Want to withdraw from your provident fund account? Here's how!

A provident fund (PF) is basically a plan to provide financial security after retirement. It is, therefore, not advisable to withdraw any amount from one's provident fund account as PFs are primarily meant for retirement planning, and retirement planning is the most important goal in any person's life.

"No need to say one should avoid doing so unless there is a great emergency, as the amount should be utilized post one retires or in case one stops working and his/ her earnings have depleted. For other emergencies, one should look at money from investments in other instruments like debt funds, liquid funds or a savings bank account, etc," suggests Anil Chopra, Group CEO, Bajaj Capital.

In fact, there are various advantages of investing in a provident fund (PF). Generally, the return on provident fund is higher than inflation, and is totally tax fee. Thus, withdrawing out of it would have the following consequences:

1) Retirement planning would go haywire

2) Tax-free status would be lost because that money cannot be put back. For example, let's say, someone has a balance of Rs 50 lakh in his provident fund account, and he wishes to withdraw Rs 25 lakh out of that. This amount of Rs 25 lakh cannot be put back into it later, as it is not allowed as per rules.

Therefore, "withdrawal from a PF account is generally discouraged, as the purpose of opening it and accumulating money there is mainly for the second innings of your life, which is post retirement," says Chopra.

Nitin Vyakaranam, Founder & CEO, Arthayantra.com, is of similar opinion. "Withdrawing PF stands out as the classic case of lack of prioritization and holistic approach in our financial decision making process. By making withdrawals from the PF to fund other goals, we end up pushing our retirement age or making higher contributions towards building retirement fund during the last few years of our employment," he says.

However, in case one wants to withdraw money from his/ her PF account, the rules for the same are very stringent, which also vary as per the types of provident funds. In India PFs are of three kinds:

a) Public Provident Fund (PPF) - For general public

b) Employees Provident Fund (EPF) - For private sector employees

c) General Provident Fund (GPF) - For government sector employees

In case of PPF, which is normally meant for 15 years, withdrawal is allowed before that also, but under very stringent norms. For example, no amount can be withdrawn at all for the first six years. After six years, the amount equivalent to 50 per cent of the balance, which was there more than 3 years ago, can be withdrawn. Thus, the entire money cannot be withdrawn before the end of 15 years. Even after 15 years, it can be rolled over for another period of 5 years and after that every five years it can be rolled over or closed.

Similarly, in case of EPF or GPF, withdrawal is not allowed generally unless one has given up working or wants to be self-employed, etc. As per EPF rules, you are allowed to withdraw money only if you have no job at the time of withdrawing your fund and if 2 months have passed. Only transfer is allowed in case you have switched to a new job. Some people, however, withdraw the EPF after 60 days of leaving the organization, stating that they don't have any job, but this is illegal as per the EPF rules, if you are doing so after switching to a new job.
Thus, if you have no job at the time of withdrawing your fund and if 2 months have passed after leaving your organisation, then you are allowed to withdraw the fund. A declaration is required to be given stating the reason for the same. Otherwise, partial withdrawal is allowed in certain cases, which is in the form of loan, where one has to pay back that amount later and before that, has to state the reason for opting for withdrawal, for example, self or daughter's marriage, buying a home, education of self or children, medical treatment for self or family, among others.

There are certain specified criteria under which partial withdrawal is permitted. In case of education or marriage, for instance, the employee should have completed at least 7 years of employment or service. The maximum aggregate withdrawal can't exceed 50 per cent of the total contributions made by you and withdrawal can be made only thrice during a person's total service tenure. Proof of education or wedding is also required to be submitted.

Likewise withdrawal is permitted for medical treatment of self, spouse, parents and children. In this case, however, there is no restriction regarding the number of years of service. But the maximum amount one can withdraw is six times the basic salary and proof of hospitalization is required.

In case you wish to withdraw from your EPF account for purchase/construction of a house, then you need to have completed at least 5 years of service. The maximum withdrawal amount is 36 times your monthly salary (for construction of property) and 24 times (for purchase of property). In this case withdrawal is allowed only once during the entire service tenure.

For alteration or renovation of house, withdrawal is allowed up to 12 times your monthly salary and only once during the entire service tenure. But the house need to be registered in your or your spouse's name or should be owned jointly.

