Goal or Liability? SIP or EMI?

Many people with reasonably well off parents and double incomes (however shaky one’s job is) think of themselves as rich. Well if not rich, upper middle class, but make rich choices. At times this can be funny, if it were not so serious. This actually comes from not understanding future uncertainties, return on investments, inflation, etc. – can we fix it?

Well here is an attempt.

Financial Planners use a word ‘net worth’ – this is the term that is used to express the gap between our Assets and Liabilities. It is always assumed that your net worth will be positive. If it is negative, of course it means you are bankrupt. Let us put a twist to this.

Let us look at the Balance sheet of a 35 year old man, earning Rs. 25 L a year and married to a woman aged 30 years, and earning 15 L a year. Both are well qualified and staying in a house for which they are paying an EMI. They have 2 children – one is a 7 month old toddler and the elder child is 4 years of age and about to join an International school. Their take home salary is Rs. 1.2L for Rahul and Rs. 85,000 for Aarti. Their EMI is Rs. 55,000 and takes away a chunk of their salary!

Now is the schooling / education dilemma. Rahul feels that the children should go to an International school near their house and this is likely to cost  “only” Rs 1.25L per annum. Aarti feels that Rs. 30,000 per month (eventually when the second child also goes to school) is not an affordable expense, but Rahul who just bought a second hand (6 month old) Audi A3, the school was a non negotiable.

When Aarti met me she felt that they were living beyond their means and it was not necessary. She gently reminded Rahul that the house was partly funded by his parents (or the EMI would have been higher!!). They do not pay any child care expenses because both the grandparents stay nearby and share the ‘looking after’ responsibility.

I suggested something dramatic. I said create a balance sheet. Create a Goal Sheet. Once you arrive at the Goals, put all that in the balance sheet as liabilities to be provided over the working life.

I said Mortgage is something that you owe Hdfc Ltd., Life insurance premium is something that you owe to your dependents. Goals (if you are serious about the goals and the direction of the goals) you need to treat it like a serious liability. To pretend that your current cash flows are good and using excel to extrapolate numbers is tempting and stupid. What if you are unemployed for say 5 months? What if your parent who is now not financially dependent becomes financially dependent on you after 10 years?

She was herself stunned when she saw the figures. Her Retirement fund required came to Rs. 26 crores. Her children’s education requirement came to Rs. 9 crores! He also needed to fund their vacations, cars, lifestyle etc. Aarti put all those requirements at a Rs. 10 crores.

I had to butt in and say ‘tjese are all the known things we still do not know about unknown things like parent’s illness’.

I asked Aarti to include children’s marriage, buying a second house, etc. I can assure you that I am not the most popular guy in the Rahul household!! However Rahul being a CA had very little mathematical argument against this approach.

Now the balance sheet looked like this

Liabilities: Goals Rs. 45 crores, Home Loan Rs. 40L , Car loan Rs. 13L. Assets side was just one house worth about Rs. 1.3 crores, and some ELSS worth about Rs. 5Lakhs.

I then worked out the EMI (if goals are liabilities, SIP is EMI, right?).

Now go to free fin cal and do your OWN exercise. Enough of Voyeurism. In your life it does not matter what Rahul and Aarti do.

What matters is what are your goals, and if you convert those goals to liabilities, are you solvent?

Do you have it in you to spend money on that extra car, extra vacation, etc.

 THINK BEFORE YOU ACT

source : subramoney

Where can you invest your Emergency fund?

But you said that emergency fund is not meant for investments. It is that liquid money which should be easily accessible and to be used only in case of emergency, asked Sunil one of my friend whom I had advised to save for emergency funding first before starting off with long term investments.

Yes this is true that Emergency fund is meant only for emergencies and it is one of the risk management tools which should always be among the first steps in financial planning. But with the advent of new products and also improvisation of some old ones and technological advancements, there’s no harm in parking your emergency fund or part of it in the products which serves the requirement of liquidity and helps earns some income also.

Below are few investment options which can be used to park emergency fund to get better returns than Bank savings account without compromising on liquidity part.

Emergency fund Investment options


1. Sweep in bank Fixed deposits:

Keeping emergency fund only in savings account may provide you with enough liquidity but here you will have to compromise with the returns. Generally it is advised to keep minimum of 3-6 months of household expenses as emergency fund, which may be increased depending on the economic, personal and Job scenario.

Now in many families this amount range above Rs 1 lakh and in some it goes as high as 5-6 lakh. With Savings bank rate @4% and fixed deposits @8%, money in savings account gives around 50% less returns than bank fixed deposits

To fill up this gap, you should ask your bank if they offer sweep in fixed deposits. Sweep in deposits are fixed deposits which are linked to savings bank. In this investment option any amount over and above a specific limit (depending on bank) goes into a fixed deposit. And when you withdraw out of it, last FD made got broken first so you don’t lose more on interest side.

This investment option will let you keep money in savings bank a/c without losing on FD interest rates. It is a saving bank account only with linked fixed deposits.

2. Bank Fixed deposits with Overdraft account:

Sweep in deposits are though I believe offered by many banks but not all banks. So if yours is the one which does not offer this facility, then don’t lose heart as there’s another Investment options too.

You may use Loan against fixed deposit through overdraft account.

In this facility bank will open one overdraft account for 75-80% of the fixed deposit amount. You will be charged with 1.5-2% higher than fixed deposit rate, but only if you use this amount and for the tenure you use it. This option has 2 benefits – one it maintains the liquidity which is required for emergency needs and other is that you need not to break the FD in case of your short term needs.

As fixed deposit rates comes in slabs, so if you invest in 1 year FD and breaks the FD before completion of tenure then you will be paid with the rate of actual invested tenure. Say for example you make FD of 100000 for 1 year @8%, and FD rate for 6 months is 6%. Now if you break your FD of 1 year in 6 months, then you will be paid 6% and not 8% and that too for half year i.e. the actual invested tenure.

Now using this overdraft option, you can stay put in the FD till the completion of tenure and use the overdraft funds for your short term need

Do note that this facility is beneficial only if you replenish the overdraft account as soon as possible from your next salary or any other source. But if you see that replenishment is not possible then rather than using Overdraft account, just break the fixed deposit. Also to make the best use of this facility you should be net savey so you can transfer money from OD a/c and back. Offline process may be too cumbersome.

I personally use overdraft facility to maintain business emergency funding. It’s been 2 years and I’ve faced emergency only once for which I had ample liquidity through OD a/c which i replenished in next 2 months.

So why to keep money in saving or current account?

3. Liquid Mutual funds

Liquid mutual funds are also one of the good investment options to park emergency fund. But operationally it may prove to be a bit of troublesome, as it requires 24 working hours’ time to redeem the funds lying in investment account. This may sometimes be a very long time especially when we talk of emergencies.

To answer this trouble, Reliance Mutual fund has come up with an innovation of “Any time Money card” which is a debit card issued along with ( If applied for) Reliance Mutual fund investments. With this card investor can withdraw up to 50% of the balance or Rs 50000 whichever is less, lying in the investment scheme. Investor may also swipe the card at any point of sales terminal for shopping or fuel purchase or any payment which is to be made through debit card with maximum limit of Rs 1 lakh or 50% of investment amount whichever is less.

So investing in liquid funds with any time card in hand can be one of the good options to park emergency fund. But do keep in mind that this will give you partial liquidity and you may need to wait for some more time to get the 100% withdrawal amount.

I use this facility at personal level too. For family expenses as per the budget,i transfer a specific amount every month into my Reliance liquid fund account and operate through debit card as and when required. I also use this to park the part of personal emergency fund.

