Blog – Page 26 – Pradeept Agarwal

Loan Against Security

One cannot predict when monetary crises may arise and it is advised to invest in different types of financial portfolios. There are numerous avenues from where one can raise capital and its selection has to be based on need and urgency.

Here is an option to avail quick loan that requires less processing time and offers faster dispersal of capital.

In a scenario, where the requirement is of small capital and on an immediate basis, one can avail quick loans against shares, debentures, and bonds.

A number of banks and NBFCs grant advances against the security of shares, debentures, or bonds to individuals subject to the fulfillment of prescribed conditions.

Loans against shares and debentures can be given to individuals:

For meeting contingencies and needs of personal nature.
For subscribing to rights or new issue of shares/debentures against the security of existing shares/debentures.

Loan Amount Offered:

The loan amount against the security of shares, debentures, and bonds does not exceed the limit of Rs 10 lakh per individual if the securities are held in physical form.

However, an individual can avail of a loan of up to Rs 20 lakh if the securities are held in dematerialized/ Demat form.

For subscribing to IPOs, loans given to individuals do not exceed Rs 10 lakh.

Banks may extend finance to employees for purchasing shares of their own companies under ESOP to the extent of 90% of the purchase price of the shares or Rs 20 lakh, whichever is lower.

Bank’s Loan Policy:

Banks maintain a minimum margin of 50% of the market value of equity shares/ convertible debentures held in physical form. In the case of shares/ convertible debentures held in dematerialized form, a minimum margin of 25% is maintained.

The aforementioned are minimum margin stipulations and there is a possibility that banks may stipulate higher margins for shares whether held in physical form or dematerialized form.

In addition, the margin requirements for advances against preference shares / non-convertible debentures and bonds are determined by the banks themselves.

As per RBI guidelines, each bank formulates the approval of their Board of Directors regarding Loan Policy for grant of advances to individuals against shares/debentures/bonds.

Banks obtain a declaration from the borrower indicating the extent of loans availed of by him/her from other banks as input for credit evaluation.

Banks avail the facility of Pledge of the dematerialized

shares/debentures in the depository system, whereby the securities pledged by the borrower get blocked in favor of the lending bank.

The loan limit depends on the valuation of the security, applicable margin, and ability to service and repay the loan.

A loan is normally given in the form of an overdraft facility against the pledge of the securities. Interest has to be paid for the amount and period for which the overdraft facility is utilized.

Furthermore, a declaration is obtained from the borrower indicating the details of the loans/advances availed against shares and other securities, from any other bank, in order to ensure compliance with the ceilings prescribed for the purpose.

Advantages Of Loan Against Securities:

Ideal for short-term funding.
Enables instant liquidity against shares without selling them.
Takes care of all investment as well as personal needs.
The tenure of the loan against security is one year, but it can be easily renewed.
The rate of interest ranges from 12 – 15%. The rate varies from bank to bank.
The processing fee is charged at ~2% of the loan amount.
The loan amount depends on the security the borrower is offering.
The no charges for prepayment of the loan.
The loan has to be repaid within the fixed period. If the borrower fails to make the payment, the lender can file a case for recovery and the balance amount has to be repaid within 3 years from the date of sanction of the loan.

Who Cannot Avail It?

To Trusts and Endowments against the security of shares and debentures.
For speculative purposes, inter-corporate investments and acquiring a controlling interest in companies.
Against the equity shares of the banking company to its directors.

Banks will not extend advances to their employees/ Employee Trusts set up by them for the purpose of purchasing the banks’ own shares under ESOP/ IPO or from the secondary market.

This prohibition will apply irrespective of whether the advances are unsecured or secured.

5 Things to Know Before Buying Term Insurance

Insurance has garnered a significant amount of attention in recent times. Especially among the younger generation, who has understood its importance and are looking forward to purchasing.

As a financial instrument, insurance can play a vital role in the life of a person and his family. However, you must choose the right one.

There are many insurance products in the market, life insurance, and medical insurance being among the most preferred options.

