A home loan transfer (also known as refinancing or balance transfer) is an option that most individuals opt for to avail the benefit from lower interest rates prevalent in the market. Usually the existing borrower of a bank who is about 2 or more years into his loan tenure does not get the benefit of reducing interest rates in the market. RBI has been insisting on lower interest benefits to be passed on to the existing borrowers as well but it seldom happens.

Such individuals could discuss with their bank on re-negotiating the interest rates based on the good repayment track record etc. If the bank is not amenable, then they could shift to another bank which offers a lower interest rate prevalent in the market.

How does the process work

You will need to submit a letter to the existing lender requesting a loan transfer. Based on your request, the bank will give a consent letter / NOC and a statement mentioning the outstanding amount. This needs to be provided to the new lender who then sanctions your loan amount to the old lender for an account closure. Once the transaction is over, your property documents will be handed over to the new lender, the remaining post dated cheques / ECS will be cancelled.

The bank you are shifting to will offer you a loan based on the current home loan rates they are offering to their home loan applicants.

A prepayment penalty was earlier levied by the existing lender which can vary anywhere between 2%-5% of the principal outstanding of the loan at the time of refinance. However recently  NHBs and some banks like ICICI and SBI have waived this fee, but some banks could still charging a penalty. Do check with your bank and try to negotiate a waiver as the RBI and NHB mandate clearly are not in favour of penalty for prepayment in the case of a floating interest rate loan. Also, remember that you will also need to pay a processing fee to the new lender, which could also be negotiated and waived in this high interest rate regime.

This can range anywhere between 0.5% to 1% of the loan applied, most banks restrict this amount to Rs.5000.

Factor in all these costs when comparing the total loan cost between the two offers. If you feel there is a significant amount of interest to be saved from the move, then you can make a profitable switch.

The current interest rate climate however looks unfavourable for a switch unless you want to do it for other reasons. Starting this new year all major banks have increased their interest rates by 0.25% to 0.75%. More hikes are expected after the RBI monetary policy review slated for the end of January.

Remember that for a home loan switch you need go through all the procedures involved afresh. These include a credit appraisal, legal verification of property documents and technical evaluation with the new bank  etc. and a loan will be approved only when conditions are met.

Apart from saving on interest there are a few other reasons as well to switch a home loan, these include:

Bank is not agreeable to change loan terms: You might want to re-negotiate certain terms and conditions with your bank. For example, you might wish to extend the tenure of your loan to lower your EMI, your bank might not be ready for this change and hence prompt a shift.

Top up loan: The property value might have climbed much higher from its original price. On the basis of this you might want a top up loan to meet a money requirement or for a home renovation perhaps. If your lender is not open to finance this you might opt for a new lender.

Service issues: Sometimes you might just be unhappy with your bank’s service and accessibility, which might prompt a change.

Things to watch out for:

-        It is always better to switch the loan early on during the tenure as you would have already paid out a substantial amount of the interest due initially.

-        In the recent past a loan transfer was the most sought after when teaser loan schemes hit the market. However one should keep in mind that the teaser rate will contractually rise after a stipulated time frame.

-         Get a statement from your current lender stating that property documents will be dispatched within a certain time frame to avoid hassles on this front.

-        Remember that a loan switch will not be possible if you have been irregular with your loan repayment with your current lender.

Buying a home is unlike buying any other item. First, this is possibly the most expensive purchase for us and secondly, the pricing structure includes many components thus making it complex to understand. Most of the time, home buyers take a loan to purchase a home and pay EMI for the next 10-20 years. Essentially buying a home can cost a major part of the savings for middle class.

Hence it is important to know what we are paying for. If home buyers are going to spend 30-60 lakhs within a few weeks on home search, selection, and purchase, they should know the pricing structure of their dream home. This will help them understand the cost structure better as well as set the right expectation on future investments. There are three types of cost that home buyers pay. Let’s look at them in detail.

Transaction Cost:

Transaction costs are components of total price that the buyer pays for the transfer of property from seller to his or her name. The components are duties, fees, and any other charges applicable in order to transfer the property. Transaction cost is the significant part of the total cost at almost 10% to 20%.