Conclusion:

Emergency fund is meant for emergencies and should be readily available with you. You cannot compromise on liquidity and thus it may not be wise to invest the emergency funding in any long term instrument just to get more returns.

But still if there can be some arrangements or products which can be used which helps in maintaining the liquidity along with has potential to generate better returns, then one should definitely try those.


From the investment options suggested above in if one use “sweep in” Fds then the whole of emergency fund can be parked there, but if one wants to go with any of the other 2 options the one should not invest the complete emergency fund but a part of it …say 60% of total.

source : goodmoneying

How to get physical shares transferred and converted into demat

Some people are holding shares not transferred in their name and don’t know how to go about the transfer. Here is the procedure 

Corrected: As per Companies(Share Capital & Debentures) Rules, 2014, form 7B has been replaced with form SH-4

UPDATE: Updated to include additional information provided by NSDL's Rajesh Doshi on demat and bank names that provide franking facility

Several people are still left with shares in physical format. If these are transferred in their name, they can continue to hold them and get them dematerialised anytime they want to. What about those who are holding shares not yet transferred in their names? One cannot sell these shares in physical forms through stock exchanges, unless it is dematerialized. Several readers of Moneylife, said they wanted to transfer physical shares jointly held. But they don’t know the way out.

Asking National Securities Depository Ltd (NSDL) is of no help. You will get a standard reply like this: "Shareholders can dematerialise physical shares in their own name. As such, transfers of physical shares are outside the purview of depository system. There is also no trading in physical shares on the stock exchanges and hence they can only be transferred in private deals. The recommended course of action for investors holding physical shares is to dematerialise them. Transfer of demat shares is also exempt from stamp duty."

Here is the procedure to transfer shares in physical form...

1. Send the share certificates along with the Share Transfer Deed (Form SH-4 available with stock exchange and brokers) duly filled in, executed and affixed with appropriate share transfer stamps (available with authorised stamp vendors) at 0.25% of the market value (of the scrip) on the date of execution of the transfer deed. Self certified copy of the PAN Card of the transferee(s) needs to be submitted along with the instrument(s) of transfer and Stamp duty has to be affixed.

Since 1 July 2002, Maharashtra government has banned sale and use of share transfer stamps and mandated franking for such deeds. This facility was available at Bank of India branch in BSE building. However, since December 2014, this facility has been closed. Franking now happens at Town Hall General Stamp office only or other central offices of collectorate of stamp fees within Maharashtra State, through online registration or without online registration. The process can be found at https://gras.mahakosh.gov.in.


a. For paying the stamp duty without registration, you can use your online bank account. Here are the steps involved in the process...

I. Select Pay without registration
II. Select Department as Inspector General of registration
III. In payment type, select Non Judicial Stamps
IV. Select the appropriate location in District
V. In office name, select General Stamp Office Mumbai
VI. In Scheme Name, select 'Purchase of franking code SOS Mumbai only'
VII. Select year as 2014 - 2015
VIII. In Article Code, select One time Adhoc
IX. Fill in the Amount
X. Give Payee details
XI. Select e-payment/Bank
XII. Fill in image text
XIII. Click on Submit
XIV. Print GRN MTR6 Challan

Take this printout with your share transfer form to the office to get your stamp fee franked on your transfer form.

i. If you do not have an online account, then

I. Print the GRN MTR6 Challan
II. Fill in your details and make the payment at your concerned bank's branch where they accept payment for general stamp office with pay in slip etc.
III. Take the Form and the paid amount along with your transfer for franking.

In both cases, you will have to carry a letter addressed to the Additional Collector (Stamps) in following format...

From:
_________
_________
_________

To
The Additional Collector Stamps
General Stamp Office Fort
Mumbai 23

Sub:- To Affix Special Adhesive Stamps on Share transfer form

Respected Sir,

With reference to the above mentioned subject, I have to state that I have paid stamp duty of Rs.________________ as per MTR Challan No 6 (GRN No. __________________________)

I hereby request you kind selves to kindly affix the requisite stamp duty on the same.




Yours Faithfully

(Note: For Shares, stamp duty @ 0.25% of the market value or the consideration amount (whichever is higher) should be affixed on the instrument of transfer.)

One can submit the letter, form and receipt to the General Stamp Office between a specific time period. The franked documents can be collected between a specific period the next day.

Rajesh R Doshi, Senior Executive Director of NSDL said, "My understanding is that any bank, which offers franking facility for legal documents can also provide the same for transfer deeds.  We use services of Kapol Cooperative Bank branches at Kalbadevi and Fort for franking of legal documents. We have inquired with them and they have confirmed that they would provide services of franking transfer deeds for physical share transfer. Investors can approach them. There are other banks such as Punjab and Maharashtra Co-operative (PMC) Bank and Citizen Co-operative Bank who also provide facility for franking legal document however we have not used their facility. Investors may inquire with them as well."

Here is the checklist for getting your deed franked

Covering letter to the Additional Collector Stamps. Two copies, one to submit and second for receipt of the office and collection next day.
MTR 6 Challan with the GRN No if you have done e payment
Share transfer form
Every share transfer form that has to be franked requires the above process.

After getting the deed franked, the investor can send the share certificates (physical shares) and the share transfer deed (in form SH-4) duly filled in and signed to the company or registrar.  It takes about 10 to 21 days to process the transfer.

The statutory time limit fixed for completing a transfer is one month under the Listing Agreement and two months under the Companies Act, 1956.


How to convert shares into demat form?
Dematerialisation (demat in short form) signifies conversion of a share certificate from its present physical form to electronic form for the same number of holding. Demat is optional and an investor can still hold shares in physical form. However, she has to demat the shares if she wishes to sell the same through the stock exchanges. Similarly, if an investor purchases shares, she will get delivery of the shares in demat form.

There are two depositories, NSDL and Central Depository Services Ltd (CDSL), which hold securities of an investor in electronic form, through depository participants (DPs). DPs provide the link between an investor and company through the Depository.

Mr Doshi from NSDL said, physical shares can be dematerialized in the demat account in the name(s) of share holders holding physical shares. In case, shares are held jointly in physical form by investors, then the same can be dematerialized by opening a demat account in joint names.

"However," he said, "as I understand,  investors prefer to make use of existing demat account held in single name by first transferring physical shares held in joint name into single name. Transferring physical shares requires payment of transfer fees through franking of transfer deed documents, a service investors used to avail from BOI Shareholding. Since BOI Shareholding has now stopped this service, investors can use franking facility provided by some banks."

Here is how you can convert your physical shares into demat...

• Open a Beneficiary Account with a DP registered with SEBI and with any one of the depositories, NSDL or CDSL.
• Submit the dematerialization request form (DRF) (in triplicate) to your DP duly filled in and signed by all the shareholders, along with share certificate(s) and necessary documents. Ensure that the names and order of names as per certificate(s) matches with the names and order of the names as per the DP account.
• Obtain an acknowledgement from the DP.
• On receipt of DRF, the DP will generate a dematerialization request number (DRN), which is electronically transmitted to the Company or STA through the concerned Depository.
• Simultaneously, the DP will send the physical certificate(s) with the original DRF to the Company or STA for verification and confirmation.
• The Company or STA, on receipt of DRF and share certificate(s) will process the request. If the DRF is found to be in order, i.e. verified signature and certificate(s), then it will electronically confirm the request.
• The DP on receipt of such confirmation, will credit the account with the shares dematerialized.
• The DP will hold the shares in the dematerialised form thereafter on the shareholders behalf and she will become beneficial owner of these dematerialised shares.

