Finance Financial Advice

Am I eligible for subsidy under PM Awas Yojana?

What is Pradhan Mantri Awas Yojana?

The Government of India initiated the Pradhan Mantri Awas Yojana (URBAN)-Housing for All initiative with the goal of increasing homeownership. The goal was to achieve “Housing for All” by 2022.

PRADHAN MANTRI AWAS YOJANA

As a part of this objective, the government introduces a subsidy plan known as the Credit Linked Subsidy Scheme (CLSS). This is to provide interest subsidies on loans taken out for the purchase, construction, expansion, or improvement of a home.

Given the predicted growth of urbanization and the resulting housing demands in India. The PMAY scheme caters to the Economically Weaker Section (EWS)/Lower Income Group (LIG) and Middle Income Groups (MIG) of the community.

What is a CLSS?

The PMAY Scheme’s Credit Linked Subsidy Scheme (CLSS) allows the Economically Weaker Section (EWS), Low Income Group (LIG), and Medium Income Group (MIG) to get home loans with lower EMIs thanks to an interest subsidy. It will credit the interest subsidy to the beneficiary in advance of the principal amount. Thus, reducing the effective home loan amount and EMI.

The Credit Linked Subsidy Scheme (CLSS) under PMAY makes house loans more affordable. It provides a subsidy on the interest component, which reduces the customer’s expense on the loan. The amount of the subsidy under the scheme is mostly a product of the customer’s income category. As well as the size of the property they wish to finance.

PMAY Features/Benefits and Objectives

BENEFITS OF PMAY awas yojana

The PMAY scheme has the following main features or benefits:

  • Subsidy Benefit: The Pradhan Mantri Awas Yojana subsidy, which offers up to Rs. 2.67 lakhs, is perhaps one of the most significant benefits of the PMAY scheme. Individuals who meet the PMAY qualifying requirements can benefit from partner-able cheap housing, subsidized individual house building or improvement, and in-situ slum restoration.
  • Extended Loan Tenure: PMAY provides its recipients with a loan that might last up to 20 years. As a result, beneficiaries will have lower monthly payments.
  • No Loan Limits: The PMAY scheme has no set restriction on the amount of money that someone wants to borrow. As a result, recipients can take out a housing loan to meet their needs; as long as they can repay it at the end of the period.
  • Option of Additional Loan: Beneficiaries who require home loans in addition to those provided under PMAY may apply for extra loans. However, there will be no subsidy for these loans, and the lender will charge a standard processing fee.
  • Benefits for Women and Minorities: Female homeownership or co-ownership of the house is a necessary clause in the EWS and LIG categories. Moreover it is also an optional clause in the MIG I and MIG II categories, according to the PMAY scheme. In addition, there are provisions for salaried women, widows, transgender people, the disabled, and senior residents. For example, if an elderly citizen applies under this program, they will be guaranteed ground-floor housing.
  • Eco-Friendly Construction: The construction of PMAY residences emphasise the use of environmentally friendly building methods and materials. This will reduce pollutants and ensure minimal damage to the environment in and around the construction site.

PMPMAY CLSS Benefits as per Income Categories

The benefits as per the income categories are as follows:

01

CLSS EWS/LIG Scheme under PMAY:

Those in the LIG and EWS groups have yearly household incomes of more than 3 lakh but less than 6 lakh. Beneficiaries from the Economically Weaker Section (EWS) and the Lower Income Group (LIG) are eligible for a maximum interest subsidy of 6.5 percent; if the unit being built or purchased does not exceed the carpet area requirement of 60 square meters (approximately 645.83 square feet). The interest subsidy is only available up to a loan amount of Rs. 6 lakh.
In 2017, the scheme got updated to include Middle Income Groups (MIG).
02

CLSS MIG 1 Scheme under PMAY:

The MIG 1 category includes families with a household income of more than Rs. 6 lakh but less than Rs. 12 lakh. The MIG-1 category's recipients are entitled to a maximum interest subsidy of 4%; if the unit being built or purchased does not exceed the carpet area requirement of 160 square meters (approximately 1,722.23 square feet). However, this subsidy has a maximum limit on a loan amount which is Rs. 9 lakh over a maximum loan term of 20 years.
03

CLSS MIG 2 Scheme under PMAY:

A household income of more than 12 lakh but less than 18 lakh falls into the MIG 2 category. The MIG-2 category's beneficiaries are entitled to a maximum interest subsidy of 3%; if the unit being built or purchased does not exceed the carpet area requirement of 200 square meters (approximately 2,152.78 square feet). However, the subsidy has a maximum limit on the loan amount which is 12 lakh over a maximum loan term of 20 years.