Transaction cost consists of two major components; statutory fee and professional fee. The statutory fee includes the following components

Ø  Stamp duty

Ø  Registration charges

Ø  Land conversion charges

Ø  Transfer & mutation charges, and

Ø  Others

The professional charges comprise of the following

Ø  Brokerage

Ø  Documentation preparation charges

Ø  Due diligence

Ø  Society transfer fees, and

Ø  Others

Finance Cost:

Finance cost is the cost incurred for obtaining finance from the Banks, HFCs or NBFCs. Finance cost includes the following:

Ø  Processing fee to the financial institutions

Ø  Documentation fee

Essentially finance cost includes all the costs that buyers incur for the purpose of getting a loan to buy the house. If the buyer is buying a house with upfront cash payment from his savings, finance cost will be zero. This is a very small part of the total cost usually not exceeding 1%.

Cost of property:

The last but most important cost component is the cost of property. This includes the following:

Ø  Cost of land

Ø  Cost of construction of home

Ø  Any other development charges that have occurred in developing and maintaining the property

Cost of property is the largest cost comprising 80%-90% of the total cost.

Important points

The same cost structure is applicable to rural and urban areas. The proportion of various costs may vary to some extent depending on population of the area but largely remain the same.

Transaction and financing costs depend on the age of the properties that the home buyer is going to acquire. Typically relatively new properties incur high transaction and financing cost than older properties.

Transaction costs can differ in few cases. Since it is usually higher in new properties, many banks have in-house brokers who can assist potential home buyers in locating their home. These in-house brokers are relatively cheaper. However, home buyers must check the credentials of the broker.

Finance cost varies widely across banks and lenders. Though the proportion of finance charges are much less than that of transaction costs and cost of property, buyers should check this too with different banks. Even if you are able to save only a few thousands, you are still better off.

Transaction through brokers or property developers can be a little expensive than transaction through banks or housing finance companies. The reason is simple. The brokers will charge his or her fee too.

Each cost component has several components under them. Home buyers should check each of the components and the amount of charges against them. They should not assume that the property builder has been charging the market rate.

Note that knowledge of current personal net worth is essential to make financial decisions. It is important to reevaluate personal net worth while making any important financial decision as the value of assets and liabilities is likely to change. Also, net worth should not be considered in isolation. It is a good idea to consider factors like current and future income levels, future liabilities etc.

An accurate understanding of one’s financial well being is of utmost importance at every stage of life. So, whether you are a student, fresher into the job market or a veteran - assessment of personal financial health is important in order to make good financial decisions. For example, purchasing a car, purchasing a home, taking a student loan, liquidating an investment or making a risky investment  – all these decisions can be made only if you know your financial status well.

An individual’s financial health is computed by means of his personal net worth. In simple terms, personal net worth is the net asset value of an individual. Personal net worth is calculated as follows:

[Total Assets] less [Total Liabilities]

One must assess his / her net personal worth on a regular basis. This is because corrective measures can be taken in time if the net personal worth starts declining. It is much easier to recover at early stages than once you find yourself in deep financial crisis. Your net personal worth will also give you an idea about how financial institutions perceive you as a borrower.  For example, Deepak, an IT consultant with a software company wants to purchase a car. He has set his eyes on the Toyota Corolla. The car dealer informs him that the on road price of the car will come to Rs.11.25 L.  If he takes a car loan, he will have to pay a monthly EMI of Rs. 15,000 towards repayment of the car loan and pay an amount of Rs. 1.0 L as down payment. Deepak’s monthly salary is Rs.0.9L and the EMI as well as the down payment seems easily affordable. However, Deepak should assess whether he can afford to buy this car at present by considering all his liabilities and assets. His personal net worth should give him a fair idea of his current financial status and whether he can afford to buy the car.

Computation of Deepak’s personal net worth

Assuming that Deepak’s monthly outflow towards EMIs of outstanding loans is Rs. 35,000/- and looking at his personal net worth, a corolla is a viable option. This is because he has a positive net worth of Rs.18.73 L. Further he is able to make payments of EMIs with ease considering his current income and should also be able to pay the EMI on the new car loan.

Note that knowledge of current personal net worth is essential to make financial decisions. It is important to reevaluate personal net worth while making any important financial decision as the value of assets and liabilities is likely to change. Also, net worth should not be considered in isolation. It is a good idea to consider factors like current and future income levels, future liabilities etc. For example, if Deepak has to bear the expenses of his sister’s wedding which costs him approximately Rs. 9 L and he has to sell off some of his investment to meet the wedding expenses, his personal net worth will look different. Further, if the market value of assets declines, his personal net worth will also take a hit. Let us take a look:

Deepak’s Personal Net worth is he has to bear his sister’s wedding expenses and the economy takes a down turn:

Clearly, in the above situation, Deepak should not purchase a car at present and should concentrate on improving his personal net worth.

