Category Archive : Financial Planning

Post Office Schemes

Interest Rates on Post Office Schemes October 2019

Post Office Schemes Interest Rates October-December 2019

Introduction

In this article you will find the Interest Rates on Post Office Schemes for Q3 FY2019-20 (October-December). These interest rates are as on last updated by the Department of Post.

Postal savings systems provide depositors who do not have access to banks a safe and convenient method to save money. Many nations operate banking systems involving post offices to promote saving money among the poor. Post Office, the Department of Post (India Post) offers many services to the Indian population.

Schemes under Post Office :

Schemes under Post Office
Schemes under Post Office

One can open an account in these schemes at any head or general post office.

The interest rate of POST Office schemes are set by the government at the start of each quarter in a financial year. They are aligned with the government security rates. But, the interest rate will remain unchanged for the investor (depositor) once the deposit is made.

Financial Planning Knowledge Bank by Invest Yadnya
Financial Planning Knowledge Bank by Invest Yadnya

1. Post Office Recurring Deposit (PORD)

  • The interest is compounded every quarter, which ensures that a sum of money multiplies by the time it matures. Interest rates on recurring deposits are fixed when you open the deposit.
  • Currently this RD scheme offers an interest rate of 7.2% per annum for Q3 FY2019-20 (October-December) which is compounded quarterly.
Post Office Recurring Deposit (RD) Interest Rates
Post Office Recurring Deposit (RD) Interest Rates

2. Post Office Time Deposit (POTD)

  1. Interest is payable annually but is calculated quarterly.
  2. The following are the different interest rates for different durations:-
  • 1 year – 6.9% per annum
  • 2 years – 6.9% per annum
  • 3 years – 6.9% per annum
  • 5 years – 7.7% per annum
 1 Year Post Office Time Deposit
1 Year Post Office Time Deposit
 2 Years Post Office Time Deposit
2 Years Post Office Time Deposit
   3 Years Post Office Time Deposit
3 Years Post Office Time Deposit
   5 Yeasr Post Office Time Deposit
5 Years Post Office Time Deposit

3. Post Office Monthly Income Scheme (POMIS)

  • The interest rates are higher compared to other fixed income investments like FD. Interest earned is payable monthly. These returns are called as fixed monthly income.
  • Interest rates on POMIS are 7.6% per annum for Q3 FY2019-20 (October-December), remained unchanged.
Post Office Monthly Income Scheme Interest Rates
Post Office Monthly Income Scheme Interest Rates
Small Savings Schemes

Interest Rates on Small Savings Schemes October 2019

Small Savings Schemes Interest Rates Oct-Dec 2019

Introduction

In this article we will see the updated Interest Rates on Small Savings Schemes – EPF, PPF, SCSS, SSY, NSC, KVP for Q3 FY2019-20 (October-December). All these small savings schemes will continue to fetch same interest rate between October-December quarter of FY 2019-20 as they were earning during the July-September quarter. Ministry of Finance has made an announcement on September 30, 2019.

Financial Planning Knowledge Bank by Invest Yadnya
Financial Planning Knowledge Bank by Invest Yadnya

If you are planning to invest in any of these savings schemes, you should know about their interest rates. For all the small savings schemes interest rates are aligned with Government security rates of similar maturity, with a little spread.

Different Small Savings Schemes

Small Savings Schemes
Small Savings Schemes

Below you can find the interest rates for various small savings schemes:-

Public Provident Fund (PPF)

  • PPF is a long-term investment for a period of 15 years. The government will review the PPF rates quarterly.
  • PPF scheme will continue to offer an interest rate of 7.90% per annum for 3rd quarter of FY2019-20 (October to December) same as last quarter and compounded annually.
Public Provident Fund (PPF) Interest Rates
Public Provident Fund (PPF) Interest Rates

Employee Provident Fund (EPF)

