Tag Archives: Financial Services

Fixed Or Floating Interest Rate Home Loans: Which One Is Better ?

To take a home loan is a great commitment and one classic dilemma that all home seekers face is ,whether to opt for Fixed Interest Rate Loans or Floating Interested Rate Home Loans ?? Should you pay more premium in Fixed Interest Rate Home Loans or should we enjoy the changes to interest rate owing to fluctuating market in Floating Home Loans ? Should you ensure peace of your mind by opting for fixed home loans or take a risk by going for Floating Loans ?? These are some of the classic questions, most home-buyers have. This blog-post tries explaining the Pros and Cons for both, Fixed Interest Rate as well as Floating Interest Rate Home Loans.

So the first thing is to understand what is a Fixed Home Loans and a Floating Home Loans ??

Fixed Home Loans:
As the name suggests, we repay the loan amount at fixed interest rate with fixed EMI (Equated Monthly Installment). Interest Rate remains constant during the entire loan-tenure and does not change with market fluctuation.

Pros Of Fixed Home Loans:

  • A rise in interest rate will not affect your loan repayment amount or your monthly EMI (Equated Monthly Installment)
  • It allows you more freedom and peace-of-mind to plan your financial liabilities accordingly, as you have to pay a fixed EMI, even though market (and hence interest rates) could be fluctuating. Thus it also gives a sense of financial security.

Cons Of Fixed Home Loan:

  • The interest rate for Fixed Home Loan is usually 2 % more than the interest rate of Floating Home Loan for same tenure.
  • If the interest rate in market decrease by any chance, Fixed Rate Home Loan borrowers will not get any benefit out of it.

Floating Home Loans:
It is also called Adjustable Rate Home Loans. In this scheme, the interest rate is dependent on market and fluctuates according to economic situation in the country.

Pros Of Floating Home Loans:

  • If interest rate in market is reduced,you will get immediate benefit of it and you have to repay lesser loan amount than earlier.
  • Floating Rate Home Loan is availed at lower interest rate than Fixed Rate Home Loan.

Cons Of Floating Home Loans:

  • If inter­est rate rises, the bor­rower has two options : The first one is to increase the EMI, keep­ing the tenure constant or to keep the EMI con­stant, thereby increasing the tenure. Irrespective of which option you choose for, you are essentially shelling out more money from your pocket.
  • There is always an element of uncertainty surrounding your loan amount, especially during volatile market scenarios. So financially you run the risk of repaying an amount, more than you may originally have planned for.

Conclusion:
The first thing that we should keep in mind is, this is not a one time decision whether to go for Fixed Rate Loans or Floating Rate Loans. Most of the banks and financial institutions allow their customers to change it afterwards, if they want to. So if you are having a Fixed Interest Rate Loan, you can switch to Floating Interest Home Loan and vice-versa. But, it is not free and there is a cost associated with the same, So it is always better to take a thoughtful decision at the start i.e, at the time of applying for the loan. Try to compare the interest rate that your Bank/Financial-Institution is offering for Fixed and Floating rate home loans and weigh it against your loan-tenure. If you are going for a long tenure and don’t want to take any risk, then a Fixed Rate Home Loan is recommended. But if you go for short tenures, then you should opt for Floating Rate Home Loans. In the short term, interest rates may not fluctuate much, so paying a 2% (or more) premium for a Fixed Rate Loan is not a very good idea. At present, over 90% of the home loan borrowers opt for Floating Rate Home Loans.

ICICI Bank New Home Loan Scheme Launched

Festive season has come, but the great reason for our happiness is that the ICICI Bank which is country’s largest private sector lender, has come into festive mood and introduced a 1 year and 2 year fixed cum floating interest rate scheme for home loan.


The new ICICI schemes at a glance:

Loan Amount

Fixed Rate of Interest (%)

Upto 25 lakh

10.50 – 1 yr

10.75 –  2 yr

25 – 75 lakh

11.00 – 1 yr

11.25 –  2 yr

Above 75 lakh

11.50 – 1 yr

11.75 –  2yr

The  current base rate for ICICI bank home loan is 10% but the problem for customer is it’s increasing day by day, so these both schemes are very lucrative.

1 Year Scheme:
In this scheme, Interest Rate will be fixed for first 1 year, after completion of which which it will be same as current market rate.  Interest rate also depends upon the home loan amount. For loan amount up to 25 lakhs  the fixed rate of interest is 10.50% and for 25 to 75lakhs the  interest rate is 11% whereas for above 75 lakhs loan amount  it is 11.50%.

2 Year Scheme:
It is similar to 1 year scheme. In this the interest rate for loan amount up to 25 lakhs is 10.75 % for 2 year and 11.25 % for 25 to 75 lakhs whereas it is 11.75 % for the above 75 lakhs.

If we compare the interest rate across both these schemes, interest rate is more than current market rate, but we should also keep in mind that, rates are not steady and in fact are increasing gradually, so Fixed Interest Rate will help you save your money.

