Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plans (ULIPs)

by | Dec 9, 2022 | mutual-funds

Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plan is a great investment option. This is a kind of life insurance plan in which you will get an opportunity to build a hefty corpus with the convenience of a life insurance policy by investing in it. On investing in this scheme, the investor gets a rebate of 1.5 lakhs under section 80C of Income Tax. Along with this, you also get the facility of higher returns by investing in this scheme. If you are also planning to invest in this scheme, then first of all be aware of the advantages of doing so.

                                                                                                                                 Subas Tiwari

Many investors often associate ULIPs (Unit Linked Insurance Plans) with mutual fund schemes. By investing in ULIPs, they feel that they are investing money in some mutual fund scheme. However, this is not true at all. These two are different types of products.

ULIP is an insurance product. It is a different matter that in the initial years of the privatization of the insurance sector, insurance companies and their agents continued to present ULIPs as an investment product. In the earlier ULIPs, the commission of agents was very hefty. About 60 per cent of the first installment of premium used to go into the pockets of insurance agents. This was the reason that they were being sold wrongly. At the end, the Insurance Regulatory and Development Authority of India (IRDAI) caught sight of this side. They cracked down on this entire game. After this, ULIPs with low commission and high insurance cover started coming. ULIPs have improved a lot since then. However, even today they are sold wrongly.

Many relationship managers of banks sell ULIPs as bonds. Some intermediaries sell these as mutual funds that give guaranteed returns after five years. Also insurance cover is available free.

The question is, what exactly is a Unit Linked Insurance Plan or ULIP? The simple answer is that a ULIP is an insurance product with an investment component. Or as some insurance agents claim, these are like mutual fund schemes which also include the feature of insurance.

History of ULIPs

When Life Insurance Corporation of India (LIC) was under the umbrella rule, the insurance cover always had the feature of saving. This is the reason why insurance was essentially used for savings and tax saving purposes. Before privatization, it was sold saying ‘you will invest x amount, you will get x plus bonus’. At that time, endowment plans and insurance products with savings were dominated. After privatization, insurance covers started coming with investment feature. Investment options range from conservative fixed income to high-risk equities. This is the history of ULIPs.

How do they work?

A Unit-Linked Insurance Plan is a combination of insurance and investment. A portion of the premium is paid by the policyholder and is utilized to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments. The aggregate premiums collected by the insurance company providing such plans is pooled and invested in varying proportions of debt and equity securities. Each policyholder has the option to select a personalized investment plan based on his/her investment needs and risk appetite. Each policyholder’s Unit-Linked Insurance Plan holds a certain number of fund units, each of which has a net asset value (NAV) that is declared on a daily basis. The NAV is the value upon which net rates of return on ULIPs are determined. The NAV varies from one ULIP to another based on market conditions and fund performance.

A portion of premium goes towards mortality charges i.e. providing life cover. The remaining portion gets invested funds of policyholder’s choice. Invested funds continue to earn market linked returns.

ULIP policy holders can make use of features such as top-up facilities, switching between various funds during the tenure of the policy, reduce or increase the level of protection, options to surrender, additional riders to enhance coverage and returns as well as tax benefits.

What’s the strategy?

Once you get enough life cover, you can start investing in mutual funds for your investment needs. There are advantages to this strategy. First, you get enough cover by paying a small premium. You then track the performance of your mutual fund schemes. You will not be able to do this work with an insurance plan like ULIP. If the investment portion of the ULIP plan is not doing well then you can just switch to another investment option. Selling it outright is not an option as then you lose the insurance cover. As you age, getting life insurance cover becomes costly and complicated.

Types of ULIPs

Depending upon the death benefit, there are broadly two types of ULIPs. They are- 

  • Type-I ULIP- Under this plan, the nominee gets the higher of sum assured and fund value.
  • Type-II ULIP- Here, the nominee of the policy holder gets the sum assured and fund value in the event of demise of the policy holder.

There are a variety of ULIP plans to choose from based on the investment objectives of the investor, their risk appetite as well as the investment horizon. Some ULIPs play it safe by allocating a larger portion of the invested capital in debt instruments while others purely invest in equity. Again, all this is totally based on the type of ULIP chosen for investment and the investor preference and risk appetite.

What does IRDAI say in regard to ULIPs?

As per the IRDAI, with effect from 1st September, 2010, the following are the restrictions on ULIP policies.

  • The lock-in period is 5 years (earlier 3 years)
  • Except single premium payment plans, premiums have to be paid for a minimum of 5 years

Compelling reasons for you to go in for ULIP

  • Market-linked returns
  • Investment & life protection combined
  • Flexibility to choose between basket of funds of a Fund House
  • Income tax deductions (under 80 C & 10 (10) D of the Income Tax Act)
  • Financial security post retirement

Understand these Terminologies: Charges that could be levied on the Policy

  • Premium allocation fee

The charge is imposed beforehand on the premium amount. These are initial expenses incurred by the company in issuing the policy. These are charged on yearly basis as a percentage on the premium depending upon the premium payment term.

  • Fund management fee

This is an aggregated sum of fees incurred in units invested in equity and debt instruments. These charges vary according to the type of fund & plan and are borne by the insured. These charges are payable on a yearly basis as a percentage depending upon the premium payment term.

  • Policy administration fee

These are related to recovery of expenses borne by the insurers for maintaining the life insurance policy. These are however borne by the insured on a monthly basis as a fixed sum charged on the premium amount paid.