Important points to note
1) Validity of the executed instrument of transfer:
for shares: - 60 days from the date of execution.
for debentures: - for an indefinite period
2) SEBI has notified vide its Circular No. MRD/DoP/Cir-05/2009 dated 20 May 2009 that it is mandatory for all transactions in the securities market including transfer of shares in physical form of listed Companies to be accompanied with copies of PAN card/s of all the transferees. Therefore attach self-certified copies of PAN card/s of all the transferees along with the instrument of transfer
3) Keep photocopies of certificates, instrument(s) of transfer and other documents sent by post. In case of a loss in transit, they come handy.
4) Always include your complete address along with pin code while filling in the instrument of transfer/opening an account with a depository participant.
5) Do not send share certificates / DRF documents to the Company / Registrars directly.


source : moneylife

Why its important to invest money for future

Today’s article is going to be very very basic. It’s one of the lessons which we should teach our kids when are growing up. The question is “Why Invest money at all?”

A lot of investors are not very serious when it comes to save enough money and invest it properly so that it grows well. A lot of investors are quite consumed in their life and don’t deal with this conversation fully. Only after years of working they realise that they have done a very bad job when it comes to investing their money.

Why you should invest money at all ?

There is a simple conversation which I think everyone should go through once. I call it as X+Y theory. Its very simple.

X is the number of years when they will go to work and bring back money to pay their bills and acquire all they want to enjoy (movies, clothes, eating out, travel, food, fees). This is mostly ACTIVE income and money will come only when you work.

Y is the number of years, which we will spend without earning. We will still need food, clothes, travel, eating out and various other things, but the problem is we will not be working in those years, either by choice or mostly because we are unable to. Now where will the money come in that phase? The money has to come from somewhere?Right?

So you mainly invest so that you create enough wealth which can last your Y years. I know I am making retirement planning very jazzy at this moment, But NO, this is just going one level deeper and answering the basic question of “Why should I invest at all?”

Note that when we are in X yrs phase, we are not too much concerned about the Y yrs, because the X yrs phase itself has many issues. Kids , House, job, health, parents, relationships and many issues which keeps us occupied enough and only when we approach the Y phase, we are bit scared and tensed, but then it gets too late.

3 basic level reasons you should invest your money?

Below I will talk of primary level issues why one should invest their money to grow in future. And when I say grow your money, I am not talking about saving it in bank account, I mean talking about really letting it grow beyond inflation.

1. Because of Inflation 

The most basic reason to invest your money is to protect it from Inflation. Your money will decrease after many years in its purchasing power. A Rs 100 note will not be able to buy the same thing in future, what it can buy today. So you need to invest money properly so that you are able to at least buy the same quantity tomorrow or preferably a larger quantity.

2. Financial Independence

This is exactly what I was talking above. I am sure everyone want to work, but not becoming money slave’s. If you do not invest your money, you will never be able to create a corpus of money you can rely on, and will never be able to get free from your work. If you want to make sure your reason to go to job should be “because I love my job” and not “I need to pay my bills, I am helpless”, then start building that corpus as soon as possible.

And I am not talking about cutting down your desires and entertainment. Do all that, but also start creating that corpus. Keep a balance.

3. Reach your life goals

If you earn Rs 100 per month, and you need Rs 50 for some purpose suddenly you can surely handle is somehow. But what if you need Rs 5000, but you earn only Rs 100? In that case, you need to make sure you have accumulated that amount before hand, slowly and steadily.

We all know some of our financial responsibilities will be coming up in distant future and they would need a big amount. Things like house down payment, children college education, marriage and many other things like that. If you do not invest, how will you fund those goals? It’s as simple as that.

You are sum of your experiences in life

A lot of youngsters have seen their parents struggle for money and their mindset is already set in a way that they understand the importance of saving properly and growing their money. However a big number of people have had a bad relationship with money. They live pay check to pay check, splurge beyond the limit and are careless enough when it comes to money.

A lot of people might say that they are just stupid to act like that and are highly careless and irresponsible. But I think its just a matter of lack of financial literacy or their way of looking at life is different. Everyone is raised differently in their lives and we all have difference experiences. We become what we experience at some level. If you save enough or do not save enough, at the end its just has an outcome which you need to be aware about. That’s all.

How to teach this lesson to your kids (and some adults)?

The simplest way to teach this lesson to small children is to tell them the Ant and Grasshopper story. It’s one of the most simple and powerful stories.

MORAL : It is best to prepare for the days of necessity.

Invest early and with discipline

To get the maximum benefit, make sure you start your investments as early as possible. Even if it’s small in the start, that’s ok. At least you will prepare yourself to invest bigger amount in future if you at least invest small amounts in the start. You will build some wealth (even though its small) and build your mindset to invest regularly.

SOURCE : jagoinvestor

DHFL Fixed deposits – Wealth 2 Health

source :goodmoneying

When we talk of investments in corporate fixed deposits, very few highly rated names comes to mind. Dewan Housing finance limited (DHFL) is one of those. Having been rated as AAA by CARE and Brick works, along with A1+ by crisil, DHFL fixed deposits are one of the popular corporate fixed deposits products in the retail segment.

Recently DHFL has come up with a fixed deposit Overdraft product with name Wealth 2 health, specifically meant to meet the medical emergencies without breaking the fixed deposit. It has gained good media attention.

DHFL Fixed deposits – Wealth 2 Health

Structurally it is a normal corporate fixed deposit product. A health card would be issued within 3 months of FD Creation through Vidal Health (Holding company of erstwhile TTK healthcare TPA). Limit of 75% of FD amount gets tagged to the health card. Card would be in the name of First holder of the fixed deposit.

Now whenever you visit any of the empaneled hospital or diagnostic center and don’t have liquid cash available with you or blocked in fixed deposits like of DHFL, then you need not to pay any cash over there for treatment or tests conducted. You just have to show this health card at the billing counter and they will punch in your details on Vidal website, which gets authorized through OTP received on first holder mobile phone only.

Each time a customer authorizes a payment to designated hospital/diagnostic center, a loan against FD equivalent to the amount authorized is created. This loan would be at 2% higher rate than FD. This loan can be repaid back fully or partially. Even if you don’t want to repay it, then on maturity you will get your FD maturity proceeds after adjusting the interest and principal of loan availed.

Unlike Bank FD, corporate FDs have very low liquidity, and thus offering Overdraft facility through health card definitely is an attraction in itself. Corporate FDs are considered as of high risk and thus also gives high interest rates than bank FDs.

Please note that this product is not health Insurance product but a Loan against Fixed deposit. Wealth 2 health card is just to provide investor with liquidity so he needs not to break the complete fixed deposit for any medical emergency.

DHFL Fixed deposits Wealth 2 Health – Other features/benefits

-Cash less access to hospitals and Diagnostic centers
-1 lakh of accidental death insurance for first holder
-5-25% of discount on tests and hospitalization
-Access to doctor on Phone for opinion/Second Opinion

DHFL Fixed deposits – Rate card ( June 2015)

DHFL wealth 2 health -Should you invest?

See this is a simple loan against FD product, which you can otherwise also take from any bank with much more convenience. If you are comfortable with investment in corporate fixed deposits, then DHFL does come under must consider category due to its high Credit rating. Issuance of Health card is a just an additional feature with no costs attached, and thus is purely up to you if you want to use it or not.

But where amount is significant and one wants to invest in DHFL fixed deposits due to high interest rate structure, then surely this health card feature provides necessary liquidity for medical exigencies.

