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Home Insurance - basics and reasons

Kerala has been a victim of one of the worst floods in a century and the reports and destruction that it has caused is extremely overwhelming. It is estimated that there is a loss of around 19500 crores INR to property, livestock, infrastructure and business in Kerala. While many people are donating towards CMDRF (Kerala state government relief fund) and other active NGO’s, these donations will help them with their immediate needs and infrastructure of the state. What happens to the loss of the contents of the house and the  building structure? Insurance companies have said that the claim of only 500 crores would be received from kerala indicating how underinsured the localites were in Kerala. To give a perspective, a claim of 5000 crores was received during Chennai Floods 2015. I am not trying to criticize the efforts that are put into reviving the Kerala economy. When there are measures given then why dont people secure themselves from the dangers of any calamity and cover their losses?  Kerala floods has acted as an eye opener for everyone to ensure yourself and your belongings. I have mentioned below in detail about what is Home insurance and what are the things that you must keep in mind before taking one. What is Home Insurance? Home insurance plans allow you to protect your house and household items against fire and other perils, such as theft, burglary, accidental breakdowns, and so on. If you intend to buy householders' insurance, you should purchase a policy that provides cover for your house as well as all the contents in it. What is covered by Home Insurance?
  • Building Structure – is the civil structure of your house comprising of the walls and a roof. The insurer will bear the whole cost of replacing or reinstating the whole structure in case of a disaster.
  • Content/Belongings of the house – House hold appliances and electronics; Household contents – clothes, furniture, curtains, crockery, etc. Jewelry worn by you and your family members
You can get a home insurance cover against Natural and man-made calamities:
  • Natural Calamities include – earthquakes, lightning, flood, cyclones, landslides, tornadoes, fire, falling trees, inundation, missile testing operation, subsidence, landslides and rocks ides.
  • Man made - Burglary or theft and the act of terrorism.
Certain Exclusions from home insurance are:
  • Willful destruction of property
  • Damage and destruction due to war
  • Wear and tear
  • Pre-existing damage to the building
  • Manufacturing defects in electrical, mechanical and electronic items.
Types of property not covered under home insurance
  • Property under construction
  • Resident cum offices
  • Land
  • Shops
Types of Home/Property Insurance–
  • Standard Fire and Allied Perils Policy - This mainly covers perils the property is exposed to like fire, riots, flood, or storm.
  • Burglary and House Breaking Insurance Policy - This mainly covers burglary or theft.
How to fix Sum Insured for home/property or valuables you own? Your premium will be fixed based on the sum insured. Also, do remember that this is the maximum liability insurance company has on your property. Calculation of the required sum insured is very much important. Because sometimes you may opt for lower insurance and if in case of any causalities then you may suffer financial burden. So buying right valued insurance is very much important. There are two methods to arrive at a sum insured required.
  1. Market Value Method.
In this method of calculation, the sum insured is arrived at the current market value. So for assets or properties which are in the nature of depreciation, if causalities happen then the owner may not get the full value to replace it with a new one. For example, let us say you have a laptop, phone, other appliances (newly bought) which is currently costing you INR 3 lakhs. Based on this you bought the policy for a sum insured of INR 3 lakhs. But after 2 years if the property value depreciated to INR 2.7 lakhs and policy came to claim due to causality, then the insurance company will provide you only INR 2.7 lakhs but not INR 3 lakhs. Therefore, what will happen is sometime you feel short of amount to replace asset with a new one. Because insurance companies considered depreciated value and paid you the amount.
  1. Reinstatement value.
In this method, if policy arrives to claim, then the insurance company will replace with a new one, but subject to maximum ceiling of sum insured. Insurance companies will not deduct any depreciation on the asset. Do remember that such method of arriving at value will apply only to fixed assets like property but not to assets like stocks. Usually in India, insurance companies cover the built up area. Suppose you have 1,000 sq.ft. Built up area and current cost to build is Rs.800 then the valuation considered as Rs.8, 00,000. On the other hand, valuables like jewelries are usually assessed based on the current market value. So in case of loss they would pay you value of purchasing at current cost deducting the depreciation for the usage. Unique Features of a Home Insurance
  • Before proceeding to buy insurance, first understand the exclusions also. This makes clear about what is covered and what is not.
  • If your property is valued at higher insurance, then it does not mean that you will get the full sum insured claim amount.
  • You can cover household items like laptop, personal computer, Jewellery or any other valuables. However, it is strictly based on valuations.
  • If you have multiple insurance on a single asset, then in case of claim the damage will be shared by all insurance companies based on the proportion of the sum insured.
  • You can cover self-occupied and rent house also.
  • If you adopted some safety instruments to your property like smoke and burglar alarms, then you will get a discount in premium.
  • Few Insurance companies offer third party liability, hospital confinement allowance, or accident insurance too.
  • You can either choose to cover only building or building with content.
  • Your mobile phone and laptop can also be covered under home insurance
  • The insurance that your society provides may offer you a limited cover and generally includes only structure, not its contents.
  • You should buy a home content insurance, if the structure’s insurance is taken care of by the society
  • When the insured house is sold, from the time the transfer of ownership is effective, the policy stands cancelled and the balance premium is refunded.
Claim process
  • First importance is to take steps to control the damage.
  • In case of fire, inform the fire brigade immediately.
  • It there is theft, then inform the police.
  • Inform the insurance company over phone or in writing.
  • Co-operate with the surveyor in understanding the value of lost items along with providing necessary proof.
Documents required for claiming:
  • Original invoice giving values of the items stolen
  • Replacement cost/repair cost
  • FIR
  • Final police report
  • Claim form
Home  Insurance is a very easy and cheap insurance product. By buying this insurance, you also get a hold of the cost of the household expenses. Insurance is a financial product you dont get it when you need it the most.
Insurance - 10/20/2018
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Post Office - Recurring Deposit

