Future of GOLD is glittering???

Just thought of sharing some interesting facts about gold today.

There is roughly 7000 years (beginning of civilization) of history of gold.

We all seek permanency and gold comes near to that.

Gold does not get corroded or rusted. It is not soluble in any acid. It is very difficult to demolish.

Most of the gold digged from time immemorial is still in circulation.

So we may even be using the some of the gold (recycled) that was used in the times of Rama, Krishna, Buddha and Jesus.

It is very soft that you can beat the gold down so thin that sunrays can shine through it.

The quantity of steel poured in an hour in our planet is more than what has been poured for gold since the civilization. That is how limited the availability of the gold is.

It is estimated that total gold available (in circulation and storage) in the world is 1,65,000 tonnes.

1 tonne is 1000 Kgs. At Rs.3000/- a gram, the cost of 1kg of gold is Rs.30 lakhs. So 1 tonne of gold is worth Rs.300 crore.

Indians privately own anywhere between 15,000 to 20,000 tonnes of gold. Even pegging it at 15,000 tonnes, the value comes above Rs.45 lakhs crore.

Since I cannot not talk about equity, the entire fund management industry in the country only manages Rs.6 lakh crore worth of equity assets.

Indian government owns only around 550 tonnes of gold.

No one knows how much gold the Indian temples have.

Tirupathi is estimated to have gold worth Rs.90,000 crores. Around 4000 kgs of gold is offered annually by his devotees to Lord Balaji. Interestingly as per legend, Balaji borrowed from Kubera 1.14 crore coins of gold for his marriage. Marriages have always been expensive in this country. By any standard, Balaji’s wedding with Padmavathi is the most expensive marriage that has ever happened so far in our world.

Till few years ago, we never knew Lord Padmanabha is so rich. Is that why he is very relaxed (ananda sayanam)? The very conservative estimate suggests that the value of gold in his abode is around Rs.4 lakh crore.

Reading various estimates and guesstimates looks like we (including deities) may have even 30,000+ tonnes of gold in our country. So we own around 20% of the entire gold in the world.

This means at today’s price, we have Rs.90 lakh crore worth of gold. India can be amazingly rich and poor at the same time.

Since gold is so malleable, just one gram of gold can be beaten into a sheet of one square metre.

The entire gold available in the world today can easily fit within a cube measuring 67 feet. Just one good shipping container would do. Golden Voyage!

75% of the gold available today has been extracted only after 1910.

The U.S.government (Fed Reserve + FortKnox) has close to 10,000 tonnes of gold.

During great depression, in 1933, U.S. government banned private holding of gold. People were ordered to handover the gold they have and were provided instead with dollars of equivalent value. Once the process was over, the government devalued the currency by over 40% eroding people’s wealth overnight. This coupled with high inflation was an extremely tough time for its citizens.

This ban was subsequently lifted only in 1975 and Americans were again allowed to own gold.

Since China has lot of dollar or dollar denominated assets; they understand the above risk better than anybody else. Chinese people were not allowed to own gold for more than 40 years and possessing gold was a severely punishable offence. Sometime during last decade this ban was removed and China has been encouraging its citizens to buy gold and silver.

Talking about silver, Buffett who rarely touches commodity, purchased 37% of the entire silver available in the world (yes, you read it right) in late nineties and sold it some time in the middle of the last decade. I think that considering the growing industrial demand and limited supply then, he saw value in purchasing the same and selling it at a very good profit. Silver was selling at abysmally low prices during the time of his purchase.

Every year, the new gold produced / recycled is consumed 50% as jewellery, 40% for investments (including ETFs) and 10% for industry. I was under the impression gold has no industrial use whatsoever till one of our client told me that electronics industry uses gold.

Though South Africa has been one of the world’s largest producers of gold, its citizens were not allowed to own gold till 2009.

For sports fan, do you know that Olympic gold medal is not made of gold! A ‘gold’ medal contains only 6 grams of gold. Only till 1912 Olympics, the gold medals were actually made of gold.

In 1991, our country’s situation was so bad that 65 tonnes of gold was taken out of the country  and mortgaged to tide over external payment crisis.