From Financial planning angle, I would not like it to be termed as good place to park for Emergency funding, as emergencies doesn’t just arise due to medical issues. There may be Job loss, some house repairs, some emergency purchases etc. for which there has to be liquid emergency funding available with you. Moreover this health card will be valid only at selected hospitals and diagnostic centers which may or may not be your preferred one.

So in nutshell, get into DHFL FD just from investment perspective after understanding the basic risks involved in Corporate Fixed Deposits and not just looking at Wealth 2 Health Feature. Maintain adequate emergency fund to keep up with necessary liquidity.


source :goodmoneying

Digital Locker : What is Digital Locker? How to Register and Use DigiLocker

SOURCE : bemoneyaware

Prime Minister Narendra Modi on July 1 will launch digital locker facility that will help citizens to digitally store their important documents like PAN card, passport, mark sheets and degree certificates.  It  is linked to the Aadhar number. This article talks about What is Digital Locker, how does it differs from Google docs or Drop Box, What are advantages of Digital Locker, How to register and use the Digital Locker.

What is Digital Locker?

Digital Locker or DigiLocker is a website or a portal by Government of India where you upload and store your documents like PAN Card,passport,mark sheets and degree  certificates. This locker will be linked to one’s Aadhaar number. You will be offered 10 MB space for all your documents  free of cost. Space will be later increased to 1 GB. So basically it is like a physical locker where you store your jewellery and documents but this locker is digitial i.e on website and will store digital information. Digital Locker can be accessed from https://digitallocker.gov.in/. Offical FAQ on Digital Locker

Going forward the Government agencies will issue the documents in electronic form which will be uploaded on the website. For example The Central Board of Secondary Education(CBSE) is likely to start issuing mark sheets and certificates in digital format as well along with hard copies which can be stored by students in their digital lockers,

Digital Locker is one of the key initiatives under the Digital India Programme. The website has been developed and is being maintained by MahaOnline Ltd, the joint venture between Maharashtra government and Tata Consultancy Services (TCS).

Aren’t such websites already existing?

Yes Free cloud storage like Google Drive and Dropbox also let you upload and store the documents, allows you create folders and categorise to make browsing easy.

There are private businesses like Kleeto.in that provide secure online storage for a fee ranging from 200 to 2,000. For a basic yearly subscription package of 200, Kleeto will securely store 15 documents of 5 pages each and an online storage of up to 50 MB. They will pick-up, scan, upload and keep the papers safe. When you need the originals, they will be sent to you within 2-3 days.

Private e-locker services are also available for some time now. ICICI bank has a similar e-locker service which customers can use by login in through their internet banking or ICICI Direct account login.

It’s worth noting that the Maharashtra government had started testing an Aadhaar-linked  e-locker service called Maha Digital Locker on a pilot basis, in November last year. The service claimed to allow users to fill up government forms with a single click.

So how does Digital Locker differ from other such websites?

Digital Locker offers much more than a place to store the documents.

You can upload scanned copies of your documents, like in other websites. But these scanned documents which, if required, can be digitally signed thus making the e-document at par with the original one .

Going forward the locker will be  repository or store house of all your government issued e-documents.These electronic e-documents will be uploaded by issuers, government departments or agencies such as CBSE, registrar office, income tax department .

The documents you upload can be shared via email, the e-documents from governments agencies viewed by an authorised list of requestors such as a bank, university , the passport office or the transport department.

However, with other websites cyber law and jurisdiction is a concern.  When people upload their personal information into these websites they  have NO idea where the data is stored(somewhere in cloud), who else has access to the information. Or what polices these companies have in regards to what employees have access to customer data. Or what polices they have in regards to things like legal subpoenas and requests from law enforcement and governments.

If you store anything in DropBox or Google drive, you are governed under US regulations and there is no direct protection under the Information Technology(IT) Act.

Though Online free storage services are equally secure, however, the government’s locker is more secure primarily because the data gets stored within India and you are legally protected under the Information Technology Act, 2000

 What all would Digital Locker contain?

Each user’s digital locker has the following sections as shown in image below

My Certificates: This section comprises of two sub sections:
            Digital Documents: This contains the links or URI’s of the documents issued to the user by                 Govt. departments or other agencies.
           
            Uploaded Documents: This subsection lists all the documents which are uploaded by the user.             Each file to be uploaded should not be more than 1MB in size. Only pdf, jpg, jpeg, png, bmp               and gif file types can be uploaded.

My Profile: This section displays the complete profile of the user as available in the UIDAI database.

Account Settings which allows you to Change password and link with Google and Facebook  as shown in image below

Going forward their will be

My Issuer: This section displays the issuers’ names and the number of documents issued to the user by the issuer.

My Requester: This section displays the requesters’ names and the number of documents requested from the user by the requesters.

Directories: This section displays the complete list of registered issuers and requesters along with their URLs.

What is the purpose of Digital Locker?

Digital Locker is aimed at minimizing the usage of physical documents and enable sharing of e-documents across agencies.Digital Locker will reduce the administrative overhead of government departments and agencies created due to paper work. It will also make it easy for the residents to receive services by saving time and effort as their documents will now be available anytime, anywhere and can be shared electronically.  Objectives of Digital Locker are as follows:

Enable digital empowerment of residents by providing them with Digital Locker on the cloud

Enable e-Signing of documents and make them available electronically and online Minimize the use of physical documents

Ensure authenticity of the e-documents and thereby eliminate usage of fake documents

Secure access to Govt. issued documents through a web portal and mobile application for residents

Reduce administrative overhead of Govt. departments and agencies and make it easy for the residents to receive services

Anytime, anywhere access to the documents by the resident

Open and interoperable standards based architecture to support a well-structured standard document format to support easy sharing of documents across departments and agencies

Ensure privacy and authorized access to residents’ data.

Since when is Digital Locker available?

In Feb 2015 Digital Locker was launched in what is know as beta phase. It will be officially launched on 1 Jul 2015.

What is Beta Testing?

Beta testing is a term used in making a commercial product usually software. Beta testing also known as field testing for a product is done before the commercial release. Beta testing is the last stage of testing, and normally involves sending the product to beta test sites outside the company for real-world exposure or offering the product for a free trial download over the Internet. Advantage of Beta Testing is to have the opportunity to get your application into the hands of users prior to releasing it to the general public. The Users can install, test your application, and send feedback to you during this beta testing period.

Is Digital Locker safe?

The Digital locker uses the same security that all banks use for internet banking. They use your registered mobile number and email address to send you OTP,one time password. That is the only way you can gain access to digital locker.

How to register for Digital Locker?

To Sign-up or Register for the Digilocker you need to have a valid Aadhaar number registered with Aadhaar.

Please type your Aadhaar number in the text box against Enter Aadhaar Number. You will be given two options for user authentication. Use OTP and Use Fingerprint. OTP means One Time Password.

After clicking on Use OTP, an OTP (One Time Password) will be sent  to the mobile number and email-id registered with your Aadhaar as shown in image below.

Enter the OTP and click on Validate OTP button.

Once the OTP is validated the user is taken to set username or password page to complete sign up

How to Sign In Digital Locker after Registration?

You can login using any of the three options shown in image below:

your Aadhaar Number which requires OTP or Finger Print

User Id and Password or

Social Media

How can I upload a document in my digital locker?

Upload documents facility is available under My Certificates section. Click on orange box (marked in red ) in image below

You need to first select a document type (SSC Certificate, HSC Certificate, PAN card, Voter ID card, etc.) from a drop down list.

Provide a name for the document

Based on the document type selected, you need to fill in the other details relevant to the document.

Choose the file from your local machine to be uploaded to digital locker.