Post office Recurring Deposits (PO RDs) is an instrument that enables regular saving of small amounts. Eligibility: It can be opened by any individual, singly or jointly. Non-Resident Indians (NRIs) are not eligible to open RD account. Investment Limits:  The minimum account balance is Rs. 10 with no maximum limit. Time Period: PO RDs have a the term of 5 years. After maturity of the account, it can be continued for a further period of 5 years with or without further deposits. Withdrawal: One withdrawal(Advance against Deposit) is permitted from the account on completion of one year from the date of opening subject to a maximum of 50% of the balance. However, interest on such advance is charged at 15% per year. The account can be prematurely closed after completion of 3 years from the date of opening. The interest rate on such an account will be payable at the prevailing Post Office Savings Account. Tax Treatment: There is no tax benefit associated with investment in PO RDs. Others: A maximum of four defaults of the monthly installment are allowed in an account. After four defaults the account is treated as 'discontinued'. A discontinued account can be revived by paying the defaulted deposits within two months from the fifth default. If it is not, the account cannot be continued. Wealth Cafe Note: Positives: Very good for regular saving in small amounts at a decent rate of return. Almost Risk-Free returns. Negatives: There are no tax benefits associated with PO RDs. Conclusion: PO RDs are is the best tool for savings small amounts (starting with as low as Rs. 10) on a regular basis.
Alternative Assets / Investments - 10/08/2018
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National Savings Certificate

National Savings Certificate(NSC) is a popular tax saving debt instrument. NSCs are issued by the Government of India. Eligibility: Any individual can purchase an NSC, singly or jointly. Investment Limits:  The minimum amount is Rs. 100. There is no maximum limit. NSCs are available in denominations of Rs. 100, 500, 1000, 5000 and Rs. 10,000. The rate of Return: NSCs come with a 7.6% rate of return, compounded yearly. The government revises this rate very quarter. Time Period: NSCs have a maturity of 6 years. Withdrawal: There are 2 maturity periods, 1 for 5 years and then for 10 years. No premature withdrawal is permitted in NSC. NSC states that there is a possibility of withdrawal only on special cases which are mentioned as below.
  • On death of holder or any holders in case of joint holding;
  • on forfeiture pledge by Gazetted Govt. Officer
  • When ordered by court of law.
Tax Treatment: Amount used to purchase NSCs qualify for deduction under Section 80C. But the interest earned on NSC is taxable. However, the interest that accrues each year is automatically re-invested also qualifies for deduction under Section 80C in the year of accrual.No TDS is deducted on the payout. Others: The Certificates can be transferred from one person to another after one year from the date of the certificate with the consent of the Postmaster. One can avail a loan against the NSCs by pledging them with the bank. FinPlan Café Note: Positives: The interest that accrues each year and is automatically re-invested qualifies for deduction under Section 80C. Negatives: The interest is not paid out periodically, it accrues half yearly and is re-invested. The interest earned on the NSCs is taxable. Conclusion: NSC is best suited for one looking for assured returns and safety of principal. Tax deduction is an added benefit.
Alternative Assets - 10/05/2018
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Mutual Funds Investment Options - Dividend or Growth

