7 Things to consider before taking a Personal Loan

These days it is very common to get a call or an e-mail for pre-approved Personal Loan. The creative nature of presenting such loan by the bankers is such that it appears this personal loan is customized only for you. So it may look handy but make sure you understand why you are availing a personal loan. Below are few things which you need to consider before taking a Personal Loan:

Avoid Personal Loan: Yes, this is the first point you need to consider. Since Personal Loan comes under unsecured loan, the interest rate is very high. Hence first check whether it is really required to take Personal Loan or not. Check other possibilities, such as help from friends, relatives. You should take Personal Loan only in case of emergency and that to Personal Loan should be the last option for you.

Verify All In Cost: Apart from interest rate, there are other charges also you need to verify.

Processing Fee: Banks charges 1-2% of the loan amount as processing fee. Few banks charges flat processing fee. You can bargain with the bank on this fee also to reduce this processing fee.

Prepayment Fee: Due to emergency you take personal loan which can be a short term. In this case you might look for prepayment of your loan once you have good cash flow. With prepayment you could reduce your interest burden. Banks use prepayment fee as a tool, so that you stay in the loan and bear the complete interest. Hence check with the bank, lower or no prepayment fee is better.

Late Payment Fee: In case you are late to pay your EMI, bank will penalize you with late payment fee. Do consider this fee also.

Shop for the better interest rate: As mentioned Personal Loan comes under unsecured loan category, interest rate is high. Spend some time online and compare Personal Loan interest rate provided by different lenders.

Avoid Add-On: Banks might offer you add-on on top of your Personal Load. Add-on like life insurance, accident insurance etc, and the insurance premium will be added into your EMI, hence you say NO.

Do not go overboard: It might be possible that while discussing with the bank person, he/she points out that you are eligible for much higher than you are asking. Since it is very easy these days to get t personal loan, do not go overboard; limit the amount to your actual purpose.

Credit Score: Banks check your credit score before sanctioning a loan. If you have low credit score then there is a chance of getting your loan application rejected. On the other hand if you have good credit score you might bargain for better interest rate on your Personal Loan.

Read Loan agreement details: You need to read the loan agreement details completely including the fine print to know all the charges, penalties. Do not rely blindly on the bank person with whom you are dealing.

Conclusion: Avoid Personal loan as much as possible. Only in-case of emergency and based on your actual need, consider a Personal Loan. Verify all the related cost and not only the interest rate.

It’s a beautiful life & I am sure you do not want to do these financial blunders!!!

Trust takes a long time to build, but only a moment to get spoiled. Similarly it takes a good amount of time to make one’s wealth but only a small blunder to destroy.

You have taken your time and sound financial decisions which lead to a beautiful life for yourself and your dear ones or you are in a process of creating wealth and having beautiful life. Now do you want to destroy everything? No, right, at least not knowingly. This means unknowingly there is a possibility. Hence if you are aware of those unknowingly things you will retain your financial success. Below are some actions which you may do unknowingly and can lead to financial disaster.

  • Not discussing about financial documents

    • Throughout your life you have accumulated your wealth and to secure your dependencies you have taken a few insurances. This means you have plenty of important documents either in soft copies or in physical copies. If you are the only person who knows about these important documents, then there is a problem. In case of any emergency where you are not in a position to get or handle these documents then it will create an issue for your dependencies and might be including you. Below are few suggestions for our side:
    • Create different physical folders and keep all your financial related documents in safe place. Inform your family member about these folder and the place where you kept those. Below is an example to make different folders:
      1. Insurance (Life, Health, Auto, Home etc), including premium receipts.
      2. Mutual fund, Demat, FD, PPF, PF (UAN Card), etc
      3. Bank A/C related, PAN, AADHAR, PASSPORT etc.
      4. Any business related or job related.
      5. “Important Note” folder. Here you can put some important notes for your dependents. All contact numbers of your financial instruments. Financial strategy with your investment for your dependents.
      6. School, College related documents, etc.
      7. “Ready to use” folder. Here you can keep photo copy of documents which you need for most of the things, such as identity proof, address proof, DOB. Also a pen, few blank paper and passport size photos. This will come as handy when you need those documents.
    • Create an excel file and put all the details which are mentioned in the above. Share this file with your dependent and one outsider. This outsider can be your friend, but remember that the person should be the most trusted person as you are sharing your very crucial personal information. You can take a call what all information you can share to your chosen outsider. This will make sure that at the difficult time, if your dependent can not act on important things, this person will help your dependents. Inform him/her why you are sharing this file and what your expectation is.
    • Create a scan version of all the documents which are mentioned above. Share these with your dependent.