But some financial advisor as Suresh Sadagopan, principal planner, Ladder7 Financial Advisors has said “Borrower should definitely go for One Year fixed Rate Scheme, as there will not be any significant shift of rate cycle in the next one year. However, the Two Year Scheme does not look very lucrative for a home loan buyer. Rates may fall below fixed rates in next two years, as rates are expected to come down after a year, after witnessing a year of unprecedented interest-rate hikes”

So celebrate your festival and save your money by availing these attractive Home Loan Offers 🙂

Instant Inter-Bank Funds Transfer Using IMPS (Inter-Bank Mobile Payment Service)

Did you know, you can transfer funds instantly across banks using your mobile ?? National Payments Corporation of India (NPCI) has launched a facility called Inter-Bank Mobile Payments Service(IMPS) on 22nd November, 2010. At present in India, there are close to 60 crore mobile users which is much higher than bank account holders that is 30 crores so allowing funds transfer by mobile will really make a lot of sense for the customers. This blog post will describe at length how to make use of this facility and what are its main features and current limitations.

One natural question arises as to How is it different from NEFT (National Electronic Funds Transfer) and other transfer facilities like RTGS (Real Time Gross Settlements) ??

  • NEFT(National Electronic Funds Transfer) : As of now, we all can use National Electronic Funds Transfer(NEFT) for Inter-Bank Funds Transfer but it is not a real time service. It usually takes up to 48 hours to get the funds transferred. Hence the main drawback with NEFT is the time-lag.
  • RTGS (Real Time Gross Settlement) is another service, which can be used for Instant Inter-Bank Funds Transfer. Unfortunately it is not designed for common man. Here the minimum transfer amount is 2 Lakhs and this service is  available only during banking working hours, but the good thing about RTGS is its an instant service.  So you could say Special Service for Special People (Read Rich) 🙂
  • IMPS (Inter-Bank Mobile Payment System) is designed keeping rural India in mind, where mobile density is pretty good compare to banking sectors’ penetration. So now even common man (of course with less than 2 lakhs 😉 in their account) can transfer funds across banks instantly  IMPS (Inter-Bank Mobile Payment System) is 24×7 fund transfer service and its instant,automated,real time and simple to use as well.

Transfer Process:
At first a mobile customer has to register with his bank to activate mobile banking by installing a special application available at

Even if you phone is not supporting these applications, there is no need to worry. You can complete the transaction via SMS as well. After that a bank account holder will have to get a unique 7 digit number called MMID (Mobile Money Identifier).

What is MMID (Mobile Money Identifier):
Mobile Money identifier(MMID)
is a  7 digit number offered by IMPS by which we can send money instantly from our savings bank account using our mobile number.

Steps involved in transferring the money:

  1. Enter beneficiary’s 10 digit mobile number
  2. Enter beneficiary’s 7 digit MMID number
  3. Enter the amount you wish to transfer
  4. Provide bank authentication (user/customer ID and MPIN).
  5. Once your details are authenticated, the money is transferred instantly from your account.
  6. You will also receive an SMS with the transaction status

Steps involved in receiving the money:

  1. To receive money to your account via instant money transfer you will need to share your mobile number and MMID with the payee

Complaint:
In case of any problem you can register your complaint by placing a call to Call Center/Customer Care Toll-Free Number 1800 22 22 44. You can also register at the respective branches.

What all banks offer this facility ??
You will be happy to know that currently this service is available for customers having an account in Axis Bank,HDFC Bank, State Bank of India,Bank of India,Kotak Bank,Union Bank of India,Corporation Bank, Lakshmi Vilas Bank,Yes Bank. Soon, it will be made available to other bank customers as well.

Limitation:
The Maximum amount that can be transferred in a day has been set as Rs 50,000.

The most important part is this service IMPS (Inter-Bank Mobile Payment Service) is free till March 2011 an. Although nothing to loose sleep over, even after that NPCI (National Payments Corporation of India) will only charge 25 paise per transaction, which is fairly nominal.

So no need to have passbook or to go to bank ,just have your mobile and you can pay anyone like shopkeeper,auto man etc,if you have money in your account 🙂

LIC (Life Insurance Corporation Of India) Jeevan Anand Endowment Assurance Life Insurance Policy

Today I happened to call  an LIC (Life Insurance Corporation Of India) Agent aka Insurance Advisor, as I had an insurance requirement. The gentleman came prepared with all his documents. After the initial pleasantries were exchanged,  he started drawing some charts, which looked more like my future kundali than financial planning. He discussed a whole bunch of insurance policies, starting from Jeevan Saral moving onto Jeevan Aastha and concluding with Jeevan Anand. Believe me, after listening to all he had to say about these policies and underlying sales-pitch, I was forced to day dream of becoming a millionaire. I got really confused and was not able to decide which one to opt for. But eventually, the agent helped me make the final decision and we settled on Jeevan Anand, as according to him, it best suited my financial planning and future purposes. Whatever I got out of this somewhat lengthy discussion, I would like to share with you.

