Is a home saver loan an option for existing borrowers? (Yahoo Finance 10 Dec 2012)

Victor has taken a home loan of around 25 lakhs. He is regularly paying the EMI. Despite interest rate increases and rising inflation, Victor never defaulted. His savings reduced drastically because of increase in EMI. On top of that he had paid off a lump sum amount of Rs.5L as part of his prepayment to help him ease off the strain on his monthly budget with the consecutive hikes that happened the previous year. However, it was all going well till Victor had to spend 3 lakhs for an emergency. He had to run from pillar to post, ask friends & families, and talk to banks. Finally he was able to arrange for funds but it was a very stressful time for him!

This is not a very uncommon situation. Many of the borrowers can easily identify with such situations where pre-payment of loan puts extra burden on them because it took all their savings leaving them exposed to any emergency situation. Pre-payment of your home loan is a double edged sword. It reduces the future obligation but incurs opportunity cost and more risk in case of emergency situations.

Home Saver Loans

What if there is option where loan borrowers can pay more (just like in case of pre-payment) when they have surplus fund and withdraw from the same fund when they face emergency situations like what Victor faced. What if there is an option where loan borrowers are saved from further ignominy of running pillar to post to arrange emergency expenses.

Home saver loan is one such option that not only allows home loan borrowers to pay more from their surplus money but also lets them withdraw from the same pool if they need it in emergency cases.

How it works

The concept, though simple, is very powerful. The idea is to make use of your deposit in current or savings account to offset some part of the principal. Once a part of the principal is offset, your interest obligation comes down. Let's understand this with the same example.

Suppose Victor, instead of paying 5 lakhs as prepayment, would have deposited 5 lakhs in his current or savings account which was linked to his home saver account and left it. His interest obligation would have been calculated not on the loan outstanding but on the loan outstanding minus 5 lakhs. What's more? Victor can withdraw this money or a part of it whenever he wants it. Let's see how this works by an example.

Example of savings using Home Savers option	Case 1	Case 2
Amount outstanding	2,000,000.00	2,000,000.00
Interest rate charged	8%	8%
EMI	16,728.00	16,728.00
Deposit in current account linked to home savers account	-	500,000.00
Interest to be calculated on	2,000,000.00	1,500,000.00
Interest obligation	13,333.33	10,000.00
Principal paid	3,394.67	6,728.00
Remaining principal to be paid	1,996,605.33	1,993,272.00

It can be clearly seen that the borrower has saved more than Rs 3,000 in the first month itself. This saving can be humongous if you consider the fact that you have to pay the EMI for next several years.

What if you do not have Rs 5 lakhs in your current/savings account? In that case, even when you deposit a recurring amount in your account, this deposit will be subtracted from principal outstanding to calculate the EMI. The savings would be less in initial months but will compound in the later part of the tenure.

Home savers accounts will not only help borrowers save on payment but will also reduce the tenure of EMI as principal will reduce with every passing month.

Caution points

This is certainly a good innovative loan product but it has its own pitfalls. First, keeping money in saving or current account is not profitable. Investors would rather start SIP in mutual funds, which can give better returns. While liquidity is an issue in case of mutual funds relative to savings or current account, this is manageable as redemption of mutual funds can happen in few days.

Second, home saver loan are given at a higher rate than normal home loan. Banks typically charge anywhere between 0.5% to 1% higher rates than normal home loan. For example, for loan amount up to 25 lakhs, IDBI charges 10.5% floating rate of interest on normal home loan while the same is 11.5% on home saver home loan. Despite the higher rate, the overall savings is tremendous.

Finally, this option is relatively better only when you have enough money to park in the linked account. Moreover, home saver loan is not offered by all the banks as of now. Few banks that offer are Citibank, standard chartered, IDBI, HSBC, ICICI, and SBI. The rates vary with banks. Borrowers should also look at the criteria for eligibility as this is different from normal home loan where banks have similar criteria. Hence, if you do not get home saver loan from one bank, you should try in another.