  • Mortality fee

This is an expense charged by the insurer to provide life cover to insured which vary with the age & sum assured, risk, etc. of the insured. These charges are deducted on a monthly basis.

  • Surrender charge

This charge refers to the deduction for full or partial encashment of premature units subject to the policy document. This charge is levied as a percentage of the fund value or a percentage of the premium amount.

  • Fund switching charge

This charge is levied while switching from one fund to another & beyond the free switches allowed in a year. The charge is applicable for each switch.

  • Discontinuance charge

On premature discontinuation during the lock-in period, this charge is levied.

Do they perform well in the market?

The performance of the various ULIP policies with reference to growth of units, depend on market forces & the efficient management of the investment by the appointed Fund Managers in various sectors of the economy.  Due to the ups & downs of the market based on demand/supply & the state of the economy, the returns get averaged & coupled with life cover, the returns on the Units invested is modest.

Advantages

  • Avoid everyday hassle of managing stocks
  • Multiple fund options to choose from
  • Transparent product with no hidden charges
  • Liquidity
  • Low surrender charges
  • ULIP is a two-in-one plan in terms of giving  twin benefits of life insurance plus savings
  • Some of the policies offer partial withdrawals without breaking the units ensuring liquidity
  • Flexibility in increase/decrease in Base Sum Assured
  • Initially, the various charges look to be costlier. But it has to be remembered that these charges look costly as viewed within the lock-in period (short term). The charges tend to taper off during the period after the lock-in period. 

Limitations

  • Mortality charges levied have no fixed fee but based on a lot of other factors (such as age of the insured, cost of insurance & applicable sum assured).
  • Due to the nature of the Unit-linked Funds, only a handful of the companies can guarantee the price of the units as this product is different from the other traditional insurance products & are subject to market & other risk-based factors.
  • Very few insurance companies offer a discount on the premium that too is available only when the policy is purchased directly from the website of the company concerned; this acts as a dampener for attracting prospective customers.
  • Charges such as Premium Allocation, Policy Administration & Fund Management offsets any growth which is achieved over the years during the short term period.

Differences between Mutual Funds and ULIPs: Whether you choose to invest in ULIPs or Mutual Funds, you can base your decision on these factors.

  • ULIPs come with life cover alongside investment benefits, while Mutual Funds only offer investment benefits.
  • If you are looking for long-term investment while providing protection to your loved ones, ULIPs should be your pick. Mutual Funds, on the other hand, are ideal to accomplish financial goals for your near future.
  • With Mutual Funds, you can redeem the units at any time because of flexible withdrawal options.  While regular funds don’t come with any lock-in period, for tax-saving Equity-Linked Savings Scheme (ELSS) schemes there’s a 3-year lock-in period. However, when it comes to ULIPs, they have a minimum lock-in period of 5 years.
  • In terms of tax benefits, when it comes to Mutual Funds, you can claim deductions only for ELSS schemes. For ULIPs, you can get tax benefits on the premiums paid under Section 80C of the Income Tax Act, 1961. Under Section 10(10D), even the maturity amount is tax-free. However, those ULIPs issued after February 1, 2021, will be treated as capital gains if the annual premium is more than ₹ 2.5 lakh.
  • When it comes to expenses, liquid Mutual Funds have no entry or exit fee. However, for ULIPs, there are premium allocation charges, administration charges, fees for managing funds, etc.

Keep these things in mind before investing in ULIP

1. ULIP plans have flexible investment options

A ULIP policy holder can choose to invest their premium in either equity options or debt or even a mixture of both, depending on their risk appetite. Someone who doesn’t mind high risk can choose ULIP investment options in equity funds while someone who is more cautious can invest in mutual funds. 

2. ULIPs have a top-up option

In some cases, a policyholder can change the premium amount they’re putting into the ULIP plan and are not obligated to put a fixed amount each time. ULIP policies allow investors to “top up” or add extra funds to their existing investment amount.

3. Newer ULIP plans don’t have transaction charges

ULIP plans are a smart and secure first step into investing. However, older policies still come with a number of transaction charges related to premium allocation, mortality change, and fund management. Before investing, ensure that the policy is newer and eliminates these charges after a few years. For example, the Future Generali Easy Invest Online Plan starts with a 5% premium allocation charge that reduces to 2.5% after two to five years. After six years, the charge is fully eliminated. 

4. ULIP plans are tax deductible under Section 80C

A ULIP policy is a tax deductible investment under Section 80C of the Income Tax Act 1961. This means that premiums of up to Rs 1 lakh are tax-free for the investor, making ULIP plans an attractive investor for first-timers. Even when the plan matures, the final amount is tax-deductible under Section 10 (10D) of the Income Tax Act 1961.

5. Lock-in period ensures discipline

A ULIP policy can come with lock-in periods of around five years, meaning that the investor must continue to add money into the policy for that time frame. The lock-in period encourages investors to save consistently and build their savings. After the lock-in period, investors can withdraw a part of their money if they want to or even discontinue the ULIP plan.

6. ULIP plans are strong long-term investments

Despite lock-in periods and transaction charges, ULIP policies are popular long-term investments. They require regular payments to remain active, teaching investors to be more disciplined while also increasing wealth. The lock-in period motivates investors to keep money in the market and ride out fluctuations with high returns, as well. A ULIP plan also allows investors to mix and match assets, making a diverse portfolio— Future Generali Future Opportunity Fund is one such plan.

