Skip to main content

How make use of debt management to build assets?

Judicious debt management not only reduces your burden but also helps you build assets

 

APERSONAL loan may rescue you in an hour of need, but are you aware there exist not only better options but also more secured ones to get money quickly. Financial planners profess a personal loan should be the last item on your menu when shopping for money even if your requirement is immediate. Personal loans and loan on credit cards are responsible for today millions of people under debt trap. Yet these people never realised they had a choice beyond even borrowing from friends and relatives, which was on decent terms and conditions. With the credit history of the borrowers being increasingly considered for any future loans, a lot of your plans for today and tomorrow depend on how respectfully you manage your debt. Judicious debt management helps not only reduce the burden but also grows assets. It is the most practical way to evade debt in the financial ecosystem. Here's a ready reckoner on better alternatives to a personal loan.

Loan against gold

It's the easiest and quickest mode of arranging funds in case of an urgent requirement. Also known as loan against jewelry, the money can be even secured in one working day–as long as you have proper identity and residence proof. Some of the specialist lenders in this space such as Mannapuram and Muthoot even disburse it in an hour or two. The interest rate is typically calculated on the basis of how much margin of safety you are willing to leave for the lender. In short, the more jewelry you pledge for the loan amount, lower will be your interest rate. The interest rate generally varies between 10% and 17%.


   However, what makes it score over other means is it's available irrespective of your credit history. Then, it's available at reasonable rates of interest especially if the amount borrowed does not exceed 50-60% of the market value of the jewelry. The process is fairly streamlined with the jewelry assessor sitting in the lenders' branch or available very near the branch where it is valued and then your jewelry is sealed in a pouch in your presence.


   "Besides, repayment can be structured as just interest amount, with principal repaid at the end of the period in one lump sum. This means regular payments can be smaller than what an EMI would be for the same period," says Harsh Roongta, CEO of Apnapaisa.com, a price comparison website for loans, insurance and investments. Thus, if you apply an interest only loan of 2 lakh for two years at 12%, your monthly payment will be 2,000 for two years but you will need to repay the loan with a lump sum payment of 2 lakh at the end of two years. Whereas the EMI for a two-year loan at the same interest rate would be around 9,400. That's simply because you are repaying the whole loan amount at the end of 24 installments.


   Moreover, if you can wait for a day or two, experts say you should look at private and public sector banks, which offer these loans at a more reasonable rate of interest. The only drawback with these loans is since jewelry is an item of personal use, its emotional value is far higher than its market value. If for any reason you are unable to payback the loan the lender can sell your jewelry in the market to recover its dues after which you can get back your jewelry back.

Loan against movable property

This is the other option that is reasonably quick. The loan is available against moveable securities such as listed shares, units of mutual funds, bonds, National Savings Certificates (NSCs), or against surrender value of your life insurance policy. These securities are fairly priced at 8%-15% but creation of securities usually takes a little time.


   The best thing about all these loans are that you can use securities belonging to third parties–say your parents, siblings or friends–as long as they are willing to become co-borrowers for the loan. Again, these loans are available irrespective of your credit history. In the case of listed shares or mutual fund units or unit-linked policies, each bank has its own list of approved shares or schemes and if your shares or scheme is not within that, then the loan may not be possible.


   Traditional policies with the Life Insurance Corporation (LIC) are the best bet. You can secure a loan from the LIC itself. Loan against policies, with 90% of surrender value, in fact, is available in days at an interest rate of as low as 8%.


   Usually, loans against endowment type policies are mostly preferred. Loans are not given against pure-risk term policies. And even are less preferred against Ulips. In these loans, you can repay the loan with interest or continue paying the interest and allow the loan to be deducted at the time of the claim or maturity payments. The process is simple and speedy. With this form of loans, the best part is interest is charged only on utilised amount. Even you can avail a term loan facility available against select securities.


   In the case of a NSC, you can take a loan by pledging it to the central bank or a scheduled bank or a co-operative society. For loans against NSC or KVP, banks usually charge 3.5% over the base rate or .5 % over NSC or KVP rate, whichever is higher. All options are good though if you take it from a scheduled bank with which you already enjoy a good business relationship, you can negotiate on certain charges. Loans are always easier to manage if they are linked to one's savings bank account.

Other options

Nowadays, employers offer loan to their employees as part of their employee welfare programs. Majority of the big corporate houses and MNCs extend this facility. Some companies even offer interest-free loans, though the amount of loan is typically small in such cases. You can either apply for an advance salary or a loan, which will be charged at a nominal interest rate.


   Another safe option is to use your fixed deposit by taking an overdraft against it. You can avail up to 80-85% of the deposit amount. The interest rate is charged 1-2% higher than the prevailing deposit rate. But there's a rider, your repayment would have be made in this case within the time period for which you own the fixed deposit.

 

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now