  • Employee Provident Fund is a long term investment tool. Interest rate on EPF contributions is revised every year.
  • The interest rate currently on investments in EPF is 8.65% Per Annum for 3rd quarter of FY2019-20 (October to December).
Employee Provident Fund (EPF) Interest Rates
Employee Provident Fund (EPF) Interest Rates

Senior Citizen Savings Scheme (SCSS)

  • The government will review the SCSS rates quarterly. But, once a subscriber has enrolled, the rates will remain unchanged for the tenure. Deposit has a maturity period of 5 years.
  • This scheme will continue to offer 8.60% interest rate per annum for 3rd quarter of FY2019-20 (October to December) compounded annually.
Senior Citizen Savings Scheme (SCSS) Interest Rates
Senior Citizen Savings Scheme (SCSS) Interest Rates

National Savings Certificate (NSC)

  • From FY2016–17 onwards, the interest rate on the NSC will be revised every quarter as per the prevailing government-bond rates. However, once you have invested in the NSC, the rate applicable that time will remain the same throughout the tenure of the investment. Certificate comes with the maturity period of 5 years.
  • NSC (5 year VIII Issue) is going to offer 7.90% interest rate for 3rd quarter of FY2019-20 (October to December) which is compounded annually but is payable at maturity.
  • The 10 year option of the NSC has been discontinued.
National Saving Certificate (NSC) Interest Rates
National Saving Certificate (NSC) Interest Rates

Kisan Vikas Patra (KVP)

  • The KVP rates will be notified every quarter as per the prevailing government security rates. Scheme aims at doubling the investment in 115 months (9 years 5 months) with the applicable interest rate.
  • However, once you have made an investment, the rate will remain unchanged for you throughout the tenure.
  • KVPs will offer a steady 7.60% as interest rate for 3rd quarter of FY2019-20 (October to December) same as last quarter which is compounded annually.

Sukanya Samriddhi Yojana (SSY)

  • The interest rate for the SSY is to be 75 basis points over the ten year government bond yield. The rates will be revised every quarter and the new rates will be applicable to all the subscribers.
  • Scheme will continue to offer the same interest rate of 8.40% per annum for 3rd quarter of FY2019-20 (October to December) compounded annually which is calculated on a yearly basis.
Sukanya Smridddhi Yojana (SSY) Interest Rates
Sukanya Smridddhi Yojana (SSY) Interest Rates

Conclusion

  • Small savings schemes interest rates have been kept unchanged for the third quarter of the current financial year FY2019-20 despite a general downtrend in interest rates in the economy and belying expectations of a cut.
  • This decision is good news for small depositors and senior citizens as banks have been reducing their fixed deposits (FDs) interest rate since the start of the financial year as the Reserve Bank of India (RBI) has been reducing its key policy rates.
  • Ministry of Finance has made an announcement on September 30, 2019.
Calculation of EMI Breakup

Mathematics of EMI Breakup

How Breakup of EMI into Interest & Principal is done?

Introduction

In this article, we are going to discuss the mathematics of EMI breakup in loan repayment, how breakup of EMI into interest and principal is done etc. Many loan borrowers are often confused why major portion of their EMI goes to interest and not principal in the initial period. Let us discuss its reasons in detail here.

Financial Planning Knowledge Bank by Invest Yadnya
Financial Planning Knowledge Bank by Invest Yadnya

Mathematics of EMI Breakup | How Breakup of EMI into Interest & Principal is done?

What is EMI?

  • EMI (Equated Monthly Installment) is a loan repayment amount to be paid every month.
  • It consists of 2 parts – Principal and Interest. Interest is on the remaining principle amount to be repaid and principal component of EMI is the difference between EMI and interest.
  • EMI depends on three factors namely :
    1. Amount of loan taken
    2. Interest rate on the loan taken and
    3. Loan tenure
  • With this tool a borrower can actually know pre-hand how much he has to repay each calendar installment. So, this EMI tool forms a part of the budgeting as well as financial planning exercise. Also, since monthly repayment consists of interest and principal both, it allows borrowers to repay the loan in full.
  • In the initial period, the total loan amount to be repaid is more.
    • In each month, Interest is on the remaining principal amount to be repaid. So, major portion of EMI goes to interest in the initial period.
    • With time, interest decreases and principal amount remaining decreases and the loan gets repaid.

