Transfer from EPF to NPS

Need/Benefit of switching EPF to NPS

EPF and NPS both are the retirement saving scheme and have a provision of pension. Then, what is the need for EPF transfer to NPS? I am listing the reason.

Shift to a government company

 When you work in a private company, you have to subscribe to the EPF. But if you switch to the government department, you have to contribute to the NPS. In this case, your EPF balance is not used for retirement saving. Often you have to withdraw it citing unemployment for 2 months. Also, EPF withdrawal may be subject to tax if you have not completed 5 years in the private job.

Want Better Return

EPF is designed to give a retirement corpus to organized sector workers. It tries to keep your investment safe along with a decent return. Whereas NPS gives you a chance to get a better return with some risk. It invests a greater proportion in the share market. That is why NPS may be a better option for those who want to build wealth by taking some risk.

More Transparency

Normally EPF gives more return than the bank deposit. However, you don’t know how did EPF earn. where it invests? Whereas in the NPS, every investment is transparent. You know the mutual fund plans where your money is invested. Every week you get to know the NAV of your mutual fund plan.

Active change of Portfolio

If you want to actively manage your retirement corpus then NPS is a better option. In the NPS you can change your asset allocation twice in a year. Thus you can affect the return of your NPS investment. It is not possible with the EPF.

Extra Tax Benefit

The government has given the extra tax benefit to the NPS (80CCD-1B). You can get an extra tax deduction of up to 50 thousand because of the NPS. This tax deduction of 50 thousand is over and above the 80C limit.

Issues of transferring EPF to NPS

EPF to NPS switch was not very easy. It is not like transfer of money from one account to another account. Following are the hurdles of this switch.

  1. EPF withdrawal before completing 5 years in service becomes taxable. The EFPO deducts tax before giving you the corpus.
  2. EPFO does not permit premature withdrawal. Neither it recognizes the withdrawal for NPS.

The given process Involves only acceptance of EPF corpus into an NPS account. The PFRDA has released these steps.

Open NPS Tier-I Account

To receive the EPF amount, you must have an NPS account. You can open NPS account through your employer. Those people who don’t have an employer or NPS facility with them can open an NPS account through the POP. There are many POPs available. An online NPS account opened through the e-NPS is also eligible for getting the EPF balance.

Submit Request To Employer

If you are a government or private sector employee, you have to approach the recognized provident fund or superannuation fund. It can be done through the employer.

EPFO or Trust Would Process Application

The provident fund or superannuation fund initiate the fund transfer process. After the due process, it would release the EPF corpus.

Cheque or DD Issuance

The cheque or demand draft would be issued in the name of either of the following.

In the case of government employee: Nodal Office Name (PAO or CDDO Name)<>Employee Name <> PRAN

In case of Subscriber is a private employee or self-employed:  POP collection account-NPS trust <>Subscriber Name<>PRAN

Get Letter of EPF Transfer

The EPFO or Trust would also issue a letter telling about the EPF to NPS transfer. You have to get this letter and submit to the present employer or POP. This letter is a proof that your lump sum NPS contribution belongs to the EPF account.

The Contribution into NPS account

Once you submit the EPF transfer letter along with the cheque, the NPS nodal office or POP updates your NPS account with the latest contribution.

Points To Note

The EPF transfer amount would not be eligible for the tax deduction as it is not the original investment. It is just a transfer so does not enjoy any extra tax benefit.

You must have an active NPS account. The EPF transfer amount would go into Tier-I account.

The EPF transfer amount should be routed through the employer or POP-PS. The NPS subscribers have to go to POP-SP for submitting EPF cheque/DD.

Unlike EPF, you would not get the whole corpus after the retirement, rather you would get only 40% amount. The 40% -60%  amount would be used to give you a regular pension. You can get 20% of the amount in 10 installments to the age of 70.

Salary - 11/21/2018
writing-notes-idea-conference

Lesser known facts about Employee Provident Fund (EPF)

We have discussed the basic of EPF.

Listed below are the specific rules regarding EPF for your reference.

You can increase the contribution to EPF

You can contribute more than 12% mandatory contribution to your EPF account. You can contribute up to 100% of your basic pay if you want but the employer is under no obligation to match your EPF contribution. You will get the benefit of your personal contribution (in excess of the basic limit) in section 80C of the Act. All other rules of EPF will apply to the additional contribution.

EPF withdrawal is taxable

The investment in the provident fund is tax-free. According to the rules of EPF, the maturity proceeds and interest on it are tax-free. We take the tax benefit of EPF contribution. We never think of the tax on EPF Withdrawal amount.