7. Different premium payment options

ULIP policies are famous for their flexibility that also includes the payment structure. Investors have three different choices when it comes to paying premiums: single premium plan where the full investment is paid in a lump sum, regular premium plan where a fixed amount can be deposited for the duration of the ULIP policy, and limited premium plan where the amount is paid for a certain number of years.

8. A ULIP policy has the potential for high returns

One of the best parts of ULIP plans is that the return on investment can be potentially very high— even in double digits. When the premiums are invested smartly, in different types of assets and in tax-saving funds, the investor reaps huge benefits. A ULIP policy can be profitable, tax-savvy investment.

9. Maturity dates can be deferred

Some ULIP plans allow the investor to defer their maturity date, meaning that the date at which the policy matures and the money can be fully withdrawn is extended to the future. The main benefit of having a policy that allows the extension of the maturity date is that an investor can minimize risk in case the date falls in a market slump or decline. If the ULIP policy matures when the markets improve, the investor will see higher returns in the end.

10. ULIP policies help family planning

One of the most attractive aspects of a ULIP policy is that it offers insurance coverage and death benefits. So if the investor dies suddenly, their family can fall back on the ULIP and get financial security. ULIP plans are also good for family planning like retirement and children’s education, and any emergencies.

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Electric Storage Water Heaters (Geysers)

Electric Storage Water Heaters (Geysers)

by | Nov 20, 2022 | Water Heater

Electric Storage Water Heaters (Geysers)

Are you planning to buy a new geyser or replace the old one? You may very well end up being puzzled by the types of geysers, models and sizes available. This report is a result of our efforts to find out the best storage water heater/geyser as per individual requirements, taking into consideration factors such as water usage, electricity consumption, standing loss, energy efficiency and longevity. By best we mean the one that is not only efficient in terms of electricity consumption or heating capabilities, but also the safest. What you eventually choose will depend mainly on the purpose of the hot water, where you install the apparatus, bathroom spacing, your preference for instant geyser or storage geyser and your budget. Just know that just the brand name may not be sufficient to base a buying decision on. While traditional electric water heaters are huge in size and consume high energy, their modern counterparts are relatively energy-efficient and produce hot water as per need.  

There are many different brands and types of geysers to choose from, so when thinking about purchasing a water heater, you may have questions like which brand is the best, what size or capacity should I buy, which type of geyser will meet my needs, whether a 3-star geyser will do the job, or should I purchase a 5-star geyser. You can benefit from this research, which will give you a realistic concept of geyser buying. 

Type of water heater/geyser: The first decision is necessarily about the heating method: electric or gas?

An electrically heated storage-tank system is usually relatively cheap to buy and install, but is usually the most expensive to run, especially if it’s on the continuous (full day) rate. Electric instantaneous water heaters are also available. An LPG water heater is a good option if you want an instant water heater. It’s cheaper than the electric type. 

Then there is the solar water heater (SWH), which is the conversion of sunlight into heat for water heating using a solar thermal collector. A sun-facing collector heats water that passes into a storage system for later use. You need a large tank to allow for days with less sunlight. If your panels cannot be installed in an ideal location, they may be less efficient and you will then need a larger collection area.  

Storage tank or instantaneous heater

The next decision is between a water heater with storage tank and one that heats water instantly. 

Most electric, gas and solar water heaters have a tank. Stainless steel tanks are more expensive but generally last longer and do not require as much maintenance as mild-steel tanks. Water heaters with copper tank are best but costlier.  

Instantaneous or continuous-flow water heaters give only as much water as you need, when you need it. They are not truly instantaneous, though – it can take a few seconds before hot water starts flowing from the tap, especially when there is a fair distance of the pipe between the water heater and the tap. Instantaneous water heaters are available in gas and electric models. There are no heat losses; they are often cheaper to run than storage systems.

INSTANT VS STORAGE WATER HEATER COMPARISON

Instant  Storage 
Wall space It occupies small wall-mounting space It occupies large wall-mounting space
Delay Hot water comes immediately  Need to wait up to 5 minutes 
Convenience Need to wait for more water during bathing Get all the water before the bath
Geyser Price Little higher Little less
Water heating cost Less  Little more 
Best suitable for Washing utensils, hand wash, bathing using bucket Bathing using bucket and bathing using shower
Available size 1, 3 10 – 35 liters

Household size and water usage 

What the right size of water heater is will depend on how much hot water you use. For a small household (about 2 persons), an instantaneous water heater (gas or electric) will do just fine. For a medium-size household (3 to 4 persons), gas systems (instantaneous water heaters or storage) may be preferred. For a large household (5 persons+), multiple instantaneous water heaters may be an option; gas storage units may be more economical but are equally risky due to release of carbon monoxide in the closed toilets.  

Energy efficiency/star ratings

 Electric water heaters have energy-efficiency star rating labels; the more the stars, the more efficient is the water heater. The highest rating is five stars. The modern tank less water heaters are much more energy-efficient than the traditional ones. When the water in the tank cools off, the power kicks in and heats it up again. An energy-efficient water heater saves you money on your monthly electricity bill. Before buying a water heater, look for one with a higher star rating. 

Space matters

 A conventional water heater is bulky in size and may take up a good amount of space in your house. On the other hand, a tank less water heater is compact in size and takes up significantly less space than a conventional tank.