Each file to be uploaded should not be more than 1MB in size and only pdf, jpg, jpeg, png, bmp and gif file types are allowed

Provide Description of the document (max 50 characters)

Click Upload button. On successful upload, the document will be listed under Uploaded Documents subsection.

How can I share the e-documents in my digital locker?

For sharing your e-document , mentioned as URI under  Digital Documents subsection or under Uploaded Documents  subsection, you need to click on  Share link provided against the document you would like to share, as shown in image below, marked by red box.

A dialog box will pop up as shown in image below. Please enter the email address of the recipient in the dialog box and click ‘Share’ button.(You can enter multiple email address separated by semicolon( EG: abc@gmail.com;ghj@yahoo.com)

The document will be shared with the recipient via email.

The recipient will receive an email from ‘no-reply@digitallocker.gov.in’. The subject line of the email will mention the document name and document type. The email body will have the URI link of the document and the sender name and Aadhaar number.

Terms associated with Digital Locker

An e-document is an electronic document issued to one or more individuals (Aadhaar holders) in appropriate formats (both as XML and printable) compliant to digital locker technical specifications. You may also upload govt. issued scanned documents and also digitally sign the same, if required.

Repository is a Collection of e-Documents

Issuer is an entity issuing e-documents to individuals in a standard format and making them electronically available e.g. CBSE, Registrar Office, Income Tax department, etc.

Requester is an entity(person or organization) requesting secure access to a particular e-document stored

Access Gateway provides a secure online mechanism for requesters to access e- documents from various repositories in real-time using e-Document URI (Uniform Resource Indicator). The gateway will identify the address of the repository where the e-Document is stored based on the URI and will fetch the e-Document from that repository. Please refer to the DigiLocker Technical specifications available on the portal for further information.

A URI is a Uniform Resource Indicator generated by the issuer department, which is mandatory for every e-document of the digital locker system. This unique URI can be resolved to a full URL (Uniform Resource Locator) to access the actual document in appropriate repository. It’s like an address ex: http://digitallocker.gov.in/CandidateLocker/Share.ashx?type=NonURI&Hash=2614af2b9574c1109edf361f55d43008ca9a835f884d170ae

Important Info:

Digital Locker can be accessed from https://digitallocker.gov.in/. Offical FAQ on Digital Locker

You may contact DigiLocker support team via email: support@digitallocker.gov.in

SOURCE : bemoneyaware

8 tips to Improve CIBIL Score !

Source : jagoinvestor

Is your CIBIL report and Score messed up ? Then the biggest question you must be having is “How to Improve CIBIL Score ?”. “Bad credit score” is really a scary phrase these days. Many people are stuck with a bad credit score/report due to their own or credit card company mistakes, but most of the times I see that it happens due to poor credit behaviour and mis-management of credit officers. Everyone wants to improve cibil score, so that they do not face any issue in getting loans at some point in future. Now in this article, I will highlight few tips/points which will help you understand what makes a great credit report and good credit score. To understand this, just be clear that your credit score is dependent on several things and taking care of each point is very important.


1. Late payment / missed payments

The biggest reason for a bad credit score is bad loan repayment history. A lot of people pay their bills late or miss the payment completely. It’s so tempting to pay the minimum balance now and pay the balancing due later. Doing this just saves you from late payment fees, that’s all. The interest is charged and more than that you should be worried because this information is updated by your bank to CIBIL and the next thing is obvious, your credit report and score gets uglier each month because of this. So every time you miss your home loan EMI, car loan EMI, credit card payment or you make a late payment, it affects your score badly. If you have done a lot of late payments or missed payments earlier, its your time to fix it by being more disciplined from now on. Dont worry, if you now promise to pay things on time and do it regularly for next 1-2 yrs, it will surely improve cibil score for you.

Common sense Tip: Don’t pay your bills through cheque just 1 day before the last due date, because it does not mean that your payment is done. Some one will collect it, send it somewhere, then some one will make an entry for it etc, etc… This can take some time and result in delayed payment. Why not drop it 5 days earlier instead of 1 day? Please automate the payments for EMI’s and your bills. If the bills are not fixed each month, at least put a recurring reminder in your phone 5 days before the last date and then make the payment.

2. Large Number of credit cards and loans

There was a time when having 6-8 credit cards was a commonly practiced trend and something to show off, now you will pay for it! A lot of credit cards and loans above a “natural” limit is a big negative thing. That shows credit hunger and an extreme dependence on credit in your life. It shows that your life is too much dependent on external credit. Lets say you have two friends Ajay and Robert. Ajay asks for some credit from 2 people in whole year and then asks you for another Rs X and you have good friendship with him, I am sure you will think once and then may be give the money to him. But on the other hand imagine Robert who has taken a credit from 8 people in your office and 2 other people outside office, then when he comes to you and asks for even Rs X/2 amount, you will think 5-10 times before giving it to him. What kind of feelings you will be having in mind? What all doubts will be there in your mind? Some thing same happens in the loan industry, if you have more than “required” or acceptable limit of credits, it badly affects your score. Your score reduces point by point each month.


Common sense tip: If you have a lot of credit cards, better increase the limit of 2-3 of them and close the other credit cards. This way you will have same Credit limit in total and have reduced number of cards. Its better to have 2 cards with 25,000 limit each, than 5 credit cards with 10,000 limit each.

3. Utilizing your full Credit Limit each month

One of the easiest way to improve cibil score is to effectively use your credit card and do not utilize it fully to the limit. If your credit card limit is Rs 50,000 a month and every month you use 40,000 or 45,000, it will affect your score in bad way. Even if you are paying your dues on time, still what it shows is that you are utilizing your limit to fullest, companies don’t know that you might be doing it deliberately to “manage” your credit effectively, but the way it is seen is that your life is dependent on credit. So stop reaching 80% or 90% of your credit limit. A 30%-40% credit utilization is well accepted and seen as “positive” and make sure its the case with all the credit cards you have.

If you have 2 credit cards with limit of Rs 10,000 in first card and Rs 10,000 in second card and you spend Rs 9,000 from first credit card, but Rs 0 from second credit card, then your 1 st credit card utilization is 90% & 0% in second. Which means that you are seen negatively on your first credit card and “positively” on second card, but what you can do is spend 5,000 from first card and Rs 4,000 from second card, so that your credit utilization is 50% and 40% on both the cards and its “positive” on both.

Common sense tip: If you are reaching your limit, either make sure you move to cash/debit card for a part of your expenses and reduce your credit card limit, but in case you can not reduce your expenses on credit card, better call your credit card customer care or write to them that you want your limit to be increased. Most of the companies will do it. Just tell that you have few things lined up in next 2-3 months and you want the limit to be increased.

On the other hand think well before closing a credit card that you are not using. Your over all credit limit will come down if you close a credit card. So make sure you think twice before closing a credit card from credit utilization ratio point of view.


4. Higher percentage of Unsecured credit

A high number/amount of unsecured credit is bad. Unsecured credit here means credit card debt and personal loan debt, which are totally unsecured and you can run away with it. If you have total 1,00,000 worth of debt and out of that 80,000 is because of credit card and personal loan, then 80% of your debt is Unsecured. This is bad. If you had 80% of Secured debt like education/home/auto loan, then it was a different thing. I believe this is very obvious, the more unsecured debt you have, the bad it looks like. It shows that your life has more “emergencies” than a normal person, which makes you hungry for immediate credit. So this makes sure your credit score takes a hit. Remember that having a good mix of credit types is a good idea. So if you have home loan, education loan and credit card, that’s 3 types of loans, which is good. But if you have 5 personal loans and that’s all, it shows too much dependence on one kind of loan.