Formula for EMI

EMI Formula
EMI Formula

Calculation of EMI Breakup

Case A :
Calculation of EMI
Calculation of EMI
  • Let us understand the calculation of EMI breakup with the help of an example.
  • Suppose,
    • Loan amount (P) is Rs.5,00,000
    • Annual interest rate is 12% and
    • Tenure of the loan is 2 years.
  • Interest rate is given on an annual basis. So, for calculation it has to be converted into periodic basis. Here, the periodicity of paying loan is monthly. Therefore, R = 12% / 12 = 1% = 1 / 100  = 0.01
  • No of periods (N) = 12 × 2 = 24 months
  • Putting up the values in the above equation, we get EMI = Rs. 23,537
  • Now let us see how much principal amount gets repaid in the first month.
    • I = 1% of 500,000 = Rs. 5000
    • Principal Amount Repaid in first month = EMI – Interest
    • Principal Amount Repaid in first month = 23,537 – 5000 = Rs. 18,537                                                            
  • Loan amount remaining = 5,00,000 – 18,537 = Rs.4,81,463
  • So, for second month, I = 1% of 481,463 = Rs. 4,815
  • Principal Amount Repaid in the second month = EMI – Interest =  Rs.23,537 – Rs.4,815 = Rs. 18,722                                                                     
  • Loan amount remaining = 4,81,463 – 18,722 = Rs.4,62,741                        
  • Similarly, the interest and principal amount for each month is calculated.

The following table shows the repayment schedule.

 EMI Breakup - Loan Repayment Schedule
EMI Breakup – Loan Repayment Schedule
Case B
  • Now suppose the home loan is Rs. 40,00,000
  • Interest Rate is 12% and
  • Loan tenure is 10 years
  • The EMI comes out to be Rs.57,388
Comparing EMI Break ups for Case A and Case B :

As can be seen from the above graph, Interest portion is almost 70% of EMI and as we go on repaying the loan, it decreases.

Conclusion

  • It can be concluded from the above 2 graphs that when loan amount and tenure increases, the interest to be paid in the initial period increases.
  • This simple EMI calculation helps in knowing the repayment schedule which can be used in decision making while taking a loan.
what is Credit score

Credit Score| What These 3 Digits Tell About You?

What Makes up Your Credit Score?

Introduction

In this article, we will discuss what is credit score, what these 3 digits tell about you, how is it calculated, what makes up your credit score etc.

Credit Score | What These 3 Digits Tell About You?

Credit Score : What These 3 Digits Tell About You?
Credit Score : What These 3 Digits Tell About You?

Understanding Your Credit Score

  • A Credit Score plays a critical role in the loan and credit card approval process. This is the first screening criterion applied by banks and financial institutions when reviewing your loan application.
  • It helps in evaluating the potential risks that could arise from lending money to a consumer. Thus, the score is used to reduce the probable losses on account of bad debts.
  • Credit Information Report (CIR) summarizes your payment history of loans and credit cards borrowed from all banks and financial institutions. Based on this credit history, a ‘Credit Score’ is generated. 
  • In short, credit score is the statistical number which evaluates or represents the credit worthiness of the consumer applying for loan or credit card.
  • Credit score has started getting reasonable attention in India. It is because an individual’s credit score is a key determinant of his likelihood to get big-ticket loans and the interest rate that will be charged on the loan. 
  • CIBIL, Experian, CRIF and Equifax are the four credit bureaus in India that create credit score after examining credit report of individuals. CIBIL (Credit Information Bureau India Ltd.) is one of the premier agency which provides credit score namely, CIBIL score.

What is Your CIBIL Score?