Longevity

A tank less water heater’s longevity is more than that of a hot-water tank heater because the latter is subject to decay. A tank less on-demand water heater’s lifespan is approximately 20 years, compared to 10 to 15 years for a tank-type water heater. Tank less water heaters also have easily replaceable parts that extend their life. 

Features to Consider

  • Auto-off: This is a very useful feature and needs to be present in all appliances. In a heater with the auto-off feature, the appliance automatically turns off thereby preventing unnecessary power consumption.
  • Power consumption: A water heater may contribute as much as 15 per cent of your electricity bill. Winters are when you usually make most use of your water heater and hence its energy efficiency should be considered. Nowadays all home appliances are star-rated and opting for products with high star ratings is advisable.
  • Capacity: The capacity of the water heater is important to consider. It is advisable to opt for instant water heaters for small requirements as it is budget-friendly and occupies very less space as compared to water heaters with storage tank. 
  • Hard water: Hard water is high in dissolved minerals, both calcium and magnesium. This kind of water requires special attention when you are buying a water heater. You will need to go for a corrosion-resistant tank and also install a water softener so as to reduce the water hardness.
  • Safety: Water heaters come with a thermostat capable of heating water up to 60 degrees – this also means you should be sure of mixing the water with normal to cold water. Most of the branded storage water heaters carry the ISI mark—assuring one of basic safety parameters.
  • Warranty: Warranty coverage for most water heaters is 1 year to 2 years. Choose a water heater with the longest warranty.
  • Always check the ISI mark on a geyser before buying. ISI mark on geyser means that the geyser quality meets Indian standards and is safe to use.

Be Smart and Follow These Tips

  • Look for a product with the ISI Mark to ensure safety.
  • Five-star rating is preferable.
  • By reducing the temperature setting of water heater from 60 degrees C to 50 degrees C, one could save over 18 percent of the energy used at the higher setting. 
  • To select the right water heater for your home, you need to consider family size and whether your usage will be considered high or low demand. 
  • Location of installation of the water heater is very important. People living near the coast have to take corrosion into account. Saline water can also corrode internal parts of the water heaters.

Comparison at a Glance: Electric Storage-Type Water Heaters (15 & 25 litres capacity)

For our survey, we shortlisted regular-selling brands of electric storage-type water heaters (vertical) of 25 & 15 litres capacity. We conducted the survey during October 2022.

Sl No.

Brand

Model No.

Rated Capacity (litres)

Outer body material

Inner tank Material

Rated Power (watt)

#Standing Loss (kWh)

Star Rating

Price (Rs)

Warrantee

(Comprehensive/

Tank) Years

1

Venus

025VL

 

25

Metal

Porcelain enamel glass lined

2000

0.511

5

7700

2+5

2

Crompton 

Arno Neo 3025

25

metal

2000

0.511

5

6589

2+5

3

Morphy Richards

SALVO 

25

ABS

Glass Lined

2,000

0.562

5

8195

2

4

AO Smith 

HSE-VAS-X-025

25

metal

2000

0.511

5

7999

2+7

5

AO Smith 

SDS 025

25

ABS

Diamond Glass Lined

2000

0.550

5

10,399

2+7

6

AO Smith 

HSE-VAS-025

25

Diamond Glass Lined

2,000

0.620

5

7999

2+7

7

Bajaj 

New Shakti

25

CRCA+PP

Mild 

2000

0.562

4

6599

2+5

8

Racold  

Buono Pro 

25

metal

Titanium enamel coating

2000

0.511

5

6999

2+3

9

Racold 

Eterno Pro

25

metal

Titanium steel

2000

0.511

5

8699

2+7

10

V-Guard

Krystal Plus 25

25

ABS

Engineered Polymer Anti Corrosion

2,000

0.562

5

9299

2+5

11

Remson 

Prime Aqua Prime CSS

25

SS 304

2000

0.511

5

5999

2+5

12

V-Guard

Calino

25

ABS

Mild Steel Tank

2000

5

10422

2+7

13

Orient Electric

Enamour Plus

25

ABS

Titanium Enamel Coated

2000

0.511

5

7890

2+7

14

Panasonic

Duro Digi

25

ABS

Glass lined coated

2000

0.511

5

9949

3+10

15

Venus

MegaPlus 25EV

25

metal

Porcelain enamel glass lined tank

2000

ISI

4

8399

2+5

16

Venus

Splash 25GL

25

abs

Porcelain Enamel Glass lined Tank

2000

ISI

5

12500

2+7

17

Usha

Aquerra

25

abs

2000

0.511

5

9398

2+8

18

Usha

Aquagenie

 

25

Glass lined enamel coating on tank

2000

0.511

5

10400

2+5

19

Bajaj 

New Shakti Neo Plus 

15

Metal

Stainless Steel, Titanium

2000

0.461

5599

2

20

AO Smith 

SDS Green Series 15

15

ABS

Blue Diamond Glass-Lined

2000

0.419

5

9599

2+7

21

AO Smith

HSE-VAS-X-015

15

metal

Blue Diamond Glass Lined

2000

0.419

5

 

6899

 

2+7

22

Bajaj

Calenta

15

ABS + PP

Mild steel with glass lined coating

2000

0.419

5

8599

2

23

Havells

Monza EC

15

 cold rolled steel

Stainless steel

2000

0.419

5

7799

2+5

24

Havells 

Puro Turbo

15

Fero glass coated

2000

0.419

5

10599

2+5

25

Usha

Aqua Swirl

15

abs

Glass lined enamel coating on tank

2000

0.419

5

8020

2

# Standing loss (kWh/24 hour/45°C)” means the energy consumption of a filled water heater as per IS 2082.
Note: Price may vary from retailer to retailer. Before buying, please check price on amazon.in or flipkart.com and compare the models.