Common sense tip: Make sure your total unsecured debt, looks small in front of your total debt. You if have 80,000 of unsecured debt out of total debt of 1,00,000, then your unsecured debt ratio is 80%. If you take 5 lacs of secured loan, then your unsecured debt comes down in percentage, that makes things look better. Or make sure you prepay a part of your unsecured debt and bring down the percentage, Its one of the ways to improve cibil score !


5. Being a guarantor without giving a thought

If I take a home loan and ask you to be a guarantor for my home loan because I have helped you with so many things in personal finance, because I have answered so many of your comments and helped in solving your queries, what would you say? Don’t think more on this, you better say “Go to hell”. Because if I default on that home loan, you are held liable and your score will go down. While my score will be affected more, yours will also take a good hit! A lot of people because of various reasons become guarantor for other’s loan and then the primary person runs away or is unable to pay off the loan. Don’t do it, unless you are really sure you want to do it. I can do it for my brother, but not for you.

Common sense tip: Don’t leave your documents here and there, if you don’t agree to become a guarantor, many people try to make you guarantor by forging documents and misusing xerox PAN card or driving licence. Signature is easy to copy these days! Also when your friend who has spent good time with you in last 3 months, asks you to become a guarantor, tell him you were thinking of asking him to be guarantor for your home loan, good way to test the friendship!


6. Duration of your credit history – more is better

Longer the history, better it is. You will trust a 5 yrs old friend more than 3 months old one. That’s true in case of credit history too. If you are paying your payments/EMI’s for all loans on time from last 5 yrs, it’s very much a proof that you pay on time, you have a good history, but if I have a good history from last 5 months, that is not that strong. So higher the duration of good payment history, the better your score will be and will help you to increase cibil score.

Common sense tip: If you do not have a credit card, there is a good reason why you should get one now and do your payments with credit card and pay in full every month, so that your payment history is built.


7. Too many inquiries in short spam of time

Making too many inquiries in a very short time is not looked at positively. Imagine you have made a credit card inquiry, a personal loan inquiry, a car loan inquiry in last 3 months itself. What does it show? It shows credit hunger, it shows that you want to snatch any credit which you can get, you want to get things in life on credit. Hence have a respectable amount of gap between each inquiry you do. Dont apply for home loan with 6 banks. Note that each and every inquiry you do is reported in your credit report and if your report is full of inquiries, your score will stink! Any lender will doubt your payment capacity when you are so much dependent on credit. So the best way to improve cibil score is to keep your enquiries minimum.

Common sense tip: A lot of people just apply for loans even if they really don’t need it, keep this thing in mind and deliberately make sure that there is few months of gap between 2 loan applications (at least 6 months gap would really be good).

8. Settlement of your Loan Or running away

This is the worst mistakes of all. There are people who first take on a lot many loans and then are unable to pay it. So they either ran away (companies mark it as “write-off”) or at best just made some payment and settled the loan (companies mark it as “settled”). And this will make sure you are blacklisted for at least 7 yrs. You will not be given any loan, you can cry your eyes out for that 1 small credit card and you will be treated like you are nothing.

Common sense tip: Cut your debt, when it shows a sign of going out of control. One common ground rule which can be followed it that the overall outstanding credit at any point of time should not be more than 1 month of your take home salary. There is no solution of an out of control credit card debt other than paying it in FULL. Live a life with credit card
as if you don’t have one!

Each tip on How to Improve CIBIL Score has its own weightage

Note that different factors which affect your credit score has its own weightage, so one factor can be more stronger than the other, but make sure you follow all the best practices and do not make any wrong decision. Look at your actions from the lender point of you. See what kind of people you would like to give credit if you were the loan provider. Just act like what you had expected


Source : jagoinvestor

What is CIBIL report ?

source : jagoinvestor

Are you looking to check your credit score and want to know why your loan application was rejected ? Yes, if you are misusing your credit taking capacity, you are being watched at like never before in this country. I am talking about CIBIL here and in this article let me show you how your current behaviour related to credit card, personal loan, home loans are going to affect you in future in a good and bad way. Also see 2 real life cases where a person’s loan application got rejected because of Bad CIBIL report and how they didnt even knew about it ! .

CIBIL is Credit Information Bureau of India Limited, which acts like a central repository of credit information in India. As many as 500 different banks and financial institutions are CIBIL’s clients and they report each of their customers (like me and you) actions to them.

So if you take a credit card from ICICI Bank, then ICICI bank reports to CIBIL about it. If you enquire about car loan to HDFC Bank, hold your breath! as even that enquiry is reported to CIBIL, if you can’t pay your EMI for home loan with SBI Bank for a particular month, that also gets reported to CIBIL.

Not just your bad actions, but even your good actions like paying EMI’s on time, paying credit card with punctuality also gets reported with CIBIL. You can see that this way, a history is maintained at CIBIL for each person, which can be good history or bad history depending on the case and this information is very useful for banks to decide if they want to give loan to you in future or not. All the banks are now looking at CIBIL report before taking the decision.

Good and Bad credit Report

CIBIL report is not always bad. It’s an extremely good concept which is now taking shape in India recently. If there are two people A and B and A is a good guy and B is a bad guy, obviously A should get better rates of interest, faster processing, first right to loan. Whereas, guy B should get loan at higher rate of interest (because he is risky) and may be banks can even deny entertaining him at all.

CIBIL gives us the power to build our credit report. So if you become responsible and use your credit effectively and with planning, you can build a good credit history with CIBIL, which will help you in long run. Also note that taking a lot of loans without having the capacity is also a negative thing and that can affect your credit report.

I would like to warn you that you have to be super sensitive and careful with credit card and loan repayment, because one small mistake or being lazy in this area can cost you a lot.


How to get your CIBIL Report Offline

There are two kind of reports which you can get from CIBIL . The basic one is called CIR Report which is nothing but a basic information on how is your credit history and what kind of information is there with CIBIL . This is called CIR report and it costs Rs 142 . This is good enough if you just want to check your status with CIBIL .

The second thing which you can get from CIBIL is your Credit Score which is called as CIBIL TransUnion Score and ranges from 300 – 900. This is number which scores your credit ranking . A lower number means your credit score is bad and you will be considered as Risky ! . If its 900, you are doing great, Higher the better . The cost of CIBIL TransUnion Score along with your CIR report would be Rs 450 . I would say this is not at all expensive if you can get this vital information at such a cost . If you are facing any rejection for loans or if you fear that your past history can haunt you , then its a good idea to check the CIBIL report each year and find out how does it look like. I have created a step by step procedure for you on how to apply for CIBIL report . Have a look

source : jagoinvestor

What to do if a company FD holder dies?

Source : ET

Death is a certainty. If a company fixed deposit holder dies before the maturity of the FD, it becomes the duty of his survivors to claim the money. Here is how you can overcome that situation:

Fixed deposits are a popular investment option, especially among the retired citizens who live on regular income. To avoid uncomfortable situations and running around, investors and their family members should be aware of the claim process in case of death of the deposit holder.

Death is a certainty and to avoid inconvenience of the cumbersome process of claiming maturity proceeds of a fixed deposit, it is advisable to take care of this aspect right at the time of investing in a fixed deposit. But before that, let's understand the different options and the consequences, in which a fixed deposit investment can be held.

MODE OF HOLDING 

Joint holding with 'Anyone or Survivor' option 

This is the most preferred and convenient option for ensuring that survivors do not have to face any problem in claiming the deposit amount on maturity. If the first holder or the joint holder dies, the surviving holder has to inform the company about the same and submit a copy of death certificate. On receipt of the same, the company will delete the name of the deceased deposit holder and the surviving person shall receive the proceeds on maturity. Please note that deposit does not become payable to the surviving depositor on the date of death itself.