If you are worried that gold’s supply would get exhausted soon, fear not!

About 10 billion tonnes – 10,000 million tonnes (yes, you read it right) of gold is estimated to be held in the oceans of the world. An economically viable model of extraction is being explored.

Necessity is the mother of invention. If gold prices continue to rise and if the demand would only increase, who knows, a technological innovation can happen in extracting gold from ocean.

May be we can all then plan for building with our own golden bathrooms and specially bath tub so that we can have a golden bath....

What about our bappida???

Invited as "Guest of honor and Speaker" at "Parul University - Management faculty"

Invited as "Guest of honor and Speaker" at "Parul University - Management faculty" during inauguration of their 2 days annual event "Arize".
Took a session on
"Importance of financial planning for today's youth"

UPI - The next gen Payment system

There's been a lot of excitement about new UPI-enabled apps such like Axis Bank’s Axis Pay, ICICI's Pockets, and Flipkarts PhonePe, but what do these apps do?  In really simple terms, the UPI (Unified Payments Interface) is a payments system - just like a cheque, your debit card, or a mobile wallet.

The UPI, which went live in Septembet this year is interoperable between banks, so it doesn't matter if you have an account with Axis Bank or ICICI Bank or Yes Bank - and that's thanks to the NPCI (National Payments Corporation of India), which is the same organisation that enables our ATMs to be interoperable, allowing you to use an Axis ATM card in an ICICI ATM, for example. The UPI has gone live with most of the private sector bank and PSU banks. We can expect almost all banks to be on live by March'2017.

What is UPI?

It's a payments system. You could use UPI to transfer money between friends and family or to pay your landlord, or to make a payment at a shop, or to buy something online. The money will be debited from your bank account, and transferred to the recipients account instantly and securely.

It's based on the IMPS (Immediate Payment Service) system that you might have used with your netbanking app by now, and its available 24x7, even on Sundays and holidays.

What is Virtual Payment Address 

"Virtual Payment Address" is an identifier (that takes a form of abc@abcbank wherein "abc" is a unique name that you can choose for yourself) that can be uniquely mapped to an individual account using a translation service. Like I have my virtual address as rajtalati@icici. It requires seconds to generate VPA through bank's mobile app or throu' internet banking

How is it different from NEFT, RTGS, IMPS?

NEFT and RTGS both involve a pretty significant delay, so you don't need to bother about that. UPI is based on IMPS, so in a basic sense, there's no big difference. UPI is basically IMPS designed for a mobile world - it's much more convenient to use, and easier to set up. What does that mean? Well, let's say that you want to transfer money right now - maybe your friends just got married and you want to send them some cash as a gift they can use in any way they want. Or you need to send money for any other reason.

Right now, using IMPS, you'll have to go to your bank's app - no using third-party apps for this - and go to the funds transfer section. Then you'll have to add a recipient; you have to authorise a recipient before you can send them money, and then until you manually remove them, you're stuck with them in the recipients list where you could accidentally select them at any time. Adding a recipient means entering a lot of details about them as well - you need to know their bank account number, and IFSC code (and depending on the bank app you're using, also their bank branch), which are all long strings of numbers. It's confusing and painstaking.

With UPI, just open a UPI app that's linked to your account, enter the payee ID (which is something simple and memorable like rajtalati@icici), the amount, and click transfer.

How do I get started with UPI?

It's really simple - all you have to do is download one of the banking apps from the Google Play store that supports the UPI. The small list of banks is here: Andhra Bank, Axis Bank, Bank of Maharashtra, Bhartiya Mahila Bank, Canara Bank, Catholic Syrian Bank, DCB Bank, Federal Bank, ICICI Bank, TJSB Sahakari Bank, Oriental Bank of Commerce, Karnataka Bank, UCO Bank, Union Bank of India, United Bank of India, Punjab National Bank, South Indian Bank, Vijaya Bank and YES Bank.

Once you download the app, you need to verify your phone number, and then link your bank account to the app. Once you've confirmed your bank details, you're good to go and can start using the app to send or receive money.

Do I have to have a bank account to use this?

Yes. The UPI app has to be linked to a bank account to send or receive money.