If you need to withdraw for repayment of home loan, then you should have completed at least 10 years of employment. The maximum withdrawal amount is 36 times the monthly salary of yours and withdrawal is allowed only once during the entire service tenure.

If one has retired or stopped working, he/ she needs to fill a PF withdrawal form and share his/ her bank account number, which has to be counter signed by the employer. After this, the money is directly sent to one's bank account. The process takes longer in case of EPF - anywhere between 2 weeks to may be up to two months also.

"On the other hand, if you have a PPF account, withdrawal is very easy after completion of 15 years. You can collect the demand draft or cheque by going to the post office or bank on the same day or get the money transferred in your bank account. Thus, one can get the money in a day's time," informs Chopra.

Also, if one wishes to withdraw before the end of 15 years, let's say 6 years, the amount which can be withdrawn as per rules will be calculated, and by filling an application in the prescribed format, it can be taken out maximum in one day's time. Thus, withdrawing from PPF is easier than withdrawing from EPF or GPF.

Courtesy : economictimes

Claiming health insurance from multiple insurers!

Narendra had to undergo an angioplasty surgery suddenly. His family was convinced that his old health insurance policy worth Rs 75000 bought 10 years ago would be sufficient to meet the expenses of surgery and hospitalization for 4 days. They were in for a rude shock when the bill came up to Rs 185,000. Health and hospitalization costs have gone up during the recent years and a single health insurance policy bought years ago, often falls short. Having more than one health insurance is very common these days. One may be the one that your employer gives you and the other you might have bought as a personal cover.  You may also have one policy to cover your parents and the other may be for your family.

You bought these covers to be doubly sure. However, what do you do in case of a hospitalization? How do you claim? Will it be from both the insurers, what proportion etc are some of the doubts that arise in the minds of the insured?

There has been some recent change in the rules regarding claiming from multiple insurers. The IRDA (Health Insurance) Regulations 2013 announced this February changed the way claims are made from each of the multiple insurers. Prior to these rules any claim from multiple insurers had to be in the ratio of coverage.

For Ex: You had a 2 lakh policy from your employer and 1 lakh policy bought on your own. There is a hospitalization for Rs 75000, then you would have to inform both the insurers and the claim settlement would be made according to the contribution clause. In this case your employer insurance would pay Rs 50000 and Rs 25000 by the insurer of your private policy. This process was not customer friendly and presented many hurdles to the insured.

However, after the new regulations have been put in place, there have been many changes. You can decide to against which insurer you would like to claim. If the amount of claim is less than or equal to the amount insured then you can claim the entire insurance from a single agency.

Let us see in the above case, how would this work out. The claim amount is Rs 75000, so if you go the group insurance company (employer), the claimed amount is less than the sum insured, so they will pay the entire amount. And in case you approach the second insurer (personal policy), this company would pay the entire amount, as the claim is less than the total amount insured.

Let us also see an example where the claim amount is Rs 250000. Here the claim amount is higher than the amount insured, then any single insurer cannot settle the claim, hence the contribution clause will have to be applied. Your company insurer will be pay Rs 166667 and Rs 83333 by your second insurer.

Keep in mind that documentation will have to be complete with each of the insurers. You would need to submit the entire sets of documents to both the companies. Hospital would have to give you a certified set of copy of the bills and other documents in addition to the original documents. So keep in mind, more the number of policies you would have to deal with more documentation. The documents required by each insurer may also differ.

Now that the rule is simple, you should know the process that will have to be followed for claim settlement and the ways to maximize your claim. The process that would have to be followed is

Inform all the insurance companies about hospitalization, at the same time you would also require to pick the company that you will claim first from. At the time of discharge, you would need to fill up the form for claim with all required documents. Remember you would need to submit the original documents to the insurer from who claim first. You would need to keep attested copies for your next claim.

Here, an important thing that you would need to keep in mind is that, only after the claim from the first insurer is settled, you can submit your claim with the second insurer. The first insurer will issue a claim settlement certificate, which will have to be submitted to the second insurer. Accordingly, the third claim can be claimed only after the second is cleared. Each claim may take around 30-45 for clearing, more the number of claims, more time taken in entire claim to be settled.