Joint holding with 'Either or Survivor' option 

Under this option, if the first holder dies, then the survivor can claim the deposit amount on maturity by following the same procedure as explained above. However, if the second holder dies, the first holder can request the company to delete the name of the deceased joint holder and replace it with another name of his choice.

Joint holding with 'Joint Holding' option 

Under this option, deposit proceeds will be paid to the first holder only when both the joint depositors sign on the FDR as discharge of the same. However, in case of death of one of the joint depositors, the surviving depositor will be entitled to receive the proceeds by following the same procedure as explained above.

Single holding with 'Nomination' option 

In case the deposit is held in a single name and one or more persons are nominated to receive the proceeds in unfortunate event of death of single depositor, the maturity proceeds will be paid to the nominee(s) as a Trustee(s) of the depositor. In case the single depositor has made a separate Will for settlement of his assets, the nominee(s) will be bound to honour that.

Single holding without 'Nomination' option 

This is the most risky and avoidable option as in case of unfortunate death, the survivors or the heirs of the deceased investor will have to complete several cumbersome formalities, like producing a Will or a Succession Certificate to claim the deposit amount.

Taxation 

The maturity proceeds will not be taxed in the hands of the final recipient as there is no estate duty in our country as per the current tax laws in force. However, the interest amount if any will be added to the recipient's income and will be taxed accordingly.

Premature Payment 

It may be noted that the deposit amount will be payable only on the date of maturity and not earlier on the date of death. However, the surviving person or the legal heir can request the company for a premature payment of the deposit and this is the prerogative of the company to accept or decline such request.

Conclusion 

Choosing the right mode of holding goes a long way in making smooth transfer of money to one's heirs. Opt for the right mode and make proper nominations. Keeping your family members aware of the process too helps.

Source : ET

Financial Planning for Children Education

SOURCE : Advisorkhoj

Financially our lives can be divided into long terms goals and short term goals. The short term goals could range from taking a foreign holiday or buying the latest LED television in the market. Long term goals are usually far away in the horizon. However, you start investing because of their future value. Fortunately for parents, there are enough investment products to help them fulfil the dreams for their children. Chosen appropriately, these options can help you save enough to send your daughter to the best college in the country, or book a 5-star hotel for your son's wedding. No concession in life insurance premium or special interest rate or return will be offered for the investment meant for your child’s higher education. The choices will largely be dependent on these four factors:

Time period of the investment

The tenure of investment is dependent upon how early or late you start investing for your child’s higher education. If you start early it allows you to take risk and aim for higher returns from equities. The longer period also reduces the overall risk. However, if you are starting late then you will have to go for schemes that will have modest returns preferably with capital protection.

Risk appetite

As an investor if your risk taking appetite borders on the higher side, then take a leap and invest in equity oriented mutual funds. Equities have often been known to generate the best returns over a long period of time. You will also have to bear with fluctuations of the market at the same time and cannot allow slight volatility to affect your nerves. However, if you have low or moderate appetite for risk then you may invest in balanced funds, capital protection fund or even debt funds. The other option is to opt for traditional form of investments like fixed deposits, postal saving, PPF or Sukanya Samriddhi Scheme if you do not want to take any risk at all. This will provide security of assured returns.

The overall returns generated

It is your responsibility to keep a track of your investments. The investment segment focused on your child’s higher education should generate a certain percentage of return annually. The return is crucial to the creation of the corpus. Hence, if any of the funds are under performing then you must consider switching funds or making additional investment to compensate for it. The overall return generated is crucial to the corpus your child will require for the higher education purpose.

Taxability of the income and returns

Let us assume that you have invested in fixed deposits and along with the principal and the interest accumulated you have created a corpus for your child’s higher education. However, when you are about to withdraw, then the gains are taxable or treated as an income and you have to pay an income tax according to your income slab. After the tax deduction you have fallen short of the predetermined amount. Hence, while determining the goals, you must take possible taxations into consideration.

On the other hand, if you invest in equity oriented mutual funds or balanced funds then the long term capital gain is totally tax free

Education in India: The Present and the Future Costs (INR)

In the graph and table above the present and the probable future cost has been portrayed. Now you are beginning to understand the cost you will have to bear in future. This situation presents you with two options: yes and no. Yes, you could save and afford the cost in future. No, you can not afford the cost and that will only make your child’s future darker. The most important question that arises here is that of affordability. Can you afford these educational costs in future? Our answer is, yes! But with the right investment options and perhaps starting little early. As an investor it is crucial to be aware of the future value of your portfolio. Let us explore some options that you may employ to create the corpus for your child’s education.

Mutual Funds: Is it the best Option?

Mutual Funds are one such investment that caters to all kinds of investor with varied financial temperament. While you are looking into ways to create a corpus for your child’s future this option is worth exploring and investing. If the age of your child is less than ten years old, you are in a stage where you can take risk. Hence, investing in Equity funds tend to generate higher returns. While, it is often considered to be risky, the long time period reduces the risk. Equity Link Savings Scheme (ELSS) might be a good option as it is an investing and tax saving option, both. You can also invest through Systematic Investment Plans (SIP) which allows you to invest a stipulated amount weekly, monthly or quarterly while allowing the corpus to grow slowly and steadily. SIPs also helps you in rupee cost averaging as you ride through the market cycle during the investment period.

It is also possible that you started late or have been consistently investing in traditional forms such as fixed deposit or recurring deposit. You may have realized that the required amount will not be available by the time your child is ready for higher education. In such a situation you will require security and returns. Balanced funds are ideal in such a scenario because it provides exposure to equity up to 65-70% and provides security upto some extent by investing the rest 30-35% in bonds. Therefore, this ensures high returns with moderate risk.

Planning for your child’s future is an important long term plan. Retirement is also one of those long term plans which require a hefty corpus. The corpus of both the plans cannot be compromised with. You child needs to study in the college he/she wants to graduate from and you need to maintain the lifestyle that you have been acquainted to. Hence, compromising one plan to make up for the other goal is not an ideal situation. Given below is a hypothetical scenario where if an investor invests 10,000 INR monthly with certain expected rate returns and what the expected corpus will be like. The table below is an illustration of the power of compounding. It reflects the various possibilities and the future value of 10,000 INR monthly investment.

Debt Instruments

As an investor you have a moderate risk appetite or believe in being risks aversive then you have the option of investment in debt instruments such as Public Provident Fund. PPF launched by the Government of India primarily invests in corporate and government bonds and securities. This ensures moderate returns along with security. The PPF has a lock in period of seven years. Hence, this must be kept in mind while you are saving for your child’s education. The period of lock in should not clash with your time of withdrawal. Lets now look at the returns of PPF from the below chart. For example - If you invest Rs. 150,000 per annum you can generate a corpus of 46.76 Lacs in 15 years.