If you are the only earning person in the family, you need a product that offers better protection and cover in comparison to other insurance policies. Perhaps, you can consider a term plan.

1. Low premiums: When people hear about an insurance policy that offers a wide spectrum of coverage to the policyholder, they picture a high amount in their minds.

Term insurance, on the quite contrary, is believed to have the lowest premium among all other policies in the market.

Since the premium for term insurance policies is determined by factors like policyholder’s age, habits, and medical history, for some applicants the premium can be as low as INR 500 per month.

For people who look forward to investing a very small amount of their monthly income for insurance, term insurance can be an ideal option.

2. Plan Choice: Term insurance policies come with a lot of options. From picking a term insurance policy with single life cover for a sole earner to covering your spouse in a joint life policy, the options are endless.

Based on your needs and plans, you can choose the ideal product for yourself and your loved ones. Consider all the factors before buying a term insurance policy.

3. Tax Benefit: Tax savings entice consumers towards term insurance. Tax savings featured under section 80C of the Income Tax Act, 1961, allow the policyholder to exempt from tax on premiums paid and the sum assured.

4. Flexibility in Paying Premiums: There’s a myth wherein people believe that term insurances are only available for a maximum of 25 years.

However, it isn’t true, as term insurance plans with extended duration, are available as well. Experts suggest such plans, as they cover for a long term, and the premium is locked, thereby preventing it from getting affected by the market conditions.

5. Premium Flexibility: There are many factors involved when it comes to premium options. Earning, tenancy, disbursals, and mortality are a few of the many factors which must be considered when deciding to increase or decrease the premium amount.

However, the premium amount level is pre-specified and thus a policyholder cannot exceed the amount.

3 Reasons to Insure Yourself this Pandemic

As we said at the start, most people think insurance is an unnecessary expense. The reason is that we feel confident about our future and our ability to tackle unseen circumstances.

But there is a huge difference between our perceived ability and reality. For instance, a few years of savings can vanish in case of a medical emergency.

1. Insurance ensures the family’s financial stability

No matter how much you have managed to save or what your monthly income is, an unexpected event can burn a huge hole in your pocket or can simply jeopardize your family’s financial future.

For example, if you do not have adequate life insurance, your family might have to go through financial hardship if you were to meet with an untimely death.

Though no amount of money can replace the loss of loved ones, having life insurance would save them from going through financial hardship.

Meanwhile, if you or your family do not have enough health insurance, then huge medical bills during any treatment can completely shake your finances.

So you must cover yourself, your family with an adequate amount of insurance.

2. Insurance brings peace of mind

The premium you pay to the insurance company is the price that guarantees that the insurance company will cover the damage in case of an unforeseen event.

And, that guarantee that your risk is covered brings peace of mind.

For example, let’s suppose you die an untimely death at a time when you still have several milestones to achieve like children’s education, their marriage, a retirement corpus for your spouse, etc.

Also, there is debt as a housing loan. Your untimely demise can put your family in a hand-to-mouth situation.

But, if you would have bought term insurance considering all these factors, your family would be able to sail through the hard times.

3. Insurance reduces stress during difficult times

No matter how hard you try to make your life better, an unforeseen event can completely turn things upside down, leaving you physically, emotionally, and financially strained.

Having adequate insurance helps in the sense that at least you don’t have to think about money during such a hard time, and can focus on recovery.

For example, suppose you or someone in your family had a heart attack and needs immediate hospitalization. Such treatments at good hospitals can cost lakhs.

So having health insurance in this case, saves you the worries and stress of arranging money.

With insurance in place, any financial stress will be taken care of, and you can focus on your recovery.

Conclusion:

Having insurance – life, health, and liability – is an essential part of financial planning. It can save you from financial hardship in case of any unforeseen circumstances.

However, the decision to buy insurance should be determined by three factors – requirement, the benefits you get from the policy, and your ability to pay the premium.

Why You Should Increase Your SIP Every Year

Many investors think of SIPs and mutual fund schemes as synonyms, however, that is not the case.

SIPs are merely tools that allow you to invest in a mutual fund scheme over some time.