Who are Eligible for PMAY?

awas yojana

To be eligible for the Pradhan Mantri Awas Yojana, you must meet the following requirements:

  • Steps to Register under PMAY
  • Income: The beneficiary’s annual household income must meet the criteria set forth for the various categories. If you fall into one of the four groups – Economically Weaker Section or EWS, Lower Income Group or LIG, Middle Income Group or MIG I, or Middle Income Group-II or MIG II – you are eligible for the PMAY subsidy scheme.
  • No Prior Ownership: No member of the beneficiary’s family may not own a pucca house in any region of the country.
  • No Central Assistance: The beneficiary or any other member of the beneficiary’s family must not have received a CLSS subsidy.
  • Mandatory Female Ownership or Co-Ownership: At least one female member of the borrower’s family must be named as the property’s owner or co-owner (applicable only to the EWS and LIG categories).
  • Carpet Area: The carpet area of the property must fall within the limits set out for the various categories.

What are the Documents necessary for PMAY?

In addition to the standard loan application documents, the Pradhan Mantri Awas Yojana subsidy requires the submission of the following extra documents:

  • The beneficiary’s family must sign a declaration cum affidavit stating that they do not own a pucca house.
  • Salary slips, self-attested income certificate, annual family income.
  • Construction Agreement with the developer or builder, if applicable.
  • Certificate of Valuation for the property you wish to purchase and the receipt of a down payment on the home you want to buy.
  • Aadhaar Card, PAN Card, Driver’s License, or Voters’ ID are all acceptable forms of identification.
  • A copy of Address Proof
  • An NOC from a Competent Authority or any Housing Society

Steps to Register under PMAY

Follow the steps below to register for the PMAY program:

  1. Go to the PMAY official website.
  2. Select the ‘Benefits Under Other 3 Components’ option from the drop-down menu by selecting ‘Citizen Assessment’.
  3. Type in your Aadhar number and hit the ‘Submit’ button.
  4. If your Aadhar details are correct, following page will load. Now fill up the information such as your name, income, address, phone number, religion, caste, and so on.
  5. When you’ve finished filling out all of the fields, type the Captcha Code into the box at the bottom of the page and click “Submit.”

Note: You can check and update your details later, with the help of your Application and Aadhar number.

For more such updates, keep watching this space!

Finance Financial Advice

Everything you need to know about MUDRA Loan

What is Mudra Loan?

Mudra Yojana is a government-sponsored loan scheme that allows individuals and MSMEs to borrow up to Rs. 10 lakh to establish a new business or expand an existing one. Moreover, the Mudra loans are offered without submitting any collateral or security.

What is MUDRA Yojana?

The Micro Units Development and Refinance Agency (MUDRA) Loan Scheme, also known as the Pradhan Mantri Mudra Yojana, is a government of India initiative. It provides loans to individuals and MSMEs from banks and NBFCs. MUDRA Yojana is available in three lending schemes: Shishu, Kishor, and Tarun.

Mudra Loan

Financial institutions offer collateral/security-free loans under the Mudra scheme. Moreover, the payback terms ranging from 12 months to 5 years as well as flexible EMIs option. However, only Individuals, MSMEs, enterprises, or businesses engaged in manufacturing, trading, or services sectors can apply for the Mudra scheme.

Features of Mudra Loan

  • Interest Rate: It varies from bank to bank and the evaluation is according to the business requirements.
  • Mudra Scheme Types: Shishu, Kishor, and Tarun.
  • Minimum Loan Amunt: There is no minimum limit.
  • Maximum Loan Amount: Up to Rs. 10 lakh in maximum loan amount.
  • Collateral/Security: Banks and NBFCs do not require it.
  • Processing Fees: No processing charges.
  • Repayment Tenure: From 12 months to 5 years.

Types of Loan Schemes under MUDRA Yojana

Loans under the Pradhan Mantri Loan Yojana (PMMY) are categorized into three schemes: Shishu, Kishor, and Tarun. The loan amount available under each lending scheme is listed below:

  • SHISHU Loan: The Mudra Shishu Loan scheme offers loans up to Rs. 50,000. This scheme is for start-ups as well as new businesses.
  • KISHOR Loan: Loans ranging from Rs. 50,001 to Rs. 5,00,000 are available under the Kishor Loan Scheme. It is for the purchase of equipment/machinery, raw materials, as well as business expansion for existing businesses.
  • TARUN Loan: The Tarun Loan Scheme provides loans ranging from Rs. 500,001 to Rs. 10,00,000. This scheme is for established industries and organizations.

Advantages of Mudra Loan

  • Individuals, retailers, shopkeepers, traders, vendors, and MSMEs in the manufacturing, trading, and service sectors are the primary recipients of Mudra loans.
  • Mudra program is working under the Government of India’s Credit Guarantee Schemes.
  • Term loans, working capital loans, as well as overdraft facilities can all be used with the borrowed funds.
  • Mudra loans are available to all non-farm enterprises, i.e. small or micro businesses that generate money.
  • People belonging to the SC/ST category can also get Mudra loans with lower interest rates.
  • Mudra card is a form of debit card given to borrowers that can be used to withdraw loan funds according to company needs. Hence borrowers can withdraw the total available loan money in form of installments via Mudra card.