Do I have to have an ICICI account to use Pockets or a Yes Bank account to use PhonePe? i.e their UPI apps.

No. This is one of the big plus points of the UPI - it's interoperable between banks, so you don't need to have a different app for every account you use. So with one app of anyone bank can link your accounts with that bank or any other banks.If you link more then 1 account then need to mark a default bank for receiving payment and default bank for sending payment. You can change default bank anytime you wish to.

How can I receive money

Login to Mobile app and click on UPI.

Click on UPI and then choose "Collect via UPI"

Enter the details of the transaction such as the VPA of the person you would like to collect from, amount and remarks.You can also choose if you would like to receive the money immediately or in the next 7 days. Click on Submit

Please review the next screen carefully to ensure you have filled all details correctly.

Click on Submit to initiate a Collect payment via UPI. When the person you have requested money from authorises the transaction and money is credited into your account, you will be notified.

Amount Restriction :

Currently per transaction restriction is Rs.100000 per transaction.

What if I loose my mobile : 

UPI is adhered to two factor guidelines of RBI or your mobile app pin and UPI pin.

Charges

At present there is no seperate charges for UPI .Only Rs.5.00 +S.Tax is debited to you account towards IMPS charge which anyways you pay for netbanking.

Why is this better than using a wallet?

One question that comes up a lot is whether UPI is like a mobile wallet, and whether the UPI is going to remove the need for mobile wallets. No,I Don't think so. We have a big market and both of them can survive together.

Rather wallet has already grabbed a space in people's mind now it's UPI's turn and will depend on how much bank pushes it by way of advertisement and creating awareness within their client base. One thing is very sure it will give tough competition to wallets in future.

Transform India with E-wallets - Paytm karo, Oxigen,Mobikwik, Recharge, Payu

Demonetisation psychosis has taken over India since 8th November... From Multiplex to Shopkeeper, from Car dealer to two wheeler shop, from mall to big bazaar every one has suffered business loss and still it would take months for things to settle down.

Apart from honest Indian citizen, in all  this  chaos if  someone is  happy and  enjoying  the  party is e-wallets and online payment portals like Paytm, Oxigen, Mobikwik, Payu, Freecharge, msikkay, chillr.......One of the political parties controversial leader tweeted that our Prime minister has become brand ambassador of big corporates referring to an advertisement of paytm published very next day of demonetisation with his big picture. As they say "action speaks louder than words" our Prime minister actions shows he is a brand ambassador for digital India, Clean India, Corruption free India, Agriculturally flourishing and India with great infrastructure.

But what this e-wallet actually is. Lot of us are already using it and many of us wants to do so. So let's know little more about it and contribute to mission digital India :

What is e-wallet  

E-wallet is nothing but a replacement of our physical wallet which you carry, in our pocket. The way you use  it to make payment for movie ticket, petrol refill, Vegetable vendor or lending money to your friend you can use electronic or e-wallet for the same.

Types of Wallets

According to the Reserve Bank of India (RBI), there are three kinds of wallets: closed, semi-closed and open.

1) A closed wallet is issued by a company to a consumer for buying goods and services exclusively from that company. These instruments do not permit cash withdrawal or redemption. Companies such as Flipkart.com, Jabong.com and Makemytrip.com offer closed wallets. Mostly these function as an account where money gets credited in case of a refund due to cancellation or return of a product or service.

2) A semi-closed wallet can be used to buy goods and services, including financial services, at clearly identified merchant locations or establishments, which have a specific contract with the issuer to accept the payment instruments. Semi-closed wallets also do not permit cash withdrawal or redemption by the holder.In the payments space, companies such as Oxigen Services India Pvt. Ltd, Citrus Payment Solutions Pvt. Ltd and Paytm etc.offer semi-closed wallets. This wallet can be used not only at multiplexes such as PVR and Inox but also to recharge direct-to-home services such as Dish tv, to make Utility bill payments or for payment to anyone or everyone.

3) Then there are open wallets, which can be used for purchase of goods and services, including financial services such as funds transfer at merchant locations or point of sale terminals that accept cards, and also cash withdrawal at automated teller machines or business correspondents. These kinds of wallets can only be issued by banks.

