Month: March 2018

Factors to Consider before applying for a Home Loan

Factors to Consider before applying for a Home Loan

Before applying for your home loan you should keep in mind some vital factors such as

  • Rate of interest

Interest rate determines the amount of EMI you will pay. Select a viable percentage which doesn’t pinch your pocket too much and moreover, doesn’t eat up all your income. Home loans generally have 2 kinds of interest rates i.e. fixed and floating. In case of fixed, the rate of interest doesn’t change whereas in floating, it fluctuates as per market conditions and change in government policies. Consumers have an option of switching from fixed to floating or vice versa at any point of time during their loan tenure. Nonetheless, banks may charge a fee for the switch or in some cases the facility might not be available in your chosen home loan. Always clarify these doubts to avoid any hassles later. In addition, it is a good idea to get your credit score from CIBIL prior to applying for a home loan to receive competitive rate of interest and higher financing.

  • Processing fees

Each home loan lender charges a certain amount of processing expenses for carrying out the necessary documentation of your loan. This fee is generally 0.25% to 2% of the loan sum. Although it seems like a small amount, it can increase your home loan expenditure considerably. Some banks offer schemes in which the processing charges are waived in order to draw more buyers. Try and look for banks which levy minimum or no such fees.

  • Documents required

Apart from the basic application form, most home loan companies ask for documents such as residence and valid photo ID proof, bank statements, salary slips, income tax returns, processing fee cheques etc. However, it might vary at times so it’s suggested that you verify if there are any other documents which need to be submitted. Incorrect/late documentation can hamper the loan approval process.

  • Sanction Period

Usually, home loan approval takes approximately 5-7 days if all the documents are correct. But this duration may vary for different banks. Do some research online or speak to friends who have opted for home loans and understand which bank has a good reputation and efficient disbursement.

Using Loan EMI Calculator, Check your loan eligibility and prepare loan repayment schedule.
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Growth & dividend options in Mutual Fund

Growth & dividend options in Mutual Fund

What are the options available to a mutual fund investor?

There are three primary options available:

  • ‘growth’,
  • ‘dividend’ and
  • ‘dividend reinvestment’.

If no choice is exercised at the time of application, the fund house will select the default option for that scheme as mentioned in the application prospectus.

How does the dividend option work?

Under this option, you will get paid from the profits made by the fund. Most debt schemes aim to pay a monthly dividend. In the case of equity-oriented schemes, a dividend is declared as and when there is a surplus. An important point to note: dividends in mutual funds are not guaranteed. In the dividend reinvestment option, dividend is not paid to the investor, but is used to buy more units of the same scheme.

What happens to the NAV when dividend is paid?

This dividend gets deducted from the net asset value (NAV) of the scheme. For example, if your scheme has an NAV of Rs 25 and the fund house declared a 10% dividend (Rs 1 on a face value of Rs 10 per unit), the NAV will decline by Rs 1 to Rs 24 after paying the dividend. The NAV goes down to the extent of dividend paid. Investors, who need a regular income, choose this option. Also, in case of dividend reinvestment, the NAV of the scheme declines after the dividend is paid.

What happens under the growth option?

In this option, the scheme does not pay any dividend but continues to grow. If the fund buys or sells stocks and makes a gain, the amount is reinvested into the scheme. This gain is captured in the NAV, which rises over time. If your aim is to build long-term wealth, then the growth option would be the right choice.

Using SIP Calculator, To prepare a plan and illustration of your investment.
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Mutual Funds across Market Caps

Mutual Funds across Market Caps

Large-cap funds, mid-cap funds and small cap funds. In this the word ‘cap’ refers to the market capitalisation, or the size, of a listed company.
Large cap funds

  • Invest a larger proportion of their corpus in companies with large market capitalization. Such companies typically have generated wealth for their investors slowly and steadily over a long term.
  • On the risk-return spectrum, large-cap funds deliver steady returns with relatively lower risk, compared with mid- and small-cap funds.
  • They are ideal for investors with lower risk appetite.

Mid-cap funds

  • Mid-caps are those that they lie between large-caps and small-caps in terms of company size. During a bull phase, mid-cap stocks may outperform their large-cap counterparts, as these companies seek to expand by looking out for suitable growth opportunities.
  • Mid-cap equity funds are advised for investors with a higher risk tolerance than large-cap investors.
  • So, invest in these schemes if you seek higher capital appreciation, albeit with reasonably higher risk.

Small caps funds

  • Small-cap stocks typically have the highest growth potential, since the underlying companies are young, and seek to expand aggressively.
  • They are more vulnerable to a business or economic downturn, making them more volatile than large and mid-caps.
  • Investors who possess the high risk-taking capacity can look to invest in small cap funds.

 

Fund market capitalization What are they? Risks Ideal for
Large-cap funds Invest in large firms. Endeavor to provide better capital appreciation over a long term and distribute dividend fairly regularly. As they are financially strong, they are capable of withstanding bear markets. High Risk. May under-perform the small- and mid-cap funds during a bull market. Risk-averse investors, who want equity exposure to high-quality stocks, and have a long-term investment perspective.
Mid-cap funds Invest in medium-sized companies that are actively seeking investment opportunities for expansion. High Risk. Mid-caps are more volatile than large-caps. Investors with a greater risk-taking ability compared with large-cap fund investors, who want to capture the price gains during a bull market.
Small-cap funds Invest in small-cap companies, which may have higher growth potential High Risk, Prices have greater volatility compared to both large-caps and mid-caps. Investors with high risk appetite and higher return expectations
Different Types of Mutual funds

Different Types of Mutual funds

What are the different types of Mutual funds?

Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over the medium to long-term. The returns in such funds are volatile since they are directly linked to the stock markets. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds.

Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant for risk-taking investors who are not bullish about any particular sector.

Sector funds
These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector.

Index funds
These funds invest in the same pattern as popular market indices like S&P 500 and BSE Index. The value of the index fund varies in proportion to the benchmark index.

Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this scheme are in the form of tax rebates U/s 80c. They are best suited for investors seeking tax concessions.

Debt / Income Funds
These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.

Liquid Funds / Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods.

Gilt Funds
These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk.

Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.

Hedge Funds
These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.

 

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How to claim maturity benefits from life insurance policies

How to claim maturity benefits from life insurance policies

In a life insurance policy with maturity benefits, the insured will be entitled to claim maturity benefits if he or she outlives the term of the policy. The insured is entitled to claim the maturity benefits only when the policy is in force and all premiums have been paid duly. A maturity claim is one of the simplest claim procedures with minimal paperwork involved.

Policy discharge form

Typically, the insurance company sends a Policy Discharge Form about one month before the maturity date of the insurance policy. The letter also provides instructions regarding the documents that need to accompany the form.

Details and documents

The policy discharge form must be duly filled by the policyholder. The form needs to be signed by the policyholder as well as two witnesses. Along with the form, the following documents need to be enclosed with the application:

  • Original policy document
  • Copy of identity proof
  • Copy of address proof
  • Bank mandate form with bank details
  • A cancelled cheque leaf

The duly completed form with required documents must reach the insurance company at least 5-7 working days before the maturity date of the policy for a seamless maturity claim settlement.

Process

Once the documents are sent to the insurance company, upon verification, the insurance company will process the maturity claim and make the payment to the policyholder. The maturity proceeds will be credited directly to the bank account of the policyholder after the policy maturity date.

Points to note

  • This procedure is applicable only to those policies that have maturity benefits such as survival benefit, bonus etc.
  • In case the policyholder dies after the maturity date of the policy but before policy discharge procedures are completed, the claim is considered as maturity claim and the amount is paid out to the legal heirs of the deceased policyholder.

 

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How to choose a term insurance plan

How to choose a term insurance plan

How to choose a term insurance plan

Term plans are the best form of life insurance because they offer high cover at a low price. A 30-year-old man will pay just Rs 700-800 a month for a cover of Rs 1 crore for 30 years.
That’s roughly what one spends on one movie outing with friends. However, the costs alone should not be the criterion when choosing a term plan. Here are a few things you ought to keep in mind when you go shopping for one.

How big is the cover?

An inadequate cover defeats the very purpose of buying insurance. The sum assured must be large enough to generate enough income to cover the basic expenditure that your family will incur as well as provide for crucial financial goals such as the education and marriage of children. It should also cover liabilities like loans, especially big-ticket borrowings like home loans. Take a large cover that provides for all these needs and also factors in in inflation in the coming years.

How much does it cost

For younger buyers aged 25-35 years, the daily cost of Rs 1 crore cover till the age of 60 is no more than the price of a soft drink.

* Premium of Click 2 Protect online term plan from HDFC Life Insurance for male non-smoker

How long is the tenure?

The tenure of the term plan is almost as important as the amount of cover. An insurance policy should cover a person till he intends to work. Till a few years ago, this was 60 years, but late marriages and having children in the late forties mean responsibilities do not end at 60.

Experts believe a person needs a life cover till at least 65 years, though it may vary according to circumstances. Don’t take a 15-20 year plan that will terminate when you are in your 50s. This is a critical period when the person’s insurance needs are highest. At that age, a new policy will cost him a bomb. He might even be denied the cover if he is not keeping good health. Buy a cover till the age of at least 60-65 years.

Have you lied about your health?

Insurance companies charge a lower premium if there is no history of medical problems in the family and if the person doesn’t use tobacco or drink alcohol. It is easy to say no to all these and get a lower premium, but people who keep their medical problems under wraps or conceal their social habits are playing with fire.

If the insurer finds out that you withheld crucial information on your health or lied about your smoking and drinking habit, the claim by your nominee may get rejected. Every year, about 2% of the claims received by life insurance firms end up in the trash can. Don’t let a difference of a few thousand rupees in the premium jeopardise your insurance cover.

How stable is the company?

An insurance policy is a long-term contract, but there are indications that a few insurance companies may not be around for the long term. The sector is going through a bad phase and several foreign partners have either sold off their stake or are looking for buyers. There is a possibility that loss-making companies may be taken over by larger players. Though the insurance regulator will ensure that all policies are honoured by the new owners, it’s best to choose a company that is doing well and is not likely to shut shop.

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What is a Fixed Deposit?

What is a Fixed Deposit?

An investment of a certain amount of money with a bank or a non-banking institution such as a Housing Finance Company for a fixed period of time, at a fixed rate of interest.

What is the minimum and maximum tenure of a Fixed Deposit?

You can open a Fixed Deposit for a minimum tenure of 7 days and a maximum tenure of 10 years

Are Fixed Deposits taxable?

The interest that you receive on your Fixed Deposit is taxable. You can submit Form 15G to your bank.

How do I receive the interest amount?

Pay-out : The interest amount is credited to your bank account on monthly or quarterly basis.
Compounding: A compounded interest is added to the principal amount of the fixed Deposit every quarter and is reinvested.

Are there any tax benefits?

Banks also offer tax-saving Fixed Deposits that have a lock-in period of 5 years. You can claim tax deductions under section 80c of Income Tax act.

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