  • Overspending

    • You went for your grocery shopping in a super market and you started putting the stuffs you want into the shopping basket. While shopping you noticed new flavors of sauces, you saw a new ready to eat item and then you picked these items thinking that you will use these when you will try a new recipe. Then you picked few items which you forgot whether these are in stock or not and finally you are done your grocery shopping.            There is a chance that the new sauce which you bought will be used only once and soon their expiry date will be over. Also you bought items which you already have those at home. All these are over spending and all are due to absence of grocery shopping list.
      • You went to buy a car and your budget is let’s say at max 5 Lac, but the way sales person showed you that if you just spend 1 Lac more you will be getting a very good deal and you bought a 6 Lac car. This is over spending.
      • When you shop from Amazon, you can see if the total cart value is less than 499 there is a delivery charge & it shows if you can shop for X amount to make the cart value equal to or greater than 499, the delivery will be FREE. There is a chance that you will end up buying things which are not planned to get that FREE delivery. This is overspending.
      • In Big Bazaar you see offers such as if you shop for 2000 rupees you will get 1 KG of sugar FREE. You can see that to get 1 KG FREE sugar most of the people make their bill above 2000. This is overspending.
      • We shop more when we see BUY one get one FREE, BUY three get four FREE. Interesting advertise: Book your flat and get a car FREE. Buy a car and get a gold coin FREE. Book now 3 days & 2 nights Singapore holiday to get 1 extra day FREE.

      When you overspend then it is certain that you have to compromise on your future important things. So think about this.


  • Taking too much Debt

    • To fulfil our dream or in case of emergency there is a chance that in our life we have taken few loans. Things are fine if the loan repayment amount is within our limit. If for any purchase you always think about a loan (credit card, personal), then you should understand that you might be taking too much debt and this can lead to debt trap. Make sure that you take a loan if and only if there is no other way and the thing for which you are going to take a loan is really a necessary.

      CIBIL (Credit Information Bureau (India) Limited) collects and maintain monthly reports (Credit Information Report – CIR) from banks and financial institutions, detailing individual’s loan and credit card payment history. A Credit Score is a three digit numeric summary of your credit history.  The value ranges between 300-900. It is  derived  by  using  details  found  in  the  Accounts  and  Enquiries  section  in  your   Credit   Information   Report   (CIR).   It   indicates   the   ‘probability  of  default’  of  a  borrower  based  on  their  credit  history. The CIBIL Score plays a critical role in the loan application process. After an applicant fills out the application form and hands it over to the lender, the lender first checks the credit score and credit report of the applicant. If the credit score is low, the lender may not even consider the application further and reject it at that point. If the credit score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy.

      Hence if you take too much of debt and you miss any of the payment to the lender then it will directly affect your Credit Score.


  • Guarantor / Co-payment / Co-Sign / Assurity

    • It can happen that to help someone you may sign guarantor/co-payment/co-sign/give an assurity. Now if in case that person misses any payment or completely defaults then you will be in trouble. This will directly affect your credit score and also it can hamper the personal relation. Hence try not to do so or if there is no other way to help that person, time to time verify that payments are not missed by your joint holders or the guaranteed individuals.


  • Miss important bills

    • There are few important bills such as all kind of insurance bill, electricity bill, and mobile bill, if you miss then it can create a big issue for you and your dependency. Hence don’t forget and if possible make it auto payment mode.


  • Seeking to get rich quick

    • Investing should be more like watching paint getting dry or watching grass grow. If you want excitement take $800 and go to Las Vegas. – Paul Samuelson

      We heard many a times that Mr. X put money in stock market and within no time, his money got tripled. Or Mr. X put money in chit-fund and within 1 year his money got doubled. Or Mr. X invested in real estate and his investment got doubled within no time. In 24×7 business news channels, on the financial sites or even the financial mobile applications; we can get hot tips for quick gains. Our friends, relatives, relationship managers of the bank, insurance brokers; everyone seems to know everything and frequently gives us sure shot tips for quick money.

      Have you ever tried to find out who was that Mr. X? Did you talk to him? Those financial pundits who give hot tips, did you verify whether they put their own money on those tips? Is there any data available for you to verify those hot tips? I think most of the time, these questions did not come to your mind, or you believe these tips work. Even few follow these tips and lose their hard earned money and decide not to invest in anything and finally keep money in FD or RD.

      Achieving rich financial life is possible and it takes time. If you really want to be financially rich then you have to invest in your knowledge and be a disciplined investor.


