Closing Credit Cards? Be Vigilant

One should be cautious in using credit card as already discussed in my previous blog.  But some things are also to be considered while closing your credit cards. Few things which need to be kept in mind while cancelling the credit card are:

  1. The bank will not cancel your card unless you have paid all the dues. These dues include interest, fees and charges on the card along with the expenses incurred by you on card.
  2. Many customers feel that some card charges are unfair and proceed to cancel the card without paying these. But the bank will not cancel the card unless you pay these dues. And you would also have to continue paying interest and late payment charges on these duties till you settle everything.
  3. Only cutting the card at your end and mailing it to bank will not cancel the card. Always take written acknowledgment from the bank that the card has been cancelled.

If you do not cancel the card properly, there may be a case when there is an outstanding balance on your card. For example; you did not get written acknowledgment from the bank, bank may charge renewal fees which will be showed as unpaid dues, even if you have cut the card. This will continue for months and will attract penalties. This will affect your credit score and will affect your future prospects of availing a loan. Always remember to actively follow up with the lender and get your credit card closed.


Things to Know- Direct Equity and Equity Funds

Here are the few things that you must know about direct equity and equity funds:
1. Equity mutual funds allow you to invest in equity through a portfolio created and managed to a process by a specialist. So they offer the benefit of diversification with a small investment.
2. When a mutual fund buys and sells stocks, there is no tax impact on the scheme. In direct equity investors have to incur the capital gains tax and securities transaction tax every time they sell shares.
3. In direct equity, the cost of transacting shares in a portfolio has to be borne by the investor. The option of direct plans in mutual funds allows investors to benefit from lower expense ratios.
4. Equity fund managers rebalance portfolios to reflect economic scenarios that affect a stock. Direct equity investors usually lack the expertise to rebalance in the light of such triggers.
5. Mutual funds allow investors to structure their investments in a way that suits their requirements. This allows them to enter, exit or switch from funds and assets classes seamlessly and at lower transactions costs.
6. Investors in equity funds have the flexibility to tailor their returns in a way that is tax-efficient and at the same time meet their requirement for income or growth.

Rights of Mutual Fund Investor- Be Aware

You must fulfill certain duties and enjoy some rights as investor. An ideal investor is one who is aware of his rights, and disciplined and serious about his duties too. Some important rights that a mutual fund investor enjoys are freedom to go through the offer document of the scheme that you intent to invest in, email or sms alerts relating to your investments, receiving annual reports, periodic updates and other important communications from the fund house including any proposed change in a scheme’s traits. You also enjoy the right to know how much commission the person who is advising you to invest is getting from the fund house. You can also get your complaints redressed through proper channels and to your complete satisfaction.
You are entitled to following as an investor:
 Offer Document: An offer to invest in a mutual fund scheme contains the scheme information document (SID) and a statement of additional information (SAI). You can also go through the key information memorandum (KIM) which gives important information about the scheme you intent to invest in as well as the fund house.
 Color Coding: This is a new tool aimed at helping investors choose between mutual fund schemes which are least risky (Blue dot), moderately risky (yellow dot) and highly risky (brown dot). Each fund house labels every scheme with the appropriate code to make it easier for you to select the one best suited to your risk profile.
 Email/SMS Alerts: Within five days of your investing in a scheme- either for the first time or as a continuing investor- you should receive an email alert or an SMS about your investments.
 Fund Statements, Periodic Updates and Annual Reports: As an investor in a scheme, you should receive periodic updates from the fund house about the scheme as well as the fund house, its annual report and updates as and when issued.
 Consolidated Statements: This is a new initiative in which all mutual fund investors get a consolidated monthly statement of all their fund related transactions in each scheme where he has investments, across all types of schemes, i.e. equity, debt, liquid, etc., and across all fund houses. If there is no transaction during a particular month or months, you will receive a half-yearly statement.
 Redemption and Dividend Payouts: Within 10 working days after you redeem your investments, you should get your redemption proceeds. If this 10-day is overshot, you can claim interest at 15% per annum for the period of delay after the 10th day. In case of dividend payout, the outer time limit is 30 calendar days.
 Change in Scheme’s Features: If the fund house changes any key attribute of the scheme you have invested in, you can redeem your investments in that scheme without paying any exit load.