If you try to withdraw the EPF balance before 5 years, you must pay back the tax benefit, you had availed at the time of investment. EPF  will deduct the TDS on the withdrawn amount before depositing the same in your bank account (where money is withdrawn before 5 years).

An employer cannot withhold your EPF balance

After resignation, many employees leave the company without serving the notice period and sometimes on a bad note with their employer. In such a situation, the EPF balance is the only handle to arm-twist the employee. Some employer’s never forward the PF withdrawal form to the regional PF office.

The Employer has no right to do so. The Rules of EPF say that an employer can never withhold the EPF balance. The money never remains with them. The employers are the mere facilitator of the EPF scheme. The erring employer can be also punished for this behaviour.

You can withdraw your EPF balance without the signature of the employee. You can do the same by taking signatures and other formalities from the banker.

You cannot withdraw 100% of your EPF corpus

You can withdraw the EPF corpus if you have been unemployed for 2 months. But this withdrawal would not be for the full amount. The is a new rule of EPF withdrawal. Now, you can withdraw only your contribution to the EPF and interest on it. The employer’s contribution and interest will remain in the PF account till the retirement age  (58 years).

You can opt out of EPF

We generally think EPF is a mandatory contribution. However, this is not the case. EPFO guidelines say that if an employee’s salary is more than INR 15,000 per month he/she can avail the option of not being a part of the EPF scheme. If this scheme has opted, the entire salary is paid out to the employee, without any deduction, towards EPF every month.

Having said that, it is important to note here that an employee has to opt out of Provident Fund at the start of his job and if he/she is part of EPF programme even once in his life, this option of opting out stands null and void.

EPF provides life insurance as well

A lot of people are not aware of this benefit. Let us explain how this works. If a company does not provide insurance coverage to its employees under the group life insurance plan, then the companies are required to contribute 0.5% of monthly basic pay towards Employees’ Deposit Linked Insurance (EDLI) scheme. This contribution is capped at INR 15000. Companies that are already covering employees for insurance are exempted from this plan of EPFO.

Check your personal details with EPFO

Many times people realize at the time of withdrawal or transfer of EPF that incorrect personal details are submitted with EPF. In such cases, you must check and rectify the same while creating an account with the UAN. You must inform your employer to get the same updated.

We will be posting a detailed article on how to change the same through UAN.

Salary / Tax - 11/21/2018
pexels-photo-226579

How to do goal based investing

Setting up a goal is something that no one does these days. I am asking you all to set a financial goal.

Every time I ask someone – Why are you investing? What is the purpose of your investment? 90% people will answer to grow my surplus money.

I have money lying in my bank account. I am just spending too much. I thought it was time to start investing.

My next question is ‘for what do you want to grow your money?’ Their answer is to become rich or help in a financial need or to travel. Travel is a more focused goal but becoming rich? Isn’t everyone working to become richer than what they are today?

In cases, where your goal is more focused and clear, you will be in a better position to achieve it than your investments where it is not.

When you know where you are going, you are halfway there.

I know it is extremely difficult to sit with a pen and paper and jot down your financial goals. However, the difficulty of the process does not reduce the importance of the same.

I have listed below a step by step process of identifying your goals, requirements, money that you need and the products into which you must invest to achieve your goals.

What do you want to achieve in life?

I am sure you have been asked this question by various people ‘What do you want to be when you grow up? Where do you see yourself in 5 years? What do you want to do in life?’ These are all your various goals that people want to know.

What are the things that require money to be achieved – i.e. financial goals?

Yes. All goals need money but all goals are not financial goals. Wanting a promotion at work, Best in your field, learn a new hobby or activity are all personal and professional goals which does not require too much investment or any investment of money from your end.

Owning a  house, traveling to Europe, buying that car, your child’s post-graduation are some examples of goals which require a huge investment of money from your end and are called financial goals.

Hence, make a list of all your goals and from that highlight your financial goals.

Prioritise your goals - difference between Need and Wants?

It is very important to prioritise your goals based on its importance and requirement.

Needs are such things that you cannot do without and cannot be canceled, such as your child’s education or your first house.

Wants are things which you desire but can do without them such as a vacation, your second home etc.

Segregating your goals into needs and wants will help you prioritise them better. All the needs can them be numbered based on their importance followed by your wants.

How much money do I need today to achieve these goals?

Once you have made an entire list of your goals and sequenced them, you must identify what is the cost of achieving those goals. For example, if your goal is to buy a car, you must identify which car you want and how much would it cost. 'I want to buy a car like I20 and it would cost me 7 lakhs INR today' - this a well-defined financial goal.

