commodity’ sense. So, you may not get the market price for it. Impurity, mixed elements, wear-n-tear will get considered when you try to sell it.

Gold, which is bought in form of pure investment can be in terms of gold coins, gold bars, Gold ETFs, or Gold bonds. This can be considered in your asset allocation.

invest in gold

Gold in Dollar Vs INR – you can clearly notice that in dollars Gold is still at the level of 2011 but as in the last 10 years, Indian Rupee depreciated against the dollar we can see positive returns.

gold investments

Also Check:- 5 Benefits of Gold Monetization Scheme

Why should you invest in gold?

In the current scenario, the price of gold is rising. In hindsight, it looks like an excellent investment. But you should not consider investing in gold only from a returns perspective. There are many other assets that offer better returns, lower risk, higher liquidity, etc. Moreover, physical gold purchase includes insurance cost, storage cost, etc. which will lower your returns. If you are going to add gold to your portfolio, consider the reasons mentioned below –

Liquidity – Gold offers liquidity in some ways. In emergencies, you can always sell gold to get money. Gold mutual fund schemes are redeemable without much hassle.

Hedging Tool – Gold is a great hedging tool. It protects against inflation and volatile markets. Usually, when markets are falling, gold prices rise. This will balance out the overall value of your portfolio.

Gold is also a hedge against Indian rupee depreciation.

Do Not Invest in Gold Just for The Returns Click to Tweet

Limited access to markets – Some people do not have great access to markets. Others are wary of investing in equity-based assets or paper-based assets. Such people can invest in gold so that their money is working for them rather than lying almost idle as cash or bank deposit.

Muslims who follow shariah can’t invest in debt investments can consider gold.

Diversification – Different kinds of assets in the investment portfolio balance the returns and lower the overall portfolio risk. So, if your goal is diversification, add gold to your portfolio. Gold usually moves inversely to the stock market and currency market and thus brings a balance to your portfolio.

Desire – If you are a person who likes owning gold, consider adding it to your portfolio. Your portfolio will have one more type of asset and you will feel good. Mental well-being is crucial to a happy, healthy life.

Why should I not invest in gold?

Do not invest in gold if you are only seeking returns. Though gold has risen quite a bit in the past few years, it may not always have similar traction. Investments in good-performing equity-based assets have the potential to give better returns, especially over the long term.

As of now, gold seems to be on a high. It might be better to consider investments when the prices are tapering down. (but if you have zero exposure – you can start accumulating gradually)

Gold is still determined by sentimental factors. Therefore, your investment depends on whether other people are ready to pay a higher price. Therefore, you should be careful when you invest in it and how much you invest in it.

Buying physical gold has its issues. You may need to buy insurance, a safe box, or pay for offsite storage. These costs will cut into its investment potential.

gold investment

How should I invest in gold?

There are different ways of investing in gold –

Sovereign Gold Bonds (SGBs) – SGBs are government securities denominated in grams of gold. The minimum investment is one gram and the maximum is 4 kg. An interest rate of 2.5% per annum is payable to investors. The tenor of the bond is 8 years though one can sell after 5 years based on certain conditions. Capital gain tax is exempted. (NRIs can’t invest in SGB) Read more about Sovereign Gold Bonds Here

Gold ETFs and Gold funds – Buy paper-based assets whose value is based on the value of gold. You can invest in Gold ETFs via a Demat account. Gold funds can be bought directly from mutual funds or via Demat accounts. There will be some management charges but there will be no risk of theft. You can invest small amounts over the long term via the SIP option. Gold ETFs require a minimum investment equivalent to at least 1 gram and Gold funds usually require a minimum investment of Rs. 500.

Gold coins, gold bars, and jewelry –  You can buy them without a Demat account. Consider additional costs related to security, taxes like VAT and GST, impurity, making charges, and risk of theft.

Check – 7 Ways to buy gold

Gold is a strategic investment only if it suits your requirements. Even if gold has to be part of your investment portfolio, ensure that it does not go beyond 5%-10% of the overall portfolio value.

If you have any questions – add them in the comment section.

Is it the right time to rebalance your portfolio?

Hemant Beniwal
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Is it the right time to rebalance your portfolio?

You may be surprised that 90% of the returns in any portfolio are contributed to a simple asset allocation & Portfolio rebalancing strategy. Remaining 10% because of timing, portfolio construction & selection of individual investments.

What is Portfolio Rebalancing?