Comparison of PPF vs Equity or Balanced Mutual Fund investment through SIPs

As you can see in the above chart, you can accumulate Rs. 46.76 Lacs by investing Rs. 150,000 every year for 15 years. However, if your invest the same amount thru SIP ( Rs. 12,500 per month = Rs. 150,000 per annum) in a balanced fund you can accumulate as much as Rs. 84.61 lacs (at an assumed rate of return 15%). The difference is huge, almost Rs. 37.85 Lacs

Sukanya Samriddhi Scheme (SSS) is another scheme that invests in debt. This scheme can be availed by investors who are parenting girl child. The return on the scheme is declared every year by the Reserve Bank of India. The return for 2015-16 stands at 9.2%. The biggest advantage of this account is it allows the girl child to take control of the account. The account matures when the girl child turns 21 and the corpus can only be transferred in a bank account under her name. This scheme allows moderate risk and moderate returns and is a good choice for risk aversive investor. You can accumulate as much as 75 lakhs INR at the end of 21 years if the investment is done on a monthly basis. If the investment is done on a lump sum basis i.e. paying 1.5 lakhs INR at one go you can accumulate up to 79 lakhs. The future value of the investments may increase or decrease depending upon the change in the interest rate. Interest rates are declared every year by the RBI.

Life Insurance

An untimely death can lead to loss of income and put the child’s future at risk. Parents should buy adequate life insurance through term plans to secure the future of their children. They should ensure that the sum assured covers not only the income needs of the family in the event of an unfortunate death but also the future goals of their children like higher education and marriage.

Conclusion

One always expects the best from their children. As parents you push them to work hard and aim for excellence. However, the same needs to be reciprocated by you. A shortage of funds, when you could have created a corpus, is not an excuse to deny your child the best education. Do not fool yourself by thinking that your child is too young and you will utilize this time to focus on other life goals. Start early to avoid shortages and make the best out of your child’s life.

SOURCE : Advisorkhoj

What is Gold Monetization Scheme?

The Union Finance Minister ,Arun Jaitley, in Budget 2015 announced several steps for monetizing gold. These are as follows:

>Gold Deposit Scheme –Gold Monetisation Scheme or  Gold Deposit Scheme. This scheme will replace the existing Gold Deposit and Gold Metal Loan Schemes.

>Sovereign Gold Bond – a Sovereign Gold Bond, as an alternative to purchasing metal gold.

>Gold coins with Ashok Chakra – Government will introduce Indian Gold Coin, which will carry the Ashok Chakra on its face.

Why were the Gold Monetization Schemes announced?

Indians are among the world’s largest consumers of gold, importing at least $34.3 billion worth of the precious metal for the fiscal year ended March 31, 2015 . India imports as much as 800-1000 tonnes of gold each year. Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded, nor monetized.

The gold monetization scheme aims to encourage Indians to vest the gold in their possession with banks and earn interest on it.

Do Indians love Gold?

Yes . Indians adore gold. Newly wed brides are given enough jewellery. Peasants store their pitiful savings in trinkets and tycoons with broken balance-sheets offer gold at temples in return for redemption. As per Karvy Wealth Report of 2014, Comparison of how Indians invest compared to rest of World is given below.

Individual Wealth-India versus World

Why do Indians love Gold?

From rural Indian housewives and the 27-year-old wannabe bride to those who generate black money, gold is not merely a store of value or an international currency -– it’s part of a way of life, a showing-off of wealth, status, position, etc, besides its safe haven status in time of need. For centuries certain Indian festivals have been the time for splurging on gold. Festivals such as Akshay Trithiya and Dhanteras are considered auspicious times to buy the precious metal. Proponents of modern finance consider gold as an archaic investment c. Modern finance with its sophisticated tools,everything is a click away, is used to make savvy investments these days. But millions of Indians don’t understand yields and much of the financial jargon.They don’t understand how to invest like Buffett or others and make more money.

What they do understand is that they have to buy gold and pass it on to their children. They do understand gold will have some value in dire times. They do understand that gold is a traditional unit of value and will always remain so. And so they will keep buying, even if it’s just a little. And it’s easy to buy and sell gold. Opening a bank account in India is difficult. Gold, on the other hand, is widely accepted without any documentation. It is also a fine way to store wealth without paying tax—along with property,. The only thing that might keep Indians from gold is if the metal is abundantly available and if there’s a prolonged slump in its price.

Indians invest primarily in Fixed Deposits, Equity, Saving Deposits and very less in Mutual Funds.


What is the Timeline of Gold Monetization Scheme?

>Announcement was made in Budget 2015.

>The government put out a draft on 19 May for comment.

>The last date for submitting comments on the draft was 2 June.

How will the Gold Monetization Scheme works?

>One visits the  purity testing centres which will tell the approximate amount of pure gold. Our article Understanding Gold:Purity,Color,Hallmark explains purity of Gold in detail.
>If one agrees to the amount as valued by the centre, one will have to fill up a bank/KYC form and give consent for melting the gold.
>The purity centre will then clean the dirt, studs, etc from the ornaments. The studs will be handed-over to the customer the jewellery will be melted.
>If one decides to take back the gold, one can do so in form of gold bars after paying a nominal fee.
>If  one agrees to deposit the gold  a certificate by the collection centre certifying the amount and purity of the deposited gold will be given.
>With this certificate, one opens a Gold saving account and credit the quantity of gold into this account for a period of 1 year and renew thereafter.
>The bank will pay an interest after 30/60 days of opening of the Gold Savings Account. Both principal and interest to be paid to the depositors of gold, will be valued in gold. For example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 gms
>On maturity, one will have the option of redemption either in cash or in gold.
>One will get exemption from Capital Gains Tax, Wealth tax and Income Tax, etc.

What are the Benefits of Gold Monetization Schemes for the Banks?

>Banks can have another stream of income through Gold Monetisation deposit scheme.
>Banks have the freedom to set their own interest rates on the gold deposits.
>Banks can also use the deposited gold to make coins and sell them to the public.
>Banks can lend the gold deposits to Jewellers at higher rates and earn margin (income).
>There is also a proposal to allow the banks to use the deposits to meet statutory requirements like CRR & SLR.

Has such Gold Monetization Scheme been introduced earlier and what happened?

Morarji Desai in 1960s launched the various acts related to Gold.

>In 1962 the border dispute with China accentuated the FX reserves.  Morarji Desai, then finance minister of India, came out with Gold Control Act 1962. It recalled all gold loans given by banks and banned forward trading in gold.
>In 1963 production of gold jewellery above 14 carat fineness was banned.
>The gold bond scheme was launched with tax immunity for unaccounted wealth in 1965.

All these steps failed to yield results. Morarji Desai finally launched Gold Control Act 1968. It prohibited citizens from owning gold in bars and coin form. Goldsmiths were not allowed to own more than 100 grams of gold for jewellery making. Licensed dealers were not supposed to own more than 2 kg of gold depending upon the number of artisans employed by them. They were banned from trading with each other.

Morarji Desai believed that Indians will respond positively to his steps and stop consuming gold. What happened thereafter was unexpected. Demand for gold remained firm. Gold smuggling became the order of the day accounting between 30-70% of actual imports as per unofficial estimates.

Has Gold Monetization scheme worked somewhere?

Yes in USA. The US followed silver or gold or a bimetallic standard since 1785. During the Great Depression the US needed to print more dollars to reflate their economy. To print more dollars, the US needed more gold which was in short supply. Any buying by the US would have pushed gold prices higher. Franklin Roosevelt, president of the US in 1933, issued an executive order no. 6102 prohibiting private holding of gold. Not only he banned fresh purchases but also ordered Americans to give away their private holding to government at below-market prices. After a lot of hue and cry, he raised the purchase price to market levels. He created enough deterrent in the form of severe penalty of $10,000 (in 1933) or ten years in jail. Americans responded positively partly by patriotism and partly by the fear of the law.

Will the fate of the Gold Monetization scheme be different from that of its older version?

Only time will tell. The proposed scheme is aimed at monetising idle Gold held by households and institutions, provide a fillip to the gems and jewellery sector and reduce reliance on import of the metal over time to meet the domestic demand.

Source : bemoneyaware