Exotic investment options for HNIs (Business Standard 3rd Dec 2012)

NEHA PANDEY DEORAS & TANIA KISHORE JALEEL For three years, the going has been tough for stock market investors. While gold has provided some solace by giving over 20 per cent returns during the period, it is not wise to put all eggs in the same basket. It is little wonder that investors, especially high net worth ones, are seeking alternative investments. An alternative asset class is something beyond the traditional ones ( stocks and bonds) and includes structured products such as private equity ( PE), investing in unlisted firms and start- ups, and real estate funds. Alternative investments got a bad name in the 2008- 09 crisis, when a number of exotic products such as derivative combinations were hit badly. Even art funds were hit badly. Experts recall that until the late 1990s, the Indian art market was not that big. By 2008, the market had grown 500 per cent. Art started to figure prominently in portfolios and valuations skyrocketed. Then came the economic crisis and wiped everything out. “Investors in art had presumed it would appreciate by up to 25 per cent yearly. And, art works could shield against the decline in stock markets. But none of that happened,” says a fund manager. Growing affluence in India helped individuals easily afford ticket- sizes of between ₹ 20 lakh and 25 lakh. But things are changing. In May, stock market regulator Securities and Exchange Board of India ( Sebi) notified the Alternative Investment Funds (AIF) Regulations, 2012. According to this, the minimum ticket size for investment should be ₹ 1 crore. Therefore, the first thing to understand is that alternative asset classes are not meant for a retail investor. Rajesh Saluja, CEO and managing partner at ASK Wealth Advisors, says, “ At the moment, the most popular alternative assets are real estate and PE funds. They form around 80 per cent of the alternative asset class portfolios. Structured products are also common.” Real estate funds: A number of builders raise money through this route. Some big ones take the direct route by talking to HNIs themselves. Other approach investment banks, wealth managers and private equity players to raise the money. Typically, the fund manager approaches an HNI and asks you to invest in such schemes. Returns can be as high as over 20 per cent. Investments are made in tranches, if it is for a upcoming project. Realty funds’ portfolio takes two to three years to appreciate. Realty funds typically have investment tenures of five to eight years. Some funds are meant for last- stage funding. The tenure of such funds is shorter than that of the development- based funds. Rentalbased funds have a shorter tenure. The issue here is that these funds may not always disclose their valuations and returns they generate, making it difficult to take informed decisions. The returns from realty funds depend on the performance of the broader real estate market. After the AIF guidelines increased the ticket size, angel investing route (many investors putting money together) is being taken to invest. Private equity: For real estate and PE, fund managers will charge you around two per cent as management fees a year. And, then, a performance share, too. This means that once a certain hurdle is crossed ( it is mostly 9- 10 per cent returns), the investor will have to give the fund manager 20 per cent of the profits made. PE funds typically return 20- 25 per cent annually, says Saluja of ASK Wealth Advisors. PE investors put money in companies that are not publicly traded or invested as part of buyouts, hedge funds or new ventures. These companies add value to organisations with the objective of making these profitable. They deal in real estate, nano technology, renewable energy and biotech, among others. It comes with its own set of risks. Therefore, you should not look at over 10 per cent of your portfolio. PE requires an investment horizon of fiveseven years. You may not get your money back. Only if you have Rs 100 crore, can you afford to invest Rs 1 crore. PE experts consider those with less than ₹ 1 crore investible money as retail investors. However, these funds could be a good portfolio