Portfolio rebalancing is the act of comparing the original asset allocation of the investment portfolio to the current asset allocation and then buying or selling investments to ensure that the original asset allocation is maintained. Usually, a threshold is attached to the asset allocation and you should take action if the variation in the asset allocation is beyond the set threshold.

Is it the right time to rebalance your portfolio?

Read Also: Importance of Financial Planning in Your Life

For instance, you set up an asset allocation strategy of 60% equity and 40% debt with a threshold of 5%. You will take action on the portfolio only if the allocation ratio changes more than 5% in either direction.

After a year, you notice that the debt component has increased to 50% and the equity component has reduced to 50%, you may want to set the allocation right. If the debt component has increased to 44% and the equity component has reduced to 56%, you may choose to keep it as-is as the change has not breached the threshold level of 5%.

Is it the right time to rebalance your portfolio? Click to Tweet

When Should I Rebalance Portfolio?

As in most cases in personal finance, there is no one correct answer to this question. It depends on various factors –

  • Your financial goals have changed which calls for a different asset allocation. If you decide to buy a house, it calls for a change in asset allocation.
  • Your risk tolerance level or risk-taking capacity has changed and does not match the asset allocation. You have changed from a regular job to a freelancing role which might mean irregular income and this can necessitate a change in the asset allocation strategy.
  • You want to sell off certain investments or invest in a new asset class.
  • The performance of the portfolio is not optimum and you and/or your financial advisor think a different asset allocation strategy can bring in better returns.
  • It is difficult to time the market i.e., buy at the lowest price and sell at the highest. Rebalancing allows investors to stick to the plan, face downturns, and take advantage of uptrends.

As a thumb rule, rebalance your portfolio once a year under normal circumstances. In the case of black swan events like COVID-19, you may want to relook at your portfolio depending on economic conditions and personal circumstances.

How Do I Rebalance My Portfolio?

There are different types of asset allocation strategies or we can say different ways to optimally balance your investment portfolio –

Must Read-Is Your Portfolio Risky?

  • Strategic Asset Allocation

Design a portfolio of a mix of assets to achieve an optimal balance between expected risk and returns for a long-term investment horizon. Up to a large extent, asset allocation does not change over a period of time.

  • Tactical Asset Allocation

Here the investor keeps a watch on how the various assets are performing and try to have a portfolio such that they can maximize their gains. There is more buying and selling as compared to what happens in the strategic asset allocation.

When the COVID-19 pandemic began, stock markets were volatile but gold was steadily rising in value. At that time, Rajeev came to the conclusion that gold will do well this year and increased his allocation to gold. This is a tactical asset allocation strategy. In this case, the investor has to be more active and aware of the market, economy, etc.

  • Dynamic Asset Allocation

Here the portfolio is developed in a similar manner to how it is developed under strategic asset allocation. The aim is to seek maximum returns with minimal risk in the long term. But the investor is more active and keeps adjusting the portfolio depending on changes in the economic environment.

If the investor feels that the stock market will weaken, he will sell off a portion of his equity assets and invest that money in another asset or hold it as cash. When the stock market sentiment is bullish, he will increase the allocation to equity.

  • Constant-Weighting Asset Allocation

With this approach, you constantly rebalance your portfolio such that it remains true to the originally decided mix. For example, if one asset falls in value, the investor will purchase more of that asset, and if the value of that asset increases, you would sell it. It is different from strategic asset allocation which relies on a buy-and-hold strategy, even as the value of the investments changes in the short and medium-term. (most advisors focus on this)

rebalance portfolio

What are the factors to keep in mind while rebalancing my portfolio?

Though there are no hard-and-fast rules regarding portfolio rebalancing, you should consider these factors –

  • If your portfolio has made very high gains or steep losses, check if the portfolio remains around the original asset allocation ratio.
  • Do not get influenced by market volatility in the short-term. The whole idea of designing an investment portfolio following an asset investment is to maximize returns for the long run and create wealth.
  • Portfolio rebalancing should be done at different life stages. If your children have started going to school, you might have a goal of financing their higher education. This might mean you should increase your allocation to equity-based assets to grow your corpus over the long term. If you will retire in about five years, you should shift to an investment strategy where the equity exposure is less and you have invested more in debt instruments. You may want to keep some cash reserves for medical emergencies that your insurance policy will not cover.
  • Be mindful of the exit loads, taxes, fees, commission, etc. that will be incurred while rebalancing the portfolio.
  • You can optimize your tax outgo while rebalancing your portfolio. Sell the assets that are at a loss strategically to set off against the income for the year to reduce tax liability.

Keep an eye on your investment portfolio and review it regularly so that you have a well-diversified portfolio that gives adequate returns and you do not get any rude shocks.