  • Borrow money to invest

    • When you borrow money to invest? It’s when you think the investment instrument will give you more returns then the borrow money’s interest rate. To do so you might choose the investments which are risky in nature and if you do not understand properly about this risky investment, there is a chance that you will actually lose your money. This can lead to a low credit score or problem in personal relationships

Good News!!! 20 lakh is the new Ceiling On Tax-Free Gratuity

On 22nd March 2018 Parliament passed “The Payment of Gratuity (Amendment) Bill 2017” which was passed by Lok Sabha 15th March 2018.

So what is “The Payment of Gratuity (Amendment) Bill 2017”?

  • As per “The Payment of Gratuity Act, 1972” which was passed in the year 2010, the ceiling of gratuity to employees was Ten Lakhs. With this new bill, the words “Ten Lakh Rupees” is being substitute with the words “such amount as may be notified by the Central Government from time to time”. The explanation given for such change is, considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. Hence Central Government can revise the limit time to time keeping in view the increase in wage and inflation and future Pay Commissions.
  • After the implementation of the 7th Pay Commission, the ceiling of gratuity amount for central government employees was doubled to 20 lakh. Hence with the new bill, government will be able to enhance the ceiling of tax free gratuity to Rs. 20 lakh for the employees falling under the Payment of Gratuity Act.
  • The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced from Twelve Weeks to Twenty-Six weeks by the Maternity Benefit (Amendment) Act, 2017. Hence the present bill is to remove the reference of 12 weeks and empowers the government to notify the maximum maternity leave.

Who are eligible for Gratuity?

The Payment of Gratuity Act, 1972 (the Act) was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons.

How gratuity is calculated?

The calculation of gratuity amount is based on a formula, which is fifteen days of wages for each year of completed service, subject to a ceiling.

Reasons Why You Should Budget Your Money

“A budget is telling your money where to go instead of wondering where it went.” – Dave Ramsey

Many a times people say they do not have money left for saving at the end of the every month. When you ask why they will say, man you do not know things are getting expensive or somehow some important expenses come up every month which eats up everything etc. You can see people despite having good income they struggle to save enough. Most of these people do not a have clear idea what their expenses are and the result is financial disaster.

That’s why budgeting is very important if you want to keep track your hard earned money and committed to your long term goals.

Budgeting will help you to:

  • Categorize and allocate expenses, which will help you to organize your spending and spending
  • Helps you to set your priorities
  • Helps you to understand where your bulk money goes
  • It will give a more control over your money
  • Keeps you focused on your financial goals and helps you to reach your goal faster
  • Alert you in advance if there is a potential problem
  • Helps you to decide whether you can take loan and how much

So, how to make a budget?

  1. Create a monthly Cash-Flow statement: Here you are going to capture all your income per month from all the sources and all your monthly expenditures. Below is an example:
Per Month Cash Flow Statement  
Income Amount
From my salary 60000
From my spouse salary 30000
From other source 10000
Total Income (A) 100000
Expenditure Amount
EMI 45000
Food 10000
Utility 5000
Entertainment 4000
Clothing 2000
Insurance 8000
Total Expenditure (B) 74000
Surplus (A – B) 26000

From the above cash flow statement you will be able to understand your money movements. This will give you a clear idea how much surplus you have each month and then you can plan your saving & investments accordingly.

2. Categorize income and expenses based on your cash flow statement:

You can categorize your income as follows:

  • Salary
  • Bonus
  • Part time work

You can categorize your expenses as follows:

  • Food : Groceries, Restaurant
  • EMI: Home, Car
  • Automobile: Fuel, Insurance, Maintenance
  • Household: Rent, Maintenance
  • Insurance: Life, Health
  • Kid: Activity, Education
  • Utilities: Water, Cable TV, Electricity, Internet, Paper, Mobile bill
  • Personal: Books, Cloths, Personal care, Gift
  • Entertainment: Movies, Party
  • Travel: Hotel, Taxi, Airplane

3. Create a budget spreadsheet: You can use the below example:

Item Budgeted This month Actual this month
Food 11000 10000
EMI 45000 45000
Automobile 5000 7000
Household 5000 4000
Insurance 7000 7000
Kid 8000 9000
Utilities 6000 6000
Personal 3000 2000
Entertainment 3000 2500
Travel 2000 1800
Total Expenditure 95000 94300
Income   110000
Surplus   15700

4. Analyze your budget regularly: Firstly you will be aware of your spending pattern. This will help you to discover any unnecessary expenditure, which can help you to achieve your goals. Also you will be able to analyze your debts so that you can prevent yourself to be in debt trap.

5. Improvise: You can always tune your budget. As you move forward in life, your requirements and priorities will be changing and hence based on these you should adjust your budget also.