Investments Options basically address the question of what should be done with the returns you receive on the investments made. In a normal Fixed Deposit, you receive interest periodically. The interest is either paid to you (known as Simple Interest) or it is reinvested and so that the interest earned in the first year is invested and earns interest in the second year (compound interest). In case of direct investment in equities, if the value of the share increases and a dividend is declared, it is received by you in your bank account and the value of the equity share falls to the extent of dividend received by you. When you invest in any Mutual Fund Scheme you have the following Investments Options: Dividend Option: Under this option, the Mutual Fund Scheme periodically declares a dividend which is paid out to the investor just like how an equity share paid the dividend or how a fixed deposit pays interest. However, the dividend is not guaranteed and is subject to profits made by the Mutual Fund Scheme and availability of distributable surplus. If the units of a Mutual Fund Scheme 'A' are valued at INR 45 per unit and the Scheme 'A' declares a dividend of 20%, an amount of INR 2 (20% of INR 10) will be paid to the investor and the value of the Scheme 'A' units will fall to INR 43. This option suits someone who is dependent on his investments for regular income. Dividend Reinvestment OptionUnder this option, the amount of dividend declared by the Mutual Fund Scheme is used to buy more units in the scheme. The dividend of INR 2 declared above by Scheme 'A' is not returned to the investor, it is used to buy more units in the Scheme 'A'. The net effect of the Dividend Reinvestment Option on the value of the investments is the same as the growth option. Dividend Reinvestment Option has a small tax advantage for Liquid Schemes. Short-Term Capital gains on Liquid Schemes are charges as per the investors' slab rates (maximum slab rate: 30% plus surcharge plus education cess). However, the dividend declared by a Liquid Scheme pays a dividend distribution tax of 20.3576%, resulting in the tax advantage.
Investments / Mutual Funds - 09/16/2018
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Exchange traded funds

 

Exchange traded funds or ETFs (as commonly known), are the mutual funds that can be bought and sold on the exchange. They are both passive and active. However, in India, they are generally, passive mutual funds.

 

 

However, unlike Index Funds, an ETF is listed on the stock exchange and can be bought and sold through a broker. You will need to have a trading account and a demat account. Index Funds can be bought/sold only from/to the Mutual Fund.

 

 

ETFs, come with several advantages over the index funds.

 

 

  • Because of their structure, they have lower fees (typically around 0.5%) as compared to index funds.
  • They allow you the facility of buying and selling the ETF at real-time prices during trading hours. Conversely, Index funds declare their price only once in a day at which they can be bought and sold.
  • ETFs also have a lower Tracking Error. They track the returns of the underlying index better than Index Funds.

 

 

Though ETFs have a lower cost, they involve additional costs in the form of opening a demat account and the brokerage costs that need to be paid when you buy and sell an ETF. Index Funds are a choice for investors who do not have a demat account.

 

 

Why Invest in ETFs
ETFs allow long-term passive investors to diversify their portfolio instantly as they invest in the basket of securities. For shorter-term investors, they provide liquidity as investors can trade intra-day at prices near to the net asset value.

 

 

Investors also resort to exploiting arbitrage opportunities between spot prices, futures and ETFs. It gives investors better control and flexibility to manage their investments. ETFs have found favour with Institutional Investors also as a substitute for investing in Futures.

India joined the ETF club in December 2001 with the launch of India's first ETF 'Nifty BeES' (Nifty Benchmark Exchange-traded scheme) by Benchmark Mutual Fund, based on S&P CNX Nifty Index. Since then a number of ETFs have been launched tracking different indices. Of late, Gold ETFs have become very popular in India because of its obvious advantages.