Where you are estimating the cost of goal because you do not have an exact basis to calculate it, always consider the amount on the higher side.

By when should I achieve these goals?

The fact that it is a goal, it means it is futuristic and you do not have sufficient means to achieve it today. Hence, you must identify and apportion a realistic timeline towards your goal.

For example, I want to buy a car in next 2 years.

  • Goals less than 5 years: Short-term goals
  • Goals between 5 years to 10 years: medium-term goals
  • Goals more than 10 years: long-term goals

Adjust the Inflation

Given that goals are a futuristic, the current cost that we have associated to our goals will obviously increase in the future because of inflation. Identify the inflation rate towards your goal. The inflation rate is not the same for all types of goals; it varies depending upon the market conditions and the goal.

After knowing the inflation rate and the current cost, you will be able to compute the future value of your goal.

It is very important to identify the correct inflation rate. If you take a lower inflation rate your goal will cost you more than what you estimate and if you take a higher inflation rate, the future cost may scare or reduce your confidence to be able to achieve the goal.

Asset allocation based on the goal, cost, and tenure

Once you know your goal and its value, it is time to identify the investment products.

The tenure of your goals will help you to identify what asset class you must invest in and in what ratio.

  • The term is less than 5 years – 100% Debt
  • The term is 5 years to 10 years – 40% Debt 60% Equity
  • The term is more than 10 years – 30% Debt 70% Equity

This is a very general method of asset allocation. It may vary depending on your risk taking capacity and ability. Hence, it is important to analyze the same for oneself.

Portfolio Return Expectations

Return expectation from each class of the asset is as follows:

  • Equity: 12%
  • Debt: 8%

You will have to invest money in your goals based on the tenure and asset allocation. Each goal will not have one investment but may consist of many investments some in equity and others in debt. Hence, it is important to compute the return expectations for the entire portfolio, to be able to compute the exact amount you must invest to achieve your goals.

For example, my goal of buying a car is a mid-term goal, my asset allocation will be 40:60.

My portfolio return will be (40% * 8%) + (60% *12%) = 11.2%

How much money to invest?

This is the most crucial part, the entire computation of the above working will lead to identifying how much money you need to invest to achieve your goals.

There are various ways of investing but it is better to do it in a systematic manner. You can invest as a monthly fixed investment amount or invest annually with a fixed percentage of investment increasing per annum.

SIP - 7900 per month invested for 7 years will give you a return of 10,14,000 @11.2 %.

Lumpsum-

This method can be a bit complicated when followed step by step especially the last step of computing the actual amount that one needs to invest to achieve their respective goals. However, it is the most defined way of achieving your goals. There are many software used by us - financial advisors where the software does the same calculation for us. When you will sit with an honest financial advisor, the first thing that they will ask you is to define the goal. There is no plan without a goal and hence, such a working is extremely important for your financial planning.

Investments / Money tips - 11/15/2018
man-person-legs-grass

Switching of Mutual Funds - Direct plan to Regular plan

Switching of mutual fund schemes means a change from a direct plan to a regular plan, a growth plan to a dividend plan in the same fund. Switching of mutual fund means to change the mutual fund option. There is this concept of buying and selling, switching makes this change in the option simpler. It is important to know the cost & process associated with it and then take an informed decision.

It is important to note that one can switch from regular to direct plan but vice-versa is not permitted. However, growth to dividend and vice versa can be done.

We have discussed on what is the process to switch between direct to regular plan or a growth plan to dividend plan.

How to switch?

If you are registered for online mutual fund transaction with individual AMCs –

  1. Login to your mutual fund account. The account can be either online transaction facility provided by individual mutual fund house or through direct online mutual fund platforms provided by CAMS, KARVY, MF Utility etc.
  1. Go to transaction page which allows you to purchase/switch/redeem fund. Choose the switch option and select from the ‘switch from’ drop-down the fund name you want to switch.
  1. Select the same fund name in the ‘switch to’ option and make sure the fund name has ‘Direct Plan’ written at the suffix.
  1. Re-login after four days to check if the switched investments have ‘Direct Plan’ as suffix.

If you don’t want online access

  1. Visit the mutual fund office.
  2. Ask for common transaction - Switch form.
  3. Fill in the required details with folio no. and the right fund name.
  4. Sign and submit the same.
  5. You will receive an account statement to your registered email id after the switch is processed.

If you are registered through broker/ distributor /demat form

The switch to direct fund won’t be possible if investor has transacted from online platforms such as ICICI Direct, Funds India, Birla – Myuniverse etc. or held mutual fund in demat form. One needs to activate online transaction at individual AMCs OR process it offline through forms. Both the ways are explained above.