6. Finally invest what you save: To beat the inflation you must invest and hence with your surplus money you should plan your investment properly.

Always remember the below formula:

Your Income – Saving/Investment = Your expenditure.

This means you should plan your budget such that first save/invest from your income and the left-out money you should use for your expenditures.

Tips on sticking to your budget:

  • Use cash: I know everyone is going digital, but if you use cash for all your expenditure it will help you to stick to your budget. When you use cash and you spend, you can feel that money is going out from your pocket, which is not the case with plastic money.
  • Reward yourself: Every end of the month when you have successfully executed your budget, you can give a treat to yourself. This will give you the boost to stick to your budget.
  • Self discipline: Use your credit card properly and pay the entire money every month on time. Withdraw cash as per your budget and spend as your plan.

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Personal Financial Portfolio life cycle:

Step 1: Awareness

Step 2: Present Financial Status

Step 3: Goal Setting

Step 4: Planning

Step 5: Plan Execution

Step 6: Plan Evaluation

Step 7: Financial Achievement

Step 8: Asset Transfer

Want to know why we FAIL financially!!!

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to.”
“I don’t much care where –”
“Then it doesn’t matter which way you go.”
― Lewis Carroll, Alice in Wonderland

The above quote from Alice in Wonderland is very true in every aspect of our life. You see if you do not know where you want to go or what you want to achieve financially or what you want to be; then it does not matter which path you choose.

That’s why GOAL is very important, when you have a goal in mind it is easier to appreciate the benefits of what you are doing. And the absence of GOAL is directly proportional to “why we fail financially”.

“Setting goals is the first step in turning the invisible into the visible.” – Tony Robbins

Having goals make life great, it gives us a meaning, motivates and builds energy.

Most of the time we think we have our goal set such as “I want to be Rich”. “I want to be Rich” is a statement; you can also say it is a vision statement. It does not qualify as goal. It does not state “what is meant by Rich”, “how much assets you have to be qualified as a Rich”, it does not give us a reason or purpose behind this. Hence it is also important to know how to set a GOAL.

“Goals transform a random walk into a chase.” – Mihaly Csikszentmihalyi

First you have to create the “big picture”, what you want to do with your financial life and then separate these into little and little focuses. The best way to set your financial goal is to make your goals SMART.

       S            : Specific

      M           : Measurable

      A            : Adjustable

      R            : Realistic

      T            : Time bound

Specific: You should ask yourself whether your goal is specific or not. You should know why this goal, for whom is this goal  for, why do you want to achieve this goal, the purpose and benefits behind this goal? Hence the goals should be like:

I want to make 1 Crore as my asset within next 10 years.

“People with goals succeeded because they know where they’re going.” – Earl Nightingale

Measurable: Once you set your goal, you should start working on it. To understand whether you are working towards your goal or not, you should be able to measure it. That’s why the goals which can be measured are successfully achieved. For example if you want to save 2,00,000 for down payment of your car within 1 year, you can measure each month whether your savings are on track or you need to increase your saving or relax.

Adjustable: There are uncertainties in life, due to which your financial goals can get affected. That’s why the goals you set should not be so strict that you cannot adjust it. Let’s say you have a plan for long foreign vacation after 2years and for which you started saving towards this goal. But just before the vacation you came across some urgency for which you have no choice to use your vacation money.

Realistic: You just like that cannot set some random and unrealistic goals. The goals should be based on your ability so that you can really achieve your goal. You should always work on your earning ability so that you can achieve higher things in life, but while setting your goal you should be realistic.

Time bound: Without a timeline, it is impossible to plan and measure your goal. If you have a timeline set for your goal, it helps you to determine how much you have to save/invest each month and for how long. When you set a timeline, you bring discipline into yourself which makes you to succeed in achieving your goals.

Once you determine what you want your financial life to be after 1 year or 5 years or 10 years or even 20 years, it will definitely affect what you do today. In other way, the things you do today will determine what you will be after 1 year or 5 years or 10 years or even 20 years. Hence set your goal SMARTly, since it has a cost associate with today.

“Stay focused, go after your dreams and keep moving toward your goals.” – LL Cool J

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Personal Financial Portfolio life cycle:

Step 1: Awareness

Step 2: Present Financial Status

Step 3: Goal Setting

Step 4: Planning

Step 5: Plan Execution

Step 6: Plan Evaluation

Step 7: Financial Achievement

Step 8: Asset Transfer

Why Mutual Funds Direct Plan is better choice than a Regular Plan?

Starting January 1, 2013 SEBI had mandated all fund houses to have two version of each scheme – Direct Plan & Regular Plan.