An example of open wallet is M-pesa by Vodafone India Ltd in partnership with ICICI Bank Ltd. Vodafone also offers M-pesa as a semi-closed wallet.

We will limit this blog to semi-closed wallets.The transfer in wallets are done by using payment gateway system. “These wallets are handled by non-bank entities and as per regulations they need to keep total money lying in wallets across clients in an escrow account.” 

Does this money earn interest

Yes, but not to you, Interest earned is income of wallet company and how much depends on the agreement between the bank and the company. This interest is in the range of 4-6%. In some cases it is even higher then 6%. 

Merchants don’t get any benefit from the money lying in wallets.However, companies give offers such as Rs.50 cash back on transaction to consumers.

How to feed wallet 

The way we feed our physical wallet we can feed our e-wallet either by net banking, Debit card, Credit card, IMPS or ATM card or by receiving money from someone.

Maximum Amount 

As in our physical wallet we don't keep too much of cash, RBI has kept upper limit of Rs.100000 at any point in time for KYC complied customer otherwise it's Rs.20000. 

How to transfer money 

All you need is the phone no. or email id, or facebook user id. just need to login into your e wallet fill in any of the above fields, mention amount, reason (optional) and send. Paytm has provided option of scanning QR code i.e the picture displayed outside the shop with paytm logo once scanned you don't require to enter any details of recipient.

How recipient gets money 

Recipient receives SMS,email about intimation of credit if he doesn't have installed the wallet app, he need to download it and payment will be credited to his wallet. If app is already downloaded by merchant he will receive immediate credit to his wallet.

Monthly Limit 

Monthly limit of Rs.100000 applies for merchant transaction and transfers. Whereas you can transfer only Rs.25000/month to other account or bank.

Charges 

To send money to other wallet or to make payment at merchant outlet you do not need to pay any charges but transferring it to a bank account will attract charges in the range of 1% to 4%+S. Tax.  In KYC complied cases  it is in the range of 1 - 2%.

How it is different from Credit Card 

Credit card is more like a post paid card whereas wallet is pre paid card. Other bigger aspect is charges involved Wallet are much cheaper, almost free and convenient as compared to credit card which attracts charges in the range of 1.99% to 2.99%.

How to use it for offline payments?

You can make cash-less payments using Wallet even without internet connectivity If a retailer accepts wallet as a mode of payment, you can either use QR codes or bar codes, along with a One-Time Password (OTP) to pay them. To do this, you need to open the app, select the ‘Pay or Send’ option, and choose between QR code or bar codes (provided in two separate tabs). Just scan the code and enter the OTP to authorize the payment offline. This feature can be especially useful right now, when the whole country is facing a cash crunch and internet connectivity is still not good enough to facilitate online transactions.

SBI Buddy 

Wallet by one of India's biggest bank with customer base in remotest part of the country. Being from SBI people feel more confident to transact through it. The features and all other bsic details are same as mentioned above only the charges in case of transfer of funds to bank for SBI Buddy is 3%+ S.Tax.

How do Wallet providers make profit 

The big question comes is from where this people makes money, although at present bigger focus for them is to increase there subscriber base, so whatever profit they make either part of it or full is passed on to you in form of wallet credit or cash back. But they make profit from following sources :

a) Profit for wallet companies comes from comission from different utilities like mobile recharge, DTH, Uber, Ola etc.

b) Interest earned on cumulative money of customers lying in wallet i.e escrow account  let's say there are 100000 customers having credit of Rs.20000 each in their wallet turns to Rs.200 Crore.

c) Charges ranging from 1 to 4% for transferring money to your bank account. So whenever a merchant or client transfers money to his account they earn by way of charges on them.

d) Advertisement revenue on their site or portal.