In case if it is a cashless claim, only the claim from first insurer is settled cashless and subsequent claims will have to be claimed on a reimbursement basis.

Some points to be noted to maximize your benefit:

§ Always claim insurance from your group insurance first, as the claim settlement would be faster. Also you would save on your no-claim bonus or premium loading during your next renewal of personal health insurance policy.  Generally group insurance covers pre-existing illnesses and does not have waiting period unlike individual health insurance policies.

§ Try and have a big cover from one insurer, also pay attention to the exclusions that the policy may have.

Are zero percent interest schemes really that?

These schemes do tend to have a big influence if you are someone looking to buy something, which otherwise would be well beyond your reach! You buy their theory of ‘zero percent finance’ and pay installments which you strongly believe are interest free! But unfortunately you end up paying more than what you actually think you are!

There is a popular saying: “There is no such thing as a free lunch!” And Ramesh now fully endorses it! But not long before he completely disagreed on this thanks to the zero percent finance schemes offered by some NBFCs (non banking finance companies) with which he had bought a couple of consumer durables for his home! He blindly believed that the zero percent finance schemes were in fact zero percent in reality until the time one of his wise friends enlightened him on how these schemes really work! Well, this is what he found out!

What are they?

Till a few years ago there were many such zero percent finance schemes doing the rounds and luring the unaware buyers like Ramesh into it! Thanks to the regulations of the Reserve Bank of India (RBI) many banks have now stopped offering such schemes for financing consumer durables but still there are several NBFCs who continue to offer these so-called zero percent finance schemes! Hence the recent announcement by RBI which banned zero percent interest loans on EMIs to credit card holders, stressing on the removal of this practice!

These schemes do tend to have a big influence if you are someone looking to buy something, which otherwise would be well beyond your reach! You buy their theory of ‘zero percent finance’ and pay installments which you strongly believe are interest free! But unfortunately you end up paying more than what you actually think you are!

How do these schemes work?

Firstly these zero percent schemes have hidden costs inbuilt in them. Perhaps the biggest loss for you would be forfeiting the cash discount on a product that you could have otherwise got if you had bought it on full cash. This apart you will also be paying a transaction or processing fee under the zero percent scheme and consequently more money through advance EMIs.

For example, you decide to buy an LCD colour television that costs around Rs. 48,000. You decide to buy it using the zero percent finance scheme. Under this arrangement you will pay the entire cost in six EMIs of Rs. 8,000 for six months. This works out to be Rs. 48,000 spread over 6 months. Now here’s how you end up paying more! To begin with you pay a processing fee of Rs. 1,000. And since you are buying the LCD on a zero percent finance scheme you are not entitled to the cash discount of Rs. 2,000!

So here’s how it looks in the above example. The LCD costs Rs. 48,000! Add up the Rs. 1,000 processing fee that you pay initially and Rs. 2,000 that was lost out on cash discount. A total of Rs. 3, 000! This means you get a net finance of Rs. 45,000 only! Now you pay an EMI of Rs. 8,000 for 6 months which totals up to Rs. 48,000. So at the end of six months you pay Rs. 3,000 more for what you got.

Are they genuine?

It is an irrefutable fact that the demand for these schemes is highly felt during the festive season. Market experts believe that there is a marked spurt in sales of consumer durables due to these zero percent schemes. The consumers wouldn’t mind opting for these schemes as it is a fact that paying by credit cards is comparatively expensive than purchasing through these schemes. Also, these schemes have minimal paper work, and some friendly eligibility criteria. However, it takes some understanding of the basics to find out if they are genuine or not!

How to decide if the scheme is actually zero percent?

It is always better to ask some basic questions to find out if the zero percent schemes are actually zero percent! Find out if you are eligible for any discount if you pay the full amount and if there are any transaction charges for the finance scheme and if the answer is no for both the questions then you might consider yourself lucky that the zero percent schemes is actually zero percent.

Are there any  zero percent schemes at all?

Well there are schemes that could fall in the category of being  zero percent but these are available in a different form! There are some credit cards where if you spend more than Rs. 5000 with it,  might allow you to pay the amount in three EMIs without any interest. However, this would still come with a processing fee of 3-5%.  Unfortunately this is the closest you could get to a true zero per cent scheme!

courtesy : Times of India

All about bank savings a/c interest rates!