Before understanding what is Direct Plan and Regular Plan, let’s understand below terms w.r.t Mutual funds.

  • Expense ratio: This is the fee charged by the Mutual Fund Company to manage the Mutual Fund. It is the expense deducted each fiscal year for the fund; it includes management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund.
  • NAV: Net Asset Value is the sum total of the market value of all the shares held in the mutual fund portfolio including cash, less the liabilities, divided by the total number of units outstanding. The NAV of the scheme will change with every change in the Net Assets of the scheme.

What are Mutual Funds Direct Plan and a Regular Plan?

When you invest in Regular Plan, you invest through a distributor or an intermediary. In case of Direct Plan, you invest directly with the mutual fund house. When you invest via distributor or an intermediary, Asset Management Company (AMC) compensates them with a commission. The actual commission paid can vary across schemes and even across distributors. The mutual fund house does not directly charge you the commission, it gets paid from the fund and thus it affects the fund’s returns indirectly. Since in case of Direct Plan you invest directly with the fund house, they do not have to pay any commission to anyone and hence you can see the difference in Expense Ratio and in terms of return. Remember except expense ratio, everything else (portfolio, fund manager etc) is same for direct and regular plans. To understand better let’s take an example.

Let’s take Franklin India’s one of the equity funds:

Franklin India Bluechip Fund NAV (as on 22-12-2017) Expense Ratio Return 3 months Return 1 Year Return 3 Years
Regular Plan 462.34 2.23 5.82 % 28.68  % 11.02 %
Direct Plan 481.99 1.33 6.06 % 29.79 % 12 %

You can see there is a difference of expense ratio (2.23 – 1.33) 0.9 between the two plans, due to which there is a difference in 3 years return (12 – 11.02) 0.98 %.

If you are thinking 0.98% is a very small number then check this, 20,000/- every month invested in Franklin India Bluechip as SIP for 20 years:

Franklin India Bluechip Fund Invested per Month Invested for Expected Annual Return Future Value  


Regular Plan 20000 20 Years 11.02 % 1,71,82,462 23,89,086
Direct Plan 20000 20 Years 12 % 1,95,71,548

Yes there is a difference of 23 Lakhs 89 Thousand and 86 Rupees due to 0.98%. Hence you can understand which one is better, Direct Plan or Regular Plan.

SEBI Regulations for Mutual Fund Distributors:

Disclosure of Commission

In order to empower the investors through transparency in payment of commission and load structure, SEBI has, in the circular no. CIR/IMD/DF/21/2012 dated September 13, 2012, mandated that the distributors shall disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor.

If you have already invested in Mutual Funds through any distributor, in your quarterly statement you will be able to see the actual commission paid by the corresponding AMC against the distributor.

Who should NOT invest in Direct Plan?

  • If you know how to choose mutual funds based on your goal but you are LAZY
  • If you think your distributor/broker is your financial planner and he/she suggested all the funds to invest via him/her for your goals. Interestingly you think he/she is doing it for FREE
  • You do not care how much return you get for your investments

Who SHOULD invest in Direct Plan?

  • Everyone, especially who is investing for long term. Take help of “FEE ONLY” registered Financial Planner/Advisor to choose the suitable funds and get the help of planner/advisor to invest in Direct Plan.
  • You care about your money and want your money to work for you.

How to switch existing mutual funds from Regular Plan to Direct Plan?

Switching an existing fund is same as Redeem from Regular Plan and Invest in Direct Plan. Hence all the “redeem” rules are applied in case of “switch” also; rules are such as Exit Load, Capital Gain Taxes etc. It is better for you to first stop all your regular plans and immediately start your direct plans. Wait for the time period to be eligible for exit load exemption on your stopped regular plans and then request for Switch to Direct Plan.

Important Notes:

  • All types of mutual funds can be switched except Exchange Traded Funds.
  • ELSS fund schemes that have a lock-in period, you are eligible to move to Direct Plans once units complete their lock-in period. Your investments into direct plans will have a fresh lock-in of 3 years.
  • Debt funds, the expense ratio of the regular plans is not too high hence the difference in returns is lower. Hence it is better not to switch debt funds from Regular to Direct plan.

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India’s First Cyber Safe Insurance Policy by Bajaj Allianz

On November 2nd 2017 Bajaj Allianz has launched ‘Bajaj Allianz Individual Cyber Safe’ policy, a cyber-protection product for individuals, which provides coverage to customers who fall victim to threats such as cyber-attacks, cyber extortion and cyberbullying.

As you can see more and more people are doing digital transactions on daily basis, cyber risk are also increasing. People are victimized of E-mail Spoofing and Phishing. Important data are getting lost due to Malware.