If you choose to use the capital gains from selling your house to buy a residential property, you will not be taxed and there is no tax liability from such a sale as stated under Section 54F of the Income Tax Act.

You can also be exempted from tax if the long term capital gains or profit from the sale is invested for a period of 3 years in specific bonds of National Highways Authority of India or Rural Electrification Corporation Limited as stated under Section 54 EC.

We discuss here what you need to know about computing taxes on the rental income for a house and the capital gains from the possible sale of a house is taken up for discussion in this article.

A. Tax on Rental Income from a property

When you own two houses and let out one of them for rent, you receive an income for which you need to pay tax. In such a scenario, the taxable income from the total rent income received by you for that particular financial year will be computed in your tax returns.

How your rental income is computed

For rented out properties the gross rent needs to be the greater of the three values below:

a. Municipal valuation of the property – The rental value fixed by the corporation based on your locality and property value.

b. Actual rent received during the financial year – The rent received by you from your tenant for that particular financial year.

c. Fair rent – The rent of a similar property in the same or similar locality.

From this gross rent, the property tax is deducted to arrive at the net annual value of the rental income.

Deductions possible from the net annual value of the rental income:

1. 30% of the net annual value for repair, maintenance and rent collection expenses for the property

2. Interest paid towards any type of home loan on this particular property.

3. Any property insurance premium you have paid for the financial year.

Here is a simple example:

Actual rent received from property - Rs. 15,000 x 12 = 1.8 L

Less: Municipal Tax/Property Tax paid by you – Rs. 5,000

Balance: i.e. Net Annual Value -Rs. 1.75 L

Less:
(1) 30% of the net annual value – Rs. 52,500
(2) Interest paid on a renovation loan for the house – Rs. 30,000

= Taxable rent income = Rs. 92,500

The taxable rent income will be included by your auditor under income from other sources, along with other such incomes as well as your salary income and deductions you are eligible for, to calculate your final tax outgo.

B. Capital gains tax on selling a property

Let us also quickly consider what happens if you decide to sell your property.

Any profit that you receive by selling any asset at a price higher than at which it was acquired by you is classified as capital gain and clubbed under income from other sources.

Short term and long term capital gains

If you sell your house within 3 years from the date of purchase you will incur a short term capital gain or loss which is included under other sources of income.

In case you sell your house beyond three years then it is considered as a long term capital gain/loss.

Exemptions from capital gains tax

If you choose to use the capital gains from selling your house to buy a residential property, you will not be taxed and there is no tax liability from such a sale as stated under Section 54F of the Income Tax Act.

You can also be exempted from tax if the long term capital gains or profit from the sale is invested for a period of 3 years in specific bonds of National Highways Authority of India or Rural Electrification Corporation Limited as stated under Section 54 EC.

In case you do not choose to make any investments and opt to pay tax, the income is calculated using the indexation method which is nothing but accounting for the effects of inflation.

For example, if you had purchased a house for Rs 5 L and then sold it for 9 L, the capital gain would be Rs 4 L. However, for the sake of income tax calculation a number called indexation number is used which is a percentage of the gain that is assumed as value addition due to inflation.

Thus if indexation is 20% then only Rs. 3 L (Rs  9L – 20% of 5 L + 5 L = Rs 3L) would be taken as capital gain. A capital gain is usually charged @20% in most cases where the calculation is based on indexation.

A better understanding of the tax rules can make your life easier and help you file your tax returns with clarity.

Decide what you really need by making a list before you venture out. And keep looking at that list while you wander around, so that you’re aware of what you really need, and what you like the look of. Make sure to be armed with only a limited amount of cash and ensure that you stay within your budget.

These days, whether you’re at home, or out in the city, you are constantly bombarded by messages to Buy! Buy! Buy! From phones, laptops and other electronic gadgets, to home appliances, branded clothing, and footwear, to airline tickets and dream holidays. Advertising has evolved so that the messaging is subtle, subliminal and extremely effective, so that the line between what you need to have and what is nice to have is often blurred. But let’s face it: consumerism has arrived, and in a big way, and there really is something to what is now labelled ‘retail therapy’. The question now is how to get the best out of all the shopping that’s out there and waiting for you!