Is there a better option then e-wallet :

UPI (Unified Payment Interface) allows launched in September this year person-to-person money transfer. UPI-enabled bank apps allow transactions through any smartphone, using VPA (virtual payment address). A big advantage of this model is that it does not require an account number, bank details or IFSC code. One just needs to create a virtual ID with UPI-enabled apps. Transactions done through the UPI app can be done 24/7 with immediate transfer of money from one bank account to another. Taking the UPI system a notch up, TruePay, a UPI-enabled app, lets customers transfer money directly to a bank account without even the virtual ID. To transfer money using TruePay, money can be transferred just with mobile numbers. It's almost as simple as sending an SMS, but the sender and the receiver must both be registered with TruePay. Almost all the bigger banks has launched there UPI app. 

How UPI is better :

Transferring money digitally to your bank account through UPI is much the same as paying cash, as the money doesn't go to an e-wallet from where you have to transfer it to your bank account. It hits your bank account directly. With UPI, one doesn't have to top up the e-wallet to spend money from it or even worry about which e-wallet is better for making payments. Also, while you do not earn interest on money loaded into an e-wallet, with the use of UPI, you earn interest on money sitting in your bank account.

How digital payments will benefit our country :

Out of population of 124 crore we have only 1.62 crore tax payees . We know the actual figure should be in multiples, then where is the problem. Lot of businesses are carried out traditionally in cash, and cash payment has become a trend, hence they do not show their income and pay taxes. 

Just think of income of nearby kirana store, namkeen shop, your vegetable vendor or most of the people whom you make payment by way of cash. They might be earning much more then the taxable limit but no one files return or pay taxes, resulting in higher tax rates for honest citizens. By making payment through wallets,internet bank, debit card, cheque all figures will reflect in their bank account and they would be forced to file tax return

Is it really that simple - no there are lot of challenges like, power problems, internet connectivity, slow speed and cost. It just needs a commitment to overcome challenges let's decide that today onwards we will avoid cash payment and use any of the above channel. Together with it educate and motivate people to open bank accounts and start using non cash payment options.  

In turn it will help government to lower tax rates and to spend excess collection of tax on Infrastructure, clean water, cleanliness, sanitation, power and create a better India which we all want. Let's join our Hon'ble Prime Minister in this noble mission of making a new cashless India.

"Decoding-Demonetisation" done at Yuvalay

Yesterday's lecture coverage in today's Divya Bhaskar.
Please read with 2 corrections in reporting :
1) In last 10 years cash circulation had increased extraordinarily, going forward which will decrease
2) NBFC's will face stress in short to medium term
Instead of reported

Divya Bhaskar dated 26th November

     

"Demystifying - Demonetisation" done for JCI Baroda Metro on 14th November

Successfully conducted back to back two training program at Bharuch and Anand for Financial advisor's with SBI Mutual Fund...

Art of Money management for School and College Student

Conducted a session on "Art of Money Management" at "Yuvalay" for H.Sc. and College Student under our financial literacy initiative.

Presentation done for Financial advisors on "Taking a big LEAP" during monthly advisor meet of SBI Mutual Fund

Featured on Wealthforum

Important message for all advisors

Raj Talati, ABM Investments, Vadodara

24th February 2016

In a nutshell

Raj recently conducted an IFA workshop for VIFAA - Vadodara's IFA Association, in which he played a 4 minute audio clip at the beginning of his session.

In RJ Naved style, Raj highlights the responsibility that every IFA shoulders, of making their clients' dreams and aspirations turn into a happy reality rather than a bad nightmare.

Raj's message at the end of this 4 minute clip is a timely reminder to all advisors to act responsibly and judiciously - he urges you to internalize that your clients have entrusted their dreams and aspirations to you, in good faith.

http://wealthforumezine.net/Advisorspeak240216.html#.VtZy2KDhXqB

My Views published in today's MINT - Ahmedabad Edition (10/11/2015)

Investor Meet - "Secret of Wealth Creation"

 

Are you in love with your company???

Recently, I come across portfolio of one of my close relative. It took me by surprise. The portfolio composition was like this :

95% of her portfolio was made up of investment in the company she was working with. Out of it 60% of the shares she accumulated in last 10 years by way of ESOPS. Looking at the bright prospect and growth of the company she bought balance from the market. 

Hardly, she is having any wealth apart from the shares of her own employer.