Electric & Gas Water Heater: Difference 

 

Factors

Electric Water Heater

Gas Water Heater

Ease of use

Single touch and automatic operation

The water level and heating rate should be manually regulated

Time  taken to heat water

Takes relatively more time than gas models, but stored models can deliver instantly

Heats water quickly

Space occupied

Requires less space due to the wall mounting build

Occupies more space and also an additional 

space to place LPG cylinder with proper ventilation

Environment impact/ Pollution

No pollution as water is heated through electricity

High pollution, due to the emission of gas. Carbon monoxide can also be released

Safety

The safest option and is mostly recommended for domestic purposes 

A bit risky and should never be used in houses

Ease of Installation

Easy to install

Connection for LPG and arrangement of outlet for ventilation and fumes needs experience

Price

A bit expensive, comparatively. The price varies from instant geyser to storage geysers

Cheaper than electric type
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Road Safety-World Day of Remembrance

Road Safety-World Day of Remembrance

by | Nov 20, 2022 | Global Road Safety Initiative, WDR

Road Safety-World Day of Remembrance

On the third Sunday of November each year, the World Day of Remembrance for Road Traffic Victims (WDR) is observed. In order to honour the suffering of all impacted victims, families, and communities, it is important to recall the many millions who have been killed or gravely injured on the world’s roadways.

It is also a time to show support for the families, friends, and other loved ones who have been impacted by a car accident, as well as to promote the rights of road accident victims globally. It is also a day to express gratitude to emergency personnel who deal with traffic accidents and to think on the enormous toll these accidents, along with the injuries and deaths they cause, exact on global economies, healthcare systems, and most importantly, people.

According to the WHO’s Global Status Report on Road Safety, which was released in December 2018, there are now 1.35 million fatalities caused by traffic accidents per year. The greatest cause of death for those aged 5 to 29 is increasingly traffic-related injuries. 

Justice is highlighted on the World Day of Remembrance for Road Traffic Victims in 2022. The legal system includes traffic law enforcement, detailed collision investigations to determine whether a crime was committed and to prevent a repeat, criminal prosecution when necessary, and civil damages. When implemented seriously, fairly, and consistently, such a system is what victims of traffic accidents who have been hurt or lost a family member because of someone breaking the law or being negligent deserve and wish for. It also plays a significant role in prevention and guarantees that the lessons from their tragedies are applied in the future to prevent similar incidents.

World Day of Remembrance in Uttar Pradesh

World Day of Remembrance in Madhya Pradesh

World Day of Remembrance in West Bengal

Causes of Road Accidents

  • Over-speeding and careless driving were the two major causes of road accidents that claims the most lives.
  • Driving while drunk increases the danger of a collision that ends in death or serious injuries. This risk is increased by the use of any psychoactive chemical or narcotic.
  • Non-use of seat belts, kid restraints, and motorcycle helmets is another big cause. Correct helmet use can reduce the risk of fatal injuries by 42% and the risk of head injuries by 69%.
  • There are numerous different distractions that might affect judgement. Mobile phone distraction is a serious issue hampering road safety.
  • Unsafe road infrastructure is also a big cause of road accidents. The safety of a road can be significantly impacted by its design. All road users’ safety should ideally be taken into consideration while designing roads.

India currently holds the third-place spot on the list of nations with the highest number of fatal road accidents, with more than 420 people losing their lives there every day. In India, there were 4, 03,116 road accidents in 2021 that resulted in 1, 55,622 fatalities and 3, 71,884 injuries, according to an analysis of data from the National Crime Records Bureau.

Although there has been an increase in safety awareness in recent years, it is concerning to note that the number of fatalities from traffic accidents rose by 16.8% from 1,33,201 in 2020 to 1,55,622 in 2021. In addition, there was a 13.6% rise in the overall number of traffic accidents between 2020 and 2021.

Rapid reductions in fatalities and injuries can result from better traffic law enforcement. Driver behaviour can be significantly altered by requiring them to drive under the speed limit, looking out for cyclists and pedestrians, putting on seatbelts, abstaining from driving while intoxicated, and utilising kid safety seats.

Personal Loan by Banks

Personal Loan by Banks

by | Nov 19, 2022 | loan

Personal Loan by Banks

The festival season is here! And to get into the festive mood, you will be wanting to do a lot of things. It’s possible that you require rapid cash without any difficulties or nonsense. Or perhaps you wish to take your family on a vacation during a festival like Deepavali or Dussehra. Perhaps you’re getting married and need money to plan your honeymoon? Or perhaps there will be a wedding in your family, necessitating financial support for the same? 

If you find yourself in any of these difficult predicaments and lack the necessary funds, getting a personal loan from a bank is your best option for covering these fixed expenses of a one-time nature.

                                                                                                                                 Subas Tiwari

What is a Personal Loan?