Purpose of Mudra Scheme under PMMY

The following is a list of businesses that are eligible for the Mudra scheme and their income-generating activities:

  • Commercial Vehicles: Mudra loan for machinery and equipment can be used to purchase commercial transport vehicles. Including tractors, auto-rickshaws, taxis, trollies, tillers, goods transport vehicles, 3-wheelers, e-rickshaws, and so on.
  • Service Sector Activities: Starting businesses in the service sector, such as salons, gyms, tailoring shops, medical stores, repair shops, etc.
  • Food and Textile Product Sector Activities: Various activities in the food and textile product sectors, such as papad, achaar, ice cream, biscuits, jam, jelly, and sweets production. As well as agriculture produce preservation at the rural level.
  • Business activities for Traders and Shopkeepers: Business activities, such as setting up stores, service firms, trading and business activities, and non-farm income generating activities are all examples of Business activities for Traders and Shopkeepers.
  • Equipment Finance Scheme for Micro Units: Maximum loan of Rs. 10 lakh
  • Agri-allied Activities: Activities related to businesses in agri-clinics and agri-business centres, food & agro-processing units, poultry farming, pisciculture, beekeeping, sorting, livestock-rearing, etc.

How to Apply for Mudra Loan?

how to apply for mudra loan

You can download the application form at mudra.org.in and fill in all of the essential information. However, it’s possible that different banks have slightly different application methods. Thus, it is advisable for you to visit the nearest branch of the bank where you wish to receive the Mudra loan and submit the correctly filled application form along with the necessary bank paperwork.

Documents required for Mudra Loan

  • Application filled with all the required information and passport-sized photos
  • Applicant and Co-applicants’ KYC documents: Passport, voter identification card, Aadhar card, driver’s license, PAN card, as well as utility bills (water/electricity bills)
  • Proof of special categories, such as SC, ST, OBC, Minority, etc (if applicable)
  • The bank statement for the previous six months
  • Documents for business address and tenure proof, if necessary
  • Any other paperwork that the bank requires

Note: In the case of Shishu, the Mudra loan application form must be completed and filed separately, whereas the Kishor and Tarun loan applications are comparable.

What is Mudra Loan for Women Entrepreneur?

mudra loan- women empowerment.

Mudra Yojana, as part of the PMMY, encourages women entrepreneurs. Moreover, the banks and the Micro Finance Institutions (MFIs) bolster this scheme by providing credit facilities for women borrowers at lower or concessional interest rates. Mudra currently offers female businesses a 25 basis point (BPS) discount on financing rates offered by NBFCs and MFIs. The maximum credit amount available to women entrepreneurs under the Mudra Yojana is Rs. 10 lakh. Women’s Mudra loan eligibility is the same as it is for individuals and businesses.

For more such updates, keep watching this space!

Finance Financial Advice

Am I eligible for MSME funding? Check out all the requirements here!

It is a dream for many people to become an entrepreneur and run a successful business. To run any business, we need capital. While many people initially invest their own money in their entrepreneurial journey. People also apply for loans to fund their businesses. The government of India is trying to boost the Indian Entrepreneurial landscape through various schemes and policies. One such product to help the entrepreneurs of emerging India is MSME loans.

What is MSME?

MSME Loans, also known as Micro, Small, and Medium Enterprise Loans, are forms of loans available to business owners and entrepreneurs. This form of loan provides you with working capital that you can utilize for a variety of things, including buying new goods, purchasing new equipment, paying your employees’ salaries, and expanding your firm. In India, a variety of lenders provide MSME loans to their consumers. Interest rates differ from one bank to the next.

Micro, Small, and Medium Enterprises (MSME) can be classified into two parts:

  1. Manufacturing enterprises participating in the manufacture or production of items for any industry. Or a company in the process of adding value to a finished product with a distinct name, character, or use.
  2. Service enterprises engaged in providing or performing services.

According to the revised classification w.e.f, July 1, 2020; MSMEs are now defined on the basis of Composite Criteria of “Investment in Plant & Machinery / Equipment and Annual Turnover”.

MSME Classification (Manufacturing Enterprises and Enterprises Rendering Services)

classification of MSME
01

Micro-Enterprise

Micro Enterprises are the firms with an annual turnover is not more than Rs. 5 Crore. Investment in Plant & Machinery or Equipment is not more than Rs. 1 Crore.
02

Small Enterprise

Small Enterprises have an annual turnover of not more than Rs. 10 Crore. Investment in Plant & Machinery or Equipment is not more than Rs. 50 Crore.
03

Medium Enterprise

Medium Enterprises have an annual turnover of not more than Rs. 50 Crore. Investment in Plant & Machinery or Equipment is not more than Rs. 250 Crore.

Why you should apply for a business loan?