  • CIBIL score is a 3-digit numeric summary of your credit history. It is derived by using details found in the ‘Accounts’ and ‘Enquiries’ sections of the CIBIL report.
  • It includes (but not restricted to) your loan accounts or credit cards, and their payment status, as well as outstanding amounts’ days past due.
  • The score reflects your credit worthiness, based on your borrowing and repayment history, as shared by lenders. Your CIBIL score ranges from 300 to 900. The higher your CIBIL score and closer to 900, the stronger your credit profile.

What These 3 Digits Tell About You? How to Interpret your CIBIL score?

  • CIBIL Score < -1 : No Credit History
  • 300 < CIBIL Score < 600 : You are considered as a Credit risk for the banks and financial institutions. Your application for loan or credit card may not processed.
  • 600 < CIBIL Score < 750 : This is the intermediate range, in which the lender may allow you for credit. However, the lender may consider your overall financial health and other risk criteria for determining your true credit value. These include stability of employment, other sources of income, loan security and similar factors.
  • CIBIL Score > 750 : This range indicates the good credit worthiness of the borrower. Approval of the loan or credit card will not be a problem. A high credit score means you can leverage it to negotiate to get lower interest rates from the lender. The higher the CIBIL score and closer to 900, the stronger your credit profile.

Illustration : Two individuals ‘A’ and ‘B’ with Credit Scores of 810 and 620 respectively apply for a home loan. Depending on the credit policy of the bank, it is more likely that the bank will screen the individual ‘A’ with an 810 Credit Score for further proceeding of loan, while the application of ‘B’ with the Credit Score of 620 won’t proceed. Lender will check it for other risk criteria for determining his creditworthiness.

 How to Interpret your CIBIL score?
How to Interpret your CIBIL score?

What Makes up a Credit Score?

There are four key factors that impact your CIBIL score

  1. Payment history: Making late payments or defaulting on your EMIs has a negative impact on your score.
  2. Credit mix: Having a balanced mix between secured loans and unsecured loans is likely to have a positive impact.
  3. Multiple enquiries: Too many loan enquiries may have a negative impact on your score as it indicates that your loan burden may go up in the future.
  4. High credit utilisation: A high credit utilisation limit indicates a rising debt burden over time and may negatively impact your score.
What a Financial Planner Can Help You With?

What a Financial Planner Can Help You With?

How a Financial Planner Can Help You Meet Your Financial Goals?

Introduction

In this article, we are going to discuss in detail what a financial planner can help you with? How he/she can help you meet your financial goals?

What a Financial Planner Can Help You With?

What is Financial Planning?

  • Let us first understand what does a financial planning mean?
  • Financial planning is the process of defining your financial goals and then laying out a plan of action with specific steps you need to take to achieve those goals.
  • In simple word, it is the process of utilizing your available financial resources in the best possible manner so that you achieve your future financial goals.

How a Financial Planner Can Help You Meet Your Financial Goals?

A fіnаnсіаl рlаnnеr can hеlр уоu tо organize уоur іnсоmе, еxреnѕеѕ, and assets, аnd соmе uр wіth a plan tо mееt уоur реrѕоnаl goals fоr the futurе.

What a Financial Planner Can Help You With?
What a Financial Planner Can Help You With?

1. Cash Flow Management

  • To truly understand your current assets, liabilities, and net worth, it is important for a financial planner to identify the status of your personal and professional income and expense balance sheet.
  • A financial рlаnnеr can help you dесіdе іf your аѕѕеtѕ аrе helping уоu оr соѕtіng уоu. They mаkе sure уоur assets аrе іn the best place tо gеnеrаtе returns with a ѕесurіtу.
  • Debt Management :
    • As we know, Debt Management is one of the key aspects of cash flow management.
    • Debt can seriously complicate your finances and keep you from making progress toward your long-term goals. Though you don’t need a financial planner’s help to get yourself out of debt, he/she can show you the benefits of being debt-free.
    • Before helping you create a comprehensive, long-term financial plan, a good financial planner will encourage you to tackle your debt. It is because he/she want you to stop paying for the past so you can start planning for the future.

