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Reward points are allocated depending on the amount spent on the credit card

REWARD points are an important component of the use of the credit card and it is important for the individual to ensure that they are tackling this in a proper manner. One of the ways to look at the entire situation is to see the manner in which the card points actually arise and then go all the way to the redemption of the points.

This will ensure that the maximum benefit actually comes out at the end of the day for the credit card user who will be able to end up with something extra from their credit card. Here is a look at the issue and the manner in which this can be handled.

Reward points:

 

Whenever an individual uses a credit card, the card-issuing bank seeks to offer some extra benefits as an incentive to use the card more.

One such route is reward points. It is significant to note that these can arise for both credit as well as debit cards, but here we will focus only on the credit card aspect. The nature of the rise of the reward points is such that these are allocated depending upon the amount spent on the credit card, so there is a level that is fixed for each card. This is something that everyone has to check before they end up making a decision related to credit cards based on the point aspect.

This could be something like two points for every Rs 100 spent, or three points for every Rs 200 spent, and so on. The simple logic is that if number of points that are allocated are higher for usage, then this is better than a situation where a lower number of points are available.

Accumulation:

 

The next part of the process comes with the accumulation of the points over a period of time so that these can be used for the purpose of different spends in the future. There has to be a clear understanding of what is happening as far as the accumulation of the points is concerned.

There are various choices that are present with different credit cards and this aspect has to be understood carefully. For example, in some credit cards the points would get automatically converted to some air miles or some such area and hence, in this case, there is no accumulation that occurs due to the fact that these are already being dealt with.

In others they will accumulate and can be redeemed against gifts. Redemption: The final act comes with the redemption of these points. Depending upon the nature of the credit card, bank will have a catalogue that will list out the number of points that will be required for the purpose of redemption of the points against some specific gift.

There is a list of such items that will be present and the individual can choose from this list. One way in which they can get the benefit of a larger choice of end items is by looking at gift vouchers from leading stores across the country.

 

These are also available and if the points are redeemed against such vouchers then there is an unlimited range to choose from for the individual.

The exact nature of the working of such a situation in terms of the points required for this would also have to be seen against the value that is actually received from the entire effort. This would ensure that there is a proper decision being made at the end of the day.

The redemption effort should focus on the fact that the individual should get the maximum out of the redemption.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief ‘96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online

Invest In Tax Saving Mutual Funds Online

Download Tax Saving Mutual Fund Application Forms

Buy Gold Mutual Funds

Call 0 94 8300 8300 (India)

 

ULIPs vs Mutual Funds

You must be knowing that life is full of alternatives and choices. When you visit that mobile store to make your new smart phone purchase the salesman brings you two smart phones strikingly similar in all features except in the color asking you to make a choice. Many a time you find this choice to be one of the hardest ones you have ever made. I would like to bring to your attention a famous quote ”Life Is Full Of Hard Choices. All You Can Do Is Choose A Path And Walk Ahead “. You must have heard about the ”Opportunity Cost Of Capital “. This is a concept of alternative investment decisions where you have to choose between several different set of alternatives and make the best possible investment decision among the choices available to further your economic goals.

 

Find This Difficult? Do Not Fret.

 

For further information on the topic you can CONTACT Prajna Capital on 94 8300 8300 by leaving a missed call.

 

What Is A Unit Linked Insurance Plan?

You must have heard of the word twin benefits or the two in one option. A unit linked insurance plan is basically an insurance policy bundled with an investment component. It incorporates the benefits of both insurance as well as investment. Based on the investors risk appetite, premium paying capacity, age and financial goals he can fix the portfolio of that unit linked insurance policy.

What Is A Mutual Fund?

You must have heard of the phrase ”Unity Is Strength“. Similarly a mutual fund is a collective pool of investment where the underlying instrument is a package of stocks. You know that the price of shares has skyrocketed and it might not be possible for a single investor to obtain significant quantities of such pricey stocks. By investing in a mutual fund you are actually purchasing fractions of shares and you can own shares of several large companies by making small investments. These mutual funds might invest in debt, equity, shares of a particular sector or in money market instruments. Depending upon your risk appetite you can choose your mutual fund portfolio.

Comparing Chalk And Cheese

You must have heard of the famous phrase comparing chalk and cheese. While both mutual funds and unit linked insurance plans have their pros and cons I will make an attempt to compare the two of them to arrive at some sort of conclusion.

What Are the Costs Involved in a Unit Linked Insurance Plan vs A Mutual Fund

You must be knowing that the unit linked insurance plan has a premium allocation charge which might be as high as 8% of the premiums paid. These policies charge mortality cover charges and fund management charges which even though are just 1.35% they are levied on the accumulated fund value and not on the premium. In addition we have policy and administration charges as well as surrender charges which make charges on a unit linked insurance plan quite an expensive affair. Compare this with a mutual fund and you find the entry load has been scrapped .Moreover the mutual fund also has the direct plan option which takes the intermediaries out of the game. As far as cost comparison goes mutual funds win hands down against the unit linked insurance plan.

Let us consider a Unit Linked Insurance plan scheme of a famous insurance agency in India in which one can fix ones premium in the range from INR 25000-INR 100000.Mr Uday a 30 year old male has taken up this policy for a period of 10 years paying a premium of INR 50000 per annum. The sum assured is INR 10 Lakhs. The premium allocation charge is 3% of the annual premium of the first year with no charge thereafter. This translates to a cost of INR 1500.This policy charges an administration charge of 6% for the first 5 years of the policy. This translates to INR 15000 for a period of 5 years. The administration charges taper to 3% for the remaining 5 years This translates to INR 7500 for the next 5 years. If you add up the costs you will find that out of a premium paid of 5 Lakhs the charges are nearly INR 25000.The fund management charges are 1.35% of the fund value. This translates to quite a high cost when compared to costs involved in a mutual fund.