Business loans can be utilized to start a new firm or stepping-up an existing one (expansion, diversification, modernization, technology up-gradation). These can be used for the following purposes:

  1. The purchase of a factory, as well as the acquisition of land and the construction of building spaces,
  2. Purchase of plant and machinery, such as laboratory and testing equipment, furnishings, and electrical fixtures
  3. Meeting working capital needs, such as raw materials, work-in-progress, and finished commodities, among others
  4. Trade Finance (Bill Discounting) – to pay creditors while waiting for the payment from debtors.
  5. Launch of a new product line, business expansion, warehouse requirements, marketing and advertising credit
  6. Additional monitoring support for any reason that qualifies.
Msme loans documentation requirement

MSME loans are available to Micro, Small, and Medium Enterprises (MSMEs) for the expansion of existing firms or the start-up of new businesses. Generally, MSME loans have interest rates that start at 7.65% per annum. The loan amount approved can be as low as Rs.50,000 and as high as a few crores. Moreover, the loan repayment period might be up to 15 years depending on the loan amount approved.

Eligibility Criteria for MSME loan

lender. The requirements will differ from one bank to another, and even depending on the sort of scheme available. However, the following are the general requirements you must meet:

  1. Types of business: Manufacturing Sector, and Service Sector

  2. Size of business (in terms of investment):

    • Manufacturing Sector: The size of the business in Manufacturing Sector has to be less than Rs.25 lakh for Micro enterprise; Rs.5 crore for Small enterprise; Rs.10 crore for Medium enterprise.
    • Service Sector: The size of the business in Service Sector has to be less than Rs.10 lakh for Micro enterprise; Rs.2 crore for Small enterprise; Rs.5 crore for Medium enterprise.
Am I eligible for msme funding

What documentation are necessary to apply for an MSME loan?

The lender asks borrowers for legal documents necessary to analyze their eligibility for the loan. These documents may vary from one financer to another. However, these are the documents that are commonly required for MSME loan applications.

apply for business loan
  1. Identity Proof: PAN card, Aadhaar card, Voter’s ID, passport
  2. Residence Proof: Rental agreement, ration card, utility bills
  3. Proof of Business Address: Rental agreement, lease agreement, utility bills
  4. Proof of Income: P/L account and balance sheet copies of last 2 years
  5. Tax documents: IT returns, sales tax return, PAN card,
  6. Proof of securities provided: Photocopies of title deeds/lease deeds offered as securities
  7. Other documents: Projected balance sheet, project report, etc.

Note: The above list of documents is only informative. Applicants may be needed to submit additional documents depending on the lender’s requirements.

How to apply for MSME Loan?

There are two methods for submitting an MSME loan application. If the lender offers an online application, you can fill out the form with the relevant information and submit it through the website.

Alternatively, you can go to your local bank and ask for an application form. You can call beforehand to find out what documentation is required. For more such updates, keep watching this space!

Finance Financial Advice

Here are five smart ways to boost your home loan eligibility and approval chances.

Buying your own house is a very proud moment for everyone and it is something that almost everyone thrives for. To help this pursuit of ours, many finance organizations offers the home loan. However, a home loan is a very important financial decision and we must evaluate many home loans eligibility thoroughly while applying for a home loan.

To increase the odds of approval of your home loan application, you must look for several things. Eligibility for Loan applicants with insufficient income, low cibil scores, higher overall EMI obligations, etc has higher chances of home loan rejection.

While analyzing a loan application, lenders put several factors into consideration. The most important eligibility factors are; income, age, remaining working age, LTV ratio, property characteristics, and your existing loan repayment obligations. Failure in reaching the cut-off set by the lenders can lead to the rejection of your home loan application.

The lenders have the approval of RBI to finance up to 75 to 90 percent of a property’s market value through a home loan. The buyers have to cover the remaining proportion of the property’s cost from their own resources. The down payment or margin contribution is the proportion of the cost paid by the buyer’s own resources. There are certain home loan eligibility you need to have and we are going to discuss them all step by step.

Why a higher downpayment is better for your home loan?

Smart Ways to Increase Your Home Loan Eligibilty

Finance companies often ask for a minimum contribution from buyers as a down payment or margin amount of the property’s cost. However, paying a greater margin incurs many benefits and often makes more sense financially. Higher down payment means lower loan amount, which in turn results in smaller EMIs and lower interest costs.

Moreover, a higher down payment or margin contribution on a home loan by the buyer reduces the credit risks for the lender. Which in return, increases the likelihood of your home loan approval at a probably lower interest rate and thus improves eligibility. This will cut a large portion of your EMIs and thus more savings for you.

I know it makes a huge sense now to make a higher down payment on your home loan, but this can sabotage your financial goals as well. Always avoid compromising your emergency fund or investments earmarked for your crucial financial goals in making a higher down payment. Emergency funds help you in tackling your financial emergencies, compromising that may force you to take another loan. Diverting your investments can sabotage you from achieving your crucial financial goals.

Home loan

Why a higher downpayment is better for your home loan?