Every individual has a Savings Bank account, but pays little attention to the interest earned on the balance in this account. Some people may not even know that the balance they maintain in their savings bank accounts earn an interest. In the past, before RBI had deregulated the savings bank interest rate regime, all banks were offering the same interest rate, which was 4% per annum. When RBI brought about changes in 2011, banks became free to decide the interest rate they wanted to pay on their savings bank accounts, depending on their liquidity and profitability preferences.

How is savings bank interest rates calculated?

Previously, the interest rate of 4% per annum was applied against the lowest balance available in the account between the 10^th and the final day of the month. This was seen as a very unfriendly method of calculation, as the depositor did not receive full benefits of the amount he maintains in his account. From April 2010 onwards, this changed and the savings bank interest is now calculated based on the daily balance method. This means that you will earn interest based on the closing balance you maintain every day, giving you the maximum benefits. For example, let’s say that your bank pays you an interest rate of 5% on your savings bank account. You have the following transactions during the month:

1^st of the month: Balance in the account is Rs. 3 lakhs

21^st of the month: Withdraw Rs. 1 lakh à Balance in the account is Rs. 2 lakhs

25^th of the month: Deposit Rs. 2 lakhs à Balance in the account is Rs. 4 lakhs

31^st of the month: Balance in the account is Rs. 4 lakhs

Your savings bank interest amount will be calculated at 5% on Rs. 3 lakhs for 20 days, Rs. 2 lakhs for 4 days, and Rs. 4 lakhs for 7 days, instead of the earlier method wherein the interest is calculated on the minimum balance of Rs. 2 lakhs.  Thus, you stand to earn more in the present times than what you might have earned in the past.

What has the de-regulated Savings Bank interest rate regime resulted in?De-regulating savings bank interest rates have definitely helped the customer to earn more interest, as competition for low cost savings bank accounts has led some banks to increase the interest rate offered. However, on the ground level, it is seen that not many banks have actually increased their rates beyond the 4% mark. For deposits below Rs. 1 lakh, IndusInd Bank, Kotak Mahindra Bank and Yes Bank offer higher rates at 5.5%, 5.5% and 6% per annum respectively, while for deposits above Rs. 1 lakh, these banks offer 6%, 6% and 7% per annum respectively in that order. However, majority of the banks, including the big banks like SBI, ICICI Bank and HDFC Bank have retained the savings bank rates at 4% per annum. This shows that savings bank interest rate may not be the sole determining factor of which bank you must hold your savings account with; other reasons like quality of service, familiarity with the bank, user-friendly interfaces etc. also play an important role. In the case of HDFC Bank, their low cost deposits as a proportion to total deposits are very high at 45%, giving it less incentive to offer high interest rates.

The increase in rates on Savings Bank accounts also results in higher interest rates on short term deposits offered by the banks. An increase in deposit rates will lead to a contraction in the net interest margins of the banks. As a result, to maintain margins, such banks will increase their lending rates, leading to costlier loans. Although an increase in lending rates is a factor of many conditions, increase in the interest of low cost deposits is an important factor.

The high rates on Savings Bank accounts quoted by a few banks can go down if the rates on fixed deposits also go down and if the general interest rate scenario is soft. As the threat of inflation continues and RBI has still not shown signs of reducing rates, the current scenario is expected to continue for some time.

Taxation of Savings Bank Interest rates:

Unlike interest on fixed deposits, interest earned on savings bank accounts is not subject to Tax Deduction at Source. However, this does not mean the interest earned on Savings accounts is completely tax free. It is exempt up to Rs. 10,000 in a year, and if the interest you earn from Savings accounts crosses this threshold, it becomes subject to tax.

Things to look out for before you shift your Savings Bank accounts based on the interest rate:

As mentioned earlier, only a few banks offer high interest rates. However, you need to consider a few factors before you jump to shift your account. Ascertain the minimum balance to be maintained and the account closing fees. Sometimes minimum balance can be waived off if a fixed deposit is opened with the bank. Also evaluate the service charges and various ancillary fees. After all, your Savings account should offer you a host of benefits, rather than simply earning you interest.

courtesy : http://www.bankbazaar.com

Caution points while taking a home loan!