diversifier. Unlisted firms: This is yet another kind of PE investment, where you put money or buy stake in unlisted firms, largely start- ups. This is done in two ways – individually and in groups. Investors can pocket 15- 20 per cent on an average and investment horizon is advised to be a minimum of five years. Rohit Bhuta, CEO of Religare Macquarie Private Wealth, says, “ Many clients are looking at investing in startups. They are looking at picking up 510 per cent through PE players. A lot of investors invest through the angel investing route. The companies invested into are those that are looking to raise $ 5- 10 million.” Structured products: A structured product, also known as a market- linked product, is a pre- packaged investment based on derivatives such as a single security, an index, debt issuances, or even foreign currencies. Most structured products in India come with ‘principal protection’ function as the key, which means that the investor gets back his principal. For example, suppose you invest ₹ 100 for 40 months in a Nifty- linked capital protection structure. Of this, ₹ 80 is invested in debt securities, yielding areturn of six- seven per cent per annum. Thus, over a period of 40 months, you could get ₹ 20 as interest on these debt securities. This ensures that your capital of ₹ 100 is protected. The interest of ₹ 20 is invested in the Nifty. If the Nifty doubles in 40 months, ₹ 20 will become ₹ 40, thus the value of your ₹ 100 will be ₹ 140 at the end of the period, giving you an absolute return of 40 per cent. On the other hand, if the Nifty were to fall by, say, 50 per cent, then the ₹ 20 invested would become ₹ 10, thereby giving you back ₹ 110. This strategy ensures that at any given time, your capital is protected and you will get ₹ 100 back at the end of 40 months. There are many equity and equitydebt structured products on offer currently. Structured products are issued in the form of non convertible debentures (NCDs), whose returns are linked to an underlying stock index such as the Nifty or a basket of stocks. NCDs are better suited for retail investors. Sophisticated structured products, depending upon the market conditions, can be specially created for a set of clients and privately placed. The ticket size generally is ₹ 10 lakh upwards. Art film funds: “ About five years ago, people did look at art or films funds as an alternative investment option. But it turned out to be too exotic for most. Not many are looking at these as investment options now,” says Bhuta of Religare Macquarie Private Wealth. Experts say that since art prices do not depend on other components of a portfolio, art investment acts like a shock absorber when other asset classes are not doing well. An art work, it is said, does not depreciate in value and hence is called aless risky investment. But, not everyone can invest in it. Art prices largely depend on public tastes, making them a fairly speculative investment. Also, art cannot be resold quickly for a profit. Moreover, it needs high level of maintenance, storage, security, and it doesn’t give dividends, bonuses or income. Similarly, there are funds investing in films. Or you invest individually or by way of crowd funding, like in the critically acclaimed “ I Am”. But, this is still in its nascent stage. Wine: Fine wine is a popular means of investment. Wine for investment is typically obtained from a reputable wine broker as wine houses do not generally sell directly to the public. Wine is not affected by the stock market, company bankruptcies or fraudulent activities. Wine investment provides exemption from capital gains tax, value added tax, and import and export duties. The quality of fine wine improves with time, hence its value increases. However, the wine market is difficult to understand and analyse. Wine value is not always price- based, but on demand. Storing and preserving wines comes at a sizeable expense. As there are no Indian wines, wineries or wine funds one can invest in, one needs to look at international wine funds. More underlying assets might come into the Indian market such as co- investing in coal mines or dairy farms. Alternative investments are catching up, though they need high risk appetite