A QUICK CHECKLIST

• Decide what you really need by making a list before you venture out. And keep looking at that list while you wander around, so that you’re aware of what you really need, and what you like the look of.
• Take a limited amount of cash.
• Stay within your budget.
• Leave credit cards at home.
• Do not remove the tags. Wait a week to think it over. Remove the tags once you’re sure you’ll enjoy your new item.
• Watch for sales. Try things on prior to a sale.
• Try shopping off the beaten path. You will be surprised at the bargains and finds that jump out at you.
• A heavy discount does not mean that you have to buy it.
• Take time to think things over to avoid impulse shopping.
• Ensure that you reach the shop at the right time. If not in the first week, then try checking out the shop in the first ten days of sale for sure. The first and last days are the worst to visit.

THE ONLINE VERSION

Using the internet to shop gives you access to the best prices and the best deals through a quick search in a matter of minutes. While it’s easy to shop around online yourself, price comparison sites can do it all for you. Simply type in what you want and they scour the market to bring you a list of retailers selling the product, along with the prices they charge. Do pay attention to product reviews because they can tell you if the product actually works. Another way to approach it is to Google the product along with the word ‘complaints’.

Tip: if you don’t check out, and leave the item in your shopping cart, the price might go down.

Make sure to double-check the total cost before you buy, especially if you’ve ordered something from outside the country. Shipping can sometimes work out to more than the price of the product itself.

Contrary to popular belief, never pay by check or money order when buying online. If something goes wrong, the seller has your money and you have to try to get it back. The safest way to pay is with a credit card.

SHOPAHOLICS, FIND A SOLUTION!

If however, you are a shopaholic, then you need to dig a little deeper and begin by examining your spending habits, and identifying your weaknesses.

• Look at your bank statements every six months or so, and evaluate your income and expenditure. Expenditure breaks down into fixed costs, such as mortgage repayments and bills, and whatever is left over and spent throughout the month. Work through the transactions and ask yourself if each one was necessary.
• Figure out where your hard-earned money’s going. It’s the little buys that add up, so if you can’t remember where you spent it, maintain a diary for a few weeks, and you’ll be shocked. You will also see a pattern to your spending, which, if you want to change, is really important to understand.
• Decide what you want and how much you intend to spend, and stick to that limit. When you plan to travel, always book in advance if you can, because long-haul flights and train tickets are significantly cheaper the earlier you book.
• Try not to use shopping as a pastime or entertainment. Ask yourself: Did I want this before I saw it? If the answer is no, walk away.
• Realise that buying something because it’s cheap does not mean you are getting a good deal, especially if you don’t really need it. A good test is to ask yourself if you would buy an item at its full price – this will give you an indication of whether you are getting a good deal on something you actually want.

So, start paying attention to where, how and why you spend and it’s likely that you will start feeling a bit more flush. Understand that price does not always mean quality; an unbranded item could give you the same level of quality as a known brand, if you shop smart. A happy mood spells a happy shopping experience.

Sometime ago, the competition commission of India (CCI) imposed a penalty of Rs. 630 crores on the largest real estate company of India, the DLF. This was hailed as a landmark judgement. CCI is an institution created to ensure that no institution or company exploits its dominant position to create a monopolistic situation in the market by unfair means. CCI has taken a serious stand against DLF and termed the violation as the “grossly abusing its dominant position”.

What was the issue?

There have been complaints against real estate developers over the last couple of years on incomplete projects, delays in possession, and in some cases, irresponsible responses to critical situations. This has left home buyers confused and exasperated. Some of the affected home buyers lodged a complaint with CCI regarding a project undertaken by DLF. The project was supposed to be completed in 2009 but even after 2 years past the stipulated timeline of 2009, the status was not clarified according to the home buyers.

The second deviation that buyers indicated was that of DLF indulging in increasing the number of floors. This has resulted in more number of apartments in the same area. This is very common to many developers who promise something but deliver a completely different product.

Apart from these violations, there were many terms and conditions, which were unfair to the home buyers. For example, buyers will have to pay a high interest rate if buyers delay payment while DLF will pay a negligible amount if they delay possession. This condition is termed the punitive penalty clause by builders.

What this means is that if the buyer delays the payment they will have to pay with an interest rate. For example, if the buyer is supposed to pay 1L by December 28^th, 2011 and delays, he will have to pay 15% charges per annum on this amount. While if the builder delays giving possession of apartment, he doesn’t pay much penalty.