Despite the growing popularity of home loans as the most convenient and financially smart way to get a dream house for your family there are many aspects which most of the borrowers never discuss with their bankers while taking the loan. Even the bankers do not disclose several hidden elements of the loan in fear of loosing customers. In the recent past the eligibility criteria has been relaxed to a great extent and the application process has been simplified to ensure more and more people are able to take advantage of the situation and aid boost the construction sector. Here are some of lesser known aspects that merit attention of the home loan applicant before signing the agreement.

The Amount: This is the biggest consideration that a prospective borrower must analyze for himself with great care. While the banker may be willing to give a higher amount considering the net worth of the property being purchased the borrower must make the calculation for himself so as to avoid landing up in repayment difficulties at a subsequent stage. Though banks will permit the EMI to be as high as 40% of the net monthly income after standard deductions it is prudent to keep the EMI below 25% of the net monthly income in order to cater for other avenues of investment and unforeseen circumstances.

Future Plans: there are many people who opt for a higher loan amount keeping in mind the increase in pay that they expect over the forthcoming years. However it must be understood that a home loan is a long term commitment for about two decades during which along with the income the expense and financial commitments will also grow substantially leaving the margin of money for home loan repayment at its present level. Additionally there is no guarantee of the pay hikes while the EMI amount is fixed the moment the loan is availed.

Interest Rate Changes: the bankers will never explain to the customer that even the fixed rate of interest is not completely fixed. There may be situations where this rate will be increased depending on the base rate fixed by the RBI which can result in substantial increase in the EMI which the borrower has to cater for while deciding the home loan amount. Failing to cater for such increases in the Emi midway through the repayment tenure may lead to severe financial crunch that may even result in defaulting on the loan servicing.

Thus planning right for the future without unnecessarily borrowing a bigger amount on offer for a home loan is a smart way of deciding the amount. The amount should always be such that one can comfortably pay the EMIs without having to cut down too much on the monthly family budget. 

How to increase your home loan eligibility!

While looking for the right home loan to buy a dream house one may come across a situation when the total amount that one is eligible for is insufficient. It is such situations that one needs to work out ways and means to increase the total eligible amount in order to be able to acquire the right home that one desires. There are several means which if combined can have a significant effect on this total eligible amount for home loans. With careful research and diligent planning one can easily increase his home loan eligibility.

§ Longer Tenure: The eligibility is calculated on the basis of repayment capacity of the applicant on a monthly basis. By increasing the tenure the EMI per Lakh of loan reduces and hence the applicant can now borrow more number of Lakhs with the same monthly repayment capacity. However increasing the tenure implies that one will ultimately end up repaying more as interest will be levied on a longer duration.

§ Clear Other Outstanding loans: Other outstanding loan liabilities of an individual drastically reduce his loan eligibility as the EMIs being paid towards those loans are deducted from the monthly repayment capacity. Thus repaying these loans from other sources will greatly move up the total amount for home loan. However this is only possible if the outstanding amount is within the reach of the individual. Up to 15 – 18 remaining EMIs is considered repayable under normal circumstances.

§ Combining Incomes: When it is apparent that the income of the individual is inadequate to get him a loan that he requires to buy a house then it is advisable to combine the incomes of other family members which will have a positive impact on his repayment capacity. In such cases the acceptable combining of incomes income include that of spouse, father, mother or children. The net increase in eligible amount can be many folds in such scenarios.

§ Opt for Step Up Loan: These are loan products that take into account the increase in incomes of individual over the period of loan repayment. This kind of a home loan has lower EMI in the initial stages which is increased in a step wise manner as the income of the burrower increases with time. Thus the total amount eligible is now calculated on the basis of a higher income that the current earnings which can increase the amount substantially. This a smart move for young professional who want to invest in properties right from the beginning of their earning career.

§ Include all perks: While applying one can include the various perks that the employer provides in addition to the basic salary as net income. This will have a positive impact on the repayment capacity thus increasing the eligible amount for home loan. These perks may include performance linked bonus or additional pay for overtime etc.

However when attempts to enhance the total amount that he is eligible for in taking a home loan there has to be a practical consideration of the actual repayment capacity. Availing a bigger loan to buy an expensive home may end up in creating tight financial conditions for individuals who hike up their eligibility falsely.