Announcing the launch of the cover, Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance said, “In an increasingly connected digital world, the amount of personal data being generated, transmitted, and stored on to various digital devices is growing at an exponential rate. The critical nature of this data and the complexity of the systems that support its transmission and use, have created a gamut of cyber risks. Therefore, with cyber-attacks and threats becoming more sophisticated and prevalent, at Bajaj Allianz we identified the need for a cyber-Insurance cover for Individuals.”

He further adds, “With this cyber insurance cover, Bajaj Allianz has reinforced its commitment to provide innovative new-age risk solutions to our retail customers. This offers them a coverage against various cyber-attacks and threats, hence protecting their reputation, potential data breaches and losses in case any vital, financial or sensitive information is stolen or misused.”

Benefits of ‘Bajaj Allianz Individual Cyber Safe Insurance Policy’ are:

  • Covers identity theft, cyber stalking, phishing, cyber extortion, media liability, social media cover, etc.
  • Provides cover against financial loss, defence cost, prosecution cost, IT theft loss, restoration cost, etc.
  • Sum Insured ranges from Rs 1 Lakh to Rs 1 Crore, can be availed by individuals above 18 years

For more information please contact “Service (General Insurance)” from https://www.bajajallianz.com.

All about SIP (Systematic Investment Plan)

What is SIP (Systematic Investment plan)?

Systematic Investment Plan is a METHOD of investing in Mutual Funds. Make it a note; it is a METHOD not a product. The method by which you invest a fixed amount of money to a Mutual Fund scheme. It is like a recurring deposit but you invest in mutual fund scheme rather than a bank deposit.

Benefits of investing in Mutual Fund Schemes via SIP:

  • Brings discipline in investing: Once you start investing in mutual fund through SIP, predefined amount of money gets invested monthly or quarterly or half yearly. Hence you acquire the discipline of investing.
  • Enables you to start with smaller amount: If you are new to investment or due to less money left out for investment you can start with as little as 500 Rs per month. As and when your income increases you can increase the SIP amount also.
  • Helps Goal Based Investing: Your financial goals such as Retirement, Child’s Education, Foreign trip all can be achieved through investing via SIP. Once you decide how much money you have to invest for each goal per month you can start your SIP on the selected mutual funds.
  • Helps building Long Term Wealth: Due to compounding you can build long term wealth with small amount invested in equity mutual fund through SIP. For example Rs 1000 per month SIP on equity mutual fund for 30 years with expected 12% annual interest will build Rs. 34,94,964.
  • Rupee Cost Averaging: Through SIP you buy more units when price is low and less when the price is high, thus making rupee cost averaging.

As one of the benefits of SIP investing in equity mutual fund is Rupee Cost Averaging, does it mean you cannot lose your money?

  • Yes SIP investing does Rupee Cost Averaging, but it does not mean that you cannot lose your money. This is because when equity market falls, it does not matter which method you followed while investing, market fall means your equity investment will also definitely fall. Hence do not assume that if you invest in equity via SIP your investment is completely RISK FREE. Make sure you know why you are investing in equity and what kind of risk is associated with the corresponding mutual fund scheme.

You might think market is at high, should I postpone investment via SIP?

  • At any point of time no one can tell whether it is bull market (market is at High) or a bear market (market is at Low). It is next to impossible. Hence once you figure out your goals, you select your mutual funds and decide you will invest via SIP, anytime is a good time. Go ahead and start your investment.

Will you be penalized if you miss your SIP/s?

  • Answer is NO. Let’s say you have not maintained the balanced in your bank account and due to which SIP installment does not get debited. It means you just miss that installment, your mutual fund folio is still active and future SIPs will be debited.

What is Step-Up Systematic Investment Plan (Step-Up SIP)?

  • A Step-Up SIP is also known as Top-Up SIP or Growth SIP. In Step-Up SIP, monthly investment amount increases by a fixed amount or by a fixed percentage each year. Few important points about Step-Up SIP:
    • Must specify Step-Up SIP while enrolling for the SIP facility.
    • Minimum Step-Up SIP amount 500 and in multiple of 500.
    • Once you opt for Step-Up SIP the details cannot be modified. If you want to modify or stop the Step-UP, then you have to cancel the SIP and apply for fresh.

Should you opt for Step-Up SIP?