Every Investor Should know The Two Poisons of Investing

Hemant Beniwal
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Every Investor Should know The Two Poisons of Investing

Yes, you have read this right. Investing, which is considered to be a great way of fulling our life goals also has something which can actually make our journey more difficult than it should be in real. The Two Poisons of Investing are a part of our behavior which we have and possess during our journey of Investing and these are Fear & Greed. There is a great saying that “We must focus on Investment’s returns rather than the Investor’s returns as Investors are only able to get half of the returns from what actually their investments have the potential to make.”

This post is written by our team member- Nikhil Bhuwania (Certified Financial Planner)

Every Investor Should know The Two Poisons of Investing

Check: 7 Types of  Indian Investors, which one are you?

Fear & Greed

The fact on which I would like to throw light on is that, not only putting the money into the best-performing stocks or funds would make you rich but what actually matters is our behavior & thought process towards our Investments. In this endless world of information, we easily get manipulated and sometimes take wrong decisions that reflect in the long term. Fear & Greed are two such strong emotions which can either help you in getting what you want/can or, can give you what you deserve unlike what we say for the Power of Compounding, it is the 8th wonder of the world and those who know it, will gain from it and rest will pay for it.

The Two Poisons of Investing Click to Tweet

Check: Importance of Financial Planning in your life

Ask Yourself

One can ask how these emotions create a bad impact on one’s Financial Life? So, the simple answer is that What we act is actually a reaction to what we feel & think. Even in our normal life, we like to go for the things which we find best on our parameters without thinking if it is really best for us or not. We are just attracted to that due to our herd mentality or the fake hype that is being presented. The same happens in investing also as people need to understand that Ups & Downs are a part of the investment cycle and they are as normal as Breathing for Humans. So, getting worried by seeing your portfolio in red and trying to get it replaced by a performing portfolio can actually harm your investments more than it what will benefit you. Therefore, it is important to know the risk associated with the instruments you are using and also ascertain the level of risk you can handle until the emotion of fear knocks your mind. The ones who think that they know everything about the market cycles and will always be in profit are actually those who have never got a lesson from the great teacher i.e. The Market itself.

Must Read – How and why the stocks price change

This too shall pass

“This too shall pass”, I personally am very fond of this small 4-word statement because it actually defines the truth about life and something we should also apply during the knocks from the poisons as what is today will definitely not be tomorrow so, if one is being too greedy in the bull phase should not forget that there will also be a bear phase after that and must be ready for the lesson from the teacher. The common question which the people have that this is what we have earned after a long journey of hard work, why shouldn’t we attach our feelings with our investments? To this what I personally believe is emotions should be with your investments but there should be sync of your heart with your brain during those periods. As these crucial moments sometimes write the whole journey of the financial life and for this one must be aware of what one is doing because the real challenge arises when we actually don’t know what we should do during such times and end up taking such steps which should not be taken. One such and common step is withdrawing the money at the lowest points of the market and putting everything when the market is high, and it will always give you a very bad experience, and end up getting nothing even if there are chances of something.

Check: 7 Horrible mistakes you are making with financial planning

Another Chance?

It is always better to observe our actions during such periods and try to avoid the same next time because life may give you another chance once but not every time, so staying wise and be with someone who can help you to find the answer to the anxiety which happens and could easily pull you out from the storm that may turn out to be devastating if not taken care of and the real person who can help during such time is the one who has the expertise and has seen many such happenings in the past because during such periods emotional support is required who can console the level of anxiety when it is on the boom and will advise and guide you towards a better way.

Perks and perils are part and parcel of all that we want to do in life. So we must go on and never stop.

Corona Kavach versus Corona Rakshak – Health Insurance Policies

Hemant Beniwal
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Corona Kavach versus Corona Rakshak – Health Insurance Policies

Insurance companies have launched few products – especially to cover COVID Risk. There’s a lot of confusion Corona Kavach versus Corona Rakshak – let’s try to compare these policies.

Corona Insurance

A health insurance policy provides financial cover against medical expenditure. We are all at risk of getting infected by the coronavirus.

The good news is that Russia launched the vaccine & many other companies are in the final stage but for Indians, the issue is the population size. Not sure how long it will take to reach the bottom of the pyramid.

Corona Kavach versus Corona Rakshak - Health Insurance Policies

A person getting affected by the virus may have to incur one or more of the following –

  • Hospitalization charges
  • Self-quarantine expenses
  • Imaging costs
  • Expenditure related to PPE kits, medicines and doctors’ consultation
  • Other costs depending on the virus’s effects on the patient such as ventilator costs, blood transfusion, or treatment for related ailments.