It can be monthly, quarterly, or semi-annually depending on your financial goals.

It acts as a convenient option for salaried individuals to regularly invest in mutual funds.

The money can get deducted from their account automatically thereby engraining a financial discipline.

How to Start SIP Investment?

You can start a SIP with a minimum amount of Rs. 500. Here is how to start a SIP

investment if you wish to buy mutual funds.

• Basic Information
The first step of SIP investment requires you to provide all your basic personal information in an online form such as your name, date of birth, address, mobile number, etc.

• Aadhar Based eKYC
The above procedure for SIP investment can be simplified if you have an Aadhar card. You have to enter your Aadhar number and authenticate it with a One-Time Password (OTP).

This will pre-populate the online form with all your basic information details available in the UIDAI database.

IPV through a video call is not required if you complete the eKYC procedure through Aadhar as the UIDAI database already has your biometric information.

However, there is a statutory limit that will not allow you to invest more than Rs. 50,000 per fund house in a financial year if PAN card details are not submitted by you.

You can submit your PAN card and enhance this limit.

• Upload Documents
In the next step, you are required to upload a scanned copy of your PAN card and address proof.

Benefits of Increasing Your SIP Investment Every Year

Here are some advantages of increasing your SIP every year.

• Counters Inflation
While investing, the return adjusted for inflation is a significant factor to be considered.

As inflation increases every year, the amount you find substantial today may not have the same worth some years down the line.

Hence, if you do not increase your SIP investment amount every year, you ignore inflation which erodes the purchasing power of your hard-earned money.

• Builds A Bigger Corpus
When your income and surplus increase every year, it makes sense to increase your SIP investment too.

It adds to the power of compounding and helps accumulate greater wealth by building a bigger corpus. Even a small 5% to 20% increase in the SIP investment plan at the end of 10, 15, or 20 years can make a big difference.

Also, you can avoid increased documentation as it will reduce the necessity of creating and tracking multiple stocks.

7 Advantages of SIP

Systematic Investment Plan (SIP)

A systematic Investment Plan or SIP is a method of investing money in mutual funds. The other way to invest in a lump sum or one-time payment.

In SIP, you invest a fixed amount of money in a mutual fund of your choice every month.

The setup is such that the money is automatically debited from your bank account.

To know what amount of monthly SIP you need to invest to achieve a certain money goal, use our SIP calculator.

1. You Can Stop the SIP Anytime

There is no fine if you decide to stop a SIP plan. If you want to stop it, you simply have to opt-out of the SIP plan.

This has a very big advantage over recurring deposits (RD) which usually put a fine on you if you want to stop it.

After stopping your regular SIP investment, you can choose to get back the amount or let it continue to be invested in the mutual fund.

2. You Can Skip SIP Payment

If for some reason you don’t have enough balance in your account for the SIP investment of a certain month, you can continue with the SIP next month without any problems.

No fine or charges will be levied against you. In the case of RD, there will most likely be a fine for missing a payment.

3. You Can Invest Very Small Amounts

With SIP plans, you can start investing in mutual funds with an amount as little as ₹500 a month. Here are the best mutual funds to start a SIP investment with ₹500.

Even if your savings are not very large, you can still take advantage of the growth being experienced by India by investing in mutual funds!

4. You Benefit from the Effect of Compounding

When you invest using a SIP plan, your monthly SIP investment gives returns. Those returns are added to your actual investment amount and invested again!

So over time, your continuous monthly SIP and the returns earned by them are subjected to a compounding effect that ensures exponential growth.

5. You Can Start a New SIP If You Have More Money

If you start earning more or if you can save more, you can always start a new SIP plan in the same mutual fund or a different mutual fund.

That way, the extra money will also be invested for the future!

6. You Do Not Need to Worry About Timing the Market

You must have heard that you shouldn’t invest in an inflated market. When you invest using a SIP plan, you do not need to worry about timing your investment at all.

At times when the markets are high, your monthly SIP buys you a fewer number of units of a mutual fund. When the markets are low, the same monthly SIP amount buys you more units.