Duties of a fund investor
As an investor, your first duty is to be KYC complaint. Some of the other important duties include updating your fund houses with your relevant personal information, keeping proper nominations for all investments, keeping tab of your investments on a regular basis, having a direct credit facility with your bank in place, etc.
All fund houses offer electronic credit and debit facilities with most banks that ensure fast, secure, safe and hassle-free banking transactions between you and your fund house for regular investments, dividend payouts and redemptions.

Must Avoid Financial Mistakes For Young Investors

Young people who have begun to earn, do not engage sincerely with money or investment decisions. They give several excuses like not enough money, very complex, not sure about where to start, etc.
Here are the few common issues of young investors:
1. Many young earners think that managing money is complex and is not for them. They feel so when they have already opened a bank account, taken a credit card and a loan for a motor vehicle. The simplest way to understand personal finance is to see you as an asset that generates income. The four ideas of your assets are if you save and invest, you are buffering income, if you spend more than you earn, you need a higher or an alternate source of income, if you borrow you create a liability and take away from the future income. There are no other than these personal finance decisions to take.
2. Youngsters tend to moan and complain when the world they see and experiences is different from the comfort zone that they are used to. Protective parents make the process of growing up tougher. The simple rule is that money decisions require action, and for it one has to evaluate alternatives and make a decision. The 2-minute noodle has been a hostel staple for way too long. This quick fix approach continues in young people’s money lives, where the search is for quick, comforting solutions that are easy to arrive at. But young investors need to think strategically, without which they remain clueless earners, who do not know how to take decisions.
3. There are several youngsters who have not opened their bank statements, haven’t deposited their dividend cheques, not filed their tax returns, or completed their KYC process with a mutual fund or broker. The taxman would want to know if they can establish how they built their assets, and whether they paid the taxes on their income before doing so. Use empty boxes for keeping bills, papers and notices and file your tax on time. You can avoid being ripped off if you deal with your paperwork in the early days.
4. Some young investors are overconfident about their future incomes. They are big splendors as they do not visualize a dark future for which they have to set money aside. You should set some money aside right at the start instead of defining savings as the amount left after spending. For disciplined savings, direct debit options can be used like systematic investment plans take money away from the salary account. It always makes sense to pay ourselves before paying anyone else.
5. Young investors are very tech-savvy and should find out how modern technology can help them in their financial lives. The core banking solutions ensure that money can be easily accessed, used and transferred without recourse to physical branch, by using internet and mobile banking instead. But this will increase the risk of password protection guarding against phishing and internet frauds. It is now possible to aggregate all the money transactions into applications that help budgeting, spending, investing and recordkeeping. The youngsters should persuade their ease with technology to make money transactions simpler and more efficient.
6. Many investors start at the wrong end of the investing gamut. Several think that speculating in stocks, buying a few IPOs or conducting derivatives transactions are the easiest ways to make money. But a solid foundation for creating wealth is through simple and staid products, like fixed deposits and PPF accounts. Diversified large-cap mutual funds and bonds can be added to this progressively. Anyone who has dealt with money will be able to tell you how magically compounding can work if good investment decisions are taken early on it.

How to Deal With Financial Crunches?

One should manage finance efficiently. Managing finance is supreme in financial planning. It is very easy for an individual to suffer with a financial crunch in the absence of proper planning.

Few ways of managing your financial crisis are:

1. Restrain unnecessary expenses: When you cut down your not so important expenses, you end up saving more. When you have sufficient money, spending on unnecessary things doesn’t seem to cause a problem. Make habit to purchase only those things which are essential are a good idea. It is always better to curtail unnecessary expenses even during good times.

2. Assign money for regular expenses: Based on your expenses pattern of the past, set aside money for all the expenses you can count and estimate beforehand. When you have extra inflow in any month, you can set aside money for expenses to help you in the times of need.

3. Adjourn your expenses: Analyze your expense pattern and see if any payable amount can be deferred to a later date when your cash flow position improves. You will realize that there are many expenses which are not critical and can be taken care of later.

4. Sustain a Contingency Fund: You must plan to maintain a contingency fund worth at least six months of your expenses. This will help you manage your expenses in case a financial crisis occurs. Remember to invest this corpus in a liquid fund which can give you returns and at the same time be withdrawn any time.