It is, therefore, important for one to have financial security against the pandemic.

Check- How to select Health Insurance Cover

Difference between Corona Kavach & Corona Rakshak

The IRDAI has mandated that all general and health insurance companies have to provide health covers against coronavirus. Therefore two plans have been launched –

  • Corona Kavach
  • Coronal Rakshak

The main difference is that in Kavach Policy your hospital bill gets settled but in Rakshak Policy, the entire sum insured is paid to the insurance holder. 

Read on to find out the details, similarities, and differences between the two –

Corona Kavach
Corona Rakshak
An indemnity policy with

Minimum sum assured – ₹50,000 and

Maximum sum assured – ₹5,00,000.

 A standard benefit-based health policy.

An individual can acquire the policy for

Minimum sum assured – ₹50,000 and

Maximum sum assured – ₹2,50,000.
The hospital expenses up to the sum insured can be claimed if there is a minimum of 24 hours of hospitalization or 14 day home care. It offers fixed compensation when the patient is diagnosed with COVID irrespective of whether expenses have been incurred or the extent of expenses.

 

100% of the sum assured is paid to the insured.

 

The benefit can be claimed if there is hospitalization for a minimum continuous period of 72 hours.
It covers hospital expenses, home care treatment, PPE kits, treatment for related ailments, and pre-existing ailments like diabetes, and ambulance charges.

Pre-hospitalization expenses up to 15 days and post-hospitalization up to 30 days are covered.

 The entire sum is paid to the insured if they are tested positive for the coronavirus in a government-approved care unit.
It can be bought as an individual policy or a family floater policy that can cover all family members. It is available only for individuals.
Tenure – 3.5, 6.5 or 9.5 months Tenure – 3.5, 6.5 or 9.5 months
Waiting period – 15 days Waiting period – 15 days
Eligibility – Any individual between the ages of 18-65 years.

It can be availed for self, spouse, parents, parents-in-law, and dependent children up to the age of 25 years.

 Eligibility – Any individual between the ages of 18-65 years.
Exclusions – Diagnostic evaluation, dietary supplements without prescription, daycare expenses, vaccination, and tests from centers not authorized by the government. Exclusions – Tests from centers not authorized by the government and home care.

The premium of Kavach & Rakshak COVID Policies

Let us look at the premium charged by different insurance companies for a 40-year-old individual for both policies –

Policy
Company
Tenure 6.5 months
Tenure 3.5 months
 

 

Corona Kavach

 

Bajaj Allianz

 

 Sum assured –  ₹5,00,000

Premium –  ₹2,216

 

 Sum assured –  ₹1,00,000

Premium –  ₹1,110

 
 

Max Bupa/HDFC Ergo

 

 Sum assured –  ₹5,00,000

Premium –  ₹2,608

 

 Sum assured –  ₹1,00,000

Premium –  ₹822

 
 

 

Corona Rakshak

  

Star Health

 

 

 Sum assured –  ₹2,50,000

Premium –  ₹4,615

 Sum assured –  ₹1,00,000

Premium –  ₹1,538
 

Future Generali

 

 Sum assured – ₹2,50,000

Premium –  ₹795

 

 Sum assured – ₹1,00,000

Premium –  ₹339

 

*Taxes excluded

Read – How much health insurance I need

Who Should consider buying Corona policies

It is always better to have a more comprehensive health insurance policy than those covering a few ailments. Most health insurance plans cover COVID-19 illnesses based on their terms.

Corona policies

If your insurance cover is low and you are not going to increase it soon, you can buy the COVID-19 plan as a supplement to your original health cover.

If you do not have a health policy and do not want to buy one now, the Corona Kavach/ Corona Rakshak policy is good.

If your family is low on insurance cover, the Corona Kavach plan is a good buy.

If your income is going to be adversely affected because of the pandemic, you can go for the  Corona Rakshak plan.

If you think you are at high risk of getting affected by the virus (e.g. doctors, essential services professional), it might be a good idea to buy some insurance against it.

Do remember to incorporate a comprehensive health insurance policy in your financial plan to ensure self and family members financially against medical conditions. A comprehensive insurance cover is one that covers many ailments, offers medical check-up, medical consultation, and cashless treatment. Choose a health care provider who has a high settlement ratio and minimum waiting period.

If you have any questions related to Corona Kavach or Corona Rakshak polices – add in the comment sections.