Therefore, in the long term, you do not pay very high prices for any unit of a mutual fund. This is called the rupee cost averaging.

7. You Become More Disciplined in Your Savings

It is a common complaint of many people that they aren’t able to save money. The truth is, the more you earn, the more you spend.

This is why you should save first and then spend. If you fix your date of SIP investment right after the date you receive your income, you invest before spending!

4 Importance of Health Insurance during Covid-19

How does health insurance act as your rescuer during the covid-19 outbreak? India has one of the lowest healthcare penetrations in the world, according to the Central Government data.

The same statistics also report that more than half of all healthcare-related expenses in India are borne out-of-pocket which is much lower than the global average.

In a time like this, the importance of having adequate healthcare coverage cannot be stressed enough.

Why Do We Need An Insurance Cover For Covid-19?

During this pandemic, everyone is at increased risk and since the disease is also new to the world, the treatment is still being developed and optimized.

Health insurance during this time is very important and the following points will stress why it is important.

1. ICU Requirement is High in Covid Treatment: The challenge with Covid-19 treatment is that quite a-several hospitalized cases require intensive care treatment and ventilator support, eventually.

With the current caseload in India, both of these are scarce and expensive which drives the cost of treatment upwards very quickly.

Cases of hospitalization charges running upwards of Rs. 10 lakhs in tier 1 and tier 2 cities are not uncommon. Without Mediclaim, this is a huge bill for the average Indian citizen.

2. Income Benefit: Some healthcare plans have income benefits that can help families coping with financial difficulties arising out of unemployment (due to hospitalization) triggered by this pandemic.

3. Expensive Protective Gear: Even wherever hospitalization doesn’t require intensive care, the cost of general treatment is high due to the special protective gear required for Covid-19.

Personal Protective Equipment (PPE) kits including gloves, masks, and other supplies to protect healthcare workers come at a cost, and the final bill amount could still end up in a few lakh rupees due to this.

4. Emergency Coverage: Often there is a requirement for immediate hospitalization due to oxygen levels falling abruptly.

This is more of a concern in rural and semi-urban areas where regular transport at odd hours might be difficult.

During such times, ambulance cover provided in a healthcare plan can be a savior.

Conclusion

Healthcare in normal times is imperative, during a pandemic it is indispensable. According to Insurance Industry insiders, the rate of healthcare enrolment in India has gone up sharply post the Covid-19 pandemic.

Hopefully, people have already begun to realize the importance of having adequate coverage for tough times.

5 Things To Do At The Start Of The Financial Year

While it is pretty natural for all of us to feel a little less stressed at the start of the year, one exercise that you can in April to ensure the rest of your year is also stress-free is to review your finances.

This review will help you assess how you have done with your finances in the last year, where you stand today, and steps you need to take to set yourself up for success financially in the short and long term.

1. Review Your Goals

The start of the financial year is a good time to review your progress towards your goals.

The target amount of your goals might have moved up more than you had assumed when calculating the amount, you will need.

For instance, if you were planning to buy a car, the prices might have seen an above-average increase due to high input costs.

In such a scenario, you will need to recalculate the amount you will need to invest every month to have the amount you need when the time comes.

Additionally, if there is a big change in your life stage in the last year, you might have to rework the priority or add new goals.

2. Review Your Portfolio

While investing for the long-term is the key to wealth creation, that doesn’t mean you should invest and forget.

A periodic review of your portfolio is essential, and the start of the financial year is the perfect time to do it.

A review will help you understand what funds have outperformed, which have performed as per expectation and which have been laggards.

And while removing laggards is tempting, you need to be careful how you approach making that decision.

Ideally, you should only consider those funds which have been underperforming for quite some time (say at least 1.5 years).

What is most important is that you define underperformance clearly.

A fund giving negative returns might not be underperforming if the entire category has

fallen.

So, you need to compare the fund performance vs. the category average.

For instance, if the fund has fallen, but that fall is less than the category average, then you might want to stick to it because of its superior downside protection capabilities.