2. Budgeting to Reach Financial Goals

  • We all need someone in our corner to remind us of the big picture and to cheer us on as we work toward our goals. 
  • A financial planner can help you understand what actions you need to take to reach those long-term goals. It includes – buying a new house, children education etc.
  • For example, as far as children education goal is concerned, we can see that education соѕtѕ continue to rіѕе. Thus, it wіll bеnеfіt you tо have Children education goal, nо matter thе current age of уоur сhіldrеn. In such case, your advisor саn explain you the inflation impact and hеlр уоu decide whісh іѕ bеѕt option fоr achieving your goal.
  • By strategically telling your money where to go, you can begin budgeting for those big goals and make your dreams a reality.

3. Tax Planning

  • In order to maximize and preserve your investment returns, an eye toward tax management is crucial.  No matter what your age is, dealing with taxes can feel overwhelming. Especially as you grow your wealth and get closer to that dream retirement.
  • A financial planner can explain how taxes will impact your finances. He/she has a number of tax-reduction strategies and methods for generating tax-free income and wealth transfer considerations. And your financial planner can achieve by way of implementing tax planning in a proactive manner.
  • Whether it’s advising on charitable donations, constructing a tax-efficient estate plan, or making the most of tax breaks available to you, the financial planner’s goal is to minimize your tax burden while providing the best possible returns.
Personalized Financial Planning by Invest Yadnya
Personalized Financial Planning by Invest Yadnya

4. Retirement Planning

  • Retirement planning helps you set a goal for, when you want to retire and your income and lifestyle objectives during retirement.
  • Your financial planner can determine, if your current savings are on track and provide guidance on strategies to help achieve those goals.
  • The advisor wіll tаlk wіth you аbоut :
    • When you want to retire?
    • What уоu want tо dо when уоu retire?
    • Hоw muсh іnсоmе you thіnk you wіll nееd?
    • How to manage your retirement corpus?
    • Is your retirement corpus is enough for you?
  • Dереndіng on your age аnd stage іn lіfе, he/she can hеlр уоu come uр with a рlаn that is rіght fоr уоu.
  • Your advisors will аlѕо аdvіѕе уоu whеn уоur plan needs tо change based on alterations іn уоur lіfе and the есоnоmу

5. Insurance Assessment

  • It is an important component of financial planning often overlooked by us, not by your financial planner. He/she evaluates the kind of insurance you need to protect yourself and your assets with your loved ones.
  • Insurance types can include life, disability, health, vehicle and property insurance to name a few.
  • For example, in case of health insurance your advisors explain your options for long-term health insurance. Then you can choose a plan that’s affordable both now and in the future when you will need it the most.
  • Depending on your stage in life, your advisor help you out with your insurance needs (risk management needs) which is going to change and evolve.

6. Estate Planning

  • No matter your age, estate planning is an integral component of long-term financial planning. Your financial planner can help you control the distribution of your assets, both during life and upon death, with the right estate plan structures in place for your unique circumstances and wishes.
  • If уоu anticipate hаvіng ѕіgnіfісаnt аѕѕеtѕ upon уоur death, аn expert саn help уоu mаkе dесіѕіоnѕ about thе distribution оf thоѕе assets, аnd handling аll оthеr matters оf уоur еѕtаtе. You get to choose what to do with those assets you’ve worked so hard for.
  • Thus, a financial planner can be a great resource in estate planning by helping you create a plan to ensure your wishes are carried out.

Conclusion

  • A Financial Planner Can Help You :
    1. Set realistic financial and personal goals
    2. Assess your current financial health by examining your assets, liabilities, income, insurance, taxes, investments and estate plan
    3. Develop a realistic, comprehensive plan to meet your financial goals by addressing financial weaknesses and building on financial strengths
    4. Put your plan into action and monitor its progress
    5. Stay on track to meet changing goals, personal circumstances, stages of your life, markets and tax laws
  • Thus, a financial planner helps you create strategies for eliminating financial risk and building wealth over the long term. They can give you a detailed plan that puts you on track to achieve your financial goals.

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