Now, think of a situation if something goes wrong with the company may be due to political, environmental, global, sectoral or corporate governance issues(We have lot of such examples e.g Kingfisher, JP associates, Satyam computers, Amtek Autu, DLF etc..). Her future will go for a toss. She would be hit by a two edged sword at one end she might loose job due to crisis in the company and at the other end share prices will loose all the gains.

She was very confident and secured for her financial future, but now she realises she is taking a big risk with her and family members future. 

Basic principle of investing is that "Don't put all your eggs in one basket" But it is some thing like putting all eggs in one basket and then taking it bull run festival of spain.

So please do take care and diversify your investment across good companies and across sector according to your need.

Do consult your financial planner, it really helps.

Be wealthy like Warren Buffet by investing just 220 buck per month !!!

We all dream to be wealthy like Warren buffet, rather fact is most of us would have never ever dreamt of being as wealthy as him. But is it that difficult to be as rich as warren buffet.

I tried to evaluate and did certain calculation of what actually made warren buffet one of the wealthiest person in the world.

1) Long term : He never invested money looking at short term. Warren Buffet says -

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years.”

2) Start Early : He made his first investment at the age of 11 and still regrets that he started late.

3) Discipline : He has been an investor since he made his first investment.

4) Power of compounding : His biggest friend in wealth creation is power of compounding he compounded his wealth @22% per annum. It is very easy to get return of 50% or may be 100% once in your lifetime, but is very difficult to get return of 22% every year for almost 75 years.

5) Expenses : He still lives in 3 bed room house in omaha bought 57 years back . He drives his own car.Although he owns worlds largest jet company but never flies by a private jet.He also doesn't carry a cell phone. He believes :

" If today you buy things you do not need, soon you will have to sell things you need".

With all the above qualities, let's understand how any of us can create wealth like Mr.Buffet.

Date of Birth : 30/08/1930 

Age : 85 Years 

Started investing : 11 Years 

Investing since : 75 Years 

Present Wealth : 67 Billion US$

Compounded : @22% 

Increase in rate of Investment : @10%

Investment in first year : USD.2682.00

That means if someone starts at age of 11 with just USD.220 per month increasing it 10% every year and compounding it @22% can accumulate such wealth. Is it that difficult?

The toughest task here is to compound your investment@22%/p.a. for such a long period. 

But luckily we have some of the Equity Mutual fund which gave return @24% annualised, during last 20 years of its existence. So even if you are not having stock picking knowledge of Warren Buffet, you have easier way available to be wealthy like him.

Will conclude with one of his best words of wisdom : 

"If you are luckiest 1 percent of humanity, you owe it to the rest of the humanity to think about the other 99%.

You would be surprised to note that his children will not inherit a significant proportion of his wealth, he has pledged 99% of his wealth to charity and already donated US$25.5 Billion.

A must list, before I die...

We wish all our reader's a healthy and peaceful long life. But we all know we have to die one day.

Have you ever thought why it is only me, who knows about all the investments, deposits, assets and liabilities. May be for convenience we would be accessing bank accounts and password of entire family. But is it not necessary to update atleast one of the family member about it.

Recently a report was published in the news paper that almost 64000 Crore is lying unclaimed in bank, post office, insurance company and EPFO for more then 10 years.

It suggests that there were people who invested this amount and have not passed on details to their heirs, who can claim it.

It take lot of efforts and hard work to earn, save and create wealth. Being Indian parents we always wish that we should pass on our legacy to next generation. But only wish doesn't work.It needs to be planned.

In today's fast moving technological world everything is either stored on our laptop,computer or mobile and have been saved with the password which only we know.

There was a recent case in which a client had updated his spouse about all the investments and name of the files stored in the computer. But when he died and her wife tried to access the details she was surprised to note that computer was locked with an password, which he didn't shared.

Remember in case of sudden death. Family has to bear 2 kind of losses one is emotional and other is financial loss. No one can fill the emotional gap only time can heal it up. But together with it if they have to go through financial problem then it is unbearable, that too when enough resources were planned.

Just assume that YUM DOOT has come to your dream and given you notice of 1 day. I think first thing you would do is provide with all your financial details to your family member.

