NO COST EMI; Is it Beneficial?

EMI stands for Equated Monthly Installments. It is a fixed amount lender pays to the borrower each month until the principal and interest are fully paid. No Cost EMI is where the consumer “thinks” there is no extra cost other than the price of the product.

Loan without Interest:

According to RBI circular from 2013, Banks should refrain from offering any zero-interest loans on retail products.

“some banks were loading the expenses incurred in sourcing the loan (viz DSA commission) in the applicable RoI charged on the product. Since the very concept of zero per cent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product / segment-wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers. The only factor that can justify differential RoI for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in the case of retail products where the RoI is generally kept flat and is indifferent to the customer risk profile”.

Now-a-days, Online Shopping Portals offers a discount equivalent to Interest, so the effective price seems to be the same as without Loan to Customer.

Here, the retailer offers discount equivalent to Interest, It seems like a good deal in first look, but there is a reason retailer’s offer this.

One reason is where you lose money since you have to let go of the discount which would have been yours (If you pay upfront amount). That discount is higher than the interest which retailers have to pay to Banks. In the second case, the Company might not want to devalue the product as it will affect the brand value.  So instead of offering a direct discount, they offer No Cost EMI to increase sales.

No Cost EMI is usually offered on the credit card associated with the bank making the offer. This way, they are betting on consumers paying credit card interest too!

Let’s understand it with a example. Kiran is a Professional Outdoor Photographer. He wants to buy OnePlus 7T Pro Smartphone worth 53999 INR. He doesn’t have to pay the upfront amount, but can manage to pay off in 6-7 months. He found a deal on ecommerce portal where he can pay 9000 INR for 6 months. He is delighted to purchase the product without opting for EMI. Isn’t it a great deal? Let’s find out.

Such loans carry 18% to 30% interest. Let’s assume for the case study, it’s 18%. Here’s the break-up:

  • Original Price 53,999
  • Discount Offered -1990
  • Interest on Loan 1990
  • Amount to be paid 53,999

The problem with such deals is, online sites never provide such breakdown upfront; otherwise very few people will fall for it. If you randomly search any site at any time there are 5% off offers available. But if you wait a couple of months (Which most people like Kiran hate to do), you can find a deal worth 10% off + Additional Cashbacks which means Kiran could have got the phone for 51,000. You can take any product at any time and do this math you will find out paying money upfront is a better option.

Even if there is no other discount available, remember you are buying things on loan at more than 15% Interest.

That’s a matter of choice; people should make.

The real problem is when Interest is added to the Price, and then it is offered on No Cost EMI. Any company paying Interest from their pocket to increase sales is a bit difficult for me to digest.

Summary: Even though many examples prove that No Cost EMI is harmful, there is an even bigger risk present when you opt for such plans. If you often have this habit of buying things on EMI, you are essentially spending before you earn. If you do not pay attention to this habit, it will not take long to turn into spending more than you earn.

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How Traditional Insurance plans Exploit your Money

Traditional Insurance Plans are deadly products to invest in.

Surprised?

You never understand where the amount is invested as it is not a transparent product.

Let me show you the way how to calculate returns from any traditional insurance policy. Next time when any insurance agent shows you a policy benefit illustration or your friend or relative asks you, “Is this a good policy to invest in?”, use this method to show the annualized return they can expect (before bonuses which will not make a significant impact).

Case: Guaranteed, but Lumpsum Payout

Here is a typical “guaranteed plan” offered by many insurers. This promises to pay a “fixed returns” for Y no of years after the premium is paid for X no of years. This sounds so great on paper. Let us investigate more with an example.

Here is a plan of LIC, Jeevan Lakshya for a 25Y policy with 22Y premium paying term. The sum assured ~ Rs. 10.10 Lakh and the annual premium is Rs. 43247 or Rs. 45193 with GST (notice that illustrations will not include taxes).

At the end of 25Y, the policy will pay out Rs. 1010000/- as a guaranteed benefit. It will pay Rs.49/- per 1000 Sum Assured as Simple Reversionary Bonus, which will be 12,37,250/-. The mentioned rate is of 2015-16. (Information available on LIC official website). The rate changes every year. Point to Note:- Simple Reversionary Bonus & Final Additional Bonus Rates are not fixed & largely depends on profitability of company. Hence, I term it as NON-GUARANTEED.