7 Things We All Hate About Mutual Funds

Hemant Beniwal
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6
7 Things We All Hate About Mutual Funds

Mutual funds are (NOW) a popular investment vehicle among investors. They have offered small investors a chance to grow their capital and have also educated people about investment planning. But still, there are few things that we all may not like…7 Things We All Hate About Mutual Funds

Mutual Funds offer several advantages 

  • They offer investment diversification. For example, if you invest in the growth plan of Aditya Birla Sun Life Equity Fund, you will be investing in stocks such as HDFC Bank. ICICI Bank, Bharti Airtel, HCL Technologies, Apollo Hospitals Enterprises Ltd, Exide Industries, and in debt instruments such as Bonds of Indusind Bank Ltd. An investment in a long-term bond fund like IDFC Bond Fund – LTP (G) will diversify your investment across GOI Bonds, REC Bonds, etc.
  • Mutual funds have the potential to provide you with returns that can beat inflation.
  • There are different kinds of mutual funds such as large-cap equity funds, small-cap funds, money market funds, arbitrage funds, gilt funds, etc. that cater to different risk profiles, investment goals, and liquidity needs.
  • It is very easy to invest in and redeem from mutual funds.
  • They are managed by professionals who understand the market, research, and analyze market conditions, the financial performance of securities, and invest accordingly to maximize returns.

Read – Cliches about Mutual Funds that you should avoid

Things We All Hate About Mutual Funds

But all is not hunky-dory when it comes to mutual funds. They do have some disadvantages apart from the risk that investors have to be aware of. Let us look at some features of mutual funds that investors hate –

Fluctuating Returns

We cannot predict the returns of mutual fund schemes. The returns depend on market conditions, interest rates, economy, and managers’ capability. Investors do not like the fact that MF schemes do not offer fixed guaranteed returns and nor can they mirror past performance all the time.

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We can also call frustrating returns: when your funds underperform the peers you move to recent performing funds – then winners change in next 1 year.

Lock-in clause

Some MF schemes have lock-in periods. An investor cannot withdraw his investments during this timeframe. If they have to withdraw, they have to pay an exit load. Investors dislike these features of illiquidity and expenditure on withdrawal.

Must Read – How Healthy Is Your Mutual Fund Portfolio?

Fees and Charges

Professional fund managers manage MF schemes and therefore MFs charge a fee for managing your investments. This increases expenses for the investor.  Fund management charge is also a parameter to consider when choosing a mutual fund.

Inefficient Management

Funds that are managed inefficiently do not give the best returns. Some fund managers overturn the portfolio regularly and this increases management costs. In some cases, there are malpractices like window dressing, unnecessary trading, excessive replacement, and selling the loss-making instruments just before publishing financial statements. There is a misselling as well. Investors are not happy when they feel cheated or exploited by the fund.

Things We All Hate About Mutual Funds

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Taxation

Mutual fund returns are not tax-free (NOW). Here are the tax implications of MF investments –

  • Dividend income received by MF investors would be taxed.
  • Short Term Capital Gains tax (STCG) of 15% is applicable when equity funds purchased are sold within a year.
  • Long Term Capital Gains (LTCG) above ₹ 1,00,000 in equity funds is taxable at 10%
  • Securities Transaction Tax of 0.001% is levied when you sell units of an equity fund or a hybrid equity-oriented fund.
  • Short term gains from debt funds are added to your income and are taxable as per the income tax slab you fall under.
  • Long-term capital gains on debt funds are taxable at the rate of 20% after indexation.

People universally do not like to pay taxes and mutual funds do attract a bit of tax!

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No control over the investments

An investor cannot decide the instruments to invest in and the amount of investment in different securities when he invests in a mutual fund scheme. The fund managers and their team take all the investment decisions. People who like to have a say in their money matters will not like this loss of control.

Too many mutual fund schemes

There are about 44 mutual fund houses in India and they offer around 2500 MF schemes for investment it leads to mutual fund pollution!!  The schemes vary over different parameters like investment objectives, size, type of fund, and investment strategy. Selecting a fund house, a scheme, the amount, and type of investment (lump sum or SIP) is complicated for a layman investor and he abhors it.

Smart and experienced investors or investors who take the help of professional financial planners may invest in mutual funds in the right manner. Others may find it tedious. At the same time, investors who lose money lose faith in mutual funds.

Though mutual funds do offer benefits, investors have to understand the downsides. They have to assess their needs, goals, risk-taking capability, fund performance, and features and determine whether the mutual fund investment is right for them.

Please share your list of things that you don’t like in Mutual Funds – let’s crib a bit 🙂

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