For your ease trying to put down list of things you must prepare, update and give it to your family members :

• Will : Prepare a will. It is a simple statement mentioning how you wish your wealth should be distributed to your heirs. It is perceived that it requires lot of legal and technical hassles. But let me tell you that you may create it on a simple piece of paper which needs to be signed by 2 witnesses.

• Bank account details with login and passwords.

• E-mail account login and password, only in case there is no confidential details which you have even hided from your family and don't want them to know even after death

• Laptop and smart phone login/password

• Debit and credit card pin

• Nominee : Ensure all you investments have a nominee. Legally nominee is not the owner of the asset but just an authority to receive proceeds. If your one son as nominee and you die without making a will your another son,daughter or even your cousin can challenge it in court.  

• Details of Saving Bank Account,Locker, Fixed Deposit, Demat, PF, EPF, Insurance (Life and non Life).

• Details of all your investment like Mutual Fund, Stocks,Physical Gold, Silver, Real Estate.

• List of outstanding loans.

• Money given or taken from friends and relatives.

Remember only providing the details will not solve the purpose it needs to be updated at regular interval. Your birth date or anniversay date can be a good reminder to update the list.

Is home loan prepayment really beneficial ????

I keep on receiving lot of queries as whether one should continue to pay home loan or invest the surplus available.

It would be wrong if I only discuss financial aspect. Apart from financials, lot of other factors, which also needs to be considered.

Trying to cover most of it, with a word of caution and request to consult your financial advisor before taking decision. The right and timely decision can help to reap big benefits out of housing loan.

Request readers to go through complete article to understand benefits, assumptions and other aspect related to it.

1) Financial benefits : 

Lot of people claims that it is always beneficial to prepay housing loan, some claims it is advisable in earlier years as interest cost is very high.  

From financial benefit point of view IT IS ALWAYS BENEFICIAL TO INVEST THE SURPLUS AS COMPARED TO PREPAYMENT. Let me illustrate you with an example :

Lets assume following:

Case I - Prepayment :

Loan Amt.                                 : Rs.20,00,000

Tenure                                       : 20 Years

Interest                                      : 9.4% (SBI Present rate)

EMI                                            : Rs.18512/Month

Interest payment in 20 yrs.  : Rs.2442931

Capital Repayment in 20 yrs: Rs.2000000

Total Payment                          : Rs.4442931

Let's say you have surplus of Rs.500000 and you prepay so the total amount comes like this:

Interest payment in balance reduced term : Rs. 889323

Capital payment in balance reduced term  : Rs.1500000+500000 (Prepayment)

Total Payment                                                   : Rs.2889323

So the total benefit comes out to be Rs.1553608

Case II- Investing surplus without prepayment :

Let's say surplus amount of Rs.500000.00 is invested in tax free bond of PFC on offer right now @ 7.60% (Assuming annual interest is reinvested at same rate)

The maturity amount of Rs.500000 @7.60% after 20 years would become Rs.2163791

So the net gain by investing the same amount would be (Rs.2163791 - Rs.1679372) = Rs.484419.00. 

Benefit for interest repayment on housing loan during the term (considering 30% tax bracket) : 

2568680-889308 = Rs.1679372 @ 30% = Rs.503811

(Even,if we ignore tax benefit of 80C as in most of the cases it is covered by PPF,EPF and LIC Policies)

So the total benefit works out to be whoopping  (503811+484419) = Rs.988230.00

2) Inflation : Although it look very beneficial at first go, but after taking inflation @6% works out to be equivalent to Rs.3.08 Lacs in present terms. So if you are higher tax bracket benefit is considerable.

3) Assumption : We have assumed investment in tax free bonds which are right now available, But It won't be possible everytime to get such an avenue of tax free investment for 20 year long period. Together with it we have also assumed that the reinvestment of interest amount would also be at the similar rate.

4) TAXATION : As we are aware that there are 2 component to EMI first is Interest and other Capital repayment. 

As per section 24 your income shall be reduced by the amount of interest paid on Home Loan where the loan is taken by for Purchase/Construction/Repair/Renewal/Reconstruction of Residential House. The maximum deduction available for self occupied property is subject to a maximum of Rs.2 Lacs. In case it is not self occupied there is no upper ceiling.