                                                               Switching between mutual funds can get you gains if done properly otherwise the costs are too high to opt for the same.

The cost of Switching Funds

Even though the fund value is switched to the same fund, such transaction (change from regular to direct) is considered as selling of old investment and buying new ones and would be charged accordingly. Two main costs involved are to be considered while switching of mutual funds.

  1. a) Exit load – Exit load is the charge of redeeming the mutual fund prior to the ideal fund investment horizon. For equity-oriented funds, this is typically charged as 1 percent of the redemption value if redeemed before one year of investment and no exit load thereafter. For debt oriented funds, the exit load ranges from 0-2 percent and depend on the type of fund. Thus, to avoid such charges, one must ensure that the fund has no exit load or hold on to the fund till there is no applicable exit load.
  1. b) Taxation – Switching funds will have tax implications which are as per regular capital gain taxation. With the change in tax laws, for equity oriented mutual funds, now after 1 year, long term capital gains tax rate of 10% will be levied on the gain amounts more than INR 1 lakh and if done prior, the gains will be taxed at 15 percent or as per slab rates.

In case of debt funds, short-term gains i.e. of less than three years holding period will be taxed according to the tax slab and if switched after three years of holding, the gains will be taxed at 20 percent with indexation benefit.

The cost associated with switching funds would also remain same in case of any kind of switching.

When to switch?

The switch should be made only when you are looking at long term investments (investing spanning for more than 7 years). The cost associated with the switch is not worthy for short term investments.

You must only go for a direct mutual fund option when you are sure that you would be able to manage your portfolio and your investments. Growth or dividend option depends on your requirements, where you need some money on regular intervals you may opt for dividend option, otherwise, growth is always preferable option.

A few points to note

  • In case an investor wishes to switch current SIP investment in to a direct plan, the investor needs to stop the SIP and restart it in a direct fund. For SIP do not go for switching.
  • It is recommended that the accumulated amount should be switched only if there is no exit load or tax involved (switch upto gains of 1 lakh each year). Do your cost benefit analysis before taking that decision.
  • Investor can verify if fund has been switched to direct plan/growth plan/ dividend plan once the new account statement has the terms written as a suffix to the fund name or other name into which it is made.

Also, it is important to communicate with your advisor if you have a considerable investment in your long-term portfolio. As discussed many times, a genuine financial advisor will surely promote and help you with the process of switching to direct plan if he/she places client’s interests first.

Mutual Funds - 11/15/2018
active-vs-passsive

Passive vs Active Investments

Have you heard about Index Mutual Funds? Are you aware of the concept? We have discussed the same below Active Fund Mutual funds are distinguished into 'active funds' and 'passive funds. Active are those funds where fund manager plays a bigger role to ensure that the fund earns more than the set benchmark. For example, most equity funds will have either the Sensex or the Nifty index as benchmarks. The fund managers believe they have the ability to select stocks and time the market in a manner that makes the returns on their portfolio higher than what the market gives over a specific period of time. Passive Fund Passive funds are also called as 'index fund's. And as it goes by name, the only aim of these funds is to mimic an index. These funds invest only in scrips that are a part of the index and in exactly the same proportion as they are in the underlying index. For example, a passive fund on the Nifty index will buy all 50 stocks in the Nifty in the same proportion as are held by the Nifty. Each time a stock is taken out from or added to the index, the fund will do the same. On a day-to-day basis, this makes lesser work than managing active funds. Investors can expect almost the same return as the index though there will be a small difference between an index fund's performance and that of its benchmark. This is called tracking error because of the various cost it incurs (brokerage, advertising, marketing, etc.) and the small cash component that every index fund keeps to meet redemptions.
                                                                                              Active or Passive? Which one do you intend to choose?
Should you select ACTIVE OR PASSIVE Funds? The costs in a passive fund are lower than an active fund due to the lower churning of the portfolio and no research required to run such a fund. Typically Index Funds have a fees of 1% of the Assets Under management(AUM). The fees charged by Active Funds vary from 1.50% to 2.25%. As an investor, you need to see if the higher expenses are justified by higher returns from the Active fund because over a long period the higher expense ratio can have a large impact on your returns. The level of risk in investing differs from one fund to another based on their investment objective. Active funds are more risky compared with passive funds since you are taking the risk of a fund manager taking stock calls that may go wrong. Within index funds also, funds mimicking broader indices are less risky than those that mimic a sector or a market segment. For example, the risk is lower in a Nifty Index compared with an index on the Banking Index or the Junior Nifty. Passive Funds (Index Funds) are best suited for the risk-averse investor. However, the clearest disadvantage of passive management is that at times, even if you do not want to participate in a particular stock or sector, you end up participating by investing in the index funds. In an emerging market like India, passive funds may not be the best of the options as many Active Mutual Funds have consistently outperformed the underlying index in the past 15 years. One may, however, consider having an Index Fund in his portfolio to reduce the overall volatility.
Mutual Funds - 11/10/2018
pexels-photo-269399

