20 smart money tips

20 smart money tips
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First Published: Sun, Nov 01 2009. 09 31 PM IST

Photoimaging: Raajan / Mint
Photoimaging: Raajan / Mint
Updated: Sun, Nov 01 2009. 09 31 PM IST
Builders and brokers
1. You get a smaller space than you thought: The area mentioned in advertisements and for calculation purposes is the super built-up area, while the area that you really get is the carpet area, which would be less by up to 30% or more depending on the building’s design.
2. All-inclusive price is not always ‘all’ inclusive: In most cases, the price advertised will be the cost of the house. But there are other charges that you would need to pay—charges for car park, club membership, power and water connections, among others. These will add up to a substantial bit. Don’t be surprised if what you finally end up paying is more than the advertised price.
3. There is compensation for project delays: Usually, this is not mentioned upfront, but builders do mention it in the sale agreement. In most cases, the amount of compensation is very small (around Rs5 per sq. ft a month). However, the deadline and the mode of handing over the compensation are not mentioned.
4. The brokerage fee you pay is negotiable: In north India, the broker fee is typically one month’s rent for arranging rented accommodation and 1% of the sale price for apartments. During the boom period, this fee was non-negotiable in most cases. But with the real estate sector doing badly, especially since January 2008, brokers have been ready to take a cut in fees.
Photoimaging: Raajan / Mint
Credit card companies
5. Global credit card companies have hidden charges: When you use your card to pay in foreign currency, you need to factor in more than just the exchange rate. For instance, you pay 3.5% of the total amount as cross currency markup, a service tax of 10.35% on the chargeable amount and a further 3% education cess on the service tax. More than you thought, isn’t it?
6. There is an upper limit on cashback cards: It’s not as if the more you buy, the more money you get back. You only get a maximum of Rs500 a month. Some cards may even require you to have a minimum statement amount to avail the facility. The amount may also be subject to a maximum of Rs250 per eligible transaction (this excludes loans and cash advance).
7. The ‘due date’ is not the last date of payment: If you think that the “due date” is the latest you can pay, you are mistaken. Actually, the payment needs to be credited to your card account by that date. Otherwise it is treated as a default. Cheque payments need to be made at least four working days in advance to avoid a default.
8. Cash withdrawals attract a daily interest: You can use your credit card to withdraw cash from the bank or the ATM up to the card’s cash limits. There will be a one-time fee, which will be a percentage of the amount withdrawn, or it could be a minimum amount. On top of this, a daily interest is charged on the amount withdrawn, which starts accruing from that very day till the amount is paid back. Moreover, with many cards there is no interest-free period, unlike purchases made using the cards.
Online retailers
9. Free shipping isn’t always free: Shipping costs can trip you in online purchases. Hidden somewhere could be a condition that shipping is free only if the purchases are above a certain amount. This could also mean that the free shipping advertised “on all items” is actually for items purchased after your billed amount has crossed the minimum limit.
10. We’ll refund the price but you pay for the shipping: Clarify turf matters. Total refund might be a valid option, but do check if it is your responsibility or the company’s to ship back the defective product.
11. Fake buyers will push up auction prices: Who says rigging and manipulation can’t happen in cyberspace? It’s not difficult to fall for the number of online bids going for a product. Sellers often create fake buyer IDs to participate in the bidding process. The prices are made to go up and you are persuaded into bidding higher amounts.
Insurance agent
12. A Ulip, or unit-linked insurance plan, gives us a bigger commission than a term plan: Term plans are the cheapest life insurance product. They come at the lowest costs while providing the highest coverage. A lower premium means less agent commission. Term plans, especially pure plans, are more difficult to sell too. This is because they don’t return premiums or provide any returns at the end of the tenure, which makes it difficult for many to fathom them since most investors are used to getting money back in insurance-cum-investment products. So agents prefer to sell the high-premium Ulips.