  • The purpose of Step-Up SIP is you can start small and gradually increase the amount you wish. This helps to invest for long term goal where initially you start with the small amount and you decide the future increment as you predict your future income. Since you cannot modify the details once you opt for Step-Up SIP and you have decided the additional amount (either fixed or by percentage) based on the assumption of your future income, Step-Up SIP is not the better way. If you want to increase your investment in the same mutual fund folio via SIP, you can always start a fresh SIP in the existing folio. In this way you can decide every time how much you can increase based on your present income, also you can individually cancel a SIP from a mutual fund folio if required.

What is Flexi Systematic Investment Plan (Flexi-SIP)?

  • In Flexi SIP, you set a default amount for your investment each month and 7 days prior to your SIP date you have an option to change the investment amount for that month. If do not change the investment amount for a particular month then the default value will be investment.

Should you opt for Flexi SIP?

  • Can be used if you have variable income or apart from your salary you get bonus time to time and you want to invest that surplus to your mutual fund folio. Only condition here is you have to change the investment amount 7 days prior to your SIP date. Without Flexi SIP option also you can invest a lump sum amount to your existing mutual fund folio where your regular SIP is going on irrespective of SIP date.

What is a Perpetual Systematic Investment Plan (Perpetual-SIP)?

  • When you sign SIP mandate you provide the tenure, such as 5 years/ 10 years etc in the end-date column. In case you leave this column blank then mutual fund house assume this SIP will continue till December 2099. This is called Perpetual SIP.

Should you opt for Perpetual SIP?

It’s a good idea to choose Perpetual SIP as you can close the SIP whenever you want to.

What is SIP Pause?

  • Below points are given by ICICI Prudential Mutual Fund house regarding SIP Pause
    • SIP Pause is a facility which facilitates the investor to pause his/her existing SIP for a temporary period*. *SIP can be paused for a minimum period of 1 month to a maximum period of 3 months.
    • SIP is not stopped once the pause facility is availed. It is only paused for the specific period for which pause is opted for.
    • SIP restarts automatically once the pause period is over. No additional form/documents to be submitted.
    • This facility can be availed only once during the tenure of the existing SIP.
    • Registration is need based. Whenever an investor feels that he needs to ‘Pause’ his SIP, he can fill the form. Registration can be done by filling up the Pause form available on icicipruamc.com under the download section.
    • SIP Pause facility will be available for all monthly SIPs except Exchange & Channel folios as the SIP are registered directly with them. Exchange folios refer to folios created by transactions received through stock exchange platform for mutual fund transactions i.e. MFSS and BSE Star Channel folios refer to folios created by transactions received through online mutual fund transaction platform by banks/distributors. For e.g. HSBC qnis, ICICIdirect.com etc.
    • Pause cannot be availed online. A physical form needs to be filled and submitted in the nearest branch or to the relationship manager.
    • Instruct your bank to stop the auto debit service or the post dated cheque once you submit the Pause Form. This is because bank might charge you for the payment dishonour.

Which is better, SIP in Debt mutual fund or Bank RD?

  • When you miss a SIP you will not be charged penalty, where as in case of RD you might be charged with a penalty. Also there will be penalty in case you want to withdraw before maturity in case of RD.
  • Bank RD provides fixed interest rate but Debt mutual fund can be volatile.
  • The interest amount you get from RD is taxable and it will be taxed as per your taxable slab. Whereas if you invest and hold for 3 years a debt mutual fund then you can enjoy the benefit of indexation (for inflation) on your capital gain.

Do you think mis-selling happens in the name of SIP?

  • Nowadays due to Mutual Fund Sahi Hain campaign more people are aware of mutual fund investment and the term Systematic investment plan (SIP). Mutual fund distributers/Bank relationship managers all are selling SIP as a product to the investors who are very new to the equity market. Even they are selling mid-cap mutual funds to senior citizen. If you ask the investor what product they have invested in, they say “I have invested in SIP”. Friends be aware and if possible please inform your parents and relatives.

You can also check:

The Ultimate Financial Checklist for each stage of life (RETIREMENT)

“Retirement’s the most wonderful thing. I get to enjoy all the things I never stopped to notice on the way up. After an extraordinary life, it’s time to enjoy my retirement.” – Patrick Macnee.

First of all congratulation, finally you have reached your retirement after coming all the way. In this stage we believe you have fulfilled all your major responsibilities such as your child’s higher education, child’s marriage, cleared home loan or any other loans you have.  At this stage you cannot make too much exposure to equity market, hence re-balance your investments. You might have already moved to the place where you decided to spend your rest of the life or planning to move. So enjoy your retirement as per your plan and stay healthy.

“Pay off your mortgage before retirement, and that’s one less bill you’ll have to worry about when you’re on a fixed income.” –  Suze Orman.

How to start planning you finance?

Life insurance:  At this stage most probably you do not require any Life Insurance. Verify once and take your call.