Consolidation of MF folios

When my cousin, Rahul started investing around 5 years ago, he heard of mutual fund (MF) folio for the first time. The MF folio number is the unique code allocated for investments in MF which can be used as a reference for future investments too. However, he did not pay much attention to this and over the past 5 years, he now has investments in around 5 funds with 17 different folio numbers. This was because, in the case of same AMC, he had a debt fund under one folio, SIP in second, equity in third, fourth from one bank account then another from another. This led to huge mess in his holdings and its management. To avoid this mess, I advised him to consolidate his MF Folio. What is consolidation of MF folio numbers? While making investments in Mutual Funds, one may find that one has numerous folio numbers across Funds. At times investors forget what they hold and face difficulties when changes have to be made in folios or at the year-end while filing returns. It would be worthwhile for investors to take stock of their holdings, check if there are numerous folios in the same fund and get the same consolidated into one single folio number for the Fund. Mutual Funds and Registrars have given investors the option to consolidate all their folios in the same Mutual Fund into one single folio. Consolidation is the merger of two or more folios into one single folio. Requirements for consolidation of MF folios Basically the below details should be uniform in all the folios:
  • All Holders' names - should be in the same order in all folios
  • Address
  • Bank Details
  • Tax Status of the Investor
  • Holding nature - Joint or either or survivor
  • Nominee registered in the folios
  • Dividend option of the same scheme should be same i.e. either Re-invest or Payout
If the above details are the same in your folios, the same can be consolidated into one single folio called the 'Target folio'. Some Mutual Funds may have other guidelines and investors may contact the Mutual Fund or Registrar to get more information on these details. How is the consolidation confirmed to you? A Statement of Account of the consolidated (target) folio will be sent to investors along with covering letter confirming the processing of the request. If the folios are consolidated into one, will a statement reflect all transactions for all schemes of the folios? Yes! The statement of the 'Target' folio will contain all the details of all the transactions of schemes in all your previous folios. If you wish to make a transaction in the same Mutual Fund in future, please mention the folio number in future transaction slips and any new investment will be created in the same folio. How to consolidate MF Folios? The Process There is no standard format of consolidation of MF folios. You can use the facility available on the CAMs website for consolidation of 2 MF. Point to note: The name appears exactly the same in all folios The Target folio’s PAN, bank details and addresses will be considered If you want to update the same- give an application along with consolidation itself.
The form for consolidation of Mutual Fund Folio
Investments - 11/08/2018
e1f8a0b9fba09014ad5e3f45bd7387bf_adult-banking-blur-1288483-e1542281609390-3000-c-90

How to check EPF balance?

There was a time when checking your EPF balance or withdrawing the same was a very tedious task. People had to write endless emails, follow up with their employers, Employee Provident Fund Organsation (EPFO) etc. to obtain the information.

The process is now available online and you can check your EPF balance through the following means:

EPF passbook with UAN:

The UAN is a 12-digit number allotted to each Employee Provident Fund member by the EPFO which gives him control of his EPF account and minimizes the role of the employer. UAN number activation started in Oct 2014. You can download the EPF passbook if you have activated your UAN number. Refer our Article on UAN for a step by step process to view the same.

EPF UAN passbook is available at http://www.epfindia.gov.in  >> Our Services >> For Employees >> Member Passbook or e-Passbook on right hand side of the home page of EPF.

e-Passbook contains transaction details of an individual’s account

You can also download the e-passbook in .pdf format.

This facility is to view the Member Passbook for the members registered on the Unified Member Portal.

Passbook will be available after 6 Hours of registration at Unified Member Portal.

Changes in the password at Unified Member Portal will be effective at this Portal after 6 Hours.

Passbook will have the entries which have been reconciled at the EPFO field offices.

Passbook facility is not available for the Exempted Establishments Members / Settled Members / In-Operative Members.

Check EPF balance with Umang App

Download Mobile App ‘Umang’ from Google Play store. You can also view your monthly credits through the passbook as well view your details available with EPFO.

Unified Mobile Application is an evolving platform designed for citizens of India to offer them access to the pan India e-Government services from the Central, State, Local Bodies, and Agencies of government on app, web, SMS, and IVR channels. It will integrate almost 200 government services by 2019 across departments, allowing people to work seamlessly with the government.