5. Monetize gold: If you are going through financial issues, you can look at monetizing the gold you hold. You can deposit gold with commercial banks in exchange for cash certificates which will give you fixed interest. This is based on gold holdings. Such a scheme will help you add an additional income stream and ease your finances to some extent.

6. Generate funds from friends and family: If you think you have some commitments which cannot be avoided, it is better a look for finances within your social circle rather than approach a bank for loan. It is often seen that people hesitate to ask for money from their friends or family. The fact remains that you will be paying more interest on a personal loan than on borrowed money from a relative or friend. Looking at formal sources of finance as last resort is a good idea.

7. Don’t disturb your long term investments: You must plan for your goals based on the time frame involved. You should not fund a short term goal with savings meant for long term. You should use your short term investments for your short term commitments only and use it for long term only as last resort.

Manage your financial crisis by cut back unnecessary expenses, maintain an emergency fund, save smartly to overcome financial difficulties.

Dump Your Stocks When………….

When you are investing in equity, it is advisable to take a long term view but it doesn’t mean simply buy and forget. You must know when to sell your stocks. Following are the situations in which you must dump your stocks:

1. Change in Company’s Fundamentals: When you buy shares of a company, you do so because you are convinced about its growth prospects. And reasons for growth prospects can be due to its competitive advantage, quality management, upcoming projects, superior product mix or combination of all these. But if after the purchase you find that things have taken a turn for the worse, or reason of your investment is not materializing, you need to rethink. An adverse event may be threatening to put the business in a spot; offering superior quality products at lower price, key personnel may have left or projects may have hit a roadblock. In such situations, you should reassess the company’s outlook, and if found imperfect, you should sell the shares before they become rancid.

2. Price run up too high, too soon: If you have purchased shares of a company and its stock price increases very soon, let’s say by 30% in two or three weeks. It is enough to reaffirm your belief in the company, make you greedy. You convince yourself that you have hit upon a solid stock idea and that this sudden spike is just the beginning of a bigger rally. A dramatic appreciation can be due to reasons that have nothing to do with the company. It may be a random piece of news or market speculation. It would be better to pocket your gains and look for other opportunities, especially if the target price has been reached. If you are still certain about company’s prospects, you can always buy back at lower price.

3. Price drops below a threshold level: If you purchase shares of a company that declines to a level, then most people would say that it is temporary setback and the price will rise soon. You should ask yourself how much you are willing to lose on your investment and keep a threshold limit or floor, which should trigger a sale. This is known as ‘stop loss’. Instead of holding, learn from your mistakes and move on.

4. Opt for a better opportunity: Is there a chance to earn higher returns in another stock? If you are convinced about the potential of this opportunity, you could consider dumping underperforming stock. It would be better to get rid of the underachievers and seize the opportunity to recover some of the lost money and possibly make more. But never make the mistake of selling your winners to generate cash for this purchase.

5. Personal reasons: Apart from other reasons, personal consideration can also play a part in your decision to sell a stock. Over time, you may find that considering your risk appetite ( ) , your asset mix is skewed unfavorably. You can rebalance your portfolio.

You should review your portfolio from time to time, to have knowledge when and which stock is to be dumped.

Before Investing Evaluate Your Risk Appetite And Risk Tolerance

There is trade off of risk and return in every aspect of life. The higher the risk, higher will be the return. Risk plays an important role in taking investment decisions but most of us are unaware of how to determine it. There is difference between risk appetite and risk tolerance. These terms are mostly used interchangeably. Risk appetite means your readiness to take risk and risk tolerance means the ability to do so. For example, you might love racing (which is your risk appetite) but you must be physically fit to do so (which is your risk tolerance). Risk appetite differs from person to person and risk tolerance depends on present financial circumstances and other factors of the individual.

Factors to determine your risk appetite:

1. Age: As your age increases, your risk appetite will reduce. This is generally true for most investors but there are some exceptions where age does not determine the risk appetite, and a person may continue to have a high or low risk appetite throughout his lifetime.

2. Experience: If you have rich experience in particular type of investments, your risk appetite is likely to be higher for such investments. This is so because of the comfort level which sets in with repeated buying. If you have earned higher returns in the past, then you would be interested in taking high risk in such investments.