In addition the amount paid as repayment of principal amount of home loan by individual/HUF is allowed as deduction under section 80C. This section also includes amount invested in PPF,EPF,ELSS scheme of Mutual Fund, NSC etc subject to total upper limit of Rs.1.50 Lacs.

So if you prepay your home loan, may be you loose tax benefit against interest part as the interest component would reduce considerably.

5) Funds Requirement : Never deep into your contingency or emergency fund in a hurry to prepay your home loan. You must keep atleast 3 to 6 months of expenses for contingency.

6) Prepay Costlier Debt First : Home loan is the cheapest loan available. So if you have other outstanding consumer, credit card or personal loan. Prepay them first.

7) Defensive investors : If you are a defensive investor then I would advise you to prepay your home loan for any surplus amount because mental peace and health is more important then financial benefit.

8) Retirement Planning : If you have not planned for your retirement yet and you are right now in your 30s or 40s consider investing in Equity mutual funds to build retirement kitty.It may give you much more benefits then shown in illustration. If I consider historical Equity returns of 17% then Rs.5.00 lacs may become almost Rs.1.20 CRORE

9) Nearing your retirement : If you are planning to retire soon, then it is advisable to prepay your housing loan so that you don't have any liability after retirement.

10) Planning to spend surplus : If you are planning to buy some white good or a gadget or a depreciating asset out of surplus then it is advisable to prepay your home loan without any of above consideration.

Please take decision of prepaying or investing the surplus after considering above factor. Remember every penny saved is penny earned.

Is my Health cover sufficient??

Typically while planning our goals we consider inflation in the range of 6-8%. But there are certain areas like education and medical it is much above it. 

With emergence of newer medical technology and innovation cost of medical treatment has increased many fold.

The biggest question which we all have in our mind is how much medical cover should I take to have minimum impact on me financial future.

There is no one size fit for all kind of formula for it, but yes depending on following points you may zero in on a particular amount :

1. Room, Boarding and Nursing Expenses : Most of the health policies permit you to spend 1% of the sum assured per day on room, boarding & nursing expenses or actuals whichever is less. Many a times all the other expenses from operation to investigations or treatment packages are also linked to it. 

So one way to decide on minimum sum assured requirement is to inquire in a good nearby hospital the per day room rates of the category you are comfortable with. Like if yu are comfortable with semi deluxe category on twin sharing basis whose charges are Rs.2500/day. Then in that case you must select minimum sum assured as Rs.300000.00.

2. Family history: Health insurance must cover the entire family. Some families have a history of diseases like diabetes and of heart. If the lifestyle in not changed or improved to control it may result in bigger complication, so they need to have additional cover. 

3. Your age: An early start helps. Premiums then are lower because you are unlikely to have pre-existing diseases. If you are 35 or below, you should start with a sum insured of Rs.2 - 3 lakh and increase it by 15% every year. Health insurance costs keep increasing sharply – much more than the average inflation figures released by the government. 

Normally medical insurance companies do not increase sum assured beyond age of 50 and in some cases even if they do then it is subject to prior medical test and certain exclusions.Secondly, if you are covered under floater policy and as both of you are moving in higher age bracket there are chances of getting both you and your spouse to have medical complications in the same year. So it is necessary to achieve a particular sum assured as you move closer to that age.

4. Dependents: If you have dependents, wife and kids, you will have to cover them as well. You need a family floater plan which is much cheaper as compared to individual medical plan.

5. Cover from Employer: The company you work for, may offer you an insurance cover. That's great but most often is not sufficient. Also, you could lose these benefits upon quitting the job, especially in a situation where the group cover is the primary health insurance option. You may also ask your employer or his insurer to convert that group policy to individual policy while quitting the job. In most of the cases we miss that. So its better safe then sorry and have an individual policy as well.

6. Top up cover: Considering the rising medical costs, especially with new and advanced procedures being available in India, choose a product which can be taken as a top-up policy (with some deductions applicable). Such a plan would give you continuity benefits over your existing policy at a very low premium. 

It is always advisable to consult your financial planner who can guide you much better in taking such crucial decisions.