We need to tabulate all the cash inflow & outflow mentioned below

insurance plan cashflow
  • Col A is just the year no starting with zero (the 1st premium)
  • ​Col B a set of premium paying dates Col A is just the year no starting with zero (the 1st premium)
  • ​Col C the premium paid (before GST)
  • ​Col D the sum of total premiums paid each year
  • ​Col E actual premium paid (including GST). Shown as negative for return calculation. ​The money we pay is shown as negative and the money we receive is positive.
  • ​Col F Sum Assured on Maturity plus assumed Simple Reversionary Bonus paid is given to us (so this is positive).
  • ​Col G is the total cash flow that is the sum of Col E and Col F.  The final payout of Rs. 2247000 is shown as the final entry (25th Year).

​The XIRR or annualized return formula is as shown below.

​The XIRR formula is = XIRR(set of cash flow values, dates)

Returns Chart

​The annualized return is meagre “5.23%”

​This example shows that it is better to use dates + payouts and use XIRR at all times.

​When the payments are not immediate, you lose immensely and insurance company gain immensely. ​And we are not even considering the fact that the insurer can invest the premiums collected and earn a return on it over the many years they hold on to it.

​When the payments are not immediate, you lose immensely and insurance company gain immensely.

​Where do you think the bonuses come from?!!

​If you receive the payout immediately, not only is the return high, you can use it any way you want. If insurance company delay payouts, they can use it any way they want. ​Time is money!!

​This idea is also known as “Opportunity Cost!”

​If the money is locked-in, we lose more than we know!

We all learn from experiences life gives us

One of my friend (Akshay) asked if he can buy car on Loan?

Car value = 10 lacs
Down payment = 1 lac
Loan = 9lacs
Monthly EMI = Rs 20,000 for 5 years

Akshay asked if his decision is right in buying car in above calculated approach

I said, You are buying a liability on another liability

Akshay – How, please explain.
I – Car is a liability, we need to keep spending on car monthly for fuel and maintenance and its value decreases over time.

Akshay – Acha Ok.
I – And you are buying a car (liability) with a loan (another liability), which is not a good approach.

Akshay – Ok, but my wife started working last month and she is earning 20-25k approx monthly and we thought to buy car with her salary.
I – So, when your income increases, you buy things which you dont need on loan?

Akshay – No, but we want Caaaaar.
I – How much will be your daily usage of car?

Akshay – We will not use it daily, may be monthly twice or thrice during weekends or holidays.
I – Ohh, then you can make use of cabs like Ola or Uber.

Akshay – Yes; but it doesnt give feel of owning a car.
I – Oh, I think you dont know, until loan is cleared CAR will not be yours’.

Akshay – Hmm yes, but it will be with us 🙂
I – You are getting emotional.

Akshay – Please tell me if my logic is correct, shall I buy car with calculations mentioned above?
I – As I said earlier, it is not a wise approach to buy car on loan. By the way, bank will not give loan to your wife as she just started earning and also nobody will give loan upto 80-90% of income going as EMI.

Akshay – I thought about it, so what I will do is, I will take loan on my name and pay emi from my account and will adjust with my wife salary.
I – Ok, what if your wife stops working after couple of years?

Akshay – Why will she stop working?
I – Consider for suppose

Akshay – It may become tight for me to pay EMI, I dont have much emergency fund also.
I – Hmm…thats risky.

Akshay – Please tell me if my decision is fine?
I – I have been telling since beginning, that this decision is not wise, but what are you expecting from me?

Akshay – I want you to tell me that my decision is right.
I – Then; why are you asking me if you have pre-decided?

Akshay – I want to confirm with you.
I – I can give opinion if you can listen open-mindedly. If you have pre-decided then whatever I say doesnt’ matter to you.

Above discussion happend about 8 to 9 months ago with one of my friend (name has been changed for privacy reasons) and no conversation happend after that

Today he pinged me and asked if we can meet over coffee and when we met;

Mr. Akshay looked unusual and was uncontrollable with his emotions. Upon discussing with him, following is the summary,

He bought the car on the loan, then after 4 months his wife had to stop working as it became difficult for her to manage work at office and son (2yrs old) at home as Akshay’s mother went back to their hometown who used to take care of his little son.

Akshay, in his words whatever you told became reality. After my left to hometown, We have decided and asked my wife to stop working and car EMI became a big burden now. I thought of informing you at that time itself but I did’nt know how to show my face to you, all these days that’s why I did not communicate to you.

Today I thought, Kaustubh was able to analyse and tried to advice me not to buy car at that time itself but I did’nt listen to him.