Personal loans are loans granted for a limited period with a fixed amount and charged interest which are both repayable in monthly instalments. They are called ‘clean’ or ‘unsecured’ loans, i.e., loans without obtaining any tangible security (property, deposits, bonds, etc.). Only the personal sureties are required to be furnished to confirm that you are a dependable person in the society & will not default repayment of the loan given. Personal loans are generally used to meet temporary cash requirements such as wedding, children’s education, home improvement/repairs, luxury holiday, buying a car or to buy an electronic appliance, etc.

There are several banks and financial institutions providing attractive deals on personal loan offers with lucrative interest rates. Each personal loan lending institution has different eligibility criteria, rate of interest, and repayment tenure, which should be reviewed and compared to make an informed and smart decision before applying. 

Eligibility for Personal Loan:

For Salaried Class

  • Should have a running bank account where salary is being credited regularly. The bank account need not be with the bank where one is applying for a personal loan, but banks prefer to consider such loans to be given to their own clientele on priority.
  • One should have a job of permanent nature. Banks would not give a loan to a person whose job is temporary. 
  • The length of service or employment also plays a part in expediting the loan sanction.
  • Place of residence should either be owned or rented with a lease agreement.
  • Residence proof (voter ID card, Aadhaar Card, etc.) & identity proof (employment ID card, PAN card, etc.) copies should be produced duly self-attested along with bank application form along with 2 photographs.
  • Though the reason/purpose of the personal loan is not mandatory, the bank would like you to state some reason (any one of the above or other purposes, which can be vague like-for meeting unplanned personal domestic expenses.)
  • If you already enjoy any other loan like car loan or home loan, those deductions will also be taken into account to calculate total deductions out of the salary & arrive at an eligible loan amount.
  • Your CIBIL score will also play a significant part in bank’s decision in granting a personal loan.
  • There is no fixed criterion for arriving at an eligible loan amount, as individual banks have different methods of calculation but the generally accepted practice is to fix a ceiling of about 50% of deductions from the salary including the repayment of the loan to be granted. If you are within this ceiling, then the eligible amount could be about 10/12 times the gross monthly salary or 6 times the total taxable income as declared in Form 16 or the Income Tax Return. This can vary amongst nationalized banks & can be different among private banks (private banks commute on the take-home pay). 

For Self Employed

They are those who do either business or freelance assignments and some work from home too. They may do part-time or full-time assignments & so may be having more than one employer.

The following additional conditions may apply when they seek a personal loan from a bank.

  • Since he does not get salary, the business income as reflected in the Income Tax Return would be the basis of ascertaining his total income.
  • He may be required to submit details of his enterprise.
  • The performance of the business can also be a factor to influence his loan sanction. In case of new enterprise, banks can insist on collateral securities like bank deposits, bonds, etc. in addition to providing one or more personal surety of adequate net worth.

For Professionals

They are those who either have their own business/service like doctor, lawyer, etc. or those who are technically qualified but are working in an organization.

The following could be additional conditions to be fulfilled.

  • The attested copy of their qualification would be required to be submitted along with the application form.
  • Since some of the banks have specialized personal loan scheme for such professionals offering lower rate of interest on such loan, the lending may ask some details of  the profession   as also copies of receipts/payments and/or income/expenditure account.

Advantages/ Benefits of a Personal Loan to a consumer-borrower

  • The first & foremost benefit is the quickness with which the loan application is either sanctioned or disposed of (rejected). The icing on the cake is in the timing.
  • Secondly, in most of the sanctioned personal loans, the banks do not insist on any collateral security or in some cases, even personal guarantee/surety. So it is advantageous for the loan-seeker, as he need not be under any obligation to his office colleague/friend into requesting for providing a personal surety.
  • Most of the banks do not ask for margin component (borrower’s stake in the risk). Hence, there is absolutely no need for the consumer to run around to arrange to provide for depositing margin money.
  • The purpose of the loan is immaterial in most cases. Hence, the consumer need not take pains to explain the genuineness of the purpose & submit proof for such purpose.
  • Simple documentation is assured with no elaborate procedures.
  • Making monthly repayments is now made consumer-friendly with banks agreeing to take post-dated cheques (PDCs) for the amount of each instalment and presenting the same on due dates of loan. The consumer need not visit the bank at all for such work. Where the loan instalment payable is to be taken out of the savings account of the customer, the banks obtain written instructions & act on them. 

Disadvantages/Limitations to the consumer-borrower

  • The first & foremost is that the rate of interest is the highest for this type of loan. It’s a costly cost to the consumer, as this is an ‘unsecured’ loan. In comparison, secured loans are comparatively cheaper.
  • Secondly, the period of the loan is normally limited to 60 months. Banks do not favour or take exposure for a longer tenure. This limits the consumers’ requirements, where, by getting a longer period of repayment, he could bring his work to completion. 
  • According to bank sources, this type of loan is having higher risk and can end up as a Non-Performing Asset, if repayment stops midway either due to change of job/temporarily-unemployed status/death of the borrower/change of address without trace, etc. Hence, many banks do not consider giving a loan for non-customers, i.e., those who have no previous bank dealings with the lender. So, this severely restricts the options available to the consumer-borrower to seek a loan from any bank in the vicinity of his residence or place of work. 
  • Most of the banks are not willing to grant personal loans of more than Rs.15.00 lacs even though their website/brochure talks of maximum amount being much more than what they say they will give. So, the consumer-borrower will not get the benefit of more loan even if he is otherwise eligible!
  • Even though a couple of banks claim that they don’t need personal surety/guarantor for such loans, many of the banks insist on providing the same for the loan transaction to add trustworthiness to the loan contract.

