Monthly Archives: October 2014

Thursday Trivia – Five common ways you can lose money

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If you are suffering monetary losses due to laziness and ignorance, have an ECS arrangement in place or set up phone reminders to ensure that you don’t.

1. Missing the insurance premium date

How you lose: Irrespective of the reason for missing the payment date for your insurance premium, you stand to lose a lot of money. Insurers usually give a 15-30 day grace period, but if you miss even this, your policy can lapse. Depending on the time lapsed, you have to pay the premium, along with the revival charges, to retain the policy after the grace period is over.

What’s your loss? The revival charge varies among different insurers. Typically, it is a flat fee of around Rs 500 or an interest on the outstanding premium, which is usually around 0.75% per month. The revival charges also depend on the type of policy.

2. Forgetting your credit card payment

How you lose: Among financial products, there’s nothing as easy to use and as complicated to understand as a credit card. If you miss a credit card payment, you stand to suffer losses in three ways. You will be slapped with a late payment fee; you will have to pay interest on the outstanding sum, and you will have to pay more for any purchases that you make in the next billing cycle.

What’s your loss? Usually, the late payment fee ranges between Rs 300 and Rs 700, depending on the payment due. The interest charged is 2-3% on the outstanding bill. You will have to pay an extra 2-3% for the purchases made in the next billing cycle. Your credit score will also suffer.

3. Ignorance about depositing advance tax

How you lose: Advance tax is required to be paid in three instalments. At least 30% of the tax by 15 September, 60% of the tax by 15 December, and the remaining by 15 March. If you fail to pay advance tax, you will have to pay interest on the defaulted amount.

What’s your loss? Penalty is 1% simple interest per month on the defaulted sum for three months. The penalty is the same (1%) if you missed the 15 December deadline. If you miss the final date of payment, you will have to pay 1% simple interest on the defaulted amount for every month until the tax is fully paid.

4. Delay in paying utility bills

How you lose: A family of four easily pays 6-8 utility bills a month, which includes mobile bills, electricity bills, Internet charges, among others. If you manage to miss these, you have to shell out the late payment fee. What’s your loss? Miss a couple of utility bill payments a month and you could be spending Rs 300-500 on late payment charges.

What’s your loss? Miss a couple of utility bill payments a month and you could be spending Rs 300-500 on late payment charges.

5. Forgetting the loan EMI payment

How you lose: This is again a double-edged sword. If you miss home or car loan instalment, not only are you slapped with a penalty, but your credit score also suffers.

What’s your loss? A late payment fee for a missed EMI on a personal loan with HDFC Bank is 24% per annum on the outstanding sum from the date of default. A late payment charge for a missed EMI on a home loan with ICICI Bank is in the range of Rs 500-5,000.

 

By Bindisha Sarang ET Wealth

Thursday Trivia – 5 smart financial actions to take this Diwali

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Diwali, the season of lights is around the corner. Shops have been decorated and you are probably already dwelling on gifting ideas. This is certainly the time to pamper yourself and your near and dear ones, but don’t overdo it. Here’s what not to do.

Shop only what is needed

Walking through shopping malls or browsing through e-commerce sites with an aim of clinching the best deals can trap you into spending more. If you want to control your money, and not the other way round, make a list. If armed with a shopping list, chances of impulsive buying come down significantly. Jotting down what you want also helps you come to an estimate and plan your purchases. Once you have a list, try to stick to it.

Spend only what you have

Many salaried individuals get a bonus during this time of the year. Be careful of how it is spent. Banks are offering low interest rates, easy equated monthly instalments (EMIs), minimal paperwork, discounts and more. Resist the urge to borrow and then spend, unless absolutely essential. Work for yourself rather than the banker. To avoid falling into a spending trap, try to create a budget for festival spending as part of your financial planning. When you slot festival budget as a goal in your financial plan, it stays on the radar. It is also likely that meaningful things would be on the list, such as a washing machine replacement or painting the house, rather than frivolous purchases.

Compare pricing and features

With increasing competition in the marketplace, shopkeepers and e-commerce websites are offering products at competitive prices. Use comparison sites, or do the exercise yourself. To get the best prices online, you could use websites such as www.indiabookstore.net (for books), and www.mysmartprice.com (for all products). Remember that online and offline are just two modes of purchasing a product. Why do you want to pay extra if you are getting the same product at lesser cost? By carefully comparing prices, you will be able to identify the best deals. Don’t buy a product blindly; do your research first.

Use credit cards smartly

We tend to spend more when using our credit cards. Why does this happen? Credit cards mostly have limits higher than what we may need. It, therefore, encourages instant gratification. With an added advantage of deferred payment, it is a sure shot recipe of spending more than what you need. Also while making the payment one does not get the experience of parting money, as it would pinch while paying in cash. Credit cards are simply another mode of payment, and have advantages of delayed payments and earning points, but come with a high penalty in case of delayed repayment. Use the structure, but with care.

Plan investments, not only expenses

Talking about saving and investments at this point may look like a spoiler, but it is actually a good time since you have more money at hand. Many Indian companies give bonuses and incentives during Diwali. If used prudently, this money could get your money life in order. For instance, you could consider pre-paying your loans by evaluating the outstanding amount. If you don’t have any loans, you could start investing in suitable products. You could also first invest a portion of your bonus and then spend the rest. If you give investing priority, and shift money towards it, you’ll have less to spend, thereby limiting unnecessary expenditure.

 

Inputs and image from www.livemint.com

 

Thursday Trivia – Difference between profit booking and asset rebalancing

Buy sell hold

 

Is this the right time to book profits and exit?

How should I play the markets?

How much profit should I book?

Where should I deploy the profits booked?

 

Many equity/Mf investors are dealing with these questions. Well, there is one simple answer to all the above questions that is Asset allocation.

 

As defined by Wikipedia “Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.” In simple terms it means that one pre defines the percentage of exposure one should take in various asset classes, as per his risk profile and stick to it by rebalancing it periodically.

 

Asset Rebalancing V/s Profit Booking

 

In today’s scenario both these terms may result in same action, where you would sell some equities and invest in other asset like Gold or Fixed Deposit. But there is a fundamental difference between both these terms and Circle Wealth Advisors recommends that one should embrace Asset Allocation as the basic investment strategy. Here are the basic differences in these terms

 

Profit Booking Asset Rebalancing
Profit booking is the result of huge returns generated in a particular asset class Asset rebalancing is selling assets to bring them to the original allocated levels 
Can happen at any time at any interval Happens at the pre define periodic intervals 
One may need to seek expert view every time one wishes to book profits Expert view is required at the time of creating allocation depending on the risk appetite
Selling of a particular asset happens only if a huge profit is made In asset allocation one might have to sell assets without returns or may be even with negative return
One needs to decide where to deploy the profit booked after every transaction While rebalancing assets it is already decided what to sell and what to buy

 

Taking cue of one’s current asset allocation and deciding the desired asset allocation is the biggest step in financial planning for achieving your goals. Once you decide the right asset allocation it will not only ease the financial decisions but also help in generating consistent returns.