3. Knowledge: Having deep knowledge and understanding regarding schemes and investments will increase your awareness, which in turn increases your risk appetite. If you are aware about the latest schemes and their working, you will be more compelled to try your luck in it.

Factors to determine your risk tolerance:

1. Income: This is the most important factor in determining your risk tolerance. If your income is quite good, you won’t hesitate to invest in various schemes because a little financial setback will not really affect your financial situation in any way.

2. Expenses: Some people have high income but also high expenses, in this case money left as saving is very little, so there is a fear and doubt in taking decision regarding investment. This implies lower risk tolerance. It is important to cut down your expenses wherever possible in order to keep your financial health intact.

3. Financial Goals: If you are burdened with any short term goals for which you have not planned the financing, then you will not be able to invest much, considering most of what you are earning is spent on such goals. In such case risk tolerance is lower than a situation where your goals are planned and there is no hesitation in investing. Nearness to goals also determines risk tolerance. If your goals are long term in nature, you can expose yourself to higher risk investments, than if your goals are for the short term.

4. Liquid Cash: If you have enough liquid cash accumulated in your account in order to support you for a year or two in case of emergencies, it could be alright for you to make investments. If your lifestyle allows you to take such risk, then the risk tolerance is high.

5. Insurance Cover: Be it any form of insurance cover, if you are sufficiently covered, then you are more willing to take a risk in investments.

In order to take best investment decisions, you should be able to determine your risk appetite and risk tolerance before investing.

Virtual Credit Cards- Analysis

As everything has both sides, positive and negative, Virtual credit card too have both sides.

Here are some pros of virtual credit cards:

-> Protection: They provide protection to card holders from online credit card fraud, prevent card number from being stolen and used to run up high charges. They also protect user from identity theft, because card cannot be used to provide proof of the thief’s false identity. The virtual credit cards do not carry any of the owner’s personal information and only carry the temporary number provided by the company.

-> Convenience: These cards allow the user to make online purchases without having to search for his physical credit card information first. User has to remember the virtual credit card number only.

-> Protects from Scam Proliferating: : Some unscrupulous companies offer free applications that require the user to input his credit card number along with other information. The unsuspecting user then finds that his credit card has been charged for the application after a period of time has passed. The use of virtual credit card with an extremely low credit limit keeps the user from being noticeably affected by these scams.

-> Limited to One Vendor: If you stored your physical credit card number at a site that got hacked, then the card could get bogus charges from another vendor. With virtual account numbers the charges are supposed to be restricted to one vendor.

-> Flexibility: It enables Bank customers to pay from any of their Internet Banking enabled accounts, having transactions rights. Card can be created for any amount, but that limit depends from one bank to another. Card can be used at any online merchant site that accepts Visa Cards.

Here are the some cons of virtual credit cards:

-> Limited Availability: Very few banks offer virtual credit card facility. Some banks offering virtual credit cards are SBI, ICICI bank, etc.

-> Chances of Fraud: If you don’t set an appropriate time limit and payment limit, the vendor might put fraudulent charges anyway. And if that happens, the company will probably cancel your card and you’ll need to get a new account number.

-> Not always ideal for Recurring Payments: You don’t want to put your internet bill on a virtual account number that is going to expire before your card. You might forget to generate a new number and keep track of everything.

-> Not For Use Everywhere: You should not use virtual credit cards when you need to physically pick up an item because the virtual account number will not match the number on your card. This is important when you are picking up movies, renting a car, etc. This could also be a hassle if you need to return a product, you bought on the virtual number which might have expired.

-> Longer Processing Time: The processing time for virtual credit cards tends to be longer than that of physical credit cards.

So, while using virtual credit card, you should consider all it pros and cons.

Virtual Credit Card- Must Knows

-> A virtual credit card is an electronic card, which can be created using the internet banking facility by providing one’s credit/debit card details. It does not require any extra charges.

-> This card is created for one time and it is created for each online transaction separately. It is valid up to maximum of 48 hours.

-> Each virtual card comes with its own card number, CVV number and validity details. It can be used for online transactions like regular credit cards.

-> This virtual card allows secure online transactions as it reduces the risk of exposing the underlying credit/debit card details to the vendor.

-> A virtual card may be available to non credit card holders also. For this virtual credit card can be linked with your debit card or your bank account.