Home loan Document Checklist!

Home loans are easy to come by these days. So, don’t fret over it. Focus on the documents you need to furnish while applying for a home loan.

Documents required:

We give you a standard list of documents your bank will ask for. Besides this you need to submit details of the property or home you are obtaining the loan for.

Tip: Check with your Bank or Non-Banking Financial Companies to figure out which of the following documents you need to submit, as the requirements differ from bank to bank.

1. Identity proof
– Driving license
– Voters ID
– Passport
– PAN card
– Ration card
– Employee ID
– Bank passbook
– Letter from a recognized public authority or public servant verifying your photograph
– Confirmation letter from your employer or another bank verifying your photograph

2. Address proof
– Driving license
– Voters ID
– Passport
– Ration card
– Bank passbook or Bank account statement
– LIC policy/ receipt
– Utility bill – telephone, electricity, water, gas (less than 2 months old)
– Letter from any recognized public authority verifying residence address of the customer
– Letter from your employer

3. Age proof
– Driving license
– Passport
– Bank passbook
– PAN card
– Birth certificate
– 10th standard mark sheet
4.Income proof
Income proof and property proof vary for a salaried individual and a self-employed individual.

a. Self Employed/Businessmen
– A brief introduction of Business/Profession
– Balance Sheet, profit and loss account statement of income, proof of income tax returns for the last 3 years certified by a CA
– Photographs
– Receipts of advance tax payments if any made
– A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
– Registration Certificate for deduction of Profession Tax
– Certificate of Practice
– Receipts of Bank loans
– Proof of investments (FD Certificates, Shares, any other fixed asset)

b. Salaried individuals
– Income Proof (any one of the following):
Latest Pay slip
Form 16
Increment/Promotion letters
Appointment letter
Pay slip (Last 2 months) with salary account bank statement
Certified letter from Employer
IT returns ( for three years )
– Investment proof (FD certificates, shares, any fixed asset etc.)
– Documents supporting the financial background of the borrower (liabilities and assets if any)
– Photographs

5. Property documents

If a flat is purchased from a builder, you need the following property documents:
– Original copy of your agreement with the builder
– 7/12 extract – This is issued by the concerned land authorities giving details such as the survey numbers, area, date from which current owner is registered as owner etc.
– Property register card, which is obtained from the City Survey Department
– N.A. permission for the land from the collector, if its agricultural – If the land is agricultural and is being utilized for residential/ commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and a Non-Agriculture Order has to be obtained from the Collector of the district where the property is located.
– Search Report and Title Certificate – A search report and title certificate can be obtained from an advocate who will conduct a survey of the title of the property by visiting the office of registrar. A legal opinion can avoid any legal hassles later and is mandatory to be filed with the agreement for sale.
– Development agreement between the owner of land and the builder
– Copy of order under the Urban land Ceiling Act
– Copy of building plans sanctioned by the competent authority
– Commencement certificate granted by the Corporation
– Building completion certificate
– Latest receipts for taxes paid towards the land or property or flat to be purchased
– Partnership deed or memorandum of association of the builders firm

If a flat is purchased from a Cooperative Society, you need the following property documents
– Original share certificate of the Society
– Allotment letter from the Society in your name
– Copy of the lease deed, if executed
– Certificate of the registration of the society
– Copy of the bye laws of the Society
– No objection certificate from the Society
– 7/12 extract or property register card in the Society’s name
– Copy of N.A permission for the land from the collector
– Search Report and Title Certificate
– Copy of order under the Urban Land Ceiling Act
– Copy of the building plans sanctioned by a competent authority
– Commencement certificate granted by Corporation
– The latest receipts of taxes paid for the property
– Original Agreement to assign / Deed of assignment

If you are constructing on your own land, then you will need the following property documents.
– Original sale deed of land and extract of Index II
– 7/12 extract or property register card in your name
– Copy of N.A. permission for land from the collector
– Search and title report
– Copy of tax paid under Urban Land Ceiling Act (obtained from Commissionerate of Urban Land Ceiling and Urban Land Tax)
– Copy of the building plans sanctioned by a competent authority
– Building permission granted by the Corporation
– The latest receipts of taxes paid for your land
– Estimate of the cost of construction certified by the architect