Loan applicants with insufficient income, low credit scores, higher overall EMI obligations, etc have very little chance of approval. Such borrowers can improve their home loan eligibility by adding a family member as their co-applicant(s). While choosing co-applicants one must give preference to those with stable income and good credit scores. Not only it boosts the chances of your loan approval, but it can also increase your eligibility for a bigger loan amount. In some cases, female co-applicants can additionally fetch you lower interest rates.

Why you should apply for longer repayment tenure?

reduce home loan emi

Choosing longer repayment tenure for your loan reduces your EMI amount and makes them more affordable. A lower EMI amount is more affordable, it lowers the risk of default and hence, increases the chance of approval. However, an unnecessary longer repayment tenure can increase the overall cost of your home loan. Thus you should always use the loan EMI calculator and determine an optimum loan tenure for your home loan. This optimum loan tenure gives adequate considerations to your repayment capacity and your contributions to your crucial financial goals. A borrower can reduce the interest cost of their loan by making prepayments whenever there are surplus funds available.

Home loan lenders prefer lending money to those having their total EMI obligations, including the EMI for the new home loan, within 50-60% of their monthly income. Home loan applicants exceeding this limit can boost their eligibility for home loan approval by applying for the longer repayment tenure.

Always compare home loan offers from multiple lenders

Different lenders offer different interest rates, processing fees, loan tenure, and other costs associated with a home loan. These differences are due to the differences in credit risk evaluation of a loan application by different lenders. Hence, it is wise to compare as many lenders as possible for your home loan before zeroing in on any specific lender.

Home loan lenders offer preferential rates or other terms & conditions to their existing customers. Thus, prospective home loan applicants should first approach those financial institutions with which they already have an existing consumer relationship.

Later, they should check online financial marketplaces for a better comparison of interest rates and other home loan features offered by other lenders. This allows buyers to determine the best home loan deal with the lowest interest rate, optimal loan tenure, and adequate loan amount.

Review your credit score before applying

Your credit score can fetch or drop the approval for your home loan or any loan. A credit score is one of the first filters used by lenders while evaluating a home loan application.

A good credit score is usually a score of 750 and above. This score can boost your loan eligibility and fetch lower interest rates from lenders. Hence, it is better if applicants review their credit scores before applying for home loans. This way, applicants with lower credit scores can apply adequate corrective measures to improve their credit scores.

Moreover, it is advisable to develop the habit of periodically reviewing one’s credit score, ideally at least once in three months. This will ensure sufficient time to use corrective measures for the improvement of the credit score and get any errors if present to be rectified at the earliest.

For more such updates, keep watching this space!

COVID-19 Daily News Finance

Finance Minister Nirmala Sitharaman Expands Scheme For Health and Tourism

Honorable Finance Minister Smt. Nirmala Sitharaman announces some Covid relief schemes for the health sector, especially for Covid affected areas. As we all know of the Covid challenges, last year also finance minister presented the package of 29 lakh crore under Atma Nirbhar Bharat scheme. Today also she presented funds for relief in Covid affected areas. She especially has put the focus now on the unreached towns and areas where Covid relief facilities were least. The motive is to expand the health sector facilities.

What is the announcement?

covid relief for health and tourism

There are about eight measures under the category of COVID relief. Four of which are absolutely new. There is one item related to health infrastructure. She explained that there are other eight items in addition to these items. They are related to growth in general, export and also related to employees and in this six are totally new items. There will be two divisions which include rupees 1.1 lakh crore guarantee. It is being given particularly for COVID affected sectors.

guarantee scheme for Covid affected sectors

Who will be benefitted?

The health sector with Fifty thousand crore cover receives for scaling up medical infrastructure. The main focus is on other than eight metropolitan cities. The health and medical infrastructure in all other areas, all other towns are now the priority. These covers will be provided to these tier 2 and tier 3. The coverage will be for projects which are totally new or expanded Scheme will provide up to 75% coverage for new projects and up to 50% coverage for expansions.

What is the amount and interest rate?

The loan will be of an amount of maximum of 100 crores. This guarantee will last for three years. The interest rate will be 7.95%. She also said,” If this is for the health sector and COVID relief, we are expanding this for other sectors also where sixty thousand crores will be dedicated for the cover. But the interest rate cap here will be 8.25%”.

Additional

She added that all other details will be provided in a short span of time. For other sectors, as we progress, we will evolve the needs depending on the needs which are coming out from the ground. She will consider the aspects and keep changing the description and coverage of schemes. There is another additional 1.5 lakh crore rupees scheme for emergency credit needs. It was launched last year under the Atma Nirbhar Bharat package.

The tourism and hospitality sector were demanding support from the government for since long. They complained that Covid has affected the travel sector worse. It has forced people to cut down the traveling. The Center offered the loan amount of up to 10 lakh rupees for travel agents and one lakh rupee to registered tourist guides.

For more such updates, keep watching this space!