13. Ulips can be costly if you pull out early: If you exit a Ulip any time before 10 years, the cost goes against you. Due to upfront charges, which are typically high in the initial years, a lesser part of the premium gets invested. If you have been investing in a growth option—that is, it has high equity exposure—an early exit, especially at a time when markets are down, only compounds your misery. You may be asked to buy a new Ulip after three or five years at a lower net asset value, or NAV, or a new Ulip with some additional features. Stay away. Run the existing Ulip using the top-up feature to maximize value over the long term.
14. Capital and return guarantees come at a cost: Ulips that guarantee the principal or returns have to make provisions to deliver the promise. For this, there’s an additional cost the customer has to bear. Also, with most guarantee plans, the insurer can invest up to 100% in equity markets. There is no choice of fund options for you since you can invest only in equities.
15. Entry cost is zero, but there are other monthly charges: Many Ulips do not have any front-end cost and each year’s entire premium is said to be invested. But all such plans have provisions to deduct charges from your fund rather than the premiums. Even though this may be a small percentage of the fund value, over time the effect is largely the same, as the fund value keeps increasing.
16. The discounts are on jacked-up prices: If you are a sucker for sales, this is bad news for you. This is a common trend with unbranded products, especially clothes. Don’t fall for it, especially if you don’t know what the actual pre-discount price was. The more the discount percentage, the more suspicious you should be.
17. You can buy a product for less than the MRP: MRP is the maximum price a retailer is allowed to charge. But no rule stops him from charging less. So, don’t hesitate to ask for a discount on MRP. You might just get a lower price. This works particularly well for big-ticket purchases such as television sets and furniture, especially if you are paying in cash.
Tour operators
18. Our quoted price is before taxes: Taxes on airfare could be as high as 30-50% of the base fare and for international flights, that could burn a hole in your pocket. Clarify the inclusions and exclusions, especially for “supersaver” offers.
19. The part of the tour price in dollars remains flexible: The tour operator wants to pass on to you any unfavourable change in exchange rates. So if the rupee falls against the dollar, you pay more. But the opposite may not be true.
20. ‘Optional’ tours are cheaper if you arrange them: Optional trips come at exorbitant prices. Combo tour packages to these destinations, if booked locally, could cost a lot less. Therefore, it might make sense to do them on your own because it may cost less even after factoring in food and travel expenses.
Track gold prices
The improving risk appetite in the global market has not affected demand for gold. In international markets, after crossing the psychological $1,000 per ounce (Rs47,500 per 28.6g) in the beginning of October, gold continues to move up. It touched an all-time high of $1,062 per ounce, a gain of around 28% from a year back. In India, too, it has gained around 20%. The primary reasons fanning the rally are said to be a weakening dollar, inflationary concerns and investor need for diversification. Says Tejas Seth, a senior research analyst at SMC Global Securities, “Gold prices at $1,100 per ounce is our first target and then $1,200 per ounce, most likely in 2010.”
Invest in corporate debt instruments
Senior citizens and pensioners need not worry about the recent fall in interest rates on bank term deposits. Instead, you can invest in corporate debt instruments that carry coupon rates that are 3-4% above bank rates. Many companies are expected to bring in debt issues, largely non-convertible debentures (NCDs), to raise around Rs20,000 crore from the markets within the next six months. Suresh Sadagopan, certified financial planner, Ladder 7 Financial Advisory, Mumbai, says: “As NCDs offer 3% higher interest than FDs, they are a good option. However, one must look for a good company with a good track record.”
Insurance cover for kidnap and ransom
Did you know that kidnap and ransom policies offer financial protection to individuals from kidnapping, extortion, wrongful detention and hijacking? The standard cover includes death or dismemberment benefits, ransom/extortion payment, loss of payment in transit, settlements and defence costs, recall costs, business interruptions and 24-hour emergency response helpline and related expenses. Any individual who believes he needs the cover can go for it.
Tax refund
If your employer has already deducted tax and deposited it, he cannot refund the amount to you. The employer will give you a certificate of tax deduction at source. If the overall amount of tax paid on your behalf works out to be more than the tax due after accounting for your income under all heads, you will be eligible for a refund. While filing your return of income, you must mention your bank account details so that the income-tax department can send it directly to your bank through the electronic clearing system.
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First Published: Sun, Nov 01 2009. 09 31 PM IST