 

Mutual Funds - 09/06/2018

Financial Discipline

The problem in today’s world is that everyone puts their entire efforts in earning money. Both the partners work hard to satisfy family needs from the financial perspective. In doing so we are compromising on various aspects like health, parenting, reading books, spend time on self etc. We are so stressed out that we do not think of anything else. We have huge monthly saving to invest but we don’t plan and we are not sure where to invest. Most of the time the money lies ideal in saving accounts or they are made to invest in real estate by by non professionals. Or some bank agent sees their bank balance and manages to sell them a ULIP or some other high commission product in the name of their child's future. By the time we realise that we made a bad investment, we would have already lost a lot of money in these products.
                                                                      To be a winner, you have to put efforts into something!!
We all are so busy doing so many things that regular financial planning takes a back seat. Further, lack of knowledge and enough information delays it even more. People don’t realise the importance of financial discipline. You make money, but do not put efforts to make the money you have made to make more money for you. If you channelize your savings properly you can easily achieve your dreams. With financial planning, you can do goal-based planning and ensure that you live the quality of life you always desired, ensure your children's future, plan and retire early comfortably, spend time with your kids etc. Financial discipline also includes proper tax planning and timely tax filling. There are various benefits available for an individual under the income tax Act which are considered while preparing a financial plan. However, many people just invest for the purpose of tax savings and nothing more or less than that. This is not enough, you must get more discplined, define your goals, understand your savings, reduce your expenses and invest accordingly. The main purpose of this article is to encourage individuals to inculcate financial discipline. In our other articles, we have discussed about how to convert a financial discipline into gains by investing properly.
Investments - 09/04/2018
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EDLIS - Employee Deposit Insurance Scheme

We have discussed the basic contributions of EPF and how the money is invested, contributed and received by the employees. There is a component called EDLIS (Employee Deposit Insurance Scheme) of EPF contributions. We have discussed the features of EDLIS as under:

  • The EDLI scheme was launched in 1976 and applies to all employers who provide the Employee’s Provident Fund (EPF) provisions to their employees. The point of the scheme is to provide life insurance coverage to all their employees.
  • The EDLI Scheme is clubbed and linked to the EPF Scheme and EPS scheme. All employees who subscribe to the EPF scheme are automatically enrolled in the EDLI scheme.
  • All of the employees’ contribution goes toward the EPF scheme. The employees do not contribute to EDLIS. Contributions are made by the employer.
  • EDLI contribution by Employer: 0.50% (subject to a maximum of INR.15,000)

Features and benefits of the EDLI scheme:

  • The Claim amount under the EDLI Scheme is 30 times the salary. Salary is calculated as (D.A. + Basic Salary).
  • A bonus of INR 1,50,000 is also payable along with the claim amount.
  • The quantum of coverage is directly linked to the salary of the employee.
  • The premium payable is similar for all employees.
  • Payments are made by the employer to the Provident Fund Authorities.
  • Under Section 17 (2A) of the Act, the employer can opt-out of contributing to this scheme if the employer has already opted for a better insurance policy for its employees under a different scheme.
  • In lieu of EDLI, the employer can also opt for schemes like the LIC Group Insurance Scheme.

EDLI claim procedure:

  • The amount payable can be claimed by the nominee of the employee.
  • In case there has been no nominee named, the surviving family members of the deceased can claim the amount.
  • Under the claims to be made by surviving family members, claims cannot be made by the oldest son or married daughters whose husbands are still alive.
  • In case there is no nominee or eligible surviving family member, the claim can be made by the legal heir.
  • In case the nominee, surviving family member, or legal heir is a minor – the claim can be made by the legal guardian.
  • In order to initiate the claims process, Form 5(which can be found here http://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form5IF.pdf) should be duly filled out and submitted.
  • While filling out the claim, it should be kept in mind that: The EDLI Claims are only admissible if the deceased person was actively employed at the time of death. The application for the claim must be attested by the employer.

In case the employer is not available to attest the claim application, the attestation must be done with the official seal of either:

Documents required for a claim under the EDLI scheme

  • Death certificate: of the EDLI member.
  • Guardianship Certificate: If the claim is being made on behalf of a minor family member, nominee, or legal heir, the legal guardian must also submit a guardianship certificate.
  • Succession certificate: If the claim is being made by a legal heir of the deceased.
  • Canceled cheque: of the bank account of the claimant in which claim funds are to be deposited.

Example

Mr. Nath was employed and was actively contributing to the EPF, EPS, and EDLI schemes. He drew a monthly salary of Rs.15,000. Upon his death, his nominee claimed the EDLI insurance benefit which was equal to (30 x Rs.15,000) + (Rs.1,50,000) = Rs.6,00,000.

 

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

 

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    Alternative Assets / Salary / Tax - 09/04/2018
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    Basic of Employee Provident Fund (EPF)

    “Every month I save my salary into EPF and it is a great form of investment” I have heard this way too many times. When I asked them if they knew what EPF is and how is EPF a great investment? Not many people were able to answer this question.

