Monthly Archives: April 2015

Thursday Trivia – Impact of base rate reduction

Greetings to you from Circle Wealth Advisors…

Last couple of days has been eventful in terms of banks and RBI deciding on interest rates. RBI announced its monetary policy and kept all the interest rates unchanged. But strong statements given by RBI governor led major banks to decrease the interest rates they are charging to their customers. Let’s understand what these changes are and how does it impact us

SBI, HDFC bank, ICICI bank and Axis bank have announced reduction in base rates. In case of first three banks the base rate is reduced by 15 basis points bringing it down to 9.85%. While in case of Axis bank the base rate has been reduced to 9.95 down by 20 basis points

Understanding Base rate

It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than base rate to any of its customers.

What’s the impact?

On Individuals – Decrease in bank rates means decrease in EMI, that retail customers like us are paying. Hence it will help in bringing down interest outflows and increase savings.

On banks – This will lead to pressure on margins as this will result in fall of interest income for them.

 Our take

In a sense its good news, as it helps in increase of saving. But as you would note that the reduction is not much, current home loan rates are at around 10.15%, with reduction of base rate, the new rate applicable will be 10%. As a result of this reduction one would save less than Rs 500 a month. (20 year loan for Rs 50 Lakhs). For someone under a debt of Rs 50 lakhs, saving of Rs 500 a month will sound negligible. The only thing positive is that, seemingly things have started moving in favorable directions and in future more rate cuts might result in more savings.

Happy Investing!!! 

Thursday Trivia – Financial decisions when starting a family

Family images

Greetings to you from Circle Wealth Advisors…

Starting a family is one of biggest milestone in our lives. As they say “A child gives birth to a mother”. Being a father myself I know how the world changed for me. Right from planning long term goals to planning for a movie in the evening starts getting influenced. Here are a few important things that one might consider before starting a family

Budget for increase in expenses – This goes without saying, but the keyword is to budget. Estimate expenses on medicals, clothes, toys, child care and baby food, these are top things on the list. Search net for great deals, baby products are among the top 5 categories sold on net. You should start getting all stuff which are unisex to avoid last minute rush. It would also be great to understand various packages offered by your gynecologist and weigh your options.

Keep cash handy – It would be a great idea to keep liquid funds available, especially at the time of delivery. Any emergency or unplanned condition may need to be addressed and looking for cash at that time would be the last thing that you would want to do. Even if you have your maternity expenses covered by insurance or by your employer, still making provisions help. Research and decide on expensive decisions in advance, stem cell preservation is one of them.

Review your health Insurance – Check your health insurance provisions about maternity covers and understand the sub limits if any. After the delivery provision for getting the child’s name included in the policy. Also consider to have adequate risk cover, if not done already. On a lowest side one should at least have a cover of Rs 5 lakhs. Depending on other factors upgrade your insurance amount.

Review your life insurance – With arrival of the new born, no of people dependent on the bread winner increase. Consider increasing the risk cover by taking a term insurance. Don’t be emotional to buy an insurance policy in the child’s name; risk cover is necessary for the bread winner. Remember insure the hen who lays the golden eggs and not the eggs.

Understand parental leave policy – If you are employed understand the companies maternity leave benefits. Make most use of the same.

Start Saving for your child’s higher education – I am purposely mentioning this at the end, so that this stays with you. This may sound to be irrational or too early to worry about, but earlier the better. We have clients who have started SIP in mutual funds right from the day their child was born. Education inflation is the highest in our country ranging anywhere above 10% pa. Graduation and post-graduation cost may add up to more than a crore 20 years from now and delay of every year in making investments would cost you lakhs, in terms of total corpus accumulated.

Happy Investing!!!