I dont know how many more mistakes i m doing which I did’nt ever thought of, so I kept my ego, shyness aside and messaged you. Now, I want your advice on all my financials and tell me what actions should I take to ease out my financial burden.

Kaustubh – My Final words – Financial Planning is all about managing RISK and ensuring we achieve our Dreams and Aspirations by not falling as trap to RISK by avoiding / mitigating it

Long real life story, please read at your convenience. Hope you all learn out of it 👆🏾👆🏾👆🏾👆🏾

#Metoo

Let’s start a Positive #MeToo for Investing

Have you invested your Savings? #MeToo

Have you invested for the Long Term? #MeToo

Have you done your Asset Allocation? #MeToo

Have you invested in Equities? #MeToo

Have you invested via Mutual Funds? #MeToo

Have you started an SIP? #MeToo

Finally
Have you consulted a Financial Planner for all of this? #MeToo

And if any of the above replies are in the negative

God will help you!

#kaustubhdeole

#theequitylearners

#artharthifinancialservices

Thugs of Investor’s Money

People fail to believe or have trust.

We, the people, make same mistakes again and again, yet never learn from it.

Why do people take undue advantage of us?

Any Guesses…..Because we give them the sole right to take from us.

Have a look at these headlines & try to understand our behavior.

Sanskar Investor Scam – 100 Crs

Saiprasad Group of Companies Fraud – 4000 Crs

Maple Group fraud – 400 Crs

Q-Net Multi Level Scam – 2 Crs

Janata Sahakari Co-operative Bank Fraud – 5 Cr

Defence Personnel Co-operative Hsg Society Scam – 3500 Crs

The Royal Twinkle Star Club & Citrus Check Inns Scam – Over 8000 Crs

DSK Scam – 2043 Crs

Rose Plotting Scam – 400 Crs

Amit Bharadwaj’s Bitcoin Ponzi Scheme – 2000 Crs

Rs. 20000 Crs Scam in Pune in 5 yrs

Recent News:-

A Dombivli Jeweller duped people of 15 Crs

According to Financial Stability Report released by RBI on June 26 says, In 2018, there are more than 6000 registered fraud cases amounting to losses of more than 30000 Crs.

In my understanding, people are growing impatient & lack three important virtues of investing – Contentment, Pragmatism & Contemplation.

Contemplation states that Blindly chasing investments for Windfall Returns has its pitfalls.

In current market situation, not a single entity or person can assure or guarantee you extra-ordinary returns.

Patience is a good virtue.

Please remember the fact:

Great Returns / Success is derived from Long Term Patience, Contentment, Pragmatism & Contemplation.

#kaustubhdeole

#theequitylearners

#artharthifinancialservices

#learningneverstops

Do you Really want to get Rich / Wealthy?

Ask Yourself – “Do you Really want to get rich / wealthy”?

Is it on your priority list OR are you happy going through life living salary to salary and retiring at 58 and then wondering how to spend the next 20/30/40 years of your life?

Not many people are cut out to create wealth. In fact most people do not.

How much time do you spend each day thinking about it?

What?

You don’t even think about financial independence once a day and you expect to get there in your 40s?

Forget about it.

You think you CANNOT resist spending Rs. 200,000 on that bike that you are dreaming off or on a car costing Rs. 12,00,000 when you have not thought about Investing for Financial Independence?

Forget financial independence in your 40s, after all you do not want it as badly as you want your car or house, do you?

Likewise, what are you willing to sacrifice to build your Retirement corpus? It takes some sacrifice, and the longer you delay that sacrifice, the larger the sacrifice becomes.

If you are 33 yrs, and not yet set up any SIP for retirement, and all your money is in Bank FD, Real Estate, ULIPS, LIC etc, kiss your early retirement / wealth creation dreams a Happy Goodbye.

Cost of Delay:-

The longer you delay the lesser the chances of you being able to create any wealth.

The longer you delay, the lesser retirement corpus.

The longer you delay, the longer you have to work.

The longer you delay, higher chance of you working forcefully even if your health doesn’t support.

The longer you delay, the sooner your happy retirement dreams will fade away.

#theequitylearners

#artharthifinancialservices

P.S- Interested people can contact us for Financial Independence Program.

Automobile Atrocities

Recently I purchased a Verna from a Hyundai dealer. The cost came about 15.20 lakhs. When I checked the invoice, the insurance component alone was 73K. I found that it was on the higher side.

When I checked with one of my friend in the Insurance industry, he said he can do it for 53K for 12 Lakhs IDV (Insured declared Value), with the same insurance cover, which includes bumper to bumper with consumables.