It is available as a website https://web.umang.gov.in/ and as a mobile App on Android, Windows and iOS platform. Download the Umang app from your respective app store such as Google Play Store for Android users.

Once you have the app follow the below steps to view your EPFO transactions:

  • Select EPFO
  • You will find three types of services namely – Employee Centric, General services & Employer centric services.
  • Select Employee Centric Services.  You will see View passbook, Raise claim & Track Claim
  • By Clicking View Passbookyou can see the passbook.

EPF Balance by Missed Call 

If you have a valid UAN, your mobile number too will be registered with the EPF department. A missed call to 011 229 01 406, at no cost, will ensure that you receive an SMS that lists down your PF number, age and name as per the EPF record. This facility is available only to UAN members. You must register yourself on UAN to avail this service.

EPF balance by SMS:

If your UAN is registered with EPFO, you can get details of your latest contribution and the PF balance by sending an SMS to 7738299899. You need to send this message: EPFOHO UAN ENG. ENG is the first three characters of the preferred language. So, if you want to receive the message in Marathi, then type in EPFOHO UAN MAR.

The facility is available in English, Hindi, Punjabi, Gujarati, Marathi, Kannada, Telugu, Tamil, Malayalam, and Bengali. It has become very easy to check balance of your EPF account. Checking it regularly and reviewing it upto you as an investor.    

Debt - 11/05/2018
look-through

Free-look period in Insurance

A way to protect the policyholders from the misselling of insurance.

Insurance is the most mis-sold financial product in India. The commission that the agents receive on an insurance policy is anything between 40% to 60% of the first few premiums paid (depending upon the insurance company) thus, making insurance a very saleable product. To overcome this issue, IRDA (the governing authority of insurance) has launched the free-look period in Insurance.

How does Free-Look Period Cancellation work

When you receive the policy document, there are a few things that you must verify and go through in detail, the insurance contract, the policy certificate, the benefit illustration, the product brochure, the terms and conditions of the policy, etc. While in most cases everything is fine, in a rare few, there could be any of the following expectation gaps.

  • What you have been told is not what has been sold to you;
  • The terms & conditions of the policy are not as per your expectations;
  • The features, benefits, and policy exclusions, as understood by you are different from what is actually included;
  • There could be any other reason for disappointment.

The IRDA has stipulated that certain insurance contracts can be returned to the insurer under certain conditions, i.e. they can be canceled and you would get back the full premium amount paid.

How many days is the limit for the Free-Look period

When bought from an agent, bank, or any other physical intermediary, the limit is 15 days from the date of receiving the policy document at your communication address

When bought online and/or telephonically, the Free-Look Period limit is 30 days.

Also, please note that the period does not start from the Date of Issuance of the Policy but from the date you actually receive the policy document. If you are unable to initiate Free-Look Period Cancellation within the relevant period, you can still cancel the policy later, however, that is termed Policy Surrender and very different rules will apply. However, if you opt for the free look period cancellation, you must do it yourself and do not rely on your agents or intermediary because they might not do the same within the stipulated time. 

What kind of insurance policies are eligible for Free-Look

Not all kinds of insurance policies get this benefit. It is applicable only to the following.

  • All Life insurance policies
  • All Health insurance policies with a policy period of at least 3 years

What is the free-look period

If you want to exercise the right to cancel the policy within the Free-Look Period, you need to ensure that you do it in writing by submitting the same to the company within the stipulated time. Ensure that you get an acknowledgment from the company of having done so – it is very important. You may need this later if there is ambiguity over the cancellation request.

What are the charges for Free-Look Period Cancellation

Charges will be deducted by the insurance company before they refund you the premium you initially paid. Please note them carefully – all may not be applicable to you. Some of the charges which may or may not apply to different companies are mentioned below.

  1. Stamp Duty Charges– When a policy is issued, the insurer has to pay this amount to the exchequer. This cannot be refunded by the Govt to the insurer on cancellation of the policy. Hence it is not refunded to you. These charges are approximately 0.2% of the Sum Assured (life/health cover), not of the Premium.
  2. Insurer’s Administrative Charges: Scrutinizing your insurance proposal form, processing it through underwriting, issuing the policy, dispatch – all this comes at a cost. The insurer may deduct a nominal fee as administrative charges. There is no fixed rule – the amount or rate varies from insurer to insurer.
  3. Cost of Medical Tests: If your policy proposal involved a medical test, the company incurs them for you. If the policy is continued, the company bears the cost. But if you return/cancel the policy, you will have to take the hit from the premium paid. The amount depends on the kind of tests you have done and which medical center it was done at. If no medicals were done, nothing is deducted.
  4. Proportionate cost of Risk Cover: Please remember that from the date of issuance of the policy till the date you submit the cancellation request, the insurance company has actually taken the risk of your death. This risk comes at a cost and is called the mortality/risk cover charge. A proportionate fee (depending on the no. of days) is deducted by the company for the period that you were covered.