The CCI, in its judgement, has also clarified that they can issue penalties against other developers if found guilty on similar violations. This has opened up other cases as well and CCI is actively looking into such cases.

Implication for home buyers

This significant judgement by CCI will have larger implications for the home buyers. DLF, in its response, said that these are industry practices and hence they cannot be singled out. Essentially what this means is that the judgement can be used by home buyers who have been forced into similar situations by other builders.

Home buyers can go to CCI for situations where builders have increased the number of apartments than what is promised originally. They can also question the builders on changing the super area and charging extra.

Home buyers can question the exit clauses for them and for the builders. The exit clause is usually not in favour of the home buyers. In the case of DLF, the exit clause gave unprecedented right to DLF to exit without providing adequate compensation to the home buyers. Not only this, buyers can question changing any clause which puts them at an unfair disadvantage.

What is next?

After this judgement, CCI has been studying other cases where such violations have happened. Since DLF has made it clear that these are industry practices, CCI is conducting a thorough check on builders who follow the same practice. This will provide relief to home buyers who have not got their units as promised.

There is another regulation to be discussed in the parliament very soon. The real estate authority bill envisages far-sweeping changes in the real estate industry. This regulation will enforce transparency in real estate dealing, reduce unaccounted for transactions, enforce accountability and sanctity of contract, and ensure that home buyers are not taken for granted.

Together, with real estate authority bill CCI judgement against DLF will have a big impact in the realty segment. This will encourage serious players in real estate, discourage unscrupulous practices, and attract foreign players which will help the industry as a whole.

These are some basics that you should know when obtaining a personal loan. These days, securing a loan is easy. Repayment is the tough bit. When you don’t repay on time, the recovery agent may come knocking at your door. When getting a personal loan it is important to ask yourself ‘Will I be able to pay it off?’

Personal loans are the one of the most widely chosen options, in case you are in a spot and need some urgent cash. However, personal loans are tricky and you need to know as much as possible about their basics before applying for one. Let’s start with some common questions.

What is a personal loan?

Personal loan is credit that is granted to the borrower for personal use. These loans are usually unsecured (no security or collateral required/asked) and is based solely on the borrower’s integrity and ability to pay.

Who is eligible for a personal loan?

The eligibility criteria and their specific details may differ from banks to bank based on their perception of the risks associated with given out personal loans. However, nearly all banks divide the potential borrowers into three categories:

• Salaried individuals
• Self employed individuals
• Self employed professionals

Other factors which are taken into consideration are, age, residence, work experience, repayment capacity, past obligations and place of work.

What kinds of interest rates are offered on personal loans?

Personal loans are offered in:

• Fixed rate
• Floating rate
• Flat rate

Of the three, flat rates turn out to be the most expensive since the other two are calculated on a reducing balance basis.

What is the average interest rate for personal loans?

The interest rate for a personal loan is decided on the basis of your credit repayment capability and history. Depending on this, interest rates could be anywhere between 14% and 25%, depending on the financial institution.

What documents are required for personal loans?

Personal loans require the least number of documents, making it the fastest to be approved. Typically, financial institutions would require proof of identity, residence, income and also 3 to 6 months of your bank statements. Some banks also require guarantors and the same set of their documents.

How is a personal loan repaid? Is prepayment of a loan possible?

Normally, personal loans are offered between 1 to 5 years. The loan is repaid with Equal Monthly Instalments (EMIs). Prepayment is possible but will generally carry a significant prepayment charge.

How is a personal loan different from credit card cash advances and loan against property?

Personal Loan	Credit card Cash Advance	Loan Against Property
Unsecured loan	Unsecured Loan	Secured Loan
Between 15% and 25%	For rollover credit (amount allowed to be rolled over and paid later) interest can go up to 35%	Between 12% and 15.75%
EMIs are higher because of high interest rate	Minimum monthly payments can be made. However, the interest keeps on adding up	Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turns out cheaper
Maximum loan eligibility is determined primarily by an individual’s income	Maximum amount is determined primarily by the credit limit on the card	Maximum loan eligibility is determined primarily by the value of the property and income
Tenure between 1 to 5 years	Can be paid off monthly	Tenure maximum of 15 years

These are some basics that you should know when obtaining a personal loan. These days, securing a loan is easy. Repayment is the tough bit. When you don’t repay on time, the recovery agent may come knocking at your door.