If the difference value was 2K or 3K, I could have gone with the dealer itself. But when the difference value was about 20K, I was not able to digest.

I inquired with the Sales Manager of the showroom, why there’s a huge difference between your insurance with the other insurance companies.

He said, we will cover everything boss including consumables whereas other insurance companies will not cover those. Since this insurance comes from Hyundai; you will not have any problem in the claims.

I was little confused, again and went back to my close friend and inquired about that. He told that, the Sales will get a kickback from their company for promoting their own insurance. Hence they will say all cock & bull stories. If you are ready to fight it out, I will back you for getting the insurance.

Still I was not convinced. I thought it was prudent to clarify this issue on my own. I googled it to find out the truth, the motor vehicle insurance act, the law clearly says that, one cannot force the buyer to buy the insurance from them. It’s absolutely the discretion of that individual to choose the insurance company.

I decided to speak with CRM of Hyundai. Got a reply stating that, since you are buying the car from us, you need to take the insurance from our company only? The moment when I talk about the Motor Vehicle Insurance Act, she kept quiet and said, I will ask the concern person to speak with you sir!!

Since there was no revert for my calls, I wanted to document the same and I wrote couple of mails, but it remained unanswered. The delivery date was scheduled; the sales manager was pressing me for the remaining payment. The situation was forcing me to take decision. The difference amount of 20K was still stitching my mind continuously.

I called the Hyundai Customer care number in New Delhi. The executive who spoke to me was very clear in her statement. We will not force any customer rather we cannot force any customer to buy insurance from us. He requested me to take the Sales Manager on con-call.

I called the Sales Manager; I once again started the story from the start. Because I wanted them understand the entire story. I allowed him to talk more; he went on to say, as per Hyundai Policy, the new customer has to take the insurance from the dealer only. Otherwise the customer would face a problem if any claim arises in the future. The Sales Manager not aware that, the customer care executive is over hearing the entire conversation.

Suddenly the customer care officer, interrupted the conversation and asked the Sales Manager, gentleman can you please quote where it was mentioned in the policy.

The Sales Manager was bamboozled with that intervention of Hyundai people. When he understood that it was Hyundai people, he assured that he will do the best to satisfy the customer.

I must appreciate the courtesy and professionalism with the Hyundai customer care people.

Later the dealer accepted to take insurance from outside and I saved about 20K for myself.

On the following day, the Sales Manager had called me and gave a nice compliment in a sarcastic way – I never seen a customer like you sir!!

Jokes apart, with a little rigidity, I saved my money.

When I shared this information with my friends, surprisingly no one aware of that, we can take the insurance from outside as well, this made me to dig deeper about this insurance fraud.

Since I live in a large gated community; I get an opportunity to see all brands of cars, every week I use to see a newly registered car in our community. Out of curiosity, I started checking with new car buyers about this. Shockingly no one was aware of such things. They all told me, we thought it was a package.

So next time, if your friend or relatives buy a new car for themselves. Please share this info with them, help them to save their money and demand for a big treat.

For a matter of fact, it’s happening with all familiar brands. The awareness has to come from the people.

In 2017, over 32 lakhs of car were sold in India. Even if you keep the insurance margin to 10K per car, you may need a calculator to calculate the swindled money from the public. It was staggering 320 crores of money has been looted from our pocket.

Every month, the corporate is pocketing 26 crores of rupees from us. This is only the car segment alone. There are some other segments like commercial vehicle, Agri-vehicles, two wheelers and many others.

We can keep this atrocity in one side and we talk about another atrocity which people are doing to themselves.

Only 4 out of 10 people take the car on every day basis. Which directly translates around 60% people is not doing any justice to the EMI they are paying.

For a 12 lakhs car, you pay an EMI of Rs. 25K per month, which translates about 3 lakhs per annum. Apart from that, you have fuel cost, insurance cost, depreciation cost and service cost.

For 20,000 kms, let’s take average mileage of 12 km/per litre. Which directly translate into Rs. 1,33,000 (11K per month), then insurance amount of Rs. 40K (3333 pm), then 10% depreciation of 1,20,000(10k p.m.) and service cost of 20K (1600 pm)…. Which all adds up to Rs. 25933.

And it doesn’t stops there; you add up your EMI of Rs. 25,000 then add the other component of Rs. 25933 = 50933.

Hence your spent per month is Rs. 50933.

Based on your car value, you can calculate it accordingly.

If you are not driving anything less than 20,000 kilometres, we can charge a criminal case against you.