Health Insurance: This is the most important insurance you must have including Super Top-Up and critical illness insurance. This will be required for your entire retirement life. Do not forget to renew these insurance on time to avail all the benefits. Keep insurance documents handy along with your ID cards, these will be helpful that the time of emergency.

Financial Goal: Go through all your financial goals and investments once again. Make sure to rebalance the equity exposure. For detail information on evaluating your financial investment, click here.

Do not overspend: Cut down all the unnecessary spending. Create a budget including your regular medicine, fuel charges, gifts & vacations and stick to it. If required then only use your credit card and pay your complete bill on time.

Be debt free: Make sure you are debt free.

After retirement income source: You should have some monthly income from your assets or investments or part time job.

Have a WILL: Make sure you have a WILL by this time. Also write down how your money should be used the way you wish.

Health: Not the least, you should really work on your health. As if you are healthy then only you will be able to enjoy the way you want your retirement life.

So your ultimate checklists for Personal Finance as RETIRED are:

  • Make monthly budget and stick to it
  • Cover with proper Health Insurance & life insurance(if required)
  • Revisit all your financial goals and re-balance your investments.
  • Be debt free
  • Make sure you have an monthly income
  • Periodic health check-up and stay healthy
  • Have a written WILL
  • Seek professional Personal Financial Planner help for better Financial Future. Do not trust anybody blindly in case of your Personal Finance.
  • Finally ENJOY

The Ultimate Financial Checklist for each stage of life are:

The Ultimate Financial Checklist for each stage of life (APPROACHING RETIREMENT)

“To enjoy a long, comfortable retirement, save more today.” Suze Orman.

This is the time when you are in your peek of earning as well as spending (including expenditure). Few years more and then you will take your retirement. Things which you want to do from long time, spend your time the way you want everything is going to be true. Your kids are in their higher studies or going to be. As you have planned things are all in place and your investments are working the way you want. However things do not go all easy for many people, hence it is very important in this stage to revisit all the financial goals and investments; make sure things are in the right path.

“As far as your personal goals are and what you actually want to do with your life, it should never have to do with the government. You should never depend on the government for your retirement, your financial security, for anything. If you do, you’re screwed.” – Drew Carey

How to start planning you finance?

Life insurance:  Check how long you need the insurance which should be decided on your dependents.

Health Insurance: This is the most important insurance you must have including Super Top-Up. If possible have critical illness insurance also.

Emergency/Opportunity fund: Keep 6 to 12 months monthly expenditure in less risky liquid fund which are easily available at the time of emergency or any opportunity.

Financial Goal: Go through all your financial goals and investments. Make sure all are in place. You also have to decide how much percentage of your investment for your retirement should be invested on equities. For detail information on evaluating your financial investment, click here.

Do not overspend: You are already in your highest spending era, hence have a proper budget and stick to it. Use your credit card wisely and pay your complete bill on time.

Be debt free: Make sure you become debt free before you retire. This will give a peaceful life in your retirement.

After retirement income source: You should work on something which will give a constant source of income during your retirement time. You can think of a rental income, work as a consultant on the field you are working etc.

Plan on spending your retirement life: You should actually start thinking and come up with a detail plan how you are going to spend your retirement days. Doing nothing will make you weak and can effect mentally/physically. After retirement it will be very hard to find out what you should do to spend your time, hence it is best to figure out now itself. You can think of your hobby or working with an NGO or start a new business, anything you have in your mind, start working from now on so that you have a proper plan.

Place where to live after retirement: It is very important to decide where you are going to spend your entire retirement period. Hence visit those places which all are there on your mind. Go spend few days and try to understand whether this is the place or not.

Have a WILL: Make sure you have a WILL by this time. Also write down how your money should be used the way you wish.

Health: Not the least, you should really work on your health. As if you are healthy then only you will be able to enjoy the way you want your retirement life.

“Living each day as if it were your last doesn’t mean your last day of retirement on a remote island. It means to live fully, authentically and spontaneously with nothing being held back.” Jack Canfield.

 So your checklist for Personal Finance as an APPROACHING RETIREMENT are:

  • Make monthly budget and stick to it
  • Cover with proper Health Insurance & life insurance(if required)
  • Create an emergency/opportunity fund
  • Revisit all your financial goals and investments.
  • Use your credit card properly and always pay your complete credit card bill on time
  • Be debt free before retirement
  • Have a after retirement plan
  • Have a written WILL
  • Seek professional Personal Financial Planner help for better Financial Future. Do not trust anybody blindly in case of your Personal Finance

The Ultimate Financial Checklist for each stage of life are:

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