FD Rates (ET Wealth 3rd Dec 12)

Documents to check before buying a house (ET Wealth 3rd Dec 12)

If you do not conduct due diligence, you could end up losing the property and face a financial disaster.

SAKINA BABWANI 

Buying your own home may be a cherished dream, but it doesn’t take much for it to turn into a nightmare. 

Given that real estate is among our most expensive purchases, landing a lemon can prove to be a financial disaster. The only way to avoid such a situation is to take time out to conduct due diligence before finalising any property deal. Of course, a reliable shortcut is to buy into a project that is backed by financial intermediaries like banks. “Seldom would they hand out loans to projects where due diligence throws up pending mandatory clearances,” explains Shveta Jain, executive director, residential services, Cushman & Wakefield, India. 
You can also engage a lawyer to carry out due diligence, but as a smart buyer, it’s best to pore through the documents yourself. Here is a checklist of documents that you should peruse before signing on the dotted line. 
Projects under construction The first thing one should do in the case of projects that are still under construction is to make sure that the builder has all the necessary approvals in place, without which it would be considered illegal. “We have often come across cases where projects have been stalled midway due to lack of proper approvals. Even finished projects have been razed for the same reason. Hence, I would never advise to go for a booking unless you have taken a close look at the key documents,” says Ramesh Vaidyanathan, partner, Advaya Legal, a Mumbai-based commercial law firm. 
The first of these is the permission to develop land into a residential complex. Builders need to get government approval to convert agricultural land or even land specially designated for industrial purposes into a residential area. If the builder has gone ahead without securing this approval, the entire project is illegal. In addition, there are environmental and municipal clearances to factor in. For instance, the builder has to ensure that his project does not interfere with the urban and town planning, and that it has unrestricted road access. 
Next, you need to find out if the builder has the authority to transfer the undivided share of land to each flat owner and the entire plot to the society, on completion of the project. A Knight Frank research report on ‘Parameters for Buying a Home’ mentions that you should also ensure the builder does not reserve any right on your portion of the apartment, such as balconies or terraces. 
Lastly, never forget that there’s many a slip between the blueprint and the final product. The developers tend to charge a premium for additional features, such as a swimming pool or designer furniture. However, unless you ask the builder to incorporate all the promised features in the agreement and make provisions for penalty in case of non-fulfilment, you stand on shaky ground. Any sample flat that was shown to you would be demolished long before you obtain the possession of your house, leaving you with little evidence if you decide to drag the developer to court. Also, watch out for the fine print: builders may slip in a clause in the agreement, stating that they reserve the right to alter any of the promised features. To be safe, take a look at the approved construction plans and ensure if they match what has been promised to you. Ask the builder to show you the requisite permits from the concerned authorities. While the approved construction plans have to be mandatorily displayed at the construction site at all times, all the important approvals should be available at the builder’s office. Under the Transfer of Property Act and Maharashtra Ownership Flats Act, a seller is required to disclose all facts relating to the property, which includes the various permissions secured by him. In case a builder refuses to do so, a prospective buyer has recourse under the same Acts. “However, if any of these documents is missing or the builder refuses to show them to you, it is best to stay away from the project,” warns Vaidyanathan. In addition to these documents, you should also take a look at the Commencement Certificate for projects in Mumbai. As the name suggests, this certificate is given to the builder to begin construction only after he has obtained all the requisite clearances. 

Independent home owner “As a primary rule, check and verify if the seller owns the property and has a right to dispose it of,” says Jain. In case he is a joint owner, he cannot sell the property without the consent of the other owner(s). 
One way to be sure of ownership is to go through the house agreement. If you are purchasing a flat in a housing society, ask for the original share certificates. To double check, you can peruse the telephone and electricity bills as they are always issued in the name of the legal owner. Alternatively, you can check the housing society maintenance bill, which contains the owner’s name and property tax details. This will also highlight any pending charges that are due for the flat you want to buy. This is crucial because if the owner sells a flat without paying his dues, the society mayrecover it from the new owner. To avoid such hassles, ask the society to issue a no-due certificate as well as a no-objection certificate. Though this is not mandatory, you should insist on it, advises Vaidyanathan. 
Any pending litigation on the property should also be a signal to hightail it. This is because you are bound by the result of the suit, and if the court establishes that the seller was not the rightful owner, you will have to hand over the property to the winning litigant. To check for pending litigation, go through the lis pendens registry at the sub-registrar’s office, as it will contain the owner’s name if there is pending suit. 
Mortgaged properties are the other lemons you need to watch out for. In such cases, the original documents are sure to be with the lending institution. So, if the seller fails to show you the originals, it’s reason enough to be on an alert. If the seller claims he has cleared all debts, ask him to show you the bank’s original discharge letter. 
Some experts are of the view that a clear title is not assurance enough and one should consider contacting past owners to rule out fraud. As a safety measure, publish an advertisement in the newspaper stating that you wish to buy the property and inviting objections. 

After the deal... 1 After the agreement is drawn, have it whetted by a lawyer to spot loopholes. 
2 Do not delay registration of the sale deed after signing it. 
3 Ask for the issuance of share certificates after a society is formed. 
4 If you are paying an advance without getting possession, document it in the form of an agreement or a memorandum of understanding. 
5 Contact a tax consultant to explain your tax liabilities to you.