When getting a personal loan it is important to ask yourself ‘Will I be able to pay it off?’ Some things which can help you pay back your personal loans are:

• Pay off your credit cards: Try to pay off your credit cards as soon as possible, since credit card debts inadvertently hamper loan payments.

• Budget your spending: Once you have taken a loan, ensure that you budget your spending, so that if in any unforeseen circumstance you cannot make a monthly payment, your savings will help you out.

Personal loans if not utilized and repaid properly, can become a curse in disguise. Make your decisions prudently to ensure a safe financial future

Get the best deals on loan offers

• Home loans
• Personal loans
• Car loans

Some useful personal finance calculators

• EMI calculator
  
• Loan repayment calculator

Also Read:

• Things to remember about your personal loan!
  
• Why LAP is a better option than a personal loan?!
  
• More articles

When considering a life insurance policy with riders, make sure to understand the exclusions in the policy. For example, under Term Insurance, if the insured person commits suicide, whether sane or insane, within one year from the date of commencement of a term policy, the cover will become void, i.e. the nominee cannot claim the sum assured. Only the premiums paid up to the date of death will be refunded; after deducting the expenses incurred by the insurer for issuing the cover.

Why is life insurance important? Is it something that you should consider? Have you thought about your family’s financial state, or your security after you’ve retired? How will you take care of them, or yourself?

Before we get into the whys of life insurance, here’s a brief overview:

Types of Insurance

There are four types of insurance: Life, Fire, Marine and Miscellaneous Insurance. Life insurance is treated separately, while Fire, Marine and Miscellaneous insurance all fall within the General Insurance umbrella.

What is Life Insurance?

Life insurance is a policy that may be bought from a life insurance company, which helps beneficiaries financially after the owner of the policy dies. It is a contract between the policy owner (you) and the insurer (the life insurance company), which assures the paying out of a sum of money in the event of the policy holder’s death, or terminal or critical illness. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, and war. The cost or premium on your life insurance decides the type and kind of coverage you get under a life insurance plan.

Life Insurance can also be a form of savings in the long run, which we will discuss shortly, or it can be tied in with a pension plan. Life insurance can provide security, protect home mortgages, and facilitate other retirement savings.

Life Insurance in India

The Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999, have made life insurance in India a federal matter. Therefore, all life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA), irrespective of whether they are state-owned (Life Insurance Corporation of India) or private (ICICI Prudential Life Insurance, Bajaj Allianz Life Insurance Company).

Types of Life Insurance

Taking out a life insurance policy covers the risk of dying early, by providing for your family in the event of your death. It also manages the risk of retirement – providing an income for you in non-earning years. Choosing the right policy type with the coverage that is right for you therefore becomes critical.

There are a variety of policies available in the market, ranging from Term Endowment and Whole Life Insurance, to Money Back Policies, ULIPs, and Pension plans. Let’s see what each of these is about, so that you can consider the one that best suits you.

Term Insurance

Term Insurance, as the name implies, is for a specific period, and has the lowest possible premium among all insurance plans. You can select the length of the term for which you would like coverage, up to 35 years. Payments are fixed and do not increase during your term period. In case of an untimely death, your dependents will receive the benefit amount specified in the term life insurance agreement.

You can customise Term life insurance with the addition of riders, such as Child, Waiver of Premium, or Accidental Death.

Endowment Insurance

Endowment Insurance is ideal if you have a short career path, and hope to enjoy the benefits of the plan (the original sum and the accumulated bonus) in your life time. Endowment plans are especially useful when you retire; by buying an annuity policy with the sum received, it generates a monthly pension for the rest of your life.

Whole Life Insurance

Whole Life Policies have no fixed end date for the policy; only the death benefit exists and is paid to the named beneficiary. The policy holder is not entitled to any money during his or her own lifetime, i.e., there is no survival benefit. This plan is ideal in the case of leaving behind an estate. Primary advantages of Whole Life Insurance are guaranteed death benefits, guaranteed cash values, and fixed and known annual premiums.

Money-Back Plan

In a Money-Back plan, you regularly receive a percentage of the sum assured during the lifetime of the policy. Money-Back plans are ideal for those who are looking for a product that provides both – insurance cover and savings. It creates a long-term savings opportunity with a reasonable rate of return, especially since the payout is considered exempt from tax except under specified situations.