JEEVAN ANAND
Jeevan Anand is a combination of Endowment Assurance (a life insurance  designed to pay a lump sum after a specified term, usually on its ‘maturity’ or on death, whichever is earlier) and Whole Life Plan (a type of life insurance contract that provides for insurance coverage of the contract holder for his/her entire life). Under this plan, you have to pay a fixed premium amount for a particular term. On survival, you will get a lump sum amount, which will be equal to the Sum Assured (SA) plus Accumulated Bonuses and Final Additional Bonus at the end of selected term. If death happens before the maturity, the survivor/nominee gets all the aforementioned benefits. The main feature of this plan is you are insured for you whole life, even after your maturity period is over. If death happens after the maturity period, the survivor/nominee will only get the Sum Assured(SA). No wonder, it has been marketed with a tag-line “Zindagi ke saath bhi Zindagi ke baad bhi” 🙂

Some other salient features of this insurance policy follow

  • Premium Payment Frequency : You can choose different payment frequency like monthly, quarterly, half yearly or yearly.
  • Age Limit : Age limit for premium is  18 to 65 years and limit for premium paying term accordingly is set to 10 to 57 years (Total age till which this policy is valid is 75 Years)
  • Loan Availability : You can avail a loan against your policy after paying premium for 3 years.
  • Sum Assured : The minimum amount for sum assured is 1 lakh whereas max is unlimited.
  • Accident Benefit : In case of death by accident (subject to an age limit of 70 years), the policy holder can get an additional sum assured upto Rs 500,000. In case of permanent disability of the policy holder (due to accident), the additional sum assured is payable in installments.
  • Tax Benefit : Under the present income tax regime, you can claim tax exemption under Section 80C.

Let us illustrate all the benefits for this policy by taking an example:

  • Profile : Ram,aged 35, takes a Jeevan Anand Insurance policy  for 25 years for sum assured of Rs 1 lakh.
  • Premium Amount : Rs 4,535 annually
  • Total Premium Paid : Rs 1,13,375
  • Benefit On Survival: After maturity, he gets Rs 1,41,500 (in the worst-case at a growth rate of 6%). In the best case, when growth-rate is to become 10%, he will receive 2,41,000 Rs. Apart from the Sum Assured i.e, Rs 1 Lakh, the bonus accrued will be 41,500 (at 6% growth-rate) and 1,41,000 Rs (At 10% growth-rate). For the last financial year, LIC had announced an Accumulated Bonus as about Rs 45 per Rs 1000 per year.
  • Benefits On Death Before Maturity: If Ram dies within premium term, he will be receiving an amount= Sum Assured that is 1 lakh+accrued bonus till his death.
  • Benefits on Death After Maturity : If Ram dies after premium paying term and maturity period, He will be receiving an amount=sum assured only that is Rs 1 Lakh.

Before jump to a decision of taking Jeevan Anand, the first thing you have to decide is whether you plan to for Investment or Insurance. If you look at Jeevan Anand as an Investment Avenue, it’s not good. It takes almost 25 years for your amount to double, which means very poor gain. So if you are looking for investment, I would advise against Jeevan Anand. It’s better to opt for any other investment options like Real Estate, Stocks, Mutual Funds, which promises farm more returns as compared to what Jeevan Anand may offer. In fact, some mutual funds also has Insurance facility as well as tax benefits. On the other side, if you are looking at Jeevan Anand from an Insurance Perspective, even then I would advise you against it. If you are looking for insurance, it’s always better to go for a Pure Term Insurance Plan. Yes, it will not give you any benefit at the end of maturity, but will provide you with a healthy insurance cover and that too at a premium far less than you would pay for Jeevan Anand.

Reserve Bank Of India Introduces New Guidelines For ATM Transactions

For cash-withdrawals, we generally get to see two types of ATM Machines around us. First type of ATMs allows just one transaction for every swipe. If you are to make multiple transactions, you have to insert your card and enter your PIN as many times. The other second type of ATMs requires just one swipe and an ATM PIN entry just once(and it swallows the card inside :-), irrespective of the number of transactions you are going to make in that session. At times, punching your ATM PIN multiple times can get annoying, so for obvious reasons, we prefer the 2nd type of ATMs, as its more convenient. But, this is soon going to change in the new year 2011.

Starting from 1st January 2011RBI(Reserve Bank Of India) has introduced a new guidelines for all banks, offering ATM services to its customers. As per this new mandate, you will need to re-enter your ATM PIN for every additional ATM transaction in a single session. So even at these 2nd type of ATM Machines, you have to enter the correct ATM PIN for every transaction, that you are going to make in that session.

Do you think, this will help us in any way ?? Here is a hypothetical scenario, where this rule will save you from disaster. Say you are in a hurry. You just made a transaction and left the ATM, without realizing that your ATM Card is still retained inside the Machine. The next person, who is in the queue, will utilize this opportunity and can cause all sorts to damage to you, he can withdraw your hard-earned money. But with this new guideline in place, even if you forgot to collect your ATM card, you will be saved :-). Simply because, its expecting your correct PIN for every transaction !!