Check Your Cheque Status, only Those in New Format will be Honoured from Jan 1

Preeti Kulkarni describes the features of new cheques and explains what you need to do before the year ends

Add one more item — get a new cheque book — to your list of ‘things to do’ before the New Year. You may not be able to use your old cheques from next year with the implementation of the new Cheque Truncation System (CTS-2010), which will eliminate physical movement of cheques for clearing. Instead, only their electronic images, along with key information, will be captured and transmitted. It will make the clearing process more efficient, secure and quicker; but for that, you must switch to new cheques with prescribed standard features before December 31. 
“Customers need not worry about the impending CTS implementation. I am sure they will not be inconvenienced due to the migration process. Some transitory period, from January 1 to March 31, could be given during which both types of cheques will be accepted. Banks are sending messages to customers now so that they comprehend the urgency and act upon it,” says AC Mahajan, chairman, Banking Codes and Standards Board of India (BCSBI).

CHECK YOUR CHEQUE’S STATUS If you have ordered your cheque books recently, say, a month ago, you may already have the new cheque leaves with you. Since most banks have already migrated to the new system, chances are that your bank would have sent you CTScompliant cheque leaves. However, if you have received the cheque book more than two or three months ago, you need to run a status check. For instance, the compliant ones will have the new rupee symbol (. ) inscribed near the numerical ‘amount’ field. 
“Visibly, there will only be the following difference: “Please sign above” is mentioned on the cheque leaf on right had side bottom; and, void pantograph (wave-like design) is embossed on 
left hand side of the CTS cheque leaf,” explains Anindya Mitra, senior vice-president, retail liabilities group, HDFC Bank. 

GET YOUR OLD CHEQUE BOOKS REPLACED If you haven’t received the new form of cheque books already, speak to your bank as early as you can. “Banks could adopt two methods to replace the old cheques. One is to send new cheque books by registered post and ask users to cancel the old ones. Customers may be asked to show proof of the same to the bank. They may also ask customers to surrender the older ones. Or, the customers can visit the bank branch themselves to surrender the old cheques and receive the CTS-compliant ones,” says Mahajan. Banks will not charge any fee for replacing the old cheque leaves. 

ISSUE NEW POST-DATED CHEQUES FOR EMIS If you have issued post-dated cheques (PDCs) for your home or auto loan EMIs, you will have to issue fresh cheques. “RBI’s guidelines to NBFCs state that if they have accepted post-dated cheques from their customers for future EMI payments, they should get them replaced with CTS-2010 standard compliant cheques before December 31, 2012. This will be applicable to banks as well,” explains VN Kulkarni, chief credit counsellor with the Bank of India-backed Abhay Credit Counselling Centre. “Most of our customers have opted for the ECS (electronic clearing system) mode for their EMI payments. So, the new system will not impact them. Only a small percentage of borrowers pay their EMIs through post-dated cheques. We are asking them to give us new cheques and accept their older cheques back,” says Abhijeet Bose, head, retail assets and strategic alliances, Development Credit Bank. Not all banks will return your older cheques, though. You needn’t be concerned about it as these cheques will be non-compliant with CTS standards and hence not be valid. To avoid these hassles, you can simply switch to the ECS mode, where the EMI amount is debited from your account every month. It will also save you the trouble of altering the amount on PDCs in case of any change in EMIs. 

ENCASH ANY OLD CHEQUES NOW This tip is mainly for procrastinators. For instance, if you have received a cheque on December 1 that does not conform to CTS 2010, you should not delay its encashment. 
“As per RBI mandate, the same (old format cheques) are to be accepted till December 31, 2012. RBI instructions on whether the same will be permitted after December 31 are awaited,” says Mitra. It is better to present it for payment immediately rather than risking its dishonour after December 31. 

EXERCISE CAUTION WHILE WRITING CTS CHEQUES You have to be careful while writing the new cheques. For instance, cheques with alterations in crucial fields like payee’s name and amount in figures or words will not be processed under the new system. 
“In case of any corrections, a new cheque will have to be issued. The ones with alterations will not be accepted even if the drawer puts his full signature authenticating the changes. 
Such cheques will be returned,” adds Kulkarni. “Also, it is important to use image-friendlycoloured-inks while writing the cheques.” As per RBI guidelines, you should use dark-coloured inks for the purpose.