Which One Is Better Unit Linked Insurance Plan (ULIP) Or A Mutual Fund

Let us consider Mr Suresh a male 30 years of age has taken a ULIP Plan and pays a premium of INR 1 Lakh per annum for a period of 15 years .This ULIP Plan has various charges that are deducted from the premium such as Premium Allocation Charges of 3% in the first year which is nil in the subsequent years. The Policy administration charges are INR 5000 for the first 5 years and INR 3000 for the subsequent 10 years. The Fund Management charges are 1.35% on fund value after charging policy administration charges and premium allocation charges.The mortality charges are INR 2500 per annum with a decrement of INR 100 per year for 5 years. It reduces to nil in the subsequent years. The sum assured is INR 15 Lakhs.

Table Showing The Calculations of Maturity Benefits Of A Unit Linked Insurance Plan

Let us consider Mr Ritesh a male 30 years of age invests INR 1 Lakh per annum in an Equity Mutual fund for a period of 15 years. He takes a term insurance policy with a sum assured of 15 Lakhs paying a yearly premium of INR 2500.This is necessary as mutual funds do not have an insurance component. The charges in the mutual fund are 2% of the Opening Balance. The rate of return on the mutual fund is 10% compounded annually. Growth Rate minus the mortality premium and charges gives us the closing balance. We then add the 1 Lakh investment amount to get the opening balance.

Table Showing The Calculations Of Returns In A Mutual Fund :

Findings Of This Study :

·         Unit Linked Insurance Plans have high initial charges and hidden costs. In the case of mutual funds entry load has been scrapped and distribution and commission charges are removed in the case of direct plan mutual funds. This translates to a huge savings in costs initially and mutual funds with a term insurance policy out beat the unit linked insurance plan. Here we notice as shown in the table that mutual fund returns are higher than Unit Linked Insurance Plan for the first 5 years.

·         We notice that the returns from Unit Linked Insurance Plan are INR 30 Lakhs as shown in the table. This is greater than the combo plan of term insurance and mutual funds as shown in the second table where the returns after 15 years are 28 lakhs. Over longer periods of time the Unit Linked Insurance Plan beats the combo of the mutual fund and term insurance policy .So Why Does This Happen?. The secret is in the loyalty bonus. These Unit Linked Insurance Plans declare periodically a loyalty bonus which helps it to beat the performance of the mutual fund combined with term insurance policy.

·         Where Do The Unit Linked Insurance Plans Get Funds To Give You That Loyalty Bonus?.These products are very complex and include hidden charges not noticeable to the common man. The secret lies in the Fund Management Charge (Refer Table FMC) which is charged on the fund value. If the fund performs well the charges are also suitably increased. From these funds loyalty bonus is paid.

·         Tax Deductions are available for Unit Linked Insurance Plan under Section 80 C of the Income Tax Act up to a sum of INR 1 Lakh.. The maturity benefits are tax free in the hands of the investor under Section 10 10(d) of the Income Tax Act. These policies are tax deductible under Section 80CCC up to a sum of INR 10000.The amounts invested in an annuity scheme will be taxed if the total amount from the annuity is more than INR 2.5 Lakhs a year. Mutual funds baring ELSS have no tax benefits. However long term capital gains are nil.

I would like to end this article with the famous quote ” In Life Change And Choice Is A Constant “. Whenever alternatives are available you will have to make a choice .In investment these choices translate into huge profits or losses. You hold the key to your financial future in your own hands. So make the right choices and enjoy the fruits of your labor.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief ‘96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online

Invest In Tax Saving Mutual Funds Online

Download Tax Saving Mutual Fund Application Forms

Buy Gold Mutual Funds

Call 0 94 8300 8300 (India)

 

 

You must be knowing that one of the main reasons why people are not so keen on taking up a term insurance plan is the lack of a survival benefit in this plan. You survive a term plan you get nothing. This prompted the Insurance Companies to come up with a new kind of policy called the Endowment policy. This plan incorporates both a savings component and a protection element. In case of your unfortunate demise the sum assured as well as the accumulated bonus is paid to your nominee. In case you survive the tenure of the policy the sum assured as well as the accumulated bonus is paid to you .This kind of policy has a higher premium than the term insurance policy as there is a savings component .You must be knowing of a special plan called the Unit Endowment Plan. Here part of your premium paid is allocated towards the insurance component and the rest in invested in the units of the Unit Linked Endowment Policy depending upon the Net Asset Value of the policy. These units invest in money market instruments, Government Bonds and Equity Shares in the requisite percentages as specified by you and also taking note of the premium. The profit obtained due to appreciation of these units is used to pay your bonus. The age of entry in these kind of policies is around 7 years with the maximum permissible age allowed to enter this policy being 60 Years. These could be Single premium or Regular Premium based Endowment policies. The premiums range from INR 20000-100000 per annum for these policies depending on the age as well as Sum Assured of the policyholder. The maximum sum assured can be 25-30 times the annualised premium for age of entry up to 45 Years. These policies also incorporate a Critical Illness Rider where the policy pays out the sum assured as well as the bonus amounts when the policyholder suffers from a serious ailment. An extra premium might be charged for the Critical Illness Rider.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief ‘96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online