Finance Financial Advice

Benefit of Fixed Deposits: Need cash? Go for Overdraft Against Fixed Deposit

There are times when we need instant money, we think of taking a loan. Or we think of breaking the fixed deposit to get instant money. But there is another option to go for overdraft against your fixed deposit. In this article, we will see how overdraft is way better than taking a loan. Let’s learn what is overdraft. How does it work? Who can apply? And, what are the documents required to apply?

What is an overdraft?

Overdraft is basically is an extension of money from the bank when your account reaches zero. The bank allows the customers to borrow some set amount of money. It can be useful to get rid of fees for bounced or returned payments. Some bank offers free overdraft facility also.

Also, let’s understand one more advantage of overdraft. Suppose you have a sum of one lakh rupee in your account and you need a sum of one and half lakh rupees to withdraw. Then your bank allows you to borrow this extended sum of money after some document verification process. Hence we can withdraw some extra amount without even taking any loan.

Who can provide the overdraft facility against fixed deposit?

Most of the banks and financial institutions avail of this facility of overdraft. The institution can be government, private, small financial institution, etc. There are only a few banks that do not avail of this facility.

There are two types of overdrafts facility available at almost every bank and other financial institution.

  • Secured – In secured accounts OD, the bank gives this facility against some collateral as a security in case you are not able to pay it later.
  • Non-secured – In non-secured OD, the OD is not given against any collateral. This is given by the verification of your account transactions. And it depends on the credibility.

Overdraft v/s Loan

Time Limit

The loan is a fixed amount that is bound to a fixed time period where an overdraft is variable is not even a time-bound facility. You can not pay your loan amount before the time period is decided. You additionally have to pay the penalty to pay it early. But in an overdraft facility, you can pay back the bank as soon as you have completed your financial tasks without any penalty on it. Isn’t it the big advantage to prefer an overdraft facility instead of taking a loan?

Interest to be paid

As we discussed above loan is a fixed tenure facility. Thereby we pay the interest for a certain amount of time and that too way greater than the interest we pay in an overdraft facility. As we know overdraft is for only the time period that we decide. As long as you are using the overdraft facility only for that time you need to pay the interest. The interest in OD facilities is comparatively less than the loan facilities. This lower interest rate thus helps you to save money and the money saved is the money earned.

Credit score

A personal loan for shortly can hit your credit score. In the case of the OD facility, it doesn’t affect your credit score at all. In fact, it helps you improve your credit score if you use it sensibly and pay it off regularly.

It is well-known that a Good Credit Score is a sign of good financial health. It enhances your chances for future loans and nowadays it also makes you eligible for some exclusive schemes. These schemes help in extra savings in your future purchases or provide a bigger limit on the purchase made using EMIs.

Moreover, a good credit score also improves your chances of availing of an overdraft from your bank. The banks are more willing to provide an overdraft facility to those customers who possess a good credit history on their documents.

When to close a Fixed Deposit!

When to close Fixed Deposit

During a cash emergency, A pre-mature closing can help you a lot. The best option is to not close the fixed deposit and earn interest on it. Besides you can take OD facility against it. But if you need to break the fixed deposit prematurely there are certain things you keep in mind. Premature withdrawal of an FD means to get the amount before the end of its maturity period. Bank levies a certain amount of charges on the withdrawal of premature fixed deposits. These charges are known as penalties. And these charges may vary from bank to bank. For example, HDFC bank and Bajaj finance apply penalty charges of 1% whereas SBI and ICICI bank keeps it to 0.5% to 1%.

PNB Housing finance levies charges of 4% on deposits up to 6 months and 1% for above six months.

There are two ways to execute the process of closing. You can either do it online or you can visit your bank branch to do it offline.

If a customer withdraws the FD before the maturity period, there is a loss of earning the benefits of FD interest rates like losing upon long-term savings. This can create a blow to your long-term financial goals.

fixed deposit

Recently, Axis bank has removed the penalty on Pre-mature withdrawal on all new retail terms deposits which are booked on or after December 15, 2020. This facility is applicable on the 2-year term deposits. It will be applicable if they are fully withdrawn within 15 days of the investment.

So, there is an overdraft option available to us in case of a sudden financial need. This overdraft is a better option than a personal loan or premature braking of a fixed deposit. However, the overdraft facility also incurs a cost with it in the form of interest to be paid. Hence, it is always better to plan your finances effectively and mitigate such scenarios where a sudden need for money may arise. Also, It is advisable to keep a small fraction of your savings in a readily available liquidity form. This can assist you in the time of an unexpected need for money and hence save you from any debt.

For more such updates, keep watching this space!

Budgeting Finance Financial Advice Personal Strategy

Personal Finance Calendar for Financial Year 2022

Financial Planning has become a major part of our life and it is almost necessary for long-term goal planning for the financial year 2022. However, managing finance also needs some research smart decision on the investor’s part. To ease your burden and help you make a better financial decision here is the calendar for the Financial year 2022.

Due to the second wave of the pandemic, we already lost 3 months of this financial year. But since the economy is now returning back to normalcy, we can hope to see some major financial trends this year.