Now again who is helping the corporate, the same ignorant people. My request is, if you are going to drive less than 20,000 kilometres per year, please don’t buy a car. Instead hire a Merc, wherever you go. It works out much cheaper than owning a car.

Per annum spent Kms ran Rs spent per km
635196 30000 21 Rs.
635196 25000 25 Rs.
635196 20000 31 Rs.
635196 15000 42 Rs.
635196 10000 63 Rs.
635196 8000 79 Rs.
635196 5000 127 Rs.

** Per annum spent derived from 52933*12
** Rupees spent was calculated kms ran / pa spent

I can keep adding another atrocity by the consumer. Only 50% of the car owner washes their car everyday. Out of which only 10% cleans the interior.

I have seen many people were driving their NEW car with the polythene cover in the seat. They are trying to safe guard the seat. The R&D team works very hard to give a comfort for the car owners to give a pleasant experience to drive their cars. But we are not enjoying it, in spite of paying money for that car.

Author: Unknown

Source: Facebook

Money Lessons for your Kid Part – 3

Changing times, social media like facebook, instagram, whatsapp has impression on kids.

Learn how to teach them money lessons.

Money lesson for your kid aged 15-16:

Explain loans & credit reports before the bad habits of his peers get ingrained in him. Ensure he understands the importance of high credit score to eventually get the loans for things he wants, e.g. a house or a car in future. Make him understand how loans work — principal, interest, repayment, good loans Vs bad loans, tax benefits (80C, 80E etc), Insurance cover for loans etc.

Money lesson for your kid aged 17-18:

Give them more leeway in Bank A/c where they can store the money & write cheques. Don’t add money to this account. They should fund it from their savings. Have them write cheques for costs like student activity fees, and sit down with them monthly to balance account. Also, discuss topics like work-life balance, financial freedom etc.

Money is great, but it’s worthless if you’re not leading a balanced life.

#artharthifinancialservices

#kaustubhdeole

Money Lessons for your Kid Part – 2

Why Money Lessons are important for your kid in changing markets.

Money lesson for your kid aged 11:

Keep pointing out advertisements of different brands to your kid. Explain how they try to manipulate consumer’s emotions by making their products look cool through paid advertisements.

Money lesson for your kid aged 12:

While shopping, point out a cheaply-made product & a higher quality alternative, explain the difference (the feel of fabric, brand etc.) and how to choose between the two. If you buy eco-friendly product, explain why you’re willing to spend more on it. She should learn smart purchases rather than just the cheapest.

Money lesson for your kid aged 13:

Get in the habit of clarifying financial concepts. Tell your kid, ‘I invest in Mutual funds, Bonds, Stock Market etc to make money grow’. Show the ups & downs of Nifty (just call it ‘the market’) and explain why people invest in it.

Money lesson for your kid aged 14:

Make your teen work for extra allowance, e.g. chopping vegetables etc. Let her feel the power & freedom of making & spending money. E.g. if she wants a Rs 1200 jacket, explain that she’d have to babysit for 12 hours at Rs 100 per hour to afford it. Convey that she has to work in order to get what she wants.

#artharthifinancialservices

#kaustubhdeole

म्युचल फंङ अापके लिए सही नही है…अगर

‼अगर अाप बिना सलाहगार के इन्वेस्ट करते हो तो…
म्युचल फंङ अापके लिए सही नही है…

‼अगर अाप रोज फंङ के एनएव्ही देखते हो तो…
म्युचल फंङ अापके लिए सही नही है…

‼अगर अाप रोज उठकर सेंन्सेक्स देखते हो तो….
म्युचल फंङ अापके लिए सही नही है…

‼निचे गिरते बाजार में अगर अाप एसआयपी बंद करवाने कि सोचते हो तो…
म्युचल फंङ अापके लिए सही नही है…

‼मिङीया में अायें हुए समाचार से अाप विचलीत होते हो तो…
म्युचल फंङ अापके लिए सही नही है…

‼बिना किसी वित्तीय ध्येय के अाप निवेश करते हो तो…
म्युचल फंङ अापके लिए सही नही है…

‼बिना किसी ठोस वजह से अाप अपने सलाहकार को स्किम बदलने को कहते हो तो….
म्युचल फंङ अापके लिए सही नही है…

‼शेअरबाजार १-२ सालो में ही १५-२०% रिटर्न पाने कि ख्वाहीश रखते हो तो..
म्युचल फंङ अापके लिए सही नही है…

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