ULIP

Unit-linked Insurance Plans (ULIPs), introduced by the private players, are hugely popular, because they combine the benefits of life insurance policies with mutual funds. A certain part of the premium is invested in listed equities/debt funds/bonds, and the balance is used to provide for life insurance and fund management expenses.

Pension Plan

Insurance companies offer two kinds of pension plans – endowment and unit linked. Endowment plans invest in fixed income products, so the rates of return are very low. Unit-linked plans are more flexible. You can stop contributing after 10 years and the fund will keep compounding your corpus till the vesting date. You can opt for higher exposure in the stock market for your plan if your risk appetite allows it. Lower risk options like balanced funds are also offered.

Riders: Comprehensive coverage

In addition to the insurance plan of your choice, you might want to consider additional risk covers, in which case you can you can opt for riders: additional benefits that can be purchased with an insurance policy. Examples of riders include the Term rider, the Accidental Death Benefit rider, and the Critical Illness rider. Choosing the right set of riders ensures a comprehensive insurance cover.

When considering a life insurance policy with riders, make sure to understand the exclusions in the policy. For example, under Term Insurance, if the insured person commits suicide, whether sane or insane, within one year from the date of commencement of a term policy, the cover will become void, i.e. the nominee cannot claim the sum assured. Only the premiums paid up to the date of death will be refunded; after deducting the expenses incurred by the insurer for issuing the cover.

As important as it is to buy Life Insurance, it is even more important to pay your premiums on time. A life insurance company provides the insured with a grace period of 30 days i.e. a period of 30 days after the start date of the policy. The insured can pay premium on any day during this grace period. In case the insured dies during the grace period, the insurer is liable to pay the death benefit to the nominee less any amount outstanding (including the unpaid premium). This provision helps the insurer to minimise the risk of policy lapse unintentionally.

In these uncertain times, you’re better off planning ahead, and securing the future for yourself, and your family. Arm yourself with the facts for an assurance of a lifetime of security.

One of the key aspects of creating a successful financial plan for a year is to establish a workable home budget that deals with your expenses, manages your debt and also builds your savings at the same time! A home budget can be defined as a plan that pre-determines your spending goals, spread over a certain period of time (in this instance, 1 year).

your income and cash flow

To chalk out a workable home budget, your income is the first thing that you need to consider. It must include all forms of income that is being received by you, like your pay cheque; interests and dividends that you earn from investments; tax refunds and gifts too. When you are calculating the “Cash Flow”, you however need to consider your expenses too – both anticipated expenses like food, conveyance, loan payments, taxes, supplies etc. as well as the unanticipated ones like medical bills and car repair costs. The incoming and outgoing money in your household is your cash flow. Good home budgeting can better your cash flow, i.e. will help you ensure more inflow and fewer outflows while reckless spending can do just the opposite! The bottom-line therefore should be to successfully manage and tackle the cash flow.

Home budgeting tips

Manage your home budget by tracking all the income/expenses that have occurred in your household month on month to figure out the bigger picture for a whole year! This will help you understand your weekly, monthly and annual cash flow and provide you with a good understanding of how your money is spent and saved! You will notice an improvement in savings with the progress of each month, as the stringent tracking of expenses will help you take a disciplined approach to excessive spending!

Once you understand the patterns of your income and savings graph you will be able to forecast your expenditure for the upcoming year, set new goals with regard to repaying your debts, planning your investments and improving your savings! To secure your finances for the future it is important that you save a minimum of 5-10% of your income every year!

Your sample home budget checklist

Mortgage/Loan repayments

Groceries and supplies

Utilities

Children’s education

Insurance premiums

Car/ Gas maintenance bills

Communication expenses like phone bills, cell phone bills, internet and cable TV charges

Subscription charges

Medical expenses

Entertainment costs

The reason why ‘Entertainment’ finds a place right at the end is primarily because this needs to the first to be sacrificed in a month where an unplanned or emergency expense crops up!

Paying the bills (even if you are not working and everything is being paid for from your spouse’s money), must be a prerogative for both the partners. Remember that you can chalk out a workable home budget and better the prospects of your family’s financial planning only if you have a clear-cut idea of the financial dealings that you need to make every month.

Emergency fund

The most successful of budgets always includes a contingency fund or an emergency account, to meet the unexpected costs that may arise in a household due to unforeseen events like a job loss for instance! Anywhere between 2 and 6 months of average income must always stay intact in this account.