June

The Central Board of Direct Taxes (CBDT) has extended the last date of filing Tax Deducted at Source (TDS) for the fourth quarter of FY 20-21. As per the official notice “The Statement of Deduction of Tax for the last quarter of the Financial Year 2020-21, required to be furnished on or before 31 st May 2021 under Rule 31A of the Rules, may be furnished on or before 30th June 2021”.

July

financial returns deadlines

While as per the initial instructions, the individual taxpayers were required to furnish their return of income for the Assessment Year 2021-22 by 31 July 2021. The last date for that has now been extended by the government. Thus, you can use this month to gauge your credit positions.

You can use this month to relax and can do some analysis on your past credit report. This way you can draw out a solid plan for yourself to build a better credit position.

credit score analysis

August

You have the whole month of august for you to plan for the upcoming tax deadlines in September. This is the month of Independence Day and many cultural programs are observed during the month. Enjoy the kite flying with your family on this Independence Day.

September

In September you can expect some serious work and should prepare yourself to face the challenges. The month is going to be enormous as there are deadlines for various tax filings. The last date of furnishing the 2nd advance tax FY21 is September 15. And hence you will need to pay all taxes before, in order to stick with the deadline.

Also, the deadline for the furnishing of the return of income for the Financial Year 2022 has been extended to September 30 from July 31, 2021. Even though the month of September is looking hectic already you can use the month of July and August to plan in advance.

October

Hey, the month of October is full of the festive season and all the sales and enthusiasm that comes with it. So, if you’ve been eyeing something that was a bit over your wallet, you can make those purchases now. You can make the most out of the festive discounts that will be up on offer in October. Save money buy smart during this discount season.

November

The winter has now begun in the country, the weather is beautiful for day-outs and a family picnic just sounds right. This Children’s Day, you could introduce your children to financial literacy by teaching them how to run a bank account.

The Audit assessors will have to file the income tax return before November 30. Earlier the date was October 31.

December

With the festive spirit of Christmas, the month of December in the calendar is here. The date for the 3rd advanced income tax installment to be furnished is December 15.

As you move to the new financial year 2022, take some time to look upon your finances for the year 2021. Try to come up with pointers for you to correct any financial behavior that you did not like. Do not forget to track your financial goals and position to see if you are moving in the desired direction.

January

As you move in the last leg of the calendar, keeping your tax investment proofs prepared is a good idea. These bills and coupons that you have collected during the year will help you to file for a tax refund.

Try to make 3 new year financial resolutions for the security of your future while keeping your long-term goals in mind. Also, try to come up with some short-term goals to ensure that you don’t stray from your financial goals.

February

Every year the new budget is released by the government in the month of February. This month is very important in terms of your financial plans for the new financial year. These policies will be affecting everything in the country including you. So a good analysis of the budget becomes crucial for you to figure out what will be affecting your finances and plan accordingly.

This Valentine’s Day, spend some quality time with your partner, and while a strict financial plan is good but a special day for your partner is not a bad idea. With all the loving memories move forward to execute your financial decisions collectively.

March

Spring is knocking on the door, it is time to say goodbye to your winter clothes and give a warm welcome to the upcoming warm weather. The march is here and the deadline for the 4th and final installment of advance taxes of the financial year 2022 is March 12. Pay the final installment of your advance tax and move forward with the tax planning for the next year.

For more such updates, keep watching this space!

Daily News Finance

RBI Paves way for Punjab & Maharashtra Co-operative(PMC) Bank’s revival

RBI is the bank for the banks. It operates the currency and credit system of the country. Banks need to maintain accounts with the reserve bank. RBI governor Shaktikant Das discussed Punjab and Maharashtra (PMC) Bank. He said that there are three investors so far who have proposed to help the bank reviving. Analysis of the proposal instills in the consideration process.

PMC Bank

RBI is the bank for the banks. It operates the currency and credit system of the country. Banks need to maintain accounts with the reserve bank. RBI governor Shaktikant Das discussed Punjab and Maharashtra (PMC) Bank. He said that there are three investors so far who have proposed to help the bank reviving. Analysis of the proposal instills in the consideration process.

PMC- A.K Dikshit

PMC Bank head AK Dikshit told last month only that three investors have given the time till 1st Feb 2021 to present the proposal. The investors will bring the capital to help the PMC Bank achieve at least minimum capital of 9%.
RBI told the media after the announcement of the financial scheme that he has been informed that the last three proposals are received. He was informed that the PMC Bank itself is working on the analysis of the proposal. And after the analysis RBI will arrange a meeting regarding this.

For more such updates, keep watching this space!

Daily News Finance

SBI To Consider Raising Additional Tier-1 capital

State Bank Of India(SBI), India’s largest lender is planning to raise additional tier 1 (AT-1) capital. The central board of SBI will meet next week on June 21, 2021, to consider raising AT-1 capital.