So, what are you waiting for? Just read this article carefully; fully understand the pros & cons of personal loan & head on to the nearest bank to apply for a Personal Loan!

Banks Personal Loan Interest Rates

Banks ROI (Yearly)
Axis Bank 12% – 21%
Bank of Baroda 10.50% – 12.50%
Bank of India 10.35% – 12.35%
Central Bank of India 9.85%-10.05%
Citibank 9.99% – 16.49%
City Union Bank 12.75%
Federal Bank 10.49%  – 17.99%
HDFC Bank 10.5% – 21.00%
HSBC Bank 9.50% – 15.25%
IDBI Bank 8.9%-14%
IDFC First Bank 10.49% onwards
Indian Bank 9.4%-9.9%
Indian Overseas Bank 9.30% – 10.80%
IndusInd Bank 10.49% – 31.50%
J&K Bank 10.80%
Karur Vysya Bank 9.40% – 19.00%
Kotak Mahindra Bank 10.25% and above
Punjab and Sind Bank 10.4%-12.4%
Punjab National Bank 7.90% onwards
RBL Bank 14% – 23%
SBI 9.8%-12.8%
South Indian Bank 10.60% – 18.10%
Union Bank of India 10.2%-11.45%
Yes Bank 10.99% – 16.99%

Reasons For Rejection of Your Loan

The following could be one of the reasons for the bank to reject your loan application without sanction. So, it is better to know the pitfalls & avoid them rather than feeling remorse & frustrated.

Poor Credit Score

It is possible that this could be the reason for loan rejection. Nowadays Banks/FIs have voluntarily joined the Credit Information Agency called CREDIT INFORMATION BUREAU OF INDIA LIMITED (CIBIL) by sharing one’s credit details which includes all your present/previous loan transactions (even though they are closed & no longer is outstanding with that Bank) & credit card operations. Banks/FIs forward their own internal credit report on one’s credit performance and CIBIL awards marks based on that assessment (anything between 300 to 900 marks). CIBIL then uploads it in their website. The information is required to be updated (additions/deletions) at regular intervals by the Banks/FIs, who are admitted as Members of CIBIL. Banks invariably call for CIBIL report as soon as you apply for a loan. If your past transactions with a particular bank/FI either in loan repayment or credit card repayment were not up to the mark (termed poor CIBIL score-marks less than 700), then there is every chance of your present request for personal loan getting rejected by any other bank, where you intended to get the loan sanctioned. Hence it is advised for one to act prudently always to keep a clean repayment record for becoming eligible for any future credit requirements. Anyone can also seek their CIBIL score online by visiting CIBIL site (www.cibil.com), fill in the form, pay Rs.470/- online for one report & obtain your CIBIL score in your email. It is to the credit of this institution that 80% of approved loans (and sanctioned by banks) are of individuals with a CIBIL score of more than 750. 

Past Default

Banks draw up a list of their own defaulters & upload in their computer systems for any branch to look into & verify the past record of any loan-seeker. This is in addition to CIBIL report which contains credit information of the loan-seeker with other banks. Let us say that there were delay(s) in repaying a fridge loan or a car loan (due to many genuine reasons). Or like, for example, you may have shifted to a new leased accommodation. That house address may be in banks’ defaulters’ list, as the previous occupants would have been bank defaulters! There are certain enterprises run by loan-seekers which do not guarantee any regular income and which could become a no-no for banks to lend.

Loan Guarantor

You might have stood as a personal surety by guaranteeing the repayment to the bank in case of default by your friend, who was the borrower for a bank loan. You might have forgotten it but the CIBIL report will also show you as a defaulter for the loan, even though you were only a guarantor! You could be in for a shock, but that’s how the system works! The moral of the lesson is -think twice before offering to stand as personal surety to anyone. 

Many Loans

While calculating your eligibility for a loan, banks will normally add up all the existing outstanding loans from banks, private borrowings, etc. before arriving at the eligible amount. The loan-to-income ratio is calculated (banks generally say that the total deductions –including the repayment of the present loan-should not exceed 50% to 70% of your take-home/gross salary) by the bank before extending a loan. So, too many loans/liabilities could throw off a bank from granting a loan because of this reason.

Job Stability

If you shift jobs very frequently or shift your location a number of times, it becomes public knowledge & could go against you, as the bank could be asking searching questions on this score. Good employment track record plays a favourable role in a bank’s decision to give you a loan. Since this loan is not secured by any collateral security & is given based on good track record of employment (loyalty factor) & credit profile (good or acceptable CIBIL score), stability in one’s life is of prime importance in the eyes of the Bank.

Tax Record

Banks could make a thorough assessment of your tax profile by asking for the Income Tax Return (ITR) copies of previous assessment years or can ask details of tax deducted at source /professional tax paid against your salary in the past. Failure to give them or submit satisfactory answers could come in the way in your bank’s decision. So the advice is-obtain Income Certificate/TDS Certificate/Form 16-16 (A) from your employer & keep it on record (for the rainy day!). Produce the same when necessary.

Past Loan Rejections

If you have applied for a loan or credit card in the past & got rejected (for whatever reason), applying now could get you a rejection. The lesson to be learnt here is-go for a loan only if it is a must! Enjoying too many credit cards is also not a smart idea!