    People just know that 12% of their salary goes into an EPF account and it is  a great form of investment and savings.  EPF being a primary investment for salaried individuals, you must know everything about it. Hence, we have written a detailed article about everything that you would want to and must know about your EPF investments.

    What is EPF?

    EPF is retirement benefit scheme that is generally available to all salaried employees and forms an important tool for financial planning.

    Basically, EPF is like a guaranteed investment as the amount is deducted from your salary before the same is paid to you and invested. You might skip on your SIP or Insurance premium, but your EPF will be deducted from your salary each month.

    Regulatory guidelines

    Under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, EPF has two components namely Employees’ Provident Fund Scheme 1952 and Employees’ Pension Scheme 1995 (EPS). These are two different retirement saving schemes under which any salaried individual is covered if he/she is drawing more than INR 6,500 per month as basic salary.

    Structure

    There are 2 contributions into the EPF.

    • Employee, 12 % of your basic salary (and DA if any) is invested into the EPF account.
    • Employer contributes further 12% of your basic pay from his side into the EPF.
    • Thus, total of 24% of your basic pay (plus DA, if any) is invested each month..

    Contribution to EPF & EPS

    There are a few components of EPF such as below.

    Scheme Employee’s Contribution of basic pay (+ DA if any) Employer’s Contribution of basic pay
    EPF 12% of basic pay 3.67% (where salary is upto INR 15,000)
        12% of basic pay less 1250 towards EPS (where salary is more than INR 15,000)
    EPS Nil 8.33% of basic (where salary is upto INR 15,000
        INR 1250 per month (where salary is more than INR 15,000)
    EDLIS Nil 0.5% (capped at maximum of INR 15,000)

    EPF – Employee Provident Fund

    • The money contributed towards EPF is invested and managed by a trust and the employee earns interest from 8% to 12% on the same (depending on the results of a specific year).
    • The corpus of EPF is received as a lumpsum amount on fulfillment of certain conditions.
    • Entire Employee’s contribution goes towards EPF.
    • A part of employer’s contribution goes towards EPF.
    • Where the salary is INR 15,000 3.67% of the same is contributed towards EPF.
    • Where the salary is more than INR 15,000, the employer has an option of investing INR 1250 towards EPS and balance towards EPF and EDLIS. The same depends upon the Employer.

    EPS – Employee Pension Scheme

    (Refer our Article on EPS )

    • EPS offers pension on disablement, widow pension, and pension for nominees.
    • No interest is earned on EPS. If your corpus of INR 3 lakhs is accumulated through EPS, you would get INR 3 lakhs as pension money.
    • No amount from the employee contribution goes towards EPS.
    • A part of employer contribution goes towards EPS.
    • Where salary is INR 15,000 or more, 8.33% of INR 15,000 is compulsory contributed towards EPS i.e. INR 1250 each month is to be contributed to EPS.

    EDLIS – Employees Deposit Linked Insurance Scheme

    (Refer our Article  on EDLIS )

    • Provides for a lump sum payment to the insured’s nominated beneficiary in the event of death due to natural causes, illness or accident, while in job.
    • Premium for the EDLI is entirely funded by the employer, which contributes 0.5% of monthly basic pay (capped at a maximum of INR 15,000) as premium for life cover in case the organization does not have a group insurance scheme for its employees.
    • Maximum amount insured under EDLIS is INR 6 lakhs.
                                                                                                      is a risk free, tax free long term debt investment.

    Tax benefits

    The employer contribution is exempt from tax up to 12% contribution while employee’s contribution is eligible for tax benefit under Section 80 C of the Income-Tax Act, 1961. EPF is under the EEE norm currently indicating that the money invested, interest earned and the money withdrawn after a specified period (5 years) are all exempted from income tax in the hands of the employee.

    Nomination

    EPF provides you with nomination facility whereby mother, father, spouse or children can be nominated for receiving the proceeds at the time of death of an employee. Government, currently, doesn’t allow nominating siblings.