The bank is planning to raise additional tier-1 (AT-1) capital by way of issuance of Basel III compliant debt instruments in US dollar and/or Indian rupee through a public offer or private placement to overseas and/or Indian investors during FY22.

Tier -1 going concern Common Equity Tier-1 Sum of common shares (equivalent for non-joint stock companies’) and stock surplus, retained earnings, other comprehensive income, qualifying minority interest and regulatory CETI >4.5%
  Additional Tier-1 Sum of capital instruments meeting the criteria for AT1 and related surplus, additional qualifying minority inter. and regulatory adjustment AT1 >696
Tier-2 gone concern   Sum of capital instruments meeting the criteria for Tier 2 and related surplus, additional qualifying minority interest qualifying loan loss provisions and regulatory adjustments CETI + ATI + Tier 2 =8%

What is an Additional tier-1 capital bond?

AT-1 bonds are also known as perpetual bonds. They are unsecured bonds and carry no maturity date but have a call option. The issuer of such bonds may call or redeem the bonds if it is getting money at a cheaper rate, especially at a time when interest rates are falling.

Basel- III minimum capital requirements

Banks issue these high-risk, unsecured AT1 bonds, to shore up their core capital base to meet the Basel III norms. Banks can skip paying interest on these bonds if their capital ratios fall below certain threshold levels. Shares of SBI closed 0.83 percent down at Rs 425.95 apiece on BSE.

If a bank is swaying on the verge to fall, the Reserve Bank of India (RBI) can ask to cancel the bank’s outstanding AT1 bonds without consulting its investors.

For more such updates, keep watching this space!

Advices Business Education Finance Financial Advice

Secured Loan – What it is and When to take it?

Secured Loan

A loan against collateral or Secured loan is a type of loan where the borrower takes debt against collateral. In other words, the borrower pledges a valuable asset as a security to the financer. This type of loan is called a Secured loan because it provides security to the financer for their money.

loan

In most cases the borrower use secured loans to finance a commodity like a house, vehicle, etc., here the borrower pledges the purchased commodity as collateral. Alternatively, the borrower can take a loan by pledging their stocks, property, jewelry, fixed deposits, etc.

Why Secured Loan?

From Borrowers perspective Secured Loan offers greater flexibility, longer repayment tenure, and higher loan amount than an Unsecured Loan.
For lenders, it offers more security and lowers the risk of default by borrowers. In case the borrower fails to pay the loan, the lender can recover their money by selling the asset pledged.

Types of Secured Loan

  • Mortgage loan
  • Home loan
  • Vehicle loan
  • Secured Business Loan

Eligibility Criteria for a secured loan

  • Applicant must be an adult (above 18 years of age)
  • Some Financers expect you to have an annual income greater than a prescribed amount. Although the income can come from business, regular salary, or non-salaried resources.
  • Applicant must have an asset whose valuation matches or exceeds the loan

Pros and Cons of Secured Loan

Pros

  • Lower Interest Rate than an unsecured loan.
  • More Flexible repayment options.
  • Can offer Longer repayment tenure.
  • Faster Loan Approval
  • Loans are Customizable to cater to specific needs.
  • Can be availed by a non-salaried person.
  • Offers Higher Loan amount than an unsecured loan
  • A guarantor is not required
  • Can be availed even at a low CIBIL score. Moreover, it improves the CIBIL score when the loan is fully paid.
  • Lenders have more confidence and security for their money.

Cons

  • Seizing of collateral in case of default in repayment of the loan.
  • The money borrowed can only be used for a specific function as per the loan agreement.
  • It involves Heavy Paper Work more complex than an unsecured loan.
  • It expects that the applicant has full ownership of the collateral pledged.
  • Longer repayment tenure also means a greater total amount in repayments
  • Even after the bank seizes the collateral, any income you generate will go straight to the bank. More often than not, applicants keep paying only the interest and fines whereas the principal amount remains the same.
  • Default on the repayment can heavily reduce your CIBIL Score.

Even with many advantages of a secured loan. It is always wise to plan your finances because defaulting on a secured loan is very brutal for your financial health.

How to compare Secured Loan?

compare loan

Before making any purchase, a good rule of thumb is to compare what other options are available in the market. A secured loan is no exception to this rule, and hence it is important to compare every proposed offer against your assets. While making a comparison among secured loan look for the following factors:

  • The type of collateral required to secure the loan.
  • Minimum and Maximum loan amount.
  • The interest rate for the loan
  • Any additional fees charged by the lender, such as processing fees, prepayment penalties, etc.
  • Credit Score and Income requirement of the loan.
  • Proper analysis of the loan agreement and whether or not it suits your financial aspirations.

Secure or Unsecured, taking a loan is no joke and has many risks involved, so before taking any type of debt you must ask a few questions to yourself.

  • Do I really need this debt, and what other options are available to me.
  • How this debt will affect my life in the best and the worst-case scenario.
  • How much loan I can afford and how little do I really need.

 

For more such updates, keep watching this space!

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