Reviewing your portfolio is also useful when your goals change. For instance, you started investing in an Equity Fund when you were 10 to 15 years away from your retirement goal.

But now, you have almost reached your target amount and are only two years away from your retirement.

In such a scenario, you need to allocate a higher amount of this accumulated corpus to fixed income products.

3. Increase Your Monthly Investment Amount

Ideally, you should increase your SIP investment by 10% every year with a rise in your income. This will help you reach your financial goals faster.

You can also look at other investment avenues such as the National Pension System (NPS) that offers you the additional Rs. 50,000 deduction over and above the Rs. 1.5 lakh deduction available under Section 80C.

4. Review Life Insurance Needs

Following significant life events like marriage, becoming a parent, buying a house, etc., your responsibilities increase significantly.

You need to make sure that your life cover is sufficient to cover all these additional responsibilities.

So, go back to the calculations you would have used to figure out the right cover for yourself, add the amount you will need to cover the additional responsibilities, and whatever extra cover you need, get that.

Remember, your cover should be enough to provide a monthly income to your dependents, settle all loans, and keep enough for future one-time major expenses like the education of your children.

5. Review Health Insurance Policy

Like life insurance, major life events like marriage and becoming a parent also call for the need to review your health insurance cover.

If you bought a policy before you get married, you would have, in probability, bought an individual cover and for an amount that will be sufficient for you.

Now with additional members in the family, you will need not only a more significant cover but also to make sure they are covered.

The most convenient way to achieve this is by converting your health policy into a family floater and increasing the cover.

This ensures continuity of the policy, and you don’t miss out on any benefits.

Easy Loans Against Mutual Fund

A loan against security is sanctioned against a pledge of security such as mutual funds, insurance, etc.

The list of approved securities for LAS loans varied across lenders. Typically, a loan against securities is approved for the following:

1. Mutual fund (Debt, Equity & Hybrid)
2. National Savings Certificate (NSC)
3. Demat shares
4. Bonds

If you’ve pledged shares, you continue to enjoy ownership benefits – rights, bonuses, etc.

In turn, you get an overdraft facility with a limit based on the value of the securities pledged.

You are then free to choose how and when to use the LAS loan funds. The loan against security interest rate is determined only on the amount withdrawn for the period of the loan and is typically lower than that on a personal loan.

The biggest advantage of such a loan is that you can get access to funds quickly whenever you need them without giving up your shareholder rights to dividends and bonuses.

Thus, a loan against security is a good way to meet short-term financial needs.

Eligibility Criteria

Loan against securities eligibility criteria varies depending on the lender. LAS loans are available to both salaried employees and self-employed individuals.

You must be within the age group of 18-65 years to avail of a loan.

LAS loans are also available to organizations holding eligible securities that have been in existence for at least 2 years.

We accept the following securities for a loan –

1. Equity/Demat Shares
2. Non-Convertible Debentures
3. Mutual Fund Units
4. Bonds and Government Schemes

Keep the following documents ready when applying for a loan against securities–

1. Photo Identity Proof
2. Income Proof
3. Address Proof
4. Salary Slips
5. Bank Statements
6. Passport Size Photo

Important Features to Know

A loan against securities is a secured loan since the bonds or shares are pledged as collateral.

Typically, the tenure is one year, which you can renew if need be. The loan amount will depend on the type of security you offer.

If you wish to prepay your LAS loan, you can do so without any prepayment charges.

Do note that mutual funds exempt from capital gains tax (under Sections 54EA/EB) are not accepted as collateral.

How to Apply

We understand how much you value your investments. With our easy loans against securities, we help you meet both short and long-term financial goals while retaining the ownership of your securities.

We also offer you the flexibility to swap securities based on your assessment of the markets!

Our application process is fairly simple and quick – select your loan amount and tenure, submit your application, and get funds in your account. Visit us today to understand our loan against securities eligibility.

5 Benefits of Group Term Insurance

A Group Term Life Insurance is a term plan that offers life cover to a group of people.

The plan does not just cover employees and their families; employer-employee, banks, NGOs, financial institutions are also eligible for a group term life insurance.