    Transfer and withdrawal policy

    • If a person is not employed for two months at a stretch, there is a provision by which he/she can choose to withdraw EPF.
    • It is advisable to transfer the existing EPF with previous employer to new employer while switching jobs.
    • The process of transfer of EPF is now seamless with the introduction of Universal Account Number (UAN) which is discussed in detail in subsequent para.
    • If you withdraw the EPF amount before completion of five years with an employer the corpus withdrawn is taxed as per your current income tax slabs as the amount withdrawn is then added to your gross salary.
    • Further, withdrawal is generally not permissible if the person is still working.
    • Withdrawal is possible in following cases: children’s higher education, marriage, medical treatment, home loan repayment, construction of house, purchase of flat, etc.
    • Non-refundable advances are also allowed after having completed minimum five years of membership.
    • In case your service is less than 10 years and you have opted for withdrawal on account of no job, an employee is entitled for 100% of EPF including interest on EPF. In addition, employee is also entitled for receiving EPS contribution that is computed based on withdrawal benefit (on pension). Refer our Article on EPS to understand the same in detail.

    Receiving pension

    An employee start receiving pension from EPS amount after completion of minimum 10 years of service and attaining the age of 58 or 50 years. The pension amount is payable to the subscriber until he is alive and in the event of death of the employee, members of his family -whoever is nominated is entitled for the pension. Monthly pension is determined based on ‘pensionable service’ and ‘pensionable salary’ for which the following formula is generally used:

    Monthly pension = (Pensionable salary X Pensionable service) ÷ 70

    It is worth noting here that the pensionable salary is nothing but your basic salary on which you have paid EPS premium. Thus, monthly pension will have received will be nowhere closer to real CTC.

    Top-up on EPF (Voluntary Provident Fund)

    Yes, you can always invest more than 12% of regular contribution. However, any amount over and above EPF is termed as Voluntary Provident Fund or the VPF. In this case the excess amount is invested in EPF and is eligible interest benefit.

    UAN services and other recent developments

    UAN is a unique number assigned to an employee and it indicates that the subscriber is availing Employees’ Provident Fund Organization (EPFO) service. EPFO generally manages the money in your EPF account.

    UAN number is fixed throughout the lifetime and has portable flexibility. Thus, when an employee changes job his new EPF account which will have different account number and will be opened by new employer can be linked directly to UAN.  Thus, UAN acts as an umbrella of multiple EPF IDs allotted to an employee by different firms.

    EPFO, in a recent development, introduced the facility of linking Aadhar (unique id) to UAN. This would help the member avail facility in a better and seamless manner. The facility is available at the official website http://www.epfindia.gov.in under Online Services section.

    Benefits of Linking UAN With Aadhaar

    • Receive monthly updates on registered mobile number
    • Download e-passbook anytime
    • Submit claims directly to EPFO without any mediation of employer
    • Link multiple EPF accounts allotted over the years
    • Edit and update personal details

    Refer our Article to understand the interest calculation on EPF and the amount due to you over a period of time.

    EPF contribution is definitely one of the best investments for retirement. It is risk free, tax free, long term debt investment which gives approximately a return of 9.7% post taxes and helps salaried people to build on a corpus for retirement or any other financial need over the long term.

    Debt / Salary - 08/30/2018
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    To buy or not to buy