RBI Defaulters’/Wilful Defaulters’ Lists

If your name is here, then worry! The Reserve Bank of India, who is the Regulator for Banks in India, also maintains the above lists, which is updated & uploaded in their website. These pertain to RBI Defaulters with Banks of more than Rs.10.00 lacs from the entire banking system. RBI Wilful Defaulters’ List is culled from the banks on the basis of wilful default (deliberate attempt to hoodwink the lenders in spite of adequate Net Worth). Take the recent case of United bank of India, which has treated Kingfisher Airlines as a ‘Wilful Defaulter’.

Repainted car sold as New- does Court hold it as manufacturing defect?

by | Nov 19, 2022 | Legal

Repainted car sold as New- does Court hold it as manufacturing defect?

It is a case where the car was painted to match the original colour before being handed to the complainant. It was not stated in the report that the car was old or involved in an accident prior to repainting. Instead, it is a case of typical scratches that were bound to appear during the vehicle’s trailer transportation from the factory to the agency, according to state commission Haryana Panchkula. SC affirms that there was no manufacturing flaw in this instance.     

Dr Prem Lata Legal Head VOICE

Case: Mahaveer Stone Crushing Co vs Tata Motors Ltd (SC)

Issue: Repainted & Repaired vehicle sold-Whether it is manufacturing defect

Facts of the Case 

The complainant purchased the new vehicle on 10.2.1999. After about five months there was an occasion that he took the vehicle to a workshop for service when it was observed that vehicle had an accident and was repainted. Complainant came before the consumer forum, filed complaint before District Forum Gurgaon under CP Act 1986 and claimed relief for re-placement of the vehicle. Dealer as well manufacturer were made parties. Expert made report on 27.1.2000 confirmed the fact. District forum ordered replacement with cost of litigation included.

Matter came before the State Commission in appeal and the State commission observed that there was no manufacturing defect in the vehicle neither it was involved in an accident. There were normal scratches while transporting from factory to agency but no manufacturing defect found which could entitle the complainant for replacement of vehicle. Hence sum of 50000/- was granted to complainant as compensation. This order was against Tata motors Ltd, the manufacturer. 

National commission confirmed the order. SC ordered for Inspection which was done on 15.06.2003 through court.

SC observed

  1. Vehicle found repaired from left side, right side and back.
  2. Found repainted 80% and 20% had original paint.
  3. Paint work done was discoloured and turned yellow.
  4. Left front door was not working/the key supplied were not matching the slot of lock. 

The Supreme Court observed that a manufacturing problem actually affects a procedural or technical feature of the vehicle. Although no manufacturing flaw could be found, the new vehicle is physically damaged in this state. As a result, compensation in the amount of Rs. 1,600,000 was given rather than a replacement.

Old Model Car Sold against New Booking

However, we have another case wherein it is apparent on the face of it that an old model car was sold as a new one, and the consumer now wanted a replacement.

Rajiv Shukla vs Gold Crush Sales & Services

Facts leading to dispute are that it is a case of one Rajiv Shukla who booked the Vehicle Tata Sumo Victa GX TC car by paying booking amount to M/s Gold Crush Sales and Services. A receipt was also issued for payment on the same day. Thereafter, he paid Rs 5, 30,000. However, the vehicle was delivered only a year after the booking. Rajiv Shukla found that he had been delivered an old model of 2005 which had already run 1000/- km prior to delivery of the vehicle to him. On investigation, it was revealed that the said car was used as Demo Test Drive Vehicle prior to delivery to Rajiv Shukla. Complainant lodged an FIR with police for fraud on the part of dealer but the matter could not be settled. The complainant filed a complaint before the District Forum with the prayers to replace aforesaid used car Tata Sumo Victa GX TC Model No 2005 with new car /vehicle to him.

The District Forum allowed the complaint and directed Gold Crush Sales & Services to take back the delivered vehicle and deliver a new one to the complainant against the previously deposited amount. The District Forum also awarded a sum of Rs.5, 000/ towards the mental agony besides a sum of Rs.2500/ towards litigation costs.   The District Forum also found that the delivered car was   a used   car   and   was   being   used   as a “Demo Test Drive Vehicle”.

The   order   passed   by   the   District   Forum was confirmed   by   the   State   Commission. The National Commission while   exercising   the revisional jurisdiction, has set aside the findings of facts recorded by the District Forum as well as the State Commission   and directed to pay compensation in the sum of Rs.1 lakh to be paid to the complainant.

Matter comes to SC in Appeal

Supreme Court observed that the National Commission has materially erred in upsetting the findings   of   facts   recorded   by   the   District Forum and the State Commission, and held that   the car delivered was a used car. It was further observed that the National Commission   in   exercise   of   the   revisional   jurisdiction under Section 21 of the Consumer Protection Act, 1986 could not have interfered with the evidence taken on record by lower commissions.

SC Order 

Once the complainant paid the full sale consideration for a new car, the duty was cast upon the dealer to supply the   new   car   which   was   booked and if not done so, it would tantamount to dishonesty and unfair trade practice.

Conclusion

There is a difference between a defective and an old car. In the case of Mahaveer Stone Crushing Co. vs Tata Motors Ltd (SC), the court observed that cars bear defect due to scratches in the process of transportation whereas in the case cited above in Rajiv Shukla it is proved through cogent evidence that an old car used as Demo Test Drive Car was sold as a new one.

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