As a result, many individuals find it feasible to opt for group term insurance as it is one of the best comprehensive term plans available.

In short, group term life insurance is an essential benefit provided by employers to the employees.

Group term life insurance policies are of different types. Some plans have the basic features of a term plan.

Employers may also choose a plan where the features differ depending upon the grades and position of the employees.

Some group term plans also cover an employee’s outstanding home loan, car loan.

The insured’s family can easily repay loans in the unfortunate event of the policyholder’s death or permanent disability.

Benefits of Group Insurance

1. Employees get default term cover

Employees can get this policy by simply being a part of the organization that offers group term insurance.

This reduces the need for unnecessary paperwork and formalities for individuals and the organization.

Many companies, themselves, pay premiums for group term policies offered to their employees.

2. The Benefits of a Cost-effective Plan

Group term life insurance plans are more economical than individual plans. For example, the minimum number of employees that can be a part of a group term life insurance plan is 50.

The administrative costs and paperwork of providing term insurance to the entire group are much less than an individual’s policy cost.

Insurance Plans come with tax benefits and, over a long period, help save money.

By providing employees with group term plans, employers, as well as employees can avail themselves of tax benefits.

3. Customization of plans

Individuals can customize their group term plan based on their specific needs for comprehensive coverage.

They can opt for additional riders that provide critical illnesses, accidental death, education allowance, loan repayments, etc.

These additions only multiply the benefits provided by group term plans.

4. Cover for High-risk Individuals:

In some cases, individuals who have a medical history of genetic illness or belong to a high-risk category can get a cover under this policy.

This is because a group term life insurance coverage does not depend on an individual’s health condition. All members of the group are insured under one single policy.

This comes as a relief for employees who find it difficult to buy term insurance. Employees don’t have to undergo a health-check up under this plan.

5. Ease of Premium Payment.

Organizations offering group term plans can choose the mode of premium payment. Companies can opt for monthly, quarterly, bi-annually, or yearly time points to pay premiums.

Group term life insurance provides many benefits to employees including comprehensive protection and savings.

For employers, issuing group term cover helps with employee retention by providing a cost-effective, employee-benefit plan.

Why you need Liability Insurance

This type of insurance policy is generally procured by companies or individuals who may be held liable, legally for injuries or other issues. This especially the case for hospitals, doctors, or even business owners.

An example would be, if a product manufacturer sells products that have been faulty or cause damage to other’s products, then he/she may be sued for the damages caused.

Procuring liability insurance will cover the manufacturer from ensuing legal costs.

Liability insurance is one part of the general insurance policy itself under the risk transference category.

In many countries, liability insurance is mandatory especially for drivers of public transport vehicles. The scope of this form of insurance in India has been defined by the Public Liability Insurance Act of 1991.

Liability Insurance Plans:

Public Liability Insurance
Product Liability
Employer Liability
Third-Party Liability

How is the Premium Amount Decided?

The premium that is to be paid by the insured will be worked out using the base rate based on the insurance company’s needs and assessments.

Another factor that is taken into consideration is the amount of risk that the company and its products come with. The higher the risk, the higher is the premium to be paid.

Claim history, size of the risk, and the company’s approach to the risk are additional factors.

While deciding the premium amount, insurance companies take into consideration the environment, the number of claims made previously, and their business record.

Companies Providing Liability Insurance Policy are:

Several companies within India provide different forms of liability insurance covers. Some of these are –

HDFC Ergo Commercial General Liability – this insurance policy protects against claims of property damage or bodily injury for which the company is liable.
ICICI Lombard offers numerous liability insurance covers to suit business requirements.
Bharti AXA Commercial General Liability Policy offers cover for liabilities that are a result of business processes and operations.

Liability Insurance Claim Process:

The claims process varies from one company to the other. There is generally a form to be filled for the same post which all necessary documents will have to be provided.

However, when it comes to liabilities it is not as simple. There may be court cases or an out-of-court settlement.

The claims process will be different based on what the claim is being made for.