    To buy or not to buy is an old story. The new story is to be this or that. We are definitely spending on one thing or another. It is not that we are not spending at all. The only thing we as a consumer are doing is deciding whether to buy this or that. Some of us do not even do that, we just end up buying everything because of our 2 best shopping companions’ credit cards and EMIs. People have stopped justifying their expenses and this is the reason why there are not enough savings and thus, reduced investments. You can save only when you spend less and thus, I have dedicated this article on how and where we spend extra and how can we control our spending.
    • Buying on Impulse – This would be the most common way of going off-budget. Have you bought something and then realized that you don’t enjoy it anymore or you aren’t as excited about it as you were at the time of buying it. It is very common to do the same, especially when you are not feeling very good, you see your neighbour own something that you always wanted. To avoid this, don’t buy something that you like when you see due to certain emotions/influences immediately. Go back. Sleep overnight on that purchase. If next morning you wish to own it, go back and then buy it.
    • Carrying credit card balance – Using a credit card to buy the new laptop, phone or even those expensive shoes online. Having that credit card balance has become the way of life for most of us where consumer credit is so easily available. The problem arises when it is used for regular purchases. Paying interest as a failure to pay off credit card bills makes the prices of the charged items a great deal more expensive. We have written it in detail in our Article - Why you must avoid credit cards.
    • Avoid paying bills on time – Have you ever missed paying your telephone bills or other utility bills at home? In this time of auto debit/email reminders/ Paytm reminders, it is still so surprising that so many people with balances in their bank accounts forget to pay their bills on time and are completely ok with doing the same. For instance, if you have 4 credit cards and you are not clearing the minimum dues on time, you would be paying at least Rs. 2,000 in late charges alone. However, if the same amount is invested every month in a scheme that earns, say 10% annually, it can actually fetch you 32 lakhs in 25 years.
    • Spending by habit: Quite often a lot of our spending is a daily habit, which could be unnecessary too. For example, if you buy a takeaway coffee every day for your office staff/visitors why not invest in a coffee machine? Re-evaluate your habitual spending patterns and decide whether that is necessary.
    • Having unused memberships/subscriptions – Everyone has an account on Netflix, Hotstar, Amazon Prime, Voot TV, the unlimited data pack, household cable with HD. All of this totals to around 2000 INR per month. The same is equivalent to Rs. 24,000 per annum. Do you have enough time and resources to go online and watch movies on all of them? A person on average is spending 24,000 per annum for his entertainment solely through online channels. I have not even considered the money spent on theatres and other modes of entertainment. Gym memberships are other classic examples of unused memberships.
    • Paying for unnecessary services/charges – When a seller is selling something new in the market, it is their job to create a requirement for their products but it is up to a consumer to judge sensibly if they actually need that product or service. You may sometimes need a car helpline service, but why to go for the extended warranty on a car or washing machine when that is hardly worth the price? Do you also really need all those extra features for your cell phone?
    • Not having clear needs in mind: People tend to overspend when they don’t have a clear objective of what they need to buy. Thus, they often end up buying things just because they ‘look nice’ and not because they are actually needed. Therefore, avoid getting inside a mall without a clear objective. Window shopping has put most of us into huge debts or low cash balances.
    • Living beyond one’s means – The availability of car loans to buy the first cars or easy access to credit cards can tempt anyone to indulge in buying things even without being able to afford the expense. But just because you own a credit card, it does not mean you should indulge in whatever you fancy at the moment.
    Being ignorant of one’s spending – Ignorance is bliss? Think again! “Many chronic shopaholics live in denial about how much they spend. If you realize how much you spend on various items, this alone may be sufficient to reduce your spending.
    Money tips - 08/28/2018
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    Common Nomination Mistakes that you must avoid

    We have listed below the common nomination mistakes that people make and how should one avoid making them. Not informing the nominee –This may sound very basic but at many families, the wives and children are not involved in the financial matters of the house. Not informing the nominee about his/ her nomination and the details of the policy is a major mistake that you can do as a policyholder. The insurance policy is taken to secure your dependents and if they are not informed of the same, it does not serve its purpose. Generally, the insured is reluctant to inform the nominee because of insecurity or just carelessness. Such an ignorance will deprive the family members of the financial support that they would receive from the policy. Not updating nominee details –This is due to laziness and ignorance. Avoiding to update details is as good as not nominating someone. Another problem is not revising/updating the details of the nominee periodically like his address, age (minor to adult), status etc. If the nominee dies before the policyholder, it is very important to change the nominee details immediately. The policyholder has the right to change the nominee and his/her details any number of times during the term of the policy. Appointing Just One Nominee -Generally while entering details in the policy form, many of us mention just one nominee even after having more names in mind. It can be because people do not know they can nominate more than 1 person. Where the nominee dies before the policyholder and the details are left unchanged, there can be severe delays and rejection in receiving the claim money. As a policyholder, you must state more than one name in the nominee column with some defined percentage or the order in which the nominee should receive money. Remember to enter genuine details like full name, address, and relationships with the insured. You can also appoint successive nominees in your insurance document. This is considered the most advisable method of nominating. Appointing a nominee under 18 without an appointee –Prefer a major person instead of a minor so that one does not require having any appointee in such a case. If there are circumstances where it is compulsory to mention a minor as a nominee then it is advised to offer genuine and complete details of the appointee which includes his / her name, address, relationship with nominee etc. And the appointee is in charge of the minor until he/ she turns 18. Having Wrong Notions About Nominee Rights : Most of the people have a preconceived notion that a nominee has absolute rights. This is not true. If the nominee and the person to whom proceedings are bequeathed in a Will are not same, then a priority is given to the provisions of the Will over the rights of the nominee. In case a policyholder wants to give absolute rights to his/her nominee, he needs to prepare a Will and mention the beneficiaries thereof. It’s better to be cautious and have clarity on these matters in advance to assure financial protection of your loved ones.
    Money tips - 08/24/2018

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