If you feel that you do not need the policy; Do NOT STAY INTO THE POLICY only to avoid the above costs. These are nominal costs in comparison to the amount that is going to go per annum as an insurance premium.

Also, many times when we are lured into buying insurance that we do not need or does not match our requirements. In such a case, Free-look is the second opportunity you get to decide on that insurance policy. The best way to avoid any hassle is to understand by yourself which policy is required or from your financial advisor (Please refer to our article financial advisor and policy agent are not the same). Be careful.  Make use of the benefit provided by IRDA to safeguard yourself from the misselling of insurance.

 

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

    Get your weekly dose of Money Masala from us.


    Insurance - 10/31/2018
    4d619a3a7f3c24b8c4bdb9cdd8d7fc40_agenda-analysis-business-990818-2500-c-90

    Why you should not buy financial products from your banker?

    The simplest answer to this question is that, more often than not, the banker is more interested in the product than he is interested in you. To illustrate this better, we have discussed a few examples below: Say you have been a customer of a particular bank from 2008 tillBelow is what you would have typically experienced over this period of time. Your first job, 2010: Sir, along with your salary account, we are offering you a credit card, free of cost. There will be no annual charges and you can enjoy a credit limit of INR 50,000. Along with this we are offering you this "Investment product" which gives higher than market returns, especially for our customers. To make it easy for you, you can pay the yearly premium in 12 equal interest free installments using the credit card. (With this, he introduces you to the world of credit cards plus has latched you on to an investment product mostly a ULIP product (link on ULIP article) without you properly understanding the product. What he doesn't tell you is the charges involved in delayed payments on the credit card, neither does he guide you as to how you can be a disciplined credit card user!) 2008, with the markets soaring or currently when the markets are doing  very well: "Sir, XYZ Mutual Fund has come out with a New Fund Offer (NFO). The new Fund promises very good returns since they are focusing on the Infrastructure theme which will give very high returns over the next few years." "Sir, ABC Mutual Fund has come out with a New Fund Offer (NFO). The new Fund promises very good returns since they have a "new strategy" where they will identify "superior growth" stocks and generate superior returns." (What he doesn't tell you is the risks involved in investing in equities and that he is selling you a product which doesn't have any track record of good returns!)
                                                                                                                                           Take an informed decision
    Immediately after the 2008 crash: A period of silence from your banker. Obviously, he doesn't want to bring up the returns from the ULIPs and NFOs he sold to you earlier in the year! 2009, post ban of entry loads on MFs: Sir, this is a unique investment product. It not only gives you high returns by investing in Equities, it also gives you an insurance cover. (What he doesn't tell you is that ULIPs hardly take care of your insurance requirements. Neither does he elaborate on the various charges on the ULIP products!) 2010, post reduction in commissions on ULIPs: Sir, you should invest in this product. If you invest INR 25,000 per year you will get INR 13,70,000 tax free after 25 years and also an insurance cover of INR 10,00,000. (What he doesn't tell you is that the rate of return is a partly 6%!) I guess many of you (irrespective of your age group!) will be able to relate to the above experience. It clearly demonstrates that your banker is more interested in selling the product that earns him the maximum returns with no consideration to what is the right product for you. He sees the immediate short term benefits for himself from the sales made to you. Why think like your banker and look at the short term? Think long term. Hire a Financial Planner, pay him a fee to give you the right advice and invest in the right investment product. Over a period of time, the benefits from investing in the right financial product far exceed the fees you pay your Financial Planner. Again, think long term. Educate yourself! It is very important in today's time, when there is a pool of information everywhere but no good data, learn and understand and take an informed decision, rather than just following someone blindly. It is your money, if you will not treat it right, why would a banker do that. PS: There can be exceptions to the above kind of bankers. But, more often than not, the story is the same everywhere.
    Money tips - 10/27/2018
    woman-1169324_1280