The concept of green homes is a trend that is here to stay and is slowly but surely catching up in India. In the modern version of living, cities, towns and even villages are witnessing an increased preference towards building homes and creating an environment that contributes to the preservation of the ecosystem.

As far as application of this thought process to modern homes is concerned, the primary motivating factor that seems to help in making some positive progress in this direction, is the fact that going green can give home owners the ability to save on living expenses. Everybody who has lived in big towns and cities knows that life here can get overwhelmingly tough. It is not just the struggle to bring food to the table but also the desire to live comfortably. This is the reason why today every home has an AC, a refrigerator and so on. People don’t want to compromise on comfort but at the same time they don’t want to end up paying hefty energy consumption bills!

Green homes help such home owners get the best of both worlds by helping them cut down significantly on living expenses. By adopting green practices and by exercising the green philosophy, home owners can actually build on their goal to save.

Both builders and buyers are more aware of the benefits of going green, than ever before! Home owners in particular are seeing results in the form of reduced monthly expenses. So, everyone who is part of the equation is reaping benefits and this is reassuring to green enthusiasts who are trying their best to promote and sustain their efforts to build a greener planet.

As far as durability of home and home interiors go, the concept seems to play a big role. Homes that are built from green materials as part of building and furnishings tend to last longer and create significant real estate value. For instance, windows and walls that are designed and built to sustain this concept, don’t let outside temperature alter the conditions inside. For instance, one of the green concepts includes circulating water pipes sandwiched between two walls running all around the house. This keeps the interiors cool thus negating or limiting the need for an air conditioner. Also, the AC and appliances like the refrigerator function on optimum mode and expend less energy due to the cool environment, which shows up as significant savings on the bill!

When does a house become a green home?

When great care and attention is taken to optimally utilise energy and other natural resources for the healthy functioning of a house hold a house can qualify as a green home!

In India a building is certified as green when it is rated by Leadership in Energy and Environment Design, India advocated by Indian Green Building Council and The Energy and Resource Institute Green Rating for Integrated Habitat Assessment. These systems have been created to award ratings based on the concept of design, construction and impact on the immediate environment. Accordingly a building can be certified with a gold, silver or platinum rating depending on how evolved it is on the green parameter.

Is going green more expensive?

Specially treated construction materials and innovative systems have to be painstakingly incorporated during the construction stages to help achieve the objective of optimal use of energy, managing waste, optimally utilising renewable resources like water. For instance green homes might use high performance glass among other innovations to keep the interiors cooler or LED lighting that is three times the cost of normal lighting might be used to create an energy-efficient environment. However take heart from the fact that even if initial costs seem high, you will start recovering it within a couple of years of usage due to the enormous amount of energy-saving and reduction. Remember that every green element need not be expensive, you can utilise a number of low-cost construction methods to enable significant energy-saving as well. An ideal green home should be a combination of various methods, both expensive and inexpensive!

Here is a sample of possible green elements that can be part of your house construction!

Solar heaters: These use solar panels to optimally make use of sun rays to heat the water collected in an insulated tank. Depending on the capacity of the tank and water usage, you can heat water if there is sufficient sunlight just twice a week for a week’s water supply!

Benefits: This directly reduces the consumption of electricity worth rupees 600- 800 a month and helps recover installation cost in the span of 3-5 years. The cost of installation can amount anywhere between 7,000-12,000 Indian rupees.

Photovoltaic Panels: These use the energy from the sun to store electricity! You can actually live off the grid without any power supply if you integrate these panels with your building structure and create sufficient back up.

Some low-cost construction methods that help keep interiors cool during summer:

Thick walls with cavity: Such walls use up less number of bricks and leave a cavity within the wall and help in keeping the interiors cool.

Another effective low-cost construction method involves usage of soil and cement instead of just bricks to ensure nearly 15-20% cost saving and a cooler home!

Filler slabs and pre-cast elements for roofing is yet another effective construction method utilised for building roofs, which also help in keeping the interiors cool and results in 25% cost saving!

Rain water harvesting is a key element in renewing a water resource and helps in reaping long-term rewards and significant cost savings! This is nothing but an effective way to collect rain water and utilise it. This can be added as a provision in already constructed homes or incorporated while construction happens.

Though the concept of green homes is still in its nascent stages, many real estate authorities and builders are utilising the concept to educate their customers and use the same as a promotional tool to up their sales!