    The trap of cash back offers

    Recently, while booking my flight tickets through one of the travel booking websites, I saw this “100% cash-book offer “flashing on my laptop screen. I got super excited, 100% cash back means the entire flight ticket would be for free. Who would not use this offer? I immediately registered on the mobile e-wallet and made the payment through the same. However, after making the payments, when I started to book my return flight tickets with the cash back I got, I realized that I had done a grave mistake of not noticing the tiny ‘*’ and thus, not reading the conditions specified in fine print below the offer. Following unfortunate events happened after I made the payment using mobile e-wallets:
    • The offer was a 100% cash back offer of only the base price of the flight ticket and not the entire amount I spent on buying that ticket. So where my total cost including charges and taxes was INR 4200. I only got a cashback of INR 2700.
    • This is not that bad right; I got almost 70% cash back which is still an amazing deal. To make most of the cash back, I decided to book my return tickets using the wallet cash back. I was still happy because if not 100% I did get a 70% discount on my flight bookings.
    • While making the payment, after I had put the mobile wallet details, the system asked me for my bank details for balance payments. How could this  be possible? My return flight ticket was worth INR 2500 and my wallet had a balance of INR 2700. Why is the travel website ask for my bank details as well?
    • After a little more '*' reading, I realised I had missed on another fine print. It stated that I could only use 15% of the cost of each purchase from the cash back balance in my mobile wallet. Thus, only INR 450 would be paid through the mobile wallet, balance INR 2550 had to be paid separately.
    • I declared that this was outright FRAUD and I am now a victim of cash back offers from MOBILE WALLET Company.
    Cash-back offers; Discount; Sale - Are we really saving money through these?
    Are we all actually benefiting from the cash back offers and these discounts? Some of you may say whatever is the discount, it is still a discount. The cash back appears to be like it is reducing my expenses but it actually makes us spend more, worry more and definitely, calculate more on every rupee spent. I have discussed the same below: Spend more than required: My flight cash back seemed like a decent discount inspite the restrictive clause of using it. To make the most of it, I had to do make next few purchases through the mobile wallets. Hence, I decided to shop for my upcoming trip. I shopped for things like shampoo, body wash etc which I did not specifically need for my trip but was buying to exhaust my cash back. This wallet did not work on so many regular e-commerce websites that it was a struggle to make the most of it.

    I just spend on things I did not need to utilise my cash back. This is what cashback offers do to you, it makes you spend more than required so that you can benefit completely from the cash backs received. It becomes your personal loyalty programme.

    Limited Validity: Most of the cash back offers come with a validity period. I had to utilize the cash back  in my mobile e-wallet within a fixed period of  6 months and to utilize the same, I ended up ordering daily use unnecessary items in advance. Inspite of this, after 4 months,  I gave up on this regular hassle and ignored a cash back of INR. 1100 lying in my mobile wallet. The effort, time and unnecessary small purchases that I made to utilise the cashback were not worth the money that I wanted to save. Like me, many people are falling into the traps of the mobile wallets and cash back offers. Such cash back offers are also provided by various credit cards which makes us shop for that one extra shirt or dress so we can cross the specified limit to get the cash back in our credit card. If you get a 5% cash back on a purchase of INR. 5000 it is Rs. 250. You might end up shopping for lot more than the cash back just to get that cashback. Cash Back offers are a loyalty programme: The trap of cash back offers is not direct. As stated above, cash back offers are like a loyalty programme. It generally makes consumers spend more than we want by convincing us that we are getting more benefits out of it. Cashback works as a nuclear reaction making us purchase continuously. Usually, we end up spending more compared to the cases where there are upfront direct discounts or no discounts at all eroding the cash back completely. It is very important to know that none of the financial institutions including mobile wallets, credit card companies, banks, etc are doing charity or customer support in any form. Any discount or cash back is what they can recover from us easily. Nothing in life is for free, when anything is for free or at a discount, you are the product. Thus, we should be wise enough to understand where we are getting a discount and make most of it rather than falling prey to unnecessary cash back traps. I hope next time you see that cash back flashing on your screen, you will take a more informed decision.  
    Money tips - 10/23/2018

    GET STARTED

    Attend a Workshop

    Quick Financial Review

    Schedule a workshop at your office

    FOLLOW US

    ABOUT US

    About Us

    Contact Us

    Join Us

    [mc4wp_form id="2150"]

    WCafe Financial Services Pvt Ltd (formerly known as Wealth Cafe Financial Services Pvt Ltd) is a AMFI registered ARN holder with ARN-78274.

    WCafe Financial Services Pvt Ltd (formerly known as Wealth Cafe Financial Services Pvt Ltd) is a SEBI registered Authorised Person (sub broker) of Sharekhan Limited with NSE Regn AP2069583763 and BSE Regn AP01074801170742.

    Copyright 2010-20 Wealth Café ©  All Rights Reserved

    Terms & Conditions   |   Privacy Policy